What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-05-21 · 1312 added, 1015 removed, 471 unchanged (83% of the section changed)

Financial Statements

CONSOLIDATED BALANCE SHEETS

thousands, except share and per share data)

AGRIFY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

Current assets:

1 unchanged sentence

Marketable securities

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

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

Loan receivable, current

Accounts receivable, net of allowance for credit losses of $ 2,563 and $ 1,887 at June 30, 2024 and December 31, 2023, respectively

Inventory, net of reserves of $ 16,507 and $ 17,599 at June 30, 2024 and December 31, 2023, respectively

Loans receivable, current

Prepaid expenses and other current assets

Total current assets

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

Loans receivable, net of allowance for credit losses of $ 18,885 and $ 19,215 at June 30, 2024 and December 31, 2023, respectively, net of current

Property and equipment, net

1 unchanged sentence

Other non-current assets

Liabilities and Stockholders’ Deficit

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

2 unchanged sentences

Operating lease liabilities, current

Notes payable, current

Long-term debt, current

Related party debt, current

Deferred revenue

Contract liabilities

Total current liabilities

1 unchanged sentence

Operating lease liabilities, net of current

Notes payable, net of current

Related party debt, net of current

2 unchanged sentences

Commitments and contingencies (Note 14)

Stockholders’ deficit:

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

Stockholders’ equity (deficit):

Common Stock, $ 0.001 par value per share, 35,000,000 and 10,000,000 shares authorized at June 30, 2024 and December 31, 2023, respectively, 14,230,004 and 1,701,243 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively (1)

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

2 unchanged sentences

Accumulated deficit

Total stockholders’ deficit attributable to Agrify

Total stockholders’ equity (deficit) attributable to Agrify

Non-controlling interests

Total liabilities and stockholders’ deficit

presented have been adjusted to reflect the 1-for-20 reverse stock split on July 5, 2023.

Additional information regarding the reverse

stock splits may be found in Note 1 – Overview, Basis of Presentation, and Significant

Accounting Policies , included in the notes to the consolidated financial statements

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

CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except share and per share data)

Three months ended March 31,

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

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

reverse stock split on July 5, 2023.

Additional information regarding the reverse stock splits may be found in Note

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

in the notes to the consolidated financial statements

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

Three months ended June 30,

Six months ended June 30,

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

3 unchanged sentences

Research and development

Gain on settlement of contingent liabilities

Gain on early termination of lease

(Gain) loss on disposal of property and equipment

Change in contingent consideration

Total operating expenses

Loss from operations

Interest expense, net

Operating (loss) income

Interest income (expense), net

Change in fair value of warrant liabilities

Loss on extinguishment of long-term debt, net

Other income, net

Total other income (expense), net

Net loss before income taxes

Income tax benefit (expense)

Net loss attributable to Agrify Corporation

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

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

presented have been adjusted to reflect the 1-for-20 reverse stock split on July 5, 2023.

Additional information regarding reverse stock

splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting

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

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Other income (expense), net

Total other expense, net

Net (loss) income

Loss attributable to non-controlling interest

Net (loss) income attributable to Agrify Corporation

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

Net (loss) income per share

attributable to Common Stockholders – diluted (1)

Weighted average common shares outstanding - basic

Weighted average common shares outstanding - diluted

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

reverse stock split on July 5, 2023.

Additional information regarding reverse stock splits may be found in Note

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

elsewhere in the notes to the consolidated financial statements.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (DEFICIT)

(In thousands)

Stockholders’

1 unchanged sentence

Stockholders’

Balance at January

at January 1, 2023

$ ( 247,148 )

Stock-based compensation

Issuance of Common Stock through

an “at the market” offering, net of fees

Issuance of Common Stock to Pure

Vesting of restricted stock units

Proceeds from Employee Stock Purchase

Balance March

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

of Common Stock to Pure Pressure

of restricted stock units

from Employee Stock Purchase Plan Shares

March 31, 2023

of held-back shares to Lab Society

of prefunded warrants in private placement

of Exchange Note

of Convertible Note

June 30, 2023

$ ( 264,282 )

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Stockholders’

1 unchanged sentence

Stockholders’

January 1, 2024

at January 1, 2024

$ ( 265,797 )

Stock-based compensation

Issuance of Common Stock

and prefunded warrants through public offering

Issuance of held-back shares

from Sinclair acquisition

Cashless exercise of High

Trail Warrants

Exercise of Prefunded Warrants issued through

public offering

Conversion of Convertible

Contribution from troubled

debt restructuring with related party

Stock split share adjustment

of Common Stock and prefunded warrants through public offering

of held-back shares from Sinclair acquisition

exercise of High Trail Warrants

of Prefunded Warrants issued through public offering

of Convertible Note

from troubled debt restructuring with related party

split share adjustment

March 31, 2024

of Prefunded Warrants issued through public offering

of related party debt into prefunded warrants

of equity classified prefunded warrants

of vested RSUs, net of shares held back to offset tax

June 30, 2024

$ ( 264,533 )

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the six months ended

Cash flows from operating activities:

Net loss attributable to Agrify Corporation

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

Net income (loss) attributable to Agrify Corporation

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

Depreciation and amortization

Amortization of debt (premium) discount

Amortization of debt discount

Amortization of issuance costs

3 unchanged sentences

Loss on extinguishment of long-term debt, net

Provision for credit losses

Recovery of provision for credit losses

Recovery of provision for slow-moving inventory

Loss on disposal of property and equipment

Gain on supply agreement

Gain on revaluation of contingent liability

Change in provision for credit losses, net

Change in inventory reserves

(Gain) loss on disposal of property and equipment

Gain on early termination of lease

Gain on settlement of contingent liabilities

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

Loss attributable to non-controlling interests

Changes in operating assets and liabilities, net of acquisitions:

5 unchanged sentences

Operating lease liabilities

Deferred revenue

Contract liabilities

Net cash and cash equivalents used in operating activities

1 unchanged sentence

Purchases of property and equipment

Proceeds from disposal of property and equipment

Proceeds from sale of marketable securities

Proceeds from repayment of loan receivable

Issuance of loans receivable

Proceeds from repayment of loans receivable

Net cash and cash equivalents provided by investing activities

10 unchanged sentences

Payments of financing leases

Net cash and cash equivalents provided

by (used in) financing activities

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

Net decrease in cash and cash equivalents

6 unchanged sentences

Financing of prepaid insurance

Trade payables refinanced into consolidated notes payable

Transfer of loans receivable from noncurrent to current

Transfer of property and equipment to inventory

Reclassification of liability classified prefunded warrants to equity

Conversion of related party debt into warrants

Accrued interest consolidated into related party debt

1 unchanged sentence

Consolidation of related party debt principal

Conversion of convertible notes

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 — Overview, Basis of Presentation and Significant Accounting Policies

Corporation (“Agrify” or the “Company”) is a provider of innovative cultivation and extraction solutions

for the cannabis industry, bringing data, science, and technology to the forefront of the market.

The Company’s proprietary micro-environment-controlled

Agrify Vertical Farming Units (or “VFUs”) enable cultivators to produce the highest quality products with what we believe

to be unmatched consistency, yield, and return investment at scale.

The Company’s comprehensive extraction product line, which

includes hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowers producers to maximize the quantity and quality

of extract required for premium concentrates.

Company was formed in the State of Nevada on June 6, 2016 as Agrinamics, Inc., and subsequently changed its name to Agrify Corporation.

The Company is sometimes referred to herein by the words “we,” “us,” “our,” and similar terminology.

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

has ownership interests in certain companies.

Deficiency Notice

The Nasdaq Notice

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

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

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

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

the “Delinquent Reports”) in a timely manner.

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

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

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

reported stockholders’ deficit of $( 17.17 ) million in its Form 10-Q for the quarter ended March 31, 2023, the Company was no longer

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

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

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

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

The hearing was held on

January 11, 2024.

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

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

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

April 15, 2024 to evidence compliance with the Listing Rule, which was subsequently extended to May 15, 2024.

Accordingly, there can

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

Capital Market.

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

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

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

March 5, 2024, the Company received a deficiency letter from the Staff of Nasdaq notifying the Company that, for the last 30 consecutive

business days, the bid price for the Company’s common stock had closed below $ 1.00 per share, which is the minimum closing price

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

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

In accordance with Nasdaq Listing Rule

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

The compliance period for the

Company will expire on September 3, 2024.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of Presentation and Principles of Consolidation

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

In the opinion of management,

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

consolidated financial statements have been included.

The results reported in the condensed consolidated financial statements for any

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

The accompanying condensed consolidated

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

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

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

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance

Conversion of convertible notes into equity

Non-cash amounts of lease liabilities arising from obtaining right-of-use assets

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Note 1 — Overview, Basis of Presentation

and Significant Accounting Policies

Description of Business

Agrify Corporation (“Agrify”

or the “Company”) is a provider of innovative cultivation and extraction solutions for the cannabis industry, bringing data,

science, and technology to the forefront of the market.

The Company’s proprietary micro-environment-controlled Agrify Vertical Farming

Units (or “VFUs”) enable cultivators to produce the highest quality products with what we believe to be unmatched consistency,

yield, and return investment at scale.

The Company’s comprehensive extraction product line, which includes hydrocarbon, alcohol,

solventless, post-processing, and lab equipment, empowers producers to maximize the quantity and quality of extract required for premium

concentrates.

The Company was formed in

the State of Nevada on June 6, 2016 as Agrinamics, Inc., and subsequently changed its name to Agrify Corporation.

The Company is sometimes

referred to herein by the words “we,” “us,” “our,” and similar terminology.

The Company has nine wholly-owned

subsidiaries, which are collectively referred to as the “Subsidiaries” and the Company also has ownership interests in certain

Nasdaq Deficiency Notice

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

On October 17, 2023, the

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

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

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

Reports”) in a timely manner.

On November 16, 2023, the

Company received a notice from Nasdaq that the Company remains noncompliant with the Listing Rule as a result of its failure to file its

Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 with the SEC by the required filing date.

On December 1, 2023, the Company

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

deficit of $( 17.17 ) million in its Form 10-Q for the quarter ended March 31, 2023, the Company was no longer in compliance with Nasdaq

Listing Rule 5550(b)(1) (the “Primary Equity Listing Rule”), which requires that listed companies maintain a minimum of $ 2.5

million in stockholders’ equity.

In response, the Company timely requested a hearing before a Nasdaq Hearings Panel (the “Panel”),

which stayed any further action by the Listing Qualifications Staff.

The hearing was held on January 11, 2024.

The Company arrived at

the hearing having previously cured any additional grounds for delisting as a result of delinquent periodic filings during 2023 that were

filed prior to the hearing.

On January 30, 2024, the

Company received formal notice that the Panel had granted the Company’s request for an exception through April 15, 2024 to evidence

compliance with the Listing Rule, which was subsequently extended to May 15, 2024.

Accordingly, there can be no assurance that the Company

will be able to regain compliance with the Nasdaq listing rules or maintain its listing on the Nasdaq Capital Market.

If the Company’s

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

and the price of the Company’s common stock could suffer a material decline.

Delisting could also impair the Company’s ability

to raise capital.

On March 5, 2024, the Company

received a deficiency letter from the Staff of Nasdaq notifying the Company that, for the last 30 consecutive business days, the bid price

for the Company’s common stock had closed below $ 1.00 per share, which is the minimum closing price required to maintain continued

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

The Notice has no

immediate effect on the listing of the Company’s common stock on Nasdaq.

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

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

The compliance period for the Company will expire

on September 3, 2024.

As a result of the conversion

of the Convertible Note and the Restated Junior Note as set forth below in Note 7, the Company believes it has stockholders’ equity

of at least $ 2.5 million as of the date of this filing, as required by the Listing Rule

On May 28, 2024, the Company

had received formal written notice from Nasdaq confirming that the Company has regained compliance with the minimum stockholders’

equity requirement as set forth in Nasdaq Listing Rule 5550(b)(1).

Restatement of Previously Issued Quarterly

Condensed Consolidated Financial Statements for the Three Months Ended March 31, 2024

As further described

below, our unaudited condensed consolidated financial statements covering the quarterly reporting period ended March 31, 2024 have been

revised to reflect the correction of errors.

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

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

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

Management determined that the gain from the derecognized

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

Consequently, the Company concluded

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

Therefore, the Company misstated inventory, accounts

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

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

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

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

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

The Company has commenced procedures to remediate the material weaknesses.

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

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

Restatement Adjustments

The following table summarizes the effect of the errors on the Company’s

unaudited condensed consolidated balance sheet as of March 31, 2024 and unaudited condensed consolidated statement of operations and consolidated

statement of cash flows for the three months ended March 31, 2024:

March 31, 2024

As Previously Reported

March 31, 2024

Accounts payable

Notes payable, current

Notes payable, net of current

Accumulated deficit

Total stockholders’ equity (deficit)

Three Months Ended

March 31, 2024

As Previously Reported

Three Months Ended

March 31, 2024

Cost of goods sold

General and administrative

Gain on settlement of contingent liabilities

Operating (loss) income

Interest income (expense), net

Net (loss) income

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

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

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

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

Three Months Ended

As Previously

Three Months Ended

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Gain on supply agreement

Gain on revaluation of contingent liability

Gain on settlement of contingent liabilities

Changes in operating assets and liabilities

Accounts payable

Net cash used in operating activities

Basis of Presentation and Principles of Consolidation

These unaudited condensed

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

In the opinion of management, all adjustments (consisting

of normal recurring accruals) and disclosures necessary for a fair presentation of these unaudited condensed consolidated financial statements

have been included.

The results reported in the unaudited condensed consolidated financial statements for any interim periods are not

necessarily indicative of the results that may be reported for the entire year.

The accompanying unaudited condensed consolidated financial

statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include

all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally

accepted in the United States (“U.S.

Certain information and footnote disclosures normally

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

GAAP have been condensed or omitted.

These condensed consolidated financial statements should be read in conjunction

with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on

Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on April 15, 2024.

for Wholly-Owned Subsidiaries

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

United States (“GAAP”) and include the accounts of Agrify Corporation and its wholly-owned subsidiaries, as described above,

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

Accounting Standards Codification (“ASC”).

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

of acquisition.

All significant intercompany transactions and balances are eliminated.

for Less Than Wholly-Owned Subsidiaries

the Company’s less than wholly-owned subsidiaries, which include, Agrify-Valiant LLC (“Agrify-Valiant”), and Agrify

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

in accordance with ASC Topic 810, Consolidation (“ASC 810”), and if so, whether the Company is the primary beneficiary requiring

consolidation.

The Company continuously re-assesses (i) whether the

joint-venture is a VIE, and (ii) if the Company is the primary beneficiary of the VIE.

If it is determined that the joint-venture qualifies

as a VIE and the Company is the primary beneficiary, the Company’s financial interest in the VIE is consolidated.

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

that the Company is the primary beneficiary.

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

Brand’s equity interests, the remaining equity interests in Agrify-Valiant and Agrify Brands are owned by unrelated third parties,

and the agreement with these third parties provides the Company with greater voting rights.

Accordingly, the Company consolidates its

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

in the consolidated financial statements as a non-controlling interest.

These unaudited

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

and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities

and Exchange Commission on April 15, 2024.

Accounting for Wholly-Owned

The accompanying unaudited

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

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

by Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”) of the Financial Accounting

Standards Board (“FASB”).

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

significant intercompany transactions and balances are eliminated.

Accounting for Less

Than Wholly-Owned Subsidiaries

For the Company’s less

than wholly-owned subsidiaries, which include Agrify Brands, LLC (“Agrify Brands”), the Company first analyzes whether these

entities are a variable interest entity (a “VIE”) in accordance with ASC 810, and if so, whether the Company is the primary

beneficiary requiring consolidation.

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

is the primary beneficiary of the VIE.

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

the Company’s financial interest in the VIE is consolidated.

Based on the Company’s

analysis of these entities, the Company has determined that Agrify Brands is a VIE, and that the Company is the primary beneficiary.

the Company owns 75 % of Agrify Brand’s equity interests, the remaining equity interests in Agrify Brands are owned by unrelated

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

Accordingly, the Company consolidates

its interest in the financial statements of Agrify Brands under the VIE rules and reflects the third parties’ interests in the unaudited

condensed consolidated financial statements as a non-controlling interest.

The Company records this non-controlling interest at its initial

5 unchanged sentences

ownership percentage.

accordance with the FASB Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements - Going

Concern”, the Company’s management evaluated whether there are conditions or events that raise substantial doubt about its

ability to continue as a going concern within one year after the financial statements’ issuance date.

The following matters raise

substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements

Company has incurred operating losses since its inception and has negative cash flows from operations and a working capital deficit.

The Company also has an accumulated deficit of $ 265.8 million as of March 31, 2024.

The Company’s primary sources of liquidity

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

factors, including limitations that may apply to the Company under applicable SEC regulations, from the capital market.

As of March 31,

2024, the Company had $ 0.1 million of cash, cash equivalents, and marketable securities.

The Company had no restricted cash as of March

Current liabilities were $ 27.7 million as of March 31, 2024.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Going Concern

In accordance with the FASB

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

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

within one year after the financial statements’ issuance date.

The following matters raise substantial doubt about the Company’s

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

The Company has incurred

operating losses since its inception and has negative cash flows from operations and a working capital deficit of $ 4.4 million.

also has an accumulated deficit of $ 264.5 million as of June 30, 2024.

The Company’s primary sources of liquidity are its cash and

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

limitations that may apply to the Company under applicable SEC regulations, from the capital market.

As of June 30, 2024, the Company

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

The Company had no restricted cash as of June 30, 2024.

liabilities were $ 25.1 million as of June 30, 2024.

These unaudited condensed

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

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

statements are available to be issued.

The Company’s continuation as a going concern is dependent upon its ability to obtain the

necessary debt or equity financing to continue operations until the Company begins generating sufficient cash flows from operations to

meet its obligations.

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

consolidated financial statements are available to be issued.

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

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

from operations to meet its obligations.

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

of February 28, 2024, the company raised net proceeds of $ 2.2 million via the issuance of common stock and prefunded warrants in a public

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

During the six months ended

June 30, 2024, the Company raised net proceeds of $ 2.2 million via the issuance of common stock and prefunded warrants in a public offering

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

balance sheet.

During this period, the Company also raised an additional $ 2.3 million in proceeds through the issuance of notes to related

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

also continues to make additional adjustments in headcount, salary, travel, sales and marketing spending, but there is no guarantee that

these ongoing cost-cutting efforts or capital raises will be sufficient to maintain operations.

is no assurance that the Company will ever be profitable.

The consolidated financial statements do not include any adjustments to reflect

the potential future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that

may result should the Company be unable to continue as a going concern.

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

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

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

Significant estimates include

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

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

The Company bases

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

be reasonable under the circumstances, and management’s judgement.

On an ongoing basis, management evaluates its estimates when

there are changes in circumstances, facts, and experience.

The Company also

continues to make additional adjustments in headcount, salary, travel, sales and marketing spending, but there is no guarantee that these

ongoing cost-cutting efforts or capital raises will be sufficient to maintain operations.

There is no assurance that

the Company will ever be profitable or that future capital raising efforts will be successful.

One of the Company’s primary sources of

funding is CP Acquisitions LLC, however, there is no guarantee that CP Acquisitions will continue to fund Agrify operations through additional

financing arrangements.

The CEO has been supporting the Company’s cash flow needs, however, this support alone cannot ensure that all

current and future obligations will be met.

The unaudited condensed consolidated financial statements do not include any adjustments to

reflect the potential future effects on the recoverability and classification of assets or the amounts and classifications of liabilities

that may result should the Company be unable to continue as a going concern.

Use of Estimates

The preparation of the Company’s

condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect

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

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

Significant estimates include assumptions about collection

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

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

The Company bases its estimates on historical experience,

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

and management’s judgement.

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

and experience.

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

Actual financial results could differ from those estimates.

Receivable, Net and Loans Receivable, Net

Actual financial results could differ from

those estimates.

The Company regularly evaluates

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

The Company is aware of the impact

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

The Company is committed to ensuring

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

its financial position.

Accounts Receivable, Net and Loans Receivable,

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

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

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

receivable balances are presented net of an allowance for credit losses, which are an estimate of billed or borrowed amounts that

may not be collectible.

In determining the amount of the allowance at each reporting date, management makes judgments about general

economic conditions, historical write-off experience, and any specific risks identified in customer or borrower collection matters,

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

Accounts and loans

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

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

statements of operations.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Concentration

of Credit Risk and Significant Customer

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

cash, marketable securities, and accounts receivable.

The composition

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

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

balances are presented net of an allowance for credit losses, which are an estimate of billed or borrowed amounts that may not be collectible.

In determining the amount of the allowance at each reporting date, management makes judgments about general economic conditions, historical

write-off experience, and any specific risks identified in customer or borrower collection matters, including the aging of unpaid accounts

receivable and changes in customer or borrower financial conditions.

Accounts and loans receivable balances are written off after all

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

Adjustments to the allowance for credit

losses are recorded as general and administrative expenses in the unaudited condensed consolidated statements of operations.

Concentration of Credit Risk and Significant

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

securities, accounts receivable, and loans receivable.

Cash equivalents primarily consist of money market funds with original maturities

1 unchanged sentence

financial institutions.

Cash deposits with financial institutions, including

restricted cash, generally exceed federally insured limits.

Management believes minimal credit risk exists with respect to these financial

institutions and the Company has not experienced any losses on such amounts.

During the year

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

customers that comprised approximately 47 % of its accounts receivable balance.

During the year

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

customers that comprised approximately 84 % of it accounts receivable balance.

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

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

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

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

Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

The Company evaluates

all its financial instruments, including issued private placement stock purchase warrants, to determine if such instruments are derivatives

or contain features that qualify as embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity (“ASC

480”) and ASC 815.

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an

assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815.

Management’s assessment

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

pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether

the warrants are indexed to the Company’s own Common Stock among other conditions for equity classification.

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

capital at the time of issuance.

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

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

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Value of Financial Instruments

Company’s financial instruments consist of cash, marketable securities, accounts receivable, accounts payable, accrued expenses,

warrant liabilities, and loans receivable.

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

financial statements for details of the Company’s financial instruments.

Company generates revenue from the following sources:

Cash deposits with financial institutions generally

exceed federally insured limits.

Management believes minimal credit risk exists with respect to these financial institutions and the Company

has not experienced any losses on such amounts.

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

receivable for the periods presented:

For the three and six months

ended June 30, 2023 and 2022, the Company’s customers that accounted for 10% or more of the total revenue were as follow:

Three months ended

June 30, 2024

Three months ended

June 30, 2023

Six months ended

June 30, 2024

Six months ended

June 30, 2023

(In thousands)

* Customer revenue, as

a percentage of total revenue, was less than 10%

As of June 30, 2024 and December

31, 2023, the Company’s customers that accounted for 10% or more of the total accounts receivable, net, were as follows:

As of June 30, 2024

As of December 31, 2023

(In thousands)

% of Total Accounts Receivable

Company Customer Number – 114

Company Customer Number – 125

Company Customer Number – 9142

Company Customer Number – 15095

Company Customer Number – 10888

* Customer accounts receivable,

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

As of June 30, 2024 and December

31, 2023, the Company’s borrowers that accounted for 10% or more of the total loans receivable, net, were as follows:

As of June 30, 2024

As of December 31, 2023

(In thousands)

% of Total Loans Receivable

Borrower - 01

Borrower - 02

The Company values all its

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

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

Write-offs of potentially slow-moving

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

The Company takes a physical inventory

count at least once annually at all inventory locations.

Property and Equipment

Property and equipment are

stated at cost less accumulated depreciation and amortization.

Depreciation and amortization expenses are recognized using the straight-line

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

Estimated Useful Life (Years)

Computer and office equipment

Furniture and fixtures

Research and development of laboratory equipment

Machinery and equipment

Leased equipment

Trade show assets

Leasehold improvements

Lower of estimated useful life or remaining lease term

The estimated useful lives

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

The Company charges maintenance

and repairs to expense as incurred.

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

depreciation or amortization are eliminated from the condensed consolidated balance sheets and any resulting gain or loss is included

in the condensed consolidated statements of operations in the period of retirement or disposal.

Costs for capital assets

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

During construction,

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

Upon completion, costs are transferred to the appropriate

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

Warrant Liabilities

The Company does not use

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

The Company evaluates all its financial instruments,

including issued private placement stock purchase warrants, to determine if such instruments are derivatives or contain features that

qualify as embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and

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

The Company accounts for warrants as either equity-classified or

liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in

ASC 480 and ASC 815.

Management’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC

480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity

classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock among other conditions

for equity classification.

For issued or modified warrants

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

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

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

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

Fair Value of Financial Instruments

The Company’s financial

instruments consist of cash and cash equivalents, marketable securities, accounts receivable, loans receivable, accounts payable, accrued

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

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

of the Company’s financial instruments.

Revenue Recognition

The Company generates revenue

from the following sources:

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

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

model, which is described below:

the customer contract;

performance obligations that are distinct;

the transaction price;

the transaction price to the distinct performance obligations;

revenue as the performance obligations are satisfied.

the customer contract

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

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

Specifically, the

Company obtains written/electronic signatures on contracts and purchase orders, if said purchase orders are issued in the normal course

of business by the customer.

performance obligations that are distinct

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

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

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

to the customer is separately identifiable from other promises in the contract.

the transaction price

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

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

the transaction price to distinct performance obligations

transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of

the goods or services being provided to the customer.

The Company’s contracts typically contain multiple performance obligations,

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

The standalone selling price

reflects the price the Company would charge for a specific piece of equipment or service if it was sold separately in similar circumstances

and to similar customers.

revenue as the performance obligations are satisfied

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

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

of being distinct and accounted for as separate performance obligations.

Contracts with customers often include promises to transfer

multiple products and services to a customer.

Determining whether products and services are considered distinct performance obligations

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

Once the Company determines the performance

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

transaction price, if any.

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

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

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

The Company determines SSP based on the price at which the

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

If the SSP is not

observable through past transactions, the Company estimates the SSP, taking into account available information such as market conditions,

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

The Company licenses its SaaS type

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

The full value of the

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

Company typically satisfies its performance obligations for equipment sales when equipment is made available for shipment to the customer;

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

contract is completed.

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

This method is based on the cost

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

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

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

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

Variable consideration is typically not

subject to constraint.

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

a contract has payment terms that differ from the timing of revenue recognition, the Company will assess whether the transaction price

for those contracts include a significant financing component.

The Company has elected the practical expedient that permits an entity

to not adjust for the effects of a significant financing component if the Company expects that at the contract inception, the period

between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will

be one year or less.

For those contracts in which the period exceeds the one-year threshold, this assessment, as well as the quantitative

estimate of the financing component and its relative significance, requires judgment.

Accordingly, the Company imputes interest on such

contracts at an agreed-upon interest rate and will present the financing components separately as financial income.

As of March 31, 2024

and March 31, 2023, the Company did not have any such financial income.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

terms with customers typically require payment 30 days from the invoice date.

The Company’s agreements with its customers do not

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

In the infrequent instances

where customers raise concern over delivered products or services, the Company has endeavored to remedy the concern and all costs related

to such matters have been insignificant in all periods presented.

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

not as a promised good or service.

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

consumer goods at the time of shipment.

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

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

Sales, value add, and other taxes the Company collects

concurrent with revenue-producing activities are excluded from revenue.

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

In accordance with ASC 606,

Revenue Recognition , the Company recognizes 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

A customer contract is generally

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

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

Specifically, the Company obtains written/electronic

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

Identify performance

obligations that are distinct

A performance obligation

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

A good or service that is

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

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

identifiable from other promises in the contract.

Determine the transaction

The transaction price is

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

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

Allocate the transaction

price to distinct performance obligations

The transaction price is

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

being provided to the customer.

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

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

The standalone selling price reflects the price the

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

Recognize revenue as

the performance obligations are satisfied

Revenue is recognized when,

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

Significant Judgments

The Company enters into contracts

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

for as separate performance obligations.

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

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

versus together may require significant judgment.

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

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

The Company then

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

The corresponding revenue is recognized

as the related performance obligations are satisfied.

Judgment is required to determine

the SSP for each distinct performance obligation.

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

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

If the SSP is not observable through past transactions,

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

pricing guidelines related to the performance obligations.

The Company licenses its software as a service (“SaaS”) type subscription

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

The full value of the contract is

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

The Company typically

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

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

The Company utilizes the

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

This method is based on the cost of the services from

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

The Company determines the

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

The Company estimates variable

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

of each reporting period if additional information becomes available.

Variable consideration is typically not subject to constraint.

to variable consideration were not material for the periods presented.

If a contract has payment

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

a significant financing component.

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

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

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

For those contracts

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

its relative significance, requires judgment.

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

and will present the financing components separately as financial income.

As of June 30, 2024 and June 30, 2023, the Company did not have

any such financial income.

Payment terms with customers

typically require payment 30 days from the invoice date.

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

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

In the infrequent instances where customers raise concern

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

insignificant in all periods presented.

The Company has elected to

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

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

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

such contracts not to consider the time value of money.

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

activities are excluded from revenue.

The Company receives

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

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

The difference in the opening and closing balances

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

customer’s payment.

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

exchange for consideration from the customer.

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

is unconditional.

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

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

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

of the current reporting period.

The difference in the opening and closing

balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s

performance and the customer’s payment.

The Company fulfills obligations under a contract with a customer by transferring

products and services in exchange for consideration from the customer.

Accounts receivable are recorded when the customer has been

billed or the right to consideration is unconditional.

The Company recognizes a contract liability when consideration has

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

proprietary products.

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

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

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

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

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

to invoice practical expedient.

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

as negotiated, and generally transfers to its customers the warranties it receives from its vendors, if any, which generally cover this

one-year period.

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

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

2023, respectively.

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

its consolidated balance sheets.

Additional information regarding the Company’s warranty reserve may be found in Note 3 –

Supplemental Consolidated Balance Sheet Information, included elsewhere in the notes to the consolidated financial statements.

and Development Costs

Company expenses research and development costs as incurred.

Research and development expenses include payroll, employee benefits and

other expenses associated with product development.

The Company incurs research and development costs associated with the development

and enhancement of both hardware and software products associated with its cultivation and extraction equipment, as well as its SaaS-based

software offering, Agrify Insights™ cultivation software (“Agrify Insights™”).

Loss Per Share

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

for participating securities.

The Company computes basic loss per share by dividing net loss available to Common Stockholders by the

weighted-average number of common shares outstanding.

Net loss available to Common Stockholders represents net loss attributable to Common

Stockholders reduced by the allocation of earnings to participating securities.

Losses are not allocated to participating securities

as the holders of the participating securities do not have a contractual obligation to share in any losses.

Diluted loss per share adjusts

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

As the Company has reported losses for all periods

presented, all potentially dilutive securities including stock options and warrants, are anti-dilutive, and accordingly, basic net loss

per share equals diluted net loss per share.

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

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Announced Accounting Pronouncements

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

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

The standard requires disaggregated information about a reporting

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

The standard applies to all entities subject

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

capital allocation decisions.

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

after December 15, 2024.

The majority of the Company’s

remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation

is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

The Company generally provides

a one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated, and generally

transfers to its customers the warranties it receives from its vendors, if any, which generally cover this one-year period.

In accordance

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

maintained a reserve for warranty returns of $ 0.3 million and $ 0.4 million as of June 30, 2024 and December 31, 2023, respectively.

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

consolidated balance sheets.

Additional information regarding the Company’s warranty reserve may be found in Note 3 – Supplemental

Condensed Consolidated Balance Sheet Information, included elsewhere in the notes to the unaudited condensed consolidated financial statements.

Research and Development Costs

The Company expenses research

and development costs as incurred.

Research and development expenses include payroll, employee benefits and other expenses associated

with product development.

The Company incurs research and development costs associated with the development and enhancement of both hardware

and software products associated with its cultivation and extraction equipment, as well as its SaaS-based software offering, Agrify Insights™

cultivation software (“Agrify Insights™”).

Net (Loss) Income Per

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

attributable to Common Stockholders in conformity with the one-class method.

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

net (loss) income available to Common Stockholders by the weighted-average number of Common Stock outstanding.

Diluted (loss) income per

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

units and warrants.

As the Company has reported losses for the three months ended June 30, 2024 and 2023 and the six months ended June

30, 2023, all potentially dilutive securities including convertible notes, stock options, restricted stock units and warrants, are anti-dilutive,

and accordingly, basic net loss per share equals diluted net loss per share for those periods.

For the six months ended June 30, 2024,

the Company adjusts the net income available to Common Stockholders and the weighted average common stock outstanding for the effect of

dilutive securities as presented within Note 13 — Net (Loss) Income Per Share.

Net (loss) income per

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

Recently Announced Accounting Pronouncements

On December 14, 2023, the FASB issued ASU 2023-09,

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

The standard requires disaggregated

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

The standard applies

to all entities subject to income taxes and is intended to benefit investors by providing more detailed income tax disclosures that would

be useful in making capital allocation decisions.

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

periods beginning after December 15, 2024.

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

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

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

recent accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or

future consolidated financial statements.

2 — Revenue and Deferred Revenue

Company sells its equipment and services to customers under a combination of a contract and purchase order.

Equipment revenue includes

sales from proprietary products designed and engineered by the Company such a VFUs, container farms, integrated grow racks, and LED grow

lights, and non-proprietary products designed, engineered, and manufactured by third parties such as air cleaning systems and pesticide-free

surface protection.

contracts normally provide for payment upon completion of specified work or units of work as identified in the contract.

Although there

is considerable variation in the terms of these contracts, they are primarily structured as time-and-materials contracts.

enters into time-and-materials contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and

other expenses, including materials, as incurred at rates agreed to in the contract.

The Company uses three main sub-contractors to execute

the construction contracts.

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

future condensed consolidated financial statements.

Note 2 — Revenue and Contract

The Company sells its equipment

and services to customers under a combination of a contract and purchase order.

Equipment revenue includes sales from proprietary products

designed and engineered by the Company such a VFUs, container farms, integrated grow racks, and LED grow lights, and non-proprietary products

designed, engineered, and manufactured by third parties such as air cleaning systems and pesticide-free surface protection.

Construction contracts normally

provide for payment upon completion of specified work or units of work as identified in the contract.

Although there is considerable variation

in the terms of these contracts, they are primarily structured as time-and-materials contracts.

The Company enters into time-and-materials

contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and other expenses, including materials,

as incurred at rates agreed to in the contract.

The Company uses three main sub-contractors to execute the construction contracts.

The following table provides

the Company’s revenue disaggregated by the timing of revenue recognition:

Three months ended

Six months ended

(In thousands)

2 unchanged sentences

Total revenue

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

of the current reporting period.

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

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

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

to invoice practical expedient.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

in the Company’s current deferred revenue balance for the three months ended March 31, 2024 and the year ended December 31, 2023

were as follows:

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

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

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

remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation

is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

Contract Liabilities

Changes in the

Company’s current contract liabilities balance for the six months ended June 30, 2024 and for the year ended

December 31, 2023 were as follows:

(In thousands)

Deferred revenue – beginning of period

Deferred revenue – end of period

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

31, 2024 and December 31, 2023, all of the Company’s deferred revenue balances were reported as current liabilities in the accompanying

consolidated balance sheets.

3 — Supplemental Consolidated Balance Sheet Information

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

Contract liabilities – beginning of period

Contract liabilities – end of period

Contract liabilities

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

30, 2024 and December 31, 2023, all of the Company’s contract liabilities balances were reported as current liabilities

in the accompanying condensed consolidated balance sheets.

Note 3 — Supplemental Condensed Consolidated Balance Sheet

Accounts Receivable, Net

Accounts receivable consisted of the following

as of June 30, 2024 and December 31, 2023:

(In thousands)

2 unchanged sentences

Accounts receivable, net

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

The movements in the Company’s credit losses accounts

were as follow:

(In thousands)

1 unchanged sentence

(Recovery of) allowance for credit losses

Write-offs of uncollectible accounts

Accounts receivable written-off

Allowance for credit losses - end of period

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expenses and Other Current Assets

expenses and other current assets consisted of the following as of March 31, 2024 and December 31, 2023:

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted

of the following as of June 30, 2024 and December 31, 2023:

(In thousands)

Prepaid settlement asset

Other receivables, other

Receivable from legal settlement

Prepaid insurance

Prepaid expenses, other

Other receivables

Prepaid software

Prepaid materials

Prepaid settlement asset

Total prepaid expenses and other current assets

and Equipment, Net

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

The Company recorded in the fourth quarter of the year ended December

31, 2023 a prepaid settlement asset in connection with the Modification and Settlement Agreement entered into with Mack Molding Co.

described in detail within Note 14 — Commitments and Contingencies.

This amount represents the value of warrants to be issued to

Mack Molding Co.

upon satisfaction of the terms of the settlement agreement and one $ 500 thousand prepayment to Mack Molding Co.

the quarter ended March 31, 2024, the conditions of the agreement were met and the prepaid settlement asset was derecognized and recorded

into gain on settlement of contingent liabilities upon the closing of the settlement.

Property and Equipment, Net

Property and equipment, net consisted of the following

as of June 30, 2024 and December 31, 2023:

(In thousands)

Leased equipment

Leasehold improvements

Machinery and equipment

Computer and office equipment

Leasehold improvements

Research and development laboratory equipment

5 unchanged sentences

Total property and equipment, net

expense for the three months ended March 31, 2024 and 2023 was $ 0.4 million and $ 0.4 million, respectively, and included within general

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expenses and Other Current Liabilities

expenses and other current liabilities consisted of the following as of March 31, 2024 and December 31, 2023:

Depreciation expense for

the three months ended June 30, 2024 and 2023 was $ 0.4 million and $ 0.5 million, respectively, and $ 0.8 and $ 0.9 million for the six months

ended June 30, 2024 and 2023, respectively.

Depreciation expense is recorded within general and administrative, selling and marketing,

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

Construction in Progress

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

and equipment that is not yet ready for use.

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

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

Once the asset is ready for use, the

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

The asset is then depreciated

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

CIP is reviewed regularly to ensure that all costs are accurate

and that the project is progressing as planned.

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

amount, an impairment loss is recognized.

During the six months ended June 30, 2024, the

Company sold property and equipment with a cost basis of $ 2,000 in exchange for proceeds of $ 11,000 , resulting in a gain of $ 9,000 .

the three and six months ended June 30, 2024, the Company retired certain fully depreciated property and equipment which had an original

cost of $ 544,000 .

During the year ended December 31, 2023, the Company

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

During the year ended December 31,

2023, the Company retired certain fully depreciated property and equipment which had an original cost of $ 444,000 .

Other Non-Current Assets

Other non-current assets consists only of security

deposits as of June 30, 2024 and December 31, 2023.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities

consisted of the following as of June 30, 2024 and December 31, 2023:

(In thousands)

Sales tax payable (1)

Accrued acquisition liabilities (2)

Accrued construction costs

Accrued interest expense

Compensation related fees

Accrued warranty expenses

Accrued professional fees

Accrued inventory purchases

Accrued warranty expenses

Compensation related fees

Accrued consulting fees

Accrued inventory purchases

Accrued interest expense

Accrued acquisition liabilities

Total accrued expenses and other current liabilities

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

amounts are included as part of our initial purchase price allocations and are the subject matter of an indemnification claim under the

Precision and Cascade acquisition agreement.

acquisition liabilities represents the value of held back Common Stock associated with the 2021 acquisitions of Precision and Cascade.

4 — Fair Value Measures

Values of Assets and Liabilities

accordance with ASC Topic 820 “Fair Value Measurement”, the Company measures fair value at the price that would be received

to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In determining

fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are based on a tiered fair

value hierarchy consisting of three levels, as follows:

Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments in active markets or for

similar markets that are not active.

Unobservable inputs for which there is little or no market data which require the Company to develop its own assumptions about how

market participants would price the asset or liability.

techniques for assets and liabilities include methodologies such as the market approach, the income approach or the cost approach, and

may use unobservable inputs such as projections, estimates and management’s interpretation of current market data.

These unobservable

inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and December 31, 2023, the Company’s assets and liabilities measured at fair value on a recurring basis were as

March 31, 2024

(1) Sales tax payable primarily

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

These amounts are included

as part of our initial purchase price allocations and are the subject matter of an indemnification claim under the Precision and Cascade

acquisition agreement.

Accrued acquisition liabilities

Resulting from the 2021 acquisitions

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

(“Sinclair”), the Company withheld from the transaction shares issuable to Precision and Cascade for the purpose of securing

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

under the purchase agreement.

The accrued acquisition liabilities as of December 31, 2023 represent the value of this held back Common

Stock at the price per share at the time of the transaction.

On June 15, 2023, the Company

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

Sinclair and certain individual defendants (the “Delaware Action”).

The claims filed in the Delaware Action concern various

breaches of the Plan of Merger and Equity Purchase Agreement dated September 29, 2021, by and between the Company, Sinclair, Mass2Media,

LLC, and certain of their members (the “Merger Agreement”).

In response to the Delaware Action, certain of the defendants

filed counterclaims for breach of contract and declaratory judgment against the Company and Precision alleging breach of the Merger Agreement.

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

into a settlement for an undisclosed amount.

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

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

The difference

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

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

Note 4 — Fair Value Measures

Fair Values of Assets and Liabilities

In accordance with ASC Topic

820, Fair Value Measurement , the Company measures fair value at the price that would be received to sell an asset or paid to transfer

a liability in an orderly transaction between market participants at the measurement date.

In determining fair value, the assumptions

that market participants would use in pricing an asset or liability (the inputs) are based on a tiered fair value hierarchy consisting

of three levels, as follows:

Observable inputs such as quoted prices

for identical assets or liabilities in active markets.

Other inputs that are observable directly

or indirectly, such as quoted prices for similar instruments in active markets or for similar markets that are not active.

Unobservable inputs for which there

is little or no market data which require the Company to develop its own assumptions about how market participants would price the

asset or liability.

Valuation techniques for

assets and liabilities include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable

inputs such as projections, estimates and management’s interpretation of current market data.

These unobservable inputs are only

utilized to the extent that observable inputs are not available or cost-effective to obtain.

At June 30, 2024 and December

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

June 30, 2024

December 31, 2023

Fair Value Measurements

Using Input Types

Fair Value Measurements

Using Input Types

Fair Value Measurements Using Input Types

(In thousands)

5 unchanged sentences

Total liabilities

Value of Financial Instruments

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

contingent consideration.

Fair Value of Financial Instruments

The Company has certain financial

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

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

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

and cash equivalents, accounts receivable, accounts payable, accrued expenses, and deferred revenue liabilities approximate their fair

value based on the short-term nature of these instruments.

securities classified as current held-to-maturity securities are recorded at amortized cost, which at March 31, 2024 and December 31,

2023, approximated fair value.

Company’s deferred consideration was recorded in connection with acquisitions during the three months ended March 31, 2024 and

fiscal 2023 using an estimated fair value discount at the time of the transactions.

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

value of the deferred consideration approximated fair value.

Company’s warrant liabilities are marked-to-market each reporting period with the changes in fair value of warrant liabilities

recorded in other income (expense), net in the accompanying consolidated statements of operations until the warrants are exercised.

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of March 31, 2024 and December 31, 2023, the Company held investments in money market funds.

They are valued using quoted market prices

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

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

(In thousands)

Current marketable securities:

Money market funds

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

Inherent in a Black-Scholes

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

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

inherent uncertainties are involved.

● Cash and cash equivalents, accounts receivable, accounts

payable, and accrued expenses approximate their fair value based on the short-term nature of these instruments.

● Marketable securities classified as current held-to-maturity

securities are recorded at amortized cost, which at June 30, 2024 and December 31, 2023, approximated fair value.

● Loans receivable are presented net of an allowance for estimated

credit losses, which approximates fair value.

● The Company’s contingent consideration was recorded in

connection with acquisitions during the years ended December 31, 2021 and 2022 using an estimated fair value discount at the time

of the transactions.

As of December 31, 2023, the carrying value of the deferred consideration approximated fair value.

● The carrying value of lease liabilities approximates fair

value due to the implicit discount rates used in the determination of the lease liabilities being consistent with the Company’s

incremental borrowing rates at the time of lease inception and accounting for the duration of the leases.

● Long-term debt and related party debt, including the debt

that has undergone troubled debt restructuring, is carried at amortized cost, dictated by the prevailing market interest rates at the

time of each transaction in accordance with ASC 470, Debt .

● The Company’s warrant liabilities are marked-to-market

each reporting period with the changes in fair value of warrant liabilities recorded in other income (expense), net in the accompanying

unaudited condensed consolidated statements of operations until the warrants are exercised.

The fair value of the warrant liabilities

are estimated using a Black-Scholes option-pricing model.

● As detailed in Note 9 - Stockholders’ Equity (Deficit), during

the three months ended June 30, 2024, Company issued prefunded warrants to a related party.

These liability classified warrants were

recorded at fair value upon issuance.

Through an amendment executed as of June 30, 2024, the warrants met the requirements for equity

classification and were marked to fair value as of that date.

The warrants will not be marked to fair value on a recurring basis.

Marketable Securities

As of June 30, 2024 and December 31, 2023, the

Company held investments in money market funds.

They are valued using quoted market prices in active markets and are classified under

Level 1 within the fair value hierarchy.

The fair value of the Company’s money market

funds as of June 30, 2024 and December 31, 2023 amounted to $ 4 thousand for both periods, respectively.

Warrant Liabilities

The estimated fair value

of the warrant liabilities on June 30, 2024 and December 31, 2023 is determined using Level 3 inputs.

Inherent in a Black-Scholes option-pricing

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

The volatility rate

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

However, inherent uncertainties

are involved.

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

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

2022 Warrants

March 31, 2024

The following table summarizes

the Company’s assumptions used in the valuations as of June 30, 2024 and December 31, 2023:

June 30, 2024

December 31, 2023

2 unchanged sentences

Discount rate - treasury yield

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

31, 2024 and for the year ended December 31, 2023:

The following table sets forth a summary of the

changes in the fair value of the Level 3 warrant liabilities for the six months ended June 30, 2024 and for the year ended December 31,

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of issued warrant liabilities

Reclassification of warrant liabilities to equity

Change in estimated fair value

Warrant liabilities –end of period

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5 — Loans Receivable

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

Solution is the industry’s first-of-its-kind program in which the Company engages with qualified cannabis operators in the early

phases of their business plans and provides critical support, typically over a 10 -year period, which includes:

access to capital for

construction costs, the design and build-out of their cultivation and extraction facilities, state-of-the-art cultivation and extraction

equipment, subscription to the Company’s Agrify Insights™, process design, training, implementation, proven grow recipes,

product formulations, data analytics, and consumer branding.

Note 5 — Loans Receivable

A portion of the capital

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

The TTK Solution is the industry’s

first-of-its-kind program in which the Company engages with qualified cannabis operators in the early phases of their business plans and

provides critical support, typically over a 10 -year period, which includes:

access to capital for construction costs, the design and build-out

of their cultivation and extraction facilities, state-of-the-art cultivation and extraction equipment, subscription to the Company’s

Agrify Insights™, process design, training, implementation, proven grow recipes, product formulations, data analytics, and consumer

The breakdown of loans receivable

by customer as of June 30, 2024 and December 31, 2023 were as follows:

(In thousands)

Customer 24096

Allowance for credit losses

Total loan receivable, net of allowance for credit losses

current portion

Total loan receivable, net of current

Bud & Mary’s Cultivation, Inc.

4 unchanged sentences

The interest rate is 16 % per annum.

In Q3 2022, Agrify became

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

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

agreement dated May 12, 2021.

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

In Q3 2022, the Company became

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

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

the loan agreement dated May 12, 2021.

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

As of June 30, 2024 the allowance related to Bud & Mary’s was reduced to $ 14.4 million, reflecting a recovery of allowance

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

Hannah Industries (“Hannah”) -

9 unchanged sentences

of $ 4.5 million as of December 31, 2022.

This allowance remains at $ 4.5 million as of March 31, 2024.

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

program, on which an allowance was not recorded.

Therefore the allowance on the Hannah loan remains at $ 4.5 million as of June 30, 2024.

Once the project is completed,

2 unchanged sentences

- Customer 24096

As of March 2024, Nevada

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

As of June 2024, Nevada Holistics

has a current balance of $ 1,295 due in relation to the TTK loan.

The project went live in Q2 2023.

After the 90 day period for

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

Upon completion of this grace period,

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

The borrower will begin making monthly

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

Monthly payments are calculated based off of the Production Success Fees

(‘PSF”) generated from each harvest.

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

current on the condensed consolidated balance sheets.

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

(In thousands)

Customer 24096

Allowance for credit losses (1)

Total loan receivable, net of allowance for credit losses

current portion

Total loan receivable, net of current

December 31, 2023, the Company established an allowance for credit losses of approximately $ 14.7 million related to Bud & Mary’s

ongoing litigation.

Approximately $ 4.5 million relates to Hannah.

This reserve still remains in the allowance as of March 31, 2024.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

After the 90 day period for the first

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

Upon completion of this grace period, the Company

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

The borrower began making monthly payments in Q2

2024 based on what is produced through harvests.

Monthly payments are calculated based off of the Production Success Fees (‘PSF”)

generated from each harvest.

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

the unaudited condensed consolidated balance sheets.

Note 6 — Inventory

6 unchanged sentences

applied to the purchase of products once they are delivered.

Inventory consisted of the following as of March

Inventory consisted of the following as of June

30, 2024 and December 31, 2023:

(In thousands)

March 31, 2024

December 31, 2023

Raw materials

Prepaid inventory

Finished goods

Inventory for resale

Prepaid inventory

Raw materials

Inventory, gross

8 unchanged sentences

management’s expected method of disposition.

Changes in the Company’s inventory reserve

are as follows:

(In thousands)

Three months ended March 31, 2024

Year ended December 31,

Inventory reserves – beginning of period

(Decrease) increase in inventory reserves

Inventory reserves – end of period

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Note 7 – Debt

1 unchanged sentence

(In thousands)

March 31, 2024

Exchange Note

Convertible Note

Related party debt:

Consolidated CP Acquisitions Note

2024 CP Acquisitions Notes

CP Acquisitions Junior Secured Note

GIC Acquisition Note

Mack Molding Co.

Total related party debt

current portion

Related party debt, net of current

Long-term debt:

Other notes payable (1)

Exchange Note

Convertible Note

Unamortized debt premium

Total debt, gross of debt premium

Total long-term debt

current portion

Long-term debt, net of current

(1) Other notes payable relates to a one-year insurance premium that was financed over nine-months and incurred interest expense of approximately $ 7 thousand for the three months ended March 31, 2024.

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

(1) Other notes payable includes short term financing on insurance policies with an outstanding balance of $ 61 thousand as of June 30, 2024 and the Navitas Loan with an outstanding balance of $ 4 thousand as of June 30, 2024.

Exchange Note

The Exchange Note is a senior

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

The Exchange Note will mature on the three-year

anniversary of its issuance (the “Maturity Date”) and contains a 9.0 % annualized interest rate, with interest to be paid monthly,

in cash, beginning September 1, 2022.

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

Lender was entitled to a cash sweep of 20 % of the proceeds received by the Company in connection with any equity financing, which will

reduce the outstanding principal amount under the Exchange Note.

On August 18, 2022, the Company issued a promissory

note with an original principal amount of $ 35.0 million (the “Exchange Note”) to High Trail Special Situations LLC (the “Original

The Exchange Note is a senior secured obligation of the Company and ranks senior to all indebtedness of the Company.

Exchange Note had an original maturity date of August 18, 2025 (the “Original Maturity Date”) and contains a 9.0 % annualized

interest rate, with interest to be paid monthly, in cash, beginning September 1, 2022.

The principal amount of the Exchange Note will

be payable on the Original Maturity Date, provided that the Original Lender was entitled to a cash sweep of 20 % of the proceeds received

by the Company in connection with any equity financing, which will reduce the outstanding principal amount under the Exchange Note.

On March 8, 2023, the Company

entered into a Securities Exchange Agreement (the “Exchange Agreement”) with the Original Lender.

Pursuant to the Exchange

Agreement, at closing the Company will prepaid approximately $ 10.3 million in principal amount under the Exchange Note and exchanged $ 10.0

million of the remaining principal balance of the Exchange Note for a new senior secured convertible note (the “Convertible Note”)

with an original principal amount of $ 10.0 million.

After the closing of the Exchange Agreement, the Exchange Note had a remaining balance

of $ 11.7 million.

Convertible Note

On March 8, 2023, as a result

of the Exchange Agreement, the Company issued a Convertible Note to Lender with a principal

balance of $ 10 million.

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

April 1, 2023.

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

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

with any other equity financing, which would reduce the outstanding principal amount under the August 2022 Note or the Convertible Note.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

In connection

with the Exchange Agreement the Company issued the Convertible Note, which bears a 9.0 % annualized interest rate, with interest to be

paid monthly, in cash, beginning April 1, 2023.

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

Date, provided that the Original Lender was entitled to a cash sweep of 30 % of the proceeds of any at-the-market equity offering and 20 %

of the proceeds received by the Company in connection with any other equity financing, which would reduce the outstanding principal amount

under the Exchange Note or the Convertible Note.

At any time, the Company may

1 unchanged sentence

Note plus accrued but unpaid interest.

The Lender had the option of requiring the Company to redeem the Convertible Note (i) on August

19, 2023 or August 19, 2024 at a price equal to the then-outstanding principal amount under the Convertible Note plus accrued but unpaid

interest, provided that the redemption right on August 19, 2023 will not be exercisable if the Company raises at least $ 8.0 million in

gross proceeds from equity offerings prior to such date, or (ii) if the Company undergoes a fundamental change (as defined below) at a

price equal to 102.5 % of the then-outstanding principal amount under the Convertible Note plus accrued but unpaid interest.

The Original Lender had the option of requiring the Company to redeem the Convertible Note (i)

on August 19, 2023 or August 19, 2024 at a price equal to the then-outstanding principal amount under the Convertible Note plus accrued

but unpaid interest, provided that the redemption right on August 19, 2023 will not be exercisable if the Company raises at least $ 8.0

million in gross proceeds from equity offerings prior to such date, or (ii) if the Company undergoes a fundamental change (as defined

below) at a price equal to 102.5 % of the then-outstanding principal amount under the Convertible Note plus accrued but unpaid interest.

The Convertible Note imposed

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If an event of default under the Convertible Note occurs, the

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

Note (or such lesser principal amount accelerated by the Lender), plus accrued and unpaid interest, including default interest, which

accrues at a rate per annum equal to 15 % from the date of a default or event of default, or, only in connection with certain events of

default, (B) the greater of the amount under clause (A) or the sum of (i) 115 % of the product of (a) the conversion rate in effect as

of the trading day immediately preceding the date that the Lender delivers a notice of acceleration;

(b) the total then outstanding principal

amount under the Convertible Note (in thousands);

and (c) the greater of (1) the highest daily volume weighted average price (“VWAP”)

per share of Common Stock occurring during the fifteen consecutive trading days ending on, and including, the trading day immediately

before the date the Lender delivers such notice and (2) the highest daily VWAP per share of Common Stock occurring during the fifteen

consecutive trading days ending on, and including, the trading immediately before the date the applicable event of default occurred and

(ii) the accrued and unpaid interest on the Convertible Note.

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

Note (or such lesser principal amount accelerated by the Original Lender), plus accrued and unpaid interest, including default interest,

which accrues at a rate per annum equal to 15 % from the date of a default or event of default, or, only in connection with certain events

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

as of the trading day immediately preceding the date that the Original Lender delivers a notice of acceleration;

(b) the total then outstanding

principal amount under the Convertible Note (in thousands);

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

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

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

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

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

Until the date the Convertible

Note is fully repaid, the Lender had, subject to certain exceptions, the right to participate for up to 30 % of any offering of debt, equity

(other than an offering of solely Common Stock), or equity-linked securities, including without limitation any debt, preferred stock or

other instrument or security, of the Company or its subsidiaries.

If the Lender elected to convert

the Convertible Note, the conversion price per share would be $ 7.64 , subject to customary adjustments for certain corporate events.

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

The Convertible Note may not be converted into shares

of Common Stock if such conversion would result in the Lender and its affiliates owning an aggregate of in excess of 4.99 % of the then-outstanding

shares of Common Stock, provided that upon 61 days’ notice, such ownership limitation may be adjusted by the Lender, but in any

case, to no greater than 9.99 %.

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

and separately measured at fair value.

Aggregate interest expense

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

Note Conversion

Pursuant to the Exchange Agreement

the Company entered into with the Lender on March 8, 2023, the Lender elected, on April 26, 2023, to convert $ 1.6 million of the remaining

outstanding principal amount on the Convertible Note for 153,617 shares of Common Stock of the Company.

On May 1, 2023, the Company

entered into a letter agreement with the above referenced accredited Lender (the “Letter Agreement”), pursuant to which the

Company and the Lender agreed to exchange or redeem $ 2.0 million of the remaining outstanding principal amount under the Exchange Note

for a total of 445,196 shares of Common Stock of the Company, subject to a Beneficial Ownership Limitation of 4.99 % of the Company’s

Common Stock.

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

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

such limitations.

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

The total aggregated Exchange Note and Convertible

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Note is fully repaid, the Original Lender had, subject to certain exceptions, the right to participate for up to 30 % of any offering of

debt, equity (other than an offering of solely Common Stock), or equity-linked securities, including without limitation any debt, preferred

stock or other instrument or security, of the Company or its subsidiaries.

If the Original Lender elected

to convert the Convertible Note, the conversion price per share would be $ 7.64 , subject to customary adjustments for certain corporate

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

The Convertible Note may not be converted

into shares of Common Stock if such conversion would result in the Original Lender and its affiliates owning an aggregate of in excess

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

by the Original Lender, but in any case, to no greater than 9.99 %.

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

be bifurcated and separately measured at fair value.

On April 26, 2023, the Original

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

Stock of the Company.

On May 1, 2023, the Company entered into a letter

agreement with the Original Lender (the “Letter Agreement”), pursuant to which the Company and the Original Lender agreed

to exchange or redeem $ 2.0 million of the remaining outstanding principal amount under the Exchange Note for a total of 445,196 shares

of Common Stock of the Company, subject to a Beneficial Ownership Limitation of 4.99 % of the Company’s Common Stock.

Beneficial Ownership Limitation of 4.99 %, a total of 69,568 shares of Common Stock of the Company were issued to the Original Lender,

with the remaining 375,629 shares held in abeyance until the balance (or portion thereof) may be issued in compliance with such limitations.

As a result, the Company recognized a loss on the redemption of approximately $ 12,000 .

CP Acquisitions Junior Secured Note

On October 27, 2023, CP Acquisitions

LLC (the “New Lender” or “CP”), an entity affiliated with and controlled by the Company’s Chief Executive

Officer, purchased the Exchange Note and the Convertible Note from the Original Lender (the “Note Purchase”).

In connection

with the Note Purchase, the New Lender has agreed to waive any events of default under the acquired notes through December 31, 2023.

part of the same transaction, the Company issued a junior secured promissory note (the “Junior Secured Note”) to the New Lender.

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

The Junior Secured Note bears interest

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

On December 4, 2023,

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

Pursuant to the terms of the amendment, the maximum

principal amount that may be loaned by CP to the Company was increased to $ 4.0 million and extended the maturity date thereon to December

Convertible Note Forgiveness

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

CP Acqusitions Junior Secured Note

On October 27, 2023, CP Acquisitions

LLC (the “New Lender” or “CP”), an entity affiliated with and controlled by the Company’s Chief Executive

Officer, purchased the Exchange Note and the Convertible Note from their holder (the “Note Purchase”).

In connection with

the Note Purchase, the New Lender has agreed to waive any events of default under the acquired notes through December 31, 2023.

of the same transaction, the Company issued a junior secured promissory note (the “Junior Secured Note”) to the New Lender.

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

The Junior Secured Note bears interest

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

On December 4, 2023,

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

Pursuant to the terms of the amendment, the maximum

principal amount that may be loaned by CP to the Company was increased to $ 4.0 million and extended the maturity date thereon to December

Consolidated CP Acquisitions Note

35 unchanged sentences

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

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

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

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

Further, as the New Lender is a related party of the Company,

the Excess Carrying Value was accounted for as a capital transaction and no gain or loss was recognized related to the restructuring.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

$ 675,000 (the “New Lender Debt Restructuring Excess Carrying Value”).

The Restated Note was thus written down to the amount

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

Further, as the New Lender

is a related party of the Company, the New Lender Debt Restructuring Excess Carrying Value was accounted for as a capital transaction

and no gain or loss was recognized related to the restructuring.

Aggregate interest expense

related to the CP Acquisitions Note described above was $ 115,821 for the six months ended June 30, 2024.

GIC Acquisition Note

On July 12, 2023, the Board

of Directors of the Company approved the issuance of an unsecured promissory note (the “Related Party Note”) in favor of GIC

Acquisition, LLC (“GIC”), an entity that is owned and managed by the Company’s Chairman and Chief Executive Officer.

to the Related Party Note, GIC is obligated to lend up to $ 0.5 million to the Company, $ 0.3 million of which was delivered at issuance

and the remaining $ 0.2 million delivered on July 31, 2023.

The Related Party Note bears interest at a rate of 10 % per annum, will mature

in full on August 6, 2023, and may be prepaid without any fee or penalty.

The Related Party Note ranks junior to all existing secured

indebtedness of the Company.

On October 27, 2023, the maturity date of the Related Party Note was subsequently amended to December 31,

2024 at which point principal and accrued interest will be repaid in full.

Interest expense incurred on the Related Party Note amounted

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

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

$ 1.0 million under the Related Party Note agreement.

As of March 31, 2024, future minimum payments

on all debt positions were as follows:

of Directors of the Company approved the issuance of an unsecured promissory note (the “GIC Note”, and, collectively with

the Consolidated Note, the “Related Party Notes”) in favor of GIC Acquisition, LLC (“GIC”), an entity that is owned

and managed by the Company’s Chairman and Chief Executive Officer.

Pursuant to the GIC Note, GIC is obligated to lend up to $ 0.5

million to the Company, $ 0.3 million of which was delivered at issuance and the remaining $ 0.2 million delivered on July 31, 2023.

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

The GIC Note ranks junior to all existing secured indebtedness of the Company.

On October 27, 2023, the maturity date of the GIC Note

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

Interest expense incurred

on the GIC Note amounted to $ 47,652 for the six months ended June 30, 2024.

Amendment of Related Party Notes

On May 21, 2024, the Company

and CP entered into an amendment to the Convertible Note (the “Consolidated Note Amendment”), pursuant to which CP may elect,

in lieu of shares of common stock issuable upon conversion of the Convertible Note, to instead receive pre-funded warrants (“Pre-Funded

The conversion price applicable to the Pre-Funded Warrants will remain unchanged at $ 1.46 .

Immediately following the

execution of the Consolidated Note Amendment, CP elected to convert $ 11.5 million of outstanding principal into a Pre-Funded Warrant exercisable

at issuance for up to 7,876,712 shares of common stock having a fair value of approximately $ 2.9 million (the “CP Warrant Conversion”).

On May 21, 2024, GIC and the

Company amended and restated the GIC Note (the “Restated GIC Note”, and, collectively with the Consolidated Note Amendment,

the “Related Party Debt Amendments”) to increase the aggregate principal amount to approximately $ 2.29 million, extend the maturity

date to December 31, 2025, and provide that the Junior Note may be converted into common stock of the Company or, at GIC’s election,

Pre-Funded Warrants, in each case at a conversion price of $ 0.31 .

Immediately following the

execution of the Restated GIC Note, GIC elected to convert all of the outstanding principal under the Restated Junior Note into a Pre-Funded

Warrant exercisable at issuance for up to 7,383,053 shares of common stock having a fair value of approximately $ 2.7 million (the “GIC

Warrant Conversion”, and, collectively with the CP Warrant Conversion, the “Related Party Warrant Conversions”).

As the Related Party Warrant

Conversions were exercised in connection with the Related Party Debt Amendments by CP and GIC, related party lenders under common control

(the “Related Party Lenders”), the transactions combined were considered a modification of the total debt outstanding with the

related parties (the “Related Party Debt Restructuring”).

The Related Party Debt Restructuring

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

as defined by the ASC, and 2) the Related Party Debt Restructuring was deemed to result in a concession by the Related Party Lenders.

The Company performed a comparison of the aggregated undiscounted cash flows associated with the Related Party Notes subsequent to the

Related Party Debt Restructuring to the aggregate carrying value of the Related Party Notes as of the Related Party Debt Restructuring

The net carrying value of the Related Party Notes was determined to exceed the undiscounted future cash flows of the Related Party

Notes as modified by the Related Party Debt Restructuring by approximately $ 10,000,000 (the “Related Party Debt Restructuring Excess

Carrying Value”).

The aggregate carrying value of the Related Party Notes was thus written down to the amount of the undiscounted

future cash flows on the Related Party Notes from the Related Party Debt Restructuring date to maturity (the “Restructured Related

Party Debt”).

Further, as the Related Party Lenders are related parties of the Company, the Related Party Debt Restructuring Excess

Carrying Value was accounted for as a capital transaction and no gain or loss was recognized related to the restructuring.

The carrying value of the

Restructured Related Party Debt was approximately $ 4.4 million at June 30, 2024.

CP Acquisition Promissory Notes

On May 31, 2024 and June 12,

2024 the Company issued promissory notes in favor of CP in the principal amount of $ 250,000 and $ 400,000 , respectively (the “2024

The notes bear interest at 10 % per annum, and will mature on December 31, 2024.

Interest expense incurred on the 2024

CP Notes amounted to approximately $ 4,000 for the six months ended June 30, 2024.

As of June 30, 2024, future minimum principal payments

on all debt positions, excluding accrued interest amounts, were as follows:

Years ending December 31 (In thousands),

6 unchanged sentences

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

a lease term of 12 months or less at inception were not reflected in the Company’s balance sheet and those lease costs are expensed

on a straight-line basis over the respective term.

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

assets and current and non-current lease liabilities in the Company’s consolidated balance sheets.

an original lease term of 12 months or less at inception were not reflected in the Company’s condensed consolidated balance sheet

and those lease costs are expensed on a straight-line basis over the respective term.

Leases with a term greater than 12 months were reflected

as non-current right-of-use assets and current and non-current lease liabilities in the Company’s condensed consolidated balance

As the implicit interest

1 unchanged sentence

of determining the present value of its lease liabilities.

At March 31, 2024 and 2023, the Company’s weighted-average discount rate

utilized for its leases was 7.50 % and 7.33 %, respectively.

When a contract contained

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

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

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

At June 30, 2024

and December 31, 2023 the Company’s weighted-average discount rate utilized for its leases was 7.41 % and 7.51 %, respectively.

The Company had several non-cancelable

finance leases for machinery and equipment.

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

As of June 30, 2024 the Company had no active finance leases.

The Company had several non-cancellable

4 unchanged sentences

area maintenance associated with the property.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

During the six months ended

June 30, 2024, one of the Company’s leased assets was sold by the lessor to another counterparty, effectively cancelling the remainder

of the lease with the Company.

There were no penalties arising from the cancellation.

The Company recognized a gain on early termination

in the amount of $ 39 thousand, calculated as the difference between the remaining right-of-use asset and lease liability at the time of

Additional information on the Company’s

1 unchanged sentence

Three months ended

Six months ended

(In thousands)

4 unchanged sentences

Total lease cost

(In thousands)

March 31, 2024

2024 December 31,

Weighted-average remaining lease term – operating leases

Weighted-average remaining lease term – operating leases 2.68 years 3.09 years

Weighted-average remaining lease term – finance leases —

1 unchanged sentence

Weighted-average discount rate – finance leases —

(In thousands)

Balance Sheet Location

March 31, 2024

(In thousands) Balance Sheet

Location June 30,

2024 December 31,

Right-of-use assets, net

Right-of-use, net

Right-of-use assets, net Right-of-use, net $ 1,333 $ 1,803

Total lease assets $ 1,333 $ 1,803

Operating lease liabilities, current

Operating lease liabilities, non-current

Operating lease liabilities, current Operating lease

liabilities, current $ 539 $ 599

Operating lease liabilities, non-current Operating lease

liabilities, non-current 960 1,394

Total operating lease liabilities $ 1,499 $ 1,993

Maturities of operating lease liabilities as of

March 31, 2024 are as follows:

June 30, 2024 are as follows:

Years ending December 31 (In thousands),

Operating lease

Remaining 2024

Total minimum lease payments

Less imputed interest

Less discount

Total lease liabilities

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Note 9 — Stockholders’ Deficit

Note 9 — Stockholders’ Equity (Deficit)

Public Offerings

7 unchanged sentences

price of each Pre-Funded Warrant.

The S-1 Offering was made pursuant to a registration statement on Form S-1 (File No.

333-276724) that

was filed by the Company with the Securities and Exchange Commission (“SEC”) on January 26, 2024 and declared effective by

the SEC on February 14, 2024.

Pursuant to the terms of the

Agency Agreement, the Company paid the Placement Agent a cash transaction fee equal to 7.0 % of the aggregate gross proceeds to us from

the sale of the securities in the S-1 Offering.

In addition, the Company reimbursed the Placement Agent for a certain amount of its accountable

expenses, including the fees and disbursements of the Placement Agent’s counsel, not to exceed $ 100,000 in the aggregate.

Additionally,

at closing the Company issued to the Placement Agent common stock purchase warrants (the “Placement Agent Warrants”) covering

a number of securities equal to one percent ( 1.0 %) of the total number of securities being sold and/or issued in the S-1 Offering.

Placement Agent Warrants are non-exercisable for one hundred eighty (180) days beginning on the date of commencement of sales of the securities

being offered in this offering.

Following this one hundred eighty (180) day period, the Placement Agent Warrants will be exercisable until

the fifth (5th) year anniversary of commencement of sales of the securities being offered in this offering.

The Placement Agent Warrants

will be exercisable at a price per share of $ 0.38 , which is equal to 100 % of the price of the securities paid by the purchasers in connection

with this offering.

The Placement Agent Warrants are not redeemable.

The Placement Agent Warrants (and the underlying securities) may

not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction

that would result in the effective economic disposition of the Placement Agent Warrants (or the underlying securities) for a period of

one hundred eighty (180) days beginning on the date of commencement of sales of the securities being offered in the offering.

The Placement

Agent Warrants, however, may be assigned, in whole or in part, to any successor, officer or member of the Placement Agent (or to officers

or partners of any such successor or member) pursuant to FINRA Rule 5110(e)(2).

There are no registration rights associated with the Placement

Agent Warrants.

Additionally, the Company granted a six-month right of first refusal for certain financings to the Placement Agent.

The Company issued 67,237

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and similar transactions.

The warrants will be exercisable on a cash basis, unless there is not

an effective registration statement covering the issuance of the shares issuable upon exercise of the warrants or if shareholder approval

for the full exercise of the warrants are not received, in which case the Modified Warrant will also be exercisable on a cashless exercise

basis at Alexander Capital election.

The warrants will be exercisable on a cash basis, unless there is not an effective registration statement covering

the issuance of the shares issuable upon exercise of the warrants or if shareholder approval for the full exercise of the warrants are

not received, in which case the Modified Warrant will also be exercisable on a cashless exercise basis at Alexander Capital election.

The measurement of fair value

of the Alexander Capital Warrants were determined utilizing a Black-Scholes model considering

all relevant assumptions current at the date of issuance (i.e., share price of $ 0.52 , exercise price of $ 0.38 , term of five years , volatility

of 128 %, risk-free rate of 4.32 %, and expected dividend rate of 0 %).

The grant date fair value of these Alexander

Capital Warrants was estimated to be $ 31 thousand on February 27, 2024 and is reflected

within additional paid-in capital as of March 31, 2024.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

of the Alexander Capital Warrants were determined utilizing a Black-Scholes model considering all relevant assumptions current at the

date of issuance (i.e., share price of $ 0.52 , exercise price of $ 0.38 , term of five years , volatility of 128 %, risk-free rate of 4.32 %,

and expected dividend rate of 0 %).

The grant date fair value of these Alexander Capital Warrants was estimated to be $ 31,000 on February

27, 2024 and is reflected within additional paid-in capital as of June 30, 2024.

Related Party Warrant Issuance

On May 21, 2024, in connection

with the Consolidated Note Amendment, the Company issued 7,383,053 and 7,876,712 prefunded warrants to GIC Acquisitions and CP Acquisition

(the “Pre-Funded Warrants”), respectively, in exchange of notes payable amounting approximately to $ 2.29 million and $ 11.5 million,

respectively.

The Pre-Funded Warrants can be used to purchase Company’s common stocks with par value of $ 0.001 at an exercise price

The Pre-Funded Warrants have been identified as freestanding financial instruments and were determined not to be indexed to

the Company’s own stock.

Accordingly, the Warrants are precluded from being classified within equity and classified as a liability

with subsequent changes in fair value recognized each reporting period in earnings.

The fair value of the Pre-Funded Warrants on the issuance

date was $ 5,600,334 determined as the intrinsic value.

On June 30, 2024, the Company

executed an amendment to the Pre-funded Warrants, pursuant to which the Company revised certain provisions of the Pre-funded Warrants

to (i) remove the adjustment to the exercise price of the Pre-funded Warrants when there is a bona fide equity financing with the primary

purpose of raising capital and (ii) increase the threshold for a change of control from 50 % to greater than 50 %.

The classification of

the Pre-funded Warrants was reassessed upon the modification and the Pre-funded Warrants were determined to meet all of the additional

requirements for equity classification.

Accordingly, as of June 30, 2024, the Company remeasured the Pre-funded Warrants to its fair value

immediately prior to the modification and recognized the change in fair value of approximately $ 1.2 million in earnings.

The Company then

reclassified the Pre-funded Warrant liability to stockholders’ equity at its post-modification fair value of $ 6.8 million.

Note 10 — Stock-Based

3 unchanged sentences

Board of Directors, and on June 8, 2022, the Company’s stockholders, adopted and approved the 2022 Omnibus Equity Incentive Plan

(the “2022 Plan”), which replaced the 2020 Stock Option Plan (the “2020 Plan”).

The 2022 Plan provides for the

grant of stock options, stock appreciation right awards, performance share awards, restricted stock awards, restricted stock unit awards,

other stock-based awards and cash-based awards.

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

grant and issuance under the 2022 Plan is 26,483 shares, which includes the 10,000 shares authorized under the 2022 Plan, plus the rollover

of 16,483 issued and outstanding awards under the 2020 Plan and 250,000 additional shares issued upon approval by the Board of Directors

on January 8, 2024.

Shares will be deemed to have been issued under the 2022 Plan solely to the extent actually issued and delivered pursuant

If any award granted under the 2020 Plan or the 2022 Plan expires, is canceled, terminates unexercised or is forfeited, the

number of shares subject thereto is again available for grant under the 2022 Plan.

The 2022 Plan shall continue in effect, unless sooner

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

As of March 31, 2024, there were

57,719 shares of Common Stock available to be granted under the Company’s 2022 Plan.

(the “2022 Plan”), which provides for the grant of stock options, stock appreciation right awards, performance share awards,

restricted stock awards, restricted stock unit awards, other stock-based awards and cash-based awards.

The aggregate number of shares

of Common Stock that may be reserved and available for grant and issuance under the 2022 Plan is 26,483 shares and 250,000 additional

shares issued upon approval by the Board of Directors on January 8, 2024.

Shares will be deemed to have been issued under the 2022 Plan

solely to the extent actually issued and delivered pursuant to an award.

The 2022 Plan shall continue in effect, unless sooner terminated,

until the tenth anniversary of the date on which it is adopted by the Board of Directors.

As of June 30, 2024, there were 58,158 shares

of Common Stock available to be granted under the Company’s 2022 Plan.

The Company’s stock

compensation expense was $ 0.5 million an d $ 0.9 million for the three months ended March 31,

compensation expense was $ 0.1 million an d $ 0.8 million for the three months ended June 30,

2024 and 2023 , respectively.

The Company’s stock

compensation expense was 0.6 million and $ 1.6 million for the six months ended June

30, 2024 and 2023 , respectively.

Stock Options

For the three months ended

March 31, 2024, there were no options granted, exercised, forfeited or expired under the Company’s stock option plans.

10,310 options outstanding with a weighted average exercise price of $ 1,595.92 as of March 31, 2024 and December 31, 2023.

10,206 options vested and exercisable with a weighted average exercise price of $ 1,594.66 as of March 31, 2024.

There were 10,310 options

vested and expected to vest with a weighted average exercise price of $ 1,595.92 as of March 31, 2024

As of March 31, 2024, total

unrecognized compensation expense related to unvested options under the Company’s 2022 Plan was $ 1.5 thousand, which is expected

to be recognized over a weighted average period of 0.06 years.

For the six months ended

June 30, 2024, there were no options granted or exercised under the Company’s stock option plans.

For the same period, there were

284 options expired with a weighted average exercise price of $ 818.75 .

There were 10,026 and 10,310 options outstanding with a weighted

average exercise price of $ 1,616.74 and $ 1,595.92 as of June 30, 2024 and December 31, 2023, respectively.

There were 9,950 options vested

and exercisable with a weighted average exercise price of $ 1,618.01 as of June 30, 2024.

There were 10,026 options vested and expected

to vest with a weighted average exercise price of $ 1,616.74 as of June 30, 2024

As of June 30, 2024, total

unrecognized compensation expense related to unvested options was $ 53,000 , which is expected to be recognized over a weighted average

period of 0.52 years.

The following table summarizes information about

options vested and exercisable at March 31, 2024:

options vested and exercisable at June 30, 2024:

Options Vested and Exercisable

Number of Options

Weighted-Average Remaining Contractual Life (Years)

Weighted-Average

Exercise Price

Price ($) Number of Options Weighted-Average

Remaining Contractual Life

(Years) Weighted-Average

$ 456.00 2,756 5.96 $ 456.00

$ 972.00 2,723 6.40 $ 972.00

$ 1,840.00 201 7.61 $ 1,840.00

$ 2,768.00 4,220 6.73 $ 2,768.00

$ 2,898.00 50 6.73 $ 2,898.00

The following table summarizes information about

options vested and expected to vest after March 31, 2024:

options vested and expected to vest after June 30, 2024:

Options Vested and Expected to Vest

Number of Options

Weighted-Average Remaining Contractual Life (Years)

Weighted-Average

Exercise Price

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Price ($) Number of Options Weighted-Average

Remaining Contractual Life

(Years) Weighted-Average

$ 456.00 2,769 5.94 $ 456.00

$ 972.00 2,736 6.40 $ 972.00

$ 1,536.00 1 0.00 $ 1,536.00

$ 1,840.00 250 7.61 $ 1,840.00

$ 2,768.00 4,220 6.73 $ 2,768.00

$ 2,898.00 50 6.73 $ 2,898.00

Restricted Stock Units

The following table presents restricted stock

unit activity under the 2022 Plan for the three months ended March 31, 2024:

Number of Shares

Weighted-Average

Grant Date Fair Value

unit activity for the six months ended June 30, 2024:

Unvested at December 31, 2023

Unvested at March 31, 2024

As of March 31, 2024, total

unrecognized compensation expense related to unvested restricted stock units was $ 139 thousand, which is expected to be recognized over

a weighted average period of 1.12 years.

Unvested at June 30, 2024

As of June 30, 2024, total

unrecognized compensation expense related to unvested restricted stock units was $ 254,000 , which is expected to be recognized over a weighted

average period of 1.16 years.

Note 11 — Stock Warrants

The following tables present all warrant activity

of the Company for the three months ended March 31, 2024:

Number of Warrants

Weighted-Average

of the Company for the three months ended June 30, 2024:

Exercise Price

Warrants outstanding at December 31, 2023

( 7,095,901 )

Warrants outstanding at March 31, 2024

The Company received proceeds

from the exercise of warrants of $ 3 thousand for the three months ended March 31, 2024.

Warrants outstanding at June 30, 2024

The Company received proceeds from the exercise of prefunded warrants

of $ 4,000 for the six months ended June 30, 2024.

Note 12 — Income Taxes

The Company’s effective

income tax rate was 0.0 % and 0.0 % for the three months ended March 31, 2024 and 2023, respectively.

The provision for (benefit

from) income taxes was $0 and $0 for the three months ended March 31, 2024 and 2023, respectively.

There is no difference between

the Company’s effective tax rates for the 2024 and 2023 periods.

There was no change in the provision for (benefit from) income

taxes for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Note 13 — Net Loss Per Share

Net loss per share calculations

for all periods have been adjusted to reflect the Company’s reverse stock splits.

Net loss per share was calculated based on the

weighted-average number of the Company’s Common Stock outstanding.

Basic net loss per share

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

income tax rates were both 0 % for the three and six months ended June 30, 2024 and 2023, respectively.

There were no provision for

(benefit from) income taxes for the three and six months ended June 30, 2024 and 2023, respectively.

There is no difference between the

Company’s effective tax rates for the 2024 and 2023 periods.

There was no change in the provision for (benefit from) income taxes

for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

Note 13 — Net (Loss) Income Per

Net (loss) income per share

calculations for all periods have been adjusted to reflect the Company’s reverse stock splits.

Net (loss) income per share was calculated

based on the weighted-average number of the Company’s Common Stock outstanding.

Basic net (loss) income per

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

Diluted net loss per share is computed

by giving effect to all potential shares of Common Stock, including outstanding stock options, stock related to unvested restricted stock

units, and outstanding warrants to the extent dilutive.

Net loss per share, assuming dilution, is equal to basic net loss per share because

the effect of dilutive securities outstanding during the periods, including options and warrants computed using the treasury stock method,

is anti-dilutive.

by giving effect to all potential shares of Common Stock, including convertible notes, outstanding stock options, stock related to unvested

restricted stock units, and outstanding warrants to the extent dilutive.

Net loss per share, assuming dilution, is equal to basic net

loss per share for the three months ended June 30, 2024 and 2023 and six months ended June 30, 2023 because the effect of dilutive securities

outstanding during the periods, including convertible notes, options, restricted stock units and warrants computed using the treasury

stock method, is anti-dilutive.

The components of basic and diluted net loss per

share were as follows:

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(In thousands, except share and per share data)

Net loss available for common shareholders

Weighted-average common shares outstanding – basic and diluted

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

Company’s potential dilutive securities, which include stock options, restricted stock units, and warrants, have been excluded from

the computation of diluted net loss per share as the effect would be to reduce the net loss per share.

Therefore, the weighted-average

number of Common Shares outstanding used to calculate both basic and diluted net loss per share attributable to Common Stockholders is

The Company excluded the following potential Common Stock equivalents presented based on amounts outstanding at each period

end, from the computation of diluted net loss per share attributable to Common Stockholders for the periods indicated because including

them would have had an anti-dilutive effect:

Three months ended March 31,

Numerator for basic EPS - net (loss) income available for common stockholders

Effect of dilutive securities:

Interest expense on convertible notes

Numerator for diluted EPS - net (loss) income available to common stockholders after assumed conversions

Denominator for basic EPS - weighted-average common stock outstanding

Effect of dilutive securities:

Conversion of convertible notes

Denominator for diluted EPS - adjusted weighted-average common stock outstanding and assumed conversions

Basic net loss (income) per share attributable to common stockholders

Diluted net loss (income) per share attributable to common stockholders

of June 30, 2024, the Company had convertible notes outstanding with a principal balance of approximately $ 3.3 million convertible into

2,644,632 shares of Common Stock.

During the six months ended June 30, 2024, the Company also converted a portion of the convertible notes

into 2,671,633 shares of Common Stock and 15,259,765 Pre-funded Warrants to purchase shares of Common Stock.

Given the nominal exercise

price of the Company’s issuance of Pre-funded Warrants, such Pre-funded Warrants are included in in the calculation of basic net

(loss) income per share and weighted for the period outstanding from issuance to June 30, 2024.

The exercise price per warrant is deemed

non-substantive when compared to the fair value of the underlying common shares.

In determination of the denominator for diluted EPS for

the six months ended June 30, 2024, the Company assumed conversion of the 2,671,633 shares of Common Stock and the 15,259,765 Pre-funded

Warrants as of the beginning of the period, January 1, 2024, eliminating the weighting of the shares and warrants from issuance to June

The Company also included in the denominator for diluted EPS for the six months ended June 30, 2024, the assumed conversion

of 2,644,632 shares of Common Stock related to the convertible notes.

For each of the periods

presented, the Company’s potential dilutive securities, which include stock options, restricted stock units, and warrants,

have been excluded from the computation of basic and diluted net (loss) income per share with the exception of the Pre-funded

Warrants, or penny warrants, which are included in the computation, as detailed above.

The weighted-average number of Common Shares

outstanding used to calculate both basic and diluted net loss per share attributable to Common Stockholders is the same for the three months ended June 30, 2024 and 2023 and the six months ended June 30, 2023.

Company excluded the following potential Common Stock equivalents presented based on amounts outstanding at each period end, from

the computation of diluted net loss per share attributable to Common Stockholders for the periods indicated because including them

would have had an anti-dilutive effect:

Shares subject to outstanding stock options

1 unchanged sentence

Shares subject to outstanding warrants

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Note 14 — Commitments and Contingencies

Legal Matters

From time to time, we may

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

From time to time, the Company

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

However, litigation

4 unchanged sentences

On October 5, 2022, Bud & Mary’s

filed a complaint in the Superior Court of Massachusetts in Suffolk County, naming the Company as the defendant.

is seeking, among other relief, monetary damages in connection with alleged unfair or deceptive trade practices, breach of contract and

conversion arising from the Agreement.

While the Company believes the claim is without merit and will continue to vigorously defend itself

against Bud & Mary’s allegations, litigation is inherently unpredictable and there can be no assurance that the Company will

prevail in this matter.

During the third quarter of 2022, the Company deemed it necessary to fully reserve for the outstanding $ 14.7 million

note receivable balance due to the current litigation and the uncertainty of the customer’s ability to repay the balance.

million represents the amount of the contingent loss that the Company has determined to be reasonably possible and estimable.

cost of resolving this matter may be higher or lower than the amount the Company has reserved.

If the Company is unable to realize revenue

from its TTK Solution offerings on a timely basis or at all, or if it incurs an additional loss as a result of the Bud & Mary’s

claim, the Company’s business and financial performance will be adversely affected.

On November 14, 2022, the Company filed its

answers and affirmative defenses to the Bud & Mary’s complaint and counterclaims.

The Company is seeking, among other relief,

monetary damages in connection with the breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment,

and enforcement of the guarantees.

Bud & Mary’s is permitted to file an amended complaint, and Agrify will be permitted to make

responsive filings, which may include an answer and counterclaim.

filed a complaint in the Superior Court of Massachusetts in Suffolk County, naming the Company as the defendant (the “Bud & Mary

Bud & Mary’s is seeking, among other relief, monetary damages in connection with alleged unfair or deceptive

trade practices, breach of contract and conversion arising from the Agreement.

While the Company believes the claim is without merit and

will continue to vigorously defend itself against Bud & Mary’s allegations, litigation is inherently unpredictable and there

can be no assurance that the Company will prevail in this matter.

the third quarter of 2022, the Company deemed it necessary to fully reserve for the outstanding $ 14.7 million note receivable balance

due to the current litigation and the uncertainty of the customer’s ability to repay the balance.

The $ 14.7 million represents the

amount of the contingent loss that the Company has determined to be reasonably possible and estimable.

The actual cost of resolving this

matter may be higher or lower than the amount the Company has reserved.

If the Company is unable to realize revenue from its TTK Solution

offerings on a timely basis or at all, or if it incurs an additional loss as a result of the Bud & Mary’s claim, the Company’s

business and financial performance will be adversely affected.

On November 14, 2022, the Company filed its answers and affirmative defenses

to the Bud & Mary’s complaint and counterclaims.

The Company is seeking, among other relief, monetary damages in connection

with the breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and enforcement of the

Bud & Mary’s is permitted to file an amended complaint, and Agrify will be permitted to make responsive filings,

which may include an answer and counterclaim.

Bowdoin Construction Corp.

February 22, 2023, Bowdoin Construction Corp.

(“Bowdoin”) filed a complaint (the “Bowdoin Complaint”) in the Superior

Court of Massachusetts in Norfolk County naming the Company, Bud & Mary’s and certain related parties as defendants, captioned

(“Bowdoin”) filed a complaint in the Superior Court of Massachusetts in Norfolk

County naming the Company (the “Bowdoin Complaint”), Bud & Mary’s and certain related parties as defendants, captioned

Bowdoin Construction Corp.

4 unchanged sentences

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

$ 6.3 million is included in accounts payable in the consolidated balance sheet.

of Bowdoin’s subs, Hannon Electric, Inc.

has filed a separate suit against Agrify in the amount of $ 1.498 million.

The amount is

part of the $ 6.3 million claimed in Bowdoin’s complaint.

The Company is entitled to indemnification by Bud & Mary’s and

intends to vigorously defend this claim .

The $ 6.3 million is included in accounts

payable in the condensed consolidated balance sheet.

One of Bowdoin’s subs, Hannon Electric, Inc.

has filed a separate suit against

Agrify in the amount of $ 1.498 million.

The amount is part of the $ 6.3 million claimed in Bowdoin’s Complaint.

The Company is entitled

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

Mack Molding Co.

In December 2020, the Company

entered into a five-year supply agreement with Mack Molding Co.

(“Mack”) pursuant to which Mack will become a key supplier

In February 2021, the Company placed a purchase order with Mack amounting to approximately $ 5.2 million towards the initial production

of VFUs during 2021.

Since February 2021, the Company increased the purchase order with Mack to approximately $ 26.5 million towards production

of VFUs during 2021 and 2022.

The Company believed the supply agreement with Mack would provide the Company with increased scaling capabilities

and the ability to meet the potential future demand of its customers more efficiently.

The supply agreement contemplates that, following

an introductory period, the Company will negotiate a minimum percentage of the VFU requirements that the Company will purchase from Mack

each year based on the agreed-upon pricing formula.

The introductory period is not time-based but rather refers to the production of an

initial number of units after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage.

The Company believed this approach would result in both parties making a more informed decision with respect to the pricing and other

terms of the supply agreement with Mack.

On October 11, 2022, the Company received a $ 9.4 million invoice from Mack for inventory purchased

on the Company’s behalf to build VFUs.

As part of the terms of the contract manufacturing agreement, Mack had the contractual right

to bill the Company for any inventory that had aged greater than nine months.

Due to the slowdown in the demand for the VFUs and the lack

of a demand forecast that the Company could provide to the vendor, Mack exercised the right to invoice the Company for the slow-moving

As of December 31, 2022, the Company owed Mack $ 8.4 million for purchased inventory on behalf of the Company to produce VFUs,

which is included in accounts payable in the consolidated balance sheet.

On March 2, 2023, Mack filed an arbitration action seeking the

amounts owed to Mack for purchased inventory.

On October 27, 2023, and effective as of October 18, 2023, Mack and the Company entered

into a Modification and Settlement Agreement (the “Modification Agreement”) with respect to the dispute.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

On February 29, 2024, the

Company met its performance obligations in terms of the Modification Agreement and a gain of $ 1,141,587 was recorded, within general and

administrative expenses, on the Consolidated Statement of Operations during the three months ended March 31, 2024, representing the difference

between the carrying value of the Contract liability owing by Agrify to Mack, prior to the execution of the Modification Agreement, and

the aggregate of (a) the present value of the minimum cash payments required to be made by the Company over the term of the Modification

Agreement, and (b) the fair value of the warrants issued to Mack by the Company, in terms of the Modification Agreement.

The recognition

of this gain also resulted in the derecognition of the Prepaid settlement asset balance, and the reduction of the outstanding accounts

payable balance based on the terms of the Modification Agreement.

At this time, the outstanding accounts payable balance owing to Mack,

was reclassified from Accounts payable to Notes payable, current in the amount of $ 1,374 and Notes payable, net of current in the amount

of $ 3,464 , per the face of the condensed consolidated balance sheet, as of March 31, 2024.

Further, following the meeting

of certain conditions, including making predetermined quarterly payments to Mack in terms of the Modification Agreement, the Company is

entitled to take possession of certain VFUs that were assembled under the Supply Agreement.

These quarterly payments relate to the purchase

from Mack of a minimum of 25 VFUs per quarter for each quarter during 2024 and a minimum of 50 VFUs per quarter for the six quarters beginning

with the first quarter of 2025.

In the first quarter of 2024, the Company recognized a gain of $ 564,277 , within general and administrative

expenses, associated with the revaluation of the contingent liability, originally recognized on losing control of this inventory and offset

against the inventory balance during the fiscal year ended December 31, 2022, on regaining control of 25 units of the VFU inventory.

The Company is also required

to pay a storage fee of $ 25,000 to Mack, per month, for VFUs subject to the Modification Agreement.

In December 2020, the Company entered into a five-year

supply agreement with Mack Molding Co.

(“Mack”) pursuant to which Mack will become a key supplier of VFUs.

In February 2021,

the Company placed a purchase order with Mack amounting to approximately $ 5.2 million towards the initial production of VFUs during 2021.

Since February 2021, the Company increased the purchase order with Mack to approximately $ 26.5 million towards production of VFUs during

2021 and 2022.

The Company believed the supply agreement with Mack would provide the Company with increased scaling capabilities and the

ability to meet the potential future demand of its customers more efficiently.

The supply agreement contemplates that, following an introductory

period, the Company will negotiate a minimum percentage of the VFU requirements that the Company will purchase from Mack each year based

on the agreed-upon pricing formula.

The introductory period is not time-based but rather refers to the production of an initial number

of units after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage.

The Company believed

this approach would result in both parties making a more informed decision with respect to the pricing and other terms of the supply agreement

On October 11, 2022, the Company received a $ 9.4 million invoice from Mack for inventory purchased on the Company’s behalf

to build VFUs.

As part of the terms of the contract manufacturing agreement, Mack had the contractual right to bill the Company for any

inventory that had aged greater than nine months.

Due to the slowdown in the demand for the VFUs and the lack of a demand forecast that

the Company could provide to the vendor, Mack exercised the right to invoice the Company for the slow-moving inventory.

As of December

31, 2022, the Company recognized a contingent liability in the amount of $ 8.4 million, representing an estimate of the amount payable

to Mack with respect to the original Mack purchase agreement, and which was included in accounts payable in the condensed consolidated

balance sheet.

On March 2, 2023, Mack filed an arbitration action seeking the amounts owed to Mack for purchased inventory.

27, 2023, and effective as of October 18, 2023, Mack and the Company entered into a Modification and Settlement Agreement (the “Modification

Agreement”) with respect to the dispute rather than engaging in litigation through the courts.

On February 29, 2024, the Company met its contractual obligations under

the terms of the Modification Agreement.

In settlement of the dispute, the Company made cash payments of $ 500,000 and $ 250,000 to Mack

and issued to Mack a warrant to purchase 750,000 shares of the Company’s Common 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.

TRC Electronics Litigation

11 unchanged sentences

McCutchan, Inc.

In December 2021, the Company

entered into a Standard Form of Agreement (“Agreement”) between Owner and Contractor whereby Valiant Group LLC (“Valiant”)

is the general contractor for tenant improvements on certain real property located in Bellevue, Washington (the “Project”).

In December 2021, the Company entered into a Standard

Form of Agreement (“Agreement”) between Owner and Contractor whereby Valiant Group LLC (“Valiant”) is the general

contractor for tenant improvements on certain real property located in Bellevue, Washington (the “Project”).

McCutchan, Inc.

(“McCutchan”) agreed to be a subcontractor on the Project and engaged various other subcontractors.

terminated Valiant as the general contractor for, among other allegations, breach of contract and unjust enrichment.

Following the termination

of Valiant, in October 2022, the Agreement was assigned and accepted (the “Assignment”) to Agxion, LLC, a wholly owned subsidiary

The Company terminated

Valiant as the general contractor for, among other allegations, breach of contract and unjust enrichment.

Following the termination of

Valiant, in October 2022, the Agreement was assigned and accepted (the “Assignment”) to Agxion, LLC, a wholly owned subsidiary

of the Company.

17 unchanged sentences

and all other named defendants.

The Company, Valiant, and McCutchan have all agreed to mediate the matter.

McCutchan has asked to postpone

the original scheduled May 7 th mediation date, and the Company, Valiant and McCutchan are collectively working to set up a

new three-way mediation date.

In the event the parties cannot reach an agreement in the mediation, this matter will be moved to arbitration

pursuant to the mandatory arbitration clause in the Agreement.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Valiant Grouop LLC

Agrify filed a separate complaint against Valiant

for overbilling, misrepresentation, and breach for the Treehouse project in Nevada.

Valiant has failed to respond and Agrify has since

submitted an entry of default to the court and is currently seeking for award in the amount of $ 1.5 million.

However, there is no guarantee

that the Court would award the full amount and no guarantee that Agrify would be able to successfully collect the full amount from Valiant.

The Company has accepted services and is preparing a response to the complaint.

The Company intends to

vigorously defend McCutchan’s claims.

Valiant Group LLC

The Company filed a separate complaint against

Valiant for overbilling, misrepresentation, and breach for the Treehouse project in Nevada.

Valiant has failed to respond and Agrify has

since submitted an entry of default to the court and is currently seeking for award in the amount of $ 1.5 million.

However, there is no

guarantee that the Court would award the full amount and no guarantee that Agrify would be able to successfully collect the full amount

from Valiant.

Other Litigation

2 unchanged sentences

million was paid in October 2023, with the remaining approximate $ 0.6 million to be paid in equal monthly installments, beginning in January,

This gain was recognized as part of other income, net per the consolidated statement of operations for the three months ended March

31, 2024, with the approximate $ 0.9 million receivable balance recognized as part of prepaid expenses and other current assets, per the

consolidated balance sheet, as of March 31, 2024.

The settlement also resulted in the return of equipment to the Company in October 2023.

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

months ended June 30, 2024, with the approximate $ 0.9 million receivable balance recognized as part of prepaid expenses and other current

assets, per the unaudited condensed consolidated balance sheet, as of June 30, 2024.

The settlement also resulted in the return of equipment

to the Company in October 2023.

The Company is currently

15 unchanged sentences

with respect to these cases is within the range of approximately $ 150,000 to $ 300,000 .

On July 2022, claimant, an ex-sales

VP is claiming he is owed back wages, commission and is entitled to equity in the company, under theories of liability under Massachusetts

labor laws including retaliation, breach of contract, breach of covenant of good faith and fair dealing, fraudulent inducement, tortious

interference & unjust enrichment.

Given the Company has determined these losses are

probable of occurring and reasonably estimable, an accrual was recorded in the amount of $ 150 thousand within general and administrative

expenses within the condensed consolidated statement of operations for the six months ended June 30, 2024.

On July 2022, claimant, an

ex-sales VP is claiming he is owed back wages, commission and is entitled to equity in the company, under theories of liability under

Massachusetts labor laws including retaliation, breach of contract, breach of covenant of good faith and fair dealing, fraudulent inducement,

tortious interference & unjust enrichment.

Company has filed its answer to the initial complaint in January 2023.

The Company believes this

is a meritless case and has responded to various discovery requests.

The Company believes

this is a meritless case and has responded to various discovery requests.

Mack Molding Co.

The Modification Agreement

with Mack referenced above resulted in the Company entering a purchase commitment with Mack where it is contractually obligated to purchase

a minimum of 25 VFUs per quarter for each quarter during 2024 and a minimum of 50 VFUs per quarter for the six quarters beginning with

the first quarter of 2025, at a per VFU price of $ 14,000 .

The Company made payment and took collection of 25 VFUs in the second quarter

The Company has also granted Mack a second lien position on all Agrify assets.

The Company is also required

to pay a storage fee of $ 25,000 to Mack, per month, for VFU parts subject to the Modification Agreement.

Other Commitments and Contingencies

5 unchanged sentences

Refer to Note 7 – Debt,

included elsewhere in the notes to the consolidated financial statements for details of the Company’s future minimum debt payments.

Refer to Note 8 – Leases, included elsewhere in the notes to the consolidated financial statements for details of the Company’s

future minimum lease payments under operating and financing lease liabilities.

Refer to Note 12 – Income Taxes, included elsewhere

in the notes to the consolidated financial statements for information regarding income tax contingencies.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

included elsewhere in the notes to the unaudited condensed consolidated financial statements for details of the Company’s future

minimum debt payments.

Refer to Note 8 – Leases, included elsewhere in the notes to the unaudited condensed consolidated financial

statements for details of the Company’s future minimum lease payments under operating and financing lease liabilities.

Note 12 – Income Taxes, included elsewhere in the notes to the unaudited condensed consolidated financial statements for information

regarding income tax contingencies.

Note 15 — Related Parties

4 unchanged sentences

(sales) activity with entities identified as related parties to the Company:

ended March 31,

Three months ended

Six months ended

(In thousands)

2 unchanged sentences

The following table summarizes net related party

(payable) receivable as of March 31, 2024 and December 31, 2023:

(payable) receivable as of June 30, 2024 and December 31, 2023:

(In thousands)

March 31, 2024

December 31, 2023

Valiant Americas, LLC

2 unchanged sentences

and Chief Executive Officer.

Refer to Note 7 - Debt for further disclosure related to this Related Party Note.

Refer to Note 7 - Debt for further disclosure related to this Related Party Note including related transactions

occurring during the three and six months ended June 30, 2024.

On October 27, 2023, CP Acquisitions

3 unchanged sentences

Refer to Note 7 - Debt for further disclosure related

to this Related Party Note.

to this Related Party Note including related transactions occurring during the three and six months ended June 30, 2024.

Note 16 — Subsequent Events

The Company evaluated subsequent

events and transactions that occurred after the balance sheet date up to the date that the condensed consolidated financial statements

Exercise of Company Issued Prefunded Warrants

In April 2024, a holder of

953,684 of the Company’s previously issued prefunded warrants exercised such warrants for the purchase of 953,684 of the Company’s common

events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed consolidated financial

statements were issued.

Cash Contributions

CP Acquisitions LLC made

cash contributions to the Company from the ongoing CP note payable, in the amounts of $ 350 thousand and $ 175 thousand on July 24, 2024

and August 7, 2024, respectively.

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

What changed 10-Q

Item 1. Financial Statements