What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-11-14 compared with 2024-08-14 · 1028 added, 879 removed, 904 unchanged (68% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

1 unchanged sentence

Marketable securities

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

Accounts receivable, net of allowance for credit losses of $ 2,626 and $ 1,887 at September 30, 2024 and December 31, 2023, respectively

Inventory, net of reserves of $ 15,766 and $ 17,599 at September 30, 2024 and December 31, 2023, respectively

Loans receivable, current

1 unchanged sentence

Total current assets

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

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

Property and equipment, net

17 unchanged sentences

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)

Common Stock, $ 0.001 par value per share, 35,000,000 and 10,000,000 shares authorized at September 30, 2024 and December 31, 2023, respectively, 1,331,823 and 113,416 shares issued and outstanding at September 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

6 unchanged sentences

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

(1) Periods presented have been adjusted to retroactively reflect

the 1-for-20 reverse stock split on July 5, 2023, and for the 1-for-15 reverse stock split on October 8, 2024.

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

3 unchanged sentences

(In thousands, except share and per share data)

Three months ended June 30,

Six months ended June 30,

Three months ended

September 30,

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

8 unchanged sentences

Total operating expenses

Operating (loss) income

Interest income (expense), net

Operating loss

Interest expense

Change in fair value of warrant liabilities

Loss on extinguishment of long-term debt, net

Other income (expense), net

Total other expense, net

Net (loss) income

Total other income (expense), net

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.

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) Periods presented have been adjusted to retroactively reflect

the 1-for-20 reverse stock split on July 5, 2023, and for the 1-for-15 reverse stock split on October 8, 2024.

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

The accompanying notes are an integral part of

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attributable to

Non-Controlling

Stockholders’

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of held-back shares to Lab Society

of prefunded warrants in private placement

Exercise of Pre-Funded Warrants in private placement

of Exchange Note

of Convertible Note

loss (income)

June 30, 2023

$ ( 264,282 )

stock split fractional share settlement

September 30, 2023

$ ( 266,374 )

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (DEFICIT)

(In thousands)

Stockholders’

attributable to

Non-Controlling

Stockholders’

1 unchanged sentence

$ ( 265,797 )

of Common Stock and prefunded warrants through public offering

Issuance of Common Stock and Pre-Funded Warrants through public offering

of held-back shares from Sinclair acquisition

exercise of High Trail Warrants

of Prefunded Warrants issued through public offering

Exercise of Pre-Funded Warrants issued through public offering

of Convertible Note

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March 31, 2024

of Prefunded Warrants issued through public offering

of related party debt into prefunded warrants

of equity classified prefunded warrants

Exercise of Pre-Funded Warrants issued through public offering

Excess of related party debt and Pre-Funded Warrants conversion

Issuance of equity classified Pre-Funded Warrants

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

1 unchanged sentence

$ ( 264,533 )

Exercise of Pre-Funded Warrants

Conversion of related party debt into Pre-Funded Warrants

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

September 30, 2024

$ ( 283,184 )

The accompanying notes are an integral part of

3 unchanged sentences

(In thousands)

For the six months ended

Cash flows from operating activities:

Net income (loss) attributable to Agrify Corporation

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

the nine months ended

September 30,

Cash flows from operating

Net income (loss) attributable

to Agrify Corporation

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

Depreciation and amortization

Amortization of debt discount

Amortization of issuance costs

Amortization of right of use assets

Stock based compensation expense

Change in fair value of warrant liabilities

Loss on extinguishment of long-term debt, net

Change in provision for credit losses, net

Amortization of issuance

Amortization of right of

Stock based compensation

Change in fair value of

warrant liabilities

Loss on extinguishment

of long-term debt, net

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:

Loss on abandonment of

(Gain) loss on disposal

of property and equipment

Gain on early termination

Gain on settlement of contingent

Change in accrued acquisition

liabilities due to issuance of held-back shares

Loss attributable to non-controlling

Changes in operating assets and liabilities,

net of acquisitions:

Accounts receivable

Prepaid expenses and other current assets

Prepaid expenses and other

current assets

Other non-current assets

Accounts payable

Accrued expenses and other current liabilities

Accrued expenses and other

current liabilities

Operating lease liabilities

Contract liabilities

Net cash and cash equivalents used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Proceeds from disposal of property and equipment

Proceeds from sale of marketable securities

and cash equivalents used in operating activities

Cash flows from investing

Purchases of property and

Proceeds from disposal

of property and equipment

Proceeds from sale of marketable

Issuance of loans receivable

Proceeds from repayment of loans receivable

Net cash and cash equivalents provided by investing activities

Cash flows from financing activities:

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

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

Proceeds from Employee Stock Purchase Plan Shares

Proceeds from exercise of S-1 Prefunded Warrants

Proceeds from issuance of related party notes

Repayments of notes payable, other

Repayment of debt in private placement

Payments on other financing loans

Payments on insurance financing loans

Proceeds from repayment

of loans receivable

and cash equivalents provided by investing activities

Cash flows from financing

Proceeds from Issuance of Common Stock through an S-1 and Pre-Funded

Warrants offering

Proceeds from issuance

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

Proceeds from Employee

Stock Purchase Plan Shares

Proceeds from exercise of Pre-Funded Warrants

Proceeds from issuance

of related party notes

Repayments of notes payable,

Repayment of debt in private

Payments on other financing

Payments on insurance financing

Payments of financing leases

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

and cash equivalents provided by (used in) financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at the beginning of period

Cash and cash equivalents at the end of period

Cash and cash equivalents

at the beginning of period

Cash and cash equivalents

at the end of period

Supplemental disclosures

Cash paid for interest

Supplemental disclosures of non-cash flow information

Cashless exercise of High-Trail warrants

Supplemental disclosures

of non-cash flow information

Cashless exercise of High-Trail

Financing of prepaid insurance

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

Contribution from troubled debt restructuring with related party

Consolidation of related party debt principal

Conversion of convertible notes into equity

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

Transfer of loans receivable

from noncurrent to current

Transfer of property and

equipment to inventory

Reclassification of liability classified Pre-Funded Warrants to equity

Conversion of related party

debt into warrants

Accrued interest consolidated

into related party debt

Contribution from troubled

debt restructuring with related party

Consolidation of related

party debt principal

Conversion of convertible

notes into equity

Non-cash amounts of lease

liabilities arising from obtaining right-of-use assets

The accompanying notes are an integral part of

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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.

or the “Company”) is a developer of branded innovative solutions for the cannabis and hemp industries in extraction, cultivation

We believe we are the only company with an automated and fully integrated grow solution in the industry.

Our Agrify “Precision

Elevated™” cultivation solution seamlessly combines our integrated hardware and software offerings with a broad range of associated

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

available from a single provider.

The totality of our product offerings and service capabilities forms an unrivaled ecosystem in what

has historically been a highly fragmented market.

Agrify’s proprietary micro-environment-controlled Vertical Farming Units (VFUs)

enable cultivators to produce the highest quality products with unmatched consistency, yield, and ROI at scale.

Agrify’s comprehensive

extraction product line, which includes hydrocarbon, ethanol, 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

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

The Company has nine wholly-owned

The Company has ten 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.

Company received a Staff Delisting Determination from the Nasdaq Stock Market LLC (“Nasdaq”) Listing Qualifications Department

(the “Staff”) notifying the Company that it was not in compliance with Nasdaq’s continued listing requirements under

Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule 5250(c)(1)”) as a result of its failure to file the Form 10-Q for the quarters

ended March 31, 2023, June 30, 2023 and the annual report on Form 10-K for the fiscal year ended December 31, 2022 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.

Company received a notice from the Staff that the Company remained noncompliant with the Listing Rule 5250(c)(1) as a result of its failure

to file its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 with the Securities And Exchange Commission

(the “SEC”) by the required filing date.

The Company subsequently filed each of the delinquent reports and regained compliance

with the Listing Rule 5250(c)(1).

On December 1, 2023, the

Company received a notice from 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 “Listing

Rule 5550(b)(1)”), which requires that listed companies maintain a minimum of $ 2.5 million in stockholders’ equity.

the Company timely requested a hearing before a Nasdaq Hearings Panel (the “Panel”), which stayed any further action by the

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.

The Company arrived at the hearing having previously cured any additional grounds for

delisting as a result of delinquent periodic filings during 2023 by making all filings 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.

compliance with the Listing Rule 5550(b)(1), which was subsequently extended to May 15, 2024.

As a result of the conversion of the Convertible

Note (as defined below) and the Restated Junior Note (as defined below) as set forth below in Note 7, the Company regained compliance

with the stockholders’ equity requirement, On May 28, 2024, the Company received formal written notice from Nasdaq confirming that

the Company had regained compliance with the minimum stockholders’ equity requirement as set forth in Listing Rule 5550(b)(1).

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

received a deficiency letter from the Staff 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 had 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 expired on September

On September 4, 2024, the Staff notified the company in writing that it was eligible for an additional 180-day compliance period,

or until March 3, 2025, to regain compliance with the Minimum Bid Requirement.

On October 8, 2024, the Company completed a 1-for-15 reverse

stock split of our Common Stock, in which each fifteen shares of Common Stock issued and outstanding was combined and converted into one

share of Common Stock to regain compliance with the Minimum Bid Requirement .

On October 22, 2024, the Staff notified the Company that

it had regained compliance with the Minimum Bid Requirement.

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 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.

These 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 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 SEC 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

These unaudited interim 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 SEC on April 15, 2024.

The December 31, 2023 balances reported herein are derived from the audited consolidated

financial statements for the year ended December 31, 2023.

The results of operations for the interim periods are not necessarily indicative

of the results of operations to be expected for the full year.

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.

consolidated financial statements have been prepared in accordance with U.S.

GAAP 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”).

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

All significant intercompany transactions and balances

are eliminated.

Accounting for Less

1 unchanged sentence

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.

than wholly-owned subsidiary, Agrify Brands, LLC (“Agrify Brands”), the Company first analyzes whether this entity is 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

If it is determined that Agrify Brands 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.

analysis of this entity, 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

fair value, adjusting the basis prospectively for the third parties’ share of the respective consolidated investments’ net

income or loss or equity contributions and distributions.

These non-controlling interests are not redeemable by the equity holders and

are presented as part of permanent equity.

Income and losses are allocated to the non-controlling interest holders based on its economic

ownership percentage.

third parties, and the agreement with these third parties provides the Company with greater voting power as the majority owner.

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 fair value, adjusting the basis prospectively for the third parties’ share of the respective consolidated

investments’ net income or loss or equity contributions and distributions.

These non-controlling interests are not redeemable by

the equity holders and are presented as part of permanent equity.

Income and losses are allocated to the non-controlling interest holders

based on its economic ownership percentage.

Going Concern

7 unchanged sentences

operating losses since its inception and has negative cash flows from operations and a working capital deficit of $ 7.0 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.

also has an accumulated deficit of $ 283.2 million as of September 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 September 30, 2024,

the Company had $ 0.3 million of cash, cash equivalents, and marketable securities.

The Company had no restricted cash as of September

Current liabilities were $ 27.8 million as of September 30, 2024.

These unaudited condensed

6 unchanged sentences

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

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.

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.

During the nine months ended

September 30, 2024, the Company raised net proceeds of $ 2.1 million via the issuance of Common Stock and Pre-Funded Warrants in a public

offering through Alexander Capital, LP (“Alexander Capital”) that 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 $ 4.0

million in proceeds through the issuance of notes to related parties.

The Company intends to raise additional capital later this year

to support its 2024 and 2025 funding needs.

The Company also continues to make additional adjustments in headcount, salary, travel, sales

and marketing spending, but there is no guarantee that these ongoing cost-cutting efforts or capital raises will be sufficient to maintain

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.

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

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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.

On an ongoing basis, we evaluate estimates, which include

estimates related to accruals, stock-based compensation expense, reported amounts of revenues and expenses during the reported period,

fair value of warrant liabilities, sales tax liabilities, and net realizable value of inventory and collectability of trade accounts and

loans receivable.

We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe

to be reasonable under the circumstances.

Actual results may differ materially from those estimates or assumptions.

The Company regularly evaluates

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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.

In accordance with ASC Topic 310-10, Receivables (“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.

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

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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:

For the three and nine months ended September 30, 2024 and 2023, the

Company’s customers that accounted for 10% or more of the total revenue were as follows:

Three months ended

June 30, 2024

September 30,

Three months ended

June 30, 2023

Six months ended

June 30, 2024

Six months ended

June 30, 2023

September 30,

Nine months ended

September 30,

Nine months ended

September 30,

(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

* Customer revenue, as a

percentage of total revenue, was less than 10%

As of September 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:

September 30, 2024

December 31, 2023

(In thousands)

% of Total Accounts Receivable

Company Customer Number – 24375

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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

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

As of September 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:

September 30, 2024

December 31, 2023

(In thousands)

% of Total Loans Receivable

Borrower - 01

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

Estimated Useful Life (Years)

Computer and office equipment

Useful Life (Years)

Computer and office equipment 2 to 3

Furniture and fixtures 2

Research and development of laboratory equipment 5

Machinery and equipment

Leased equipment

Trade show assets

Leasehold improvements

Lower of estimated useful life or remaining lease term

Machinery and equipment 3 to 5

Leased equipment 5 to 13

Trade show assets 3 to 5

Leasehold improvements Lower of estimated useful life or remaining lease term

The estimated useful lives

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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

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.

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

In accordance with ASC 606,

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

In accordance with ASC Topic

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

model, which is described below:

● identify the customer contract;

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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.

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

Allocate the transaction

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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.

As of September 30, 2024 and September 30, 2023, the Company

did not have any such financial income.

Payment terms with customers

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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 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.

The Company receives payment

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

no contract assets related to performance under the contract.

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,

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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.

with ASC Topic 450, Accounting for Contingencies , (“ASC 450”) under ASC 450-20-25, the Company accrues for product

warranties when the loss is probable and can be reasonably estimated.

The Company maintained a reserve for warranty returns of $ 0.2 million

and $ 0.4 million as of September 30, 2024 and December 31, 2023, respectively.

The Company’s reserve for warranty returns is included

in accrued expenses and other current liabilities in its unaudited condensed consolidated balance sheets.

Additional information regarding

the Company’s warranty reserve may be found in Note 3 – Supplemental Condensed Consolidated Balance Sheet Information, included

elsewhere in the notes to the unaudited condensed consolidated financial statements.

Research and Development Costs

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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.

Net Loss Per Share

The Company presents basic

and diluted net (loss) income per share attributable to Common Stockholders in conformity with the one-class method.

The Company computes

basic (loss) income per share by dividing net (loss) income available to Common Stockholders by the weighted-average number of Common

Stock outstanding.

Diluted (loss) income per share adjusts basic (loss) income per share for the potentially dilutive impact of convertible

notes, stock options, restricted stock units and warrants.

As the Company has reported losses for the three months ended September 30,

2024 and 2023 and the nine months ended September 30, 2023 and 2024, 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.

Net (loss) income per share

calculations for all periods have been adjusted to reflect the reverse stock splits effected on July 5, 2023 and October 8, 2024.

Recently Announced Accounting Pronouncements

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

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

The standard requires disaggregated

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

The standard applies

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

be useful in making capital allocation decisions.

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

periods beginning after December 15, 2024.

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

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

On December 14, 2023, the

FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , a final standard on improvements to income tax disclosures.

standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income

The standard applies to all entities subject to income taxes and is intended to benefit investors by providing more detailed

income tax disclosures that would be useful in making capital allocation decisions.

For public business entities (PBEs), the new requirements

will be effective for annual periods beginning after December 15, 2024.

The guidance will be applied on a prospective basis with the option

to apply the standard retrospectively.

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

In November 2023, the FASB

issued ASU No.

2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, to provide enhanced segment disclosures.

The standard will require disclosures about significant segment expense categories and amounts for each reportable segment, for all periods

Additionally, the standard requires public entities to disclose the title and position of the Chief Operating Decision Maker

(“CODM”) in the consolidated financial statements.

These enhanced disclosures are required for all entities on an interim

and annual basis, effective for fiscal years beginning after December 15, 2023, and interim periods within annual periods beginning after

December 15, 2024.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial

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

future condensed consolidated financial statements.

Note 2 — Revenue and Contract

Note 2 — Revenue and Contract Liabilities

The Company sells its equipment

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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.

designed and engineered by the Company such as Agrify Vertical Farming Units (“VFUs”), container farms, integrated grow racks,

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

and pesticide-free surface protection.

Construction contracts normally

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Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(In thousands)

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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:

Changes in the Company’s

current contract liabilities balance for the nine months ended September 30, 2024 and for the year ended December 31, 2023 were as follows:

(In thousands)

Nine months ended

September 30,

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.

Contract liabilities balances

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

As of September 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

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Accounts receivable consisted of the following

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

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

(In thousands)

September 30,

Accounts receivable, gross

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The movements in the Company’s credit losses accounts

were as follow:

were as follows:

(In thousands)

Nine months ended

September 30,

Allowance for credit losses - beginning of period

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Prepaid expenses and other current assets consisted

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

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

(In thousands)

September 30,

Receivable from legal settlement

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Total prepaid expenses and other current assets

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.

The Company recorded in the

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

entered into with Mack Molding Co.

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

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.

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

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

Property and Equipment, Net

Property and equipment, net consisted of the following

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

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

(In thousands)

September 30,

Leased equipment

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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.

the three months ended September 30, 2024 and 2023 was $ 0.3 million and $ 0.5 million, respectively, and $ 1.1 and $ 1.5 million for the

nine months ended September 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

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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 nine months ended

September 30, 2024, the Company sold property and equipment with a cost basis of $ 1 ,000 in exchange for proceeds of $ 10 ,000, resulting

in a gain of $ 9 ,000.

During the three and nine months ended September 30, 2024, the Company disposed certain property and equipment for

a loss of $ 26 ,000, including $ 16 ,000 of research and development laboratory equipment recorded as research and development expense on

the statements of operations.

During the three and nine months ended September 30, 2024, the Company retired certain fully depreciated

property and equipment which had an original cost of $ 23 ,000 and $ 544 ,000, respectively.

During the year ended December

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

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.

deposits as of September 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:

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

(In thousands)

September 30,

Sales tax payable

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Accrued professional fees

Accrued warranty expenses

Compensation related fees

Stock subscription payable

Accrued warranty expenses

Accrued interest expense

Accrued consulting fees

Accrued inventory purchases

Accrued interest expense

Accrued acquisition liabilities

Total accrued expenses and other current liabilities

Sales tax payable

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.

represents identified sales and use tax liabilities arising from our 2021 acquisitions of Precision Extraction Newco, LLC (“Precision”)

and Cascade Sciences, LLC (“Cascade”) from Sinclair Scientific, LLC (“Sinclair”).

These amounts are included as part

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

Accrued acquisition liabilities

Resulting from the 2021 acquisitions

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

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

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

under the purchase agreement.

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

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

of Precision and Cascade from 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

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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.

within the Company’s condensed and consolidated statement of operations for the nine months ended September 30, 2024.

Note 4 — Fair Value Measures

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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.

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

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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

At September 30, 2024 and

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

September 30, 2024

December 31, 2023

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

● Cash and cash equivalents, accounts receivable, accounts

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

● Cash and cash equivalents, 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

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

● Accounts receivable and 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.

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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 .

time of each transaction in accordance with ASC Topic 470, Debt (“ASC 470”).

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

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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.

As detailed in Note 9 - Stockholders’ Equity (Deficit), during the three months ended September 30, 2024, the Company amended Pre-Funded Warrants that had been issued to a related party such that they again became liability classified.

These warrants were marked to fair value upon the execution of this amendment in August 2024.

Through an additional amendment executed as of September 30, 2024, the warrants again 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.

As of September 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

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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.

funds as of September 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.

of the warrant liabilities on September 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.

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

However, inherent uncertainties

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The following table summarizes

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

June 30, 2024

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

September 30, 2024

December 31, 2023

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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,

changes in the fair value of the Level 3 warrant liabilities for the nine months ended September 30, 2024 and for the year ended December

(In thousands)

September 30,

For the year ended

Warrant liabilities – beginning of period

Initial fair value of issued warrant liabilities

Exercise of warrants

Reclassification of warrant liabilities to equity

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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

raised from the Company’s Initial Public Offering was allocated to launch the Company’s total turn-key solution program (“TTK

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

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

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

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

grow recipes, product formulations, data analytics, and consumer branding.

The breakdown of loans receivable

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

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

(In thousands)

September 30,

Customer 24096

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& Mary’s”) - Customer 139

The initial payment date

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

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

On May 12, 2021 the company

executed an agreement with our customer, Bud & Mary’s, under the TTK solution program to provide financing and project management

for the build out and development of their cultivation facility.

The initial payment date on the loan receivable from our customer Bud

& Mary’s is the first business day of the first full month following the commencement of commercial products sales and the maturity

date is 24 months from the initial payment date.

The interest rate is 16 % per annum.

In Q3 2022, 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.

In the third quarter of 2022,

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

dated May 12, 2021, which resulted in the Company issuing a loan acceleration letter to Bud & Mary’s on September 15, 2022,

demanding full repayment of the loan.

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.

As of September 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”) -

As of December 31, 2022,

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

development of Hannah’s cultivation business.

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

as of this date.

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

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

balance as of December 31, 2022.

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

of $ 4.5 million as of December 31, 2022.

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

program, on which an allowance was not recorded.

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

On May 10, 2021 the company

executed an agreement with our customer, Hannah, under the TTK solution program to provide financing and project management for the build

out and development of their cultivation facility.

As of December 31, 2022, the Company was unable to provide additional financing.

a result, the Company concluded that the existing receivable due from Hannah was impaired as of this date.

Given the uncertainty around

Hannah’s ability to repay the outstanding balance of the loan as well as the absence of value attributed to any collateral from

Hannah, an allowance for credit losses was recognized for 50 % of the total outstanding receivable balance as of December 31, 2022.

Company recognized an allowance for credit losses related to the Hannah loan receivable in the amount of $ 4.5 million as of December 31,

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

was not recorded since the payment signals progress toward completion of the project.

Therefore the allowance on the Hannah loan remains

at $ 4.5 million as of September 30, 2024.

Once the project is completed,

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

Nevada Holistics (“Tree house”)

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

Nevada Holistics (“Treehouse”)

- Customer 24096

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 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.

On December 21, 2021 the

company executed an agreement with our customer, Nevada Holistics, under the TTK solution program to provide financing and project management

for the build out and development of their cultivation facility.

As of September 30, 2024, Nevada Holistics has a current balance of $ 1.68

million due to the company in relation to the loan under the TTK Solution program.

The project went live in the second quarter of 2023.

After the 90 day period for Treehouse’s first harvest, the customer was given an additional 6-month grace period which ended in

the first quarter of 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 had previously agreed to begin making monthly payments in the second quarter of 2024 based

on what it produces through harvests, though no payments have yet been received and negotiations have been ongoing.

Monthly payments would

be calculated based off of the Production Success Fees generated from each harvest.

Upon issuance of each invoice to Treehouse, that portion

of the loan is reclassified into loan receivable, current on the unaudited condensed consolidated balance sheets.

Note 6 — Inventory

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applied to the purchase of products once they are delivered.

Inventory consisted of the following as of June

Inventory consisted of the following as of September

30, 2024 and December 31, 2023:

(In thousands)

September 30,

Finished goods

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(In thousands)

September 30,

Related party debt:

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Long-term debt, net of current

(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.

notes payable as of September 30, 2024 includes the remaining balance on

short term financing on insurance policies of $ 3 thousand and the outstanding balance of the loan from Navitas Credit Corp.

of $ 6 thousand.

Other notes payable as of December 31, 2024 related to a one-year insurance premium that was financed over nine months.

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 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 Lender”).

The Exchange Note was a senior secured obligation of the Company and ranked senior to all indebtedness

of the Company.

The 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 would 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

On March 8, 2023, the Company

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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

Agreement, at closing the Company 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”)

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of $ 11.7 million.

Refer to “Consolidated CP Acquisitions Note” below for subsequent activity related to the balance originating

from this note.

Convertible Note

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.

In connection with the Exchange

Agreement the Company issued the Convertible Note, which bore 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 would 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

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Until the date the Convertible

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

Note was 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.

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to convert the Convertible Note, the conversion price per share would be $ 114.60 , 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

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

The Convertible Note could 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

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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 .

On May 1, 2023, the Company

entered into a letter agreement with the Original Lender, 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 29,679 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 4,638 shares of Common Stock of the Company were issued to the Original Lender, with the remaining 25,042

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 .

Refer to “Consolidated CP Acquisitions Note” below for subsequent

activity related to the balance originating from this note.

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

On October 27, 2023, CP Acquisitions LLC (“CP Acquisitions”),

an entity affiliated with and controlled by the Company’s former Chief Executive Officer and a former member of the Company’s

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

connection with the Note Purchase, CP Acquisitions has agreed to waive any events of default under the acquired notes through December

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

to CP Acquisitions.

Pursuant to the Junior Secured Note, CP Acquisitions 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, CP Acquisitions 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 Acquisitions to the Company was increased to $ 4.0 million and extended

the maturity date thereon to December 31, 2024 .

Refer to “Consolidated CP Acquisitions Note” below for subsequent activity

related to the balance originating from this note.

Convertible Note Forgiveness

On November 30, 2023, the

New Lender agreed to forgive $ 1.0 million of the principal amount outstanding on the Convertible Note (the “Principal Forgiveness”).

On November 30, 2023, CP Acquisitions

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

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

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

financial difficulties as defined by the ASC, and 2) the Principal Forgiveness was deemed a concession by CP Acquisitions.

Per ASC 470-60-35-5,

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Consolidated CP Acquisitions Note

On January 25, 2024, the Company

and the New Lender consolidated the outstanding principal and interest due under the Junior Secured Note and the Exchange Note as well

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

On January 25, 2024, the

Company and CP Acquisitions consolidated the outstanding principal and interest due under the Junior Secured Note and the Exchange Note

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

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

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

If the New Lender elects to

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

If CP Acquisitions elects

to convert the Restated Note, the conversion price per share will be $ 21.90 , subject to customary adjustments for certain corporate events.

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

The Restated Note may not be converted into shares

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

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

then-outstanding shares of Common Stock.

Immediately following the

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

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

of 178,108 shares of Common Stock (the “January Conversion”) having a fair value of approximately $ 1.7 million.

As the January

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

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

The New Lender Debt Restructuring

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

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

The CP Debt Restructuring

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

as defined by the ASC, and 2) the New Lender Debt Restructuring was deemed to result in a concession by the New Lender.

as defined by the ASC, and 2) the CP Debt Restructuring was deemed to result in a concession by CP Acquisitions.

The Company performed

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

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

The net carrying value of the Consolidated Notes

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

$ 675,000 (the “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.

a comparison of the undiscounted cash flows associated with the Restated Note subsequent to the CP Debt Restructuring to the carrying

value of the Consolidated Notes as of the CP Debt Restructuring date.

The net carrying value of the Consolidated Notes was determined

to exceed the undiscounted future cash flows of the Restated Note after consideration of the January Conversion by approximately $ 675,000

(the “CP 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 CP Restructuring date to maturity.

Further, as CP Acquisitions was a related party of

the Company, the CP 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.

related to the CP Acquisitions Note described above was $ 115,821 for the nine months ended September 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 “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.

On July 12, 2023, the Board 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”) to GIC Acquisition, LLC (“GIC”), an entity that is owned and managed by the Company’s former 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.

The GIC Note bore interest at a rate of 10 % per annum,

would mature in full on August 6, 2023, and could 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 nine

months ended September 30, 2024.

Refer to “Amendment of Related Party Notes” below for subsequent activity related to the

balance originating from this note.

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

and CP Acquisitions entered into an amendment to the Restated Note (the “Consolidated Note Amendment”), pursuant to which

CP Acquisitions may elect, in lieu of shares of Common Stock issuable upon conversion of the Restated Note, to instead receive Pre-Funded

Warrants (“Pre-Funded Warrants”).

The conversion price applicable to the Pre-Funded Warrants will remain unchanged at $ 21.90 .

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”).

execution of the Consolidated Note Amendment, CP Acquisitions elected to convert $ 11.5 million of outstanding principal into a Pre-Funded

Warrant exercisable at issuance for up to 525,114 shares of Common Stock having a fair value of approximately $ 2.9 million (the “CP

Warrant Conversion”).

On May 21, 2024, GIC and the

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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 .

date to December 31, 2025, and provide that the Restated 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 $ 4.65 .

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

execution of the Restated GIC Note, GIC elected to convert all of the outstanding principal under the Restated GIC Note into a Pre-Funded

Warrant exercisable at issuance for up to 492,204 shares of Common Stock having a fair value of approximately $ 2.7 million (the “GIC

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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”).

Conversions were exercised in connection with the Related Party Debt Amendments by CP Acquisitions 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

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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:

Consolidated CP Acquisitions Note as a result of the Related Party Debt Restructuring was approximately $ 4.4 million at September 30,

CP Acquisitions Promissory Note

On August 14, 2024, the Company

issued a junior secured promissory note (the “2024 CP Note”) to CP Acquisitions.

Pursuant to the 2024 CP Note, CP Acquisitions

would lend up to $ 1,500,000 to the Company.

The 2024 CP Note bears interest at a rate of 10 % per annum, will mature in full on July 1,

2025, and may be prepaid without any fee or penalty.

The note was subsequently amended to lend up to $ 3,000,000 to the Company.

CP Note is secured by the Company’s assets and ranks junior to existing secured indebtedness of the Company.

The 2024 CP Note may

be converted into Common Stock of the Company or, at CP Acquisitions’ election, Pre-Funded Warrants with an exercise price of $ 0.001

per share, in each case at a conversion price of $ 3.9495 .

Borrowings under the 2024 CP Note during the nine months ended September 30,

2024 totaled $ 2.34 million.

Interest expense incurred on the 2024 CP Note amounted to approximately $ 37,000 for the nine months ended

September 30, 2024.

As of September 30, 2024, future minimum principal

payments on all debt positions, excluding accrued interest amounts, were as follows:

Years ending December 31 (In thousands),

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As the implicit interest

rate in its leases was generally not known, the Company’s used its incremental borrowing rate as the discount rate for purposes

of determining the present value of its lease liabilities.

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

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

At 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.

rate in its leases was generally not known, the Company used its incremental borrowing rate as the discount rate for purposes of determining

the present value of its lease liabilities.

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

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

At September 30, 2024 and December

31, 2023 the Company’s weighted-average discount rate utilized for its leases was 7.96 % and 7.51 %, respectively.

The Company had several non-cancelable

finance leases for machinery and equipment.

As of June 30, 2024 the Company had no active finance leases.

The Company had several non-cancellable

finance leases for machinery and equipment, all of which ended or were terminated during 2023.

As of September 30, 2024, the Company had

no active finance leases.

The Company has several non-cancellable

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

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area maintenance associated with the property.

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

Cash paid for operating leases during the nine months ended September 30, 2024 and 2023

were $ 729,691 and $ 512,309 , respectively.

During the nine months ended

September 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.

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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

in the amount of $ 39 thousand in the period, calculated as the difference between the remaining right-of-use asset and lease liability

at the time of termination.

Additional information on the Company’s

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Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(In thousands)

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Total lease cost

September 30,

2024 December 31,

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Weighted-average discount rate – finance leases —

(In thousands) Balance Sheet

Location June 30,

(In thousands) Balance Sheet Location September 30,

2024 December 31,

1 unchanged sentence

Total lease assets $ 1,573 $ 1,803

Operating lease liabilities, current Operating lease

liabilities, current $ 539 $ 599

Operating lease liabilities, non-current Operating lease

liabilities, non-current 960 1,394

Operating lease liabilities, current Operating lease liabilities, current $ 666 $ 599

Operating lease liabilities, non-current Operating lease liabilities, non-current 1,090 1,394

Total operating lease liabilities $ 1,756 $ 1,993

Maturities of operating lease liabilities as of

June 30, 2024 are as follows:

September 30, 2024 are as follows:

Years ending December 31 (In thousands),

6 unchanged sentences

On February 27, 2024, the

Company entered into a placement agency agreement (the “Agency Agreement”) with Alexander Capital, LP as placement agent (the

“Placement Agent”), pursuant to which the Company agreed to issue and sell an aggregate of 2,760,000 shares of its common

stock, and, in lieu of common stock to certain investors that so chose, pre-funded warrants to purchase 3,963,684 shares of its common

stock (the “S-1 Offering”).

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

each Pre-Funded Warrant is $ 0.379 , which equals the public offering price per share of the common stock, less the $ 0.001 per share exercise

price of each Pre-Funded Warrant.

Company entered into a placement agency agreement (the “Agency Agreement”) with Alexander Capital as placement agent (the

“Placement Agent”), pursuant to which the Company agreed to issue and sell an aggregate of 184,000 shares of its Common Stock,

and, in lieu of Common Stock to certain investors that so chose, Pre-Funded Warrants to purchase 264,246 shares of its Common Stock (the

“S-1 Offering”).

The public offering price for each share of Common Stock was $ 5.70 , and the offering price for each Pre-Funded

Warrant is $ 5.685 , which equals the public offering price per share of the Common Stock, less the $ 0.015 per share exercise price of each

Pre-Funded Warrant.

The Company issued 4,482

warrants to purchase common stock to Alexander Capital, L.P., referred to as the Placement Agents Warrants above.

The warrants were classified

as equity warrants and recorded under additional paid-in capital in the condensed consolidated balance sheets.

The warrants have a five-year

term and exercise price of 100 % of the offering price, and are subject to adjustment for stock splits, reverse stock splits, stock dividends,

and similar transactions.

The warrants will be exercisable on a cash basis, unless there is not an effective registration statement covering

the issuance of the shares issuable upon exercise of the warrants or if shareholder approval for the full exercise of the warrants are

not received, in which case the Modified Warrant will also be exercisable on a cashless exercise basis at Alexander Capital election.

warrants to purchase Common Stock to Alexander Capital (the “Placement Agents Warrants”).

The Placement Agents Warrants were

classified as equity warrants and recorded under additional paid-in capital in the condensed consolidated balance sheets.

The Placement

Agents Warrants have a five-year term and exercise price of 100 % of the offering price, and are subject to adjustment for stock splits,

reverse stock splits, stock dividends, and similar transactions.

The Placement Agents 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 Placement Agents Warrants

or if shareholder approval for the full exercise of the Placement Agents Warrants are not received, in which case the Placement Agents

Warrants will also be exercisable on a cashless exercise basis at Alexander Capital’s 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 $ 31,000 on February

27, 2024 and is reflected within additional paid-in capital as of June 30, 2024.

of the Placement Agents Warrants were determined utilizing a Black-Scholes model considering all relevant assumptions current at the date

of issuance (i.e., share price of $ 7.80 , exercise price of $ 5.70 , 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 Placement Agents Warrants was estimated to be $ 31,000 on February 27,

2024, and is reflected within additional paid-in capital as of September 30, 2024.

Equity Line of Credit Facility

On August 28, 2024, we entered

into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement with Ionic Ventures, LLC (“Ionic”),

pursuant to which Ionic committed to purchase up to an aggregate of $ 15.0 million of our Common Stock, subject to certain limitations,

from time to time and at our sole discretion over the 36-month term of the Purchase Agreement.

From and after the date the

registration statement relating to the resale of the shares sold to Ionic was declared effective, November 5, 2024, we may from time to

time on any business day, by written notice delivered by us to Ionic, direct Ionic to purchase between $ 250,000 and $ 750,000 of shares

of Common Stock on such business day, at a purchase price per share that will be equal to 93 % (or 80 % if the Common Stock is not then

trading on the Nasdaq Capital Market) of the lowest daily VWAP over a specified measurement period beginning after the delivery of the

purchase notice, as described further in the Purchase Agreement (each, a “Regular Purchase”).

The Purchase Agreement also

permitted us to deliver an exemption purchase notice for $ 400,000 on the date of signing, with the shares so purchased to be delivered

following the Commencement Date, and we delivered an exemption purchase notice for $ 400,000 for the purchase by Ionic of 189,645 shares

of Common Stock.

We will control the timing and amount of any sales of Common Stock to Ionic pursuant to the Purchase Agreement.

has no right to require us to sell any shares of Common Stock to Ionic, but Ionic is obligated to make purchases as we direct, subject

to certain conditions.

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.

with the Consolidated Note Amendment, the Company issued 492,204 and 525,114 Pre-Funded Warrants to GIC Acquisitions and CP Acquisitions

(the “Related Party Pre-Funded Warrants”), respectively, in exchange of notes payable amounting approximately to $ 2.29 million

and $ 11.5 million, respectively.

The Related Party Pre-Funded Warrants can be used to purchase Company’s Common Stock with par value

of $ 0.001 at an exercise price of $ 0.015 .

The Related Party 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.

value of the Related Party 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.

executed an amendment to the Related Party Pre-Funded Warrants, pursuant to which the Company revised certain provisions of the Related

Party Pre-Funded Warrants to (i) remove the adjustment to the exercise price of the Related Party Pre-Funded Warrants when there is a

bona fide equity financing with the primary purpose of raising capital (the “Adjustment Provisions”) and (ii) increase the

threshold for a change of control from 50 % to greater than 50 %.

The classification of the Related Party Pre-Funded Warrants was reassessed

upon the modification and the Related Party 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 Related Party 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.

On August 12, 2024, the stockholders

of the Company approved a proposal to amend the Related Party Pre-Funded Warrants to add the Adjustment Provisions at a future date.

to that approval, on August 28, 2024, the Company entered into amendments to the Related Party Pre-Funded Warrants to insert the Adjustment

This resulted in a reassessment of the Related Party Pre-Funded Warrants such that they no longer met the requirements for

equity classification and became classified as liabilities.

They were remeasured to their fair value upon modification, resulting in a

reduction in value of approximately $ 3.1 million.

The fair value, as of August 28, 2024, of $ 3,723,383 was reclassified to a warrant liability.

As a result of the warrant amendments and the subsequent issuance of 189,645 shares of Common Stock to Ionic at an effective purchase

price of $ 2.109 per share of Common Stock, the number of shares of Common Stock underlying the Related Party Pre-Funded Warrant held by

CP Acquisitions was adjusted to 5,452,288 and the number of shares of Common Stock underlying the Related Party Pre-Funded Warrant held

by GIC Acquisition was adjusted to 1,085,122 .

On August 30, 2024, CP Acquisitions partially exercised its Pre-Funded Warrant and entities

affiliated with Raymond Chang and I-Tseng Jenny Chan received an aggregate of 383,127 shares of Common Stock upon the exercise.

On September 27, 2024, the

Company executed an amendment to the Related Party Pre-Funded Warrants to remove the Adjustment Provisions.

Accordingly, the Related Party

Pre-Funded Warrants met the requirements for equity classification.

The amendment also included a provision preventing the holders from

any additional exercise of either of the Related Party Pre-Funded Warrants at any time between September 27, 2024 and October 9, 2024.

They were remeasured to their fair value upon modification resulting in an increase to the fair value of $ 18,392,143 .

The fair value as

of September 27, 2024 of $ 20,770,707 was reclassified to equity.

Note 10 — Stock-Based

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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.

of Common Stock that may be reserved and available for grant and issuance under the 2022 Plan is 1,765 shares and 16,667 additional shares

issued upon approval by the Board of Directors on January 8, 2024.

On August 12, 2024, the Company’s stockholders approved an amendment

to the 2022 Plan to increase the number of shares issuable thereunder by 166,667 .

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 was adopted by the Board of Directors.

As of September 30, 2024, there

were 36,190 shares of Common Stock available to be granted under the Company’s 2022 Plan.

The Company’s stock

compensation expense was $ 0.1 million an d $ 0.8 million for the three months ended June 30,

compensation expense was $ 0.3 million an d $ 0.5 million for the three months ended September

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

The Company’s

stock compensation expense was $ 0.9 million and $ 2.1 million for the nine months ended September

30, 2024 and 2023 , respectively.

Stock Options

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 .

For the nine months ended

September 30, 2024, there were no options granted or exercised under the Company’s stock option plans.

For the same period, there

were 36 options expired with a weighted average exercise price of $ 22,456.50 .

There were 651 and 687 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

average exercise price of $ 24,187.65 and $ 23,938.80 as of September 30, 2024 and December 31, 2023, respectively.

There were 650 options

vested and exercisable with a weighted average exercise price of $ 24,187.65 as of September 30, 2024.

There were 651 options vested and

expected to vest with a weighted average exercise price of $ 24,165.45 as of September 30, 2024

As of September 30, 2024,

total unrecognized compensation expense related to unvested options was $ 7,000 , which is expected to be recognized over a weighted average

period of 0.27 years.

The following table summarizes information about

options vested and exercisable at June 30, 2024:

options vested and exercisable at September 30, 2024:

Options Vested and Exercisable

2 unchanged sentences

(Years) Weighted-Average

$ 456.00 2,756 5.96 $ 456.00

Exercise Price

$ 6,840.00 184 5.66 $ 6,840.00

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The following table summarizes information about

options vested and expected to vest after June 30, 2024:

options vested and expected to vest after September 30, 2024:

Options Vested and Expected to Vest

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(Years) Weighted-Average

$ 456.00 2,769 5.94 $ 456.00

Exercise Price

$ 6,840.00 184 5.66 $ 6,840.00

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The following table presents restricted stock

unit activity for the six months ended June 30, 2024:

unit activity for the nine months ended September 30, 2024:

Weighted-Average

Grant Date Fair

Unvested at December 31, 2023

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.

Unvested at September 30, 2024

As of September 30, 2024,

total unrecognized compensation expense related to unvested restricted stock units was $ 506,000 , which is expected to be recognized over

a weighted average period of 0.56 years.

Note 11 — Stock Warrants

The following tables present all warrant activity

of the Company for the three months ended June 30, 2024:

of the Company for the nine months ended September 30, 2024:

Weighted-Average

Exercise Price

Warrants outstanding at December 31, 2023

( 7,095,901 )

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.

Warrants outstanding at September 30, 2024

The Company received proceeds from the exercise

of Pre-Funded Warrants of $ 10,000 for the nine months ended September 30, 2024.

Note 12 — Income Taxes

The Company’s effective

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

income tax rates were both 0 % for the three and nine months ended September 30, 2024 and 2023, respectively.

There was no provision

for (benefit from) income taxes for the three and nine months ended September 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 nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023.

Note 13 — Net Loss Per Share

Net (loss) income per share

8 unchanged sentences

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.

loss per share for the three months ended September 30, 2024 and 2023 and nine months ended September 30, 2024 and 2023 because the effect

of dilutive securities outstanding during the periods, including convertible notes, options, restricted stock units and warrants computed

using the treasury stock method, is anti-dilutive.

The components of basic and diluted net loss per

share were as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended

September 30,

Nine months ended

September 30,

(In thousands, except share and per share data)

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.

Net loss available for common stockholders

Weighted-average Common Stock outstanding

Net income (loss) per share attributable to common stockholders – basic and diluted

As of September 30, 2024, the

Company had an outstanding principal balance under the Restated Note and Consolidated Notes of approximately $ 3.3 million convertible

into 180,127 shares of Common Stock.

During the nine months ended September 30, 2024, the Company also converted a portion of the convertible

notes into 178,109 shares of Common Stock and 1,017,318 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.

income (loss) per share and weighted for the period outstanding from issuance to September 30, 2024.

The exercise price per warrant is

deemed non-substantive when compared to the fair value of the underlying common shares.

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 abo ve.

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:

outstanding used to calculate both basic and diluted net loss per share attributable to Common Stockholders is the same.

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:

September 30,

Shares subject to outstanding stock options

9 unchanged sentences

September 15, 2022, the Company provided a notice of default to Bud & Mary’s and certain related parties notifying such parties

that Bud & Mary’s was in default of its obligations under the Bud & Mary TTK Agreement.

On October 5, 2022, Bud & Mary’s

filed a complaint in the Superior Court of Massachusetts in Suffolk County, naming the Company as the defendant (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.

that Bud & Mary’s was in default of its obligations under the TTK Solution agreement between the Company and Bud & Mary

(the “Bud & Mary TTK Agreement”).

On October 5, 2022, Bud & Mary’s filed a complaint in the Superior Court of

Massachusetts in Suffolk County, naming the Company as the defendant (the “Bud & Mary Complaint”).

is seeking, among other relief, monetary damages in connection with alleged unfair or deceptive trade practices, breach of contract and

conversion arising from the Bud & Mary TTK 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.

As of September 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.

The $ 14.4 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 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.

This matter is still actively ongoing.

A Rule 16 Litigation Control Conference is scheduled for December 4, 2024.

Bowdoin Construction Corp.

February 22, 2023, Bowdoin Construction Corp.

(“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

On February 22, 2023, Bowdoin

Construction Corp.

(“Bowdoin”) filed a complaint in the Superior Court of Massachusetts in Norfolk County, Massachusetts,

naming the Company (the “Bowdoin Complaint”), Bud & Mary’s and certain related parties as defendants, captioned

Bowdoin Construction Corp.

4 unchanged sentences

$ 7.0 million due under the contract and related indemnification claims and mechanics’ liens.

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 .

$ 6.3 million is included in accounts

payable and $ 700 thousand is included in accrued expenses and other current liabilities in the condensed consolidated balance sheet.

of Bowdoin’s subcontractors, Hannon Electric, Inc.and Electric Supply Center Corp, have filed a separate suits against Agrify in

the amount of $ 1.498 million and $ 93 thousand, respectively.

These amounts are part of the $ 7.0 million claimed in Bowdoin’s Complaint.

The Company has denied liability in all such suits.

Bowdoin and Agrify are attempting to work cooperatively to settle the subcontractor

A status conference will be held concerning this Litigation and consolidated related subcontractor suits in January 2025.

Mack Molding Co.

In December 2020, the Company entered into a five-year

supply agreement with Mack Molding Co.

(“Mack”) pursuant to which Mack will become a key supplier of VFUs.

In February 2021,

the Company placed a purchase order with Mack amounting to approximately $ 5.2 million towards 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.

In December 2020, the Company

entered into a five-year supply agreement with Mack Molding Co.

(“Mack”) pursuant to which Mack became 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 negotiated a minimum percentage of the VFU requirements that the Company 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.

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 a 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.

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 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.

On August 30, 2024, the Company

and Mack entered into an amendment to the Modification Agreement, which modified the payment terms and VFU purchase requirements under

the Modification Agreement.

Pursuant to the amendment, the Company agreed to make payments of $ 1.0 million prior to October 31, 2024 (the

“October Payment”) and an additional $ 1.0 million prior to December 31, 2024.

The Company has not made the October Payment

as of the date hereof, however the Company is working with Mack to extend the date of the October Payment.

The Company also agreed to

purchase at least 25 VFUs prior to October 31, 2024 and a further 25 VFUs between November 1, 2024 and December 31, 2024.

in accordance with the terms of the amendment, the Company will be entitled to certain residual inventory in the possession of Mack, and

the warrant issued to Mack will be terminated.

TRC Electronics Litigation

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TRC seeks damages in the amount of $ 565,210 , plus attorneys’ fees, costs, and post-judgment

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

The Company has filed an answer denying liability on TRC’s claims and is currently in the discovery process.

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

In December 2021, the Company

entered into a standard form of 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.

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.

The Assignment contemplates that, as a subcontractor to the Agreement, McCutchan is still bound to the subcontract agreement

and will continue construction operations on the Project.

The Company is pursuing Valiant in a separate litigation (the “Valiant

Litigation”) to collect no less than approximately $ 1.4 million alleging overbilling, breach of the Agreement, and violation of

Chapter 18.27 and 19.86 RCW in Washington.

On March 5, 2024, McCutchan, Inc.

(“McCutchan”) filed a complaint in the Superior

(“McCutchan”) agreed to be a subcontractor on the Project and engaged various other subcontractors (the “Valiant Agreement”).

The Company terminated Valiant as the general contractor for, among other allegations, breach of contract and unjust enrichment.

the termination of Valiant, in October 2022, the Valiant Agreement was assigned and accepted (the “Assignment”) to Agxion,

LLC, a wholly owned subsidiary of the Company.

The Assignment contemplates that, as a subcontractor to the Valiant Agreement, McCutchan

is still bound to the subcontract agreement and will continue construction operations on the Project.

The Company is pursuing Valiant

in a separate litigation to collect no less than approximately $ 1.4 million alleging overbilling, breach of the Valiant Agreement, and

violation of Chapter 18.27 and 19.86 of the Revised Code of Washington.

On March 5, 2024, McCutchan filed a complaint in the Superior

Court of Washington for King County naming the Company, Valiant, and certain related parties as defendants.

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McCutchan’s claims are based on allegations of misrepresentations made by

the Company to pay McCutchan for work completed on the Project as well as a failure to pay under the Agreement.

In the alternative, McCutchan

is alleging the Assignment is void and not a valid contract.

McCutchan is seeking to collect no less than $3 million against the Company

and all other named defendants.

The Company has accepted services and is preparing a response to the complaint.

The Company intends to

vigorously defend McCutchan’s claims.

the Company to pay McCutchan for work completed on the Project as well as a failure to pay under the Valiant Agreement.

In the alternative,

McCutchan is alleging the Assignment is void and not a valid contract.

McCutchan is seeking to collect no less than $ 3 million against

the Company and all other named defendants.

The parties are currently in the discovery process, initial discovery responses are due on

November 7, 2024.

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.

The Company filed two separate complaints against Valiant for overbilling,

misrepresentation, and breach of contract for the Treehouse project in Nevada and Hannah Project in Washington.

Agrify obtained

judgments against Valiant in Nevada for $ 4.5 million for the Treehouse project and $ 10.0 million in Washington for the Hannah Project.

Agrify has domesticated those judgments in Massachusetts and is seeking to enforce them against Valiant, its successor in interest, Intrepid

Investments LLC, and the principals of Valiant.

Agrify filed an action for supplementary proceedings to collect on the judgments.

action is in the early stages and 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.

Other Litigation

In September 2023, the Company

settled a legal dispute with a specific customer which resulted in the recognition of a gain of approximately $ 0.9 million, of which $ 0.3

settled a legal dispute with a specific customer that resulted in the recognition of a gain of approximately $ 0.9 million, of which $ 0.3

million was paid in October 2023, with the remaining approximate $ 0.6 million to be paid in equal monthly installments, beginning in January,

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.

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

nine months ended September 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 September 30, 2024.

The settlement also resulted in

the return of equipment to the Company in October 2023.

The Company is currently

6 unchanged sentences

XMU hydrocarbon extraction system from Precision in October 2021.

MIH chose to not include installation and training in the original purchase

but is now having problems with this equipment.

The Company this is a meritless case.

The Company is also a defendant

or plaintiff in a variety of other litigation matters that are individually insignificant.

The timing and amount of any settlements, including

potential payments made or received, is uncertain.

Nonetheless, management currently estimates that the Company’s aggregate net loss exposure

with respect to these cases is within the range of approximately $ 150,000 to $ 300,000 .

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.

MIH chose not to include installation and training in the original purchase

but is now having problems with this equipment resulting in the claims against Precision, now owned by the Company.

This case was dismissed

without prejudice by opposing counsel on August 1, 2024.

The Company is also a defendant or plaintiff in a variety of other

litigation matters that are individually insignificant.

The timing and amount of any settlements, including potential payments made or

received, is uncertain.

Nonetheless, management currently estimates that the Company’s aggregate net loss exposure with respect

to these cases is within the range of approximately $ 150,000 to $ 300,000 .

Given the Company has determined these losses are probable of

occurring and reasonably estimable, an accrual was recorded in the amount of $ 150,000 within general and administrative expenses within

the condensed consolidated statement of operations for the nine months ended September 30, 2024.

On July 2022, a former sales

Vice President of the Company filed suit against the Company 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 and unjust enrichment.

The Company filed its answer to the initial

complaint in January 2023.

The Company believes this is a meritless claim 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

with Mack referenced above resulted in the Company entering a purchase commitment with Mack where it was 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

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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 also granted Mack a second lien position on all Agrify assets.

On August 30, 2024, the Company

entered into an amendment to the Modification Agreement with Mack, which modified the payment terms and VFU purchase requirements under

the Modification Agreement.

Pursuant to the amendment, the Company agreed to make the October Payment of $ 1.0 million and an additional

$ 1.0 million prior to December 31, 2024.

The Company has not made the October Payment as of the date hereof, however the Company is working

with Mack to extend the date of the October Payment.

The Company also agreed to purchase at least 25 VFUs prior to October 31, 2024 and

a further 25 VFUs between November 1, 2024 and December 31, 2024.

The Company is also required

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Note 15 — Related Parties

Some of the officers and

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

that become available.

Some of the current and former

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

opportunities that become available.

The following table describes the net purchasing

1 unchanged sentence

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(In thousands)

2 unchanged sentences

The following table summarizes net related party

(payable) receivable as of June 30, 2024 and December 31, 2023:

(payable) receivable as of September 30, 2024 and December 31, 2023:

(In thousands)

September 30,

Valiant Americas, LLC

On July 12, 2023, the Company

issued an unsecured promissory note in favor of GIC Acquisition, LLC, an entity that is owned and managed by the Company’s Chairman

issued an unsecured promissory note to GIC Acquisition, LLC, an entity that is owned and managed by the Company’s former Chairman

and Chief Executive Officer.

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.

occurring during the three and nine months ended September 30, 2024.

On October 27, 2023, CP Acquisitions,

LLC, an entity affiliated with and controlled by Company’s Chairman and Chief Executive Officer, purchased the Exchange Note and

the Convertible Note.

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

Refer to Note 7 - Debt for further disclosure related

to this Related Party Note including related transactions occurring during the three and six months ended June 30, 2024.

an entity affiliated with and controlled by Company’s former Chairman and Chief Executive Officer and a former member of the Company’s

Board of Directors, purchased the Exchange Note and the Convertible Note.

In addition, the Company issued to CP Acquisitions a Junior

Secured Note.

Refer to Note 7 - Debt for further disclosure related to this Related Party Note including related transactions occurring

during the three and nine months ended September 30, 2024.

Note 16— Subsequent Events

2 unchanged sentences

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.

Reverse Stock Split

On July 5, 2023, the Company

effected a 1-for-20 reverse stock split of its Common Stock.

On October 8, 2024, the Company effected a 1-for-15 reverse stock split of

its Common Stock.

All share and per share information has been retroactively adjusted to give effect to the reverse stock splits for all

periods presented unless otherwise indicated.

Convertible Note Amendment

On October 18, 2024, the

Company and CP Acquisitions entered into an amendment to the 2024 CP Note, pursuant to which the maximum principal sum of the 2024 CP

Note was increased from $ 1,500,000 to $ 3,000,000 .

The conversion price applicable to the 2024 CP Note will remain unchanged with an exercise

price of $ 0.001 per share, in each case at a conversion price of $ 3.9495 (as may be adjusted per the 2024 CP Note).

Issuance of Convertible Note;

Board and Management

On November 5, 2024, the

Company issued a Secured Convertible Note (the “Green Thumb Note”) to RSLGH, LLC (the “Investor”), a subsidiary

of Green Thumb Industries Inc.

(“Green Thumb”).

The Green Thumb Note is a secured obligation of the Company and ranks senior

to all indebtedness of the Company except for indebtedness held by CP Acquisitions and Mack.

The Green Thumb Note will mature on November

5, 2025 and has a 10.0 % annualized interest rate, with interest to be paid on the first calendar day of each September and March while

the Green Thumb Note is outstanding, in cash, beginning January 1, 2025.

The principal amount of the Green Thumb Note will be payable

on the maturity date.

The Green Thumb Note provides for advances of up to $ 20.0 million in the aggregate, of which $ 10.0 million was advanced

upon issuance.

The Green Thumb Note imposes

certain customary affirmative and negative covenants upon the Company, including covenants relating to corporate existence, indebtedness,

liens, distributions, affiliate transactions, and issuance of other notes.

If an event of default under the Green Thumb Note occurs, the

Investor can elect to redeem the Green Thumb Note for cash equal to the then-outstanding principal amount of the Green Thumb Note (or

such lesser principal amount accelerated by the Investor), plus accrued and unpaid interest, including default interest, which accrues

at a rate per annum equal to 14 % from the date of a default or event of default, or, only in connection with certain events of default.

If the Investor elects to

convert the Green Thumb Note, the conversion price per share will be $ 3.158 , subject to customary adjustments for certain corporate events.

The conversion of the Green Thumb Note will be subject to certain customary conditions and the receipt of stockholder approval to the

extent necessary under Nasdaq listing rules.

Immediately prior to the

issuance of the Green Thumb Note, Raymond Chang, I-Tseng Jenny Chan and entities affiliated with each of them sold shares of Common Stock

and Pre-Funded Warrants to the Investor.

Immediately following the issuance of the Green Thumb Note, Mr.

Chang resigned as Chairman and

Chief Executive Officer of the Company, and Ms.

Chan resigned as a member of the Company’s Board of Directors.

The Board of Directors

appointed Benjamin Kovler as Chairman and Interim Chief Executive Officer and Armon Vakili and Richard Drexler as members of the Board

of Directors to fill the vacancies resulting from Mr.

Chang’s and Ms.

Chan’s resignations.

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