What changed in this filing

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Item 1. Financial Statements

2025-05-09 compared with 2024-11-14 · 873 added, 1581 removed, 351 unchanged (87% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

Cash and cash equivalents

Marketable securities

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

Accounts receivable, net

Inventory, net

Prepaid expenses and other current assets

Current assets associated with discontinued operations

Total current assets

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

Operating lease right-of-use assets

Other non-current assets

Liabilities and Stockholders’ Equity (Deficit)

Intangible assets

Non-current assets associated with discontinued operations

Liabilities and Stockholders’ Equity

Current liabilities:

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Accrued expenses and other current liabilities

Operating lease liabilities, current

Long-term debt, current

Related party debt, current

Contract liabilities

Current liabilities associated with discontinued operations

Total current liabilities

Warrant liabilities

Operating lease liabilities, net of current

Related party debt, net of current

Long-term debt, net of current

Non-current liabilities associated with discontinued operations

Total liabilities

Commitments and contingencies (Note 16)

Stockholders’ equity (deficit):

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)

Stockholders’ equity:

Common Stock, $ 0.001 par value per share, 35,000,000 shares authorized;

1,952,014 and 1,952,032 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively

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

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Accumulated deficit

Total stockholders’ equity (deficit) attributable to Agrify

Total stockholders’ equity attributable to Agrify Corporation

Non-controlling interests

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

(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

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of

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AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

Three months ended

September 30,

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

Cost of goods sold

General and administrative

Selling and marketing

Selling, general and administrative

Research and development

Gain on settlement of contingent liabilities

Gain on early termination of lease

(Gain) loss on disposal of property and equipment

Change in contingent consideration

Total operating expenses

Operating loss

Interest expense

Operating (loss) income from continuing operations

Interest income (expense), net

Change in fair value of warrant liabilities

Loss on extinguishment of long-term debt, net

Total other income (expense), net

Loss attributable to non-controlling interest

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

Other income, net

Total other income, net

(Loss) income from continuing operations before income taxes

Income tax provision

(Loss) income from continuing operations, net of income taxes

(Loss) income from discontinued operations

Gain on disposal of Extraction business

Income tax effect on discontinued operations

Income from discontinued operations, net of income taxes

Net (loss) income

Income (loss) attributable to non-controlling interest

Net (loss) income attributable to Agrify Corporation

Net (loss) income per share:

Basic (loss) income per share

Continuing operations

Discontinued operations

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

Diluted (loss) income per share

Continuing operations

Discontinued operations

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

Weighted average common shares outstanding - basic (1)

Weighted average common shares outstanding - diluted (1)

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

The accompanying notes are an integral part of

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AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (DEFICIT)

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(In thousands)

Stockholders’

attributable to

Non-Controlling

Stockholders’ Equity

Stockholders’

at January 1, 2023

$ ( 247,148 )

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

of Common Stock to Pure Pressure

of restricted stock units

from Employee Stock Purchase Plan Shares

March 31, 2023

of held-back shares to Lab Society

Exercise of Pre-Funded Warrants in private placement

of Exchange Note

of Convertible Note

loss (income)

June 30, 2023

Balance at January 1, 2025

$ ( 307,543 )

stock split fractional share settlement

September 30, 2023

Stock-based compensation

Cancellation of common shares

Impairment of non-controlling interests

Balance at March 31, 2025

$ ( 309,169 )

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (DEFICIT)

(In thousands)

Stockholders’

attributable to

Non-Controlling

Stockholders’ Deficit

Stockholders’

at January 1, 2024

Balance at January 1, 2024

$ ( 265,797 )

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

of held-back shares from Sinclair acquisition

exercise of High Trail Warrants

Exercise of Pre-Funded Warrants issued through public offering

of Convertible Note

from troubled debt restructuring with related party

split share adjustment

March 31, 2024

Stock-based compensation

Issuance of Common Stock and pre-funded warrants through public

Issuance of held-back shares from Sinclair

Cashless exercise of high trail 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

June 30, 2024

$ ( 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

Conversion of convertible note

contribution from troubled debt restructuring with related party

Stock split share adjustment

Balance at March 31, 2024

$ ( 261,561 )

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AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CONDENSED CONSOLIDATED STATEMENTS OF CASH

FLOWS (UNAUDITED)

(In thousands)

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:

For the three months ended

Cash flows from operating activities:

Net (loss) income

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

Depreciation and amortization

Amortization of debt discount

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

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

Lease expense

Impairment of right-of-use assets

Stock-based compensation expense

Change in fair value of warrant liabilities

Change in provision for credit losses, net

Change in provision for inventory

Loss on inventory write-down

(Gain) loss on disposal of property and equipment

Change in contingent consideration

Gain on settlement of contingent liability

Gain on disposal of Extraction business

Changes in operating assets and liabilities:

net of acquisitions:

Accounts receivable

Prepaid expenses and other

current assets

Prepaid expenses and other current assets

Operating lease right-of-use assets

Other non-current assets

Accounts payable

Accrued expenses and other

current liabilities

Accrued expenses and other current liabilities

Operating lease liabilities

Contract liabilities

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

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

Net cash and cash equivalents used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Proceeds from repayment of loan receivable

Net cash and cash equivalents provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of Common Stock

Proceeds from exercise of p re-funded warrants

Proceeds from issuance of related party notes

Payments on insurance financing loans

Repayments of notes payable

Repayment of debt in private

Payments on other financing

Payments on insurance financing

Payments of financing leases

and cash equivalents provided by (used in) financing activities

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

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 of discontinued operations, beginning of period

Cash and cash equivalents of discontinued operations, end 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

Supplemental disclosure of non-cash investing and financing activities

Reclassification of accounts payable to notes payable

Cashless exercise of liability classified warrants

Financing of prepaid insurance

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

Contribution from troubled debt restructuring with related party

Conversion of convertible notes into equity

Consolidation of related party debt

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS (UNAUDITED)

Note 1 — Overview, Basis of Presentation

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Description of Business

Agrify Corporation (“Agrify”

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.

Agrify Corporation (together

with its subsidiaries, the “Company”) is a developer of branded innovative solutions for the cannabis and hemp industries.

The Company’s Señorita brand offers consumers hemp-derived tetrahydrocannabinol (“THC”) beverages that mirror

well-known cocktails like a margarita – in three flavors – classic Lime Jalapeño Margarita, Mango Margarita, and Paloma.

Known for its clean, fresh taste and commitment to high-quality, natural ingredients, Señorita offers a low-sugar, low-calorie

alternative to alcoholic beverages and is available at top retailers including Total Wine, ABC Fine Wine & Spirits, and Binny’s

in ten states in the United States and Canada, with plans for expansion and future availability in premier on-premises destinations.

Agrify has also historically

been a leading provider of innovative cultivation and extraction solutions for the cannabis industry.

Prior to the exit of the extraction

business on March 30, 2025, the Company’s comprehensive extraction product line (“the Extraction Business”), which included

hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowered producers to maximize the quantity and quality of extract

required for premium concentrates.

Additionally, prior to its sale on December 31, 2024, our proprietary micro-environment-controlled

Agrify Vertical Farming Units(“VFUs”) enabled cultivators to produce high quality products for the cannabis industry.

The Company was formed in

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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

On October 17, 2023, the

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 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).

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

in certain companies.

On December 12, 2024, 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 by making all filings prior to the hearing.

Company acquired certain assets from Double or Nothing, LLC (“Double or Nothing”), the owner and creator of the Señorita

brand of hemp-derived drinks as part of the Company’s strategic plan to reposition itself as a distributor of hemp-derived THC beverages

and similar products.

On December 31, 2024, the

Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CP Acquisitions, LLC (“CP”),

an entity affiliated with Raymond Chang, the Company’s former Chairman and Chief Executive Officer.

Under the Purchase Agreement,

CP acquired assets from the Company relating to the Company’s VFUs, including the related Agrify total-turnkey (“TTK”)

solution assets and Agrify Insights TM software solutions (collectively the “Cultivation Business”).

the Cultivation Business occurred following signing on December 31, 2024.

The results of the Cultivation Business are presented as discontinued

operations in the Condensed Consolidated Statements of Operations and, as such, have been excluded from continuing operations.

the Company reclassified the assets and liabilities of the Cultivation Business associated with discontinued operations in the Condensed

Consolidated Balance Sheet as of March 31, 2025 and December 31, 2024.

In connection with the reclassification as discontinued operations,

the assets and liabilities were remeasured to fair value less cost to sell as of March 31, 2025.

The balances as of December 31, 2024

reflect historical carrying values, without remeasurement.

For further discussion on the discontinued operations, refer to Note 6 of this

Quarterly Report on Form 10-Q (this “Quarterly Report”).

On March 30, 2025, the Company

approved the winding down of the Extraction Business by March 31, 2025, including but not limited to, the sale or other disposal of all

remaining assets constituting the Extraction Business, the cessation of all business operations related to the Extraction Business, the

termination of any outstanding contracts related to the Extraction Business, and termination of any employees primarily involved in the

Extraction Business.

The results of the Extraction Business are presented as discontinued operations in the Condensed Consolidated Statements

of Operations and, as such, have been excluded from continuing operations.

Further, the Company reclassified the assets and liabilities

of the Extraction Business associated with discontinued operations in the Condensed Consolidated Balance Sheet as of March 31, 2025 and

December 31, 2024.

In connection with the reclassification as discontinued operations, the assets and liabilities were remeasured to fair

value less cost to sell as of March 31, 2025.

The balances as of December 31, 2024 reflect historical carrying values, without remeasurement.

For further discussion on the discontinued operations, refer to Note 6.

Nasdaq Deficiency Notice

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 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).

Company received formal notice that the Nasdaq Hearings Panel (the “Panel”) of the Nasdaq Stock Market LLC (“Nasdaq”)

had granted the Company’s request for an exception through April 15, 2024 to evidence compliance with the Nasdaq Listing Rule 5550(b)(1)

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

As a result of the conversion of a convertible

note and a junior note held in favor of CP, 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 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.

received a deficiency letter from the Nasdaq Listing Qualifications Department (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 had 180 calendar days to regain compliance with the Minimum Bid Requirement.

The compliance period for the Company expired on September 3, 2024.

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.

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 its 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 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.

financial statements of the Company are unaudited.

In the opinion of management, all adjustments (consisting of normal recurring adjustments)

and disclosures necessary for a fair presentation of these unaudited condensed consolidated financial statements have been included.

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 (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

3 unchanged sentences

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.

December 31, 2024, filed with the SEC on March 21, 2025, as amended on March 28, 2025 (the “Form 10-K”).

The December 31,

2024 balances reported herein are derived from the audited consolidated financial statements for the year ended December 31, 2024, retrospectively

adjusted for discontinued operations.

Accounting for Wholly-Owned

The accompanying unaudited

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”)

condensed 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”).

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are eliminated.

Accounting for Less

Than Wholly-Owned Subsidiaries

For the Company’s less

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 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 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

In accordance with the FASB

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

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

within one year after the financial statements’ issuance date.

The following matters raise substantial doubt about the Company’s

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

The Company has incurred

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

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

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

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

consolidated financial statements are available to be issued.

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

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

from operations to meet its obligations.

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

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.

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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GAAP requires management to make estimates and assumptions that affect

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

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

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

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

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, valuation of deferred tax assets, net realizable value of inventory,

intangible assets, goodwill, and litigation.

The Company bases its estimates on historical experience and other market-specific or other

relevant assumptions that it believes to be reasonable under the circumstances.

Actual results may differ materially from those estimates

or assumptions.

The Company regularly evaluates

5 unchanged sentences

its financial position.

Accounts Receivable, Net and Loans Receivable,

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

The composition

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

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.

Reclassifications

The Company effected a 1-for-20

reverse stock split of its Common Stock on July 5, 2023 and a 1-for-15 reverse stock split of its Common Stock on October 8, 2024.

share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented unless

otherwise indicated.

The shares of Common Stock retained a par value of $ 0.001 per share.

Accordingly, the Stockholders’ equity

(deficit) section of the condensed consolidated balance sheets reflects the reverse stock split by reclassifying from Common Stock to

additional paid-in capital an amount equal to the par value of the decreased shares resulting from the reverse stock split.

Certain amounts in the condensed

consolidated financial statements related to the prior years have been reclassified to conform to the current year’s presentation.

Discontinued Operations

On December 31, 2024, the

Company entered into and closed the Purchase Agreement with CP.

Under the Purchase Agreement, CP acquired assets from the Company relating

to the Cultivation Business.

On March 30, 2025, the Company discontinued the Extraction Business.

As the sale of the Cultivation

Business and the exit of the Extraction Business represented strategic shifts that will have a major effect on the Company’s operations

and financial results, they have been presented in discontinued operations in accordance with ASC 205, Presentation of Financial Statements ,

separate from continuing operations for the three months ended March 31, 2025 and 2024, and as of March 31, 2025 and December 31, 2024,

as applicable.

For further discussion, refer to Note 6 of this Quarterly Report.

Accounts Receivable, Net

Accounts receivable, net,

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

In accordance with the current

expect credited loss (“CECL”) impairment model under Accounting Standards Update (“ASU”) 2016-13, Financial

Instruments – Credit Losses (Topic 326), accounts 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

Accounts and loans receivable balances are written off after all means of collection are exhausted and the potential for non-recovery

is determined to be probable.

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

unaudited condensed consolidated statements of operations.

Concentration of Credit Risk and Significant

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

securities, accounts receivable, and loans receivable.

Cash equivalents primarily consist of money market funds with original maturities

of three months or less, which are invested primarily with U.S.

Financial instruments that

potentially subject the Company to a concentration of credit risk primarily consist of cash, cash equivalents, and accounts receivable.

Cash equivalents primarily consist of money market funds with original maturities of three months or less, which are invested primarily

financial institutions.

Cash deposits with financial institutions generally

exceed federally insured limits.

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

has not experienced any losses on such amounts.

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

receivable for the periods presented.

For the three and 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

September 30,

Three months ended

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 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)

Company Customer Number – 24375

Company Customer Number – 125

Company Customer Number – 9142

Company Customer Number – 15095

Company Customer Number – 10888

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

As of 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)

Borrower - 01

Borrower - 02

Cash deposits with financial institutions generally exceed federally insured limits.

Management believes

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

For the three months ended

March 31, 2025, the Company had four customers that accounted for 10% or more of the total revenue from continuing operations.

These customers

represented between 10% and 26% each of total revenue from continuing operations for the period.

For the three months ended March 31,

2024, the Company had no revenue from continuing operations and therefore no customer represented a significant portion of revenue from

continuing operations.

As of March 31, 2025, four

of the Company’s customers discussed above also accounted for between 15% and 37% each of accounts receivable.

As of December 31,

2024, one customer accounted for 100 % of total accounts receivable.

The Company values all its

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

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

Write-offs of potentially slow-moving

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

The Company takes a physical inventory

count at least once annually at all inventory locations.

Property and Equipment

Property and equipment are

stated at cost less accumulated depreciation and amortization.

Depreciation and amortization expenses are recognized using the straight-line

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

Useful Life (Years)

Computer and office equipment 2 to 3

Furniture and fixtures 2

Research and development of laboratory equipment 5

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

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

The Company charges maintenance

and repairs to expense as incurred.

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

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

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

Costs for capital assets

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

During construction,

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

Upon completion, costs are transferred to the appropriate

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

inventories, which consist primarily of finished goods and raw materials, at the lower of cost or net realizable value, with cost principally

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

Write-offs of potentially slow-moving or damaged inventory

are recorded through specific identification of obsolete or damaged material.

The Company takes a physical inventory count at least once

annually at all significant inventory locations.

Warrant Liabilities

6 unchanged sentences

in ASC 480 and ASC 815.

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

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

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

for equity classification.

For issued or modified warrants

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

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

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

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

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

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

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

conditions for equity classification.

Issued or modified warrants

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

Issued or modified warrants that are precluded from equity classification are recorded as a liability at their initial fair value on the

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

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

Fair Value of Financial Instruments

The Company’s financial

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

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

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

of the Company’s financial instruments.

Company’s financial instruments consist of cash and cash equivalents, accounts receivable, contingent consideration, operating

lease liabilities, long-term debt, related party debt, and warrant liabilities.

Refer to Note 4 - Fair Value Measures, included elsewhere

in the notes to the unaudited condensed consolidated financial statements for details of the Company’s financial instruments.

Revenue Recognition

The Company generates revenue

from the following sources:

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

In accordance with ASC 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;

● identify performance obligations

that are distinct;

The Company generates

revenue from continuing operations through the sale of hemp-derived beverages.

In accordance with ASC Topic 606, Revenue

Recognition (“ASC 606”), revenue is recognized through a five-step model, as outlined below:

the customer contract :

A customer contract is identified when there is mutual approval

and commitment between the Company and its customer, the rights and obligations are clear,

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

Written or electronic signatures on contracts and purchase orders are obtained if such orders

are issued in the normal course of business by the customer.

● Identify performance obligations that are distinct :

The Company identifies distinct performance obligations in each contract.

A performance obligation is considered distinct if the customer

can benefit from the good or service on its own or with readily available resources, and if it is separately identifiable from other

promises in the contract.

The Company’s revenue-generating activities typically have a single performance obligation.

● Determine the transaction price :

● allocate the transaction price

to the distinct performance obligations;

● recognize revenue as the performance

obligations are satisfied.

Identify the customer

A customer contract is generally

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

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

Specifically, the Company obtains written/electronic

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

Identify performance

obligations that are distinct

A performance obligation

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

A good or service that is

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

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

identifiable from other promises in the contract.

Determine the transaction

The transaction price is

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

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

Allocate the transaction

price to distinct performance obligations

The transaction price is

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

being provided to the customer.

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

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

The standalone selling price reflects the price the

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

Recognize revenue as

the performance obligations are satisfied

Revenue is recognized when,

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

Significant Judgments

The Company enters into contracts

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

for as separate performance obligations.

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

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

versus together may require significant judgment.

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

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

The Company then

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

The corresponding revenue is recognized

as the related performance obligations are satisfied.

Judgment is required to determine

the SSP for each distinct performance obligation.

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

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

If the SSP is not observable through past transactions,

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

pricing guidelines related to the performance obligations.

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

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

The full value of the contract is

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

The Company typically

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

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

The Company utilizes the

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

This method is based on the cost of the services from

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

The Company determines the

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

The Company estimates variable

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

of each reporting period if additional information becomes available.

Variable consideration is typically not subject to constraint.

to variable consideration were not material for the periods presented.

If a contract has payment

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

a significant financing component.

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

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

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

For those contracts

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

its relative significance, requires judgment.

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

and will present the financing components separately as financial income.

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

did not have any such financial income.

Payment terms with customers

typically require payment 30 days from the invoice date.

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

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

In the infrequent instances where customers raise concern

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

insignificant in all periods presented.

The Company has elected to

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

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

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

such contracts not to consider the time value of money.

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

activities are excluded from revenue.

The Company receives payment

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

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

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

The majority of the Company’s

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

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

The Company generally provides

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

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

In accordance

with ASC 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

The Company expenses research

and development costs as incurred.

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

with product development.

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

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

cultivation software (“Agrify Insights™”).

Net Loss Per Share

The transaction price

is the amount of consideration the Company expects to receive in exchange for the sale of the product.

This amount is determined excluding

sales taxes collected on behalf of government agencies and net of any sales discounts, incentives, and returns.

● Allocate the transaction price to distinct performance

obligations :

The transaction price is allocated to each distinct performance obligation based on the relative standalone selling

prices (“SSP”) of the goods or services provided.

If a contract involves multiple performance obligations, each is accounted

for separately if distinct, and the SSP reflects the price the Company would charge if the good or service were sold separately in similar

circumstances and to similar customers.

revenue as the performance obligations are satisfied :

Revenue is recognized when control

of the product transfers to the customer, typically upon delivery or shipment, as the customer

assumes the risks and rewards of ownership.

Payment terms vary by customer, but the time

between revenue recognition and payment due is generally not significant.

For products sold

under consignment arrangements, revenue is recognized only when control is transferred to

the end customer.

The Company does not maintain a specific reserve for returns due

to the limited circumstances under which returns are permitted in customer agreements.

for slotting, listing fees, or other marketing or promotional activities, where legally permitted,

are recorded as a reduction in revenue unless a distinct good or service is received in exchange.

Net (Loss) Income Per Share

The Company presents basic

3 unchanged sentences

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.

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

stock options, restricted stock units and warrants.

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

to common stockholders and the weighted average common stock outstanding for the effective of dilutive securities as presented within

Note 15 – Net (Loss) Income Per Share.

As the Company has reported losses for the three months ended March 31, 2025, 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

Recently Adopted 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.

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

Financial Accounting Standards Board (“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

For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15,

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

The Company adopted

this new standard on January 1, 2025 and the effect of this guidance will be reflected in the financial statements for the year ended

December 31, 2025.

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.

Recently Announced Accounting Pronouncements

In November 2024, the FASB

issued ASU 2024-03, Income Statement - Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220):

Disaggregation

of Income Statement Expenses.

This guidance requires additional disclosure of certain amounts included in the expense captions presented

on the Statement of Operations as well as disclosures about selling expenses.

The ASU is effective on a prospective basis, with the option

for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December

Early adoption is permitted for annual financial statements that have not yet been issued.

The Company is currently evaluating

the impact of this ASU on its condensed consolidated financial statements and related disclosures.

In November 2024, the FASB

issued ASU 2024-04, Debt with Conversion and Other Options (“ASU 2024-04”), which clarifies the requirements for determining

whether certain settlements of convertible debt instruments should be accounted for as an induced conversion.

ASU 2024-04 is effective

for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods.

Early adoption

is permitted for all entities that have adopted the amendments in Update 2020-06.

Adoption can be on a prospective or retrospective basis.

The Company is currently evaluating the disclosure impact that ASU 2024-04 may have on its condensed consolidated financial statement

presentation and disclosures.

Other 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

Note 2 — Revenue and Contract Liabilities

The Company sells its equipment

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

Equipment revenue includes sales from proprietary products

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

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

and pesticide-free surface protection.

Construction contracts normally

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

Although there is considerable variation

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

The Company enters into time-and-materials

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

as incurred at rates agreed to in the contract.

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

The following table provides

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

Three months ended

September 30,

Nine months ended

September 30,

(In thousands)

Transferred at a point in time

Transferred over time

Total revenue

The Company generates revenue

in continuing operations from hemp-derived beverage sales.

For the three months ended

March 31, 2025, all of the Company’s revenue from continuing operations is transferred at a point-in-time and relates to hemp-derived

For the three months ended March 31, 2024, there was no revenue from continuing operations.

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

3 unchanged sentences

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

Contract Liabilities

Changes in the Company’s

current contract liabilities balance for the 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.

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

Accounts Receivable, Net

Accounts receivable consisted of the following

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

Accounts receivable, net, consisted of the following

as of March 31, 2025 and December 31, 2024:

(In thousands)

September 30,

Accounts receivable, gross

1 unchanged sentence

Accounts receivable, net

The movements in the Company’s credit losses accounts

were as follows:

(In thousands)

Nine months ended

September 30,

Allowance for credit losses - beginning of period

(Recovery of) allowance for credit losses

Accounts receivable written-off

Allowance for credit losses - end of period

There is nil allowance for credit losses as of

March 31, 2025 and December 31, 2024.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted

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

of the following as of March 31, 2025 and December 31, 2024:

(In thousands)

September 30,

Receivable from legal settlement

Prepaid insurance

Prepaid expenses, other

Other receivables

Prepaid software

Prepaid materials

Prepaid settlement asset

Prepaid insurance

Other receivables

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.

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 September 30, 2024 and December 31, 2023:

(In thousands)

September 30,

Leased equipment

Machinery and equipment

Computer and office equipment

Leasehold improvements

Research and development laboratory equipment

Furniture and fixtures

Trade show assets

Total property and equipment, gross

Accumulated depreciation

Construction in progress

Total property and equipment, net

Depreciation expense for

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

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

and equipment that is not yet ready for use.

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

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

Once the asset is ready for use, the

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

The asset is then depreciated

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

CIP is reviewed regularly to ensure that all costs are accurate

and that the project is progressing as planned.

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

amount, an impairment loss is recognized.

During the 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

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 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 September 30, 2024 and December 31, 2023:

consisted of the following as of March 31, 2025 and December 31, 2024:

(In thousands)

September 30,

Sales tax payable

Accrued construction costs

Accrued professional fees

Accrued consulting fees

Compensation related fees

Stock subscription payable

Accrued warranty expenses

Accrued professional fees

Accrued interest expense

Accrued consulting fees

Accrued inventory purchases

Accrued acquisition liabilities

Total accrued expenses and other current liabilities

Other current liabilities

Sales tax payable

Sales tax payable primarily

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 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

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

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

The claims filed in the Delaware Action concern various

breaches of the plan of merger and equity purchase agreement dated September 29, 2021, by and between the Company, Sinclair, Mass2Media,

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

In response to the Delaware Action, certain of the defendants

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

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

into a settlement for an undisclosed amount.

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

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

The difference

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

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

Litigation reserve

Total accrued expenses and other current liabilities

During the three months ended March 31, 2025, the company paid $ 1.5

million into escrow related to Cultivation Sale Agreement.

See related legal matters in Note 16.

Note 4 — Fair Value Measures

8 unchanged sentences

for identical assets or liabilities in active markets.

Other inputs that are observable directly

or indirectly, such as quoted prices for similar instruments in active markets or

for similar markets that are not active.

Unobservable inputs for which there is

little or no market data which require the Company to develop its own

assumptions about how market participants would

Other inputs that

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

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.

4 unchanged sentences

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

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

At March 31, 2025 and December

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

March 31, 2025

December 31, 2024

2 unchanged sentences

(In thousands)

Money market funds

Warrant liabilities - January 2022 warrants

Warrant liabilities - March 2022 warrants

Warrant liabilities - August 2022 warrants

Warrant liabilities - December 2022 warrants

Warrant liabilities

Total liabilities

1 unchanged sentence

The Company has certain financial

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

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

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

● Cash and cash equivalents, accounts 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 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.

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

● The carrying value of lease liabilities approximates fair

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

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

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

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

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

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

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

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

The fair value of the warrant liabilities

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

As detailed in Note 9 - Stockholders’ Equity (Deficit), during the three months ended 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.

instruments which consist of cash and cash equivalents, accounts receivable, contingent consideration, operating lease liabilities, long-term

debt, related party debt, and warrant liabilities.

Fair value information for each of these instruments as well as other balances of the

Company are as follows:

Cash and cash equivalents approximate their fair value based on the short-term nature of these instruments.

Accounts receivable are presented net of an allowance for estimated

credit losses, which approximates fair value.

The carrying value of lease liabilities approximates fair value due

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

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

Long-term debt and related party debt, including the debt that has

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

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

The Company’s

warrant liabilities are marked-to-market each reporting period with the changes in fair value of warrant liabilities recorded in other

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

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

The Company has pre-funded warrants issued to a related party.

As of result of the latest amendment executed as of December 31, 2024, the warrants met the requirements for equity classification and were marked to fair value as of December 31, 2024.

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

Marketable Securities

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

Level 1 within the fair value hierarchy.

The fair value of the Company’s money market

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 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.

of the warrant liabilities on March 31, 2025 and December 31, 2024 is determined using Level 3 inputs.

Inherent in a Black-Scholes option-pricing

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

The volatility

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

However, inherent uncertainties

2 unchanged sentences

The following table summarizes

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

September 30, 2024

December 31, 2023

the Company’s assumptions used in the valuations as of March 31, 2025 and December 31, 2024:

Exercise price

$ 0.14 - $ 22,440.00

Expected term (in Years)

Discount rate - treasury yield

The following table sets forth a summary of the

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

The following table (in

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

31, 2025 and for the year ended December 31, 2024:

(In thousands)

September 30,

Three months ended

For the year ended

Warrant liabilities - beginning of period

Initial fair value of issued warrant liabilities

Initial fair value of warrant liabilities

Exercise of warrants

2 unchanged sentences

Warrant liabilities end of period

Note 5 — Loans Receivable

A portion of the capital

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

(In thousands)

September 30,

Customer 24096

Allowance for credit losses

Total loan receivable, net of allowance for credit losses

current portion

Total loan receivable, net of current

Bud & Mary’s Cultivation, Inc.

& Mary’s”) - Customer 139

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 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 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”) -

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 its cannabis harvest.

Nevada Holistics (“Treehouse”)

- Customer 24096

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 5 — Inventory

6 unchanged sentences

applied to the purchase of products once they are delivered.

Inventory consisted of the following as of September

Inventory consisted of the following as of March

31, 2025 and December 31, 2024:

(In thousands)

September 30,

Finished goods

Inventory for resale

Prepaid inventory

Raw materials

Packaging materials

Inventory, gross

2 unchanged sentences

Inventory Reserves

The Company establishes an

inventory reserve for obsolete, slow moving, and defective inventory.

The Company calculates inventory reserves for obsolete, slow moving,

or defective items as the difference between the cost of inventory and its estimated net realizable value.

The reserves are based upon

management’s expected method of disposition.

The Company establishes

an inventory reserve for obsolete, slow moving, and defective inventory.

The Company calculates inventory reserves for obsolete, slow

moving, or defective items as the difference between the cost of inventory and its estimated net realizable value.

The reserves are based

upon management’s expected method of disposition.

Note 6 – Discontinued Operations

Cultivation Business Discontinued Operations

On December 31, 2024, the

Company executed and closed the Purchase Agreement with CP for the sale of assets relating to the Company’s Cultivation Business.

The consideration for the sale of the Cultivation Business consisted of the assumption by CP of all the Company’s secured indebtedness

currently held by CP with an aggregate amount of principal and accrued interest of approximately $ 7 million, as well as certain other

liabilities related to the Cultivation Business.

The sale represents efforts to strategically shift the Company’s direction to focus

on its hemp-related business operations.

As a result, the Cultivation Business has been presented as discontinued operations in the condensed

consolidated financial statements for all periods presented.

The disposition resulted

in a loss on sale of $ 11.9 million along with a loss from discontinued operations of $ 1.5 million for a total loss of $ 13.4 million,

which was recorded in net loss from discontinued operations in the consolidated statement of operations for the period ended December

The operating results of the Cultivation Business were reported as a net loss from discontinued operations in the consolidated

statements of operations through December 31, 2024, the date of disposition, and were considered material.

The assets and liabilities

associated with discontinued operations with respect to the Cultivation Business consisted of the following as of March 31, 2025 and December

31, 2024, respectively:

(In thousands)

Current assets:

Prepaid expenses and other current assets

Current assets associated with discontinued operations

Total assets associated with discontinued operations

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Current liabilities associated with discontinued operations

Total liabilities associated with discontinued operations

The following table summarizes

the Company’s income from discontinued operations of the Cultivation Business for the three months ended March 31, 2025 and 2024,

respectively:

For the three months ended

(In thousands)

Cost of goods sold

Selling, general and administrative

Gain on settlement of contingent liabilities

Total operating (loss) income

Operating (loss) income from discontinued operations

Net (loss) income from discontinued operations

Income tax effect on discontinued operations

(Loss) income from discontinued operations, net of income taxes

The condensed consolidated statements of cash

flows include continuing operations and discontinued operations.

The following table summarizes

the depreciation and amortization of long-lived assets, provisions for credit losses, and adjustments to net realizable value of inventories

related to discontinued operations of the Cultivation Business for the three months ended March 31:

(In thousands)

Depreciation and amortization

(Recovery of) provision for credit losses

Provision for slow-moving inventory

Extraction Business Discontinued Operations

On March 30, 2025, the Company

approved the discontinuation and wind down of its legacy Extraction Business.

As a result, all operations associated with the Extraction

Business have ceased as of March 31, 2025, and the Company has initiated the sale or disposal of all remaining assets related to the Extraction

In addition, all outstanding contracts associated with the Extraction Business have been or are in the process of being terminated

in accordance with their respective terms.

In connection with the discontinuation of the business, the Company reduced its workforce by

nine employees on April 1, 2025.

The discontinuation of the legacy Extraction Business represents efforts to strategically shift the Company’s

direction to support the continued expansion of its hemp-derived beverage business operations.

As a result, the Extraction Business has

been presented as discontinued operations in the condensed consolidated financial statements for all periods presented.

As a result of the decision

to wind down the Extraction Business, a gain of approximately $ 3.6 million, net with a loss from discontinued operations of $ 1.7 million

for a total net gain of $ 1.8 million, was recorded in net income from discontinued operations in the condensed consolidated statement

of operations for the three months ended March 31, 2025.

The operating results of the Extraction Business were reported as a net loss

from discontinued operations in the condensed consolidated statements of operations through March 31, 2025, the date of disposition, and

were considered material.

The net loss from discontinued operations for the three months ended March 31, 2024, represents the Extraction

Business’ operating results from the prior year.

The assets and liabilities related to the Extraction Business have been separately

classified in the accompanying condensed consolidated balance sheet as of March 31, 2025 and December 31, 2024.

Balances as of March 31,

2025 have been remeasured at fair value less cost to sell as of March 31, 2025.

The assets and liabilities

associated with discontinued operations with respect to the Extraction Business consisted of the following as of March 31, 2025 and December

31, 2024, respectively:

(In thousands)

Current assets:

Accounts receivable, net

Inventory, net

Prepaid expenses and other current assets

Current assets associated with discontinued operations

Property and equipment, net

Operating lease right-of-use assets

Other non-current assets

Non-current assets associated with discontinued operations

Total assets of discontinued operations

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Operating lease liabilities, current

Customer deposits

Current liabilities associated with discontinued operations

Operating lease liabilities, net of current

Non-current liabilities associated with discontinued operations

Total liabilities associated with discontinued operations

The following table summarizes

the Company’s income (loss) from discontinued operations of the Extraction Business for the three months ended March 31, 2025 and

2024, respectively:

For the three months ended

(In thousands)

Cost of goods sold

Gross (loss) profit

Selling, general and administrative

Impairment of right-of-use assets

Gain on disposal on property and equipment

Total operating expenses

Operating loss from discontinued operations

Gain on disposal of Extraction business

Other income, net

Total other income

Net income (loss) from discontinued operations

Income tax effect on discontinued operations

Income (loss) from discontinued operations, net of income taxes

The condensed consolidated statements of cash

flows include continuing operations and discontinued operations.

The following table summarizes

the depreciation and amortization of long-lived assets, provisions for credit losses, and adjustments to net realizable value of inventories

related to discontinued operations of Extraction Business for the three months ended March 31:

(In thousands)

Depreciation and amortization

Provision for credit losses

Recovery of provision for slow-moving inventory

Note 7 — Business Combinations

As previously disclosed in

the Form 10-K, the Company acquired certain assets from Double or Nothing, the owner and creator of the Señorita brand of hemp-derived

THC drinks, on December 12, 2024.

The transaction was accounted for as a business combination under ASC 805, Business Combinations .

The Company prepared a preliminary

purchase price allocation for the business combination.

The preliminary valuation was based on management’s estimates and assumptions

which are subject to change within the purchase price allocation period (generally not more than one year from the acquisition date).

The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of the intangible assets acquired

and the residual goodwill.

The following table summarizes the initial accounting

Allocation of Purchase Price (in thousands)

Customer Relationships

Total purchase price

As of March 31, 2025, the

preliminary purchase price allocation remains unchanged.

The valuation of certain acquired intangible assets and the resulting goodwill

continues to be based on preliminary estimates.

The Company is in the process of obtaining additional information necessary to complete

the valuation analysis.

As such, the purchase price allocation remains provisional and is subject to change within the measurement period.

Refer to Note 8 – Intangible

Assets, Net in this Quarterly Report, for further information related to the identified intangible assets acquired in this transaction.

Note 8 – Intangible Assets, Net

Intangible assets, net at March 31, 2025 and

December 31, 2024 are summarized as follows:

March 31, 2025

Estimated Gross Accumulated Net

Useful Life Carrying Accumulated Impairment Carrying

in Years Amount Amortization Amount Amount

Tradenames 7 6,100 ( 215 ) —

Customer Relationships 10 2,800 ( 69 ) —

$ 8,900 $ ( 284 ) $ —

December 31, 2024

Estimated Gross Accumulated Net

Useful Life Carrying Accumulated Impairment Carrying

in Years Amount Amortization Amount Amount

Tradenames 7 6,100 —

Customer Relationships 10 2,800 —

The Company recorded amortization

expense of $ 284 thousand and $ 0 , respectively, in general and administrative expense in the condensed consolidated statements of operations

for the three months ended March 31, 2025 and the three months ended March 31, 2024.

Note 9 – Debt

1 unchanged sentence

(In thousands)

September 30,

Related party debt:

Consolidated CP Acquisitions Note

2024 CP Acquisitions Notes

CP Acquisitions Junior Secured Note

GIC Acquisition Note

Green Thumb Note

Total related party debt

1 unchanged sentence

Related party debt, net of current

Short-term debt:

Other Notes Payable - Current

Total short-term debt

Long-term debt:

Other notes payable

Exchange Note

Convertible Note

Unamortized debt premium

Total long-term debt

1 unchanged sentence

Long-term debt, net of current

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 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

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

Pursuant to the Exchange

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”)

with an original principal amount of $ 10.0 million.

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

of $ 11.7 million.

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 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

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

Note plus accrued but unpaid interest.

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

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

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

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

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

The Convertible Note imposed

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

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

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

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

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

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

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

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

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

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

(b) the total then outstanding

principal amount under the Convertible Note (in thousands);

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

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

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

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

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

Until the date the Convertible

Note 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.

If the Original Lender elected

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 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

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

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

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

be bifurcated and separately measured at fair value.

On April 26, 2023, the Original

Lender elected to convert $ 1.6 million of the remaining outstanding principal amount on the Convertible Note for 10,241 shares of Common

Stock of the Company.

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 (“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, 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 CP Acquisitions.

Per ASC 470-60-35-5,

a debtor in a troubled debt restructuring involving only modification of terms of a payable (i.e., not involving a transfer of assets

or grant of an equity interest) shall account for the effects of the restructuring prospectively from the time of restructuring and shall

not change the carrying amount of the payable at the time of the restructuring unless the carrying amount exceeds the total future cash

payments specified by the new terms.

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

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

Consolidated CP Acquisitions Note

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

Consolidated Convertible Note agreement (the “Restated Note”) having a total outstanding principal of $ 18,308,021 (the “New

Lender Debt Consolidation”).

The Restated Note bears interest at a rate of 10 % per annum and will mature in full on December 31,

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

principal amount plus accrued but unpaid interest.

The Restated Note imposes

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

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

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

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

If an event of default under the Restricted Note occurs, then

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

If 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 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, 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 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 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 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 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”) 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

Green Thumb Convertible Note

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.

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 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 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

Company amended and restated the GIC Note (the “Restated GIC Note”, and, collectively with the Consolidated Note Amendment,

the “Related Party Debt Amendments”) to increase the aggregate principal amount to approximately $ 2.29 million, extend the maturity

date to December 31, 2025, and provide that the 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 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

Warrant Conversion”, and, collectively with the CP Warrant Conversion, the “Related Party Warrant Conversions”).

As the Related Party Warrant

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

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

as defined by the ASC, and 2) the Related Party Debt Restructuring was deemed to result in a concession by the Related Party Lenders.

The Company performed a comparison of the aggregated undiscounted cash flows associated with the Related Party Notes subsequent to the

Related Party Debt Restructuring to the aggregate carrying value of the Related Party Notes as of the Related Party Debt Restructuring

The net carrying value of the Related Party Notes was determined to exceed the undiscounted future cash flows of the Related Party

Notes as modified by the Related Party Debt Restructuring by approximately $ 10,000,000 (the “Related Party Debt Restructuring Excess

Carrying Value”).

The aggregate carrying value of the Related Party Notes was thus written down to the amount of the undiscounted

future cash flows on the Related Party Notes from the Related Party Debt Restructuring date to maturity (the “Restructured Related

Party Debt”).

Further, as the Related Party Lenders are related parties of the Company, the Related Party Debt Restructuring Excess

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

The carrying value of the

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:

The Green Thumb Note will mature on November 5, 2025 and has a 10.0 % annualized interest rate.

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 million in

the aggregate, of which $ 10 million was advanced upon issuance.

The Green Thumb Note was amended on May 8, 2025 to issue pre-funded warrants

in lieu of cash interest with 18,614 pre-funded warrants issued on May 8, 2025 and an additional 11,373 pre-funded warrants to be issued

on September 1, 2025, replacing the previously defined cash interest payment dates.

The number of pre-funded warrants is equal to

the cash interest amount otherwise payable on The Green Thumb Note divided by the closing share price on May 8, 2025, which is the effective

date of the amendment.

No changes were made to the conversion price of the principal amount of the Green Thumb Note.

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.

The Company is in compliance with these covenants.

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.

Borrowings under the Green

Thumb Note as of March 31, 2025 totaled $ 10 million which are recorded on the Company’s condensed consolidated balance sheets in

related party debt.

Interest expense incurred on the Green Thumb Note amounted to approximately $ 250 thousand and $ 0 thousand for the

three months ended March 31, 2025 and 2024, respectively.

As of March 31, 2025, future minimum principal payments on all debt positions, excluding accrued interest amounts, were as follows:

Years ending December 31 (In thousands)

2 unchanged sentences

Note 10 — Leases

The determination if any

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

the contract period.

The determination as to whether

any arrangement contained a lease at its inception was performed based on whether or not the Company has the right to control the asset

during the contract period.

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

an original lease term of 12 months or less at inception were not reflected in the Company’s condensed consolidated balance sheet

and those lease costs are expensed on a straight-line basis over the respective term.

Leases with a term greater than 12 months were reflected

as non-current right-of-use assets and current and non-current lease liabilities in the Company’s condensed consolidated balance

with an original lease term of 12 months or less at inception were not reflected in the Company’s condensed consolidated balance

sheet and those lease costs are expensed on a straight-line basis over the respective term.

Leases with a term greater than 12 months

were reflected as non-current right-of-use assets and current and non-current lease liabilities in the Company’s condensed consolidated

balance sheets.

As the implicit interest

1 unchanged sentence

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, 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.

The Company’s leases

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

Some leases include payment for communal

area maintenance associated with the property.

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.

There were no penalties arising from the cancellation.

The Company recognized a gain on early termination

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

operating and financing lease activity was as follows:

Three months ended

September 30,

Nine months ended

September 30,

(In thousands)

Operating lease cost

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Total lease cost

September 30,

2024 December 31,

Weighted-average remaining lease term – operating leases 2.53 years 3.09 years

Weighted-average remaining lease term – finance leases —

Weighted-average discount rate – operating leases 7.96 % 7.51 %

Weighted-average discount rate – finance leases —

(In thousands) Balance Sheet Location September 30,

2024 December 31,

Right-of-use assets, net Right-of-use, net $ 1,573 $ 1,803

Total lease assets $ 1,573 $ 1,803

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

September 30, 2024 are as follows:

Years ending December 31 (In thousands),

Remaining 2024

Total minimum lease payments

Less discount

Total lease liabilities

Note 9 — Stockholders’ Equity (Deficit)

Public Offerings

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.

When a contract contained

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

As of March 31, 2025 and

December 31, 2024, the Company had no active finance leases.

Also during the three months

ended March 31, 2025, in connection with the discontinuation of Extraction Business, the Company subleased the assets under one of its

leases, with the sublease commencement date on April 1, 2025, for $ 9 thousand per month.

The Company recognized an impairment of right-of-use

assets of $ 24 thousand, within loss from discontinued operations in the condensed consolidated statements of operations.

During the three months ended

March 31, 2025, in connection with the discontinuation of Extraction Business, the Company early terminated a lease and recognized a loss

on lease termination of $ 161 thousand, within gain on disposal of Extraction Business in the condensed consolidated statements of operations.

As of March 31, 2025, the

Company did not have any operating leases related to continuing operations.

As such, no operating lease cost, weighted average remaining

lease term, or weighted average discount rate, and cash paid for operating leases are presented for continuing operations for the three

months ended March 31, 2025.

As of March 31, 2025, there is no future lease payment related to continuing operations.

Note 11 — Stockholders’ Equity

On February 27, 2024, the

11 unchanged sentences

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,

Agents Warrants had a five-year term and exercise price of 100 % of the offering price, and were 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

The Placement Agents Warrants were exercisable on a cash basis, unless

there was 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 was not received, in which case the Placement Agents

Warrants will also be exercisable on a cashless exercise basis at Alexander Capital’s election.

The Placement Agent Warrants were

exercised in full during November 2024.

The measurement of fair value

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

of the Placement Agents Warrants was 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 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 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

Compensation and Employee Benefit Plans

The grant date fair value of these Placement Agents Warrants was estimated to be $ 31 thousand on February

27, 2024, and was originally recorded within additional paid-in capital.

As the Placement Agents Warrants were exercised during the year

ended December 31, 2024, the related amounts remain within equity as part of the total proceeds from the issuance of Common Stock.

Note 12 — Stock-Based Compensation and Employee Benefit Plans

2022 Omnibus Equity Incentive Plan

12 unchanged sentences

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.

As of March 31, 2025, there were

920 shares of Common Stock available to be granted under the Company’s 2022 Plan.

The Company’s stock

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 $ 0.9 million and $ 2.1 million for the nine months ended September

30, 2024 and 2023 , respectively.

compensation expense from continuing operations was $ 587 thousand and $ 453 thousand for the three months ended March 31, 2025 and 2024,

respectively.

The Company’s stock

compensation expense from discontinued operations was $ 2 thousand and $ 37 thousand for the three months ended March 31, 2025 and 2024,

respectively.

Stock Options

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 $ 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.

For three months ended March

31, 2025, there were no options granted or exercised under the Company’s stock option plans.

For the same period, there were 126

options expired with a weighted average exercise price of $ 12 thousand.

There were 90 and 216 options outstanding with a weighted average

exercise price of $ 24 thousand and $ 19 thousand as of March 31, 2025 and December 31, 2024, respectively.

There were 90 options vested

and exercisable with a weighted average exercise price of $ 24 thousand as of March 31, 2025.

There were 90 options vested and expected

to vest with a weighted average exercise price of $ 24 thousand as of March 31, 2025.

As of March 31, 2025, there

was no unrecognized compensation expense related to unvested options.

The following table summarizes information about

options vested and exercisable at September 30, 2024:

options vested and exercisable at March 31, 2025:

Options Vested and Exercisable

Price ($) Number of Options Weighted-Average

Remaining Contractual Life

(Years) Weighted-Average

Price ($) Number of Options Weighted-

Life (Years) Weighted-Average

Exercise Price

2 unchanged sentences

$ 5,717 11 5.24 $ 5,717

$ 43,470.00 3 6.48 $ 43,470.00

The following table summarizes information about

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

options vested and expected to vest after March 31, 2025:

Options Vested and Expected to Vest

Price ($) Number of Options Weighted-Average

Remaining Contractual Life

(Years) Weighted-Average

Price ($) Number of Options Weighted-

Life (Years) Weighted-Average

Exercise Price

2 unchanged sentences

$ 5,717 11 5.24 $ 5,717

$ 41,520.00 281 6.48 $ 41,520.00

$ 43,470.00 3 6.48 $ 43,470.00

Restricted Stock Units

Under the 2022 Plan, the

Company may grant restricted stock units to employees, directors and officers.

The restricted stock units granted generally vest equally

over periods ranging from one to three years, subject to certain exceptions for directors.

The fair value of restricted stock units is

determined based on the closing market price of the Company’s Common Stock on the date of grant.

Compensation expense related to

the restricted stock units is recognized using a straight-line attribution method over the vesting period.

The following table presents restricted stock

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

Weighted-Average

Grant Date Fair

unit activity for the three months ended March 31, 2025:

Number of Shares

Grant Date Fair Value

Unvested at December 31, 2024

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

Unvested at March 31, 2025

As of March 31, 2025, total

unrecognized compensation expense related to unvested restricted stock units was $ 858 thousand, which is expected to be recognized over

a weighted average period of 0.43 years.

1 unchanged sentence

The following tables present all warrant activity

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

Weighted-Average

of the Company for the three months ended March 31, 2025:

Number of Warrants

Exercise Price

Warrants outstanding at December 31, 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.

Warrants outstanding at March 31, 2025

Note 14 — Income Taxes

The Company’s effective

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

income tax rates were 0 % for each of the three months ended March 31, 2025 and 2024.

There was no provision for (benefit from) income

taxes for the three months ended March 31, 2025 and 2024.

There is no difference between the Company’s effective tax rates for the

2025 and 2024 periods.

There was no change in the provision for (benefit from) income taxes for the three months ended March 31, 2025

compared to the three months ended March 31, 2024.

Note 15 — Net (Loss) Income Per Share

Net (loss) income per share

1 unchanged sentence

Net (loss) income per share was calculated

based on the weighted-average number of the Company’s Common Stock outstanding.

based on the weighted-average number of shares of the Company’s Common Stock outstanding.

Basic net (loss) income per

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

Diluted net loss per share is computed

by giving effect to all potential shares of Common Stock, including convertible notes, outstanding stock options, stock related to unvested

restricted stock units, and outstanding warrants to the extent dilutive.

Net loss per share, assuming dilution, is equal to basic net

loss per share for the three months ended 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:

share is calculated using the weighted-average number of shares of Common Stock outstanding during the periods.

Diluted net (loss) income

per share is computed by giving effect to all potential shares of Common Stock, including the reflection of as-converted convertible notes,

outstanding stock options, stock related to unvested restricted stock units, and outstanding warrants to the extent dilutive.

income per share, assuming dilution, is equal to basic net (loss) income per share for the three months ended March 31, 2025 and 2024

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

September 30,

Nine months ended

September 30,

(In thousands, except share and per share data)

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

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.

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

Shares subject to unvested restricted stock units

(In thousands, except share and per share

Net (loss) income attributable to Agrify Corporation

from continuing operations

Net income attributable to Agrify Corporation

from discontinued operations

Numerator for basic EPS - net(loss) income

available for common shareholders

Effect of dilutive securities:

Interest expense on convertible notes -

from continuing operations

Numerator for diluted EPS - net (loss) income

available for common shareholders after assumed conversions

Denominator for basic EPS - Weighted-average common shares outstanding

Effect of dilutive securities:

Conversion of convertible notes

Denominator for diluted EPS - adjusted

weighted-average common stock outstanding after assumed conversions

Basic net (loss) income per share attributable to common stockholders

Diluted net (loss) income per share attributable to common stockholders

As of March 31, 2024, the

Company had convertible notes outstanding with a principal balance of approximately $ 14.8 million convertible into 688,827 shares of Common

During the three months ended March 31, 2024, the Company also converted a portion of the convertible notes into 178,109 shares

of Common Stock.

Given the nominal exercise price of the Company’s issuance of pre-funded warrants, such pre-funded warrants are

included in in the calculation of basic net (loss) income per share and weighted for the period outstanding from issuance to March 31,

The exercise price per warrant is deemed non-substantive when compared to the fair value of the underlying shares of Common Stock.

In determination of the denominator for diluted earnings per share (“EPS”) for the three months ended March 31, 2024, the

Company assumed conversion of the 178,109 shares of Common Stock as of the beginning of the period, January 1, 2024, eliminating the weighting

of the shares from issuance to March 31, 2024.

The Company also included in the denominator for diluted EPS for the three months ended

March 31, 2024, the assumed conversion of 688,827 shares of Common Stock related to the convertible notes.

For each of the periods presented,

the Company’s potential dilutive securities, which include stock options, restricted stock units, and warrants, have been excluded

from the computation of basic and diluted net (loss) income per share with the exception of the pre-funded warrants, or penny warrants,

which are included in the computation, as detailed above.

The weighted-average number of shares of Common Stock outstanding used to calculate

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

The Company excluded the following potential

Common Stock equivalents presented based on amounts outstanding at each period end, from the computation of diluted net loss per share

attributable to Common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

Three months ended

Shares subject to outstanding warrants

Shares subject to unvested restricted stock units

Shares subject to outstanding stock options

Note 16 — Commitments and Contingencies

5 unchanged sentences

Bud & Mary’s Litigation

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

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

On September 15, 2022, the

Company provided a notice of default to Bud & Mary’s Cultivation, Inc.

(“Bud & Mary’s) and certain related parties

notifying such parties that Bud & Mary’s was in default of its obligations under the TTK solution 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”).

Mary’s is seeking, among other relief, monetary damages in connection with alleged unfair or deceptive trade practices, breach of

contract and conversion arising from the Bud & Mary 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 December 31, 2024, the allowance related to Bud & Mary’s was reduced to $ 14.4 million, reflecting

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

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.

This matter is subject to the Cultivation sale escrow

litigation reserve agreement where the Company funded $ 1.5 million in January 2025 into escrow for the benefit of settling this and other

Bowdoin Construction Corp.

1 unchanged sentence

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.

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

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

Construction Corp.

Agrify Corporation, Bud & Mary’s Cultivation, Inc.

and BMLC2, LLC, case no.

Complaint relates to a construction contract between Bowdoin and the Company relating to the property that is the subject of the Bud &

Mary’s Complaint, and alleges breach of contract by Bud & Mary’s and by the Company due to nonpayment of approximately

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

$ 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.

The Bowdoin Complaint

relates to a construction contract between Bowdoin and the Company relating to the property that is the subject of the Bud & Mary’s

Complaint, and alleges breach of contract by Bud & Mary’s and by the Company due to nonpayment of approximately $ 7.0 million

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

$ 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.

Two of Bowdoin’s

subcontractors, Hannon Electric, Inc.

and Electric Supply Center Corp, have filed separate suits against the Company 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.

suit and the subcontractor suits have been consolidated.

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 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.

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.

This matter is subject to

the sale of the Cultivation Business escrow litigation reserve agreement where the Company funded $ 1.5 million in January 2025 into escrow

for the benefit of settling this and other claims.

TRC Electronics Litigation

8 unchanged sentences

orders for commercial electronics parts.

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

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

TRC was seeking damages in the amount of $ 0.5 million, plus attorneys’ fees, costs, and

post-judgment interest.

This matter was settled in January 2025 for no cost to the Company.

McCutchan, Inc.

24 unchanged sentences

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 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.

This matter is subject to the Cultivation sale escrow litigation reserve agreement where

the Company funded $ 1.5 million in January 2025 into escrow for the benefit of settling this and other claims.

Other Litigation

In September 2023, the Company

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

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

pursuing 10 separate legal proceedings in attempting to collect approximately $ 1.8 million outstanding receivables.

The Company is not

confident that all legal proceedings and collection efforts will yield in positive results or return of equipment.

On April 25, 2024, Medical

Investor Holdings, LLC dba Vertical Companies (“MIH”) filed a complaint against Agrify demanding $ 288,000 .

MIH purchased an

XMU hydrocarbon extraction system from Precision in October 2021.

MIH chose 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.

On February 9, 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 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

the first quarter of 2025, at a per VFU price of $ 14,000 .

The Company made payment and took collection of 25 VFUs in the second quarter

The Company 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

to pay a storage fee of $ 25,000 to Mack, per month, for VFU parts subject to the Modification Agreement.

Other Commitments and Contingencies

5 unchanged sentences

Refer to Note 9 – Debt,

included elsewhere in the notes to the unaudited condensed consolidated financial statements for details of the Company’s future

minimum debt payments.

Refer to Note 8 – Leases, included elsewhere in the notes to the unaudited condensed consolidated financial

statements for details of the Company’s future minimum lease payments under operating and financing lease liabilities.

Note 12 – Income Taxes, included elsewhere in the notes to the unaudited condensed consolidated financial statements for information

regarding income tax contingencies.

included elsewhere in the notes to the unaudited condensed consolidated financial statements of this Quarterly Report for details of the

Company’s future minimum debt payments.

Refer to Note 10 – Leases, included elsewhere in the notes to the unaudited condensed

consolidated financial statements of this Quarterly Report for details of the Company’s future minimum lease payments under operating

lease liabilities.

Refer to Note 14 – Income Taxes, included elsewhere in the notes to the unaudited condensed consolidated financial

statements of this Quarterly Report for information regarding income tax contingencies.

Note 17 — Related Parties

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

(sales) activity with entities identified as related parties to the Company:

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 activity

with entities identified as related parties to the Company:

Three months ended

September 30,

Nine months ended

September 30,

(In thousands)

Topline Performance Group

Greenstone Holdings

The following table summarizes net related party

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

The net activity of $ 1.6

million during the three months ended March 31, 2025 consists of $ 1.4 million of support services performed by Green Thumb on behalf of

the Company, which is comprised of $ 1.0 million in salary charges and $ 0.4 million in non-salary charges, and $ 250 thousand interest charges,

offset by $ 80 thousand of equipment sales and beverage sales from the Company to Green Thumb.

The following table summarizes

the net related party payable as of March 31, 2025 and December 31, 2024:

(In thousands)

September 30,

Valiant Americas, LLC

On July 12, 2023, the Company

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 nine months ended September 30, 2024.

On October 27, 2023, CP Acquisitions,

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.

The net related party payable

of $ 12.1 million as of March 31, 2025, consists of $ 1.7 million service charge payable, $ 10.0 million convertible notes payable, $ 0.4

million accrued interest payable, offset by $ 80 thousand receivable from equipment sales and beverage sales.

Green Thumb Convertible Note

On November 5, 2024, the Company issued the Green

Thumb Note to Investor.

For further discussion on the note, refer to Note 9 of this Quarterly Report.

Note 18 — Segment Reporting

The Company operates in one

consolidated segment, which is hemp-derived THC beverages.

The Company’s Chief Operating Decision Maker, Benjamin Kovler, Chairman

and Interim Chief Executive Officer of the Company, reviews net income (loss) of the Company when making resource allocation decisions.

Such information is presented in the condensed consolidated statements of operations.

Note 19— Subsequent Events

1 unchanged sentence

events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed consolidated financial

statements were issued.

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.

statements were issued and concluded that there were no subsequent events that required recognition or disclosure in the financial statements.

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