What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-08 compared with 2025-05-09 · 345 added, 236 removed, 227 unchanged (72% of the section changed)

Management’s Discussion and

Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The information contained

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

Agrify is a developer of branded

innovative solutions for the cannabis and hemp industries.

Our 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 U.S.

states and Canada, with plans for expansion and future availability in premier on-premises

destinations.

In addition to beverages,

Agrify has also historically been a leading provider of innovative cultivation and extraction solutions for the cannabis industry.

to the extraction business disposal on March 30, 2025, our comprehensive extraction product line, which includes 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 VFUs enabled cultivators

to produce high quality products for the cannabis industry (the “Cultivation Business”).

The Company was formed in

the State of Nevada on June 6, 2016 as Agrinamics, Inc..

On September 16, 2019, Agrinamics amended its articles of incorporation to reflect

a name change to Agrify Corporation.

Agrify is a developer of

branded innovative solutions for the cannabis and hemp industries.

Our portfolio of consumer-packaged goods brands includes our Señorita

brand which offers consumers hemp-derived tetrahydrocannabinol (“THC”) beverages that mirror well-known cocktails like a margarita

– in four flavors – classic Lime Jalapeño Margarita, Mango Margarita, Paloma and Ranch Water.

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 eleven U.S.

and Canada, with plans for expansion and future availability in premier on-premises destinations.

Other hemp-derived products including

incredibles and Beboe edible products are primarily sold online and through direct-to-retail partnerships

In addition to hemp-derived

products, Agrify has also historically been a leading provider of innovative cultivation and extraction solutions for the cannabis industry

(the “Extraction Business”).

Prior to our exit of the Extraction Business on March 30, 2025, our comprehensive extraction

product line, which includes 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 “Cultivation Business”).

Reverse Stock Split

On July 5, 2023, we effected

On October 8, 2024, we effected

a 1-for-15 reverse stock split of our Common Stock.

On October 8, 2024, we effected a 1-for-15 reverse stock split of our 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.

Recent Developments

On March 19, 2025, our Board

of Directors appointed Brad Asher to serve as our Chief Financial Officer and our principal financial and accounting officer effective

March 24, 2025.

Asher serves as our Chief Financial Officer pursuant to a Shared Services Agreement with Vision Management Services,

LLC, a subsidiary of Green Thumb, and he will not receive any direct compensation from us.

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.

Lines of Business

Hemp-Derived Beverages

The Company acquired the

Señorita brand of hemp-derived THC beverages in November 2024.

Señorita was designed and formulated by world-class winemakers

Charles Bieler and Joel Gott.

Recognizing a growing generational demand for adult beverage alternatives, Bieler and Gott gave the classic

margarita a modern twist—replacing alcohol with hemp-derived to create a delightful adult beverage alternative.

Through the use

of all-natural, premium ingredients like organic Mexican agave, fresh lime juice and sweet, tangy mango, Señorita quickly gained

acclaim, taking home the top spot in The High Times Cannabis Cup just one year after inception.

Gott and Bieler continue to collaborate

on the brand with Mr.

Hemp-Derived Products and Royalties

We acquired the Señorita

brand of hemp-derived THC beverages in November 2024.

Señorita was designed and formulated by world-class winemakers Charles Bieler

and Joel Gott.

Recognizing a growing generational demand for adult beverage alternatives, Bieler and Gott gave the classic margarita a

modern twist—replacing alcohol with hemp-derived to create a delightful adult beverage alternative.

Through the use of all-natural,

premium ingredients like organic Mexican agave, fresh lime juice and sweet, tangy mango, Señorita quickly gained acclaim, taking

home the top spot in The High Times Cannabis Cup just one year after inception.

Gott and Bieler continue to collaborate on the brand with

Kovler and the Agrify team.

Señorita currently offers

three award-winning flavors – classic Lime Jalapeño Margarita, Paloma, and Mango Margarita.

A fourth flavor, low-calorie

Ranch Water, is expected to debut in 2025.

Señorita’s hemp-derived beverages are currently available at top retailers including

Total Wine, ABC Fine Wine & Spirits, and Binny’s in ten U.S.

Señorita currently

offers four award-winning flavors – classic Lime Jalapeño Margarita, Paloma, Mango Margarita, and Ranch Water.

hemp-derived beverages are currently available at top retailers including Total Wine, ABC Fine Wine & Spirits, and Binny’s in

states and Canada.

Products are also available for direct-to-consumer

purchase where permissible under state law at senoritadrinks.com.

Products are also available for direct-to-consumer purchase where permissible under state law at senoritadrinks.com.

On May 20, 2025, we acquired

MC Brands, which consists primarily of intellectual property rights to the incredibles brand.

Concurrent with the MC Brands

acquisition, we entered a License Agreement with subsidiaries of Green Thumb Industries Inc.

(“Green Thumb”), a related party, to use certain

intellectual property related to the Beboe, Rythm and incredibles brands.

The Beboe and Rythm licensing agreements are in connection

with our production, marketing and sale of hemp-derived products to the extent such activities are legal under applicable state and federal

laws in the United States.

By contrast, the incredibles licensing agreement grants GTI Core (an indirectly wholly-owned subsidiary

of Green Thumb) the rights to use certain intellectual property related to the incredibles brand in connection with GTI Core’s

existing state-licensed cannabis business.

The consideration payable by GTI Core for the license rights consists of a monthly license

fee, payable in cash, based on sales of product using the licensed intellectual property.

Co-Manufacturing Arrangements

Our finished goods are manufactured

by various third-party co-manufacturers situated throughout the United States and Canada, under separate arrangements with each party.

Our co-manufacturing arrangements vary in terms and, from time to time, we may enter into manufacturing contracts with agreed upon minimum

quantities to ensure continuity of supply of certain products in certain territories.

We continue to actively seek alternative and/or

additional co-manufacturing facilities with adequate capacity and capability for the production of our various products to minimize transportation

costs as well as mitigate the risk of disruption in production.

Our ability to estimate demand

for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, including in new

If we materially underestimate demand for our products and/or are unable to secure sufficient ingredients or raw materials and/or

procure adequate co-manufacturing arrangements and/or obtain adequate or timely shipment of our products, we might not be able to satisfy

demand on a short-term basis.

Distribution Agreements

During the first half of

2025, we continued to expand distribution of our hemp-derived beverage products in our domestic markets.

We have entered into agreements

with various distributors providing for the distribution of certain of our hemp-derived beverage products, subject to certain terms and

conditions, which may vary depending on the form of the agreement.

Such agreements remain in effect for their then-current term as long

as our products are being distributed, but are subject to specified termination rights held by each party.

Additionally, we are entitled

to terminate certain distribution agreements at any time without cause upon payment of a termination fee, which may be material depending

on the agreement.

Discontinued Operations

Cultivation Solutions

Prior to its sale on December 31, 2024, we sold

proprietary cultivation solutions to independent licensed cultivators.

The two primary products we sold were the VFUs and Agrify Insights™

The proprietary VFU technology offered a modular,

compartmentalized micro-climate growing system for indoor vertical farming.

The VFU system was designed for craft farmers, single-state

operators, and multi-state operators who were looking to consistently produce higher-quality crops at scale.

The VFUs were designed to

line up horizontally in rows, and could be stacked vertically up to three units tall.

Prior to its sale on December

31, 2024, we sold proprietary cultivation solutions to independent licensed cultivators as part of our Cultivation Business.

The two primary

products we sold were the VFUs and Agrify Insights™ software.

The proprietary VFU technology

offered a modular, compartmentalized micro-climate growing system for indoor vertical farming.

The VFU system was designed for craft farmers,

single-state operators, and multi-state operators who were looking to consistently produce higher-quality crops at scale.

The VFUs were

designed to line up horizontally in rows, and could be stacked vertically up to three units tall.

The VFUs were designed to

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Extraction Solutions

Prior to its discontinuation on March 30, 2025,

our extraction equipment and business solutions can be used within indoor processing facilities by fully licensed cannabis and hemp cultivators

and processors or in some cases, by individual processors for individual use in compliance with applicable law.

We sell our proprietary

extraction solutions to independent, licensed cultivators and processing labs.

Prior to its discontinuation

on March 30, 2025, our extraction equipment and business solutions that were a part of our Extraction Business could be used within indoor

processing facilities by fully licensed cannabis and hemp cultivators and processors or in some cases, by individual processors for individual

use in compliance with applicable law.

We sold our proprietary extraction solutions to independent, licensed cultivators and processing

We had strategically acquired

four of the top brands in the extraction space in late 2021 and early 2022 in Precision Extraction, PurePressure, Lab Society, and Cascade

four brands in the extraction space in late 2021 and early 2022:

Precision Extraction, PurePressure, Lab Society, and Cascade Sciences.

These brands encompassed hydrocarbon, alcohol, and solventless extraction and distillation and post-processing solutions.

extraction brands provided equipment and solutions for extraction, post-processing, and testing for the cannabis and hemp industries.

Our extraction

brands provided equipment and solutions for extraction, post-processing, and testing for the cannabis and hemp industries.

Use of Estimates

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Significant estimates include assumptions about the valuation and recognition of stock-based compensation expense,

valuation allowance for deferred tax assets, goodwill, impairment of long-lived assets, provision for litigation, inventory reserve, fair

value measurements and useful life of fixed assets and intangible assets.

valuation allowance for deferred tax assets, goodwill, impairment of long-lived assets, provision for litigation, inventory reserve,

fair value measurements and useful life of fixed assets and intangible assets.

Financial Overview

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Judgments and Estimates

Our management’s discussion

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

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

The preparation of financial statements in

conformity with U.S.

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

accompanying notes.

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

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

reasonable under the circumstances.

Actual results may differ materially from those estimates or assumptions.

We account for warrants as

either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable

Our management’s

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

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

The preparation

of financial statements in conformity with U.S.

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

in the financial statements and accompanying notes.

On an ongoing basis, we evaluate estimates, which include estimates related to

accruals, business combinations, and stock-based compensation expense.

We base our estimates on historical experience and other

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

Actual results may differ

materially from those estimates or assumptions.

We account for warrants

as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable

authoritative guidance in Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity

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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 our 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 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.

are indexed to our own Common Stock among other conditions for equity classification.

For issued or modified

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

the time of issuance or when incurred.

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 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.

The estimated fair value

of the warrant liabilities 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 our best estimate.

The volatility rate is determined utilizing our own share price

and the share price of competitors over time.

Inherent in a Black-Scholes option-pricing model are assumptions used

in calculating the estimated fair values that represent our best estimate.

The volatility rate is determined utilizing our own share

price and the share price of competitors over time.

Revenue Recognition

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:

We generate revenue from

continuing operations through the sale of hemp-derived THC products and related party licensing arrangements.

We license intellectual property to a related party under arrangements

that provide for sales-based royalties.

We recognize royalty income

derived from licensing agreements in accordance with ASC 606, specifically, for sales-based royalties.

In accordance with

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

Identify 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.

A customer contract is identified when there is mutual approval and commitment between us and our 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.

We identify 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.

Our revenue-generating activities typically have a single performance obligation.

Determine the transaction price :

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.

The transaction price is the amount of consideration we expect 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 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.

The transaction price is allocated to each distinct performance obligation based on the relative 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 we would charge if the good or service were sold separately in similar circumstances and to similar customers.

● Recognize 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.

- Revenue from the sale of hemp-derived THC products 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.

For products sold under consignment arrangements, revenue is recognized only when control is transferred to the end customer.

do not maintain a specific reserve for returns due to the limited circumstances under which returns are permitted in customer agreements.

Payments 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.

- In accordance with ASC 606-10-55-65 through 55-65B, royalty revenue

is recognized only when the underlying sale by the licensee occurs, and the performance obligation has otherwise been satisfied.

This approach ensures that revenue is recognized in the period in which it is earned and determinable, consistent with the transfer of

control of the intellectual property to the licensee.

We account for income taxes

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balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

our tax positions are all highly certain of being upheld upon examination.

As such, we have not recorded a liability for unrecognized

tax benefits.

We have an uncertain tax position offsetting our research and development

tax credits given we have not engaged any third parties to perform a study to support credits claimed under Internal Revenue Code

§41 for tax years ended December 31, 2016 through December 31, 2024.

If recognized, none of the unrecognized tax benefits would

impact our effective tax rate.

We recognize the benefit

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

ASC Topic 718 focuses primarily on accounting

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

ASC 718 focuses primarily on accounting for

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

incentive plan.

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and directors.

As permitted under ASC 718,

the Company has made an accounting policy choice to account for forfeitures when they occur.

permitted under ASC 718, we have made an accounting policy choice to account for forfeitures when they occur.

It is important that the

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Results of Operations

Comparison of the Three Months Ended March

31, 2025 and 2024

Comparison of the Three and Six Months

Ended June 30, 2025 and 2024

The following table summarizes

our results of continuing operations for the three months ended March 31, 2025 and 2024:

our results of continuing operations for the three and six months ended June 30, 2025 and 2024:

Three months ended

Six months ended

Cost of goods sold

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Change in contingent consideration

Loss on disposal of property and equipment

Total operating expenses

Operating (loss) income from continuing

Interest income (expense), net

Operating loss from continuing operations

Interest expense, net

Change in fair value of warrant liabilities

Other income, net

Total other income, net

(Loss) income from continuing operations before income taxes

Other (expense) income, net

Total other (expense) income, net

Loss from continuing operations before income taxes

Income tax provision

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

Loss from continuing operations, net of income taxes

(Loss) income from discontinued operations

Gain on disposal of Extraction business

(Loss) gain on disposal of Extraction business

Income tax effect on discontinued operations

Income from discontinued operations, net of income taxes

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

Net (loss) income

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Weighted average common shares outstanding – diluted (1)

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.

We generate revenue from

sales of hemp-derived beverages.

Revenues, all of which related

to hemp-derived beverages, increased by $538 thousand, for the three months ended March 31, 2025, as compared to the same period in 2024.

The comparative increase in revenue was primarily driven by the acquisition of Señorita in December 2024 by all revenue from the

Cultivation Business and Extraction Business for the three months ended March 31, 2024 being presented as part of discontinued operations .

sales of hemp-derived THC products and related party royalty revenue.

The following table provides

a breakdown of our revenue from continuing operations for the three and six months ended June 30, 2025 and 2024:

Three months ended

Six months ended

(In thousands)

Hemp-derived products

Royalty Revenue

Total revenue

Revenue increased by $1.8

million for the three months ended June 30, 2025, as compared to the same period in 2024.

The comparative increase in revenue was primarily

driven by the acquisition of Señorita in December 2024 and the acquisition of MC Brands in May 2025 and all revenue from the Cultivation

Business and Extraction Business for the three months ended June 30, 2024 being presented as part of discontinued operations.

Revenue increased by $2.6

million for the six months ended June 30, 2025, as compared to the same period in 2024.

The comparative increase in revenue was primarily

driven by the acquisition of Señorita in December 2024 and the acquisition of MC Brands in May 2025 and all revenue from the Cultivation

Business and Extraction Business for the six months ended June 30, 2024 being presented as part of discontinued operations.

Cost of Goods Sold

Cost of goods sold represents

costs associated with the hemp-derived beverage sales.

costs associated with the hemp-derived products sales.

The following table provides

a breakdown of our cost of goods sold from continuing operations for the three months ended March 31, 2025 and 2024:

a breakdown of our cost of goods sold from continuing operations for the three and six months ended June 30, 2025 and 2024:

Three months ended

Six months ended

(In thousands)

Hemp-derived beverages

Hemp-derived products

Total cost of goods sold

Cost of goods sold

increased by $1.4 million for the three months ended June 30, 2025 compared to the same period in 2024.

The comparative increase in cost

of goods sold is associated with the acquisition of Señorita in December 2024, which aligns with the increase in revenue.

Cost of goods sold increased

by $448 thousand for the three months ended March 31, 2025 compared to the same period in 2024.

by $1.8 million for the six months ended June 30, 2025 compared to the same period in 2024.

The comparative increase in cost of goods

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Three months ended

Six months ended

(In thousands)

Gross profit totaled $682

thousand, or 16.7% of total revenue during the three months ended March 31, 2025.

thousand, or 33.4% of total revenue during the three months ended June 30, 2025.

Gross profit totaled $772

thousand, or 29.9% of total revenue during the six months ended June 30, 2025.

Selling, General and Administrative

Three months ended

Six months ended

(In thousands)

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

SG&A expense increased by

$2.2 million, or 144%, for the three months ended March 31, 2025, compared to the same period in 2024.

SG&A expense increased

by $6.8 million, or 1005%, for the three months ended June 30, 2025, compared to the same period in 2024.

The comparative change is primarily

attributable to the acquisition of Señorita in December 2024 driving an increase in consulting and outsourced services of $0.9

million, $0.3 million increase of intangible asset amortization expense and $0.3 million increase in marketing expense.

attributable to sales and marketing expense to support the growth of the hemp-derived THC products in addition to the SG&A expense

from the Cultivation Business and Extraction Business for the three months ended June 30, 2024 being presented as part of discontinued

SG&A expense increased

by $9.0 million, or 406%, for the six months ended June 30, 2025, compared to the same period in 2024.

The comparative change is primarily

attributable to sales and marketing expense to support the growth of the hemp-derived THC products in addition to the SG&A expense

from the Cultivation Business and Extraction Business for the six months ended June 30, 2024 being presented as part of discontinued

Research and Development

Three months ended

Six months ended

(In thousands)

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Research and development

expense decreased by $275 thousand, or 100% for the three months ended March 31, 2025, compared to the same period in 2024.

expense decreased by $185 thousand, or 100% for the three months ended June 30, 2025, compared to the same period in 2024.

is attributable to the reduction in personnel resulting from the discontinuation of Extraction Business.

Research and development

expense decreased by $460 thousand, or 100% for the six months ended June 30, 2025, compared to the same period in 2024.

is attributable to the reduction in personnel resulting from the discontinuation of Extraction Business.

Other Income, Net

Three months ended

Six months ended

(In thousands)

Interest income (expense), net

Interest expense, net

Change in fair value of warrant liabilities

Other income, net

Total other income, net

Interest income, net was

$1 thousand for the three months ended March 31, 2025, compared to interest expense, net of $100 thousand for the three months ended March

The change is attributable mainly to the decrease in principal balance on outstanding loans as well as the increase in interest

income from higher cash on hand.

Other (expense) income, net

Total other (expense) income, net

Interest expense, net was

$291 thousand for the three months ended June 30, 2025, compared to interest expense, net of $28 thousand for the three months ended June

The change is attributable mainly to the increase of $40.0 million principal under the Convertible Notes.

Interest expense, net was

$290 thousand for the six months ended June 30, 2025, compared to interest expense, net of $128 thousand for the six months ended June

The change is attributable mainly to the increase of $40.0 million principal under the Convertible Notes.

The change in fair value

of warrant liabilities decreased by $466 thousand, or 53% during the three months ended March 31, 2025, compared to the same period in

of warrant liabilities decreased by $1.2 million, or 91% during the three months ended June 30, 2025, compared to the same period in

The decrease is primarily related to the fair value remeasurement of warrants.

The change in fair value

of warrant liabilities decreased by $696 thousand, or 172% during the six months ended June 30, 2025, compared to the same period in

The decrease is primarily related to the fair value remeasurement of warrants.

Other expense, net was $1

thousand for the three months ended June 30, 2025, compared to none for the same period in 2024.

Other income, net was $18

thousand for the three months ended March 31, 2025, compared to none for the same period in 2024.

thousand for the six months ended June 30, 2025, compared to none for the same period in 2024.

Income Tax (Expense) Benefit

There was no income tax

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

expense or benefit for the three months ended June 30, 2025 and June 30, 2024.

There was no income tax

expense or benefit for the six months ended June 30, 2025 and June 30, 2024.

Liquidity and Capital Resources

As of March 31, 2025, our

As of June 30, 2025, our

principal sources of liquidity were cash and cash equivalents and marketable securities totaling $41.0 million.

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If we are unable to raise additional capital when desired, our business, operating results and financial condition may be adversely affected.

Green Thumb Convertible Note

Convertible Notes

On November 5, 2024, we issued

the Secured Convertible Note (“Green Thumb Note”) to the RSLGH, LLC, a subsidiary of Green Thumb.

The Green Thumb Note is

a secured obligation and ranks senior to all of our indebtedness.

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 its 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.

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.

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.

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.

a secured convertible note (the “November 2024 Note”) to RSLGH, LLC (“RSLGH”), a subsidiary of Green Thumb.

November 2024 Note is a secured obligation and ranks senior to all of our indebtedness except for the May 2025 Notes (as defined below),

which rank on parity with the November 2024 Note.

The November 2024 Note will mature on November 5, 2025 and has a 10.0% annualized interest

The principal amount of the November 2024 Note will be payable on the maturity date.

The November 2024 Note provides for advances

of up to $20 million in the aggregate, of which $10 million was advanced upon issuance.

The November 2024 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, which were issued in lieu of the cash interest that would otherwise be payable under the November

The number of pre-funded warrants is equal to the cash interest amount otherwise payable on the November 2024 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 November 2024 Note.

On May 22, 2025, we and RSLGH entered into a second amendment to the November 2024

Note, which amended the terms to, among other things, permit RSLGH to elect, subject to any required approvals under Nasdaq listing rules,

to receive pre-funded warrants in lieu of shares of Common Stock upon conversion of the November 2024 Note at a conversion price equal

to the existing conversion price of $3.158 less the $0.001 exercise price of each pre-funded warrant.

On May 22, 2025, we issued

secured convertible notes with an aggregate original principal amount of $30.0 million (collectively the “May 2025 Notes”)

to RSLGH and to certain other third-party accredited investors.

The May 2025 Notes are secured obligations and rank senior to all of our

indebtedness except for the November 2024 Note, which ranks on parity with the May 2025 Notes.

The May 2025 Notes will mature on November

22, 2026 and accrue interest at a 10.0% annualized rate, with interest to be paid on the first calendar day of each September and March

while the May 2025 Notes are outstanding, in pre-funded warrants, beginning September 1, 2025.

The principal amount of the May 2025 Notes

will be payable on the maturity date.

The May 2025 Notes may be converted into Common Stock or, at the election of the holder, into pre-funded

warrants, with a beneficial ownership limitation for RSLGH of 49.99% and a beneficial ownership limitation for other holders of 4.99%,

in each case subject to applicable Nasdaq listing rules.

If a holder elects to convert the May 2025 Notes into Common Stock, the conversion

price per share will be $23.53, equal to the most recent closing price of the Common Stock on the Nasdaq Capital Market at the time the

May 2025 Notes were issued, subject to customary adjustments for certain corporate events.

If a holder elects to convert the May 2025

Notes into pre-funded warrants, and for interest payments payable in the form of pre-funded warrants, the conversion price per pre-funded

warrant will be equal to the $23.53 conversion price less than $0.001 exercise price of the warrant.

The conversion of the May 2025 Notes

into Common Stock and/or pre-funded warrants is subject to certain customary conditions and, to the extent necessary, the receipt of stockholder

approval under Nasdaq listing rules.

The following table presents

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

the major components of net cash flows from and used in operating, investing, and financing activities for the six months ended June 30,

2025 and 2024:

Three months ended

Six months ended

(In thousands)

3 unchanged sentences

Financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

The following discussion

explains the major components contributing to the net cash flows from operating, investing, and financing activities for the six months

ended June 30, 2025 and 2024, as summarized in the table above.

Each section below provides details on the key drivers of the cash inflows

and outflows for the respective periods.

Cash Flow from Operating Activities

For the three months ended March 31, 2025, our operating cash flows

included a net loss of $1.6 million, which included $336 thousand related to depreciation and amortization, $589 thousand of stock-based

compensation expense, $407 thousand gain related to the change in fair value of warrant liabilities, and $3.6 million gain on disposal

of Extraction business.

Net cash was decreased by changes in operating assets and liabilities of $2.3 million.

For the three months ended

March 31, 2024, we incurred net income of $4.2 million, which included $406 thousand related to depreciation and amortization, $490 thousand

of stock-based compensation expense, and $873 thousand gain related to the change in fair value of warrant liabilities.

Net cash was reduced

by changes in operating assets and liabilities of $970 thousand.

For the six months ended

June 30, 2025, our operating cash flows included a net loss of $9.0 million, which included $735 thousand related to depreciation and

amortization, $1.1 million of stock-based compensation expense, $292 thousand gain related to the change in fair value of warrant liabilities,

and $3.5 million gain on disposal of Extraction business.

Net cash was decreased by changes in operating assets and liabilities of $4.6

For the six months ended

June 30, 2024, we had net income of $1.3 million, which included $782 thousand related to depreciation and amortization, $571 thousand

of stock-based compensation expense, $404 thousand loss related to the change in fair value of warrant liabilities, $2.2 million gain

from change in contingent consideration, and $5.9 million gain on settlement of contingent liability.

Net cash was increased by changes

in operating assets and liabilities of $782 thousand.

Cash Flow from Investing Activities

For the three months ended

March 31, 2025, there were no cash flows from investing activities.

For the three months ended

March 31, 2024, net cash provided in investing activities was $328 thousand, which primarily resulted from $330 thousand in proceeds

from the repayment of a loan receivable.

For the six months ended

June 30, 2025, net cash used in investing activities was $5.1 million, which primarily resulted from the related party acquisition of

For the six months ended

June 30, 2024, net cash provided in investing activities was $336 thousand, which primarily resulted from $330 thousand in proceeds from

the repayment of a loan receivable.

Cash Flow from Financing Activities

For the three months ended

March 31, 2025, net cash provided by financing activities was immaterial $1 thousand in repayments of notes payable.

For the three months ended

March 31, 2024, net cash provided by financing activities was $2.3 million, primarily driven by proceeds from the issuance of common

stock and warrants of $2.1 million.

the six months ended June 30, 2025, net cash provided by financing activities was $30.0 million, which resulted from proceeds from May

For the six months ended

June 30, 2024, net cash provided by financing activities was $4.1 million, primarily driven by proceeds from the issuance of common stock

and warrants of $2.1 million and proceeds from the issuance of related party notes of 2.3 million.

Off-Balance Sheet Arrangements

14 unchanged sentences

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

These estimates are based

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

Changes in these estimates will

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

Subsequent changes in these estimates may have a significant

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

We have identified

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

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

These estimates are

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

Changes in these

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

Subsequent changes in these estimates

may have a significant impact on our financial condition and results of operations and are recorded in the period in which they

become known.

We have identified the following estimates that, in our opinion, are subjective in nature, require the exercise of

judgment and involve complex analysis:

the fair value of derivative assets and liabilities, goodwill impairment assessment,

intangible assets, revenue recognition and cost of goods sold.

The significant accounting

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

in Note 1 - Overview, Basis of Presentation and Significant Accounting Policies included in the Form 10-K and Note 1 - Overview, Basis

of Presentation and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item 1 of

this Quarterly Report.

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

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

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

detailed in Note 1 - Overview, Basis of Presentation and Significant Accounting Policies included in the Form 10-K and Note 1 - Overview,

Basis of Presentation and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item

1 of this Quarterly Report.

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

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

Recently Issued Accounting Pronouncements

For more information on recently

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

elsewhere in the notes to unaudited condensed consolidated financial statements covered under Part I, Item 1 of this Quarterly Report.

For more information on

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

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

New Accounting Pronouncements Not Yet Adopted

For more information on new

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

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

For more information on

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

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

Quarterly Report.

Quantitative and Qualitative Disclosures

About Market Risk

As a “smaller reporting

company” as defined by 17 C.F.R.

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

a “smaller reporting company” as defined by 17 C.F.R.

§ 229.10, we are not required to provide information required

by this Item.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis