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Item 7. Management’s Discussion and Analysis

2026-03-03 compared with 2025-03-21 · 265 added, 800 removed, 76 unchanged (93% 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.

You should read the following

discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and

the notes thereto appearing elsewhere in this report.

This discussion contains forward-looking statements reflecting our current expectations,

whose actual outcomes involve risks and uncertainties.

Actual results and the timing of events may differ materially from those stated

in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk

Factors,” “Cautionary Statement regarding Forward-Looking Statements” and elsewhere in this report.

Unless otherwise stated or the context otherwise

requires, references in this report to “Agrify”, the “Company,” “we,” “us,” “our,”

or similar references mean Agrify Corporation and its subsidiaries on a consolidated basis.

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.

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 nine

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.

comprehensive extraction product line, which includes hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowers

producers to maximize the quantity and quality of extract required for premium concentrates.

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.

Agrify was incorporated

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

(or “Agrinamics”).

On September 16, 2019,

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

Reverse Stock Splits

On July 5, 2023, we effected a 1-for-20 reverse stock split of our

common stock.

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

presented unless otherwise indicated.

On October 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.

No fractional shares of common stock were issued as a result of these

reverse stock splits.

Any fractional shares in connection with these reverse stock splits were rounded up to the nearest whole share and

no stockholders received cash in lieu of fractional shares.

The reverse stock splits had no impact on the number of shares of common stock

that we are authorized to issue pursuant to our articles of incorporation or on the par value per share of the common stock.

adjustments were made to the number of shares of Common Stock issuable upon exercise or conversion of our outstanding stock options and

warrants, the exercise price or conversion price (as applicable) of our outstanding stock options and warrants, and the number of shares

reserved for issuance under our equity incentive plan.

All share and per share information included in this Annual Report on Form 10-K

has been retroactively adjusted to reflect the impact of these reverse stock splits.

Recent Developments

February 2025 Changes in Directors

On February 5, 2025 the

Company announced that Peter Shapiro and Sanjay Tolia were appointed to our Board of Directors (the “Board”) effective January

The Company also announced Richard Drexler’s departure from the Board effective as of January 31, 2025.

Public Offering

On February 27, 2024, we

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

an aggregate of 184,000 shares of Common Stock, and, in lieu of Common Stock to certain investors that so chose, Pre-Funded Warrants (“Pre-Funded

Warrants”) to purchase 264,245 shares of Common Stock.

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

offering price for each Pre-Funded Warrant was $5.69, which equals the public offering price per share of the Common Stock, less the $0.001

per share exercise price of each Pre-Funded Warrant.

The Offering was made pursuant to a registration statement on Form S-1 that we filed

with the SEC on January 26, 2024 and was declared effective on February 14, 2024.

Raymond Chang, our former Chairman and Chief Executive

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

The net proceeds from the public offering were approximately

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

The public offering closed on February 28, 2024.

Debt Modification;

Warrant Amendments

On May 21, 2024, we and CP

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

lieu of shares of Common Stock issuable upon conversion of the Convertible Note, to instead receive Pre-Funded Warrants.

The conversion

price applicable to the Pre-Funded Warrants remained unchanged at $21.90.

Immediately following the execution of the Consolidated Note

Amendment, CP elected to convert $11.5 million of outstanding principal into a Pre-Funded Warrant exercisable at issuance for up to 525,114

shares of Common Stock having a fair value of approximately $2.9 million (the “CP Warrant Conversion”).

On May 21, 2024, we and GIC

Acquisition, LLC (“GIC”), the holder of an unsecured promissory note (the “GIC Note”), amended and restated the

GIC Note (the “Restated GIC Note”) 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”).

On June 30, 2024, we executed

an amendment to the Pre-Funded Warrants, pursuant to which we revised certain provisions of the Pre-Funded Warrants to (i) remove the

adjustment to the exercise price of the Pre-Funded Warrants when there is a bona fide equity financing with the primary purpose of raising

capital (the “Adjustment Provisions”) and (ii) increase the threshold for a change of control from 50% to greater than 50%.

On August 12, 2024, our stockholders approved a proposal to amend the Pre-Funded Warrants to add the Adjustment Provisions at a future

Pursuant to that approval, on August 28, 2024, we entered into amendments to the Pre-Funded Warrants to insert the Adjustment Provisions.

As a result of the warrant amendments and the subsequent issuance of 189,645 shares of Common Stock to Ionic Ventures, LLC (“Ionic”)

at an effective purchase price of approximately $2.109 per share of Common Stock, the number of shares of Common Stock underlying the

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

by GIC was adjusted to 1,085,122.

On August 30, 2024, CP partially exercised its Pre-Funded Warrant and entities affiliated with Mr.

Chan received an aggregate of 383,127 shares of Common Stock upon the exercise.

On September 27, 2024, we further amended the

Pre-Funded Warrants to remove the Adjustment Provisions from each warrant and (ii) preventing the holders from any additional exercise

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

Change in Accounting Firm

On June 20, 2024 after an

evaluation process, the Audit Committee of our Board (the “Audit Committee”) dismissed Marcum LLP as our independent registered

public accounting firm and appointed MATSUURA (“Matsuura”) as our independent registered public accounting firm for the fiscal

year ending December 31, 2024, in each case effective as of June 25, 2024.

On June 30, 2024, the audit practice of Matsuura was combined

in a transaction pursuant to which Matsuura merged its operations with GuzmanGray, a professional corporation (“GuzmanGray”).

On July 19, 2024, Matsuura resigned as our auditors and the Audit Committee appointed GuzmanGray as our independent registered public

accounting firm effective as of the Effective Date.

Equity Line of Credit Facility

On August 28, 2024, we entered

into the Purchase Agreement and a registration rights agreement with 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.

On November 5, 2024, we issued 189,645 shares of Common Stock to Ionic.

We will control the timing and amount of any

sales of Common Stock to Ionic pursuant to the Purchase Agreement.

Ionic 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.

Sale of Cultivation Business

On December 31, 2024, we entered into and closed an Asset Purchase

Agreement (the “Cultivation Purchase Agreement”) with CP Acquisitions, LLC (“CP”), an entity affiliated with Raymond

Chang, our former Chairman and Chief Executive Officer.

Under the Cultivation Purchase Agreement, CP acquired assets from us relating

to our VFUs, including the related Agrify total-turnkey (“TTK”) solution assets and Agrify Insights TM software

solutions (collectively the “Cultivation Business”).

The aggregate consideration received by us for the sale of the Cultivation

Business consisted of the assumption by CP of (i) all of our obligations pursuant to secured indebtedness then due CP with an aggregate

amount of principal and accrued interest of approximately $7 million, and (ii) certain other liabilities relating to the Cultivation Business.

Señorita Acquisition

On December 12, 2024, we completed the acquisition of substantially

all of the assets of Double or Nothing, LLC (“Double or Nothing”) in connection with its Señorita brand of beverages

hemp-derived containing cannabinoids.

Under the Purchase Agreement, we acquired the Señorita brand of beverages and related assets

from Double or Nothing relating to the portions of its business operating in compliance with Canadian law and under the Agricultural Improvement

Act of 2018 (the “2018 Farm Bill”) and applicable state laws.

Private Placement

On November 20, 2024, we raised gross proceeds of approximately $25.9

million in a private placement following the closing of certain securities purchase agreements with institutional investors and other

accredited investors.

In connection with the private placement, we issued (i) 203,988 shares Common Stock and (ii) pre-funded warrants

to purchase up to an aggregate of 949,515 shares of Common Stock at a purchase price per share of Common Stock of $22.30 and a purchase

price per pre-funded warrant of $22.2999.

Convertible Note

On November 5, 2024, we

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

(“Green Thumb”).

The Note is a secured obligation and ranks senior to all of our indebtedness except for certain indebtedness

set forth in the Note.

The Note will mature on November 5, 2025 (the “Maturity Date”) and contains a 10.0% annualized interest

rate, with interest to be paid on the first calendar day of each September and March while the Note is outstanding, in cash, beginning

January 1, 2025.

The principal amount of the Note will be payable on the Maturity Date.

2024 Board and Management Changes

Also on November 5, 2024,

immediately following the issuance of the Note, Raymond Chang, our prior CEO and Chairman, resigned as a member of the Board and any subsidiaries

and as President and Chief Executive Officer of the Company, and I-Tseng Jenny Chan resigned as a member of the Board.

Benjamin Kovler,

Armon Vakili and Richard Drexler replaced Raymond Chang and I-Tseng Jenny Chan on the Board and Benjamin Kovler assumed the position of

Effective May 17, 2024, Leonard Sokolow resigned as a member of the

Board and its committees.

Effective December 3, 2024, Brian Towns resigned from his roles as the Company’s Executive Vice President

and General Manager of Extraction Division to pursue other opportunities.

On December 31, 2024, in connection with the Cultivation Purchase

Agreement, David Kessler ceased serving as the Company’s Chief Science Officer, Executive Vice President and General Manager of

Lines of Business

Hemp-Derived Beverages

The Company acquired the Señorita

brand of hemp-derived 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, hangover-free 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.

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 nine U.S.

discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements

and the notes thereto appearing elsewhere in this report.

This discussion contains forward-looking statements reflecting our current

expectations, whose actual outcomes involve risks and uncertainties.

Actual results and the timing of events may differ materially from

those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections

entitled “Risk Factors,” “Cautionary Statement regarding Forward-Looking Statements” and elsewhere in this report.

Unless otherwise stated

or the context otherwise requires, references in this report to “RYTHM”, the “Company,” “we,” “us,”

“our,” or similar references mean RYTHM, Inc.

and its subsidiaries on a consolidated basis.

RYTHM is a developer of

branded innovative solutions for the cannabis and hemp industries.

The Company’s portfolio of consumer-packaged goods brands includes

RYTHM, incredibles, Dogwalkers, Beboe, &Shine, Doctor Solomon’s, Good Green and Señorita.

Our Señorita brand

offers consumers hemp-derived tetrahydrocannabinol (“THC”) beverages and are sold at top retailers, online and through direct-to-retail

partnerships.

The Señorita brand mirrors 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 in fifteen U.S.

states and Canada

Products are also available for direct-to-consumer

purchase where permissible under state law at senoritadrinks.com.

Extraction Solutions

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.

In light of our increased

focus on hemp-derived beverages following the Señorita acquisition, the Board is exploring a variety of alternatives for the extraction

business while focusing on optimizing shareholder value creation.

We 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

These iconic brands encompass everything from hydrocarbon, alcohol, and solventless extraction to distillation and post-processing.

Combined, these four acquisitions provide what we believed to be one of the most comprehensive extraction solutions from a single provider.

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

The extraction, post-processing and testing services are complementary and highly attractive areas of the supply chain.

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™ 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

work in conjunction with the Agrify Insights™ software.

Each VFU sold included a license for Agrify Insights™ and a monthly

Software-as-a-Service (“SaaS”) subscription fee was charged per VFU.

The VFU could not operate successfully without Agrify

Insights™, and we typically charged between $1,500 to $2,400 per VFU sold annually.

Agrify Insights™ license agreements were

generally for a multi-year term, with an annual auto-renewal.

The Company’s TTK

Solution was the industry’s first-of-its-kind program in which the Company engaged with qualified cannabis operators in the

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

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.

While we have not entered into any

new TTK Solutions since January 1, 2024 and will not in the future, we have previously deployed this program with certain key former

The data-driven TTK Solution for cultivation solutions enabled our customers to get to market faster by providing them

with seamlessly integrated hardware and software offerings as well as access to capital and a wide range of associated services from

experts including consulting, training, design, engineering, and construction.

Note Amendment, Consolidation and Conversion

On January 25, 2024, following

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

due under the junior secured promissory note (the “Junior Secured Note”) to CP and a promissory note with an original principal

amount of $35.0 million (the “Exchange Note”) to High Trail Special Situations LLC (the “Original Lender”) into

a convertible note (the “Convertible Note”) and amended and restated the Convertible Note (as amended and restated, the “Restated

Note”), with an outstanding principal amount of approximately $18.3 million at the time of issuance of the Restated Note.

Note amended the terms of the Convertible Note by, among other things, (i) reducing the conversion price to $1.46 per share of our “Common

Stock”), (ii) increasing the beneficial ownership limitation to 49.99% with respect to any individual or group, provided that CP

could assign its right to receive shares upon conversion to Raymond Chang, our former Chairman and Chief Executive Officer and/or I-Tseng

Jenny Chan, a former member of the Board, or their affiliates, in which case the 49.99% beneficial ownership limitation would have applied

to each of them individually, (iii) extending the maturity date to December 31, 2025, (iv) increasing the interest rate from 9% to 10%

per annum, (v) increasing the default interest from 15% to 18% per annum, and (vi) providing for the payment of interest every six months,

or in lieu of cash interest payments, we could issue shares of our Common Stock as payments-in-kind at a conversion price equal to the

higher of (i) $1.46 or (ii) a 20% discount to our trailing seven-day volume weighted average price as of the date of interest payment.

Immediately following the execution of the Restated Note, CP immediately elected to convert approximately $3.9 million of outstanding

principal into an aggregate of 178,108 shares of Common Stock, and assigned its rights to receive such shares to entities affiliated with

Chang and Ms.

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

connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our obligations under the Restated Note.

Issuance of Junior Note

On August 14, 2024, we issued

the 2024 CP Note to CP.

Pursuant to the 2024 CP Note, CP would lend up to $1,500,000 to the Company.

The 2024 CP Note bore interest at

a rate of 10% per annum, would mature in full on July 1, 2025, and could be prepaid without any fee or penalty.

The 2024 CP Note was secured

by our assets and ranked junior to existing secured indebtedness.

The 2024 CP Note could have been converted into Common Stock of the

Company or, at CP’s election, Pre-Funded Warrants with an exercise price of $0.001 per share, in each case at a conversion price

In connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our obligations under the

2024 CP Note.

Mack Molding Modification Agreement

On October 27, 2023, and effective

as of October 18, 2023, we entered into a Modification and Settlement Agreement (the “Modification Agreement”) with Mack Molding

Company (“Mack”) with respect to a dispute with Mack under an existing supply agreement.

On February 29, 2024, we met our

contractual obligations under the terms of the Modification Agreement.

In settlement of the dispute, we made cash payments of $500,000

and $250,000 to Mack and issued to Mack a warrant to purchase 750,000 shares of Common Stock.

On August 30, 2024, we entered

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

Pursuant to the amendment, we agreed to make payments of $1.0 million prior to October 31, 2024 and an additional $1.0 million

prior to December 31, 2024.

We 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.

As a precursor to the sale of the Cultivation Business on December 31, 2024, this agreement was settled

on December 16, 2024 and the corresponding warrants issued to Mack were terminated.

Convertible Note Amendment

On October 18, 2024, we entered

into an amendment with CP 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 remained 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).

In connection with the sale of the Cultivation Business

on December 31, 2024, CP assumed all of our obligations under the 2024 CP Note.

Nasdaq Compliance

On January 19, 2023, we received a deficiency letter from the Listing

Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that, for the

previous 30 consecutive business days, the bid price for our Common Stock had closed below $1.00 per share, which is the minimum closing

price required to maintain a continued listing on The Nasdaq Capital Market under the Minimum Bid Requirement.

In accordance with Nasdaq

Listing Rule 5810(c)(3)(A), we had 180 calendar days to regain compliance with the Minimum Bid Requirement.

To regain compliance with

the Minimum Bid Requirement, the closing bid price of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive

trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend the minimum trading day period

pursuant to Nasdaq Listing Rule 5810(c)(3)(G).

On July 19, 2023, we received a notice from Nasdaq confirming our compliance with the minimum

bid price rule.

As disclosed in the Current Report on Form 8-K filed on April 17, 2023,

the audit committee of our Board (the “Audit Committee”) concluded that, as a result of inadvertent errors in the accounting

for warrants previously issued by us, it was appropriate to restate our previously issued unaudited consolidated interim financial statements

as of and for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in our Quarterly Reports on Form

10-Q for such periods in amended quarterly reports for the affected periods.

As a result of such restatements, we were unable to timely

file the Forms 10-K and 10-Q with respect to such periods without unreasonable effort or expense.

On April 18, 2023, we received a notice

from Nasdaq that we were noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Annual Report on Form

10-K with the SEC by the required due date.

On May 17, 2023, we received

a second notice from Nasdaq that we remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly

Report on Form 10-Q for the quarter ended March 31, 2023 with the SEC by the required due date.

On August 16, 2023, we received

a third notice from Nasdaq that we remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly

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

Nasdaq granted us an exception

until October 16, 2023, to file the delinquent reports.

On October 17, 2023, we received

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

us that we were not in compliance with Nasdaq’s continued listing requirements under Nasdaq Listing Rule 5250(c)(1) as a result

of its failure to file the delinquent reports in a timely manner.

On November 16, 2023, we received

a notice from Nasdaq that we remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly

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

On December 1, 2023, we received

a notice from Nasdaq stating that because we reported stockholders’ equity of $(17.17) million in our Quarterly Report on Form 10-Q

for the quarter ended March 30, 2023, we were no longer in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Primary Equity Listing

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

In response, we timely

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

The hearing was held on January 11, 2024.

We arrived at the hearing having previously cured any additional grounds for delisting

as a result of delinquent periodic filings during 2023 that were filed prior to the hearing.

On January 30, 2024, we received

formal notice that the Panel had granted our request for an exception through April 15, 2024 to evidence compliance with the Primary Equity

Listing Rule, which was subsequently extended to May 22, 2024.

On May 21, 2024, we regained compliance with the Primary Equity Listing

Rule as a result of the amendment and subsequent conversion of certain outstanding indebtedness.

On March 5, 2024, we received

a deficiency letter from Nasdaq notifying us that, for the last 30 consecutive business days, the bid price for our Common Stock had closed

below $1.00 per share, which is the minimum closing price required to maintain continued listing on the Nasdaq Stock Market under the

Minimum Bid Requirement.

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

On September 4, 2024, Nasdaq

notified us in writing that we were 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, we completed a 1-for-15 reverse stock split of our Common Stock, in which each fifteen

shares of Common Stock issued and outstanding were combined and converted into one share of Common Stock to regain compliance with the

Minimum Bid Requirement.

On October 22, 2024, Nasdaq notified us that we had regained compliance with the Minimum Bid Requirement.

Use of Estimates

The preparation of financial

statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and

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

revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Significant estimates include assumptions

about collection of accounts receivable, 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.

Financial Overview

Critical Accounting Policies and Significant

Judgments and Estimates

Our management’s discussion

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

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

The preparation of financial statements in

conformity with U.S.

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

accompanying notes.

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

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

We base our estimates on

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

Actual results may differ materially from those estimates or assumptions.

We 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 (“ASC

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

Discontinued Operations

On December 31, 2024, we entered into a Purchase Agreement with CP.

Under the Purchase Agreement, CP acquired the Cultivation Business assets from us relating to our VFUs, including the related Agrify TTK

solution assets and Agrify Insights TM software solutions.

As the sale of the Cultivation Business represented a strategic shift

that will have a major effect on our operations and financial results, they have been presented in discontinued operations separate from

continuing operations for the years ended December 31, 2024 and 2023 in the Company’s consolidated statements of operations and

applicable footnotes in accordance with ASC 205, Presentation of Financial Statements.

Revenue Recognition

We generate revenue from equipment

sales and hemp-derived beverage sales.

In accordance with ASC 606,

Revenue Recognition (“ASC 606”), we recognize revenue from contracts with customers using a five-step model, which is described

● identify the customer contract;

● identify performance obligations that are distinct;

● determine the transaction price;

● allocate the transaction price to the distinct performance

● 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.

The Company satisfies its performance

obligation upon transferring goods or services to a customer and transfers control upon the customer taking possession.

We enter into contracts that

may include various combinations of equipment and services, which are generally capable of being distinct and accounted for as separate

performance obligations.

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

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

may require significant judgment.

Once we determine the performance obligations, the transaction price is determined, which includes estimating

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

We then allocate the transaction price to each performance

obligation in the contract based on the Standalone Selling Price (“SSP”).

The corresponding revenue is recognized as the related

performance obligations are satisfied.

Judgment is required to determine

the SSP for each distinct performance obligation.

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

and the methods of estimating SSP under the guidance of ASC 606.

If the SSP is not observable through past transactions, we estimate the

SSP, taking into account available information such as market conditions, expected margins, and internally approved pricing guidelines

related to the performance obligations.

We typically satisfy our performance obligations for equipment sales when equipment is made available

for shipment to the customer;

for services sales as services are rendered to the customer.

We utilize the cost-plus margin

method to determine the SSP for equipment and services.

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

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

We determine the SSP for services

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

Payment terms with customers

typically require payment in advance or payment 30 days from invoice date.

Our agreements with customers do not provide for any refunds

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

In the infrequent instances where customers raise a

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

insignificant in all periods presented.

We have elected to treat shipping

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

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

We have payment terms

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

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

We receive payment from customers

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

There are no contract

assets related to performance under the contract.

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

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

We fulfill obligations under a contract with

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

Accounts receivables are recorded when

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

We recognize contract liabilities when consideration has

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

In accordance with ASC 606,

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

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

The majority of our remaining contracts meet certain exemptions

as defined in ASC 606, including (i) performance obligation is part of a contract that has an original expected duration of one year or

less and (ii) the right to invoice practical expedient.

We generally provide a one-year

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

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

In accordance with ASC Topic 450, Accounting for Contingencies

(“ASC 450”) we accrue for product warranties when the loss is probable and can be reasonably estimated.

The reserve for warranty

returns is included in accrued expenses and other current liabilities in our consolidated balance sheets.

Business Combinations

We allocated the purchase price of acquired companies to the tangible

and intangible assets acquired according to ASC 805, Business Combinations, including in-process research and development assets, and

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

These fair values are typically estimated with assistance

from independent valuation specialists.

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

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

arrangements, and pre-acquisition contingencies.

Although we believe the assumptions

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

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

Examples of critical estimates

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

● future expected cash flows from software license sales, support agreements, consulting contracts, other

customer contracts, and acquired developed technologies;

● expected costs to develop in-process research and development into commercially viable products and estimated

cash flows from the projects when completed;

● the acquired company’s brand and competitive position, as well as assumptions about the period of

time the acquired brand will continue to be used in the combined company’s product portfolio;

● cost of capital and discount rates;

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

We recognize the excess of the purchase price over the fair value of

identifiable net assets acquired as goodwill.

Goodwill is not amortized but is tested for impairment at least annually in the fourth quarter

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

The Company applies the guidance in ASU 2011-08 Intangibles-Goodwill and Other-Testing Goodwill for Impairment , which provides

entities with an option to perform a qualitative assessment (commonly referred to as “Step Zero”) to determine whether further

quantitative analysis for impairment of goodwill is necessary.

A goodwill impairment charge is recorded if the amount by which our carrying

value exceeds its fair value, not to exceed the carrying amount of goodwill.

Factors that could lead to a future impairment include material

uncertainties such as a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions

and/or mergers, and a decline in our market value as a result of a significant sustained decline in our stock price.

We account for income taxes

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

approach to calculating deferred income taxes.

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

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

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

the net deferred asset will not be realized.

We follow the provisions of

ASC 740, “Basic Recognition Threshold.” When tax returns are filed, it is highly certain that some positions taken would be

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

the amount of the position that would be ultimately sustained.

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

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

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

processes, if any.

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

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

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

with the applicable taxing authority.

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

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

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

We believe our tax positions are all

highly certain of being upheld upon examination.

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

We recognize the benefit of

a tax position when it is effectively settled.

ASC 740, “Basic Recognition Threshold” provides guidance on how an entity should

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

ASC 740 clarifies

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

For tax positions considered

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

Accounting for Stock-Based Compensation

We follow the provisions of ASC Topic 718, Compensation - Stock Compensation

(“ASC 718”) establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments

for goods or services.

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 Stock Option Plans, as defined in Note 12 – Stockholder’s Equity.

The fair value of each option

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

This model incorporates certain assumptions for inputs

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

volatility in the market value of the underlying Common Stock.

The Black-Scholes option-pricing

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

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

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

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

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

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

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

The expected dividend yield is based upon our history

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

We calculate the

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

the underlying instrument’s expected term.

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

and directors.

As permitted under ASC 718,

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

It is important that the discussion

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

including at top retailers such as Total Wine, ABC Fine Wine & Spirits, and Binny’s.

The RYTHM branded beverage comes in two

fruit-driven flavors with effect-based ingredients.

Other hemp-derived products including incredibles and Beboe edible products are primarily

sold online and through direct-to-retail partnerships.

In addition to the sale of hemp-derived products (“Non-licensing Revenue”),

the Company licenses its brands to be manufactured and distributed in exchange for a licensing fee (“Licensing Revenue”).

RYTHM 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 cannabis producers to maximize the quantity

and quality of extract required for premium concentrates.

Additionally, prior to its sale on December 31, 2024, the Company’s proprietary

micro-environment-controlled Agrify Vertical Farming Units (“VFUs”) enabled cultivators to produce high quality products

for the cannabis industry (“the Cultivation Business”).

As the discontinuation of the Extraction Business and the sale of

the Cultivation Business represented strategic shifts that had a major effect on our operations and financial results, they have been

presented in discontinued operations separate from continuing operations for the years ended December 31, 2025 and 2024 in the Company’s

consolidated statements of operations and applicable footnotes in accordance with ASC 205, Presentation of Financial Statements .

Please refer to Item 1 and the notes to the consolidated financial statements for details on recent developments and significant transactions

during the period.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s

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

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

The preparation

of financial statements in conformity with U.S.

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

in the financial statements and accompanying notes.

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

accruals, stock-based compensation expense, recoverability of goodwill, intangible assets, and other assets, and reported amounts of

revenues and expenses during the reported period.

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

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

Actual results may differ materially from those

estimates or assumptions.

Refer to Note 2 included elsewhere in the notes to the consolidated financial statements, for further

Results of Operations

We have incurred recurring

losses to date.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly,

do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary

should we be unable to continue in operation.

Comparison of Years Ended December 31, 2024

The following table summarizes

our results of operations for the years ended December 31, 2024 and 2023:

We have incurred

recurring losses to date.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern

and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of

liabilities that might be necessary should we be unable to continue in operation.

Refer to information provided under the heading

“Liquidity and Capital Resources” below for further details.

Comparison of Years Ended December 31, 2025 and 2024

The following table summarizes our results of operations for the years

ended December 31, 2025 and 2024:

Year Ended December 31,

(In thousands)

Cost of goods sold

Gross profit (loss)

Selling, general and administrative

Research and development

Impairment of long-lived assets

Change in contingent consideration

Gain on early termination of lease

Loss on disposal on property and equipment

Total operating expenses

2 unchanged sentences

Change in fair value of warrant liabilities

Loss on extinguishment of long-term debt, net

Other income, net

1 unchanged sentence

Loss from continuing operations before income taxes

Income tax (expense) benefit

Income tax provision

Loss from continuing operations, net of income taxes

Loss from discontinued operations

Loss on disposal of Cultivation business

Loss from discontinued operations, net of income taxes

Income attributable to non-controlling interest

Net loss attributable to Agrify Corporation

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

Gain on disposal of Extraction business

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

Net loss per share – basic and diluted

Weighted average common shares outstanding - basic and diluted

We generate revenue from sales

extraction equipment and solutions and hemp-derived beverages.

The following table provides

a breakdown of our revenue from continuing operations for the years ended December 31, 2024 and 2023:

We generate revenue from sales of hemp-derived

THC products (non-licensing) and related party Licensing Revenue.

The following table provides a breakdown of our revenue from

continuing operations for the years ended December 31, 2025 and 2024:

Year Ended December 31,

(In thousands)

Ancillary products and services

Extraction solutions

Hemp-derived beverages

Sales discounts on extraction solutions

Non-licensing Revenue

Licensing Revenue

Total revenue

Revenues decreased by $5.5

million, or 142%, for the year ended December 31, 2024, as compared to the same period in 2023.

The comparative decrease in revenue was

primarily driven by increased discounting.

Revenues increased by

$17.3 million for the year ended December 31, 2025, as compared to the same period in 2024.

The comparative increase in revenue was

primarily driven by the transactions with MC Brands and VCP in May and August 2025, respectively in addition to all revenue for the

year ended December 31, 2024 from the Cultivation Business and Extraction Business being presented as part of discontinued

Of the revenue recognized for the year ended December 31, 2025, $8.2 million was attributable to related parties.

Cost of Goods Sold

3 unchanged sentences

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

The following table provides

a breakdown of our cost of goods sold from continuing operations for the years ended December 31, 2024 and 2023:

The following table provides a breakdown of our

cost of goods sold from continuing operations for the years ended December 31, 2025 and 2024:

Year Ended December 31,

(In thousands)

Ancillary products and services

Extraction solutions

Hemp-derived beverages

Non-licensing Revenue

Total cost of goods sold

Cost of goods sold decreased by $2.1 million, or 19%, for the year

ended December 31, 2024, as compared to the same period in 2023.

The year-over-year decrease in cost of goods sold was primarily driven

by the decline in sales of Extraction solutions and internal and outsourced labor and materials costs for the extraction solutions sales.

Cost of goods sold

represents costs associated with the hemp-derived products sales (non-licensing).

Cost of goods sold increased by $7 million for the

year ended December 31, 2025 compared to the same period in 2024.

The comparative increase in cost of goods sold was primarily

driven by the hemp-derived THC edibles operations associated with the MC Brands transaction in May 2025, in addition

to all cost of goods sold for the year ended December 31, 2024 from the Cultivation Business and Extraction Business being presented

as part of discontinued operations.

Year Ended December 31,

(In thousands)

Gross profit totaled $0.7 million, or 7%, of total revenue during the

year ended December 31, 2024 compared to a gross profit of $4.0 million, or 27% of total revenue during the year ended December 31, 2023.

The comparative $3.4 million year-over-year decrease in gross profit was primarily driven by increased discounting of on hand inventory.

Gross profit (loss)

Gross profit totaled $10

million, or 59%, of total revenue during the year ended December 31, 2025 compared to a gross loss of $71 thousand of total revenue during

the year ended December 31, 2024.

The comparative $10.3 million year-over-year increase in gross profit was primarily driven by the changes

in product lines of the business.

Selling, General and Administrative Expenses

2 unchanged sentences

Selling, general and administrative

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

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

Other SG&A expenses include, but are not limited

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

SG&A expenses

decreased by $3.8 million, or 23%, for the year ended December 31, 2024, compared to the same period in 2023.

The primary drivers of

the year-over-year decrease of SG&A expenses were largely attributable to reductions in salaries and related costs of

approximately $2.1 million, a decrease in stock-based compensation, of approximately $1.7 million, a decrease in insurance expenses,

of approximately $1.5 million, and a decrease in consulting expenses of approximately $0.6 million.

These decreases were partially

offset by a $1.7 million increase in bad debt expense.

Research and Development

Year Ended December 31,

(In thousands)

Research and development

expenses decreased by $1.6 million, or 248%, for the year ended December 31, 2024, compared to the same period in 2023.

The decrease is

attributable to the reductions in personnel, consulting services and materials purchased.

Selling, General and administrative

expenses (“SG&A”) consist principally of marketing costs and support services performed by Green Thumb, as well as stock-based

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

Other SG&A expenses include, but are

not limited to, professional fees for legal and accounting services and depreciation and amortization costs.

SG&A expenses increased by $27 million, or 374%, for the year ended

December 31, 2025, compared to the same period in 2024.

The comparative change is primarily attributable to marketing and consulting costs

to support the growth of the hemp-derived THC products sales (non-licensing) in addition to the presentation of SG&A expense from

the Cultivation Business and Extraction Business for the year ended December 31, 2024 as part of discontinued operations.

expense incurred for the year ended December 31, 2025, $10.6 million was attributable to related parties.

Other Expense, Net

2 unchanged sentences

Interest expense, net

Other income, net

Change in fair value of warrant liabilities

Loss on extinguishment of notes payable

Other income, net

Total other expense, net

Interest expense, net

Interest expense was approximately

$0.3 million for the year ended December 31, 2024 compared to interest expense of approximately $2.1 million for the same period in 2023.

The significant decrease in our interest expense was primarily driven by the reduction in notes payable due to conversion.

Other income, net

Other income, net decreased

by $1.3 million, or (99)%, for the year ended December 31, 2024, compared to the same period in 2023.

Interest expense, net was approximately $3.2 million for the year ended

December 31, 2025 compared to interest expense, net of approximately $0.3 million for the same period in 2024.

The change is attributable

mainly to the increase of $72.0 million principal under the Convertible Notes.

Included interest expense, net for the year ended December

31, 2025 is $4.1 million incurred from a related party.

The year ended December 31, 2025 includes $1.2 million of interest income earned

on cash deposits with no comparable amount earned in the year ended December 31, 2024.

Change in fair value of warrant liability

Change in fair value of the warrant liability increased by $22.6 million,

Change in fair value of the warrant liability decreased by $18.2 million,

or 102%, for the year ended December 31, 2025, compared to the same period in 2024.

The increase is related to the measurement of certain

warrants upon reclassification to equity.

Loss on extinguishment of notes payable

Change in loss on extinguishment

of notes payable decreased by $4.3 million, or 100%, for the year ended December 31, 2024, compared to the same period in 2023.

no loss on extinguishment of notes payable for the year ended December 31, 2024, compared to a loss of $4.3 million for the same period

Income Tax (Expense) Benefit

The increase is related to the fair value remeasurement

Other income, net

Other income, net increased by $0.5 million,

for the year ended December 31, 2025, compared to the same period in 2024.

The comparative change is primarily attributable to the employee

retention credit refunds received for the year ended December 31, 2025.

Income Tax Provision

Year Ended December 31,

(In thousands)

Income tax (expense) benefit

Income tax provision

Effective tax rate

Change in loss on provision

for income taxes decreased by $2 thousand for the year ended December 31, 2025, compared to the same period in 2024.

Liquidity and Capital Resources

17 unchanged sentences

results and financial condition may be adversely affected.

CP Acquisitions Junior

On October 27, 2023, CP,

an entity affiliated with and controlled by our former Chief Executive Officer and former member of our Board of Directors, purchased

the Exchange Note and the Convertible Note from CP (the “Note Purchase”).

As part of the same transaction, we issued the Junior

Secured Note to CP.

Pursuant to the Junior Secured Note, CP would lend up to $3.0 million to us.

The Junior Secured Note bore interest

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

On December 4,

2023, we and CP amended and restated the Junior Secured Note agreement.

Pursuant to the terms of the amendment, the maximum principal

amount that may be loaned by CP to us was increased to $4.0 million and extended the maturity date thereon to December 31, 2024.

30, 2023, CP agreed to forgive $1.0 million of the principal amount outstanding on the Convertible Note.

Consolidated CP Acquisitions

On January 25, 2024, we and CP 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 with the Restated Note having a total outstanding principal of $18.3 million.

The Restated Note bore interest at

a rate of 10% per annum and would have matured in full on December 31, 2025.

We could 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.

If CP elected to

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

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

The Restated Note could not have been converted

into shares of Common Stock if such conversion would result in CP 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 elected to convert approximately

$3.9 million of outstanding principal into an aggregate of 178,109 shares of Common Stock.

On May 21, 2024, we and CP

entered into the Consolidated Note Amendment, pursuant to which CP could elect, in lieu of shares of Common Stock issuable upon conversion

of the Restated Note, to instead receive Pre-Funded Warrants.

The conversion price applicable to the Pre-Funded Warrants remained unchanged

Immediately following the execution of the Consolidated Note Amendment, CP elected to convert $11.5 million of outstanding

principal into the CP Warrant Conversion, exercisable at issuance for up to 525,114 shares of Common Stock having a fair value of approximately

$2.9 million.

In connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our obligations under the

Restated Note.

GIC Acquisition Note

On July 12, 2023, our Board

approved the issuance of the GIC Note to GIC, an entity that is owned and managed by our former Chairman and Chief Executive Officer.

Pursuant to the GIC Note, GIC was obligated to lend us up to $0.5 million, $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 ranked junior to all existing secured indebtedness.

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.

On May 21, 2024, GIC and

the Company entered into the Restated GIC Note, (the Restated GIC Note 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 492,203 shares

of Common Stock.

CP Promissory Note

On August 14, 2024, we issued

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

Pursuant to the 2024 CP Note, CP would lend us up to $1,500,000.

The 2024 CP Note bore interest at a rate of 10% per annum, would mature in full on July 1, 2025, and could be prepaid without any fee

The 2024 CP Note was secured by our assets and ranked junior to our existing secured indebtedness.

The 2024 CP Note could

be converted into Common Stock or, at CP’s election, Pre-Funded Warrants with an exercise price of $0.001 per share, in each case

at a conversion price of $3.9495.

In connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our

obligations under the 2024 CP Note.

Investor Convertible

On November 5, 2024, we

issued the Note to the Investor.

The Note is a secured obligation and ranks senior to all indebtedness of the Company except for

indebtedness held by Mack, as described in Note 12 – Stockholder’s Equity (Deficit).

The 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 Note is outstanding, in cash, beginning January 1, 2025.

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

The Note provides for advances of up to $20.0 million in the aggregate, of which $10.0 million was advanced upon issuance.

Investor elects to convert the Note, the conversion price per share will be $3.158, subject to customary adjustments for certain

corporate events.

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

to the extent necessary under Nasdaq listing rules.

The Company is required to

evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability

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

Substantial doubt exists when

conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as

they become due within one year after the date that the consolidated financial statements are issued.

We have a history of recurring

net losses and negative cash flow in operating activities.

However, we believe our positive working capital as of December 31, 2025 inclusive

of $32.2 million of cash and cash equivalents, anticipated contractual Licensing Revenue and ability to address our Convertible Notes

will be sufficient to meet our cash requirements through at least the 12-month period following the date that these consolidated financial

statements were issued.

Contractual debt maturities

of $80 million exist through February 2027, with $72 million of the Convertible Notes held by Green Thumb, a related party.

of these notes to be payable in cash upon maturity could raise substantial doubt about the Company’s ability to continue as a going

However, while these contractual maturities require management attention, management believes it is probable that the obligations

will be addressed through extension or conversion consistent with historical practice.

As such, our financial statements have been

prepared on a going concern basis.

Convertible Notes

On November 5, 2024, the Company issued a secured convertible note

(the “November 2024 Note”) to RSLGH, LLC (“RSLGH”), a subsidiary of Green Thumb, a related party.

2024 Note is a secured obligation of the Company and ranks senior to all indebtedness of the Company except for the May 2025 Notes and

the August 2025 Notes (both as defined below), which rank on parity with the November 2024 Note.

The November 2024 Note matured on November

5, 2025 and accrued interest at a 10.0% annualized rate.

The principal amount of the November 2024 Note was converted into pre-funded

warrant on the maturity date.

The November 2024 Note provided 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 issued on September 1, 2025, which were

issued in lieu of the cash interest that would otherwise be payable under the November 2024 Note.

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, 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,

the Company 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 November 3, 2025, the holder of the November 2024 Note elected to convert the outstanding

principal and interest, into pre-funded warrants.

The outstanding principal and accrued interest amounts of $10 million and $175 thousand

respectively, resulted in the issuance of 3,167,564 and 55,433 pre-funded warrants, respectively.

On May 22, 2025, the Company

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 of the Company and rank senior

to all indebtedness of the Company except for the the August 2025 Notes, 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.

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.

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.

On August 25, 2025, the Company

issued secured convertible notes with an aggregate original principal amount of $50.0 million (collectively the “August 2025 Notes”)

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

The August 2025 Notes are secured obligations of the Company and rank

senior to all indebtedness of the Company except for the May 2025 and November 2024 Notes, which rank on parity with the August 2025 Notes.

The August 2025 Notes will mature on February 25, 2027 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 August 2025 Notes are outstanding beginning March 1, 2026.

The principal amount

of the August 2025 Notes will be payable on the maturity date.

The August 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 August 2025 Notes

into Common Stock, the conversion price per share will be $29.475, equal to the Minimum Price as such term is defined under Nasdaq Listing

Rule 5635 at the time the August 2025 Notes were issued, subject to customary adjustments for certain corporate events.

If a holder elects

to convert the August 2025 Notes into pre-funded warrants, and for interest payments elected to be paid in the form of pre-funded warrants,

the conversion price per pre-funded warrant will be equal to the $29.475 conversion price less than $0.001 exercise price of the warrant.

The conversion of the August 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 May 2025 Notes and August

2025 Notes (together referred to as “the Notes”) impose certain customary affirmative and negative covenants upon the Company,

including covenants relating to ranking and reservation of shares.

If an event of default under one or more of the Notes occurs and is

not waived, the holder can elect to accelerate all or a portion of the then-outstanding principal amount of the applicable Note, 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 was in compliance with these covenants as of December 31, 2025.

Summary Statement of Cash Flows

The following table presents

the major components of net cash flows from and used in operating, investing, and financing activities for the years ended December 31,

2024 and 2023:

The following table presents the major components of net cash

flows from and used in operating, investing, and financing activities for the years ended December 31, 2025 and 2024:

(In thousands)

Net cash (used in) provided by:

Operating activities - continuing operations

Investing activities- continuing operations

Financing activities- continuing operations

Net increase (decrease) in cash and cash equivalents

Operating activities

Investing activities

Financing activities

Net increase in cash and cash equivalents

Cash Flows from Operating Activities

For the year ended December

31, 2024, our operating cash flows included a net loss of $41.7 million, a $17.9 million change in the fair value of warrant liabilities,

$11.9 million related to loss on disposal of the Cultivation Business, $1.4 million of depreciation and amortization, $1.2 million of

stock based compensation expense, offset by a decrease of $5.9 million related to gain on settlement of contingent liability, $2.2 million

decrease related to accrued acquisition liabilities due to issuance of held-back-shares, change in provision for credit losses of $0.3

million, change in provision for inventory of $0.7, and a gain on early termination of lease of $0.1 million.

Net cash was increased by

changes in operating assets and liabilities of $7.0 million.

For the year ended December

31, 2023, we incurred a net loss of $18.6 million primarily due to $4.7 million related to the change in fair value of warrant liabilities,

$1.9 million of depreciation and amortization, $2.7 million of stock based compensation expense, and $24 thousand of debt issuance costs.

Net cash was increased by changes in operating assets and liabilities of $13.7 million.

For the year ended December 31, 2025, our operating cash flows

included a net loss of $33.2 million, $6.2 million of depreciation and amortization, $2.2 million of stock based compensation expense,

non-cash interest expense of $2.8 million offset by an increase of $7.0 million related party accounts receivable, $3.5 million related

to a loss on exit of the Extraction Business, and $3.5 million reduction of inventory.

Net cash was increased by changes in operating

assets and liabilities of $7.1 million.

For the year ended December 31, 2024, our operating cash flows included

a net loss of $41.7 million, a $17.9 million change in the fair value of warrant liabilities, $11.9 million related to loss on disposal

of the Cultivation Business, $1.4 million of depreciation and amortization, $1.2 million of stock based compensation expense, offset by

a decrease of $5.9 million related to gain on settlement of contingent liability, $2.2 million decrease related to accrued acquisition

liabilities due to issuance of held-back-shares, change in provision for credit losses of $0.3 million, change in provision for inventory

of $0.7 million, and a gain on early termination of lease of $0.1 million.

Net cash was increased by changes in operating assets and liabilities

of $7.0 million.

Cash Flows from Investing Activities

For the year ended

December 31, 2025, net cash used in investing activities was $55.1 million, which primarily resulted from the related party

transactions with MC Brands and VCP.

For the year ended December

1 unchanged sentence

from repayment of loan receivable, and cash outflows of $0.4 million related to issuance of loans receivable.

For the year ended December

31, 2023, net cash provided by investing activities was approximately $25.2 million, which included cash inflows of $10.5 million in proceeds

from sale of marketable securities and $15.1 million in proceeds from repayment of loan receivable, and cash outflows of $0.6 million

related to a certain loan issuance and $0.3 million in purchases of property and equipment.

Cash Flows from Financing Activities

For the year ended

December 31, 2024, net cash provided by financing activities was $42.4 million.

Net cash provided by financing activities was

primarily driven by proceeds from the issuance Common Stock in connection with private placement of $25.8 million, proceeds from the

issuance of related party notes of $14.5 million, proceeds from the issuance of Common Stock pursuant to a registered offering with

Securities and Exchange Commission and pre-funded warrants offering of $2.1 million, proceeds from the issuance of Common

Stock through stock subscription of $0.3 million, offset by payments on insurance financing loans of $0.4 million.

For the year ended December

31, 2023, net cash used in financing activities was $4.2 million.

Net cash used in financing activities was primarily driven by the repayment

of certain of our debt instruments of $10.3 million, and payments on insurance financing loans of $1.3 million, offset by proceeds generated

from the sale of securities pursuant to our “at the market” program, net, of $1.5 million and proceeds from issuance of a

related party note of $4.4 million.

Quantitative and Qualitative Disclosures

About Market Risk.

31, 2025, net cash provided by financing activities was $79.7 million, which resulted from proceeds from May and August 2025 Notes.

For the year ended December

31, 2024, net cash provided by financing activities was $42.4 million.

Net cash provided by financing activities was primarily driven

by proceeds from the issuance Common Stock in connection with private placement of $25.8 million, proceeds from the issuance of related

party notes of $14.5 million, proceeds from the issuance of Common Stock pursuant to a registered offering with the U.S.

Securities and

Exchange Commission and pre-funded warrants offering of $2.1 million, proceeds from the issuance of Common Stock through stock subscription

of $0.3 million, offset by payments on insurance financing loans of $0.4 million.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

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-K

Item 7. Management’s Discussion and Analysis