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Item 9A. Controls and Procedures

2026-03-03 compared with 2025-03-21 · 1891 added, 2177 removed, 295 unchanged (93% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Management, with the

participation of our Interim Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures as of

December 31, 2024.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the

Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed

by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within

the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation,

controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or

submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal

financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls

and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and

management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Chief Interim Executive Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance

level as of December 31, 2024.

Management’s Report on Internal Control

over Financial Reporting

Management is responsible

for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under

the Exchange Act.

Under the supervision and with the participation of our management, including our Interim Executive Officer, we conducted

an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in

Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

the results of this evaluation, management has concluded that our internal control over financial reporting was not effective at the reasonable

Management, with the participation

of our Interim Chief Executive Officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2025.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls

and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that

it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the

SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure

that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and

communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions

regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide

only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit

relationship of possible controls and procedures.

Our Interim Chief Executive Officer concluded that our disclosure controls and procedures

were effective at the reasonable assurance level as of December 31, 2025.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and

maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

the supervision and with the participation of our management, including our Interim Executive Officer and Chief Financial Officer, we

conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework

in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

on the results of this evaluation, management has concluded that our internal control over financial reporting was effective at the reasonable

assurance level as of December 31, 2025.

During the year ended December 31, 2024, management identified material

weaknesses in internal control over financial reporting.

These material weaknesses related to the accounting for complex financial transactions,

inadequate design of the controls over the preparation of the consolidated financial statements, and insufficient technical accounting

resources and lack of segregation of duties.

These deficiencies could result in misstatements to our consolidated financial statements

that could be material and may not be prevented or detected on a timely basis.

Because of its inherent limitations,

internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness

to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of

compliance with the policies or procedures may deteriorate.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future

periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

This Annual Report on Form

3 unchanged sentences

requirements of Section 404 of the Sarbanes-Oxley Act.

Remediation of Material Weakness in Internal

Control over Financial Reporting

As of December 31, 2024 and

through the date of this filing, we were in varying stages of remediating the current and previously reported material weaknesses in our

internal control over financial reporting.

During the fiscal year ended December 31, 2024, we have improved our technical accounting resources

by hiring outside consultants that have strong technical knowledge in financial reporting and accounting.

We are in the process of rebuilding

the finance function and have engaged outside consultants to assist.

We will need to continue to devote specific attention to these aspects

of our internal control environment to ensure that these material weaknesses are fully remediated.

The material weaknesses identified

will not be considered fully remediated until the necessary controls and procedures have operated effectively for a sufficient period

of time and management has concluded, through testing, that internal controls are effective.

Our management will monitor the effectiveness

of our remediation plans and will make changes management determines to be appropriate.

If not remediated, these material weaknesses could

result in material misstatements to our annual or interim consolidated financial statements that may not be prevented or detected on a

timely basis or result in a delayed filing of required periodic reports.

If we are unable to assert that our internal control over financial

reporting is effective, or when required in the future, if our independent registered public accounting firm is unable to express an unqualified

opinion as to the effectiveness of the internal control over financial reporting, investors may lose confidence in the accuracy and completeness

of our financial reports, the market price of our Common Stock could be adversely affected, and we could become subject to litigation

or investigations by the Nasdaq Capital Market, the SEC, or other regulatory authorities, which could require additional financial and

management resources.

Remediation of Prior Year Material Weaknesses

As previously reported in our Annual Report on Form 10-K for the fiscal

year ended December 31, 2024 and filed with the SEC on March 21, 2025, as amended on March 28, 2025, management identified a material

weakness in internal control over financial reporting.

The material weaknesses that were previously identified related to the following:

lack of technical expertise, segregation of duties and accounting for complex financial transactions.

oversight of senior management and the Audit Committee of the Board of Directors, we have implemented a previously disclosed remediation

plan designed to address the underlying causes of these material weaknesses.

Key measures include:

our accounting and financial reporting personnel with additional U.S.

GAAP and SEC reporting experience;

● Establishing

enhanced monitoring and review controls for non-recurring and complex transactions to ensure the accuracy and completeness of our financial

statements and related disclosures;

● Formalizing

and maintaining documentation of critical controls and accounting policies to strengthen consistency and accountability across the Company;

nationally recognized third-party advisors on specific technical accounting and valuation matters;

● Implementing

and reinforcing segregation of duties within key financial reporting and operational processes.

including the Interim Chief Executive Officer and Chief Financial Officer, has reaffirmed the importance of strong control environment

an d an organization-wide focus on internal control and accountability.

Management has concluded that the actions taken to strengthen

our internal control over financial reporting, as well as the results of our testing over the design and operating effectiveness of these

controls fully remediated the previously identified material weakness as of December 31, 2025.

However, projections of any evaluation

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that

the degree of compliance with applicable policies, processes and documentation requirements may deteriorate.

Changes in Internal Control Over Financial

Other than the changes to

remediate the material weaknesses noted above, there was no change in our internal control over financial reporting (as defined in Rules

13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal year ended December 31, 2024 that has materially affected, or is reasonably

likely to materially affect, our internal control over financial reporting.

Except for the material weaknesses

remediation actions noted above, there were no significant changes in our internal control over financial reporting(as such term is defined

in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter that have materially affected, or are reasonably likely

to materially affect, our internal control over financial reporting during the quarter ended December 31, 2025.

Other Information.

Disclosure Regarding Foreign Jurisdictions

that Prevent Inspections.

During the quarter ended December 31, 2025, none

of our directors or officers informed us of the adoption , modification or termination of a “Rule 10b5-1 trading arrangement”

or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

Disclosure Regarding Foreign Jurisdictions that Prevent

Not applicable.

Directors, Executive Officers, and

Corporate Governance

The information required by this Item

10 will be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2025 Annual Meeting of Stockholders

and is incorporated herein by reference.

Directors, Executive Officers, and Corporate Governance

The information required by this Item 10 will

be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2026 Annual Meeting of Stockholders and is

incorporated herein by reference.

Executive Compensation.

The information required

by this Item 11 will be included in our Definitive Proxy Statement to be filed with the SEC with

respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.

Security Ownership of Certain Beneficial

Owners, Management and Related Stockholder Matters.

The information required

by this Item 12 will be included in our Definitive Proxy Statement to be filed with the SEC with

respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.

The information required by this Item 11 will

be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2026 Annual Meeting of Stockholders and is

incorporated herein by reference.

Security Ownership of Certain Beneficial Owners, Management

and Related Stockholder Matters.

The information required by this Item 12 will

be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2026 Annual Meeting of Stockholders and is

incorporated herein by reference.

Certain Relationships and Related Transactions, and Director

Independence.

The information required

by this Item 13 will be included in our Definitive Proxy Statement to be filed with the SEC with

respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.

The information required by this Item 13 will

be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2026 Annual Meeting of Stockholders and is

incorporated herein by reference.

Principal Accountant Fees and Services.

The information required

by this Item 14 will be included in our Definitive Proxy Statement to be filed with the SEC with

respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.

Exhibits, Financial Statements and

The information required by this Item 14 will

be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2026 Annual Meeting of Stockholders and is

incorporated herein by reference.

Exhibits, Financial Statements and Schedules.

(a) Financial Statements:

The consolidated financial statements required to be included in this report appear after the signature page to this report as a separate

consolidated financial statements required to be included in this report appear after the signature page to this report as a separate

section beginning on page F-1.

All supplemental schedules have been omitted since the information is either included in the consolidated financial statements or the

notes thereto or they are not required or are not applicable.

supplemental schedules have been omitted since the information is either included in the consolidated financial statements or the notes

thereto or they are not required or are not applicable.

(3) The Exhibit Index of this report appears below.

(b) Exhibits:

Plan of Merger and Equity Purchase Agreement, dated as of September 29, 2021, among the Registrant, Sinclair Scientific, LLC, Mass2Media, LLC dba PX2 Holdings, LLC, and each of the equity holders of Sinclair Scientific, LLC named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2021

Amendment to Plan of Merger and Equity Purchase Agreement, dated as of October 1, 2021, between the Registrant and Sinclair Scientific, LLC (incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 4, 2021

Membership Interest Purchase Agreement, dated as of December 31, 2021, among the Registrant, PurePressure, LLC, Benjamin Britton as Member Representative, and each of the equity holders of PurePressure, LLC named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2022)

Merger Agreement, dated as of February 1, 2022, among the Registrant, LS Holdings Corp., Lab Society NewCo, LLC, Michael S.

as Owner Representative, and each of the Owners named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2022)

Asset Purchase Agreement, dated as of December 12, 2024, among the registrant, Double or North LLC, Joel Gott, and Charles Bieler (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2024)

Asset Purchase Agreement, dated as of December 12, 2024, among the registrant, Double or Nothing, LLC, Joel Gott, and Charles Bieler (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2024)

Articles of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Amendment No.

11 unchanged sentences

1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 13, 2021).

Certificate of Amendment to Articles of Incorporation dated August 27, 2025 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2025).

Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on

Form 8-K filed with the Securities and Exchange Commission on August 27, 2025).

Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Amendment No.

6 unchanged sentences

Form of Common Stock Purchase Warrant dated January 28, 2022 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2022)

Form of Senior Secured Note (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 19, 2022).

Form of Warrant Exchange Warrant (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 19, 2022).

2 unchanged sentences

Form of Common Warrant (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2022)

Form of Senior Secured Convertible Note (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 9, 2023)

Amendment to Senior Secured Note (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 9, 2023)

Exchange Warrant, dated October 27, 2023 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023)

Abeyance Warrant, dated October 27, 2023 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023)

Common Stock Purchase Warrant, dated October 27, 2023 (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023)

Amended and Restated Junior Secured Promissory Note (incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023)

Junior Secured Promissory Note (incorporated by reference to Exhibit 4.5 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023)

Amendment to Junior Secured Promissory Note, dated December 4, 2023, between Agrify Corporation and CP Acquisitions, LLC (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 6, 2023).

Senior Secured Amended, Restated and Consolidated Convertible Promissory Note dated January 25, 2024 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2024).

Second Amended and Restated Junior Secured Promissory Note dated January 25, 2024 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2024).

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 28, 2024).

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 28, 2024).

Amendment No.

1 to Senior Secured Amended, Restated and Consolidated Convertible Note between Agrify Corporation and CP Acquisitions, LLC (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2024).

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2024).

Third Amended and Restated Junior Secured Convertible Promissory Note dated as of May 21, 2024 (incorporated by reference to Exhibit 4.3 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2024).

Amendment to Pre-Funded Comon Stock Purchase Warrant between Agrify Corporation and CP Acquisitions, LLC dated as of June 30, 2024 (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 3, 2024).

Amendment to Pre-Funded Comon Stock Purchase Warrant between Agrify Corporation and GIC Acquisitions, LLC dated as of June 30, 2024 (incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 3, 2024).

Junior Secured Convertible Promissory Note dated as of August 14, 2024 (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2024).

Amendment No.

1 to Junior Secured Convertible Promissory Note, dated as of October 18, 2024 (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 22, 2024).

Amendment to Pre-Funded Common Stock Purchase Warrant between Agrify Corporation and CP Acquisitions, LLC dated as of June 30, 2024 (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 3, 2024).

Amendment to Pre-Funded Common Stock Purchase Warrant between Agrify Corporation and GIC Acquisitions, LLC dated as of June 30, 2024 (incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 3, 2024).

Amendment to Pre-Funded Common Stock Purchase Warrant, dated as of August 28, 2024, by and between Agrify Corporation and CP Acquisitions, LLC (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 29, 2024) .

Amendment to Pre-Funded Common Stock Purchase Warrant, dated as of August 28, 2024, by and between Agrify Corporation and GIC Acquisition LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 29, 2024) .

Amendment to Pre-Funded Common Stock Purchase Warrant, dated as of September 27, 2024, by and between Agrify Corporation and CP Acquisitions, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 1, 2024) .

Amendment to Pre-Funded Common Stock Purchase Warrant, dated as of September 27, 2024, by and between Agrify Corporation and GIC Acquisition LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 1, 2024) .

Secured Amended, Restated and Consolidated Convertible Note (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2024).

1 unchanged sentence

Pre-Funded Warrant dated December 12, 2024 (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2024).

Operating Agreement of Agrify-Valiant, LLC dated December 8, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Distribution Agreement dated June 7, 2019 between the Registrant and Bluezone Products, Inc.± (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Distribution Agreement dated March 9, 2020 between the Registrant and Enozo Technologies Inc.± (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Purchase Agreement dated as of July 28, 2020 between the Registrant and 4D Bios Inc.± (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Employment Agreement dated as of January 4, 2021 between the Registrant and Raymond Chang (incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2021)

Form of Pre-Funded Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2025).

Form of Secured Convertible Note dated May 22, 2025 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2025).

Second Amendment, dated May 22, 2025, to Secured Convertible Note issued on November 5, 2024 (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2025).

Form of Secured Convertible Note dated August 25, 2025 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2025).

Form of Pre-Funded Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2025).

Third Amendment, dated August 25, 2025, to Secured Convertible Note issued on November 5, 2024 (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2025).

First Amendment, dated August 25, 2025, to Secured Convertible Notes issued on May 22, 2025 (incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2025).

2020 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Intellectual Property Assignment and Transfer Agreement by and among the Registrant, Agrify Brands, LLC and The Holden Company effective as of January 1, 2020 (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Supply Agreement by and among the Registrant and Mack Molding Co.

dated December 7, 2020 ± (incorporated by reference to Exhibit 10.15 to the Registrant’s Amendment No.

1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 13, 2021)

Amended and Restated Operating Agreement of Agrify Brands, LLC effective as of August 12, 2020 (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Form of Indemnification Agreement with directors and executive officers (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 11, 2021)

Employment Agreement, dated as of November 10, 2021, between the Registrant and Timothy Oakes † (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2021)

Form of Securities Purchase Agreement, dated as of January 25, 2022, between the Registrant and the Purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2022

Form of Securities Purchase Agreement, dated as of March 14, 2022, between the Registrant and High Trail Special Situations LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 18, 2022)

Agrify Corporation 2022 Omnibus Equity Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 29, 2022)

Agrify Corporation 2022 Employee Stock Purchase Plan (incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 29, 2022)

Separation Agreement of Thomas Massie, dated as of July 8, 2022 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 14, 2022).

Employment Agreement, dated as of July 14, 2022, between the Registrant and Stuart Wilcox (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 14, 2022).

Exchange Agreement, dated as of August 18, 2022, between the Registrant and High Trail Special Situations LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 19, 2022).

Equity Distribution Agreement, dated as of October 18, 2022, between the Registrant and Canaccord Genuity LLC (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 18, 2022).

Employment Agreement, dated as of July 25, 2022, between the Registrant and Timothy Hayden (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 24, 2023)

Exchange Agreement, dated as of March 8, 2023, between the Registrant and High Trail Special Situations LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 9, 2023)

Company and Investor Acknowledgment, dated as of October 27, 2023, between the Registrant and CP acquisitions LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023)

Letter Agreement, dated as of October 27, 2023, between the Registrant and High Trail Special Situations LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023)

Modification Agreement, effective as of October 18, 2023, between the Registrant and Mack Molding Company (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023)

Agrify Corporation 2022 Omnibus Equity Incentive Plan, as amended (incorporated by reference to Appendix A to the Registrant’s Definitive

Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 30, 2025)

Corporation 2022 Employee Stock Purchase Plan (incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement

on Schedule 14A filed with the Securities and Exchange Commission on April 29, 2022)

Purchase Agreement, dated as of August 28, 2024, by and between Agrify Corporation and Ionic Ventures, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 29, 2024)

Registration Rights Agreement, dated as of August 28, 2024, by and between Agrify Corporation and Ionic Ventures, LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 29, 2024)

First Amendment to Modification and Settlement Agreement, dated as of August 30, 2024, by and between Agrify Corporation and Mack Molding Company.

(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2024)

Severance Agreement, dated November 5, 2024, between Agrify Corporation and Raymond Chang (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2024)

1 unchanged sentence

Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2024)

Code of Ethics of Agrify Corporation Applicable To Directors, Officers And Employees (incorporated by reference to Exhibit 14.1 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Letter from MATSUURA regarding change in certifying accountant (incorporated by reference to Exhibit 16.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 22, 2024).

Asset Purchase Agreement, dated as of December 31, 2024, among the registrant and CP Acquisitions, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2025).

Shared Services Agreement, dated March 21, 2025 with Vision Management Services, LLC for Chief Financial Officer Services (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2025).

Amended and Restated Shared Services Agreement, dated May 20, 2025, by and between Vision Management Services, LLC and Agrify Corporation (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2025).

Purchase Agreement, dated May 20, 2025, by and between VCP IP Holdings, LLC and Agrify Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2025).

Trademark and Recipe License Agreement, dated May 20, 2025, by and between MC Brands LLC and GTI Core, LLC (incorporated by referenced to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2025).

Trademark and Recipe License Agreement, dated May 20, 2025, by and between For Success Holding Company and Core Growth, LLC (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2025).

Trademark and Recipe License Agreement, dated May 20, 2025, by and between VCP IP Holdings, LLC and Core Growth, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2025).

Amended and Restated Purchase Agreement, dated June 30, 2025, by and between Agrify Corporation VCP IP Holdings, LLC (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2025).

Purchase Agreement, dated August 27, 2025, by and between VCP23, LLC and Agrify Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2025).

Trademark and Recipe License Agreement, dated August 27, 2025, by and between VCP IP Holdings, LLC and GTI Core, LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2025).

Amended and Restated Trademark and Recipe License Agreement, dated August 27, 2025, by and between MC Brands LLC and GTI Core, LLC (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2025).

Code of Ethics Applicable To Directors, Officers And Employees (incorporated by reference to Exhibit 14.1 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Insider Trading Policy

1 unchanged sentence

Consent of Independent Registered Public Accounting Firm

Certification of Principal Executive Officer and Principal Financial and Accounting Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officer and Principal Financial and Accounting Officer Pursuant to 18 U.S.C.

Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a- 14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Financial and Accounting Officer Pursuant to Securities Exchange Act Rules 13a- 14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officer Pursuant to 18 U.S.C.

Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Agrify Corporation Clawback policy (incorporated by reference to Exhibit 97.1 to the Registration’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 4, 2024, as amended on April 29, 2024)

Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C.

Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Clawback policy (incorporated by reference to Exhibit 97.1 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 4, 2024, as amended on April 29, 2024)

Inline XBRL Instance Document

5 unchanged sentences

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

± Certain information has been

omitted from this exhibit in reliance upon Item 601(a)(5) of Regulation S-K.

† Indicates a management contract,

compensatory plan, or arrangement.

# Certain confidential portions

of this exhibit were omitted pursuant to Item 601(b)(2)(ii) of Regulation S-K because the identified confidential portions (i) are not

material and (ii) are customarily and actually treated as private or confidential by the Company.

± Certain information has been omitted from this exhibit in

reliance upon Item 601(a)(5) of Regulation S-K.

† Indicates a management contract, compensatory plan, or arrangement.

# Certain confidential portions of this exhibit were omitted

pursuant to Item 601(b)(2)(ii) of Regulation S-K because the identified confidential portions (i) are not material and (ii) are customarily

and actually treated as private or confidential by the Company.

* Filed herewith.

1 unchanged sentence

Form 10-K Summary.

Pursuant to the requirements

of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by

the undersigned, thereunto duly authorized.

AGRIFY CORPORATION

Pursuant to the requirements of the Securities

Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

March 3, 2026

/s/ Benjamin Kovler

Benjamin Kovler

Chairman and Interim Chief Executive Officer

(Principal Executive Officer and

Principal Financial and Accounting Officer)

(Principal Executive Officer)

Pursuant to the requirements

2 unchanged sentences

/s/ Benjamin Kovler

Chairman and Interim Chief Executive Officer and Director

Chairman and Interim Chief Executive Officer

March 3, 2026

Benjamin Kovler

(Principal Executive Officer and Principal Financial and Accounting Officer)

(Principal Executive Officer)

/s/ Brad Asher

Chief Financial Officer

March 3, 2026

(Principal Financial and Accounting Officer)

/s/ Krishnan Varier

14 unchanged sentences

March 3, 2026

to Consolidated Financial Statements

Index to Consolidated Financial Statements

Fiscal Years Ended December 31, 2025 and 2024:

Independent Auditors’ Report (PCAOB ID # 7143 ) F-2

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID # 7143 ) F-2

Consolidated Financial Statements F-3

Consolidated Balance Sheets F-3

1 unchanged sentence

Consolidated Statements of Stockholders’ Equity (Deficit) F-5

Statements of Cash Flows F-8

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-9 - F-35

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Shareholders and Board of Directors of Agrify Corporation and Subsidiaries

on the Financial Statements

We have audited the accompanying consolidated balance sheet of Agrify

Corporation (the “Company”) as of December 31, 2024, and the related consolidated statements of operations, stockholders’

equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December

31, 2024, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally

accepted in the United States of America.

The consolidated financial statements of the Company as of December

31, 2023, before the retrospective adjustments described in Notes 1 and 6, were audited by other auditors whose report, dated April 15,

2024, expressed an unqualified opinion on those statements.

We have audited those retrospective adjustments to the 2023 consolidated financial

statements, as reported in the financial statements as of and for the year ended December 31, 2024, related to discontinued operations

as described in Notes 1 and 6.

In our opinion, such adjustments are appropriate and have been properly applied.

We were not engaged to

audit, review, or apply any procedures related to the Company’s 2023 consolidated financial statements other than with respect to

the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2023 consolidated financial statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of RYTHM,

(formerly known as Agrify Corporation) (the “Company”) as of December 31, 2025 and 2024, and the related consolidated

statements of operations, stockholders’ equity (deficit), and cash flows for the two years in the period ended December 31, 2025,

and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present

fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations

and its cash flows for the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted

in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s

16 unchanged sentences

misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall

presentation of the financial statements.

Such procedures

included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included

evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation

of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Emphasis of Matter – Related Parties

As described in Note 3, Note 8, Note 10, Note 18, Note 21, and Note

23, the accompanying financial statements include significant transactions with a related party, and a significant portion of the Company’s

operating, investing, and financing activities are conducted with this related party.

/s/ GuzmanGray

have served as the Company’s auditor since 2024.

Mesa, California

We have served as the Company’s auditor since 2024.

Costa Mesa, California

March 3, 2026

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Shareholders and Board of Directors of Agrify Corporation and Subsidiaries

on the Financial Statements

We have audited, before the effects of the discontinued

operations discussed in Note 1 and Note 6, the accompanying consolidated balance sheet of Agrify Corporation and Subsidiaries (the “Company”)

as of December 31, 2023 and the related consolidated statements of operations , stockholders’ (deficit) equity and cash flows

for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

opinion, before the effects of the discontinued operations discussed in Note 1 and Note 6, the financial statements present fairly, in

all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows

for the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply

any procedures to the effects of the discontinued operations discussed in Note 1 and Note 6 to the consolidated financial statements,

and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have

been properly applied.

Those adjustments were audited by other auditors.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that

the Company will continue as a going concern.

As more fully described in Note 1, the Company has a significant working capital deficiency,

has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions

raise substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters are

also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

These financial statements are the responsibility

of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are

required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free

of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit

of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control

over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over

financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Marcum llp

We served as the Company’s auditor from 2019 through 2024.

April 15, 2024

Financial Statements

(Formerly known as Agrify Corporation)

BALANCE SHEETS

thousands, except share and per share data)

of December 31,

Current assets:

and cash equivalents

Accounts receivable, net of allowance for credit losses of $ 1,702 and $ 1,766 at December 31, 2024 and 2023, respectively

expenses and other current assets

assets of discontinued operations

(In thousands,

except share and per share data)

As of December 31,

Current assets:

and equipment, net

lease right-of-use assets

non-current assets

assets of discontinued operations

and Stockholders’ Equity (Deficit)

expenses and other current liabilities

lease liabilities, current

debt, current

party debt, current

liabilities of discontinued operations

Cash and cash equivalents

Accounts receivable, net (1)

Inventory, net (2)

Prepaid expenses and other current assets

Current assets associated with discontinued operations

Total current assets

Intangible assets, net

Related party prepaid license rights

Non-current assets associated with discontinued operations

Liabilities and Stockholders’ Equity

Current liabilities:

lease liabilities, net of current

debt, net of current

liabilities of discontinued operations

and contingencies (Note 18)

Stockholders’

equity (deficit):

Common Stock, $ 0.001 par value per share, 35,000,000 and 10,000,000 shares authorized at December 31, 2024 and 2023, respectively, 1,952,032 and 113,416 shares issued and outstanding at December 31, 2024 and 2023, respectively (1)

Accounts payable (3)

Accrued expenses and other current liabilities (4)

Long-term debt, current

Related party debt, current

Current liabilities associated with discontinued operations

Total current liabilities

Warrant liabilities (5)

Long-term debt, net of current

Related party debt, net of current

Non-current liabilities associated with discontinued operations

Total liabilities

Commitments and contingencies (Note 23)

Stockholders’ equity:

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

2,149,128 and 1,952,032 shares issued and outstanding at December 31, 2025 and December 31, 2024, respectively

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

Preferred A Stock, $ 0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding

paid-in capital

stockholders’ equity (deficit) attributable to Agrify Corporation

Non-controlling

stockholders’ equity (deficit)

liabilities and stockholders’ equity (deficit)

(1) Periods presented have been adjusted to retroactively reflect the 1-for-20 reverse stock split on July 5, 2023, and for the 1-for-15 reverse stock split on October 8, 2024.

Additional information regarding the reverse stock splits may be found in Note 1 - Overview, Basis of Presentation, and Significant Accounting Policies, included in the notes to the consolidated financial statements.

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

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

(1) Include $ 7.0 million and none from related parties as of

December 31, 2025 and December 31, 2024, respectively.

(2) Included $ 392 thousand and none from related parties as of

December 31, 2025 and December 31, 2024, respectively.

(3) Include $ 152 thousand and none due to a related party as

of December 31, 2025 and December 31, 2024, respectively.

(4) Include $ 4.7 million and $ 487 thousand due to related parties as of

December 31, 2025 and December 31, 2024, respectively.

(5) As of December 31, 2025 and December 31, 2024, the number of outstanding warrants

subject to liability classification was 40,017 , of which 15,394 are held by RSLGH, a related party.

The accompanying notes are an integral

part of these consolidated financial statements.

(Formerly known as Agrify Corporation)

STATEMENTS OF OPERATIONS

thousands, except share and per share data)

Ended December 31,

of goods sold

general and administrative

and development

in contingent consideration

on early termination of lease

on disposal on property and equipment

operating expenses

loss from continuing operations

in fair value of warrant liabilities

on extinguishment of long-term debt, net

other expense, net

from continuing operations before income taxes

tax (expense) benefit

continuing operations, net of income taxes

from discontinued operations

on disposal of Cultivation business

tax effect on discontinued operations

discontinued operations, net of income taxes

attributable to non-controlling interest

attributable to Agrify Corporation

(In thousands,

except share and per share data)

Year Ended December 31,

Cost of goods sold

Gross profit (loss)

Selling, general and administrative (2)

Impairment of long-lived assets

Change in contingent consideration

Total operating expenses

Operating loss from continuing operations

Interest expense, net (3)

Change in fair value of warrant liabilities

Other income, net

Total other expense, net

Loss from continuing operations before income taxes

Income tax provision

Loss from continuing operations, net of income taxes

Loss from discontinued operations

Gain (loss) on disposal of Extraction and Cultivation business

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

Net loss per share:

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

average common shares outstanding - basic and diluted (1)

(1) Periods presented have been adjusted to retroactively reflect the 1-for-20 reverse stock split on July 5, 2023, and for the 1-for-15 reverse stock split on October 8, 2024.

Additional information regarding reverse stock splits may be found in Note 1 - Overview, Basis of Presentation, and Significant Accounting Policies, included elsewhere in the notes to the consolidated financial statements.

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

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

thousands, except share and per share data)

Stockholders’

Basic and diluted

Continuing operations

Discontinued operations

Net loss per share – basic and diluted (4)

Weighted average common shares outstanding - basic and diluted (4)

(1) Include $ 8.2 million and none for the year ended December 31, 2025 and December 31, 2024, respectively, in each case from related parties.

(2) Include $ 10.6 million and $ 331 thousand for the year ended December 31, 2025 and December 31, 2024, respectively, in each case from related parties.

(3) Include $ 4.1 million and $ 156 thousand for the year ended December

31, 2025 and December 31, 2024, respectively, in each case from related parties.

(4) Amounts for the year ended December 31, 2024 have been adjusted

to retroactively reflect the 1-for-15 reverse stock split on October 8, 2024.

Additional information regarding the reverse stock split

may be found in Note 1 – Overview, included in the notes to the consolidated financial statements.

In addition to the transactions described

above, the Company engaged in other routine transactions with related parties in the ordinary course of business.

Such transactions were

not material, individually or in aggregate, to the consolidated financial statements for the periods presented.

The accompanying notes

are an integral part of these consolidated financial statements.

(Formerly known as Agrify Corporation)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (DEFICIT)

Stockholders’

at January 1, 2023

(In thousands, except share and per share data)

Total Stockholders’

Balance at January 1, 2024

$ ( 265,567 )

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

of held-back shares to Lab Society

of Common Stock to Pure Pressure

of restricted stock units

of prefunded warrants in private placement

of equity classified warrants

of private placement debt into equity classified warrants

of Exchange Note

of Convertible Note

from Employee Stock Purchase Plan Shares

stock split fractional share settlement

December 31, 2023

Issuance of Common Stock in connection with private placement, net

Senorita Acquisition

Conversion of related party debt into Pre-Funded Warrants

Excess of related party debt and Pre-Funded Warrants conversion

Issuance of equity classified Pre-Funded Warrants

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

Conversion of Convertible Note

Exercise of liability classified warrants, net of forfeitures

Exercise of Pre-Funded Warrants

Stock-based compensation

Contribution from troubled debt restructuring with related party

Issuance of common shares (IONIC Stock Subscription Payable)

Exercise of Placement Agent Warrants

Stock split share adjustment

Cashless exercise of High Trail Warrants

Issuance of vested RSUs

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

Issuance of held-back shares from Sinclair acquisition

Balance at December 31, 2024

$ ( 307,313 )

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

Stockholders’

(Deficit) attributable

Stockholders’

at January 1, 2024

The accompanying notes are an integral part of

these consolidated financial statements.

Total Stockholders’

Balance at January 1, 2025

$ ( 307,313 )

of Common Stock and Pre-Funded Warrants through public offering

of held-back shares from Sinclair acquisition

exercise of High Trail Warrants

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

of Pre-Funded Warrants

of common shares (IONIC Stock Subscription Payable)

of liability classified warrants, net of forfeitures

of Placement Agent Warrants

of Common Stock in connection with private placement, net

of vested RSUs

split share adjustment

Contribution from troubled debt restructuring with related party

of equity classified Pre-Funded Warrants

of related party debt and Pre-Funded Warrants conversion

of related party debt into Pre-Funded Warrants

of Convertible Note

December 31, 2024

Conversion of related party convertible note to pre-funded warrants

Issuance of pre-funded warrants in lieu of cash payments on related party shared services agreement

Issuance or accrual of pre-funded warrants in lieu of cash interest payments on related party debt

Stock-based compensation

Issuance or accrual of pre-funded warrants in lieu of cash interest payments

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

Exercise of Pre-Funded Warrants

Cancellation of common shares

Impairment of non-controlling interests

Balance at December 31, 2025

$ ( 340,800 )

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

STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of

these consolidated financial statements.

(Formerly known as Agrify Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share and per share data)

Year Ended December 31,

Cash flows from operating activities:

Net loss attributable to Agrify Corporation

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

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

Depreciation and amortization

Amortization of debt premium

Amortization of debt issuance costs

Amortization of debt discount

Non-cash interest expense

Lease expense

Impairment of right-of-use assets

Impairment of long-lived assets

Stock-based compensation expense

Change in fair value of warrant liabilities

Loss on extinguishment of long-term debt, net

Change in provision for credit losses, net

Change in provision for inventory

Change in inventory reserve

Loss on abandonment of CIP projects

(Gain) loss on disposal of property and equipment

Loss on inventory write-down

Gain on disposal of property and equipment

Gain on exit of Extraction business

Gain on early termination of lease

2 unchanged sentences

Change in contingent consideration

Income attributable to non-controlling interests

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

Accounts receivable - related party

Prepaid expenses and other current assets

2 unchanged sentences

Accounts payable

Accounts payable - related party

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities - related party

Operating lease liabilities

2 unchanged sentences

Cash flows from investing activities:

Related party transaction with MC Brands

Related party transaction with VCP

Purchases of property and equipment

Proceeds from disposal of property and equipment

Proceeds from sale of marketable securities

Issuance of loans receivable

Proceeds from repayment of loan receivable

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

Net cash and cash equivalents used in investing activities

Cash flows from financing activities:

Proceeds from related party notes payable

Proceeds from third-party notes payable

Repayments of third-party notes payable

Payments for taxes related to net share settlement of equity awards

Proceeds from issuance of Common Stock through an S-1 and Pre-Funded Warrants offering

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

Proceeds from issuance of Common Stock through IONIC Stock Subscription

Proceeds from the issuance of Common Stock in connection with private placement, net

Proceeds from Employee Stock Purchase Plan Shares

Proceeds from issuance of Common Stock in connection with private placement, net

Proceeds from exercise of Pre-Funded Warrants

Proceeds from issuance of warrants in settlement agreement

Proceeds from issuance of related party notes

Repayments of notes payable, other

Repayment of debt in private placement

Payments on other financing loans

Payments on insurance financing loans

Payments of financing leases

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

Net increase (decrease) in cash and cash equivalents

Net cash and cash equivalents provided by financing activities continuing operations

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of period

2 unchanged sentences

Cash and cash equivalents at the end of period

The accompanying notes are an integral part of

these consolidated financial statements.

Year Ended December 31,

Supplemental disclosures

1 unchanged sentence

Supplemental disclosure of non-cash investing and financing activities

Fair value of warrants in connection with reclassification and issuance

Financing of prepaid insurance

Cashless exercise of liability classified warrants

Conversion of related party debt to equity

Transfer of property and equipment to inventory

Conversion of related party debt to common stock

Issuance of pre-funded warrants in lieu of related party shared services agreement

Issuance of pre-funded warrants in lieu of related party cash interest

Issuance of pre-funded warrants in lieu of cash interest

Reclassification of accounts payable and accrued interests to notes payable

Conversion of liability classified pre-funded warrants to equity

Deemed contribution from troubled debt restructuring with related party

Stock and warrants issued in connection with business combination

Fair value of warrants in connection with reclassification and issuance

Conversion of convertible notes into equity

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

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 — Overview, Basis of Presentation and Significant Accounting Policies

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

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

addition to beverages, Agrify has also historically been a leading provider of innovative cultivation and extraction solutions for the

cannabis industry.

The Company’s comprehensive extraction product line, which includes hydrocarbon, alcohol, solventless, post-processing,

and lab equipment, empowers producers to maximize the quantity and quality of extract required for premium concentrates.

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.

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

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

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

Company also has ownership interests in certain companies.

On December 12, 2024, the Company acquired certain assets from Double

or Nothing, LLC (“Double or Nothing”), the owner and creator of the Señorita brand of hemp-derived drinks as part of

the Company’s strategic plan to reposition itself as a distributor of hemp-derived beverages (and similar products).

December 31, 2024, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CP Acquisitions,

LLC (“CP”), an entity affiliated with Raymond Chang, the Company’s former Chairman and Chief Executive Officer.

the Purchase Agreement, CP acquired assets from the Company relating to the Company’s Vertical Farming Units (“VFUs”),

including the related Agrify total-turnkey (“TTK”) solution assets and Agrify Insights TM software solutions (collectively

the “Cultivation Business”).

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

of the Cultivation Business is presented as discontinued operations in the Consolidated Statements of Operations and, as such, have been

excluded from continuing operations.

Further, the Company reclassified the assets and liabilities of the Cultivation Business to discontinued

operations in the Consolidated Balance Sheet as of December 31, 2023.

For further discussion on the discontinued operations, refer to

July 5, 2023, the Company effected a 1-for-20 reverse stock split of its Common Stock.

Cashless exercise of liability classified warrants

Deemed contribution from troubled debt restructuring with related party

Financing of prepaid insurance

The accompanying notes are an integral part of

these consolidated financial statements.

Note 1 — Overview

Description of Business

(formerly Agrify

Corporation) (together with its subsidiaries, the “Company” or “RYTHM”) delivers well-being to consumers through

its portfolio of hemp-derived THC products and iconic licensed brands.

The Company’s portfolio of consumer-packaged goods brands

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

brand 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

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

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”).

Throughout the Form 10-K, the terms “intellectual property”, “intellectual property rights”,

“brands”, “trademarks”, “tradenames”, “brand rights” and “Prepaid License Rights”

are used interchangeably.

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.

The Company was

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

27, 2025, the Company filed a Certificate of Amendment to the Articles of Incorporation of the Company with the Secretary of State of

Nevada, to effect a change in the Company’s name from Agrify Corporation to RYTHM, Inc., effective as of September 2, 2025.

In connection

with the name change, the Company’s trading symbol on the Nasdaq Capital Market changed from “AGFY” to “RYM”

effective as of the open of trading on September 2, 2025.

The Company is sometimes referred to herein by the words “we,” “us,”

“our,” and similar terminology.

The Company has thirteen

wholly-owned consolidated subsidiaries, which are collectively referred to as the “Subsidiaries” and seven out of thirteen

subsidiaries are related to discontinued operations.

On December 12,

2024, the Company acquired certain assets from Double or Nothing, LLC (“Double or Nothing”), the owner and creator of the

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

THC beverages and similar products.

On December 31,

2024, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CP Acquisitions, LLC (“CP”),

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

Under the Purchase Agreement,

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

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

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

The results of the Cultivation Business are presented as discontinued

operations in the consolidated statements of operations and, as such, have been excluded from continuing operations.

Further, the Company

reclassified the assets and liabilities of the Cultivation Business associated with discontinued operations in the consolidated balance

sheets as of December 31, 2025 and December 31, 2024.

For further discussion on the discontinued operations, refer to Note 17 included

elsewhere in the notes to the consolidated financial statements.

On March 30, 2025, the Company

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

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

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

Extraction Business.

The results of the Extraction Business are presented as discontinued operations in the consolidated statements of

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

Further, the Company reclassified the assets and liabilities

of the Extraction Business associated with discontinued operations in the consolidated balance sheets as of December 31, 2025 and December

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

For further discussion on the

discontinued operations, refer to Note 17 included elsewhere in the notes to the consolidated financial statements.

On May 20, 2025, we acquired

from VCP IP Holdings, LLC (“VCP”) an indirect wholly-owned subsidiary of Green Thumb, a related party, 100 % of the equity

interests of MC Brands, LLC pursuant to which we obtained rights relating to MC Brands, LLC and its wholly-owned subsidiary Core Growth

LLC (together referred to as “MC Brands”).

The assets of MC Brands consist primarily of intellectual property rights associated

with the Incredibles brand.

Concurrent with the transaction, we entered into a license agreement with GTI Core, LLC, (“GTI Core”),

an indirect subsidiary of Green Thumb, pursuant to which GTI Core was granted the right to use the incredibles brand in connection with

its existing businesses.

Consideration payable by GTI Core under the license agreement consists of a monthly license fee payable in cash.

We began recognizing licensing revenue under this agreement in May 2025.

On August 27, 2025, we acquired

from VCP23, LLC an indirect wholly-owned subsidiary of Green Thumb, 100 % of the equity interests of VCP IP Holdings, LLC pursuant to which

we obtained rights relating to VCP IP Holdings, LLC.

The assets of VCP IP Holdings, consist primarily of intellectual property rights

to the RYTHM, Beboe, Dogwalkers, Doctor Solomon’s,& Shine, and Good Green brands (these rights, together with the incredibles

brand rights, referred to as “Brand Rights”).

Concurrent with the transaction, we entered into a license agreement with GTI

Core pursuant to which GTI Core was granted the right to use the Brand Rights in connection with its existing businesses.

Consideration

payable by GTI Core under the license agreement consists of a monthly license fee payable in cash.

We began recognizing licensing revenue

under this agreement in November 2025.

Reverse Stock Splits

On October 8,

2024, the Company effected a 1-for-15 reverse stock split of its Common Stock.

All share and per share information has been retroactively

adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated.

October 8, 2024, the Company effected a 1-for-15 reverse stock split of its Common Stock.

All share and per share information has been

retroactively adjusted to give effect to the reverse stock splits for all periods presented unless otherwise indicated.

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.

stock splits had no impact on the number of shares of Common Stock that the Company is authorized to issue pursuant to its articles of

incorporation or on the par value per share of the Common Stock.

Proportional adjustments were made to the number of shares of Common

Stock issuable upon exercise or conversion of the Company’s outstanding stock options and warrants, the exercise price or conversion

price (as applicable) of the Company’s outstanding stock options and warrants, and the number of shares reserved for issuance under

the Company’s 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.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deficiency Notice

January 19, 2023, the Company received a deficiency letter from the Listing Qualifications Department

(the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that, for the previous

30 consecutive business days, the bid price for its 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) , the Company 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 the Company’s 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, the Company

received a notice from Nasdaq confirming its 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 (the “Audit Committee”) of the Company’s Board of Directors (the “Board”) concluded

that, as a result of inadvertent errors in the accounting for warrants previously issued by the Company, it was appropriate to restate

the Company’s 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 the Company’s Quarterly Reports on Form 10-Q for such periods in amended

quarterly reports for the affected periods.

As a result of such restatements, the Company was unable to timely file the 2022 Form 10-K,

the First Quarter 2023 Form 10-Q and the Second Quarter 2023 Form 10-Q without unreasonable effort or expense.

April 18, 2023, the Company received a notice from Nasdaq (the “April Nasdaq Notice”) that it was noncompliant with Nasdaq

Listing Rule 5250(c)(1) as a result of its failure to file its Annual Report on Form 10-K (the “Form 10-K”) with the SEC

by the required due date.

May 17, 2023, the Company received

a second notice from Nasdaq (the “May Nasdaq Notice”) that it remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as

a result of its failure to file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “First Quarter Form

10-Q”) with the SEC by the required due date.

August 16, 2023, the Company received a third notice from Nasdaq that it remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a

result of its failure to file its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Second Quarter

Form 10-Q”) with the SEC by the required filing date (the “August Nasdaq Notice” and, together with the April Nasdaq

Notice and the May Nasdaq Notice, the “Nasdaq Notices”).

Nasdaq granted the Company an exception until October 16, 2023, to file its 2022 Form 10-K and First and Second Quarter 2023 Forms 10-Q.

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

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

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

Listing Rule as a result of its failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K for 2023

(collectively, the “Delinquent Reports”) in a timely manner.

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

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

filing date (the “November Nasdaq Notice” and, together with the April Nasdaq Notice, the May Nasdaq Notice, and the August

Nasdaq Notice, the “Nasdaq Notices”).

December 1, 2023, the Company received a notice from Nasdaq stating that because the Company reported stockholders’ equity of $( 17.17 )

million in its Form 10-Q for the quarter ended March 30, 2023, the Company was no longer in compliance with Nasdaq Listing Rule 5550(b)(1)

(the “Primary Equity Listing Rule”), which requires that listed companies maintain a minimum of $ 2.5 million in stockholders’

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

further action by the Listing Qualifications Staff.

The hearing was held on January 11, 2024.

The Company arrived at the hearing having

previously cured any additional grounds for delisting as a result of delinquent periodic filings during 2023 that were filed prior to

On January 30, 2024, the Company received formal notice that the Panel

had granted the Company’s request for an exception through April 15, 2024 to evidence compliance with the Listing Rule.

The compliance

date of April 15, 2024 represents the full extent of the Panel’s discretion to grant continued listing while the Company is non-compliant

with Nasdaq Listing Rules.

Accordingly, there can be no assurance that the Company will be able to regain compliance with the Nasdaq listing

rules or maintain its listing on the Nasdaq Capital Market.

If the Company’s Common Stock is delisted, it could be more difficult

to buy or sell the Company’s Common Stock or to obtain accurate quotations, and the price of the Company’s Common Stock could

suffer a material decline.

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

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

days, the bid price for the Company’s Common Stock had closed below $ 1.00 per share, which is the minimum closing price required

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

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

In accordance with Nasdaq Listing Rule

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

The compliance period for the

Company expired on September 3, 2024.

On September 4, 2024, the Staff notified the company in writing that it was eligible for an additional

180-day compliance period, or until March 3, 2025, to regain compliance with the Minimum Bid Requirement.

On October 8, 2024, the Company

completed a 1-for-15 reverse stock split of our Common Stock, in which each fifteen shares of Common Stock issued and outstanding was

combined and converted into one share of Common Stock to regain compliance with the Minimum Bid Requirement.

On October 22, 2024, the

Staff notified the Company that it had regained compliance with the Minimum Bid Requirement.

of Presentation and Principles of Consolidation

for Wholly-Owned Subsidiaries

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

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

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

Board (“FASB”) Accounting Standards Codification (“ASC”).

The Company includes results of operations of acquired

companies from the date of acquisition.

adjusted to give effect to the reverse stock splits for the year ended December 31, 2024, unless otherwise indicated.

No fractional

shares of Common Stock were issued as a result of this reverse stock split.

Any fractional shares in connection with this reverse stock

splits were rounded up to the nearest whole share and no stockholders received cash in lieu of fractional shares.

The reverse stock split

had no impact on the number of shares of Common Stock that the Company is authorized to issue pursuant to its articles of incorporation

or on the par value per share of the Common Stock.

Proportional adjustments were made to the number of shares of Common Stock issuable

upon exercise or conversion of the Company’s outstanding stock options and warrants, the exercise price or conversion price (as

applicable) of the Company’s outstanding stock options and warrants, and the number of shares reserved for issuance under the Company’s

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 this reverse stock split.

Note 2 — Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared

on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”)

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

the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) the Consolidation

Topic 810 (“ASC 810”).

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

All significant intercompany transactions and balances are eliminated.

for Less Than Wholly-Owned Subsidiaries

the Company’s less than wholly-owned subsidiary, Agrify Brands, LLC (“Agrify Brands”), the Company first analyzes whether

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

beneficiary requiring consolidation.

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

is the primary beneficiary of the VIE.

If it is determined that Agrify Brands qualifies as a VIE and the Company is the primary beneficiary,

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

on the Company’s analysis of this entity, the Company has determined that Agrify Brands is a VIE, and that the Company is the primary

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

owned by unrelated third parties, and the agreement with these third parties provides the Company with greater voting power as the majority

Accordingly, the Company consolidates its interest in the financial statements of Agrify Brands under the VIE rules and reflects

the third parties’ interests in the condensed consolidated financial statements as a non-controlling interest.

The Company records

this non-controlling interest at its initial fair value, adjusting the basis prospectively for the third parties’ share of the

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

These non-controlling interests

are not redeemable by the equity holders and are presented as part of permanent equity.

Income and losses are allocated to the non-controlling

interest holders based on its economic ownership percentage.

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

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

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

Use of Estimates

The preparation of the

Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that

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

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

On an ongoing basis, the

Company evaluates estimates, which include estimates related to accruals, stock-based compensation expense, reported amounts of revenues

during the reported period, fair value of warrant liabilities, sales tax liabilities, valuation of deferred tax assets, net realizable

value of inventory and collectability of trade accounts, intangible assets, goodwill, and litigation.

The Company bases their estimates

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

Actual results may differ materially from those estimates or assumptions.

Company regularly evaluates its assets, including asset groups or reporting units, for impairment in accordance with GAAP.

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

is committed to ensuring that the carrying amounts of its assets are appropriately assessed and adjusted for any impairment, reflecting

a true and fair view of its financial position.

Reclassifications

The Company effected a 1-for-20

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

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

otherwise indicated.

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

Accordingly, the Stockholders’ equity

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

to “Additional paid-in capital” an amount equal to the par value of the decreased shares resulting from the reverse stock

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

presentation.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024, the Company entered into and closed a Purchase Agreement with CP.

Under the Purchase Agreement, CP acquired assets

from the Company relating to the Cultivation Business.

As the sale of the Cultivation

Business represented a strategic shift that will have a major effect on the Company’s operations and financial results, they have

been presented in discontinued operations in accordance with ASC 205, Presentation of Financial Statements, separate from continuing operations

for the years ended December 31, 2024 and 2023, as applicable.

For further discussion, refer to Note 6.

and Cash Equivalents

and cash equivalents consist principally of cash and deposits with maturities of three months or less as of December 31, 2024 and December

Company evaluates estimates, which include estimates related to accruals, stock-based compensation expense, reported amounts of

revenues during the reported period, fair value of warrant liabilities, sales tax liabilities, valuation of deferred tax assets, net

realizable value of inventory and collectability of trade accounts, intangible assets, other assets (Prepaid License Rights),

goodwill, and litigation.

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

assumptions that they believe to be reasonable under the circumstances.

Actual results may differ materially from those estimates or

The Company regularly

evaluates its assets, including asset groups or reporting units, for impairment in accordance with GAAP.

The Company is aware of the impact

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

The Company is committed to ensuring

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

its financial position.

Discontinued Operations

On December 31,

2024, the Company entered into and closed a Purchase Agreement with CP.

Under the Purchase Agreement, CP acquired assets from the Company

relating to the Cultivation Business.

On March 30, 2025, the Company discontinued the Extraction Business (together with the Cultivation

Business, the “Discontinued Operations”).

As the sale of

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

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

Statements , separate from continuing operations for the years ended December 31, 2025 and 2024, as applicable.

For further discussion,

refer to Note 17 included elsewhere in the notes to the consolidated financial statements.

Cash and Cash Equivalents

Cash and cash

equivalents consist principally of cash and deposits with original maturities of three months or less as of December 31, 2025 and December

All cash equivalents are carried at cost, which approximates fair value.

Company’s marketable security investments primarily include investments held in mutual funds, municipal bonds, and corporate bonds.

The mutual funds are recorded at fair value in the accompanying consolidated balance sheets as part of cash and cash equivalents.

municipal and corporate bonds are considered to be held-to-maturity securities and are recorded at amortized cost in the accompanying

consolidated balance sheets.

The fair value of these investments was estimated using recently executed transactions and market price

The Company considers current assets to be those investments that will mature within the next 12 months, including interest

receivable on long-term bonds.

Receivable, Net

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

In accordance

with the current expect credited loss (“CECL”) impairment model under ASU 2016-13, Financial Instruments - Credit Losses (Topic

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

that may not be collectible.

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

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

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

Accounts receivable balances are written

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

Adjustments to the allowance

for credit losses are recorded as general and administrative expenses in the consolidated statements of operations.

Concentration

of Credit Risk and Significant Customer

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

securities, and accounts receivable.

Cash equivalents primarily consist of money market funds with original maturities of three months

or less, which are invested primarily with U.S.

Accounts Receivable, Net

Accounts receivable, net, primarily consists of amounts for goods and

services that are billed and currently due from customers.

In accordance with the current expect credited loss (“CECL”) impairment

model under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) , accounts receivable balances are presented net of an

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

In determining the amount

of the allowance at each reporting date, management makes judgments about general economic conditions, historical write-off experience,

and any specific risks identified in customer or borrower collection matters, including the aging of unpaid accounts receivable and changes

in customer or borrower financial conditions.

Accounts receivable balances are written off after all means of collection are exhausted

and the potential for non-recovery is determined to be probable.

Adjustments to the allowance for credit losses are recorded as general

and administrative expenses in the consolidated statements of operations.

For the year ended December 31, 2025, the Company recorded approximately

$ 382 thousand in allowance for doubtful accounts.

There was no comparable allowance in the prior year.

Concentration of Credit Risk and Significant Customer

Financial instruments

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

and accounts receivable.

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

are invested primarily with U.S.

financial institutions.

Cash deposits with financial institutions generally exceed federally

insured limits.

Cash deposits with financial institutions generally exceed federally insured

Management believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced

any losses on such amounts.

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

accounts receivable for the periods presented.

the years ended December 31, 2024 and 2023 , the Company did not have any customers that accounted

for 10% or more of total revenue.

of December 31, 2024 and 2023, the Company’s customers that accounted for 10% or more of the total accounts receivable, net, were

of Total Accounts Receivable

Company Customer

Number – 15095

Company Customer Number –

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

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

and Equipment

and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization expenses are recognized

using the straight-line method over the estimated useful life of each asset, as follows:

Estimated Useful Life

Computer and office equipment 2 to 3

Furniture and fixtures 2

Research and development of laboratory equipment 5

Machinery and equipment 3 to 5

Trade show assets 3 to 5

Leasehold improvements Lower of estimated useful life or remaining lease term

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

For the year ended December 31, 2025, a related party customer and

a third-party customer accounted for approximately 45 % and 12 % of the Company’s revenue, respectively.

For the year ended December

31, 2025, a related party accounted for 75 % of the Company’s total accounts receivable.

For the year ended December 31, 2024, one customer accounted for 100 %

of revenue and accounts receivable.

The Company values all its inventories,

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

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

Write-offs of potentially slow-moving, damaged, or expiring inventory

are recorded through specific identification of expired or damaged material.

The Company takes a physical inventory count at least annually

at all significant inventory locations.

Property and Equipment

Property and equipment

are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization expenses are recognized using the straight-line

method over the estimated useful life of each asset.

The estimated useful lives of the Company’s property and equipment are periodically

assessed to determine if changes are appropriate.

The Company charges maintenance and repairs to expense as incurred.

When the Company retires or disposes of assets, the carrying cost

of these assets and related accumulated depreciation or amortization are eliminated from the consolidated balance sheets and any resulting

gain or loss is included in the consolidated statements of operations in the period of retirement or disposal.

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

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

Upon completion, costs are transferred

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

is defined as the excess of cost over the fair value of assets acquired and liabilities assumed in a business combination.

tested for impairment annually, and more frequently if events and circumstances indicate that the asset might be impaired.

impairment charge is recorded if the amount by which the Company’s 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/or a decline in the Company’s

When the Company

retires or disposes of assets, the carrying cost of these assets and related accumulated depreciation or amortization are eliminated from

the consolidated balance sheets and any resulting gain or loss is included in the consolidated statements of operations in the period

of retirement or disposal.

Goodwill is defined

as the excess of cost over the fair value of assets acquired and liabilities assumed in a business combination.

Goodwill is tested for

impairment annually, and more frequently if events and circumstances indicate that the asset might be impaired.

A goodwill impairment

charge is recorded if the amount by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount

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/or a decline in the Company’s

market value as a result of a significant sustained decline in the Company’s stock price.

is not subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate

there might be an impairment.

Goodwill is not

subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate there

might be an impairment.

An impaired asset is written down to its estimated fair value based upon the most recent information.

During the year ended December 31, 2024, the Company performed a qualitative

analysis for its goodwill impairment test.

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.

As a result of the Company’s Step Zero analysis, no further quantitative impairment test was deemed necessary.

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

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

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

The Company accounts for warrants

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

authoritative guidance in ASC 480 and ASC 815.

Management’s assessment considers whether the warrants are freestanding financial

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

of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common

Stock among other conditions for equity classification.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

capital at the time of issuance.

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

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

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

Notes Payable

Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative

financial instruments to be separately accounted for in accordance with ASC 815.

The accounting treatment of derivative financial instruments

requires that the Company identify and record certain embedded conversion options (“ECOs”), certain variable-share settlement

features, and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as

of each subsequent balance sheet date.

Any change in fair value is recorded as an unrealized non-operating, non-cash income or expense

for each reporting period at each balance sheet date.

The Company reassesses the classification of its derivative instruments at each

During the years ended December

31, 2025 and 2024, the Company performed a qualitative analysis for its goodwill impairment test.

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.

As a result of the Company’s

Step Zero analysis, no further quantitative impairment test was deemed necessary.

Impairment of Long-Lived Assets

Long-lived assets are evaluated

for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Examples include

a significant adverse change in the extent or manner in which we use the asset, or an unexpected change in financial performance.

When evaluating

long-lived assets for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future

An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset.

The impairment is

the excess of the carrying value over the fair value of the asset.

We recorded impairment charges related to intangible

assets and other assets (Prepaid License Rights) of $ 7.9 million and $ 0.6 million, respectively, for the year ended December 31,

2025 due to changes in legislation around hemp-derived products in November 2025, which is expected to become effective in November 2026.

There was no comparable impairment in the prior year.

Warrant Liabilities

The Company evaluates

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

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

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

The Company accounts for warrants as either equity-classified

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

in ASC 480 and ASC 815.

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

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

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

for equity classification.

For issued or

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

at the time of issuance.

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

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

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

Convertible Notes Payable

The Company evaluates

its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial

instruments to be separately accounted for in accordance with ASC 815.

The accounting treatment of derivative financial instruments requires

that the Company identify and record certain embedded conversion options (“ECOs”), certain variable-share settlement features,

and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent

balance sheet date.

If the classification changes as a result of events during the period, the contract is reclassified as of the date

of the event that caused the reclassification.

Bifurcated embedded conversion options, variable-share settlement features, and any related

freestanding instruments are recorded as a discount to the host instrument which is amortized to interest expense over the life of the

respective note using the effective interest method.

Issuance Costs and Debt Discount

Company may record debt issuance costs and/or debt discounts in connection with the issuance of debt.

The Company may cover these costs

by paying cash or issuing warrants.

These costs are amortized to interest expense over the expected life of the debt.

If a conversion

of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Issue Discount

convertible debt issued by the Company, may provide the debt holder with an original issue discount.

The Company would record the original

issue discount to debt discount, reducing the face amount of the note, and is then amortized to interest expense over the life of the

Company determines at the inception of an asset contract if such arrangement is or contains a lease.

A contract is or contains a lease

if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

classifies leases at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability

on its consolidated balance sheet for all leases with an initial lease term of greater than 12 months.

A lease with an initial term of

12 months or less is not recorded on the balance sheet, but related payments are recognized as an expense on a straight-line basis over

the lease term.

Company’s asset contracts may contain both lease and non-lease components.

Non-lease components may include maintenance, utilities,

and other operating costs.

The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single

lease component.

Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and

lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.

liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected

The Company determines the present value of future lease payments by using its estimated secured incremental borrowing rate

for that lease term as the interest rate implicit in the lease is not readily determinable.

The Company estimates its secured incremental

borrowing rate for each lease based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease

payments on a collateralized basis over a similar term.

of the Company’s leases include options to extend or terminate the lease.

The amounts determined for the Company’s right-of-use

assets and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised unless

it is reasonably certain that the Company will exercise such options.

Liabilities includes amounts collected, billed in excess of revenue or customer deposits that the Company can recognize.

recognizes contract liabilities and non-current contract liabilities as revenue as the related performance obligation is satisfied.

Company records contract liabilities that will be recognized during the succeeding twelve-month period as a current liability on the

consolidated balance sheets.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Value of Financial Instruments

Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, contingent considerations,

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

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

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

Company measures all stock options and other stock-based awards granted to employees, directors and consultants based on the fair value

on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the

vesting period of the respective award.

Any change in fair value is recorded as an unrealized non-operating, non-cash income or expense for each reporting

period at each balance sheet date.

The Company reassesses the classification of its derivative instruments at each balance sheet date.

If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused

the reclassification.

Bifurcated embedded conversion options, variable-share settlement features, and any related freestanding instruments

are recorded as a discount to the host instrument which is amortized to interest expense over the life of the respective note using the

effective interest method.

The Company determines

at the inception of an asset contract if such arrangement is or contains a lease.

A contract is or contains a lease if the contract conveys

the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company classifies leases

at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability on its consolidated

balance sheet for all leases with an initial lease term of greater than 12 months.

A lease with an initial term of 12 months or less is

not recorded on the balance sheet, but related payments are recognized as an expense on a straight-line basis over the lease term.

The Company’s

asset contracts may contain both lease and non-lease components.

Non-lease components may include maintenance, utilities, and other operating

The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component.

costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather

are expensed when the event determining the amount of variable consideration to be paid occurs.

Lease liabilities

and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term.

The Company determines the present value of future lease payments by using its estimated secured incremental borrowing rate for that lease

term as the interest rate implicit in the lease is not readily determinable.

The Company estimates its secured incremental borrowing rate

for each lease based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized

basis over a similar term.

Certain of the

Company’s leases include options to extend or terminate the lease.

The amounts determined for the Company’s right-of-use assets

and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised unless it is

reasonably certain that the Company will exercise such options.

The Company did not have any leases as part of continuing operations as

of years ended December 31, 2025 and 2024.

Contract Liabilities

includes amounts collected, billed in excess of revenue or customer deposits that the Company can recognize.

The Company recognizes contract

liabilities and non-current contract liabilities as revenue as the related performance obligation is satisfied.

The Company records contract

liabilities that will be recognized during the succeeding twelve-month period as a current liability on the consolidated balance sheets.

The Company did not have any contract liabilities in continuing operations as of years ended December 31, 2025 and December 31, 2024.

Fair Value of Financial Instruments

The Company’s

financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, contingent considerations, long-term

debt, related party debt, and warrant liabilities.

Refer to Note 12 - Fair Value Measures, included elsewhere in the notes to the consolidated

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

Stock-Based Compensation

The Company measures

restricted stock units and stock options awards granted to employees, directors and consultants based on the fair value on the date of

the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period

of the respective award.

Forfeitures are recognized as incurred.

Historically, the Company has issued stock options to

employees, directors and consultants with only service-based vesting conditions and records the expense for these awards using the straight-line

Company classifies stock-based compensation expense in its consolidated statements of operations in the same manner in which the award

recipient’s payroll costs are classified.

Company estimates the fair value of each stock option grant on the date of the grant using the Black-Scholes option-pricing model.

expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that

qualify as “plain-vanilla” options.

Historically, the Company has issued stock options to employees, directors

and consultants with only service-based vesting conditions and records the expense for these awards using the straight-line method.

The Company classifies

stock-based compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s

payroll costs are classified.

The Company estimates

the fair value of each stock option grant on the date of the grant using the Black-Scholes option-pricing model.

The expected term of

the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla”

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve

in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

The expected dividend

yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable

Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired and liabilities

assumed are recorded at their respective fair values at the acquisition date.

The fair value of the consideration paid is assigned to

the assets acquired and liabilities assumed based on their respective fair values.

Goodwill represents the excess of the purchase price

over the estimated fair values of the assets acquired and liabilities assumed.

Company’s management exercises significant judgments in determining the fair value of assets acquired and liabilities assumed,

as well as intangibles and their estimated useful lives.

Fair value and useful life determinations are based on, among other factors,

estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values.

judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed,

as well as the Company’s current and future operating results.

Actual results may vary from these estimates which may result in

adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination

of asset and liability fair values, whichever occurs first.

Adjustments to the fair value of assets and liabilities made after the end

of the measurement period are recorded within the Company’s operating results.

generate revenue from equipment sales and hemp-derived beverage sales.

accordance with ASC Topic 606, Revenue Recognition (“ASC 606”), we recognize revenue from contracts with customers using a

five-step model, which is described below:

the customer contract;

performance obligations that are distinct;

the transaction price;

the transaction price to the distinct performance obligations;

Treasury yield curve in effect at the time of grant of the

award for time periods approximately equal to the expected term of the award.

The expected dividend yield is based on the fact that the

Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Business Combinations and Asset Acquisitions

The Company follows the guidance in ASC 805, Business Combinations ,

for determining the appropriate accounting treatment for asset acquisitions.

ASU 2017-01, Clarifying the Definition of a Business ,

provides an initial fair value screen to determine if substantially all of the fair value

of the assets acquired is concentrated in a single asset or group of similar assets.

If the initial screening

test is not met, the set is considered a business based on whether there are inputs and substantive processes in place.

Based on the results of this analysis and conclusion on an acquisition’s classification of a business combination or

an asset acquisition, the accounting treatment is derived.

If the acquisition

is deemed to be a business, the purchase method of accounting is applied.

The estimated fair value of net assets acquired,

including the allocation of the fair value to identifiable assets and liabilities, is determined using established valuation

A fair value measurement is determined as the price received to sell an asset or pay to transfer a liability in

an orderly transaction between market participants at the measurement date.

In the context of purchase accounting, the determination of

fair value often involves significant judgments and estimates by management, including the selection of valuation methodologies,

estimates of future revenues, costs and cash flows, discount rates, and selection of comparable companies.

The estimated fair

values reflected in the purchase accounting rely on management’s judgment and the expertise of a third-party valuation

firm engaged to assist in concluding on the fair value measurements.

In determining the fair value of all

identifiable assets and liabilities acquired, the most significant estimates relate to intangible assets.

For the intangible

assets identified, depending on the type of intangible asset and the complexity of determining its fair value, the fair value is

developed using appropriate valuation techniques, taking into account assumptions such as the expected future revenue, expected use

of the asset, market conditions, uncertainty factors, the estimated useful life, and discount rate, among other factors.

These assumptions

may vary based on future events, perceptions of different market participants and other factors outside the control of management,

and such variations may be significant to estimated values.

If the transaction

is deemed to be an asset acquisition, the cost accumulation and allocation model is used whereby the assets and liabilities

are recorded based on the purchase price and allocated to the individual assets and liabilities based on relative fair

For the allocation of intangible assets identified, depending on the type of intangible asset and the complexity

of determining its relative fair value, an independent valuation expert or management may allocate the relative fair

value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows and

takes into consideration other significant assumptions such as the expected use, market uncertainty, marketing or sales support requirements and

the intangible asset useful lives.

Prepaid License Rights

If a sale arrangement includes terms—such as repurchase features

or other provisions—that prevent the buyer from obtaining control of the business or assets, the Company concludes that control

has not transferred.

In those circumstances, the arrangement is accounted for based on its substance under other applicable U.S.

In connection with such arrangements, amounts paid for licensing rights are deferred and recorded as prepaid licensing rights on the Company’s

consolidated balance sheets.

These amounts are recognized in expense over the period in which the related rights are utilized or otherwise

as the underlying economic benefit is consumed.

Revenue Recognition

The Company generates

revenue from continuing operations through the sale of hemp-derived THC products (non-licensing) and Licensing Revenue.

Company licenses intellectual property to a related party under arrangements that provide for sales-based license fees.

Company recognizes licensing income derived from licensing agreements in accordance with ASC Topic

606, Revenue Recognition (“ASC 606”), specifically, the sales-based royalty exception.

In accordance

with ASC 606, revenue for hemp-derived THC products (non-licensing) 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

Written or electronic signatures on contracts and purchase orders are obtained if such orders are issued in the normal course

of business by the customer.

● Identify performance

obligations that are distinct :

The Company identifies distinct performance obligations in each contract.

A performance

obligation is considered distinct if the customer can benefit from the good or service on its own or with readily available

resources, and if it is separately identifiable from other promises in the contract.

The Company’s revenue-generating activities

typically have a single performance obligation.

● Determine the

transaction price :

The transaction price is the amount of consideration the Company expects to receive in exchange for the sale of

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 to distinct performance obligations :

The transaction price is allocated to each distinct performance

obligation based on the relative standalone selling prices (“SSP”) of the goods or services provided.

If a contract involves

multiple performance obligations, each is accounted for separately if distinct, and the SSP reflects the price the Company

would charge if the good or service were sold separately in similar circumstances and to similar customers.

revenue as the performance obligations are satisfied :

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.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company enters 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.

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

accounted for separately versus together may require significant judgment.

Once the Company determines the performance obligations, it

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

The Company then allocates 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.

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

The Company determines SSP based on the price at which the

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

If the SSP is not observable

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

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

The Company typically satisfies its performance

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

for services sales as services are rendered

to the customer.

Company utilizes 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 the Company believes is reflective of a market-based reseller margin.

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

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

The Company’s agreements with its customers do not

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

In the infrequent instances

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

to such matters have been insignificant in all periods presented.

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

not as a promised good or service.

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

consumer goods at the time of shipment.

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

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

Sales, value add, and other taxes the Company collects

concurrent with revenue-producing activities are excluded from revenue.

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

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

The difference in the opening and closing balances

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

the customer’s payment.

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

in exchange for consideration from the customer.

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

is unconditional.

The Company recognizes a contract liability when consideration has been received and the Company has a future obligation

to transfer certain proprietary products.

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

current reporting period.

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

of the Company’s 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.

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

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

one-year period.

In accordance with ASC Topic 450, Accounting for Contingencies, (“ASC 450”) the Company accrues for product

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

The Company maintained a reserve for warranty returns of $ 47,000

and $ 0.1 million as of December 31, 2024 and December 31, 2023, respectively.

The Company’s reserve for warranty returns is included

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

Additional information regarding the Company’s

warranty reserve may be found in Note 3 – Supplemental Consolidated Balance Sheet Information, included elsewhere in the notes

to the consolidated financial statements.

and Development Costs

Company expenses research and development costs as incurred.

Research and development expenses include payroll, employee benefits and

other expenses associated with product development.

The Company incurs research and development costs associated with the development

and enhancement of both hardware and software products associated with its extraction equipment.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company accounts 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.

- Revenue from the sale of hemp-derived THC

products (non-licensing) 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.

- In accordance with ASC 606-10-55-65 through 55-65B, Licensing 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.

The Company accounts

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

3 unchanged sentences

believes it is more likely than not that the net deferred tax asset will not be realized.

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

In accordance with the guidance of ASC 740, 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.

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.

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.

accordance with the guidance of ASC 740, 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.

The Company believes its tax positions are all highly certain of being upheld upon examination.

As such, the Company has not recorded a liability for unrecognized tax benefits.

Company recognizes the benefit of a tax position when it is effectively settled.

ASC 740, 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, the Company recognizes the full amount of the tax benefit.

Company’s provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the period

To determine the annual effective tax rate, the Company estimates both the total income (loss) before income taxes for the

full year and the jurisdictions in which that income (loss) is subject to tax.

The actual effective tax rate for the full year may differ

from these estimates if income (loss) before income taxes is greater than or less than what was estimated or if the allocation of income

(loss) to jurisdictions in which it is taxed is different from the estimated allocations.

provision for income taxes represents Federal, state and local income taxes.

The effective rate differs from statutory rates due to the

effect of certain nondeductible expenses.

Our effective tax rate will change from quarter to quarter based on recurring and non-recurring

factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, and state and local income taxes.

addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition or re-measurement of

a tax position taken in a prior annual period is recognized separately in the quarter of the change.

contingencies are recorded, if needed, to address potential exposure involving tax positions the Company has taken that could be challenged

by tax authorities.

As such, the Company

has not recorded a liability for unrecognized tax benefits.

The Company recognizes

the benefit of a tax position when it is effectively settled.

ASC 740, 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,

the Company recognizes the full amount of the tax benefit.

The Company’s

provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the period presented.

determine the annual effective tax rate, the Company estimates both the total income (loss) before income taxes for the full year and

the jurisdictions in which that income (loss) is subject to tax.

The actual effective tax rate for the full year may differ from these

estimates if income (loss) before income taxes is greater than or less than what was estimated or if the allocation of income (loss) to

jurisdictions in which it is taxed is different from the estimated allocations.

The provision

for income taxes represents Federal, state and local income taxes.

The effective rate differs from statutory rates due to the Company’s

loss position and the valuation allowance offsetting deferred tax assets.

Our effective tax rate may change from quarter to quarter based

on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, and state

and local income taxes.

In addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition

or re-measurement of a tax position taken in a prior annual period is recognized separately in the quarter of the change.

Tax contingencies

are recorded, if needed, to address potential exposure involving tax positions the Company has taken that could be challenged by tax authorities.

These potential exposures could result from applications of various statutes, rules, regulations and interpretations.

Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions.

Any interest and

penalties related to uncertain tax positions would be included as part of the income tax provision.

The Company’s conclusions regarding

uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws,

regulations and interpretations thereof as well as other factors.

Loss Per Share

Company presents basic and diluted net loss per share attributable to holders of the Company’s Common Stock in conformity with the one-class

The Company computes basic loss per share by dividing net loss available to Common Stockholders by the weighted-average number

of Common Stock outstanding.

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

notes, stock options, restricted stock units and warrants.

As the Company has reported losses for the years ended December 31, 2024 and

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

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

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

Adopted Accounting Pronouncements

November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, to provide

enhanced segment disclosures.

The standard will require disclosures about significant segment expense categories and amounts for each

reportable segment, for all periods presented.

Additionally, the standard requires public entities to disclose the title and position

of the Chief Operating Decision Maker (“CODM”) in the consolidated financial statements.

These enhanced disclosures are required

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

annual periods beginning after December 15, 2024.

The adoption of this standard did not have a material impact on the Company’s

consolidated financial statements.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Announced Accounting Pronouncements

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

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

on income taxes paid.

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

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

For public business entities (PBEs),

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

The guidance will be applied on a prospective

basis with the option to apply the standard retrospectively.

The Company is currently in the process of evaluating the effect of this

guidance on its financial statements.

November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic

Disaggregation of Income Statement Expenses.

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

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

The ASU is effective on a prospective

basis, with the option for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods

beginning after December 15, 2027.

Any estimates of

tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions.

Any interest and penalties related

to uncertain tax positions would be included as part of the income tax provision.

The Company’s conclusions regarding uncertain

tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations

and interpretations thereof as well as other factors.

Net Loss Per Share

The Company presents

basic and diluted net loss per share in conformity with the one-class method.

The Company computes basic loss per share by dividing net

loss by the weighted-average number of Common Stock outstanding.

Diluted loss per share adjusts basic loss per share for the potentially

dilutive impact of convertible notes, stock options, restricted stock units and warrants.

As the Company has reported losses for the years

ended December 31, 2025 and 2024, all potentially dilutive securities including convertible notes, stock options, restricted stock units

and warrants, are anti-dilutive, and accordingly, basic net loss per share equals diluted net loss per share for those periods.

Net loss per share calculations for the year ended December

31, 2024 have been adjusted to reflect the reverse stock splits effected on October 8, 2024.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB

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

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

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

(“CODM”) in the consolidated financial statements.

These enhanced disclosures are required for all entities on an interim

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

December 15, 2024.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income

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

The standard requires disaggregated information about

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

The standard applies to all

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

useful in making capital allocation decisions.

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

periods beginning after December 15, 2024.

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

The Company adopted this new standard on January 1, 2025 and the effect of this guidance is reflected in the consolidated financial statements.

In July 2025, the FASB issued

ASU 2025-05, Financial Instruments - Credit Losses (“ASU 2025-05”), to introduce a practical expedient for all entities,

which simplifies the calculation required for estimating credit losses and assumes that current conditions as of the balance sheet date

do not change for the remaining life of the asset.

ASU 2025-05 is effective for annual reporting periods beginning after December 15,

2025, and interim reporting periods within those annual reporting periods;

however, early adoption is permitted.

ASU 2025-25 allows for

adoption using a prospective method.

The Company early adopted this standard as of December 31, 2025.

The adoption of this standard did

not have a material impact on the Company’s consolidated financial statements.

Recently Announced Accounting Pronouncements

In November 2024,

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

Disaggregation

of Income Statement Expenses .

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

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

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

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

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

is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

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

The Company is currently evaluating

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

In November 2024,

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

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

1 unchanged sentence

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

Adoption can be on a prospective or

retrospective basis.

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

and disclosures.

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

future consolidated financial statements.

2 — Revenue and Contract Liabilities

We generate revenue from equipment sales and hemp-derived beverage

The Company enters into time-and-materials contracts for equipment sales under which the Company is paid for labor and equipment

at negotiated hourly billing rates and other expenses, including materials, as incurred at rates agreed to in the contract.

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

Ended December 31,

Transferred at

a point-in-time

following table provides the Company’s revenue from continuing operations disaggregated by revenue type:

Ended December 31,

products and services

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

current reporting period.

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

the majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606 through 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.

in the Company’s current contract liability balance for the years ended December 31, 2024 and 2023 were as follows:

Ended December 31,

liabilities – beginning of period

liabilities – end of period

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

As of December 31, 2024

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

consolidated balance sheets.

3 — Supplemental Consolidated Balance Sheet Information

Receivable, Net

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

Ended December 31,

receivable, gross

allowance for credit losses

receivable, net

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

Ended December 31,

for credit losses - beginning of period

of) allowance for credit losses

of uncollectible accounts

for credit losses - end of period

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Expenses and Other Current Assets

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

Ended December 31,

expenses, other

prepaid expenses and other current assets

and Equipment, Net

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

Machinery and

Computer and office equipment

Leasehold improvements

Research and development laboratory

Furniture and fixtures

Trade show assets

Total property and equipment,

Accumulated depreciation

property and equipment, net

expense for the years ended December 31, 2024 and 2023 was $ 0.3 million and $ 0.7 million, respectively.

Depreciation expense is recorded

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

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

property and equipment that is not yet ready for use.

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

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

Once the asset is ready for

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

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

CIP is reviewed regularly to ensure that all

costs are accurate and that the project is progressing as planned.

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

exceeds the recoverable amount, an impairment loss is recognized.

the year ended December 31, 2024, the Company sold property and equipment with a cost basis of $ 0.02 million in exchange for proceeds

of $ 0.02 million, resulting in a loss of $ 0.003 million.

During the year ended December 31, 2024, the Company disposed certain property

and equipment for a loss of $ 0.02 million, including $ 0.01 million of research and development laboratory equipment recorded as research

and development expense on the statements of operations.

During the year ended December 31, 2024, the Company retired certain fully depreciated

property and equipment which had an original cost of $ 0.5 million, respectively.

the year ended December 31, 2023, the Company sold Cultivation property and equipment in exchange for proceeds of $ 0.07 million, resulting

in a gain of $ 0.1 million.

During the year ended December 31, 2023, the Company retired certain fully depreciated property and equipment

which had an original cost of $ 0.1 million.

Non-Current Assets

non-current assets consists only of security deposits as of December 31, 2024 and December 31, 2023.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Expenses and Other Current Liabilities

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

Ended December 31,

professional fees

warranty expenses

interest expense

consulting fees

inventory purchases

acquisition liabilities

accrued expenses and other current liabilities

acquisition liabilities

from the 2021 acquisitions of Precision and Cascade from Sinclair (“Precision and Cascade”), the Company withheld from the

transaction shares issuable to Precision and Cascade for the purpose of securing any post-closing adjustment owed to the Company and

any claim for indemnification or payment of damages to which the Company may be entitled under the purchase agreement.

The accrued acquisition

liabilities as of December 31, 2023 represent the value of this held back Common Stock at the price per share at the time of the transaction.

June 15, 2023, the Company and its wholly-owned subsidiary, Precision, filed an Amended Verified Complaint in the Court of Chancery of

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

The claims filed in the

Delaware Action concern various breaches of the plan of merger and equity purchase agreement dated September 29, 2021, by and between

the Company, Sinclair, Mass2Media, LLC, and certain of their members (the “Merger Agreement”).

In response to the Delaware

Action, certain of the defendants filed counterclaims for breach of contract and declaratory judgment against the Company and Precision

alleging breach of the Merger Agreement.

Pursuant to a Settlement and Release Agreement, dated December 14, 2023, the Company and Sinclair

dismissed all legal claims and entered into a settlement for an undisclosed amount.

As a result of this settlement, the Company derecognized

the accrued acquisition liability and issued the held back Common Stock in the first quarter of 2024 at Agrify’s price per share

at the time of issuance.

The difference between the value of the shares at issuance and the derecognized liabilities was recorded as

a gain within change in contingent consideration within the Company’s consolidated statement of operations for the year ended December

Warranty Expenses

following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs:

Adoption can be on a prospective or retrospective

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

In December 2025, the FASB

issued ASU 2025-11, Interim Reporting (Topic 270), Narrow-Scope Improvements, to provide clarity about the current requirements, rather

than evaluate whether to expand or reduce interim disclosure requirements.

The amendments in ASU 2025-11 result in a comprehensive list

of interim disclosures that are required by GAAP.

The amendments in ASU 2025-11 also include a disclosure principle that requires entities

to disclose events since the end of the last annual reporting period that have a material impact on the entity.

The amendments in ASU

2025-11 are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027 and early adoption

is permitted.

The amendments in ASU 2025-11 can be applied either prospectively or retrospectively to any or all prior periods presented

in the financial statements.

The Company is currently evaluating the disclosure impact that ASU 2025-11 may have on its financial statement

presentation and disclosures.

In December 2025, FASB issued

ASU 2025-12 Codification Improvements (“ASU 2025-12”), which includes various amendments to the FASB Accounting Standards

Codification intended to clarify, correct, and improve existing guidance.

ASU 2025-12 is effective for annual reporting periods beginning

after December 15, 2026, and interim reporting periods within those annual reporting periods.

Early adoption is permitted.

is currently evaluating the impact that ASU 2025-12 may have on its financial statement presentation and disclosures.

Other recent accounting

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

financial statements.

Liquidity and Capital Resources

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.

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

as a going concern.

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.

Note 3 — Acquisitions

Prepaid License Rights

VCP Transaction

On August 27, 2025,

the Company entered into a purchase agreement with VCP23, an indirect wholly-owned subsidiary of Green Thumb, a related party, pursuant

to which the Company acquired all of the equity interests in VCP.

The assets of VCP consist primarily of intellectual property rights

RYTHM, Beboe, Dogwalkers, Doctor Solomon’s, &Shine, and Good

Green brands.

The consideration exchanged for the equity interest was cash consideration of $ 50.0 million.

An affiliate of Green

Thumb holds a call option to repurchase some or all of the VCP intellectual property rights for up to five years from the

transaction date upon the occurrence of certain specified eligibility conditions, which are outside of the control of both parties

but with likelihood of eligibility greater than remote.

Due to changes in legislation around hemp-derived products enacted in

November 2025, which are currently expected to become effective in November 2026, one of the eligibility conditions that would permit the

repurchase right to become exercisable is likely to be satisfied within the next twelve months.

However, satisfaction of such

conditions does not obligate Green Thumb or its affiliates to exercise the repurchase option, which remains within their

Because this call

option represents a substantive repurchase right, the arrangement includes terms that preclude the transfer of control and therefore

does not meet the criteria for a completed sale.

As such, the transaction is not accounted for as an asset acquisition under ASC

805, as previously reported.

Instead, the Company accounts for the arrangement under other applicable U.S.

GAAP, including ASC 340.

The Company determined that the consideration transferred represents a prepaid executory contract for access to and use of

intellectual property, which is recorded as Prepaid License Rights (defined below) and recognized in expense as the related benefits

are consumed.

The Prepaid License Rights represent the right to use intellectual property in circumstances where control of the

underlying intellectual property rights did not transfer.

The resulting revision in accounting conclusion was not considered

material to the current period or any prior period, including the Company’s quarterly unaudited interim condensed consolidated

financial statements.

The Company evaluated the nature of the transaction whereby in exchange

for the $ 50.0 million consideration the Company received access to and use of intellectual property (“Prepaid License Rights”) .

The Prepaid License Rights relate to the RYTHM, Beboe, Dogwalkers, Doctor Solomon’s, &Shine, and Good Green brands and

are measured based on the cost of consideration exchanged and amortized on a straight-line basis over the expected useful life of the

asset, estimated based on the expected economic benefits of the asset.

The useful lives of the Prepaid License Rights range from 2.4

to 4.4 years with a weighted average useful life of 3.9 years.

MC Brands Transaction

On May 20, 2025, the Company

entered into a purchase agreement with VCP, an indirect wholly-owned subsidiary of Green Thumb, a related party, pursuant to which the

Company acquired all of the equity interests in MC Brands LLC.

The assets of MC Brands consist primarily of intellectual property rights

to the incredibles brand.

The consideration exchanged for the equity interest was cash consideration of $ 5.1 million.

An affiliate of Green

Thumb holds a call option to repurchase some or all of the MC Brands intellectual property rights for up to five years from the

transaction date upon the occurrence of certain specified eligibility conditions, which are outside of the control of both parties

but with likelihood of eligibility greater than remote.

Due to changes in legislation around hemp-derived products enacted in

November 2025, which are currently expected to become effective in November 2026, one of the eligibility conditions that would permit the

repurchase right to become exercisable is likely to be satisfied within the next twelve months.

However, satisfaction of such

conditions does not obligate Green Thumb or its affiliates to exercise the repurchase option, which remains within their

Because this call option represents a substantive repurchase right, the arrangement includes terms that preclude the

transfer of control and therefore does not meet the criteria for a completed sale.

As such, the transaction is not accounted for as

an asset acquisition under ASC 805, as previously reported.

Instead, the Company accounts for the arrangement under other applicable

GAAP, including ASC 340.

The Company determined that the consideration transferred represents a prepaid executory contract for

access to and use of intellectual property, which is recorded as Prepaid License Rights and recognized in expense as the related

benefits are consumed.

The Prepaid License Rights represent the right to use intellectual property in circumstances where control

of the underlying intellectual property rights did not transfer.

The resulting revision in accounting conclusion was not considered

material to the current period or any prior period, including the Company’s quarterly unaudited interim condensed consolidated

financial statements.

The Company evaluated

the nature of the transaction whereby in exchange for the $ 5.1 million consideration the Company received access to and use of

Prepaid License Rights and other assets related to hemp-derived THC, amounting to $ 4.5 million and $ 0.6 million respectively.

Prepaid License Rights and hemp-derived THC assets are measured based on the cost of consideration exchanged and amortized on a

straight-line basis over the expected useful life of the asset, estimated based on the expected economic benefits of the asset.

estimated useful lives of the assets range from five years to seven years with a weighted average useful life of 5.11 years.

the year ended December 31, 2025, the Company recognized impairment of the hemp-derived THC assets due to the November 2025 change

in legislation around hemp-derived THC products.

Refer to Note 8 included elsewhere in the notes to the consolidated financial statements.

The remaining $ 4.5 million of Prepaid License Rights relates to

the incredibles brand with a useful life of five years .

Business Combinations

Acquisition of Assets of Señorita

On December 12,

2024, the Company acquired certain assets from Double or Nothing, the owner and creator of the Señorita brand of hemp-derived THC

As of June 30, 2025, the Company has completed its purchase price allocation for the Double or Nothing business combination.

final allocation remains unchanged from the preliminary amounts disclosed in the Company’s financial statements for the fiscal year

ended December 31, 2024.

Warranty accrual

– beginning of period

accrued for warranties issued during the period

accruals paid during the period

in Cultivation Sale

accrual – end of period

4 — Fair Value Measures

Values of Assets and Liabilities

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

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

In determining fair

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

hierarchy consisting of three levels, as follows:

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

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

markets that are not active.

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

market participants would price the asset or liability.

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

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

These unobservable

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

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

Value Measurements Using Input Types

liabilities - January 2022 warrants

liabilities - March 2022 warrants

liabilities - August 2022 warrants

liabilities - December 2022 warrants

Value of Financial Instruments

The Company has certain financial instruments which consist of cash

and cash equivalents, accounts receivable, accounts payable, accrued expenses, contingent consideration, operating lease liabilities,

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

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

of the Company are as follows:

and cash equivalents, accounts payable, and accrued expenses approximate their fair value

based on the short-term nature of these instruments.

receivable are presented net of an allowance for estimated credit losses, which approximates

carrying value of lease liabilities approximates fair value due to the implicit discount

rates used in the determination of the lease liabilities being consistent with the Company’s

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

of the leases.

debt and related party debt, including the debt that has undergone troubled debt restructuring,

is carried at amortized cost, dictated by the prevailing market interest rates at the time

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

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

in fair value of warrant liabilities recorded in other income (expense), net in the accompanying

consolidated statements of operations until the warrants are exercised.

The fair value of

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

detailed in Note 12 - Stockholders’ Equity (Deficit), during the year ended December

31, 2024, the Company amended Pre-Funded Warrants that had been issued to a related party

such that they again became liability classified.

These warrants were marked to fair value

upon the execution of this amendment in August 2024.

Through an additional amendment executed

as of December 31, 2024, the warrants again met the requirements for equity classification

and were marked to fair value at the moment of the amendment and then reclassified from liability

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

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Inherent in a Black-Scholes

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

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

inherent uncertainties are involved.

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

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

Exercise price

Expected term (in Years)

Discount rate - treasury yield

Exercise price

Expected term (in Years)

Discount rate - treasury yield

following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the years ended December

31, 2024 and 2023:

liabilities - beginning of period

fair value of warrant liabilities

Reclassification

of warrant liabilities to equity

in estimated fair value

liabilities end of period

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5 — Inventory

are stated at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a first-in,

Based on the information available to management, no further adjustments are expected.

Accordingly, the measurement

period has ended and the purchase accounting is now considered final in accordance with ASC 805.

The following table

summarizes the final allocation of purchase price for Double or Nothing:

Allocation of Purchase Price (in thousands)

Customer Relationships

Total purchase price

During the year

ended December 31, 2025, the Company recognized impairments of tradenames and customer relationships due to the November 2025 change

in legislation around hemp-derived THC products.

Refer to Note 7 included elsewhere in the notes to the consolidated financial statements.

Note 4 — Inventory, Net

Inventories are

stated at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a first-in,

first-out basis.

Such costs include the acquisition cost for raw materials and operating supplies.

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

Ended December 31,

Inventory consisted

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

Year Ended December 31,

(In thousands)

Finished goods

Inventory for resale

inventory, net

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

The Company calculates inventory reserves

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

The reserves are based upon management’s expected method of disposition.

in the Company’s inventory reserve are as follows:

Ended December 31,

Inventory reserves – beginning

increase in inventory reserves

Raw materials

Packaging materials

Inventory, gross

Inventory reserves

end of period

6 — Discontinued Operations

Business Discontinued Operations

December 31, 2024, the Company executed and closed the Purchase Agreement with CP for the sale of assets relating to the Company’s

Cultivation Business.

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

secured indebtedness currently held by CP with an aggregate amount of principal and accrued interest of approximately $ 7 million, as

well as certain other liabilities related to the Cultivation Business.

The sale represents efforts to strategically shift the Company’s

direction to focus on its hemp-related business operations.

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

operations in the consolidated financial statements for all periods presented.

The disposition resulted in a loss on sale of $ 11.9 million along with

a loss from discontinued operations of $ 1.5 million for a total loss of $ 13.4 million, which was recorded in net loss from discontinued

operations in the consolidated statement of operations for the period ended December 31, 2024.

The operating results of the Cultivation

Business were reported as a net loss from discontinued operations in the consolidated statements of operations through December 31, 2024,

the date of disposition, and were considered material.

The net loss from discontinued operations for the period ended December 31, 2023

represents the Cultivation Business’ operating results from the prior year.

The assets and liabilities related to the Cultivation

Business have been separately classified in the accompanying consolidated balance sheet as of December 31, 2023.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

assets and liabilities associated with discontinued operations consisted of the following as of December 31, 2024 and 2023, respectively:

Carrying amounts of assets and liabilities associated with Cultivation Business included as part of discontinued operations:

Current assets:

receivable, net

expenses and other current assets

assets of discontinued operations

receivable, net

lease right-of-use assets

and equipment, net

non-current assets

assets of discontinued operations

amounts of liabilities associated with Cultivation Business included as part of discontinued operations:

expenses and other current liabilities

lease liabilities, current

liabilities of discontinued operations

lease liabilities, net of current

liabilities of discontinued operations

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

following table summarizes the Company’s loss from discontinued operations for the years ended December 31, 2024 and 2023, respectively:

the year ended

Income and expense line

items related to Cultivation Business:

of goods sold

profit (loss)

general and administrative

on settlement of contingent liabilities

on disposal on property and equipment

operating expenses

loss from discontinued operations

Income (Expense)

on disposal of Cultivation business

other income (expense)

loss from discontinued operations

tax effect on discontinued operations

from discontinued operations, net of income taxes

consolidated statements of cash flows includes continuing operations and discontinued operations.

The following table summarizes the

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

value of inventories, and capital expenditures and disposals of discontinued operations for the years ended December 31:

Depreciation and

(Recovery of) provision for

credit losses

(Recovery of) provision for

slow-moving inventory

Proceeds from disposal of

property and equipment

7 — Business Combinations

Company has determined that the below acquisition is a business combination under ASC 805, Business Combinations .

It is accounted

for by applying the acquisition method, whereby the assets acquired, and the liabilities assumed are recorded at their fair values with

any excess of the aggregate consideration over the fair values of the identifiable net assets allocated to goodwill.

Operating results

have been included in these consolidated financial statements from the date of the acquisition, December 12, 2024.

The resulting goodwill

recorded primarily includes the expected synergies resulting from combining the operations of the acquired entity with those of the Company.

Supplemental pro forma financial information has not been presented as the impact was not material to the Company’s consolidated financial

Acquisition of Señorita

On December 12, 2024, the Company acquired certain assets from Double

or Nothing, the owner and creator of the Señorita brand of hemp-derived THC drinks as part of the Company’s strategic plan

to reposition itself as a distributor of hemp-derived THC beverages and similar products.

The aggregate consideration exchanged for those

assets consisted of 97,300 in Common Stock of Agrify as well as 432,700 pre-funded warrants (collectively the “Shares”) for

total non-cash consideration of approximately $ 18.8 million.

In addition, Agrify forgave $ 0.4 million of debt as part of the consideration

The fair value of the Shares was based upon the closing price of Agrify’s Common Stock as traded on Nasdaq on the date

of the transaction.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company prepared a preliminary purchase price allocation for the business combination.

The preliminary valuation was based on management’s

estimates and assumptions which are subject to change within the purchase price allocation period (generally not more than one year from

the acquisition date).

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

assets acquired and the residual goodwill.

Due to the acquisition occurring within close proximity to year-end, access to GAAP financial

data and future forecasts were not able to be obtained to complete a final valuation analysis.

As such, the intangible and goodwill values

are subject to change once additional data becomes available as the values were based on preliminary financial information.

The following

table summarizes the initial accounting estimates:

of Purchase Price (in thousands)

Customer Relationships

Total purchase price

As part of the preliminary

purchase accounting, the Company recorded intangible assets of $ 8.9 million.

The preliminary estimates for useful lives of the identified

intangibles are 7 years for Tradenames and 10 years for Customer Relationships with a weighted average useful life of 7.94 years.

Company recorded $ 18,000 of revenue within the Company’s Consolidated Statements of Operations for the period December 12, 2024,

the date of acquisition, through December 31, 2024.

and related costs, consisting primarily of professional fees, related to the acquisition, totaled approximately $ 0.3 million for the

Total inventory, net

Note 5 - Prepaid Expenses and Other Current Assets

expenses and other current assets consisted of the following as of December 31, 2025 and December 31, 2024:

Year Ended December 31,

All transaction and related costs were expensed as incurred and are included in general and administrative

(In thousands)

Prepaid marketing

Prepaid insurance

Other receivables

Prepaid expenses, other

Total prepaid expenses and other current assets

Note 6 — Goodwill

As of December 31, 2025 and 2024, the

Company’s goodwill is as follows:

Year Ended December 31,

(In thousands)

Goodwill - beginning of period

Goodwill acquired during period (Note 3)

Goodwill - end of period

— Intangible Assets

of December 31, 2024, intangible assets were comprised of the following:

in Years Net Book

As of December 31,

2025, intangible assets were comprised of the following:

December 31, 2025

(In thousands)

Customer Relationships

As of December 31, 2025, the Company recognized impairments of $ 2.5

million of customer relationships and $ 5.4 million of tradenames relating to the Señorita acquisition.

The impairment was due to

the November 2025 change in legislation around hemp-derived THC products.

During the year ended December 31, 2025, the Company amortized

$ 1.0 million of intangible assets which is included in Selling, general and administrative.

As of December 31,

2024, intangible assets were comprised of the following:

December 31, 2024

Estimated Gross Net

Useful Life Carrying Accumulated Carrying

(In thousands) in Years Amount Amortization Amount

Tradenames 7 6,100 —

of December 31, 2023, the Company did not have any intangible assets.

estimated future amortization expense for the next five years and thereafter based on the preliminary purchase price allocation is as

Customer relationships 10 2,800 —

Note 8 — Prepaid License Rights

As of December 31, 2025, prepaid license rights

were comprised of the following:

December 31, 2025

(In thousands)

Prepaid License Rights, related party

As of December 31, 2025, the Company recognized impairment of $ 0.6

million of other hemp-derived THC assets associated with the MC Brands acquisition.

The impairment was due to the November 2025 change

in legislation around hemp-derived THC products.

There were no prepaid license rights as of December 31, 2024.

During the year ended December

31, 2025, the Company amortized $ 5.1 million of prepaid license rights which is included in Selling, general and administrative.

The estimated future amortization expense for

the next five years and thereafter is as follows:

Years ending December 31 (In thousands)

expense recorded in general and administrative expense in the consolidated statements of operations was immaterial for the years ended

December 31, 2024, and 2023.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the acquisition of certain assets from Double or

Nothing, the excess of the purchase price over the estimated fair value of the net assets assumed of $ 9,713 thousand was recognized as

following is a roll forward of goodwill based upon the preliminary purchase price allocations ($ in thousands):

- beginning of period

acquired during period (Note 7)

- end of period

Company’s debt consisted of:

Acquisitions Junior Secured Note

Acquisition Note

Green Thumb Note

Note 9 — Accrued Expenses

Accrued expenses and other current liabilities consisted of the following

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

Year Ended December 31,

(In thousands)

Related party accrued consulting fees

Third-party accrued consulting fees

Related party accrued interest expense

Third-party accrued interest expense

Third-party accrued marketing fee

Related party accrued marketing fee

Litigation reserve

Compensation related fees

Accrued fulfillment and manufacturing related costs

Other current liabilities

Accrued professional fees

Total accrued expenses and other current liabilities

Note 10 — Debt

The Company’s

debt consisted of:

(In thousands)

Related party debt:

Convertible Notes

Total related party debt

current portion

party debt, net of current

Notes Payable - Current

Related party debt, net of current

Short-term debt:

notes payable

Other Notes Payable - Current

Total short-term debt

Long-term debt:

Convertible Note

Other notes payable

Total long-term debt

current portion

Long-term debt, net of current

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.

The November 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

The November 2024 Note will matured on November 5, 2025 and accrued interest at a 10.0 % annualized rate.

The principal amount of

the November 2024 Note was paid 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 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.

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.

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.

The Company determined

the Notes do not contain features that qualify as embedded derivatives in accordance with ASC 815.

Borrowings under the Notes as of December

31, 2025 totaled $ 72.0 million, $ 27.0 million of which are recorded on the Company’s consolidated balance sheets in related party

debt, current, $ 45.0 million of which are recorded in related party debt, net of current, and the remaining are reported in long-term

debt, net of current.

On August 18, 2022, the Company issued a promissory note with an original

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

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

The Exchange Note

had an original maturity date of August 18, 2025 (the “Original Maturity Date”) and contained a 9.0 % annualized interest rate,

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

The principal amount of the Exchange Note would be payable on

the Original Maturity Date, provided that the Original Lender was entitled to a cash sweep of 20 % of the proceeds received by the Company

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

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 8, 2023, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with the Original Lender.

Pursuant to the Exchange Agreement, at closing the Company prepaid approximately $ 10.3 million in principal amount under the Exchange

Note and exchanged $ 10.0 million of the remaining principal balance of the Exchange Note for a new senior secured convertible note (the

“Convertible Note”) with an original principal amount of $ 10.0 million.

After the closing of the Exchange Agreement, the

August 18, 2022 Exchange Note had a remaining balance of $ 11.7 million.

Refer to “Consolidated CP Acquisitions Note” below

for subsequent activity related to the balance originating from this note.

The following amendments have all been included in the sale

of the Cultivation Business.

Refer to Note 6 - Discontinued Operations below for subsequent activity related to these amendments.

connection with the Exchange Agreement the Company issued the Convertible Note, which bore a 9.0 % annualized interest rate, with interest

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

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

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

20 % of the proceeds received by the Company in connection with any other equity financing, which would reduce the outstanding principal

amount under the Exchange Note or the Convertible Note.

any time, the Company would prepay all of the Convertible Note by redemption at a price equal to 102.5 % of the then-outstanding principal

amount under the Convertible Note plus accrued but unpaid interest.

The Original Lender had the option of requiring the Company to redeem

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

Note plus accrued but unpaid interest, provided that the redemption right on August 19, 2023 would not be exercisable if the Company

raised at least $ 8.0 million in gross proceeds from equity offerings prior to such date, or (ii) if the Company undergoes a fundamental

change (as defined below) at a price equal to 102.5 % of the then-outstanding principal amount under the Convertible Note plus accrued

but unpaid interest.

Convertible Note imposed certain customary affirmative and negative covenants upon the Company, as well as covenants that would (i) restrict

the Company and its subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions,

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

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

If an event of default under the Convertible

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

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

including default interest, which accrues at a rate per annum equal to 15 % from the date of a default or event of default, or, only in

connection with certain events of default, (B) the greater of the amount under clause (A) or the sum of (i) 115 % of the product of (a)

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

(b) the total then outstanding principal amount under the Convertible Note (in thousands);

and (c) the greater of (1) the highest daily

volume weighted average price (“VWAP”) per share of Common Stock occurring during the fifteen consecutive trading days ending

on, and including, the trading day immediately before the date the Original Lender delivers such notice and (2) the highest daily VWAP

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

the date the applicable event of default occurred and (ii) the accrued and unpaid interest on the Convertible Note.

the date the Convertible Note was fully repaid, the Original Lender had, subject to certain exceptions, the right to participate for

up to 30 % of any offering of debt, equity (other than an offering of solely Common Stock), or equity-linked securities, including without

limitation any debt, preferred stock or other instrument or security, of the Company or its subsidiaries.

the Original Lender elected to convert the Convertible Note, the conversion price per share would be $ 114.60 , subject to customary adjustments

for certain corporate events.

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

The Convertible

Note could not be converted into shares of Common Stock if such conversion would result in the Original Lender and its affiliates owning

an aggregate of in excess of 4.99 % of the then-outstanding shares of Common Stock, provided that upon 61 days’ notice, such ownership

limitation may be adjusted by the Original Lender, but in any case, no greater than 9.99 %.

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

and separately measured at fair value.

April 26, 2023, the Original Lender elected to convert $ 1.6 million of the remaining outstanding principal amount on the Convertible

Note for 10,241 shares of Common Stock of the Company.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 1, 2023, the Company entered into a letter agreement with the Original Lender, pursuant to which the Company and the Original Lender

agreed to exchange or redeem $ 2.0 million of the remaining outstanding principal amount under the Exchange Note for a total of 29,679

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

to the Beneficial Ownership Limitation of 4.99 %, a total of 4,638 shares of Common Stock of the Company were issued to the Original Lender,

with the remaining 25,042 shares held in abeyance until the balance (or portion thereof) may be issued in compliance with such limitations.

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

Refer to “Consolidated CP Acquisitions

Note” below for subsequent activity related to the balance originating from this note.

Acquisitions Junior Secured Note

On October 27, 2023, CP, an entity affiliated with and controlled by

the Company’s former chairman and Chief Executive Officer and a former member of the Company’s Board, purchased the Exchange

Note and the Convertible Note from the Original Lender (the “Note Purchase”).

In connection with the Note Purchase, CP agreed

to waive any events of default under the acquired notes through December 31, 2023.

As part of the same transaction, the Company issued

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

Pursuant to the Junior Secured Note, CP would lend up

to $ 3.0 million to the Company.

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, CP and the Company amended and restated the Junior Secured

Note agreement.

Pursuant to the terms of the amendment, the maximum principal amount that may be loaned by CP to the Company was increased

to $ 4.0 million and extended the maturity date thereon to December 31, 2024 .

Refer to “Consolidated CP Acquisitions Note”

below for subsequent activity related to the balance originating from this note.

Note Forgiveness

November 30, 2023, CP agreed to forgive $ 1.0 million of the principal amount outstanding on the Convertible Note (the “Principal

Forgiveness”).

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

determined to be experiencing financial difficulties as defined by the ASC, and 2) the Principal Forgiveness was deemed a concession

Per ASC 470, a debtor in a troubled debt restructuring involving only modification of terms of a payable (i.e., not involving

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

restructuring and shall not change the carrying amount of the payable at the time of the restructuring unless the carrying amount exceeds

the total future cash payments specified by the new terms.

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

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

CP Acquisitions Note

On January 25, 2024, the Company 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 under a Senior Secured Amended, Restated, and Consolidated Convertible Note agreement (the “Restated

Note”) having a total outstanding principal of $ 18.3 million (the “New Lender Debt Consolidation”).

The Restated Note

bore interest at a rate of 10 % per annum and would mature in full on December 31, 2025 .

The Company 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.

Restated Note imposed certain customary affirmative and negative covenants upon the Company, as well as covenants that (i) restricted

the Company and its subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions,

(ii) restricted the ability of the Company and its subsidiaries from making certain investments, subject to specified exceptions, and

(iii) restricted the declaration of any dividends or other distributions, subject to specified exceptions.

If an event of default under

the Restricted Note had occurred, then the then outstanding principal and all accrued and unpaid interest on the Restated Note would

immediately become due and payable.

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 be

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.

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

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

As the January

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

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

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The CP Debt Restructuring was accounted for as a troubled debt restructuring

under ASC 470, as 1) the Company was determined to be experiencing financial difficulties as defined by the ASC, and 2) the CP Debt Restructuring

was deemed to result in a concession by CP.

The Company performed a comparison of the undiscounted cash flows associated with the Restated

Note subsequent to the CP Debt Restructuring to the carrying value of the Consolidated Notes as of the CP Debt Restructuring date.

net carrying value of the Consolidated Notes was determined to exceed the undiscounted future cash flows of the Restated Note after consideration

of the January Conversion by approximately $ 0.7 million (the “CP Debt Restructuring Excess Carrying Value”).

Note was thus written down to the amount of the undiscounted future cash flows on the Restated Note from the CP Restructuring date to

Further, as CP was a related party of the Company, the CP Debt Restructuring Excess Carrying Value was accounted for as a capital

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

Aggregate interest expense related to the CP Acquisitions Note described

above was $ .1 million for the year ended December 31, 2024.

Refer to Note 6 - Discontinued Operations below for subsequent activity as

this Note relates to the sale of the Cultivation Business.

Acquisition Note

July 12, 2023, the Board of Directors of the Company approved the issuance of an unsecured promissory note (the “GIC Note”,

and, collectively with the Consolidated Note, the “Related Party Notes”) to GIC Acquisition, LLC (“GIC”), an

entity that is owned and managed by the Company’s former Chairman and Chief Executive Officer.

Pursuant to the GIC Note, GIC was

obligated to lend up to $ 0.5 million to the Company, $ 0.3 million of which was delivered at issuance and the remaining $ 0.2 million delivered

on July 31, 2023.

The GIC Note bore interest at a rate of 10 % per annum, would mature in full on August 6, 2023, and could be prepaid

without any fee or penalty.

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

On October 27, 2023, the

maturity date of the GIC Note was subsequently amended to December 31, 2024 at which point principal and accrued interest will be repaid

Interest expense incurred on the GIC Note amounted to $ 47.7 thousand for the year ended December 31, 2024.

Refer to “Amendment

of Related Party Notes” below for subsequent activity related to the balance originating from this note.

of Related Party Notes

May 21, 2024, the Company and CP entered into an amendment to the Restated Note (the “Consolidated Note Amendment”), pursuant

to which CP Acquisitions could elect, in lieu of shares of Common Stock issuable upon conversion of the Restated Note, to instead receive

Pre-Funded Warrants (“Pre-Funded Warrants”).

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

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, GIC and the

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

the “Related Party Debt Amendments”) to increase the aggregate principal amount to approximately $ 2.3 million, extend the

maturity date to December 31, 2025, and provide that the Restated Junior Note could 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 .

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”).

the Related Party Warrant Conversions were exercised in connection with the Related Party Debt Amendments by CP and GIC, related party

lenders under common control (the “Related Party Lenders”), the transactions combined were considered a modification of the

total debt outstanding with the related parties (the “Related Party Debt Restructuring”).

Related Party Debt Restructuring was accounted for as a troubled debt restructuring under ASC 470, as i) the Company was determined to

be experiencing financial difficulties as defined by the ASC, and ii) the Related Party Debt Restructuring was deemed to result in a

concession by the Related Party Lenders.

The Company performed a comparison of the aggregated undiscounted cash flows associated with

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

as of the Related Party Debt Restructuring date.

The net carrying value of the Related Party Notes of $ 10 million was determined to exceed

the undiscounted future cash flows of the Related Party Notes as modified by the Related Party Debt Restructuring by approximately $ 10

million (the “Related Party Debt Restructuring Excess Carrying Value”).

The aggregate carrying value of the Related Party

Notes was thus written down to the amount of the undiscounted future cash flows on the Related Party Notes from the Related Party Debt

Restructuring date to maturity (the “Restructured Related Party Debt”).

Further, as the Related Party Lenders are related

parties of the Company, the Related Party Debt Restructuring Excess Carrying Value was accounted for as a capital transaction and no

gain or loss was recognized related to the restructuring.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The consideration for the sale of the Cultivation Business included

the assumption by CP of the Company’s secured indebtedness currently held by CP and included the Consolidated CP Acquisitions Note.

The carrying value of the Consolidated CP Acquisitions Note was $ 0 at December 31, 2024.

Acquisitions Promissory Note

On August 14, 2024, the Company issued a junior secured promissory

note (the “2024 CP Note”) to CP.

Pursuant to the 2024 CP Note, CP Acquisitions would lend up to $ 1.5 million 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

The note was subsequently amended to lend up to $ 3.0 million to the Company.

The 2024 CP Note was secured by the Company’s

assets and ranked junior to existing secured indebtedness of the Company.

The 2024 CP Note could be converted into Common Stock of the

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

price of $ 3.9495 .

consideration for the sale of the Cultivation Business included the assumption by CP of the Company’s secured indebtedness currently

held by CP and included the 2024 CP Note.

The carrying value of the 2024 CP Note was $0 at December 31, 2024.

Green Thumb Convertible Note

November 5, 2024, the Company issued a Secured Convertible Note (the “Green Thumb Note”) to RSLGH, LLC (the “Investor”),

a subsidiary of Green Thumb Industries Inc.

(“Green Thumb”).

The Green Thumb Note is a secured obligation of the Company

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

The Green Thumb Note will

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

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

The principal amount of the Green Thumb Note

will be payable on the maturity date.

The Green Thumb Note provides for advances of up to $ 20 million in the aggregate, of which $ 10

million was advanced upon issuance.

Green Thumb Note imposes certain customary affirmative and negative covenants upon the Company, including covenants relating to corporate

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

If an event of default under the

Green Thumb Note occurs, the Investor can elect to redeem the Green Thumb Note for cash equal to the then-outstanding principal amount

of the Green Thumb Note (or such lesser principal amount accelerated by the Investor), plus accrued and unpaid interest, including default

interest, which accrues at a rate per annum equal to 14 % from the date of a default or event of default, or, only in connection with

certain events of default.

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

for certain corporate events.

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

of stockholder approval to the extent necessary under Nasdaq listing rules.

under the Green Thumb Note during the year ended December 31, 2024 totaled $ 10 million which are recorded on the Company’s consolidated

balance sheets in related party debt.

Interest expense incurred on the Green Thumb Note amounted to approximately $ 156 thousand for the

year ended December 31, 2024.

of December 31, 2024, future minimum principal payments on all debt positions, excluding accrued interest amounts, were as follows:

ending December 31 (In thousands)

future payments

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

Related party

interest expense incurred on the Notes amounted to $ 4.1 million and $ 156 thousand for the year ended December 31, 2025 and 2024,

respectively.

expense incurred on the Notes related to unaffiliated third parties amounted to approximately $ 362 thousand and $ 256 thousand for

the year ended December 31, 2025 and 2024, respectively.

As of December 31, 2025, future minimum

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

Years ending December 31

(In thousands)

Total future payments

Note 11 — Leases

The determination

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

the asset during the contract period.

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

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

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

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

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

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

Leases with a term greater than 12 months

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

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the implicit interest rate in its leases was generally not known, the Company used its incremental borrowing rate as the discount rate

for purposes of determining the present value of its lease liabilities.

The Company’s incremental borrowing rate was determined

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

At December 31, 2024 and December 31, 2023 the Company’s weighted-average discount rate utilized for its leases was 9.67 % and 7.51 %,

respectively.

Company had several non-cancelable finance leases for machinery and equipment, all of which ended or were terminated during 2023.

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

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

The Company has several non-cancellable

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

The Company’s leases

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

Some leases include payment for communal

area maintenance associated with the property.

Cash paid for operating leases during the years ended December 31, 2024 and 2023 were $ 0.5

million and $ 1.0 million, respectively.

During the year ended December

31, 2024, one of the Company’s leased assets was sold by the lessor to another counterparty, effectively cancelling the remainder

of the lease with the Company.

There were no penalties arising from the cancellation.

The Company recognized a gain on early termination

in the amount of $ 50 thousand in the period, calculated as the difference between the remaining right-of-use asset and lease liability

at the time of termination.

information on the Company’s operating and financing lease activity was as follows:

Ended December 31,

of right-of-use assets

on lease liabilities

Year Ended December 31,

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

As of December

31, 2025 and 2024, the Company had no active finance leases.

Also during the

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

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

The Company recognized a sublease income

of $ 27 thousand, within loss from discontinued operations in the consolidated statements of operations.

The Company recognized an impairment

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

During year ended

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

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

As of December

31, 2025 and December 31, 2024, the Company did not have any operating leases related to continuing operations.

As such, no operating

lease cost, weighted average remaining lease term, or weighted average discount rate, and cash paid for operating leases are presented

for continuing operations for the year ended December 31, 2025 and 2024, respectively.

As of December 31, 2025 and 2024, there was no

future lease payments related to continuing operations.

Note 12 — Fair Value Measures

Fair Values of Assets and Liabilities

In accordance

with ASC Topic 820, Fair Value Measurement , the Company measures fair value at the price that would be received to sell an asset

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

In determining fair value,

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

consisting of three levels, as follows:

Observable inputs such as

quoted prices for identical assets or liabilities in active markets.

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

that are not active.

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

would price the asset or liability.

The Company has

certain financial instruments which consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, contingent

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

Fair value information for each

of these instruments as well as other balances of the Company are as follows:

● Cash and cash equivalents, accounts payable, and accrued expenses approximate their fair value based on the short-term nature of these

● Accounts receivable are presented net of an allowance for estimated credit losses, which approximates fair value.

● The carrying value of lease liabilities approximates fair value due to the implicit discount rates used in the determination of the

lease liabilities being consistent with the Company’s incremental borrowing rates at the time of lease inception and accounting

for the duration of the leases.

● Long-term debt and related party debt, including the debt that has undergone troubled debt restructuring, is carried at amortized

cost, dictated by the prevailing market interest rates at the time of each transaction in accordance with ASC Topic 470, Debt (“ASC

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

● As detailed in Note 14 - Stockholders’ Equity, during the year ended December 31, 2024, the Company

amended Pre-Funded Warrants that had been issued to a related party such that they again became liability classified.

These warrants were

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

Through an additional amendment executed as of December 31,

2024, the warrants again met the requirements for equity classification and were marked to fair value at the moment of the amendment and

then reclassified from liability to equity.

The warrants will not be marked to fair value on a recurring basis and there were no additional

amendments during the year ended December 31, 2025.

As of December

31, 2025 and December 31, 2024, the Company’s assets and liabilities measured at fair value on a recurring basis were as

December 31, 2025

December 31, 2024

Fair Value Measurements Using Input Types

(In thousands)

Weighted-average remaining lease term – operating leases 2.15 years 3.09 years

Weighted-average discount rate – operating leases 9.67 % 7.51 %

Sheet Location

lease right-of-use assets

Operating lease right-of-use assets

lease liabilities, current

Operating lease liabilities, current

lease liabilities, non-current

Operating lease liabilities, non-current

operating lease liabilities

12 — Stockholders’ Equity (Deficit)

On February 27, 2024, the Company entered into a placement agency agreement

(the “Agency Agreement”) with Alexander Capital, LP (“Alexander Capital”) as placement agent (the “Placement

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

of Common Stock to certain investors that so chose, Pre-Funded Warrants to purchase 264,246 shares of its Common Stock (the “S-1

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

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

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company issued 4,482 warrants to purchase Common Stock to Alexander Capital (the “Placement Agents Warrants”).

The Placement

Agents Warrants were classified as equity and recorded under additional paid-in capital in the consolidated balance sheets.

The Placement

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

reverse stock splits, stock dividends, and similar transactions.

The Placement Agents Warrants will be exercisable on a cash basis, unless

there is not an effective registration statement covering the issuance of the shares issuable upon exercise of the Placement Agents Warrants

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

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

measurement of fair value of the Placement Agents Warrants were determined utilizing a Black-Scholes model considering all relevant assumptions

as of the date of issuance (i.e., share price of $ 7.80 , exercise price of $ 5.70 , term of five years , volatility of 128 %, risk-free rate

of 4.32 %, and expected dividend rate of 0 %).

Warrant liabilities

Total liabilities

Note 13 — Warrant Liabilities

The estimated

fair value of the warrant liabilities as of December 31, 2025 and 2024 is determined using Level 3 inputs.

Inherent in a Black-Scholes

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

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

However, inherent

uncertainties are involved.

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

The following

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

Exercise price

$ 0.14 - $ 22,440

Expected term (in Years)

Discount rate - treasury yield

3.47 - 3.48 %

The following

table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the years ended December 31, 2025 and

(In thousands, except number of outstanding warrant liabilities)

Warrant liabilities - beginning of period

Initial fair value of warrant liabilities

Exercise of warrants

Reclassification of warrant liabilities to equity

Change in estimated fair value

Warrant liabilities end of period

As of December 31, 2025 and December 31, 2024,

the number of outstanding warrants subject to liability classification was 40,017 , of which 15,394 are held by RSLGH, a related party.

Note 14 — Stockholders’ Equity

Public Offerings

On February 27,

2024, the Company entered into a placement agency agreement (the “Agency Agreement”) with Alexander Capital, LP (“Alexander

Capital”) as placement agent (the “Placement Agent”), pursuant to which the Company agreed to issue and sell an aggregate

of 184,000 shares of its Common Stock, and, in lieu of Common Stock to certain investors that so chose, Pre-Funded Warrants to purchase

264,246 shares of its Common Stock (the “S-1 Offering”).

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

and the offering price for each Pre-Funded Warrant is $ 5.685 , which equals the public offering price per share of the Common Stock, less

the $ 0.015 per share exercise price of each Pre-Funded Warrant.

The Company issued

4,482 warrants to purchase Common Stock to Alexander Capital (the “Placement Agents Warrants”).

The Placement Agents Warrants

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

The Placement Agents

Warrants had a five-year term and exercise price of 100 % of the offering price, and were subject to adjustment for stock splits, reverse

stock splits, stock dividends, and similar transactions.

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

was not an effective registration statement covering the issuance of the shares issuable upon exercise of the Placement Agents Warrants

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

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

The Placement Agent Warrants were

exercised in full during November 2024.

The measurement

of fair value of the Placement Agents Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current

at the date of issuance (i.e., share price of $ 7.80 , exercise price of $ 5.70 , term of five years, volatility of 128 %, risk-free rate of

4.32 %, and expected dividend rate of 0 %).

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

on February 27, 2024, and is reflected within additional paid-in capital as of December 31, 2024.

Line of Credit Facility

August 28, 2024, the Company entered into a purchase agreement (the “Ionic Agreement”) and a registration rights agreement

with Ionic Ventures, LLC (“Ionic”), pursuant to which Ionic committed to purchase up to an aggregate of $ 15.0 million of

the Company’s Common Stock, subject to certain limitations, from time to time and at our sole discretion over the 36-month term

of the Ionic Agreement.

and after the date the registration statement relating to the resale of the shares sold to Ionic was declared effective, November 5,

2024, the Company may from time to time on any business day, by written notice delivered by the Company 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 Ionic Agreement also permitted the Company 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 the Company delivered an exemption purchase notice for $ 400,000

for the purchase by Ionic of 189,645 shares of Common Stock.

On November 5, 2024, the Company issued 189,645 shares of Common Stock to

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

no right to require the Company to sell any shares of Common Stock to Ionic, but Ionic is obligated to make purchases as the Company

directs, subject to certain conditions.

Party Warrant Issuance

May 21, 2024, in connection with the Consolidated Note Amendment, the Company issued 492,204 and 525,114 Pre-Funded Warrants to GIC Acquisitions

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

As the Placement Agents Warrants were exercised during

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

Related Party Warrant Issuance

On May 21, 2024,

in connection with the amendment of previously outstanding notes, the Company issued 492,204 and 525,114 Pre-Funded Warrants to GIC Acquisitions

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

4 unchanged sentences

instruments and were determined not to be indexed to the Company’s own stock.

Accordingly, the Warrants are precluded from being

classified within equity and classified as a liability with subsequent changes in fair value recognized each reporting period in earnings.

The fair value of the Related Party Pre-Funded Warrants on the issuance date was $ 5,600,334 determined as the intrinsic value.

June 30, 2024, the Company executed an amendment to the Related Party Pre-Funded Warrants, pursuant to which the Company revised certain

provisions of the Related Party Pre-Funded Warrants to (i) remove the adjustment to the exercise price of the Related Party Pre-Funded

Warrants when there is a bona fide equity financing with the primary purpose of raising capital (the “Adjustment Provisions”)

and (ii) increase the threshold for a change of control from 50 % to greater than 50 %.

The classification of the Related Party Pre-Funded

Warrants was reassessed upon the modification and the Related Party Pre-Funded Warrants were determined to meet all of the additional

requirements for equity classification.

Accordingly, as of June 30, 2024, the Company remeasured the Related Party Pre-Funded Warrants

to its fair value immediately prior to the modification and recognized the change in fair value of approximately $ 1.2 million in earnings.

The Company then reclassified the Pre-Funded Warrant liability to stockholders’ equity at its post-modification fair value of $ 6.8

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 12, 2024, the stockholders of the Company approved a proposal to amend the Related Party Pre-Funded Warrants to add the Adjustment

Provisions at a future date.

Pursuant to that approval, on August 28, 2024, the Company entered into amendments to the Related Party

Pre-Funded Warrants to insert the Adjustment Provisions.

This resulted in a reassessment of the Related Party Pre-Funded Warrants such

that they no longer met the requirements for equity classification and became classified as liabilities.

They were remeasured to their

fair value upon modification, resulting in a reduction in value of approximately $ 3.1 million.

The fair value, as of August 28, 2024,

of $ 3,723,383 was reclassified to a warrant liability.

As a result of the warrant amendments and the subsequent issuance of 189,645 shares

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

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

Party Pre-Funded Warrant held by GIC Acquisition was adjusted to 1,085,122 .

On August 30, 2024, CP partially exercised its Pre-Funded

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

the exercise.

September 27, 2024, the Company executed an amendment to the Related Party Pre-Funded Warrants to remove the Adjustment Provisions.

the Related Party Pre-Funded Warrants met the requirements for equity classification.

The amendment also included a provision preventing

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

October 9, 2024.

Accordingly, the Related Party Pre-Funded Warrants

are precluded from being classified within equity and classified as a liability with subsequent changes in fair value recognized each

reporting period in earnings.

The fair value of the Related Party Pre-Funded Warrants on the issuance date was $ 5,600,334 determined as

the intrinsic value.

On June 30, 2024,

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

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

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

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

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

upon the modification and the Related Party Pre-Funded Warrants were determined to meet all of the additional requirements for equity

classification.

Accordingly, as of June 30, 2024, the Company remeasured the Related Party Pre-Funded Warrants to its fair value immediately

prior to the modification and recognized the change in fair value of approximately $ 1.2 million in earnings.

The Company then reclassified

the Pre-Funded Warrant liability to stockholders’ equity at its post-modification fair value of $ 6.8 million.

On August 12, 2024,

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

a future date.

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

to insert the Adjustment Provisions.

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

met the requirements for equity classification and became classified as liabilities.

They were remeasured to their fair value upon modification,

resulting in a reduction in value of approximately $ 3.1 million.

The fair value, as of August 28, 2024, of $ 3,723,383 was reclassified

to a warrant liability.

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

an effective purchase price of $ 2.109 per share of Common Stock, the number of shares of Common Stock underlying the Related Party Pre-Funded

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

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

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

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

On September 27,

2024, the Company executed an amendment to the Related Party Pre-Funded Warrants to remove the Adjustment Provisions.

Accordingly, the

Related Party Pre-Funded Warrants met the requirements for equity classification.

The amendment also included a provision preventing the

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

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

The fair value as of September 27, 2024 of $ 20,770,707 was reclassified to equity.

On November 20, 2024, the Company

entered into Securities Purchase Agreements with institutional investors and other accredited investors for the sale by the Company of

203,988 shares (the “Shares”) of Common Stock, and pre-funded warrants (the “November 2024 Warrants”) to purchase

up to an aggregate of 949,515 shares of Common Stock, in a private placement offering.

The purchase price for one share of Common Stock

is $ 22.30 and the purchase price for one November 2024 Warrant is $ 22.2999 .

Each Pre-Funded Warrant is exercisable

into one share of Common Stock at a price per share of $ 0.0001 (as adjusted from time to time in accordance with the terms thereof) and

will expire when such November 2024 Warrant is fully exercised.

Benjamin Kovler, Chairman and

Interim Chief Executive Officer of the Company, participated in the private placement to purchase 10,000 shares of Common Stock on the

same terms as other investors except for a purchase price of $ 38.76 .

gross proceeds to the Company from the private placement were approximately $ 25.9 million, before deducting the placement agent’s

fees and other offering expenses of approximately $ 0.1 million.

The November 2024 Warrants were classified as a component of stockholders’

They are immediately exercisable and permit the holders to receive a fixed number of shares of Common Stock upon exercise.

addition, such warrants do not provide any guarantee of value or return.

October 2023, the Company issued 50,000 warrants to Mack Molding Co.

in conjunction with the Modification and Settlement Agreement (the

“Mack Warrants”).

The warrants have a three-year term and an exercise price of $ 60.00 per share, and are subject to adjustment

for stock splits, reverse stock splits, stock dividends, and similar transactions.

The Mack Warrants will be exercisable on a cash basis,

unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the warrants or if

shareholder approval for the full exercise of the warrants are not received, in which case the Mack Warrant will also be exercisable

on a cashless exercise basis at the Investor’s election.

measurement of fair value of the Mack Warrants were determined utilizing a Black-Scholes model considering all relevant assumptions current

at the date of issuance.

The grant date fair value of these Investor Warrants was estimated to be $ 1.6 million on October 18, 2023 and

is reflected within additional paid-in capital as of December 31, 2023.

These warrants were terminated a part of the December 16, 2024

13 — Stock-Based Compensation and Employee Benefit Plans

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

During the year ended December 31, 2025, 120,723 warrants

were issued in lieu of cash interest payments of $ 1.8 million.

Note 15 — Stock-Based Compensation

2022 Omnibus Equity Incentive Plan

On April 29, 2022, the Company’s Board of Directors, and on June

8, 2022, the Company’s stockholders, adopted and approved the 2022 Omnibus Equity Incentive Plan (the “2022 Plan”),

which provides for the grant of stock options, stock appreciation right awards, performance share awards, restricted stock awards, restricted

stock unit awards, other stock-based awards and cash-based awards.

The aggregate number of shares of Common Stock that may be reserved

and available for grant and issuance under the 2022 Plan is 1,765 shares and 16,667 additional shares issued upon approval by the Board

of Directors on January 8, 2024.

On August 12, 2024, the Company’s stockholders approved an amendment to the 2022 Plan to increase

the number of shares issuable thereunder by 166,667 .

Shares will be deemed to have been issued under the 2022 Plan solely to the extent

actually issued and delivered pursuant to an award.

The 2022 Plan shall continue in effect, unless sooner terminated, until the tenth

anniversary of the date on which it was adopted by the Board of Directors.

As of December 31, 2024, there were 56,324 shares of Common

Stock available to be granted under the Company’s 2022 Plan.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company’s stock compensation expense from continuing operations was $ 1.2 million an d $ 2.7

million for the years ended December 31, 2024 and 2023 ,

respectively.

Company’s stock compensation expense from discontinued operations was $ 132 thousand an d $ 262

thousand for the years ended December 31, 2024 and

On April 29, 2022,

the Company’s Board of Directors, and on June 8, 2022, the Company’s stockholders, adopted and approved the 2022 Omnibus Equity

Incentive Plan (the “2022 Plan”), which provides for the grant of stock options, stock appreciation right awards, performance

share awards, restricted stock awards, restricted stock unit awards, other stock-based awards and cash-based awards.

The aggregate number

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

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

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

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

Shares will be deemed to have been issued

under the 2022 Plan solely to the extent actually issued and delivered pursuant to an award.

The 2022 Plan shall continue in effect, unless

sooner terminated, until the tenth anniversary of the date on which it was adopted by the Board of Directors.

On June 11, 2025, the Company’s

stockholders approved an amendment to the 2022 Plan to increase the number of shares issuable thereunder by 250,000 shares.

As of September

30, 2025, there were 135,065 shares of Common Stock available to be granted under the Company’s 2022 Plan.

The Company’s

stock compensation expense from continuing operations was $ 2.2 million and $ 892 thousand for the years ended December 31, 2025 and 2024,

respectively.

the year ended December 31, 2024, there were no options granted or exercised under the Company’s stock option plans.

period, there were 23 options expired with a weighted average exercise price of $ 10,710.00 .

There were 216 and 688 options outstanding

with a weighted average exercise price of $ 18,610.56 and $ 23,938.80 as of December 31, 2024 and 2023, respectively.

There were 210 options

vested and exercisable with a weighted average exercise price of $ 18,725.71 as of December 31, 2024.

There were 216 options vested and

expected to vest with a weighted average exercise price of $ 18,610.56 as of December 31, 2024.

of December 31, 2024, total unrecognized compensation expense related to unvested options was $ 6,302 , which is expected to be recognized

over a weighted average period of 0.27 years.

options granted under the Company’s 2022 Plan are generally non-qualified and are granted with an exercise price equal to the market

price of the Company’s Common Stock on the date of grant.

The fair value of each option grant was estimated on the date of the

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.

No stock options were granted during the years ended December

31, 2024 and 2023.

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.

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 Company’s

stock compensation expense from discontinued operations was a forfeiture of $ 20 thousand and $ 273 thousand for the years ended December

31, 2025 and 2024, respectively.

Stock Options

As of December 31,

2025, there was no unrecognized compensation expense related to unvested options.

Stock options granted

under the Company’s 2022 Plan are generally non-qualified and are granted with an exercise price equal to the market price of the

Company’s Common Stock on the date of grant.

The fair value of each option grant was estimated on the date of the 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.

No stock options were granted during the years ended December 31, 2025 and 2024.

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.

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 the Company’s history of having never issued a dividend

and management’s current expectation of future action surrounding dividends.

The Company calculates the expected volatility of

the stock price based on the corresponding volatility of the Company’s 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

The Company calculates the expected volatility of the

stock price based on the corresponding volatility of the Company’s 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.

Forfeitures are accounted for when they occur.

following table presents option activity under the Company’s stock option plans for the years

ended December 31, 2024 and 2023:

(In thousands, except share and per share data)

Options outstanding at January 1, 2023

The following table

presents option activity under the Company’s stock option plans for the years ended December 31, 2025 and 2024:

Options vested and exercisable as of December 31, 2024

Options vested and expected to vest as of December 31, 2024

Options outstanding at December 31, 2024

2 unchanged sentences

Options vested and expected to vest as of December 31, 2025

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

following table summarizes information about options vested and exercisable at December 31, 2024:

The following table summarizes

information about options vested and exercisable as of December 31, 2025:

Options Vested and Exercisable

Price ($) Number of Options Weighted-Average

Remaining Contractual

Life (Years) Weighted-Average

Exercise Price

$ 14,580.00 84 3.08 $ 14,580.00

$ 6,840.00 73 0.97 $ 6,840.00

$ 41,520.00 49 4.39 $ 41,520.00

$ 43,470.00 4 6.22 $ 43,470.00

following table summarizes information about options expected to vest after December 31, 2024:

Options Vested and Expected to Vest

Price ($) Number of Options Weighted-Average

Remaining Contractual

Life (Years) Weighted-Average

Exercise Price

$ 14,580.00 90 2.61 $ 14,580.00

Options Weighted-

Life (Years) Weighted-

38 5.13 $ 40,234

1 unchanged sentence

3 4.57 $ 4,104

the 2022 Plan, the Company may grant restricted stock units to employees, directors and officers.

The restricted stock units granted

generally vest equally over periods ranging from one to three years .

The fair value of restricted stock units is determined based on

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

Restricted Stock Units

Under the 2022 Plan,

the Company may grant restricted stock units to employees, directors officers, and other service providers.

The restricted stock units

granted generally vest equally over periods ranging from one to three years .

The fair value of restricted stock units is determined based

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

Compensation expense related to the restricted stock

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

following table presents restricted stock unit activity under the 2022 Plan for the year ended December 31, 2024:

The following table presents restricted

stock unit activity under the 2022 Plan for the year ended December 31, 2025:

Number of Shares

Unvested at January 1, 2024

Unvested at December 31, 2024

at December 31, 2024

of December 31, 2024, total unrecognized compensation expense related to unvested restricted stock units was $ 1.4 million, which is expected

to be recognized over a weighted average period of 0.74 years.

Employee Stock Purchase Plan

April 29, 2022, the Company’s Board of Directors, and on June 8, 2022, the Company’s stockholders, adopted and approved the

2022 Employee Stock Purchase Plan (“ESPP”).

The Company initially reserved 167 shares of Common Stock for issuance under

On December 31, 2024 and 2023, no shares were available for future issuance.

the ESPP, eligible employees are granted options to purchase shares of Common Stock at the lower of 85 % of the fair market value of the

stock at the time of grant or 85 % of the fair market value at the time of exercise.

Options to purchase shares are granted twice yearly

on or about August 1 and February 1 and are exercisable on or about the succeeding January 31 and July 31, respectively, of each year.

No participant may purchase more than $ 25,000 worth of Common Stock annually.

During the years ended December 31, 2024 and 2023, 0 and

167 of Common Stock was granted under the 2022 ESPP.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company maintains an employee’s savings and retirement plan under Section 401(k) of the Internal Revenue Code (the “401(k)

All full-time U.S.

employees become eligible to participate in the 401(k) Plan.

The Company’s contribution to the

401(k) Plan is discretionary.

During the year ended December 31, 2024 and 2023, the Company did not contribute to the 401(k) Plan.

1 4 — Stock Warrants

following tables present all warrant activity of the Company for the year ended December

31, 2024 and December 31, 2023:

Exercise Price

Warrants outstanding

at January 1, 2023

Unvested at December 31, 2025

As of December

31, 2025, total unrecognized compensation expense related to unvested restricted stock units was $ 4.1 million, which is expected to be

recognized over a weighted average period of 1.5 years.

Note 16 — Stock

The following tables present all warrant

activity of the Company for the year ended December 31, 2025 and December 31, 2024:

Warrants outstanding at December 31, 2024

outstanding at December 31, 2024

Company received proceeds from the exercise of Placement Agent Warrants of $ 26,000 and Pre-Funded Warrants of $ 10,000 for the year ended

December 31, 2024.

15 — Income Taxes

financial reporting purposes, the net pre-tax book income and/or loss from continuing and discontinued operations for the U.S.

entities, in the aggregate, was:

Warrants outstanding at December 31, 2025

Note 17 — Discontinued Operations

Cultivation Business Discontinued Operations

On December 31,

2024, the Company executed and closed the Purchase Agreement with CP for the sale of assets relating to the Company’s Cultivation

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

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

other liabilities related to the Cultivation Business.

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

to focus on its hemp-related business operations.

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

in the consolidated financial statements for all periods presented.

The disposition

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

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

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

statements of operations through December 31, 2025, the date of disposition, and were considered material.

The net loss from discontinued

operations for the period ended December 31, 2024 represents the Cultivation Business’ operating results from the prior year.

assets and liabilities related to the Cultivation Business have been separately classified in the accompanying consolidated balance sheet

as of December 31, 2024.

Extraction Business Discontinued Operations

On March 30, 2025,

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

As a result, all operations associated with

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

to the Extraction Business.

In addition, all outstanding contracts associated with the Extraction Business have been terminated in accordance

with their respective terms.

In connection with the discontinuation of the Extraction Business, the Company reduced its workforce by nine

employees on April 1, 2025.

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

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

As a result, the Extraction Business has

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

As a result of the decision to wind down the Extraction Business, a

gain of approximately $ 3.5 million, was recorded in income from discontinued operations in the consolidated statement of operations for

the year ended December 31, 2025.

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

in the consolidated statements of operations for the year ended December 31, 2025, and were considered material.

The assets and liabilities

related to the Extraction Business have been separately classified in the accompanying consolidated balance sheets as of December 31,

2025 and December 31, 2024.

The assets and liabilities associated with discontinued

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

Carrying amounts of assets and liabilities

included as part of discontinued operations:

(In thousands)

Current assets:

Accounts receivable, net

Inventory, net

Prepaid expenses and other current assets

Current assets of discontinued operations

Loan receivable, net

Property and equipment, net

Operating lease right-of-use assets

Other non-current assets

Non-current assets of discontinued operations

Total assets of discontinued operations

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Operating lease liabilities, current

Related party debt, current

Customer deposits

Current liabilities of discontinued operations

Operating lease liabilities, net of current

Long-term debt, net of current

Non-current liabilities of discontinued operations

Total liabilities

The following table summarizes the Company’s loss

from discontinued operations for the years ended December 31, 2025 and 2024, respectively:

For the year ended

(In thousands)

Cost of goods sold

Selling, general and administrative

Research and development

Gain on settlement of contingent liabilities

Gain on disposal on property and equipment

Total operating expenses

Operating loss from discontinued operations

Other Income (Expense)

Interest expense, net

Loss on disposal of Cultivation business

Other income, net

Total other expense

Net loss from discontinued operations

Income tax effect on discontinued operations

Loss from discontinued operations, net of income taxes

The consolidated

statements of cash flows includes continuing operations and Discontinued Operations.

The following table summarizes the depreciation of

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

and capital expenditures and disposals of discontinued operations for the years ended December 31:

Depreciation and amortization

Proceeds from disposal of property and equipment

Purchases of property and equipment

Recovery of credit losses

Recovery of slow-moving inventory

Note 18 — Revenue

The Company generates revenue from continuing operations

from Non-licensing Revenue and Licensing Revenue.

For the year ended

December 31, 2025, the Company generated revenue from continuing operations from non-hemp-derived product sales and sales-based Licensing

Non-licensing Revenue from hemp-derived product sales is recognized at a point-in-time when control transfers to the customer.

Licensing Revenue is recognized over time as the underlying sales occur in accordance with the terms of the related party license agreements.

The following table provides the Company’s revenue

from continuing operations disaggregated by revenue type:

As of December 31,

(In thousands)

Non-licensing Revenue

Licensing Revenue

Total revenue

In accordance

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

reporting period.

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

of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i)

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

practical expedient.

Note 19 — Income Taxes

For financial reporting purposes, the

net pre-tax book income and/or loss for the U.S.

and foreign entities, in the aggregate, was:

(In thousands)

United States

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income tax expense (benefit) from continuing and discontinued operations

Income tax expense

consisted of the following for the years ended December 31, 2025 and December 31, 2024:

reconciliation between the Company’s effective tax rate on income from continuing operations discontinued operations and the statutory

tax rate for the years ended December 31, 2024 and December 31, 2023 is as follows:

Current tax at

(In thousands)

The reconciliation

between the Company’s effective tax rate on income from continuing operations and the statutory tax rate for the years ended December

31, 2025 and December 31, 2024 is as follows:

December 31, 2025

December 31, 2024

(In thousands)

Current tax at U.S.

statutory rate

Nondeductible/nontaxable items

True-up and other

tax expense (benefit)

income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting

Non-deductible loss on fair value of warrants

Other nondeductible/nontaxable items

Illinois taxes

Other state taxes

True-up and other (federal)

True-up and other (state)

Valuation allowance (federal)

Valuation allowance (state)

Income tax (expense) benefit

Deferred income

taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for income tax purposes.

1 unchanged sentence

the timing and amount of which are uncertain.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

following items comprise the Company’s net deferred tax assets and liabilities as of December 31, 2024 and December 31, 2023:

operating loss carryforward

reserves, and other

and development tax credit carryforward

tax positions

Deferred Tax Asset

income tax assets, net of Valuation Allowance

tax liabilities:

Deferred Tax Liability

Deferred Tax Asset/(Liability)

Company continually evaluates the likelihood of the realization of deferred tax assets and adjusts the carrying amount of the deferred

tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is more likely than not.

considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative

earnings experience by taxing jurisdiction, expectation of future taxable income or loss, the carryforward periods available to the Company

for tax reporting purposes, and other relevant factors.

of December 31, 2024, based on the Company’s history of earnings and its assessment of future earnings, management believes that

it is more likely than not that future taxable income will not be sufficient to realize the deferred tax assets.

Therefore full valuation

allowance has been applied to deferred tax assets.

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize

any expenses incurred that are considered incidental to research and experimentation (“R&E”) activities under U.S.

Revenue Code (“IRC”) Section 174.

While taxpayers historically had the option of deducting these expenses under IRC Section

174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after

December 31, 2021.

Expenses incurred in connection with R&E activities in the U.S.

must be amortized over a 5-year period if incurred,

and R&E expenses incurred outside the U.S.

must be amortized over a 15-year period.

R&E activities are broader in scope than qualified

research activities that are considered under IRC Section 41 (relating to the research tax credit).

As of the year ended December 31, 2024, the Company has federal and state net operating loss carryforwards of

approximately $ 197.6 million and $ 128.7 million respectively.

Federal net operating loss carryforwards in the amount of $ 0.7 million begin

expiring in 2036 and approximately $ 196.9 million have an indefinite life.

Federal net operating loss (“NOL”) carryforwards

generated after tax year 2021 are subject to an 80 % limitation on taxable income, do not expire and will carryforward indefinitely.

net operating loss carryforwards in the amount of $ 115.8 million begin expiring in 2039 and approximately $ 12.8 million have an indefinite

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

utilization of the Company’s NOLs may be subject to a U.S.

The following

items comprise the Company’s net deferred tax assets and liabilities as of December 31, 2025 and December 31, 2024:

(In thousands)

Deferred tax assets:

Net operating loss carryforward

Accruals, reserves, and other

Stock-based compensation

Lease liability

Intangible assets

Capitalized sec.

Uncertain tax positions

Total Deferred Tax Asset

Valuation allowance

Deferred income tax assets, net of Valuation Allowance

Deferred tax liabilities:

Right-of-Use Asset

Total Deferred Tax Liability

Net Deferred Tax Asset/(Liability)

The Company continually

evaluates the likelihood of the realization of deferred tax assets and adjusts the carrying amount of the deferred tax assets by the valuation

allowance to the extent the future realization of the deferred tax assets is more likely than not.

The Company considers many factors

when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative pre-tax income or loss

in recent history, expectation of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes,

and other relevant factors.

Therefore, a full valuation allowance has been applied to deferred tax assets.

The utilization

of the Company’s net operating losses may be subject to a U.S.

federal limitation due to the “change in ownership provisions”

under Section 382 of the IRC and other similar limitations in various state jurisdictions.

Such limitations may result in a reduction

of the amount of net operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards

before their utilization.

Subtotal - Federal

Subtotal - State

Subtotal - Foreign

Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates.

In the normal course of business,

the Company is subject to examinations by federal, foreign, and state and local jurisdictions, where applicable.

There are currently

no pending tax examinations.

under Section 382 of the Internal Revenue Code of 1986, as amended (“IRC” or the “Code”) and other similar limitations

in various state jurisdictions.

Such limitations may result in a reduction of the amount of net operating loss carryforwards in future

years and possibly the expiration of certain net operating loss carryforwards before their utilization.

During the quarter ended June

30, 2025, the Company completed an analysis of Ownership Changes, which had not previously been performed.

The analysis identified multiple

historical ownership changes that significantly limit the utilization of federal NOLs through the date of the most recent change on November

5, 2024, subjecting them to a minimal annual limitation.

On July 4, 2025,

the One Big Beautiful Bill Act (“OBBBA”) was enacted, introducing significant and wide-ranging changes to the U.S.

These changes are impactful to many areas of the tax law including but not limited to timing of the deductibility of interest

expense, recovery of capital expenditures, ability to expense research and experimental expenditures, limitations on deductions for charitable

contributions and a host of changes to the U.S.

taxation of companies with international operations.

The Company has evaluated the impacts

and determined that there is no material impact on its consolidated financial statements due to its cumulative loss position and the existence

of a full valuation allowance.

As of the year ended December 31, 2025, the Company has federal, and

state net operating loss carryforwards of approximately $ 45.5 million, and $ 47.9 million respectively.

Federal net operating loss carryforwards

in the amount of $ 48.5 million have an indefinite life.

Federal NOL carryforwards generated after tax year 2021 are subject to an 80 %

limitation on taxable income, do not expire and will carryforward indefinitely.

State net operating loss carryforwards in the amount of

$ 44.8 million begin expiring in 2039 and approximately $ 3.1 million have an indefinite life.

The Company files

tax returns as prescribed by the tax laws of the jurisdictions in which it operates.

In the normal course of business, the Company is

subject to examinations by federal, foreign, and state and local jurisdictions, where applicable.

There are currently no pending tax examinations.

The Company’s tax years are still open under statute from 2022 to the present in the U.S.

2019 to present in the Company’s foreign operations.

To the extent the Company has tax attribute carryforwards, the tax years in which

the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities

to the extent utilized in a future period.

required by the uncertain tax position guidance in ASC Topic 740 (“ASC 740”), Income Tax the Company recognizes the financial

statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position

following an audit.

For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is

the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company applied the uncertain tax position guidance in ASC 740, Accounting for Income to all tax positions for which the statute

of limitations remained open.

Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing

jurisdictions.

Any interest and penalties related to uncertain tax positions would be included as part of the income tax provision.

Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing

analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors.

Tax Positions

unrecognized tax benefits at December 31, 2024 relate entirely to research and development tax credits.

The total amount of unrecognized

tax benefits at December 31, 2024 is $ 1.2 million.

If recognized, none of the unrecognized tax benefits would impact our effective tax

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

To the extent the Company has tax attribute

carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service

and state and local tax authorities to the extent utilized in a future period.

The Company is

also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes.

The Company has taken certain positions

that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities.

As required by

the uncertain tax position guidance in ASC 740, Income Tax the Company recognizes the financial statement benefit of a tax position only

after determining that the relevant tax authority would more likely than not sustain the position following an audit.

For tax positions

meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater

than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company applied the uncertain tax

position guidance in ASC 740, Accounting for Income to all tax positions for which the statute of limitations remained open.

Any estimates

of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions.

Any interest and penalties related

to uncertain tax positions would be included as part of the income tax provision.

Our unrecognized tax benefits at December 31, 2025 relate entirely

to research and development tax credits.

The total amount of unrecognized tax benefits at December 31, 2025 is $ 1,100 .

If recognized,

none of the unrecognized tax benefits would impact our effective tax rate.

The following table summarizes the activity related to our

unrecognized tax benefits (in thousands):

Unrecognized benefit – beginning of period

Prior period tax

position increases

period tax position increases

Unrecognized benefit –

end of period

policy is to recognize interest and penalties related to income taxes as components of interest expense and other expense, respectively.

We incurred no interest or penalties related to unrecognized tax benefits in the years ended December 31, 2024 or 2023.

We do not anticipate

any significant changes in our uncertain tax positions within twelve months of this reporting date.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 — Net

Loss Per Share

loss per share calculations for all periods have been adjusted to reflect the Company’s reverse stock splits.

Prior period tax position increases (decreases)

Current period tax position increases (decreases)

Unrecognized benefit – end of period

Our policy is

to recognize interest and penalties related to income taxes as components of interest expense and other expense, respectively.

no interest or penalties related to unrecognized tax benefits for the years ended December 31, 2025 or 2024.

We do not anticipate any significant

changes in our uncertain tax positions within twelve months of this reporting date.

Note 20 — Net Loss Per Share

Net loss per share

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

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

net loss per share is computed by giving effect to all potential shares of Common Stock, including convertible notes, outstanding

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

share, assuming dilution, is equal to basic net loss per share for the years ended December 31, 2024 and 2023 because the effect of

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

computed using the treasury stock method, is anti-dilutive.

components of basic and diluted net loss per share were as follows:

Ended December 31,

thousands, except share and per share data)

loss attributable to Agrify Corporation from continuing operations

loss attributable to Agrify Corporation from discontinued operations

loss available for common shareholders

Weighted-average

common shares outstanding – basic and diluted

loss per share attributable to Common Stockholders – basic and diluted

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

from the computation of diluted net loss per share as the effect would be to reduce the net loss per share.

Therefore, the weighted-average

number of shares of Common Stock outstanding used to calculate both basic and diluted net loss per share attributable to holders of the

Company’s Common Stock is the same.

The Company excluded the following potential Common Stock equivalents presented based on amounts

outstanding at each period end, from the computation of diluted net loss per share attributable to Common Stockholders for the periods

indicated because including them would have had an anti-dilutive effect:

Ended December 31,

Shares subject

to outstanding stock options

Shares subject to unvested

restricted stock units

subject to outstanding warrants

17 — Segment Reporting

Company operates in one consolidated segment.

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

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

Such information

is presented in the consolidated statements of operations.

18 — Commitments and Contingencies

time to time, the Company may become involved in material legal proceedings or be subject to claims arising in the ordinary course of

our business.

However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from

time to time that may harm our business.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

& Mary’s Litigation

On September 15, 2022, the Company

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

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

such parties that Bud & Mary’s was in default of its obligations under the TTK solution between the Company and Bud & Mary

calculations for the year ended December 31, 2024 have been adjusted to reflect the Company’s reverse stock split.

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

Basic net loss per share is calculated using the weighted-average number

of shares of Common Stock outstanding during the periods.

Diluted net loss per share is computed by giving effect to all potential shares

of Common Stock, including convertible notes, outstanding stock options, stock related to unvested restricted stock units, and outstanding

warrants to the extent dilutive.

Net loss per share, assuming dilution, is equal to basic net loss per share for the years ended December

31, 2025 and 2024 because the effect of dilutive securities outstanding during the periods, including convertible notes, options, restricted

stock units and warrants computed using the treasury stock method, is anti-dilutive.

The components of basic and diluted net loss per share were

Year Ended December 31,

(In thousands, except share and per share data)

Net loss from continuing operations before taxes

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

Numerator for basic EPS - Net Loss

Denominator for basic EPS - Weighted-average common shares outstanding

Net loss per share – basic and diluted

The Company’s potential dilutive securities, which include stock

options, restricted stock units, and warrants, and convertible notes, have been excluded from the computation of basic and diluted net

(loss) income per share.

The Convertible Notes outstanding during the year ended December 31, 2025 and December 31, 2024, were also excluded

from the computation of diluted net (loss) per share as they do not represent common stock equivalents unless and until conversion conditions

The weighted-average number of shares of Common Stock outstanding used to calculate both basic and diluted net loss per share

attributable to Common Stockholders is the same.

The Company excluded the following potential Common Stock equivalents presented based

on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for

the periods indicated because including them would have had an anti-dilutive effect:

Year Ended December 31,

Shares subject to outstanding warrants

Shares subject to unvested restricted stock units

Shares subject to outstanding stock options

Total shares subject to potential common stock equivalents.

Note 21 — Related Parties

Some of the current and former officers and directors of the Company

are involved in other business activities and may, in the future, become involved in other business opportunities that become available.

Benjamin Kovler, the Company’s Chairman and Interim Chief Executive Officer also serves as Green Thumb’s Chairman and Chief

Executive Officer.

The Company’s Chief Financial Officer is a Green Thumb employee and provides services under a shared services

Including Mr.

Kovler, two of the Company’s seven directors are affiliated with Green Thumb.

Green Thumb, through its

subsidiaries, currently holds approximately 33 % of our outstanding shares of common stock and beneficially owns 49.99 % of our common stock,

taking into account beneficial ownership limitations contained in the warrants and convertible notes held by subsidiaries of Green Thumb.

Of the approximately 10.9 million warrants outstanding as of December 31, 2025, approximately 9.8 million are held by subsidiaries of

Green Thumb, subject to 49.99 % beneficial ownership limitations.

Of the approximately 3.0 million shares or pre-funded warrants that would

be issuable upon the conversion (excluding interest) of the Convertible Notes outstanding as of December 31, 2025, approximately 2.7 million

are held by subsidiaries of Green Thumb, subject to 49.99 % beneficial ownership limitations.

The outstanding warrants are entitled to

pro rata participation in dividends and other distributions to holders of Common Stock.

Additional details regarding the shared services

arrangement, convertible notes, and intellectual property and licensing agreements with Green Thumb and its affiliates are provided in

the sections below.

The following table describes the net

activity with entities identified as related parties to the Company:

December 31, 2025

(In thousands)

Green Thumb Industries

The net activity of $ 6.8 million during the year ended December 31,

2025 consists of $ 9.3 million in salary charges, $ 1.2 million in non-salary chargeback expense performed by Green Thumb on behalf of the

Company, $ 4.1 million interest charges, offset by $ 7.8 million of Licensing Revenue from the Company to Green Thumb.

The $ 1.2 million

of non-royalty chargeback expense represents a net amount and includes a $ 392 thousand inventory purchase from Green Thumb.

During the year

ended December 31, 2025, the Company provided $ 244 thousand of consulting services and cost reimbursements to Double or Nothing, LLC,

a related party.

Related Party Licensing Revenue

2025, and August 27, 2025, the Company obtained intellectual property Brand Rights, as part of the related party transactions with

MC Brands and VCP, respectively.

In connection with the transactions, the Company also licensed the Brand Rights back to a Green

Thumb affiliate under a license arrangement and recognized related party Licensing Revenue.

For further discussion on the

transactions and Licensing Revenue, refer to Note 3 and Note 18 included elsewhere in the notes to the consolidated financial

Convertible Notes

On November 5,

2024, the Company issued the November 2024 Note with an original principal amount of $ 10.0 million to RSLGH, an indirect wholly-owned

subsidiary of Green Thumb, a related party.

On May 22, 2025, the Company issued a May 2025 Note with an original principal amount of $ 27.0

million to RSLGH.

On August 25, 2025, the Company issued an August 2025 Note with an original principal amount of $ 45.0 million to RSLGH.

For further discussion on these notes, refer to Note 10 included elsewhere in the notes to the consolidated financial statements.

Shared Services Agreements

On May 20, 2025,

the Company entered into an Amended and Restated Shared Services Agreement (the “Services Agreement”) with Vision Management

Services, LLC (“VMS”), an indirect wholly-owned subsidiary of Green Thumb, a related party.

Under the Services Agreement,

VMS will provide certain administrative, supply chain, operations management, sales and marketing, and technical services to the Company

and its subsidiaries.

As consideration for those services, the Company pays VMS service fees equal to (i) 125 % of the costs incurred by

VMS in connection with any services provided by non-dedicated personnel and (ii) 100 % of such costs incurred by VMS in connection with

services provided by dedicated personnel and any third-party costs incurred in connection with the services.

The service fees are payable

in cash or, upon mutual agreement of the Company and VMS and to the extent permitted under applicable Nasdaq listing rules, in Common

Stock or in pre-funded warrants, with the value per share of Common Stock or pre-funded warrant being equal to $ 26.68 , the most recent

closing price of the Company’s Common Stock on the Nasdaq Capital Market as of the time the Services Agreement was executed.

maximum cost for services provided by non-dedicated personnel during the one-year term of the Services Agreement may not exceed $ 3.0 million

unless the parties otherwise agree in writing.

On March 21, 2025,

we entered into a Shared Services Agreement (the “CFO Services Agreement”) with VMS, pursuant to which Brad Asher provides his services as Chief Financial

As consideration for those services, we pay VMS a monthly fee based on its direct costs in providing such

services, with a maximum of $ 72,552 per month.

The CFO Services Agreement has a term of one year, is terminable by either party on 90

days’ notice for any or no reason, and will automatically renew for successive one year terms unless terminated by either party

at least thirty days prior to the end of the applicable term.

As a result of the services provided under the Services Agreement and the

CFO Services Agreement, we do not have any direct employees other than our Interim Chief Executive Officer.

Note 22 — Segment Reporting

The Company has

determined that it operates as a single operating and reporting segment in accordance with ASC 280, Segment Reporting.

This is due to

the key decisions and allocation of resources happening in a centralized manner based on the review of the Company’s Chief Operating

Decision Maker (“CODM”), Benjamin Kovler, the Company’s Chairman and Interim Chief Executive Officer , of Operating income

from continuing operations of the Company.

This profit measure is presented in the consolidated statements of operations and the disaggregation

of sales from hemp-derived THC products (non-licensing) and Licensing Revenue is presented in Note 18 – Revenue.

There are no significant

expenses associated with the Licensing Revenue and the CODM does not review expense allocations, amortization expense or specific assets

when reviewing Licensing Revenue.

Note 23 — Commitments and Contingencies

Legal Matters

From time to time,

the Company may become involved in material legal proceedings or be subject to claims arising in the ordinary course of our business.

However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time

that may harm our business.

Bud & Mary’s Litigation

On September 15, 2022, the Company provided a notice of default to

Bud & Mary’s Cultivation, Inc.

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

Mary’s was in default of its obligations under the TTK solution between the Company and Bud & Mary (the “Bud & Mary

TTK Agreement”).

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

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

Bud & Mary’s is seeking, among other

relief, monetary damages in connection with alleged unfair or deceptive trade practices, breach of contract and conversion arising from

the Bud & Mary TTK Agreement.

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

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

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

conversion arising from the Bud & Mary TTK Agreement.

While the Company believes the claim is without merit and will continue to vigorously

defend itself against Bud & Mary’s allegations, litigation is inherently unpredictable and there can be no assurance that the

Company will prevail in this matter.

During the third quarter of 2022, the Company deemed it necessary to fully reserve for the outstanding

$ 14.7 million note receivable balance due to the current litigation and the uncertainty of the customer’s ability to repay the balance.

As of December 31, 2024, the allowance related to Bud & Mary’s was reduced to $ 14.4 million, reflecting a recovery of allowance

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

While the Company believes the claim is without merit and will continue to vigorously defend itself

against Bud & Mary’s allegations, litigation is inherently unpredictable and there can be no assurance that the Company will

prevail in this matter.

During the third quarter of 2022, the Company deemed it necessary to fully reserve for the outstanding $ 14.7 million

note receivable balance due to the current litigation and the uncertainty of the customer’s ability to repay the balance.

December 31, 2024, the allowance related to Bud & Mary’s was reduced to $ 14.4 million, reflecting a recovery of allowance for

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

The $ 14.4 million represents

11 unchanged sentences

This matter is still actively ongoing.

The parties are required to report on status to the court on March 21, 2025.

This matter is subject to the Cultivation sale escrow litigation reserve agreement where the Company was required to fund $ 1.5 million

in January 2025 into escrow for the benefit of settling this and other claims.

Construction Corp.

February 22, 2023, Bowdoin Construction Corp.

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

Norfolk County, Massachusetts, naming the Company (the “Bowdoin Complaint”), Bud & Mary’s and certain related

parties as defendants, captioned Bowdoin Construction Corp.

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

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

Bowdoin Construction Corp.

On February 22,

2023, Bowdoin Construction Corp.

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

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

Bowdoin Construction Corp.

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

BMLC2, LLC, case no.

The Bowdoin Complaint relates to a construction contract between Bowdoin and the Company relating

to the property that is the subject of the Bud & Mary’s Complaint, and alleges breach of contract by Bud &

Mary’s and by the Company due to nonpayment of approximately $ 7.0 million due under the contract and related indemnification

claims and mechanics’ liens.

$ 6.3 million is included in accounts payable and $ 700 thousand is included in accrued expenses

and other current liabilities in the consolidated balance sheet.

Two of Bowdoin’s subcontractors, Hannon Electric, Inc.

Electric Supply Center Corp, have filed separate suits against Agrify in the amount of $ 1.498 million and $ 93 thousand,

respectively.

and BMLC2, LLC, case no.

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

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

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

$ 6.3 million is included in accounts

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

Two of Bowdoin’s

subcontractors, Hannon Electric, Inc.

and Electric Supply Center Corp, have filed separate suits against the Company in the amount of

$ 1.498 million and $ 93 thousand, respectively.

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

The Bowdoin suit and the

subcontractor suits have been consolidated.

suit and the subcontractor suits have been consolidated.

The Company has denied liability in all such suits.

Bowdoin and Agrify are attempting to

work cooperatively to settle the subcontractor disputes.

The parties are otherwise in the discovery phase which concludes in June

This matter is subject to the sale of the Cultivation Business escrow litigation reserve agreement where the Company was

required to fund $ 1.5 million in January 2025 into escrow for the benefit of settling this and other claims.

December 2020, the Company entered into a five-year supply agreement with Mack Molding Co.

(“Mack”) pursuant to which Mack

became a key supplier of VFUs.

In February 2021, the Company placed a purchase order with Mack amounting to approximately $ 5.2 million

towards the initial production of VFUs during 2021.

Since February 2021, the Company increased the purchase order with Mack to approximately

$ 26.5 million towards production of VFUs during 2021 and 2022.

The Company believed the supply agreement with Mack would provide the

Company with increased scaling capabilities and the ability to meet the potential future demand of its customers more efficiently.

supply agreement contemplated that, following an introductory period, the Company negotiated a minimum percentage of the VFU requirements

that the Company purchase from Mack each year based on the agreed-upon pricing formula.

The introductory period was not time-based but

rather referred to the production of an initial number of units after which the parties have rights to adjust pricing and negotiate a

certain minimum requirements percentage.

The Company believed this approach would result in both parties making a more informed decision

with respect to the pricing and other terms of the supply agreement with Mack.

On October 11, 2022, the Company received a $ 9.4 million

invoice from Mack for inventory purchased on the Company’s behalf to build VFUs.

As part of the terms of the contract manufacturing

agreement, Mack had the contractual right to bill the Company for any inventory that had aged greater than nine months.

Due to a slowdown

in the demand for the VFUs and the lack of a demand forecast that the Company could provide to the vendor, Mack exercised the right to

invoice the Company for the slow-moving inventory.

As of December 31, 2022, the Company recognized a contingent liability in the amount

of $ 8.4 million, representing an estimate of the amount payable to Mack with respect to the original Mack purchase agreement, and which

was included in accounts payable in the consolidated balance sheet.

On March 2, 2023, Mack filed an arbitration action seeking the amounts

owed to Mack for purchased inventory.

On October 27, 2023, and effective as of October 18, 2023, Mack and the Company entered into a

Modification and Settlement Agreement (the “Modification Agreement”) with respect to the dispute rather than engaging in

litigation through the courts.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 29, 2024, the Company met its contractual obligations under the terms of the Modification Agreement.

In settlement of the dispute,

the Company made cash payments of $ 500,000 and $ 250,000 to Mack and issued to Mack a warrant to purchase 750,000 shares of the Company’s

Common Stock.

In the first quarter of 2024, management derecognized the previously recognized contingent liability, resulting in a credit

of approximately $ 5.9 million, recorded within gain on settlement of contingent liabilities, on the consolidated statement of operations.

August 30, 2024, the Company and Mack entered into an amendment to the Modification Agreement, which modified the payment terms and VFU

purchase requirements under the Modification Agreement.

Pursuant to the amendment, the Company agreed to make payments of $ 1.0 million

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

has not made the October Payment as of the date hereof, however the Company is working with Mack to extend the date of the October Payment.

The Company also agreed to purchase at least 25 VFUs prior to October 31, 2024 and a further 25 VFUs between November 1, 2024 and December

Upon payment in accordance with the terms of the amendment, the Company will be entitled to certain residual inventory in the

possession of Mack, and the warrant issued to Mack will be terminated.

This matter was settled on December 16, 2024 as a precursor to

the Cultivation sale agreement and the corresponding warrants were terminated.

Electronics Litigation

The Company was named as

a defendant in a complaint filed by TRC Electronics, Inc.

(“TRC”) on April 13, 2023 in the United States District Court for

the Eastern District of Pennsylvania.

In the complaint, TRC asserts two causes of action against the Company:

(1) breach of contract,

and (2) promissory estoppel.

TRC’s claims are based on allegations that the Company failed to make payments due under three purchase

orders for commercial electronics parts.

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

post-judgment interest.

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

December 2021, the Company entered into a standard form of agreement between Owner and Contractor whereby Valiant Group LLC (“Valiant”)

is the general contractor for tenant improvements on certain real property located in Bellevue, Washington (the “Project”).

This matter is subject to

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

for the benefit of settling this and other claims.

McCutchan, Inc.

In December 2021,

the Company entered into a standard form of agreement between owner and contractor whereby Valiant Group LLC (“Valiant”) is

the general contractor for tenant improvements on certain real property located in Bellevue, Washington (the “Project”).

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

19 unchanged sentences

the Company and all other named defendants.

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

on November 7, 2024.

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

where the Company was required to fund $ 1.5 million in January 2025 into escrow for the benefit of settling this and other claims.

Company filed two separate complaints against Valiant for overbilling, misrepresentation, and breach of contract for the Treehouse project

in Nevada and Hannah Project in Washington.

Agrify obtained judgments against Valiant in Nevada for $ 4.5 million for the Treehouse project

and $ 10.0 million in Washington for the Hannah Project.

Agrify has domesticated those judgments in Massachusetts and is seeking to enforce

them against Valiant, its successor in interest, Intrepid Investments LLC, and the principals of Valiant.

Agrify filed an action for

supplementary proceedings to collect on the judgments.

The action is in the early stages and there is no guarantee that the court would

award the full amount and no guarantee that Agrify would be able to successfully collect the full amount.

matter is subject to the Cultivation sale escrow litigation reserve agreement where the Company was required to fund $ 1.5 million in

January 2025 into escrow for the benefit of settling this and other claims.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 2023, the Company settled a legal dispute with a specific customer that resulted in the recognition of a gain of approximately

$ 0.9 million, of which $ 0.3 million was paid in October 2023, with the remaining approximate $ 0.6 million to be paid in equal monthly

installments, beginning in January, 2024.

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

for the year ended December 31, 2023, with the approximate $ 0.9 million receivable balance recognized as part of prepaid expenses and

other current assets, per the consolidated balance sheet, as of December 31, 2023.

The settlement also resulted in the return of equipment

to the Company in October 2023.

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

The Company is not confident that all legal proceedings and collection efforts will yield in positive results or return of equipment.

On April 25, 2024, Medical

Investor Holdings, LLC dba Vertical Companies (“MIH”) filed a complaint against Agrify demanding $ 0.3 million.

MIH purchased

an XMU hydrocarbon extraction system from Precision in October 2021.

MIH chose not to include installation and training in the original

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

was dismissed without prejudice by opposing counsel on August 1, 2024.

The Company is also a defendant

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

The timing and amount of any settlements, including

potential payments made or received, is uncertain.

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

loss exposure with respect to these cases is within the range of approximately $ 150 thousand to $ 300 thousand.

Given the Company has determined

these losses are probable of occurring and reasonably estimable, an accrual was recorded in the amount of $ 150 thousand within general

and administrative expenses within the consolidated statement of operations.

On February 9, 2022, a former sales Vice President of the Company filed

suit against the Company claiming he is owed back wages, commission and is entitled to equity in the company, under theories of liability

under Massachusetts labor laws including retaliation, breach of contract, breach of covenant of good faith and fair dealing, fraudulent

inducement, tortious interference and unjust enrichment.

The Company filed its answer to the initial complaint in January 2023.

believes this is a meritless claim and has responded to various discovery requests.

Discovery is ongoing and a final pretrial conference

is presently scheduled for April 10, 2025.

Modification Agreement with Mack referenced above resulted in the Company entering a purchase commitment with Mack pursuant to which

the Company was contractually obligated to purchase a minimum of 25 VFUs per quarter for each quarter during 2024 and a minimum of 50

VFUs per quarter for the six quarters beginning with the first quarter of 2025, at a per VFU price of $ 14,000 .

The Company made payment

and took collection of 25 VFUs in the second quarter of 2024.

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

August 30, 2024, the Company entered into an amendment to the Modification Agreement with Mack, which modified the payment terms and

VFU purchase requirements under the Modification Agreement.

Pursuant to the amendment, the Company agreed to make the October Payment

of $ 1.0 million and an additional $ 1.0 million prior to December 31, 2024.

The Company has not made the October Payment as of the date

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

The Company also agreed to purchase at least

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

This commitment was satisfied

on December 16, 2024 as a precursor to the Purchase Agreement with CP.

Commitments and Contingencies

Company is potentially subject to claims related to various non-income taxes (such as sales, value-added, consumption, and similar taxes)

from various tax authorities, including in jurisdictions in which the Company already collects and remits such taxes.

If the relevant

taxing authorities successfully pursue these claims, the Company could be subject to additional tax liabilities.

Refer to Note 10 – Debt,

included elsewhere in the notes to the consolidated financial statements for details of the Company’s future minimum debt payments.

Refer to Note 11 – Leases, included elsewhere in the notes to the consolidated financial statements for details of the Company’s

future minimum lease payments under operating and financing lease liabilities.

Refer to Note 15 – Income Taxes, included elsewhere

in the notes to the consolidated financial statements for information regarding income tax contingencies.

AGRIFY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19 — Related Parties

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

business opportunities that become available.

following table describes the net purchasing (sales) activity with entities identified as related parties to the Company:

Ended December 31,

Green Thumb Industries

following table summarizes net related party payable as of December 31, 2024 and 2023:

Ended December 31,

Green Thumb Industries

July 12, 2023, the Company issued an unsecured promissory note in favor of GIC, an entity that is owned and managed by the Company’s

former Chairman and Chief Executive Officer.

October 27, 2023, CP, an entity affiliated with and controlled by former Company’s Chairman and Chief Executive Officer, purchased

the Exchange Note and the Convertible Note.

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

Refer to Note 10 - Debt for

further disclosure related to this Related Party Note including related transactions occurring during the years ended December 31, 2024

Thumb Convertible Note

November 5, 2024, the Company issued the Green Thumb Note to Investor.

For further discussion on the note, refer to Note 10.

In addition to the Note, the

related party shared services agreement charges are included in the $ 10,487 balance.

20 — Subsequent Events

Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the consolidated

financial statements were issued.

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

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

Labor Law Dispute

On February 9,

2022, a former sales Vice President of the Company filed suit against the Company claiming he is owed back wages, commission and is entitled

to equity in the company, under theories of liability under Massachusetts labor laws including retaliation, breach of contract, breach

of covenant of good faith and fair dealing, fraudulent inducement, tortious interference and unjust enrichment.

The Company filed its

answer to the initial complaint in January 2023.

In November 2025, the parties reached a settlement prior to trial resolving the dispute

in the amount of $ 887 thousand, recorded within general and administrative expense within the consolidated statement of operations for

the year ended December 31, 2025.

Assets Subject to Contingent Repurchase Rights

Under the MC Brands and VCP

purchase agreements, Green Thumb or its affiliates may repurchase some or all of the MC Brands and/or VCP assets within five years of

the respective transaction dates upon the occurrence of specified eligibility conditions, all of which are outside the control of both

the Company and Green Thumb.

The 2026 Appropriations Act

includes an amendment to the definition of hemp under the 2018 Farm Bill that, if implemented as enacted, could materially restrict the

commercialization of certain hemp-derived THC products beginning 365 days after enactment.

If the amendment becomes effective in its current

form and is not repealed, replaced, or otherwise modified prior to its effective date, one of the eligibility conditions under the MC

Brands and VCP purchase agreements that could permit the repurchase right to become exercisable would be satisfied.

However, the exercise

of the repurchase option would remain solely within the discretion of Green Thumb or its affiliates.

The full eligibility conditions are

set forth in the MC Brands and VCP purchase agreements filed on May 22, 2025 and August 27, 2025, respectively.

Other Commitments and Contingencies

The Company is

potentially subject to claims related to various non-income taxes (such as sales, value-added, consumption, and similar taxes) from various

tax authorities, including in jurisdictions in which the Company already collects and remits such taxes.

If the relevant taxing authorities

successfully pursue these claims, the Company could be subject to additional tax liabilities.

Note 24 — Subsequent Events

The Company evaluated subsequent events and transactions that occurred

after the balance sheet date up to the date that the audited condensed consolidated financial statements were issued and concluded that

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

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

What changed 10-K

Item 9A. Controls and Procedures