The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included in this Annual Report on Form 10-K.

Overview



We were founded on January 19, 2018 as AppHarvest Operations, Inc. (f/k/a
AppHarvest, Inc. "Legacy AppHarvest"), a Delaware public benefit corporation.
Together with our subsidiaries, we are a sustainable food company in Appalachia
developing and operating some of the world's largest high-tech indoor farms with
robotics and artificial intelligence to build a
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reliable, climate-resilient food system. Our farms are designed to grow produce
using sunshine, rainwater and up to 90% less water than open-field growing, all
while producing yields up to 30 times that of traditional agriculture and
preventing pollution from agricultural runoff. We combine conventional
agricultural techniques with cutting-edge technology, including artificial
intelligence and robotics, to improve access to nutritious food, while farming
more sustainably, building a domestic food supply, and increasing investment in
Appalachia.

Prior to October 2020, our operations were limited to the "start-up" concerns of
organizing and staffing, business planning, raising capital, and acquiring and
developing properties for CEA. In October 2020, we partially opened AppHarvest
Morehead. We harvested our first crop of beefsteak tomatoes and tomatoes on the
vine in January 2021 and March 2021, respectively. In May 2021, we opened
production of the full 60 acres at AppHarvest Morehead, and in November 2022
began harvesting snacking tomatoes.

In October 2022, we began shipping salad greens from AppHarvest Berea and
harvesting the first strawberries from AppHarvest Somerset. AppHarvest Somerset
will primarily grow strawberries, and is expected to seasonally grow cucumbers.
Half of AppHarvest Richmond was planted in December 2022 and began commercial
shipments in January 2023.

AppHarvest Morehead North, which is adjacent to AppHarvest Morehead, commenced construction in June 2021 and is intended to grow salad greens. We have indefinitely paused the development of the 10-acre Morehead salad greens facility, with resumption of construction contingent upon financing.



The high-tech greenhouse agriculture business is extremely capital-intensive and
we expect to expend significant resources to complete the build-out of
facilities under construction, to build out and start up our new CEA facilities
and continue harvesting existing crops and plant and harvest new crops. These
expenditures are expected to include working capital, costs of acquiring and
building out new facilities, costs associated with planting and harvesting, such
as the purchase of seeds and growing supplies, and the cost of attracting,
developing and retaining a skilled labor force, including local labor. In
addition, other unanticipated costs may arise due to the unique nature of these
CEA facilities and increased production in our new operating facilities at full
capacity.

Going Concern

We have incurred net losses of $176.6 million and $166.2 million during the
years ended December 31, 2022 and December 31, 2021, respectively. We believe we
will continue to incur net losses for the foreseeable future as we continue to
invest in world-class technology to increase production and commercial sales of
our products. We generated negative cash flows from operations of $86.1 million
and $103.9 million during the years ended December 31, 2022 and December 31,
2021, respectively. There is no guarantee when, if ever, we will become
profitable. In addition, debt service requirements and our plans to continue to
invest in the build-out and start-up of our new and future CEA facilities,
including AppHarvest Berea, Richmond tomato facility and Somerset facility, will
have an adverse impact on our liquidity.

As of December 31, 2022, we had $54.3 million of cash on hand, and an
accumulated deficit of $364.0 million. We continue to take actions to maintain
appropriate levels of liquidity. In October 2022, we entered into a $30.0
million note and loan agreement with Mastronardi Produce-USA, Inc. ("Mastronardi
USA") and received $15.0 million upon execution followed by another $15 million
in November 2022. In November 2022, we initiated a third restructuring plan to
further reduce operating costs and our losses. In December 2022, we repaid the
$30.0 million note and accumulated interest after entering into the Berea
Sale-Leaseback Transaction, which provided us with net proceeds of $57.5 million
(of which $22.5 million was required to be set aside for construction costs for
AppHarvest Richmond). In addition, on February 14, 2023, the Public Offering
closed, and we issued and sold 40,000,000 shares of Common Stock, and on
February 24, 2023, the Overallotment Option closed, and we issued and sold
6,000,000 shares of Common Stock. The net proceeds from the Public Offering, and
Overallotment Option, after deducting the underwriting discounts and commissions
and estimated offering expenses payable by us, were approximately $42.9 million.
Despite these actions, we believe there is substantial doubt about our ability
to continue as a going concern and absent additional sources of financing, we
expect that our existing cash and cash equivalents will only allow us to
continue our planned operations into the fourth quarter of 2023. Investors
should read the section below titled Liquidity and Capital Resources for
additional information regarding our financial condition and ability to continue
operations.

Basis of Presentation

Currently, we conduct business through one operating segment. We began generating sales during the first quarter of 2021 and conduct our operations solely in the United States.


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For more information about our basis of presentation, refer to Note 1 - Description of Business to our consolidated financial statements included elsewhere in this Annual Report.

ESG

AppHarvest is both a public benefit corporation ("PBC") and a Certified B
Corporation because we believe in collective benefit over individual gain. We
believe growing healthy fruits and vegetables are good business, and new
technologies can deliver cleaner produce with safer growing methods, which we
believe benefits all stakeholders. We are all in this together, for good.

PBCs are for-profit corporations and, under Delaware law, our directors have a
duty to balance the financial interests of stockholders, the best interests of
those materially affected by our conduct (including our stockholders, employees,
communities, customers and suppliers), and the specific public benefits
identified in our second amended and restated certificate of incorporation (the
"amended and restated certificate of incorporation") when making decisions. Our
amended and restated certificate of incorporation includes three specific public
benefit goals:

•Goal 1 Drive positive environmental change in agriculture
•  Goal 2 Empower individuals in Appalachia
•  Goal 3 Improve the lives of our employees and the communities in which we
operate

In early 2021, we launched our first materiality assessment with Business for Social Responsibility ("BSR") to further assess which ESG issues are most important to AppHarvest's stakeholders and our business success. Our stakeholders include farmers, employees, regional economic development organizations, retailers, sustainability experts at BSR, suppliers, local communities, and our internal senior management and Board members.



While our PBC charter-specific goals broadly relate to our corporate purpose and
inform all other ESG efforts, our materiality assessment (which was guided by
Sustainability Accounting Standards Board standards, now a resource of the
International Financial Reporting Standards Foundation (the "IFRS Foundation"),
the United Nation's Sustainable Development Goals and the B Impact Assessment
from B Lab) and B Corporation assessment will inform our specific ESG
strategies. Our ESG key performance indicators ("KPIs") will align with our
material issues to measure our progress. Our first full year of operations
ending on December 31, 2021 served as our baseline year for reporting ESG KPIs.

More information on our key ESG programs, goals and commitments, and key metrics
can be found in our 2021 sustainability report, which is available on our
website https://www.appharvest.com/. Website references throughout this document
are provided for convenience only, and the content on the referenced websites is
not incorporated by reference into this Annual Report.

While we believe all of our ESG goals align with our long-term growth strategy
and financial and operational priorities, they are aspirational and may change,
and there is no guarantee or promise that they will be met or that they will not
hinder financial or operational performance.

Recent Developments

Nasdaq Notice



On January 11, 2023, we received a letter from Nasdaq, notifying us that, for
the previous 30 consecutive business day periods prior to the date of the
letter, the closing bid price for our Common Stock was below $1.00. In
accordance with Nasdaq Listing Rule 5810(c)(3)(A) we were provided an initial
period of 180 calendar days, or until July 10, 2023, to regain compliance with
Nasdaq's bid price requirement. If, at any time before July 10, 2023, the bid
price for our Common Stock closed at $1.00 or more for a minimum of 10
consecutive business days, we would regain compliance with the bid price
requirement, unless Nasdaq staff exercised its discretion to extend this 10-day
period pursuant to Nasdaq rules.

On January 26, 2023, as a result of our Common Stock trading over $1.00 for 10
consecutive business days, we received a notice from the Nasdaq Listing
Qualifications Office indicating that we regained compliance with the minimum
bid price requirement under Nasdaq Listing Rule 5450(a)(1).

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Public Offering



On February 9, 2023, we entered into the Underwriting Agreement with Cowen and
Company, LLC, as representative of the several underwriters named therein,
relating to the Public Offering of 40,000,000 shares of our Common Stock, at a
price to the public of $1.00 per share. On February 14, 2023, the Public
Offering closed and we issued and sold 40,000,000 shares of Common Stock to the
underwriters.

In addition, pursuant to the Underwriting Agreement, we granted the underwriters
the Overallotment Option to purchase up to 6,000,000 additional shares of Common
Stock. The underwriter exercised the Overallotment Option on February 22, 2023,
to purchase 6,000,000 shares of Common Stock and on February 24, 2023, we issued
the 6,000,000 shares under the Overallotment Option. The net proceeds from the
Public Offering, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, were approximately $42.9 million,
including the $6.0 million from the Overallotment Option.

Factors Affecting Our Financial Condition and Results of Operations

We have expended, and expect to continue to expend, substantial resources as we:

•continue the build-out and start-up of AppHarvest Richmond and invest in additional CEA facilities in the future;

•finalize construction of Berea salad greens facility and Somerset facility;



•continue our third growing season at AppHarvest Morehead, which began during
the third quarter of 2022, and plant and harvest new crops at AppHarvest Berea,
AppHarvest Richmond, and AppHarvest Somerset, including future growing seasons;

•fulfill our obligations under the Purchase and Marketing Agreement with Mastronardi;

•identify and invest in future growth opportunities, including new or expanded facilities and new product lines;

•invest in sales and marketing efforts to increase brand awareness, engage customers and drive sales of our products;

•invest in product innovation and development; and



•incur additional general and administrative expenses, including increased
finance, legal and accounting expenses, associated with being a public company
and expanding operations.

Business Combination and Public Company Costs



On January 29, 2021, we consummated the Business Combination. Upon consummation
of the Business Combination and the closing of the concurrent private placement
of the 37,500 shares of our Common Stock (the "PIPE"), the most significant
change in our reported financial position and results of operations was an
increase in cash and cash equivalents of approximately $435.2 million, including
$375.0 million in gross proceeds from the PIPE.

As a consequence of the Business Combination, we became the successor to an
SEC-registered and Nasdaq-listed company, which requires us to hire additional
personnel and implement procedures and processes to address public company
regulatory requirements and customary practices. We expect to incur additional
annual expenses as a public company for, among other things, directors' and
officers' liability insurance, director fees and additional internal and
external accounting, legal and administrative resources, including increased
audit and legal fees.
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Key Components of Statement of Operations

Non-GAAP Financial Measures



To supplement our consolidated financial statements, which are prepared and
presented in accordance with United States GAAP, we use certain non-GAAP
measures, such as Adjusted EBITDA and Adjusted gross loss, to understand and
evaluate our core operating performance. We define and calculate Adjusted EBITDA
as net loss before the impact of interest income or expense, income tax expense
or benefit, depreciation and amortization, adjusted to exclude: stock-based
compensation expense, Business Combination transaction-related costs,
restructuring and impairment costs, remeasurement of warrant liabilities,
start-up costs for new CEA facilities, Root AI acquisition related costs and
certain other non-core items. We define and calculate Adjusted gross
profit/(loss) as gross profit/(loss) adjusted to exclude the impact of
depreciation and amortization and stock-based compensation expense related to
cost of goods sold. We believe these non-GAAP measures of financial results
provide useful information to management and investors regarding certain
financial and business trends relating to our financial condition and results of
operations. Our management uses these non-GAAP measures for trend analyses and
for budgeting and planning purposes.

We believe that the use of these non-GAAP financial measures provide additional
tools for investors to use in evaluating operating results and trends. Other
similar companies may present different non-GAAP measures or calculate similar
non-GAAP measures differently. Management does not consider these non-GAAP
measures in isolation or as an alternative to financial measures determined in
accordance with GAAP. The principal limitation of these non-GAAP financial
measures is that they exclude significant expenses that are required to be
presented in our GAAP financial statements. Because of this limitation, you
should consider Adjusted EBITDA and Adjusted gross loss alongside other
financial performance measures, including net loss, gross loss, and our other
financial results presented in accordance with GAAP.

Net sales



Substantially all of our net sales in 2022 and 2021 were generated from the sale
of tomatoes, and to a lesser extent salad greens and strawberries, under an
agreement with one customer, Mastronardi. Net sales include revenues earned from
the sale of our products, less commissions, shipping, distribution and other
costs incurred as defined in our customer agreements.

Cost of Goods Sold

Cost of goods sold (COGS) consists of expenses incurred related to the production of inventory sold to customers.

Selling, General and Administrative Expenses



Selling, general and administrative expenses ("SG&A") for the year ended
December 31, 2022 and December 31, 2021 consisted of payroll and payroll related
expenses, stock-based compensation, professional services and legal fees,
licenses and registration fees, insurance, depreciation, rent and various other
personnel and office related costs. SG&A also includes start-up expenses related
to pre-commencement commercial activities for tomatoes on the vine at AppHarvest
Morehead in 2021 and new CEA facilities which were under construction and
ramping up operations in 2022.

Goodwill and Intangible Impairment

There was no impairment related to goodwill or other intangibles during the year ended December 31, 2022.



During the year ended December 31, 2021, we recorded goodwill impairment expense
and other intangible impairment expense of $59.9 million, for a non-cash charge
of $59.7 million, net of tax of $0.2 million, to fully impair the carrying value
of goodwill and definite lived intangible assets included in our acquisition of
Root AI. The impairment reflected current market valuations and strategic
investment requirements as we continue to develop commercial technologies
through AppHarvest Technology, Inc.

Fixed Asset Impairment

During the year ended December 31, 2022, we recorded a fixed asset impairment charge of $50.1 million to reduce the book value of our CEA facilities, and machinery and equipment therein, to an estimated fair value.


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Interest Expense



Interest expense for the year ended December 31, 2022 primarily relates to
long-term debt to help finance the construction of our CEA facilities and has
been capitalized as a component of the cost of those facilities. Interest
expense from related parties for the year ended December 31, 2021 primarily
relates to the finance lease and financing obligation for AppHarvest Morehead
which were settled upon purchase of Morehead Farm on March 1, 2021 and the
convertible note that was converted to Common Stock upon completion of the
Business Combination on January 29, 2021. Note 10 - Debt to our consolidated
financial statements included elsewhere in this Annual Report.

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021



The following table sets forth our historical operating results for the periods
indicated:

                                                     Year Ended December 31,
                                                      2022              2021         $ Change
(Dollars in thousands)
Net sales                                        $      14,592      $    9,050      $   5,542
Cost of goods sold                                      56,995          41,938         15,057
Gross loss                                             (42,403)        (32,888)        (9,515)
Operating expenses:
Selling, general and administrative expenses            81,266         107,245        (25,979)
Goodwill and other intangible asset impairment               -          59,901        (59,901)
Fixed asset impairment                                  50,101               -         50,101
Total operating expenses:                              131,367         167,146        (35,779)
Loss from operations                                  (173,770)       (200,034)        26,264
Other income (expense):

Interest expense from related parties                        -            (658)           658

Change in fair value of Private Warrants                   111          35,047        (34,936)
Other                                                     (480)            448           (928)
Loss before income taxes                              (174,139)       (165,197)        (8,942)
Income tax expense                                      (2,507)           (989)        (1,518)
Net loss                                         $    (176,646)     $ (166,186)     $ (10,460)


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Reconciliation of GAAP to Non-GAAP



The following table presents a reconciliation of net loss, the most directly
comparable financial measure calculated and presented in accordance with GAAP,
to Adjusted EBITDA:

                                                                  Year Ended December 31,
                                                                  2022                 2021              $ Change
(Dollars in thousands)
Net loss                                                    $    (176,646)         $ (166,186)         $ (10,460)
Interest expense from related parties                                   -                 658               (658)

Interest income                                                      (769)               (277)              (492)
Income tax expense                                                  2,507                 989              1,518
Depreciation and amortization expense                              16,354              10,794              5,560
EBITDA                                                           (158,554)           (154,022)            (4,532)
Fixed asset impairment                                             50,101                   -             50,101
Goodwill and other intangible asset impairment                          -              59,901            (59,901)
Change in fair value of Private Warrants                             (111)            (35,047)            34,936
Stock-based compensation expense                                   26,918              40,910            (13,992)
Issuance of common stock for commitment shares                          -               1,006             (1,006)

Transaction success bonus on completion of Business Combination

                                                             -               1,500             (1,500)
Start-up costs for new CEA facilities(1)                            2,873                   -              2,873
Restructuring and Root AI fixed asset impairment costs              5,529                 946              4,583
Business Combination transaction costs                                  -              13,883            (13,883)
Berea sale leaseback transaction costs                              1,225                   -              1,225
Root AI Acquisition costs                                               -               1,032             (1,032)
Adjusted EBITDA                                             $     (72,019)         $  (69,891)         $  (2,128)


The following table presents a reconciliation of gross loss, the most directly
comparable financial measure calculated and presented in accordance with GAAP,
to Adjusted gross loss:

                                          Year Ended December 31,
                                            2022                 2021        $ Change
(Dollars in thousands)
Net sales                          $      14,592              $  9,050      $  5,542
Cost of goods sold                        56,995                41,938        15,057
Gross loss                               (42,403)              (32,888)       (9,515)
Depreciation and amortization             12,072                 8,310         3,763
Stock-based compensation expense             666                 1,880        (1,214)
Adjusted gross loss                      (29,665)              (22,698)       (6,967)



The following sections discuss and analyze the changes in the significant line
items in our Consolidated Statements of Operations and Comprehensive Loss for
the year ended December 31, 2022 compared to the year ended December 31, 2021.

Net Sales



Net sales for the year ended December 31, 2022 were $14.6 million compared to
$9.1 million for the prior year. The increase of $5.5 million, or 61%, was due
to higher tomato sales prices, and the introduction of strawberries and salad
greens to our portfolio of Products during the year ended December 31, 2022.
These increases were offset by mitigation efforts related to the plant health
issue at AppHarvest Morehead, which led us to remove some extra rows in the
affected area out of an abundance of caution and re-plant with new seedlings,
and active pests at AppHarvest Somerset which impacted approximately half of our
strawberry plants. We replanted approximately half of the effected portion with
strawberries, and will be using the remaining impacted section to test cucumber
packaging equipment and harvesting capabilities ahead of the cucumber season.
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We expect the strawberry pest issue to create headwinds for the remainder of the
strawberry season as we navigate our first season at AppHarvest Somerset. In
comparison, net sales for the year December 31, 2021 were adversely impacted by
labor and productivity investments associated with the training and development
of the new workforce at AppHarvest Morehead and low market prices for tomatoes
through the end of the first harvest, which rebounded in the fourth quarter.

Cost of Goods Sold



COGS for the year ended December 31, 2022 was $57.0 million compared to $41.9
million for the prior year. The increase of $15.1 million, or 36%, was due to
increased sales with Morehead being fully operational during the year ended
December 31, 2022, as compared to the phased launch during the year ended
December 31, 2021, as well as increased overhead and material costs associated
with starting operations at AppHarvest Berea and AppHarvest Somerset.

Selling, General, and Administrative Expenses



SG&A for the year ended December 31, 2022 was $81.3 million compared to $107.2
million for the prior year. The decrease of $26.0 million, or 24%, was primarily
due to reduction in stock compensation expense of $14.0 million for the year
ended December 31, 2022, lower salaries and wages due to restructuring
initiatives, and decreased professional fees, partially offset by new facility
start up costs. SG&A for the year ended December 31, 2022 also includes $1.1
million of fixed asset impairment costs associated with the restructuring of
Root AI.

Goodwill and Intangible Asset Impairment



During the year ended December 31, 2021, we recorded a non-cash charge of
$59.7 million, net of tax of $0.2 million, to fully impair the carrying value of
goodwill and definite-lived intangible assets included in the acquisition of
Root AI. We did not incur any impairment related to goodwill or intangible
assets in the year ended December 31, 2022.

Fixed Asset Impairment



During the year ended December 31, 2022, we recorded a non-cash fixed asset
impairment charge of $50.1 million to reduce the carrying value of certain
long-lived assets to an estimated fair value. There were no fixed asset
impairment charges recognized during the year ended December 31, 2021. See Note
2 - Summary of Significant Accounting Policies to our consolidated financial
statements included elsewhere in this Annual Report, as well as Critical
Accounting Estimates within this section, for more information regarding this
impairment charge.

Interest Expense

Interest expense for the year ended December 31, 2022 and December 31, 2021 was
incurred on long-term debt used to help finance the construction of our CEA
facilities and has been capitalized as a component of the cost of those
facilities. Interest expense from related parties for the year-ended
December 31, 2021 primarily relates to the finance lease and financing
obligation for AppHarvest Morehead which were settled upon purchase of Morehead
Farm on March 1, 2021, and the convertible note that was converted to Common
Stock upon completion of the Business Combination on January 29, 2021.

Other

Other expense for the years ending December 31, 2022, and 2021, was primarily attributable to foreign exchange currency (losses)/gains.

Income Taxes



Our effective income tax rate was (1.4)% for the year ended December 31, 2022
compared to (0.6)% for the prior year. The variance from the U.S. federal
statutory rate of 21% for the year ended December 31, 2022 was primarily
attributable to a change in our valuation allowance related to our net operating
loss carryforwards, non-deductible goodwill and intangible asset impairment
expense and stock-based compensation expense, offset by the non-taxable change
in the private warrant valuation.

Liquidity and Capital Resources

Liquidity and Going Concern


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At December 31, 2022, we had an accumulated deficit of $364.0 million. We have
incurred losses and generated negative cash flows from operations since our
inception in 2018. We expect to continue to incur losses and negative cash flows
from operating expenses for the foreseeable future as we continue construction,
build-out and start-up of our existing CEA facilities and ramp up operations and
production at our new CEA facilities. In addition, our material cash
requirements, as described below, will have an adverse impact on our liquidity.

Cash and cash equivalents totaled $54.3 million and $150.8 million as of
December 31, 2022 and 2021, respectively. We expect that we will need additional
capital to continue to fund our operations. Currently, our primary sources of
liquidity are cash flows generated from the proceeds from debt and equity
financings, our Berea Sale-Leaseback Transaction, our common stock purchase
agreement with B. Riley Principal Capital, our at-the-market offering program
(the "ATM") with Cowen, the Public Offering and revenues from the sale of our
tomatoes, salad greens and strawberries. Based on our current operating plan, we
plan to rely on the remaining availability of $97.6 million under our ATM
pursuant to which we may offer and sell, from time to time, shares of Common
Stock, and our ability to sell an additional approximately 16.4 million shares
of our Common Stock to B. Riley Principal Capital, pursuant and subject to the
limitations of the Purchase Agreement. However, our ability to use these sources
of capital is dependent on a number of factors, including the prevailing market
price of and the volume of trading in our Common Stock. The current volatility
in the equity markets, coupled with the trading price of our Common Stock,
create additional challenges to raising a sufficient amount of capital through
equity financing in the near term.

We will need to raise additional funds in order to operate our business, meet
obligations as they become due and continue the ongoing construction, build-out
and start-up of our CEA facilities. We are pursuing additional financing
alternatives, which include third-party equity or debt financing, or other
sources, such as strategic relationships and other transactions with third
parties, that may or may not include business combination transactions. However,
financing may not be available to us in the necessary time frame, in amounts
that we require, on terms that are acceptable to us, or at all. If we are unable
to raise the necessary funds when needed, it may materially and adversely impact
our ability to execute on our operating plans, and the construction, build-out
and start-up of our future CEA facilities could be delayed, scaled back, or
abandoned. These factors raise substantial doubt about our ability to continue
as a going concern. In the absence of additional sources of financing, we expect
that our existing cash and cash equivalents will only allow us to continue our
planned operations into the fourth quarter of 2023.

Material Cash Requirements



Cash requirements for the next twelve months are expected to consist primarily
of our current payroll, working capital
requirements, planned capital expenditures, and debt service requirements.
During the year ended December 31, 2022, we spent $156.8 million on capital
expenditures. Although we expect to incur approximately $60 million to $65
million more in capital expenditures during the next twelve months, dependent on
the continued availability of financing on acceptable terms, we have already
contributed approximately $9.8 million of the capital expenditure requirements
into a reserve account from the proceeds of the Sale-Leaseback Transaction. This
$9.8 million is reflected in other assets on our consolidated balance sheet at
December 31, 2022. As a result, the net impact to our liquidity for the
remaining capital expenditures is expected to be approximately $50 million to
$55 million over the next twelve months. The increase in our projected capital
expenditures is due to construction delays and supply chain disruptions. This is
in addition to enhancements in scope for the construction of our Berea salad
greens facility, Somerset facility and Richmond facility related to automation
and configuration of equipment, food safety, and office space which have
expanded in size from the original scope. For risks related to delays in
construction of our CEA facilities, please refer to Part II, Item 1A. Risk
Factors, "Any damage to or problems with our CEA facilities or delays in land
acquisition or construction, could severely impact our operations and financial
condition," and "We build CEA facilities, which may be subject to unexpected
costs and delays due to reliance on third parties for construction, material
delivery, supply-chains and fluctuating material prices."

In the long-term, our cash requirements are expected to be associated with planting and harvesting our crops, acquiring and building out new facilities, investment and development in CEA technology, attracting, developing and retaining a skilled labor force, and working capital.



To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interests of our common stockholders
will be diluted, and the terms of those securities may include liquidation or
other preferences that adversely affect the rights of our common stockholders.
Debt financing and preferred equity financing, if available, may involve
agreements that include covenants that will further limit or restrict our
ability to take specific actions, such as incurring additional debt or making
capital expenditures. If we raise additional funds through collaborations with
third parties, we may be required to relinquish valuable rights to our
technologies, or future revenue streams.

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Our failure to raise capital as and when needed could have significant negative
consequences for our business, financial
condition and results of consolidated operations. Our future capital
requirements and the adequacy of available funds will
depend on many factors, including those set forth in the section titled "Risk
Factors".

For a discussion of our future funding requirements, please refer to Part II,
Item 1A. Risk Factors, "There is substantial
doubt about our ability to continue as a going concern and we will require
significant additional financing to achieve our
goals, and a failure to obtain this necessary capital when needed on acceptable
terms, or at all, may force us to delay, limit,
reduce or terminate our operations and future growth."

Public Offering



On February 9, 2023, we entered into the Underwriting Agreement with Cowen and
Company, LLC, as representative of the several underwriters named therein,
relating to the Public Offering of 40,000,000 shares of our Common Stock, at a
price to the public of $1.00 per share. On February 14, 2023, the Public
Offering closed and we issued and sold 40,000,000 shares of Common Stock to the
underwriters.

In addition, pursuant to the Underwriting Agreement, we granted the underwriters
the Overallotment Option to purchase up to 6,000,000 additional shares of Common
Stock. The underwriters exercised the Overallotment Option on February 22, 2023,
to purchase 6,000,000 shares of Common Stock and on February 24, 2023, we issued
the 6,000,000 shares under the Overallotment Option. The net proceeds from the
Public Offering, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, were approximately $42.9 million,
including the $6.0 million from the Overallotment Option.

At-the-Market Offering



We filed a shelf registration on Form S-3 (the "Registration Statement").
Pursuant to the Registration Statement, we may
offer and sell securities having an aggregate public offering price of up to
$300 million. In connection with the filing of the
Registration Statement, we also entered into the ATM Agreement with Cowen
pursuant to which we may offer and sell, from
time to time, through Cowen, shares of our Common Stock having an aggregate
offering price of up to $100 million under the
ATM, which is included in the $300 million of securities that may be offered
pursuant to the Registration Statement. We are not
obligated to sell any shares under the ATM Agreement. Pursuant to the ATM
Agreement, we will pay Cowen a commission of
up to 3% of the aggregate proceeds from the sale of shares and reimburse certain
legal fees. As of December 31, 2022, we have
sold $2.4 million worth of Common Stock under the ATM for net proceeds of $2.3
million, leaving $97.6 million available to
be sold.

Purchase Agreement



We have entered into the Purchase Agreement with B. Riley Principal Capital,
pursuant to which we have the right to sell
to B. Riley Principal Capital up to the lesser of (i) $100 million of newly
issued shares of our Common Stock and (ii) the exchange cap, which is 20.1
million shares of our Common Stock (subject to certain limitations and
conditions), from time to
time during the 24-month term of the Purchase Agreement. Sales, and the timing
of any sales, are solely at our option, and we
are under no obligation to sell any securities to B. Riley Principal Capital
under the Purchase Agreement. As of December 31,
2022, we have sold an aggregate 3.5 million shares of Common Stock, for
aggregate net proceeds of $10.1 million. As of
December 31, 2022, there were 16.4 million shares reserved for future sale
pursuant to the Purchase Agreement.

Debt Facilities

Mastronardi Note and Loan Agreement



On October 24, 2022, AppHarvest Berea Farm, LLC, our wholly-owned indirect
subsidiary, entered into a note and loan agreement (the "Note and Loan
Agreement" in the principal amount of $30.0 million (the "Note") with
Mastronardi USA. Pursuant to the Note and Loan Agreement, Mastronardi USA agreed
to advance $15.0 million upon the execution of the agreement and further amounts
of up to $15.0 million provided that no event of default had occurred under the
Note and certain other conditions had been met. The first tranche of $15.0
million was funded on October 25, 2022, the second in November 2022. The
maturity date had extension options for two successive terms of thirty days each
to January 18, 2023 and February 17, 2023, respectively, subject to the
satisfaction of certain conditions, including that we shall have agreed to the
material terms for a sale leaseback transaction with Mastronardi USA, its
affiliate or another third party. We exercised the first extension and then
repaid the Note at the completion of the sale leaseback transaction with
Mastronardi USA in December 2022.
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GNCU Loan Agreement



On July 29, 2022, we entered into a loan agreement with Greater Nevada Credit
Union (the "GNCU Loan Agreement") for an original principal amount of $50.0
million. The GNCU Loan has a maturity of 23 years with interest-only monthly
payments on the aggregate unpaid principal balance of the GNCU Loan for the
first 36 months. Thereafter, we will make 239 monthly installments of principal
and interest based on a 20-year amortization, with the remaining balance of
principal and interest due upon maturity. The initial interest rate is fixed at
6.45% per annum for the first five years of the GNCU Loan term. Thereafter, the
interest rate is subject to change every five years during the term of the GNCU
Loan, based on the Federal Home Loan Bank of Des Moines 5-Year Advance Rate as
of such dates, plus a 3.40% spread, with an interest rate floor of 4.75%. The
proceeds of the GNCU Loan were used at closing to, in part, pay off the JPM Loan
(subsequently defined) and accrued interest, of approximately $45.7 million, and
to pay the closing costs, loan fees, and other costs of entering into the GNCU
Loan. The GNCU Loan is recorded at cost, net of debt issuance costs of $2.6
million. The GNCU Loan required us to contribute $3.3 million to be held in an
interest reserve account and $19.1 million in a project account, to be used to
pay interest and the balance of project cost for AppHarvest Somerset in excess
of the loan, respectively. The balance of these amounts are reflected in
restricted cash in the consolidated balance sheet as of December 31, 2022.

Rabo Loan Agreement



On June 15, 2021, we entered into a master credit agreement with Rabo
AgriFinance LLC for a real estate term loan in the original principal amount of
$75.0 million (the "Rabo Loan"). The Rabo Loan matures on April 1, 2031, with
quarterly interest payments commencing on July 1, 2021 and quarterly principal
payments commencing on January 1, 2022, with the remaining balance of principal
and interest due upon maturity. Payments are based on one month LIBOR plus
2.500% per annum. The Rabo Loan is collateralized by the business assets of the
first Morehead CEA facility and requires compliance with financial covenants. On
July 29, 2022, we obtained a waiver from Rabo AgriFinance LLC whereby we were no
longer required to measure or report the current ratio for the June 30, 2022
reporting period but will begin to report the current ratio covenant compliance
for the December 31, 2022, reporting period. The change aligns all measurements
of material financial covenants to begin with the December 31, 2022, measurement
date. In exchange, we agreed to fund an additional $2.0 million to a reserve
account. At June 30, 2022, we would not have met the current ratio requirement
for the Morehead CEA subsidiary. Our liability under the Rabo Loan was
$71.3 million at December 31, 2022.

Equilibrium Loan Agreement



On July 23, 2021, we entered into a credit agreement with CEFF II AppHarvest
Holdings, LLC, an affiliate of Equilibrium for a construction loan in the
original principal amount of $91.0 million (the "Construction Loan") for the
development of a CEA facility at our property in Richmond, Kentucky (the
"Project"). The Construction Loan provides monthly disbursements to fund capital
costs of the Project in excess of our required equity contribution of 34.5% of
the capital costs of the Project. The Construction Loan requires monthly
interest payments based on drawn capital at an initial interest rate of 8.000%
per annum, which will increase by 0.2% per annum, beginning two years after
closing of the Construction Loan through maturity, which is expected to be July
23, 2024, with no required principal payments until maturity. On July 29, 2022,
we amended the credit agreement with Equilibrium to require that we decrease the
balance of the Construction Loan to $81.0 million on or prior to December 31,
2022 and further decrease the balance to $76.0 million on or prior to March 31,
2023. As of December 31, 2022, we had $66.3 million outstanding on the
Construction Loan.

Berea Facility



On December 23, 2022, we entered into the Purchase Agreement with the Buyer, for
the Berea Land and the Berea Property for a sale price of $125.0 million. The
Buyer is a joint venture between Mastronardi, our exclusive marketing partner
for all fresh fruits and vegetables grown in Kentucky and West Virginia pursuant
to our Purchase and Marketing Agreement, and COFRA Holding. The purchase price
was determined based on an appraisal of the Property.

The Purchase Agreement was finalized on December 27, 2022 and coincided with the
Sale-Leaseback Transaction for net proceeds to us of $57.5 million, of which
$22.5 million was set aside for enhancement costs for our Richmond tomato
facility, after giving effect to the paydown of the Note owed to Mastronardi
Produce-USA, Inc, the payment of $19.1 million in prepaid rent under the Berea
Lease, the payment and holding back of amounts owed and estimated to be incurred
for completion of the facility located on the Property, and transaction fees,
taxes and expenses.

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Concurrently with the closing of the Sale-Leaseback Transaction, we entered into
the Lease. The Lease is repayable over an initial term of 10 years, with four
renewal options of five years each. The total annual rent under the Lease shall
initially be $9.5 million per year, and shall increase annually starting after
the second lease year. We are entitled to a rent credit equal to 25% of the
marketing fees received by Mastronardi prior to the third anniversary of the
commencement of the Lease, with respect to products grown or produced at the
facilities owned by the Company and located in Morehead, Richmond and Somerset,
Kentucky. See Note 11-Commitments and Contingencies for more information about
the Berea Sale-Leaseback Transaction.

Summary of Cash Flows

A summary of our cash flows from operating, investing, and financing activities is presented in the following table:



                                                                 Year Ended December 31,
(Dollars in thousands)                                           2022                  2021               Change
Net cash used in operating activities                     $    (86,129)            $ (103,924)         $  17,795
Net cash used in investing activities                         (179,682)              (315,409)           135,727
Net cash provided by financing activities                      168,032                573,734           (405,702)
Cash and cash equivalents, beginning of year                   176,311                 21,909            154,402

Cash and cash equivalents (including restricted cash), end of period

$     78,532

$ 176,311 $ (97,778)

Net Cash used in Operating Activities



Net cash used in operating activities was $86.1 million for the year ended
December 31, 2022 compared to $103.9 million in the prior year. The decrease of
$17.8 million, or 17%, reflects non-recurring material expenditures, including
$13.8 million for transaction costs related to the Business Combination that
were incurred in 2021 and payment of utility and hedge program deposits that
were made in 2021, partially offset by increased operating expenses in 2022
related to full production at AppHarvest Morehead, and the commencement of
planting and harvesting at our Somerset, Berea, and Richmond CEA facilities.

Net Cash used in Investing Activities



Net cash used in investing activities was $179.7 million for the year ended
December 31, 2022 compared to $315.4 million for the prior year. The decrease of
$135.7 million, or 43%, was primarily due to expenditures of $123.0 million for
the purchase of AppHarvest Morehead from Equilibrium that we completed on March
1, 2021, $9.8 million for the acquisition of Root AI, and a $5.0 million
investment in an unconsolidated entity in the year ended December 31, 2021. The
decrease was partially offset by an increase of $5.4 million in capital
expenditures related to purchases of property and equipment primarily related to
construction of our Richmond, Berea, and Somerset CEA facilities and cash of
$1.1 million received for our sale of the land associated with AppHarvest Berea,
during the year ended December 31, 2022.

Net Cash provided by Financing Activities



Net cash provided by financing activities was $168.0 million for the year ended
December 31, 2022 compared to $573.7 million for the prior year. The decrease of
$405.7 million, or 71% was primarily due to the proceeds from the Business
Combination of approximately $448.5 million received during the year ended
December 31, 2021, which was primarily offset by the combined proceeds from the
financing transaction related to the Berea Sale-Leaseback Transaction and
repayments of debt in the aggregate amount of $44.2 million during the year
ended December 31, 2022.

Critical Accounting Estimates



The preparation of consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Although these estimates are based on our knowledge of current events and
actions we may undertake in the future, actual results could differ from those
estimates and assumptions.
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Long-lived Asset Impairment



Long-lived assets are assessed for recoverability when events or changes in
circumstances indicate that the carrying value of an asset group may not be
recoverable. We assess the recoverability of long-lived assets at an individual
CEA facility level, which we consider to be the lowest level for which
independent identifiable cash flows are available. Indicators of impairment
might include persistent negative economic trends affecting the markets we
serve, recurring losses or lowered expectations of future cash flows to be
generated by our CEA facilities, and declines in the market price of our
long-lived assets. When necessary, the amount of impairment is determined based
on the excess of carrying value over the estimated fair value of the assets.
Judgment and estimation are required in assessing long-lived assets for
impairment, including whether events or changes in circumstances require an
impairment assessment and the determination of fair value.

At December 31, 2022 and throughout the fourth quarter, we experienced a
significant decline in the market value of our Common Stock. Because our CEA
facilities represent the vast majority of our net asset value and all of our
future earnings potential, we viewed the decline in our market value as an
indicator of long-lived asset impairment. In addition, our history of current
and historical operating and cash flow losses combined with projections of
operating and cash flow losses for the foreseeable future are also factors we
considered. While our CEA facilities are relatively new construction and we
remain optimistic on the long-term value of controlled environment agriculture
to address systemic issues with food production, the decline in our market value
caused us to re-assess the recoverability of our asset groups.

At December 31, 2022, we recorded a non-cash impairment charge of $50.1 million
to reduce the carrying value of real and personal property associated with our
CEA facilities to their estimated fair value. In estimating the fair value of
the real and personal property within each asset group, we engaged valuation
specialists to estimate the price that would be received to sell the asset
groups in an orderly transaction between market participants. Due to the
specialized nature of the CEA asset groups, the age, and significant amount of
construction in progress, only the cost approach was fully developed for our
asset groups. Specifically, fair value was determined by the Company's valuation
specialists using a cost-approach methodology that applied market trend factors
to original cost data to arrive at an estimate of fair value. The contributory
value of the land at each site was valued utilizing the sales comparison
approach. The income approach was excluded as the appraised properties consist
of large, specialized facilities. An investigation of the marketplace did not
reveal sufficient arm's-length lease data relating to comparable facilities from
which to derive a market rent or comparable rates of return for this analysis of
the real property. It would be difficult, if not totally speculative, to
estimate the value of the property based on a prospective income stream given
the start-up nature of the Company's operations.

We recognized a $1.1 million impairment charge for certain technology property
and equipment that will no longer be utilized following our alignment of our
technology initiatives with our core farm operations.

The Company did not recognize any long-lived asset impairment charges during 2021.



Private Warrants

We account for our Private Warrants in accordance with ASC 815-40, Derivatives
and Hedging: Contracts in Entity's Own Equity, under which we have determined
that the Private Warrants are recognized as liabilities at fair value and
subject to re-measurement at each balance sheet date until exercised. Changes in
fair value of the Private Warrants are recognized in our audited Consolidated
Statements of Operations and Comprehensive Loss. The fair value of the Private
Warrants is estimated at each measurement date using a Black-Scholes option
pricing model.

We estimate the fair value of our stock option awards and Private Warrants using the Black-Scholes option pricing model, which is subject to uncertainty and requires the input of the following assumptions:



Fair Value of Common Stock - Historically, as there had been no public market
for our Common Stock, the fair value of the Common Stock for stock-based awards
was determined by the Board based in part on valuations of the Common Stock
prepared by a third-party valuation firm. Since the closing of the Business
Combination, the fair value of each share of Common Stock underlying stock-based
awards and our Private Warrants is based on the closing price of our Common
Stock as reported by Nasdaq on the date of the grant.

Expected Term - The expected term of the options represents the average period
the stock options are expected to remain outstanding. As we do not have
sufficient historical information to develop reasonable expectations about
future exercise patterns and post-vesting employment termination behavior, the
expected term of options granted is derived from the average midpoint between
the weighted average vesting and the contractual term, also known as the
simplified method. For the Private Warrants, the expected term is the time from
transaction date to expiration in years.
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Expected Volatility - As we were not a public company before the closing of the
Business Combination, and did not have any trading history for Common Stock, the
expected volatility for the stock-based awards was based on the historical
volatility of the Common Stock of comparable publicly traded companies. Since
the closing of the Business Combination, our expected volatility is primarily
based on the trading history for our Common Stock.

Risk-Free Interest Rate - The risk-free interest rate is based on the yield of zero-coupon U.S. Treasury notes as of the grant date with maturities commensurate with the expected term of the awards.

Expected Dividends - The expected dividends assumption is based on the expectation of not paying dividends in the foreseeable future; therefore, we used an expected dividend yield of zero.



Assumptions used in applying the Black-Scholes option-pricing model to determine
the estimated fair value of Private Warrants involve inherent uncertainties and
the application of judgment. As a result, if factors or expected outcomes change
and significantly different assumptions or estimates are used, our Private
Warrant liabilities could be materially different.

Inventory Valuation



Inventory is valued at the lower of cost or net realizable value. The net
realizable value of inventories represents the estimated selling price for
inventories in the ordinary course of business, less all estimated costs of
completion and costs necessary to make the sale. The determination of net
realizable value is subject to uncertainty and requires judgment, including
consideration of factors such as expected future selling price the Company
expects to realize by selling the inventory and the contractual arrangements
with customers. The estimates are made at a point in time, using available
information, expected business plans and expected market conditions. As a
result, the actual amount received on sale could differ from the estimated value
of inventory. Periodic reviews are performed on the inventory balance. The
impact of changes in inventory reserves is reflected in cost of goods sold.

Recent Accounting Guidance



From time to time, new accounting pronouncements are issued by the Financial
Accounting Standards Board or other standard setting bodies that we adopt as of
the specified effective date. Unless otherwise discussed, we believe that the
impact of recently issued standards that are not yet effective will not have a
material impact on our consolidated financial position or consolidated results
of operations under adoption.

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