Agrify Faces Hostile Takeover

Shareholder Marc Beginin wants his company back.

Last week, Agrify Corp. (Nasdaq: AGFY) shareholder Marc Beginin filed a form 13D and stated he wants to reorganize the company in a hostile takeover. Beginin is the chief executive officer of Prodigy LLC, which operates as Prodigy Processing Solutions. He was formerly the CEO and founder of Precision Extraction Solutions before it was acquired by Agrify in October 2021.

Beginin said he opposed the acquisition of his company by Agrify, but was outvoted. Now he wants his company back.

“The culture is bad, and the employees are unhappy,” Beginin said in a conversation with Green Market Report. “I also haven’t seen the technology actually work.”

Beginin said the company has actively tried to avoid his attempts to build his ownership in the company. He said when he reached 9.9% ownership, the company issued more shares, which diluted his position back down to 3%.

“They have millions more in reserves to do it again,” he complained. Still, he managed to increase his shares to a 5% ownership level and promptly filed the 13D to state his intentions.

The filing stated that Beginin “acquired the securities for the purpose of acquisition, restructuring or changing control and management of the Issuer, to seek to amend the Issuer’s articles of incorporation, bylaws or other instruments corresponding thereto which may impede the acquisition of control of the Issuer by any person or entity, and to consolidate or merge the Issuer with Prodigy Processing Solutions, the business entity currently owned and controlled by the Reporting Person.”

Beginin was also upset that more than 36% of revenue for Agrify in 2021 came from the construction of a middle school in Massachusetts and not from the company’s cultivation facility businesses. He claims current Agrify CEO Raymond Chang was involved in the construction but didn’t elaborate on how.

Agrify did state in its 2021 annual earnings that 52% of its revenues came from just two customers. It also stated that “one related party customer accounted for approximately 32.4% (or $3.9 million) of our total revenue.” It seems this belongs to the private school called the New England Innovation Academy of which Chang is a founder and trustee. Thus, the company did disclose where its revenues came from.

Agrify was asked for a comment on Beginin’s move but has not responded.

Cultivation Lawsuit

Separately, a lawsuit was filed in October by Bud & Mary’s Cultivation in Massachusetts. Ben Virga and David Morgan purchased a building in Bellingham, Massachusetts, with the intention to build it into a cultivation facility.

B&M, as the business is named, spent $3.5 million on construction before pausing the work during the pandemic. When the company decided to resume its construction, it chose to work with Agrify. The group was negotiating the terms of the deal but noticed a final term sheet stating that Agrify would be the “general contractor.”

The complaint stated, “Among other things, Agrify named itself as the general contractor for the project, and awarded itself a 3% management fee to act as the general contractor.  Upon information and belief, Agrify holds no general contractor license in Massachusetts or any other jurisdiction.”

B&M claimed Agrify said it could complete the project with $8 million, but the B&M architect stated that the number was incorrect by about 20%. They also claimed that Agrify used its construction deal as a way to announce to investors that its operations were proceeding as planned.

The lawsuit also pointws out that Chang sold Agrify shares shortly after the announcement.

The complaint stated that Agrify said it would complete the construction in 6-9 months, but after 10 months, “Agrify still had not even produced a definitive construction plan or budget for approval. Meanwhile, Plaintiff continued to incur monthly rent and related expenses for the 26 Williams Way property of approximately $120,000.”

B&M said Agrify came back with a cost of $20 million for the project in December 2021.

Ultimately, the two parties were never able to agree on construction loan sizes or terms, and B&M ended up selling the property in July 2022 to True House Cannabis. According to the court complaint, Agrify claimed that B&M defaulted on the construction loan.

Ultimately B&M said in the complaint:

Agrify treated the funds made available to Plaintiff through the construction Loan
as Agrify’s personal piggy bank – a piggy bank from which Agrify withdrew without authority in
order to prop up for the sake of appearance to investors a project that it has grossly mismanaged
to the point of failure.

 

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


Agrify

One comment

  • Albert Luxem

    November 8, 2022 at 12:09 am

    Excellent work Debra. A rare original work among so much me-too junk on the web.

    Reply

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