Agrify Corporation (Nasdaq: AGFY) announced financial results for the third quarter ending September 30, 2022. Revenue fell by 55% to $7.0 million for the third quarter, from last year’s $15.8 million for the same time period. The company said that revenue reflects the deferral of $5.3 million of design and build revenue in connection with the Bud and Mary’s lawsuit. The company’s net loss for the third quarter was $46.3 million, or $17.33 per diluted share, compared to a net loss of $9.8 million, or $4.68 per diluted share, in the prior year period.
Agrify lowered its revenue guidance for Fiscal Year 2022 due to the pending lawsuit from Bud & Mary’s, which has resulted in an unanticipated deferral of approximately $5.3 million in third-quarter revenue and will also impact fourth-quarter revenue. Agrify said it now expects to generate between $65.0 million and $70.0 million in total revenue for the Fiscal Year 2022 instead of the previous guidance range of $70.0 million to $75.0 million.
“While the operating environment within the cannabis industry continues to pose significant challenges for us, we remain determined to pursue and execute on a number of important and practical initiatives,” said Raymond Chang, Chairman and Chief Executive Officer of Agrify. “Unfortunately, our third quarter financial performance was not what we anticipated. We entered the quarter with line of sight on more than $15.0 million in revenue, however, we had to make some difficult business decisions, which resulted in quarterly revenue of only $7.0 million. Our third quarter revenue excludes $5.3 million of design and build revenue, which was deferred as a result of a default by Bud & Mary’s ownership on the terms of its Total Turn-Key Solution and Loan Agreements, as well as the current pending lawsuit, and approximately $1.8 million of customer orders that were not fulfilled during the quarter as we managed to the strict quarterly cash spend limits incorporated into our restructured credit facility. Despite the obstacles we have encountered in recent months, we believe brighter days are ahead, and we are already seeing a positive shift in momentum in the fourth quarter, which should bode well for renewed growth for the remainder of the year and beyond.”
Operating expenses totaled $27.4 million for the third quarter versus last year’s $9.4 million in the prior year period. The company said that the increase in the operating expenses was largely attributable to increases in reserves associated with loans receivable, increases in depreciation and amortization, and changes in contingent consideration related to the fair value estimates associated with ongoing acquisition-related earnout arrangements.
The company ended the third quarter of 2022 with a combined amount of cash, restricted cash, and marketable securities of $12.5 million.
Green Market Report recently wrote that the 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 points 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.