CubicFarm Systems Corp. announces strategic acquisition of HydroGreen, Inc.
Vancouver, BC – (AccessWire – December 11, 2019) – CubicFarm® Systems Corp. (TSXV:CUB) (“CubicFarms” or the “Company”) is pleased to announce that it has entered into a binding purchase agreement effective December 10, 2019 to acquire HydroGreen, Inc. (“HydroGreen”), an arm’s-length private company headquartered in South Dakota (the “Acquisition”).
HydroGreen is a manufacturer of fully-automated hydroponic growing systems that produce live, green animal feed, prioritizing animal health and performance. HydroGreen’s unique process sprouts grains, such as barley and wheat, in a controlled environment with minimal use of land, labour and water. Its system performs all growing functions including seeding, watering, lighting, harvesting, and re-seeding – all with the push of a button – to deliver animal feed without the typical investment in fertilizer, chemicals, fuel, field equipment and transportation.
Overview of Acquisition
The Acquisition will be completed by way of a reverse triangular merger of CubicFeed Systems U.S. Corp., a wholly owned subsidiary of the Company, and HydroGreen, resulting in HydroGreen being renamed “of CubicFeed Systems U.S. Corp” and becoming an indirect and wholly-owned subsidiary of the Company. The new CubicFarms subsidiary will operate the existing business of HydroGreen moving forward.
Under the terms of the merger agreement, holders of HydroGreen shares (“HydroGreen Shareholders”) will be entitled to receive an aggregate of 11,000,000 common shares of CubicFarms (the “Consideration Shares”), subject to adjustment related to working capital. Of the Consideration Shares, 10,000,000 will be issued on closing of the Acquisition with the remaining 1,000,000 shares being issued on the six-month anniversary of closing, subject to any set-off relating to indemnification. None of the current shareholders of HydroGreen will hold more than 5% of the common shares of the Company pursuant to the Acquisition.
The implied value of the CubicFarms common stock issued to HydroGreen is C$1.50 per share. Following closing, principals of HydroGreen holding in excess of 80% of the Consideration Shares will enter into a pooling agreement with respect to their Consideration Shares. Under the terms of the pooling agreement, 25% of their Consideration Shares will be released on the closing of the Acquisition and an additional 25% will be released on each of the dates which are 6 months, 12 months and 18 months following closing of the Acquisition.
In 2018, HydroGreen recorded unaudited sales revenues of approximately US$1.2 million and an unaudited gross profit of approximately US$700,000.
The Acquisition will require the approval of HydroGreen Shareholders at a special meeting expected to take place in late December (the “HydroGreen Meeting”). In order to become effective, the Acquisition must be approved at the HydroGreen Meeting by HydroGreen Shareholders holding greater than 50% of the HydroGreen shares entitled to vote at the HydroGreen Meeting. HydroGreen Shareholders holding approximately 75% of the issued and outstanding HydroGreen shares have entered into voting and support agreements with CubicFarms in support of the Acquisition. The board of directors of HydroGreen has unanimously approved the Acquisition and will recommend that HydroGreen Shareholders vote FOR the Acquisition. The merger agreement includes representations, warranties and covenants typical of a transaction of this nature, including with respect to non-solicitation.
In addition to approval of HydroGreen Shareholders, the Acquisition is subject to approval of the TSX Venture Exchange and other customary closing conditions. It is not anticipated that the Acquisition will be classified as a Reviewable Transaction under TSX Venture Exchange Policies.
The Acquisition is expected to close in December 2019 following the HydroGreen Meeting.
The HydroGreen growing system consists of a 10-feet by 8-feet rack with 8-feet by 6-feet growing surfaces stacked 6 layers high to a total height of 10 feet. This is the smallest, one-section system available for sale – two-section up to six-section systems that are 50 feet long, 8 feet wide and 10 feet high are available. The modular system allows farmers to combine multiple systems to feed hundreds or thousands of livestock.
Image 1: The HydroGreen automated three-section growing system for animal feed.
Seeding one growing surface each day with 1.8 bushels of seed can produce 487 pounds of animal feed every six days. A one-section system could produce enough feed for a 20 to 25-cattle farm, while a three-section system could potentially provide most of the feed for a herd of 100.
The HydroGreen growing system’s automated seeder spreads half an inch of small grain seed on the growing surface. A fine mist of water is sprayed from above to initiate growth, followed by a gentle-rain automated irrigation system to feed the plants as they sprout. After six days, fresh green feed on the growing surface is rolled off and harvested at the push of a button on the touchscreen control panel.
As the feed layer is rolled off the surface, it is sliced into pieces with a water jet, ready to be blended with a feed ration or fed directly to livestock. Once the harvest cycle is complete, the surface is automatedly cleaned and reseeded with a new seed bed, ready to be irrigated – setting in motion another grow cycle.
Image 2: The HydroGreen system takes seed to feed in six days.
While growing feed hydroponically is not a new concept, traditional rack-and-stack systems are labour intensive and are sensitive to mold. Mold tends to grow on seeds in warm, damp or humid conditions. Traditional hydroponic systems rely on human labour to manually clean the growing pans and soak, spread and water the seed, resulting in significant potential for human error and potential for mold to develop. The HydroGreen technology alleviates both problems as it requires only one second of labour per tonne of feed produced – to push a button on the touchscreen control panel. Through its automated process, the system applies a sequence of eleven procedures dedicated to controlling mold, stretching from seed selection to harvest, reducing the potential for human error and for mold to develop.
Economic, environmental and nutritional benefits of hydroponic animal feed
The HydroGreen system provides local, on-demand availability of fresh green feed 365 days a year, unaffected by drought, snow or rain. Hydroponic feed that is fed directly to livestock results in significant reduction of feed waste since the entire root mass is consumed with the grass.
In addition to savings from reduced labour and water, the system’s vertically stacked surfaces allow for high yields in a very small area, increasing farmers’ independence by growing food for their livestock without the need for cultivated land.
When wheatgrass and barley are sprouted, they release many vitamins and minerals as well as convert hard-to-digest starches into easily digestible proteins. Sprouting results in increased enzyme levels in the ration, which aids digestion and absorption of nutrients; increased levels of vitamins; increased mineral bioavailability and increased fatty acids (quality energy) and amino acids (quality protein). These nutrients are critical to animal health, growth, milk production and reproduction.
Sales and marketing strategy for the HydroGreen system
CubicFarms has signed an authorized reseller agreement with Artex Feed Solutions. Artex Feed Solutions is a joint venture company which is 25% owned by CubicFarms and 75% owned by Artex Barn Solutions, a leader in agricultural supplies for over 40 years. Artex Barn Solutions was founded by John de Jonge – also a board member of CubicFarms – who purchased Artex Barn and grew it into a global provider of cattle handling equipment, ventilation and cow cooling. He has deep expertise in establishing and scaling up multiple manufacturing facilities in China and North America.
Artex and Mr. de Jonge plan to market the HydroGreen system to their existing dealership network in the USA and Canada, and to qualified leads in China, Indonesia and the Middle East – areas with substantial market potential due to changing food consumption patterns and supportive government policies toward agricultural technology.
Internationally, Artex dealers will target existing agriculture animal producers looking to enhance profitability and environmental sustainability, early-stage farmers with minimal capital and land constraints, small- to medium-size farms seeking feed alternatives to benefit their operations and urban farmers without access to land.
The arrangement with Artex Feed Solutions may be considered a related-party transaction subject to TSX-V Policy 5.9 and Multilateral Instrument 61-101. The Company will be exempt from the need to obtain minority shareholder approval and a formal valuation as required by MI 61-101 as the Company is listed on the TSX Venture Exchange and the fair market value of the transaction with Artex is far below 25% of the Company’s market capitalization.
While remaining on CubicFarms’ board of directors, Mr. de Jonge will transition from his current role as the Company’s Chief Design and Installation Officer to Chief Executive Officer of CubicFarms subsidiary CubicFeed Systems, effective immediately. Rodrigo Santana, CubicFarms’ Chief Operating Officer, will assume oversight of machine design and installations, supported by a management team with significant field expertise.
Dave Dinesen, Chief Executive Officer of CubicFarms, commented: “This landmark transaction with HydroGreen is a catalyst for continued growth at CubicFarms. Having already established a robust sales pipeline for our fresh produce vertical, this acquisition will enable us to capitalize on technology and automation synergies with HydroGreen to capture the animal feed space, which we believe could be a larger market than fresh produce. Approximately two-thirds of the world’s agricultural land is used for grazing and animal feed production. HydroGreen’s “land on a stand” system helps reduce the vast amounts of land required to grow feed.
“While the CubicFarms system is ideal for growing fresh produce, the advancements made in the HydroGreen system in the areas of harvesting, reseeding and self-cleaning, make it particularly well-suited for the production of animal feed. This transaction positions us to be a leading ag-tech company providing controlled-environment growing systems in four diversified verticals – fresh produce, animal feed, hemp/cannabis and nutraceutical ingredients.”
Dihl Grohs, Chief Executive Officer of HydroGreen, commented: “I am incredibly proud of HydroGreen’s growth trajectory since our first system prototype was built in 2014 in Sioux Falls, South Dakota, then progressively refined to achieve today’s 98% reliability rating and the system’s ability to monitor and correct issues in advance.
“The technology is poised for large-scale commercialization and this merger represents an ideal next step to bring HydroGreen systems to international markets. I am confident that CubicFarms’ global leadership in automated vertical-farming solutions, combined with the go-to-market ability of Artex Feed, will result in significant uptake of our systems as farmers learn how this technology enhances the productivity of their operations.”
John de Jonge, President of Artex Feed Solutions, and Chief Executive Officer of CubicFeed Systems, commented: “As a lifelong dairy industry participant, I believe the animal feed market is ripe for disruption, urgently requiring predictable, year round production of nutritious feed while minimizing the inputs of land, labour and water. I am excited to lead the expansion of CubicFarms’ animal feed business by leveraging Artex’s broad network of dealers in 40 countries to bring the HydroGreen solution to market.”
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This news release does not constitute an offer to sell or a solicitation of an offer to buy any securities in the United States. The Consideration Shares to be issued as part of the Acquisition have not been, nor will be, registered under the Unites States Securities Act of 1933, as amended (the “U.S. Securities Act”), and such securities may only be offered or sold within the United States pursuant to an exemption from the registration requirements under the U.S. Securities Act and all applicable state securities laws.
About CubicFarm® Systems Corp.
CubicFarm® Systems Corp. (“CubicFarms”) is an ag-tech company commercializing large scale, vertical farming solutions for global industrial markets. Founded in 2015, the Company’s mission is to provide industries around the world with efficient growing systems capable of producing predictable crop yields. CubicFarms offers turnkey, commercial scale, hydroponic, automated vertical farm growing systems that can grow predictably and sustainably for 12 months of the year virtually anywhere on earth. CubicFarms enables its customers in the fresh produce, animal feed, nutraceutical, and hemp/cannabis industries to grow locally and to provide their markets with safe, sustainable, secure and fresh ingredients that are consistent in colour, size, taste, nutrition and allows for a longer shelf life. Further support and value is provided to customers through the Company’s patent-pending germination technology and proprietary auto harvesting and processing methods.
Using its unique, undulating growing system, the Company addresses the main challenges within the indoor farming industry by significantly reducing the need for physical labour and energy, and maximizing yield per cubic foot. The Company has sold and installed systems in Canada and the US, and is currently negotiating with a global pipeline of prospective customers. It also operates one wholly owned facility in Pitt Meadows, British Columbia, and sells its produce in the province to retail and wholesale customers under the brand name Thriiv Local Garden™.
Cautionary statement on forward-looking information
Certain statements in this release constitute “forward-looking statements” or “forward-looking information” within the meaning of applicable securities laws, including, without limitation, statements with respect to the closing of the Acquisition and HydroGreen’s sales and growth prospects. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of CubicFarm Systems Corp. and its subsidiaries, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements or information. Such statements can be identified by the use of words such as “may”, “would”, “could”, “will”, “intend”, “expect”, “believe”, “plan”, “anticipate”, “estimate”, “scheduled”, “forecast”, “predict”, and other similar terminology, or state that certain actions, events, or results “may”, “could”, “would”, “might”, or “will” be taken, occur, or be achieved.
These statements reflect the company’s current expectations regarding future events, performance, and results and speak only as of the date of this news release. Consequently, there can be no assurances that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Except as required by securities disclosure laws and regulations applicable to the company, the company undertakes no obligation to update these forward-looking statements if the company’s expectations regarding future events, performance, or results change.