CubicFarm Systems Corp. (CUB.TO) is a local chain agricultural technology company developing and deploying technology to feed a changing world. Revenues come mostly from two major divisions: i) HydroGreen Nutrition Technology: a proprietary ag-tech solutions that enable growers to produce high quality produce and fresh livestock feed. ii) The CubicFarms™system: a patented technology for growing leafy greens and other crops onsite, indoors, all year round providing an efficient, localized food supply solution that benefits the people, the planet, and our economy.
The value proposition for each divisions can be summarize as such:
CubicFarms system: i) Up to 95% less water, ii) Up to 80% less waste, iii) Crop Motion Tech uses one row of light (simulate outside daylight) and iv) 52X more land efficient. One Module equals 1 football field.
Hydrogreen: i) Harvest Daily; 365 harvest annually, ii) 12 Modules can grow 25M lbs of fresh livestock feed/year, iii) Use 95% less water than conventional irrigated crops, iv) 12 Modules replaces 500 acres of farmland.
Coverage was initiated June 2022.
News Releases
June 28 - $4.4M CubicFarm System Sale and North American Manufacturing Agreement: Entered into agreements with NTE Discovery Park Ltd. ("NTE Discovery Park") for the purchase of 26 CubicFarm System modules at a sale price of CAD$4.4 million as well as, the manufacturing of those initial 26 modules, and future manufacturing.
North American Manufacturing Agreement: As the Company's North American manufacturing partner, NTE Discovery Park will be manufacturing major hardware components for CubicFarms.
Aug. 10 - Announces Methane Reduction and Carcass Study Results and Corporate Update: i) Study (Carcass) Finds a Nine Per Cent Increase in Daily Weight Gain for Cows Fed Using HydroGreen Fresh Forage. ii) Study Validates Value for Carbon Commercialization Using HydroGreen Fresh Forage Emission Reductions and Additional Revenue Stream.
Corporate Update: A total of 223 CubicFarm System and HydroGreen sales orders under contract that are pending manufacturing, installation, and site readiness, are valued at approximately USD$30.7 million.
FreshHub Commercial Validation Project: CubicFarms has completed Phase I of its rapid project to achieve commercial validation of its larger FreshHub configuration using the CubicFarm System technology and approach.
Aug. 15 - Reports Q2 FY 2022 Results and Announces Cost Reduction Measures: Comprehensive review of its internal cost structure to optimize operating efficiency and accelerate its path to profitability."...realigned operating expenses by reducing approximately 16.5% of our workforce and other non-payroll related overhead expenditures, resulting in an estimated $6.7 million of annualized savings.." In addition, the Company will implement a centralized procurement structure aimed at rightsizing indirect costs and driving further efficiencies across its supply chain.
Sep. 1 - Introduces Breakthrough FreshHub Massive Indoor Growing System: Announced a new project to deliver a new commercial scale FreshHub with 96 CubicFarm System modules, the Company’s largest project to date.
The Company has received a CAD$1.2 million deposit from a private investor group for the FreshHub purchase and installation in the Lower Mainland area of Vancouver, British Columbia. Once installed, this will be the largest commercial scale CubicFarm System in the world.
The private investor group includes entrepreneurs Duane Indenbosch, Vaughn Penner, and Howie McCollister, collectively bringing generations of farming and agriculture, as well as real estate investments.
Sep. 9 - Announces Management and Strategic Transitions and FreshHub Update: i) Edoardo De Martin has been appointed Interim Chief Executive Officer to lead CubicFarms through the strategic transition following the retirement of Dave Dinesen; ii) A Special Committee has been appointed to determine and enact the highest value strategic and tactical opportunities for the Company on a go-forward basis iii) Dave Dinesen and Jeff Booth have resigned from the Board of Directors, and Daniel Burns has been appointed Chair of the Board.
The Company has appointed a Special Committee of the Board comprising directors David Cole, Janet Wood, and Daniel Burns to review, consider, and evaluate any potential transactions and any strategic alternatives available to the Company, including significant changes in the direction of the Company, its reorganization, and restructuring.
FreshHub Update: On September 1, 2021, the Company announced a CAD$1,200,000 deposit held in trust from a private investor group for the purchase and installation of a 96-module FreshHub installation in the Lower Mainland area of Vancouver, British Columbia. This private investor group has made the decision not to proceed.
Sep. 12 - Announces Additional Cost Reduction Measures to Accelerate Path to Profitability: In order to focus on key ongoing strategic initiatives and realign its corporate structure, the Company is further reducing operating expenses by roughly $9.0M on an annualized basis; $6.4M of payroll related expenses and $2.6M of non-payroll expenses.
Combined with previously announced cost reduction measures on August 15, 2022, the Company has provided notice to 87 employees or 50.4% of its workforce. This translates to an estimated annualized savings of $15.6 million, or 50.3% of cash-based operating expenses on a 12-month basis as of July 31, 2022.
Sep. 14 - Announces $6.25 Million Senior Secured Term Loan: Entered into a binding term sheet for a senior secured revolving term loan to support its business operations. The Term Sheet commits to a total of CAD6.25 million, with an option to increase the commitment to CAD8.0 million. The Term Loan will have a term of two years, subject to prepayment obligations upon the Company achieving certain milestones or disposing of assets outside of the ordinary course of business and will bear and pay interest at a rate of 10.0% per annum.
Sep. 20 - Announces Completion of $6.4 Million Senior Secured Term Loan: The Term Loan amount increased from CAD6.25 million, as previously announced on September 14, 2022, to CAD6.4 million.
The Company drew the full amount at Closing. The lender of the Term Loan also received share purchase warrants in HydroGreen, Inc. ("HGI"), a wholly-owned subsidiary of the Company, to purchase, in aggregate, roughly USD$4.8 million of HGI shares at a USD$20.0 million pre-money valuation, in accordance with the previous announcement.
Oct. 24 - Announces Management Transitions: Appoints John de Jonge as Interim Chief Executive Officer of CubicFarms and President of HydroGreen following the departure of prior Interim Chief Executive Officer Edoardo De Martin at CubicFarms and of former President Dan Schmidt at HydroGreen.
Nov. 9 - Announces FreshHub Validation Project Update: CubicFarms has completed Phase II of its project for the commercial validation of its larger FreshHub configuration using CubicFarm Systems' patented technology.
CubicFarms recently completed its first successful harvest from the FreshHub configuration prototype project with two machines at its research and development facility in Langley, BC.
Nov. 14 - Reports Q3 FY 2022 Results
Nov. 21 - Announces $1.9M HydroGreen Sale in South Dakota: announced that its animal feed division, Hydrogreen Inc. ("HydroGreen"), has sold a seven-system GLS 808 valued at CAD$1.9 million. to DGI Feeds, an equine feed company and certified HydroGreen dealer based in Mitchell, South Dakota.
Nov. 23 - Announces Completion of Wholesale Financing Program for HydroGreen and Resignation of Leo Benne: , HydroGreen, Inc. is entering into a wholesale program and support agreement with DLL Finance LLC ("DLL") to provide floor plan financing for the sales of Automated Vertical Pastures™ to HydroGreen's dealership network.
DLL is a division of Rabobank Group, a European-based international financial services provider specializing in the food and agriculture industries. The Program provides interest-free financing for all products sold by HydroGreen to its dealers for up to 180 days, subject to DLL's credit approval. Upon issuance of the sales invoice and DLL's approval of the required dealer documentation, HydroGreen will receive the proceeds of sales directly from DLL, net of an initial charge rate which is benchmarked with the 1-month Term Secured Overnight Financing Rate ("SOFR").
Leo Benne, Head of Innovation, and member of the Board of Directors, has resigned from his roles at CubicFarms. "Mr. Benne played a key role in developing CubicFarms' technology along with his father Jack Benne, and has offered his strategic vision and knowledge in applying technology to grow high yields of healthy plants.
Dec. 2 - Announces USD$2M Sale of 12 CubicFarms Machines: Sale of 12 CubicFarms machines for $1,955,000 USD to a customer in Jiangsu, China. The sale includes 12 CubicFarms machines, a propagator, and an irrigation system.
Dec. 15 - Announces Offering of up to USD$1M: Each Unit shall be comprised of one common share in the capital of the Company and one Common Share purchase warrant of the Company. Each Warrant shall entitle the holder thereof to acquire one additional Common Share at a price of $0.078 for a period of two (2) years.
The net proceeds from the issuance of the Units will be used for debt reduction purposes.
Jan. 17 - Announces Lease of FreshHub Equipment and New Pilot Project Funding: 1) CubicFarms Board of Directors approves transaction to lease all FreshHub machinery and equipment to Langley Indoor Produce Ltd. 2) CubicFarms to grant Langley Indoor Produce a license for the existing FreshHub intellectual property, with such license being limited to the sole purpose of indoor, non-containerized configurations. 3) The rationale for pursuing this transaction is to allow for the continuation of research and development on the indoor FreshHub system through external, third-party capital and maintain focus on strengthening HydroGreen. 4) CubicFarms will have the option to retain up to 97.6% of the equity interest in Langley Indoor Produce.
Feb. 15 - Announces Marketed Offering of up to C$5 Million: The Offering will be conducted on a best-efforts basis.
Feb. 16 -Announces Pricing and Terms of Marketed Offering of Units: Up to 100,000,000 Units at a price of C$0.05 per Unit (Warrant $0.10 cents) for gross proceeds of up to C$5 million).
Mar. 7 - Announces HydroGreen Equipment Installation in Utah: Finalized the installation of two previously sold machines to Jim Cheney Inc. in Utah. The equipment delivered late December with installation completed.
The Company has successfully installed 24 machines, with another 19 projects in our global pipeline of potential machine sales contracts, and we continue to see strong demand for the HydroGreen solution.
Mar. 9 - Update on Previously Announced Marketed Offering of Units: The net proceeds from the Offering will be used as follows: C$513,000 as repayment of a refundable deposit to a customer who could not obtain sufficient financing to complete the project; 25% of the net proceeds (net of repayment of deposits, fees and expenses), to repay the Company’s debt to BDC Capital Inc.; and 75% of the net proceeds (net of repayment of deposits, fees and expenses) to Cubic Lending Vehicle LP in respect of the Company’s senior credit lending facility, the repayment of which can be redrawn by the Company immediately. Assuming that the Offering closes for approximately C$3 million, representing 60% of the maximum Offering, the amount repaid to Cubic Lending Vehicle LP will be approximately C$1,600,000. This amount will be re-drawn and used to pay non-payroll expenses (C$600,000); payroll expenses (C$650,000); debt services (principal and interests) (C$120,000); and working capital obligations (C$230,000).
The Company has applied to the TSX, pursuant to the provisions of Section 604(e) of the Manual, for a “financial hardship” exemption from the requirement to obtain shareholder approval for both the proposed dilution and the discount to the market price, on the basis that the Company is in serious financial difficulty and the Offering is designed to address these financial difficulties in a timely manner.
Mar. 13 - Announces Late Filing of Annual Financial Statements, Annual Information Form and Related Documents: This is primarily due to a significantly reduced headcount in the finance team in connection with the Company’s cost reduction measures as previously announced. As part of its ongoing restructuring efforts, the Company is prioritizing payments in order to ensure operational sustainability. This has resulted in an outstanding balance with its auditor. The auditor has made a decision to temporarily halt services until the Company settles the outstanding balance.
The Company confirms that it is not subject to any insolvency proceeding as of the date hereof.
Mar. 17 - Announces Closing of Marketed Offering of Units: Pursuant to the Offering, the Company issued a total of 56,027,000 Units at a price of C$0.05 per Unit for gross proceeds of C$2,801,350, including 10,261,000 Units issued to reduce working capital obligations of the Company for C$513,050 in payables (“Debt-for-Equity Swap”).
Jerry Li, President of CubicFarm Systems (Shanghai) Corp., a wholly owned subsidiary of the Company, subscribed for 5,000,000 Units for total consideration of C$250,000.00, representing a total of 10,000,000 Common Shares issuable to Mr. Li, which is approximately 4.8% of the currently issued and outstanding Shares of the Company.
Apr. 3 - Announces Grant of Management Cease Trade Order: CSC has granted the MCTO, pursuant to which the Company will have until May 30, 2023 to file its annual financial statements for the year ended December 31, 2022.
As part of its ongoing restructuring efforts, the Company is prioritizing payments in order to ensure operational sustainability. This has resulted in an outstanding balance with its auditor. The auditor has made a decision to temporarily halt services until the Company settles the outstanding balance for services provided. The Company has now substantially resolved these issues and is working expeditiously to complete the Required Filings, with the goal of completing the Annual Filings by April 21, 2023, and in any event on or before May 30, 2023.
Summary
In the last nine months CubicFarm went from the mid $0.40 range to 52 week low and all time low of $0.03 cents.
Earnings
CubicFarm revenues have been meager compared to its YTD 2022 net losses of $30.5M!
Obviously, this has been responsible for the spectacular decline in the stock price which has led to multiple re-orgs.
Organizational Changes
As of Q2 Earning (June 2022) 16.5% of the workforce was release. September 2022, Dave Dinesen CEO was replaced by Edoardo De Martin. A Special Committee (Dave Cole, Janet Wood and Daniel Burns) was struck to determine and enact best avenue forward for the company. Dave Dinesen and Jeff Booth also resigned from the board of directors.
Additional cost reduction measures were introduced in September 2022 where 50% of the workforce was released. Another Management transition took place on in October 2022; roughly six weeks from the last one!
John de Jonge was appointed as interim CEO and President.
Deals
-$4.4M CubicFarm System Sales (+Manufacturing Agreements) for 26 machines with NTE Discovery Park (Jun 2022).
-$1.9M Hydrogreen Sale in South Dakota: a seven-system GLS 808 to DGI Feeds (Nov. 2022)
-USD 2.0M CubicFarm System Sales for 12 machines in Jiangsu, China. (Dec. 2022)
-Lease of FreshHub Equipment and License to Langley Indoor Produce LTD. (Jan. 2023)
Financing
September 2022, A $6.4M (10% interest) Secured Loan was obtained and the full amount was drawn upon closing. November 2022, a Wholesale financing Program with DLL Finance LLC (Rabo Bank) for HydroGreen was completed.
The Program provides interest-free financing for all products sold by HydroGreen to its dealers for up to 180 days, subject to DLL's credit approval. Upon issuance of the sales invoice and DLL's approval of the required dealer documentation, HydroGreen will receive the proceeds of sales directly from DLL, net of an initial charge rate which is benchmarked with the 1-month Term Secured Overnight Financing Rate ("SOFR").
December 2022, a USD$1.0M offering at $0.078 cents was proposed. February 2023, a $5M offering (100,000,000 unit at $0.05 cents (Warrant $0.10 cents) was made, the company was only able to close $2.8M (56%) in March 2023.
Jerry Li, President of CubicFarm Systems (Shanghai) Corp., a wholly owned subsidiary of the Company, subscribed for 5,000,000 Units for total consideration of C$250,000.00, representing a total of 10,000,000 Common Shares issuable to Mr. Li, which is approximately 4.8% of the currently issued and outstanding Shares of the Company.
Also in March 2023, CubicFarm reported that it would be unable to file its FY2022 Financial Results in time. The inability to pay the auditors and the report "financial hardship" was required to enable the last financing since the amount of shares issued went above the threshold stipulated but the exchange.
This issue has now been dealt with through the last financing and a Management Ceased Trade Order was issues earlier this month which will require the company to file FY2022 Financial Results by May 30, 2023. As per las release:
The Company confirms that it is not subject to any insolvency proceeding as of the date hereof. The Company also confirms that there is no other material information concerning the affairs of the Company that have not been generally disclosed as of the date herein.
In short
CubicFarm's decline in valuation is the result of poor cost management and unrealistic expectations which has left the company in a precarious position. Even with new management and strategy, much needs to be accomplished.
HydroGreen's securing of wholesale financing with DLL Finance LLC is significant to allow execution of the early financing of a purchase but the company still needs to sell largescale Feed-as-a-Service (“FaaS”) projects.
The Fresh Division (FreshHub) focus lettuce crop permits specialization. The licensing of its technology to Langley Indoor Produce LTD ("Langley"; a separate entity) was required to retain ownership. However, Langley still needs to raise $1.0M in order to advance its efforts and the research/product needs to be validated; Phase III results pending.
The completion rate of the last financing (56%) also suggests that it is critical for CubicFarm to secure additional sales imminently to demonstrate viability. Also insider activity suggest the CubicFarm still needs to convince the market that its a worthwhile venture; Ospraie Ag Science LLC has yet to buy at these levels despite Jerry Li, President of CubicFarm Systems (Shanghai) Corp. becoming a new insiders as a result of the recent raise.
Overall, even if CubicFarm is stating that insolvency proceedings are not in the works, there's still concerns.
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