Financial Research and Quantitative Trading Strategies for TSX Venture Investors

CSX.V - Priced in?

September 5, 2019

Clean Seed Capital (CSX.V) is a designer of precision farming products. They are known for the CX-6 SMART Seeder which they distribute via Rocky-Mountain Equipment.  In addition to their manufacturing alliances, CSX.V has a R&D Center in Saskatchewan where it test and develop their products. 

 

CSX.V own its software platform, has a number of patents in precision seeding. and to date received $2.2M funding from The Government of Canada. The value proposition is relatively simple, reduce waste, promote control, and improve yields while reducing cost.

 

We initiated coverage February 2019, Here's an update.

 

Mar. 1 -  Clean Seed Capital Advances Harvest International Acquisition.

 

1. Debt funding for $9.2 M CDN ($7.1M USD) (subject to conditions) towards the purchase of Harvest International from Farm Credit Canada (FCC).

 

2. Advancing operating line discussions for $3.1M CDN from a Canadian chartered bank with an active U.S. presence (within the next 30 days).

 

3. Advanced proposal for dealer and customer finance programs with DLL Finance LLC (DLL) - Rabbo Bank - for current and future products.

 

4. Entered into a (LOI) letter of intent with an American multinational information technology company to integrate (AI) Artificial Intelligence data analysis tools into the company’s SMART Seeder / Planter technology software platforms.

 

5. Clean Seed and Harvest International have agreed to extend the closing date of their agreement to April 15, 2019 to provide sufficient time to complete financing activities and facilitate closing of the transaction.

 

Mar. 18 - Announces Unsecured Convertible Note Unit Financing to Complete Harvest International Acquisition. Up to 10,000 unsecured convertible note units (each a “Unit“) on a best efforts basis for gross proceeds of up to $10,000,000. Each Note will bear interest at the rate of 9.5% per annum, payable semi-annually, and will mature 60 months from the date of issue. The principal amount of the Notes may be converted by the holder into common shares of the Company at any time at a conversion price equal to $0.50 per common share. 

 

Apr. 16 - Shareholder Update: The company will not proceed with the acquisition of Harvest International Inc. During final stages of our due diligence and syndicated financing efforts, the discovery of material changes to the Harvest International business presented new realities.

 

As a result, Clean Seed Executive Management and Board of Directors elected to pause financing activities and allowed the Letter Agreement to terminate as no resolution could be reached to navigate the changes. Although this transaction will not proceed, Clean Seed and Harvest International remain willing to do business in the future.

 

Clean Seed to continue to build on its respected foundation as a technology leader in the agricultural sector with the launch of our SMART Planter™ spring 2019 testing and demonstration program. This program will continue Clean Seed’s momentum in the development of our highly advanced software systems, board sensor, data and communications network and allow us to trial canola singulation in Western Canada.

 

May 9 - Shareholder Update actively in the field preparing for our SMART Planter™ field trials testing and refining our newly developed planter software and human interface as well as our proprietary metering drive technologies and on-board communications systems also be executing a robust singulation trial program for canola and a variety of additional crops such as soybean, corn, peas and hemp.

 

In addition, our development team is finalizing next generation software technology expansions relating to control systems, UI/UX and powerful data collection advancements for the CX-6 SMART Seeder™ platform and soon the SMART Planter™ - While focusing on these market launch opportunities, CSX.V is also evaluating synergistic merger and acquisition opportunities, joint venture, and supply and licensing arrangements.

 

Aug. 7 - Announces Financing and Provides Corporate Update: a non-brokered private placement for 6,000,000 units of the Company (the "Units") at a price of $0.25 per Unit, for gross proceeds of CDN $1,500,000 (the "Offering"). Each Unit consists of one common share and one-half common share purchase warrant (a “Unit Warrant") at 0.50 cents. The Company intends to use the proceeds of the Offering for the continued advancement of its SMART Seeder™ and related software and cloud technologies, business development activities and general working capital.

 

The Company has also negotiated an extension to repay a product repurchase obligation totaling $990,000 through the issuance of a promissory note and 1,980,000 bonus warrants (the “Bonus Warrant”). The promissory note will bear interest of 12% per annum, is unsecured and will mature on January 31, 2020 - at 0.50 cents.

 

Clean Seed is enthusiastically pursuing M&A opportunities, expanding its digital platforms and moving towards strategic intellectual property acquisitions to accelerate our Smart Planter activities.

 

The Company also announces that it has been served with a complaint from Harvest International Inc. related to the terminated letter agreement between Harvest International Inc. and the Company (see Company’s update of April 16, 2019). The Company believes the claims have no merit and will defend itself to the fullest extent possible.

 

Aug. 28 - Announces Closing of Financing - Completed a non-brokered private placement financing of 6,72M units at $0.25 per Unit, for total gross proceeds of $1,68M. Warrant at 0.50 cents. The Company intends to use the proceeds of the financing for the continued advancement of ongoing M&A activities, its SMART Seeder technology platform and for further technology advancements for all crop production sectors.

 

 

Within the last six months, CSX.V lost more than 50% of its valuation. Most of the decline is attributed to the decision not to proceed with the acquisition of Harvest International. The reason provided was: "the discovery of material changes to the Harvest International business".  In the same release, the company indicated that it was proceeding with " the launch of our SMART Planter™ spring 2019 testing and demonstration program".

 

This event took the market by surprise as extensive preparations had been reported in previous months toward the acquisition. As a result, CSX.V was de-valuated quickly thereafter. Since then, Its been on a downward path and the macro-economic conditions have not helped . 

 

The subsequent company update (May 9) regarding its SMART Planter™spring 2019 program, its improvement of the "CX-6 SMART Seeder™ platform and soon the SMART Planter™", and its commitment towards M&A, joint ventures as well as, license and supply agreement had no impact. 

 

In late May, CSX.V filed its Q1 results, $93,283 in cash were reported at the time. This created more selling pressure on the stock as it was evident that subsequent funding would be needed. Other things noted in the fillings were: The Company has three other products that have been completed and are ready for sale.  The Company is not marketing any of these machines for sale at this time due to its focus on commercializing the CX-6 SMART Seeder.

 

CSX.V's President (Gary Keith Anderson) was active in purchasing shares on the public market. In total, four transactions in late July and early August totaling: $270,000. Yet. the market continued to shrug it off. 

 

In early August, CSX.V announced a non-brokered private placement for $1.5M at $0.25 cents with warrants at $0.50 cents, and reiterated its intent in pursuing more M&A opportunities. In addition, it reported "it has been served with a complaint from Harvest International Inc. related to the terminated letter agreement between Harvest International Inc. The Company believes the claims have no merit and will defend itself to the fullest extent possible.."

 

CSX.V recently announced the closing of the placements (oversubscribed) at $1.6M and indicated that it will use the proceeds "for the continued advancement of ongoing M&A activities, its SMART Seeder technology platform and for further technology advancements for all crop production sectors.

 

 

In summary, CSX.V did not proceed with a much publicized acquisition and moved forward with developing its own product (SMART Planter™) as well. as advancing it CX-6 SMART Seeder™ platform. Prior making the announcement that it has received "a complaint" from Harvest International, CSX.V's President bought more than $270,000 worth of common shares at the open market and CSX.V continued to raise funds above its current valuation ($0.25 cents) maintaining warrants at $0.50 cents. It may just be us, but CSX.V seems to be sending a message here... 

 

While the Harvest International "complaint" has yet to be fully articulated by the company, a potential new M&A from CSX.V might not be openly promoted like the former. In our last note, we reported that CSX.V was seemingly budding. Well, it may still be but now at a significant discount!

 

The question remains - to which extent, the current conditions have been priced in?

 

 

 

DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements.

The content of rally is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions - rally cannot take responsibility for your investment decisions. 

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