Business Context and Reporting Period
This Form 8-K, filed September 16, 2021, reports a material definitive agreement entered into on September 10, 2021 by AgriForce Growing Systems, Ltd. The filing concerns the acquisition of intellectual property from Manna Nutritional Group LLC (“MNG”), a privately held Idaho company. The filing does not provide operating results for a reporting period.
Transaction and Key Financial Terms
- The acquired patent-pending technology is intended to process grain, pulses and root vegetables into low-starch, low-sugar, high-protein and fiber-rich flour products, as well as cereals, juices, natural sweeteners and baking enhancers.
- The aggregate purchase price is up to $14.475 million, subject to the agreement’s conditions.
- $5.0 million is payable in restricted common shares, priced using the average volume-weighted average price over the 10 trading days preceding the due diligence deadline. The shares are subject to quarterly release of resale restrictions over 10 quarters.
- $1.475 million is payable in cash at closing, reduced by amounts paid under the specified cash payment provision.
- An additional $725,000 is payable in cash: $225,000 on the effective date and $500,000 within 120 days, including reimbursement of MNG’s secured debt.
- Up to $8.0 million is payable in two tranches of post-closing common shares: $5.0 million scheduled for June 30, 2022 and $3.0 million scheduled for December 31, 2022. These shares are to be held in escrow.
The filing does not provide revenue, net income, margins, operating cash flow, cash balances, debt balances, liquidity ratios or other historical financial metrics.
Material Changes, Conditions and Unusual Items
- Closing shares are subject to completion of due diligence within 180 days of September 10, 2021, including product receipt and tasting, independent laboratory testing, and third-party engineering analysis for a pilot manufacturing facility.
- Post-closing shares and related dividends remain in escrow. Until release, voting rights are directed by the company’s board.
- If a patent is issued within 24 months after closing and transferred to the company free of encumbrances, the escrowed post-closing shares are released in four equal amounts beginning on the patent issuance date and at the following three-month anniversaries.
- If no patent is issued within 24 months after closing, the obligation to issue the post-closing shares and related dividends is void, the shares are returned to the company, and the purchase price is reduced dollar-for-dollar.
Outlook, Risks and Contingencies
The transaction is dependent on due diligence, product performance and engineering assessments, the closing conditions, and the potential issuance and transfer of a patent. The contemplated products and pilot facility remain subject to development, testing, engineering and commercialization risks. The filing includes customary forward-looking statement warnings regarding assumptions, industry conditions, operations, acquisitions and other factors that could cause actual results to differ materially.
Important Facts to Verify
- Whether the acquisition closed and whether all stated conditions were satisfied.
- The number and value of common shares ultimately issued, based on the applicable VWAP calculations.
- The amount and repayment status of MNG’s secured debt.
- Results of the independent product testing and third-party engineering analysis.
- Whether any patent was issued within 24 months and whether the escrowed shares were released or returned.
- The company’s available cash, financing needs and dilution resulting from the transaction, which are not quantified in this filing.