MustGrow Biologics : Year End 2023
MUSTGROW BIOLOGICS CORP.
Annual Information Form
For the year ended December 31, 2023
April 23, 2024
MEANINGS OF CERTAIN REFERENCES
In this annual information form (“AIF“), references to the “Company”, “MustGrow”, “we”, “us”, “our” or “its” are references to MustGrow Biologics Corp. References to “management” in this AIF mean the persons acting in the capacities of MustGrow’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer. Any statements in this AIF made by or on behalf of management are made in such persons’ capacities as officers of MustGrow and not in their personal capacities. In this AIF, unless the context suggests otherwise, the term “Company” includes the Company’s predecessors.
This AIF may contain company names, product names, trade names, trademarks and service marks of other organizations, all of which are the property of their respective owners.
FORWARD-LOOKING STATEMENTS
Certain statements in this AIF may constitute “forward-looking information” or “forward-looking statements” within the meaning of applicable securities laws (collectively, “forward-lookingstatements“), which are based upon the Company’s current internal expectations, estimates, projections, assumptions and beliefs. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements or industry results expressed or implied by such forward-looking information or financial outlook. Forward-looking statements are identified by the use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, “would”, and similar terms and phrases, including references to assumptions. Such information may involve, but is not limited to, comments with respect to strategies, expectations, planned operations or future actions.
The forecasts and projections that make up the forward-looking statements in this AIF are based on assumptions which include, but are not limited to: the Company’s ability to obtain and protect its intellectual property and other proprietary rights including patents and trade secrets; the Company’s ability to continue investment opportunities and pursue research and development opportunities; the Company’s ability to continue as a going concern; the Company’s ability to develop and commercialize, or otherwise monetize, its product candidates and develop new products; the Company’s ability to compete successfully against its competitors; the success of its product candidates and any new products; robustness of the Company’s information technology systems and ability to safeguard against security breaches; general business and economic conditions; effectiveness of any of the Company’s products; the assumption that the Company’s current good relationships with its collaborators and other third parties will be maintained; the availability of financing on reasonable terms; the Company’s ability to attract and retain skilled staff; the products and technology offered by the Company’s competitors; the ability of the Company to manage any risks relating to international operations and business; the Company’s ability to raise funding privately or on a public market in the future; the Company’s future growth, business prospects and opportunities; and the Company’s ability to obtain regulatory approvals and manage regulatory risks.
The forward-looking statements in this AIF are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking statements. The factors which could cause results to differ from current expectations include, but are not limited to: the Company’s recurring operating losses and negative cash flows; lack of expectations of generating revenues in the near future; any failure to maintain or establish satisfactory supply or manufacturing arrangements; any failure of the Company’s product candidates to receive regulatory approval or be commercially viable; any delays or failures in testing and commercialization; the adverse impact on future commercialization efforts from negative results from trials or studies of others; intense competition from corporations with greater resources and experience; any misconduct or improper activities of the Company’s employees; dependence on management and key personnel; any failure of collaboration agreements; any failure to protect our intellectual property; any failure of product development to proceed as intended, or at all; any insufficiency of insurance coverage; any changes in laws, regulations and guidelines; any deficiencies in disclosure controls and procedures and internal controls over financial reporting; any cyber-security breaches; any failure of the Company’s information technology systems; product recalls; the possible future international expansion of the Company; the volatility and fluctuation of the market price for the common shares of the Company (the “Common Shares“); the possible future dilution of shareholders; the subordination of shareholders to the Company’s lenders; the senior ranking of future offerings of debt and equity securities to that of the Common Shares; the negative
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impact of future sales of Common Shares by officers and directors on the market price for the Common Shares; the fact that there is no assurance of an active and liquid market for the Company’s securities; the Company’s limited operating history; the fact that there is no assurance of the Company’s future profitability; the risks associated with revenue generation and liquidity levels; and the fact that the Company does not currently pay dividends and has no history of paying dividends. For additional information with respect to risks and uncertainties, readers should carefully review and consider the risk factors described under the section “Risk Factors” and elsewhere in this AIF. The information contained in this AIF identifies additional factors that could affect the operating results and performance of MustGrow. Shareholders and prospective investors are urged to carefully consider those factors.
Readers are cautioned that the preparation of financial statements in accordance with International Financial Reporting Standards (“IFRS“) requires MustGrow’s management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses.
The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. Forward-looking statements reflect management’s current beliefs and are based on information currently available to MustGrow. The forward-looking statements are made as of the date of this AIF (or in the case of information contained in a document incorporated by reference herein, as of the date of such document), and MustGrow assumes no obligation to publicly update or revise such forward-looking information to reflect new information, subsequent or otherwise, except as may be required by applicable securities law.
DATE OF INFORMATION
The information in this AIF is presented as of April 23, 2024, unless otherwise indicated.
PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise indicated, all references to “$” or “dollars” are to Canadian dollars, which is MustGrow’s functional currency, and references to “US$” are to United States dollars. The financial year-end of MustGrow is December 31. MustGrow’s financial statements are prepared in accordance with IFRS.
THIRD PARTY INFORMATION
Market and industry data contained in this AIF were obtained from third party sources, such as government or other industry publications and reports, journals, studies and publications, websites and other publicly available information or based on estimates derived from same and management’s knowledge of, and experience in, the agricultural biotechnology industry, markets and economies in which the Company operates. Government and industry publications and reports generally indicate that information has been obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. The Company believes that the industry, market and economic data presented throughout this AIF is accurate and, with respect to data prepared by the Company or on the Company’s behalf, that the Company’s opinions, estimates and assumptions are currently appropriate and reasonable, but there can be no assurance as to the accuracy or completeness thereof. Further, certain of these organizations are participants in, or advisors to participants in, the agricultural biotechnology industry, and they may present information in a manner that is more favourable to the industry than would be presented by an independent source. Actual outcomes may vary materially from those forecasted in such reports or publications, and the prospect for material variation can be expected to increase as the length of the forecast period increases. While the Company believes this data to be reliable, the Company has not independently verified any of the data from third party sources referred to in this AIF, analyzed or verified the underlying studies or surveys relied upon or referred to by such sources, or ascertained the underlying industry. Market, economic, industry data and other assumptions relied upon by such sources are subject to variations and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey.
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CORPORATE STRUCTURE
Name, Address and Incorporation
MustGrow was incorporated as 1020673 B.C. Ltd. under the Business Corporations Act (British Columbia) (“BCBCA“) on December 2, 2014. On January 19, 2016, MustGrow changed its name to Duport Capital Ltd. and on March 29, 2018, it changed its name to MustGrow Biologics Corp. On August 18, 2018, MustGrow continued from under the BCBCA to the Business Corporations Act (Saskatchewan) (“SBCA“).
The Common Shares are listed on the TSX Venture Exchange (“TSXV“) under the ticker symbol “MGRO”, the OTCQB Venture Market (“OTCQB“) under the ticker symbol “MGROF” and the German Frankfurt Stock Exchange under “0C0”. MustGrow is a reporting issuer in the Canadian provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland.
The Company’s head office is located at 1005 – 201 1st Ave. S., Saskatoon SK, Canada, S7K 1J5 and its registered and record office at 800, 230 – 22nd St. E., Saskatoon SK, Canada, S7K 0E9.
Intercorporate Structure
On March 14, 2018, the Company completed a triangular amalgamation, pursuant to an amalgamation agreement (the “Amalgamation Agreement“) by and among the Company, its wholly owned subsidiary, 102023826 Saskatchewan Ltd. (“Subco“), and MPT Mustard Products & Technologies Inc. (“MPT“). Pursuant to the terms of Amalgamation Agreement, Subco and MPT amalgamated under the SBCA and the amalgamated company retained the name “MPT Mustard Products & Technologies Inc.” and remained a wholly-owned subsidiary of the Company. On January 1, 2020, the Company vertically amalgamated with MPT and the amalgamated entity continued the business of the Company under “MustGrow Biologics Corp.”.
On March 31, 2022, the Company wound up its wholly-owned subsidiary, MustGrow Biologics SAS. As of the date of this AIF, the Company does not have any subsidiaries.
GENERAL DEVELOPMENT OF THE BUSINESS
Three-year History
This section describes how the Company’s business has developed over the last three completed financial years.
2021
On January 19, 2021, the Company confirmed positive soil health and ecological impact of the active ingredient in its natural mustard-derived biopesticide.
On January 20, 2021, the Company announced successful laboratory test results of its patented mustard-derived biopesticide on Aphanomyces euteiches zoospores (“Aphanomyces“) via an independent third party facility: 100% control at economic application rates within 24 hours.
On February 9, 2021, the Company reported confirmatory results of 100% control of its mustard-derived natural biopesticide on the disease Fusarium wilt TR4, a soil borne disease affecting bananas.
On February 24, 2021, the Company reported registration approval through Canada’s Pest Management Regulatory Agency for its powdery mildew biofungicide product for use on cannabis and hemp crops in Canada.
On March 3, 2021, the Company announced that it had isolated and concentrated thiocyanate from mustard seed and that this extract had potential to be a non-selective bioherbicide (natural weed-killer).
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On April 12, 2021, the Company announced results from tobacco field trials. MustGrow’s biopesticide achieved comparable efficacy and yield results versus Chloropicrin, a synthetic chemical pesticide.
On April 29, 2021 the Company announced a collaborative field trial program with Univar Canada Ltd. subsidiary NexusBioAg (“NexusBioAg“). Trials will test the MustGrow biopesicide’s ability to treat clubroot in canola, and Aphanomyces in pulse crops.
On May 12, 2021, the Company announced successful results from greenhouse trials on Aphanomyces. Control in greenhouse soils was recorded across a range of economic applications rates.
On August 4, 2021, the Company announced that it entered into an exclusive evaluation and option agreement with Sumitomo Corporation to evaluate the Company’s Biocontrol technology for its efficacy and commercial potential. Pursuant to the agreement, the Company has granted Sumitomo Corporation, amongst other things, the intellectual property rights and the option to acquire exclusive rights to MustGrow’s technology for preplant soil fumigation, bioherbicide, postharvest and food preservation for potatoes, and bananas in North, Central, and South America.
On September 13, 2021, the Company announced a non-brokered private placement of approximately 770,000 units for gross proceeds of approximately $2.0 million at a price per unit of $2.60.
On September 29, 2021, the Company announced it had upsized its previously announced $2.0 million non-brokered private placement to approximately 2.7 million units for gross proceeds of approximately $6.9 million at a price per unit of $2.60.
On October 7, 2021, the Company announced the closing of its previously announced non-brokered private placement with a total aggregate of 2,726,611 units for gross proceeds of $7,089,189 effective October 6, 2021.
On November 10, 2021, the Company announced successful field trial results of MustGrow’s mustard plant-derived biopesticide in treating Fusarium wilt TR4. Field data confirmed reduced incidence and severity of Fusarium wilt TR4 symptoms in bananas after application of MustGrow’s Biocontrol technology and there was no phytotoxic effect on banana plants, even at high dose rates. Henceforth, testing and product development will transition to Sumitomo Corporation.
On December 14, 2021, the Company and Sumitomo Corporation announced successful U.S. field trials in cotton, soybean and cucurbits with MustGrow’s TerraMGTM technology showing efficacy comparable to synthetic chemical standards for treatment of nematode species. In addition, the Company and Sumitomo Corporation announced plans to expand the testing and development program into Mexico, Peru and Chile.
2022
On January 21, 2022, the Company announced that it entered into an exclusive agreement with Bayer AG (“Bayer“) to evaluate MustGrow’s biological technologies to determine efficacy and commercial potential in key agricultural regions. Pursuant to the agreement, MustGrow granted Bayer the right to use MustGrow’s intellectual property for testing purposes and the option to acquire exclusive rights to MustGrow’s technologies for preplant soil fumigation, bioherbicide applications, and postharvest food preservation of potatoes, including sprout inhibition, in the regions of Europe, Asia Pacific, Middle East and Africa. Under the agreement, Bayer will fund and drive all laboratory, field development, regulatory work and market development necessary for commercialization.
On February 9, 2022, the Company announced successful postharvest trials in both disease control and sprout suppression of stored potatoes conducted by a third-party independent laboratory.
On March 15, 2022, the Company announced the appointment of Laura Westby to the Board.
On April 20, 2022, the Company announced that it had entered into an evaluation and option agreement with Janssen PMP, a division of Janssen Pharmaceutica NV, one of the Janssen Pharmaceutical Companies of Johnson & Johnson,
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to test and develop MustGrow’s mustard plant-based technologies for postharvest storage preservation of fruits and vegetables globally, excluding grains, potatoes, bananas and shipping container fumigation.
On April 21, 2022, the Company announced filing of a final short form prospectus (“Shelf Prospectus“) with securities regulatory authorities in each province of Canada. The Shelf Prospectus enables the Company to offer common shares, warrants, units, debt securities, subscription receipts or any combination thereof for aggregate gross proceeds of up to $40,000,000 during the 25-month period the Shelf Prospectus is effective.
On July 20, 2022, the Company and NexusBioAg, a division of Univar Solutions Inc. (“Univar Solutions“), announced an exclusive marketing and distribution agreement in the Canadian canola and pulse market for TerraMGTM, the Company’s mustard-derived soil biopesticide technology.
On August 17, 2022, the Company and Sumitomo Corporation announced an extension of their Exclusive Evaluation and Option Agreement to evaluate the efficacy and commercial potential of the Company’s technology for preplant soil fumigation, bioherbicide, postharvest and food preservation for potatoes, and bananas in North, Central, and South America.
On October 11, 2022, the Company announced it had received conditional approval to list its Common Shares on the TSXV, subject to fulfilling final listing requirements.
On November 9, 2022, the Company announced that the TSXV approved the Company’s application to list its Common Shares on the TSXV and the Common Shares would commence trading on the TSXV on November 11, 2022. Concurrently, the Company submitted a request to voluntarily delist from the Canadian Securities Exchange (“CSE“) and the last day of trading of the Company’s shares on the CSE was November 10, 2022.
2023
On March 8, 2023, the Company announced growth of its global patent portfolio from 23 to 84 patent files in the past three years. Of the 84 patent files, 62 have been issued, an increase from 18 issued patents three years ago.
On April 18, 2023, the Company announced that it will pursue opportunities in the Soil Amendment (as defined below) and Biofertility (as defined below) marketplaces, focusing on soil and soil microbiome health, nutrient and water use efficiencies, and plant yields.
On May 23, 2023, the Company and Janssen PMP, a division of Janssen Pharmaceutica NV, announced an extension to their global partnership.
On June 5, 2023, the Company announced an agreement with Bio Ag Product Strategies to develop and commercialize Soil Amendment and Biofertility technologies in the U.S., including TerraSanteTM (as defined below).
On June 13, 2023, the Company announced completion of initial commercial run-rate production via a third-party contract manufacturer.
On September 6, 2023, the Company and Janssen PMP announced a significant expansion to their existing agreement, announced April 20, 2022, to test and develop MustGrow’s biological mustard plant-based technologies for certain postharvest food preservation storage applications globally.
On October 31, 2023, the Company announced receipt of organic compliance certification from the USDA National Organic Program for its TeraSanteTM crop fertilizer and Soil Amendment technology. TeraSanteTM is now OMRI listed in the following Generic Material Listings: NOP: Plant Extracts, Class: Crop Fertilizers and Soil Amendments.
On November 7, 2023, the Company announced that Health Canada’s Pest Management Regulatory Agency (“PMRA“) approved commencement of large-scale field trials via NexusBioAg’s 2024 BioAdvantage Trials Program (“BAT Program“). NexusBioAg is partnered with MustGrow to provide TerraMGTM to Canadian farmers, upon PMRA registration, as a preplant soil treatment for diseases affecting canola and pulse crops.
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On November 15, 2023, the Company announced receipt of the Washington State Department of Agriculture Fertilizer Registration Certificate. This certificate allows the Company to commence sales of its TerraSanteTM crop fertilizer and soil amendment product in Washington State.
On December 11, 2023, the Company announced the signing of a License and Collaboration Agreement with Bayer AG covering soil applications of MustGrow’s mustard-based biocontrol technologies in Europe, Middle East and Africa, excluding home and garden, turf and ornamental applications. Under the terms of the Agreement, MustGrow received an initial upfront payment as well as additional payments linked to the achievement of certain business milestones. Upon the commencement of commercial sales, MustGrow will also be entitled to fees from royalties and manufacturing sales. Pursuant to the Agreement, Bayer will be responsible for the regulatory and market development work in the respective field of use necessary to commercialize MustGrow’s mustard-based biocontrol technologies. Pursuant to the Agreement, Bayer has also been granted a right-of-first-negotiation for a license to use MustGrow’s mustard-based biocontrol technologies for use in bananas in particular applications, excluding post-harvest applications.
Recent Developments since December 31, 2023
On February 6, 2024, the Company announced receipt of the State of Oregon Agriculture Fertilizer Registration Certificate. This certificate allows the Company to commence sales of its TerraSanteTM crop fertilizer and soil amendment product in Oregon State.
DESCRIPTION OF THE BUSINESS
Description of the Company’s Business
General Description
The Company is a publicly traded (TSXV:MGRO; OTCQB:MGROF; FRA:0C0) agricultural biotechnology company focused on the development and commercialization of natural biological technologies and products from mustard seed for sustainable agriculture markets.
MustGrow’s Biocontrol technologies include biopesticides, biofumigants and bioherbicides derived from mustard seed. The mustard plant, which is a Brassica species plant, has natural compounds within it that produce natural chemicals with pesticidal, fungicidal and herbicidal properties. Allyl-isothiocyanate (“AITC“) and thiocyanate are the active ingredient compounds that are part of the plant’s defense mechanism against disease, pests and weeds. MustGrow has extracted the natural molecules that form these natural compounds from mustard seed and formulated them in dry and liquid forms, with potential for use as a commercial biopesticide, biofumigant and bioherbicide. MustGrow owns issued patents, patent applications, trade secrets and know-how covering the extraction, formulation and use of these natural compounds. MustGrow’s Biocontrol technology is a platform technology with multiple applications, including preplant soil treatment of disease, pests and weeds, and a biologic for postharvest food preservation.
The Company is also developing organic mustard-based Soil Amendment and Biofertility technology containing nutritious plant proteins and carbohydrates that feed soil microbes to potentially improve beneficial microbial activity and ensure long-term sustainable soil health. These targeted micro-communities are shown to improve nutrient availability, which can improve crop nutrient uptake, increase plant vigor and yields, while reducing plant stress. Under the brand name TerraSanteTM, the Company has OMRI organic certification in the United States and product registrations in the states of Washington and Oregon.
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Overall Industry and Market Conditions
Traditional solutions to combat disease, pests and weeds in agriculture face significant challenges as consumers globally are demanding a reduction in the amount of synthetic pesticides used to produce food crops. Regulatory agencies have responded by significantly restricting or outlawing existing synthetic chemistries, leaving limited alternatives for growers. In addition, the long history of synthetic chemical treatments has resulted in some resistant disease, pest and weed populations, reducing the effectiveness these chemistries. Disease, pest and weed control can be further confounded by tighter regulatory restrictions on application rates and outright bans on the use of some chemicals. At the same time, there is considerable concern to feed a growing global population on a finite amount of arable land – land needs to be used more productively and farming practices need to become more sustainable for future generations.
In response, large agricultural chemical companies are investing in more sustainable natural biocontrol technologies, including biologics, to replace or complement synthetic chemicals. Growers want to use safe, sustainable products to protect their crops, but they also need to work and provide competitive return on investment. In the past number of years, biologics have had slow uptake in the markets because many did not meet performance expectations.
Fertilizers continue to play a critical role in agriculture, although plans to reduce their use have been amplified in recent years in order to implement emission reduction strategies and minimize the negative consequences of climate change. Canada, for example, has set a voluntary national fertilizer emissions reduction target of 30% below 2020 levels by 2030 to lower greenhouse gas emissions. Sustainable, climate-friendly solutions will be required to offset this reduction while balancing the nation’s economic health, since, in Canada alone, the fertilizer industry directly and indirectly supports over 76,000 jobs and contributes nearly $13 billion to Canadian GDP.1
The European Green Deal (the “Green Deal“) is also targeting a 20% reduction in fertilizer use by 2030, while ensuring no deterioration in soil fertility, as part of the European Commission’s aim to reduce nutrient losses by at least 50% by 2030.2 Fertilizer reduction is a key element of the broader Green Deal target of a minimum 55% net reduction in greenhouse gas emissions by 2030.3
Weighing fertilizer reduction targets against the need to increase farm production, farm profitability, economic growth and global food security points to sustainable Soil Amendment and Biofertility innovation and development as a key agriculture solution.
Source: Fertilizer Canada (https://fertilizercanada.ca/our-focus/stewardship/emissions-reduction-initiative/)
Source: European Commission – Green Deal Targets for 2030 and Agricultural Production Studies (https://agriculture.ec.europa.eu/system/files/2022-02/factsheet-farmtofork-comparison-table_en_0.pdf)
Source: European Commission – A European Green Deal (https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en)
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Biocontrol Technology and Products
MustGrow’s natural, organic Biocontrol technology platform has the potential to be a solution that combines the efficacy of synthetic chemicals with the safety of biologics.
Figure 1: MustGrow’s Technology vs. Biologics vs. Synthetic Chemistries
Compared to existing biologics, MustGrow’s solution has demonstrated effective control of disease and pests. The mode of action is similar to that of synthetic chemicals and, in head-to-head field trials, has shown to be competitive at controlling the target disease or pest. However, MustGrow’s technology is not a synthetic chemical; it is sourced from food-grade mustard seed and is natural and organic. As such, it is a potentially safer alternative for the environment and soil.
The safety profile of the Company’s mustard-derived liquid biopesticide technology (TerraMGTM) is achieved through the following:
The formulation is a two-component system that is benign until mixed and applied in the field. The release of the active ingredient, AITC, is delayed. Therefore, the formulation is designed to be safe for storage, transportation and use;- The formulation has low water solubility, therefore it does not transport via water in the soil, and trials demonstrate that it does not easily run off to contaminate other water sources;
AITC has a short half-life of approximately 24 hours, compared to weeks for some synthetic chemicals. It acts quickly and then dissipates, leaving nutritious plant proteins and carbohydrates to feed soil microbes promoting positive soil bacterial and microbiome health. Healthier soil has the potential for healthy crops, and as such, better crop yields; and- Healthy soil is better for the environment, promoting increased carbon sequestration.4
4 Source: Food and Agriculture Organization of the United Nations. “Healthy soils are the basis for healthy food production”. (http://www.fao.org/fileadmin/user_upload/soils-2015/docs/EN/EN_Print_IYS_food.pdfb)
