MATTER NO.
5 - OTHER MATTERS
The
Board knows of no matter to be brought before the Special Meeting other than the matters identified in this proxy statement. However,
if any other matter properly comes before the Special Meeting or any adjournment of the meeting, it is the intention of the persons named
in the proxy solicited by the Board to vote the shares represented by them in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS |
|
|
|
/s/ Ingo
Mueller |
|
Ingo Mueller |
|
Chairman and CEO |
|
ANNEX
I
FINANCIAL
STATEMENTS FOR DELPHY GROEP BV
Delphy
Groep B.V.
Audited
Consolidated Financial Statements
As
of and for the years ended December 31, 2021 and 2020
INDEPENDENT
AUDITORS’ REPORT
To
the Board of Directors and Stockholders of Delphy Groep B.V.
Opinion
We
have audited the consolidated financial statements of Delphy Groep B.V., which comprise the consolidated balance sheets as of December
31, 2021 and 2020, and the related consolidated statements of income and comprehensive income, changes in stockholder’s equity,
and cash flows for the years then ended, and the related notes to the consolidated financial statements.
In
our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of Delphy Groep B.V. as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for
the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis
for Opinion
We
conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities
under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section
of our report. We are required to be independent of Delphy Groep B.V. and to meet our other ethical responsibilities in accordance with
the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Responsibilities
of Management for the Financial Statements
Management
is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally
accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In
preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate,
that raise substantial doubt about Delphy Groep B.V.’s ability to continue as a going concern within one year after the date that
the financial statements are available to be issued.
Marcum
LLP ■ 600 Anton Boulevard ■ Suite 1600 ■ Costa Mesa, California 92626 ■ Phone 949.236.5600 ■ Fax 949.236.5601
■ www.marcumllp.com
Auditors’
Responsibilities for the Audit of the Financial Statements
Our
objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level
of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always
detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate,
they would influence the judgment made by a reasonable user based on the financial statements.
In
performing an audit in accordance with GAAS, we:
|
● |
Exercise
professional judgment and maintain professional skepticism throughout the audit. |
|
● |
Identify
and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform
audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. |
|
● |
Obtain
an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of Delphy Groep B.V.’s internal control. Accordingly,
no such opinion is expressed. |
|
● |
Evaluate
the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as
well as evaluate the overall presentation of the financial statements. |
|
● |
Conclude
whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Delphy
Groep B.V.’s ability to continue as a going concern for a reasonable period of time. |
We
are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, and certain internal control related matters that we identified during the audit.
Costa
Mesa,
CA
August 31,
2021
DELPHY
GROEP B.V., WAGENINGEN
CONSOLIDATED
BALANCE SHEETS
(Expressed
in EURO)
| |
Note | | |
December
31, 2021 | | |
December
31, 2020 | |
ASSETS | |
| | |
| | |
| |
| |
| | |
| | |
| |
Current | |
| | | |
| | | |
| | |
Cash
and cash equivalents | |
| | | |
€ | 4,955,602 | | |
€ | 4,721,338 | |
Restricted
cash | |
| | | |
| 42,631 | | |
| 42,631 | |
Trade
accounts receivable, less allowance for doubtful accounts of €32,029 in 2021 and €432,608 in 2020 | |
| | | |
| 3,341,772 | | |
| 3,166,089 | |
Inventories | |
| | | |
| 17,727 | | |
| 19,921 | |
Other
current assets | |
| 4 | | |
| 4,010,045 | | |
| 4,518,962 | |
Total
current assets | |
| | | |
| 12,367,777 | | |
| 12,468,941 | |
Non-current | |
| | | |
| | | |
| | |
Other
receivables | |
| 7 | | |
| 149,050 | | |
| 182,002 | |
Equity
method investments | |
| 6 | | |
| 541,911 | | |
| 629,721 | |
Property,
plant and equipment, net | |
| 5 | | |
| 4,639,787 | | |
| 3,109,654 | |
Intangible
assets | |
| | | |
| 9,911 | | |
| 4,570 | |
Total
assets | |
| | | |
€ | 17,708,436 | | |
€ | 16,394,888 | |
| |
| | | |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS’ EQUITY | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Current | |
| | | |
| | | |
| | |
Accounts
payable and other current liabilities | |
| 8 | | |
€ | 9,082,180 | | |
€ | 8,142,359 | |
Current
installments of long-term debt | |
| 9 | | |
| 200,000 | | |
| 150,000 | |
Income
taxes payable | |
| 14 | | |
| 78,452 | | |
| 330,543 | |
Total
current liabilities | |
| | | |
| 9,360,632 | | |
| 8,622,902 | |
Non-current | |
| | | |
| | | |
| | |
Long-term
debt | |
| 9 | | |
| 1,750,000 | | |
| 1,287,988 | |
Other
liabilities | |
| 10 | | |
| 186,375 | | |
| 196,640 | |
Total
liabilities | |
| | | |
| 11,297,007 | | |
| 10,107,530 | |
Commitments
and contingencies | |
| 17 | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Stockholders’
equity | |
| | | |
| | | |
| | |
Common
shares, €1 par value per share, 18,000 shares authorized, issued and outstanding at December 31, 2021 and December 31, 2020,
respectively | |
| 11 | | |
| 18,000 | | |
| 18,000 | |
Treasury
stock | |
| | | |
| (921,878 | ) | |
| (139,081 | ) |
Additional
paid-in capital | |
| | | |
| 286,108 | | |
| 286,108 | |
Retained
earnings | |
| | | |
| 7,005,538 | | |
| 6,096,469 | |
Accumulated
other comprehensive loss | |
| | | |
| (3,916 | ) | |
| (4,379 | ) |
Total
equity attributable to Delphy Groep B.V. and its subsidiaries | |
| | | |
| 6,383,852 | | |
| 6,257,117 | |
Noncontrolling
interest | |
| | | |
| 27,577 | | |
| 30,241 | |
Total
stockholders’ equity | |
| | | |
| 6,411,429 | | |
| 6,287,358 | |
| |
| | | |
| | | |
| | |
Total
liabilities and stockholders’ equity | |
| | | |
€ | 17,708,436 | | |
€ | 16,394,888 | |
The
accompanying notes are an integral part of these consolidated financial statements.
DELPHY
GROEP B.V., WAGENINGEN
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Expressed
in EURO)
For
the years ended December 31, 2021 and 2020
| |
Note | | |
2021 | | |
2020 | |
Revenue | |
| | |
| | |
| |
Revenue | |
| 12 | | |
€ | 16,548,771 | | |
€ | 15,689,275 | |
Cost
of revenue | |
| | | |
| (7,345,494 | ) | |
| (6,501,617 | ) |
Gross
profit | |
| | | |
| 9,203,277 | | |
| 9,187,658 | |
| |
| | | |
| | | |
| | |
Selling,
general and administrative expense | |
| | | |
| (9,181,496 | ) | |
| (9,893,160 | ) |
Operating
income | |
| | | |
| 21,781 | | |
| (705,502 | ) |
| |
| | | |
| | | |
| | |
Other
expense / (income) | |
| | | |
| | | |
| | |
Other
income, net | |
| 13 | | |
| 1,414,029 | | |
| 2,281,911 | |
Interest
income | |
| | | |
| 29 | | |
| 956 | |
Interest
expense | |
| | | |
| (19,109 | ) | |
| (24,345 | ) |
Income
of equity method investees | |
| | | |
| 207,487 | | |
| 55,987 | |
Income
before income taxes | |
| | | |
| 1,624,217 | | |
| 1,609,007 | |
| |
| | | |
| | | |
| | |
Income
tax expense | |
| 14 | | |
| (321,195 | ) | |
| (359,009 | ) |
Net
income | |
| | | |
| 1,303,022 | | |
| 1,249,998 | |
| |
| | | |
| | | |
| | |
Net
income attributable to non-controlling interest | |
| | | |
| 4,134 | | |
| 6,902 | |
Net
income attributable to Delphy Groep B.V. and its subsidiaries | |
| | | |
| 1,298,888 | | |
| 1,243,096 | |
| |
| | | |
| | | |
| | |
Foreign
currency translation adjustments | |
| | | |
| 463 | | |
| 1,465 | |
Net
comprehensive income Delphy Groep B.V. and its subsidiaries | |
| | | |
€ | 1,299,351 | | |
€ | 1,244,561 | |
The
accompanying notes are an integral part of these consolidated financial statements.
DELPHY
GROEP B.V., WAGENINGEN
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Expressed
in EURO, except share numbers)
| |
Common
stock | | |
Treasury
stock | | |
| | |
| | |
| | |
| | |
| | |
| |
| |
#
of Shares | | |
Amount | | |
#
of Shares | | |
Amount | | |
Additionl paid-in- capital Retained | | |
Retained earnings | | |
Accumulated other comprehensive income (loss) | | |
Total equity attributable
to Delphy Groep B.V. and its
subsidiaries | | |
Non~controlling interest | | |
Total Stockholders’ Equity | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances
as of January 1, 2020 | |
| 18,000 | | |
€ | 18,000 | | |
| 576 | | |
€ | (147,192 | ) | |
€ | 282,157 | | |
€ | 4,853,373 | | |
€ | (5,844 | ) | |
€ | 5,000,494 | | |
€ | 23,339 | | |
€ | 5,023,833 | |
Sale
of treasury stock | |
| - | | |
| - | | |
| (37 | ) | |
| 8,111 | | |
| 3,951 | | |
| - | | |
| - | | |
| 12,062 | | |
| - | | |
| 12,062 | |
Net
income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,243,096 | | |
| - | | |
| 1,243,096 | | |
| 6,902 | | |
| 1,249,998 | |
Foreign
currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,465 | | |
| 1,465 | | |
| - | | |
| 1,465 | |
Balances
as of December 31, 2020 | |
| 18,000 | | |
€ | 18,000 | | |
| 539 | | |
€ | (139,081 | ) | |
€ | 286,108 | | |
€ | 6,096,469 | | |
€ | (4,379 | ) | |
€ | 6,257,117 | | |
€ | 30,241 | | |
€ | 6,287,358 | |
Share
repurchase | |
| - | | |
| - | | |
| 2,069 | | |
| (782,797 | ) | |
| - | | |
| - | | |
| - | | |
| (782,797 | ) | |
| - | | |
| (782,797 | ) |
Net
income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,298,888 | | |
| - | | |
| 1,298,888 | | |
| 4,134 | | |
| 1,303,022 | |
Foreign
currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 463 | | |
| 463 | | |
| - | | |
| 463 | |
Dividends | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (389,819 | ) | |
| - | | |
| (389,819 | ) | |
| (6,798 | ) | |
| (396,617 | ) |
Balances
as of December 31, 2021 | |
| 18,000 | | |
€ | 18,000 | | |
| 2,608 | | |
€ | (921,878 | ) | |
€ | 286,108 | | |
€ | 7,005,538 | | |
€ | (3,916 | ) | |
€ | 6,383,852 | | |
€ | 27,577 | | |
€ | 6,411,429 | |
The
accompanying notes are an integral part of these consolidated financial statements.
DELPHY
GROEP B.V., WAGENINGEN
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in EURO)
For
the years ended December 31, 2021 and 2020
| |
2021 | | |
2020 | |
CASH
FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net
income | |
€ | 1,303,022 | | |
€ | 1,249,998 | |
Adjustments
to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation
expense | |
| 305,063 | | |
| 228,157 | |
Provision
for jubilee bonuses | |
| (10,265 | ) | |
| (43,076 | ) |
Net
change in allowance for doubtful accounts | |
| (400,579 | ) | |
| 331,005 | |
Equity
in income of equity method investees | |
| (207,487 | ) | |
| (63,597 | ) |
Foreign
exchange transaction | |
| (5,874 | ) | |
| 4,256 | |
Changes
in operating assets and liabilities: | |
| | | |
| | |
Decrease
(increase) in trade accounts receivable | |
| 224,896 | | |
| (259,759 | ) |
Decrease
(increase) in other current assets | |
| 180,563 | | |
| (171,243 | ) |
Decrease
(increase) in other receivables | |
| 26,141 | | |
| 20,940 | |
Increase
(decrease) in accounts payable and accrued liabilities | |
| 612,820 | | |
| 566,051 | |
Decrease
(increase) in inventories | |
| 2,194 | | |
| (2,300 | ) |
Decrease
(increase) in contract assets/liabilities | |
| 655,355 | | |
| 2,845 | |
Increase
(decrease) in income tax payable | |
| (252,091 | ) | |
| 363,930 | |
Net
cash provided by operating activities | |
€ | 2,433,758 | | |
€ | 2,227,207 | |
CASH
FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Acquisition
of property, plant & equipment | |
| (1,828,662 | ) | |
| (660,468 | ) |
Acquisition
of intangibles assets | |
| (11,875 | ) | |
| - | |
Dividend
received | |
| 301,171 | | |
| 135,728 | |
Net
cash used in investing activities | |
€ | (1,539,366 | ) | |
€ | (524,740 | ) |
CASH
FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Decrease
(increase) in receivable from shareholders and associates | |
| 6,811 | | |
| (37,648 | ) |
Proceeds
from debt to credit institutions | |
| 662,012 | | |
| 337,988 | |
Principal
payments on debt to credit institutions | |
| (150,000 | ) | |
| - | |
Payments
to acquire treasury stock | |
| (782,797 | ) | |
| - | |
Proceeds
from issuance of common stock | |
| - | | |
| 12,062 | |
Dividend
paid | |
| (396,617 | ) | |
| - | |
Net
cash (used in) provided by financing activities | |
€ | (660,591 | ) | |
€ | 312,402 | |
| |
| | | |
| | |
Effect
of exchange rate changes on cash | |
| 463 | | |
| 1,460 | |
Change
in cash and cash equivalents | |
| 233,801 | | |
| 2,014,869 | |
Cash
and cash equivalents at beginning of year | |
€ | 4,721,338 | | |
€ | 2,705,009 | |
Cash
and cash equivalents at end of year | |
€ | 4,955,602 | | |
€ | 4,721,338 | |
| |
| | | |
| | |
Change
in restricted cash | |
| - | | |
| 4 | |
Restricted
cash at beginning of year | |
€ | 42,631 | | |
€ | 42,627 | |
Restricted
cash at end of year | |
€ | 42,631 | | |
€ | 42,631 | |
The
accompanying notes are an integral part of these consolidated financial statements.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2021 and 2020 (Expressed in EURO, except where noted)
1.
BUSINESS OVERVIEW
Delphy
Groep B.V., Wageningen (the “Company” or “Delphy”) is a Netherland based company and was incorporated as a private
company by Articles of Incorporation issued pursuant to the provisions of the Dutch Civil Code on October 11, 2005. The Company’s
registered and records office address is at Agro Business Park 5, in Wageningen, the Netherlands and is registered at the chamber of
commerce under number 09154407.
The
activities of Delphy Groep B.V. and its group companies (“the Company”) mainly focus on the entrepreneurs in the primary
sector and agribusiness partners, both nationally and internationally. Advisors in tree cultivation, pot and bedding plant cultivation,
greenhouse vegetables, floriculture, fruit cultivation, strawberry cultivation, field vegetable cultivation, cut flowers, arable farming,
flower bulbs and other vegetable sectors, are the confidential advisors on the farm of the agricultural entrepreneur.
The
two subsidiaries GreenQ Group B.V. and Improvement Centre B.V. operate a modern greenhouse complex, in which new cultivation concepts
and technical installations from all parts of the world are developed, tested and demonstrated.
2.
BASIS OF PREPARATION
Basis
of Presentation
The
accompanying consolidated financial statements (the “financial statements”) have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”).
The
financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity
and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal
and recurring in nature, necessary for fair financial statement presentation.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Delphy and its majority-owned subsidiaries (collectively, the
Company). All significant intercompany balances and transactions have been eliminated in consolidation.
The
Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity (VIE) or
voting interest model. The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity,
and if so, whether the entity is a VIE. If the Company determines it does not hold a variable interest in a VIE or the entity is not
a VIE, it then applies the voting interest model. Under the voting interest model, the Company consolidates an entity when it holds a
majority voting interest in an entity. Immaterial subsidiaries are not included in consolidation.
The
Company accounts for investments in which it has significant influence but not a controlling financial interest using the equity method
of accounting (see Note 7).
VIE
Model
An
entity is considered to be a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient
to permit the entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment
at risk, as a group, lack either the direct or indirect ability through voting rights or similar rights to make decisions that have a
significant effect on the success of the entity or the obligation to absorb the entity’s expected losses or right to receive the
entity’s expected residual returns, or (c) the voting rights of some equity investors are disproportionate to their obligation
to absorb losses of the entity, their rights to receive returns from an entity, or both and substantially all of the entity’s activities
either involve or are conducted on behalf of an investor with disproportionately few voting rights.
The
Company consolidates entities that are VIEs when the Company determines it is the primary beneficiary. Generally, the primary beneficiary
of a VIE is a reporting entity that has (a) the power to direct the activities that most significantly affect the VIE’s economic
performance, and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant
to the VIE.
Stichting
Participatie DLV Plan Groep (the “foundation”) is a fund established by Delphy to acquire, manage and dispose Delphy’s
shares. This foundation is classified as VIE and since Delphy has power to direct most of significant activities of foundation via the
director and it has potential significant variable interest, the Foundation is consolidated by Delphy.
As
of December 31, 2021, the Company determined that all other entities subject to the consolidation guidance applies voting interest model
for consolidation.
These
consolidated financial statements include the accounts of Delphy Groep and its subsidiaries:
Name
of entity: |
|
Country
of
Incorporation |
|
Purpose |
|
Date
of
Incorporation |
Delphy
Groep B.V. |
|
Wageningen,
The Netherlands |
|
Parent
Company |
|
October
11, 2005 |
Delphy
B.V. |
|
Bennekom,
The Netherlands |
|
Consultancy,
Projects, Research and Training |
|
December
3, 2002 |
GreenQ
Group B.V. |
|
Bleiswijk,
The Netherlands |
|
Greenhouse
complex for cultivation |
|
September
9, 2005 |
Delphy
Projects B.V. |
|
Wageningen,
The Netherlands |
|
No
major operation |
|
January
12, 2001 |
Improvement
Centre B.V. |
|
Bleiswijk
, The Netherlands |
|
Greenhouse
complex for cultivation |
|
September
9, 2005 |
Aegisto
B.V. |
|
Meterik,
The Netherlands |
|
Research
and Development in Agriculture and Fisheries (not biotechnological) |
|
September
15,
2009 |
Stichting
Participatie
DLV Plan Groep |
|
Wageningen,
The Netherlands |
|
Acquire,
manage and dispose Delphy’s shares |
|
December
6, 2011 |
Delphy
Poland Sp. z.o.o |
|
Warsaw,
Poland |
|
Consultancy
and Research |
|
May
12, 2014 |
The
Company has the majority shareholdings in Delphy (Shanghai) Agriculture Technology Co. Ltd and Delphy Rwanda Ltd but not included in
its consolidated figures. The collective significance of these companies is negligible on the whole of the Company.
Functional
and Reporting Currency
The
functional currency for each entity included in these consolidated financial statements is the currency of the primary economic environment
in which the entity operates. These consolidated financial statements are presented in Euro (“€”). Currency conversion
to € is performed in accordance with ASC 830, Foreign Currency Matters.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. Significant items subject to such estimates and assumptions include estimated transaction price of the Company’s
revenue contracts; the useful lives of property, plant & equipment; allowances for doubtful accounts; deferred tax claims, inventories,
equity method investments, and share-based compensation; and provision for employee benefit obligations, and other contingencies.
Concentration
of Risk
Credit
Risk
Financial
instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable.
As of December 31, 2021, and 2020, of the Company’s cash, cash equivalents, and restricted cash of €4,955,602 and €4,721,338
respectively, €42,631 and €42,631, respectively, was held in bank accounts with ABN Amro, Rabobank and ING which are large,
creditworthy financial institutions. The Company has not experienced any losses on its deposits of cash and cash equivalents and believes
that it is not exposed to any significant credit risk on cash.
Other
Risk
The
group assesses the financial risks per contract. The main risks relating to the group are set out in the financial statements. In addition
to the financing of the ABN Amro of the real estate, the financing of the group mainly takes place with own resources that are sufficient
so that no or hardly any interest or credit risks are incurred. The responsible transactions within the group almost all take place in
Euros, so that there are hardly any currency risks.
3.
SIGNIFICANT ACCOUNTING POLICIES
Cash
and cash equivalents
All
highly liquid investments with an original maturity of three months or less at the date of purchase are considered cash equivalents.
The Company’s cash equivalents balance consists primarily of cash on hand and bank balances.
Restricted
cash
Restricted
cash consists of funds that are contractually restricted as to usage or withdrawal due to a contractual agreement for a bank guarantee.
The Company has presented restricted cash separately from cash and cash equivalents in the consolidated balance sheets.
Trade
Accounts Receivable, net
Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are
included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance
for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management
considers historical losses adjusted to take into account current market conditions, reasonable, supportable forecast and the Company’s
customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns.
The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed
individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted
and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
Property,
Plant and Equipment
Property,
Plant and Equipment are initially recognized at acquisition cost or manufacturing cost, including any costs directly attributable to
bringing the assets to the location and condition necessary for them to be capable of operating in the manner intended by the Company’s
management. Property, Plant and Equipment are subsequently measured at cost less accumulated depreciation and impairment losses.
Depreciation
is recognized on a straight-line basis to write down the cost less estimated residual value. The following useful lives are applied:
| |
Useful Lives |
Land | |
Indefinite |
Buildings | |
5 years |
Plant and machinery | |
7-11 years |
Vehicles | |
3 years |
Furniture and office equipment | |
3-7 years |
Gains
or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and
the carrying amount of the assets and are recognized in statement of comprehensive income within other income or other expenses.
Expenditures
for repairs and maintenance are charged to expense as incurred. Maintenance expenditures are only capitalized to the extent, such maintenance
extends the useful life of the asset.
Intangible
assets
Externally
Acquired Software
Intangible
assets which are acquired separately will be recognized at acquisition cost. Such cost includes the purchasing price (including any import
duties and taxes) and the additional expenses like external legal expenses. After initial recognition, the acquired intangible assets
are amortized on a straight-line basis over it’s useful live.
Internal-Use
Software Development Costs
The
Company capitalizes qualifying internal-use software development costs incurred during the application development stage for cloud-based
application i.e., QMS. QMS is primarily used to deliver its services. Capitalization of costs begins when:
(i)
the preliminary project stage is completed; and (ii) it is probable that the software will be completed and used for its intended purpose.
Capitalization ceases when the software is substantially complete and ready for its intended use. Costs related to preliminary project
activities and post-implementation operating activities are expensed as incurred.
Capitalized
internal-use software development costs are included in intangible assets, net and amortized on a straight-line basis over their estimated
useful lives. The amortization of capitalized internal-use software development costs is included in cost of services. As of December
31, 2021, and 2020, capitalized internal-use software development costs is not material and hence expensed in statement of comprehensive
income under ‘Selling, general and administrative expense’.
Leases
The
Company determines if a contract is or contains a lease at the inception of the contract and reassesses that conclusion if the contract
is modified. All leases are assessed for classification as an operating lease or a capital lease. All leases that transfer substantially
all the benefits and risk associated with the ownership of the leased property to the lessee are treated as capital leases. All leases
that do not transfer substantially all such benefits and risks are treated as operating leases. The Company does not have any leases
that are classified as capital leases as of December 31, 2021 or 2020.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which
identifiable independent cash flows are available (“asset group”). An impairment loss is recognized when the sum of projected
undiscounted cash flows is less than the carrying value of the asset group. The measurement of the impairment loss to be recognized is
based on the difference between the fair value and the carrying value of the asset group. Fair value can be determined using a market
approach, income approach or cost approach. The reversal of impairment losses is prohibited. There were no impairments of long-lived
assets for the years ended December 31, 2021 and 2020.
Revenue
Recognition
The
Company only has revenue from customers. The Company recognizes revenue when or as it satisfies performance obligations under the terms
of its contracts, and control of its services is transferred to its customers in an amount that reflects the consideration the Company
expects to receive from its customers in exchange for those services. This process involves identifying the customer contract, determining
the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance
obligations in the contract, and recognizing revenue when or as the performance obligations have been satisfied. A performance obligation
is considered distinct from other obligations in a contract when it (a) provides a benefit to the customer either on its own or together
with other resources that readily available to the customer and (b) is separately identified in the contract.
Taxes
assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected
by the Company from a customer, are excluded from sales.
The
Company’s primary sources of revenue are advisory, research, trainings and subscriptions. The Company does not act as an agent
in any of its revenue arrangements. Contracts with customers state the terms and conditions of the service. Payment terms and conditions
may vary by contract type. In the advisory revenue stream payment usually takes place after the first site visit, whereas for the research
revenue stream the first payment is expected directly after signing the contract. For trainings and subscriptions payment usually has
to be made before the training or subscription takes place. As a result, the contracts do not include a significant financing component.
In addition, contacts typically do not contain variable consideration as the contracts include stated prices. For these contracts revenue
is recognized over time, as either the customer simultaneously receives and consumes the benefits provided by the Company’s performance
as the entity performs or the entity’s performance does not create an asset with an alternative use to the entity and the entity
has an enforceable right to payment for performance completed to date. Revenue is measured by the costs incurred to date relative to
the estimated total costs to fulfill each contract (cost-to-cost method). Incurred costs represent work performed, which corresponds
with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, depreciation and amortization,
utilities and overhead.
The
Company’s remaining source of revenue is the supply of goods. For these contracts revenue is recognized at a point in time as the
performance obligation is satisfied once control of a product is transferred to a customer.
Contract
Assets and Liabilities
Contract
assets primarily represent revenue earnings over time for which the Company does not presently have an unconditional right to payment
(generally not yet billable) based on the terms of the contracts. The Company does not have impairment losses associated with contracts
with customers for the years ended December 31, 2021 and 2020.
Contract
liabilities consist of fees invoiced or paid by the Company’s customers for which the associated performance obligations have not
been satisfied and revenue has not been recognized based on the Company’s revenue recognition criteria described above.
Contract
assets and contract liabilities are reported in a net position on an individual contract basis at the end of each reporting period. Contract
assets are classified as current in the consolidated balance sheet when the Company expects to complete the related performance obligations
and invoice the customers within one year of the balance sheet date, and as long-term when the Company expects to complete the related
performance obligations and invoice the customers more than one year out from the balance sheet date. Contract liabilities are classified
as current in the consolidated balance sheet when the revenue recognition associated with the related customer payments and invoicing
is expected to occur within one year of the balance sheet date and as long-term when the revenue recognition associated with the related
customer payments and invoicing is expected to occur in more than one year from the balance sheet date.
Cost
of revenue
The
Company classifies costs as cost of revenue if they are directly related to providing the service that generates revenue. These costs
include direct costs such as labor and indirect costs such as utilities, depreciation and amortization and overhead.
Other
income
Government
Grant or Subsidies
The
Company has multiple projects which are financed by government grants or subsidies. Grants that compensate the Group for expenses incurred
are recognized in profit or loss as other income on a systematic basis in the periods in which the expenses are recognized, unless the
conditions for receiving the grant are met after the related expenses have been recognized. In this case, the grant is recognized when
it becomes receivable.
Foreign
Currency Transactions
Transactions
denominated in currencies other than the applicable functional currency are converted to the functional currency at the exchange rate
on the transaction date. At period end, monetary assets and liabilities are remeasured to the reporting currency using exchange rates
in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Gains and losses
resulting from foreign currency transactions are included in selling, general and administrative expenses.
Fair
value of Financial Instruments
The
fair value of the Company’s financial asset or financial liability is determined in accordance with FASB ASC 820, “Fair Value
Measurement,” which establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to
price assets or liabilities that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for
fair value measurements requires that assets and liabilities measured at fair value be classified and disclosed in one of the following
categories:
● |
Level
1: Defined as observable inputs, such as quoted (unadjusted) prices in active markets for identical assets or liabilities. |
|
|
● |
Level
2: Defined as observable inputs other than quoted prices included in Level 1. This includes quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
|
● |
Level
3: Defined as unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant
to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value
measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as
significant management judgment or estimation. |
The
fair value of the Company’s cash and cash equivalent, trade accounts receivable, account receivable from group companies, loan
receivable, accounts payable and long-term debt approximates their carrying amounts.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. the Company
recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement
are reflected in the period in which the change in judgment occurs.
Recently
Adopted Accounting Standards
Effective
January 1, 2021, the Company adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”
ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the
calculation of deferred tax liabilities, the incremental approach for intra-period tax allocation, and calculating income taxes in an
interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based
on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes
in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The adoption
of this new guidance did not have a material impact to these financial statements.
Recently
Issued Accounting Standards
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses”. The standard, including subsequently issued
amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets,
to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective
for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and requires the modified retrospective
approach. Early adoption is permitted. Based on the composition of the Company’s trade receivables and other financial assets,
current market conditions, and historical credit loss activity, the Company is currently in the process of evaluating the impact of this
guidance on our financial statements.
In
February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASU’s (collectively,
“Topic 842”), which requires a dual approach for lease accounting under which a lessee would account for leases as finance
leases or operating leases. Both finance leases and operating leases may result in the lessee recognizing a right of use asset and a
corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset,
and for operating leases, the lessee would recognize lease expense on a straight-line basis. This ASU is effective for fiscal years beginning
after December 15, 2022, and interim periods within those fiscal years, and allows a modified retrospective approach. Early adoption
is permitted. The Company is currently in the process of evaluating the impact of this guidance on its financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
4.
OTHER CURRENT ASSETS
| |
| December
31, 2021 | | |
| December
31, 2020 | |
Amount
receivable from participating interests and group companies | |
€ | 62,360 | | |
€ | 61,099 | |
Prepayments
and accrued income | |
| 41,841 | | |
| 176,484 | |
Dividend
receivable | |
| 99,980 | | |
| 99,980 | |
Loan
receivable* | |
| 54,789 | | |
| 140,535 | |
Tax
receivable | |
| 68,186 | | |
| 32,557 | |
Contract
assets | |
| 3,605,535 | | |
| 3,933,889 | |
Others | |
| 77,354 | | |
| 74,426 | |
Total
Other Current Asset | |
€ | 4,010,045 | | |
€ | 4,518,962 | |
*6%
interest is charged on the loan receivable. The fair value of loan receivable approximates the carrying value. For terms and conditions
with related parties, refer to Note 15 - Related Party Transactions.
5.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and
equipment consist of the following: | |
| |
| |
December
31, 2021 | | |
December
31, 2020 | |
Land
and building | |
€ | 5,169,513 | | |
€ | 4,867,507 | |
Plant
and machinery | |
| 4,638,034 | | |
| 3,241,969 | |
Furniture
and office equipment | |
| 519,828 | | |
| 401,272 | |
Vehicles | |
| 30,450 | | |
| 30,450 | |
Total
Property, Plant and Equipment | |
| 10,357,825 | | |
| 8,541,198 | |
Less:
Accumulated depreciation | |
| (5,718,038 | ) | |
| (5,431,544 | ) |
Total
Property, Plant and Equipment, Net | |
€ | 4,639,787 | | |
€ | 3,109,654 | |
Depreciation
expense on property, plant and equipment, was €305,063 and €228,157 for the years ended December 31, 2021 and 2020, respectively.
Depreciation expense is included in ‘Selling, general and administrative expense’ and ‘Cost of revenue’.
6.
EQUITY METHOD INVESTMENTS
(i)
The following table shows the information about entities in which Company made equity method investments:
Name of entity: | |
Associate / Joint venture | |
Principal activities | |
Country of Incorporation | |
Proportion of ownership as of 31 December 2021 | | |
Proportion of ownership as of 31 December 2020 | |
Delphy CVBA | |
Associate | |
Consulting company (agriculture) | |
Belgium | |
| 49.99 | % | |
| 49.99 | % |
Delphy UK Ltd | |
Associate | |
Consulting company (agriculture) | |
United Kingdom | |
| 35.20 | % | |
| 35.20 | % |
HAS Hortladvise | |
Associate | |
Consulting company (agriculture) | |
Denmark | |
| 30 | % | |
| 30 | % |
Delphy Japan Co., Ltd. | |
Joint venture | |
Consulting company (agriculture) | |
Japan | |
| 50 | % | |
| 50 | % |
Xplant.nl B.V. | |
Associate | |
Magazines & field demo days | |
The Netherlands | |
| 41 | % | |
| 41 | % |
(ii)
These consolidated financial statements include the carrying amount of equity method investments as at December 31, 2021:
| |
Carrying
amount as | | |
Carrying
amount as | |
Name
of entity: | |
at
December 31, 2021 | | |
|
at
December 31,2020 |
Delphy
CVBA | |
€ | 74,198 | | |
€ | 81,260 | |
Delphy
UK Ltd | |
| 110,008 | | |
| 92,970 | |
HAS
Hortladvise | |
| 184,772 | | |
| 312,689 | |
Delphy
Japan Co., Ltd. | |
| 162,933 | | |
| 118,786 | |
Xplant.nl
B.V. | |
| 9,998 | | |
| 1 | |
Other* | |
| 2 | | |
| 24,015 | |
Total | |
€ | 541,911 | | |
€ | 629,721 | |
*The
Company has the majority shareholdings in Delphy (Shanghai) Agriculture Technology Co. Ltd and Delphy Rwanda Ltd but not included in
its consolidated figures. The collective significance of these companies is negligible on the whole of the Company.
(iii)
Summary combined financial information for the Equity method investment
companies as of and for the years ended December 31, 2021 and 2020 follows:
|
|
Delphy
CVBA Hortladvise |
|
|
Delphy
UK Ltd |
|
|
HAS |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
2020 |
|
|
2021 |
|
|
|
2020 |
Financial position: |
|
€ |
|
|
|
|
|
|
|
€ |
|
|
|
|
|
|
|
€ |
|
|
|
|
|
Current assets |
|
|
431,313 |
|
|
|
493,542 |
|
|
|
477,860 |
|
|
|
467,148 |
|
|
|
1,179,249 |
|
|
|
2,106,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment,net |
|
|
3,101 |
|
|
|
2,430 |
|
|
|
1,386 |
|
|
|
1,715 |
|
|
|
30,926 |
|
|
|
- |
Other assets |
|
|
150 |
|
|
|
6,350 |
|
|
|
- |
|
|
|
- |
|
|
|
5.378 |
|
|
|
36,688 |
Total Assets |
|
|
434,564 |
|
|
|
502,322 |
|
|
|
479,246 |
|
|
|
468,863 |
|
|
|
1,215,553 |
|
|
|
2,143,228 |
Current liabilities |
|
|
286,137 |
|
|
|
339,769 |
|
|
|
166,460 |
|
|
|
204,418 |
|
|
|
599,645 |
|
|
|
1,005,513 |
Long-term debt |
|
|
- |
|
|
|
- |
|
|
|
263 |
|
|
|
326 |
|
|
|
|
|
|
|
95,417 |
Total liabilities |
|
|
286,137 |
|
|
|
339,769 |
|
|
|
166,724 |
|
|
|
204,744 |
|
|
|
599,645 |
|
|
|
1,100,930 |
Stockholders’
equity |
|
|
148,427 |
|
|
|
162,553 |
|
|
|
312,522 |
|
|
|
264,119 |
|
|
|
615,908 |
|
|
|
1,042,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’
equity |
|
€ |
434,564 |
|
|
|
502,322 |
|
|
€ |
479,246 |
|
|
|
468,863 |
|
|
€ |
1,215,553 |
|
|
|
2,143,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
668,378 |
|
|
|
667,302 |
|
|
|
1,193,836 |
|
|
|
1,087,253 |
|
|
|
3,992,526 |
|
|
|
3,688,977 |
Operating income |
|
|
230,419 |
|
|
|
191,348 |
|
|
|
179,948 |
|
|
|
140,131 |
|
|
|
140,840 |
|
|
|
(148,930) |
Net income |
|
|
185,874 |
|
|
|
135,680 |
|
|
|
145,357 |
|
|
|
113,251 |
|
|
|
110,907 |
|
|
|
(116,056) |
|
| |
Delphy
Japan Co., Ltd. | | |
Xplant.nl
B.V. | |
| |
2021 | | |
2020 | | |
2021 | | |
2020 | |
Financial
position: | |
€ | | | |
| | | |
€ | | | |
| | |
Current
assets | |
| 418,246 | | |
| 357,950 | | |
| 119,823 | | |
| 161,228 | |
Property,
plant, and equipment, net | |
| 2,908 | | |
| 308 | | |
| 1,460 | | |
| 1,960 | |
Other
assets | |
| 2,996 | | |
| 3,188 | | |
| 684 | | |
| - | |
Total
Assets | |
| 424,150 | | |
| 361,446 | | |
| 121,967 | | |
| 163,188 | |
Current
liabilities | |
| 97,118 | | |
| 108,745 | | |
| 91,290 | | |
| 143,762 | |
Long-term
debt | |
| - | | |
| - | | |
| 6,000 | | |
| 12,000 | |
Total
liabilities | |
| 97,118 | | |
| 108,745 | | |
| 97,290 | | |
| 155,762 | |
Stockholders’
equity | |
| 327,032 | | |
| 252,701 | | |
| 24,677 | | |
| 7,426 | |
Total
liabilities and stockholders’ | |
| | | |
| | | |
| | | |
| | |
equity | |
€ | 424,150 | | |
| 361,446 | | |
€ | 121,967 | | |
| 163,188 | |
| |
| | | |
| | | |
| | | |
| | |
Results
of operations: | |
| | | |
| | | |
| | | |
| | |
Sales | |
| 579,831 | | |
| 713,023 | | |
| 390,339 | | |
| 318,765 | |
Operating
income | |
| 101,190 | | |
| 108,814 | | |
| 15,875 | | |
| (1,891 | ) |
Net
income | |
| 94,211 | | |
| 76,543 | | |
| 17,351 | | |
| 1,686 | |
| |
| | | |
| | | |
| | | |
| | |
7.
OTHER RECEIVABLES
The
Company’s other receivables consisted of the following:
| |
December
31, 2021 | | |
December
31, 2020 | |
Loan
to stockholders^ | |
€ | 94,583 | | |
€ | 101,394 | |
Loan
to third parties* | |
| 16,408 | | |
| 43,257 | |
Deferred
tax claims | |
| 34,059 | | |
| 33,351 | |
Loan
receivable** | |
| 4,000 | | |
| 4,000 | |
Total
Other Receivable | |
€ | 149,050 | | |
€ | 182,002 | |
^An
interest of the 12-month Euribor plus 0.5% is charged on the receivables from stockholder. The terms vary from January 31, 2028, to January
31, 2031. The fair value of this Loan to Stockholder approximates the carrying value.
*The
loans to third parties concern an interest-free loan to the lease company to finance the company’s vehicle fleet. The fair value
of this loan to third parties approximates the carrying value.
**No
interest is charged on the receivables.
For
terms and conditions with related parties, refer to Note 15 - Related Party Transactions.
8.
ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
The
Company’s accrued and other current liabilities consisted of the following:
| |
December
31, 2021 | | |
December
31, 2020 | |
Accounts
payable | |
€ | 1,722,521 | | |
€ | 1,372,145 | |
Accrued
expenses | |
| 3,259,526 | | |
| 2,997,082 | |
Contract
liability | |
| 4,100,133 | | |
| 3,773,132 | |
Total
Accounts payable and Other Current Liabilities | |
€ | 9,082,180 | | |
€ | 8,142,359 | |
9.
LONG TERM DEBT
Long-term
debt as of December 31, 2021 and 2020 consists of the following:
| |
December
31, 2021 | | |
December
31, 2020 | |
2.3%
Loan payable (€1,000,000 principal) in quarterly installments of €50,000 including interest, with final payment of
€50,000 (1 January), 2026^. | |
€ | 850,000 | | |
€ | 337.988 | |
1.2%
Loan payable (€1,100,000 principal) payable at end of term, including interest, with final payment of €1,100,000 (1 July),
2026*. | |
| 1,100,000 | | |
| 1.100.000 | |
Total
Long-Term Debt | |
€ | 1,950,000 | | |
€ | 1.437.988 | |
Less: | |
| | | |
| | |
Current
installments of long-term debt | |
| 200,000 | | |
| 150.000 | |
| |
| | | |
| | |
Long-Term
Debt, Excluding Current Installments | |
€ | 1,750,000 | | |
€ | 1.287.988 | |
^
Conditions:
Lender:
ABN AMRO Bank N.V. Principal amount: €1,000,000
Repayment:
€50,000 on the first day of each quarter Interest: 2.3%
Fair
value of this long-term debt approximates the carrying value
*
Conditions:
Lender:
ABN AMRO Bank N.V. Principal amount: €1,100,000
Repayment:
full repayment at the end of the term Interest: 3 months Euribor + 1.2%
Fair
value of this long-term debt approximates the carrying value
The
following securities have been provided:
-
A bank mortgage, first in rank, amounting to € 5,000,000 on the untaxed registered property located in Hazerwoude, Dijkgraafweg
and Bleiswijk, Violierenweg;
-
A pledge on stocks;
-
A pledge on company inventory;
-
A pledge on claims.
10.
OTHER LIABILITIES
The
Company’s other liabilities consisted of the following:
| |
December
31, 2021 | | |
December
31, 2020 | |
Long
term provision for jubilee bonuses | |
€ | 186,375 | | |
€ | 196,640 | |
Total
Other Non-Current Liabilities | |
€ | 186,375 | | |
€ | 196,640 | |
11.
SHARE CAPITAL
Authorized and Issued share capital
As
of December 31, 2021, and 2020, the Company was authorized to issue 18,000 ordinary shares with a par value of €1.00 per share.
There were 18,000 shares issued and outstanding as of December 31, 2021 and 2020. Of the ordinary shares outstanding as of December 31,
2021 and 2020, nil shares were non-voting.
Holders
of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive
all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights and there are no redemption
or sinking fund provisions with respect to such shares. Common stock is subordinate to the preferred stock with respect to dividend rights
and rights upon liquidation, winding up and dissolution of the Company.
Treasury
stock
Treasury
shares are accounted for directly in equity, with treasury shares held for reissue presented as a deduction from equity and any difference
between the purchase price and reissue proceeds does not impact income. On reissue, the classification within equity of gains or losses
on share transactions differs based on the comparison of proceeds received to original cost. If the proceeds from the sale of the treasury
shares are greater than the cost of the shares sold, then the entity recognizes the excess proceeds as additional paid-in capital. If
the proceeds from the sale of the treasury shares are less than the original cost of the shares sold, then, generally, the excess cost
first reduces any additional paid-in capital arising from previous sales of treasury shares, and any remaining excess is recognized as
a reduction of retained earnings.
Noncontrolling
interest
Noncontrolling
interests’ share of equity equals the carrying amounts of net assets in undertakings not owned Delphy Groep B.V. and its
subsidiaries. The noncontrolling interest share of equity consists of the 15% of the shares not owned by Delphy Groep B.V. and its
subsidiaries.
Stockholder
Agreements with employees
All
stockholders of Delphy Groep B.V. are employees of Delphy B.V. Under the stockholder agreement, employees with certain functions are
allowed to become stockholder in Delphy under certain conditions. The employees acquire the shares either as natural person or through
personal holdings.
Certain
employees with proven performance from associates are allowed to become stockholder of the relevant legal entity. As of December 31,
2021 and 2020, employees from Delphy Poland Sp. z.o.o., Delphy UK Ltd. and HortiAdvice Scandinavia A/S have shares of the relevant legal
entity.
Under
all stockholder agreements with employees, the purchase price is determined by a stated formula which takes a multiple of the annual
profit over the last three financial years and the relative share of the employee in the issued capital into account. Employees acquire
shares on the same terms and formula price available to all other employees holding the same class of stock. In this case the transaction
is not compensatory. The formula price represents the relevant transaction price for those shares and the transaction is the sale of
a share of stock at that price. Consequently, no compensation is recorded as share- based payment.
12.
REVENUE
The
Company generates revenue primarily from the provision of services, conducting research for customers and other services (trainings and
subscriptions). In the following table, revenue from contracts with customers is disaggregated by major service lines and timing of revenue
recognition. The table also includes revenue from the major business lines.
| |
December
31, 2021 | | |
December
31, 2020 | |
Advisory
services | |
€ | 11,400,825 | | |
€ | 10,810,597 | |
Research | |
| 2,730,588 | | |
| 2,587,762 | |
Other | |
| 2,417,358 | | |
| 2,290,916 | |
| |
€ | 16,548,771 | | |
€ | 15,689,275 | |
Contract
balances
The
following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
| |
December
31, 2021 | | |
December
31, 2020 | |
Trade
accounts receivable | |
€ | 3,341,772 | | |
€ | 3,166,089 | |
Contract
asset | |
| 3,605,535 | | |
| 3,933,889 | |
Contract
liability | |
| 4,100,133 | | |
| 3,773,132 | |
The
contract assets primarily relate to the Company’s rights to consideration for work performed but not billed at the reporting date
on research projects. The amount of contract assets during the period ended 31 December 2021 was not impacted by an impairment charge.
The contract assets are transferred to receivables when the rights become unconditional. This usually occurs when the Group issues an
invoice to the customer.
The
contract liabilities primarily relate to fees received by the Company for which the associated performance obligations have not been
satisfied and revenue has not been recognized.
The
Company has multiple projects which are financed by government grants. In 2020 the Company received Noodmaatregel Overbrugging Werkgelegenheid
(NOW) subsidy, which is a temporary emergency COVID-19 support for employment expenses. The table below shows an overview of the subsidy
income recognized from various governmental organizations.
| |
December
31, 2021 | | |
December
31, 2020 | |
Government grants | |
€ | 7,044,325 | | |
€ | 6,607,488 | |
NOW | |
| - | | |
| 554,940 | |
Other | |
| 12,064 | | |
| 48,445 | |
Cost
of government grants | |
| (5,642,360 | ) | |
| (4,928,962 | ) |
| |
€ | 1,414,029 | | |
€ | 2,281,911 | |
Income
taxes
Total
income before income taxes for the years ended December, 31, 2021 and 2020 were allocated as follows:
| |
December
31, 2021 | | |
December
31, 2020 | |
Income from continuing
operations | |
€ | 1,624,217 | | |
€ | 1,609,007 | |
Income
(loss) from discontinued operations | |
| - | | |
| - | |
| |
€ | 1,624,217 | | |
€ | 1,609,007 | |
For
the years ended December, 31, 2021 and 2020, income from continuing operations before taxes consists of the following:
| |
December
31, 2021 | | |
December
31, 2020 | |
Domestic | |
€ | 1,599,108 | | |
€ | 1,563,494 | |
Foreign | |
| 25,109 | | |
| 45,513 | |
| |
€ | 1,624,217 | | |
€ | 1,609,007 | |
Income
tax expense attributable to income from continuing operations consists of:
| |
December
31, 2021 | | |
December
31, 2020 | |
Current | |
€ | (321,903 | ) | |
€ | (353,709 | ) |
Deferred
tax movement | |
| 708 | | |
| (5,300 | ) |
| |
€ | (321,195 | ) | |
€ | (359,009 | ) |
Deferred
income taxes
The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 2021 and 2020 are presented below.
| |
December
31, 2021 | | |
December
31, 2020 | |
Deferred
tax assets: | |
| | | |
| | |
Provisions | |
€ | 19,838 | | |
€ | 20,053 | |
Fixed
assets | |
| 14,221 | | |
| 13,298 | |
Total
gross deferred tax assets | |
€ | 34,059 | | |
€ | 33,351 | |
Less
valuation allowance | |
| - | | |
| - | |
Net
deferred tax assets | |
€ | 34,059 | | |
€ | 33,351 | |
Deferred
tax liabilities: | |
| | | |
| | |
Total
gross deferred liabilities | |
€ | - | | |
€ | - | |
Net
deferred tax assets | |
€ | 34,059 | | |
€ | 33,351 | |
The
Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain
whether it is more likely than not that deferred tax assets will be realized. The realization of deferred tax assets is dependent upon
the generation of future taxable income, which is uncertain.
The
Company believes that it is more likely than not that all of the deferred tax assets will be realized; accordingly, the Company has recorded
no valuation allowance on its net deferred tax assets as of December 31, 2021 and 2020.
15. |
RELATED PARTY TRANSACTIONS |
Related
party transactions and balances are set out in below tables:
| |
December
31, 2021 | | |
December
31, 2020 | |
Revenue: | |
| | | |
| | |
Delphy
CVBA | |
€ | 35,400 | | |
€ | 29,489 | |
Delphy
Japan Co., Ltd. | |
| 37,777 | | |
| 60,085 | |
Delphy
UK Ltd | |
| 136,685 | | |
| 103,362 | |
Delphy
(Shanghai) Agriculture Technology Co., Ltd2 | |
| - | | |
| 157,100 | |
| |
€ | 209,861 | | |
€ | 350,036 | |
Purchase
transactions: | |
| | | |
| | |
Delphy
CVBA | |
€ | 57,691 | | |
€ | 48,108 | |
Delphy
UK Ltd | |
| 4,590 | | |
| - | |
Latia
Agribusiness Solutions | |
| - | | |
| 10,001 | |
Delphy
Japan Co., Ltd. | |
| - | | |
| 5,023 | |
| |
€ | 62,281 | | |
€ | 63,132 | |
| |
December
31, 2021 | | |
December
31, 2020 | |
Amount
receivable from Group Companies: | |
€ | | | |
€ | | |
Delphy
Japan Co., Ltd. | |
| 1,127 | | |
| 887 | |
Delphy Rwanda Ltd2 | |
| 4,885 | | |
| 6,074 | |
Delphy
(Shanghai) Agriculture Technology Co., Ltd2 | |
| 56,348 | | |
| 54,138 | |
| |
€ | 62,360 | | |
€ | 61,099 | |
| |
December
31, 2021 | | |
December
31, 2020 | |
Receivables
from stockholders and equity method investees: | |
€ | | | |
€ | | |
Loan
to stockholders | |
| 94,583 | | |
| 101,394 | |
| |
€ | 94,583 | | |
€ | 101,394 | |
16.
EMPLOYEE PLAN
The
Company has Stichting pensioenfonds ABP and Rabobank Pensioenfonds both are currently classified as defined contribution plan. The premiums
owed for the year under review for such plans are recognized as an expense.
The
premiums are recognized as expense as soon as they are due. Prepaid premiums are recognized as accrued income if this leads to a refund
or a reduction in future payments. Premiums not yet paid are included in the balance sheet as a liability.
17. |
COMMITMENTS AND CONTINGENCIES |
Lease
commitments
The
Company has entered into operational lease obligation up to and including 2031, of which the obligations are set out in below tables:
Rental
Building | |
Future
Minimum Lease
Payments | |
2022 | |
€ | 272,403 | |
2023 | |
| 259,459 | |
2024 | |
| 208,762 | |
2025 | |
| 185,744 | |
2026
and beyond | |
| 741,626 | |
Total
future minimum lease payments – facilities | |
€ | 1,667,994 | |
Company cars: | |
Future
Minimum
Lease
Payments | |
2022 | |
€ | 530,792 | |
2023 | |
| 361,687 | |
2024 | |
| 195,923 | |
2025 | |
| 51,874 | |
2026 and beyond | |
| - | |
| |
| | |
Total future minimum lease
payments - company cars | |
€ | 1,140,276 | |
Contingencies
Other
liability
With
regard to the foreign participation in Serbia and Bosnia, no data has been received with regard to the performance in the past financial
year. The participation does not carry out any activities. Depending on local country requirements, Delphy Groep B.V. can be held liable
for any negative capital in said participation. The magnitude of such a claim cannot be reasonably estimated. As of December 31, 2021,
no such claim has been made.
Guarantees
Credit
facility
GreenQ
Group B.V., Improvement Centre B.V., Delphy Groep B.V., Delphy B.V. and Delphy Projects B.V. have a joint credit facility. The companies
are jointly and severally liable for the credit facility.
The
credit facility consists of one loan with a principal amount of €1,000,000 one loan with a principal amount of €1,100,000 and
a combination facility of €750,000.
The
following securities have been provided:
-
A bank mortgage, first in rank, amounting to €5,000,000 on the untaxed registered property located in Hazerwoude, Dijkgraafweg and
Bleiswijk, Violierenweg;
-
A pledge on stocks;
-
A pledge on company inventory;
-
A pledge on claims.
The
Company evaluated subsequent events through August 31, 2022 the date on which these financial statements were available to be issued,
to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of December 31, 2021,
and events which occurred subsequent to December 31, 2021, but were not recognized in the financial statements. Except as disclosed below,
there were no events that required recognition, adjustment to or disclosure in the financial statements.
On
February 8, 2022, in preparation of the acquirement by Agriforce, the Company retired the 2,608 common shares in treasury stock. The
accounts impacted by this retirement are common stock, treasury stock and retained earnings.
On
February 10, 2022, the Company signed a definitive agreement to be acquired by Agriforce a Canada based Nasdaq listed company through
a combination of cash and stock deal.
Delphy
Groep B.V.
Unaudited
Condensed Consolidated Interim Financial Statements
As
of June 30, 2022 and December 31, 2021 and for the six months ended June 30, 2022 and 2021
TABLE
OF CONTENTS
DELPHY
GROEP B.V., WAGENINGEN
CONDENSED
CONSOLIDATED INTERIM BALANCE SHEETS
(Expressed
in EURO)
| |
Note | | |
June
30, 2022 (Unaudited) | | |
December
31, 2021 | |
| |
| | |
| | |
| |
ASSETS | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Current | |
| | | |
| | | |
| | |
Cash
and cash equivalents | |
| | | |
€ | 1,711,563 | | |
€ | 4,955,602 | |
Restricted
cash | |
| | | |
| 42,631 | | |
| 42,631 | |
Trade
accounts receivable, less allowance for doubtful accounts of €32,141 in 2022 and €32,029 in 2021 | |
| | | |
| 2,433,672 | | |
| 3,341,772 | |
Inventories | |
| | | |
| 17,727 | | |
| 17,727 | |
Other
current assets | |
| 4 | | |
| 5,679,263 | | |
| 4,010,045 | |
Total
current assets | |
| | | |
| 9,844,856 | | |
| 12,367,777 | |
Non-current | |
| | | |
| | | |
| | |
Other
receivables | |
| 6 | | |
| 160,213 | | |
| 149,050 | |
Equity
method investments | |
| | | |
| 741,989 | | |
| 541,911 | |
Property,
plant and equipment, net | |
| 5 | | |
| 4,595,985 | | |
| 4,639,787 | |
Intangible
assets | |
| | | |
| 7,530 | | |
| 9,911 | |
Operating
lease right-of-use asset | |
| | | |
| 3,145,037 | | |
| - | |
Total
assets | |
| | | |
€ | 18,535,610 | | |
€ | 17,708,436 | |
| |
| | | |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS’ EQUITY | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Current | |
| | | |
| | | |
| | |
Accounts
payable and other current liabilities | |
| 7 | | |
€ | 6,914,297 | | |
€ | 9,082,180 | |
Lease
liabilities - current | |
| | | |
| 680,815 | | |
| - | |
Current
installments of long-term debt | |
| 8 | | |
| 200,000 | | |
| 200,000 | |
Income
taxes payable | |
| | | |
| - | | |
| 78,452 | |
Total current
liabilities | |
| | | |
| 7,795,112 | | |
| 9,360,632 | |
Non-current | |
| | | |
| | | |
| | |
Lease
liabilities – non-current | |
| | | |
| 2,464,221 | | |
| - | |
Long-term
debt | |
| 8 | | |
| 1,650,000 | | |
| 1,750,000 | |
Other
liabilities | |
| | | |
| 180,277 | | |
| 186,375 | |
Total
liabilities | |
| | | |
| 12,089,610 | | |
| 11,297,007 | |
Commitments and contingencies | |
| 14 | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Stockholders’
equity | |
| | | |
| | | |
| | |
Common shares, €1 par
value per share, 18,000 shares issued and outstanding at June 30, 2022, and December 31, 2021, respectively | |
| 9 | | |
| 15,392 | | |
| 18,000 | |
Treasury
stock | |
| | | |
| - | | |
| (921,878 | ) |
Additional
paid-in capital | |
| | | |
| 286,108 | | |
| 286,108 | |
Retained
earnings | |
| | | |
| 6,120,593 | | |
| 7,005,538 | |
Accumulated
other comprehensive loss | |
| | | |
| (3,694 | ) | |
| (3,916 | ) |
Total equity
attributable to Delphy Groep B.V. and its subsidiaries | |
| | | |
| 6,418,399 | | |
| 6,383,852 | |
Noncontrolling
interest | |
| | | |
| 27,601 | | |
| 27,577 | |
Total
stockholders’ equity | |
| | | |
| 6,446,000 | | |
| 6,411,429 | |
| |
| | | |
| | | |
| | |
Total
liabilities and stockholders’ equity | |
| | | |
€ | 18,535,610 | | |
€ | 17,708,436 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
DELPHY
GROEP B.V., WAGENINGEN
CONDENSED
CONSOLIDATED INTERIM STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(Expressed
in EURO)
For
the six months ended June 30, 2022 and 2021
| |
Note | | |
2022 | | |
2021 | |
| |
| | |
| | |
| |
Revenue | |
| | | |
| | | |
| | |
Revenue | |
| 10 | | |
€ | 8,648,108 | | |
€ | 6,704,897 | |
Cost
of revenue | |
| | | |
| (3,269,088 | ) | |
| (2,258,183 | ) |
Gross profit | |
| | | |
| 5,379,020 | | |
| 4,446,714 | |
| |
| | | |
| | | |
| | |
Selling,
general and administrative expense | |
| | | |
| (5,412,435 | ) | |
| (4,536,600 | ) |
Operating
income | |
| | | |
| (33,415 | ) | |
| (89,886 | ) |
| |
| | | |
| | | |
| | |
Other expense
/ (income) | |
| | | |
| | | |
| | |
Other income, net | |
| 11 | | |
| (78,451 | ) | |
| (349,713 | ) |
Interest income | |
| | | |
| 11,196 | | |
| 60 | |
Interest expense | |
| | | |
| (94,307 | ) | |
| (22,396 | ) |
Income
of equity method investees | |
| | | |
| 200,079 | | |
| 127,312 | |
Income
before income taxes | |
| | | |
| 5,102 | | |
| (334,623 | ) |
| |
| | | |
| | | |
| | |
Income
tax expense | |
| | | |
| 29,247 | | |
| 69,920 | |
Net
income | |
| | | |
| 34,349 | | |
| (265,333 | ) |
| |
| | | |
| | | |
| | |
Net
income attributable to non-controlling interest | |
| | | |
| (24 | ) | |
| (7,644 | ) |
Net
income attributable to Delphy Groep B.V. and its subsidiaries | |
| | | |
| 34,325 | | |
| (272,977 | ) |
| |
| | | |
| | | |
| | |
Foreign
currency translation adjustments | |
| | | |
| 222 | | |
| 1,669 | |
Net
comprehensive income Delphy Groep B.V. and its subsidiaries | |
| | | |
€ | 34,547 | | |
€ | (271,308 | ) |
The
accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
DELPHY
GROEP B.V., WAGENINGEN
CONDENSED
CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)
(Expressed
in EURO, except share numbers)
| |
Common
stock | | |
Treasury
stock | | |
| | |
| | |
| | |
| | |
| | |
| |
| |
#
of Shares | | |
Amount | | |
#
of Shares | | |
Amount | | |
Additional
paid-in-capital | | |
Retained
earnings | | |
Accumula-ted
other comprehensive income (loss) | | |
Total
equity attributable to Delphy Groep B.V. and its subsidiaries | | |
Non
controlling interest | | |
Total
Stockholders’ Equity | |
Balances
as of January 1, 2021 | |
| 18,000 | | |
€ | 18,000 | | |
| 539 | | |
€ | (139,081 | ) | |
€ | 286,108 | | |
€ | 6,096,469 | | |
€ | (4,379 | ) | |
€ | 6,257,117 | | |
€ | 30,241 | | |
€ | 6,287,358 | |
Shares repurchase | |
| - | | |
| - | | |
| 935 | | |
| (353,767 | ) | |
| - | | |
| - | | |
| - | | |
| (353,767 | ) | |
| - | | |
| (353,767 | ) |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (272,977 | ) | |
| - | | |
| (272,977 | ) | |
| 7,644 | | |
| (265,333 | ) |
Foreign
currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,669 | | |
| 1,669 | | |
| - | | |
| 1,669 | |
Balances
as of June 30, 2021 | |
| 18,000 | | |
€ | 18,000 | | |
| 1,474 | | |
€ | (492,848 | ) | |
€ | 286,108 | | |
€ | 5,823,492 | | |
€ | (2,710 | ) | |
€ | 5,632,042 | | |
€ | 37,885 | | |
€ | 5,669,927 | |
Shares repurchase | |
| - | | |
| - | | |
| 1,134 | | |
| (429,030 | ) | |
| - | | |
| - | | |
| - | | |
| (429,030 | ) | |
| - | | |
| (429,030 | ) |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,571,865 | | |
| - | | |
| 1,571,865 | | |
| (3,510 | ) | |
| 1,568,355 | |
Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,206 | ) | |
| (1,206 | ) | |
| - | | |
| (1,206 | ) |
Dividends | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (389,819 | ) | |
| - | | |
| (389,819 | ) | |
| (6,798 | ) | |
| (396,617 | ) |
Balances
as of December 31, 2021 | |
| 18,000 | | |
€ | 18,000 | | |
| 2,608 | | |
€ | (921,878 | ) | |
€ | 286,108 | | |
€ | 7,005,538 | | |
€ | (3,916 | ) | |
€ | 6,383,852 | | |
€ | 27,577 | | |
€ | 6,411,429 | |
Share retirement | |
| (2,608 | ) | |
| (2,608 | ) | |
| (2,608 | ) | |
| 921,878 | | |
| - | | |
| (919,270 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 34,325 | | |
| - | | |
| 34,325 | | |
| 24 | | |
| 34,349 | |
Foreign
currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 222 | | |
| 222 | | |
| - | | |
| 222 | |
Balances
as of June 30, 2022 | |
| 15,392 | | |
€ | 15,392 | | |
| - | | |
€ | - | | |
€ | 286,108 | | |
€ | 6,120,593 | | |
€ | (3,694 | ) | |
€ | 6,418,399 | | |
€ | 27,601 | | |
€ | 6,446,000 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
DELPHY
GROEP B.V., WAGENINGEN
CONDENSED
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (unaudited)
(Expressed
in EURO)
For
the six months ended June 30, 2022 and 2021
| |
2022 | | |
2021 | |
CASH FLOWS
FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net
income | |
€ | 34,349 | | |
€ | (265,333 | ) |
Adjustments
to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation
expense | |
| 232,088 | | |
| 108,444 | |
Net change
of right-of-use assets | |
| 162,842 | | |
| - | |
Provision
for jubilee bonuses | |
| (6,098 | ) | |
| - | |
Net change
in allowance for doubtful accounts | |
| 112 | | |
| (279,664 | ) |
Equity
in income of equity method investees | |
| (200,079 | ) | |
| (127,312 | ) |
Foreign
exchange transaction | |
| 1 | | |
| 8,179 | |
Changes
in operating assets and liabilities: | |
| | | |
| | |
Decrease
(increase) in trade accounts receivable | |
| 907,987 | | |
| 1,787,569 | |
Decrease
(increase) in other current assets | |
| (441,798 | ) | |
| (406,174 | ) |
Decrease
(increase) in other receivables | |
| (11,163 | ) | |
| (4,013 | ) |
Increase
(decrease) in accounts payable and accrued liabilities | |
| (2,648,446 | ) | |
| (389,739 | ) |
Increase
(decrease) of lease liabilities | |
| (162,842 | ) | |
| - | |
Decrease
(increase) in contract assets/liabilities | |
| (746,857 | ) | |
| (664,722 | ) |
Increase
(decrease) in income tax payable | |
| (78,452 | ) | |
| (25,602 | ) |
Net
cash used in operating activities | |
€ | (2,958,356 | ) | |
€ | (258,367 | ) |
| |
| | | |
| | |
CASH FLOWS
FROM INVESTING ACTIVITIES | |
| | | |
| | |
Acquisition
of property, plant & equipment | |
| (185,905 | ) | |
| (1,032,459 | ) |
Acquisition
of intangibles assets | |
| - | | |
| (22,522 | ) |
Dividend
received | |
| - | | |
| 152,256 | |
Net
cash used in investing activities | |
€ | (185,905 | ) | |
€ | (902,725 | ) |
| |
| | | |
| | |
CASH FLOWS
FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds
from debt to credit institutions | |
| - | | |
| 662,012 | |
Principal
payments on debt to credit institutions | |
| (100,000 | ) | |
| (50,000 | ) |
Payments
to acquire treasury stock | |
| - | | |
| (353,767 | ) |
Net
cash (used in) provided by financing activities | |
€ | (100,000 | ) | |
€ | 258,245 | |
| |
| | | |
| | |
Effect of exchange rate changes
on cash | |
| 222 | | |
| 1,669 | |
Change in cash and cash equivalents | |
| (3,244,261 | ) | |
| (902,847 | ) |
Cash
and cash equivalents at beginning of period | |
€ | 4,955,602 | | |
€ | 4,721,338 | |
Cash
and cash equivalents at end of period | |
€ | 1,711,563 | | |
€ | 3,820,160 | |
| |
| | | |
| | |
Change in restricted cash | |
| - | | |
| - | |
Restricted
cash at beginning of period | |
€ | 42,631 | | |
€ | 42,631 | |
Restricted
cash at end of period | |
€ | 42,631 | | |
€ | 42,631 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
NOTES
TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
For
the six months ended December 31, 2021 and 2020
(Expressed
in EURO, except where noted)
Delphy
Groep B.V., Wageningen (the “Company” or “Delphy”) is a Netherland based company and was incorporated as a private
company by Articles of Incorporation issued pursuant to the provisions of the Dutch Civil Code on October 11, 2005. The Company’s
registered and records office address is at Agro Business Park 5, in Wageningen, the Netherlands and is registered at the chamber of
commerce under number 09154407.
The
activities of Delphy Groep B.V. and its group companies (“the Company”) mainly focus on the entrepreneurs in the primary
sector and agribusiness partners, both nationally and internationally. Advisors in tree cultivation, pot and bedding plant cultivation,
greenhouse vegetables, floriculture, fruit cultivation, strawberry cultivation, field vegetable cultivation, cut flowers, arable farming,
flower bulbs and other vegetable sectors, are the confidential advisors on the farm of the agricultural entrepreneur.
The
two subsidiaries GreenQ Group B.V. and Improvement Centre B.V. operate a modern greenhouse complex, in which new cultivation concepts
and technical installations from all parts of the world are developed, tested and demonstrated.
Basis
of Presentation
The
accompanying unaudited condensed consolidated interim financial statements (the “interim financial statements”) have been
prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and should
be read in conjunction with the audited financial statements and the related notes thereto for the years ended December 31, 2021 and
2020, included elsewhere in this proxy statement.
In
the opinion of management, the accompanying unaudited condensed interim financial statements contain all adjustments which are necessary
to state fairly the Company’s financial position as of June 30, 2022, and the results of its operations and cash flows for the
six months ended June 30, 2022 and 2021. Such adjustments are of a normal and recurring nature. The results for the six months ended
June 30, 2022, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2022, or for
any future period.
Principles
of Consolidation
The
accompanying consolidated interim financial statements include the accounts of Delphy and its majority-owned subsidiaries (collectively,
the Company). All significant intercompany balances and transactions have been eliminated in consolidation.
The
Company accounts for investments in which it has significant influence but not a controlling financial interest using the equity method
of accounting.
These
consolidated interim financial statements include the accounts of Delphy Groep and its subsidiaries:
Name
of entity: |
|
Country
of Incorporation |
|
Purpose |
|
Date
of Incorporation |
|
Delphy
Groep B.V. |
|
Wageningen,
The Netherlands |
|
Parent
Company |
|
October
11, 2005 |
|
Delphy
B.V. |
|
Bennekom,
The Netherlands |
|
Consultancy,
Projects, Research and Training |
|
December
3, 2002 |
|
GreenQ
Group B.V. |
|
Bleiswijk,
The Netherlands |
|
Greenhouse
complex for cultivation |
|
September
9, 2005 |
|
Delphy
Projects B.V. |
|
Wageningen,
The Netherlands |
|
No
major operation |
|
January
12, 2001 |
|
Improvement
Centre B.V. |
|
Bleiswijk
, The Netherlands |
|
Greenhouse
complex for cultivation |
|
September
9, 2005 |
|
Aegisto
B.V. |
|
Meterik,
The Netherlands |
|
Research
and Development in Agriculture and Fisheries (not biotechnological) |
|
September
15, 2009 |
|
Stichting
Participatie DLV Plan Groep |
|
Wageningen,
The Netherlands |
|
Acquire,
manage and dispose Delphy’s shares |
|
December
6, 2011 |
|
Delphy
Poland Sp. z.o.o |
|
Warsaw,
Poland |
|
Consultancy
and Research |
|
May
12, 2014 |
|
The
Company has the majority shareholdings in Delphy (Shanghai) Agriculture Technology Co. Ltd and Delphy Rwanda Ltd but not included in
its consolidated interim figures. The collective significance of these companies is negligible on the whole of the Company.
Use
of Estimates
The
preparation of consolidated interim financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant items subject to such estimates and assumptions include estimated transaction price of the Company’s
revenue contracts; the useful lives of property, plant & equipment; allowances for doubtful accounts; deferred tax claims, inventories,
equity method investments, and share-based compensation; and provision for employee benefit obligations, and other contingencies.
Concentration
of Risk
Credit
Risk
Financial
instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable.
As of June 30 2022, and December 31, 2021, of the Company’s cash, cash equivalents, and restricted cash of €1,711,563 and
€4,955,602 respectively, €42,631 and €42,631, respectively, was held in bank accounts with ABN Amro, Rabobank and ING
which are large, creditworthy financial institutions. The Company has not experienced any losses on its deposits of cash and cash equivalents
and believes that it is not exposed to any significant credit risk on cash.
Other
Risk
The
group assesses the financial risks per contract. The main risks relating to the group are set out in the interim financial statements.
In addition to the financing of the ABN Amro of the real estate, the financing of the group mainly takes place with own resources that
are sufficient so that no or hardly any interest or credit risks are incurred. The responsible transactions within the group almost all
take place in Euros, so that there are hardly any currency risks.
3.
|
SIGNIFICANT
ACCOUNTING POLICIES |
This
section should be read in conjunction with the audited financial statements and the related notes thereto for the years ended December
31, 2021 and 2020, included elsewhere in this proxy statement.
Trade
Accounts Receivable, net
Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are
included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance
for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management
considers historical losses adjusted to take into account current market conditions, reasonable, supportable forecast and the Company’s
customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns.
The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed
individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted
and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
Leases
The
Company determines if a contract is or contains a lease at the inception of the contract and reassesses that conclusion if the contract
is modified. All leases are assessed for classification as an operating lease or a capital lease. All leases that transfer substantially
all the benefits and risk associated with the ownership of the leased property to the lessee are treated as capital leases. All leases
that do not transfer substantially all such benefits and risks are treated as operating leases. The Company does not have any leases
that are classified as capital leases as of June 30, 2022, and December 31, 2021.
Revenue
Recognition
The
Company only has revenue from customers. The Company recognizes revenue when or as it satisfies performance obligations under the terms
of its contracts, and control of its services is transferred to its customers in an amount that reflects the consideration the Company
expects to receive from its customers in exchange for those services. This process involves identifying the customer contract, determining
the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance
obligations in the contract, and recognizing revenue when or as the performance obligations have been satisfied. A performance obligation
is considered distinct from other obligations in a contract when it (a) provides a benefit to the customer either on its own or together
with other resources that readily available to the customer and (b) is separately identified in the contract.
Taxes
assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected
by the Company from a customer, are excluded from sales.
The
Company’s primary sources of revenue are advisory, research, trainings and subscriptions. The Company does not act as an agent
in any of its revenue arrangements. Contracts with customers state the terms and conditions of the service. Payment terms and conditions
may vary by contract type. In the advisory revenue stream payment usually takes place after the first site visit, whereas for the research
revenue stream the first payment is expected directly after signing the contract. For trainings and subscriptions payment usually has
to be made before the training or subscription takes place. As a result, the contracts do not include a significant financing component.
In addition, contacts typically do not contain variable consideration as the contracts include stated prices. For these contracts revenue
is recognized over time, as either the customer simultaneously receives and consumes the benefits provided by the Company’s performance
as the entity performs or the entity’s performance does not create an asset with an alternative use to the entity and the entity
has an enforceable right to payment for performance completed to date. Revenue is measured by the costs incurred to date relative to
the estimated total costs to fulfill each contract (cost-to-cost method). Incurred costs represent work performed, which corresponds
with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, depreciation and amortization,
utilities and overhead.
The
Company’s remaining source of revenue is the supply of goods. For these contracts revenue is recognized at a point in time as the
performance obligation is satisfied once control of a product is transferred to a customer.
Contract
Assets and Liabilities
Contract
assets primarily represent revenue earnings over time for which the Company does not presently have an unconditional right to payment
(generally not yet billable) based on the terms of the contracts. The Company does not have impairment losses associated with contracts
with customers for the six months ended June 30, 2022 and 2021.
Contract
liabilities consist of fees invoiced or paid by the Company’s customers for which the associated performance obligations have not
been satisfied and revenue has not been recognized based on the Company’s revenue recognition criteria described above.
Contract
assets and contract liabilities are reported in a net position on an individual contract basis at the end of each reporting period. Contract
assets are classified as current in the consolidated balance sheet when the Company expects to complete the related performance obligations
and invoice the customers within one year of the balance sheet date, and as long-term when the Company expects to complete the related
performance obligations and invoice the customers more than one year out from the balance sheet date. Contract liabilities are classified
as current in the consolidated balance sheet when the revenue recognition associated with the related customer payments and invoicing
is expected to occur within one year of the balance sheet date and as long-term when the revenue recognition associated with the related
customer payments and invoicing is expected to occur in more than one year from the balance sheet date.
Cost
of revenue
The
Company classifies costs as cost of revenue if they are directly related to providing the service that generates revenue. These costs
include direct costs such as labor and indirect costs such as utilities, depreciation and amortization and overhead.
Other
income
Government
Grant or Subsidies
The
Company has multiple projects which are financed by government grants or subsidies. Grants that compensate the Group for expenses incurred
are recognized in profit or loss as other income on a systematic basis in the periods in which the expenses are recognized, unless the
conditions for receiving the grant are met after the related expenses have been recognized. In this case, the grant is recognized when
it becomes receivable.
Fair
value of Financial Instruments
The
fair value of the Company’s financial asset or financial liability is determined in accordance with FASB ASC 820, “Fair Value
Measurement,” which establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to
price assets or liabilities that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for
fair value measurements requires that assets and liabilities measured at fair value be classified and disclosed in one of the following
categories:
● |
Level
1: Defined as observable inputs, such as quoted (unadjusted) prices in active markets for identical assets or liabilities. |
|
|
● |
Level
2: Defined as observable inputs other than quoted prices included in Level 1. This includes quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
● |
Level
3: Defined as unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant
to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value
measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as
significant management judgment or estimation. |
The
fair value of the Company’s cash and cash equivalent, trade accounts receivable, account receivable from group companies, loan
receivable, accounts payable and long-term debt approximates their carrying amounts.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. the Company
recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement
are reflected in the period in which the change in judgment occurs.
Recently
Adopted Accounting Standards
In
February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASU’s (collectively,
“Topic 842”), which requires a dual approach for lease accounting under which a lessee would account for leases as finance
leases or operating leases. Both finance leases and operating leases may result in the lessee recognizing a right of use asset and a
corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset,
and for operating leases, the lessee would recognize lease expense on a straight-line basis. This ASU is effective for fiscal years beginning
after December 15, 2022, and interim periods within those fiscal years, and allows a modified retrospective approach. Early adoption
is permitted. The Company is currently in the process of evaluating the impact of this guidance on its interim financial statements.
Refer to Note 13 Leases.
Upon
adoption of Topic 842 effective January 1, 2022, we recognized operating lease liabilities of €3,307,879 and corresponding right-of-use
(“ROU”) assets of €3,307,879.
Recently
Issued Accounting Standards
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses”. The standard, including subsequently issued
amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets,
to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective
for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and requires the modified retrospective
approach. Early adoption is permitted. Based on the composition of the Company’s trade receivables and other financial assets,
current market conditions, and historical credit loss activity, the Company is currently in the process of evaluating the impact of this
guidance on our interim financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated interim financial statements upon adoption. The Company does not discuss recent pronouncements
that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
| |
June
30, 2022 | | |
December
31, 2021 | |
Amount receivable
from participating interests and group companies | |
€ | 62,360 | | |
€ | 62,360 | |
Prepayments and accrued income | |
| 401,799 | | |
| 41,841 | |
Dividend receivable | |
| - | | |
| 99,980 | |
Loan receivable* | |
| 40,233 | | |
| 54,789 | |
Tax receivable | |
| 94,562 | | |
| 68,186 | |
Contract assets | |
| 4,832,955 | | |
| 3,605,535 | |
Others | |
| 247,354 | | |
| 77,354 | |
Total
Other Current Asset | |
€ | 5,679,263 | | |
€ | 4,010,045 | |
*6%
interest is charged on the loan receivable. The fair value of loan receivable approximates the carrying value.
For
terms and conditions with related parties, refer to Note 12 - Related Party Transactions.
5. |
PROPERTY,
PLANT AND EQUIPMENT |
Property,
plant and equipment consist of the following:
| |
June
30, 2022 | | |
December
31, 2021 | |
Land and building | |
€ | 5,225,959 | | |
€ | 5,169,513 | |
Plant and machinery | |
| 5,017,649 | | |
| 4,638,034 | |
Furniture and office equipment | |
| 269,672 | | |
| 519,828 | |
Vehicles | |
| 30,450 | | |
| 30,450 | |
Total Property, Plant and
Equipment | |
| 10,543,730 | | |
| 10,357,825 | |
Less:
Accumulated depreciation | |
| (5,947,745 | ) | |
| (5,718,038 | ) |
Total
Property, Plant and Equipment, Net | |
€ | 4,595,985 | | |
€ | 4,639,787 | |
Depreciation
expense on property, plant and equipment, was €229,707 and €94,749 for the six months ended June 30, 2022 and 2021, respectively.
Depreciation expense is included in ‘Selling, general and administrative expense’ and ‘Cost of revenue’.
The
Company’s other receivables consisted of the following:
| |
June
30, 2022 | | |
December
31, 2021 | |
Loan to stockholders^ | |
€ | 94,583 | | |
€ | 94,583 | |
Loan to third parties* | |
| 27,571 | | |
| 16,408 | |
Deferred tax claims | |
| 34,059 | | |
| 34,059 | |
Loan
receivable** | |
| 4,000 | | |
| 4,000 | |
Total
Other Receivable | |
€ | 160,213 | | |
€ | 149,050 | |
^An
interest of the 12-month Euribor plus 0.5% is charged on the receivables from stockholder. The terms vary from January 31, 2028, January
31, 2031 or indefinitely. The fair value of this Loan to Stockholder approximates the carrying value.
*The
loans to third parties concern an interest-free loan to the lease company to finance the company’s vehicle fleet. The fair value of this
loan to third parties approximates the carrying value.
**No
interest is charged on the receivables.
For
terms and conditions with related parties, refer to Note 12 - Related Party Transactions.
7. |
ACCOUNTS
PAYABLE AND OTHER CURRENT LIABILITIES |
The
Company’s accrued and other current liabilities consisted of the following:
| |
June
30, 2022 | | |
December
31, 2021 | |
Accounts payable | |
€ | 1,065,200 | | |
€ | 1,722,521 | |
Accrued expenses | |
| 1,268,401 | | |
| 3,259,526 | |
Contract
liability | |
| 4,580,696 | | |
| 4,100,133 | |
Total
Accounts payable and Other Current Liabilities | |
€ | 6,914,297 | | |
€ | 9,082,180 | |
Long-term
debt as of June 30, 2022, and December 31, 2021 consists of the following:
| |
June
30, 2022 | | |
December
31, 2021 | |
2.3% Loan payable
(€1,000,000 principal) in quarterly installments of €50,000 including interest, with final payment of €50,000 (1 January),
2026^. | |
€ | 750,000 | | |
€ | 850,000 | |
1.2%
Loan payable (€1,100,000 principal) payable at end of term, including interest, with final payment of €1,100,000 (1 July),
2026*. | |
| 1,100,000 | | |
| 1,100,000 | |
Total
Long-Term Debt | |
€ | 1,850,000 | | |
€ | 1,950,000 | |
Less: | |
| | | |
| | |
Current installments of long-term
debt | |
| 200,000 | | |
| 200,000 | |
| |
| | | |
| | |
Long-Term
Debt, Excluding Current Installments | |
€ | 1,650,000 | | |
€ | 1,750,000 | |
^
Conditions:
Lender:
ABN AMRO Bank N.V.
Principal
amount: €1,000,000
Repayment:
€50,000 on the first day of each quarter
Interest:
2.3%
Fair
value of this long-term debt approximates the carrying value
*
Conditions:
Lender:
ABN AMRO Bank N.V.
Principal
amount: €1,100,000
Repayment:
full repayment at the end of the term
Interest:
3 months Euribor + 1.2%
Fair
value of this long-term debt approximates the carrying value
The
following securities have been provided:
- A bank mortgage, first in rank, amounting to € 5,000,000 on the untaxed registered property located in Hazerwoude, Dijkgraafweg
and Bleiswijk, Violierenweg;
- A pledge on stocks;
- A pledge on company inventory;
- A pledge on claims.
Authorized
and Issued share capital
As
of June 30, 2022, and December 31, 2021, the Company was authorized to issue 18,000 ordinary shares with a par value of €1.00 per
share. There were 15,392 shares issued and outstanding as of June 30, 2022, and 18,000 shares issued and outstanding as of December 31,
2021. Of the ordinary shares outstanding as of June 30, 2022, and December 31, 2021, nil shares were non-voting.
Holders
of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive
all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights and there are no redemption
or sinking fund provisions with respect to such shares. Common stock is subordinate to the preferred stock with respect to dividend rights
and rights upon liquidation, winding up and dissolution of the Company.
Treasury
stock
Treasury
shares are accounted for directly in equity, with treasury shares held for reissue presented as a deduction from equity and any difference
between the purchase price and reissue proceeds does not impact income. On reissue, the classification within equity of gains or losses
on share transactions differs based on the comparison of proceeds received to original cost. If the proceeds from the sale of the treasury
shares are greater than the cost of the shares sold, then the entity recognizes the excess proceeds as additional paid-in capital. If
the proceeds from the sale of the treasury shares are less than the original cost of the shares sold, then, generally, the excess cost
first reduces any additional paid-in capital arising from previous sales of treasury shares, and any remaining excess is recognized as
a reduction of retained earnings.
Noncontrolling
interest
Noncontrolling
interests’ share of equity equals the carrying amounts of net assets in undertakings not owned Delphy Groep B.V. and its subsidiaries.
The noncontrolling interest share of equity consists of the 15% of the shares not owned by Delphy Groep B.V. and its subsidiaries.
Stockholder
Agreements with employees
All
stockholders of Delphy Groep B.V. are employees of Delphy B.V. Under the stockholder agreement, employees with certain functions are
allowed to become stockholder in Delphy under certain conditions. The employees acquire the shares either as natural person or through
personal holdings.
Certain
employees with proven performance from associates are allowed to become stockholder of the relevant legal entity. As of June 30, 2022
and December 31, 2021, employees from Delphy Poland Sp. z.o.o., Delphy UK Ltd. and HortiAdvice Scandinavia A/S have shares of the relevant
legal entity.
Under
all stockholder agreements with employees, the purchase price is determined by a stated formula which takes a multiple of the annual
profit over the last three financial years and the relative share of the employee in the issued capital into account. Employees acquire
shares on the same terms and formula price available to all other employees holding the same class of stock. In this case the transaction
is not compensatory. The formula price represents the relevant transaction price for those shares and the transaction is the sale of
a share of stock at that price. Consequently, no compensation is recorded as share-based payment.
The
Company generates revenue primarily from the provision of services, conducting research for customers and other services (trainings and
subscriptions). In the following table, revenue from contracts with customers is disaggregated by major service lines and timing of revenue
recognition. The table also includes revenue from the major business lines.
| |
June
30, 2022 | | |
June
30, 2021 | |
Advisory services | |
€ | 6,296,332 | | |
€ | 5,228,596 | |
Research | |
| 1,668,706 | | |
| 995,975 | |
Other | |
| 683,070 | | |
| 480,326 | |
| |
€ | 8,648,108 | | |
€ | 6,704,897 | |
Contract
balances
The
following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
| |
June
30, 2022 | | |
December
31, 2021 | |
Trade accounts
receivable | |
€ | 2,433,672 | | |
€ | 3,341,772 | |
Contract asset | |
| 4,832,955 | | |
| 3,605,535 | |
Contract liability | |
| 4,580,696 | | |
| 4,100,133 | |
The
contract assets primarily relate to the Company’s rights to consideration for work performed but not billed at the reporting date
on research projects. The amount of contract assets during the period ended 31 December 2021 was not impacted by an impairment charge.
The contract assets are transferred to receivables when the rights become unconditional. This usually occurs when the Group issues an
invoice to the customer.
The
contract liabilities primarily relate to fees received by the Company for which the associated performance obligations have not been
satisfied and revenue has not been recognized.
The
Company has multiple projects which are financed by government grants. The table below shows an overview of the subsidy income recognized
from various governmental organizations.
| |
June
30, 2022 | | |
June
30, 2021 | |
Government grants | |
€ | 3,026,299 | | |
€ | 3,402,346 | |
Other | |
| (246 | ) | |
| 2,032 | |
Cost
of government grants | |
| (3,104,504 | ) | |
| (3,754,091 | ) |
| |
€ | (78,451 | ) | |
€ | (349,713 | ) |
12. |
RELATED
PARTY TRANSACTIONS |
Related
party transactions and balances are set out in below tables:
| |
June
30, 2022 | | |
June
30, 2021 | |
Revenue: | |
| | | |
| | |
Delphy CVBA | |
€ | 3,000 | | |
€ | 25,000 | |
Delphy Japan Co., Ltd. | |
| 30,323 | | |
| 8,631 | |
Delphy
UK Ltd | |
| 91,706 | | |
| 91,668 | |
| |
€ | 125,029 | | |
€ | 125,299 | |
Purchase
transactions: | |
| | | |
| | |
Delphy UK Ltd | |
| 5,800 | | |
| 4,590 | |
HortiAdvice A/S | |
| 361 | | |
| - | |
| |
€ | 6,161 | | |
€ | 4,590 | |
| |
June
30, 2022 | | |
December
31, 2021 | |
Amount
receivable from Group Companies: | |
€ | | | |
€ | | |
Delphy Japan Co.,
Ltd. | |
| 1,127 | | |
| 1,127 | |
Delphy Rwanda Ltd2 | |
| 4,885 | | |
| 4,885 | |
Delphy
(Shanghai) Agriculture Technology Co., Ltd2 | |
| 56,348 | | |
| 56,348 | |
| |
€ | 62,360 | | |
€ | 62,360 | |
| |
June
30, 2022 | | |
December
31, 2021 | |
Receivables
from stockholders and equity method investees: | |
€ | | | |
€ | | |
Loan
to stockholders | |
| 94,583 | | |
| 94,583 | |
| |
€ | 94,583 | | |
€ | 94,583 | |
The
Company determines if any arrangements contain a lease at its inception. The Company assesses whether or not the Company has control
over the identified asset for a period of time during the contract period. Operating leases are included in non-current assets, current
liabilities, and non-current liabilities in our consolidated balance sheet if the lease term is greater than 12 months. There are no
finance leases.
ROU
assets represent the right to use underlying asset during the lease term and the lease liabilities represent the obligation to make lease
payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the commencement date of the lease based
on the present value of the lease payments over the lease term. The Company uses the incremental borrowing rate on based information
available at the commencement date of the lease payments. The Company includes payments for any renewal or cancellable options that are
reasonably certain that the Company will exercise.
Operating
lease costs for lease payments are recognized on a straight-line basis over the lease term.
The
Company has elected to not record ROU assets and lease obligations for short-term leases with a term less than 12 months and recognizes
the short-term leases as a lease expense to the profit or loss.
The
components of lease expenses were as follows:
| |
June
30, 2022 | |
Operating lease
expenses | |
€ | 465,622 | |
Short
term lease expenses | |
| - | |
Total
lease expenses | |
€ | 465,622 | |
The
Company has operating leases for several offices with remaining lease terms between 6 months and 9 years and for several cars with remaining
lease terms between 1 month and 4 years. The discount rate was 4,5%.
14. |
COMMITMENTS
AND CONTINGENCIES |
Lease
commitments
The
Company has entered into operational lease obligation up to and including 2031, of which the obligations are set out in below tables:
Rental
Building | |
Future
Minimum Lease Payments | |
2022 | |
€ | 143,254 | |
2023 | |
| 259,459 | |
2024 | |
| 208,762 | |
2025 | |
| 185,744 | |
2026
and beyond | |
| 741,626 | |
Total
future minimum lease payments – facilities | |
€ | 1,538,845 | |
Company
cars: | |
Future
Minimum Lease Payments | |
2022 | |
€ | 265,245 | |
2023 | |
| 409,019 | |
2024 | |
| 255,284 | |
2025 | |
| 104,715 | |
2026
and beyond | |
| 14,792 | |
Total
future minimum lease payments - company cars | |
€ | 1,049,055 | |
Contingencies
Other
liability
With
regard to the foreign participation in Serbia and Bosnia, no data has been received with regard to the performance in the past financial
year. The participation does not carry out any activities. Depending on local country requirements, Delphy Groep B.V. can be held liable
for any negative capital in said participation. The magnitude of such a claim cannot be reasonably estimated. As of December 31, 2021,
no such claim has been made.
Guarantees
Credit
facility
GreenQ
Group B.V., Improvement Centre B.V., Delphy Groep B.V., Delphy B.V. and Delphy Projects B.V. have a joint credit facility. The companies
are jointly and severally liable for the credit facility.
The
credit facility consists of one loan with a principal amount of €1,000,000 one loan with a principal amount of €1,100,000 and
a combination facility of €750,000.
The
following securities have been provided:
-
A bank mortgage, first in rank, amounting to €5,000,000 on the untaxed registered property located in Hazerwoude, Dijkgraafweg and
Bleiswijk, Violierenweg;
-
A pledge on stocks;
-
A pledge on company inventory;
-
A pledge on claims.
The
Company evaluated subsequent events through October 21, 2022 the date on which these interim financial statements were available
to be issued, to ensure that this filing includes appropriate disclosure of events both recognized in the interim financial statements
as of June 30, 2022, and events which occurred subsequent to June 30, 2022, but were not recognized in the interim financial statements.
There were no events that required recognition, adjustment to or disclosure in the interim financial statements.
ANNEX
II
FINANCIAL
STATEMENTS AND MANAGEMENT DISCUSSION AND ANALYSIS FOR AGRIFORCE GROWING SYTEMS LTD.
AGRIFORCE
GROWING SYSTEMS LTD.
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED
DECEMBER
31, 2021 AND 2010
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
AgriFORCE Growing Systems Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of AgriFORCE Growing Systems Ltd. (the “Company”) as of December 31, 2021 and 2020, the related consolidated
statements of comprehensive loss, changes in shareholders equity and cash flows for each of the two years in the period ended December
31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of
its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles
generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred
significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.
/s/
Marcum LLP |
|
Marcum
llp |
|
|
|
We
have served as the Company’s auditor since 2020. |
|
Costa
Mesa, CA
March
29, 2022
AGRIFORCE
GROWING SYSTEMS LTD.
CONSOLIDATED
BALANCE SHEETS
(Expressed
in US dollars)
| |
Note | | |
December 31, 2021 | | |
December 31, 2020 | |
| |
| | |
| | |
| |
ASSETS | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Current | |
| | | |
| | | |
| | |
Cash | |
| | | |
$ | 7,775,290 | | |
$ | 653,410 | |
Other receivables | |
| | | |
| 32,326 | | |
| 8,973 | |
Prepaid expenses and other current assets | |
| 6 | | |
| 309,040 | | |
| 213,038 | |
Total current assets | |
| | | |
| 8,116,656 | | |
| 875,421 | |
| |
| | | |
| | | |
| | |
Non-current | |
| | | |
| | | |
| | |
Property and equipment, net | |
| 4 | | |
| 40,971 | | |
| 28,443 | |
Intangible asset | |
| 7 | | |
| 1,477,237 | | |
| - | |
Lease deposit, non-current | |
| | | |
| 50,608 | | |
| - | |
Deferred IPO costs | |
| | | |
| - | | |
| 390,932 | |
Construction in progress | |
| 5 | | |
| 2,079,914 | | |
| 2,071,093 | |
Total assets | |
| | | |
$ | 11,765,386 | | |
$ | 3,365,889 | |
| |
| | | |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Current | |
| | | |
| | | |
| | |
Accounts payable and accrued liabilities | |
| 8 | | |
$ | 1,532,312 | | |
$ | 1,930,988 | |
Contingent consideration payable | |
| 7 | | |
| 753,727 | | |
| - | |
Total current liabilities | |
| | | |
| 2,286,039 | | |
| 1,930,988 | |
| |
| | | |
| | | |
| | |
Non-current | |
| | | |
| | | |
| | |
Deferred rent | |
| | | |
| 12,954 | | |
| - | |
Warrants liability | |
| 11 | | |
| 1,418,964 | | |
| - | |
Long term loan | |
| 10 | | |
| 47,326 | | |
| 31,417 | |
Total liabilities | |
| | | |
| 3,765,283 | | |
| 1,962,405 | |
Commitments and contingencies | |
| 16 | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Shareholders’ equity | |
| | | |
| | | |
| | |
Preferred Shares, no par value per share - unlimited shares authorized; nil and
2,258,826 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively* | |
| 12 | | |
| - | | |
| 6,717,873 | |
Common shares, no par value per share - unlimited shares authorized; 15,176,698 and 8,441,617 shares
issued and outstanding at December 31, 2021 and December 31, 2020, respectively* | |
| 12 | | |
| 25,637,543 | | |
| 5,696,050 | |
Additional paid-in-capital | |
| 12 | | |
| 2,203,343 | | |
| 1,297,566 | |
Obligation to issue shares | |
| 12 | | |
| 93,295 | | |
| 94,885 | |
Accumulated deficit | |
| | | |
| (19,900,992 | ) | |
| (12,521,944 | ) |
Accumulated other comprehensive income (loss) | |
| | | |
| (33,086 | ) | |
| 119,054 | |
Total shareholders’ equity | |
| | | |
| 8,000,103 | | |
| 1,403,484 | |
| |
| | | |
| | | |
| | |
Total liabilities and shareholders’ equity | |
| | | |
$ | 11,765,386 | | |
$ | 3,365,889 | |
* |
reflects the 1:4.75 reverse stock split effected on November 29, 2020. |
The
accompanying notes are an integral part of these consolidated financial statements.
AGRIFORCE
GROWING SYSTEMS LTD.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(Expressed
in US dollars)
For
the years ended December 31, 2021 and 2020
| |
Note | | |
2021 | | |
2020 | |
| |
| | |
| | |
| |
OPERATING EXPENSES | |
| | | |
| | | |
| | |
Consulting | |
| | | |
$ | 1,088,413 | | |
$ | 441,021 | |
Depreciation | |
| 4 | | |
| 11,797 | | |
| 9,059 | |
Office and administrative | |
| | | |
| 780,135 | | |
| 189,813 | |
Investor and public relations | |
| | | |
| 748,349 | | |
| 121,126 | |
Professional fees | |
| | | |
| 882,146 | | |
| 445,158 | |
Rent | |
| | | |
| 168,315 | | |
| 20,898 | |
Research and development | |
| 15 | | |
| 474,338 | | |
| 123,915 | |
Share based compensation | |
| 12 | | |
| 796,141 | | |
| 571,210 | |
Shareholder and regulatory | |
| | | |
| 143,095 | | |
| 337,878 | |
Travel and entertainment | |
| | | |
| 69,598 | | |
| 13,426 | |
Wages and salaries | |
| | | |
| 1,766,491 | | |
| 1,071,867 | |
Operating loss | |
| | | |
| (6,928,818 | ) | |
| (3,345,371 | ) |
| |
| | | |
| | | |
| | |
OTHER EXPENSES / (INCOME) | |
| | | |
| | | |
| | |
Foreign exchange gain | |
| | | |
| (162,976 | ) | |
| (17,650 | ) |
Write-off of deposit | |
| | | |
| 151,711 | | |
| - | |
Accretion of interest on senior secured debentures | |
| | | |
| 483,529 | | |
| - | |
Change in fair value of warrants | |
| 11 | | |
| (1,191,383 | ) | |
| - | |
Issuance cost related to warrants | |
| | | |
| 374,465 | | |
| - | |
Loss on extension of debt term | |
| | | |
| 58,952 | | |
| - | |
SR&ED tax incentive income | |
| 15 | | |
| - | | |
| (106,195 | ) |
| |
| | | |
| | | |
| | |
Net loss | |
| | | |
| (6,643,116 | ) | |
| (3,221,526 | ) |
| |
| | | |
| | | |
| | |
Dividend paid to preferred shareholders | |
| | | |
| 735,932 | | |
| 948,064 | |
| |
| | | |
| | | |
| | |
Net loss attributable to common shareholders | |
| | | |
| (7,379,048 | ) | |
| (4,169,590 | ) |
| |
| | | |
| | | |
| | |
Other comprehensive loss | |
| | | |
| | | |
| | |
Foreign currency translation | |
| | | |
| (152,140 | ) | |
| (45,856 | ) |
| |
| | | |
| | | |
| | |
Comprehensive loss attributable to common shareholders | |
| | | |
$ | (7,531,188 | ) | |
$ | (4,215,446 | ) |
| |
| | | |
| | | |
| | |
Basic and diluted net loss attributed to common share* | |
| | | |
$ | (0.66 | ) | |
$ | (0.53 | ) |
| |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding –
basic and diluted* | |
| | | |
| 11,164,311 | | |
| 7,907,233 | |
* |
reflects the 1:4.75 reverse stock split effected on November 29, 2020. |
The
accompanying notes are an integral part of these consolidated financial statements.
AGRIFORCE
GROWING SYSTEMS LTD.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Expressed
in US dollars, except share numbers)
| |
| | |
Common Shares* | | |
Series A Preferred Shares* | | |
Additional
Paid-in- | | |
Obligation to issue | | |
Accumulated | | |
Accumulated other comprehensive | | |
Total Shareholders’ | |
| |
Note | | |
# of Shares | | |
Amount | | |
# of Shares | | |
Amount | | |
capital | | |
shares | | |
Deficit | | |
income (loss) | | |
Equity | |
Balance, December 31, 2019 | |
| | | |
| 7,705,209 | | |
$ | 3,725,454 | | |
| 2,258,826 | | |
$ | 6,717,873 | | |
$ | 726,356 | | |
$ | 12,463 | | |
$ | (8,352,354 | ) | |
$ | 164,910 | | |
$ | 2,994,702 | |
Shares issued for cash | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for cash, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for conversion of series A Preferred Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for conversion of series A Preferred Stock, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued on exercise of warrants | |
| | | |
| 365,112 | | |
| 666,878 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 666,878 | |
Shares
issued on cashless exercise of warrants | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued on cashless exercise of warrants, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares
issued on exercise of options | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued on exercise of options, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares
issued on cashless exercise of options | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued on cashless exercise of options, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares
issued for bonus and compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for bonus and compensation, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for consulting services | |
| | | |
| 100,237 | | |
| 355,654 | | |
| - | | |
| - | | |
| - | | |
| 82,422 | | |
| - | | |
| - | | |
| 438,076 | |
Share
issued for settlement of accrued director’s fee | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share issued for settlement of accrued director’s fee, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for dividend on Preferred Shares | |
| | | |
| 271,059 | | |
| 948,064 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (948,064 | ) | |
| - | | |
| - | |
Share issue costs | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share based compensation | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 571,210 | | |
| - | | |
| - | | |
| - | | |
| 571,210 | |
Net loss | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,221,526 | ) | |
| - | | |
| (3,221,526 | ) |
Foreign currency translation | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (45,856 | ) | |
| (45,856 | ) |
Balance, December 31, 2020 | |
| | | |
| 8,441,617 | | |
$ | 5,696,050 | | |
| 2,258,826 | | |
$ | 6,717,873 | | |
$ | 1,297,566 | | |
$ | 94,885 | | |
$ | (12,521,944 | ) | |
$ | 119,054 | | |
$ | 1,403,484 | |
Beginning Balance, | |
| | | |
| 8,441,617 | | |
$ | 5,696,050 | | |
| 2,258,826 | | |
$ | 6,717,873 | | |
$ | 1,297,566 | | |
$ | 94,885 | | |
$ | (12,521,944 | ) | |
$ | 119,054 | | |
$ | 1,403,484 | |
Shares issued for cash | |
| | | |
| 3,127,998 | | |
| 13,262,712 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 13,262,712 | |
Shares issued for conversion of series A Preferred
Stock | |
| | | |
| 2,258,826 | | |
| 6,717,873 | | |
| (2,258,826 | ) | |
| (6,717,873 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Shares issued on exercise of warrants | |
| | | |
| 39,800 | | |
| 238,800 | | |
| - | | |
| - | | |
| 44,644 | | |
| - | | |
| - | | |
| - | | |
| 283,444 | |
Shares issued on cashless exercise of warrants | |
| | | |
| 36,275 | | |
| - | | |
| - | | |
| - | | |
| 64,992 | | |
| - | | |
| - | | |
| - | | |
| 64,992 | |
Shares issued on exercise of options | |
| | | |
| 7,018 | | |
| 9,123 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 9,123 | |
Shares issued on cashless exercise of options | |
| | | |
| 820,029 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Shares issued for bonus and compensation | |
| | | |
| 159,775 | | |
| 648,449 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 648,449 | |
Shares issued for consulting services | |
| | | |
| 76,364 | | |
| 381,663 | | |
| - | | |
| - | | |
| - | | |
| (1,590 | ) | |
| - | | |
| - | | |
| 380,073 | |
Share issued for settlement of accrued director’s
fee | |
| | | |
| 19,992 | | |
| 46,783 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 46,783 | |
Shares issued for dividend on Preferred shares | |
| | | |
| 189,004 | | |
| 735,932 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (735,932 | ) | |
| - | | |
| - | |
Share issue costs | |
| | | |
| - | | |
| (2,099,842 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,099,842 | ) |
Share based compensation | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 796,141 | | |
| - | | |
| - | | |
| - | | |
| 796,141 | |
Net loss | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,643,116 | ) | |
| - | | |
| (6,643,116 | ) |
Foreign currency translation | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (152,140 | ) | |
| (152,140 | ) |
Balance, December 31, 2021 | |
| | | |
| 15,176,698 | | |
$ | 25,637,543 | | |
| - | | |
$ | - | | |
$ | 2,203,343 | | |
$ | 93,295 | | |
$ | (19,900,992 | ) | |
$ | (33,086 | ) | |
$ | 8,000,103 | |
Ending Balance | |
| | | |
| 15,176,698 | | |
$ | 25,637,543 | | |
| - | | |
$ | - | | |
$ | 2,203,343 | | |
$ | 93,295 | | |
$ | (19,900,992 | ) | |
$ | (33,086 | ) | |
$ | 8,000,103 | |
* |
reflects the 1:4.75 reverse stock split effected on November 29, 2020. |
The
accompanying notes are an integral part of these consolidated financial statements.
AGRIFORCE
GROWING SYSTEMS LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in US Dollars)
For
the years ended December 31, 2021 and 2020
| |
2021 | | |
2020 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net loss for the year | |
$ | (6,643,116 | ) | |
$ | (3,221,526 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 11,797 | | |
| 9,059 | |
Share based compensation | |
| 796,141 | | |
| 571,210 | |
Shares issued for consulting services | |
| 321,121 | | |
| 438,076 | |
Shares issued for compensation | |
| 134,383 | | |
| - | |
Loss on extension of debt term | |
| 58,952 | | |
| - | |
Write-off of deposit | |
| 151,711 | | |
| - | |
Issuance cost related to warrants | |
| 374,465 | | |
| - | |
Change in fair value of warrants | |
| (1,191,383 | ) | |
| - | |
Accretion of interest on senior secured debentures | |
| 483,529 | | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Decrease (increase) in other receivables | |
| (23,353 | ) | |
| 38,724 | |
Decrease (increase) in prepaid expenses and other current assets | |
| (235,713 | ) | |
| 54,779 | |
Increase in accounts payable and accrued liabilities | |
| 662,173 | | |
| 257,967 | |
Lease deposit, non-current | |
| (50,608 | ) | |
| - | |
Deferred rent | |
| 12,954 | | |
| - | |
Net cash used in operating activities | |
| (5,136,947 | ) | |
| (1,851,711 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Acquisition of equipment | |
| (25,522 | ) | |
| (1,574 | ) |
Acquisition of intangibles | |
| (225,000 | ) | |
| - | |
Deposit for purchase of land | |
| (12,000 | ) | |
| (170,000 | ) |
Cash paid for construction in progress | |
| (744,191 | ) | |
| - | |
Net cash used in investing activities | |
| (1,006,713 | ) | |
| (171,574 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from Initial Public Offering | |
| 15,639,990 | | |
| - | |
IPO costs paid including underwriting discount | |
| (2,279,374 | ) | |
| (93,495 | ) |
Proceeds from exercise of warrants | |
| 238,800 | | |
| 666,878 | |
Proceeds from long term loan | |
| 15,932 | | |
| 31,417 | |
Proceeds from senior secure debentures - net | |
| 600,000 | | |
| - | |
Financing costs of senior secured debentures | |
| (69,000 | ) | |
| - | |
Repayment of Senior Secured Debentures | |
| (750,000 | ) | |
| - | |
Proceeds from exercise of options | |
| 9,123 | | |
| - | |
Net cash provided by financing activities | |
| 13,405,471 | | |
| 604,800 | |
| |
| | | |
| | |
Effect of exchange rate changes on cash | |
| (139,931 | ) | |
| (86,996 | ) |
Change in cash | |
| 7,121,880 | | |
| (1,505,481 | ) |
Cash, beginning of year | |
| 653,410 | | |
| 2,158,891 | |
Cash, end of year | |
$ | 7,775,290 | | |
$ | 653,410 | |
| |
| | | |
| | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid during the period for interest | |
$ | - | | |
$ | - | |
Cash paid during the period for income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing transactions | |
| | | |
| | |
Fair value of warrants liability | |
$ | 374,028 | | |
$ | - | |
Preferred stock dividend paid in common shares | |
$ | 735,932 | | |
$ | 948,064 | |
Unpaid amount related to construction in progress included in accounts
payable | |
$ | - | | |
$ | 744,191 | |
Conversion of Series A preferred stock to common shares | |
$ | 6,717,873 | | |
$ | - | |
Unpaid IPO costs | |
$ | - | | |
$ | 297,437 | |
Unpaid amount related to intangible assets included in accrued expenses | |
$ | 500,000 | | |
$ | - | |
The
accompanying notes are an integral part of these consolidated financial statements.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2021 and 2020
(Expressed
in US Dollars, except where noted)
AgriFORCE
Growing Systems Ltd. (the “Company”) was incorporated as a private company by Articles of Incorporation issued pursuant to
the provisions of the Business Corporations Act (British Columbia) on December 22, 2017. The Company’s registered and records office
address is at 300 – 2233 Columbia Street, Vancouver, British Columbia, Canada, V5Y 0M6. On February 13, 2018, the Company changed
its name from 1146470 B.C. Ltd to Canivate Growing Systems Ltd. On November 22, 2019 the Company changed its name from Canivate Growing
Systems Ltd. to AgriFORCE Growing Systems Ltd.
The
Company is an innovative agriculture-focused technology company that delivers reliable, financially robust solutions for high value crops
through our proprietary facility design and automation Intellectual Property to businesses and enterprises globally. The Company intends
to operate in the plant based pharmaceutical, nutraceutical, and other high value crop markets using its unique proprietary facility
design and hydroponics based automated growing system that enable cultivators to effectively grow crops in a controlled environment.
The Company calls its facility design and automated growing system the “AgriFORCE grow house”. The Company has designed its
AgriFORCE grow house to produce in virtually any environmental condition and to optimize crop yields to as near their full genetic potential
possible whilst substantially eliminating the need for the use of pesticides and/or irradiation.
Basis
of Presentation
The
accompanying consolidated financial statements (the “financial statements”) have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”).
The
financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity
and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal
and recurring in nature, necessary for fair financial statement presentation.
Principal
of Consolidation
Our
consolidated financial statements include the accounts of our wholly owned subsidiaries. We consolidate variable interest entities (VIEs)
when we have variable interests and are the primary beneficiary.
All
inter-company balances and transactions have been eliminated on consolidation. These consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries:
Name
of entity: |
|
Country
of Incorporation |
|
Purpose |
|
Date
of Incorporation |
|
AgriFORCE
Growing Systems Ltd. |
|
Canada |
|
Parent
Company |
|
Dec
22, 2017 |
|
Canivate
Growing Solutions Ltd.** |
|
Canada |
|
Management
Company |
|
May
22, 2018 |
|
Daybreak
Ag Systems Ltd. |
|
Canada |
|
Intellectual
Property Development |
|
Dec
4, 2019 |
|
AgriFORCE
Holdings Inc.* |
|
United
States |
|
Intellectual
Property |
|
Aug
31, 2018 |
|
West
Pender Holdings, Inc. |
|
United
States |
|
Real
Estate Holding and Development Company |
|
Sep
1, 2018 |
|
AgriFORCE
Investments Inc. |
|
United
States |
|
Holding
Company |
|
Apr
9, 2019 |
|
West
Pender Management Co. |
|
United
States |
|
Management
Advisory Services |
|
Jul
9, 2019 |
|
AGI
IP Co. |
|
United
States |
|
Intellectual
Property |
|
Mar
5, 2020 |
|
* |
AgriFORCE Holdings Inc. was dissolved during the year ended December 31, 2020. |
** |
Canivate Growing Solutions Ltd. was dissolved during the year ended December 31, 2021. |
During
the year ended December 31, 2019, AgriFORCE Investments Inc., West Pender Holdings, Inc. and AgriFORCE Holdings Inc., wholly owned subsidiaries
of the Company, commenced operations and their financial results are consolidated into the results of the Company. West Pender Management
Co., a wholly owned subsidiary commenced operations in 2021 and its results are consolidated into the results of the Company. All other
subsidiaries have been created and did not have any operating activities or Financial Statements as at December 31, 2021 and 2020.
Functional
and Reporting Currency
The
functional currency for each entity included in these consolidated financial statements is the currency of the primary economic environment
in which the entity operates. These consolidated financial statements are presented in United States dollars (“U.S. dollars”).
Currency conversion to U.S. dollars is performed in accordance with ASC 830, Foreign Currency Matters.
Use
of Estimates
The
preparation of our financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates
and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Significant estimates
reflected in these financial statements include, but are not limited to, accounting for share-based compensation, valuation of warrant
liability, as well as depreciation method. Actual results could differ from these estimates and those differences could be material.
Going
Concern
The
Company has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for
the foreseeable future. As reflected in the financial statements for the year ended December 31, 2021, the Company had a net loss of
$6.6 million, $5.1 million of net cash used in operating activities, and the Company had working capital of $5.8 million.
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this
uncertainty. The Company is at the stage of development of its first facility and other Intellectual Property. As such it is likely that
additional financing will be needed by the Company to fund its operations and to develop and commercialize its technology. These factors
raise substantial doubt about the Company’s ability to continue as a going concern. For the next twelve months from issuance of
these financial statements, the Company will seek to obtain additional capital through the sale of debt or equity financings or other
arrangements to fund operations; however, there can be no assurance that the Company will be able to raise needed capital under acceptable
terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and
preferences compared to our currently outstanding common shares. Issued debt securities may contain covenants and limit the Company’s
ability to pay dividends or make other distributions to shareholders. If the Company is unable to obtain such additional financing, future
operations would need to be scaled back or discontinued. Due to the uncertainty in the Company’s ability to raise capital, management
believes that there is substantial doubt in the Company’s ability to continue as a going concern for twelve months from the issuance
of these financial statements.
Reverse
Stock Split
On
November 29, 2020, the Company effectuated a one-for-4.75 reverse stock split of the Company’s common shares (the “Reverse
Split”). As a result of the Reverse Split, every 4.75 shares of the Company’s old common shares were converted into one share
of the Company’s new common shares. Fractional shares resulting from the reverse split were rounded to the nearest whole number.
The Reverse Split automatically and proportionately adjusted, based on the 1:4.75 split ratio, all issued and outstanding shares of the
Company’s common shares, as well as common shares underlying convertible preferred shares, convertible debentures, stock options
and warrants outstanding at the time of the effectiveness of the Reverse Split. The exercise price on outstanding equity based-grants
was proportionately increased, while the number of shares available under the Company’s equity-based plans was also proportionately
reduced. Share and per share data (except par value) for the periods presented reflect the effects of the Reverse Split. References to
numbers of common shares and per share data in the accompanying financial statements and notes thereto for periods ended prior to November
29, 2020 have been adjusted to reflect the Reverse Split on a retroactive basis.
3.
|
SIGNIFICANT
ACCOUNTING POLICIES |
Cash
The
Company’s cash consists of cash maintained in checking and interest-bearing accounts. The Company accounts for financial instruments
with original maturities of three months or less at the date of purchase as cash equivalents. The Company held no cash equivalents as
of December 31, 2021 and 2020.
Property
and Equipment
Property
and equipment are initially recognized at acquisition cost or manufacturing cost, including any costs directly attributable to bringing
the assets to the location and condition necessary for them to be capable of operating in the manner intended by the Company’s
management. Property, plant and equipment are subsequently measured at cost less accumulated depreciation and impairment losses.
Depreciation
is recognized on a straight-line basis to write down the cost less estimated residual value of computer equipment and furniture and fixtures.
The following useful lives are applied:
Computer
equipment |
3
years |
Furniture
and fixtures |
7
years |
Gains
or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and
the carrying amount of the assets and are recognized in profit or loss within other income or other expenses.
Construction
in progress includes construction progress payments, deposits, engineering costs, interest expense for debt financing on long-term construction
projects and other costs directly related to the construction of the facilities. Expenditures are capitalized during the construction
period and construction in progress is transferred to the relevant class of property and equipment when the assets are available for
use, at which point the depreciation of the asset commences.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which
identifiable independent cash flows are available (“asset group”). An impairment loss is recognized when the sum of projected
undiscounted cash flows is less than the carrying value of the asset group. The measurement of the impairment loss to be recognized is
based on the difference between the fair value and the carrying value of the asset group. Fair value can be determined using a market
approach, income approach or cost approach. The reversal of impairment losses is prohibited.
Deferred
IPO Costs
Deferred
IPO costs represent legal, accounting and other direct costs related to the Company’s efforts to raise capital through an initial
public offering of the Company’s common stock (“IPO”). There were no IPO costs incurred prior to 2020. The Company
completed the IPO in July 2021 and accordingly all deferred IPO costs, except for the portion allocated to warrant liability, were reclassified
to additional paid-in capital as a reduction of the IPO proceeds. The portion allocated to warrant liability was expensed in the statement
of comprehensive loss.
Revenue
Recognition
The
Company has not recorded any revenues since its inception. However, in the future, the Company expects to generate returns from any or
all the revenue sources below from its customers:
● |
Rental
income from facilities. |
● |
Intellectual
property income from the license of the facilities |
● |
Management
and advisory fees from management service contracts and |
On
January 1, 2018, the Company early adopted ASU No. 2014-09, Revenue from Contracts with Customers and all related amendments (“ASC
606” or “the new revenue standard”). ASC 606 is a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.
The new revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve this core principle, ASC 606 provides that an entity should apply the following steps: (1) identify the contract(s) with a
customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction
price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The new revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, and costs to obtain or fulfill contracts. The Company will apply ASC 606 prospectively to all contracts.
Loss
per Common Share
The
Company presents basic and diluted loss per share data for its common shares. Basic loss per common share is calculated by dividing the
profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during
the year. Diluted loss per common share is calculated by adjusting the weighted average number of common shares outstanding to assume
conversion of all potentially dilutive share equivalents, such as stock options and warrants and assumes the receipt of proceeds upon
exercise of the dilutive securities to determine the number of shares assumed to be purchased at the average market price during the
year. Diluted net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders
per share for the years ended December 31, 2021 and December 31, 2020, since the effect of the Company’s stock options and warrants
are anti-dilutive.
Research
and Development
Expenditure
on research and development activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding,
is recognized as expense when incurred.
Foreign
Currency Transactions
The
financial statements of the Company and its subsidiaries whose functional currencies are the local currencies are translated into
U.S. dollars for consolidation as follows: assets and liabilities at the exchange rate as of the balance sheet date, shareholders’
equity at the historical rates of exchange, and income and expense amounts at the average exchange rate for the period. Translation adjustments
resulting from the translation of the subsidiaries’ accounts are included in “Accumulated other comprehensive income”
as equity in the consolidated balance sheets. Transactions denominated in currencies other than the applicable functional currency are
converted to the functional currency at the exchange rate on the transaction date. At period end, monetary assets and liabilities are
remeasured to the reporting currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are
remeasured at historical exchange rates. Gains and losses resulting from foreign currency transactions are included within non-operating
expenses.
Fair
value of Financial Instruments
The
fair value of the Company’s accounts receivable, accounts payable and other current liabilities approximate their carrying amounts
due to the relative short maturities of these items.
As
part of the issuance of debentures on March 24, 2021, the Company issued warrants having strike price denominated in U.S. Dollars. This
creates an obligation to issue shares for a price that is not denominated in the Company’s functional currency and renders the
warrants not indexed to the Company’s stock, and therefore, must be classified as a derivative liability and measured at fair value.
On the same basis, the Series A Warrants and the representative warrants issued as part of the IPO are also classified as a derivative
liability and measured at fair value.
The
fair value of the Company’s warrants is determined in accordance with FASB ASC 820, “Fair Value Measurement,” which
establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to price assets or liabilities
that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for fair value measurements requires
that assets and liabilities measured at fair value be classified and disclosed in one of the following categories:
● |
Level
1: Defined as observable inputs, such as quoted (unadjusted) prices in active markets for identical assets or liabilities. |
|
|
● |
Level
2: Defined as observable inputs other than quoted prices included in Level 1. This includes quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
● |
Level
3: Defined as unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant
to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value
measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as
significant management judgment or estimation. |
As
of December 31, 2021, the Company’s warrant liability related to IPO warrants and representative’s warrant amounting to $1,418,964
(December 31, 2020 - $nil) is reported at fair value and categorized as Level 1 inputs. Whereas, the fair value of warrant liability
related to Bridge warrants that were issued and exercised during the year was categorized as level 3 inputs. (See Note 9 and Note 11)
Reclassifications
The
Company has reclassified certain amounts in the 2020 consolidated financial statements to comply with the 2021 presentation.
Income
Taxes
Current
tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted at period-end.
Deferred
tax assets, including those arising from tax loss carryforwards, requires management to assess the likelihood that the Company will generate
sufficient taxable earnings in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of
future taxable profits depend on management’s estimates of future cash flows. In addition, future changes in tax laws could limit
the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could
be impacted.
The
Company operates in various tax jurisdictions and is subject to audit by various tax authorities.
The
Company records uncertain tax positions based on a two-step process whereby (1) a determination is made as to whether it is more likely
than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that
meet the more-likely-than-not recognition threshold the Company recognizes the largest amount of tax benefit that is greater than 50%
likely to be realized upon ultimate settlement with the related tax authority. The Company’s policy is to recognize interest and
penalties accrued on any unrecognized tax benefits as a component of income tax expense. Significant judgment is required in the identification
of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions.
There
were no material uncertain tax positions as of December 31, 2021 and 2020.
Share
Based Compensation
The
Company generally uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite
service period, which is generally the vesting period, and estimates the fair value of stock-based awards to employees and directors
using the Black-Scholes option-valuation model (the “Black-Scholes model”). The Black-Scholes model requires the input of
subjective assumptions, including volatility, the expected term and the fair value of the underlying common shares on the date of grant,
among other inputs. The Company recognizes any forfeitures as they occur.
Recent
Accounting Pronouncements
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, as modified
by the Jumpstart Our Business Start-ups Act of 2012, (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging
growth company can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934,
as amended, for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth
company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
Effective
January 1, 2021, the Company adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”
ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the
calculation of deferred tax liabilities, the incremental approach for intra-period tax allocation, and calculating income taxes in an
interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based
on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes
in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The adoption
of this new guidance did not have a material impact to these financial statements.
In
August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity” (“ASU 2020-06”). The intention of ASU 2020-06 is to address
the complexities in accounting for certain financial instruments with a debt and equity component. Under ASU 2020-06, the number of accounting
models for convertible notes will be reduced and entities that issue convertible debt will be required to use the if-converted method
for the computation of diluted “Earnings per share” under ASC 260. ASC 2020-06 is effective for fiscal years beginning after
December 15, 2021 and may be adopted through either a modified retrospective method of transition or a fully retrospective method of
transition. We are currently assessing the impact this guidance will have on our financial statements.
In
May 2021, the FASB issued ASU 2021-04 - Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation
- Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s
Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging
Issues Task Force). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options that remain equity classified after modification or exchange. Modifications and exchanges should
be treated as an exchange of the original instrument for a new instrument. The amendment requires entities to measure the effect as the
difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately
before it is modified or exchanged if the modification or the exchange that is a part of or directly related to a modification or an
exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements.
For
all other modifications or exchanges, the effect should be measured as the excess, if any, of the fair value of the modified or exchanged
written call option over the fair value of that written call option immediately before it is modified or exchanged for all other modifications
or exchanges. The amendments require entities to recognize the effect on the basis of the substance of the transaction, in the same manner
as if cash had been paid as consideration. The amendments also require entities to recognize the effect in accordance with the guidance
in Topic 718, Compensation - Stock Compensation. ASU No. 2021-04 is effective for fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. ASU 2021-04 will be adopted on January 1, 2022 and will not have a material impact to these
financial statements.
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The standard, including subsequently issued
amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets,
to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective
for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and requires the modified retrospective
approach. Early adoption is permitted. Based on the composition of the Company’s trade receivables and other financial assets,
current market conditions, and historical credit loss activity, the Company is currently in the process of evaluating the impact of this
guidance on our financial statements.
In
February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASU’s (collectively,
“Topic 842”), which requires a dual approach for lease accounting under which a lessee would account for leases as finance
leases or operating leases. Both finance leases and operating leases may result in the lessee recognizing a right of use asset and a
corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset,
and for operating leases, the lessee would recognize lease expense on a straight-line basis. This ASU is effective for fiscal years beginning
after December 15, 2021, and interim periods within those fiscal years, and allows a modified retrospective approach. Early adoption
is permitted. The Company is currently in the process of evaluating the impact of this guidance on our financial statements.
In
October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, Business Combinations (Topic 805): Accounting
for Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU 2021-08, an acquirer must recognize and measure
contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The guidance is effective for
interim and annual periods beginning after December 15, 2022, with early adoption permitted. The Company is currently in the process
of evaluating the impact of this guidance on our financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
4. |
PROPERTY
AND EQUIPMENT |
Property
and equipment consist of the following:
| |
December 31, 2021 | | |
December 31, 2020 | |
Computer equipment | |
$ | 22,708 | | |
$ | 13,473 | |
Furniture and fixtures | |
| 39,997 | | |
| 36,323 | |
Total property and equipment | |
| 62,705 | | |
| 49,796 | |
Less: Accumulated depreciation | |
| (21,734 | ) | |
| (21,353 | ) |
Property and equipment, net | |
$ | 40,971 | | |
$ | 28,443 | |
Depreciation
expense on property and equipment, was $11,797 and $9,059 for the years ended December 31, 2021 and 2020, respectively.
5. |
CONSTRUCTION
IN PROGRESS |
The
Company engaged outside contractors to begin construction work on its first facility. As of December 31, 2021, $2,079,914 (December 31,
2020 – $2,071,093) represents progress payments related to facility construction.
6. |
PREPAID
EXPENSES AND DEPOSITS |
| |
December 31, 2021 | | |
December 31, 2020 | |
Deposits | |
$ | 32,000 | | |
$ | 170,000 | |
Legal retainer | |
| 33,692 | | |
| 43,038 | |
Prepaid expenses | |
| 214,445 | | |
| - | |
Others | |
| 28,903 | | |
| - | |
| |
$ | 309,040 | | |
$ | 213,038 | |
During
the year ended December 31, 2020, the Company entered into a land purchase agreement in relation to construction of a facility in Coachella,
California. A deposit of $170,000 has been paid and the balance of the purchase price is subject to financing. On April 6, 2021, the
scheduled close of escrow was extended to April 30, 2021 and the purchase price was increased to $4.4 million. The Company wrote off
the non-refundable portion of the deposit amounting to $150,000 as the close of escrow period has lapsed; however the Company is currently
renegotiating the terms of the agreement.
Others
include an office lease deposit amounting to $77,774, of which $50,608 is recorded under non-current assets. (December 31, 2020 - $Nil).
Intangible
asset represents $1,477,237 of Intellectual Property (“IP”) acquired under an Asset purchase agreement from Manna Nutritional
Group, LLC (“MNG”) on September 10, 2021. The IP encompasses patent-pending technologies to naturally process and convert
grain, pulses and root vegetables, resulting in low-starch, low-sugar, high-protein, fiber-rich baking flour products, as well as a wide
range of breakfast cereals, juices, natural sweeteners and baking enhancers. The terms of the agreement are as below:
The
aggregate purchase price for the Purchased Assets (the “Purchase Price”) is up to $14,475,000, and shall consist of the following,
subject to the terms and conditions of this Agreement, as follows:
|
(i) |
The
number of shares of Company’s common stock (rounded up to the nearest whole number), restricted as to resale under Section
4(a)(2) of the Securities Act, equal to the quotient of (i) $5,000,000 divided by (ii) a per share price equal to the average of
the volume weighted average price (“VWAP”) of the Company’s common shares for the ten trading days immediately
preceding the Due Diligence Deadline (as defined below) (the “Closing Shares”). The Closing Shares, to be due on the
Closing Date, which Closing Shares are restricted as to resale and issued under a private placement exempt from registration under
Section 4(a) (2) of the Securities Act, are subject to release of restriction and lockup on a quarterly basis over ten quarters commencing
on the Closing Date in equal amounts of shares over ten consecutive calendar quarters. The Closing Shares are due and will be issued
to MNG upon the date that is 180 days from the Effective Date (September 10, 2021) (the “Due Diligence Deadline”), with
such due diligence being comprised of (the following three bullet points are the key performance indicators “KPIs”): |
|
● |
Receipt
and Tasting of Flours and Sweeteners by the Company; |
|
● |
Independent
Lab Testing of Flours and Sweeteners by the Company to confirm fiber, protein, and starch content of such products meets the specifications
provided by MNG; and |
|
● |
Completion
by the Company of Third-Party Engineering Process Analysis, included in the scope of work outlined by Covert Engineers, dated August
11, 2021, for conceptual and preliminary plant design for a Pilot Manufacturing Facility. |
|
(ii) |
$1,475,000
in cash, minus any amounts paid to MNG under (iii), payable to MNG at Closing; |
|
(iii) |
$725,000
in cash payable follows: (a) $225,000 payable on the Effective Date; and (b) $500,000 payable within 120 days after the Effective
Date, to reimburse MNG for, without limitation, satisfaction of all the secured debt as listed in Section 2.04 of the Disclosure
Schedules to the Agreement (the “Secured Debt”). |
|
(iv) |
The
number of shares of Company’s common stock (rounded up to the nearest whole number) to be issued in two tranches that equals
(i) $8,000,000 divided by (ii) a per share price equal to the VWAP of the Company’s common shares for the ten trading days
immediately before the issuance date of those shares (“Post Closing Shares”). $5,000,000 of the Post-Closing Shares will
be issued on June 30, 2022, to be held in Escrow. $3,000,000 of the Post-Closing Shares will be issued to MNG on December 31, 2022,
to be held in Escrow. All distributions and dividends attributable to the Post-Closing Shares (collectively, “Dividends”)
will accrue for the benefit of MNG and will be held in Escrow pending release of the Post-Closing Shares, in which case all Dividends
will be released to MNG at the same time as the Post-Closing Shares are so released. Until Post-Closing Shares are released from
Escrow, all voting rights thereto shall be exercised as directed by the Company’s Board of Directors. If a Patent is issued
within 24 months of the Closing Date, and such Patent is transferred to the Company free and clear of all encumbrances, then the
Post-Closing Shares shall be released from Escrow in four equal amounts commencing on the date of issuance of the Patent and then
for the three subsequent three-month anniversaries thereof. |
In
the event that after 24 months from the closing date, a Patent does not issue from the IP, Buyer’s obligation to issue the Post-Closing
Shares and Dividends to MNG will be deemed null and void ab initio and will no longer be due and owing to MNG, and the Post-Closing Shares
shall be released from escrow and returned to the Company, and the Purchase Price shall be adjusted downward dollar for dollar.
Based
on the terms above and in conformity with US GAAP, the Company accounted for purchase as an asset acquisition and has deemed the asset
purchased as an in-process research and development. The Company has further deemed the asset to be of indefinite life until the completion
of the associated research and development (“R&D”) activities. Once completed and commercialized, the asset will be amortized
over its useful life. The recognition of the IP asset is based on the payments made to date of $225,000 and contingent consideration
that is probable and reasonably estimable as of the reporting date. Subsequent changes in contingent consideration are recorded against
cost. As of December 31, 2021, the company has recorded $500,000 under accrued expenses, related to reimbursement for satisfaction of
secured debt of seller. Further, the company has recorded $753,727 as contingent consideration, which is considered probable and due
on closing. The remaining amounts payable as described above were not deemed to be probable at December 31, 2021, and accordingly have
not been accrued for.
Subsequent
to the year end, the Company paid $500,000 to satisfy the secured debt of seller.
8. |
ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES |
| |
December 31, 2021 | | |
December 31, 2020 | |
Accounts payable | |
$ | 414,117 | | |
$ | 991,565 | |
Accrued expenses | |
| 981,027 | | |
| 905,629 | |
Others | |
| 137,168 | | |
| 33,794 | |
| |
$ | 1,532,312 | | |
$ | 1,930,988 | |
Accounts
payable includes $Nil (December 31, 2020 - $744,191) payable to outside contractor in relation to facility construction. Accrued expenses
include bonus payable of $Nil (December 31, 2020 - $487,983), withholding taxes payable $89,236 (December 31, 2020 - $Nil) and Directors
fees payable of $39,309 (December 31, 2020 - $128,448). Accounts payable and accrued liabilities include a total unpaid IPO cost of $Nil
(December 31, 2020 - $297,437).
9. |
SENIOR
SECURED DEBENTURES |
On
March 24, 2021, the Company entered into a securities purchase agreement with certain accredited investors for the purchase of $750,000
in principal amount ($600,000 subscription amount) of senior secured debentures originally due June 24, 2021 (the “Bridge Loan”).
The imputed interest rate is encompassed within the original issue discount of the debentures and no additional cash interest shall be
due. The debentures were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, to certain purchasers who are
accredited investors within the meaning of Rule 501 under the Securities Act of 1933, as amended. Transaction costs of $69,000 have been
recorded in connection with the Bridge Loan.
On
June 24, 2021, the due date was extended, for which the Company paid an extension fee of 10,000 common shares with a fair value of $60,000.
The senior secured debentures were repaid in full on July 13, 2021.
As
part of the bridge loan, the debenture holder was issued warrants (the “Bridge Warrants”) to purchase 93,938 common shares
with a strike price of $3.99 per share. The term of the warrants was three years. In accordance with U.S. GAAP, the fair value of the
warrants was initially recorded as a liability in the balance sheet using Black-Scholes option-pricing model. The Company remeasures
the fair value of the warrants liability at each reporting date until the warrants are exercised or have expired. Changes in the fair
value of the warrants liability is reported in the statements of comprehensive income / (loss) as income or expense. The fair value of
the warrants liability is subject to significant fluctuation based on changes in the inputs to the Black-Scholes option-pricing model,
including our common stock price, expected volatility, expected term, the risk-free interest rate and dividend yield. The market price
for our common stock may be volatile. Consequently, future fluctuations in the price of our common stock may cause significant increases
or decreases in the fair value of the warrants.
The
changes in the fair value of the Bridge Warrants amounting to $203,456 is charged to the statement of comprehensive income / (loss).
The warrants were exercised on October 27, 2021 and accordingly, the warrant liability was extinguished. The fair value of the warrants
prior to exercise was estimated at $64,992, determined using the Black-Scholes option pricing model and the following assumptions; stock
price $2.16, dividend yield – nil, expected volatility 73%, risk free rate of return 0.94%, expected term of 3 years.
During
the year ended December 31, 2020, the Company entered into a loan agreement with Alterna Bank for a principal amount of $31,417 (CAD$
40,000) under the Canada Emergency Business Account Program (the “Program”).
The
Program, as set out by the Government of Canada, requires that the funds from this loan shall only be used by the Company to pay non-deferrable
operating expenses including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service,
and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends,
distributions and increases in management compensation.
The
loan is interest free for an initial term that ends on December 31, 2023. Repaying the loan balance on or before December 31, 2023 will
result in loan forgiveness of up to a third of loan value (up to CAD $20,000). Any outstanding loan after initial term carries an interest
rate of 5% per annum, payable monthly during the extended term i.e. January 31, 2024 to December 31, 2025.
In
April 2021, the Company applied for additional loan with Alterna Bank under the Program and received $15,909 (CAD$20,000). The expansion
loan is subject to the original terms and conditions of the Program.
As
of December 31, 2021, the warrant liability represents aggregate fair value of publicly traded 3,088,198 Series A Warrants and 135,999
representative’s warrants.
The
representative’s warrant is exercisable one year from the effective date of the registration statement for the IPO and will expire
three years after the effective date. The exercise price of the representative’s warrant is $6 per share. The warrants have been
deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriter (or
permitted assignees under Rule 5110(e)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying
these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective
economic disposition of the warrants or the underlying securities for a period of 180 days from the date of this prospectus. The exercise
price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of
a stock dividend, extraordinary cash dividend or recapitalization, reorganization, merger or consolidation.
The
change in fair value on the warrant liability amounting to $1,191,383 is recorded in the statement of comprehensive loss for the year
ended December 30, 2021. This includes change in fair value related to the Bridge Warrants amounting to $203,456.
|
a) |
Authorized
Share Capital |
On
March 1, 2019, the Company changed its share structure with a Directors’ resolution to replace Class – A voting shares with
Common voting Shares, and to eliminate Class-B non-voting shares (where nil were issued), and created a new series of Preferred shares
with no par value and unlimited number of shares. Holders of Preferred shares shall be entitled to receive distribution ahead of holders
of Common shares. In addition, Preferred shareholders are also entitled to a fixed premium (if specifically provided in the special rights
and restrictions attached to a specific series of Preferred shares), prior to any distributions to holders of Common shares in the event
of dissolution, liquidation or winding-up of the Company.
The
Company had the following common share transactions during the year ended December 31, 2020:
|
● |
On
May 2, 2020, the Company declared and issued 86,739 common shares at $3.37 (CAD $4.75) (412,008 common shares at $0.71 (CAD $1.00)
before the Reverse Split) as stock dividend to holders of Series A Preferred shares issued on May 2, 2019. |
|
|
|
|
● |
On
May 10, 2020, the Company declared and issued 48,791 common shares at $3.42 (CAD $4.75) (231,758 common shares at $0.72 (CAD $1.00)
before the Reverse Split) as stock dividend to holders of Series A Preferred shares issued on May 10, 2019. |
|
|
|
|
● |
On
November 2, 2020, the Company declared and issued 86,739 common shares at $3.56 (CAD $4.75) (412,008 common shares at $0.75 (CAD
$1.00) before the Reverse Split) as stock dividend to holders of Series A Preferred shares issued on May 2, 2019. |
|
|
|
|
● |
On
November 10, 2020, the Company declared and issued 48,791 common shares at $3.66 (CAD $4.75) (231,758 common shares at $0.77 (CAD
$1.00) before the Reverse Split) as stock dividend to holders of Series A Preferred shares issued on May 10, 2019. |
|
|
|
|
● |
During
the year ended December 31, 2020, 365,113 (1,734,285 before the Reverse Split) warrants were exercised at a price of CAD $2.38 (CAD
$0.50 before the Reverse Split). |
|
|
|
|
● |
At
various times during the year ended December 31, 2020, the Company issued 100,237 common shares (476,126 before the Reverse Split)
to various consultants for services rendered. |
The
Company had the following common share transactions during the year ended December 31, 2021:
|
● |
On
March 29, 2021, the Company issued 30,000 common shares with a fair value of $179,700 against consulting services from a third party. |
|
|
|
|
● |
On
May 10, 2021, the Company declared, and on May 11, 2021 issued, 86,739 common shares as stock dividend to holders of Series A Preferred
shares issued on May 2, 2019. |
|
|
|
|
● |
On
May 10, 2021, the Company declared, and on May 11, 2021 issued, 48,791 common shares as stock dividend to holders of Series A Preferred
shares issued on May 10, 2019. |
|
|
|
|
● |
On
May 27, 2021, the Company issued to consultants a total of 7,237 common shares. |
|
|
|
|
● |
On
May 27, 2021, the Company issued 820,029 common shares as a result of 1,113,701 stock options exercised on a cashless basis at various
exercise prices. |
|
● |
On
May 28, 2021, the Company’s officers opted to receive a total of 98,356 common shares as bonus compensation for services rendered
and accrued for in 2019 and 2020. |
|
|
|
|
● |
On
June 24, 2021, the Company issued to a consultant working with the senior secured debentures holders, a total of 10,000 common shares
on their behalf, for the term extension of the Bridge Loan (see Note 6). |
|
|
|
|
● |
On
July 12, 2021, the Company completed its IPO whereby it sold a total of 3,127,998 units, each consisting of one common share and
one Series A warrant to purchase one common share, at a public offering price of $5.00 for gross proceeds of $15,639,990. The Company
received net proceeds from the IPO of $14,388,791, after deducting underwriting discounts and commissions of 1,251,199. |
|
|
|
|
● |
On
July 12, 2021, with the closing of the IPO, 2,258,826 common shares were issued upon the conversion of all of its issued and outstanding
Series A Preferred Shares. |
|
|
|
|
● |
On
July 13, 2021, the Company declared and issued, 53,474 common shares as final stock dividend to the holders of Series A Preferred
shares. |
|
|
|
|
● |
On
July 13, 2021, the Company issued to consultants a total of 15,000 common shares. |
|
|
|
|
● |
On
July 15, 2021, the Company issued 39,800 common shares as a result of exercise of 39,800 Series A warrants on cash basis at an exercise
price of $6 per warrant. |
|
|
|
|
● |
On
July 28, 2021, 93,938 common stock purchase warrants were issued to the purchaser of the senior secured debentures, with a term of
three years and a strike price per share of $3.99. |
|
|
|
|
● |
On
September 01, 2021, the Company issued to Directors 19,992 common shares as settlement of accrued directors’ fee. |
|
|
|
|
● |
On
October 1, 2021, the company issued 36,379 common share as part of compensation to Company’s officers and executives. |
|
|
|
|
● |
On
October 1, 2021, the Company issued to a consultant 3,188 common shares against services. |
|
|
|
|
● |
On
October 27, 2021, the Company issued 36,275 common shares as a result of cashless exercise of 93,938 common stock purchase warrants
related to the senior secured debentures. |
|
|
|
|
● |
On
November 27, 2021, the Company issued 7,018 common shares on as a result of exercise of 7,018 stock options at an exercise price
of $1.30 (CAD $1.66). |
|
|
|
|
● |
On
December 31, 2021, the Company issued 35,979 common share as part of compensation to Company’s officers. |
The
Company has adopted a stock option plan (the “Plan”) for its directors, officers, employees and consultants to acquire common
shares of the Company. The terms and conditions of the stock options are determined by the Board of Directors.
On
May 28, 2019, at the Company’s annual general meeting, shareholders approved an amendment to the Stock Option Plan to increase
the number of authorized shares subject to the stock option plan to 15% of the issued and outstanding shares of the Company (including
any unconverted Series A Preferred Shares).
For
the year ended December 31, 2021, the Company recorded aggregate share-based compensation expense of $796,141 (December 31, 2020 - $571,210)
for all stock options on a straight-line basis over the vesting period.
As
of December 31, 2021, 717,019 (December 31, 2020 - 1,450,918) Stock Options were outstanding at a weighted average exercise price of
$5.63 (CAD 7.14) [December 31, 2020 - $2.01 (CAD 2.56)], of which 280,938 (December 31, 2020 - 1,161,726) were exercisable.
The
amounts recognized as share-based payments and stock options are included in share-based compensation on the Statement of Loss and Comprehensive
Loss.
As
of December 31, 2021, there was $634,626 (December 31, 2020 - $275,150) of total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the stock option plan; that cost is expected to be recognized over a period of 3
years (December 31, 2020 – 2 years).
The
following summarizes stock option activity during the years ended December 31, 2021 and 2020:
| |
Number of Options* | | |
Weighted Average Exercise Price* | | |
Weighted Average Remaining Life
(years) | |
| |
| | |
| | |
| |
Balance at December 31, 2019 | |
| 1,106,711 | | |
$ | 1.35 | | |
| 4.98 | |
Granted | |
| 387,760 | | |
$ | 3.73 | | |
| 5.46 | |
Forfeited | |
| (25,132 | ) | |
$ | 1.31 | | |
| - | |
Cancelled | |
| (18,421 | ) | |
$ | 1.31 | | |
| - | |
Balance at December 31, 2020 | |
| 1,450,918 | | |
$ | 2.01 | | |
| 4.38 | |
Granted | |
| 509,788 | | |
$ | 7.00 | | |
| 4.47 | |
Exercised | |
| (1,120,719 | ) | |
| 3.23 | | |
| - | |
Forfeited | |
| (28,947 | ) | |
$ | 4.75 | | |
| - | |
Cancelled | |
| (94,021 | ) | |
$ | 6.70 | | |
| - | |
Balance at December 31, 2021 | |
| 717,019 | | |
$ | 5.84 | | |
| 4.48 | |
* |
reflects the 1:4.75 reverse stock split effected on November 29, 2020. |
The
Company’s outstanding and exercisable stock options at December 31, 2021 were:
| |
Outstanding Options* | | |
Exercisable Options* | |
Expiry Date | |
Number | | |
Weighted Average Remaining Life (years) | | |
Weighted Average Exercise Price | | |
Weighted Average Exercise Price | | |
Number | | |
Weighted Average Exercise Price | |
| |
| | | |
| | | |
| CAD
$ | | |
| $ | | |
| | | |
| $ | |
January 31, 2026 | |
| 921 | | |
| 4.09 | | |
| 4.75 | | |
| 3.75 | | |
| 921 | | |
| 3.75 | |
June 30, 2026 | |
| 255,594 | | |
| 4.50 | | |
| 4.75 | | |
| 3.75 | | |
| 211,993 | | |
| 3.75 | |
May 31, 2026 | |
| 355,775 | | |
| 4.42 | | |
| 8.87 | | |
| 7.00 | | |
| 59,296 | | |
| 7.00 | |
July 15, 2026 | |
| 55,445 | | |
| 4.54 | | |
| 8.87 | | |
| 7.00 | | |
| 4,620 | | |
| 7.00 | |
September 30, 2026 | |
| 49,284 | | |
| 4.75 | | |
| 8.87 | | |
| 7.00 | | |
| 4,108 | | |
| 7.00 | |
Total Share Options | |
| 717,019 | | |
| 4.48 | | |
| 7.40 | | |
| 5.84 | | |
| 280,938 | | |
| 4.53 | |
* |
reflects the 1:4.75 reverse stock split effected on November 29, 2020. |
Stock-based
compensation expense recognized is based on options expected to vest, the fair value of each employee option grant during the years ended
December 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
| |
December 31, 2021 | | |
December 31, 2020 | |
Expected volatility | |
| 80.00 | % | |
| 79.60 | % |
Expected term (in years) | |
| 3.31 | | |
| 3.44 | |
Risk-free interest rate | |
| 0.92 | % | |
| 0.45 | % |
Fair value of options | |
$ | 2.59 | | |
$ | 1.90 | |
The
Company’s outstanding warrants as of December 31, 2021 were:
| |
Number of warrants* | | |
Weighted average exercise price* | | |
Weighted average exercise price* | | |
Expiry Date |
| |
| | | |
| CAD | | |
| $ | | |
|
| |
| | | |
| | | |
| | | |
|
Outstanding, December 31, 2019 | |
| 3,398,996 | | |
| 7.70 | | |
| 6.05 | | |
|
Exercised during quarter 4, 2020 | |
| (365,112 | ) | |
| 2.38 | | |
| 1.87 | | |
December 21, 2021** |
Expired during quarter 4, 2020 | |
| (63,157 | ) | |
| 2.38 | | |
| 1.87 | | |
October 15, 2021** |
Expired during quarter 4, 2020 | |
| (163,610 | ) | |
| 2.38 | | |
| 1.87 | | |
December 21, 2021** |
Expired during quarter 4, 2020 | |
| (33,684 | ) | |
| 1.66 | | |
| 1.30 | | |
December 31, 2021** |
Expired during quarter 4, 2020 | |
| (210,526 | ) | |
| 2.38 | | |
| 1.87 | | |
January 16, 2022** |
Expired during quarter 4, 2020 | |
| (16,842 | ) | |
| 1.66 | | |
| 1.30 | | |
January 21, 2022** |
Outstanding, December 31, 2020 | |
| 2,546,065 | | |
| 9.50 | | |
| 7.46 | | |
|
Granted during quarter 3, 2021 | |
| 3,263,997 | | |
| 7.48 | | |
| 6.00 | | |
July 12, 2024 |
Granted during quarter 3, 2021 | |
| 93,938 | | |
| 4.98 | | |
| 3.99 | | |
July 28, 2024 |
Exercised during quarter 3, 2021 | |
| (39,800 | ) | |
| 7.48 | | |
| 6.00 | | |
July 12, 2024 |
Exercised during quarter 4, 2021 | |
| (93,938 | ) | |
| 4.98 | | |
| 3.99 | | |
July 28, 2024 |
Outstanding, December 31, 2021 | |
| 5,770,262 | | |
| 7.49 | | |
| 5.91 | | |
|
* | | reflects
the 1:4.75 reverse stock split effected on November 29, 2020. |
** | | pursuant
to the terms of the warrants, the warrants were accelerated to expire on October 10, 2020
due to |
occurrence
of an acceleration event. Accordingly, any unexercised warrants were terminated.
** |
|
pursuant to the terms of the warrants, the warrants were accelerated to expire
on October 10, 2020 due to occurrence of an acceleration event. Accordingly, any unexercised warrants were terminated. |
For
the year ended December 31, 2021 and 2020, loss before income tax provision consisted of the following:
| |
December 31, 2021 | | |
December 31, 2020 | |
| |
| | |
| |
Domestic operations - Canada | |
$ | (6,202,837 | ) | |
$ | (2,732,888 | ) |
Foreign operations - United States | |
| (440,279 | ) | |
| (488,638 | ) |
Total loss before taxes | |
$ | (6,643,116 | ) | |
$ | (3,221,526 | ) |
Income
tax expense (benefit) consists of the following for the years ended December 31, 2021 and December 31, 2020:
| |
December 31, 2021 | | |
December 31, 2020 | |
| |
| | |
| |
Loss before taxes | |
$ | (6,643,116 | ) | |
$ | (3,221,526 | ) |
Statutory tax rate | |
| 27.00 | % | |
| 27.00 | % |
Income taxes at the statutory rate | |
$ | (1,793,641 | ) | |
$ | (869,812 | ) |
Change in fair value of warrants | |
| (321,674 | ) | |
| - | |
Other permanent differences | |
| 93,375 | | |
| - | |
Stock-based compensation | |
| 253,556 | | |
| 154,227 | |
Share issue costs | |
| (112,812 | ) | |
| (45,854 | ) |
Others | |
| 18,499 | | |
| (41,388 | ) |
Total | |
$ | (1,862,697 | ) | |
$ | (720,051 | ) |
| |
| | | |
| | |
Change in valuation Allowance | |
$ | 1,862,697 | | |
$ | 720,051 | |
Total income tax expense (benefit) | |
$ | - | | |
$ | - | |
The Company is subject to Canadian federal and
provincial tax for the estimated assessable profit for the years ended December 31, 2020 and 2021 at a rate of 27%.
Deferred
income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more
likely than not that we will not realize those tax assets through future operations. Significant components of the Company’s deferred
taxes are as follows:
| |
December 31, 2021 | | |
December 31, 2020 | |
Deferred tax assets: | |
| | | |
| | |
Unused net operating losses carry forward - Canada and United States | |
$ | 4,459,457 | | |
$ | 2,669,781 | |
Unused capital losses carry forward | |
| 40,962 | | |
| - | |
Share issue costs | |
| 174,377 | | |
| 142,318 | |
Property and equipment | |
| - | | |
| - | |
Total deferred tax assets | |
$ | 4,674,796 | | |
$ | 2,812,099 | |
Deferred tax asset not recognized | |
| - | | |
| - | |
| |
| | | |
| | |
Net deferred tax assets | |
| 4,674,796 | | |
| 2,812,099 | |
| |
| | | |
| | |
Deferred tax liability: | |
| | | |
| | |
| |
| | | |
| | |
Total deferred tax liability | |
| - | | |
| - | |
| |
| | | |
| | |
Valuation Allowance | |
$ | (4,674,796 | ) | |
$ | (2,812,099 | ) |
Net deferred tax assets (liabilities) | |
$ | - | | |
$ | - | |
The
Company has Non-Capital Losses of $15.7 million as of December 31, 2021 and $9.3 million as of December 31, 2020, which are due to expire
between 2039 and 2041 and which can be used to offset future taxable income in Canada. For foreign operations in United States, aggregate
net operating losses are $0.9 million as of December 31, 2021 (2020 - $0.6 million) which can be carried forward indefinitely. The Company
has Capital Losses of $0.2 million as of December 31, 2021 and $Nil as of December 31, 2020, which expires after 5 years and can be used
to offset future taxable capital gains in the United States. Non-Capital Losses in Canada can be carried forward after change of ownership,
if the particular business which gave rise to the loss is carried on by the company for profit or with a reasonable expectation of profit.
Certain accumulated net operating losses in United States are subject to an annual limitation from equity shifts, which constitute a
change of ownership as defined under Internal Revenue Code (“IRC”) Section 382. These rules will limit the utilization of
the losses.
The Company files income tax returns in Canada
and the United States and is subject to examination in these jurisdictions for all years since the Company’s inception in 2017.
As at December 31, 2021, no tax authority audits are currently underway.
The Company currently has no uncertain tax position
and is therefore not reflecting any adjustments.
14. |
RELATED
PARTY TRANSACTIONS |
Key
management personnel include those persons having the authority and responsibility of planning, directing, and executing the activities
of the Company. The Company has determined that its key management personnel consist of the Company’s officers and directors.
| |
December 31, 2021 | | |
December 31, 2020 | |
Accounting fees (included in professional) | |
$ | 3,473 | | |
$ | 15,225 | |
As
of December 31, 2021, $47,461 (December 31, 2020 - $3,223) in total was owing to officers and directors or to companies owned by officers
and directors of the Company for services and expenses. These amounts owing have been included in accounts payable and accrued liabilities.
During
the year ended December 31, 2021 and 2020, the Company incurred $66,246 and $38,395, respectively, to our U.S. general counsel firm,
D R Welch against legal services, a corporation controlled by a director of the Company. An aggregate of 13,158 shares (62,500 shares
before the Reverse Split) were issued to David Welch as part of the payment.
During
the year ended December 31, 2021 and December 31, 2020, the Company paid $Nil and $8,862, respectively, for consulting services to 0902550
BC Ltd. where Don Nicholson, former Chairman of the Board, is the principal consultant.
On
May 1, 2019, the Company entered into a 12 months consulting agreement with Arni Johannson to provide Investor Relations services for
a monthly fee of CAD 10,000. As of December 31, 2020, the Company owed $nil pursuant to the said agreement.
There
were no other payments to related parties for the year ended December 31, 2021 and 2020 other than expense reimbursements in the ordinary
course of business.
15. |
RESEARCH
AND DEVELOPMENT |
During
the year ended December 31, 2021, the Company spent $474,338 (December 31, 2020 - $123,915) in research and development costs in relation
to the development of a biosphere facility and product development in relation to the IP asset purchase from Manna Nutritional Group,
LLC (see Note 7). The following represents the breakdown of research and development activities:
| |
December 31, 2021 | | |
December 31, 2020 | |
Architectural fees | |
$ | - | | |
$ | 28,397 | |
Engineering consultants | |
| - | | |
| 16,962 | |
Design and construction | |
| 177,407 | | |
| 4,406 | |
Product development | |
| 296,931 | | |
| 74,150 | |
| |
$ | 474,338 | | |
$ | 123,915 | |
The
Company recorded Scientific Research and Experimental Development (“SR&ED”) tax incentive income of $Nil during the year
ended December 31, 2021 (December 31, 2020 - $106,195). SR&ED tax incentive income is recognized when there is reasonable assurance
that the income will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured. The Company’s
SR&ED tax incentive income has been recognized as other income as it is not indicative of the core operating activities or revenue
producing goals of the Company.
16. |
COMMITMENTS
AND CONTINGENCIES |
Lease
commitments
The
Company entered into an operating lease for office space. The minimum future payments under the lease for our continuing operations in
each of the years ending December 31 is as follows:
| |
| | |
2022 | |
$ | 283,952 | |
2023 | |
$ | 289,628 | |
2024 | |
$ | 299,563 | |
2025 | |
$ | 316,593 | |
2026 | |
$ | 316,593 | |
Subsequent years | |
$ | 870,631 | |
| |
$ | 2,376,960 | |
Contingencies
Litigation
During
the years ended December 31, 2021 and December 31, 2019, the Company had no new contingencies to disclose.
During
the year ended December 31, 2018, the Company entered into a purchase agreement with certain parties representing proprietary technology.
As consideration for the purchase of the technology and attendant intellectual property rights, the Company issued an aggregate of 5,263,158
(25,000,000 before the Reverse Split) Class A common voting shares (the “Class A Shares”).
An
additional 105,263 (500,000 before the Reverse Split) Class A Shares was issued for consulting services to assist with application of
the proprietary technology to the Company’s business.
Subsequent
to the execution of these agreements, the Company was notified as to certain issues relating to the transaction agreements that were
executed and the intellectual property risks that were purportedly transferred. After several months of analysis with various professionals,
the Company determined that the technology was in fact invalid and therefore without any value.
On
May 15, 2019, a claim by HydroHaus Horticulture, Inc., Stuart Brazier and Christopher Gielnik was filed in BC Supreme Court. The basic
allegations against AgriFORCE Growing Systems Ltd. are:
|
1. |
The
Company breached the manufacturing agreement under which HydroHaus Horticulture claims it had the exclusive right to build hydro
houses for the Company; |
|
|
|
|
2. |
The
Company advised HydroHaus Horticulture that it was in breach of the licensing agreement relating to its project to build a hydro
house for the Nak’azdli causing HydroHaus Horticulture to spend approximately $130,000 to change the way it was to perform
that contract; |
|
3. |
The
Company owes approximately $100,000 for expenses paid for by HydroHaus Horticulture, which has not been accrued for at this time
as management does not believe the merits are valid. Should any amounts be required to be paid as a result of the claim, the Company
will appropriately record at that time; and |
|
|
|
|
4. |
The
Company wrongfully rescinded its agreements with HydroHaus Horticulture. |
The
plaintiffs are seeking general and special damages, alternatively rescission of the agreements or specific performance of those agreements
and payment for expenses incurred by HydroHaus Horticulture for the benefit of the Company. The plaintiffs are also seeking an order
that the Hydrohaus IP (allegedly comprising certain cladding materials and methods of insulating greenhouses, regulating humidity, moving
growing plants, and managing the movement of air, and any derivative works), and an associated patent application, be transferred to
the them. The Plaintiffs are also seeking an order prohibiting the Company from using the words, “Canivate”, “ the
Canivate Way”, “HydroFilm”, “Hydrohouse” and “Hydrohaus”.
On
May 24, 2019, the Company filed a Response to the claim. That response denies the allegations in the claim, raises the defense that the
plaintiffs wrongfully purported to sell intellectual property which they falsely stated they had invented and owned and states that the
intellectual property was unworkable to build greenhouses. The Company also alleges that the plaintiffs falsely represented that their
work for the Kak’adzdli would benefit the Company when it would not. The Response asks that the claim be dismissed.
The
Company has also filed a Counterclaim based upon its allegations that the plaintiffs wrongfully induced the Company to enter agreements
with the plaintiffs based on fraudulent misrepresentations regarding the existence of ownership of intellectual property. Further, the
counterclaim alleges that Mr. Brazier breached his fiduciary duties to Canivate in preferring the interests of Hydrohaus over those of
the Company.
The
counterclaim seeks a declaration that the agreements which the Company rescinded were properly rescinded based upon the misrepresentations
of the plaintiffs as well as general, special, aggravated and punitive damages, an accounting for profits, and legal costs.
The
Company evaluated subsequent events through March 29, 2022, the date on which these financial statements were available to be issued,
to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of December 31, 2021,
and events which occurred subsequent to December 31, 2021 but were not recognized in the financial statements. Except as disclosed below,
there were no events that required recognition, adjustment to or disclosure in the financial statements.
On
February 10, 2022, the Company signed a definitive agreement to acquire Delphy Groep BV (“Delphy”), a Netherlands-based AgTech
consultancy firm, for $26 million through a combination of cash and stock. The closing of the transaction is expected to occur within
60 days of the signing date.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Prospective
investors should read the following discussion and analysis of our financial condition and results of operations together with our financial
statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained
in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy
for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking
Statements.” You should review the “Risk Factors” section of this Annual Report for a discussion of important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis. All share and per share numbers have been retroactively adjusted to reflect the 1-for-4.75
reverse stock split effected on November 29, 2020.
Company
History and Our Business
AgriFORCE
Growing Systems Ltd. was incorporated as a private company by Articles of Incorporation issued pursuant to the provisions of the British
Columbia Business Corporations Act on December 22, 2017. The Company’s registered and records office address is at 300 –
2233 Columbia Street, Vancouver, British Columbia, Canada, V5Y 0M6. On February 13, 2018, the Company changed its name from 1146470 B.C.
Ltd to Canivate Growing Systems Ltd. On November 22, 2019, the Company changed its name from Canivate Growing Systems Ltd. to AgriFORCE
Growing Systems Ltd.
The
Company is an innovative agriculture-focused technology company that delivers reliable, financially robust solutions for high value crops
through our proprietary facility design and automation intellectual property to businesses and enterprises globally. The Company intends
to operate in the plant based pharmaceutical, nutraceutical, and other high value crop markets using its unique proprietary facility
design and hydroponics based automated growing system that enable cultivators to effectively grow crops in a controlled environment.
The Company calls its facility design and automated growing system the “AgriFORCE grow house”. The Company has designed its
AgriFORCE grow house to produce in virtually any environmental condition and to optimize crop yields to as near their full genetic potential
as possible whilst substantially eliminating the need for the use of pesticides and/or irradiation.
Status
as an Emerging Growth Company
On
April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that
an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging
growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting
standards on the relevant dates on which adoption of such standards is required for private companies.
We
are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS
Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain
of these exemptions from, without limitation, (i) providing an auditor’s attestation report on our system of internal controls
over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted
by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We
will remain an “emerging growth company” until the earliest of (a) the last day of our fiscal year following the fifth anniversary
of the closing of this offering, (b) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (c)
the last day of our fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, or Exchange Act (which would occur if the market value of our equity securities that is held by non-affiliates
exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or (d) the date on which we have
issued more than $1 billion in nonconvertible debt during the preceding three-year period.
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Revenues
The
Company has not generated any revenue since inception.
Operating
Expenses
Operating
expenses primarily consist of salaries and wages, share-based compensation, investor and public relations, research and development,
consulting, professional fees, and office and administration. Operating expenses increased in the year ended December 31, 2021 as compared
to December 31, 2020 by $3,583,447 or 107%, primarily due to increase in wages and salaries by $694,624, increase in investor relations
by $627,223, increase in consulting expenses by $647,392, increase in office and administrative expense of $590,322, increase in professional
fees by $436,988 and increase in research and development expenses by $350,423 as the Company entered into growth phase post IPO and
increased its staff and operations. This was partially offset by declines in shareholder and regulatory expenses of $194,783. We expect
operating expenses to increase in the future as we hire additional staff to support anticipated growth in the business and due to incremental
costs to comply with the requirements of being a publicly listed company.
Research
and Development
During
the year ended December 31, 2021, the Company spent $474,338 as compared to $123,915 for the year ended December 31, 2020 in research
and development costs in relation to the development of a biosphere facility and product development in relation to the IP asset purchase
from Manna Nutritional Group, LLC (see Note 7 to the Financial Statements). The following represents the breakdown of research and development
activities:
| |
December 31, 2021 | | |
December 31, 2020 | |
Architectural fees | |
$ | - | | |
$ | 28,397 | |
Engineering consultants | |
| - | | |
| 16,962 | |
Design and construction | |
| 177,407 | | |
| 4,406 | |
Product development | |
| 296,931 | | |
| 74,150 | |
| |
$ | 474,338 | | |
$ | 123,915 | |
Other
(Income) / Expenses
Other
Income for the year ended December 31, 2021 mainly includes change in fair value of warrant liability amounting to $1,191,383 and foreign
exchange gains of $162,976. These were partially offset by other expenses related to accretion of interest amounting to $483,529 and
loss on extension of the term related to the senior secured debentures issued by the Company on March 24, 2021 amounting to $58,952,
issue costs of public offer related to Series A Warrants amounting to $374,465 and write-off of land deposit of $151,711. Other income
for year ended December 31, 2020 mainly included Scientific Research and Experimental Development (“SR&ED”) tax incentive
income of $106,195 representing amounts received from the Canada Revenue Agency.
Net
Loss
The
Company recorded a net loss of $6,643,116 for the year ended December 31, 2021 as compared to a net loss of $3,221,526 for the year ended
December 31, 2020. The increase in net loss is due to the total increase in operating expenses and other expenses outlined above.
Liquidity
and Capital Resources
The
Company’s primary need for liquidity is to fund working capital requirements, capital expenditures, and for general corporate purposes.
The Company’s ability to fund operations and make planned capital expenditures and debt service obligations depends on future operating
performance and cash flows, which are subject to prevailing economic conditions, financial markets, business and other factors. We have
recorded a net loss of $6,643,116 for the year ended December 31, 2021 compared to $3,221,526 for the prior year; and recorded an accumulated
deficit of $19,900,992 as of December 31, 2021. Net cash used in operating activities for the year ended December 31, 2021 was $5,136,947
compared to $1,851,711 for year ended December 31, 2020.
We
had $7,775,290 in cash as at December 31, 2021 as compared to $653,410 as at December 31, 2020.
Our
future capital requirements will depend on many factors, including:
● |
the
cost and timing of our regulatory activities, especially the process to obtain regulatory approval for our intellectual properties
in the U.S. and in foreign countries |
● |
the
costs of R&D activities we undertake to further develop our technology |
● |
the
costs of constructing our grow houses, including any impact of complications, delays, and other unknown events |
● |
the
costs of commercialization activities, including sales, marketing and production |
● |
the
level of working capital required to support our growth |
● |
our
need for additional personnel, information technology or other operating infrastructure to support our growth and operations as a
public company |
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this
uncertainty. The Company is at the stage of development of its first facility and other IP. As such it is likely that additional financing
will be needed by the Company to fund its operations and to develop and commercialize its technology. These factors raise substantial
doubt about the Company’s ability to continue as a going concern.
For
the next twelve months from issuance of these financial statements, the Company will seek to obtain additional capital through the sale
of debt or equity financings or other arrangements to fund operations; however, there can be no assurance that the Company will be able
to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued
shares may contain senior rights and preferences compared to currently outstanding common shares. Issued debt securities may contain
covenants and limit the Company’s ability to pay dividends or make other distributions to shareholders. If the Company is unable
to obtain such additional financing, future operations would need to be scaled back or discontinued. Due to the uncertainty in the Company’s
ability to raise capital, management believes that there is substantial doubt in the Company’s ability to continue as a going concern
for twelve months from the issuance of these financial statements.
Cash
Flows
The
net cash used by operating activities for the year ended December 31, 2021 is attributable to a net loss of $6,643,116 due to operating
costs associated with wages, investor relations, consulting expenses, professional fees, research and development, and general administrative
expenses. The net loss was adjusted primarily by non-cash expenses related to shared based compensation of $796,141, shares issued for
consulting services amounting to $321,121, accretion of interest on senior secured debentures amounting to $483,529 and change in fair
value of warrants amounting to $1,191,383. For the year ended December 31, 2020 net cash used by operating activities was attributable
to net loss of $3,221,526 owing to wages, consulting expenses, professional fees, research and development expenses and general administrative
expenses. The net loss was adjusted primarily by non-cash expenses of shared based compensation of $571,210 and shares issued for consulting
services amounting to $438,076.
During
the year ended December 31, 2021, the net cash used in investing activities mainly includes payments for acquisition of IP assets amounting
to $225,000 and payments for construction in progress of $744,191. Comparatively, investing activity for the year ended December 31,
2020 mainly included a $170,000 deposit for purchase of land.
Cash
provided by financing activities for the year ended December 31, 2021 mainly represents cash proceeds from the IPO of $13,360,616, net
of underwriting discount and issue costs, proceeds from issuance of senior secured debentures, net of transaction costs, of $531,000,
proceeds from exercise of warrants of $238,800, as well as proceeds from long-term loan of $15,932, which was offset by repayment of
senior secured debentures of $750,000. The net cash provided by financing activities for the year ended December 31, 2020 represents
proceeds from exercise of warrants of $666,878 and proceeds from the Canada Emergency Business Account Program of $31,417 (CAD 40,000),
which was partially off-set by payments of IPO costs amounting to $93,495.
Recent
Financings
On
July 12, 2021, the Company completed its IPO whereby it sold a total of 3,127,998 units, each consisting of one common share and one
Series A warrant to purchase one common share, at a public offering price of $5.00 for gross proceeds of $15,639,990. The Company received
net proceeds from the IPO of $14,388,791, after deducting underwriting discounts and commissions of 1,251,199.
On
March 24, 2021, the Company entered into a securities purchase agreement with certain accredited investors for the purchase of $750,000
in principal amount ($600,000 subscription amount) of senior secured debentures originally due June 24, 2021 (the “Bridge Loan”).
On June 24, 2021, the due date was extended to July 12, 2021. The imputed interest rate is encompassed within the original issue discount
of the debentures and no additional cash interest shall be due. The debentures were issued pursuant to Section 4(a)(2) of the Securities
Act of 1933, as amended, to certain purchasers who are accredited investors within the meaning of Rule 501 under the Securities Act of
1933, as amended. Each debenture holder received a warrant to purchase shares of common stock in an amount equal to 50% of the principal
amount divided by 80% of the initial public offering price of the Company’s common stock. The warrants were exercisable at $3.99.
Transaction costs of $69,000 have been incurred in connection with the Bridge Loan. The senior secured debenture was repaid in full on
July 13, 2021 by the Company. On October 27, 2021, the Company issued 36,275 common shares as a result of cashless exercise of 93,938
common stock purchase warrants related to the senior secured debentures.
Off
Balance Sheet Arrangements
None.
Significant
Accounting Policies
Cash
The
Company’s cash consists of cash maintained in checking and interest-bearing accounts. The Company accounts for financial instruments
with original maturities of three months or less at the date of purchase as cash equivalents. The Company held no cash equivalents as
of December 31, 2021 and 2020.
Property
and Equipment
Property
and equipment are initially recognized at acquisition cost or manufacturing cost, including any costs directly attributable to bringing
the assets to the location and condition necessary for them to be capable of operating in the manner intended by the Company’s
management. Property, plant and equipment are subsequently measured at cost less accumulated depreciation and impairment losses.
Depreciation
is recognized on a straight-line basis to write down the cost less estimated residual value of computer equipment and furniture and fixtures.
The following useful lives are applied:
Computer
equipment |
3
years |
Furniture
and fixtures |
7
years |
Gains
or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and
the carrying amount of the assets and are recognized in profit or loss within other income or other expenses.
Construction
in progress includes construction progress payments, deposits, engineering costs, interest expense for debt financing on long-term construction
projects and other costs directly related to the construction of the facilities. Expenditures are capitalized during the construction
period and construction in progress is transferred to the relevant class of property and equipment when the assets are available for
use, at which point the depreciation of the asset commences.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which
identifiable independent cash flows are available (“asset group”). An impairment loss is recognized when the sum of projected
undiscounted cash flows is less than the carrying value of the asset group. The measurement of the impairment loss to be recognized is
based on the difference between the fair value and the carrying value of the asset group. Fair value can be determined using a market
approach, income approach or cost approach. The reversal of impairment losses is prohibited.
Deferred
IPO Costs
Deferred
IPO costs represent legal, accounting and other direct costs related to the Company’s efforts to raise capital through an initial
public offering of the Company’s common stock (“IPO”). There were no IPO costs incurred prior to 2020. The Company
completed the IPO in July 2021 and accordingly all deferred IPO costs were reclassified to additional paid-in capital as a reduction
of the IPO proceeds.
Revenue
Recognition
The
Company has not recorded any revenues since its inception. However, in the future, the Company expects to generate returns from any or
all the revenue sources below from its customers:
● |
Rental
income from facilities. |
● |
Intellectual
property income from the license of the facilities |
● |
Management
and advisory fees from management service contracts and |
On
January 1, 2018, the Company early adopted ASU No. 2014-09, Revenue from Contracts with Customers and all related amendments (“ASC
606” or “the new revenue standard”). ASC 606 is a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.
The new revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve this core principle, ASC 606 provides that an entity should apply the following steps: (1) identify the contract(s) with a
customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction
price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The new revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, and costs to obtain or fulfill contracts. The Company will apply ASC 606 prospectively to all contracts.
Loss
per Common Share
The
Company presents basic and diluted loss per share data for its common shares. Basic loss per common share is calculated by dividing the
profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during
the year. Diluted loss per common share is calculated by adjusting the weighted average number of common shares outstanding to assume
conversion of all potentially dilutive share equivalents, such as stock options and warrants and assumes the receipt of proceeds upon
exercise of the dilutive securities to determine the number of shares assumed to be purchased at the average market price during the
year. Diluted net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders
per share for the years ended December 31, 2021 and December 31, 2020, since the effect of the Company’s stock options and warrants
are anti-dilutive.
Research
and Development
Expenditure
on research and development activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding,
is recognized as expense when incurred.
Foreign
Currency Transactions
The
financial statements of the Company and its subsidiaries whose functional currencies are the local currencies are translated into U.S.
dollars for consolidation as follows: assets and liabilities at the exchange rate as of the balance sheet date, shareholders’ equity
at the historical rates of exchange, and income and expense amounts at the average exchange rate for the period. Translation adjustments
resulting from the translation of the subsidiaries’ accounts are included in “Accumulated other comprehensive income”
as equity in the consolidated balance sheets. Transactions denominated in currencies other than the applicable functional currency are
converted to the functional currency at the exchange rate on the transaction date. At period end, monetary assets and liabilities are
remeasured to the reporting currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are
remeasured at historical exchange rates. Gains and losses resulting from foreign currency transactions are included within non-operating
expenses.
Fair
Value of Financial Instruments
The
fair value of the Company’s accounts receivable, accounts payable and other current liabilities approximate their carrying amounts
due to the relative short maturities of these items.
As
part of the issuance of debentures on March 24, 2021, the Company issued warrants having strike price denominated in U.S. Dollars. This
creates an obligation to issue shares for a price that is not denominated in the Company’s functional currency and renders the
warrants not indexed to the Company’s stock, and therefore, must be classified as a derivative liability and measured at fair value.
On the same basis, the Series A Warrants and the representative warrants issued as part of the IPO are also classified as a derivative
liability and measured at fair value.
The
fair value of the Company’s warrants is determined in accordance with FASB ASC 820, “Fair Value Measurement,” which
establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to price assets or liabilities
that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for fair value measurements requires
that assets and liabilities measured at fair value be classified and disclosed in one of the following categories:
● |
Level
1: Defined as observable inputs, such as quoted (unadjusted) prices in active markets for identical assets or liabilities. |
|
|
● |
Level
2: Defined as observable inputs other than quoted prices included in Level 1. This includes quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
● |
Level
3: Defined as unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant
to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value
measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as
significant management judgment or estimation. |
As
of December 31, 2021, the Company’s warrant liability related to IPO warrants and representative’s warrant amounting to $1,418,964
(December 31, 2020 - $nil) is reported at fair value and categorized as Level 1 inputs. Whereas, the fair value of warrant liability
related to Bridge warrants that were issued and exercised during the year was categorized as level 3 inputs. (See Note 9 and Note 11)
Income
Taxes
Current
tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted at period-end.
Deferred
tax assets, including those arising from tax loss carryforwards, requires management to assess the likelihood that the Company will generate
sufficient taxable earnings in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of
future taxable profits depend on management’s estimates of future cash flows. In addition, future changes in tax laws could limit
the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could
be impacted.
The
Company operates in various tax jurisdictions and is subject to audit by various tax authorities.
The
Company records uncertain tax positions based on a two-step process whereby (1) a determination is made as to whether it is more likely
than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that
meet the more-likely-than-not recognition threshold the Company recognizes the largest amount of tax benefit that is greater than 50%
likely to be realized upon ultimate settlement with the related tax authority. The Company’s policy is to recognize interest and
penalties accrued on any unrecognized tax benefits as a component of income tax expense. Significant judgment is required in the identification
of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions.
There
were no material uncertain tax positions as of December 31, 2021 and 2020.
Share
Based Compensation
The
Company generally uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite
service period, which is generally the vesting period, and estimates the fair value of stock-based awards to employees and directors
using the Black-Scholes option-valuation model (the “Black-Scholes model”). The Black-Scholes model requires the input of
subjective assumptions, including volatility, the expected term and the fair value of the underlying common shares on the date of grant,
among other inputs. The Company recognizes any forfeitures as they occur.
Recent
Accounting Pronouncements
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, as modified
by the Jumpstart Our Business Start-ups Act of 2012, (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging
growth company can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934,
as amended, for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth
company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
Effective
January 1, 2021, the Company adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”
ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the
calculation of deferred tax liabilities, the incremental approach for intra-period tax allocation, and calculating income taxes in an
interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based
on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes
in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The adoption
of this new guidance did not have a material impact to these financial statements.
In
August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity” (“ASU 2020-06”). The intention of ASU 2020-06 is to address
the complexities in accounting for certain financial instruments with a debt and equity component. Under ASU 2020-06, the number of accounting
models for convertible notes will be reduced and entities that issue convertible debt will be required to use the if-converted method
for the computation of diluted “Earnings per share” under ASC 260. ASC 2020-06 is effective for fiscal years beginning after
December 15, 2021 and may be adopted through either a modified retrospective method of transition or a fully retrospective method of
transition. We are currently assessing the impact this guidance will have on our financial statements.
In
May 2021, the FASB issued ASU 2021-04 - Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation
- Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s
Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging
Issues Task Force). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options that remain equity classified after modification or exchange. Modifications and exchanges should
be treated as an exchange of the original instrument for a new instrument. The amendment requires entities to measure the effect as the
difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately
before it is modified or exchanged if the modification or the exchange that is a part of or directly related to a modification or an
exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements.
For
all other modifications or exchanges, the effect should be measured as the excess, if any, of the fair value of the modified or exchanged
written call option over the fair value of that written call option immediately before it is modified or exchanged for all other modifications
or exchanges. The amendments require entities to recognize the effect on the basis of the substance of the transaction, in the same manner
as if cash had been paid as consideration. The amendments also require entities to recognize the effect in accordance with the guidance
in Topic 718, Compensation - Stock Compensation. ASU No. 2021-04 is effective for fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. ASU 2021-04 will be adopted on January 1, 2022 and will not have a material impact to these
financial statements.
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The standard, including subsequently issued
amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets,
to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective
for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and requires the modified retrospective
approach. Early adoption is permitted. Based on the composition of the Company’s trade receivables and other financial assets,
current market conditions, and historical credit loss activity, the Company is currently in the process of evaluating the impact of this
guidance on our financial statements.
In
February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASU’s (collectively,
“Topic 842”), which requires a dual approach for lease accounting under which a lessee would account for leases as finance
leases or operating leases. Both finance leases and operating leases may result in the lessee recognizing a right of use asset and a
corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset,
and for operating leases, the lessee would recognize lease expense on a straight-line basis. This ASU is effective for fiscal years beginning
after December 15, 2021, and interim periods within those fiscal years, and allows a modified retrospective approach. Early adoption
is permitted. The Company is currently in the process of evaluating the impact of this guidance on our financial statements.
In
October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, Business Combinations (Topic 805): Accounting
for Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU 2021-08, an acquirer must recognize and measure
contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The guidance is effective for
interim and annual periods beginning after December 15, 2022, with early adoption permitted. The Company is currently in the process
of evaluating the impact of this guidance on our financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Related
Party Transactions
As
of December 31, 2021, $47,461 (December 31, 2020 - $3,223) in total was owing to officers and directors or to companies owned by officers
and directors of the Company for services and expenses. These amounts owing have been included in accounts payable and accrued liabilities.
During
the year ended December 31, 2021 and 2020, the Company incurred $66,246 and $38,395, respectively, to our U.S. general counsel firm,
D R Welch against legal services, a corporation controlled by a director of the Company. An aggregate of 13,158 shares (62,500 shares
before the Reverse Split) were issued to David Welch as part of the payment.
During
the year ended December 31, 2021 and December 31, 2020, the Company paid $Nil and $8,862, respectively, for consulting services to 0902550
BC Ltd. where Don Nicholson, former Chairman of the Board, is the principal consultant.
On
May 1, 2019, the Company entered into a 12 month consulting agreement with Arni Johannson, a beneficial owner of the Company, to provide
Investor Relations services for a monthly fee of CAD 10,000. As of December 31, 2020, the Company owed $nil pursuant to the said agreement.
There
were no other payments to related parties for the year ended December 31, 2020 and 2019 other than expense reimbursements in the ordinary
course of business.
Financial
Instruments
Fair
Value
Our
financial instruments consist of cash, other receivables, accounts payable and accrued liabilities, notes payable and warrants liability.
There are no significant differences between the carrying amounts of the items reported on the statements of financial position and their
estimated fair values. Our risk exposures and their impact on our financial instruments are summarized below.
Liquidity
Risk
We
are exposed to liquidity risk. Liquidity risk is the exposure of our Company to the risk of not being able to meet our financial obligations
as they fall due. Our approach to managing liquidity risk is to regularly evaluate our projected cash from operations and to seek additional
capital through equity and debt financings to ensure that we will have sufficient liquidity to meet liabilities when due. Our future
liquidity is dependent on factors such as the ability to generate cash from operations and to raise money through debt or equity financing.
Foreign
Currency Risk
Foreign
exchange risk arises from the changes in foreign exchange rates that may affect the fair value or future cash flows of our financial
assets or liabilities.
AGRIFORCE
GROWING SYSTEMS LTD.
Unaudited
Condensed Consolidated Interim Financial Statements
As
of June 30, 2022 and December 31, 2021 and for the six months ended June 30, 2022 and 2021
AGRIFORCE
GROWING SYSTEMS LTD.
CONDENSED
CONSOLIDATED INTERIM BALANCE SHEETS
(Expressed
in US dollars)
| |
June
30, 2022 (Unaudited) | | |
December
31, 2021 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Current | |
| | | |
| | |
Cash
and cash equivalents | |
$ | 1,996,910 | | |
$ | 7,775,290 | |
Other
receivable (Note 6) | |
| 11,957,342 | | |
| 32,326 | |
Prepaid
expenses and other current assets (Note 3) | |
| 111,802 | | |
| 309,040 | |
Total
current assets | |
| 14,066,054 | | |
| 8,116,656 | |
| |
| | | |
| | |
Non-current | |
| | | |
| | |
Property
and equipment, net | |
| 122,666 | | |
| 40,971 | |
Intangible
asset (Note 4) | |
| 9,187,862 | | |
| 1,477,237 | |
Operating
lease right-of-use asset (Note 10) | |
| 1,711,179 | | |
| - | |
Lease
deposit, non-current | |
| - | | |
| 50,608 | |
Construction
in progress | |
| 2,096,341 | | |
| 2,079,914 | |
Total
assets | |
| 27,184,102 | | |
| 11,765,386 | |
| |
| | | |
| | |
LIABILITIES
AND EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current | |
| | | |
| | |
Accounts
payable and accrued liabilities (Note 5) | |
| 2,305,851 | | |
| 1,532,312 | |
Contingent
consideration payable | |
| 7 | | |
| 753,727 | |
Debentures
(Note 6) | |
| 3,697,613 | | |
| - | |
Lease
liability – current (Note 10) | |
| 258,997 | | |
| - | |
Total
current liabilities | |
| 7,004,022 | | |
| 2,286,039 | |
| |
| | | |
| | |
Non-current | |
| | | |
| | |
Deferred
rent | |
| - | | |
| 12,954 | |
Lease
liability – non-current (Note 10) | |
| 1,399,476 | | |
| - | |
Derivative
liabilities (Note 6 and 8) | |
| 8,590,779 | | |
| 1,418,964 | |
Long
term loan (Note 7) | |
| 46,562 | | |
| 47,326 | |
Total
liabilities | |
| 17,040,839 | | |
| 3,765,283 | |
Commitments
and contingencies (Note 11) | |
| | | |
| | |
| |
| | | |
| | |
Shareholders’
equity | |
| | | |
| | |
Common
shares, no par value per share – unlimited shares authorized; 15,514,629 and 15,176,698 shares issued and outstanding at June
30, 2022 and December 31, 2021, respectively | |
| 26,710,990 | | |
| 25,637,543 | |
Additional
paid-in-capital | |
| 10,123,315 | | |
| 2,203,343 | |
Obligation
to issue shares | |
| - | | |
| 93,295 | |
Accumulated
deficit | |
| (26,624,863 | ) | |
| (19,900,992 | ) |
Accumulated
other comprehensive income | |
| (66,179 | ) | |
| (33,086 | ) |
Total
shareholders’ equity | |
| 10,143,263 | | |
| 8,000,103 | |
| |
| | | |
| | |
Total
liabilities and shareholders’ equity | |
$ | 27,184,102 | | |
$ | 11,765,386 | |
The
accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.
AGRIFORCE
GROWING SYSTEMS LTD.
CONDENSED
CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
(Expressed
in US dollars)
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three
Months Ended June 30, | | |
Six
Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
OPERATING
EXPENSES | |
| | | |
| | | |
| | | |
| | |
Wages
and salaries | |
$ | 1,359,503 | | |
$ | 169,300 | | |
$ | 2,148,144 | | |
$ | 338,965 | |
Consulting | |
| 1,145,323 | | |
| 181,651 | | |
| 1,508,418 | | |
| 491,596 | |
Professional
fees | |
| 780,331 | | |
| 108,343 | | |
| 881,400 | | |
| 253,251 | |
Office
and administrative | |
| 317,152 | | |
| 51,288 | | |
| 630,890 | | |
| 112,275 | |
Investor
and public relations | |
| 261,435 | | |
| 88,249 | | |
| 606,924 | | |
| 165,086 | |
Research
and development | |
| 30,329 | | |
| 31,277 | | |
| 426,856 | | |
| 61,260 | |
Share
based compensation | |
| 56,390 | | |
| 65,559 | | |
| 214,372 | | |
| 155,801 | |
Lease
expense | |
| 78,498 | | |
| 5,092 | | |
| 159,435 | | |
| 7,286 | |
Travel
and entertainment | |
| 89,694 | | |
| 10,231 | | |
| 158,821 | | |
| 11,306 | |
Shareholder
and regulatory | |
| 37,684 | | |
| 1,037 | | |
| 146,663 | | |
| 3,345 | |
Sales
and marketing | |
| 59,757 | | |
| - | | |
| 90,382 | | |
| - | |
Depreciation | |
| 5,465 | | |
| 2,728 | | |
| 8,992 | | |
| 5,323 | |
Operating
loss | |
| (4,221,561 | ) | |
| (714,755 | ) | |
| (6,981,297 | ) | |
| (1,605,494 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER
EXPENSES | |
| | | |
| | | |
| | | |
| | |
Foreign
exchange loss (gain) | |
| (103,472 | ) | |
| 5,609 | | |
| (38,964 | ) | |
| (524 | ) |
Change
in fair value of warrants | |
| (675,504 | ) | |
| - | | |
| (218,462 | ) | |
| - | |
Accretion
of interest on senior secured debentures | |
| - | | |
| 427,360 | | |
| - | | |
| 427,360 | |
Loss
on extension of debt term | |
| - | | |
| 59,259 | | |
| - | | |
| 59,259 | |
| |
| | | |
| | | |
| | | |
| | |
Net
loss | |
$ | (3,442,585 | ) | |
$ | (1,206,983 | ) | |
$ | (6,723,871 | ) | |
$ | (2,091,589 | ) |
| |
| | | |
| | | |
| | | |
| | |
Dividend
paid to preferred shareholders | |
| - | | |
| 532,258 | | |
| - | | |
| 532,258 | |
| |
| | | |
| | | |
| | | |
| | |
Net
loss attributable to common shareholders | |
$ | (3,442,585 | ) | |
$ | (1,739,241 | ) | |
$ | (6,723,871 | ) | |
$ | (2,623,847 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other
comprehensive income (loss) | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation | |
| (21,192 | ) | |
| (5,285 | ) | |
| (33,093 | ) | |
| 7,749 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive
loss attributable to common shareholders | |
$ | (3,463,777 | ) | |
$ | (1,744,526 | ) | |
$ | (6,756,964 | ) | |
$ | (2,616,098 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic
and diluted net loss attributed to common share | |
$ | (0.21 | ) | |
$ | (0.20 | ) | |
$ | (0.43 | ) | |
$ | (0.30 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted
average number of common shares outstanding – basic and diluted | |
| 16,518,480 | | |
| 8,892,989 | | |
| 15,872,349 | | |
| 8,668,881 | |
The
accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.
AGRIFORCE
GROWING SYSTEMS LTD.
CONDENSED
CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
(Expressed
in US dollars, except share numbers)
For
the three and six months ended June 30, 2022 and 2021
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
For
the three months ended June 30 | |
| |
Common
Shares | | |
Series
A Preferred Shares | | |
Additional
| | |
Obligation | | |
| | |
Accumulated
Other | | |
Total | |
| |
#
of Shares | | |
Amount | | |
#
of Shares | | |
Amount | | |
Paid-in-
capital | | |
to
Issue
Shares | | |
Accumulated
Deficit | | |
Comprehensive
Income | | |
Shareholders’
Equity | |
Balance,
April 1, 2022 | |
| 15,247,012 | | |
$ | 25,822,735 | | |
| - | | |
| - | | |
$ | 2,361,325 | | |
$ | 93,295 | | |
$ | (23,182,278 | ) | |
$ | (44,987 | ) | |
$ | 5,050,090 | |
Shares
issued for consulting services | |
| 188,770 | | |
| 653,886 | | |
| - | | |
| - | | |
| - | | |
| (93,295 | ) | |
| - | | |
| - | | |
| 560,591 | |
Shares
issued for compensation and bonuses | |
| 78,847 | | |
| 234,369 | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
| 234,369 | |
Share
based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 56,390 | | |
| - | | |
| - | | |
| - | | |
| 56,390 | |
Prefunded
warrants issued (Note 4) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,705,600 | | |
| - | | |
| - | | |
| - | | |
| 7,705,600 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,442,585 | ) | |
| - | | |
| (3,442,585 | ) |
Foreign
currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (21,192 | ) | |
| (21,192 | ) |
Balance,
June 30, 2022 | |
| 15,514,629 | | |
$ | 26,710,990 | | |
| - | | |
| - | | |
$ | 10,123,315 | | |
$ | - | | |
$ | (26,624,863 | ) | |
$ | (66,179 | ) | |
$ | 10,143,263 | |
Balance,
April 1, 2021 | |
| 8,471,617 | | |
$ | 5,875,750 | | |
| 2,258,826 | | |
$ | 6,717,873 | | |
$ | 1,387,808 | | |
$ | 103,512 | | |
$ | (13,406,550 | ) | |
$ | 132,088 | | |
$ | 810,481 | |
Shares
issued for cashless exercise of options | |
| 820,029 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Shares
issued for compensation | |
| 98,356 | | |
| 514,066 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 514,066 | |
Shares
issued for consulting services | |
| 7,237 | | |
| 40,809 | | |
| - | | |
| - | | |
| - | | |
| (8,627 | ) | |
| - | | |
| - | | |
| 32,182 | |
Shares
issued for debt term extension | |
| 10,000 | | |
| 60,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 60,000 | |
Shares
issued for dividend on Preferred Shares | |
| 135,530 | | |
| 532,258 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (532,258 | ) | |
| - | | |
| - | |
Share
based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 65,559 | | |
| - | | |
| - | | |
| - | | |
| 65,559 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,206,983 | ) | |
| - | | |
| (1,206,983 | ) |
Foreign
currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,285 | ) | |
| (5,285 | ) |
Balance,
June 30, 2021 | |
| 9,542,769 | | |
$ | 7,022,883 | | |
| 2,258,826 | | |
$ | 6,717,873 | | |
$ | 1,453,367 | | |
$ | 94,885 | | |
$ | (15,145,791 | ) | |
$ | 126,803 | | |
$ | 270,020 | |
| |
For
the six months ended June 30 | |
| |
Common
Shares | | |
Series
A Preferred Shares | | |
| | |
| | |
| | |
| | |
| |
| |
#
of Shares | | |
Amount | | |
#
of Shares | | |
Amount | | |
Additional
Paid-in-
capital | | |
Obligation
to Issue Shares | | |
Accumulated
Deficit | | |
Accumulated
Other Comprehensive Income | | |
Total
Shareholders’
Equity | |
Balance,
January 1, 2022 | |
| 15,176,698 | | |
$ | 25,637,543 | | |
| - | | |
$ | - | | |
$ | 2,203,343 | | |
$ | 93,295 | | |
$ | (19,900,992 | ) | |
$ | (33,086 | ) | |
$ | 8,000,103 | |
Shares
issued for compensation and bonus | |
| 108,164 | | |
| 331,490 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 331,490 | |
Shares
issued for consulting services | |
| 229,767 | | |
| 741,957 | | |
| - | | |
| - | | |
| - | | |
| (93,295 | ) | |
| - | | |
| - | | |
| 648,662 | |
Prefunded
warrants issued | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,705,600 | | |
| - | | |
| - | | |
| - | | |
| 7,705,600 | |
Share
based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 214,372 | | |
| - | | |
| - | | |
| - | | |
| 214,372 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,723,871 | ) | |
| - | | |
| (6,723,871 | ) |
Foreign
currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (33,093 | ) | |
| (33,093 | ) |
Balance,
June 30, 2022 | |
| 15,514,629 | | |
$ | 26,710,990 | | |
| - | | |
| - | | |
$ | 10,123,315 | | |
$ | - | | |
$ | (26,624,863 | ) | |
$ | (66,179 | ) | |
$ | 10,143,263 | |
Balance,
January 1, 2021 | |
| 8,441,617 | | |
$ | 5,696,050 | | |
| 2,258,826 | | |
$ | 6,717,873 | | |
$ | 1,297,566 | | |
$ | 94,885 | | |
$ | (12,521,944 | ) | |
$ | 119,054 | | |
$ | 1,403,484 | |
Shares
issued for cashless exercise of options | |
| 820,029 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Shares
issued for compensation | |
| 98,356 | | |
| 514,066 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 514,066 | |
Shares
issued for consulting services | |
| 37,237 | | |
| 220,509 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 220,509 | |
Shares
issued for debt term extension | |
| 10,000 | | |
| 60,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 60,000 | |
Shares
issued for dividend on Preferred Shares | |
| 135,530 | | |
| 532,258 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (532,258 | ) | |
| - | | |
| - | |
Share
based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 155,801 | | |
| - | | |
| - | | |
| - | | |
| 155,801 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,091,589 | ) | |
| - | | |
| (2,091,589 | ) |
Foreign
currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,749 | | |
| 7,749 | |
Balance,
June 30, 2021 | |
| 9,542,769 | | |
$ | 7,022,883 | | |
| 2,258,826 | | |
$ | 6,717,873 | | |
$ | 1,453,367 | | |
$ | 94,885 | | |
$ | (15,145,791 | ) | |
$ | 126,803 | | |
$ | 270,020 | |
The
accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.
AGRIFORCE
GROWING SYSTEMS LTD.
CONDENSED
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Unaudited)
(Expressed
in US Dollars)
| |
2022 | | |
2021 | |
| |
For
the six months ended June
30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
CASH
FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net
loss for the period | |
$ | (6,723,871 | ) | |
$ | (2,091,589 | ) |
Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 8,992 | | |
| 5,323 | |
Share
based compensation | |
| 214,372 | | |
| 155,801 | |
Shares
issued for consulting services | |
| 648,662 | | |
| 220,509 | |
Shares
issued for debt term extension | |
| - | | |
| 60,000 | |
Accretion
of interest on senior secured debentures | |
| - | | |
| 427,360 | |
Loss
on extension of debt term | |
| - | | |
| 59,259 | |
Shares
issued for compensation and bonuses | |
| 331,490 | | |
| - | |
Change
in fair value of warrants | |
| (218,462 | ) | |
| - | |
Amortization
of right-of-use asset | |
| 103,074 | | |
| - | |
Changes
in operating assets and liabilities: | |
| | | |
| | |
Other
receivables | |
| (15,016 | ) | |
| (538 | ) |
Prepaid
expenses and other current assets | |
| 232,238 | | |
| (16,793 | ) |
Accounts
payable and accrued liabilities | |
| 478,645 | | |
| 380,986 | |
Lease
liabilities | |
| (118,126 | ) | |
| - | |
Net
cash used in operating activities | |
| (5,058,002 | ) | |
| (799,682 | ) |
| |
| | | |
| | |
CASH
FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Acquisition
of equipment and leasehold improvements | |
| (92,479 | ) | |
| (2,190 | ) |
Payment
against acquisition of intangibles | |
| (500,000 | ) | |
| - | |
Construction in progress | |
| (50,000 | ) | |
| | |
Net
cash used in investing activities | |
| (642,479 | ) | |
| (2,190 | ) |
| |
| | | |
| | |
CASH
FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds
from issuance of senior secured debentures | |
| - | | |
| 600,000 | |
Financing
costs of debentures | |
| (35,000 | ) | |
| (69,000 | ) |
Proceeds
from long-term loan | |
| - | | |
| 15,932 | |
Payment
of IPO costs | |
| - | | |
| (173,541 | ) |
Net
cash used in financing activities | |
| (35,000 | ) | |
| 373,391 | |
| |
| | | |
| | |
Effect
of exchange rate changes on cash and cash equivalent | |
| (42,899 | ) | |
| (67,878 | ) |
Change
in cash | |
| (5,778,380 | ) | |
| (496,359 | ) |
Cash,
beginning of period | |
| 7,775,290 | | |
| 653,410 | |
Cash,
end of period | |
$ | 1,996,910 | | |
$ | 157,051 | |
| |
| | | |
| | |
Supplemental
cash flow information: | |
| | | |
| | |
Cash
paid during the period for interest | |
| - | | |
| - | |
Cash
paid during the period for income taxes | |
| - | | |
| - | |
| |
| | | |
| | |
Supplemental
disclosure of non-cash investing and financing transactions | |
| | | |
| | |
Fair
value of shares in connection with extension of senior secured debentures | |
| - | | |
| 60,000 | |
Fair
value of debenture warrants | |
| 4,080,958 | | |
| - | |
Fair
value of conversion feature of debentures | |
| 3,336,535 | | |
| - | |
Debt
receivable | |
| 11,910,000 | | |
| - | |
Prefunded
warrants issued related to intangible assets | |
| 7,705,600 | | |
| - | |
Unpaid
financing cost | |
| 1,600,312 | | |
| - | |
Preferred
stock dividend paid in common shares | |
| - | | |
| 532,258 | |
Unpaid
amount related to construction in progress included in accounts payable | |
| - | | |
| 744,191 | |
Initial
operating lease liability recognized under Topic 842 | |
| 1,776,599 | | |
| - | |
Initial
lease right-of-use asset recognized under Topic 842 | |
| 1,837,782 | | |
| - | |
Unpaid
IPO costs | |
| - | | |
| 803,694 | |
The
accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.
NOTES
TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For
the six months ended June 30, 2022 and 2021 (unaudited)
(Expressed
in US Dollars, except where noted)
1.
NATURE OF OPERATIONS AND BASIS OF PREPARATION
Business
Overview
AgriFORCE
Growing Systems Ltd. (the “Company”) was incorporated as a private company by Articles of Incorporation issued pursuant to
the provisions of the Business Corporations Act (British Columbia) on December 22, 2017. The Company’s registered and records office
address is at 300 – 2233 Columbia Street, Vancouver, British Columbia, Canada, V5Y 0M6. On February 13, 2018, the Company changed
its name from 1146470 B.C. Ltd to Canivate Growing Systems Ltd. On November 22, 2019 the Company changed its name from Canivate Growing
Systems Ltd. to AgriFORCE Growing Systems Ltd.
At
AgriFORCE, our purpose is clear: to positively transform farm, food, and family every day, everywhere. With years of in-depth research
and development experience, we are pioneers, ready to deliver integrated, practical, and sustainable solutions that can be applied throughout
multiple verticals in AgTech. We drive our business through two operating divisions, AgriFORCE Solutions and AgriFORCE Brands.
Our
two divisions—AgriFORCE Solutions and AgriFORCE Brands—work in partnership to address some of the existential challenges
being faced by the world today—climate change, extreme weather, food security and sovereignty, the environmental impact of industrial
and commercial farming—working towards providing better tasting, more nutritious plant-based foods and other products to consumers
on a global level.
Basis
of Presentation
The
accompanying Unaudited Condensed Consolidated Interim Financial Statements (the “interim financial statements”) and related
financial information of AgriFORCE Growing Systems Ltd. should be read in conjunction with the audited financial statements and the related
notes thereto for the years ended December 31, 2021 and 2020 included in the Company’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission (“SEC”) on March 30, 2022. These unaudited interim financial statements have been prepared
in accordance with the rules and regulations of the United States Securities and SEC for interim financial information. Accordingly,
they do not include all of the information and footnotes required by the accounting principles generally accepted in the United States
of America (“U.S. GAAP”) for complete financial statements.
In
the opinion of management, the accompanying interim financial statements contain all adjustments which are necessary to state fairly
the Company’s financial position as of June 30, 2022 and December 31, 2021, and the results of its operations during the three
and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021. Such adjustments are of a
normal and recurring nature. The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results
to be expected for the full fiscal year ending December 31, 2022, or for any future period.
Liquidity
and Management’s Plan
The
Company has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for
the foreseeable future. As reflected in the interim financial statements for the six months ended June 30, 2022, the Company had a net
loss of $6.7 million, $5.1 million of net cash used in operating activities, and the Company had working capital of $7.1 million.
The
accompanying interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The interim financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result
from the outcome of this uncertainty. The Company is at the stage of development of its first facility and other intellectual property.
As such it is likely that additional financing will be needed by the Company to fund its operations and to develop and commercialize
its technology. These factors raise substantial doubt about the Company’s ability to continue as a going concern. For the next
twelve months from issuance of these interim financial statements, the Company will seek to obtain additional capital through the sale
of debt or equity financings or other arrangements to fund operations; however, there can be no assurance that the Company will be able
to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued
shares may contain senior rights and preferences compared to our currently outstanding common shares. If the Company is unable to obtain
such additional financing, future operations would need to be scaled back or discontinued. Due to the uncertainty in the Company’s
ability to raise capital, management believes that there is substantial doubt in the Company’s ability to continue as a going concern
for twelve months from the issuance of these interim financial statements.
2.
SIGNIFICANT ACCOUNTING POLICIES
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity” (“ASU 2020-06”). The intention of ASU 2020-06 is to address
the complexities in accounting for certain financial instruments with a debt and equity component. Under ASU 2020-06, the number of accounting
models for convertible notes will be reduced and entities that issue convertible debt will be required to use the if-converted method
for the computation of diluted “Earnings per share” under ASC 260. ASC 2020-06 is effective for fiscal years beginning after
December 15, 2023 and may be adopted through either a modified retrospective method of transition or a fully retrospective method of
transition. We are currently assessing the impact this guidance will have on our condensed consolidated financial statements.
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses.” The standard, including subsequently
issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial
assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical
experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This
ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and requires the
modified retrospective approach. Early adoption is permitted. Based on the composition of the Company’s trade receivables and other
financial assets, current market conditions, and historical credit loss activity, the Company is currently in the process of evaluating
the impact of this guidance on our financial statements.
In
October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, Business Combinations (Topic 805): Accounting
for Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU 2021-08, an acquirer must recognize and measure
contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The guidance is effective for
interim and annual periods beginning after December 15, 2022, with early adoption permitted. The Company is currently in the process
of evaluating the impact of this guidance on our financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815, Derivatives
and Hedging (“ASC 815”), which provides that if three criteria are met, the Company is required to bifurcate conversion options
from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances
in which;
(a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics
and risks of the host contract;
(b)
the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under
otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur; and
(c)
a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
ASC
815 also provides an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards
as “The Meaning of Conventional Convertible Debt Instrument.”
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from
their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion
Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records,
when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon
the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective
conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their
earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded
in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note
transaction and the effective conversion price embedded in the note. ASC 815 provides that, among other things, generally, if an event
is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a
liability.
Fair
Value of Financial Instruments
The
fair value of the Company’s other receivable, accounts payable and other current liabilities approximate their carrying amounts
due to the relative short maturities of these items.
The
Company issued warrants having a strike price denominated in U.S. dollars, which creates an obligation to issue shares for a price that
is not denominated in the Company’s functional currency, Canadian dollars, and renders the warrants not indexed to the Company’s
stock. The Series A warrants, representative warrants issued as part of the IPO, and convertible debt warrants are thus classified as
derivative liabilities and are measured at fair value.
The
convertible debentures also have a conversion feature whereby the debt holders can convert their outstanding debentures into common shares
of the Company. The conversion price has a strike price denominated in U.S. dollars and accordingly, the conversion feature is classified
as a derivative liability and measured at fair value.
The
fair value of the Company’s warrants are determined in accordance with FASB ASC 820, “Fair Value Measurement,” which
establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to price assets or liabilities
that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for fair value measurements requires
that assets and liabilities measured at fair value be classified and disclosed in one of the following categories:
● |
Level
1: Defined as observable inputs, such as quoted (unadjusted) prices in active markets for identical assets or liabilities. |
|
|
● |
Level
2: Defined as observable inputs other than quoted prices included in Level 1. This includes quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
● |
Level
3: Defined as unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant
to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value
measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as
significant management judgment or estimation. |
3.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
| |
June
30, 2022 | | |
December
31, 2021 | |
Deposits | |
$ | 32,000 | | |
$ | 32,000 | |
Legal
retainer | |
| 15,643 | | |
| 33,692 | |
Prepaid
expenses | |
| 37,440 | | |
| 214,445 | |
Others | |
| 26,719 | | |
| 28,903 | |
| |
$ | 111,802 | | |
$ | 309,040 | |
During
the year ended December 31, 2020, the Company entered into a land purchase agreement in relation to construction of a facility in Coachella,
California. A deposit of $170,000 was paid and the balance of the purchase price is subject to financing. On April 6, 2021, the scheduled
close of escrow was extended to April 30, 2021, and the purchase price was increased to $4.4 million. The Company wrote off the non-refundable
portion of the deposit amounting to $150,000 on December 31, 2021, as the close of escrow period has lapsed; however, the Company is
currently renegotiating the terms of the agreement.
4.
INTANGIBLE ASSET
Intangible
asset represents $9,187,862 of intellectual property (“IP”) acquired under an asset purchase agreement from Manna Nutritional
Group, LLC (“MNG”) on September 10, 2021. The IP encompasses patent-pending technologies to naturally process and convert
grain, pulses and root vegetables, resulting in low-starch, low-sugar, high-protein, fiber-rich baking flour products, which can be made
into a wide range of breakfast cereals, juices, natural sweeteners and baking enhancers. The terms of the agreement, including the amendments
agreed by the parties on May 10, 2022, are as below:
The
aggregate purchase price for the Purchased Assets (the “Purchase Price”) is up to $14,475,000, and shall consist of the following,
subject to the terms and conditions of this Agreement, as follows:
|
(i) |
Prefunded
Warrants (“Closing Prefunded Warrants”), which will be immediately exercisable into common shares of the Company upon
each of the vesting events set forth below, equal to the number of shares of Purchaser’s common stock (rounded up to the nearest
whole number), restricted as to resale under Section 4(a)(2) of the Securities Act, equal to the quotient of (a)(i) $3,500,000 divided
by (ii) a per share price equal to the average of the volume weighted average price (“VWAP”) of the Purchaser’s
common shares for the ten trading days immediately preceding March 10, 2022 (or $1.79 per share) (“Closing Tranche 1”)
(issued), and (b)(i) $1,500,000 divided by (ii) a per share price equal to the average of the VWAP of the Purchaser’s common
shares for the ten trading days immediately preceding the date on which patent resubmission work for the patents set forth in the
Agreement is completed (“Closing Tranche 2”). Closing Tranche 1 of the Prefunded Warrants will be issued immediately
upon shareholder approval of the transactions contemplated by the Agreement and Amendment, in compliance with all SEC and Nasdaq
rules and regulations (“Shareholder Approval”). Closing Tranche 2 of the Prefunded Warrants will be issued immediately
following the date on which patent resubmission work for the patents set forth in the Agreement is completed. In each case, the Closing
Prefunded Warrants will be paid in full upon issuance. The Closing Prefunded Warrants and any shares issued upon exercise of the
Closing Prefunded Warrants are restricted as to resale and issued under a private placement exempt from registration under Section
4(a)(2) of the Securities Act, and will vest on a quarterly basis over eight quarters commencing on the three-month anniversary of
the Closing Date in equal amounts over eight consecutive calendar quarters; |
|
(ii) |
$1,475,000
in cash, minus any amounts paid to MNG under (iii), payable to MNG at Closing; |
|
|
|
|
(iii) |
$725,000
in cash payable follows: (a) $225,000 payable on the Effective Date (paid); and (b) $500,000 payable within 120 days after the Effective
Date (paid), to reimburse MNG for, without limitation, satisfaction of all the secured debt as listed in Section 2.04 of the Disclosure
Schedules to the Agreement (the “Secured Debt”); and |
|
|
|
|
(iv) |
Prefunded
Warrants (“Post-Closing Prefunded Warrants,” and collectively with the Closing Prefunded Warrants, the “Prefunded
Warrants”), which will be immediately exercisable into common shares of the Company upon the vesting events set forth below,
equal to the number of shares of Purchaser’s common stock (rounded up to the nearest whole number), restricted as to resale
under Section 4(a)(2) of the Securities Act, to be issued in two tranches, that equals (i) $8,000,000 divided by (ii) a per share
price equal to the VWAP of the Purchaser’s common shares for the ten trading days immediately before the issuance date of those
Post-Closing Prefunded Warrants (or $2.43 per share). $5,000,000 of the Post Closing Prefunded Warrants will be issued to Seller
on June 30, 2022 (issued). $3,000,000 of the Post-Closing Prefunded Warrants will be issued to Seller on December 31, 2022. In each
case, the Post-Closing Prefunded Warrants will be paid in full upon issuance. If a Patent is issued within 24 months of the Closing
Date, and such Patent is transferred to the Purchaser free and clear of all Encumbrances, then the Post-Closing Prefunded Warrants
will vest and become exercisable in four equal amounts commencing on the date of issuance of the Patent and then for the three subsequent
three-month anniversaries thereof. If a Patent does not issue from the CERES-MNG Patent Application within 24 months from the Closing
Date, the Post-Closing Prefunded Warrants will be returned to the Purchaser, and the Purchase Price shall be adjusted downward dollar
for dollar. All Post-Closing Prefunded Warrants are subject to Shareholder Approval before vesting can occur. |
In
the event that after 24 months from the closing date, a Patent does not issue from the IP, Buyer’s obligation to issue the Post-Closing
Shares and Dividends to MNG will be deemed null and void ab initio and will no longer be due and owing to MNG, and the Post-Closing Shares
shall be released from escrow and returned to the Company, and the Purchase Price shall be adjusted downward dollar for dollar.
Based
on the terms above and in conformity with US GAAP, the Company accounted for purchase as an asset acquisition and has deemed the asset
purchased as an in-process research and development. The Company has further deemed the asset to be of indefinite life until the completion
of the associated research and development (“R&D”) activities. Once completed and commercialized, the asset will be amortized
over its useful life. The recognition of the IP asset is based on the payments made to date of $725,000, prefunded warrants issued and
contingent consideration that is probable and reasonably estimable as of the reporting date. Subsequent changes in contingent consideration
are recorded against cost. Further, the company has recorded $741,561 as contingent consideration, which is considered probable and due
on closing. The remaining amounts payable as described above were not deemed to be probable at June 30, 2022, and accordingly have not
been accrued for.
5.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| |
June
30, 2022 | | |
December
31, 2021 | |
Accounts
payable | |
$ | 1,339,681 | | |
$ | 414,117 | |
Accrued
expenses | |
| 760,783 | | |
| 981,027 | |
Others | |
| 205,387 | | |
| 137,168 | |
Accounts
Payable and Accrued Liabilities | |
$ | 2,305,851 | | |
$ | 1,532,312 | |
Accrued
expenses include professional fee payable of $437,397 (December 31, 2021 - nil), bonus payable of $111,140 (December 31, 2021 –
nil), Directors’ fees payable of $68,095 (December 31, 2021 - $39,309), withholding tax payable of $82,086 (December 31, 2021 -
$89,236) and other items aggregating $62,065 (December 31, 2021 - $352,482). Accrued expenses as of December 31, 2021, also included
$500,000 related to reimbursement for satisfaction of secured debt of seller of IP asset.
6.
DEBENTURES
On
March 24, 2021, the Company entered into a securities purchase agreement with certain accredited investors for the purchase of $750,000
in principal amount ($600,000 subscription amount) of senior secured debentures originally due June 24, 2021 (the “Bridge Loan”).
The imputed interest rate is encompassed within the original issue discount of the debentures and no additional cash interest shall be
due. Transaction costs of $69,000 have been recorded in connection with the Bridge Loan.
On
June 24, 2021, the due date was extended, for which the Company paid an extension fee of 10,000 common shares with a fair value of $60,000.
The Bridge Loan was repaid in full on July 13, 2021.
As
part of the Bridge Loan, the debenture holder was issued warrants (the “Bridge Warrants”) to purchase 93,938 common shares
with a strike price of $3.99 per share. The term of the warrants was three years. The fair value of the warrants were recorded as a liability
in the balance sheet using the Black-Scholes option-pricing model. The Company remeasured the fair value of the warrant liability at
each reporting date until the warrants were exercised on October 27, 2021. The fair value of the warrants liability is subject to significant
fluctuation based on changes in the inputs to the Black-Scholes option-pricing model, including our common stock price, expected volatility,
expected term, the risk-free interest rate and dividend yield.
On
June 30, 2022, the Company executed the definitive agreement with arm’s length accredited institutional investors (the “Investors”)
for a $14,025,000 principal debentures with a 10% original issue discount (the “Debentures”) for gross proceeds of $12,750,000.
The interest rates on the Debentures are 5% for the first 12 months, 6% for the subsequent 12 months, and 8% per annum thereafter. Principal
repayments will be made in 25 equal installments starting September 1, 2022. The Debenture may be extended by six months at the election
of the Company by paying a sum equal to six months interest on the principal amount outstanding at the end of the 18th month,
at the rate of 8% per annum. The Debentures are convertible into common shares at $2.22 per share. The Investors have the right to purchase
additional tranches of $5,000,000 each, up to a total additional principal amount of $33,000,000. In addition, the Investors received
4,106,418 warrants at a strike price of $2.442, which expire on December 31, 2025 (the “Debenture Warrants”). The Debenture
Warrants and Debentures each have down round provisions whereby the conversion and strike prices will be adjusted downward if the Company
issues equity instruments at lower prices. The Debenture Warrants strike price and the Debenture conversion price will be adjusted down
to the effective conversion price of the issued equity instruments. Due to the currency of these features being different from the Company’s
functional currency the Debenture Warrants and Debentures’ convertible features were classified as derivative liabilities and are
further discussed in Note 8. The transaction costs incurred in relation to the Debentures were $1,634,894.
The
debenture proceeds were receivable and outstanding as of June 30, 2022 and have been included in other receivables. The cash proceeds
were received on July 7, 2022.
The following table summarizes our outstanding
debentures as of the dates indicated:
| |
Maturity | | |
Cash
Interest Rate | | |
June
30, 2022 | |
Debentures
(gross) | |
| 12/31/2024 | | |
| 5.00%
- 8.00 | % | |
$ | 14,025,000 | |
Debt
issuance costs and debt discounts | |
| | | |
| | | |
| (10,327,387 | ) |
Total
debentures (current) | |
| | | |
| | | |
$ | 3,697,613 | |
7.
LONG TERM LOAN
During
the year ended December 31, 2020, the Company entered into a loan agreement with Alterna Bank for a principal amount of $31,417 (CAD$
40,000) under Canada Emergency Business Account Program (the “Program”).
The
Program, as set out by the Government of Canada, requires that the funds from this loan shall only be used by the Company to pay non-deferrable
operating expenses including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service,
and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends,
distributions and increases in management compensation.
The
existing terms of CEBA loans require that the outstanding balance (other than the amount available to be forgiven) be repaid on or before
December 31, 2022, to be eligible for partial loan forgiveness. The Government of Canada has recently announced the December 31, 2022
forgiveness repayment date will be extended to December 31, 2023 for eligible CEBA loan holders in good standing.
The
loan is interest free for an initial term that ends on December 31, 2023 (originally December 31, 2022). Repaying the loan balance on
or before December 31, 2023 will result in loan forgiveness of up to 33% (up to CAD $20,000). Any outstanding loan after initial term
carries an interest rate of 5% per annum, payable monthly during the extended term of January 1, 2024 to December 31, 2025 (previously
January 1, 2023 to December 31, 2024).
In
April 2021, the Company applied for additional loan with Alterna Bank under the Program and received $15,145 (CAD$20,000). The expansion
loan is subject to the original terms and conditions of the Program.
8.
DERIVATIVE LIABILITIES
Warrant
Liabilities
As
of June 30, 2022, the warrant liabilities represent aggregate fair value of publicly traded 3,088,198 Series A warrants, 135,999 representative’s
warrants and 4,106,418 Debenture Warrants. The fair value of the IPO warrants and representative’s warrant amount to $1,173,286
(December 31, 2021 - $1,418,964) and were categorized as a Level 1 financial instrument. The fair value of the Debenture Warrants amounted
to $4,080,958 (December 31, 2021 - $nil) and were categorized as a Level 3 financial instrument. The Black-Scholes option pricing model
for the Debenture Warrants used the following assumptions: stock price $2.31, dividend yield – nil, expected volatility 58.31%,
risk free rate of return 3.14%, and expected term of 3.5 years.
The
representative’s warrants are exercisable one year from the effective date of the registration statement for the IPO and will expire
three years after the effective date. The exercise price of the representative’s warrant is $6 per share. The warrants have been
deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriter (or
permitted assignees under Rule 5110(e)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying
these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective
economic disposition of the warrants or the underlying securities for a period of 180 days from the date of this prospectus. The exercise
price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of
a stock dividend, extraordinary cash dividend or recapitalization, reorganization, merger or consolidation.
The
fair value change on the warrant liability amounted to $218,462 and is recorded in the statement of comprehensive loss for the six months
ended June 30, 2022.
Debenture
Convertible Feature
On
June 30, 2022, the Company issued Debentures with an equity conversion feature, see note 6. The fair value of the Debentures’ convertible
features were $3,336,535 on June 30, 2022 and were categorized as a Level 3 financial instrument. The Black-Scholes option-pricing model
for the convertible feature used the following assumptions: stock price $2.31, dividend yield – nil, expected volatility 101%,
risk free rate of return 3.14%, and expected term of 1 year.
9.
SHARE CAPITAL
On
January 1, 2022, the Company issued 3,217 common shares as part of compensation to the Company’s officers.
On
January 1, 2022, the Company issued to a consultant a total of 10,000 common shares.
On
January 1, 2022, the Company issued to a consultant a total of 25,000 common shares.
On
January 31, 2022, the Company issued 5,160 common shares as part of compensation to an employee.
On
February 28, 2022, the Company issued to a consultant a total of 3,380 common shares.
On
March 31, 2022, the Company issued to a consultant a total of 2,617 common shares.
On
March 31, 2022, the Company issued 20,940 common shares as part of compensation to Company’s officers.
On
April 1, 2022, the Company issued to a consultant a total of 25,000 common shares.
On
April 1, 2022, the Company issued to a consultant a total of 4,281 common shares.
On
April 4, 2022, the Company issued to consultants a total of 77,172 common shares.
On
April 12, 2022, the Company issued 35,952 common shares to the Company’s officers for bonuses.
On
April 30, 2022, the Company issued to a consultant a total of 2,442 common shares.
On
May 18, 2022, the Company issued to consultants a total of 77,172 common shares.
On
May 30, 2022, the Company issued 10,000 common shares as part of compensation to an employee.
On
May 31, 2022, the Company issued to a consultant a total of 537 common shares.
On
June 30, 2022, the Company issued to a consultant a total of 2,166 common shares.
On
June 30, 2022, the Company issued 32,895 common shares as part of compensation to Company’s officers.
10.
LEASES
Upon
adoption of Topic 842 effective January 1, 2022, the Company recognized operating lease liabilities of $1,776,599 and corresponding right-of-use
(“ROU”) assets of $1,837,782. The difference between operating lease liabilities and right-of-use assets recognized
is due to prepaid rent and deferred rent recorded under prior lease accounting standards. Topic 842 requires such balances to be reclassified
against right-of-use assets at transition. In future periods such balances will not be presented separately.
The
components of lease expenses were as follows:
| |
Six
months ended
June
30, 2022 | |
Operating
lease cost | |
$ | 152,072 | |
Short-term
lease cost | |
| 7,363 | |
Total
lease expenses | |
$ | 159,435 | |
The
Company has an operating lease for its office lease in Canada with a remaining lease term of 7 years and 3 months. The discount rate
was 7.0%. The Company has no finance leases.
11.
COMMITMENTS AND CONTINGENCIES
Lease
commitment
The
Company entered an operating lease for office space. The minimum future payments under the lease for our continuing operations in each
of the years ending December 31 is as follows:
| |
| | |
Remaining
2022 | |
$ | 140,382 | |
2023 | |
| 284,953 | |
2024 | |
| 294,727 | |
2025 | |
| 311,483 | |
2026 | |
| 311,483 | |
Subsequent
years | |
| 856,578 | |
Total
minimum lease payments | |
| 2,199,606 | |
Less: imputed interest | |
| (541,133 | ) |
Total lease liability | |
| 1,658,473 | |
Current portion of lease liability | |
| (258,997 | ) |
Non-current portion of lease liability | |
$ | 1,399,476 | |
Debenture principal repayments
The following table summarizes the future principal
payments related to our outstanding debt as of June 30, 2022:
2022 | |
$ | 2022 | |
2022 | |
$ | 2,244,000 | |
2023 | |
| 6,732,000 | |
2024 | |
| 5,049,000 | |
| |
$ | 14,025,000 | |
Contingencies
Litigation
During
the six months ended June 30, 2022 and the year ended December 31, 2021, the Company had no new contingencies to disclose.
During
the year ended December 31, 2018, the Company entered into a purchase agreement with certain parties representing proprietary technology.
As consideration for the purchase of the technology and attendant intellectual property rights, the Company issued an aggregate of 5,263,158
Class A common voting shares (the “Class A Shares”).
An
additional 105,263 Class A Shares were issued for consulting services to assist with application of the proprietary technology to the
Company’s business.
Subsequent
to the execution of these agreements, the Company was notified as to certain issues relating to the transaction agreements that were
executed and the intellectual property risks that were purportedly transferred. After several months of analysis with various professionals,
the Company determined that the technology was in fact invalid and therefore without any value.
On
May 15, 2019, a claim by HydroHaus Horticulture, Inc., Stuart Brazier and Christopher Gielnik (the “Plaintiffs”) was filed
in BC Supreme Court. The basic allegations against AgriFORCE Growing Systems Ltd. are:
|
1. |
The
Company breached the manufacturing agreement under which HydroHaus Horticulture claims it had the exclusive right to build hydro
houses for the Company; |
|
|
|
|
2. |
The
Company advised HydroHaus Horticulture that it was in breach of the licensing agreement relating to its project to build a hydro
house for the Nak’azdli causing HydroHaus Horticulture to spend approximately $130,000 to change the way it was to perform
that contract; |
|
3. |
The
Company owes approximately $100,000 for expenses paid for by HydroHaus Horticulture, which has not been accrued for at this time
as management does not believe the merits are valid. Should any amounts be required to be paid as a result of the claim, the Company
will appropriately record at that time; and |
|
|
|
|
4. |
The
Company wrongfully rescinded its agreements with HydroHaus Horticulture. |
The
Plaintiffs are seeking general and special damages, alternatively rescission of the agreements or specific performance of those agreements
and payment for expenses incurred by HydroHaus Horticulture. The Plaintiffs are also seeking an order that the Hydrohaus IP (allegedly
comprising certain cladding materials and methods of insulating greenhouses, regulating humidity, moving growing plants, and managing
the movement of air, and any derivative works), and an associated patent application, be transferred to them. The Plaintiffs are also
seeking an order prohibiting the Company from using the words, “Canivate”, “the Canivate Way”, “HydroFilm”,
“Hydrohouse” and “Hydrohaus”.
On
May 24, 2019, the Company filed a response to the claim, denying the allegations in the claim, raising the defense that the plaintiffs
wrongfully purported to sell intellectual property which they falsely stated they had invented and owned and states that the intellectual
property was unworkable to build greenhouses. The Company also alleges that the plaintiffs falsely represented that their work for the
Kak’adzdli would benefit the Company when it would not. The response asks that the claim be dismissed.
The
Company has also filed a counterclaim based upon its allegations that the plaintiffs wrongfully induced the Company to enter agreements
with the plaintiffs based on fraudulent misrepresentations regarding the existence of ownership of intellectual property. Further, the
counterclaim alleges that Mr. Brazier breached his fiduciary duties to AgriFORCE Growing Systems Ltd. (formerly “Canivate Growing
Solutions Ltd.”) in preferring the interests of Hydrohaus over those of the Company.
The
counterclaim seeks a declaration that the agreements which the Company rescinded were properly rescinded based upon the misrepresentations
of the plaintiffs as well as general, special, aggravated and punitive damages, an accounting for profits, and legal costs.
During
the six months ended June 30, 2022 and the year ended December 31, 2021, there has been no further activity in the lawsuit. Based on
Company’s litigation counsel’s opinion, management does not believe the potential monetary damages to be material based on
the damages sought by the plaintiff.
12.
SUBSEQUENT EVENTS
The
Company evaluated subsequent events through October 21, 2022, the date on which these interim financial statements were available to be
issued, to ensure that this filing includes appropriate disclosure of events both recognized in the interim financial statements as of
and subsequent to June 30, 2022, but were not recognized in the interim financial statements. Except as disclosed below, there were no
events that required recognition, adjustment to or disclosure in the financial statements.
On
July 1, 2022, the Company issued to an employee a total of 17,707 common shares.
On
July 1, 2022, the Company issued to a consultant a total of 25,000 common shares.
On
July 5, 2022, the Company issued to an officer a total of 14,657 common shares as settlement of an outstanding bonus.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Prospective
investors should read the following discussion and analysis of our financial condition and results of operations together with our financial
statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained
in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy
for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking
Statements.” You should review the “Risk Factors” section of this Annual Report for a discussion of important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Company
History and Our Business
AgriFORCE
Growing Systems Ltd. was incorporated as a private company by Articles of Incorporation issued pursuant to the provisions of the British
Columbia Business Corporations Act on December 22, 2017. The Company’s registered and records office address is at 300 –
2233 Columbia Street, Vancouver, British Columbia, Canada, V5Y 0M6. On February 13, 2018, the Company changed its name from 1146470 B.C.
Ltd to Canivate Growing Systems Ltd. On November 22, 2019, the Company changed its name from Canivate Growing Systems Ltd. to AgriFORCE
Growing Systems Ltd.
At
AgriFORCE, our purpose is clear: to positively transform farm, food, and family every day, everywhere. With years of in-depth research
and development experience, we are pioneers, ready to deliver integrated, practical, and sustainable solutions that can be applied throughout
multiple verticals in AgTech. We drive our business through two operating divisions, AgriFORCE Solutions and AgriFORCE Brands.
Our
two divisions—AgriFORCE Solutions and AgriFORCE Brands—work in partnership to address some of the existential challenges
being faced by the world today—climate change, extreme weather, food security and sovereignty, the environmental impact of industrial
and commercial farming—working towards providing better tasting, more nutritious plant-based foods and other products to consumers
on a global level.
Status
as an Emerging Growth Company
On
April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that
an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging
growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting
standards on the relevant dates on which adoption of such standards is required for private companies.
We
are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS
Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain
of these exemptions from, without limitation, (i) providing an auditor’s attestation report on our system of internal controls
over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted
by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We
will remain an “emerging growth company” until the earliest of (a) the last day of our fiscal year following the fifth anniversary
of the closing of the initial public offering, (b) the last day of the first fiscal year in which our annual gross revenues exceed $1.07
billion, (c) the last day of our fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule
12b-2 under the Securities Exchange Act of 1934, or Exchange Act (which would occur if the market value of our equity securities that
is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or
(d) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.
Our
Business Plan
The
Company plans to develop its business by focusing on both an organic growth plan and through M&A. The Company’s organic growth
plan is focused on four distinct phases:
AgriFORCE
Solutions
AgriFORCE
Solutions provides consulting services for AgTech knowledge, operational solutions, and research and development (R&D), which is
augmented with patented and patent pending controlled-environment agriculture (CEA) and additional agriculture facilities and platforms.
We
have taken a strategic and holistic view of agriculture to provide solutions that address the key challenges facing this important industry.
We develop and acquire innovative intellectual property (IP) and technology to improve farming. Our expertise goes from seed to table
and ranges through the life cycle of a plant—from micropropagation and tissue culture to cultivation—with a proprietary approach
that brings together all of the elements, including crops, operations, facilities, systems, and environment designed to allow the plant
to reach its full genetic potential.
PHASE
1: COMPLETED: 2017-2021
|
● |
Conceptualization,
engineering, and design of facility and systems (Completed). |
|
● |
Completed
selection process of key environmental systems with preferred vendors (Completed). |
|
● |
The
signing of revenue contracts with the Exclusive Independent Operator (EIO) for the first three facilities completed (Completed). |
|
● |
The
arrangement of three offtake agreements signed with Exclusive Independent Operator (EIO) for those three facilities when complete.
(Subsequently these agreements were terminated in Q2 2021). |
|
● |
ForceFilm
material ordered (Completed). |
PHASE
2: 2022-2024:
|
● |
Purchase
of the land parcel in Coachella, CA |
|
● |
Complete
new contracts’ structures for those first three facilities with new independent operators. |
|
● |
Site
preparation and utilities infrastructure build out for the campus (up to eight facilities). |
|
● |
Fit
out and complete genetics lab for micropropagation, breeding, and R&D to achieve near term revenue (8 months) of the sale of
tissue culture clones for variant crops. |
|
● |
Additional
raw materials procurement of AgriFORCE IP specific automated grow system, supplemental grow lighting and controls systems, and manufacture
of the building envelope materials. |
|
● |
Conceptualization
and design of vertical grow solutions in order to develop a small-scale vertical grow house. |
|
● |
Focus
on the delivery and installation of the first facility. |
|
● |
Initiate
the design of a R&D facility for food solutions and plant-based pharma. |
PHASE
3: 2024-2027:
|
● |
Compete
construction of first facility and commence operations |
|
● |
Focus
on the delivery and installation of the second and third facilities. Proof of quantitative and qualitative benefits are expected
to drive both sales pipeline acceleration for subsequent years. |
|
● |
Complete
the design and construction of a R&D facility for food solutions and plant-based pharma. Commence engagement with universities
and pharmaceutical companies. |
|
● |
Construct
small scale vertical grow house and operate successfully. |
|
● |
Finalize
the design and engineering of vertical grow solution with construction commencement late in the third year. Commence engagement with
local restaurants and grocery stores and develop a vertical grow house branding strategy. |
PHASE
4: 2027:
|
● |
Focus
on delivery and installation of additional facilities. |
|
● |
Expand
geographic presence into other states whilst also introducing the grow house to other international markets with a view to securing
additional locations and markets by year four. |
|
● |
Targeted
additional contracts of three facilities. |
|
● |
Commence
and complete first vertical grow commercial facility to serve Southern California market by end of year 4. |
The
Company’s initial AgriFORCE grow houses are planned to be constructed in California.
AgriFORCE
Brands
AgriFORCE
Brands division is focused on the development and commercialization of plant-based ingredients and products that deliver healthier and
more nutritious solutions. We will market and commercialize both branded consumer product offerings and ingredient supply. This started
with the acquisition of the MNG (Manna) intellectual property which is a patent-pending technology to naturally process and convert grains,
pulses, and root vegetables. The process results in low-starch, low-sugar, high-protein, fiber-rich baking flour products, and nutrition
liquid. The nutrition values of the flour have the potential to transform consumers’ diet in multiple verticals.
MNG
Wheat flour has 30 times more fiber, up to 3 times more proteins and less than 15% of the starch as Regular All-Purpose Baking flour
as independently tested and conducted by Eurofins Food Chemistry Testing Madison, Inc.
PHASE
1: COMPLETED: 2017-2020
|
● |
Product
and Process Testing and Validation (Completed) |
|
● |
Filing
of US and International Patent (Completed) |
|
● |
Conceptual
Engineering and Preliminary Budgeting on Commercial Pilot Plant (Completed) |
PHASE
2: 2021-2022
|
● |
Design,
Build, Start-up and Operation of the Pilot Plant |
|
● |
Develop
Range of Finished Products in Wheat Grain Flours |
|
● |
Collaborate
with Nutritional Flour Medical Research Institute (an IRS section 501(c)(3) Medical Research Organization) funded by private &
public research grants |
PHASE
3: 2022-2023
|
● |
Launch
First Range of Products in US/Canada |
|
● |
Drive
Business with Finished Products in direct to consumer (“D2C”), Retail, Food Service |
|
● |
Drive
Business as Ingredients for Bakery, Snack and Plant Based Protein Products Manufacturers |
|
● |
Develop
Manufacturing Base through Partnerships and Licensing |
|
● |
Conceptual
Engineering and Preliminary Budgeting on Large-Scale Processing Plant |
|
● |
Develop
Range of Finished Products in other Grain Flours, Pulses/Protein Flours and Juices |
PHASE
4: 2024-2025
|
● |
Expand
Product Range in US/Canada |
|
● |
Expand
Business to other Geographies (select Markets in Europe, Asia, Latin America) |
|
● |
Design,
Build Start-up and Operation of Large-Scale Processing Plan |
Merger
and Acquisition (“M&A”)
With
respect to M&A growth, the Company is creating a separate corporate office to aggressively pursue acquisitions. The Company plans
to focus on identifying target companies, which help expand AgriFORCE Brand’s mandate to deliver more nutritious (better for you)
crops, ingredients, and plant-based products that are sustainably produced. The Company believes that AgriFORCE Solutions platform of
IP and group of companies acquired through M&A can identify opportunities to produce crops more sustainably and that offer unique
competitive advantages through the supply chain to ultimately have them converted into ingredients and plant based products or simply
sold to consumers through AgriFORCE Brands.
Below
is a summary of the intended strategy with respect to the Company’s M&A strategy:
Strategy
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
Results
of Operations
The
following discussion should be read in conjunction with the condensed unaudited financial statements for the interim periods ended June
30, 2022 and 2021 respectively, included in this report.
Revenues
The
Company has generated no revenue since inception.
Operating
Expenses
Operating
expenses increased in the three months ended June 30, 2022 as compared to June 30, 2021 by $3,506,806 or 491%, primarily due to an increase
in consulting expenses by $963,672 and an increase in professional fees by $671,988 for third party consultants providing services related
to financial advisory services and strategic acquisitions, and an increase in wages and salaries of $1,190,203 for additional employees
hired post IPO.
Operating
expenses increased in the six months ended June 30, 2022 as compared to June 30, 2021 by $5,375,803 or 335%, primarily due to an increase
in wages and salaries by $1,809,179 for additional employees hired post IPO, increase in professional fees by $628,149, increase in research
and development by $365,596, increase in investor relations expenses of $441,838 and increase in office and administrative expenses by
$518,615, as the Company entered into growth phase post IPO and increased its staff and operations.
Other
(Income) / Expenses
Other
expenses for the three months ended June 30, 2022 increased mainly due to the change in fair value of warrant liability amounting to
$675,504, decrease in accretion interest on senior secured debentures of $427,360, and foreign exchange gains of $109,081.
Other
expenses for the six months ended June 30, 2022 increased mainly due to the change in fair value of warrant liability amounting to $218,462,
decrease in accretion interest on senior secured debentures of $427,360, and foreign exchange gains of $38,440.
Net
Loss
The
Company recorded a net loss of $3,442,585 for the three months ended June 30, 2022 as compared to a net loss of $1,206,983 for the three
months ended June 30, 2021. The increase in net loss is due to the total increase in operating expenses and other expenses outlined above.
The
Company recorded a net loss of $6,723,871 for the six months ended June 30, 2022 as compared to a net loss of $2,091,589 for the six
months ended June 30, 2021. The increase in net loss is due to the total increase in operating expenses and other expenses outlined above.
Liquidity
and Capital Resources
The
Company’s primary need for liquidity is to fund working capital requirements, capital expenditures, and for general corporate purposes.
The Company’s ability to fund operations and make planned capital expenditures and debt service obligations depends on future operating
performance and cash flows, which are subject to prevailing economic conditions, financial markets, business and other factors. We have
recorded a net loss of $6,723,871 for the six months ended June 30, 2022, and a net loss of $2,091,589 for the six months ended June
30, 2021. We have recorded an accumulated deficit of $26,624,863 as of June 30, 2022 and $19,900,992 as of December 31, 2021. Net cash
used in operating activities for the six months ended June 30, 2022 and June 30, 2021 was $5,058,002 and $799,682, respectively.
We
had $1,996,910 in cash as at June 30, 2022 as compared to $7,775,290 as at December 31, 2021.
Our
future capital requirements will depend on many factors, including:
● |
the
cost and timing of our regulatory activities, especially the process to obtain regulatory approval for our intellectual properties
in the U.S. and in foreign countries |
● |
the
costs of R&D activities we undertake to further develop our technology |
● |
the
costs of constructing our grow houses, including any impact of complications, delays, and other unknown events |
● |
the
costs of commercialization activities, including sales, marketing and production |
● |
the
level of working capital required to support our growth |
● |
our
need for additional personnel, information technology or other operating infrastructure to support our growth and operations as a
public company |
● |
completion
of planned acquisitions |
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this
uncertainty. The Company is at the stage of development of its first facility and other IP. As such it is likely that additional financing
will be needed by the Company to fund its operations and to develop and commercialize its technology. These factors raise substantial
doubt about the Company’s ability to continue as a going concern.
For
the next twelve months from issuance of these financial statements, the Company will seek to obtain additional capital through the sale
of debt or equity financings or other arrangements to fund operations; however, there can be no assurance that the Company will be able
to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued
shares may contain senior rights and preferences compared to currently outstanding common shares. Issued debt securities may contain
covenants and limit the Company’s ability to pay dividends or make other distributions to shareholders. If the Company is unable
to obtain such additional financing, future operations would need to be scaled back or discontinued. Due to the uncertainty in the Company’s
ability to raise capital, management believes that there is substantial doubt in the Company’s ability to continue as a going concern
for twelve months from the issuance of these financial statements.
Cash
Flows
The
net cash used by operating activities for the six months ended June 30, 2022 is attributable to a net loss of $6,723,871 due to operating
costs associated with wages, investor relations, consulting expenses, research and development, and general administrative expenses.
The net loss was adjusted primarily by non-cash expenses related to change in fair value of warrants of $218,462, shared based compensation
of $214,372, shares issued for consulting services of $648,662, and shares issued for bonus and compensation of $331,490. For the six
months ending June 30, 2021 net cash used by operating activities was attributable to net loss of $2,091,589 owing to wages, consulting
expenses, professional fees, research and development expenses and general administrative expenses. The net loss was adjusted primarily
by non-cash expenses related to accretion of interest on senior secured debentures of $427,360, shares issued for consulting services
amounting to $220,509, shared based compensation of $155,801 and loss on extension of debt term amounting to $59,259.
The
net cash used in investing activities for six months ended June 30, 2022 related to the payment against acquisition of intangible asset
of $500,000 and acquisition of equipment and leasehold improvement amounting to $92,479.
Net
cash used in financing activities for the six months ended June 30, 2022 represents transaction costs paid related to convertible debentures
of $35,000. Whereas cash flow from financing activities for the six months ended June 30, 2021 represents proceeds from issuance of senior
secured debentures of $600,000 and related financing costs of $69,000, IPO costs paid of $173,541 and proceeds from long term loan amounting
to $15,932.
Recent
Financings
On
March 24, 2021, the Company entered into a securities purchase agreement with certain accredited investors for the purchase of $750,000
in principal amount ($600,000 subscription amount) of senior secured debentures originally due June 24, 2021. The debentures were issued
pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, to certain purchasers who are accredited investors within the
meaning of Rule 501 under the Securities Act of 1933, as amended. On June 24, 2021, the due date was extended, and the senior secured
debentures were repaid in full on July 13, 2021.
On
July 12, 2021, the Company completed its IPO whereby it sold a total of 3,127,998 units, each consisting of one common share and one
Series A warrant to purchase one common share, at a public offering price of $5.00 for gross proceeds of $15,639,990. The Company received
net proceeds from the IPO of $14,388,791, after deducting underwriting discounts and commissions of 1,251,199.
On
June 30, 2022, the Company entered into security purchase agreements with certain accredited investors for the purchase of $14,025,000
in principal amount of convertible debentures due December 31, 2024.
Off
Balance Sheet Arrangements
None.
Significant
Accounting Policies
See
the footnotes to our unaudited financial statements for the six months ended June 30, 2022 and 2021, included with this quarterly report.
ANNEX
III
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The
following unaudited pro forma condensed combined financial information is based upon the historical financial statements of AgriFORCE
Growing Systems Ltd. (“AgriFORCE”) after giving effect to the acquisition of Delphy Groep B.V. (“Delphy”). The
unaudited pro forma condensed combined financial information also gives effect to the transactions undertaken to finance the acquisition
of Delphy.
The
unaudited pro forma condensed combined balance sheet as of June 30, 2022, combines the historical balance sheets of AgriFORCE and Delphy,
giving effect to the acquisition of Delphy as if it had been completed on January 1, 2021.
The
unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 gives effect to the acquisition of
Delphy and the financing transactions as if they had each occurred on January 1, 2021, by combining AgriFORCE’s consolidated statement
of operations for the twelve months ended December 31, 2021, with Delphy’s audited consolidated statements of operations for the
twelve months ended December 31, 2021.
The
unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2022 gives effect to the acquisition
of Delphy and the financing transactions, as if they had each occurred on January 1, 2021, by combining AgriFORCE’s consolidated
statement of operations for the six months ended June 30, 2022, with Delphy’s unaudited consolidated statements of operations for
the six months ended June 30, 2022.
The
following unaudited pro forma condensed combined financial information and related notes present the historical financial information
of AgriFORCE and Delphy adjusted to give pro forma effect to events that are (1) directly attributable to the acquisitions, (2) factually
supportable, and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing
impact on the combined results. These unaudited pro forma condensed combined financial statements should be read in conjunction with
the historical consolidated financial statements and related notes contained in the annual, quarterly and other reports filed by AgriFORCE
with the Securities and Exchange Commission.
Reclassification
adjustments were made to conform Delphy’s historical accounting presentation to AgriFORCE’s accounting presentation. Adjustments
were made to translate Delphy’s financial statements from Euros to U.S. Dollars based on applicable historical exchange rates,
which may differ from future exchange rates.
The
pro forma information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results
of operations that would have been realized if the acquisitions had been completed on the dates indicated, nor is it indicative of future
operating results or financial position. The pro forma adjustments represent AgriFORCE’s management’s best estimate and are
based upon currently available information and certain assumptions that AgriFORCE believes are reasonable under the circumstances. The
final valuation may materially change the allocation of the purchase consideration, which could materially affect the fair values assigned
to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial information.
Refer to footnote 1 to the unaudited pro forma condensed combined financial information for more information on the basis of preparation.
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS
OF JUNE 30, 2022
(In
US dollars)
| |
AgriFORCE Historical | | |
Delphy Historical | | |
Pro Forma Adjustments | | |
| |
Combined Pro Forma | |
ASSETS | |
| | |
| | |
| | |
| |
| |
| |
| | |
| | |
| | |
| |
| |
Current | |
| | | |
| | | |
| | | |
| |
| | |
Cash and cash equivalents | |
$ | 1,996,910 | | |
$ | 1,788,650 | | |
$ | 2,272,166 | | |
3(c) | |
$ | 6,057,726 | |
Restricted cash | |
| - | | |
| 44,551 | | |
| - | | |
| |
| 44,551 | |
Other receivable | |
| 11,957,342 | | |
| - | | |
| - | | |
| |
| 11,957,342 | |
Trade accounts receivable, less allowance for doubtful accounts | |
| - | | |
| 2,543,283 | | |
| - | | |
| |
| 2,543,283 | |
Inventories | |
| - | | |
| 18,526 | | |
| - | | |
| |
| 18,525 | |
Prepaid expenses and other current assets | |
| 111,802 | | |
| 5,935,052 | | |
| - | | |
| |
| 6,046,854 | |
Total current assets | |
| 14,066,054 | | |
| 10,330,062 | | |
| 2,272,166 | | |
| |
| 26,668,282 | |
| |
| | | |
| | | |
| | | |
| |
| | |
Non-Current | |
| | | |
| | | |
| | | |
| |
| | |
Other receivables | |
| - | | |
| 167,429 | | |
| - | | |
| |
| 167,429 | |
Equity method investments | |
| - | | |
| 775,408 | | |
| - | | |
| |
| 775,408 | |
Operating lease right-of-use asset | |
| 1,711,179 | | |
| 3,286,687 | | |
| - | | |
| |
| 4,997,866 | |
Construction in progress | |
| 2,096,341 | | |
| - | | |
| - | | |
| |
| 2,096,341 | |
Property, plant and equipment, net | |
| 122,666 | | |
| 4,802,984 | | |
| - | | |
| |
| 4,925,650 | |
Goodwill | |
| - | | |
| - | | |
| 2,348,284 | | |
3(f) | |
| 2,348,284 | |
Intangible assets | |
| 9,187,862 | | |
| 7,869 | | |
| 14,000,000 | | |
3(e) | |
| 23,195,731 | |
TOTAL ASSETS | |
$ | 27,184,102 | | |
$ | 19,370,439 | | |
$ | 18,620,450 | | |
| |
$ | 65,174,991 | |
| |
| | | |
| | | |
| | | |
| |
| | |
LIABILITIES | |
| | | |
| | | |
| | | |
| |
| | |
Current | |
| | | |
| | | |
| | | |
| |
| | |
Accounts payable and accrued liabilities | |
$ | 2,305,851 | | |
$ | 7,225,711 | | |
$ | - | | |
| |
$ | 9,531,562 | |
Contingent consideration payable - current | |
| 741,561 | | |
| - | | |
| - | | |
| |
| 741,561 | |
Lease liability - current | |
| 258,997 | | |
| 711,478 | | |
| - | | |
| |
| 970,475 | |
Current installments of long-term debt | |
| - | | |
| 209,007 | | |
| - | | |
| |
| 209,007 | |
Debentures | |
| 3,697,613 | | |
| - | | |
| 5,607,976 | | |
3(d) | |
| 9,305,589 | |
Total current liabilities | |
| 7,004,022 | | |
| 8,146,196 | | |
| 7,361,290 | | |
| |
| 20,758,194 | |
| |
| | | |
| | | |
| | | |
| |
| | |
Non-Current | |
| | | |
| | | |
| | | |
| |
| | |
Lease liability – non-current | |
| 1,399,476 | | |
| 2,575,208 | | |
| - | | |
| |
| 3,974,684 | |
Derivative liabilities | |
| 8,590,779 | | |
| - | | |
| 9,307,024 | | |
3(d) | |
| 17,897,803 | |
Other liabilities | |
| - | | |
| 188,397 | | |
| | | |
| |
| 188,397 | |
Contingent consideration payable – non-current | |
| | | |
| | | |
| 5,844,379 | | |
3(b) | |
| 5,844,379 | |
Long-term debt | |
| 46,562 | | |
| 1,724,315 | | |
| - | | |
| |
| 1,770,877 | |
Total liabilities | |
| 17,040,839 | | |
| 12,634,116 | | |
| 20,759,379 | | |
| |
| 50,434,334 | |
| |
| | | |
| | | |
| | | |
| |
| | |
EQUITY | |
| | | |
| | | |
| | | |
| |
| | |
Common shares, no par value per share - unlimited shares authorized; | |
| 26,710,990 | | |
| - | | |
| 4,597,394 | | |
3(a) | |
| 31,308,384 | |
Common shares €1 par value per share, 18,000 shares authorized, | |
| - | | |
| 16,085 | | |
| (16,085 | ) | |
3(g) | |
| - | |
Additional paid-in-capital | |
| 10,123,315 | | |
| 298,994 | | |
| (298,994 | ) | |
3(g) | |
| 10,123,315 | |
Accumulated deficit | |
| (26,624,863 | ) | |
| 6,396,260 | | |
| (6,397,260 | ) | |
3(g) | |
| (26,624,863 | ) |
Accumulated other comprehensive income | |
| (66,179 | ) | |
| (3,860 | ) | |
| 3,860 | | |
3(g) | |
| (66,179 | ) |
Noncontrolling interest | |
| - | | |
| 28,844 | | |
| (28,844 | ) | |
3(g) | |
| - | |
TOTAL EQUITY | |
| 10,143,263 | | |
| 6,736,323 | | |
| (2,138,929 | ) | |
| |
| 14,740,657 | |
TOTAL LIABILITIES AND EQUITY | |
$ | 27,184,102 | | |
$ | 19,370,439 | | |
$ | 18,620,450 | | |
| |
$ | 65,174,991 | |
See
accompanying notes.
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2021
(In
US dollars)
| |
AgriFORCE Historical | | |
Delphy Historical | | |
Pro Forma Adjustments | | |
| |
Combined Pro Forma | |
| |
| | |
| | |
| | |
| |
| |
Revenue | |
| | | |
| | | |
| | | |
| |
| | |
Revenue | |
$ | - | | |
$ | 19,581,737 | | |
$ | - | | |
| |
$ | 19,581,737 | |
Cost of revenue | |
| - | | |
| 8,691,735 | | |
| - | | |
| |
| 8,691,735 | |
GROSS PROFIT | |
| - | | |
| 10,890,002 | | |
| - | | |
| |
| 10,890,002 | |
| |
| | | |
| | | |
| | | |
| |
| | |
OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| |
| | |
Selling, general and administrative expense | |
| - | | |
| 10,864,229 | | |
| (10,864,229 | ) | |
4 | |
| - | |
Wages and salaries | |
| 1,766,491 | | |
| - | | |
| 6,520,119 | | |
4 | |
| 8,286,610 | |
Consulting | |
| 1,088,413 | | |
| - | | |
| - | | |
| |
| 1,088,413 | |
Professional fees | |
| 882,146 | | |
| - | | |
| - | | |
| |
| 882,146 | |
Office and administrative | |
| 780,135 | | |
| - | | |
| 2,018,295 | | |
4 | |
| 2,798,430 | |
Investor and public relations | |
| 748,349 | | |
| - | | |
| - | | |
| |
| 748,349 | |
Research and development | |
| 474,338 | | |
| - | | |
| - | | |
| |
| 474,338 | |
Share based compensation | |
| 796,141 | | |
| - | | |
| - | | |
| |
| 796,141 | |
Rent | |
| 168,315 | | |
| - | | |
| - | | |
| |
| 168,315 | |
Travel and entertainment | |
| 69,598 | | |
| - | | |
| 1,441,282 | | |
4 | |
| 1,510,880 | |
Shareholder and regulatory | |
| 143,095 | | |
| - | | |
| - | | |
| |
| 143,095 | |
Sales and marketing | |
| - | | |
| - | | |
| 783,263 | | |
4 | |
| 783,263 | |
Depreciation | |
| 11,797 | | |
| - | | |
| 101,270 | | |
4 | |
| 113,067 | |
Amortization of purchased intangible assets | |
| - | | |
| - | | |
| 2,166,667 | | |
3(e) | |
| 2,166,667 | |
TOTAL OPERATING EXPENSES | |
| 6,928,818 | | |
| 10,864,229 | | |
| 2,166,667 | | |
| |
| 19,959,714 | |
| |
| | | |
| | | |
| | | |
| |
| | |
INCOME (LOSS) FROM OPERATIONS | |
| (6,928,818 | ) | |
| 25,773 | | |
| (2,166,667 | ) | |
| |
| (9,069,712 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | | |
| | | |
| |
| | |
Other income, net | |
| - | | |
| 1,673,184 | | |
| - | | |
| |
| 1,673,184 | |
Income of equity method investees | |
| - | | |
| 245,514 | | |
| - | | |
| |
| 245,514 | |
Foreign exchange gain | |
| 162,976 | | |
| - | | |
| - | | |
| |
| 162,976 | |
Write-off of deposit | |
| (151,711 | ) | |
| - | | |
| | | |
| |
| (151,711 | ) |
Change in fair value of contingent consideration payable | |
| - | | |
| - | | |
| (672,584 | ) | |
3(j) | |
| (672,584 | ) |
Accretion of interest on debentures | |
| (483,529 | ) | |
| - | | |
| (7,687,467 | ) | |
3(h) | |
| (8,170,996 | ) |
Change in fair value of warrants | |
| 1,191,383 | | |
| - | | |
| 8,932,399 | | |
3(i) | |
| 10,123,782 | |
Issuance cost related to warrants | |
| (374,465 | ) | |
| - | | |
| - | | |
| |
| (374,465 | ) |
Loss on extension of debt term | |
| (58,952 | ) | |
| - | | |
| - | | |
| |
| (58,952 | ) |
Interest income (expense) | |
| - | | |
| (22,577 | ) | |
| - | | |
| |
| (22,577 | ) |
INCOME (LOSS) BEFORE INCOME TAXES | |
| (6,643,116 | ) | |
| 1,921,895 | | |
| (1,594,319 | ) | |
| |
| (6,315,541 | ) |
Income taxes | |
| - | | |
| 380,062 | | |
| - | | |
| |
| 380,062 | |
NET INCOME (LOSS) | |
| (6,643,116 | ) | |
| 1,541,833 | | |
| (1,594,319 | ) | |
| |
| (6,695,603 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Dividend paid to preferred shareholders | |
| (735,932 | ) | |
| - | | |
| - | | |
| |
| (735,932 | ) |
Net income attributable to non-controlling interest | |
| - | | |
| (4,892 | ) | |
| - | | |
| |
| (4,892 | ) |
NET INCOME (LOSS) ATTRIBUTED TO COMMON SHAREHOLDERS | |
| (7,379,048 | ) | |
| 1,536,941 | | |
| (1,594,319 | ) | |
| |
| (7,436,427 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Other comprehensive income (loss) | |
| | | |
| | | |
| | | |
| |
| | |
Foreign currency translation | |
| (152,140 | ) | |
| 548 | | |
| - | | |
| |
| (151,592 | ) |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTED TO COMMON SHAREHOLDERS | |
$ | (7,531,188 | ) | |
$ | 1,537,489 | | |
$ | (1,594,319 | ) | |
| |
$ | (7,588,019 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Basic and diluted net loss attributed to common shares | |
$ | (0.66 | ) | |
| | | |
| | | |
| |
$ | (0.63 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Weighted average number of common shares outstanding –
basic and diluted | |
| 11,164,311 | | |
| | | |
| 641,244 | | |
| |
| 11,805,555 | |
See
accompanying notes.
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR
THE SIX MONTHS ENDED JUNE 30, 2022
(In
US dollars)
| |
AgriFORCE Historical | | |
Delphy Historical | | |
Pro Forma Adjustments | | |
| |
Combined Pro Forma | |
| |
| | |
| | |
| | |
| |
| |
Revenue | |
$ | - | | |
$ | 9,452,895 | | |
$ | - | | |
| |
$ | 9,452,895 | |
Cost of revenue | |
| - | | |
| 3,573,307 | | |
| - | | |
| |
| 3,573,307 | |
GROSS PROFIT | |
| - | | |
| 5,879,588 | | |
| - | | |
| |
| 5,879,588 | |
| |
| | | |
| | | |
| | | |
| |
| | |
OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| |
| | |
Selling, general and administrative expense | |
| - | | |
| 5,916,113 | | |
| (5,916,113 | ) | |
4 | |
| - | |
Wages and salaries | |
| 2,148,144 | | |
| - | | |
| 4,087,299 | | |
4 | |
| 6,235,443 | |
Consulting | |
| 1,508,418 | | |
| - | | |
| | | |
| |
| 1,508,418 | |
Professional fees | |
| 881,400 | | |
| - | | |
| - | | |
| |
| 881,400 | |
Office and administrative | |
| 630,890 | | |
| - | | |
| 675,410 | | |
4 | |
| 1,306,300 | |
Investor and public relations | |
| 606,924 | | |
| - | | |
| - | | |
| |
| 606,924 | |
Research and development | |
| 426,856 | | |
| - | | |
| - | | |
| |
| 426,856 | |
Share based compensation | |
| 214,372 | | |
| - | | |
| - | | |
| |
| 214,372 | |
Lease expense | |
| 159,435 | | |
| - | | |
| 384,976 | | |
4 | |
| 544,411 | |
Travel and entertainment | |
| 158,821 | | |
| - | | |
| 401,794 | | |
4 | |
| 560,615 | |
Shareholder and regulatory | |
| 146,663 | | |
| - | | |
| - | | |
| |
| 146,663 | |
Sales and marketing | |
| 90,382 | | |
| - | | |
| 306,561 | | |
4 | |
| 396,943 | |
Depreciation | |
| 8,992 | | |
| - | | |
| 60,073 | | |
4 | |
| 69,065 | |
Amortization of purchased intangible assets | |
| - | | |
| - | | |
| 1,083,333 | | |
3(e) | |
| 1,083,333 | |
TOTAL OPERATING EXPENSES | |
| 6,981,297 | | |
| 5,916,113 | | |
| 1,083,333 | | |
| |
| 13,980,743 | |
| |
| | | |
| | | |
| | | |
| |
| | |
INCOME (LOSS) FROM OPERATIONS | |
| (6,981,297 | ) | |
| (36,525 | ) | |
| (1,083,333 | ) | |
| |
| (8,101,155 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | | |
| | | |
| |
| | |
Other expenses, net | |
| - | | |
| (85,752 | ) | |
| - | | |
| |
| (85,752 | ) |
Income of equity method investees | |
| - | | |
| 218,699 | | |
| - | | |
| |
| 218,699 | |
Foreign exchange gain | |
| 38,964 | | |
| - | | |
| - | | |
| |
| 38,964 | |
Change in fair value of contingent consideration payable | |
| - | | |
| - | | |
| (384,130 | ) | |
3(j) | |
| (384,130 | ) |
Accretion of interest on debentures | |
| - | | |
| - | | |
| (3,095,258 | ) | |
3(h) | |
| (3,095,258 | ) |
Change in fair value of warrants | |
| 218,462 | | |
| - | | |
| (2,176,897 | ) | |
3(i) | |
| (1,958,435 | ) |
Interest expense, net | |
| - | | |
| (90,845 | ) | |
| - | | |
| |
| (90,845 | ) |
INCOME (LOSS) BEFORE INCOME TAXES | |
| (6,723,871 | ) | |
| 5,577 | | |
| (6,739,618 | ) | |
| |
| (13,457,912 | ) |
Income tax recovery (expense) | |
| - | | |
| 31,968 | | |
| - | | |
| |
| 31,968 | |
NET INCOME (LOSS) | |
| (6,723,871 | ) | |
| 37,545 | | |
| (6,739,618 | ) | |
| |
| (13,425,944 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Net income attributable to non-controlling interest | |
| - | | |
| (26 | ) | |
| - | | |
| |
| (26 | ) |
NET INCOME (LOSS) ATTRIBUTED TO COMMON SHAREHOLDERS | |
| (6,723,871 | ) | |
| 37,519 | | |
| (6,739,618 | ) | |
| |
| (12,425,970 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Other comprehensive income (loss) | |
| | | |
| | | |
| | | |
| |
| | |
Foreign currency translation | |
| (33,093 | ) | |
| 243 | | |
| - | | |
| |
| (32,850 | ) |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTED TO COMMON SHAREHOLDERS | |
$ | (6,756,964 | ) | |
$ | 37,762 | | |
$ | (6,739,618 | ) | |
| |
$ | (13,458,820 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Basic and diluted net loss attributed to common shares | |
$ | (0.42 | ) | |
| | | |
| | | |
| |
$ | (0.81 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Weighted average number of common shares outstanding –
basic and diluted | |
| 15,872,349 | | |
| | | |
| 641,244 | | |
| |
| 16,513,593 | |
See
accompanying notes.
NOTES
TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The
unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with
Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, with AgriFORCE
being the accounting acquirer, and uses the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and was based on the
historical consolidated financial statements of AgriFORCE and Delphy.
Under
ASC Topic 805, all the assets acquired and liabilities assumed in a business combination are recognized at their assumed acquisition-date
fair value, while acquisition-related costs and restructuring costs associated with the business combination are expensed as incurred.
The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.
The
allocation of the purchase consideration depends upon certain estimates and assumptions, all of which are preliminary. The allocation
of the purchase consideration has been made for the purpose of developing the unaudited pro forma condensed combined financial information.
Fair value of Delphy’s identifiable intangible assets and the estimated amortization periods are based primarily on preliminary
information and assumptions likely will change, as AgriFORCE completes a valuation of Delphy’s identifiable assets.
A
final determination of fair values of assets acquired and liabilities assumed could differ materially from the preliminary allocation
of purchase consideration. This final valuation will be based on the actual net tangible and intangible assets of the business acquired
existing as of the assumed closing date. The final valuation may materially change the allocation of purchase consideration, which could
materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma
condensed combined financial information.
The
pro forma adjustments represent AgriFORCE management’s best estimate and are based upon currently available information and certain
assumptions that AgriFORCE believes are reasonable under the circumstances. AgriFORCE is not aware of any material transactions between
AgriFORCE and Delphy during the periods presented; hence adjustments have not been reflected in the unaudited pro forma condensed combined
financial information for any such transaction.
After
consummation of the combination with Delphy, AgriFORCE is performing a comprehensive review of Delphy’s accounting policies. As
a result of the review, AgriFORCE may identify differences between the accounting policies of the two companies which, when conformed,
could have a material impact on the combined financial statements. Based on its initial analysis, AgriFORCE is not aware of any differences
that would have a material impact on the combined financial statements.
2. |
Financing
Transactions |
On
February 10, 2022, the Company signed a definitive agreement to acquire all of the outstanding common shares- of Delphy Groep BV (“Delphy”)
for EUR 23.5 million ($22.8 million) through a combination of cash and stock. On September 22, 2022. The Company entered into an amendment
to the agreement to purchase all of the issued and outstanding shares of Delphy for EUR 17.7 million ($17.2 million) through a combination
of cash and stock plus a potential earnout of up to EUR 6.0 million ($5.8 million) over 2 years based on achieving future performance
milestones.
On
June 30, 2022, the Company executed the definitive agreement (the “Agreement”) with arm’s length accredited institutional
investors (the “Investors”) for convertible debentures. Pursuant to the agreement, the investors may purchase additional
tranches of debentures. The “Investors purchased additional tranches for $17,600,000 of principal debentures with a 10% original
issue discount (the “Debentures”) for gross proceeds of $16,000,000. The interest rates on the Debentures are 5% for the
first 12 months, 6% for the subsequent 12 months, and 8% per annum thereafter. The Debenture may be extended by six months at the election
of the Company by paying a sum equal to six months interest on the principal amount outstanding at the end of the 18th month, at the
rate of 8% per annum. The Debentures are convertible into common shares at $2.22. In addition, the Investors received 5,153,153 warrants
at a strike price of $2.442, which expire on December 31, 2025 (the “Debenture Warrants”). The Debenture Warrants and Debentures
each have down round provisions whereby the conversion and strike prices will be adjusted downward if the Company issues equity instruments
at lower prices. The Debenture Warrants strike price and the Debenture conversion price will be adjusted down to the effective conversion
price of the issued equity instruments. Due to the currency of these features being different from the Company’s functional currency
the Debenture Warrants and Debentures’ convertible features were classified as derivative liabilities. The transaction costs incurred
in relation to the Debentures were $1,085,000. The fair values of the conversion feature derivative liabilities and the warrant derivative
liabilities as at June 30, 2022 were $4,176,024 and $5,120,000 respectively.
3. |
Pro
Forma Adjustments Related to the Acquisition |
The
total estimated consideration as shown in the table below is allocated to Delphy tangible and intangible assets and liabilities based
on their preliminary estimated fair values as of the pro forma acquisition date:
Consideration: | |
| |
Cash paid upon completion of transaction | |
$ | 12,642,834 | |
Shares in AgriFORCE (value in US dollars) | |
| 4,597,394 | (a) |
Earnout payable in cash | |
| 5,844,379 | (b) |
Total purchase consideration | |
$ | 23,084,607 | |
Preliminary allocation of consideration: | |
| |
Book value of Delphy net assets as of the pro forma acquisition date | |
$ | 6,736,322 | |
Adjustments to historical net book value: | |
| | |
Identified intangible assets | |
| 14,000,000 | (e) |
Adjusted book value of Delphy net assets as of the pro forma acquisition date | |
| 14,000,000 | |
| |
| | |
Goodwill | |
$ | 2,348,284 | (f) |
(a) | Represents
the stock portion of the purchase consideration. |
(b) | Represents
the earnout payable to Delphy based upon achieving future performance milestones. EUR 3,042,395
($2,971,008) is due not prior to July 1, 2023 and EUR 2,942,935 ($2,873,371) is due not prior
to July 1, 2024. |
(c) | Represents
additional cash received from financing for the Delphy acquisition. |
(d) | Represents
debt financing (Note 2) obtained to complete Delphy transaction. |
| |
| | |
| | |
Amortization Expense Based on
the Preliminary Allocation of Identifiable Intangible Assets | | |
| |
| |
Preliminary
Estimated
Asset Fair
Value | | |
Weighted
Average
Useful Life
(Years) | | |
Year Ended
December 31,
2021 | | |
Six
Months
Ended
June 30,
2022 | | |
Annual
Effect of a
10%
Increase to
the
Preliminary
Allocation | | |
Annual
Effect of a
10%
Decrease to
the
Weighted
Average
Useful Life | |
Customer List | |
$ | 10,000,000 | | |
| 6.0 | | |
$ | 1,666,667 | | |
$ | 833,333 | | |
$ | 166,667 | | |
$ | 1,851,852 | |
Trademarks and trade names | |
| 3,000,000 | | |
| 10.0 | | |
| 300,000 | | |
| 150,000 | | |
| 30,000 | | |
| 333,333 | |
Internally developed software and data | |
| 1,000,000 | | |
| 5.0 | | |
| 200,000 | | |
| 100,000 | | |
| 20,000 | | |
| 222,222 | |
| |
$ | 14,000,000 | | |
| | | |
$ | 2,166,667 | | |
$ | 1,083,333 | | |
$ | 216,667 | | |
$ | 2,407,407 | |
(e) | The
preliminary fair value and allocation of identifiable intangible assets and their estimated
useful lives are as follows: |
(f) | Represents
the estimates value of goodwill recorded in conjunction with the Delphy acquisition. |
(g) | Amount
represents the elimination of the historical equity of Delphy. |
(h) | Represents
the accretion interest of the convertible debentures issued to finance the Delphy acquisition
(Note 2). |
(i) | Represents
the change in fair value of the conversion feature derivative liabilities and warrant derivative
liabilities issued to finance the Delphy acquisition (Note 2). |
(j) | Represents
the accretion interest on the earn-out payable (Note 2). |
4. |
Reclassification
Adjustments |
Certain
reclassifications have been made to the historical presentation of Delphy’s financial information to conform to the financial statement
presentation of AgriFORCE for purposes of the unaudited pro forma condensed combined financial information.
The
adjustments represents the reclassification of selling, general and administrative expense to wages and salaries, office and administrative,
rent, travel and entertainment, sales and marketing, lease expense, and depreciation.