NOTES
TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
For
the nine months ended September 30, 2022 and 2021
(Expressed
in EURO, except where noted)
Delphy
Groep B.V. (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 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 (“US 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.
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 September 30, 2022, and the results of its operations and cash flows for
the nine months ended September 30, 2022 and 2021. Such adjustments are of a normal and recurring nature. The results for the nine months
ended September 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. 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 those entities are
not included in its consolidated interim figures as 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 September 30 2022, and December 31, 2021, of the Company’s cash, cash equivalents, and restricted cash of €1,191,961
and €4,955,602 respectively, €46,939 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 an insignificant amount of 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.
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 September 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 (percentage of completion 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 nine months ended September 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.
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.
| |
September 30, 2022 | | |
December 31, 2021 | |
Amount receivable from participating interests and group companies | |
€ | 30,390 | | |
€ | 62,360 | |
Prepayments and accrued income | |
| 407,485 | | |
| 41,841 | |
Dividend receivable | |
| - | | |
| 99,980 | |
Loan receivable* | |
| 20,822 | | |
| 54,789 | |
Tax receivable | |
| 322,377 | | |
| 68,186 | |
Contract assets | |
| 5,542,590 | | |
| 3,605,535 | |
Others | |
| 193,165 | | |
| 77,354 | |
Total Other Current Asset | |
€ | 6,516,829 | | |
€ | 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:
| |
September 30, 2022 | | |
December 31, 2021 | |
Land and building | |
€ | 5,360,419 | | |
€ | 5,169,513 | |
Plant and machinery | |
| 4,964,982 | | |
| 4,638,034 | |
Furniture and office equipment | |
| 532,272 | | |
| 519,828 | |
Vehicles | |
| 30,450 | | |
| 30,450 | |
Total Property, Plant and Equipment | |
| 10,888,124 | | |
| 10,357,825 | |
Less: Accumulated depreciation | |
| (6,064,011 | ) | |
| (5,718,038 | ) |
Total Property, Plant and Equipment, Net | |
€ | 4,824,113 | | |
€ | 4,639,787 | |
Depreciation
expense on property, plant and equipment, was € 345,974 and € 176.109 for the nine months ended September 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:
| |
September 30, 2022 | | |
December 31, 2021 | |
Loan to stockholders^ | |
€ | 94,583 | | |
€ | 94,583 | |
Loan to third parties* | |
| 24,999 | | |
| 16,408 | |
Deferred tax claims | |
| 34,059 | | |
| 34,059 | |
Loan receivable** | |
| 4,000 | | |
| 4,000 | |
Total
Other Receivable | |
€ | 157,641 | | |
€ | 149,050 | |
Interest
of 0.0% (based on the 12-month Euribor plus 0.5%) was charged on the loan to stockholders. The expiry dates vary from January 31, 2028,
January 31, 2031 or indefinitely. The fair value of the loan to stockholders 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 loan receivable.
^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:
|
|
September
30, 2022 |
|
|
December
31, 2021 |
|
Accounts
payable |
|
€ |
1,324,249 |
|
|
€ |
1,722,521 |
|
Accrued
expenses |
|
|
907,777 |
|
|
|
3,259,526 |
|
Contract
liability |
|
|
4,915,609 |
|
|
|
4,100,133 |
|
Total
Accounts payable and Other Current Liabilities |
|
€ |
7,147,635 |
|
|
€ |
9,082,180 |
|
Long-term
debt as of September 30, 2022, and December 31, 2021 consists of the following:
| |
September 30, 2022 | | |
December 31, 2021 | |
2.3% Loan payable (€1,000,000 initial principal) in quarterly installments of €50,000
including interest, with final payment of €50,000 (1 January), 2026^. | |
€ | 700,000 | | |
€ | 850,000 | |
1.2% Loan payable (€1,100,000 initial 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 | |
€ | 1,800,000 | | |
€ | 1,950,000 | |
Less: | |
| | | |
| | |
Current installments of long-term debt | |
| 200,000 | | |
| 200,000 | |
| |
| | | |
| | |
Long-Term Debt, Excluding Current Installments | |
€ | 1,600,000 | | |
€ | 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 have been pledged as securities on the Company’s long term debt:
- A pledge on untaxed registered properties 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 September 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 September 30, 2022, and 18,000 shares issued and outstanding as of December
31, 2021. Of the ordinary shares outstanding as of September 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 are employees of Delphy. 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 September 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.
|
|
September
30, 2022 |
|
|
September
30, 2021 |
Advisory
services |
|
€ |
9,608,462 |
|
|
€ |
7,997,717 |
Research |
|
|
2,386,586 |
|
|
|
1,884,755 |
Other |
|
|
841,964 |
|
|
|
865,134 |
|
|
€ |
12,837,012 |
|
|
€ |
10,747,606 |
Contract
balances
The
following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
|
|
September
30, 2022 |
|
|
December
31, 2021 |
Trade
accounts receivable |
|
€ |
2,187,001 |
|
|
€ |
3,341,772 |
Contract
asset |
|
|
5,542,590 |
|
|
|
3,605,535 |
Contract
liability |
|
|
4,915,609 |
|
|
|
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.
| |
September 30, 2022 | | |
September 30, 2021 | |
Government grants | |
€ | 5,025,407 | | |
€ | 5,079,709 | |
Cost of government grants | |
| (4,653,599 | ) | |
| (4,238,582 | ) |
| |
€ | 371,808 | | |
€ | 841,127 | |
12. |
RELATED
PARTY TRANSACTIONS |
Related
party transactions and balances are set out in below tables:
| |
September 30, 2022 | | |
September 30, 2021 | |
Revenue: | |
| | | |
| | |
Delphy CVBA | |
€ | 3,000 | | |
€ | 25,000 | |
Delphy Japan Co., Ltd. | |
| 30,323 | | |
| 18,099 | |
Delphy UK Ltd | |
| 91,706 | | |
| 102,020 | |
| |
€ | 125,029 | | |
€ | 145,119 | |
Purchase transactions: | |
| | | |
| | |
Delphy UK Ltd | |
| 7,994 | | |
| 4,590 | |
HortiAdvice A/S | |
| 1,762 | | |
| - | |
Delphy CVBA | |
| 7,032 | | |
| - | |
| |
€ | 16,788 | | |
€ | 4,590 | |
| |
September 30,2022 | | |
December 31, 2021 | |
Amount receivable from Group Companies: | |
€ | | | |
€ | | |
Delphy Japan Co., Ltd. | |
| 1,127 | | |
| 1,127 | |
Delphy Rwanda Ltd2 | |
| 11,074 | | |
| 4,885 | |
Delphy
(Shanghai) Agriculture Technology Co., Ltd2 | |
| 28,047 | | |
| 56,348 | |
| |
€ | 40,248 | | |
€ | 62,360 | |
| |
September 30, 2022 | | |
December 31, 2021 | |
Receivables from stockholders and equity method investees: | |
€ | | | |
€ | | |
Loan to stockholders | |
| 94,583 | | |
| 94,583 | |
| |
€ | 94,583 | | |
€ | 94,583 | |
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.
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:
| |
September 30, 2022 | |
Operating lease expenses | |
€ | 781,082 | |
Short term lease expenses | |
| - | |
Total lease expenses | |
€ | 781,082 | |
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 one month and four 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 | |
€ | 71,627 | |
2023 | |
| 259,459 | |
2024 | |
| 234,802 | |
2025 | |
| 197,679 | |
2026 and beyond | |
| 741,626 | |
Total future minimum lease payments –
facilities | |
€ | 1,505,193 | |
Company cars: | |
Future Minimum Lease Payments | |
2022 | |
€ | 144,331 | |
2023 | |
| 464,518 | |
2024 | |
| 307,669 | |
2025 | |
| 159,862 | |
2026 and beyond | |
| 54,690 | |
Total future minimum lease payments -
company cars | |
€ | 1,131,071 | |
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 September 30, 2022,
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 has €750,000 available for the Company to draw upon. As at September 30, 2022, no amounts were outstanding on the
credit facility.
The
following have been pledged as securities on the Company’s credit facility:
- A pledge on untaxed registered properties 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 December 6, 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 September 30, 2022, and events which occurred subsequent to September 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.
Exhibit
99.2
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 September 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 nine months ended September 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 nine months ended September 30, 2022, with Delphy’s unaudited consolidated statements of operations
for the nine months ended September 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 SEPTEMBER 30, 2022
(In
US dollars)
| |
AgriFORCE Historical | | |
Delphy Historical | | |
Pro
Forma Adjustments | | |
| |
Combined
Pro Forma | |
ASSETS | |
| | | |
| | | |
| | | |
| |
| | |
| |
| | | |
| | | |
| | | |
| |
| | |
Current | |
| | | |
| | | |
| | | |
| |
| | |
Cash
and cash equivalents | |
$ | 7,869,028 | | |
$ | 1,163,859 | | |
$ | 1,478,917 | | |
3(c) | |
$ | 10,511,804 | |
Restricted
cash | |
| - | | |
| 45,832 | | |
| - | | |
| |
| 45,832 | |
Other
receivable | |
| 46,737 | | |
| - | | |
| - | | |
| |
| 46,737 | |
Trade
accounts receivable, less allowance for doubtful accounts | |
| - | | |
| 2,135,440 | | |
| - | | |
| |
| 2,135,440 | |
Inventories | |
| - | | |
| 17,309 | | |
| - | | |
| |
| 17,309 | |
Prepaid
expenses and other current assets | |
| 384,954 | | |
| 6,363,186 | | |
| - | | |
| |
| 6,748,140 | |
Total
current assets | |
| 8,300,719 | | |
| 9,725,626 | | |
| 1,478,917 | | |
| |
| 19,505,262 | |
| |
| | | |
| | | |
| | | |
| |
| | |
Non-Current | |
| | | |
| | | |
| | | |
| |
| | |
Other
receivables | |
| - | | |
| 153,924 | | |
| - | | |
| |
| 153,924 | |
Equity
method investments | |
| - | | |
| 732,482 | | |
| - | | |
| |
| 732,482 | |
Operating
lease right-of-use asset | |
| 1,565,215 | | |
| 3,067,563 | | |
| - | | |
| |
| 4,632,778 | |
Construction
in progress | |
| 1,973,772 | | |
| - | | |
| - | | |
| |
| 1,973,772 | |
Property,
plant and equipment, net | |
| 116,360 | | |
| 4,710,378 | | |
| - | | |
| |
| 4,826,738 | |
Goodwill | |
| - | | |
| - | | |
| 4,117,112 | | |
3(f) | |
| 4,117,112 | |
Intangible
assets | |
| 9,860,617 | | |
| 6,190 | | |
| 14,000,000 | | |
3(e) | |
| 23,866,807 | |
Land
deposit | |
| 2,085,960 | | |
| - | | |
| - | | |
| |
| 2,085,960 | |
TOTAL
ASSETS | |
$ | 23,902,643 | | |
$ | 18,396,163 | | |
$ | 19,596,029 | | |
| |
$ | 61,894,835 | |
| |
| | | |
| | | |
| | | |
| |
| | |
LIABILITIES | |
| | | |
| | | |
| | | |
| |
| | |
Current | |
| | | |
| | | |
| | | |
| |
| | |
Accounts
payable and accrued liabilities | |
$ | 996,521 | | |
$ | 6,979,119 | | |
$ | - | | |
| |
$ | 7,975,640 | |
Contingent
consideration payable - current | |
| 750,000 | | |
| - | | |
| 3,157,417 | | |
| |
| 3,907,417 | |
Lease
liability - current | |
| 244,358 | | |
| 674,869 | | |
| - | | |
| |
| 919,227 | |
Current
installments of long-term debt | |
| - | | |
| 195,285 | | |
| - | | |
| |
| 195,285 | |
Debentures | |
| 4,082,387 | | |
| - | | |
| 4,243,638 | | |
3(d) | |
| 8,326,025 | |
Total
current liabilities | |
| 6,073,266 | | |
| 7,849,273 | | |
| 7,401,055 | | |
| |
| 21,323,594 | |
| |
| | | |
| | | |
| | | |
| |
| | |
Non-Current | |
| | | |
| | | |
| | | |
| |
| | |
Lease
liability – non-current | |
| 1,276,510 | | |
| 2,392,694 | | |
| - | | |
| |
| 3,669,204 | |
Derivative
liabilities | |
| 6,591,877 | | |
| - | | |
| 10,671,362 | | |
3(d) | |
| 17,263,239 | |
Other
liabilities | |
| - | | |
| 176,027 | | |
| | | |
| |
| 176,027 | |
Contingent
consideration payable – non-current | |
| - | | |
| | | |
| 3,053,655 | | |
3(b) | |
| 3,053,655 | |
Long-term
debt | |
| 43,773 | | |
| 1,562,278 | | |
| - | | |
| |
| 1,606,051 | |
Total
liabilities | |
| 13,985,426 | | |
| 11,980,272 | | |
| 21,126,072 | | |
| |
| 47,091,770 | |
| |
| | | |
| | | |
| | | |
| |
| | |
EQUITY | |
| | | |
| | | |
| | | |
| |
| | |
Common
shares, no par value per share - unlimited shares authorized; | |
| 27,002,586 | | |
| - | | |
| 4,885,848 | | |
3(a) | |
| 31,888,434 | |
Common
shares €1 par value per share, 18,000 shares authorized, | |
| - | | |
| 15,029 | | |
| (15,029 | ) | |
3(g) | |
| - | |
Additional
paid-in-capital | |
| 13,568,717 | | |
| 279,363 | | |
| (279,363 | ) | |
3(g) | |
| 13,568,717 | |
Accumulated
deficit | |
| (30,021,493 | ) | |
| 6,105,402 | | |
| (6,105,402 | ) | |
3(g) | |
| (30,021,493 | ) |
Accumulated
other comprehensive income | |
| (632,593 | ) | |
| (17,103 | ) | |
| 17,103 | | |
3(g) | |
| (632,593 | ) |
Noncontrolling
interest | |
| - | | |
| 33,200 | | |
| (33,200 | ) | |
3(g) | |
| - | |
TOTAL
EQUITY | |
| 9,917,217 | | |
| 6,415,891 | | |
| (1,530,043 | ) | |
| |
| 14,803,065 | |
TOTAL
LIABILITIES AND EQUITY | |
$ | 23,902,643 | | |
$ | 18,396,163 | | |
$ | 19,596,029 | | |
| |
$ | 61,894,835 | |
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 | ) |
Accretion of interest on 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 | | |
| (921,735 | ) | |
| |
| (6,315,541 | ) |
Income taxes | |
| - | | |
| 380,062 | | |
| - | | |
| |
| 380,062 | |
NET INCOME (LOSS) | |
| (6,643,116 | ) | |
| 1,541,833 | | |
| (921,735 | ) | |
| |
| (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 | | |
| (921,735 | ) | |
| |
| (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 | | |
$ | (921,735 | ) | |
| |
$ | (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 NINE MONTHS ENDED SEPTEMBER 30, 2022
(In
US dollars)
| |
AgriFORCE Historical | | |
Delphy Historical | | |
Pro
Forma Adjustments | | |
| |
Combined
Pro Forma | |
| |
| | |
| | |
| | |
| |
| |
Revenue | |
$ | - | | |
$ | 13,660,058 | | |
$ | - | | |
| |
$ | 13,660,058 | |
Cost
of revenue | |
| - | | |
| 7,395,779 | | |
| - | | |
| |
| 7,395,779 | |
GROSS
PROFIT | |
| - | | |
| 6,264,279 | | |
| - | | |
| |
| 6,264,279 | |
| |
| | | |
| | | |
| | | |
| |
| | |
OPERATING
EXPENSES | |
| | | |
| | | |
| | | |
| |
| | |
Selling,
general and administrative expense | |
| - | | |
| 6,585,310 | | |
| (6,585,310 | ) | |
4 | |
| - | |
Wages
and salaries | |
| 2,944,218 | | |
| - | | |
| 4,501,701 | | |
4 | |
| 7,445,919 | |
Consulting | |
| 2,030,994 | | |
| - | | |
| - | | |
| |
| 2,030,994 | |
Professional
fees | |
| 2,058,636 | | |
| - | | |
| - | | |
| |
| 2,058,636 | |
Office
and administrative | |
| 987,298 | | |
| - | | |
| 235,185 | | |
4 | |
| 1,222,483 | |
Investor
and public relations | |
| 718,423 | | |
| - | | |
| - | | |
| |
| 718,423 | |
Research
and development | |
| 537,772 | | |
| - | | |
| - | | |
| |
| 537,772 | |
Share
based compensation | |
| 282,828 | | |
| - | | |
| - | | |
| |
| 282,828 | |
Lease
expense | |
| 238,728 | | |
| - | | |
| 1,088,178 | | |
4 | |
| 1,326,906 | |
Travel
and entertainment | |
| 214,725 | | |
| - | | |
| 269,153 | | |
4 | |
| 483,878 | |
Shareholder
and regulatory | |
| 175,094 | | |
| - | | |
| - | | |
| |
| 175,094 | |
Sales
and marketing | |
| 186,132 | | |
| - | | |
| 424,783 | | |
4 | |
| 610,915 | |
Depreciation | |
| 15,706 | | |
| - | | |
| 66,310 | | |
4 | |
| 82,016 | |
Amortization
of purchased intangible assets | |
| - | | |
| - | | |
| 1,625,000 | | |
3(e) | |
| 1,625,000 | |
TOTAL
OPERATING EXPENSES | |
| 10,390,554 | | |
| 6,585,310 | | |
| 1,625,000 | | |
| |
| 18,600,864 | |
| |
| | | |
| | | |
| | | |
| |
| | |
INCOME
(LOSS) FROM OPERATIONS | |
| (10,390,554 | ) | |
| (321,031 | ) | |
| (1,625,000 | ) | |
| |
| (12,336,585 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
OTHER
INCOME (EXPENSE) | |
| | | |
| | | |
| | | |
| |
| | |
Other
income (expense), net | |
| 37,831 | | |
| 395,646 | | |
| - | | |
| |
| 433,477 | |
Income
of equity method investees | |
| - | | |
| 237,300 | | |
| - | | |
| |
| 237,300 | |
Foreign
exchange gain | |
| 143,432 | | |
| - | | |
| - | | |
| |
| 143,432 | |
Gain
on conversion of convertible debt | |
| 93,973 | | |
| - | | |
| - | | |
| |
| 93,973 | |
Accretion
of interest on contingent consideration payable | |
| - | | |
| - | | |
| (589,452 | ) | |
3(j) | |
| (589,452 | ) |
Accretion
of interest on debentures | |
| (1,688,672 | ) | |
| - | | |
| (4,273,868 | ) | |
3(h) | |
| (5,962,540 | ) |
Change
in fair value of warrants | |
| 1,683,489 | | |
| - | | |
| 4,888,619 | | |
3(i) | |
| 6,572,108 | |
Interest
expense, net | |
| - | | |
| (120,902 | ) | |
| - | | |
| |
| (120,902 | ) |
INCOME
(LOSS) BEFORE INCOME TAXES | |
| (10,120,501 | ) | |
| 191,013 | | |
| (1,599,701 | ) | |
| |
| (11,529,189 | ) |
Income
tax recovery (expense) | |
| - | | |
| (6,948 | ) | |
| - | | |
| |
| (6,948 | ) |
NET
INCOME (LOSS) | |
| (10,120,501 | ) | |
| 184,065 | | |
| (1,599,701 | ) | |
| |
| (11,536,137 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Net
income attributable to non-controlling interest | |
| - | | |
| (6,837 | ) | |
| - | | |
| |
| (6,837 | ) |
NET
INCOME (LOSS) ATTRIBUTED TO COMMON SHAREHOLDERS | |
| (10,120,501 | ) | |
| 177,228 | | |
| (1,599,701 | ) | |
| |
| (11,542,974 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Other
comprehensive income (loss) | |
| | | |
| | | |
| | | |
| |
| | |
Foreign
currency translation | |
| (599,507 | ) | |
| (14,472 | ) | |
| - | | |
| |
| (613,979 | ) |
COMPREHENSIVE
INCOME (LOSS) ATTRIBUTED TO COMMON SHAREHOLDERS | |
$ | (10,720,008 | ) | |
$ | 162,756 | | |
$ | (1,599,701 | ) | |
| |
$ | (12,156,953 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Basic
and diluted net loss attributed to common shares | |
$ | (0.58 | ) | |
| | | |
| | | |
| |
$ | (0.64 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Weighted
average number of common shares outstanding – basic and diluted | |
| 17,406,641 | | |
| | | |
| 641,244 | | |
| |
| 18,047,885 | |
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 ($24.4 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 ($18.3 million) through a combination
of cash and stock plus a potential earnout of up to EUR 6.0 million ($6.2 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 September 30, 2022 were $6,196,796 and $4,474,566 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 | |
$ | 13,436,083 | |
Shares in AgriFORCE (value in US dollars) | |
| 4,885,848 | (a) |
Earnout payable in cash | |
| 6,211,072 | (b) |
Total purchase consideration | |
$ | 24,533,003 | |
Preliminary allocation of consideration: | |
| |
Book value of Delphy net assets as of the pro forma acquisition date | |
$ | 6,415,891 | |
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 | |
$ | 4,117,112 | (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
($3,157,417) is due not prior to July 1, 2023 and EUR 2,942,935 ($3,053,655) 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. |
(e) | The
preliminary fair value and allocation of identifiable intangible assets and their estimated
useful lives are as follows: |
| |
| | |
| | |
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 | | |
Nine
Months Ended September 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 | | |
$ | 1,250,000 | | |
$ | 166,667 | | |
$ | 1,851,852 | |
Trademarks and trade names | |
| 3,000,000 | | |
| 10.0 | | |
| 300,000 | | |
| 225,000 | | |
| 30,000 | | |
| 333,333 | |
Internally developed software and data | |
| 1,000,000 | | |
| 5.0 | | |
| 200,000 | | |
| 150,000 | | |
| 20,000 | | |
| 222,222 | |
| |
$ | 14,000,000 | | |
| | | |
$ | 2,166,667 | | |
$ | 1,625,000 | | |
$ | 216,667 | | |
$ | 2,407,407 | |
(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,
lease expense, travel and entertainment, sales and marketing, lease expense, and depreciation.