NOTES
TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For
the nine months ended September 30, 2021 and 2020 (unaudited)
(Expressed
in US Dollars, except where noted)
1.
NATURE OF OPERATIONS AND BASIS OF PREPARATION
Business
Overview
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 Condensed Consolidated Interim Financial Statements (the “interim financial statements”) and related financial
information of AgriFORCE Growing Systems Ltd. (the “Company”) should be read in conjunction with the audited financial statements
and the related notes thereto for the years ended December 31, 2020 and 2019 included in the Company’s Registration Statement on
Form S-1/A (File No. 333-251380), which was filed with the Securities Exchange Commission (“SEC”) on June 30, 2021. 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.
The
accompanying interim financial statements as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020,
and the related interim information contained within the notes to the interim financial statements, are unaudited. The interim financial
statements have been prepared in accordance with U.S. GAAP and on the same basis as the audited financial statements. In the opinion
of management, the accompanying interim condensed financial statements contain all adjustments which are necessary to state fairly the
Company’s financial position as of September 30, 2021, and the results of its operations and cash flows for the nine months ended
September 30, 2021 and 2020. Such adjustments are of a normal and recurring nature. The results for the nine months ended September 30,
2021 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2021, or for any future
period.
Liquidity
and Management’s Plan
In
accordance with Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40),
the Company’s management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial
doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are
issued.
As
of September 30, 2021, the Company had cash and cash equivalent of $9,834,516. During the three and nine months ended September 30, 2021,
the Company incurred a net loss of $1,823,618 and $3,915,207, respectively, and used $3,017,468 of cash in operating activities during
the nine months ended September 30, 2021. At September 30, 2021, the Company had an accumulated deficit of $17,173,083 and currently
does not expect to experience positive cash flows from operating activities in the near future as it continues expanding the organization
to support planned growth while also continuing to invest in research and development and other commercialization efforts of its technology
that is currently in development. We also expect to incur significant additional expenditures as a public company.
Although
it is difficult to predict the Company’s liquidity requirements, as of September 30, 2021, and based upon the Company’s current
operating plan and the net proceeds received from its July 2021 initial public offering (“IPO”) (see Note 9), the Company
believes that it will have sufficient cash to meet its projected operating requirements for at least the next 12 months following the
issuance of the interim financial statements based on the balance of cash.
2.
SIGNIFICANT ACCOUNTING POLICIES
Recent
Accounting Pronouncements
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 interim 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. The Company is currently assessing the impact this guidance will have on our condensed consolidated 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. The Company is currently assessing the impact
this guidance will have on our condensed consolidated 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.
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 three and nine months ended September 30, 2021 and September 30, 2020, since the effect of the Company’s stock
options and warrants are anti-dilutive.
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 September 30, 2021, the Company’s warrant liability related to IPO warrants and representative’s warrant amounting to
$1,771,481 (December 31, 2020 - $nil) is reported at fair value and categorized as Level 1 inputs, whereas fair value of warrant
liability related to Bridge warrants amounting to $71,414 (December 31, 2020 - $nil) is categorized as level 3 inputs. (see Note
6 and Note 8).
Reclassifications
The
Company has reclassified certain amounts in the 2020 consolidated financial statements to comply with the 2021 presentation.
3.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
Deposits
|
|
$
|
170,000
|
|
|
$
|
170,000
|
|
Legal
retainer
|
|
|
70,295
|
|
|
|
43,038
|
|
Prepaid
insurance
|
|
|
139,473
|
|
|
|
-
|
|
Others
– office lease deposit
|
|
|
100,102
|
|
|
|
-
|
|
Total
|
|
$
|
479,870
|
|
|
$
|
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 is currently
renegotiating the final terms of the debt financing related to the purchase of land before completing the purchase.
4.
INTANGIBLE ASSET
Intangible
asset represents 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 September 30, 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 $750,000
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 September 30, 2021, and accordingly have not been accrued for.
5.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
Accounts
payable
|
|
$
|
197,187
|
|
|
$
|
991,565
|
|
Accrued
expenses
|
|
|
813,861
|
|
|
|
905,629
|
|
Others
|
|
|
69,421
|
|
|
|
33,794
|
|
Accounts
Payable and Accrued Liabilities
|
|
$
|
1,080,469
|
|
|
$
|
1,930,988
|
|
Accounts
payable includes $nil (December 31, 2020 - $744,191) payable to an outside contractor in relation to facility construction. Accrued expenses
include bonus payable of $nil (December 31, 2020 - $487,983), settlement of secured debt related to IP asset of $500,000 (December 31,
2020 - $nil) and Directors’ fees payable of $29,817 (December 31, 2020 - $128,448). Accounts payable and accrued liabilities
include a total unpaid IPO cost of $nil (December 31, 2020 - $297,437).
6.
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 is three years. In accordance with U.S. GAAP, the fair value of the
warrants was recorded as a liability in the accompanying balance sheet at September 30, 2021 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 $199,255 is charged to the statement of comprehensive income / (loss).
The fair value of the warrants estimated at $71,414 determined using the Black-Scholes option pricing model was based on the following
assumptions; stock price $2.23, dividend yield – nil, expected volatility 75%, risk free rate of return 0.67%, expected term of
3 years.
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
loan is interest free for an initial term that ends on December 31, 2022. Repaying the loan balance on or before December 31, 2022 will
result in loan forgiveness of 25% (up to CAD $10,000). Any outstanding loan after initial term carries an interest rate of 5% per annum,
payable monthly during the extended term i.e. January 31, 2023 to December 31, 2025.
In
April 2021, the Company applied for additional loan with Alterna Bank under the Program and received $15,932 (CAD$20,000). The expansion
loan is subject to the original terms and conditions of the Program.
8.
WARRANT LIABILITY
As
of September 30, 2021, the warrant liability represents aggregate fair value of publicly traded 3,088,198 Series A Warrants, 135,999
representative’s warrants, and 93,938 Bridge 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 $818,960 is recorded in the statement of comprehensive loss
for the nine months ended September 30, 2021.
9.
SHARE CAPITAL
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
May 31, 2021, the Company granted a total of 405,059 stock options to directors, officers, employees, and consultants of the Company.
The stock options will vest over the next three years following the grant date with the first vesting date of three-month anniversary
after the grant date. The stock options are exercisable for a five-year period at an exercise price of $7.00. The fair value of the options
was estimated at $1.48 million determined using the Black-Scholes option pricing model was based on the following assumptions; stock
price $6.00, dividend yield – nil, expected volatility 80%, risk free rate of return 0.98%, expected term of 3 years.
On
July 15, 2021 the Company granted a total of 55,445 stock options to an officer of the Company. The stock options will vest over the
next three years following the grant date with the first vesting date of three-month anniversary after the grant date. The stock options
are exercisable for a five-year period at an exercise price of $7.00. The fair value of the options was estimated at $85,693 determined
using the Black-Scholes option pricing model was based on the following assumptions; stock price $3.86, dividend yield – nil, expected
volatility 80%, risk free rate of return 0.88%, expected life of 3 years.
On
September 30, 2021 the Company granted a total of 49,284 stock options to directors of the Company. The stock options will vest over
the next three years following the grant date with the first vesting date of three-month anniversary after the grant date. The stock
options are exercisable for a five-year period at an exercise price of $7.00. The fair value of the options was estimated at $32,530
determined using the Black-Scholes option pricing model was based on the following assumptions; stock price $2.30, dividend yield –
nil, expected volatility 80%, risk free rate of return 1.11%, expected life of 3 years.
As
of September 30, 2021, there was $901,575 of total unrecognized compensation cost related to unvested share-based compensation granted
under the stock option plan; that cost is expected to be recognized over a period of 3 years.
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 Bride 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.
Concurrent
with the closing of the IPO, the 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
Sep 01, 2021, the Company issued to Directors 19,992
common shares as settlement of accrued directors’
fee.
10.
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
SCHEDULE
OF FUTURE PAYMENTS UNDER LEASE
|
|
|
|
|
Remainder of 2021
|
|
$
|
68,137
|
|
2022
|
|
$
|
273,962
|
|
2023
|
|
$
|
279,610
|
|
2024
|
|
$
|
289,495
|
|
2025
|
|
$
|
306,442
|
|
2026
|
|
$
|
306,442
|
|
Subsequent years
|
|
$
|
842,714
|
|
Total
|
|
$
|
2,366,802
|
|
Litigation
During
the nine months ended September 30, 2021 and the year ended December 31, 2020, 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 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 was filed in BC Supreme Court. The basic
allegations against Agriforce Growing Systems Ltd. are:
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1.
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The
Company breached the manufacturing agreement under which HydroHaus Horticulture claims it had the exclusive right to build hydro
houses for the Company;
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2.
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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;
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3.
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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
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4.
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The
Company wrongfully rescinded its agreements with HydroHaus Horticulture.
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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
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.
During
the nine months ended September 30, 2021 and the year ended December 31, 2020, 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.
11.
SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant
to the requirements of ASC Topic 855, from the balance sheet date through the date the financial statements were issued and has determined
that no material subsequent events exist, except for events previously disclosed in the notes to the financial statements,
and the negotiation of the terms of debt financing related to purchase of land as disclosed in Note 3.