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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One) |
|
|
|
|
|
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACMT OF 1934
For
the quarterly period ended June 30, 2024 |
|
|
|
|
|
or |
|
|
|
|
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _____ to _____ |
|
Commission
File Number: 001-40578
AGRIFORCE
GROWING SYSTEMS LTD.
(Exact
name of registrant as specified in its charter)
British Columbia |
|
Not
Applicable |
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
No.) |
|
|
|
800 – 525 West 8th Avenue
Vancouver,
BC, Canada |
|
V5Z
1C6 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(604)
757-0952
(Registrant’s
telephone number, including area code)
N/A
(Former
name or former address and former fiscal year, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common
Shares |
|
AGRI |
|
NASDAQ Capital Market |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer ☐ |
Accelerated
filer ☐ |
|
|
|
|
Non-accelerated
filer ☒ |
Smaller
reporting company ☒ |
|
|
|
|
|
Emerging
growth company ☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As
of August 13, 2024, the registrant has 92,343,334 shares of common stock, no par value per share, outstanding.
TABLE
OF CONTENTS
Cautionary
Note Regarding Forward-Looking Information
This
Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). These forward-looking statements represent our expectations, beliefs, intentions or strategies concerning future events,
including, but not limited to, any statements regarding our assumptions about financial performance; the continuation of historical trends;
the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies
on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations; and the economy
in general or the future of the agriculture technology industry, all of which were subject to various risks and uncertainties.
When
used in this Quarterly Report on Form 10- Q and other reports, statements, and information we have filed with the Securities and Exchange
Commission (“Commission” or “SEC”), in our press releases, in our periodic reports on Forms 10-K and 10-Q, in
oral statements made by or with the approval of an executive officer, the words or phrases “believes,” “may,”
“will,” “expects,” “should,” “continue,” “anticipates,” “intends,”
“will likely result,” “estimates,” “projects” or similar expressions and variations thereof are intended
to identify such forward-looking statements. However, any statements contained in this Quarterly Report on Form 10-Q that are not statements
of historical fact may be deemed to be forward-looking statements. We caution that these statements by their nature involve risks and
uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important
factors.
We
do not assume the obligation to update any forward-looking statement. You should carefully evaluate such statements in light of factors
described in this annual report. In this Quarterly Report on Form 10-Q, AgriFORCE Growing Systems Ltd. has identified important factors
that could cause actual results to differ from expected or historic results. You should understand that it is not possible to predict
or identify all such factors. Consequently, you should not consider any such list to be a complete list of all potential risks or uncertainties.
PART
I — FINANCIAL INFORMATION
Item
1. Financial Statements
AGRIFORCE
GROWING SYSTEMS LTD.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Expressed
in US dollars)
| |
Note | | |
June 30, 2024 | | |
December 31, 2023 | |
| |
| | |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Current | |
| | | |
| | | |
| | |
Cash | |
| | | |
$ | 2,937,496 | | |
$ | 3,878,578 | |
Accounts receivable | |
| | | |
| 8,479 | | |
| | |
Other receivable | |
| | | |
| 25,207 | | |
| 30,859 | |
Prepaid expenses and other current assets | |
| 3 | | |
| 297,609 | | |
| 272,872 | |
Inventories | |
| 4 | | |
| 4,621 | | |
| 38,857 | |
Total current assets | |
| | | |
| 3,273,412 | | |
| 4,221,166 | |
| |
| | | |
| | | |
| | |
Non-current | |
| | | |
| | | |
| | |
Property and equipment, net | |
| | | |
| 3,574 | | |
| 11,801 | |
Intangible asset, net | |
| 5 | | |
| 11,981,175 | | |
| 12,733,885 | |
Lease deposit | |
| | | |
| 78,893 | | |
| 63,708 | |
Construction in progress | |
| | | |
| 111,425 | | |
| 113,566 | |
Investment | |
| 6 | | |
| 216,263 | | |
| 223,801 | |
Total assets | |
| | | |
$ | 15,664,742 | | |
$ | 17,367,927 | |
| |
| | | |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Current | |
| | | |
| | | |
| | |
Accounts payable and accrued liabilities | |
| 7 | | |
$ | 1,716,274 | | |
$ | 1,942,011 | |
Debentures | |
| 8 | | |
| 925,882 | | |
| 4,084,643 | |
Contract liabilities | |
| 9 | | |
| - | | |
| 15,336 | |
Total current liabilities | |
| | | |
| 2,642,156 | | |
| 6,041,990 | |
| |
| | | |
| | | |
| | |
Non-current | |
| | | |
| | | |
| | |
Lease deposit | |
| | | |
| 24,819 | | |
| 25,684 | |
Derivative liabilities | |
| 11 | | |
| 1,630,940 | | |
| 2,690,308 | |
Long term loan | |
| 10 | | |
| 43,837 | | |
| 45,365 | |
Total liabilities | |
| | | |
| 4,341,752 | | |
| 8,803,347 | |
Commitments and contingencies | |
| 15 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | |
Shareholders’ equity | |
| | | |
| | | |
| | |
Common shares, no
par value per share - unlimited
shares authorized; 84,333,892
and 5,841,045 shares issued and outstanding
at June 30, 2024 and December 31, 2023, respectively* | |
| 12 | | |
| 61,085,023 | | |
| 49,828,942 | |
Additional paid-in-capital | |
| | | |
| 2,953,883 | | |
| 3,472,444 | |
Obligation to issue shares | |
| 12 | | |
| 86,432 | | |
| 97,094 | |
Accumulated deficit | |
| | | |
| (52,067,103 | ) | |
| (44,507,304 | ) |
Accumulated other comprehensive loss | |
| | | |
| (735,245 | ) | |
| (326,596 | ) |
Total shareholders’ equity | |
| | | |
| 11,322,990 | | |
| 8,564,580 | |
| |
| | | |
| | | |
| | |
Total liabilities and shareholders’ equity | |
| | | |
$ | 15,664,742 | | |
$ | 17,367,927 | |
The
accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.
AGRIFORCE
GROWING SYSTEMS LTD.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
(Expressed
in US dollars)
| |
| | |
| | |
| | |
| |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
| | |
| | |
| | |
| |
REVENUE | |
| 41,315 | | |
| - | | |
| 41,315 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
COST OF SALES | |
| 33,731 | | |
| - | | |
| 33,731 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 7,584 | | |
| - | | |
| 7,584 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
Wages and salaries | |
$ | 330,616 | | |
$ | 798,926 | | |
$ | 719,220 | | |
$ | 1,714,460 | |
Consulting | |
| 83,281 | | |
| 675,905 | | |
| 186,196 | | |
| 885,020 | |
Professional fees | |
| 159,337 | | |
| 460,984 | | |
| 329,729 | | |
| 748,350 | |
Office and administrative | |
| 285,056 | | |
| 293,768 | | |
| 580,258 | | |
| 629,529 | |
Investor and public relations | |
| 17,366 | | |
| 121,947 | | |
| 42,646 | | |
| 389,865 | |
Depreciation and amortization | |
| 162,941 | | |
| 171,839 | | |
| 329,939 | | |
| 340,599 | |
Share based compensation | |
| 38,782 | | |
| 205,157 | | |
| 64,122 | | |
| 486,648 | |
Sales and marketing | |
| 50,598 | | |
| 61,748 | | |
| 75,826 | | |
| 162,326 | |
Lease expense | |
| 14,406 | | |
| 73,194 | | |
| 58,576 | | |
| 149,274 | |
Travel and entertainment | |
| 3,475 | | |
| 28,481 | | |
| 8,158 | | |
| 101,125 | |
Shareholder and regulatory | |
| 29,485 | | |
| 8,422 | | |
| 85,449 | | |
| 78,817 | |
Research and development | |
| 509 | | |
| 13,235 | | |
| 4,094 | | |
| 49,358 | |
Operating expenses | |
| 1,175,852 | | |
| 2,913,606 | | |
| 2,484,213 | | |
| 5,735,371 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (1,168,268 | ) | |
| (2,913,606 | ) | |
| (2,476,629 | ) | |
| (5,735,371 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER EXPENSES | |
| | | |
| | | |
| | | |
| | |
Accretion of interest on debentures (Note 8) | |
| 838,876 | | |
| 2,107,808 | | |
| 2,203,081 | | |
| 3,980,278 | |
Loss on conversion of convertible debt (Note 8) | |
| 1,119,750 | | |
| 13,902 | | |
| 1,392,482 | | |
| 433,605 | |
Loss on debt extinguishment (Note 8) | |
| 1,887,936 | | |
| - | | |
| 2,298,369 | | |
| - | |
Change in fair value of derivative liabilities (Note 11) | |
| (716,695 | ) | |
| (2,458,993 | ) | |
| (692,926 | ) | |
| (5,833,025 | ) |
Foreign exchange gain | |
| (32,121 | ) | |
| (33,409 | ) | |
| (86,752 | ) | |
| (26,789 | ) |
Other loss | |
| - | | |
| - | | |
| 4,252 | | |
| - | |
Write-off of inventory | |
| - | | |
| - | | |
| 38,470 | | |
| - | |
Write-off of deposit (Note 3) | |
| - | | |
| - | | |
| - | | |
| 12,000 | |
Other income | |
| (33,915 | ) | |
| (15,942 | | |
| (73,806 | ) | |
| (54,415 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (4,232,099 | ) | |
$ | (2,526,972 | ) | |
$ | (7,559,799 | ) | |
$ | (4,247,025 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income (loss) | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation | |
| (128,744 | ) | |
| 196,119 | | |
| (408,649 | ) | |
| 311,005 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss attributable to common shareholders | |
$ | (4,360,843 | ) | |
$ | (2,330,853 | ) | |
$ | (7,968,448 | ) | |
$ | (3,936,020 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss attributed to common share | |
$ | (0.09 | ) | |
$ | (5.06 | ) | |
$ | (0.32 | ) | |
$ | (8.72 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding – basic and diluted* | |
| 45,875,887 | | |
| 499,461 | | |
| 23,415,625 | | |
| 487,085 | |
The
accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.
AGRIFORCE
GROWING SYSTEMS LTD.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
(Expressed
in US dollars, except share numbers)
For
the three and six months ended June 30, 2024 and 2023
| |
#
of
Shares* | | |
Amount | | |
paid-in-
capital | | |
to
issue
shares | | |
Accumulated
deficit | | |
comprehensive
income | | |
shareholders’
equity | |
| |
For
the three months ended June 30 | | |
| |
| |
Common shares | | |
Additional | | |
Obligation | | |
| | |
Accumulated other | | |
Total | |
| |
#
of
Shares* | | |
Amount | | |
paid-in-
capital | | |
to
issue
shares | | |
Accumulated
deficit | | |
comprehensive
income | | |
shareholders’
equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, April 1, 2024 | |
| 22,573,938 | | |
$ | 53,880,259 | | |
$ | 3,456,475 | | |
$ | 44,214 | | |
$ | (47,835,004 | ) | |
$ | (606,501 | ) | |
$ | 8,939,443 | |
Shares issued for conversion of convertible debt | |
| 61,505,497 | | |
| 6,651,170 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,651,170 | |
Shares issued for compensation | |
| 232,368 | | |
| 20,541 | | |
| - | | |
| 42,218 | | |
| - | | |
| - | | |
| 62,759 | |
Shares issued for consulting services | |
| 15,664 | | |
| 2,624 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,624 | |
Shares issued on conversion of vested prefunded warrants | |
| 6,425 | | |
| 530,429 | | |
| (530,429 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
Share based compensation | |
| - | | |
| - | | |
| 27,837 | | |
| - | | |
| - | | |
| - | | |
| 27,837 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,232,099 | ) | |
| - | | |
| (4,232,099 | ) |
Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (128,744 | ) | |
| (128,744 | ) |
Balance, June 30, 2024 | |
| 84,333,892 | | |
$ | 61,085,023 | | |
$ | 2,953,883 | | |
$ | 86,432 | | |
$ | (52,067,103 | ) | |
$ | (735,245 | ) | |
$ | 11,322,990 | |
| |
| For the six months
ended June 30 | | |
| | |
Balance, January 1, 2024 | |
| 5,841,045 | | |
$ | 49,828,942 | | |
$ | 3,472,444 | | |
$ | 97,094 | | |
$ | (44,507,304 | ) | |
$ | (326,596 | ) | |
$ | 8,564,580 | |
Shares issued for conversion of convertible debt | |
| 77,999,099 | | |
| 10,624,607 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 10,624,607 | |
Shares issued for compensation | |
| 345,013 | | |
| 73,421 | | |
| - | | |
| (10,662 | ) | |
| - | | |
| - | | |
| 62,759 | |
Shares issued for consulting services | |
| 142,310 | | |
| 27,624 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 27,624 | |
Shares issued on conversion of vested prefunded warrants | |
| 6,425 | | |
| 530,429 | | |
| (530,429 | ) | |
| | | |
| | | |
| | | |
| - | |
Share based compensation | |
| - | | |
| - | | |
| 11,868 | | |
| - | | |
| - | | |
| - | | |
| 11,868 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (7,559,799 | ) | |
| - | | |
| (7,559,799 | ) |
Foreign currency translation | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| (408,649 | ) | |
| (408,649 | ) |
Balance, June 30, 2024 | |
| 84,333,892 | | |
$ | 61,085,023 | | |
$ | 2,953,883 | | |
$ | 86,432 | | |
$ | (52,067,103 | ) | |
$ | (735,245 | ) | |
$ | 11,322,990 | |
| |
#
of
Shares* | | |
Amount | | |
paid-in-
capital | | |
to
issue
shares | | |
Accumulated
deficit | | |
comprehensive
income | | |
shareholders’
equity | |
| |
For
the three months ended June 30 | | |
| |
| |
Common shares | | |
Additional | | |
Obligation | | |
| | |
Accumulated other | | |
Total | |
| |
#
of
Shares* | | |
Amount | | |
paid-in-
capital | | |
to
issue
shares | | |
Accumulated
deficit | | |
comprehensive
income | | |
shareholders’
equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, April 1, 2023 | |
| 366,291 | | |
$ | 31,283,690 | | |
$ | 11,947,606 | | |
$ | - | | |
$ | (34,494,147 | ) | |
$ | (527,824 | ) | |
$ | 8,209,325 | |
Shares issued for conversion of convertible debt | |
| 36,111 | | |
| 695,128 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 695,128 | |
Shares issued for compensation | |
| - | | |
| - | | |
| - | | |
| 97,837 | | |
| - | | |
| - | | |
| 97,837 | |
Shares issued for cash, net of issuance costs | |
| 21,475 | | |
| 299,599 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 299,599 | |
Shares issued in private placement | |
| 20,000 | | |
| 204,880 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 204,880 | |
Shares issued for consulting services | |
| 250 | | |
| 26,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 26,000 | |
Shares issued on conversion of vested prefunded warrants | |
| 10,208 | | |
| 576,770 | | |
| (576,770 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
Share based compensation | |
| - | | |
| - | | |
| 107,320 | | |
| - | | |
| - | | |
| - | | |
| 107,320 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,526,972 | ) | |
| - | | |
| (2,526,972 | ) |
Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 196,119 | | |
| 196,119 | |
Balance, June 30, 2023 | |
| 454,335 | | |
$ | 33,086,067 | | |
$ | 11,478,156 | | |
$ | 97,837 | | |
$ | (37,021,119 | ) | |
$ | (331,705 | ) | |
$ | 7,309,236 | |
| |
| For the six months
ended June 30 | | |
| | |
Balance, January 1, 2023 | |
| 315,916 | | |
$ | 27,142,762 | | |
$ | 16,816,695 | | |
$ | - | | |
$ | (32,774,094 | ) | |
$ | (642,710 | ) | |
$ | 10,542,653 | |
Balance | |
| 315,916 | | |
$ | 27,142,762 | | |
$ | 16,816,695 | | |
$ | - | | |
$ | (32,774,094 | ) | |
$ | (642,710 | ) | |
$ | 10,542,653 | |
Shares issued for conversion of convertible debt | |
| 50,327 | | |
| 1,743,701 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,743,701 | |
Shares issued for compensation | |
| 3,118 | | |
| 105,512 | | |
| - | | |
| 97,837 | | |
| - | | |
| - | | |
| 203,349 | |
Shares issued for cash, net of issuance costs | |
| 21,475 | | |
| 299,599 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 299,599 | |
Shares issued in private placement | |
| 20,000 | | |
| 204,880 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 204,880 | |
Shares issued for consulting services | |
| 550 | | |
| 53,735 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 53,735 | |
Shares issued on conversion of vested prefunded
warrants | |
| 42,949 | | |
| 3,535,878 | | |
| (3,535,878 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
Cancelled prefunded warrants | |
| - | | |
| - | | |
| (2,085,960 | ) | |
| - | | |
| - | | |
| - | | |
| (2,085,960 | |
Share based compensation | |
| - | | |
| - | | |
| 283,299 | | |
| - | | |
| - | | |
| - | | |
| 283,299 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,247,025 | ) | |
| - | | |
| (4,247,025 | |
Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 311,005 | | |
| 311,005 | |
Balance, June 30, 2023 | |
| 454,335 | | |
$ | 33,086,067 | | |
$ | 11,478,156 | | |
$ | 97,837 | | |
$ | (37,021,119 | ) | |
$ | (331,705 | ) | |
$ | 7,309,236 | |
Balance | |
| 454,335 | | |
$ | 33,086,067 | | |
$ | 11,478,156 | | |
$ | 97,837 | | |
$ | (37,021,119 | ) | |
$ | (331,705 | ) | |
$ | 7,309,236 | |
The
accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.
AGRIFORCE
GROWING SYSTEMS LTD.
CONDENSED
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Unaudited)
(Expressed
in US Dollars)
| |
| | |
| | |
| |
| |
| | |
For
the six months ended June 30, | |
| |
Note | | |
2024 | | |
2023 | |
| |
| | |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | | |
| | |
Net loss for the period | |
| | | |
$ | (7,559,799 | ) | |
$ | (4,247,025 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| | | |
| 329,939 | | |
| 340,599 | |
Share based compensation | |
| | | |
| 11,868 | | |
| 283,299 | |
Shares issued for consulting services | |
| | | |
| 27,624 | | |
| 53,735 | |
Shares issued for compensation | |
| | | |
| 62,759 | | |
| 105,512 | |
Amortization of debt issuance costs | |
| | | |
| 2,149,678 | | |
| 3,808,460 | |
Change in fair value of derivative liabilities | |
| 11 | | |
| (692,926 | ) | |
| (5,833,025 | ) |
Loss on debt conversion | |
| 8 | | |
| 1,392,482 | | |
| 433,605 | |
Loss on debt extinguishment | |
| 8 | | |
| 2,298,369 | | |
| - | |
Loss on disposal of fixed assets | |
| | | |
| 4,252 | | |
| - | |
Write-off of deposit | |
| | | |
| - | | |
| 12,000 | |
Obligation to issue shares | |
| | | |
| - | | |
| 97,837 | |
Changes in operating assets and liabilities: | |
| | | |
| | | |
| | |
Accounts receivable | |
| | | |
| (8,479 | ) | |
| - | |
Other receivables | |
| | | |
| 5,652 | | |
| (12,857 | ) |
Prepaid expenses and other current assets | |
| | | |
| (24,737 | ) | |
| 388,318 | |
Inventories | |
| | | |
| 34,236 | | |
| - | |
Advance | |
| | | |
| - | | |
| (225,000 | ) |
Accounts payable and accrued liabilities | |
| | | |
| (225,737 | ) | |
| 446,943 | |
Lease deposit asset | |
| | | |
| (18,382 | ) | |
| - | |
Contract liabilities | |
| | | |
| (15,336 | ) | |
| - | |
Right-of-use asset | |
| | | |
| - | | |
| 57,428 | |
Lease liabilities | |
| | | |
| - | | |
| (49,825 | ) |
Net cash used in operating activities | |
| | | |
| (2,228,537 | ) | |
| (4,339,996 | ) |
| |
| | | |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | | |
| | |
Proceeds from common shares issued for cash | |
| | | |
| - | | |
| 565,741 | |
Share issuance costs paid | |
| | | |
| - | | |
| (16,142 | ) |
Proceeds from debentures – net of discount | |
| 8 | | |
| 2,250,000 | | |
| 4,615,385 | |
Repayment of convertible debentures | |
| 8 | | |
| (802,282 | ) | |
| (1,741,950 | ) |
Financing costs of debentures | |
| 8 | | |
| (84,463 | ) | |
| (325,962 | ) |
Net cash provided by financing activities | |
| | | |
| 1,363,255 | | |
| 3,097,072 | |
| |
| | | |
| | | |
| | |
Effect of exchange rate changes on cash and cash equivalent | |
| | | |
| (75,800 | ) | |
| (21,056 | ) |
Change in cash | |
| | | |
| (941,082 | ) | |
| (1,263,980 | ) |
Cash, beginning of period | |
| | | |
| 3,878,578 | | |
| 2,269,320 | |
Cash, end of period | |
| | | |
$ | 2,937,496 | | |
$ | 1,005,340 | |
| |
| | | |
| | | |
| | |
Supplemental cash flow information: | |
| | | |
| | | |
| | |
Cash paid during the period for interest | |
| | | |
$ | 53,403 | | |
$ | 171,818 | |
| |
| | | |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing transactions | |
| | | |
| | | |
| | |
Initial fair value of debenture warrants (“Fifth Tranche Warrants”) | |
| | | |
$ | 564,000 | | |
| - | |
Initial fair value of conversion feature of debentures (“Fifth Tranche Debentures”) | |
| | | |
$ | 359,000 | | |
| - | |
Initial fair value of debenture warrants (“Sixth Tranche Warrants”) | |
| | | |
$ | 242,000 | | |
| - | |
Initial fair value of conversion feature of debentures (“Six Tranche Debentures”) | |
| | | |
$ | 198,000 | | |
| - | |
Initial fair value of debenture warrants (“Seventh Tranche Warrants”) | |
| | | |
$ | 369,000 | | |
| - | |
Initial fair value of conversion feature of debentures (“Seventh Tranche Debentures”) | |
| | | |
$ | 297,000 | | |
| - | |
Shares issued for conversion of convertible debt | |
| | | |
$ | 10,624,607 | | |
$ | 1,743,701 | |
Reclassified accrued construction in progress fees | |
| | | |
$ | - | | |
$ | 39,875 | |
The
accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.
NOTES
TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For
the six months ended June 30, 2024 and 2023 (unaudited)
(Expressed
in US Dollars, except where noted)
1.
NATURE OF OPERATIONS AND BASIS OF PREPARATION
Business
Overview
AgriFORCE
Growing Systems Ltd. (“AgriFORCE™” or the “Company”) was incorporated as a private company by Articles
of Incorporation issued pursuant to the provisions of the Business Corporations Act (British Columbia) on December 22, 2017. The
Company’s registered and records office address is at 800 – 525 West 8th Avenue, Vancouver, British Columbia,
Canada, V5Z 1C6.
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 through our AgriFORCE™
Solutions division (“Solutions”) and delivers nutritious food products through our AgriFORCE™ Brands division (“Brands”).
During 2023, the Company launched its UN(THINK) Awakened Flour™ flour, which is a nutritious flour that provides many health advantages
over traditional flour.
Solutions
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 (“FORCEGH+™”).
The Company has designed FORCEGH+™ facilities 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.
The Company also has a global license to sell and distribute hydroxyl devices. During 2023, the Company completed sales and deliveries
of its hydroxyl devices.
Brands
is focused on the development and commercialization of plant-based ingredients and products that deliver healthier and more nutritious
solutions. We will market and commercialize both branded consumer product offerings and ingredient supply.
Basis
of Presentation
The
accompanying Unaudited Condensed Consolidated Interim Financial Statements and related financial information of AgriFORCE Growing Systems
Ltd. should be read in conjunction with the audited financial statements and the related notes thereto for the years ended December 31,
2023 and 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”)
on April 1, 2024. These unaudited interim financial statements have been prepared in accordance with the rules and regulations of the
United States Securities and SEC for interim financial information. Accordingly, they do not include all of the information and footnotes
required by the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial
statements.
In
the opinion of management, the accompanying interim financial statements contain all adjustments which are necessary to state fairly
the Company’s financial position as of June 30, 2024 and December 31, 2023, and the results of its operations and cash flows during
the six months ended June 30, 2024 and 2023. Such adjustments are of a normal and recurring nature. The results for the six months ended
June 30, 2024 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2024, or for
any future period.
Liquidity
and Management’s Plan
The
Company has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for
the foreseeable future. As reflected in the interim financial statements for the six months ended June 30, 2024, the Company had a net
loss of $7.6 million, $2.2 million of net cash used in operating activities, and the Company had working capital of $0.6 million.
On
June 24, 2024, the Company received a Staff Listing Determination Letter from Nasdaq pursuant to which the Staff has determined that
as of June 21, 2024, the Company’s common shares had a per share closing bid price of $0.10 or less for ten consecutive trading
days (the Company’s bid price has closed at or below $0.10 per share from June 6, 2024, through June 21, 2024). Nasdaq has granted
the Company an exception to comply with the bid price rule as follows:
|
1. |
On
or before August 1, 2024, the Company shall obtain Board of Directors approval for a reverse stock split, which was received as of
that date; |
|
2. |
On
or before September 30, 2024, the Company shall obtain shareholders approval for a reverse stock split at a ratio that satisfies
the minimum requirement in the Bid Price Rule; |
|
3. |
On
or before October 9, 2024, the Company shall effect a reverse stock split and, thereafter, maintain a $1 closing bid price for a
minimum of ten consecutive business days; |
|
4. |
On
or before October 22, 2024, the Company shall have demonstrated compliance with the Bid Price Rule, by evidencing a closing bid price
of $1 or more per share for a minimum of ten consecutive trading sessions. |
The
accompanying interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The interim financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result
from the outcome of this uncertainty. The Company is at the development stage of its business plan. As such it is likely that additional
financing will be needed by the Company to fund its operations and to develop and commercialize its technology. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. For the next twelve months from issuance of these interim financial
statements, the Company will seek to obtain additional capital through the sale of debt or equity financings or other arrangements to
fund operations; however, there can be no assurance that the Company will be able to raise needed capital under acceptable terms, if
at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences
compared to our currently outstanding common shares. If the Company is unable to obtain such additional financing, future operations
would need to be scaled back or discontinued. Due to the uncertainty in the Company’s ability to raise capital, management believes
that there is substantial doubt in the Company’s ability to continue as a going concern for twelve months from the issuance of
these interim financial statements.
Reverse
Stock Split
On
October 11, 2023, the Company executed a one-for-fifty reverse stock split of the Company’s common shares (the “Reverse Split”).
As a result of the Reverse Split, every 50 shares of the Company’s old common shares were converted into one share of the Company’s
new common shares. Fractional shares resulting from the reverse split were rounded up to the nearest whole number. The Reverse Split
automatically and proportionately adjusted all issued and outstanding shares of the Company’s common shares, as well as convertible
debentures, convertible features, prefunded warrants, stock options and warrants outstanding at the time of the date of the Reverse Split.
The exercise price on outstanding equity based-grants was proportionately increased, while the number of shares available under the Company’s
equity-based plans was proportionately reduced. Share and per share data (except par value) for the periods presented reflect the effects
of the Reverse Split. References to numbers of common shares and per share data in the accompanying financial statements and notes thereto
for periods ended prior to October 11, 2023 have been adjusted to reflect the Reverse Split on a retroactive basis.
2.
SIGNIFICANT ACCOUNTING POLICIES
Recent
Accounting Pronouncements
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, as modified
by the Jumpstart Our Business Start-ups Act of 2012, (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging
growth company can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934,
as amended, for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth
company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
In
November 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 820): Improvements to Reportable Segment Disclosures.”
ASU 2023-07 provides guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant
segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023. We are currently assessing the impact
this guidance will have on our financial statements.
In
December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09
requires companies to provide enhanced rate reconciliation disclosures, including disclosure of specific categories and additional information
for reconciling items. The standard also requires companies to disaggregate income taxes paid by federal, state and foreign taxes. ASU
2023-09 is effective for fiscal years beginning after December 15, 2024. We are currently assessing the impact this guidance will have
on our financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Inventories
Inventories
consist of finished goods of milled flour and related packaging material recorded at the lower of cost or net realizable value with the
cost measured using the average cost method. Inventories includes all costs that relate to bringing the inventory to its present
condition and location under normal operating conditions.
Revenue
Recognition
Product
revenue was limited to sales from hydroxyl generators and will expand to include sales of our UN(THINK)
Foods products in 2024. We recognize product revenue when we satisfy performance obligations by transferring control of the promised
products or services to customers. Product revenue is recognized at a point in time when control of the promised good or service is transferred
to the customer, which is at the point of shipment or delivery of the goods.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815, Derivatives
and Hedging (“ASC 815”), which provides that if three criteria are met, the Company is required to bifurcate conversion options
from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances
in which;
(a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics
and risks of the host contract;
(b)
the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under
otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur; and
(c)
a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
ASC
815 also provides an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards
as “The Meaning of Conventional Convertible Debt Instrument.”. Accordingly, the Company records, when necessary, discounts
to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the
fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded
in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption.
The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based
upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective
conversion price embedded in the note. ASC 815 provides that, among other things, generally, if an event is not within the entity’s
control or could require net cash settlement, then the contract shall be classified as an asset or a liability.
Foreign
Currency Transactions
The
financial statements of the Company and its subsidiaries whose functional currencies are the local currencies are translated into USD
for consolidation as follows: assets and liabilities at the exchange rate as of the balance sheet date, shareholders’ equity at
the historical rates of exchange, and income and expense amounts at the average exchange rate for the period. Translation adjustments
resulting from the translation of the subsidiaries’ accounts are included in “Accumulated other comprehensive income”
as equity in the consolidated balance sheets. Transactions denominated in currencies other than the applicable functional currency are
converted to the functional currency at the exchange rate on the transaction date. At period end, monetary assets and liabilities are
remeasured to the reporting currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are
remeasured at historical exchange rates. Gains and losses resulting from foreign currency transactions are included within non-operating
expenses.
Definite
Lived Intangible Asset
Definite
lived intangible asset consists of a granted patent. Amortization is computed using the straight-line method over the estimated useful
life of the asset. The estimated useful life of the granted patent is 20 years and the patent was available for use starting January
2023.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which
identifiable independent cash flows are available (“asset group”). An impairment loss is recognized when the sum of projected
undiscounted cash flows is less than the carrying value of the asset group. The measurement of the impairment loss to be recognized is
based on the difference between the fair value and the carrying value of the asset group. Fair value can be determined using a market
approach, income approach or cost approach. The reversal of impairment losses is prohibited.
Loss
per 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. The number of common shares used in the loss per shares calculation includes all outstanding common shares plus all common
shares issuable for which there are no conditions to issue other than time. 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.
Fair
Value Accounting
The
fair value of the Company’s accounts receivable, accounts payable and other current liabilities approximate their carrying amounts
due to the relatively short maturities of these items.
As
part of the issuance of debentures on June 30, 2022, January 17, 2023, October 18, 2023, November 30, 2023, February 21, 2024, April
11, 2024 and May 22, 2024 as well as the private placement on June 20, 2023, the Company issued warrants having strike price denominated
in USD. 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 at the end of each reporting period. 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. |
Reclassifications
The
Company has reclassified certain share base payment expenses from Wages and salaries to Share based compensation in the
2023 consolidated statements of comprehensive loss to align with the 2024 presentation.
3.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| |
June
30, 2024 | | |
December 31, 2023 | |
Legal retainer | |
| 31,547 | | |
| 8,039 | |
Prepaid expenses | |
| 136,157 | | |
| 223,624 | |
Inventory advances | |
| 110,918 | | |
| 30,654 | |
Others | |
| 18,987 | | |
| 10,555 | |
Prepaid expenses, other
current assets | |
$ | 297,609 | | |
$ | 272,872 | |
During
the six months ended June 30, 2023, the Company wrote off a non-refundable deposit amounting to $12,000 which was related to a land purchase agreement.
4.
INVENTORIES
As
at June 30, 2024, the Company had $4,621 (December 31, 2023 – $38,857) in finished goods.
5.
INTANGIBLE ASSET
Intangible
asset represents $11,981,175 (December 31, 2023 - $12,733,885) for intellectual property (“Manna IP”) acquired under an asset
purchase agreement with Manna Nutritional Group, LLC (“Manna”) dated September 10, 2021. The Manna IP encompasses patented
technologies to naturally process and convert grains, pulses, and root vegetables, into 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 Company paid
$1,475,000 in cash and issued 147,600 prefunded warrants valued at $12,106,677 (the “Purchase Price”). Subject to a 9.99%
stopper and SEC Rule 144 restrictions, the prefunded warrants will vest in tranches up until March 10, 2024 (all tranches have fully
vested). When vested the tranches of prefunded warrants are convertible into an equal number of common shares.
On
January 3, 2023, Manna satisfied all of its contractual obligations when the patent was approved by the US Patent and Trademark Office
and the title was transferred to the Company. During the year ended December 31, 2023, the Company issued 141,175 shares in relation
to this transaction. As at June 30, 2024 all prefunded warrants had been converted (December 31, 2023 - 6,425 unconverted prefunded warrants).
Based
on the terms above and in conformity with US GAAP, the Company accounted for purchase as an asset acquisition. The asset was available
for use on January 3, 2023. The asset has a useful life of 20 years. The Company recorded $326,242 in amortization expense related to
the Manna IP for the six months ended June 30, 2024 (June 30, 2023 - $334,748).
The
estimated annual amortization expense for the next five years are as follows:
SCHEDULE
OF FUTURE AMORTIZATION EXPENSE
Period ending: | |
Amount | |
Remaining 2024 | |
$ | 323,816 | |
2025 | |
| 647,631 | |
2026 | |
| 647,631 | |
2027 | |
| 647,631 | |
2028 | |
| 647,631 | |
2029 | |
| 647,631 | |
Thereafter | |
| 8,419,204 | |
Total | |
$ | 11,981,175 | |
6.
INVESTMENT
On
June 18, 2023, the Company signed a memorandum of understanding with Radical Clean Solutions Ltd. (“RCS”) to purchase common
shares issued by RCS. The Company paid RCS $225,000 for 14% of the issued and outstanding common shares of the Company. Under the terms
of the MOU, the use of proceeds is exclusively for the advance purchase of hydroxyls generating devices for commercial sales into controlled
environment agriculture, food manufacturing, warehousing and transportation verticals. The Company will receive one of five board of
director seats of RCS and has a right of first refusal to maintain an ownership percentage in RCS of not less than 10% of the total issued
and outstanding common shares. On October 1, 2023 the Company and RCS signed a definitive agreement to convert the advance into a 14%
ownership investment in RCS.
As
at June 30, 2024, the carrying value of the investment in RCS was $216,263 (December 31, 2023 - $223,801) adjusted for foreign exchange
differences of $8,737 (December 31, 2023 - $1,199). As at June 30, 2024, the Company assessed the investment for the presence of the
following impairment indications:
● |
A
significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee |
|
|
● |
A
significant adverse change in the regulatory, economic, or technological environment of the investee |
|
|
● |
A
significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates |
|
|
● |
A
bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment
for an amount less than the carrying amount of that investment |
|
|
● |
Factors
that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from
operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants. |
None
of the above qualitative factors demonstrating potential impairment were present.
7.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| |
June 30, 2024 | | |
December
31, 2023 | |
Accounts payable | |
$ | 409,147 | | |
$ | 578,128 | |
Accrued expenses | |
| 875,401 | | |
| 868,451 | |
Others | |
| 431,726 | | |
| 495,432 | |
Accounts payable and
accrued liabilities | |
$ | 1,716,274 | | |
$ | 1,942,011 | |
8.
DEBENTURES
On
June 30, 2022, the Company executed the definitive agreements (the “Purchase Agreements”) with arm’s length accredited
institutional investors (the “Investors”) for $14,025,000 in debentures with a 10% original issue discount for gross proceeds
of $12,750,000 (“First Tranche Debentures”). The First Tranche Debentures were convertible into common shares at $111.00
per share. In addition, the Investors received 82,129 warrants at a strike price of $122.10, which expire on December 31, 2025 (the “First
Tranche Warrants”). The First Tranche Warrants and First Tranche 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 First Tranche Warrants strike
price and the First Tranche Debenture conversion price will be adjusted down to the effective conversion price of the issued equity instruments.
The transaction costs incurred in relation to first tranche were $1,634,894. The Debentures are senior to all other indebtedness or claims
in right of payment, other than indebtedness secured by purchase money security interested.
The
Investors had the right to purchase additional tranches of $5,000,000 each, up to a total additional principal amount of $33,000,000.
On
January 17, 2023, the Investors purchased additional debentures totaling $5,076,923 with a 10% original issue discount for gross proceeds
of $4,615,385 (the “Second Tranche Debenture”). The Second Tranche Debentures were convertible into common shares at $62.00
per share and the Investors received an additional 53,226 warrants at a strike price of $62.00, which expire on December 31, 2025 (the
“Second Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise
prices of the First Tranche Debentures and the First Tranche Warrants to $62.00. The transaction costs incurred in relation to second
tranche were $325,962.
On
June 26, 2023, the Company entered into waiver and amendment agreements (“Debenture Modification Agreements”) with the Investors
to modify terms of the Purchase Agreements. The Debenture Modification Agreements provide as follows:
|
1. |
The
July 1, 2023 interest and principal payments will be settled with the Company’s Common Shares |
|
2. |
The
Conversion Price has been reduced to the lower of $22.50 or the price of subsequent dilutive issuances under the Company’s
ATM program. |
|
3. |
100%
of ATM proceeds up to $1 million USD may be kept by Company, while any dollar amount over this threshold will be distributed 33%
to the Company and 67% to the Investors. |
|
4. |
The
minimum tranche value for Additional Closings has been reduced from $5.0 million to $2.5 million. |
|
5. |
The
Investors have each agreed to raise no objection to one or more private placements of securities by the Company with an aggregate
purchase price of up to $1,000,000 at a purchase price of at least $12.50 per common share and two-year warrant (with a per share
exercise price of $25.00, and no registration rights). |
|
6. |
The
Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Investor; However
the Company must apply the approved or percentage of approved gross proceeds from the sale of its Common Stock from an at-the-market
offering to prepay this Debenture (pro-rated among all Debentures) and shall be permitted to prepay the Debentures notwithstanding
any contrary provision of this Debenture or the Purchase Agreement. |
On
August 9, 2023, the Company entered into another waiver and amendment agreement (“Agreement”) with the Investors with respect
to a certain Senior Convertible Debenture (the “Debentures”) due July 17, 2025 issued by the Company to that Investor. The
Agreement provides as follows:
|
1. |
The
Company wishes to make Monthly Redemptions in shares of the Company’s Common Stock in lieu of cash payments, until further
written notice from the Company to the Purchaser. |
|
2. |
The
Purchaser is willing to accept such shares as payment of the Monthly Redemption Amount provided that the Equity Conditions are met;
and will consider on a case-by-case basis accepting payments in shares of Common Stock if the Equity Conditions are not met, at its
sole discretion. The Company may inquire of the Purchaser at least five (5) Trading Days prior to a Monthly Redemption Date whether
the Purchaser is willing to accept Shares without the Equity Conditions having been met. An email reply from the Purchaser shall
be sufficient evidence of such monthly waiver. |
|
3. |
The
Purchaser will accept the August 1, 2023 Monthly Redemption Amount in shares of Common Stock valued at the August 1 Repayment Price
for such date. |
On
October 18, 2023, the Investors purchased additional debentures totaling $2,750,000 with a 10% original issue discount for gross proceeds
of $2,500,000 (the “Third Tranche Debenture”). The Third Tranche Debentures were convertible into common shares at $2.62
per share and the Investors received an additional 620,230 warrants at a strike price of $2.62, which expire on April 18, 2027 (the “Third
Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise prices of
the First and Second Tranche Debentures and the First and Second Tranche Warrants to $2.62. The transaction costs incurred in relation
to third tranche were $31,915.
On
November 30, 2023, the Investors purchased additional debentures totaling $2,750,000 with a 10% original issue discount for gross proceeds
of $2,500,000 (the “Fourth Tranche Debenture”). The Fourth Tranche Debentures were convertible into common shares at $0.90
per share and the Investors received an additional 1,986,112 warrants at a strike price of $0.90, which expire on May 30, 2027 (the “Fourth
Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise prices of
the First, Second and Third Tranche Debentures and the First, Second and Third Tranche Warrants to $0.90. The transaction costs incurred
in relation to fourth tranche were $30,040.
On
February 21, 2024, the Investors purchased additional debentures totaling $1,100,000 with a 10% original issue discount for gross proceeds
of $1,000,000 (the “Fifth Tranche Debenture”). The Fifth Tranche Debentures were convertible into common shares at $0.214
per share and the Investors received an additional 3,341,122 warrants at a strike price of $0.2354, which expire on August 21, 2027 (the
“Fifth Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise
prices of the First, Second, Third and Fourth Tranche Debentures and the First, Second, Third and Fourth Tranche Warrants to $0.214.
The transaction costs incurred in relation to fifth tranche were $50,000.
On
April 11, 2024, the Investors purchased additional debentures totaling $550,000 with a 10% original issue discount for gross proceeds
of $500,000 (the “Sixth Tranche Debenture”). The Sixth Tranche Debentures were convertible into common shares at $0.163 per
share and the Investors received an additional 2,193,253 warrants at a strike price of $0.18, which expire on October 11, 2027 (the “Sixth
Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise prices of
the First, Second, Third, Fourth and Fifth Tranche Debentures and Warrants to $0.163. The transaction costs incurred in relation to sixth
tranche were $31,309.
On
May 22, 2024, the Investors purchased additional debentures totaling $833,000 with a 10% original issue discount for gross proceeds of
$750,000 (the “Seventh Tranche Debenture”). The Seventh Tranche Debentures were convertible into common shares at $0.10 per
share and the Investors received an additional 5,414,500 warrants at a strike price of $0.11, which expire on November 22, 2027 (the
“Fifth Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise
prices of the First, Second, Third, Fourth, Fifth and Sixth Tranche Debentures and the First, Second, Third, Fourth, Fifth and Sixth
Tranche Warrants to $0.10. The transaction costs incurred in relation to seventh tranche were $3,154. On June 17, 2024, the Investors
converted the full principal balance of the Seventh Tranche Debenture which resulted in an extinguishment of the existing debt (see below).
The
First, Second, Third, Fourth, Fifth, Sixth and Seventh Tranche Debentures (the “Debentures”) have an interest rate of 5%
for the first 12 months, 6% for the subsequent 12 months, and 8% per annum thereafter. Principal repayments will be made in 25 equal
installments which began on September 1, 2022 for the First Tranche Debentures, July 1, 2023 for the Second Tranche Debentures, January
1, 2024 for the Third Tranche Debentures, May 1, 2024 for the Fourth Tranche Debentures, August 1, 2024 for the Fifth Tranche Debentures,
October 1, 2024 for the Sixth Tranche Debentures and November 1, 2024 for the Seventh Tranche Debentures. The Debentures may be extended
by nine months at the election of the Company by paying a sum equal to nine months’ interest on the principal amount outstanding at the
end of the 18th month, at the rate of 8% per annum.
The
following table summarizes our outstanding debentures as of the dates indicated:
SCHEDULE
OF OUTSTANDING DEBENTURES
| |
Maturity | |
Cash
Interest Rate | | |
June
30, 2024 | | |
December
31, 2023 | |
Principal (First Tranche Debentures) | |
12/31/2024 | |
| 5.00% - 8.00 | % | |
$ | 25,000 | | |
$ | 3,029,676 | |
Principal (Second Tranche Debentures) | |
07/17/2025 | |
| 5.00% - 8.00 | % | |
| 25,000 | | |
| 2,940,461 | |
Principal (Third Tranche Debentures) | |
04/18/2026 | |
| 5.00% - 8.00 | % | |
| - | | |
| 2,750,000 | |
Principal (Fourth Tranche Debentures) | |
06/01/2026 | |
| 5.00% - 8.00 | % | |
| 1,698,500 | | |
| 2,750,000 | |
Principal (Fifth Tranche Debentures) | |
08/20/2026 | |
| 5.00% - 8.00 | % | |
| 1,100,000 | | |
| - | |
Principal (Sixth Tranche Debentures) | |
10/10/2026 | |
| 5.00% - 8.00 | % | |
| 300,000 | | |
| - | |
Debentures (gross) | |
10/10/2026 | |
| 5.00% - 8.00 | % | |
| 300,000 | | |
| - | |
Debt issuance costs and discounts (Note 8 & 11) | |
| |
| | | |
| (2,222,618 | ) | |
| (7,385,494 | ) |
Total Debentures (current) | |
| |
| | | |
$ | 925,882 | | |
$ | 4,084,643 | |
During
the six months ended June 30, 2024, the Investors converted $4,534,462 (June 30, 2023 - $1,442,400) of principal and $200,024 (June 30,
2023 - $37,532) of interest into shares of the Company resulting in a $1,392,482 (June 30, 2023 - $433,605) loss on the conversion of
convertible debentures. During the six months ended June 30, 2024, the Company incurred $2,203,081 (June 30, 2023 - $3,980,278) in accretion
interest and made cash repayments of $802,282 (June 30, 2023 - $1,741,950).
During
the six months ended June 30, 2024, the Investors converted $5,467,932 of the First, Second, Third and Seventh Tranche Debentures into
42,513,613 shares of the Company. The conversions were determined to be an extinguishment of the existing debt and issuance of new debt
for the remaining First and Second Tranches. As a result, the Company recorded a loss on debt extinguishment in the amount of $2,298,369.
9.
CONTRACT BALANCES
As
at June 30, 2024, contract balances consisted of $nil advance payments for product sales not yet delivered, which are recognized
as a contract liability (December 31, 2023 - $15,336).
10.
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 $29,225 (CAD$40,000)
(December 31, 2023 - $30,243 (CAD$40,000)) under the Canada Emergency Business Account Program (the “Program”).
The
Program, as set out by the Government of Canada, requires that the funds from this loan shall only be used by the Company to pay non-deferrable
operating expenses including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service,
and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends,
distributions and increases in management compensation.
In
April 2021, the Company applied for an additional loan with Alterna Bank under the Program and received $14,612 (CAD$20,000) (December
31, 2023 - $15,122 (CAD$20,000)). The expansion loan is subject to the original terms and conditions of the Program.
The
loan was interest free for an initial term that ended on January 18, 2024. Any outstanding loan after initial term carries an interest
rate of 5% per annum, payable monthly during the extended term i.e. January 19, 2024 to December 31, 2025. The loan is due December 31,
2026.
The
balance as at June 30, 2024 was $43,837 (CAD $60,000) (December 31, 2023 was $45,365 (CAD $60,000)).
11.
DERIVATIVE LIABILITIES
Warrant
Liabilities
As
at June 30, 2024, the Warrant Liabilities represent aggregate fair value of publicly traded 61,765 Series A warrants (“IPO Warrants”),
2,721 representative’s warrants (“Rep Warrants”), 20,000 warrants issued in a private placement (“Private Placement
Warrants”), 82,129 First Tranche Warrants, 53,226 Second Tranche Warrants, 620,230 Third Tranche Warrants, 1,986,112 Fourth Tranche
Warrants, 3,341,122 Fifth Tranche Warrants, 2,193,253 Sixth Tranche Warrants and 5,414,500 Seventh Tranche Warrants (“Debenture
Warrants”).
The
fair value of the IPO Warrants, Rep Warrants and Private Placement Warrants amounted to $31,940 (December 31, 2023 - $11,308). As at
June 30, 2024 the Company utilized the Black-Scholes option-pricing model for the IPO Warrants, Rep Warrants and Private Placement Warrants
and used the following assumptions: stock price $0.088 (December 31, 2023 - $0.47), dividend yield – nil (December 31, 2023 –
nil), expected volatility 91% to 183% (December 31, 2023 – 105% to 117%), risk free rate of return 3.83% to 3.99% (December 31,
2023 – 3.67% to 3.88%), and expected term of 1 to 3 years (December 31, 2023 – expected term of 1.50 to 3 years).
As
at June 30, 2024 the First Tranche Warrants had a fair value that amounted to $4,000 (December 31, 2023 - $24,000). As at June 30, 2024
the Company utilized the Monte Carlo option-pricing model to value the First Tranche Warrants using the following assumptions: stock
price $0.088 (December 31, 2023 - $0.47), dividend yield – nil (December 31, 2023 – nil), expected volatility 110.0% (December
31, 2023 – 100.0%), risk free rate of return 4.90% (December 31, 2023 – 4.23%), and expected term of 1.50 years (December
31, 2023 – expected term of 2 years).
As
at June 30, 2024 the Second Tranche Warrants had a fair value that amounted to $3,000 (December 31, 2023 - $15,000). As at June 30, 2024
the Company utilized the Monte Carlo option-pricing model to value the Second Tranche Warrants using the following assumptions: stock
price $0.088 (December 31, 2023 - $0.47), dividend yield – nil (December 31, 2023 – nil), expected volatility 105.0% (December
31, 2023 – 105.0%), risk free rate of return 4.71% (December 31, 2023 – 4.12%), and expected term of 2.05 years (December
31, 2023 – expected term of 2.55 years).
As
at June 30, 2024 the Third Tranche Warrants had a fair value that amounted to $32,000 (December 31, 2023 - $192,000). As at June 30,
2024 the Company utilized the Monte Carlo option-pricing model to value the Third Tranche Warrants using the following assumptions: stock
price $0.088 (December 31, 2023 - $0.47), dividend yield – nil (December 31, 2023 – nil), expected volatility 85.0% (December
31, 2023 – 107.5%), risk free rate of return 4.56% (December 31, 2023 – 3.98%), and expected term of 2.80 years (December
31, 2023 – expected term of 3.30 years).
As
at June 30, 2024 the Fourth Tranche Warrants had a fair value that amounted to $107,000 (December 31, 2023 - $724,000). As at June 30,
2024 the Company utilized the Monte Carlo option-pricing model to value the Fourth Tranche Warrants using the following assumptions:
stock price $0.088 (December 31, 2023 - $0.47), dividend yield – nil (December 31, 2023 – nil), expected volatility 85.0%
(December 31, 2023 – 107.5%), risk free rate of return 4.54% (December 31, 2023 – 3.97%), and expected term of 2.92 years
(December 31, 2023 – expected term of 3.42 years).
As
at June 30, 2024 the Fifth Tranche Warrants had a fair value that amounted to $191,000 (February 21, 2024 - $564,000). As at June 30,
2024 the Company utilized the Monte Carlo option-pricing model to value the Fifth Tranche Warrants using the following assumptions: stock
price $0.088 (February 21, 2024 - $0.21), dividend yield – nil (February 21, 2024 – nil), expected volatility 85.0% (February
21, 2024 – 105.0%), risk free rate of return 4.51% (February 21, 2024 – 4.40%), and expected term of 3.14 years (February
21, 2024 – expected term of 3.50 years).
As
at June 30, 2024 the Sixth Tranche Warrants had a fair value that amounted to $117,000 (April 11, 2024 - $242,000). As at June 30, 2024
the Company utilized the Monte Carlo option-pricing model to value the Fifth Tranche Warrants using the following assumptions: stock
price $0.088 (April 11, 2024 – $0.16), dividend yield – nil (April 11, 2024 – nil), expected volatility 85.0% (April
11, 2024 – 95.0%), risk free rate of return 4.49% (April 11, 2024 – 4.73%), and expected term of 3.28 years (April 11, 2024
– expected term of 3.50 years).
As
at June 30, 2024 the Seventh Tranche Warrants had a fair value that amounted to $297,000 (May 22, 2024 - $369,000). As at June 30, 2024
the Company utilized the Monte Carlo option-pricing model to value the Fifth Tranche Warrants using the following assumptions: stock
price $0.088 (May 22, 2024 – $0.10), dividend yield – nil (May 22, 2024 – nil), expected volatility 85.0% (May 22,
2024 – 95.0%), risk free rate of return 4.48% (May 22, 2024 – 4.60%), and expected term of 3.39 years (May 22, 2024 –
expected term of 3.50 years).
Debenture
Convertible Feature
As
at June 30, 2024 the fair value of the First Tranche Debentures’ convertible feature amounted to $6,000 (December 31, 2023 –
$164,000). The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions:
stock price $0.088 (December 31, 2023 - $0.47), dividend yield – nil (December 31, 2023 – nil), expected volatility 110.0%
(December 31, 2023 – 100.0%), risk free rate of return 5.33% (December 31, 2023 – 5.03%), discount rate 20.25% (December
31, 2023 – 17.50%), and expected term of 0.50 year (December 31, 2023 – 1 year).
As
at June 30, 2024 the fair value of the Second Tranche Debentures’ convertible feature amounted to $5,000 (December 31, 2023 –
$429,000). The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions:
stock price $0.088 (December 31, 2023 – $0.47), dividend yield – nil December 31, 2023 – nil), expected volatility
105.0% (December 31, 2023 – 105.0%), risk free rate of return 5.09% (December 31, 2023 – 4.51%), discount rate 20.00% (December
31, 2023 – 17.50%), and expected term of 1.05 years (December 31, 2023 – 1.55 years).
As
at June 30, 2024 the fair value of the Fourth Tranche Debentures’ convertible feature amounted to $430,000 (December 31, 2023 –
$640,000). The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions:
stock price $0.088 (December 31, 2023 - $0.47), dividend yield – nil (December 31, 2023 – nil), expected volatility 85.0%
(December 31, 2023 – 107.5%), risk free rate of return 4.71% (December 31, 2023 – 4.12%), discount rate 19.75% (December
31, 2023 – 17.25%), and expected term of 1.92 years (December 31, 2023 – 2.42 years).
As
at June 30, 2024 the fair value of the Fifth Tranche Debentures’ convertible feature amounted to $327,000 (February 21, 2024 -
$359,000). The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions:
stock price $0.088 (February 21, 2024 – $0.21), dividend yield – nil (February 21, 2024 – nil), expected volatility
85.0% (February 21, 2024 – 105.0%), risk free rate of return 4.62% (February 21, 2024 – 4.54%), discount rate 19.50% (February
21, 2024 – 16.00%), and expected term of 2.14 years (February 21, 2024 – 2.50 years).
As
at June 30, 2024 the fair value of the Sixth Tranche Debentures’ convertible feature amounted to $80,000 (April 11, 2024 - $198,000).
The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions: stock
price $0.088 (April 11, 2024 – $0.16), dividend yield – nil (April 11, 2024 – nil), expected volatility 85.0% (April
11, 2024 – 95.0%), risk free rate of return 4.62% (April 11, 2024 – 4.85%), discount rate 19.50% (April 11, 2024 –
19.00%), and expected term of 2.28 years (April 11, 2024 – 2.50 years).
On
June 17, 2024, the Investors converted the full principal balance of the Seventh Tranche Debenture which resulted in an extinguishment
of the existing debt and convertible feature. On May 22, 2024 the fair value of the Seventh Tranche Debentures’ convertible featur