NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2022 and 2021
(Expressed
in US Dollars, except where noted)
1. BUSINESS OVERVIEW
AgriFORCE
Growing Systems Ltd. (“AgriFORCE™” of the “Company”) was incorporated as a private company by Articles
of Incorporation issued pursuant to the provisions of the Business Corporations Act (British Columbia) on December 22, 2017.
The Company’s registered and records office address is at 300 – 2233 Columbia Street, Vancouver, British Columbia,
Canada, V5Y 0M6.
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”).
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.
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.
2. BASIS OF PREPARATION
Basis
of Presentation
The
accompanying consolidated financial statements (the “financial statements”) have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”).
The
financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity
and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal
and recurring in nature, necessary for fair financial statement presentation.
Principal
of Consolidation
Our
consolidated financial statements include the accounts of our wholly owned subsidiaries. We consolidate variable interest entities (VIEs)
when we have variable interests and are the primary beneficiary.
All
inter-company balances and transactions have been eliminated on consolidation. These consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries:
SCHEDULE OF CONSOLIDATED FINANCIAL STATEMENTS
Name
of entity: |
|
Country
of Incorporation |
|
Purpose |
|
Date
of Incorporation |
AgriFORCE
Growing Systems Ltd. |
|
Canada |
|
Parent
Company |
|
Dec
22, 2017 |
un(Think)
Food Company Canada Ltd.* |
|
Canada |
|
Food
Product Manufacturing |
|
Dec
4, 2019 |
West
Pender Holdings, Inc. |
|
United
States |
|
Real
Estate Holding and Development Company |
|
Sep
1, 2018 |
AgriFORCE
Investments Inc. |
|
United
States |
|
Holding
Company |
|
Apr
9, 2019 |
West
Pender Management Co. |
|
United
States |
|
Management
Advisory Services |
|
Jul
9, 2019 |
AGI
IP Co. |
|
United
States |
|
Intellectual
Property |
|
Mar
5, 2020 |
un(Think)
Food Company |
|
United
States |
|
Food
Product Manufacturing |
|
June
20, 2022 |
* |
un(Think)
Food Company Canada Ltd. changed its name from Daybreak AG Systems Ltd. on August 19, 2022. |
un(Think) Food Company,
a wholly owned subsidiary commenced operations in 2022 and their results are consolidated into the results of the Company.
Functional
and Reporting Currency
The
functional currency for each entity included in these consolidated financial statements is the currency of the primary economic environment
in which the entity operates. These consolidated financial statements are presented in United States dollars (“U.S. dollars”).
Currency conversion to U.S. dollars is performed in accordance with ASC 830, Foreign Currency Matters.
Use
of Estimates
The preparation of our financial statements in accordance with U.S. generally
accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial
statements and accompanying notes. Significant estimates reflected in these financial statements include, but are not limited to, accounting
for share-based compensation, valuation of derivative liabilities, valuation of embedded conversion feature, going concern, impairment
as well as depreciation method. Actual results could differ from these estimates and those differences could be material.
Going
Concern
The
Company has incurred substantial operating losses since its inception, and expects to continue to incur significant operating losses
for the foreseeable future and may never become profitable. As reflected in the financial statements, the Company had an accumulated
deficit of approximately $32.8 million at December 31, 2022, a net loss of approximately $12.9
million, and approximately $12.1
million of net cash used in operating activities
for the year ended December 31, 2022. The accompanying financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities
that might result from the outcome of this uncertainty. The Company anticipates incurring additional losses until such time, if ever,
that it can obtain marketing approval to sell, and then generate significant sales, of its technology that is currently in development.
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. The Company is
seeking additional financing to support its growth plans. The sale of additional equity may dilute existing shareholders and newly issued
shares may contain senior rights and preferences compared to currently outstanding common shares.
3. SIGNIFICANT ACCOUNTING POLICIES
Cash
The
Company’s cash consists of cash maintained in checking and interest-bearing accounts. The Company accounts for financial instruments
with original maturities of three months or less at the date of purchase as cash equivalents. The Company held no cash equivalents as
of December 31, 2022 and 2021.
Property
and Equipment
Property
and equipment are initially recognized at acquisition cost or manufacturing cost, including any costs directly attributable to bringing
the assets to the location and condition necessary for them to be capable of operating in the manner intended by the Company’s
management. Property, plant and equipment are subsequently measured at cost less accumulated depreciation and impairment losses.
Depreciation
is recognized on a straight-line basis to write down the cost less estimated residual value of computer equipment and furniture and fixtures.
The following useful lives are applied:
SCHEDULE OF ESTIMATED RESIDUAL VALUE OF COMPUTER EQUIPMENT AND FURNITURE AND FIXTURES
Computer
equipment |
|
3
years |
Furniture
and fixtures |
|
7
years |
Leasehold
improvements |
|
Lower
of estimated useful life or remaining lease term |
Gains
or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and
the carrying amount of the assets and are recognized in profit or loss within other income or other expenses.
Construction
in progress includes construction progress payments, deposits, engineering costs, interest expense for debt financing on long-term construction
projects and other costs directly related to the construction of the facilities. Expenditures are capitalized during the construction
period and construction in progress is transferred to the relevant class of property and equipment when the assets are available for
use, at which point the depreciation of the asset commences.
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
lives of the asset. Estimated useful lives of the granted patent is 20 years. Amortization expense is allocated to general and administrative
expense. No amortization expense has been taken on the granted patent as it 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.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815, Derivatives
and Hedging (“ASC 815”), which provides that if three criteria are met, the Company is required to bifurcate conversion options
from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances
in which;
(a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics
and risks of the host contract;
(b)
the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under
otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur; and
(c)
a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
ASC
815 also provides an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards
as “The Meaning of Conventional Convertible Debt Instrument.”
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from
their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion
Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records,
when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon
the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective
conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their
earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded
in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note
transaction and the effective conversion price embedded in the note. ASC 815 provides that, among other things, generally, if an event
is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a
liability.
Leases
The
Company determines at the inception of a contract if the arrangement is or contains a lease. A contract is or contains a lease if the
contract gives the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies
leases at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability on the balance
sheet for all leases with an initial lease term of greater than 12 months. Leases with an initial term of 12 months or less are not recorded
on the balance sheet, but payments are recognized as expense on a straight-line basis over the lease term.
The
Company’s contracts can contain both lease and non-lease components. The non-lease components may include maintenance, utilities,
and other operating costs. The Company combines the lease and non-lease components of fixed costs in its leases as a single lease component.
Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities.
These costs are expensed when the event determining the amount of variable consideration to be paid occurs.
Lease
liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected
lease term. The Company determines the present value of future lease payments by using its estimated secured incremental borrowing rate
for that lease term as the interest rate implicit in the lease is not readily determinable. The Company estimates its incremental borrowing
rate for each lease based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments
over a similar term.
Revenue
Recognition
The
Company has not recorded any revenues since its inception. However, in the future, the Company expects to generate returns from any or
all the revenue sources below from its customers:
● |
Rental
income from facilities |
● |
Sales
revenue from nutritious food products |
● |
Intellectual
property income from the license of the facilities |
● |
Management
and advisory fees from management service contracts |
On
January 1, 2018, the Company early adopted ASU No. 2014-09, Revenue from Contracts with Customers and all related amendments (“ASC
606” or “the new revenue standard”). ASC 606 is a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.
The new revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve this core principle, ASC 606 provides that an entity should apply the following steps: (1) identify the contract(s) with a
customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction
price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The new revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, and costs to obtain or fulfill contracts. The Company will apply ASC 606 prospectively to all contracts.
Loss
per Common Share
The
Company presents basic and diluted loss per share data for its common shares. Basic loss per common share is calculated by dividing the
profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during
the year. 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.
Research
and Development
Expenditure
on research and development activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding,
is recognized as expense when incurred.
Foreign
Currency Transactions
The
financial statements of the Company and its subsidiaries whose functional currencies are the local currencies are translated into U.S.
dollars for consolidation as follows: assets and liabilities at the exchange rate as of the balance sheet date, shareholders’ equity
at the historical rates of exchange, and income and expense amounts at the average exchange rate for the period. Translation adjustments
resulting from the translation of the subsidiaries’ accounts are included in “Accumulated other comprehensive income”
as equity in the consolidated balance sheets. Transactions denominated in currencies other than the applicable functional currency are
converted to the functional currency at the exchange rate on the transaction date. At period end, monetary assets and liabilities are
remeasured to the reporting currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are
remeasured at historical exchange rates. Gains and losses resulting from foreign currency transactions are included within non-operating
expenses.
Fair
value of Financial Instruments
The
fair value of the Company’s accounts receivable, accounts payable and other current liabilities approximate their carrying amounts
due to the relative short maturities of these items.
As
part of the issuance of debentures on March 24, 2021 and June 30, 2022, the Company issued warrants having strike price denominated in
U.S. Dollars. This creates an obligation to issue shares for a price that is not denominated in the Company’s functional currency
and renders the warrants not indexed to the Company’s stock, and therefore, must be classified as a derivative liability and measured
at fair value. On the same basis, the Series A Warrants and the representative warrants issued as part of the IPO are also classified
as a derivative liability and measured at fair value.
The
fair value of the Company’s warrants is determined in accordance with FASB ASC 820, “Fair Value Measurement,” which
establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to price assets or liabilities
that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for fair value measurements requires
that assets and liabilities measured at fair value be classified and disclosed in one of the following categories:
● |
Level
1: Defined as observable inputs, such as quoted (unadjusted) prices in active markets for identical assets or liabilities. |
|
|
● |
Level
2: Defined as observable inputs other than quoted prices included in Level 1. This includes quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
● |
Level
3: Defined as unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant
to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value
measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as
significant management judgment or estimation. |
As
of December 31, 2022, the Company’s warrant liability related to IPO warrants and representative’s warrant amounting to $275,115
(December 31, 2021 - $1,418,964) is reported at fair value and categorized as Level 1 inputs. The fair value of derivative liabilities
related to the Debenture Warrants and Debenture Convertible Feature that were issued during the year amounted to $4,374,000 (December
31, 2021 - $nil) and were categorized as level 3 inputs. The Bridge Warrants that were issued and exercised in the year ended December
31, 2021 were also categorized as level 3 inputs. (See Note 9 and Note 11)
Income
Taxes
Current
tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted at period-end.
Deferred
tax assets, including those arising from tax loss carryforwards, requires management to assess the likelihood that the Company will generate
sufficient taxable earnings in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of
future taxable profits depend on management’s estimates of future cash flows. In addition, future changes in tax laws could limit
the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could
be impacted.
The
Company operates in various tax jurisdictions and is subject to audit by various tax authorities.
The
Company records uncertain tax positions based on a two-step process whereby (1) a determination is made as to whether it is more likely
than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that
meet the more-likely-than-not recognition threshold the Company recognizes the largest amount of tax benefit that is greater than 50%
likely to be realized upon ultimate settlement with the related tax authority. The Company’s policy is to recognize interest and
penalties accrued on any unrecognized tax benefits as a component of income tax expense. Significant judgment is required in the identification
of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions.
There
were no material uncertain tax positions as of December 31, 2022 and 2021.
Share
Based Compensation
The Company generally uses the straight-line method to allocate compensation
cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the
fair value of stock-based awards to employees and directors using the Black-Scholes option-valuation model (the “Black-Scholes model”).
. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying
common stock, expected option life, and expected volatility in the market value of the underlying common stock. The Company recognizes
any forfeitures as they occur.
Recent
Accounting Pronouncements
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, as modified
by the Jumpstart Our Business Start-ups Act of 2012, (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging
growth company can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934,
as amended, for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth
company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on balance sheet and disclose
key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient
for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.
The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability
on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification
affecting the pattern and classification of expense recognition in the income statement.
The
Company adopted ASC 842 as of January 1, 2022 using the optional transition method to apply the standard as of the effective date. Accordingly,
previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new
standard to all comparative periods presented.
The
new standard also provides practical expedients for an entity’s ongoing accounting as a lessee. The Company elected to utilize
the practical expedient to not separate lease and non-lease components for its existing lease. The Company has also elected not to present
short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do
not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other lease assets and lease liabilities
are recognized based on the present value of lease payments over the lease term at commencement date. Because the Company’s lease
does not provide an implicit rate of return, it used its incremental borrowing rate based on the information available at adoption date
in determining the present value of lease payments.
Adoption
of the new lease standard on January 1, 2022 had a material impact on the Company’s consolidated financial statements. The most
significant impacts related to the recognition of ROU assets of $1,776,599 and lease liabilities of $1,837,782 for operating leases on
the consolidated balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease
liabilities represent the Company’s obligation to make lease payments arising from the lease. The standard did not materially impact
the Company’s consolidated statements of comprehensive loss and consolidated statement of cash flows.
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. ASC 2020-06 is effective for emerging growth companies for fiscal years beginning after December 15, 2023. We are currently
assessing the impact this guidance will have on our financial statements.
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses.” The standard, including subsequently issued
amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets,
to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective
for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and requires the modified retrospective
approach. Early adoption is permitted. Based on the composition of the Company’s trade receivables and other financial assets,
current market conditions, and historical credit loss activity, the Company is currently in the process of evaluating the impact of this
guidance on our financial statements.
In
October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, Business Combinations (Topic 805): Accounting
for Contract Assets and Contract Liabilities from Contracts with Customers. Under ASU 2021-08, an acquirer must recognize and measure
contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The guidance is effective for
interim and annual periods beginning after December 15, 2022, with early adoption permitted. The Company is currently in the process
of evaluating the impact of this guidance on our financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
4. PREPAID
EXPENSES AND OTHER CURRENT ASSETS AND LAND DEPOSIT
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| |
December 31, 2022 | | |
December 31, 2021 | |
Deposits | |
$ | 12,000 | | |
$ | 32,000 | |
Legal retainer | |
| 24,457 | | |
| 33,692 | |
Prepaid expenses | |
| 436,496 | | |
| 214,445 | |
Deferred offering costs | |
| 100,337 | | |
| - | |
Others | |
| 25,052 | | |
| 28,903 | |
Prepaid expenses, other
current assets | |
$ | 598,342 | | |
$ | 309,040 | |
On
August 31, 2022, the Company signed a purchase and sale agreement with Stronghold Power Systems, Inc. (“Stronghold”), to
purchase approximately seventy acres of land located in the City of Coachella as well as the completion of certain permitting, zoning,
and infrastructure work by Stronghold for a total purchase price of $4,300,000. The purchase price consists of:
|
(i) |
$1,500,000
in cash due on March 31, 2023. |
|
|
|
|
(ii) |
A
first stock deposit of $1,700,000 in prefunded warrants. The Company issued 695,866 prefunded warrants on September 9, 2022 to Stronghold.
|
|
|
|
|
(iii) |
A
second stock deposit $1,100,000 in prefunded warrants. The Company issued 450,266 prefunded warrants on September 9, 2022 to Stronghold. |
At
December 31, 2022 the $2,085,960
of prefunded warrants were recorded under land deposit in relation to the Stronghold agreement. The prefunded warrant issuance may
be rescinded and the warrants null and void if Stronghold does not meet all escrow performance conditions by March 31,
2023.
5. PROPERTY AND EQUIPMENT
Property
and equipment consist of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
December
31, 2022 | | |
December
31, 2021 | |
Leasehold
improvements | |
$ | 86,979 | | |
$ | - | |
Computer
equipment | |
| 39,112 | | |
| 22,708 | |
Furniture
and fixtures | |
| 37,590 | | |
| 39,997 | |
Total
property and equipment | |
| 163,681 | | |
| 62,705 | |
Less:
Accumulated depreciation | |
| (42,009 | ) | |
| (21,734 | ) |
Property
and equipment, net | |
$ | 121,672 | | |
$ | 40,971 | |
Depreciation
expense on property and equipment, was $22,413 and $11,797 for the years ended December 31, 2022 and 2021, respectively.
6. CONSTRUCTION IN PROGRESS
The
Company engaged outside contractors to begin construction work on its first facility. As of December 31, 2022, $2,092,533 (December 31,
2021 – $2,079,914) represents progress payments related to facility construction.
7. INTANGIBLE ASSET
Intangible
asset represents $13,089,377 (December
31, 2021 - $1,477,237)
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 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 Company paid $1,475,000 in cash and issued
7,379,969 prefunded warrants valued at $12,106,677 (the “Purchase Price”) adjusted for foreign exchange differences of
$492,300.
Subject to a 9.99% stopped and SEC Rule 144 restrictions the prefunded warrants will vest in tranches up until March 10, 2024. When
vested the tranches of prefunded warrants will be converted into an equal number of common shares.
Subsequent to the year end, Manna satisfied all of its contractual obligations when the patent was approved by the US Patents Office and
title was transferred to the Company. The Company issued 1,637,049 shares in relation to this transaction on January 3, 2023.
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 activities. Once completed and commercialized, the asset will be amortized over its useful
life.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| |
December
31, 2022 | | |
December
31, 2021 | |
Accounts
payable | |
$ | 498,188 | | |
$ | 414,117 | |
Accrued
expenses | |
| 365,521 | | |
| 981,027 | |
Others | |
| 284,030 | | |
| 137,168 | |
Accounts Payable
and Accrued Liabilities | |
$ | 1,147,739 | | |
$ | 1,532,312 | |
Accrued
expenses as of December 31, 2021, included $500,000 related to the purchase of the Manna IP.
9. DEBENTURES
On
March 24, 2021, the Company entered into a securities purchase agreement with certain investors for the purchase of $750,000
in principal amount ($600,000 subscription amount) of senior secured debentures originally due June 24, 2021 (the “Bridge Loan”).
The imputed interest rate is encompassed within the original issue discount of the debentures and no additional cash interest shall be
due. Transaction costs of $69,000 have been
recorded in connection with the Bridge Loan.
On
June 24, 2021, the due date was extended, for which the Company paid an extension fee of 10,000 common shares with a fair value of $60,000.
The 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 for up to three years of the issuance
date with a strike price of $3.99
per share.
On
June 30, 2022, the Company executed the definitive agreement with certain institutional investors (the “Investors”) for
a $14,025,000
principal debentures with a 10%
original issue discount (the “Debentures”) for net proceeds of $12,750,000.
The interest rates on the Debentures are 5%
for the first 12 months, 6%
for the subsequent 12 months, and 8%
per annum thereafter. Principal repayments will be made in 25 equal monthly installments and began on September 1, 2022. The
Debenture may be extended by six months at the election of the Company by paying a sum equal to six months interest on the principal
amount outstanding at the end of the 18th month, at the rate of 8%
per annum. The Debentures are convertible into common shares at $2.22
per share. The Investors have the right to purchase additional tranches of $5,000,000
each, up to a total additional principal amount of $33,000,000.
In addition, the Investors received 4,106,418
warrants at a strike price of $2.442,
which expire on December
31, 2025 (the “Debenture Warrants”). The Debenture Warrants and Debentures each have down round provisions
whereby the conversion and strike prices will be adjusted downward if the Company issues equity instruments at lower prices. The
Debenture Warrants strike price and the Debenture conversion price will be adjusted down to the effective conversion price of the
issued equity instruments. Due to the currency of these features being different from the Company’s functional currency the
Debenture Warrants and Debentures’ convertible features were classified as derivative liabilities and are further discussed in
Note 11. The transaction costs incurred in relation to the Debentures were $1,634,894.
The
following table summarizes our outstanding debentures as of the dates indicated:
SCHEDULE
OF OUTSTANDING DEBENTURES
| |
Maturity | | |
Cash
Interest Rate | |
December
31, 2022 | |
Principal
(initial) | |
| 12/31/2024 | | |
5.00%
- 8.00 | % |
$ | 14,025,000 | |
Repayments
and conversions | |
| | | |
| |
| (2,955,000 | ) |
Debt
issuance costs and discounts (Note 9 & 11) | |
| | | |
| |
| (7,128,084 | ) |
Total
Debentures (current) | |
| | | |
| |
$ | 3,941,916 | |
During
the year ended December 31, 2022, the Investors converted $150,000 of convertible debentures into 67,568 shares of the Company resulting
in a $93,973 gain on the conversion of convertible debentures.
Subsequent to the year end, the Investors purchased
an additional tranche of $5,076,923. The convertible debt and warrants were issued with an exercise price of $1.24. The issuance of the
additional tranche triggered the down round provision, adjusting the exercise prices of the Debentures and the Debenture Warrants to $1.24.
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 $29,533 (December 31, 2021 - $31,417) (CAD$40,000) under the Canada Emergency Business Account Program (the “Program”).
The
Program, as set out by the Government of Canada, requires that the funds from this loan shall only be used by the Company to pay non-deferrable
operating expenses including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service,
and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends,
distributions and increases in management compensation.
In
April 2021, the Company applied for an additional loan with Alterna Bank under the Program and received $14,767
(CAD$20,000)
(December 31, 2021 - $15,909 (CAD $60,000)). The expansion loan is subject to the original terms and conditions of the Program.
The
loan is interest free for an initial term that ends on December 31, 2023. Repaying the loan balance on or before December 31, 2023 will
result in loan forgiveness of up to a third of loan value (up to CAD $20,000). Any outstanding loan after initial term carries an interest
rate of 5% per annum, payable monthly during the extended term i.e. January 31, 2024 to December 31, 2025.
The
balance at December 31, 2022 was $44,300
(CAD $60,000) (December 31, 2021 - $47,326 (CAD $60,000)).
11. DERIVATIVE LIABILITIES
The Company’s derivative liabilities consist of warrants, denominated
in a currency other than the Company’s functional currency (the “Warrant Liabilities”) and conversion rights embedded
in the Debentures, see Note 9 (the “Debenture Convertible Features”).
Warrant
Liabilities
As
of December 31, 2022, the Warrant Liabilities represent aggregate fair value of publicly traded 3,088,198
Series A warrants (“IPO Warrants”), 135,999
representative’s warrants (“Rep Warrants”) and 4,106,418
Debenture Warrants.
The
fair value of the IPO Warrants and Rep Warrants amount to $275,115
(December 31, 2021 - $1,418,964)
and were categorized as a Level 1 financial instrument. The Rep Warrants are exercisable one year from the effective date of the IPO
registration statement and will expire three years after the effective date.
The fair value of the Debenture Warrants amounted to $2,917,000
(June 30, 2022 - $4,080,958)
and were categorized as a Level 3 financial instrument. As at December 31, 2022 the Company utilized the Monte Carlo option-pricing
model (June 30, 2022 – Black-Scholes option-pricing model) to value the Debenture Warrants using the following assumptions: stock
price $1.13
(June 30, 2022 - $2.31),
dividend yield – nil
(June 30, 2022 – nil),
expected volatility 95.0%
(June 30, 2022 – 58.3%),
risk free rate of return 4.22%
(June 30, 2022 – 3.14%),
and expected term of 3 years
(June 30, 2022 – expected term of 3.5
years).
The
changes in the fair value of the Bridge Warrants ($203,456 – 2021) was charged to the statement of comprehensive loss. The
warrants were exercised on October 27, 2021 and accordingly, the warrant liability was extinguished. The fair value of the warrants
prior to exercise was estimated at $64,992,
determined using the Black-Scholes option pricing model and the following assumptions; stock price $2.16,
dividend yield – nil,
expected volatility 73%,
risk free rate of return 0.94%,
expected term of 3 years.
Debenture
Convertible Features
On
June 30, 2022, the Company issued Debentures with an equity conversion feature, see Note 9. The fair value of the Debentures’
convertible features was $3,336,535 on the issuance date and $1,457,000
as at December 31, 2022. These conversion features are categorized as a Level 3 financial instrument. As at December 31, 2022 the
Company utilized the Monte Carlo option-pricing model (June 30, 2022 – Black-Scholes option-pricing model) for valuing the
convertible feature using the following assumptions: stock price $1.13
(June 30, 2022 - $2.31),
dividend yield – nil
(June 30, 2022 – nil),
expected volatility 95.0%
(June 30, 2022 –
101.0%), risk free rate of return 4.41%
(June 30, 2022 – 3.14%),
discount rate 13.65%
(June 30, 2022 – not applicable), and expected term of 2
years (June 30, 2022 – 1
year).
Changes
in the fair value of Company’s Level 1 and 3 financial instruments for the year ended December 31, 2022 were as
follows:
SCHEDULE OF CHANGES IN THE FAIR VALUE OF COMPANY'S LEVEL 3 FINANCIAL INSTRUMENTS
|
|
|
|
| |
| | | |
| | | |
| | |
|
|
Level 1 |
| |
Level 3 | | |
Level 3 | | |
| |
|
|
IPO and Rep Warrants |
| |
Debenture Warrants | | |
Debenture Convertible Feature | | |
Total | |
Balance at December 31, 2021 |
|
$ |
1,418,964 |
| |
$ | - | | |
$ | - | | |
$ | 1,418,964 | |
Additions |
|
|
- |
| |
| 4,080,958 | | |
| 3,336,535 | | |
| 7,417,493 | |
Conversions |
|
|
- |
| |
| - | | |
| (63,723 | ) | |
| (63,723 | ) |
Change in fair value |
|
|
(1,086,562 |
) | |
| (966,141 | ) | |
| (1,667,166 | ) | |
| (3,719,869 | ) |
Effect of exchange rate changes |
|
|
(57,287 |
) | |
| (197,817 | ) | |
| (148,646 | ) | |
| (403,750 | ) |
Balance at December 31, 2022 |
|
$ |
275,115 |
| |
$ | 2,917,000 | | |
$ | 1,457,000 | | |
$ | 4,649,115 | |
Due to the expiry date of the warrants and conversion feature being subsequent
to December 31, 2023, the liabilities have been classified as non-current.
12. SHARE CAPITAL
|
a) |
Authorized
Share Capital |
On March 1, 2019, the Company changed its share structure to replace Class
– A voting shares with Common voting Shares, eliminated Class-B non-voting shares, and created a new series of Preferred shares
with no par value and unlimited number of shares. Holders of Preferred shares shall be entitled to receive distribution ahead of holders
of Common shares. In addition, Preferred shareholders are also entitled to a fixed premium (if specifically provided in the special rights
and restrictions attached to a specific series of Preferred shares), prior to any distributions to holders of Common shares in the event
of dissolution, liquidation or winding-up of the Company.
The
Company had the following common share transactions during the year ended December 31, 2022:
SCHEDULE
OF SHARE CAPITAL
| |
# of shares | | |
Amount | |
Common shares issued for bonuses and compensation | |
| 266,765 | | |
$ | 520,230 | |
Common shares issued for conversion of convertible debt | |
| 67,568 | | |
| 131,532 | |
Common shares issued to consultants | |
| 284,767 | | |
| 853,457 | |
Total common shares issued | |
| 619,100 | | |
$ | 1,505,219 | |
The
Company had the following common share transactions during the year ended December 31, 2021:
| |
# of shares | | |
Amount | |
Common shares issued for cash | |
| 3,127,998 | | |
$ | 13,262,712 | |
Common shares issued for conversion of series A preferred stock | |
| 2,258,826 | | |
| 6,717,873 | |
Common shares issued on exercise of warrants | |
| 39,800 | | |
| 238,800 | |
Common shares issued on cashless exercise of warrants | |
| 36,275 | | |
| - | |
Common shares issued on exercise of options | |
| 7,018 | | |
| 9,123 | |
Common shares issued on cashless exercise of options | |
| 820,029 | | |
| - | |
Common shares issued for bonus and compensation | |
| 159,775 | | |
| 648,449 | |
Common shares issued for consulting services | |
| 76,364 | | |
| 381,663 | |
Common shares issued for settlement of accrued director’s fee | |
| 19,992 | | |
| 46,783 | |
Common shares issued for dividend on preferred shares | |
| 189,004 | | |
| 735,932 | |
Share issue costs | |
| - | | |
| (2,099,842 | ) |
Total common shares issued | |
| 6,735,081 | | |
$ | 19,941,493 | |
The
Company has adopted a stock option plan (the “Option Plan”) for its directors, officers, employees and consultants to
acquire common shares of the Company. The terms and conditions of the stock options are determined by the Board of
Directors.
On
May 28, 2019, at the Company’s annual general meeting, shareholders approved an amendment to the Option Plan to increase
the number of authorized shares subject to the Option Plan to 15% of the issued and outstanding shares of the Company (including
any unconverted Series A Preferred Shares).
For
the year ended December 31, 2022, the Company recorded aggregate share-based compensation expense of $420,715 (December 31, 2021 - $796,141)
for all stock options on a straight-line basis over the vesting period.
As
of December 31, 2022, 1,382,629
(December 31, 2021 – 717,019)
Options were outstanding at a weighted average exercise price of $3.30
(December 31, 2021 - $5.63), of which 414,305
(December 31, 2021 – 280,938)
were exercisable.
The
amounts recognized as share-based payments and stock options are included in share-based compensation on the Statement of Loss and Comprehensive
Loss.
As
of December 31, 2022, there was $538,358 (December 31, 2021 - $634,626) of total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted; that cost is expected to be recognized over a period of 2
years (December 31, 2021 – 3 years).
The
following summarizes stock option activity during the years ended December 31, 2022 and 2021:
SCHEDULE OF STOCK OPTION ACTIVITY
| |
Number of Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Life (years) | |
| |
| | |
| | |
| |
Balance at December 31, 2020 | |
| 1,450,918 | | |
$ | 2.01 | | |
| 4.38 | |
Granted | |
| 509,788 | | |
$ | 7.00 | | |
| 4.47 | |
Exercised | |
| (1,120,719 | ) | |
$ | 3.23 | | |
| - | |
Forfeited | |
| (28,947 | ) | |
$ | 4.75 | | |
| - | |
Cancelled | |
| (94,021 | ) | |
$ | 6.70 | | |
| - | |
Balance at December 31, 2021 | |
| 717,019 | | |
$ | 5.63 | | |
| 4.48 | |
Granted | |
| 747,060 | | |
$ | 1.14 | | |
| 4.48 | |
Forfeited | |
| (25,542 | ) | |
$ | 7.00 | | |
| - | |
Cancelled | |
| (55,908 | ) | |
$ | 4.27 | | |
| - | |
Balance at December 31, 2022 | |
| 1,382,629 | | |
$ | 3.30 | | |
| 4.24 | |
The
Company’s outstanding and exercisable stock options at December 31, 2022 were:
SCHEDULE OF OUTSTANDING AND EXERCISABLE STOCK OPTIONS
| |
Outstanding Options | | |
Exercisable Options | |
Expiry Date | |
Number | | |
Weighted Average Remaining Life (years) | | |
Weighted Average Exercise Price | | |
Number | | |
Weighted Average Exercise Price | |
| |
| | |
| | |
$ | | |
| | |
$ | |
June 30, 2026 | |
| 210,489 | | |
| 3.50 | | |
| 3.51 | | |
| 210,489 | | |
| 3.51 | |
May 31, 2026 | |
| 320,351 | | |
| 3.42 | | |
| 7.00 | | |
| 160,176 | | |
| 7.00 | |
July 15, 2026 | |
| 55,445 | | |
| 3.54 | | |
| 7.00 | | |
| 23,100 | | |
| 7.00 | |
September 30, 2026 | |
| 49,284 | | |
| 3.75 | | |
| 7.00 | | |
| 20,540 | | |
| 7.00 | |
November 18, 2027 | |
| 747,060 | | |
| 4.88 | | |
| 1.14 | | |
| - | | |
| - | |
Total Share Options | |
| 1,382,629 | | |
| 4.24 | | |
| 3.30 | | |
| 414,305 | | |
| 5.23 | |
The
following table summarizes the Company’s assumptions used in the valuation of options granted during the year ended December 31,
2022 and December 31, 2021:
SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS
| |
December 31, 2022 | | |
December 31, 2021 | |
Expected volatility | |
| 78.05 | % | |
| 80.00 | % |
Expected term (in years) | |
| 3.07 | | |
| 3.31 | |
Risk-free interest rate | |
| 3.35 | % | |
| 0.92 | % |
Fair value of options | |
$ | 0.60 | | |
$ | 2.59 | |
The
Company’s outstanding warrants as of December 31, 2022 were:
SCHEDULE OF OUTSTANDING WARRANTS
| |
Number of warrants | | |
Weighted average exercise price | | |
Expiry Date |
| |
| | |
$ | | |
|
Outstanding, December 31, 2020 | |
| 2,546,065 | | |
| 7.46 | | |
|
Granted July 12, 2021 | |
| 3,263,997 | | |
| 6.00 | | |
July 12, 2024 |
Granted July 28, 2021 | |
| 93,938 | | |
| 3.99 | | |
July 28, 2024 |
Exercised in 2021 | |
| (133,738 | ) | |
| 4.59 | | |
n/a |
Outstanding, December 31, 2021 | |
| 5,770,262 | | |
| 5.91 | | |
|
Granted June 30, 2022 | |
| 4,106,418 | | |
| 2.44 | a | |
December 30, 2025 |
Outstanding, December 31, 2022 | |
| 9,876,680 | | |
| 4.91 | | |
|
(a) Subsequent to the year end, the issuance of additional tranches of Debentures triggered the down round provision, adjusting the exercise prices of the Debenture Warrants to $1.24 (Note 9).
Diluted
net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders per share
for the years ended December 31, 2022 and December 31, 2021, since the effect of the Company’s warrants, stock options and convertible
debentures are anti-dilutive.
Potentially dilutive securities that are not included
in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows (in common equivalent shares):
ANTI-DILUTIVE SECURITIES EXCLUDED FROM
COMPUTATION OF EARNINGS PER SHARE
| |
| | | |
| | |
| |
December 31, 2022 | | |
December
31, 2021 | |
Warrants | |
| 9,876,680 | | |
| 5,770,262 | |
Options | |
| 1,382,629 | | |
| 717,019 | |
Prefunded warrants | |
| 1,146,132 | | |
| - | |
Convertible debentures | |
| 4,986,486 | | |
| - | |
Total anti-dilutive weighted average shares | |
| 17,391,927 | | |
| 6,487,281 | |
13. INCOME TAXES
For
the year ended December 31, 2022 and 2021, loss before income tax provision consisted of the following:
SUMMARY
OF INCOME TAX PROVISION
| |
December
31, 2022 | | |
December
31, 2021 | |
| |
| | |
| |
Domestic operations
- Canada | |
$ | (11,753,662 | ) | |
$ | (6,202,837 | ) |
Foreign
operations - United States | |
| (1,119,440 | ) | |
| (440,279 | ) |
Income
tax expense (benefit) consists of the following for the years ended December 31, 2022 and December 31, 2021:
SCHEDULE
OF COMPONENTS OF INCOME TAX
| |
December
31, 2022 | | |
December
31, 2021 | |
| |
| | |
| |
Loss before taxes | |
$ | ) | |
$ | ) |
Statutory tax rate | |
| 27.00 | % | |
| 27.00 | % |
Income taxes at the statutory
rate | |
$ | (3,475,738 | ) | |
$ | (1,793,641 | ) |
Change in fair value of derivative liabilities | |
| (1,032,824 | ) | |
| (321,674 | ) |
Non-deductible accretion interest | |
| 747,719 | | |
| - | |
Stock-based compensation | |
| 484,035 | | |
| 253,556 | |
Share issue costs | |
| (108,685 | ) | |
| (112,812 | ) |
Foreign currency translation | |
| 298,876 | | |
| - | |
Other | |
| 63,035 | | |
| 111,874 | |
Total | |
$ | (3,023,582 | ) | |
$ | (1,862,697 | ) |
| |
| | | |
| | |
Change
in valuation allowance | |
$ | 3,023,582 | | |
$ | 1,862,697 | |
Total
income tax expense (benefit) | |
$ | - | | |
$ | - | |
The
Company is subject to Canadian federal and provincial tax for the estimated assessable profit for the years ended December 31, 2022 and
2021 at a rate of 27%.
Deferred
income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more
likely than not that we will not realize those tax assets through future operations. Significant components of the Company’s deferred
taxes are as follows:
SCHEDULE
OF DEFERRED TAX ASSETS AND LIABILITIES
| |
December
31, 2022 | | |
December
31, 2021 | |
Deferred tax assets: | |
| | | |
| | |
Unused net operating
losses carry forward - Canada and United States | |
$ | 7,572,932 | | |
$ | 4,459,457 | |
Unused capital losses carry
forward | |
| - | | |
| 40,962 | |
Share issue costs | |
| 130,732 | | |
| 174,377 | |
Other | |
| (5,286 | ) | |
| - | |
Total deferred tax assets | |
| 7,698,378 | | |
| 4,674,796 | |
Valuation allowance | |
| (7,698,378 | ) | |
| (4,674,796 | ) |
| |
$ | - | | |
$ | - | |
The
Company has non-capital losses of $25.8
million as of December 31, 2022 and $15.7
million as of December 31, 2021, which are due
to expire
between 2038 and 2042 and which can be used to
offset future taxable income in Canada. For foreign operations in United States, aggregate net operating losses are $2.2
million as of December 31, 2022 and $0.9
million as of December 31, 2021 which can be
carried forward indefinitely. The Company has no capital losses of as of December 31, 2022 and $0.2
million as of December 31, 2021. Non-Capital
Losses in Canada can be carried forward after change of ownership, if the particular business which gave rise to the loss is carried
on by the company for profit or with a reasonable expectation of profit. Certain accumulated net operating losses in United States are
subject to an annual limitation from equity shifts, which constitute a change of ownership as defined under Internal Revenue Code (“IRC”)
Section 382. These rules will limit the utilization of the losses.
The
Company files income tax returns in Canada and the United States and is subject to examination in these jurisdictions for all years since
the Company’s inception in 2017. As at December 31, 2022, no tax authority audits are currently underway.
The
Company currently has no uncertain tax position and is therefore not reflecting any adjustments.
14. RELATED PARTY TRANSACTIONS
Key
management personnel include those persons having the authority and responsibility of planning, directing, and executing the activities
of the Company. The Company has determined that its key management personnel consist of the Company’s officers and directors.
As
of December 31, 2022, $32,500 (December 31, 2021, $47,461) in total was owing to officers and directors or to companies owned by officers
and directors of the Company for services and expenses. These amounts owing have been included in accounts payable and accrued liabilities.
During
the year ended December 31, 2022 and 2021, the Company incurred $79,457
and $66,246,
respectively, to our U.S. general counsel firm, DR Welch against legal services, a corporation controlled by a director of the
Company. No
shares were issued in the year ended December 31, 2022 (an aggregate of 13,158
shares were issued during the year ended December 31, 2021 to David Welch).
There
were no other payments to related parties for the year ended December 31, 2022 and 2021 other than expense reimbursements in the ordinary
course of business.
15. RESEARCH AND DEVELOPMENT
During
the year ended December 31, 2022, the Company spent $615,693
as compared to $474,338 for the year ended December
31, 2021 in research and development costs in relation to the license agreement with Radical Clean Solutions Ltd
(“Radical”), the testing, nutrient and micro analysis for UN(THINK)™ food product development as well as costs of design and construction for the Coachella land and
its future structure architecture. The following
represents the breakdown of research and development activities:
SCHEDULE
OF RESEARCH AND DEVELOPMENT COSTS
| |
December 31, 2022 | | |
December 31, 2021 | |
License agreement | |
$ | 256,703 | | |
$ | - | |
Product development | |
| 179,563 | | |
| 296,931 | |
Design and construction | |
| 179,427 | | |
| 177,407 | |
Research and
development costs | |
$ | 615,693 | | |
$ | 474,338 | |
The
Company has entered into an operating lease for office space. At December 31, 2022, the remaining lease term is seven years and the discount
rate is 7.0%. The Company has no finance leases.
The
components of lease expenses were as follows:
SCHEDULE
OF LEASE EXPENSES
| |
December 31, 2022 | |
Operating lease cost | |
$ | 295,601 | |
Short-term lease cost | |
| 23,361 | |
Total lease expenses | |
$ | 318,962 | |
The
minimum future payments under the lease for our continuing operations in each of the years ending December 31 is as follows:
SCHEDULE
OF FUTURE PAYMENTS UNDER LEASE
| |
| |
2023 | |
$ | 271,110 | |
2024 | |
| 280,409 | |
2025 | |
| 296,350 | |
2026 | |
| 296,350 | |
2027 | |
| 296,350 | |
Subsequent years | |
| 518,613 | |
Total minimum lease payments | |
| 1,959,182 | |
Less: imputed interest | |
| (438,012 | ) |
Total lease liability | |
| 1,521,170 | |
Current portion of lease liability | |
| (271,110 | ) |
Non-current portion of lease liability | |
$ | 1,250,060 | |
17. COMMITMENTS AND CONTINGENCIES
Debenture
principal repayments
The
following table summarizes the future principal payments related to our outstanding debt as of December 31, 2022:
SUMMARY OF FUTURE PRINCIPAL
PAYMENTS OUTSTANDING
| |
| | |
2023 | |
$ | 6,732,000 | |
2024 | |
| 4,338,000 | |
Long
Term Debt | |
$ | 11,070,000 | |
Contingencies
As at December 31, 2022, the Company had no contingencies
or litigation to disclose.
18. SUBSEQUENT EVENTS
The
Company evaluated subsequent events through March 13, 2023, the date on which these financial statements were available to be issued,
to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of December 31, 2022,
and events which occurred subsequent to December 31, 2022 but were not recognized in the financial statements.
On January 17 and 18, 2023, the
Investors purchased additional tranches totaling $5,076,923
in convertible debentures and received 2,661,289
warrants. The convertible debentures and warrants were issued with an exercise price of $1.24.
The issuance of the additional tranches triggered the down round provision, adjusting the exercise prices of the Debentures and the
Debenture Warrants to $1.24
(Note 9 & 11). Subsequent to the year ended December 31, 2022, the investors converted $881,400 of convertible debentures into 710,807
shares.
Subsequent to the year ended December 31, 2022, the
Company issued 1,637,049 shares to Manna upon exercise of their prefunded warrants.
Subsequent to the year ended December 31, 2022, the Company issued 12,500
shares to a consultant for services rendered.
On January
24, 2023, the Company entered a binding letter of intent (“BP LOI”) to acquire Berry People LLC (“Berry People”),
a U.S. based berry business. The BP LOI sets forth a purchase price of $28 million, consisting of $18.2 million in cash and $9.8 million
in restricted shares to acquire 70% of Berry People.