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 ~~September~~June 30, ~~2022~~2023

	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.)

300 – 2233 Columbia Street Vancouver, BC, Canada		V5Y 0M6
(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
Series A Warrants	AGRIW	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 ~~November 10, 2022,~~August 3, 2023, the registrant has ~~15,713,596~~38,142,774 shares of common stock, no par value per share, outstanding.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	4

	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022	5

	Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022	6

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022	7

	Notes to Unaudited Condensed Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2426

Item 4.	Controls and Procedures	2426

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	2527

Item 1A.	Risk Factors	2527

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2527

Item 3.	Defaults Upon Senior Securities	2527

Item 4.	Mine Safety Disclosures	2527

Item 5.	Other Information	2527

Item 6.	Exhibits	2527

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 INTERIM BALANCE SHEETS

(Expressed in US dollars)


	September 30, 2022 (Unaudited)			December 31, 2021			June 30, 2023 (Unaudited)			December 31, 2022

ASSETS

Current
Cash and cash equivalents	$	7,869,028		$	7,775,290		$	1,005,340		$	2,269,320
Other receivable		46,737			32,326			61,798			48,941
Prepaid expenses and other current assets (Note 3)		384,954			309,040			198,024			598,342
Advance (Note 4)								223,564			-
Total current assets		8,300,719			8,116,656			1,488,726			2,916,603

Non-current
Property and equipment, net		116,360			40,971			101,340			121,672
Intangible asset (Note 4)		9,860,617			1,477,237
Operating lease right-of-use asset (Note 10)		1,565,215			-
Lease deposit, non-current		-			50,608
Intangible asset (Note 5)								13,055,176			13,089,377
Operating lease right-of-use asset								1,483,320			1,540,748
Construction in progress		1,973,772			2,079,914			2,098,892			2,092,533
Land deposit (Note 3)		2,085,960			-			-			2,085,960
Total assets		23,902,643			11,765,386			18,227,454			21,846,893

LIABILITIES AND EQUITY

Current
Accounts payable and accrued liabilities (Note 5)		996,521			1,532,312
Contingent consideration payable (Note 4)		750,000			753,727
Debentures (Note 6)		4,082,387			-
Lease liability – current (Note 10 and 11)		244,358			-
Accounts payable and accrued liabilities (Note 6)								1,554,807			1,147,739
Debentures (Note 7 and 12)								5,175,138			3,941,916
Lease liability – current (Note 11)								280,052			271,110
Total current liabilities		6,073,266			2,286,039			7,009,997			5,360,765

Non-current
Deferred rent		-			12,954
Lease liability – non-current (Note 10 and 11)		1,276,510			-
Derivative liabilities (Note 6 and 8)		6,591,877			1,418,964
Long term loan (Note 7)		43,773			47,326
Lease liability – non-current (Note 11)								1,191,293			1,250,060
Derivative liabilities (Note 7 and 9)								2,671,611			4,649,115
Long term loan (Note 8)								45,317			44,300
Total liabilities		13,985,426			3,765,283			10,918,218			11,304,240
Commitments and contingencies (Note 11)					-
Commitments and contingencies (Note 12)

Shareholders’ equity
Common shares, no par value per share – unlimited shares authorized; 15,688,596 and 15,176,698 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		27,002,586			25,637,543
Common shares, no par value per share – unlimited shares authorized; 22,716,766 and 15,795,798 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively								33,086,067			27,142,762
Obligation to issue shares								97,837			-
Additional paid-in-capital		13,568,717			2,203,343			11,478,156			16,816,695
Obligation to issue shares		-			93,295
Accumulated deficit		(30,021,493	)		(19,900,992	)		(37,021,119	)		(32,774,094	)
Accumulated other comprehensive income		(632,593	)		(33,086	)		(331,705	)		(642,710	)
Total shareholders’ equity		9,917,217			8,000,103			7,309,236			10,542,653

Total liabilities and shareholders’ equity	$	23,902,643		$	11,765,386		$	18,227,454		$	21,846,893

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.

AGRIFORCE GROWING SYSTEMS LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(Expressed in US dollars)

	2022			2021			2022			2021
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2023			2022			2023			2022

OPERATING EXPENSES
Wages and salaries	$	796,074		$	650,456		$	2,944,218		$	989,421		$	896,763		$	1,359,503		$	1,917,809		$	2,148,144
Consulting		522,576			129,364			2,030,994			620,960			675,905			1,145,323			885,020			1,508,418
Professional fees		1,177,236			140,653			2,058,636			393,904			460,984			780,331			748,350			881,400
Office and administrative		356,408			327,257			987,298			439,532			293,768			317,152			629,529			630,890
Investor and public relations		111,499			390,579			718,423			555,665			121,947			261,435			389,865			606,924
Research and development		110,916			116,857			537,772			178,117
Depreciation and amortization														171,839			5,465			340,599			8,992
Share based compensation		68,456			415,597			282,828			571,398			107,320			56,390			283,299			214,372
Sales and marketing														61,748			59,757			162,326			90,382
Lease expense		79,293			65,187			238,728			72,473			73,194			78,498			149,274			159,435
Travel and entertainment		55,904			28,545			214,725			39,851			28,481			89,694			101,125			158,821
Sales and marketing		95,750			-			186,132			-
Shareholder and regulatory		28,431			114,002			175,094			117,347			8,422			37,684			78,817			146,663
Depreciation		6,714			2,283			15,706			7,606
Research and development														13,235			30,329			49,358			426,856
Operating loss		(3,409,257	)		(2,380,780	)		(10,390,554	)		(3,986,274	)		(2,913,606	)		(4,221,561	)		(5,735,371	)		(6,981,297	)

OTHER EXPENSES

Foreign exchange loss (gain)		(104,468	)		(170,140	)		(143,432	)		(170,664	)
Gain on conversion of convertible debt (Note 6)		(93,973	)		-			(93,973	)		-
Change in fair value of derivative liabilities (Note 8)		(1,465,027	)		(818,960	)		(1,683,489	)		(818,960	)
Accretion of interest on senior secured debentures		1,688,672			57,019			1,688,672			484,379
Issuance cost related to warrants		-			375,123			-			375,123
Loss (gain) on extension of debt term		-			(204	)		-			59,055
Accretion of interest on debentures (Note 7)														2,107,808			-			3,980,278			-
Loss on conversion of convertible debt (Note 7)														13,902			-			433,605			-
Change in fair value of derivative liabilities (Note 9)														(2,458,993	)		(675,504	)		(5,833,025	)		(218,462	)
Foreign exchange gain														(33,409	)		(103,472	)		(26,789	)		(38,964	)
Write-off of deposit (Note 3)														-			-			12,000			-
Other income		(37,831	)		-			(37,831	)		-			(15,942	)		-			(54,415	)		-

Net loss	$	(3,396,630	)	$	(1,823,618	)	$	(10,120,501	)	$	(3,915,207	)	$	(2,526,972	)	$	(3,442,585	)	$	(4,247,025	)	$	(6,723,871	)

Dividend paid to preferred shareholders		-			203,674			-			735,932
Other comprehensive income (loss)

Net loss attributable to common shareholders	$	(3,396,630	)	$	(2,027,292	)	$	(10,120,501	)	$	(4,651,139	)

Other comprehensive loss

Foreign currency translation loss		(566,414	)		(228,317	)		(599,507	)		(220,568	)
Foreign currency translation														196,119			(21,192	)		311,005			(33,093	)

Comprehensive loss attributable to common shareholders	$	(3,963,044	)	$	(2,255,609	)	$	(10,720,008	)	$	(4,871,707	)	$	(2,330,853	)	$	(3,463,777	)	$	(3,936,020	)	$	(6,756,964	)

Basic and diluted net loss attributed to common share	$	(0.17	)	$	(0.14	)	$	(0.58	)	$	(0.46	)	$	(0.10	)	$	(0.21	)	$	(0.17	)	$	(0.43	)

Weighted average number of common shares outstanding – basic and diluted		20,435,059			14,378,354			17,406,641			10,144,800			24,973,036			16,518,480			24,354,260			15,872,349

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.

AGRIFORCE GROWING SYSTEMS LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

(Expressed in US dollars, except share numbers)

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

�� For the three months ended September 30
Common shares Series A
Preferred Shares Additional Obligation Accumulated other Total
# of Shares Amount # of Shares Amount paid-in-
capital to issue
shares Accumulated
deficit comprehensive
income shareholders’
equity
Balance, July 1, 2022 15,514,629 $ 26,710,990 - - $ 10,123,315 $ - $ (26,624,863 ) $ (66,179 ) $ 10,143,263
Shares issued for conversion of convertible debt (Note 6 & 9) 67,568 131,532 - - - - - - 131,532
Shares issued for compensation and bonuses (Note 9) 76,399 100,564 - - - - - 100,564
Share based consulting services (Note 9) 30,000 59,500 - - - - - - 59,500
Share based compensation 68,456 68,456
Prefunded warrants issued (Note 3 & 4) - - - - 3,376,946 - - - 3,376,946

Net loss - - - - - - (3,396,630 ) - (3,396,630 )
Foreign currency translation - - - - - - - (566,414 ) (566,414 )
Balance, September 30, 2022 15,688,596 $ 27,002,586 - - $ 13,568,717 $ - $ (30,021,493 ) $ (632,593 ) $ 9,917,217
Balance, July 1, 2021 9,542,769 $ 7,022,883 2,258,826 $ 6,717,873 $ 1,453,367 $ 94,885 $ (15,145,791 ) $ 126,803 $ 270,020
Shares issued for cash 3,127,998 13,262,712 - - - - - - 13,262,712
Shares issued for conversion of Series A Preferred Stock 2,258,826 6,717,873 (2,258,826 ) (6,717,873 ) - - - - -
Shares issued on exercise of warrants 39,800 238,800 - - 44,644 - - - 283,444
Shares issued for consulting services 15,000 69,300 - - - 7,460 - - 76,760
Share issued for settlement of accrued director’s fee 19,992 46,783 - - - - - - 46,783
Shares issued for dividend on Preferred Shares 53,474 203,674 - - - - (203,674 ) - -
Share issue costs - (2,099,842 ) - - - - - - (2,099,842 )
Share based compensation - - - - 415,597 - - - 415,597
Net loss - - - - - - (1,823,618 ) - (1,823,618 )
Foreign currency translation - - - - - - - (228,317 ) (228,317 )
Balance, September 30, 2021 15,057,859 $ 25,462,183 - $ - $ 1,913,608 $ 102,345 $ (17,173,083 ) $ (101,514 ) $ 10,203,539

For the three months ended June 30
Common shares Additional paid-in- Obligation to issue Accumulated Accumulated other comprehensive Total shareholders’
# of Shares Amount capital shares deficit income equity

Balance, April 1, 2023 18,314,552 $ 31,283,690 $ 11,947,606 $ - $ (34,494,147 ) $ (527,824 ) $ 8,209,325
Shares issued for conversion of convertible debt (Note 7) 1,805,528 695,128 - - - - 695,128
Shares issued for compensation (Note 10) - - - 97,837 - - 97,837
Shares issued for cash, net of issuance costs (Note 10) 1,073,770 299,599 - - - - 299,599
Shares issued in private placement (Note 10) 1,000,000 204,880 - - - - 204,880
Shares issued for consulting services 12,500 26,000 - - - - 26,000
Shares issued on conversion of vested prefunded warrants (Note 5) 510,416 576,770 (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 22,716,766 $ 33,086,067 $ 11,478,156 $ 97,837 $ (37,021,119 ) $ (331,705 ) $ 7,309,236

Balance, April 1, 2022 15,247,012 $ 25,822,735 $ 2,361,325 $ 93,295 $ (23,182,278 ) $ (44,987 ) $ 5,050,090

Shares issued for consulting services 188,770 653,886 - (93,295 ) - - 560,591
Shares issued for bonus and compensation 78,847 234,369 - - - - 234,369
Share based compensation - - 56,390 - - - 56,390
Prefunded warrants issued (Note 5) - - 7,705,600 - - - 7,705,600
Net loss - - - - (3,442,585 ) - (3,442,585 )
Foreign currency translation - - - - - (21,192 ) (21,192 )
Balance, June 30, 2022 15,514,629 $ 26,710,990 $ 10,123,315 $ - $ (26,624,863 ) $ (66,179 ) $ 10,143,263

For the nine months ended September 30
Common shares Series A
Preferred Shares Additional Obligation
Accumulated
other
Total
# of Shares Amount # of Shares Amount paid-in-
capital to issue shares Accumulated deficit comprehensive income shareholders’
equity
Balance, January 1, 2022 15,176,698 $ 25,637,543 - $ - $ 2,203,343 $ 93,295 $ (19,900,992 ) $ (33,086 ) $ 8,000,103
Shares issued for conversion of convertible debt (Note 6 & 9) 67,568 131,532 - - - - - - 131,532
Shares issued for bonuses and compensation (Note 9) 184,563 432,054 - - - - - - 432,054
Shares issued for consulting services (Note 9)
259,767 801,457 - - - (93,295 ) - 708,162
Prefunded warrants issued (Note 3 & 4) - - - - 11,082,546 - - - 11,082,546
Share based compensation 282,828 282,828
Net loss - - - - - - (10,120,501 ) - (10,120,501 )
Foreign currency translation - - - - - - - (599,507 ) (599,507 )
Balance, September 30, 2022 15,688,596 $ 27,002,586 - - $ 13,568,717 $ - $ (30,021,493 ) $ (632,593 ) $ 9,917,217
Balance, January 1, 2021 8,441,617 $ 5,696,050 2,258,826 $ 6,717,873 $ 1,297,566 $ 94,885 $ (12,521,944 ) $ 119,054 $ 1,403,484
Shares issued for cash 3,127,998 13,262,712 - - - - - - 13,262,712
Shares issued for conversion of Series A Preferred Stock 2,258,826 6,717,873 (2,258,826 ) (6,717,873 ) - - - - -
Shares issued on exercise of warrants 39,800 238,800 - - 44,644 - - - 283,444
Shares issued for cashless exercise of options 820,029 - - - - - - - -
Shares issued for bonus 98,356 514,066 - - - - - - 514,066
Shares issued for consulting services 62,237 349,809 - - - 7,460 - - 357,269
Share issued for settlement of accrued director’s fee 19,992 46,783 - - - - - - 46,783
Shares issued for dividend on Preferred Shares 189,004 735,932 - - - - (735,932 ) - -
Share issue costs - (2,099,842 ) - - - - - - (2,099,842 )
Share based compensation - - - - 571,398 - - - 571,398
Net loss - - - - - - (3,915,207 ) - (3,915,207 )
Foreign currency translation - - - - - - - (220,568 ) (220,568 )
Balance, September 30, 2021 15,057,859 $ 25,462,183 - $ - $ 1,913,608 $ 102,345 $ (17,173,083 ) $ (101,514 ) $ 10,203,539

For the six months ended June 30
Common shares Additional paid-in- Obligation to issue Accumulated Accumulated other comprehensive Total shareholders’
# of Shares Amount capital shares deficit income equity

Balance, January 1, 2023 15,795,798 $ 27,142,762 $ 16,816,695 $ - $ (32,774,094 ) $ (642,710 ) $ 10,542,653
Shares issued for conversion of convertible debt (Note 7) 2,516,335 1,743,701 - - - - 1,743,701
Shares issued for compensation (Note 10) 155,898 105,512 - 97,837 - - 203,349
Shares issued for cash, net of issuance costs (Note 10) 1,073,770 299,599 - - - - 299,599
Shares issued in private placement (Note 10) 1,000,000 204,880 - - - - 204,880
Shares issued for consulting services 27,500 53,735 - - - - 53,735
Shares issued on conversion of vested prefunded warrants (Note 5) 2,147,465 3,535,878 (3,535,878 ) - - - -
Cancelled prefunded warrants (Note 3) - - (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 22,716,766 $ 33,086,067 $ 11,478,156 $ 97,837 $ (37,021,119 ) $ (331,705 ) $ 7,309,236

Balance, January 1, 2022 15,176,698 $ 25,637,543 $ 2,203,343 $ 93,295 $ (19,900,992 ) $ (33,086 ) $ 8,000,103
Balance 15,176,698 $ 25,637,543 $ 2,203,343 $ 93,295 $ (19,900,992 ) $ (33,086 ) $ 8,000,103

Shares issued for consulting services (Note 10) 229,767 741,957 - (93,295 ) - - 648,662
Shares issued for bonus and compensation (Note 10) 108,164 331,490 - - - - 331,490
Share based compensation - - 214,372 - - - 214,372
Prefunded warrants issued (Note 5) - - 7,705,600 - - - 7,705,600
Net loss - - - - (6,723,871 ) - (6,723,871 )
Foreign currency translation - - - - - (33,093 ) (33,093 )
Balance, June 30, 2022 15,514,629 $ 26,710,990 $ 10,123,315 $ - $ (26,624,863 ) $ (66,179 ) $ 10,143,263
Balance 15,514,629 $ 26,710,990 $ 10,123,315 $ - $ (26,624,863 ) $ (66,179 ) $ 10,143,263

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.

6

AGRIFORCE GROWING SYSTEMS LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Unaudited)
(Expressed in US Dollars)

2022 2021

For the nine months ended
September 30,

2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (10,120,501 ) $ (3,915,207 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 15,706 7,606
Share based compensation 282,828 571,398
Shares issued for consulting services 708,162 298,214
Accretion of interest on senior secured debentures 1,688,672 484,379
Issuance cost related to warrants - 375,123
Loss on extension of debt term - 59,055
Shares issued for compensation and bonuses 432,054 -
Change in fair value of derivative liabilities (1,683,489 ) (818,960 )
Gain on debt conversion (93,973 ) -
Changes in operating assets and liabilities:
Other receivables (14,411 ) (22,574 )
Prepaid expenses and other current assets (60,914 ) (266,832 )
Accounts payable and accrued liabilities (35,791 ) 210,330
Right-of-use asset
249,038

-

Lease liabilities (255,731 ) -
Net cash used in operating activities (8,888,350 ) (3,017,468 )

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and leasehold improvements (93,259 ) (17,866 )
Payment against acquisition of intangibles (500,000 ) (225,000 )
Refund for purchase of land 20,000 -
Construction in progress (50,000 ) (744,191 )
Net cash used in investing activities (623,259 ) (987,057 )

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debentures – net of discount
12,750,000
-
Repayment of convertible debentures
(1,122,000
)
Interest paid on convertible debentures
(173,376
)
Financing costs of debentures
(1,634,894
)
(69,000
)
Proceeds from Initial Public Offering - 15,639,990
Payment of IPO costs - (2,279,374 )
Proceeds from exercise warrants - 238,800
Proceeds from issuance of senior secured debentures - 600,000
Proceeds from long-term loan - 15,932
Repayment of Senior Secured Debentures - (750,000 )
Net cash used in financing activities 9,819,730 13,396,348

Effect of exchange rate changes on cash and cash equivalent (214,383 ) (210,717 )
Change in cash 93,738 9,181,106
Cash, beginning of period 7,775,290 653,410
Cash, end of period $ 7,869,028 $ 9,834,516

Supplemental cash flow information:
Cash paid during the period for interest 173,376 -

Supplemental disclosure of non-cash investing and financing transactions
Fair value of warrant liability - 374,028
Fair value of debenture warrants 4,342,877 -
Fair value of conversion feature of debentures 2,249,000 -
Prefunded warrants issued related to intangible assets 8,996,586 -
Prefunded warrants issued related to land deposit
2,085,960
-
Shares issued for conversion of convertible debt
131,532
-
Preferred stock dividend paid in common shares - 735,932
Initial operating lease liability recognized under Topic 842 1,776,599 -
Initial lease right-of-use asset recognized under Topic 842 1,837,782 -
Conversion of Series A preferred stock to common shares - 6,717,873
Unpaid amount related to intangible assets included in accrued expenses - 500,000

For the six months ended
June 30,
2023 2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (4,247,025 ) $ (6,723,871 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 340,599 8,992
Share based compensation 283,299 214,372
Shares issued for consulting services 53,735 648,662
Shares issued for compensation 105,512 331,490
Amortization of debt issuance costs 3,808,460 -
Change in fair value of derivative liabilities (5,833,025 ) (218,462 )
Loss on debt conversion 433,605 -
Write-off of deposit 12,000 -
Obligation to issue shares 97,837 -
Changes in operating assets and liabilities:
Other receivables (12,857 ) (15,016 )
Prepaid expenses and other current assets 388,318 232,238
Advance (225,000 ) -
Accounts payable and accrued liabilities 446,943 478,645
Right-of-use asset 57,428 103,074
Lease liabilities (49,825 ) (118,126 )
Net cash used in operating activities (4,339,996 ) (5,058,002 )

CASH FLOWS FROM INVESTING ACTIVITIES
Payment towards acquisition of intangibles - (500,000 )
Acquisition of equipment and leasehold improvements - (92,479 )
Construction in progress - (50,000 )
Net cash used in investing activities - (642,479 )

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 4,615,385 -
Repayment of convertible debentures (1,741,950 ) -
Financing costs of debentures (325,962 ) (35,000 )
Net cash provided by (used in) financing activities 3,097,072 (35,000 )

Effect of exchange rate changes on cash and cash equivalent (21,056 ) (42,899 )
Change in cash (1,263,980 ) (5,778,380 )
Cash, beginning of period 2,269,320 7,775,290
Cash, end of period $ 1,005,340 $ 1,996,910

Supplemental cash flow information:
Cash paid during the period for interest $ 171,818 $ -

Supplemental disclosure of non-cash investing and financing transactions
Shares issued for conversion of convertible debt $ 1,743,701 $ -
Reclassified accrued construction in progress fees $ 39,875 $ -
Initial fair value of debenture warrants (“Second Tranche Warrants”) $ 2,378,000 $ -
Initial fair value of conversion feature of debentures (“Second Tranche Debentures”) $ 1,599,000 $ -
Initial fair value of debenture warrants (“First Tranche Warrants”) $ - $ 4,080,958
Initial fair value of conversion feature of debentures (“First Tranche Debentures”) $ - $ 3,336,535
Debt receivable $ 11,910,000
Prefunded warrants issued related to intangible assets $ - $ 7,705,600
Unpaid financing cost $ - $ 1,600,312
Initial operating lease liability recognized under Topic 842 $ - $ 1,776,599
Initial lease right-of-use asset recognized under Topic 842 $ - $ 1,837,782

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Interim Financial Statements.

7

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)
(Expressed in US Dollars, except where noted)

1. NATURE OF OPERATIONS AND BASIS OF PREPARATION

Business Overview

AgriFORCE Growing Systems Ltd. ~~(the~~(“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 300 – 2233 Columbia Street, Vancouver, British Columbia, Canada, V5Y 0M6. On February 13, 2018, the Company changed its name from 1146470 B.C. Ltd to Canivate Growing Systems Ltd. On November 22, 2019 the Company changed its name from Canivate Growing Systems Ltd. to AgriFORCE Growing Systems Ltd.

~~At AgriFORCE,~~The Company is an innovative agriculture-focused technology company that delivers reliable, financially robust solutions for high value crops through our ~~purpose is clear:~~proprietary facility design and automation Intellectual Property to ~~positively transform farm,~~businesses and enterprises globally through our AgriFORCE™ Solutions division (“Solutions”) and delivers nutritious food and family every day, everywhere. With years of in-depth research and development experience, we are pioneers, ready to deliver integrated, practical, and sustainable solutions that can be applied throughout multiple verticals in AgTech. We driveproducts through our ~~business through two operating divisions, AgriFORCE Solutions and AgriFORCE Brands.~~AgriFORCE™ Brands division (“Brands”).

~~Our two divisions—AgriFORCE~~ Solutions intends to operate in the plant based pharmaceutical, nutraceutical, and ~~AgriFORCE Brands—work~~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 ~~partnership~~a controlled environment (“FORCEGH+™”). The Company has designed FORCEGH+™ facilities to ~~address some~~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 ~~existential challenges being faced by the world today—climate change, extreme weather, food security~~development and ~~sovereignty, the environmental impact~~commercialization of ~~industrial~~plant-based ingredients and ~~commercial farming—working towards providing better tasting,~~products that deliver healthier and more nutritious ~~plant-based foods~~solutions. We will market and ~~other products to consumers on a global level.~~commercialize both branded consumer product offerings and ingredient supply.

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Interim Financial Statements ~~(the “interim financial statements”)~~ and related financial information of AgriFORCE Growing Systems Ltd. should be read in conjunction with the audited financial statements and the related notes thereto for the years ended December 31, ~~2021~~2022 and ~~2020~~2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March ~~30, 2022.~~13, 2023. 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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, and the results of its operations ~~during the three and nine months ended September 30, 2022 and 2021~~ and cash flows ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022. Such adjustments are of a normal and recurring nature. The results for the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, ~~2022,~~2023, 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 ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company had a net loss of $~~10.1~~4.2 million, $~~8.9~~4.3 million of net cash used in operating activities, and the Company had a working capital deficit of $~~2.2~~5.5 million.

8

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 ~~development of~~ its ~~first facility and other intellectual property.~~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.

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

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, 2022, and interim periods within those fiscal years, and requires the modified retrospective approach. ASU 2016-13 was adopted by the Company on January 1, 2023. Based on the composition of the Company’s affected financial assets, current market conditions, and historical credit loss activity, the adoption did not have a material impact to these interim financial statements.
In August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASU 2020-06”). The intention of ASU 2020-06 is to address the complexities in accounting for certain financial instruments with a debt and equity component. Under ASU 2020-06, the number of accounting models for convertible notes will be reduced and entities that issue convertible debt will be required to use the if-converted method for the computation of diluted “Earnings per share” under ASC 260. ASC 2020-06 is effective for fiscal years beginning after December 15, 2023 and may be adopted through either a modified retrospective method of transition or a fully retrospective method of transition. ~~We are currently assessing~~ASU 2020-06 was adopted by the ~~impact this guidance will have~~Company on ~~our condensed consolidated financial statements.~~
InJanuary 1, 2023. Since the Company had a net loss for the six months ended 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 receivable30, 2023 and ~~certain other financial assets,~~its convertible debentures were determined to be ~~presented at~~anti-dilutive, there was no material impact to its basic and diluted net loss per share for 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 collectabilityperiod as a result of ~~the reported amount. This~~adopting 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.2020-06.

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~~ASU 2021-08 was adopted on January 1, 2023 and did not have a material impact ~~of this guidance on our~~to these interim financial statements.

9

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815, Derivatives and Hedging (“ASC 815”), which provides that if three criteria are met, the Company is required to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which;

~~(a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract;~~
(b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur; and
~~(c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.~~
(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.
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.

Fair Value of Financial Instruments

The fair value of the Company’s other receivable, accounts payable and other current liabilities approximate their carrying amounts due to the relative short maturities of these items.

The Company issued warrants having a strike price denominated in U.S. dollars, which creates an obligation to issue shares for a price that is not denominated in the Company’s functional currency, Canadian dollars, and renders the warrants not indexed to the Company’s stock. The Series A warrants, representative warrants issued as part of the IPO, and convertible debt warrants are thus classified as derivative liabilities and are measured at fair value.

10

The convertible debentures also have a conversion feature whereby the debt holders can convert their outstanding debentures into common shares of the Company. The conversion price has a strike price denominated in U.S. dollars and accordingly, the conversion feature is classified as a derivative liability and measured at fair value.

The fair value of the Company’s warrants are determined in accordance with FASB ASC 820, “Fair Value Measurement,” which establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to price assets or liabilities that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for fair value measurements requires that assets and liabilities measured at fair value be classified and disclosed in one of the following categories:

● Level 1: Defined as observable inputs, such as quoted (unadjusted) prices in active markets for identical assets or liabilities.

● Level 2: Defined as observable inputs other than quoted prices included in Level 1. This includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3: Defined as unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

3. PREPAID EXPENSES, OTHER CURRENT ASSETS AND LAND DEPOSIT
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

September 30,
2022

December 31,
2021

June 30,
2023

December 31,
2022

Deposits $ 12,000 $ 32,000 $ - $ 12,000
Legal retainer 12,228 33,692 11,713 24,457
Prepaid expenses 334,734 214,445 88,596 436,496
Deferred offering costs 96,050 100,337
Others 25,992 28,903 1,665 25,052
$
384,954
$
309,040

Prepaid expenses, other current assets $ 198,024 $ 598,342

~~During the year ended December 31, 2020, the Company entered into a land purchase agreement in relation to construction of a facility in Coachella, California. A deposit of $170,000~~ ~~was paid and the balance of the purchase price is subject to financing. On April 6, 2021, the scheduled close of escrow was extended to April 30, 2021, and the purchase price was increased to $4.4~~ ~~million.~~ The Company wrote off ~~the~~a non-refundable ~~portion of the~~ deposit amounting to $~~150,000~~12,000 ~~on December 31, 2021. During the nine months ended September 30, 2022, the Company~~which was ~~returned the remaining $20,000~~ ~~of the deposit.~~related to a previous land purchase agreement.

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~~to have Stronghold complete 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 September 30,~~As at December 31, 2022 the $2,085,960 of prefunded warrants ~~was~~were recorded under land deposit in relation to the Stronghold agreement. ~~The~~
On March 31, 2023 the prefunded warrants ~~shall be~~issued were rescinded and the warrants were rendered null and void ~~if closing of~~as the ~~transaction does not occur by March 31, 2023.~~
Company presented a termination notice to Stronghold and the value under land deposit was also reversed.

11

4.ADVANCE
On June 18, 2023, the Company signed a memorandum of understanding (“MOU”) with Radical Clean Solutions Ltd. (“RCS”) to advance $225,000 to RCS to be used exclusively for the advance purchase of hydroxyl generating devices. On June 26, 2023, the Company advanced $225,000 to RCS. The Company has an option to convert the advance into an investment for 14% of the issued and outstanding common shares of RCS. Upon conversion of the advance into an investment, the Company will receive one of five board of director seats of RCS and will have 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.
5. INTANGIBLE ASSET

Intangible asset represents $~~9,860,617~~13,055,176 of(December 31, 2022 - $13,089,377) for intellectual property (“Manna IP”) acquired under an asset purchase agreement ~~from~~with Manna Nutritional Group, LLC (“~~MNG”~~Manna”) ondated September 10, 2021. The Manna IP encompasses ~~patent-pending~~patented technologies to naturally process and convert ~~grain,~~grains, pulses, and root vegetables, ~~resulting in~~into low-starch, low-sugar, high-protein, fiber-rich baking flour products, ~~which can be made into~~as well as a wide range of breakfast cereals, juices, natural sweeteners, and baking enhancers. The ~~terms~~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 $191,753 (December 31, 2022 - $492,300). Subject to a 9.99% stopper and SEC Rule 144 restrictions, the ~~agreement, including~~prefunded warrants will vest in tranches up until March 10, 2024. When vested the ~~amendments agreed by the parties on May 10, 2022,~~tranches of prefunded warrants are ~~as below:~~convertible into an equal number of common shares.

~~The aggregate purchase price for~~On January 3, 2023, Manna satisfied all of its contractual obligations when the ~~Purchased Assets (the “Purchase Price”) is up to $14,475,000~~,patent was approved by the US Patents Office and ~~shall consist of~~ the ~~following, subject~~title was transferred to the ~~terms and conditions of this Agreement, as follows:~~
~~(i)~~ Prefunded Warrants (“Closing Prefunded Warrants”), which will be immediately exercisable into common shares of the Company upon each of the vesting events set forth below, equal to the number of shares of Purchaser’s common stock (rounded up to the nearest whole number), restricted as to resale under Section 4(a)(2) of the Securities Act, equal to the quotient of (a)(i) $3,500,000 divided by (ii) a per share price equal to the average of the volume weighted average price (“VWAP”) of the Purchaser’s common shares for the ten trading days immediately preceding March 10, 2022 (or $1.79 per share) (“Closing Tranche 1”) (issued), and (b)(i) $1,500,000 divided by (ii) a per share price equal to the average of the VWAP of the Purchaser’s common shares for the ten trading days immediately preceding the date on which patent resubmission work for the patents set forth in the Agreement is completed (“Closing Tranche 2”). Closing Tranche 1 of the Prefunded Warrants will be issued immediately upon shareholder approval of the transactions contemplated by the Agreement and Amendment, in compliance with all SEC and Nasdaq rules and regulations (“Shareholder Approval”). Closing Tranche 2 of the Prefunded Warrants will be issued immediately following the date on which patent resubmission work for the patents set forth in the Agreement is completed. In each case, the Closing Prefunded Warrants will be paid in full upon issuance. The Closing Prefunded Warrants and any shares issued upon exercise of the Closing Prefunded Warrants are restricted as to resale and issued under a private placement exempt from registration under Section 4(a)(2) of the Securities Act, and will vest on a quarterly basis over eight quarters commencing on the three-month anniversary of the Closing Date in equal amounts over eight consecutive calendar quarters;
~~(ii)~~ $~~1,475,000~~ ~~in cash ($750,000~~ ~~paid October 11, 2022), minus any amounts paid to MNG under (iii), payable to MNG at Closing;~~
~~(iii)~~ $725,000 in cash payable follows: (a) $225,000 payable on the Effective Date (paid); and (b) $500,000 payable within 120 days after the Effective Date (paid), to reimburse MNG for, without limitation, satisfaction of all the secured debt as listed in Section 2.04 of the Disclosure Schedules to the Agreement (the “Secured Debt”); and
~~(iv)~~ Prefunded Warrants (“Post-Closing Prefunded Warrants,” and collectively with the Closing Prefunded Warrants, the “Prefunded Warrants”), which will be immediately exercisable into common shares of the Company upon the vesting events set forth below, equal to the number of shares of Purchaser’s common stock (rounded up to the nearest whole number), restricted as to resale under Section 4(a)(2) of the Securities Act, to be issued in two tranches, that equals (i) $8,000,000 divided by (ii) a per share price equal to the VWAP of the Purchaser’s common shares for the ten trading days immediately before the issuance date of those Post-Closing Prefunded Warrants (or $2.43 per share). $5,000,000 of the Post Closing Prefunded Warrants will be issued to Seller on June 30, 2022 (issued). $3,000,000 of the Post-Closing Prefunded Warrants will be issued to Seller on December 31, 2022. In each case, the Post-Closing Prefunded Warrants will be paid in full upon issuance. If a Patent is issued within 24 months of the Closing Date, and such Patent is transferred to the Purchaser free and clear of all Encumbrances, then the Post-Closing Prefunded Warrants will vest and become exercisable in four equal amounts commencing on the date of issuance of the Patent and then for the three subsequent three-month anniversaries thereof. If a Patent does not issue from the CERES-MNG Patent Application within 24 months from the Closing Date, the Post-Closing Prefunded Warrants will be returned to the Purchaser, and the Purchase Price shall be adjusted downward dollar for dollar. All Post-Closing Prefunded Warrants are subject to Shareholder Approval before vesting can occur.
12
InCompany. During the ~~event that after 24~~six months from the closing date, a Patent does not issue from the IP, Buyer’s obligation to issue the Post-Closing Shares and Dividends to MNG will be deemed null and void ab initio and will no longer be due and owing to MNG, and the Post-Closing Shares shall be released from escrow and returned toended June 30, 2023, the Company ~~and the Purchase Price shall be adjusted downward dollar for dollar.~~issued 2,147,465 shares in relation to this transaction. As at June 30, 2023, there were 5,232,504 unconverted prefunded warrants outstanding.

Based on the terms above and in conformity with US GAAP, the Company accounted for purchase as an asset acquisition and has deemed the asset purchased as an in-process research and development. The ~~Company has further deemed the~~ asset ~~to be of indefinite life until the completion of the associated research and development (“R&D”) activities. Once~~was completed and ~~commercialized, the asset~~ will be amortized over its useful ~~life.~~life of 20 years. The ~~recognition of the IP asset is based on the payments made to date of $725,000~~, prefunded warrants issued and contingent consideration that is probable and reasonably estimable as of the reporting date. Subsequent changes in contingent consideration are recorded against cost. Further, the company hasCompany recorded $~~750,000~~334,748 ~~as contingent consideration, which is considered probable and due on closing. The remaining amounts payable as described above were not deemed~~in amortization expense related to ~~be probable at September~~the Manna IP for the six months ended June 30, ~~2022, and accordingly have not been accrued for.~~2023.

The estimated annual amortization expense for the next five years are as follows:
SCHEDULE OF FUTURE AMORTIZATION EXPENSE
Period ending: Amount
Remaining 2023 $ 334,748
2024 669,496
2025 669,496
2026 669,496
2027 669,496
Subsequent years 10,042,444
Total $ 13,055,176
5.6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

September 30,
2022

December 31,
2021

Accounts payable $ 445,186 $ 414,117
Accrued expenses 350,698 981,027
Others 200,637 137,168
Accounts payable and accrued liabilities $ 996,521 $ 1,532,312
~~Accrued expenses include professional fee payable of $72,955~~ ~~(December 31, 2021 - $66,408), interest expense of $22,935~~ ~~(December 31, 2021 – $24,797), Directors’ fees payable of $30,286~~ ~~(December 31, 2021 - $39,309), withholding tax payable of $75,282~~ ~~(December 31, 2021 - $89,236) legal expense payable of $149,240~~ ~~(December 31, 2021 - $174,598,) and other items aggregating~~ ~~nil~~ ~~(December 31, 2021 - $86,679). Accrued expenses as of December 31, 2021, also included $500,000~~ ~~related to reimbursement for satisfaction of secured debt of seller of IP asset.~~

June 30,
2023

December 31,
2022

Accounts payable $ 574,207 $ 498,188
Accrued expenses 445,647 365,521
Payroll liabilities 391,732 -
Other 143,221 284,030
Accounts payable and accrued liabilities $ 1,554,807 $ 1,147,739

6.7. DEBENTURES
~~On March 24, 2021, the Company entered into a securities purchase agreement with certain accredited investors for the purchase of $750,000~~ ~~in principal amount ($600,000~~ ~~subscription amount) of senior secured debentures originally due~~ ~~June 24, 2021~~ ~~(the “Bridge Loan”). The imputed interest rate is encompassed within the original issue discount of the debentures and no additional cash interest shall be due. Transaction costs of $69,000~~ ~~have been recorded in connection with the Bridge Loan.~~
~~On June 24, 2021, the due date was extended, for which the Company paid an extension fee of~~ ~~10,000~~ ~~common shares with a fair value of $60,000. The Bridge Loan was repaid in full on July 13, 2021.~~
~~As part of the Bridge Loan, the debenture holder was issued warrants (the “Bridge Warrants”) to purchase~~ ~~93,938~~ ~~common shares with a strike price of $3.99~~ ~~per share. The term of the warrants was~~ ~~three years~~. The fair value of the warrants were recorded as a liability in the balance sheet using the Black-Scholes option-pricing model. The Company remeasured the fair value of the warrant liability at each reporting date until the warrants were exercised on October 27, 2021. The fair value of the warrants liability is subject to significant fluctuation based on changes in the inputs to the Black-Scholes option-pricing model, including our common stock price, expected volatility, expected term, the risk-free interest rate and dividend yield.
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On June 30, 2022, the Company executed the definitive agreement with arm’s length accredited institutional investors (the “Investors”) for a $14,025,000 ~~principal~~in debentures with a 10% original issue discount ~~(the “Debentures”~~(“First Tranche Debentures”) for gross proceeds of $12,750,000. The First Tranche Debentures were convertible into common shares at $2.22 per share. In addition, the Investors received 4,106,418 warrants at a strike price of $2.442, 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 Investors have 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 $1.24 per share and the Investors received an additional 2,661,289 warrants at a strike price of $1.24, 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 $1.24. The transaction costs incurred in relation to second tranche were $325,962.
The First Tranche and Second Tranche Debentures (the “Debentures”) have an interest ~~rates on the Debentures are~~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 ~~and~~which began on September 1, ~~2022.~~2022 for the First Tranche Debentures and on July 1, 2023 for the Second Tranche Debentures. The ~~Debenture~~Debentures 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 18^th month, at the rate of 8% per annum. ~~The Debentures are convertible~~
On June 26, 2023, the Company entered 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,~~waiver and amendment agreements (“Debenture Modification Agreements”) with the Investors ~~received~~ ~~4,106,418~~ ~~warrants at a strike price~~to modify terms of $~~2.442, which expire on~~ ~~December 31, 2025~~the First Tranche Debentures and the Second Tranche Debentures (the ~~“Debenture Warrants”~~“Debentures”). The Debenture ~~Warrants and Debentures each~~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 $0.45 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.
12
4) The minimum tranche value for Additional Closings has been reduced from $5.0 million to $2.5 million.
5) Upon the Company’s receipt of a further shareholder approval, the Base Conversion Price shall be lowered to the lowest price at which the Company has issued a common share or a right to acquire common shares.
6) 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 $0.25 per common share and two-year warrant (with a per share exercise price of $0.50, and no registration rights).
7) The Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder; 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 June 29, 2023, the Company issued common shares for cash under an ATM agreement (the “ATM”) triggering the down round ~~provisions whereby~~provision, adjusting the ~~conversion and strike~~exercise 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.~~ First and Second Tranche Debentures as well as the First and Second Tranche Warrants to $0.30.
Due to the currency of ~~these~~the above noted features being different from the Company’s functional currency, the ~~Debenture~~First Tranche Warrants and Second Tranche Warrants (the “Debenture Warrants), as well as the Debentures’ convertible features were classified as derivative liabilities and are further discussed in Note ~~8. The transaction costs incurred in relation to the Debentures were $1,634,894~~.
~~The cash proceeds were received on July 7, 2022.~~9.

The following table summarizes ~~our~~the outstanding debentures as of the dates indicated:
SCHEDULE OF OUTSTANDING DEBENTURES
Maturity Cash Interest Rate September 30, 2022 Maturity
Cash
Interest Rate

June 30,
2023

December 31,
2022

Principal (initial) 12/31/2024 5.00% - 8.00 % $ 14,025,000
Principal (First Tranche Debentures) 12/31/2024 5.00% - 8.00 % $ 14,025,000 $ 14,025,000
Principal (Second Tranche Debentures) 17/07/2025 5.00% - 8.00 % 5,076,923 -
Repayments and conversions
(1,272,000
) (6,139,350 ) (2,955,000 )
Debt issuance costs and discounts (Note 6 & 8) (8,670,613 )
Debt issuance costs and discounts (Note 7 & 9) (7,787,435 ) (7,128,084 )
Total Debentures (current) $ 4,082,387 $ 5,175,138 $ 3,941,916

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Investors converted $~~150,000~~1,442,400 of ~~convertible debentures~~principal and $37,532 of interest into~~67,568~~ shares of the Company resulting in a $~~93,973~~433,605 ~~gain~~loss on the conversion of convertible debentures.

7.8. LONG TERM LOAN

During the year ended December 31, 2020, the Company entered into a loan agreement with Alterna Bank for a principal amount of $~~31,417~~30,211 (December 31, 2022 - $29,533) (CAD$40,000) under the Canada Emergency Business Account Program (the “Program”).

The Program, as set out by the Government of Canada, requires that the funds from this loan shall only be used by the Company to pay non-deferrable operating expenses including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service, and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.

~~The existing terms of CEBA loans require that~~In April 2021, the ~~outstanding balance (other than~~Company applied for an additional loan with Alterna Bank under the ~~amount available to be forgiven) be repaid on or before December~~Program and received $15,106 (CAD$20,000) (December 31, 2022 - $14,767). The expansion loan is subject to ~~be eligible for partial loan forgiveness. The Government~~the original terms and conditions of ~~Canada has recently announced~~ the ~~December 31, 2022 forgiveness repayment date will be extended to December 31, 2023 for eligible CEBA loan holders in good standing.~~Program.

The loan is interest free for an initial term that ends on December 31, 2023 ~~(originally December 31, 2022)~~. Repaying the loan balance on or before December 31, 2023 will result in loan forgiveness of up to 33%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 ofi.e. January 1,31, 2024 to December 31, ~~2025 (previously January 1, 2023 to December 31, 2024)~~2025..

~~In April 2021, the Company applied for additional loan with Alterna Bank under the Program and received~~The balance as at June 30, 2023 was $~~15,145~~45,317 ~~(CAD$~~(CAD $~~20,000~~60,000) (December 31, 2022 - $44,300 (CAD $60,000)). ~~The expansion loan is subject to the original terms and conditions of the Program.~~

~~The balance at September 30, 2022 was $43,773, adjusted for foreign currency exchange adjustments of $3,553~~.
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8.9. DERIVATIVE LIABILITIES

Warrant Liabilities

As of ~~September~~June 30, ~~2022,~~2023, the ~~warrant liabilities~~Warrant Liabilities represent aggregate fair value of publicly traded 3,088,198Series A warrants (“IPO Warrants”), 135,999representative’s warrants (“Rep Warrants”), 4,106,418 First Tranche Warrants, 2,661,289 Second Tranche Warrants and ~~4,106,418~~ 1,000,000 warrants issued in a private placement (Note 10) on June 20, 2023 (“Private Placement Warrants”).
~~Debenture Warrants.~~
The fair value of the ~~IPO warrants and representative’s warrants~~Private Placement Warrants amount to $~~692,877~~ 35,867~~(December 31, 2021~~ (June 20, 2023 - $~~1,418,964) and were categorized as a Level 1 financial instrument. The fair value of the Debenture Warrants amounted to $3,650,000~~ ~~(June 30, 2022 - $4,080,958~~45,120) ~~and were categorized as a Level 3 financial instrument.~~. As at ~~September~~June 30, ~~2022~~2023 the Company utilized the ~~Monte Carlo~~Black-Scholes option-pricing model ~~(June 30, 2022 – Black-Scholes option-pricing model)~~ for the ~~Debenture~~Private Placement Warrants ~~using~~and used the following assumptions: stock price $~~1.50~~0.23 (June ~~30, 2022~~20, 2023 - $~~2.31~~0.25), dividend yield – nil~~(June 30, 2022~~ (June 20, 2023 – nil), expected volatility ~~90.0~~65.0% (June ~~30, 2022~~20, 2023 – ~~58.3~~65.0%), risk free rate of return ~~4.25~~4.58% (June ~~30, 2022 -~~20, 2023 – ~~3.14~~4.58%), and expected term of ~~3.25~~2 years (June ~~30, 2022~~20, 2023 – expected term of ~~3.5~~ 2years).

The ~~representative’s warrants~~fair value of the IPO Warrants and Rep Warrants amount to $125,744 (December 31, 2022 - $275,115). The Rep Warrants are exercisable one year from the effective date of the IPO registration statement ~~for the IPO~~ and will expire three years after the effective date. ~~The exercise price of the representative’s warrant is $~~6 per share. The warrants have been deemed compensation by FINRA and are therefore subject to a six-month lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriter (or permitted assignees under Rule 5110(e)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of six-month from the date of this prospectus. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or recapitalization, reorganization, merger or consolidation.

The fair value ~~change on~~of the ~~IPO and representative’s warrant liabilities~~First Tranche Warrants amounted to $~~640,540~~422,000 (December 31, 2022 - $2,917,000). As at June 30, 2023 the Company utilized the Monte Carlo option-pricing model to value the First Tranche Warrants using the following assumptions: stock price $0.23 (December 31, 2022 - $1.13), dividend yield – nil (December 31, 2022 – nil), expected volatility 65.0% (December 31, 2022 – 95.0%), risk free rate of return 4.68% (December 31, 2022 – 4.22%), and ~~is recorded in~~expected term of 2.50 years (December 31, 2022 – expected term of 3 years).
On January 17, 2023 the ~~statement~~Company issued Second Tranche Warrants. As at June 30, 2023 the Second Tranche Warrants had a fair value that amounted to $283,000 (January 17, 2023 - $2,378,000). As at June 30, 2023 the Company utilized the Monte Carlo option-pricing model to value the Second Tranche Warrants using the following assumptions: stock price $0.23 (January 17, 2023 - $1.21), dividend yield – nil (January 17, 2023 – nil), expected volatility 65.0% (January 17, 2023 – 95.0%), risk free rate of ~~comprehensive loss for the nine months ended September 30, 2022.~~return 4.49% (January 17, 2023 – 3.80%), and expected term of 3.05 years (January 17, 2023 – expected term of 3.5 years).

Debenture Convertible Feature

On June 30, 2022, the Company issued First Tranche Debentures with an equity conversion feature, see Note ~~6. The~~7. As at June 30, 2023 the fair value of the First Tranche Debentures’ convertible ~~features were~~feature amounted to $~~2,249,000~~1,056,000 ~~on September 30, 2022 (June 30,~~(December 31, 2022 - $~~3,336,535~~1,457,000) ~~and were categorized as a Level 3 financial instrument. As at September 30, 2022 the~~. 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 $~~1.50~~0.23 ~~(June 30,~~(December 31, 2022 - $~~2.31~~1.13), dividend yield – nil ~~(June 30,~~ (December 31, 2022 – nil), expected volatility ~~90.0~~65.0% ~~(June 30,~~(December 31, 2022 – ~~101.0~~95.0%), risk free rate of return ~~4.22~~5.27% ~~(June 30,~~(December 31, 2022 -– ~~3.14~~4.41%), discount rate ~~18.93~~15.29% ~~(June 30,~~(December 31, 2022 – ~~not applicable)~~13.65%), and expected term of ~~2.25~~1.50 ~~year (June 30,~~years (December 31, 2022 – 12 ~~year)~~years).
On January 17, 2023, the Company issued Second Tranche Debentures with an equity conversion feature, see Note 7. As at June 30, 2023 the fair value of the Second Tranche Debentures’ convertible feature amounted to $749,000 (January 17, 2023 - $1,599,000). The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions: stock price $0.23 (January 17, 2023 - $1.21), dividend yield – nil (January 17, 2023 – nil), expected volatility 65.0% (January 17, 2023 – 95.0%), risk free rate of return 4.87% (January 17, 2023 – 4.02%), discount rate 14.96% (January 17, 2023 – 11.65%), and expected term of 2.05 years (January 17, 2023 – 2.50 years).
The IPO Warrants, Rep Warrants, and Private Placement Warrants (the “Equity Warrants”) are classified as Level 1 financial instruments, while the Debenture Warrants and Debenture Convertible Feature are classified as Level 3 financial instruments.
14

Changes in the fair value of the Company’s ~~Level 3~~ financial instruments for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 were as follows:
SCHEDULE OF CHANGES IN THE FAIR VALUE OF COMPANY'S LEVEL 3 FINANCIAL INSTRUMENTS
Level 1 Level 3 Level 3
Debenture Warrants
Debenture
Convertible
Feature
Total
Equity
Warrants

Debenture
Warrants

Debenture
Convertible
Feature
Total
Beginning balance $ - $ - $ -
Balance at January 1, 2023 $ 275,115 $ 2,917,000 $ 1,457,000 $ 4,649,115
Additions 4,080,958 3,336,535 7,417,493 45,120 2,378,000 1,599,000 4,022,120
Conversions
-
(63,723 ) (63,723 ) - - (194,492 ) (194,492 )
Change in fair value (191,957 ) (850,992 )
(1,042,949
) (167,527 ) (4,579,136 ) (1,086,362 ) (5,833,025 )
Effect of exchange rate changes
(239,001
)
(172,820
)
(411,821
) 8,903 (10,864 ) 29,854 27,893
Balance at September 30, 2022 $ 3,650,000 $ 2,249,000 $ 5,899,000
Balance at June 30, 2023 $ 161,611 $ 705,000 $ 1,805,000 $ 2,671,611
Level 1 Level 3 Level 3

Equity
Warrants

Debenture
Warrants

Debenture
Convertible
Feature
Total
Balance at January 1, 2022 $ 1,418,964 $ - $ - $ 1,418,964
Additions - 4,080,958 3,336,535 7,417,493
Change in fair value (218,462 ) - - (218,462 )
Effect of exchange rate changes (27,216 ) - - (27,216 )
Balance at June 30, 2022 $ 1,173,286 $ 4,080,958 $ 3,336,535 $ 8,590,779

~~The fair value~~Due to the expiry date of the ~~debenture~~ warrants and ~~debenture convertible~~conversion feature ~~includes~~being greater than one year, the ~~volatility and risk-free rate.~~
liabilities have been classified as non-current.

9.10. SHARE CAPITAL
~~SCHEDULE OF SHARE CAPITAL~~

Nine months ended September 30,
2022

# of shares
Amount

Common shares issued for bonuses and compensation 184,563 $ 432,054
Common shares issued for conversion of convertible debt 67,568 131,532
Common shares issued to consultants 259,767 801,457
Total common shares issued 511,898 $ 1,365,043
During June 2023, the Company issued shares for cash under its at-the market agreement (the “ATM”). In total 1,073,770 shares were issued for $315,741 less share issuance costs of $16,142.
On June 20, 2023 the Company entered in to a private placement agreement issuing 1,000,000 units of one common share and one whole Private Placement Warrant at a strike price of $0.50 with an expiry date of June 20, 2025 for total consideration of $250,000. The fair value of the Private Placement Warrants at initial recognition was $45,120.

Nine months ended September 30, 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 options 820,029 -
Common shares issued for bonus 98,356 514,066
Common shares issued for consulting services 62,237 349,809
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 6,616,242 $ 19,766,133
On June 30, 2023, the Company owed $97,837 worth of stock-based compensation to Company officers. The balance issuable was classified as an Obligation to issue shares, and during July 2023 the obligation was settled with the issuance of 424,564 shares.
Basic and diluted net loss per share represents the loss attributable to shareholders divided by the weighted average number of shares and prefunded warrants outstanding during the period on an as converted basis.

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):
SCHEDULE OF ~~POTENTIALLY DILUTIVE~~ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

September 30,
2022

September 30,
2021

June 30,
2023

June 30,
2022

Warrants 9,876,680 5,864,200 13,537,969 9,876,680
Options 635,569 724,037 1,339,024 641,730
Convertible debentures 5,744,595 - 45,250,548 6,317,567
Total anti-dilutive weighted average shares 16,256,844 6,588,237 60,127,541 16,835,977

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~~10.~~11. LEASES
~~Upon adoption of Topic 842 effective January 1, 2022, the~~The Company ~~recognized~~entered an operating lease ~~liabilities of $~~for office space. As at June 30, 2023, the remaining lease term is ~~1,776,599~~seven years and ~~corresponding right-of-use (“ROU”) assets of $~~the discount rate is ~~1,837,782~~7.0%. The difference between operating lease liabilities and right-of-use assets recognized is due to prepaid rent and deferred rent recorded under prior lease accounting standards. Topic 842 requires such balances to be reclassified against right-of-use assets at transition. In future periods such balances will not be presented separately.Company has no finance leases.
The components of lease expenses were as follows:
SCHEDULE OF LEASE EXPENSES

Nine months ended
September 30, 2022

Six months ended
June 30, 2023

Six months ended
June 30, 2022

Operating lease cost $ 226,098 $ 145,795 $ 152,072
Short-term lease cost 12,630 3,479 7,363
Total lease expenses $ 238,728 $ 149,274 $ 159,435
The ~~Company has an operating~~minimum future annual payments under the lease for ~~its office lease in Canada with a remaining lease term of~~ ~~seven years~~our continuing operations as at June 30 is as follows:~~. The discount rate was~~ ~~7.0%. The Company has~~ no ~~finance leases.~~
SCHEDULE OF FUTURE PAYMENTS UNDER LEASE

Remaining 2023 $ 139,347
2024 286,847
2025 303,155
2026 303,155
2027 303,155
Subsequent years 530,521
Total minimum lease payments 1,866,180
Less: imputed interest (394,835 )
Total lease liability 1,471,345
Current portion of lease liability (280,052 )
Non-current portion of lease liability $ 1,191,293
~~11.~~12. COMMITMENTS AND CONTINGENCIES

~~Lease commitment~~
~~The Company entered an operating lease for office space. The minimum future payments under the lease for our continuing operations in each of the years ending December 31 is as follows:~~
~~SCHEDULE OF FUTURE PAYMENTS UNDER LEASE~~

Remaining 2022 $ 66,677
2023 267,886
2024 277,074
2025 292,826
2026 292,826
Subsequent years 805,272
Total minimum lease payments 2,002,561
Less: imputed interest (481,693 )
Total lease liability 1,520,868
Current portion of lease liability (244,358 )
Non-current portion of lease liability $ 1,276,510
Debenture principal repayments
The following table summarizes the future principal payments related to our outstanding debt as of ~~September~~June 30, ~~2022:~~2023:
~~SUMMARY~~SUMUMARY OF FUTURE PRINCIPAL PAYMENTS OUTSTANDING

2022 $ 1,683,000
2023 6,732,000
2024 4,338,000
Long Term Debt $ 12,753,000
16

Remaining 2023 $ 5,348,538
2024 6,395,573
2025 1,218,462
Long Term Debt $ 12,962,573

Contingencies

Litigation

As at ~~September~~June 30, ~~2022,~~2023, the Company had no contingencies to disclose.

~~12.~~13. SUBSEQUENT EVENTS

The Company evaluated subsequent events through ~~November 10, 2022,~~August 3, 2023, the date on which these interim financial statements were available to be issued, to ensure that this filing includes appropriate disclosure of events both recognized in the interim financial statements as of and subsequent to ~~September~~June 30, ~~2022,~~2023, but were not recognized in the interim financial statements. Except as disclosed below, there were no events that required recognition, adjustment or disclosure in the financial statements.

On ~~October~~July 1, ~~2022,~~2023, the Company issued 3,432,261 common shares to the Investors for its July 1, 2023 principal repayment and interest in lieu of cash (Note 7).
On July 1, 2023, the Company issued 5,000 common shares to a consultant in a ~~total~~private placement transaction exempt from registration under Section 4(a)(2) under the Securities Act of 1933, as amended.
~~25,000~~
On July 1, 2023, the Company issued 395,403 common ~~shares.~~shares to Manna upon exercise of the vested prefunded warrants (Note 5).
On July 6, 2023, the Company issued 832,261 common shares to the Investors in relation to its July 1, 2023 principal repayment and interest in lieu of cash (Note 7).
On July 13, 2023, the Company issued 479,800 common shares to the Investors in relation to its July 1, 2023 principal repayment and interest in lieu of cash (Note 7).
On July 18, 2023, the Company announced a restructuring. Ingo Mueller departed from his position as CEO and Chair of the Board. Richard Wong was concurrently appointed as interim CEO, and David Welch and John Meekison each assumed the role of Co-Chair of the Board. Ingo Mueller continues to serve as a director of the Company.
On July 19, 2023, the company issued shares for cash under its ATM. In total 763,334 shares were issued for gross proceeds of $119,996. The shares issued under the ATM triggered the down round provision, adjusting the exercise prices of the First and Second Tranche Debentures as well as the First and Second Tranche Warrants to $0.15.
On July 20, 2023, the company issued shares for cash under its ATM. In total 189,556 shares were issued for gross proceeds of $27,031. The shares issued under the ATM triggered the down round provision, adjusting the exercise prices of the First and Second Tranche Debentures as well as the First and Second Tranche Warrants to $0.14.
On July 21, 2023, the company issued shares for cash under its ATM. In total 11,908 shares were issued for gross proceeds of $1,696.
On July 25, 2023, the company issued shares for cash under its ATM. In total 4,955 shares were issued for gross proceeds of $699.
On July 31, 2023, the company issued shares for cash under its ATM. In total 763,371 shares were issued for gross proceeds of $99,620. The shares issued under the ATM triggered the down round provision, adjusting the exercise prices of the First and Second Tranche Debentures as well as the First and Second Tranche Warrants to $0.13.
On July 31, 2023, the Company issued 375,906 common shares as part of compensation to Company officers.
On July 31, 2023, the Company issued 12,500 common shares to a consultant in a private placement transaction exempt from registration under Section 4(a)(2) under the Securities Act of 1933, as amended.
On August 1, 2023, the company issued shares for cash under its ATM. In total 1,963,549 shares were issued for gross proceeds of $296,692.
On August 1, 2023, the Company issued 5,478,056 common shares to the Investors to partially settle its August 1, 2023 principal repayment and interest in lieu of cash (Note 7). The Investors deferred the issuance of the remaining shares (1,978,174) to a later date.
On August 2, 2023, the Company issued 660,361 common shares to the Investors in relation to its August 1, 2023 principal repayment and interest in lieu of cash (Note 7).
On August 2, 2023, the company issued shares for cash under its ATM. In total 57,787 shares were issued for gross proceeds of $6,946. The shares issued under the ATM triggered the down round provision, adjusting the exercise prices of the First and Second Tranche Debentures as well as the First and Second Tranche Warrants to $0.12.

1716

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” You should review the “Risk Factors” section of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Company History and Our Business

AgriFORCE Growing Systems Ltd. (“AgriFORCE” or the “Company”) was incorporated as a private company by Articles of Incorporation issued pursuant to the provisions of the ~~British Columbia~~ 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,~~BC, Canada, V5Y 0M6. On February 13, 2018, the Company changed its name from 1146470 B.C. Ltd to Canivate Growing Systems Ltd. On November 22, 2019, the Company changed its name from Canivate Growing Systems Ltd. to AgriFORCE Growing Systems Ltd.

~~At AgriFORCE, our purpose~~AgriFORCE™ is ~~clear:~~dedicated to positively ~~transform~~transforming farm, food, and family every day, everywhere. ~~With years of in-depth research~~We aim to achieve this goal by providing novel agriculturally focused consulting, facility solutions, and ~~development experience, we are pioneers, ready~~products & services through our Solutions division, and by leveraging innovative technologies and processes to deliver healthier more nutritious food to consumers through our Brands division.
The AgriFORCE™ Solutions division is dedicated to transforming modern agricultural development “Building from the Seed to Deliver sustainable, Efficient, and Healthier crops” through our integrated ~~practical,~~Agtech platform 2.0 combining knowledge and ~~sustainable~~IP with CEA equipment solutions, including our FORCEGH+™” solution, implementing solutions that ~~can be applied throughout multiple verticals in AgTech. We drive our business through two operating divisions, AgriFORCE Solutions~~are best suited to the crops and ~~AgriFORCE Brands.~~environment chosen.

Our ~~two divisions—~~AgriFORCE™ Brands division is focused on the development and commercialization of plant-based ingredients and products that deliver more nutritious “Food to Table”. We will market and commercialize both branded consumer product offerings and ingredient supplies.
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AgriFORCE Solutions
Understanding Our Approach – The AgriFORCE™ Precision Growth Method
Traditional farming includes three fundamental approaches: outdoor, greenhouse and ~~AgriFORCE Brands—work~~indoor. AgriFORCE™ introduces a unique fourth method, the AgriFORCE™ precision growth method, which is informed by cutting-edge science and leveraging the latest advances in ~~partnership~~artificial intelligence (AI) and Internet of Things (IoT).
With a carefully optimized approach to ~~address~~facility design, IoT, AI utilization, nutrient delivery, and micro-propagation, we have devised an intricate, scientific and high success-oriented approach designed to produce much greater efficacy yields using fewer resources. This method is intended to outperform traditional growing methods using a specific combination of new and traditional techniques required to attain this efficiency. We call it precision growth. The AgriFORCE™ precision growth method focuses on addressing some of the ~~existential~~most important legacy challenges ~~being faced~~in agriculture: environmental impact, operational efficiency and yield volumes.
The AgriFORCE™ precision growth method presents a tremendous opportunity to positively disrupt all corners of the industry. The market size of just the nutraceutical and plant-based pharmaceutical and vaccine/therapeutics market is over $500 billion. Including the traditional hydroponics high value crops and controlled-environment food markets, the addressable market approaches nearly $1 trillion^(1)(2)(3).
The AgriFORCE™ Model – Managing the Difficulties of Agricultural Verticals with Modern Technology and Innovation
Our intellectual property combines a uniquely engineered facility design and automated growing system to provide a clear solution to the biggest problems plaguing most high value crop agricultural verticals. It delivers a clean, self-contained environment that maximizes natural sunlight and offers near ideal supplemental lighting. It also limits human intervention and – crucially – it was designed to provide superior quality control. It was also created to drastically reduce environmental impact, substantially decrease utility demands, as well as lower production costs, while delivering customers daily harvests and higher crop yields.
(1) https://home.kpmg/pl/en/home/insights/2015/04/nutraceuticals-the-future-of-intelligent-food.html
(2) https://link.springer.com/article/10.1057/jcb.2010.37
(3) https://medium.com/artemis/lets-talk-about-market-size-316842f1ab27
Our Position in the Ag-Tech Sector
The Ag-Tech sector is severely underserved by the capital markets, and we see an opportunity to acquire global companies who have provided solutions to the industry and are leading innovation moving forward. The robustness of our engagement with potential targets has confirmed our belief and desire to be part of a larger integrated Ag-Tech solutions provider, where each separate element of the business has its existing legacy business and can leverage across areas of expertise to expand their business footprint.
The AgriFORCE™ Grow House
The Company intends to operate in the plant based pharmaceutical, nutraceutical, and high value crop markets using its unique patented 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 while substantially eliminating the need for the use of pesticides, fungicides and/or irradiation.
The Company continues to develop its solution for fruits and vegetables focusing on the integration of its current structure with a new form of vertical grow technology.
BUSINESS PLAN
The Company is exploring opportunities to utilize its patented grow house structures and automated growing systems to expand its internal operations as well as external opportunities for joint ventures and licensing.
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AgriFORCE Brands
UN(THINK)™ Foods
The Company purchased Intellectual Property (“IP”) from Manna Nutritional Group, LLC (“Manna”), a privately held firm based in Boise, Idaho on September 10, 2021. The IP encompasses a granted patent to naturally process and convert grain, pulses and root vegetables, resulting in low-starch, low-sugar, high-protein, fiber-rich baking flour as well as produces a natural sweetener juice. The core process is covered under the Patent Nr. 11,540,538 in the U.S. and key international markets. The all-natural process is designed to unlock nutritional properties, flavors, and other qualities in a range of modern, ancient and heritage grains, pulses and root vegetables to create specialized all-natural baking and all-purpose flours, sweeteners, juices, naturally sweet cereals and other valuation products, providing numerous opportunities for dietary nutritional, performance and culinary applications.
During the period ended June 30, 2023, the Company has achieved milestones towards the commercialization of our Awakened Grains™ flour, the Company’s first brand to utilize the IP. Management has defined and tested its quality controls and safety protocols for production, and produced several multi-ton batches of germinated grains, refining and scaling production processes with our partners in Canada. We are also in the process of qualifying partners in the US to establish additional production hubs which will support growth and reduce logistics costs for customers in the region. Additionally, we have established our supply chain logistics with a contracted shipping company and two warehouses in Canada and the US. Our commercial team made progress in defining pricing and is conducting advanced customer R&D trials to understand how to integrate the product into food suppliers’ manufacturing processes. Online sales logistics and advertising materials were developed during the period to support the establishment of the direct-to-consumer sales channel. Lastly, the Company has developed an extensive number of recipes for the application of Awakened Grains™ flour for both customers and consumers.
With our R&D partners, the Company is developing several finished product prototypes including a line of pancake mixes, which are ready for consumer testing.
Wheat and Flour Market
Modern diet is believed to be a contributor to health risks such as heart disease, cancer, diabetes and obesity, due in part to the consumption of highly processed foods that are low in natural fiber, protein and nutrition; and extremely high in simple starch, sugar and calories. These “empty carbs” produce glycemic swings that may cause overeating by triggering cravings for food high in sugar, salt and starch. As an example, conventional baking flour is low in natural fiber (~ 2-3%), low-to-average in protein (~ 9%), and very high in starch (~ 75%)⁽⁴⁾. Whole wheat flour is only marginally better.
(4) Based on protein, fiber, and starch content figures from a nationally certified independent laboratory, as compared to standard all-purpose flour.
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In contrast, foods high in fiber help to satiate hunger, suppress cravings and raise metabolism⁽⁵⁾. They also assist in weight loss, lower cholesterol, and may reduce the risk of cancer, heart disease and diabetes.
Advantages of the UN(THINK)™ Foods IP
The Controlled Enzymatic Reaction & Endothermic Saccharification with Managed Natural Germination (“CERES-MNG^”) patented process allows for the development and manufacturing of all-natural flours that are significantly higher in fibers, nutrients and proteins and significantly lower in carbohydrates and calories than standard baking flour.
CERES-MNG baking flour produced from soft white wheat has 40 times more fiber, three (3) times more protein and 75% less net carbohydrates than regular all- purpose flour⁽⁶⁾.
Source: Independent analysis by Eurofins Food Chemistry Testing Madison, Inc, February 2022
The CERES-MNG patent will help develop new flours and products from modern, ancient and heritage grains, seeds, legumes and tubers/root vegetables.
(5) https://my.clevelandclinic.org/health/articles/14400-improving-your-health-with-fiber
(6) Based on protein, fiber, and starch content figures from a nationally certified independent laboratory, as compared to standard all-purpose flour.
Products that AgriFORCE™ intends to develop for commercialization from the CERES-MNG patented process under the UN(THINK)™ foods brand:
- High protein, high fiber, low carb modern, heritage and ancient grain flours (for use in breads, baked goods, doughs, pastry, snacks, and pasta)
- Protein flours and protein additives
- High protein, high fiber, low carb cereals and snacks
- High protein, high fiber, low carb oat based dairy alternatives
- Better tasting, cleaner label, high protein, high fiber, low carb nutrition bars
- High protein, high fiber, low carb nutrition juices
- Sweeteners – liquid and granulated
- High protein, high fiber, low carb pet foods and snacks
We intend to commercialize these products behind three (3) main sales channels:
- Ingredients
- Branded ingredients
- Consumer branded products
Successful commercialization of premium specialized products from the UN(THINK)™ foods IP and the capture of a small percentage share of the category is a notable business opportunity for AgriFORCE™. We estimate potential revenues to be between $500 million and $1 billion by 2030 (excluding any potential revenues from the Maltose-Power Juice applications).
Breads &Bakery Functional Flours
Pulse
Flours
Dairy Alternatives Nutrition Bars Total
Global market sizes $ 222B $ 48B $ 17B $ 6B $ 45B
Potential market share 0.1 % 1 % 1 % 1 % 0.1 %
Potential net revenues $ 100-200M $ 200-480M $ 100- 170M $ 30-60M $ 20-40M $ 450-950M
Sources: Grand View Research Reports, San Francisco CA, 2018 Estimates.
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Ahead of setting up a pilot plant in Canada to produce the UN(THINK)™ power wheat flour , we are using our patented process to develop a gold-standard sprouted wheat flour, which we have qualified and made available for sale through brokers as of January 2023 in Canada and the USA, under the UN(THINK)™ Awakened Grains™ brand. This new Awakened Grains™ flour will provide enhanced nutrition with over five times more fiber, up to two times more protein and 77% of net carbs versus conventional all purpose flour (source: Eurofins Food Chemistry Madison, Inc, December 2022).
BUSINESS PLAN
AgriFORCE™’s organic growth plan is to actively establish and deploy the commercialization of products in four distinct phases:
PHASE 1 (COMPLETED):
● Product and process testing and validation. (completed)
● Filing of US and international patents. (completed)
● Conceptual engineering and preliminary budgeting on commercial pilot plant. (completed)
● Creation of the UN(THINK)™ foods brand. (completed)
● Qualification and operational and commercial set up of the Awakened Grains™ line of products (completed)
PHASE 2:
●
Launch of the UN(THINK)™ Awakened Grains™ lightly germinated flour range of products in business to business (“B2B”) channel. (complete)
Launch of the UN(THINK)™ Awakened Grains™ lightly germinated flour range of products in the direct to consumers (“D2C”) channel.
● Design, build, start-up, and operation of the pilot plant for the fully processed and patented flours
● Develop range of finished products behind the wheat grain flours, qualify patented process for pulse/legume, and rice-based protein flours.
● Develop relationships with universities to research impact of patented flour on nutrition.
PHASE 3:
● Launch first range of fully patent processed products in US/Canada (UN(THINK)™ power wheat flour).
● Drive business with finished products in D2C, retail, food service.
● Drive business as ingredients for bakery, snack and plant-based protein products manufacturers.
● Develop manufacturing base through partnerships and licensing.
● Conceptual engineering and preliminary budgeting on large-scale processing plant.
PHASE 4:
● Expand product range in US/Canada.
● Expand business to other geographies internationally.
● Design, build, start-up, and operation of large-scale processing plan.
Radical Clean Solutions (“RCS”)
RCS is a US based company that has developed an advanced product line consisting of patent-pending “smart hydroxyl generation systems” focused on numerous industry verticals that is proven to eliminate 99.99+% of all major pathogens, virus, mold, volatile organic compounds (VOCs) and allergy triggers⁽⁷⁾. Applications for the system range from home, office, medical and senior care facilities to restaurants, transportation and more. RCS’s goal is to create a safe and healthy world, ~~today—climate change, extreme weather,~~especially in light of the recent COVID pandemic.
The Company has a worldwide licensing agreement with RCS to commercialize their proprietary hydroxyl generating devices within the controlled environment agriculture (CEA) and food ~~security~~manufacturing industries.
The Company expects revenue from the sale of RCS devices during the second half of 2023.
Merger and ~~sovereignty,~~Acquisition (“M&A”)
With respect to M&A growth, the ~~environmental impact~~Company is pursuing acquisitions in the agriculture technology and food technology space. The Company believes that a buy and build strategy will provide unique opportunities for innovation across each segment of ~~industrial~~the Ag-Tech market we serve.
Manna Nutritional Group Asset Acquisition
On September 10, 2021, the Company signed a definitive asset purchase agreement to acquire food production and ~~commercial farming—working towards providing better tasting, more nutritious~~processing IP from Manna.
On May 10, 2022, the Company completed an amendment to its asset purchase agreement with Manna Nutritional Group LLC. The amendment required the issuance of prefunded warrants instead of shares over several tranches and contained covenants to obtain shareholder approval of the acquisition transactions before the prefunded warrants can be exercised into Company common shares.
The transaction was fully approved by the shareholders on December 15, 2022. The Company paid consideration of $1,475,000 in cash and issued 7,379,969 prefunded warrants valued at $12,106,677 adjusted for foreign exchange differences of $492,300. Subject to a 9.99% stopper 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.
(7) BCI Labs, Gainesville Florida, February 2022; and various institutional studies.
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On January 3, 2023, Manna satisfied all its contractual obligations when the patent was approved by the US Patents Office and title was transferred to the Company. During the six months ended June 30, 2023, the Company has issued 2,147,465 shares upon exercise of vested tranches of Manna’s prefunded warrants in relation to this transaction. On July 1, 2023, the Company issued an additional 395,403 common shares upon exercise of vested tranches of Manna’s prefunded warrants.
Delphy Groep BV Acquisition
On February 10, 2022, the Company signed a definitive share purchase agreement (the “Delphy Agreement”) to acquire Delphy, a Netherlands-based AgTech consultancy firm, for €23.5 million through a combination of cash and stock. Delphy, which optimizes production of plant-based foods and ~~other products to consumers on~~flowers, has multi-national operations in Europe, Asia, and Africa, with approximately 200 employees and consultants. The Delphy Agreement was negotiated at arm’s length and was not a ~~global level.~~related party transaction.

On May 25, 2023, the parties mutually terminated the share purchase agreement after extensive due diligence, an evaluation of the historical and projected financial information, potential for impairment risk as well as current market conditions.
Deroose Plants NV Binding Letter of Intent
On February 23, 2022, the Company signed a binding letter of intent (the “Deroose LOI”) with Deroose Plants NV (“Deroose”), one of the largest tissue culture propagation companies in the world with a leadership position in horticulture, plantation crops, and fruit and vegetables. Founded in 1980, Deroose has multi-national operations in Europe, North America, and Asia, and over 800 employees.
The Deroose LOI is subject to completion of standard due diligence and entry into a definitive purchase agreement, which is expected to include commercially standard terms and conditions, including, but not limited to, representations and warranties, covenants, events of default and conditions to closing.
Neither party has provided notice to terminate the agreement.
Stronghold Land Acquisition
On August 30, 2022, the Company entered into a Purchase and Sale Agreement (“PSA”) with Stronghold Power Systems, Inc. (“Stronghold”) to purchase approximately 34 acres of land in Coachella California. The purchase price was $4,300,000, payable as follows: (i) $1,500,000 in cash and (ii) $2,800,000 in restricted shares of common stock of the Company. The stock was issued in the form of prefunded warrants in two tranches: (i) $1,700,000 (695,866 prefunded warrants) issued within five days of entry into the PSA, and (ii) $1,100,000 (450,266 prefunded warrants) at closing of the transaction. The first tranche, issued during the first quarter, was voided on March 31, 2023 when closing of the transaction did not occur. The prefunded warrants per share exercise price was $2.443 which was subject to certain adjustments. Issuance of all securities in this transaction were exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. Under the terms of the agreement, Stronghold was to complete certain permitting, zoning, and infrastructure work by March 31, 2023, to close the transaction.
As at March 31, 2023 the prefunded warrants issued were rescinded and the warrants were rendered null and void as the Company presented termination notice to Stronghold.
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Berry People LLC Binding Letter of Intent
On January 24, the Company announced it has entered a binding letter of intent (“BP LOI”) to acquire Berry People LLC, (“Berry People”), a berry business with an increasingly international footprint and a scalable business model. The acquisition bolsters the AgriFORCE™ Brands division and allows the Company to realize commercial synergies with UN(THINK)™.
Berry People was founded in 2017 by berry industry veterans to create a new platform to meet market demand for a branded, year-round supply of organic and conventional berries. Berry People quickly established a recognized global trade brand and scalable operations, comprised of over 200 retail and foodservice clients and over 100 grower and exporter clients across the US, Canada, Mexico, and Peru. Berry People had net revenues of USD $35.4 (unaudited) million for the year ended December 31, 2022.
The BP LOI states, among other things that:
● the transaction will be subject to completion of due diligence to the Company’s satisfaction and, after satisfactory due diligence, the reaching of agreement on the terms of the purchase pursuant to a definitive purchase agreement, including conditions precedent for closing of the transaction;
● the parties will sign the definitive purchase agreement no later than April 30, 2023⁽⁸⁾, unless agreed to by both parties; and
● Berry People will not enter any negotiations with other parties for a period of three months following the execution of the BP LOI.
(8) Berry People and the Company mutually agreed to be amended the long stop date to August 31, 2023
The BP LOI sets forth a proposed purchase price of $28.0 million, consisting of $18.2 million in cash and $9.8 million in AgriFORCE™ restricted shares, which will be paid at closing to acquire 70% of Berry People’s equity interests. Berry People will have the opportunity for future earnouts during the five years after closing based on future revenue and EBITDA targets associated with agreed upon growth targets.
In collaboration with AgriFORCE™, Berry People aims to further develop backward integration into agricultural production via farming joint ventures and deploy licensed and developed IP as part of a scalable franchising model. The berries market was $9.65 billion in 2021 in the U.S. alone, with growth rates of around 10% or more each year since 2019⁽⁹⁾— a trend that is expected to continue.
(9) As per IRI Integrated Fresh, Latest 52 WE 3/20/2022
Recent Developments
On July 18, 2023, the Company announced a restructuring of management. Ingo Mueller departed from his position as CEO and Chair of the Board. Richard Wong was concurrently appointed as interim CEO, and David Welch and John Meekison each assumed the role of Co-Chair of the Board. Ingo Mueller continues to serve as a director of the Company. The Company is currently evaluating options regarding the appointment of a fulltime CEO.
Status as an Emerging Growth Company

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies.
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We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions from, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (a) the last day of our fiscal year following the fifth anniversary of the closing of the initial public offering, (b) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (c) the last day of our fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or Exchange Act (which would occur if the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or (d) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.

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~~Our Business Plan~~
~~The Company plans to develop its business by focusing on both an organic growth plan and through M&A. The Company’s organic growth plan is focused on four distinct phases:~~
~~AgriFORCE Solutions~~
AgriFORCE Solutions provides consulting services for AgTech knowledge, operational solutions, and research and development (R&D), which is augmented with patented and patent pending controlled-environment agriculture (CEA) and additional agriculture facilities and platforms.
We have taken a strategic and holistic view of agriculture to provide solutions that address the key challenges facing this important industry. We develop and acquire innovative intellectual property (IP) and technology to improve farming. Our expertise goes from seed to table and ranges through the life cycle of a plant—from micropropagation and tissue culture to cultivation—with a proprietary approach that brings together all of the elements, including crops, operations, facilities, systems, and environment designed to allow the plant to reach its full genetic potential.
~~PHASE 1: COMPLETED: 2017-2021~~
● ~~Conceptualization, engineering, and design of facility and systems (Completed).~~
● ~~Completed selection process of key environmental systems with preferred vendors (Completed).~~
● ~~The signing of revenue contracts with the Exclusive Independent Operator (EIO) for the first three facilities completed (Completed).~~
● ~~The arrangement of three offtake agreements signed with Exclusive Independent Operator (EIO) for those three facilities when complete. (Subsequently these agreements were terminated in Q2 2021).~~
● ~~ForceFilm material ordered (Completed).~~
~~PHASE 2: 2022-2024:~~
● ~~Purchase of the land parcel in Coachella, CA~~
● ~~Complete new contracts’ structures for those first three facilities with new independent operators.~~
● ~~Site preparation and utilities infrastructure build out for the campus (up to eight facilities).~~
● ~~Fit out and complete genetics lab for micropropagation, breeding, and R&D to achieve near term revenue (8 months) of the sale of tissue culture clones for variant crops.~~
● ~~Additional raw materials procurement of AgriFORCE IP specific automated grow system, supplemental grow lighting and controls systems, and manufacture of the building envelope materials.~~
● ~~Conceptualization and design of vertical grow solutions in order to develop a small-scale vertical grow house.~~
● ~~Focus on the delivery and installation of the first facility.~~
● ~~Initiate the design of a R&D facility for food solutions and plant-based pharma.~~
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~~PHASE 3: 2024-2027:~~
● ~~Compete construction of first facility and commence operations~~
● ~~Focus on the delivery and installation of the second and third facilities. Proof of quantitative and qualitative benefits are expected to drive both sales pipeline acceleration for subsequent years.~~
● ~~Complete the design and construction of a` R&D facility for food solutions and plant-based pharma. Commence engagement with universities and pharmaceutical companies.~~
● ~~Construct small scale vertical grow house and operate successfully.~~
● Finalize the design and engineering of vertical grow solution with construction commencement late in the third year. Commence engagement with local restaurants and grocery stores and develop a vertical grow house branding strategy.
~~PHASE 4: 2027:~~
● ~~Focus on delivery and installation of additional facilities.~~
● ~~Expand geographic presence into other states whilst also introducing the grow house to other international markets with a view to securing additional locations and markets by year four.~~
● ~~Targeted additional contracts of three facilities.~~
● ~~Commence and complete first vertical grow commercial facility to serve Southern California market by end of year 4.~~
~~The Company’s initial AgriFORCE grow houses are planned to be constructed in California.~~
~~AgriFORCE Brands~~
AgriFORCE Brands division is focused on the development and commercialization of plant-based ingredients and products that deliver healthier and more nutritious solutions. We will market and commercialize both branded consumer product offerings and ingredient supply. This started with the acquisition of the MNG (Manna) intellectual property which is a patent-pending technology to naturally process and convert grains, pulses, and root vegetables. The process results in low-starch, low-sugar, high-protein, fiber-rich baking flour products, and nutrition liquid. The nutrition values of the flour have the potential to transform consumers’ diet in multiple verticals.
MNG Wheat flour has 30 times more fiber, up to 3 times more proteins and less than 15% of the starch as Regular All-Purpose Baking flour as independently tested and conducted by Eurofins Food Chemistry Testing Madison, Inc.
~~PHASE 1: COMPLETED: 2017-2020~~
● ~~Product and Process Testing and Validation (Completed)~~
● ~~Filing of US and International Patent (Completed)~~
● ~~Conceptual Engineering and Preliminary Budgeting on Commercial Pilot Plant (Completed)~~
~~PHASE 2: 2021-2022~~
● ~~Design, Build, Start-up and Operation of the Pilot Plant~~
● ~~Develop Range of Finished Products in Wheat Grain Flours~~
● ~~Collaborate with Nutritional Flour Medical Research Institute (an IRS section 501(c)(3) Medical Research Organization) funded by private & public research grants~~
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~~PHASE 3: 2022-2023~~
● ~~Launch First Range of Products in US/Canada~~
● ~~Drive Business with Finished Products in direct to consumer (“D2C”), Retail, Food Service~~
● ~~Drive Business as Ingredients for Bakery, Snack and Plant Based Protein Products Manufacturers~~
● ~~Develop Manufacturing Base through Partnerships and Licensing~~
● ~~Conceptual Engineering and Preliminary Budgeting on Large-Scale Processing Plant~~
● ~~Develop Range of Finished Products in other Grain Flours, Pulses/Protein Flours and Juices~~
~~PHASE 4: 2024-2025~~
● ~~Expand Product Range in US/Canada~~
● ~~Expand Business to other Geographies (select Markets in Europe, Asia, Latin America)~~
● ~~Design, Build Start-up and Operation of Large-Scale Processing Plan~~
~~Merger and Acquisition (“M&A”)~~
With respect to M&A growth, the Company is creating a separate corporate office to aggressively pursue acquisitions. The Company plans to focus on identifying target companies, which help expand AgriFORCE Brand’s mandate to deliver more nutritious (better for you) crops, ingredients, and plant-based products that are sustainably produced. The Company believes that AgriFORCE Solutions platform of IP and group of companies acquired through M&A can identify opportunities to produce crops more sustainably and that offer unique competitive advantages through the supply chain to ultimately have them converted into ingredients and plant based products or simply sold to consumers through AgriFORCE Brands.
~~Below is a summary of the intended strategy with respect to the Company’s M&A strategy:~~
~~Strategy~~
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FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

Results of Operations

The following discussion should be read in conjunction with the condensed unaudited financial statements for the interim periods ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 respectively, included in this report.

Revenues

The Company has generated no revenue since inception.

Operating Expenses
Operating expenses ~~increased~~decreased in the three months ended ~~September~~June 30, ~~2022~~2023 as compared to ~~September~~June 30, ~~2021~~2022 by ~~$1,028,477~~$1,307,955 or ~~43%~~31%, primarily due to an increase in consulting expenses by $393,212 and an increase in professional fees by $1,036,583 for third party consultants providing services related to financial advisory services and strategic acquisitions, an increase in wages and salaries of $145,618 for additional employees hired post IPO and an increase to sales and marketing expenses of $95,750 for brand recognition, brand identity and graphic design expenses related to un(Think) Food brand. the following:
● Consulting decreased by $469,418 due to a significant decrease in M&A spending during Q2 2023.
● Wages and salaries decreased by $462,740 due to lower executive compensation as well as a reduction in Company head count in Q2 2023.
● Professional fees decreased by $319,347 due to a significant decrease in M&A spending during Q2 2023.
● Investor and public relations decreased by $139,488 due to more investor and public relations advisory services utilized in 2022 for communication on M&A targets than in Q2 2023.
This was partially offset by a decrease in share-based compensation of $347,141 due to increased vesting of options issued in Q2 2021 and a decrease in investor and public relations of $279,080 due to a significant post IPO marketing campaign that began in Q3 2021 and did occur in Q3 2022. All other items aggregate $16,465.the following:
● Depreciation and amortization increased by $166,374 due to the beginning of amortization of the intangible asset which became available for use in January 2023.
● All other items aggregate to $83,336.

Operating expenses ~~increased~~decreased in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as compared to ~~September~~June 30, ~~2021~~2022 by ~~$6,404,280~~$1,245,926 or ~~161%~~18%, primarily due to an increase in wages and salaries by $1,954,797 for additional employees hired post IPO, increase in professional fees by $1,664,732 and consulting expenses of $1,410,034 for third party consultants providing services related to financial advisory services and strategic acquisitions, increase in research and development by $359,655, increase in sales and marketing expenses of $186,132 for public brand recognition, brand identity and graphic design expenses related to un(Think) Food brand, increase in travel and entertainment of $174,874 due to trips related to M&A activity including Delphy Groep BV, increase to lease expense of $166,255 due to office rental that began in late 2021 and an increase in office and administrative expenses by $547,766 for additional insurance and increased costs as the ~~Company entered into growth phase post IPO and increased its staff and operations.~~ following:
● Consulting decreased by $623,398 due to a significant decrease in M&A spending during Q2 2023.
● Research and development decreased by $377,498 due to limited work during 2023 as compared to expenditures paid to RCS in 2022 as well as design and construction fees that were incurred in 2022.
● Wages and salaries decreased by $230,335 due to lower executive compensation as well as a reduction in staff head count in 2023.
● Investor and public relations decreased by $217,059 due to more investor and public relations advisory services utilized in 2022 for communication.
● Professional fees decreased by $133,050 due to a significant decrease in M&A spending during Q2 2023.
This iswas partially offset by ~~other items aggregating $59,965.~~the following:
● Depreciation and amortization increased by $331,607 due to the beginning of amortization of the intangible asset which became available for use in January 2023.
● All other items aggregate to $3,807.

Other (Income) / Expenses
Other ~~expenses~~income for the three months ended ~~September~~June 30, ~~2022 increased~~2023 decreased primarily due to the accretion interest on ~~senior secured~~ debentures of ~~$1,631,653.~~$2,107,808. This was offset by the change in fair value of derivative liabilities of ~~$646,067~~$1,783,489 from a ~~decreased stock price and a~~significant decrease in ~~issuance cost related to warrants of $375,123.~~securities price during the period. All other items aggregate ~~$65,928.~~to $68,023.

Other income for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 increased primarily due to the change in fair value of derivative liabilities of ~~$864,529~~$5,614,563 from a ~~decreased stock price and a~~significant decrease in ~~issuance cost related to warrants of $375,123.~~securities price during the period. This was offset by ~~an increase in~~the accretion interest on ~~senior secured~~ debentures of ~~$1,204,293.~~$3,980,278 as well as the loss on debt conversions of $433,605. All other items aggregate ~~$163,627.~~to $30,240.

Liquidity and Capital Resources

The Company’s primary need for liquidity is to fund working capital requirements, capital expenditures, and for general corporate purposes. The Company’s ability to fund operations and make planned capital expenditures and debt service obligations depends on future operating performance and cash flows, which are subject to prevailing economic conditions, financial markets, business and other factors. We have recorded a net loss of ~~$10,120,501~~$4,247,025 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and a net loss of ~~$3,915,207~~$6,723,871 for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. We have recorded an accumulated deficit of ~~$30,021,493~~$37,021,119 as of ~~September~~June 30, ~~2022~~2023 and ~~$19,900,992~~$32,774,094 as of December 31, ~~2021.~~2022. Net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022 was $4,339,996 and ~~September 30, 2021 was $8,859,587 and $3,017,468,~~$5,058,002, respectively.

~~We had $7,869,028~~The Company held $1,005,340 in cash as at ~~September~~June 30, ~~2022~~2023 as compared to ~~$7,775,290 as~~$2,269,320 at December 31, ~~2021.~~
2022.

2224

Our future capital requirements will depend on many factors, including:

● the cost and timing of our regulatory activities, especially the process to obtain regulatory approval for our intellectual properties in the U.S. and in foreign countries
● the costs of R&D activities we undertake to further develop our technology
● the costs of constructing our grow houses, including any impact of complications, delays, and other unknown events
● the costs of commercialization activities, including sales, marketing and production
● the level of working capital required to support our growth
● our need for additional personnel, information technology or other operating infrastructure to support our growth and operations as a public company
● completion of planned acquisitions

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. The Company is at the stage of development of its first facility and other IP. As such it is likely that additional financing will be needed by the Company to fund its operations and to develop and commercialize its technology. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

For the next twelve months from issuance of these financial statements, the Company will seek to obtain additional capital through the sale of debt or equity financings or other arrangements to fund operations; however, there can be no assurance that the Company will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common shares. Issued debt securities may contain covenants and limit the Company’s ability to pay dividends or make other distributions to shareholders. If the Company is unable to obtain such additional financing, future operations would need to be scaled back or discontinued. Due to the uncertainty in the Company’s ability to raise capital, management believes that there is substantial doubt in the Company’s ability to continue as a going concern for twelve months from the issuance of these financial statements.

Cash Flows

The net cash used by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022 is attributable~~2023 was $4,339,996 compared to an increase operating costs associated with an increase in wages and salaries by $1,954,797 for additional employees hired post IPO, increase in professional fees by $1,664,732 and consulting expenses of $1,410,034 for third party consultants providing services related to financial advisory services and strategic acquisitions. The resulting net loss was adjusted primarily by non-cash expenses related to accretion of interest on senior secured debentures of $1,688,672, share based compensation of $282,828, shares issued for consulting services of $708,162, and shares issued for bonus and compensation of $432,054. This was partially offset by a non-cash change in the fair value of derivative liabilities of $1,683,489. Changes in operating assets and liabilities decreased$5,058,002 for the ~~nine~~six months ended ~~September~~June 30, ~~2022 which~~2022. The change of $718,006 was ~~mainly~~primarily due to ~~lease liabilities decrease of $255,731 and offset by right-of-use asset of $249,038 with all other items aggregating $189,383. For~~ the nine months ending September 30, 2021 net cash used by operating activities was attributable to an increase in operating costs associated with an increase in wages and salaries by $409,112 for additional employees hired post IPO, increase in consulting expenses of $258,200 for third party consultants providing services related to financial advisory services, increase in office and administrative expenses of $292,237 as the Company entered into growth phase post IPO and an increase in investor and public relations expense of $403,177 due to a significant post IPO marketing campaign that began in Q3 2021. The resulting net loss was adjusted primarily by non-cash expenses related to shared based compensation of $571,398, accretion of interest on senior secured debentures of $484,379, shares issued for consulting services amounting to $298,214, and loss on extension of debt term amounting to $59,055. following:
● A decrease in net loss of $2,476,846 due to operating expenses noted above.
● Non-cash items such as an increase in amortization of debt discounts of $3,808,460, depreciation and amortization of $331,607 as well as loss on debt conversion of $433,605.
This was offset by the change in fair value of derivative liabilities of $818,960. Changes in operating assets and liabilities decreased for the nine months ended September 30, 2021 which was caused by prepaid expenses and deposits of $266,832 from an office lease deposit and increased prepaid insurance and other items aggregating $22,574. This was offset by accounts payable and accrued liabilities increase of $210,330 due to accrued bonus’ and directors’ fees.following:
● Change in fair value of derivatives of $5,614,563 due to a significant decrease in securities price during the period.
● Decrease of shares issued for consulting services of $594,927 due to significant M&A work in 2022 while less work took place in 2023.
● An unfavorable change in working capital of $75,808 driven by an advance paid to RCS which was partially offset by the utilization of a prepaid retainer balance related to an investor relations campaign that took place in Q2 2023.
● All other items aggregate to $47,214.

There was $nil cash used in investing activities for the six months ended June 30, 2023. The net cash used in investing activities for ~~nine~~six months ended ~~September~~June 30, 2022 iswas related to the payment against acquisition of IP intangible asset of $500,000 and acquisition of equipment and leasehold ~~improvement~~improvements amounting to ~~$93,259 due to increased staffing~~$92,479 and office renovations, respectively. The net cash used in investing activities for nine months ended September 30, 2021 is related to the payment against acquisition of IP intangible asset of $225,000 and payment$50,000 paid for construction in ~~progress of $744,191.~~progress.

Net cash provided by financing activities for the six months ended June 30, 2023, represents net proceeds from debentures of $4,615,385 as well as common shares issued for cash of $565,741. This was partially offset by repayments on convertible debentures of $1,741,950, financing costs of debentures of $325,962 and share issuance costs of $16,142. Net cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, 2022 represents ~~net proceeds from~~transaction costs paid related to debentures of $12,750,000. This was partially offset by financing costs of debentures of $1,634,894 and repayments and interest paid on convertible debentures of $1,122,000 and $173,376, respectively. Cash flow from financing activities for the nine months ended September 30, 2021 mainly represents proceeds from the IPO net of underwriting discount and issue costs of $13,360,616, proceeds from issuance of senior secured debentures, net of transactions costs of $531,000, as well as proceeds from long-term loan of $15,932 which was offset by repayment of senior secured debentures of $750,000.$35,000.

Recent Financings

On ~~March 24, 2021,~~January 17, 2023, the Company entered into a securities purchase agreement with certain accredited investors for the purchase of $750,000 in principal amount ($600,000 subscription amount) of senior secured debentures originally due June 24, 2021.Debenture Investors purchased additional tranches totaling $5,076,923 and received 2,661,289 warrants. The ~~debentures~~convertible Debentures and Debenture Warrants were issued ~~pursuant to Section 4(a)(2)~~with an exercise price of $1.24. The issuance of the ~~Securities Act~~additional tranches triggered the down round provision, adjusting the exercise prices of ~~1933, as amended, to certain purchasers who are accredited investors within~~ the ~~meaning of Rule 501 under the Securities Act of 1933, as amended. On June 24, 2021, the due date was extended,~~First Tranche Debentures and the ~~senior secured debentures were repaid in full on July 13, 2021.~~First Tranche Debenture Warrants to $1.24.

23
~~On July 12, 2021,~~During June 2023, the Company ~~completed its IPO whereby it sold~~issued common shares for cash under the ATM agreement net of issuance costs for a total of ~~3,127,998 units, each consisting~~$299,599. The issuance further triggered the down round provision, adjusting the exercise prices of ~~one common share~~the First and ~~one Series A warrant~~Second Tranche Debentures as well as the First and Second Tranche Debenture Warrants to purchase one common share, at a public offering price of $5.00 for gross proceeds of $15,639,990. The Company received net proceeds from the IPO of $14,388,791, after deducting underwriting discounts and commissions of $1,251,199.$0.30.

On June ~~30, 2022,~~20, 2023 the Company entered ~~into security purchase agreements~~in to a private placement agreement to issue 1,000,000 common shares with ~~certain accredited investors~~an additional 1,000,000 warrants for total consideration of $250,000.
During July 2023, the ~~purchase~~Company issued 1,733,124 common shares for cash under the ATM agreement for gross proceeds of ~~$14,025,000 in principal amount~~$249,042. The shares issued under the ATM triggered the down round provision, adjusting the exercise prices of ~~convertible debentures due December 31, 2024. On July 7, 2022, $12,750,000~~the First and Second Tranche Debentures as well as the First and Second Tranche Warrants to $0.13.
During August 2023, the Company issued 2,021,336 common shares for cash under the ATM agreement for gross proceeds of ~~proceeds were received net~~$303,638. The shares issued under the ATM triggered the down round provision, adjusting the exercise prices of ~~$1,275,000 in original issuance discount, less financing costs of $1,634,894.~~the First and Second Tranche Debentures as well as the First and Second Tranche Warrants to $0.12.

25
Off Balance Sheet Arrangements

None.

Significant Accounting Policies

See the footnotes to our unaudited financial statements for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, included with this quarterly report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2022. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework in the 2013 COSO framework. Based on this assessment, management concluded that our disclosure controls and procedures were effective.

Changes in Internal Controls.

There have been no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2022,~~2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

2426
PART II — OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings, see Note 1112 to the unaudited condensed consolidated financial statements included under Part I, Item 1 of this report.

Item 1A. Risk Factors

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On ~~July~~January 1, ~~2022,~~2023, the Company issued 12,500 common shares to a ~~consultant~~consultant.
On January 3, 2023, the Company issued 1,637,049 common shares upon conversion of prefunded warrants.
On January 17, 2023, the Company issued 250,000 common shares upon conversion of convertible debt.
On January 23, 2023, the Company issued 350,000 common shares upon conversion of convertible debt.
On January 24, 2023, the Company issued 100,807 common shares upon conversion of convertible debt.
On March 2, 2023, the Company issued 10,000 common shares upon conversion of convertible debt.
On March 31, 2023, the Company issued 155,898 common shares as part of compensation to Company officers.
On March 31, 2023, the Company issued 2,500 common shares to a ~~total~~consultant.
On April 1, 2023, the Company issued 193,823 common shares upon conversion of ~~25,000~~prefunded warrants.
On April 1, 2023, the Company issued 12,500 common ~~shares.~~shares to a consultant.
On June 1, 2023, the Company issued 1,805,528 common shares upon conversion of convertible debt.
On June 12, 2023, the Company issued 316,593 common shares upon conversion of prefunded warrants.
On June 20, 2023, the Company issued 1,000,000 common shares to a shareholder in a private placement.

On July 1, ~~2022,~~2023, the Company issued ~~17,707~~3,432,261 common shares upon conversion of convertible debt in lieu of repayment in cash.
On July 1, 2023, the Company issued 5,000 common shares to a consultant.
On July 1, 2023, the Company issued 395,403 common shares upon conversion of prefunded warrants.
On July 6, 2023, the Company issued 832,261 common shares upon conversion of convertible debt in lieu of repayment in cash.
On July 13, 2023, the Company issued 479,800 common shares upon conversion of convertible debt in lieu of repayment in cash.
On July 31, 2023, the Company issued 375,906 common shares as part of compensation to ~~an employee.~~Company officers.
On July ~~5, 2022,~~31, 2023, the Company issued ~~14,657~~12,500 common shares ~~as part of compensation~~ to ~~an officer of the Company.~~
~~On August 4, 2022, the Company repurchased 16,875 common shares that was originally paid as compensation to an officer of the Company.~~a consultant.

On August ~~24, 2022,~~1, 2023, the Company issued ~~22,523~~5,478,056 common shares upon conversion of convertible ~~debt.~~debt in lieu of repayment in cash.

On ~~September~~August 2, ~~2022,~~2023, the Company issued ~~45,045~~660,361 common shares upon conversion of convertible ~~debt.~~
~~On September 30, 2022, the Company issued 60,910 common shares as part~~debt in lieu of ~~compensation to Company’s officers.~~repayment in cash.
~~On September 30, 2022, the Company issued to a consultant a total of 5,000 common shares.~~
~~On October 1, 2022, the Company issued to a consultant a total of 25,000 common shares.~~
Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
~~31.2~~ Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
~~32.2~~ Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.ins Inline XBRL Instance Document**
101.sch Inline XBRL Taxonomy Schema Document**
101.cal Inline XBRL Taxonomy Calculation Document**
101.def Inline XBRL Taxonomy Linkbase Document**
101.lab Inline XBRL Taxonomy Label Linkbase Document**
101.pre Inline XBRL Taxonomy Presentation Linkbase Document**
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Furnished herewith
** Filed herein

2527
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AGRIFORCE GROWING SYSTEMS, LTD.

Date: ~~November 10, 2022~~ ~~By:~~ ~~/s/ Ingo Mueller~~
~~Name:~~ ~~Ingo Mueller~~
~~Title:~~ ~~Chief Executive Officer and Director (Principal Executive Officer)~~
~~Date: November 10, 2022~~August 3, 2023 By: /s/ Richard Wong
Name: Richard Wong
Title: Interim Chief Executive Officer and Chief Financial Officer ~~(Principal Financial and Accounting Officer)~~

2628


��	For the three months ended September 30
	Common shares					Series A Preferred Shares						Additional		Obligation					Accumulated other			Total
	# of Shares		Amount			# of Shares			Amount			paid-in- capital		to issue shares		Accumulated deficit			comprehensive income			shareholders’ equity
Balance, July 1, 2022		15,514,629	$	26,710,990			-			-		$	10,123,315	$	-	$	(26,624,863	)	$	(66,179	)	$	10,143,263
Shares issued for conversion of convertible debt (Note 6 & 9)		67,568		131,532			-			-			-		-		-			-			131,532
Shares issued for compensation and bonuses (Note 9)		76,399		100,564			-			-					-		-			-			100,564
Share based consulting services (Note 9)		30,000		59,500			-			-			-		-		-			-			59,500
Share based compensation													68,456										68,456
Prefunded warrants issued (Note 3 & 4)		-		-			-			-			3,376,946		-		-			-			3,376,946

Net loss		-		-			-			-			-		-		(3,396,630	)		-			(3,396,630	)
Foreign currency translation		-		-			-			-			-		-		-			(566,414	)		(566,414	)
Balance, September 30, 2022		15,688,596	$	27,002,586			-			-		$	13,568,717	$	-	$	(30,021,493	)	$	(632,593	)	$	9,917,217
Balance, July 1, 2021		9,542,769	$	7,022,883			2,258,826		$	6,717,873		$	1,453,367	$	94,885	$	(15,145,791	)	$	126,803		$	270,020
Shares issued for cash		3,127,998		13,262,712			-			-			-		-		-			-			13,262,712
Shares issued for conversion of Series A Preferred Stock		2,258,826		6,717,873			(2,258,826	)		(6,717,873	)		-		-		-			-			-
Shares issued on exercise of warrants		39,800		238,800			-			-			44,644		-		-			-			283,444
Shares issued for consulting services		15,000		69,300			-			-			-		7,460		-			-			76,760
Share issued for settlement of accrued director’s fee		19,992		46,783			-			-			-		-		-			-			46,783
Shares issued for dividend on Preferred Shares		53,474		203,674			-			-			-		-		(203,674	)		-			-
Share issue costs		-		(2,099,842	)		-			-			-		-		-			-			(2,099,842	)
Share based compensation		-		-			-			-			415,597		-		-			-			415,597
Net loss		-		-			-			-			-		-		(1,823,618	)		-			(1,823,618	)
Foreign currency translation		-		-			-			-			-		-		-			(228,317	)		(228,317	)
Balance, September 30, 2021		15,057,859	$	25,462,183			-		$	-		$	1,913,608	$	102,345	$	(17,173,083	)	$	(101,514	)	$	10,203,539


	For the three months ended June 30
	Common shares				Additional paid-in-			Obligation to issue			Accumulated			Accumulated other comprehensive			Total shareholders’
	# of Shares		Amount		capital			shares			deficit			income			equity

Balance, April 1, 2023		18,314,552	$	31,283,690	$	11,947,606		$	-		$	(34,494,147	)	$	(527,824	)	$	8,209,325
Shares issued for conversion of convertible debt (Note 7)		1,805,528		695,128		-			-			-			-			695,128
Shares issued for compensation (Note 10)		-		-		-			97,837			-			-			97,837
Shares issued for cash, net of issuance costs (Note 10)		1,073,770		299,599		-			-			-			-			299,599
Shares issued in private placement (Note 10)		1,000,000		204,880		-			-			-			-			204,880
Shares issued for consulting services		12,500		26,000		-			-			-			-			26,000
Shares issued on conversion of vested prefunded warrants (Note 5)		510,416		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		22,716,766	$	33,086,067	$	11,478,156		$	97,837		$	(37,021,119	)	$	(331,705	)	$	7,309,236

Balance, April 1, 2022		15,247,012	$	25,822,735	$	2,361,325		$	93,295		$	(23,182,278	)	$	(44,987	)	$	5,050,090

Shares issued for consulting services		188,770		653,886		-			(93,295	)		-			-			560,591
Shares issued for bonus and compensation		78,847		234,369		-			-			-			-			234,369
Share based compensation		-		-		56,390			-			-			-			56,390
Prefunded warrants issued (Note 5)		-		-		7,705,600			-			-			-			7,705,600
Net loss		-		-		-			-			(3,442,585	)		-			(3,442,585	)
Foreign currency translation		-		-		-			-			-			(21,192	)		(21,192	)
Balance, June 30, 2022		15,514,629	$	26,710,990	$	10,123,315		$	-		$	(26,624,863	)	$	(66,179	)	$	10,143,263

	For the nine months ended September 30
	Common shares					Series A Preferred Shares						Additional		Obligation						Accumulated other			Total
	# of Shares		Amount			# of Shares			Amount			paid-in- capital		to issue shares			Accumulated deficit			comprehensive income			shareholders’ equity
Balance, January 1, 2022		15,176,698	$	25,637,543			-		$	-		$	2,203,343	$	93,295		$	(19,900,992	)	$	(33,086	)	$	8,000,103
Shares issued for conversion of convertible debt (Note 6 & 9)		67,568		131,532			-			-			-		-			-			-			131,532
Shares issued for bonuses and compensation (Note 9)		184,563		432,054			-			-			-		-			-			-			432,054
Shares issued for consulting services (Note 9)		259,767		801,457			-			-			-		(93,295	)					-			708,162
Prefunded warrants issued (Note 3 & 4)		-		-			-			-			11,082,546		-			-			-			11,082,546
Share based compensation													282,828											282,828
Net loss		-		-			-			-			-		-			(10,120,501	)		-			(10,120,501	)
Foreign currency translation		-		-			-			-			-		-			-			(599,507	)		(599,507	)
Balance, September 30, 2022		15,688,596	$	27,002,586			-			-		$	13,568,717	$	-		$	(30,021,493	)	$	(632,593	)	$	9,917,217
Balance, January 1, 2021		8,441,617	$	5,696,050			2,258,826		$	6,717,873		$	1,297,566	$	94,885		$	(12,521,944	)	$	119,054		$	1,403,484
Shares issued for cash		3,127,998		13,262,712			-			-			-		-			-			-			13,262,712
Shares issued for conversion of Series A Preferred Stock		2,258,826		6,717,873			(2,258,826	)		(6,717,873	)		-		-			-			-			-
Shares issued on exercise of warrants		39,800		238,800			-			-			44,644		-			-			-			283,444
Shares issued for cashless exercise of options		820,029		-			-			-			-		-			-			-			-
Shares issued for bonus		98,356		514,066			-			-			-		-			-			-			514,066
Shares issued for consulting services		62,237		349,809			-			-			-		7,460			-			-			357,269
Share issued for settlement of accrued director’s fee		19,992		46,783			-			-			-		-			-			-			46,783
Shares issued for dividend on Preferred Shares		189,004		735,932			-			-			-		-			(735,932	)		-			-
Share issue costs		-		(2,099,842	)		-			-			-		-			-			-			(2,099,842	)
Share based compensation		-		-			-			-			571,398		-			-			-			571,398
Net loss		-		-			-			-			-		-			(3,915,207	)		-			(3,915,207	)
Foreign currency translation		-		-			-			-			-		-			-			(220,568	)		(220,568	)
Balance, September 30, 2021		15,057,859	$	25,462,183			-		$	-		$	1,913,608	$	102,345		$	(17,173,083	)	$	(101,514	)	$	10,203,539


	For the six months ended June 30
	Common shares				Additional paid-in-			Obligation to issue			Accumulated			Accumulated other comprehensive			Total shareholders’
	# of Shares		Amount		capital			shares			deficit			income			equity

Balance, January 1, 2023		15,795,798	$	27,142,762	$	16,816,695		$	-		$	(32,774,094	)	$	(642,710	)	$	10,542,653
Shares issued for conversion of convertible debt (Note 7)		2,516,335		1,743,701		-			-			-			-			1,743,701
Shares issued for compensation (Note 10)		155,898		105,512		-			97,837			-			-			203,349
Shares issued for cash, net of issuance costs (Note 10)		1,073,770		299,599		-			-			-			-			299,599
Shares issued in private placement (Note 10)		1,000,000		204,880		-			-			-			-			204,880
Shares issued for consulting services		27,500		53,735		-			-			-			-			53,735
Shares issued on conversion of vested prefunded warrants (Note 5)		2,147,465		3,535,878		(3,535,878	)		-			-			-			-
Cancelled prefunded warrants (Note 3)		-		-		(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		22,716,766	$	33,086,067	$	11,478,156		$	97,837		$	(37,021,119	)	$	(331,705	)	$	7,309,236

Balance, January 1, 2022		15,176,698	$	25,637,543	$	2,203,343		$	93,295		$	(19,900,992	)	$	(33,086	)	$	8,000,103
Balance		15,176,698	$	25,637,543	$	2,203,343		$	93,295		$	(19,900,992	)	$	(33,086	)	$	8,000,103

Shares issued for consulting services (Note 10)		229,767		741,957		-			(93,295	)		-			-			648,662
Shares issued for bonus and compensation (Note 10)		108,164		331,490		-			-			-			-			331,490
Share based compensation		-		-		214,372			-			-			-			214,372
Prefunded warrants issued (Note 5)		-		-		7,705,600			-			-			-			7,705,600
Net loss		-		-		-			-			(6,723,871	)		-			(6,723,871	)
Foreign currency translation		-		-		-			-			-			(33,093	)		(33,093	)
Balance, June 30, 2022		15,514,629	$	26,710,990	$	10,123,315		$	-		$	(26,624,863	)	$	(66,179	)	$	10,143,263
Balance		15,514,629	$	26,710,990	$	10,123,315		$	-		$	(26,624,863	)	$	(66,179	)	$	10,143,263

	2022			2021
	For the nine months ended September 30,
	2022			2021

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period	$	(10,120,501	)	$	(3,915,207	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		15,706			7,606
Share based compensation		282,828			571,398
Shares issued for consulting services		708,162			298,214
Accretion of interest on senior secured debentures		1,688,672			484,379
Issuance cost related to warrants		-			375,123
Loss on extension of debt term		-			59,055
Shares issued for compensation and bonuses		432,054			-
Change in fair value of derivative liabilities		(1,683,489	)		(818,960	)
Gain on debt conversion		(93,973	)		-
Changes in operating assets and liabilities:
Other receivables		(14,411	)		(22,574	)
Prepaid expenses and other current assets		(60,914	)		(266,832	)
Accounts payable and accrued liabilities		(35,791	)		210,330
Right-of-use asset		249,038			-
Lease liabilities		(255,731	)		-
Net cash used in operating activities		(8,888,350	)		(3,017,468	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and leasehold improvements		(93,259	)		(17,866	)
Payment against acquisition of intangibles		(500,000	)		(225,000	)
Refund for purchase of land		20,000			-
Construction in progress		(50,000	)		(744,191	)
Net cash used in investing activities		(623,259	)		(987,057	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debentures – net of discount		12,750,000			-
Repayment of convertible debentures		(1,122,000	)
Interest paid on convertible debentures		(173,376	)
Financing costs of debentures		(1,634,894	)		(69,000	)
Proceeds from Initial Public Offering		-			15,639,990
Payment of IPO costs		-			(2,279,374	)
Proceeds from exercise warrants		-			238,800
Proceeds from issuance of senior secured debentures		-			600,000
Proceeds from long-term loan		-			15,932
Repayment of Senior Secured Debentures		-			(750,000	)
Net cash used in financing activities		9,819,730			13,396,348

Effect of exchange rate changes on cash and cash equivalent		(214,383	)		(210,717	)
Change in cash		93,738			9,181,106
Cash, beginning of period		7,775,290			653,410
Cash, end of period	$	7,869,028		$	9,834,516

Supplemental cash flow information:
Cash paid during the period for interest		173,376			-

Supplemental disclosure of non-cash investing and financing transactions
Fair value of warrant liability		-			374,028
Fair value of debenture warrants		4,342,877			-
Fair value of conversion feature of debentures		2,249,000			-
Prefunded warrants issued related to intangible assets		8,996,586			-
Prefunded warrants issued related to land deposit		2,085,960			-
Shares issued for conversion of convertible debt		131,532			-
Preferred stock dividend paid in common shares		-			735,932
Initial operating lease liability recognized under Topic 842		1,776,599			-
Initial lease right-of-use asset recognized under Topic 842		1,837,782			-
Conversion of Series A preferred stock to common shares		-			6,717,873
Unpaid amount related to intangible assets included in accrued expenses		-			500,000


	For the six months ended June 30,
	2023			2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period	$	(4,247,025	)	$	(6,723,871	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		340,599			8,992
Share based compensation		283,299			214,372
Shares issued for consulting services		53,735			648,662
Shares issued for compensation		105,512			331,490
Amortization of debt issuance costs		3,808,460			-
Change in fair value of derivative liabilities		(5,833,025	)		(218,462	)
Loss on debt conversion		433,605			-
Write-off of deposit		12,000			-
Obligation to issue shares		97,837			-
Changes in operating assets and liabilities:
Other receivables		(12,857	)		(15,016	)
Prepaid expenses and other current assets		388,318			232,238
Advance		(225,000	)		-
Accounts payable and accrued liabilities		446,943			478,645
Right-of-use asset		57,428			103,074
Lease liabilities		(49,825	)		(118,126	)
Net cash used in operating activities		(4,339,996	)		(5,058,002	)

CASH FLOWS FROM INVESTING ACTIVITIES
Payment towards acquisition of intangibles		-			(500,000	)
Acquisition of equipment and leasehold improvements		-			(92,479	)
Construction in progress		-			(50,000	)
Net cash used in investing activities		-			(642,479	)

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		4,615,385			-
Repayment of convertible debentures		(1,741,950	)		-
Financing costs of debentures		(325,962	)		(35,000	)
Net cash provided by (used in) financing activities		3,097,072			(35,000	)

Effect of exchange rate changes on cash and cash equivalent		(21,056	)		(42,899	)
Change in cash		(1,263,980	)		(5,778,380	)
Cash, beginning of period		2,269,320			7,775,290
Cash, end of period	$	1,005,340		$	1,996,910

Supplemental cash flow information:
Cash paid during the period for interest	$	171,818		$	-

Supplemental disclosure of non-cash investing and financing transactions
Shares issued for conversion of convertible debt	$	1,743,701		$	-
Reclassified accrued construction in progress fees	$	39,875		$	-
Initial fair value of debenture warrants (“Second Tranche Warrants”)	$	2,378,000		$	-
Initial fair value of conversion feature of debentures (“Second Tranche Debentures”)	$	1,599,000		$	-
Initial fair value of debenture warrants (“First Tranche Warrants”)	$	-		$	4,080,958
Initial fair value of conversion feature of debentures (“First Tranche Debentures”)	$	-		$	3,336,535
Debt receivable				$	11,910,000
Prefunded warrants issued related to intangible assets	$	-		$	7,705,600
Unpaid financing cost	$	-		$	1,600,312
Initial operating lease liability recognized under Topic 842	$	-		$	1,776,599
Initial lease right-of-use asset recognized under Topic 842	$	-		$	1,837,782

(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.

●	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.

	September 30, 2022		December 31, 2021		June 30, 2023		December 31, 2022
Deposits	$	12,000	$	32,000	$	-	$	12,000
Legal retainer		12,228		33,692		11,713		24,457
Prepaid expenses		334,734		214,445		88,596		436,496
Deferred offering costs						96,050		100,337
Others		25,992		28,903		1,665		25,052
	$	384,954	$	309,040
Prepaid expenses, other current assets					$	198,024	$	598,342

	(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.

	~~(i)~~	Prefunded Warrants (“Closing Prefunded Warrants”), which will be immediately exercisable into common shares of the Company upon each of the vesting events set forth below, equal to the number of shares of Purchaser’s common stock (rounded up to the nearest whole number), restricted as to resale under Section 4(a)(2) of the Securities Act, equal to the quotient of (a)(i) $3,500,000 divided by (ii) a per share price equal to the average of the volume weighted average price (“VWAP”) of the Purchaser’s common shares for the ten trading days immediately preceding March 10, 2022 (or $1.79 per share) (“Closing Tranche 1”) (issued), and (b)(i) $1,500,000 divided by (ii) a per share price equal to the average of the VWAP of the Purchaser’s common shares for the ten trading days immediately preceding the date on which patent resubmission work for the patents set forth in the Agreement is completed (“Closing Tranche 2”). Closing Tranche 1 of the Prefunded Warrants will be issued immediately upon shareholder approval of the transactions contemplated by the Agreement and Amendment, in compliance with all SEC and Nasdaq rules and regulations (“Shareholder Approval”). Closing Tranche 2 of the Prefunded Warrants will be issued immediately following the date on which patent resubmission work for the patents set forth in the Agreement is completed. In each case, the Closing Prefunded Warrants will be paid in full upon issuance. The Closing Prefunded Warrants and any shares issued upon exercise of the Closing Prefunded Warrants are restricted as to resale and issued under a private placement exempt from registration under Section 4(a)(2) of the Securities Act, and will vest on a quarterly basis over eight quarters commencing on the three-month anniversary of the Closing Date in equal amounts over eight consecutive calendar quarters;

	~~(ii)~~	$~~1,475,000~~ ~~in cash ($750,000~~ ~~paid October 11, 2022), minus any amounts paid to MNG under (iii), payable to MNG at Closing;~~

	~~(iii)~~	$725,000 in cash payable follows: (a) $225,000 payable on the Effective Date (paid); and (b) $500,000 payable within 120 days after the Effective Date (paid), to reimburse MNG for, without limitation, satisfaction of all the secured debt as listed in Section 2.04 of the Disclosure Schedules to the Agreement (the “Secured Debt”); and

	~~(iv)~~	Prefunded Warrants (“Post-Closing Prefunded Warrants,” and collectively with the Closing Prefunded Warrants, the “Prefunded Warrants”), which will be immediately exercisable into common shares of the Company upon the vesting events set forth below, equal to the number of shares of Purchaser’s common stock (rounded up to the nearest whole number), restricted as to resale under Section 4(a)(2) of the Securities Act, to be issued in two tranches, that equals (i) $8,000,000 divided by (ii) a per share price equal to the VWAP of the Purchaser’s common shares for the ten trading days immediately before the issuance date of those Post-Closing Prefunded Warrants (or $2.43 per share). $5,000,000 of the Post Closing Prefunded Warrants will be issued to Seller on June 30, 2022 (issued). $3,000,000 of the Post-Closing Prefunded Warrants will be issued to Seller on December 31, 2022. In each case, the Post-Closing Prefunded Warrants will be paid in full upon issuance. If a Patent is issued within 24 months of the Closing Date, and such Patent is transferred to the Purchaser free and clear of all Encumbrances, then the Post-Closing Prefunded Warrants will vest and become exercisable in four equal amounts commencing on the date of issuance of the Patent and then for the three subsequent three-month anniversaries thereof. If a Patent does not issue from the CERES-MNG Patent Application within 24 months from the Closing Date, the Post-Closing Prefunded Warrants will be returned to the Purchaser, and the Purchase Price shall be adjusted downward dollar for dollar. All Post-Closing Prefunded Warrants are subject to Shareholder Approval before vesting can occur.

Period ending:	Amount
Remaining 2023	$	334,748
2024		669,496
2025		669,496
2026		669,496
2027		669,496
Subsequent years		10,042,444
Total	$	13,055,176

	September 30, 2022		December 31, 2021
Accounts payable	$	445,186	$	414,117
Accrued expenses		350,698		981,027
Others		200,637		137,168
Accounts payable and accrued liabilities	$	996,521	$	1,532,312

	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 $0.45 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)	Upon the Company’s receipt of a further shareholder approval, the Base Conversion Price shall be lowered to the lowest price at which the Company has issued a common share or a right to acquire common shares.
	6)	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 $0.25 per common share and two-year warrant (with a per share exercise price of $0.50, and no registration rights).
	7)	The Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder; 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.

	Maturity	Cash Interest Rate			September 30, 2022			Maturity	Cash Interest Rate		June 30, 2023			December 31, 2022
Principal (initial)	12/31/2024		5.00% - 8.00	%	$	14,025,000
Principal (First Tranche Debentures)								12/31/2024	5.00% - 8.00	%	$	14,025,000		$	14,025,000
Principal (Second Tranche Debentures)								17/07/2025	5.00% - 8.00	%		5,076,923			-
Repayments and conversions						(1,272,000	)					(6,139,350	)		(2,955,000	)
Debt issuance costs and discounts (Note 6 & 8)						(8,670,613	)
Debt issuance costs and discounts (Note 7 & 9)												(7,787,435	)		(7,128,084	)
Total Debentures (current)					$	4,082,387					$	5,175,138		$	3,941,916

										Level 1			Level 3			Level 3
	Debenture Warrants			Debenture Convertible Feature			Total			Equity Warrants			Debenture Warrants			Debenture Convertible Feature			Total
Beginning balance	$	-		$	-		$	-
Balance at January 1, 2023										$	275,115		$	2,917,000		$	1,457,000		$	4,649,115
Additions		4,080,958			3,336,535			7,417,493			45,120			2,378,000			1,599,000			4,022,120
Conversions		-			(63,723	)		(63,723	)		-			-			(194,492	)		(194,492	)
Change in fair value		(191,957	)		(850,992	)		(1,042,949	)		(167,527	)		(4,579,136	)		(1,086,362	)		(5,833,025	)
Effect of exchange rate changes		(239,001	)		(172,820	)		(411,821	)		8,903			(10,864	)		29,854			27,893
Balance at September 30, 2022	$	3,650,000		$	2,249,000		$	5,899,000
Balance at June 30, 2023										$	161,611		$	705,000		$	1,805,000		$	2,671,611

	Nine months ended September 30, 2022
	# of shares		Amount
Common shares issued for bonuses and compensation		184,563	$	432,054
Common shares issued for conversion of convertible debt		67,568		131,532
Common shares issued to consultants		259,767		801,457
Total common shares issued		511,898	$	1,365,043

	Nine months ended September 30, 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 options		820,029		-
Common shares issued for bonus		98,356		514,066
Common shares issued for consulting services		62,237		349,809
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		6,616,242	$	19,766,133

	September 30, 2022		September 30, 2021		June 30, 2023		June 30, 2022
Warrants		9,876,680		5,864,200		13,537,969		9,876,680
Options		635,569		724,037		1,339,024		641,730
Convertible debentures		5,744,595		-		45,250,548		6,317,567
Total anti-dilutive weighted average shares		16,256,844		6,588,237		60,127,541		16,835,977

	Nine months ended September 30, 2022		Six months ended June 30, 2023		Six months ended June 30, 2022
Operating lease cost	$	226,098	$	145,795	$	152,072
Short-term lease cost		12,630		3,479		7,363
Total lease expenses	$	238,728	$	149,274	$	159,435


Remaining 2023	$	139,347
2024		286,847
2025		303,155
2026		303,155
2027		303,155
Subsequent years		530,521
Total minimum lease payments		1,866,180
Less: imputed interest		(394,835	)
Total lease liability		1,471,345
Current portion of lease liability		(280,052	)
Non-current portion of lease liability	$	1,191,293


Remaining 2022	$	66,677
2023		267,886
2024		277,074
2025		292,826
2026		292,826
Subsequent years		805,272
Total minimum lease payments		2,002,561
Less: imputed interest		(481,693	)
Total lease liability		1,520,868
Current portion of lease liability		(244,358	)
Non-current portion of lease liability	$	1,276,510


2022	$	1,683,000
2023		6,732,000
2024		4,338,000
Long Term Debt	$	12,753,000


Remaining 2023	$	5,348,538
2024		6,395,573
2025		1,218,462
Long Term Debt	$	12,962,573

	-	High protein, high fiber, low carb modern, heritage and ancient grain flours (for use in breads, baked goods, doughs, pastry, snacks, and pasta)
	-	Protein flours and protein additives
	-	High protein, high fiber, low carb cereals and snacks
	-	High protein, high fiber, low carb oat based dairy alternatives
	-	Better tasting, cleaner label, high protein, high fiber, low carb nutrition bars
	-	High protein, high fiber, low carb nutrition juices
	-	Sweeteners – liquid and granulated
	-	High protein, high fiber, low carb pet foods and snacks

	Breads &Bakery			Functional Flours			Pulse Flours			Dairy Alternatives			Nutrition Bars			Total
Global market sizes	$	222B		$	48B		$	17B		$	6B		$	45B
Potential market share		0.1	%		1	%		1	%		1	%		0.1	%
Potential net revenues	$	100-200M		$	200-480M		$	100- 170M		$	30-60M		$	20-40M		$	450-950M

	●	Product and process testing and validation. (completed)
	●	Filing of US and international patents. (completed)
	●	Conceptual engineering and preliminary budgeting on commercial pilot plant. (completed)
	●	Creation of the UN(THINK)™ foods brand. (completed)
	●	Qualification and operational and commercial set up of the Awakened Grains™ line of products (completed)

	●	Launch of the UN(THINK)™ Awakened Grains™ lightly germinated flour range of products in business to business (“B2B”) channel. (complete) Launch of the UN(THINK)™ Awakened Grains™ lightly germinated flour range of products in the direct to consumers (“D2C”) channel.
	●	Design, build, start-up, and operation of the pilot plant for the fully processed and patented flours
	●	Develop range of finished products behind the wheat grain flours, qualify patented process for pulse/legume, and rice-based protein flours.
	●	Develop relationships with universities to research impact of patented flour on nutrition.

	●	Launch first range of fully patent processed products in US/Canada (UN(THINK)™ power wheat flour).
	●	Drive business with finished products in D2C, retail, food service.
	●	Drive business as ingredients for bakery, snack and plant-based protein products manufacturers.
	●	Develop manufacturing base through partnerships and licensing.
	●	Conceptual engineering and preliminary budgeting on large-scale processing plant.