AGRIFORCE GROWING SYSTEMS LTD. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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. was incorporated as a private company by Articles
of Incorporation issued pursuant to the provisions of the British Columbia
Business Corporations Act on December 22, 2017. The Company’s registered and
records office address is at 300 – 2233 Columbia Street, Vancouver, British
, 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.

The Company is an innovative agriculture-focused technology company that
delivers reliable, financially robust solutions for high value crops through our
proprietary facility design and automation intellectual property to businesses
and enterprises globally. The Company intends to operate in the plant based
pharmaceutical, nutraceutical, and other high value crop markets using its
unique proprietary facility design and hydroponics based automated growing
system that enable cultivators to effectively grow crops in a controlled
environment. The Company calls its facility design and automated growing system
the “AgriFORCE grow house”. The Company has designed its AgriFORCE grow house to
produce in virtually any environmental condition and to optimize crop yields to
as near their full genetic potential as possible whilst substantially
eliminating the need for the use of pesticides and/or irradiation.

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.


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 this 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.

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

PHASE 1: COMPLETED: 2017-2021

    ?   Conceptualization, engineering, and design of facility and systems.
    ?   Completed selection process of key environmental systems with preferred
    ?   The signing of revenue contracts with the Exclusive Independent Operator
        (EIO) for the first three facilities 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)
    ?   Selection and Land Purchase agreement in Coachella, CA for 41.37-acre
        parcel subject to financing.
    ?   ForceFilm material ordered.

PHASE 2: 2022-2023:

    ?   Complete the financing for, and purchase of, the 41.37-acre 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 CEA solution 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


PHASE 3: 2023-2025:

    ?   Focus on the delivery and installation of the second and third facilities.
        Proof of quantitative and qualitative benefits will 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 advanced CEA solution for food and high value crops and operate
    ?   Finalize the design and engineering of advanced large-scale CEA solution
        for food and high value crops with construction commencement late in the
        third year. Commence engagement with local restaurants and grocery stores
        and develop food solution branding strategies.

PHASE 4: 2026:

    ?   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 advanced nutraceutical and plant-based pharma
        CEA commercial facility by end of year 4.

The Company’s initial AgriFORCE grow houses are planned to be constructed in

AgriFORCE Brands

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

PHASE 2: 2021-2022

    ?   Design, Build, Start-up and Operation of the Pilot Plant
    ?   Develop Range of Finished Products in Grain Flours, Protein Flours,
        Cereals and Juices
    ?   Collaborate with Nutritional Flour Medical Research Institute (an IRS
        section 501(c)(3) Medical Research Organization) funded by private &
        public research grants

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

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 will focus on identifying
target companies in the key four pillars of its platform 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 Company believes that
a buy and build strategy will provide unique opportunities for innovation across
each segment of the Ag-Tech market we serve. Our unique IP combined with the
know-how and IP of acquired companies will create additional value if the way we
grow or produce crops. The Company believes there is currently no other public
traded publicly in the United States pursing this model.

COVID-19 or any pandemic, epidemic or outbreak of an infectious disease in the
United States
or elsewhere may adversely affect our business.

The COVID-19 virus has had unpredictable and unprecedented impacts in the United
and around the world. The World Health Organization has declared the
outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease.
Many countries around the world have imposed quarantines and restrictions on
travel and mass gatherings to slow the spread of the virus. In the United
, federal, state and local governments have enacted restrictions on
travel, gatherings, and workplaces, with exceptions made for essential workers
and businesses. As of the date of this filing, we have not been declared an
essential business. As a result, we may be required to substantially reduce or
cease operations in response to governmental action or decree as a result of
COVID-19. We are still assessing the effect on our business from COVID-19 and
any actions implemented by the federal, state and local governments. We have
implemented safety protocols to protect our staff, but we cannot offer any
assurance that COVID-19 or any other pandemic, epidemic or outbreak of an
infectious disease in the United States or elsewhere, will not materially and
adversely affect our business.



Results of Operations

The following discussion should be read in conjunction with the condensed
unaudited financial statements for the interim periods ended March 31, 2022 and
2021 respectively, included in this report.


The Company has generated no revenue since inception.

Operating Expenses

Operating expenses increased in the three months ended March 31, 2022 as
compared to March 31, 2021 by $1,868,997 or 210%, primarily due to an increase
in wages and salaries by $618,976, increase in research and development by
$366,544, increase in investor relations expenses of $268,652 and increase in
office and administrative expenses by $252,751, as the Company entered into
growth phase post IPO and increased its staff and operations.

Other (Income) / Expenses

Other expenses for the three months ended March 31, 2022 mainly relate to the
change in fair value of warrant liability amounting to $457,042 and foreign
exchange losses of $64,508.

Net Loss

The Company recorded a net loss of $3,281,286 for the three months ended March
31, 2022
as compared to a net loss of $884,606 for the three months ended March
31, 2021
. The increase in net loss is due to the total increase in operating
expenses and other expenses outlined above.

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 $3,281,286 for the three
months ended March 31, 2022, and a net loss of $884,606 for the three months
ended March 31, 2021. We have recorded an accumulated deficit of $23,182,278 as
of March 31, 2022 and $19,900,992 as of December 31, 2021. Net cash used in
operating activities for the three months ended March 31, 2022 and March 31,
was $2,870,654 and $371,978, respectively.

We had $4,378,121 in cash as at March 31, 2022 as compared to $7,775,290 as at
December 31, 2021.

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
?   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

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 three months ended March 31,
is attributable to a net loss of $3,281,286 due to operating costs
associated with wages, investor relations, consulting expenses, research and
development, and general administrative expenses. The net loss was adjusted
primarily by non-cash expenses related to change in fair value of warrants of
$457,042, shared based compensation of $157,982, shares issued for consulting
services of $88,071, and shares issued for compensation of $97,121. For the
three months ending March 31, 2021 net cash used by operating activities was
attributable to net loss of $884,606 owing to wages, consulting expenses,
professional fees, research and development expenses and general administrative
expenses. The net loss was adjusted primarily by non-cash expenses shares issued
for consulting services amounting to $188,327 and shared based compensation of

The net cash used in investing activities for three months ended March 31, 2022
related to the payment against acquisition of intangible asset.

There was no cash provided by financing activities for the three months ended
March 31, 2022. Whereas, cash flow from financing activities for the three
months ended March 31, 2021 represents proceeds from issuance of senior secured
debentures of $600,000 and related financing costs of $69,000.

Recent Financings

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 debentures were issued pursuant to Section 4(a)(2) of the
Securities Act of 1933, as amended, to certain purchasers who are accredited
investors within the meaning of Rule 501 under the Securities Act of 1933, as
amended. On June 24, 2021, the due date was extended, and the senior secured
debentures were repaid in full on July 13, 2021.

On July 12, 2021, the Company completed its IPO whereby it sold a total of
3,127,998 units, each consisting of one common share and one Series A warrant to
purchase one common share, at a public offering price of $5.00 for gross
proceeds of $15,639,990. The Company received net proceeds from the IPO of
$14,388,791, after deducting underwriting discounts and commissions of

Off Balance Sheet Arrangements


Significant Accounting Policies

See the footnotes to our unaudited financial statements for the three months
ended March 31, 2022 and 2021, included with this quarterly report.

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