Notes
to Condensed Financial Statements
For
the Three and Six Months Ended June 30, 2021 and June 30, 2020
Note
1 – Organization and Business
The
Company intends to have two streams of revenue. One is from the development, construction, and sale leaseback of solar powered greenhouse
facilities. The other from the growing fruits and vegetables for sale to local markets.
On
May 26, 2021 the Company acquired 29% of the issued and outstanding shares of GrowCo, Inc. GrowCo’s only asset is an approximately
39 acre parcel of land in southeastern Colorado.
After
the date of this 10-Q the Company plans to acquire:
|
|
●
|
GrowCo
Partners 1, LLC, which owns approximately 39 acres of land;
|
|
|
●
|
approximately
78 acres of land from GrowCo Partners 2, LLC, and
|
|
|
●
|
approximately
39 acres of land from GrowCo, Inc.
|
The 160 acres of land are located in southeastern Colorado. The Company
will pay 95,000,000 shares of its common stock and $2,368,421 for GrowCo Partners 1, LLC and the land from GrowCo Partners 2, LLC and
GrowCo Inc.
There
is one fully completed 90,000 sq. ft. greenhouse, and one adjoining fully completed 15,000 sq. ft. warehouse on the land to be purchased
by the Company. The greenhouse/ warehouse facilities, once purchased, retrofitted and/or constructed, will be used by the Company to
grow farm fresh fruits and vegetables for delivery to local food markets. The completed greenhouse and warehouse have not been in operation
since 2020.
On
the land in southeastern Colorado the Company plans to:
|
|
1.
|
retrofit
the existing greenhouse and warehouse so that the equipment in the greenhouse and warehouse will run on solar power as opposed to
propane. (Estimated cost: $750,000. Estimated time to complete: six months). Acquire solar system to power the greenhouse/ warehouse
(Estimated cost: $1,125,000)
|
|
|
2.
|
construct
one new 90,000 sq. ft. greenhouse and one new 15,000 sq. ft. warehouse (Estimated cost: $4,500,000. Estimated time to complete: twelve
months). Acquire solar system to power the greenhouse/ warehouse (Estimated cost: $1,125,000)
|
|
|
3.
|
construct
three new 180,000 sq. ft. greenhouses and three new 30,000 sq. ft. warehouses (Estimated cost: $27,000,000. Estimated time to complete:
36 months). Acquire solar systems to power the greenhouses and warehouses (Estimated cost: $3,375,000).
|
The
greenhouse/warehouse facilities will be solar powered. The Company plans to acquire the solar systems which will power the greenhouse/
warehouse facilities from VetaNova Solar Partners, LLC. (“VSP”) at a cost of approximately $1,125,000 per system. As of August
10, 2021 VSP had not constructed any solar systems and had cash of approximately $333,000. VSP will need to raise a significant amount
of capital to build the solar systems for the Company
The
Company plans to finance the cost of retrofitting the facility described in (1) above, and acquire the solar system needed to power the
facility, with a loan from a lender associated with Colorado’s Commercial Property Assessed Clean Energy Program (“C-PACE”).
Once the facility is operational, the Company plans to sell the facility to an investor and then lease back the facility from the investor.
With the proceeds from the sale of this facility, the Company expects to have sufficient funds to construct the facility described in
(2) above, and acquire the solar systems required to power the facility. Sequentially using the sale/ lease back financing technique
for each greenhouse/ warehouse facility (with the exception of the last facility) the Company expects to have sufficient capital to construct
the facilities described in (3) above and to acquire the solar systems for these facilities.
The
Company may also finance all or a part of the cost of retrofitting/ constructing greenhouses and warehouses and acquiring solar systems
through future offering of the Company’s securities proceeds from the exercise of the Company’s warrants or borrowings from
private lenders.
As
of the date of this 10-Q the Company did not have any agreements with any person to purchase any of the Company’s securities lend
any funds to the Company or purchase and lease back any of the greenhouse/ warehouse facilities which the Company plans to retrofit or
construct.
Recent
Transactions
On
July 12, 2021, the Company issued 91,072,971 shares of its common stock, as well as warrants to purchase an additional 10,249,375 shares
of its common stock, to VitaNova Partners, LLC (“VitaNova”) in payment of expenses (amounting to $9,108) paid by VitaNova
on behalf of the Company. The warrants are exercisable at any time on or before December 31, 2022 at a price of $0.20 per share. VitaNova
then transferred those shares to certain members of VitaNova in exchange for the members interests in VitaNova. John McKowen, the Company’s
only Officer and Director and a controlling person of VitaNova, did not receive any of these shares.
On
May 26, 2021 the Company acquired 29% of the issued and outstanding shares of GrowCo, Inc. as well as membership interests in GrowCo
Partners 1, LLC from an unrelated third party. In consideration for the assignment of these securities the Company issued the unrelated
third party 4,384,913 shares of the Company’s common stock as well as warrants to purchase an additional 4,384,913 shares of the
Company’s common stock. The warrants are exercisable at any time on or before September 30, 2022 at a price of $0.20 per share.
The
Company recently completed a private placement and raised $556,129 by issuing 55,612,900 common shares along with 55,612,900 2-year warrants
exercisable at $0.20 per share.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation
The
unaudited interim consolidated financial statements, prepared using the accrual basis of accounting, included herein, have been presented
in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make
the information presented not misleading.
In
the opinion of management, these statements reflect all adjustments, all of which are of a normal recurring nature, which, in the opinion
of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial
statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2020 and notes thereto
included in the Company’s annual report on Form 10-K. The Company follows the same accounting policies in the preparation of interim
reports.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management
to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ materially from those estimates.
Consolidation
In
January 2021, the Company formed VetaNova Solar Partners, LLC (“VSP”). VSP is authorized to issue 100,000,000 common and
100,000,000 preferred membership units. As of June 30, 2021, 71,744,011 common units and 2,168,611 preferred units were outstanding,
representing a total of 73,942,622 units outstanding. The Company owns 44,209,020 of common units of VSP which represent approximately
60% of the outstanding common units of VSP. Additionally, both the Company and VSP share common management. As a result, VSP is consolidated
with the Company’s financial statements.
Cash
and cash equivalents
For
purposes of reporting cash flows, the Company considers cash and cash equivalents to include highly liquid investments with original
maturities of 90 days or less. Those are readily convertible into cash and not subject to significant risk from fluctuations in interest
rates. The recorded amounts for cash equivalents approximate fair value due to the short-term nature of these financial instruments.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company
has determined the deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis
of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect
of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The
Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making
such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines
that it would be able to realize deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment
to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The
Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether
it is more likely than not that the tax positions will be sustained on the basis of the technical merits of its position and (2) for
those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is
more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Net
Income (Loss) per Share
Basic
net (loss) per share is computed by dividing net income (loss) attributed to the Company’s common shareholders for the period by
the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing
the net income for the period by the weighted average number of common and potential common shares outstanding during the period.
As
of December 31, 2020, and June 30, 2021, the Company’s outstanding warrants were excluded from the fully diluted weighted average
number of shares outstanding since the warrants would be anti-dilutive.
Accounting
for Equity Raise
The
Company recently sold common stock and warrants. Accounting Standards Codification (“ASC”) requires the Company to first
analyze the warrants to determine if the warrants are a liability or an equity instrument.
The
warrants in the offering qualify as equity. The warrants do not obligate the Company to repurchase its shares by transferring an asset.
The warrants do not obligate the Company to settle the warrants by issuing a variable number of shares if the monetary value of the obligation
is based on a predetermined fixed amount, variation in something other than the issuers stock price, or variations inversely related
to the issuers stock price. Therefore, since there is no obligation on behalf of the Company, the warrants have been classified as equity.
The
next step is to determine the fair value of the equity unit. The Company’s offering does not meet any of the four areas of ASC
820-10-30-3A requiring a fair value calculation; therefore, fair value equals the actual transaction value. The next step is to compute
the fair in order to determine the allocation of value between the common shares and the warrants issued (ASC 815). The Company performed
this calculation which gave a value of 50% to the warrant and 50% to the common shares.
The
following variables were used to calculate the warrant value:
|
|
●
|
Annualized
volatility of 865%
|
|
|
●
|
Expected
life in years of 1.02
|
|
|
●
|
Discount
rate – bond equivalent (US Treasury 5-year coupon rate) of 0.37%
|
The
common share value was computed by evaluating each equity raise closing date to the Company’s market stock price to the price issue,
which was $0.01/share.
Note
3 – Equity Transactions
During
the six months ended June 30, 2021 there were the following equity transactions:
|
|
●
|
20,503,600
shares to outside investors;
|
|
|
●
|
36
shares as a rounding/true-up issuance to an outside investor, and
|
|
|
●
|
2,333,333
shares returned from a prior issuance to a consultant for services rendered.
|
During
the year ended December 31, 2020 there were the following equity transactions:
|
|
●
|
91,127,145
shares issued to the Company’s founders, officers and board members;
|
|
|
●
|
12,495,700
shares issued to the Company’s consultants;
|
|
|
●
|
55,612,837
shares issued to VitaNova Partners, LLC, and
|
|
|
●
|
35,109,231
shares issued to outside investors.
|
Note
4 – Commitments and Contingencies
The
Company has no commitments or contingencies.
Note
5 – Related Party Transactions
As
of June 30, 2021 VitaNova Partners owed the Company $174,600.
On
July 15, 2020, the Company and VitaNova entered into a consulting agreement whereby VitaNova would provide management services to the
Company. VitaNova is paid $456,000 annually for its management services. Payments are made in 12 monthly installments of $38,000. On
December 15, 2020 the consulting agreement was amended to reduce payments to $19,000 a month effective January 1, 2021.
During
the year ended December 31, 2020 there were the following equity transactions involving related parties:
|
|
●
|
91,127,145
shares issued to the Company’s founders, officers and board members, and
|
|
|
●
|
55,612,837
shares issued to VitaNova Partners, LLC.
|
During
the six months ended June 30, 2021 there were the following equity transactions involving related parties:
|
|
●
|
17,621,538
VSP common units were issued to John McKowen.
|
Note
6 – Subsequent Events
On
August 4, 2021 the Company entered in an agreement with Mastronardi Produce Limited pursuant to which Mastronardi was granted the exclusive
right to sell and market all US Grade No. 1 fresh fruits and vegetables produced from all of the Company’s greenhouses that exist
or may be built in North America.