Notes
to Condensed Financial Statements
For
the Three Months Ended March 31, 2022 and March 31, 2021
Note
1 – Organization and Business
The
Company is in its development stage and, depending on available financing, intends to build and operate solar-powered, carbon-negative
greenhouses utilizing Artificial Intelligence assisted technologies to control the growing environment. The Company’s revenue is
expected to come from growing farm-fresh fruits and vegetables to be sold to local markets.
The Company intends to produce farm-fresh fruits and vegetables for local delivery in historically productive agricultural regions with
high solar indexes and close to large urban areas of the United States, such as the Front Range of Colorado and Central Valley of California.
In 2021 the Company acquired four contiguous parcels of land from a related party totalling 157 acres in Pueblo County Colorado.
| ● |
Parcel
1 - The Company issued 70,000,000 shares of its common stock and agreed to pay $1,842,105 by December
31, 2022, to GrowCo Partners 1, LLC for approximately 39 acres containing one fully completed 90,000 sq. ft. greenhouse, and one
adjoining fully completed 15,000 sq. ft. warehouse. on the land. The shares were issued in book entry form on November 19, 2021.
The cash amount will bear interest at 6% per year from August 17, 2021, until paid. Parcel 1 has. The completed greenhouse and warehouse
have not been in operation since 2020. |
| |
|
| ● |
Parcel
2 - The Company issued 5,000,000 shares of its common stock and agreed to pay $131,579 by December 31, 2022, to GrowCo Partners
2, LLC for 39 acres of vacant land. The shares were issued in book entry form on November 29, 2021. The cash amount will bear interest
at 6% per year from August 17, 2021, until paid. |
| |
|
| ● |
Parcel
3 – The Company issued 5,000,000 shares of its common stock and agreed to pay $131,579 to GrowCo, Inc. by December 31, 2022,
for 39 acres of vacant land. The shares were issued in book entry form on November 29, 2021. The cash amount will bear interest at
6% per year from August 17, 2021, until paid. |
| |
|
| ● |
Parcel
4 - The Company issued 15,000,000 shares of its common stock and agreed to pay $394,737 by December 31, 2022, to GrowCo Partners
2, LLC for 39 acres of land with a partially completed greenhouse structure. The shares were issued in book entry form on November
29, 2021. The cash amount will bear interest at 6% per year from August 17, 2021, until paid. |
On
the land in southern Colorado the Company plans to:
| ● |
retrofit
the existing greenhouse and warehouse so that the equipment in the greenhouse and warehouse will run on solar power as opposed to
utility provided electricity and propane. (Estimated cost: $9,500,000. Estimated time to complete: eight months) and build a solar
system to power the greenhouse/warehouse (Estimated cost: $3,000,000) |
| |
|
| ● |
construct
an additional 23 acres of. greenhouse and associated warehouse space (Estimated cost: $45,500,000. Estimated time to complete: 36
months), and build solar systems to power the greenhouse and warehouse facilities (Estimated cost: $6,500,000) |
The
Company has a direct or indirect interest in the three entities listed above.
The
Company plans to finance all or a part of the cost of retrofitting/ constructing greenhouses and warehouses and building 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 March 31, 2022, the Company did not have any agreements with any person to purchase any of the Company’s securities or lend
any funds to the Company.
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 Products produced from all of the Company’s greenhouses in North America. For each
sale, Mastronardi will be paid a low double digit percentage of the gross price received for the sale of the products grown at the Company’s
greenhouses, plus all costs incurred in the sale and distribution of such products.
Mastronardi
is a fourth-generation family owned company and the leading marketer and distributor in North America of tomatoes, peppers, cucumbers,
berries and leafy greens. Mastronardi has an extensive and long-tenured retail network and is nationally recognized under the primary
SUNSET® brand and other brands, including Campari®, Angel Sweet®, Flavor Bombs®, Sugar Bombs®, and WOW™
berries.
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, 2021, 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 March 31, 2022,
VSP had 71,744,011
common units and 7,379,305
preferred units outstanding, representing a total
of 79,153,316
units outstanding. The Company owns 44,209,020
of common units of VSP, which represent approximately
55.85%
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.
Greenhouse
and associated land
See
Note 1 for information concerning land acquired by the Company.
The land and structures were acquired from a related
party entity and therefore, the land and structure value was transferred at historical cost. Based on consideration paid, the Company
recognized a loss of $5,818,537 from this acquisition.
After
completing the above acquisitions, the Company commissioned an appraisal to be performed. This appraisal gave an “as-is”
estimate of value at $3,500,000, which included the greenhouse and infrastructure and land. Therefore, the Company recognized an impairment
of $3,673,568.
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.
Loss
per Share
Basic
loss per share is computed by dividing the loss attributed to the Company’s common shareholders for the period by the weighted
average number of common shares outstanding for the period. Diluted 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 March 31, 2022 and December 31, 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 value 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.
Accounting
for debt to equity conversions
During
the quarters ending December 31, 2021 and March 31, 2022, the Company sold bridge notes which mature on June 30, 2022. On or before the
maturity date, the notes can be converted into shares of the Company’s stock at a conversion price of $0.05/share. During the six
months ended March 31, 2022, the Company’s stock was priced at between $0.05 and $0.15/share.
ASU
2020-06 simplifies the accounting for convertible instruments. Therefore, the embedded conversion features no longer are separated from
the debt with conversion features that are not required to be accounted for as derivatives under ASU 2020-06 or that do not result
in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single
liability measured at its amortized cost and therefore will be accounted for as a single equity instrument measured at its historical
cost.
The
Company has elected to adopt this standard during the year ended December 31, 2021.
Note
3 – Payment due to related parties for land and structure purchases
On
August 17, 2021, the Company acquired from a related party approximately 118 contiguous acres located near the Arkansas River in Avondale,
Colorado, for 25,000,000 shares of the Company’s common stock, which were issued on October 6, 2021, and $657,895 in cash to be
paid by December 31, 2022.
The
issuance of the 25,000,000 common shares is valued at the Company’s public market traded closing price of $0.20/share on August
17, 2021, or $5,000,000.
On
November 8, 2021, the Company acquired from a related party approximately 39 contiguous acres located next to the 118 acres purchased
above and a greenhouse and warehouse, for 70,000,000 shares of the Company’s common stock, which were issued on October 6, 2021,
and $1,842,105 in cash to be paid by December 31, 2022.
The
issuance of the 25,000,000 common shares is valued at the Company’s public market traded closing price of $0.155/share on October
6, 2021, or $10,850,000.
During
the quarter ended December 31, 2021, the Company has paid $448,925 toward cash amounts owing to the former owners of the land through
the elimination of amounts owed from these parties to the Company.
Note
4 – Notes Payable
The
following is a detail of the bridge notes payable:
Schedule
of Bridge Notes Payable
| | |
March
31, 2022 | | |
| | |
| | |
December
31, 2021 | |
| Note | |
Principle
Balance | | |
Accrued
Interest | | |
Discount | | |
Principle
Balance | | |
Interest
rate | | |
Security | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Bridge
Notes | |
$ | 301,492 | | |
$ | 10,662 | | |
$ | 20,956 | | |
$ | 235,000 | | |
| 6 | % | |
| Deeds
of trust on | |
| Bridge
Note - related party | |
$ | 149,254 | | |
$ | 3,656 | | |
$ | 5,696 | | |
$ | 100,000 | | |
| 6 | % | |
| real estate and improvements | |
| Totals | |
$ | 450,746 | | |
$ | 14,318 | | |
$ | 26,651 | | |
$ | 335,000 | | |
| | | |
| | |
| Less:
note discounts | |
$ | 26,651 | | |
| | | |
| | | |
$ | 21,189 | | |
| | | |
| | |
| Total
current notes due | |
$ | 424,095 | | |
| | | |
| | | |
$ | 313,811 | | |
| | | |
| | |
During
the quarters ending March 31, 2022 and December 31, 2021, the Company sold bridge notes that mature on June
30, 2022. On or before the maturity date, the
notes can be converted into shares of the Company’s common stock at a conversion price of $0.05/share.
During the quarters ended December 31, 2021 and March 31, 2022, the Company’s stock was priced at between $0.05
to $0.15/share.
There are no conversion contingencies. The holders of the bridge notes control the conversion rights. See Note 7.
Note
5 – Equity Transactions
During
the three months ended March 31, 2022, there were no equity transactions.
During
the twelve months ended December 31, 2021 there were the following equity transactions:
| |
● |
115,961,484
shares to outside investors; |
| |
● |
22,500,000
stock issued for services; |
| |
● |
95,000,000
stock issued for land and structure purchases, and |
| |
● |
2,333,333
shares returned from a prior issuance to a consultant for services rendered. |
Note
6 – Related Party Transactions
As
of September 30, 2021 VitaNova Partners owed the Company $480,578. During the three months ended December 31, 2021 this was paid in full
as an offset to the amounts owed to GrowCo Partners 2, LLC, a related party, and accrued interest owed.
On
July 15, 2020, the Company and VitaNova Partners 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 instalments of $38,000.
On December 15, 2020 the consulting agreement was amended to reduce payments to $19,000 a month effective January 1, 2021.
On
August 17, 2021, the Company acquired from a related party approximately 118 contiguous acres located near the Arkansas River in Avondale,
Colorado, for 25,000,000 shares of the Company’s common stock, which were issued on October 29, 2021, and $657,895 in cash to be
paid by December 31, 2022.
On
November 8, 2021, the Company acquired from a related party approximately 39 contiguous acres located next to the 118 acres purchased
above and a greenhouse and warehouse, for 70,000,000 shares of the Company’s common stock, which were issued on October 6, 2021,
and $1,842,105 in cash to be paid by December 31, 2022.
During
the twelve months ended December 31, 2021 there were the following equity transactions involving related parties:
| |
● |
17,621,538
VSP common units were issued to John McKowen, and |
| |
● |
95,000,000
shares of the Company’s common stock issued for land and greenhouse/warehouse purchase |
During
the three months ended March 31, 2022 there were the following equity transactions involving related parties:
| |
● |
VitaNova
Partners invested $45,314 in the Company’s bridge note. |
Note
7 - Subsequent Events
In
April of 2022, holders of the Company’s promissory notes sold in December 2021 and March 2022 (the “Old Notes”) exchanged
their Old Notes for New Notes.
As
part of the Note exchange:
| |
1. |
The
unpaid principal and interest of $509,340 (as of April 30, 2022) of the Old Notes became $553,630 in face amount of the New Note. |
| |
|
|
| |
2. |
With
the New Notes, the holders of the Old Notes received Series III and Series IV Warrants. For each $1.00 of principal of the New Note,
a holder of the New Note received 60 Series III Warrants and 60 Series IV Warrants. Each Series III Warrant allows the
holder to purchase one share of the Company’s common stock at a price of $.05 per share. Each Series IV Warrant allows the holder
to purchase one share of the Company’s common stock at a price of $.066667 per share. The Series III and Series IV Warrants expire
on December 31, 2024. |
| |
|
|
| |
3. |
The
New Notes are convertible into shares of the Company’s common stock at a conversion price of $.016667. |
| |
|
|
| |
4. |
The
New Notes bear interest at 6% per year, will be due and payable on September 30, 2022, and will be secured by the Company’s
157 acres located at 39327 Harbour Road, Avondale, CO 80206 |
| |
|
|
| |
5. |
The
Company will file a Registration Statement with the Securities and Exchange Commission to register for public sale: |
| |
a. |
the
Series III and Series IV Warrants, |
| |
|
|
| |
b. |
the
shares of common stock issuable upon the exercise of the Series III and Series IV Warrants. |
