Notes
to Condensed Financial Statements
For
the Three and Nine Months Ended September 30, 2021 and September 30, 2020
Note
1 – Organization and Business
The Company is in its development stage and
intends to build and operate solar-powered, carbon-negative greenhouses utilizing Artificial Intelligence assisted technologies to control
the growing environment if the Company can obtain financing. 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.
On August 4, 2021,
the Company entered into an agreement with Mastronardi Produce Limited (Mastronardi), 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.
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. The property is just minutes from I-25, which dissects Colorado from North to South, making possible daily deliveries of farm-fresh
produce within hours of harvest.
On
November 8, 2021, the Company acquired from a related party approximately 39 acres for 70,000,000 shares of the Company’s
common stock, which have not been issued, and $1,842,105 in cash to be paid by December 31, 2022. The property is contiguous to the
118 acres the Company purchased on August 17, 2021, and together define the Avondale Complex. The November 8, 2021 purchase contains
90,000 sq ft of greenhouse and 15,000 sq ft of warehouse. The property was purchased for 70,000,000 shares of the Company’s
common stock, which have been issued, and $1,842,105 in cash to be paid by December 31, 2022.
If the Company can
obtain financing, it expects to retrofit the existing 90,000 sq ft greenhouse and 15,000 sq ft warehouse to operate exclusively with
electric power provided by a to be constructed 2 MW solar array with batteries. The Avondale Complex retrofitted greenhouse and warehouse,
when and if built, will grow tomatoes for marketing by Mastronardi. After operational trials of the retrofitted existing growing facilities,
the Company expects to expand the Avondale Complex to 25 acres of growing facilities powered by a 25 MW solar field with batteries to
produce various fruits and vegetables to be marketed by Mastronardi.
The existing greenhouse
facility has 1,500 kVA conventional electrical service provided by the local electrical utility, which will be initially used for operations
and later used as a mutual electrical grid back up after the Avondale Complex is retrofitted for solar power.
The estimated cost
to install the solar system necessary to power the 90,000 sq ft existing greenhouse facility is $1,125,000 and will take six months to
complete once construction commences. The estimated cost to convert the existing greenhouse from carbon-based equipment to electric-powered
appliances and equipment is $750,000 and will take six months to complete once construction commences.
The Company plans to
finance the cost of building the solar field and retrofitting the Avondale Project from private equity sources and loans from Colorado’s
Commercial Property Assessed Clean Energy Program (C-PACE).
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 September 30, 2021, 71,744,011 common units and 7,379,305 preferred units were 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.
Due
from related party – VitaNova Partners, LLC
The
Company has advanced funds to a related party, VitaNova Partners, LLC for a total of $480,578 as of September 30, 2021 and $51,179 as
of December 31, 2020. These advances are short term and due upon demand.
Land
On
August 17, 2021, the Company acquired 118 contiguous acres located near the Arkansas River in Avondale, Colorado (Avondale Project) for
25,000,000 shares of the Company’s common stock, to be issued by December 31, 2021, and $657,895 in cash, to be paid by December
31, 2022. The Avondale Project is just minutes from I-25, which dissects Colorado from North to South, making possible daily deliveries
of farm fresh produce within hours of harvest.
The
land was acquired from a related party entity and therefore, the land value was transferred at historical cost. Based on consideration
paid, the Company recognized a loss of $5,357,895 from the land acquisition.
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 September 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:
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Annualized
volatility of 865%
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Expected
life in years of 1.02
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Discount
rate – bond equivalent (US Treasury 5-year coupon rate) of 0.37%
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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 – Payment due to related parties for land 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 29, 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.
This is classified as a current liability since it is management’s intent to issue the shares within a 12 month period.
Note
4 – Equity Transactions
During
the nine months ended September 30, 2021 there were the following equity transactions:
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115,961,484
shares to outside investors;
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36
shares as a rounding/true-up issuance to an outside investor, and
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2,333,333
shares returned from a prior issuance to a consultant for services rendered.
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During
the year ended December 31, 2020 there were the following equity transactions:
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91,127,145
shares issued to the Company’s founders, officers and board members;
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12,495,700
shares issued to the Company’s consultants;
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55,612,837
shares issued to VitaNova Partners, LLC, and
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35,109,231
shares issued to outside investors.
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Note
5 – Commitments and Contingencies
The
Company has committed to issue 25,000,000 common stock by December 31, 2022 and pay $657,895 for assets purchased on August 17, 2021.
Note
6 – Related Party Transactions
As
of September 30, 2021 VitaNova Partners owed the Company $480,578.
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.
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.
During
the year ended December 31, 2020, there were the following equity transactions involving related parties:
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91,127,145
shares issued to the Company’s founders, officers and board members, and
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55,612,837
shares issued to VitaNova Partners, LLC.
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During
the nine months ended September 30, 2021 there were the following equity transactions involving related parties:
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17,621,538
VSP common units were issued to John McKowen.
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Note
7 – Subsequent Events
On October 29, 2021, the Company issued 25,000,000
shares to related parties as part of the consideration for its purchase of land.
On November 8, 2021,
the Company acquired from a related party approximately 39 acres for 70,000,000 shares of the Company’s common stock, which have
not been issued, and $1,842,105 in cash to be paid by December 31, 2022. The property is contiguous to the 118 acres the Company purchased
on August 17, 2021, and together define the Avondale Complex. The November 8, 2021 purchase contains 90,000 sq ft of greenhouse and 15,000
sq ft of warehouse. The property was purchased for 70,000,000 shares of the Company’s common stock, which have been issued, and
$1,842,105 in cash to be paid by December 31, 2022.