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CannaVest Corp. - ("CannaVest" or
"the Company")
CANV today announced that it has filed restated
financial statements and accompanying management's discussion and analysis for
the quarters ended March 31, June 30, and September 30, 2013.
CannaVest Corp - The World's Leading Industrial Hemp Supplier.
As indicated in the Company's Form 10-K filed on March 28, 2014, the
restatements were determined to be necessary as a result of the audit of the
December 31, 2013 financial statements and following consultation with the
Company's external auditors. The purpose of the restatement is to address the
following items, which the Company has identified as requiring correction:
Recognition of revenue
The financial statements for the quarter ended March 31, 2013 reflected
revenue and accounts receivable of $192,625 and cost of goods sold of $296,050
that should not have been recognized. Revenues and accounts receivable in the
amount of $192,625 related to the sales value of inventory that was
transferred to a manufacturer for inclusion in finished goods and an error in
calculating the price of the ending inventory as of the end of the period. The
amount of $39,865 was related to the cost of inventory sent for manufacturing
being included in cost of goods sold and $256,185 related to errors related to
calculating ending inventory.
Prepaid inventory
A portion of the prepaid inventory purchased as part of the Company's
acquisition of assets from PhytoSPHERE Systems, LLC ("PhytoSPHERE") was not
included in the financial statements as of March 31, 2013. The resulting
understatement of prepaid inventory was $1,260,510.
Inventory
Inventory as originally reported in the financial statements ended March 31,
2013, was understated by $125,027. This was a result of an overstatement of
cost of goods sold in the amount of $296,050, offset by an adjustment for the
value of inventory acquired from PhytoSPHERE in the amount of $171,023.
Value of intangible assets
Intangible assets as presented in the financial statements as of March 31,
June 30 and September 30, 2013 were in error. As determined by the valuation
of the assets purchased from PhytoSPHERE, intangible assets totaled
$4,110,000. Net intangible assets previously reported at March 31, 2013 were
$33,656,833, which represents an overstatement of $29,683,833. Net intangible
assets previously reported at June 30, 2013 were $4,995,895, which represents
an overstatement of $1,228,395 and net intangible assets previously reported
at September 30, 2013 were $4,466,666, resulting in an overstatement of
$904,666.
Goodwill
As determined by the valuation of assets purchased from PhytoSPHERE, the value
of goodwill was $1,855,512. The Company did not report any goodwill as of
March 31, 2013, which resulted in an understatement of $1,855,512. At June
30, 2013, the Company reported goodwill in the amount of $26,998,125,
resulting in an overstatement of goodwill of $25,142,613. At September 30,
2013, the Company recorded impairment of goodwill in the amount of
$26,998,125, resulting in a carrying value of $0. This resulted in an
understatement of goodwill in the amount of $1,855,512.
Amount due to PhytoSPHERE Systems; Additional paid in capital
The amount due to PhytoSPHERE was originally reported as $35 million, pursuant
to the terms of the agreement. Shares to be issued as payment under the
transaction were at a set per share price between $4.50 and $6.00.
Subsequently, a valuation determined the price of the transaction to be
$8,020,000, which resulted in a per share price of $1.21 per sharebased on the
valuation obtained. Therefore, for the Company's financial reports, the
amount due to PhytoSPHERE was adjusted to $8,020,000 and the shares issued as
payment pursuant to the transaction were adjusted to $1.21 per share. This
resulted in an overstatement of the amount due PhytoSPHERE and paid-in capital
of $23,572,360 and $3,407,640, respectively at March 31, 2013; $18,786,094 and
$8,193,906, respectively at June 30, 2013; and $5,185,120 and $21,794,880,
respectively at September 30, 2013.
Amortization expense
The restatement of the value of intangible assets has resulted in the
overstatement of amortization expense for the quarters ended March 31, June 30
and September 30, 2013 in the amount of $241,167, $367,825 and $323,730,
respectively. The overstatement of amortization expense was $608,992 for the
six months ended June 30, 2013 and $932,722 for the nine months ended
September 30, 2013.
Impairment of goodwill
The Company originally reported $26,998,125 as an impairment to goodwill for
the quarter ended September 30, 2013. The Company did not record an
impairment to goodwill in its restated financial statements. This resulted in
an overstatement of operating expenses of $26,998,125 for the three and nine
months ended September 30, 2013.
Research & development expenses
For the quarter ended September 30, 2013, the Company included $137,496 in
research and development expenses as a part of general and administrative
expenses. This amount has been reported as research and development expenses
in the restated financial statements.
Click here to see the remainder of the press release, including the segment which includes the condensed financial statements.
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