Verde Agritech Ltd T.NPK

2020 Asset disposal

[15Stanmore]

Hello fellow Verde shareholders,

Between January and June 2020, Verde's quarterly statements recorded no asset disposals. You will perhaps recall a prior post where I noted that the June 30, 2020 Q2 MD&A disclosed the Company had, in July 2020, decided to replace a milling unit in the Sao Gotardo plant:

"In July 2020, the new mill purchased by the Group was delivered. It will replace the first mill bought in 2018, thereby increasing Plant 1 name plate production capacity by 14% to 2,880 tonnes per day, with expected operational capacity of 2,000 tonnes per day."

Given this replacement of a critical component of the production line came after only 2 years of minimal production, I raised questions as to why the replacement was necessary - the plant was meant to operate for at least 10 years at full capacity before components would need replacing. The answers provided by the Company did not make a lot of sense - raising the line capacity by 14% when the actual production and sales volumes were running below 30% of the current capacity. This did not seem to ring true, so I made a note to review the Q3 statements to see how this replacement transaction was recorded.

When the September 30, 2020 statements were issued in November I noted the following information: 

Cost of plant and equipment disposed                         $77,000
Accumulated depreciation on equipment disposed      $17,000
Net book value of equipment disposed                         $60,000

Cash proceeds of disposition                                       $38,000

Net loss realized on disposition of equipment              $22,000

The financials also recorded equipment acquisitions of $44,000 in Q2 and $39,000 in Q3 but did not specify if these were related to the purchase of the new mill which replaced the on taken of line and sold in July 2020.

We now have the final figures reported in the 2020 audited statements as follows, with no equipment disposals happening in Q4. I had anticipated seeing the same numbers as had been disclosed in the Q3 financial statements, albeit perhaps slightly different due to translation from local Brazil $ to Canadian $ at different exchange rates than those used in Q3.

Here are the audited 2020 numbers:

Cost of plant and equipment disposed                         $75,000    ($2,000 less)
Accumulated depreciation on equipment disposed      $16,000    ($1,000 less)
Net book value of equipment disposed                         $59,000   ($1,000 less)

Cash proceeds of disposition                                       $1,000      ($37,000 less)

Net loss realized on disposition of equipment              $58,000    ($36,000 more)

While the asset and depreciation values are close enough to be translation differences, where did the $37,000 of cash proceeds of disposition go to between the end of Q3 and the end of Q4? Did the buyer of the used equipment not pay the balance owing? Was the amount written off and so became part of the disappointing Q4 operating losses?

Shareholders deserve a thorough, detailed and transparent accounting of this "why don't we replace a perfectly good piece of equipment after only two years of low capacity useage" and lose $58,000 on the deal. Who decided this was neceassary, who implemented the transaction, why was it accounted for in Q3 differently than what has now shown up in the audited numbers?

[BCdude]

This is a very good question, Stan. Thanks for bringing it to our attention.