Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies

v3.19.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present fairly the consolidated financial position and results of its operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These consolidated financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2018 (including the notes thereto) set forth in Form 10-K filed with the Securities and Exchange Commission on April 16, 2019.

 

Principles of Consolidation

 

The consolidated financial statements through March 31, 2019 include the accounts of the Company and the following entities, all of which have fiscal year ends of December 31. (Note 1).

 

●  100% owned subsidiary, Project 1493, LLC;
●  100% owned subsidiary, Andalucia 511, LLC;
51% majority owned subsidiary, Spirulinex, LLC;
55% majority owned subsidiary, Sunset Connect Oakland, LLC;
55% majority owned, Green Spirit Essentials, LLC;
100% owned subsidiary, Green Spirit Mendocino, LLC; and
100% owned subsidiary, 138 Main Street PA, LLC.
100% owned subsidiary, GSRX SUPES, LLC
100% owned subsidiary, Point Arena Supply Co., LLC
100% owned subsidiary, Ukiah Supply Company, LLC
100% owned subsidiary, Pure and Natural, LLC
98.5% owned subsidiary, Point Arena Manufacturing, LLC
99% owned subsidiary, Point Arena Distribution, LLC
51% majority owned subsidiary, Pure and Natural-Lakeway, LLC
51% majority owned subsidiary, Pure and Natural One-TN, LLC
98.5% owned subsidiary, Green Room Palm Springs, LLC

 

Use of Estimates and Assumptions

 

The preparation of the consolidated financial statements that are in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements.

 

Cash and Cash Equivalents

 

The Company considers all cash on hand, cash in banks and all highly liquid debt instruments purchased with a maturity of three months at purchase or less to be cash and cash equivalents. At times, cash and cash equivalent balances at a limited number of banks and financial institutions may exceed insurable amounts. At March 31, 2019, the Company had $0 in excess of FDIC depository insurance coverage. The Company believes it mitigates its risks by depositing cash or investing in cash equivalents in major financial institutions.

 

Cash held in escrow, in the name of the Company, is held by Gunnison Bank (“Gunnison”). The escrow account was established to hold the deposits from the sale of equity in subsidiaries and hold funds for businesses under subscription agreements. There are no restrictions on the funds held by Gunnison on the Company’s behalf.

 

Investments, fair value

 

On March 30, 2019, the Company entered into a Share Exchange Agreement (the “Share Agreement”) and an Ancillary Rights Agreement (the “Ancillary Agreement”) with Chemesis International Inc., a British Columbian Corporation (“CADMF”). In the Share Agreement, the Company received 7,291,874 restricted shares of common stock of CADMF. Fair value of the investment as of March 31, 2019 was $11,666,998. CADMF is quoted on the OTC market and closed on Friday, March 29, 2019 at $1.60 per share.

 

Investments, cost method

 

Pure and Natural, LLC made a $50,000 investment on January 4, 2019 for a 10% equity and profits interest in The Zen Stop, LLC. The Zen Stop is a mobile wellness business called “Zen Stop.” The investment is carried at the cost basis as it is a private company and fair value cannot be readily determined.

 

Pure and Natural, LLC purchased 25,167 membership units in Buzznog, LLC for $20,000 on March 6, 2019. The investment is carried at the cost basis as it is a private company and fair value cannot be readily determined.

 

Revenue Recognition

 

In accordance with the new guidance, the Company recognizes revenue at an amount that reflects the consideration that the Company expects to be entitled to receive in exchange for transferring goods or services to its customers. The Company’s policy is to record revenue when control of the goods transfers to the customer.

 

In limited instances when products are sold under consignment arrangements, the Company does not recognize revenue until control over such products has transferred to the end consumer.

 

The Company incurs costs associated with product distribution, such as freight and handling costs. The Company has elected to treat these costs as fulfillment activities and recognizes these costs at the same time that it recognizes the underlying product revenue. As this policy election is in line with the Company’s previous accounting practices, the treatment of shipping and handling activities under Topic 606 did not have any impact on the Company’s results of operations, financial condition and/or financial statement disclosures.

 

The following table presents the Company’s revenues disaggregated by type and by state/territory:

 

    For the Three Months Ended March 31,  
    2019     2018  
Revenues by Type                
Wholesale   $ 5,798     $ -  
Retail     2,860,281       2,196  
Total   $ 2,866,079     $ 2,196  

 

    For the Three Months Ended March 31,  
    2019     2018  
Revenues by State/Territory                
California   $ 121,896     $ -  
Tennessee     10,312     $ -  
Texas     29,190       -  
Puerto Rico     2,704,681       2,196  
Total   $ 2,866,079     $ 2,196  

 

Accounts Receivable

 

The Company carries its accounts receivable at their estimated realizable amounts and periodically evaluates the credit condition of its customers. The allowance for uncollectible accounts receivable is based on the Company’s historical bad debt experience and on management’s evaluation of collectability of the individual outstanding balances. As of March 31, 2019, the Company had not identified any uncollectible accounts.

 

Inventory

 

The Company’s inventory is stated at the lower of cost or market. Inventory consists of cannabis products, such as flower, edibles, creams, oils and cannabis accessories such as pipes, bowls and cartridges; and CBD products, such as soft gels, tinctures, balms, pain cream and vape pens.

 

Inventory is comprised of the following items:

 

    As of
March 31, 2019
    As of
December 31, 2018
 
Finished goods – flower   $ 501,589     $ 137,592  
Finished goods – cannabis products     354,386       191,468  
Finished goods – CBD products     132,146       31,400  
Total   $ 649,841     $ 360,460  

 

As of March 31, 2019, the Company had paid for inventory which had not been delivered in the amount of $338,280.

 

Fixed Assets

 

Fixed assets are recorded at cost and are depreciated using the straight-line method over estimated useful lives as follows:

 

Type of Asset   Estimated Life
Furniture, Fixtures and Equipment   5 – 10 years
Building and Leasehold improvements   5 - 25 years

 

Intangible Costs

 

The Company has incurred costs related to Patent Application Costs during the year ended December 31, 2018 and quarter ended March 31, 2019, consisting of $1,943,934 of legal fees. The patent applications will continue to be filed over the next several quarters. As the patents have not been issued as of March 31, 2019, no amortization has been applied against the patent costs. If the patents are approved, the Company will amortize the patent application costs over their useful lives. If the patents are not approved, the patent application costs will be expensed and charged to operations. (Note 7).

 

Share based Compensation

 

Compensation cost relating to share-based payment transactions (including the cost of all employee stock options) is required to be recognized in the consolidated financial statements and covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. That cost is measured based on the estimated fair value of the equity or liability instruments issued. (See Note 3).

 

Fair Value of Financial Instruments

 

The carrying value of the Company’s current liabilities approximates fair value because of the short maturity of these instruments. Unless otherwise noted, it is management’s opinion the Company is not exposed, except for cash balances in excess of the FDIC depository insurance coverage, to significant interest, currency or credit risks arising from these financial instruments.

 

Income Taxes

 

The Company follows the accrual method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on the deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company was organized under the laws of Nevada and therefore will be taxed at statutory U.S. federal corporate income tax rates.

 

Basic Earnings per Share

 

The Company computes net loss per share in accordance with FASB ASC 260 “Earnings per Share”, which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock.

 

Basic net loss per share amounts are computed by dividing the net loss by the weighted average number of common shares outstanding. Potentially dilutive securities have been excluded from the Company’s earnings per share calculation due to the effect of being anti-dilutive. The total number of potentially dilutive securities which have been excluded is 6,995,796. (Note 3).

 

Recent Accounting Pronouncements

 

As of March 31, 2019 and through May 15, 2019, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or future operating results. The Company will monitor these emerging issues to assess any potential future impact on its financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. On January 1, 2019, we adopted this standard on our consolidated financial statements. The Company recognized the Right of Use asset in the amount of $6,316,879 and Lease Liability – current of $1,188,821 and Lease Liability – non-current of $5,238,108 as of March 31, 2019. During the period ended March 31, 2019, the Company recognized an additional $110,050 of rental expense charged to operations due to the adoption of the standard.