| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation and Principles of Consolidation The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America, (“U.S. GAAP”) and include the consolidated financial statements of the Company and
its wholly-owned subsidiary, Hemp Funding, Inc., through its date of dissolution in 2017. All intercompany transactions and balances
have been eliminated. Effective
September 29, 2018, following authorization by our shareholders, the Company withdrew its previous election to be regulated as
a BDC under the Investment Company Act of 1940, as amended, or the 1940 Act. Prior to such time, the Company was a closed-end, non-diversified management
investment company that had elected to be treated as a BDC under the 1940 Act. As
a result of this change in status, commencing September 29, 2018, the Company shall now report as a corporation
for accounting purposes under Regulation S-X. For the period from September 29, 2018 to September 30, 2018, there was no
activity and therefore, the Company only presented condensed consolidated statements of operations and cash flows for
Investment Company Accounting. In
accordance with FASB Accounting Standards Codification (ASC) Topic 946 – Financial Services – Investment Company,
the Company is making this change to its financial reporting prospectively, and not restating or revising periods prior to the
Company’s change in status to a non-investment company effective September 29, 2018. Accordingly, in this report, the Company
refers to both accounting in accordance with US generally accepted accounting principles (GAAP) applicable to corporations (Corporation
Accounting), which applies commencing September 29, 2018, and to that applicable to investment companies under the 1940 Act (Investment
Company Accounting), which applies to prior periods. In
order to maintain its status as a non-investment company, the Company will now operate so as to fall outside the definition of
an “investment company” or within an applicable exception. The Company expects to continue to operate outside the
definition of an “investment company” as a company primarily engaged in the business of developing and selling footwear
and apparel products. All
adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September
30, 2018, and the results of operations and cash flows for the periods ended September 30, 2018 and 2017 have been included. The
results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to
be expected for the full year. The accounting policies and procedures employed in the preparation of these financial statements
have been derived from the audited financial statements of the Company for the fiscal year ended December 31, 2017, which
are contained in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on
April 2, 2018. The consolidated balance sheet and consolidated schedule of investments as of December 31, 2017, contained herein,
were derived from those financial statements. Use
of Estimates The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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 condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is
at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at
the date of the financial statements, which management considered in formulating its estimate could change in the near term due
to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates. Significant
estimates during the nine months ended September 30, 2018 and 2017 include the valuation of the Company’s investments, the
fair value of assets acquired and the fair value of shares issued for the assets acquired. Cash
and Cash Equivalents The
Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents.
The Company places its cash with high credit quality financial institutions. The Company’s accounts at these institutions
are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 or by the Securities Investor Protection
Corporation (“SIPC”) up to $250,000. During the 2018 and 2017 periods, the Company had cash balances exceeding the
FDIC and SIPC insurance limit on interest bearing accounts. To reduce its risk associated with the failure of such financial institutions,
the Company evaluates at least annually the rating of the financial institutions in which it holds deposits. The carrying amounts
reported in the consolidated balance sheets for cash and cash equivalents of $626,115 and $294,591 at September 30, 2018 and December
31, 2017, respectively, approximate their fair market value based on the short-term maturity of these instruments. Note
Receivable The
Company recognizes an allowance for losses on note receivable in an amount equal to the estimated probable losses net of recoveries.
The allowance is based on an analysis of historical bad debt experience, current note receivable aging, and expected future write-offs,
as well as an assessment of specific identifiable accounts considered at risk or uncollectible. The expense associated with the
allowance for doubtful accounts is recognized as general and administrative expense. Intangible Assets and Goodwill Intangible assets
are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful lives. The
brand ambassador agreement is being amortized over a period of 1 year. Trademarks are recorded at cost, have an indefinite useful
life and are not amortized. The Company
records goodwill as the excess of the purchase price over the fair values assigned to the net assets acquired in business acquisitions.
ASC 350, “Intangibles — Goodwill and Other” requires that intangible assets with indefinite lives, including
goodwill, be evaluated on an annual basis for impairment or more frequently if an event occurs or circumstances change that could
potentially result in impairment. If the fair value of goodwill or other intangible asset with an indefinite life is determined
to be less than the book value, then goodwill or other intangible asset is reduced to its implied fair value and the amount of
the write-down is charged to operations. We are required to test our goodwill and intangible assets with indefinite lives for impairment
at least annually. Securities
Transactions Securities
transactions are recorded on a trade date basis. Securities transactions outside conventional channels, such as private transactions,
are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a
sale, and incurs an obligation to pay for securities purchased or to deliver securities sold, respectively. The Company records
interest and dividend income on an accrual basis to the extent that the Company expects to collect such amounts. Commissions and
other costs associated with transactions involving securities, including legal costs, are included in the cost basis of purchases
and deducted from the proceeds of sales. Equity
Investments (Corporation Accounting) Equity
investments of $12,767 at September 30, 2018, comprised mainly of nonmarketable stock, loans and stock warrants, are recorded
at cost, as adjusted for other than temporary impairment write-downs and are evaluated for impairment periodically. Prior to September
29, 2018, equity investments were recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation.
The fair value of equity investments that had no ready market were determined in good faith by the Board of Directors, based upon
the financial condition and operating performance of the underlying investee companies as well as general market trends for businesses
in the same industry. Included in the equity investments, at fair value were non-marketable securities of $464,446 at December 31,
2017. Net
Realized Gain or Loss and Net Change in Unrealized Appreciation or Depreciation of Equity Investments (Investment Company Accounting) Realized
gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company’s cost
basis and the net proceeds received from such disposition. Realized gains and losses on investment transactions are
determined by specific identification. Net change in unrealized appreciation or depreciation is computed as the difference between
the fair value of the investment and the cost basis of such investment, including any reversal of previously recorded unrealized
appreciation/depreciation when gains or losses are realized. Valuation
of Equity Investments Through
September 29, 2018, the Company’s equity investments consisted of loans and securities issued by public and privately-held
companies, including convertible debt, loans, equity warrants and preferred and common equity securities. The
Company applied the accounting guidance of Accounting Standards Codification Topic 820, “Fair Value Measurement and Disclosures”
(“ASC 820”). The
guidance also establishes a fair value hierarchy for measurements of fair value as follows:
● Level
1 - Valuations based on unadjusted quoted market prices in active markets for identical assets or liabilities.
● Level
2 - Valuations based on inputs other than quoted market prices that are observable, either directly or indirectly, such as
quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities
in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
● Level
3 - Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement
date. The inputs for the determination of fair value may require significant management judgment or estimation and is based
upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities.
These investments include debt and equity investments in private companies or assets valued using the market or income approach
and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful
current market data for identical or similar investments. The inputs in these valuations may include, but are not limited
to, capitalization and discount rates, earnings before interest, taxes, depreciation and amortization (“EBITDA”)
multiples, and discounts for lack of marketability. Through
September 29, 2018, on a quarterly basis, the Board of Directors of the Company (the “Board”), in good faith, determined
the fair value of investments in the following manner: Equity
securities which are listed on a recognized stock exchange are valued at the adjusted closing trade price on the last trading
day of the valuation period. For equity securities that carry a restriction inherent to the security, a restriction discount is
applied, as appropriate. Investments in warrants are valued at fair value using the Black-Scholes option pricing model. Investments
in securities which are convertible at a date in the future are valued assuming a full conversion into common shares and valued
based on the methodology for equity securities described above, or at the respective investment’s face value, whichever
is a better indicator of fair value. Investments in unlisted securities are valued using a market approach net of the appropriate
discount for lack of marketability. Investments
without a readily determined market value were primarily valued using a market approach, an income approach, or both approaches,
as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical
or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts
(for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated
by current market expectations about those future amounts. In following these approaches, the types of factors that the Company
may take into account in fair value pricing the Company’s investments include, as relevant: available current market data,
including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security
covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s
ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons
of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. Because
there is not a readily available market value for some of the investments in its portfolio, the Company valued certain of its
portfolio investments at fair value as determined in good faith by the Board, as described herein. Due to the inherent uncertainty
of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s
investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments differed significantly
from the values that would have been used had a readily available market existed for such investments and may differ materially
from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions
on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment
in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded
it. Subsequent
to September 29, 2018, the Company categorizes its investment in marketable equity instruments as a trading security since there
is an active market in such equity investment. Trading securities are carried at fair value with unrealized gains or losses included
in income (expense). Realized gains and losses are determined on a specific identification basis and are included in other
income (expense). The Company reviews equity investments for impairment whenever circumstances and situations change such that
there is an indication that the carrying amounts may not be recovered. Revenue
Recognition Effective
on January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 and ASC Topic 606, Revenue
from Contracts with Customers The
Company records interest and dividend income on an accrual basis to the extent that the Company expects to collect such amounts. Income
Taxes Through
March 31, 2017, the Company elected to be treated as a RIC under Subchapter M of the Code and operated in a manner so as to qualify
for the tax treatment applicable to RICs. At
March 31, 2017, the Company failed this diversification test since the Company’s investment in IPSIDY INC. (formerly ID
Global Solutions Corporation) (“IDTY”) accounted for over 25% of the Company’s total assets. This discrepancy
was not caused by the acquisition of any security. The failure was not a result of willful neglect. The Company did not cure its
failure to retain its status as a RIC and the Company does not intend to seek to obtain RIC status again. Accordingly, beginning
in 2017, the Company is subject to income taxes at corporate tax rates. The loss of the Company’s status as a RIC did not
have any impact on the Company’s financial position or results of operations. Distributions
from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations,
which may differ from those amounts determined in accordance with U.S. GAAP. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital in excess
of par or accumulated net realized loss, as appropriate, in the period that the differences arise. Temporary and permanent differences
are primarily attributable to differences in the tax characterization of income or loss and any non-deductible expenses. These
differences are generally determined in conjunction with the preparation of the Company’s annual tax returns. Beginning
in 2017, deferred income tax assets and liabilities arise from temporary differences between the financial statements and tax
basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences
reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the
asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified
as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount expected to be realized. On
December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Act”), a tax reform bill which,
among other items, reduces the current federal income tax rate to 21% from 34%. The rate reduction is effective January 1, 2018,
and is permanent. The Act has caused the Company’s deferred income taxes to be revalued. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted through income tax expense. Pursuant to the guidance within SEC
Staff Accounting Bulletin No. 118 (“SAB 118”), as of December 31, 2017, the Company recognized the provisional effects
of the enactment of the Act for which measurement could be reasonably estimated. Since the Company has provided a full valuation
allowance against its deferred tax assets, the revaluation of the deferred tax assets did not have a material impact on any period
presented. The ultimate impact of the Act may differ from these estimates due to the Company’s continued analysis or further
regulatory guidance that may be issued as a result of the Act. New
Accounting Pronouncements Effective
on January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 and ASC Topic 606, Revenue
from Contracts with Customers In
January 2016, FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements
that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations,
cash flows or disclosures. |
