| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 5.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles
of Consolidation The
accompanying consolidated financial statements have been prepared in accordance with GAAP. The consolidated
financial statements include the accounts of the Andina Gold, General Extract, and CMI, a VIE for which the Company is deemed
to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. The
Company operates as one segment from its corporate headquarters in Colorado. Use
of Estimates The
preparation of the Company's financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions
reflected in these financial statements include, but are not limited to determining the fair value of the assets acquired and
liabilities assumed in acquisition, determining the fair value and potential impairment of inventory, determining the useful lives
and potential impairment of long-lived assets and potential impairment of goodwill. The Company bases its estimates on historical
experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances.
On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes
in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. Reclassifications Certain
items in the consolidated financial statements were reclassified from prior periods for presentation purposes. Cash
and Cash Equivalents The
Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents. Concentrations
of Credit Risk Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. Periodically, the
Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its
cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and
does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Accounting
for Business Combinations and Acquisitions The
Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase
price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on
their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as
goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments,
in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill.
If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under
both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest
in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill
or a gain from a bargain purchase. Variable
Interest Entities The
Company accounts for variable interest entities in accordance with FASB ASC Topic 810, Consolidation Accounts
Receivable, net Accounts
receivable, net is comprised of balances due from customers and are recorded at the invoiced amount. Past due balances are determined
based on the contractual terms of the arrangements. Accounts receivable are accrued against when management determines, after
considering economic and business conditions and all means of collection efforts have been exhausted and the potential for recovery
is considered remote, that the collection of receivables is doubtful. Accounts receivable amounts, net of allowance for doubtful
accounts, were $606,043 and $113,599 as of December 31, 2020 and 2019, respectively. This includes $66,043 and $113,599, respectively,
related to the VIE, which is classified as held for sale. Uncollectible accounts previously recorded as receivables are recognized
as bad debt expense, with a corresponding decrease to accounts receivable. Bad debt expense was $188,548 and $15,615 for the years
ended December 31, 2020 and 2019, respectively. This amount includes $4,548 and $15,615, respectively, related to the VIE, which
is classified as discontinued operations. Inventory,
net Inventory,
net is comprised of work-in-process and finished goods consisting of cannabis and cannabidiol products. Cost includes expenditures
directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating
capacity. Inventory, net is stated at the lower of cost or net realizable value. The Company compares the cost of inventory with
market value and writes down inventories to net realizable value, if lower. In evaluating whether inventories are stated at lower
of cost or net realizable value, management considers such factors as inventories on hand, physical deterioration, obsolescence,
changes in price levels, estimated time to sell such inventories and current market conditions. Due to changing market conditions,
management conducted a thorough review of its inventory. As a result, a provision for inventory losses of $400,787 and $163,800
was charged against cost of goods sold during the years ended December 31, 2020 and 2019, respectively, due to a write down of
inventory to its net realizable value. This was based on the Company's best estimates of product sales prices and customer
demand patterns. It is at least reasonably possible that the estimates used by the Company to determine its provision for inventory
losses will be materially different from the actual amounts or results. These differences could result in materially higher than
expected inventory provisions, which could have a materially adverse effect on the Company's results of operations and financial
conditions in the near term. Revenue
Recognition Under
FASB Topic 606, Revenue from Contacts with Customers The
Company's revenue consists of sales of cannabis and ancillary products to both retail consumers and wholesale customers.
Revenue for retail customers is recognized upon completion of the transaction in the point of sale system and satisfaction of
the sale by providing the corresponding inventory at the retail location. Revenue for wholesale customers is recognized upon acceptance
of the physical goods and confirmation by acceptance of the inventory in the regulatory marijuana enforcement tracking reporting
compliance ("METRC") system. Revenue is recognized upon transfer of control of promised products to customers, generally
as risk of loss passes, in an amount that reflects the consideration the Company expects to receive in exchange for those products.
Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue. Retail
customer loyalty liabilities are recognized in the period in which they are incurred and will often be retired without being utilized.
Shipping and handling costs are expensed as incurred and are included in cost of sales, which were not material for the years
ended December 31, 2020 and 2019. The
Company operates in a highly regulated environment in which state regulatory approval is required prior to the customer being
able to purchase the product, either through the Colorado Marijuana Enforcement Division for wholesale clients or the Colorado
Department of Public Health and Environment for medical patients. Expenses Cost
of Goods Sold, Net of Depreciation and Amortization Cost
of goods sold primarily consisted of allocated salaries and wages of employees directly related with the production process, allocated
depreciation and amortization directly related to the production process, cultivation supplies, rent and utilities. Operating
Expenses Operating
expenses encompass personnel costs, sales and marketing expenses, general and administrative expenses, professional and legal
fees and depreciation and amortization related to the property and equipment and intangibles acquired through the acquisition
of CMI. Personnel costs consist primarily of consulting expense and administrative salaries and wages. Sales and marketing expenses
consist primarily of advertising and marketing, and salaries related to sales and marketing employees. General and administrative
expenses are comprised of travel expenses, accounting expenses, and board fees. Professional services are principally comprised
of outside legal and professional fees. Other
Expense, net Other
expense, net consisted of interest expense, loss on impairment of goodwill, other income and (loss) gain on foreign exchange. Stock-Based
Compensation We
account for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 718, Compensation – Stock Compensation. Property
and Equipment, net Purchase
of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance
and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets
are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported
in the consolidated statements of operations. Depreciation and amortization expense is recognized using the straight-line method
over the estimated useful life of each asset, as follows:
Estimated
Useful Life
Computer
equipment 3
– 5 years
Furniture
and fixtures 5
– 7 years
Machinery
and equipment 5
– 8 years
Leasehold
improvements Shorter
of lease term or 15 years Goodwill
and Intangible Assets Goodwill
represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible
assets acquired and liabilities assumed in a business combination. Indefinite-lived
intangible assets established in connection with business combinations consist of trademarks, trade names and developed manufacturing
processes. Intangible assets with indefinite lives are recorded at their estimated fair value at the date of acquisition. Intangible
assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated
useful lives using the straight-line method. Amortization of assets ceases upon designation as held for sale. The estimated useful
lives of intangible assets are detailed in the table below:
Estimated
Useful Life
Customer
relationships 6
years
Trademark/trade
name Indefinite
Developed
manufacturing process Indefinite Impairment
of Goodwill and Intangible Assets Goodwill Goodwill
is not amortized, but instead is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive
changes in circumstances. We
account for the impairment of goodwill under the provisions of Financial Accounting Standards Board (FASB) Accounting Standard
Update 2017-04 ("ASU 2017-04"), " Intangibles – Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment Intangibles – Goodwill
and Other - Goodwill The
Company performs impairment testing for goodwill by performing the following steps: 1) evaluate the relevant events or circumstances
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, 2) if
yes to step 1, calculate the fair value of the reporting unit and compare it with its carrying amount, including goodwill, 3)
recognize impairment, limited to the total amount of goodwill allocated to that reporting unit, equal to the excess of the carrying
value of a reporting unit over its fair value. As
of December 31, 2020, management concluded that the goodwill resulting from the CMI transaction (Note 7) was impaired. See Note
11. Indefinite-Lived
Intangible Assets Indefinite-lived
intangible assets are not amortized, but instead are tested annually at December 31 for impairment and upon the occurrence of
certain events or substantive changes in circumstances. We
account for the impairment of indefinite-lived intangible assets under the provisions of Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 350-30-35, Intangibles – Goodwill and Other – General Intangibles
Other Than Goodwill As
of December 31, 2020, management concluded that indefinite-lived intangible assets were impaired. See Note 11. Intangible
Assets Subject to Amortization Intangible
assets subject to amortization are tested annually at December 31 for impairment and upon the occurrence of certain events or
substantive changes in circumstances. We
account for the impairment of intangible assets subject to amortization under the provisions of Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 360-10-35, Property, Plant, and Equipment As
of December 31, 2020, management concluded that intangible assets subject to amortization were impaired. See Note 11. Contingencies An
initial right-of-use ("ROU") asset and corresponding liability of $1,411,461 was recognized upon the CMI Transaction.
The Company adopted ASU Topic 842 January 1, 2019, but had no reportable operating leases at that point in time. Income
Taxes The
Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes Comprehensive
Loss ASC
220, Comprehensive Income Fair
Value Measurements Certain
assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and
liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy,
of which the first two are considered observable and the last is considered unobservable:
● Level 1 —
Quoted prices in active markets for identical assets or liabilities.
● Level 2 —
Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities,
quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable
or can be corroborated by observable market data.
● Level 3 —
Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value
of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The
carrying values reported in the consolidated balance sheets for cash, prepaid expenses, inventories, accounts payable,
notes payable, and taxes payable approximate fair values because of the immediate or short-term maturities of these financial
instruments. There were no other assets or liabilities that require fair value to be recalculated on a recurring basis. Net
Loss per Share The
Company follows ASC 260, Earnings Per Share Assets
and Liabilities of Discontinued Operations Held for Sale Assets
and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management,
having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale,
in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program
to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the
assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that
is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely
that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the
assets (and liabilities) are classified as held for sale in the balance sheet. Assets classified as held for sale are reported
at the lower of their carrying value or fair value less costs to sell. Depreciation of assets ceases upon designation as held
for sale. See Note 8. Recent
Accounting Pronouncements In
August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity's Own Equity
(Subtopic 815-40). In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure
Requirements for Fair Value Measurement In
January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (ASC 350), In
February 2016, the FASB issued ASU No. 2016-02, Leases |
