| Critical Accounting Policies and Estimates | 2. Critical Accounting Policies and Estimates Management’s Representation of Interim
Financial Statements Basis of Presentation Use of Estimates The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty
involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates. Reclassifications Certain prior period amounts have been reclassified
to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position. Fair Value Measurements 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. The fair value hierarchy is based on three
levels of inputs, of which the first two are considered observable and the last unobservable, as follows: Level 1 – Quoted prices
in active markets for identical assets or liabilities. Level 2 – Inputs other than Level
1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices 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 – Unobservable inputs
that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. The Company’s financial instruments include
cash, accounts receivable, notes receivable, accounts payable and tenant deposits. The carrying values of these financial instruments
approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because
the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The Company’s
derivative liability was adjusted to fair market value at the end of each reporting period, using Level 3 inputs. The following is the Company’s assets and
liabilities measured at fair value on a recurring and nonrecurring basis at June 30, 2021 and December 31, 2020, using quoted prices
in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs
(Level 3):
Schedule of fair value measurement
June 30, 2021 December 31, 2020
Level 1 – Marketable Securities Available-for-Sale – Recurring 498,039 276,782 Marketable Securities at Fair Value on a
Recurring Basis Certain assets are measured at fair value on a
recurring basis. The Level 1 position consists of an investment in equity securities held in Canada House Wellness Group, Inc., a publicly-traded
company whose securities are actively quoted on the Toronto Stock Exchange. Fair Value of Financial Instruments The carrying amounts of cash and current assets
and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in
nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions
could significantly affect these estimates. Available-for-sale securities are recorded at current market value as of the date of this
report. Accounts Receivable The Company extends unsecured credit to its customers
in the ordinary course of business. These accounts receivable relates to the Company’s wholesale and other revenue segments. Accounts
receivable are recorded when a milestone is reached at a point in time resulting in funds being due for delivered goods or services, and
where payment is reasonably assured. Wholesale revenues are generally collected within 14 to 30 days after invoice is sent. Consulting
revenues are generally collected from 30 to 60 days after the invoice is sent. The following table depicts the composition of
our accounts receivable as of June 30, 2021, and December 31, 2020:
Schedule of Accounts Receivable
June 30, 2021 December 31, 2020
Accounts receivable – trade $ 3,377,879 $ 1,315,188
Accounts receivable – related party – 80,494
Accounts receivable – litigation, non-current 3,063,968 3,063,968
Allowance for doubtful accounts (172,938 ) (44,808 )
Total accounts receivable $ 6,268,909 $ 4,414,842 The Company establishes an allowance for doubtful
accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required
in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit
evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition
of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. Notes Receivable On July 17, 2018, the Company entered into an
intellectual property license agreement with Abba Medix Corp. (“AMC”), a wholly owned subsidiary of publicly traded Canada
House Wellness Group, Inc.. The Company agreed to provide a lending facility to AMC in CAD$125,000 increments of up to CAD$500,000. The
lending facility is for a term of 60 months and bears interest at a rate of 2%. On April 30, 2019, the terms of the loan were amended
to reduce the term from 60 months to 36 months. As of June 30, 2021 and December 31, 2020, the outstanding balance, including accrued
interest, on the notes receivable with AMC totaled $ 246,765 246,765 On March 12, 2021, the Company sold equipment
to Colorado Cannabis. The terms of sale included a zero interest note receivable, payable $11,944 on the first of each month for 24 months.
As of June 30, 2021, the outstanding balance, including penalties for late payments, on the notes receivable with Colorado Cannabis totaled
$ 215,890 Other Assets (Current and Non-Current) Other assets as of June 30, 2021 and December
31, 2020 were $ 2,284,610 666,079 1,865,138 419,472 345,777 268,423 51,879 Goodwill and Intangible Assets Goodwill represents the future economic benefit
arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the
Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible
assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line
basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of licensing
agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range from 10 15 Goodwill and indefinite-lived assets are not amortized
but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment
assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate
that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at
the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting
unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach
and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines
fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors
that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach,
which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk
relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions
used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital
requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market.
If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying
amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates
the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the
fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of
the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired
on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount
equal to the excess. Determining the fair value of a reporting unit
is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans,
and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes
of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause
the Company to perform an impairment test prior to scheduled annual impairment tests. The Company performed its annual fair value assessment
as of December 31, 2020, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and
determined that no impairment exists. No additional factors or circumstances existed as of June 30, 2021 that would indicate impairment. Long-Lived Assets The Company evaluates the recoverability of its
long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset
is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other
groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the
assets are written down to the estimated fair value. The Company evaluated the recoverability of its
long-lived assets on December 31, 2020 on its subsidiaries with material amounts on their respective balance sheets and determined that
no impairment exists. Accounts Payable Accounts payable as of June 30, 2021 and December
31, 2020 were $ 2,375,540 3,557,461 Accrued Expenses and Other Liabilities Accrued expenses and other liabilities as of June
30, 2021 and December 31, 2020 were $ 10,279,124 2,705,445 17,169 741,299 5,719,742 3,800,914 26,826 1,154,887 1,523,732 Revenue Recognition and Related Allowances The Company’s revenue recognition policy
is significant because the amount and timing of revenue is a key component of our results of operations. Certain criteria are required
to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until is the criteria
are met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Revenue contracts
are identified when accepted from customers and represent a single performance obligation to sell the Company’s products to a customer. The Company has three main revenue streams: retail;
wholesale; and other. Retail and wholesale sales are recorded at the
time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers,
the Company considers several indicators, including significant risks and rewards of products, its right to payment, and the legal title
of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers. Other revenue consists of other income and expenses,
including related to, licensing and consulting services, facility design services, facility management services, the Company’s Three
A Light™ publication, and corporate operations. Revenue is recognized when the obligations to the client are fulfilled which is
determined when milestones in the contract are achieved and target harvest yields are exceeded or earned upon the completion of the seminar.
The Company also recognizes expense reimbursement from clients as revenue for expenses incurred during certain jobs. Costs of Goods and Services Sold Costs of goods and services sold are comprised
of related expenses incurred while supporting the implementation and sales of the Company’s products and services. General and Administrative Expenses General and administrative expense are comprised
of all expenses not linked to the production or advertising of the Company’s services. Advertising and Marketing Costs Advertising and marketing costs are expensed as
incurred and totaled $ 196,908 308,593 336,529 465,796 Stock Based Compensation The Company accounts for share-based payments
pursuant to ASC 718, Stock Compensation Stock compensation expense for stock options is
recognized over the vesting period of the award or expensed immediately under ASC 718 and Emerging Issues Task Force (“EITF”)
96-18 when stock or options are awarded for previous or current service without further recourse. Share-based expense paid through direct stock
grants is expensed as occurred. Since the Company’s common stock is publicly traded, the value is determined based on the number
of shares of common stock issued and the trading value of the common stock on the date of the transaction. On June 20, 2018, the Financial Accounting Standards
Board (“FASB”) issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods
and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based
payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee
share-based payments issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for
the Company (but not limited to) was the determination of measurement date, which generally is the date on which the measurement of equity
classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified
nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty
is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award,
which is the same as share-based payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the
effective date of the new guidance. The Company recognized $ 1,153,018 2,636,824 4,361,822 Income Taxes ASC 740, Income Taxes requires the use of the
asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets are regularly assessed to
determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is
more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to
recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. Factors
reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history
of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible
and prudent tax planning strategies. The Company assesses all material positions taken
in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge
by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability,
and the tax benefit to be recognized is measured at the largest amount of benefit that is greater than 50 percent likely of being realized
upon ultimate settlement. We recognize the impact of a tax position in our financial statements only if that position is more likely than
not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly
examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions.
Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from
our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision
for income taxes in the period in which they are determined. As the Company operates in the cannabis industry,
it is subject to the limits of the Internal Revenue Code (IRC) Section 280E under which the Company is only allowed to deduct expenses
directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable
under IRC Section 280E. Right of Use Assets and Lease Liabilities In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842) Under ASC 842, the Company determines if an arrangement
is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease
payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement.
As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the
present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any
lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably
certain that the Company will exercise such options. Operating leases are included in operating lease
ROU assets and operating lease liabilities, current and non-current, on the Company's consolidated balance sheets. |
