| Note 2: Significant Accounting Policies | Basis
of Preparation The
interim unaudited condensed consolidated financial statements as of September 30, 2018, and for the three and nine months ended
September 30, 2018 and 2017, have been prepared in accordance with accounting principles generally accepted in the United States
(GAAP) for interim financial information on the same basis as the annual financial statements and in the opinion of management,
reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial
position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily
indicative of the results expected for a full year or for any future period. They do not include all of the information and footnotes
required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the
Jacksam Corporation’s audited financial statements and notes filed with the SEC on September 17, 2018 on Form 8-K for the
year ended December 31, 2017. Inventory Inventories
are stated at the lower of cost, determined on the first-in, first-out (FIFO) method or net realizable value. Cost principally
consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically
reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes
in future demand. At
September 30, 2018 and December 31, 2017, the Company had $739,095 and $124,121 in inventory, respectively. The September 30,
2018 and December 31, 2017 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific
inventory items that have shown no activity over a 24-month period. The Company tracks inventory as it is disposed, scrapped or
sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of
September 30, 2018, and December 31, 2017, the Company has determined that an allowance of $0 and $0 is required. Revenue
Recognition The
Company derives revenues from the sale of machines and product income. Revenues are recognized when control of the promised goods
or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to
in exchange for transferring those goods or services. Revenue
is recognized based on the following five step model:
o Identification of
the contract with a customer
o Identification of
the performance obligations in the contract
o Determination of
the transaction price
o Allocation of the
transaction price to the performance obligations in the contract
o Recognition of revenue
when, or as, the Company satisfies a performance obligation On
January 1, 2017, the Company adopted the new accounting standard ASC 606, “Revenue from Contracts with Customers”
and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method,
while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting standards under
Topic 605. The adoption has had an immaterial impact to the Company’s comparative net income and as such comparative information
has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact
of the adoption of the new standard to be immaterial to the Company’s net income on an ongoing basis. Going
Concern The
Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable
to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
However, the Company has negative working capital, recurring losses, and does not have a source of revenues sufficient to cover
its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The
ability of the Company to continue as a going concern is dependent upon its ability to successfully execute the business plan
and attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if
the Company is unable to continue as a going concern. In
the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its
business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the
payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required
to raise additional capital. Historically,
it has mostly relied upon convertible notes payable and cash flows from operations to finance its operations and growth. Management
may raise additional capital by retaining net earnings or through future private offerings of the Company’s stock or through
loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s
failure to do so could have a material and adverse effect upon it and its shareholders. Net
Loss Per Common Share Basic
net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during
the period. Potential common stock equivalents are determined using the treasury stock method. For diluted net loss per share
purposes, the Company excludes stock options and other stock-based awards, including shares issued as a result of option exercises
but which are subject to repurchase by the Company, whose effect would be anti-dilutive from the calculation. During the three
and nine months ended September 30, 2018 and 2017, common stock equivalents were excluded from the calculation of diluted net
loss per common share, as their effect was anti-dilutive due to the net loss incurred. Therefore, basic and diluted net loss per
share was the same in all periods presented. The
Company had 5,000,000 and 3,171,048 potentially dilutive securities that have been excluded from the computation of diluted weighted-average
shares outstanding as of September 30, 2018 and 2017, as they would be anti-dilutive. Stock-Based
Compensation The
Company accounts for stock-based compensation in accordance with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 718, Stock Compensation For
awards that vest based on service conditions, the Company uses the straight-line method to allocate compensation expense to reporting
periods. The grant date fair value of options granted is calculated using the Black-Scholes option pricing model, which requires
the use of subjective assumptions including volatility, expected term and the fair value of the underlying common stock, among
others. The
Company periodically issues performance-based awards. For these awards, vesting will occur upon the achievement of certain milestones.
When achievement of the milestone is deemed probable, the Company expenses the compensation of the respective awards over the
implicit service period. Stock
awards to non-employees are accounted for in accordance with ASC 505-50, Equity-Based Payments to Non-Employees Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting The
stock-based compensation plans provide that grantees may have the right to exercise an option prior to vesting. Shares purchased
upon the exercise of unvested options will be subject to the same vesting schedule as the underlying options and are subject to
repurchase at the original exercise price by the Company should the grantee discontinue providing services to the Company for
any reason, prior to becoming fully vested in such shares. Issuance
Costs Related to Equity and Debt The
Company allocates issuance costs between the individual freestanding instruments identified on the same basis as proceeds were
allocated. Issuance costs associated with the issuance of stock or equity contracts (i.e., equity-classified warrants and convertible
preferred stock) are recorded as a charge against the gross proceeds of the offering. Any issuance costs associated with the issuance
of liability-classified warrants are expensed as incurred. Issuance costs associated with the issuance of debt (i.e., convertible
debt) is recorded as a direct reduction of the carrying amount of the debt liability but limited to the notional value of the
debt. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount to interest
expense using the effective interest method over the expected term of the notes pursuant to ASC 835, Interest Embedded
Conversion Features The
Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to
determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative
at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment
under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options.” Under the ASC
470-20, an entity must separately account for the liability and equity components of the convertible debt instruments that may
be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost.
The effect of ASC 470-20 on the accounting for our convertible debt instruments is that the equity component is required to be
included in the additional paid-in capital section of stockholders’ equity on the consolidated balance sheets and the value
of the equity component is treated as original issue discount for purposes of accounting for the debt component of the notes.
As a result, we are required to record non-cash interest expense as a result of the amortization of the discounted carrying value
of the convertible debt to their face amount over the term of the convertible debt. We report higher interest expense in our financial
results because ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and
the instrument’s coupon interest. For
conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion
feature" ("BCF") and related debt discount. When the Company records a BCF, the relative fair value of the BCF is
recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and
amortized to interest expense over the life of the debt. Derivatives
and Hedging On
July 1, 2017, the Company early adopted ASU 2017-11, “ Earnings Per Share (Topic 260) Distinguishing Liabilities from
Equity (Topic 480) Derivatives and Hedging (Topic 815), ASU
2017-11 changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round
features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a
down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s
own stock. ASU 2017-11 also clarifies existing disclosure requirements for equity- classified instruments. As a result, a freestanding
equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability
at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments,
the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of
the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common
shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject
to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, “Debt—Debt with Conversion
and Other Options”), including related EPS guidance (ASC 260). Part II of ASU 2017-11 recharacterize the indefinite deferral
of certain provisions of ASC 480 that now are presented as pending content in the ASC, to a scope exception. Those amendments
do not have an accounting effect. Prior
to the early adoption of ASU 2017-11, an equity-linked financial instrument with a down round feature that otherwise is not required
to be classified as a liability under the guidance in ASC 480 is evaluated under the guidance in ASC 815, “Derivatives and
Hedging,” to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or
embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether
it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial
instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract
provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a
down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting
entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which
the entity must measure at fair value initially and at each subsequent reporting date. ASU
2017-11 revises the guidance for instruments with down round features in ASC 815-40, “Derivatives and Hedging—Contracts
in Entity’s Own Equity,” which is considered in determining whether an equity-linked financial instrument qualifies
for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified
in equity under the guidance in ASC 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding
instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features
are no longer bifurcated. For
entities that present EPS in accordance with ASC 260, and when the down round feature is included in an equity-classified freestanding
financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a
numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder
of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on
an ongoing basis. Convertible instruments are unaffected by ASU 2017-11. Part
I of ASU 2017-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments
in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
ASU 2017-11 Part 1 should be applied retrospectively to outstanding financial instruments with a down round feature for each prior
reporting period presented in accordance with the guidance on accounting changes in paragraphs ASC 250-10-45-5 through 45-10. The
Company has determined that there were no previously outstanding financial instruments that fall under the scope of ASU 2017-11.
Therefore, the Company has not determined and has not recorded a cumulative-effect adjustment to the balance sheet. ASU
2017-11 Part II does not require any transition guidance because those amendments do not have an accounting effect. The
Company considered the impact of Part 1 of ASU 2017-11 and determined the Company had no financial instruments previously carried
as derivative liabilities that were deemed to be such on the basis of embedded features containing down round provisions, resulting
in the strike price being reduced on the basis of the pricing of future equity offerings. As a result, upon the early adoption
provisions of ASU 2017-11, the Company did not record any adjustment to its books to account for any transition accounting issues. Subsequent
Events The
Company evaluates events occurring after the date of its consolidated balance sheet for potential recognition or disclosure in
its consolidated financial statements. There have been no subsequent events that occurred through the date the Company issued
its consolidated financial statements that require disclosure in or adjustment to its consolidated financial statements. Principles
of Consolidation The
accompanying consolidated financial statements include the accounts of China Grand Resorts, Inc. and its wholly owned subsidiary.
All intercompany transactions and balances are eliminated in consolidation. New
Accounting Pronouncements From
time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company
as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards
that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon
adoption. In
May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), Revenue
from Contracts with Customers Revenue Recognition In
July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory In
January 2016, the FASB issued ASU No. 2016-01, " Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) In
March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting In
August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the
Emerging Issues Task Force) Statement
of Cash Flows In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB
Emerging Issue Task Force) In
July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (ASC 260) Distinguishing Liabilities from Equity (ASC 480)
Derivatives and Hedging (ASC 815),” | The
significant accounting policies set out below have been applied consistently to all periods presented in these financial statements,
unless otherwise indicated: a)
Basis of Preparation The
accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted
in the United States of America (U.S. GAAP) under the accrual basis of accounting. b)
Basis of Measurement These
financial statements are presented in US dollars and are prepared on a historical cost basis, except for certain financial instruments
which are carried at fair value. c)
Use of Estimates The
preparation of financial statements is in conformity with U.S. Generally Accepted Accounting Principles and requires management
to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates
and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable
and inventory, estimated useful lives and potential impairment of property and equipment, estimate of fair value of share based
payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount and estimates of
the probability and potential magnitude of contingent liabilities. 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 nonconforming events. Accordingly, actual results could differ significantly from estimates. d)
Risks and Uncertainties The
Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks
including the potential risk of business failure. The Company has experienced, and in the future, expects to continue to experience,
variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty
associated with the commercialization and ultimate success of the product, (ii) competition inherent at large national retail
chains where product is expected to be sold, (iii) general economic conditions and (iv) the related volatility of prices pertaining
to the cost of sales. e)
Cash and Cash Equivalents Cash
and cash equivalents are carried at cost and consist of cash on hand and demand deposits placed with banks or other financial
institutions, and all highly liquid investments with an original maturity of three months or less.
f)
Accounts Receivable and Allowance for Doubtful Accounts Accounts
receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers
in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due
accounts. The Company recognizes an allowance for losses on accounts 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 receivables aging, and expected
future bad debts, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. All
amounts are deemed collectible at December 31, 2017 g)
Inventory Inventories
are stated at the lower of cost, determined on the first-in, first-out (FIFO) method or net realizable value. Cost principally
consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically
reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes
in future demand. At
December 31, 2017 and December 31, 2016, the Company had $121,121 and $86,574 in inventory, respectively. The December 31, 2017
and 2016 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific inventory items
that have shown no activity over a 24-month period. The Company tracks inventory as it is disposed, scrapped or sold at below
cost to determine whether additional items on hand should be reduced in value through an allowance method. As of December 31,
2017, and December 31, 2016, the Company has determined that no allowance is required. h)
Property, Plant and Equipment Property
and equipment is measured at cost, less accumulated depreciation, and is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation of property and equipment is
provided utilizing the straight-line method over the estimated useful lives, ranging from 5 to 7 years of the respective assets.
Expenditures for maintenance and repairs are charged to expense as incurred. Upon sale or retirement of property and equipment,
the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements
of operations. i)
Fair Value of Financial Instruments The
Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance
on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability,
as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that
market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes
a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation
techniques, are assigned a hierarchical level. The
following are the hierarchical levels of inputs to measure fair value:
· Level
1
· Level
2 Quoted
prices for similar assets or liabilities in active markets; Inputs other than quoted prices that are observable for
the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data
by correlation or other means.
· Level
3 The
carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets,
accounts payable & accrued expenses, certain notes payable and an approximate of their fair values because of the short maturity
of these instruments. Binomial
Calculation model: j)
Revenue Recognition The Company derives revenues from the sale
of machines and product income Sales are recognized at the time title transfers to the customers, generally upon shipment and
when all the following have occurred: (1) persuasive evidence of an arrangement exists, (2) asset is transferred to the customer
without further obligation, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably
assured. The Company classifies selling discounts and rebates, if any, as a reduction of
revenue at the time the sale is recorded. In addition, the Company records a reserve for estimates returns and based on historical
experience. As of December 31, 2017 and 2016 the Company did not have a product return accrual due to short period in which customers
are allowed to return
products which has historically resulted in all material returns taking place in the period in which the sale was originally recorded. On
January 1, 2018, the Company adopted the new accounting standard ASC 606, “Revenue from Contracts with Customers”
and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method,
while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting standards under
Topic 605. The adoption has had an immaterial impact to the Company’s comparative net income and as such comparative information
has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact
of the adoption of the new standard to be immaterial to the Company’s net income on an ongoing basis. k)
Cost of Sales Cost
of sales represents costs directly related to supplies and materials, machines, freight & delivery, commissions, printing,
packaging and other costs. l)
Advertising and Marketing Expenses Advertising
& Marketing expense include cost incurred in public relations, online marketing, magazine, social networking etc. m)
General and Administrative Expenses General
and administrative expenses include costs incurred in wages and salaries, interest expense, interest expense (loans), officer
salaries etc. Operating lease expense as on December 31 st n)
Income Tax Provision Since
inception of the Company on August 29, 2013 through December 31, 2017, the Company was taxed as a pass-through entity for Federal
and State income tax purposes as an S Corporation. For Federal and State Income Tax purposes, income and losses are passed through
to the shareholders. The Company has established nexus in California and is subject to the greater of the 1.5% California tax
on State taxable income or the California $800 minimum tax. The
Company does not produce, procure, manufacturer or distribute any products that contain a Schedule I substance as defined in the
Controlled Substances Act (“CSA”). Therefore, the Company is not subject to Internal Revenue Code Section 280E. The
Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely
than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that
includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant
facts. The
Company has generated sales outside of California. However, due to the Company’s historical tax losses, the Company does
not believe there is significant state income tax exposure outside of California. As a result, no provision for uncertain tax
positions have been recorded. For
the years ended December 31, 2017 and 2016, the Company did not have any interest and penalties associated with tax positions.
As of December 31, 2017 and 2016, the Company did not have any unrecognized uncertain tax positions. o)
Contingencies The
Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and
such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that
are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived
merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought therein. If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s Financial Statements. If the assessment
indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material,
would be disclosed. Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business,
financial position, and results of operations or cash flows. p)
Subsequent Events The
Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent
events. The Company evaluated subsequent events through the date when the financial statements are available for issuance or July
27, 2018. q)
Marketable Securities We
report investments in marketable equity securities, and certain other equity securities, at fair value. Unrealized gains and losses
on available-for-sale investment securities are included in shareowners’ equity, net of applicable taxes and other adjustments.
We currently do not have any available for sale securities. Realized
gains and losses are accounted for on the specific identification method. Unrealized gains and losses on investment securities
classified as trading are included in earnings. We
regularly review investment securities for impairment using both quantitative and qualitative criteria. If we do not expect to
recover the entire cost basis of the security, we consider the security to be other-than-temporarily impaired (OTTI), and we record
the difference between the security’s amortized cost basis and its recoverable amount in earnings and the difference between
the security’s recoverable amount and fair value in other comprehensive income. If we intend to sell the security or it
is more likely than not we will be required to sell the security before recovery of its amortized cost basis, the security is
also considered OTTI and we recognize the entire difference between the security’s amortized cost basis and its fair value
in earnings. For equity securities, we consider the length of time and magnitude of the amount that each security is in an unrealized
loss position. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to be
OTTI, and we record the difference between the security’s amortized cost basis and its fair value in earnings. r)
Recently Issued Accounting Pronouncements In
May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” on revenue recognition.
This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers. The original effective date of this guidance
was for interim and annual reporting periods beginning after December 15, 2016, early adoption is not permitted, and the guidance
must be applied retrospectively or modified retrospectively. In July 2015, the FASB approved an optional one-year deferral of
the effective date. On
January 1, 2017 the Company adopted the new accounting standard ASC 606, “Revenue from Contracts with Customers” and
all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while
prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under
Topic 605. The adoption of the new standard was immaterial to the Company’s net income on an ongoing basis. In
March 2016, the FASB issued ASU 2016-09, Stock Compensation, which is intended to simplify the accounting for share-based payment
award transactions. The new standard will modify several aspects of the accounting and reporting for employee share-based payments
and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits
or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The guidance
is effective for fiscal years beginning after December 15, 2016, including interim periods within that year, and will be adopted
by the Company in the first quarter of fiscal 2017. The Company anticipates that the new standard will result in an increase in
the number of shares used in the calculation of diluted earnings per share and will add volatility to the Company’s effective
tax rate and income tax expense. The magnitude of such impacts will depend in part on whether significant employee stock option
exercises occur. In
April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Topic 835-30): Simplifying
the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to
a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by ASU 2015-03.
ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods
within those fiscal years. The Company has calculated imputed interest cost at 4% and created an accrual for the interest in 2017. In
July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11, Inventory
(Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which applies guidance on the subsequent measurement
of inventory. ASU 2015-11 states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal
and transportation. The guidance excludes inventory measured using last in, first out or the retail inventory method. ASU 2015-11
is effective for interim and annual reporting periods beginning after December 15, 2016. The adoption of this standard had no
impact our these financial statements. In
February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis," which
makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement
No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other
legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective
for annual periods beginning after December 15, 2015, including any interim period. The adoption of this standard had no impact
on our financial statements. In
August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements – Going Concern (Subtopic 205-40), effective
for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application
is permitted. This standard provides guidance about management’s responsibility to evaluate whether there is substantial
doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The guidance
is effective for annual reporting periods ending after December 15, 2016, the Company adopted this guidance on January 1, 2016.
The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations
or cash flows. In
March 2016, the FASB issued an accounting standard update which simplifies the accounting for share-based payment transactions,
inclusive of income tax accounting and disclosure considerations. This guidance is effective for fiscal and interim periods beginning
after December 15, 2016 and is required to be applied retrospectively to all impacted share-based payment arrangements. We adopted
this guidance on January 1, 2017. The adoption of this guidance did not have a material impact on the Company’s financial
position, results of operations or cash flows. In
January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01,
which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current
guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation
and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance
assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new
standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should
apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period
in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for
financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income.
The Company is currently evaluating the impact of adopting this guidance. In
February 2016, the FASB issued an accounting standard update which modifies the accounting for leasing arrangements, particularly
those arrangements classified as operating leases. This update will require entities to recognize the assets and liabilities arising
from operating leases on the balance sheet. This guidance is effective for fiscal and interim periods beginning after December
15, 2018 and is required to be applied retrospectively to all leasing arrangements. The Company is currently assessing the effects
that this guidance may have on the financial statements. In
January 2017, the FASB issued Accounting Standards Update No. 2017-01, clarifying the Definition of a Business ("ASU 2017-01").
The standard clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should
be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years. Under ASU 2017-01, to be considered a business, the assets in the transaction
need to include an input and a substantive process that together significantly contribute to the ability to create outputs. Prior
to the adoption of the new guidance, an acquisition or disposition would be considered a business if there were inputs, as well
as processes that when applied to those inputs had the ability to create outputs. Early adoption is permitted for certain transactions.
Adoption of ASU 2017-01 may have a material impact on the Company’s financial statements if we enter into future business
combinations. Other
pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not
applicable or are not expected to be significant to the Company’s financial position, results of operations or cash flows. |
