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SUMMARY OF SIGNIFICANT ACCOUNT POLICIES | 6 Months Ended
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Jun. 30, 2019
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNT POLICIES | NOTE 4: SUMMARY OF SIGNIFICANT ACCOUNT POLICIES Principles of Consolidation The accompanying consolidated financial statements of Canna Corporation include its majority owned subsidiary Northway Mining, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements include the accounts of Canna Corporation and its subsidiary Northway Mining, LLC, which are controlled and owned 55% by Canna Corporation. All of the equity interests in Northway Mining not held by the Company are reflected as non-controlling interests. In the consolidated statements of operations, we allocate net income (loss) attributable to non-controlling interests to arrive at net income (loss) attributable to the Company. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2019 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on June 17, 2019. The Company has elected a December 31 fiscal year-end. Use of Estimates The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") in the United States of America requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. Carrying Value, Recoverability and Impairment of Long-Lived Assets The Company’s long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Cash and Cash Equivalents The Company considers all investments with a maturity date of three months or less when purchased to be cash equivalents. The Company had cash in the amount of $4,439 and $183,347 as of June 30, 2019 and December 31, 2018, respectively. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company determines when receivables are past due or delinquent based on how recently payments have been received. The Company has net $0 in accounts receivable at June 30, 2019 and December 31, 2018. Cryptocurrencies The Company receives cryptocurrencies from its customers as a form of payment and converts them into cash in less than 3 months from receipt. The Company accounts for its cryptocurrencies as indefinite-lived intangible assets at historical cost less impairment in accordance with ASC 350 Intangibles - Goodwill and Other. During the six months ended June 30, 2019 and 2018, the Company recorded impairment losses of $6,189 and $0, respectively, resulting in cryptocurrency balances of $0 and $6,189 as of June 30, 2019 and December 31, 2018, respectively. Property and Equipment Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values shown in the table below) over the estimated useful lives of the respective assets.
Fixed Asset |  | Estimated Useful Life (Years)
Building |  |  | 39 |
Improvements |  |  | 5 |
Furniture and office equipment |  |  | 5 |
Computer Equipment |  |  | 5 |
Vehicles |  |  | 5 |
Upon the 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 statements of operations. During the six months ended June 30, 2019 and 2018, the Company purchased $103,805 and $0, respectively, of fixed assets, wrote off $0 and $498, respectively, of fixed assets, and recorded $57,248 and $0, respectively, of depreciation expense, resulting in net fixed assets of $1,455,047 and $1,408,490 at June 30, 2019 and December 31, 2018, respectively, which are reflected as assets held-for-sale and discontinued operations (Note 3) in the accompanying financial statements as follows:
Description |  | Total Acquisition Cost |  | Span of Life (years) |  | Depreciation |  | Net Value June 30, 2019
|  |  |  |  |  | Accumulated as of December 31, 2018 |  | Dep Exp 2019 Q1 |  | Dep Exp 2019 Q2 |  | Accumulated as of June 30, 2019 |  |
Computer Equipment |  | $ | 8,990 |  |  |  | 5 |  |  |  | 543 |  |  |  | 480 |  |  |  | 487 |  |  | $ | 1,510 |  |  | $ | 7,480 |
Improvements |  |  | 196,390 |  |  |  | 5 |  |  |  | 11,676 |  |  |  | 9,685 |  |  |  | 9,793 |  |  | $ | 31,154 |  |  | $ | 165,236 |
Office Equipment & Furniture |  |  | 2,882 |  |  |  | 5 |  |  |  | 90 |  |  |  | 142 |  |  |  | 144 |  |  | $ | 376 |  |  | $ | 2,506 |
Pods |  |  | 185,996 |  |  |  | 5 |  |  |  | 5,289 |  |  |  | 9,172 |  |  |  | 9,274 |  |  | $ | 23,735 |  |  | $ | 162,261 |
Real Estate - Land |  |  | 102,218 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  | $ | — |  |  | $ | 102,218 |
Real Estate - Building |  |  | 982,682 |  |  |  | 39 |  |  |  | 968 |  |  |  | 6,203 |  |  |  | 6,272 |  |  | $ | 13,443 |  |  | $ | 969,239 |
Vehicle |  |  | 56,435 |  |  |  | 5 |  |  |  | 4,731 |  |  |  | 2,783 |  |  |  | 2,814 |  |  | $ | 10,328 |  |  | $ | 46,107 |
Total |  | $ | 1,535,592 |  |  |  |  |  |  | $ | 23,297 |  |  | $ | 28,465 |  |  | $ | 28,783 |  |  | $ | 80,545 |  |  | $ | 1,455,047 |
Deferred revenue The Company recognizes revenue for subscription hosting service sales over the subscription period and deferred revenue is recorded for the portion of the subscription period subsequent to each reporting date. As of June 30, 2019 and December 31, 2018, the balances of deferred revenue were $255,362 and $275,362, respectively. The decreased amount is a result of $20,000 refunded to a customer. No services were performed to clients during the six months ended June 30, 2019 related to the deferred revenue, which is included in liabilities held-for-sale (Note 3). Beneficial Conversion Feature If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature ("BCF"). A BCF is recorded by the Company as a debt discount pursuant to ASC 470-20 Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method. 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 for consideration of any beneficial conversion features. Derivative Financial Instruments Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and, further, if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments. Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black Scholes option-pricing model. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on our principal or, in the absence of a principal, most advantageous market for the specific asset or liability. U.S. generally accepted accounting principles provide for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows: Level 1: Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including: ● quoted prices for similar assets or liabilities in active markets; ● quoted prices for identical or similar assets or liabilities in markets that are not active; ● inputs other than quoted prices that are observable for the asset or liability; and ● inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3: Inputs that are unobservable and reflect management’s own assumptions about the inputs market participants would use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows). Our financial instruments consist of cash, accounts receivable, accounts payable, and debt. We have determined that the book value of our outstanding financial instruments as of June 30, 2019 and December 31, 2018, approximates the fair value due to their short-term nature. Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of December 31, 2018 and June 30, 2019:
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Derivative Liability |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2018 |  | $ | — |  |  | $ | — |  |  | $ | 2,296,080 |  |  | $ | 2,296,080 |
June 30, 2019 |  | $ | — |  |  | $ | — |  |  | $ | 3,316,596 |  |  | $ | 3,316,596 |
The Company reflects the fair value for liabilities using the Black Scholes pricing model. The following chart discloses the estimated fair values for the Company’s derivative financial instruments based on the parameters disclosed in our Notes 5 and 6 hereto:
Derivative Liability Reconciliation |  | June 30, 2019 |  | December 31, 2018
Balance beginning of the period |  | $ | 2,296,080 |  |  | $ | 4,454,993 |
Derivative liability additions associated with convertible debt |  |  | 847,190 |  |  |  | 5,840,449 |
Derivative liability reductions due to conversions or settlement of underlying debt |  |  | (1,287,038 | ) |  |  | 560,945 |
Change in Fair Value |  |  | 1,460,364 |  |  |  | (8,560,307 | )
Ending Balance |  | $ | 3,316,596 |  |  | $ | 2,296,080 |
Revenue Recognition Effective January 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) standard update ASU 2014-09, “Revenue from Contracts with Customers,” (“Topic 606”) which provides a principles-based, five-step approach to measure and recognize revenue from contracts with customers. Revenue is recognized when the following criteria are met:
● | Identification of the contract, or contracts, with a customer;
● | Identification of the performance obligations in the contract;
● | Determination of the transaction price;
● | Allocation of the transaction price to the performance obligations in the contract; and
● | Recognition of revenue when, or as, we satisfy performance obligation.
The adoption of this guidance did not have a material impact on the Company’s consolidated statements of operations, cash flows, shareholders’ equity (deficit), or balance sheets as of the adoption date. The Company did not generate any revenues during the six months ended June 30, 2019. Revenues generated during the six months ended June 30, 2018 totaled $10,392 and were included in net loss from discontinued operations in the accompanying statements of operations (Note 3). We periodically review for any expected period of substantial involvement under the agreements that provide for non-refundable up-front payments and fees. If applicable, we will adjust the amortization periods when appropriate to reflect changes in assumptions relating to the duration of our expected involvement. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Additionally, the recognition of future tax benefits, such as net operating loss carryforwards, is required to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are determined using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company's assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. The Company files income tax returns in the United States, New York and Florida, which are subject to examination by the tax authorities in these jurisdictions. Generally, the statute of limitations related to the Company's federal and state income tax return is three years. The state impact of any federal changes for prior years remains subject to examination for a period up to five years after formal notification to the states. Management has evaluated tax positions in accordance with ASC 740, Income Taxes, and has not identified any significant tax positions, other than those disclosed. All of the Company's tax years since inception remain subject to examination by Federal and State jurisdictions. Earnings Per Share Basic net income per common share ("Basic EPS'') excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share ("Diluted EPS'') reflects the potential dilution that could occur if stock options or other contracts to issue shares of common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income per common share.
|  | Six Months Ended June 30
|  | 2019 |  | 2018
Continuing Operations |  |  |  |  |  |  |  |
Numerator |  |  |  |  |  |  |  |
Net income (loss) from continuing operations, net of tax |  | $ | (2,854,197 | ) |  | $ | 3,347,781 |
Denominator |  |  |  |  |  |  |  |
Weighted average common shares outstanding, basic |  |  | 175,835,076 |  |  |  | 33,852,073 |
Convertible preferred stock |  |  | — |  |  |  | 963,000,000 |
Convertible promissory notes |  |  | — |  |  |  | 4,062,347 |
Weighted average common shares outstanding, diluted |  |  | 175,835,076 |  |  |  | 1,000,914,420 |
Basic EPS from continuing operations |  | $ | (0.02 | ) |  | $ | 0.10 |
Diluted EPS from continuing operations |  | $ | (0.02 | ) |  | $ | 0.00 |
Discontinued Operations |  |  |  |  |  |  |  |
Numerator |  |  |  |  |  |  |  |
Income (loss) from discountinued operations, net of tax |  |  | (947,572 | ) |  |  | — |
Less: Income (loss) attributable to noncontrolling interest, net of tax |  |  | (426,407 | ) |  |  | — |
Income (loss) available to common stockholders |  |  | (521,165 | ) |  |  | — |
Denominator |  |  |  |  |  |  |  |
Weighted average common shares outstanding, basic |  |  | 175,835,076 |  |  |  | 33,852,073 |
Convertible preferred stock |  |  | — |  |  |  | 963,000,000 |
Convertible promissory notes |  |  | — |  |  |  | 4,062,347 |
Weighted average common shares outstanding, diluted |  |  | 175,835,076 |  |  |  | 1,000,914,420 |
Basic EPS from discontinued operations |  | $ | (0.00 | ) |  | $ | 0.00 |
Diluted EPS from discontinued operations |  | $ | (0.00 | ) |  | $ | 0.00 |
For the three and six months ended June 30, 2019 and three months ended June 30, 2018, the convertible instruments, consisting of 173,835,076 and 1,000,914,420 common shares into which our outstanding convertible preferred stock and convertible promissory notes, respectively, are convertible, are anti-dilutive and therefore, have been excluded from earnings (loss) per share.

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