NOTE 6 - RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

Short term lease

The Company recognizes its office lease in Florida with an initial term of 12 months or less as a short-term lease. Lease payments associated with short-term lease are expensed as incurred in operating lease expense and are not included in our calculation of right-of-use assets or lease liabilities. Operating lease expense related to short-term lease was $2,899 and $5,794 for the three and six months ended June 30, 2019.

Operating lease

The Company entered into a lease agreement to lease its retail space in Tennessee in October 2017 with a lease term of 24 months. The lease contains a renewal option to extend the term for two additional years. The Company does not plan on renewing the lease when it expires. Rent for the first twelve months was $2,500 per month and $2,550 for the next twelve months. In applying ASC 842, the Company uses a lease term of 24 months and an incremental borrowing rate of 5.99% which was the borrowing rate on a finance lease (discussed below).

Right of use (ROU) asset - operating lease obtained in exchange for lease liability - operating lease
	$	29,355

Lease liability - operating lease on adoption date	$	29,655
Payments on lease liability - operating lease		(14,612	)
Lease liability - operating lease on June 30, 2019	$	15,043

This entire lease liability matures prior to December 31, 2019.

Operating lease expense for the three months ended June 30, 2019	$	7,575
Operating lease expense for the six months ended June 30, 2019	$	15,450
Weighted average remaining lease term	6 months
Weighted average discount rate		5.99	%

Finance lease

In May 2018, the Company's CEO personally financed the purchase, with the Company's board of directors' approval, a piece of property in Tennessee for the benefit of the Company. The property consists of a 14 acre farm and an indoor growing area. The Company's CEO personally funded the purchase price of the property at $185,000 and closing costs. The board of directors also granted the Company the right to purchase the farm from the Company's CEO at his cost plus 6.09% interest when the Company has sufficient cash flows to do so. At the time of the filing, the Company has not exercised such right.

The board of directors also approved for the Company to enter into a lease to lease this property from the Company's CEO, effective June 1, 2018. The term of the lease is for one year with an automatic renewal term of one year. The lease also contains an option for the Company to purchase the property from the Company's CEO. The lease requires the Company to pay all expenses related to the acquisition and operation of the property, including but not limited to the Company's CEO's personal incremental borrowing costs, repairs and maintenance, real estate taxes, licenses and permits, utilities, etc.

In applying ASC 842 on adoption date, the Company considered the followings:

The lease is with a related party of the Company.

Although the initial lease term is for one year, the Company is reasonably certain to acquire the property from the related party.

Contrary to leases with fixed lease payments, this lease requires the Company to pay all expenses related to the acquisition and operations of the property which are variable. Although the Company can exclude variable lease payments in applying ASC 842, the lease provides the necessary cash flows for the related party to service his debt. Therefore, the Company estimates future incremental borrowing costs to be incurred by the related party when measuring the initial finance lease liability. This amounts to approximately $1,600 per month.

The related party's debt term was 15 years at a borrowing rate of 5.99%

The Company considered the most objective measure of the right-of-use asset to be the purchase price paid by the related party for the property. The purchase price is then allocated among land and improvement and the Company amortizes the improvement over the estimated useful life of 10 years.

ROU asset - finance lease - land	$	37,530
ROU asset - finance lease - improvement		148,788
ROU asset - finance lease obtained in exchange for lease liability - finance lease		186,318
Cumulative effect adjustment to ROU asset - finance lease on adoption date		(8,679	)
Amortization of ROU asset - finance lease		(7,440	)
ROU asset - finance lease at June 30, 2019	$	170,199

Lease liability - finance lease on adoption date	$	186,318
Cumulative effect adjustment to ROU lease liability - finance lease on adoption date		(4,277	)
Payments on lease liability - finance lease		(4,266	)
Lease liability - finance lease on June 30, 2019	$	177,775

Interest expense related to lease liability - finance lease was $2,633 and $5,256 for the three and six months ended June 30, 2019, respectively.

Amounts of lease liability - finance lease matures over the next five years:
Twelve Months Ended June 30,
2020	$	8,738
2021		9,261
2022		9,816
2023		10,404
2024 and thereafter		139,557
	$	177,776

Variable lease expense was $11,513 and $19,233, for the three and six months ended June 30, 2019, respectively.
Weighted average remaining lease term	14 years
Weighted average discount rate		5.99	%