Summary of Significant Accounting Policies |
2.
Summary of Significant Accounting Policies
Management is responsible for the fair presentation
of the Company’s financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP).
Interim Financial Statements
These unaudited condensed consolidated financial
statements for the three months ended September 30, 2021, and 2020, respectively, reflect all adjustments including normal recurring
adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash
flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America.
These interim unaudited condensed consolidated
financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the
fiscal years ended June 30, 2021, and 2020, respectively, which are included in the Company’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2021 filed with the United States Securities and Exchange Commission on October 13, 2021. The Company assumes
that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements
for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context.
The results of operations for the three months ended September 30, 2021 are not necessarily indicative of results for the entire year
ending June 30, 2022.
|
● |
We
made certain reclassifications to prior period amounts to conform with the current year’s
presentation. These reclassifications did not have a material effect on our condensed consolidated
statement of financial position, results of operations or cash flows. |
Use of Estimates
|
● |
The
preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates are used in the determination
of depreciation and amortization, the valuation for non-cash issuances of common stock, and
the website, income taxes and contingencies, valuing convertible preferred stock for a “beneficial
conversion feature” (“BCF”) and warrants among others. |
Cash and Cash Equivalents
|
● |
The Company classifies as cash and cash equivalents amounts on deposit in the banks and cash temporarily in various instruments with original maturities of three months or less at the time of purchase. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. |
Fair Value of Financial Instruments
|
● |
Statement
of financial accounting standard FASB Topic 820, Disclosures about Fair Value of Financial
Instruments, requires that the Company disclose estimated fair values of financial instruments.
The carrying amounts reported in the statements of financial position for assets and liabilities
qualifying as financial instruments are a reasonable estimate of fair value. |
Inventories
|
● |
Inventories
consisting of packaged food items and supplies are stated at the lower of cost (FIFO) or
net realizable value, including provisions for spoilage commensurate with known or estimated
exposures which are recorded as a charge to cost of sales during the period spoilage is incurred.
The Company has no minimum purchase commitments with its vendors. |
Advertising Costs
|
● |
Advertising costs are expensed when incurred and are included in advertising and promotional expense in the accompanying statements of operations. Although not traditionally thought of by many as “advertising costs”, the Company includes expenses related to graphic design work, package design, website design, domain names, and product samples in the category of “advertising costs”. The Company recorded advertising costs of $305,016 and $146,492 for the three months ended September 30, 2021 and 2020, respectively. |
Income Taxes
|
● |
The
Company has not generated any taxable income, and, therefore, no provision for income taxes
has been provided. Deferred income taxes are reported for timing differences between
items of income or expense reported in the financial statements and those reported for income
tax purposes in accordance with FASB Topic 740, “Accounting for Income Taxes”,
which requires the use of the asset/liability method of accounting for income taxes. Deferred
income taxes and tax benefits 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, and for tax loss and credit carryforwards. 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 Company provides for deferred taxes for the estimated future tax effects attributable
to temporary differences and carry-forwards when realization is more likely than not. |
|
● |
A
valuation allowance has been recorded to fully offset the deferred tax asset even though
the Company believes it is more likely than not that the assets will be utilized |
|
● |
The
Company’s effective tax rate differs from the statutory rates associated with taxing
jurisdictions because of permanent and temporary timing differences as well as a valuation
allowance. |
Revenue Recognition
|
● |
The
Company generates its revenue by selling its nighttime snack products wholesale to retailers
and wholesalers. All sources of revenue are recorded pursuant to FASB Topic 606 Revenue Recognition,
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 includes a five-step framework that requires an entity to: (i) identify
the contract(s) with a customer, (ii) identify the performance obligations in the contract,
(iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligations in the contract, and (v) recognize revenue when the entity satisfies a performance
obligation. In addition, this revenue generation requires disclosure of the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers. |
|
● |
The
Company revenue from contracts with customers 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. |
|
● |
The
Company incurs costs associated with product distribution, such as freight and handling costs.
The Company has elected to treat these costs as fulfillment activities and recognizes these
costs at the same time that it recognizes the underlying product revenue. As this policy
election is in line with the Company’s previous accounting practices, the treatment
of shipping and handling activities under FASB Topic 606 did not have any impact on the Company’s
results of operations, financial condition and/or financial statement disclosures. |
|
● |
The
adoption of ASC 606 did not result in a change to the accounting for any of the Company’s
revenue streams that are within the scope of the amendments. The Company’s services
that fall within the scope of ASC 606 are recognized as revenue as the Company satisfies
its obligation to the customer. |
|
● |
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which updates
revenue recognition guidance relating to contracts with customers. This standard states 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 standard is effective for annual reporting
periods, and interim periods therein, beginning after July 1, 2018. The Company adopted ASU
2014-09 and its related amendments (collectively known as “ASC 606”) during the
first quarter of fiscal 2019 using the full retrospective method. |
|
● |
Management
reviewed ASC 606-10-32-25 which states “Consideration payable to a customer includes
cash amounts that an entity pays, or expects to pay, to the customer (or to other parties
that purchase the entity’s goods or services from the customer). Consideration payable
to a customer also includes credit or other items (for example, a coupon or voucher) that
can be applied against amounts owed to the entity (or to other parties that purchase the
entity’s goods or services from the customer). An entity shall account for consideration
payable to a customer as a reduction of the transaction price and, therefore, of revenue
unless the payment to the customer is in exchange for a distinct good or service (as described
in paragraphs 606-10-25-18 through 25-22) that the customer transfers to the entity. If the
consideration payable to a customer includes a variable amount, an entity shall estimate
the transaction price (including assessing whether the estimate of variable consideration
is constrained) in accordance with paragraphs 606-10-32-5 through 32-13.” |
|
● |
If
the consideration payable to a customer is a payment for a distinct good service, then in
accordance with ASC 606-10-32-26, the entity should account for it the same way that it accounts
for other purchases from suppliers (expense). Further, “if the amount of consideration
payable to the customer exceeds the fair value of the distinct good or service that the entity
receives from the customer, then the entity shall account for such an excess as a reduction
of the transaction price. If the entity cannot reasonably estimate the fair value of the
good or service received from the customer, it shall account for all of the consideration
payable to the customer as a reduction of the transaction price.” |
|
● |
Under
ASC 606-10-32-27, if the consideration payable to a customer is accounted for as a reduction
of the transaction price, “an entity shall recognize the reduction of revenue when
(or as) the later of either of the following events occurs: |
|
a) |
The
entity recognizes revenue for the transfer of the related goods or services to the customer. |
|
b) |
The
entity pays or promises to pay the consideration (even if the payment is conditional on a future event). That promise might be implied
by the entity’s customary business practices.” |
|
● |
Management
reviewed each arrangement to determine if each fee paid is for a distinct good or service
and should be expensed as incurred or if the Company should recognize the payment as a reduction
of revenue. |
|
● |
The
Company recognizes revenue upon shipment based on meeting the transfer of control criteria.
The Company has made a policy election to treat shipping and handling as costs to fulfill
the contract, and as a result, any fees received from customers are included in the transaction
price allocated to the performance obligation of providing goods with a corresponding amount
accrued within cost of sales for amounts paid to applicable carriers. |
Concentration of Credit Risk
|
● |
Financial
instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash deposits at financial institutions. At various times during the year,
the Company may exceed the federally insured limits. To mitigate this risk, the Company places
its cash deposits only with high credit quality institutions. Management believes the risk
of loss is minimal. At September 30, 2021 and June 30, 2021, the Company did not have any
uninsured cash deposits. |
Beneficial Conversion Feature
|
● |
For
conventional convertible debt where the rate of conversion is below market value, the Company
records any “BCF” intrinsic value as additional paid in capital 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. The discount is amortized over
the life of the debt. If a conversion of the underlying debt occurs, a proportionate share
of the unamortized amounts is immediately expensed. |
Beneficial Conversion Feature – Series B Preferred Stock (deemed
dividend):
Each share of B Preferred has a liquidation preference
of $1,000 and has no voting rights except as to matters pertaining to the rights and privileges of the B Preferred. Each share of B Preferred
is convertible at the option of the holder thereof into (i) 5,000 shares of the Registrant’s common stock (one share for each $0.20
of liquidation preference) (the “Conversion Shares”) and (ii) 5,000 common stock purchase warrants, expiring April 16, 2026
(the “Warrants”). The Warrants have an initial exercise price of $0.30 per share.
Based on the guidance in ASC 470-20-20, the Company
determined that a beneficial conversion feature existed, as the effective conversion price for the Series B Preferred Stock at issuance
was less than the fair value of the common stock which the preferred shares are convertible into. A beneficial conversion feature based
on the relative fair value on the date of issuances for the Series B Preferred Stock and warrants was $289,935 and $-0- during the three
months ended September 30, 2021 and 2020, respectively.
Debt Issue Costs
|
● |
The
Company may pay debt issue costs in connection with raising funds through the issuance of
debt whether convertible or not or with other consideration. These costs are recorded as
debt discounts and are amortized over the life of the debt to the statement of operations
as amortization of debt discount. |
Equity Issuance Costs
The Company accounts for costs related to the issuance of equity as
a charge to Paid in Capital and records
the equity transaction net of issuance costs.
Original Issue Discount
|
● |
If
debt is issued with an original issue discount, the original issue discount is recorded to
debt discount, reducing the face amount of the note and is amortized over the life of the
debt to the statement of operations as amortization of debt discount. If a conversion of
the underlying debt occurs, a proportionate share of the unamortized amounts is immediately
expensed. |
Valuation of Derivative Instruments
|
● |
ASC
815 “Derivatives and Hedging” requires that embedded derivative instruments be
bifurcated and assessed, along with free-standing derivative instruments such as warrants,
on their issuance date and measured at their fair value for accounting purposes. In determining
the appropriate fair value, the Company uses the Trinomial Tree option pricing formula. Upon
conversion of a note where the embedded conversion option has been bifurcated and accounted
for as a derivative liability, the Company records the shares at fair value, relieves all
related notes, derivatives and debt discounts and recognizes a net gain or loss on derivative
liability under the line item “change in derivative liability”. |
Derivative Financial Instruments
|
● |
The
Company does not use derivative instruments to hedge exposures to cash flow, market or foreign
currency risks. The Company evaluates all of its financial instruments to determine if such
instruments are derivatives or contain features that qualify as embedded derivatives. For
derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and then is revalued at each reporting date, with
changes in fair value reported in the consolidated statement of operations. For stock based
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 Trinomial Tree 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 the end of each
reporting period. Any increase or decrease in the fair value from inception is made quarterly
and appears in results of operations as a change in fair market value of derivative liabilities. |
Stock-Based Compensation
|
● |
The
Company accounts for share-based awards issued to employees in accordance with FASB ASC 718.
Accordingly, employee share-based payment compensation is measured at the grant date, based
on the fair value of the award, and is recognized as an expense over the requisite service
period. Additionally, share-based awards to non-employees are expensed over the
period in which the related services are rendered at their fair value. The Company applies
ASC 718, “Equity Based Payments to Non-Employees”, with respect to options and
warrants issued to non-employees. |
Customer Concentration
|
● |
During
the three months ended September 30, 2021, the Company had five customers each account for
exceeding 10% of the gross sales. During the three months ended September 30, 2020, one customer
accounted for approximately 39% of the gross sales |
Vendor Concentration
|
● |
During the three-month period ended September 30, 2021, one vendor accounted for more than 10% of our operating expenses. During the three-month period ended September 30, 2020, three vendors accounted for more than 10% of our operating expenses.
|
Receivables Concentration
|
● |
As
of September 30, 2021, the Company had receivables due from eight customers. Four
of which each accounted for approximately over 13% of the total balance. As of June 30,
2021, the Company had receivables due from five customers, one of whom accounted for over
73% of the outstanding. One of the remaining four accounted for 11.5% of the outstanding
balance. |
Income/Loss Per Share
| ● | Net income/loss per share data for the three -month period ending September 30, 2021, is based on net income/loss available to common shareholders (net loss for the period ended September 30, 2020) divided by the weighted average of the number of common shares outstanding. The Company does not present a diluted Earnings per share as the convertible debt and interest that is convertible into shares of the Company’s common stock would not be included in this computation, as the Company is generating a loss and therefore these shares would be antidilutive. Each share of the Company’s Class B Preferred Stock is convertible into 5,000 shares of common stock, and 5,000 warrants, each warrant with an exercise price of $.30. Should all the 4,227 remaining unconverted shares of B Stock convert, that would result in an additional 21,135,000 shares issued and outstanding. |
Reclassification
|
● |
The
Company may make certain reclassifications to prior period amounts to conform with the current
year’s presentation. These reclassifications did not have a material effect on its
consolidated statement of financial position, results of operations or cash flows. |
Recent Accounting Pronouncements
|
● |
ASU
No. 2019-12, Simplifying the Accounting for Income Taxes |
|
● |
In
December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes.
The ASU is intended to enhance and simplify aspects of the income tax accounting guidance
in ASC 740 as part of the FASB’s simplification initiative. This guidance is effective
for fiscal years and interim periods within those years beginning after December 15, 2020
with early adoption permitted. The Company has adopted this ASU and there is no material
impact on our Consolidated Financial Statements. |
|
● |
In
March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional
expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens
of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative
reference rates, such as the Secured Overnight Financing Rate. This ASU is applied prospectively and becomes effective immediately upon
the transition from LIBOR. The Company has analyzed the guidance and the Company has no contract or hedging relationships that will be
affected by this guidance. The adoption of this guidance will have no impact on its consolidated financial statements. |
|
● |
In
August 2020, the FASB issued ASU 2020-06 to simplify the current guidance for convertible
instruments and the derivatives scope exception for contracts in an entity’s own equity.
Additionally, the amendments affect the diluted EPS calculation for instruments that may
be settled in cash or shares and for convertible instruments. The update also provides for
expanded disclosure requirements to increase transparency. For SEC filers, excluding smaller
reporting companies, this update is effective for fiscal years beginning after December 15,
2021 including interim periods within those fiscal years. The adoption of this guidance does
not materially impact our financial statements and related disclosures. |
|
● |
The
Company will continue to monitor these emerging issues to assess any potential future impact
on its financial statements. |
|