Summary of Significant Accounting Policies |
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Summary of Significant
Accounting Policies |
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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 and nine months ended March 31, 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 years ended June 30, 2020 and 2019, respectively, which are included in the Company’s June 30, 2020 Annual Report
on Form 10-K filed with the United States Securities and Exchange Commission on October 13, 2020. 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 and nine months ended March 31, 2021 are not necessarily indicative of results for the entire year ending
June 30, 2021.
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
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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 notes for BCF and derivative
liability, among others. |
Cash and Cash Equivalents
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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
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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
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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
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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 $316,483 and $673,814 for the nine months ended
March 31, 2021 and 2020, respectively. The Company recorded advertising costs
of $64,158 and $470,820 for the three months ended March 31, 2021 and 2020, respectively. |
Income Taxes
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The Company has
not generated any taxable income, and, therefore, no provision for income taxes has been
provided. |
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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 carry-forwards. 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. |
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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. |
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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
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The Company generates
its revenue by selling its nighttime snack products wholesale to retailers and wholesalers. |
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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. |
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The Company offers
sales incentives through various programs, consisting primarily of advertising related credits.
The Company records certain advertising related credits with customers as a reduction to
revenue as no identifiable benefit is received in exchange for credits claimed by the customer. |
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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:
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The entity
recognizes revenue for the transfer of the related goods or services to the customer. |
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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
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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 March 31, 2021 and June 30, 2020, the Company did not have any uninsured cash
deposits. |
Beneficial Conversion Feature
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For conventional
convertible debt where the rate of conversion is below market value, the Company records
any “beneficial conversion feature” (“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.
Debt Issue Costs
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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. |
Original Issue Discount
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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
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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
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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
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During the nine
months ended March 31, 2021, the Company had one customer account for approximately 37% of
the gross sales. One other customer accounted for approximately 23% of gross sales, and one
other customer accounted for over 11% of gross sales. During the nine months ended March
31, 2020, one customer accounted for approximately 45% of the gross sales. |
During the three months ended March
31, 2021, the Company had one customer account for approximately 44% of the gross sales. During the three months ended March 31, 2020,
one customer accounted for approximately 36% of the gross sales while three other customers accounted for over 10% of gross sales.
Vendor Concentration
During the three-month period
ended March 31, 2021, no vendors accounted for more than 14% of our operating expenses. During the nine-month period ended March 31,
2021, no vendor accounted for more than 8% of our operating expenses.
During the three-month period
ended March 31, 2021, no vendors accounted for more than 9% of our operating expenses. During the nine-month period ended March 31,
2020 no vendor accounted for more than 8%.
Receivables Concentration
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As of March 31,
2021, the Company had receivables due from eight customers. Five of which each
accounted for approximately 17-22% of the total balance. As of June 30, 2020, the Company
had receivables due from four customers, two of whom accounted for over 70% of the outstanding
balance. Two of the four accounted for approximately 30% of the total balance. |
Income/Loss Per Share
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Net income/loss
per share data for both the three and nine-month periods ending March 31, 2021 and 2020,
are based on net income/loss available to common shareholders 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. |
Impairment of Long-lived Assets
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The Company accounts
for long-lived assets in accordance with the provisions of FASB Topic 360, Accounting for
the Impairment of Long-Lived Assets. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell. Fair values are determined
based on quoted market value, discounted cash flows or internal and external appraisals,
as applicable. |
During the period ended March 31,
2021 and 2020, Management determined and impaired $-0- and $-500,000-, respectively as impairment on intangible asset
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 will adopt this ASU on January 31, 2021
and does not expect there to be a 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’s secured credit facility agreement references LIBOR,
which is expected to be discontinued as a result of reference rate reform. The Company expects to adopt the guidance upon transition
from LIBOR, but does not believe the adoption will have a material effect 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. For all other entities, this Update is effective for fiscal years beginning after December 15, 2023,
including interim periods therein. The Company believes the adoption of this guidance will 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.
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