| Summary of Significant Accounting Policies | Note
2 - Summary of Significant Accounting Policies Basis
of Presentation The
condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The
unaudited financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which
in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations
for the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements
and notes thereto included in the Company’s Form 10-K for the year ended January 31, 2019 filed on April 23, 2019. The Company
assumes that the users of the interim financial information herein have read or have access to the audited financial statements
for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined
in that context. The condensed consolidated balance sheet at January 31, 2019 was derived from audited financial statements but
does not include all disclosures required by accounting principles generally accepted in the United States of America. The results
of operations for the interim periods presented are not necessarily indicative of results for the year ending January 31, 2020. Principles
of Consolidation The
condensed consolidated financial statements include all accounts of the entities as of the reporting period ending date(s) and
for the reporting period(s). All inter-company balances and transactions have been eliminated. Following
the closing of the merger with Joseph Epstein Food Enterprises, Inc. (“JEFE”) on November 1, 2017, the financial statements
of JEFE are consolidated with that of the Company. The prior period financial statements included in the condensed consolidated
financial statements have been adjusted to reflect this transaction. Use
of Estimates The
preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying
notes. Such estimates and assumptions impact, among others, the following: allowance for doubtful accounts, inventory obsolescence
and the fair value of share-based payments. 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 consolidated financial statements, which management
considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly,
the actual results could differ significantly from our estimates. Risks
and Uncertainties The
Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations
are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business
failure. The
Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected
to contribute to this variability include, among others, (i) the cyclical nature of the grocery industry, (ii) general economic
conditions in the various local markets in which the Company competes, including a potential general downturn in the economy,
and (iii) the volatility of prices pertaining to food and beverages in connection with the Company’s distribution of the
product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis. Cash The
Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. The
Company held no cash equivalents at July 31, 2019 and January 31, 2019. The
Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial
institution. The balance at times may exceed federally insured limits. Accounts
Receivable and Allowance for Doubtful Accounts Accounts
receivable are stated at the amount management expects to collect from outstanding balances. The Company generally does not require
collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the
outstanding accounts receivable, historical collection information and existing economic conditions. The Company determines if
receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management.
As of July 31, 2019 and January 31, 2019, the Company had reserves of $2,000. Inventories Inventories
are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) valuation method. Inventory was comprised
of the following at July 31, 2019 and January 31, 2019:
July 31, 2019 January 31, 2019
Raw Materials $ 907,229 $ 556,703
Work in Process 4,530 38,769
Finished goods 553,165 800,928
$ 1,464,924 $ 1,396,400 Property
and Equipment Property
and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful lives. Asset
lives for financial statement reporting of depreciation are:
Machinery and equipment 2-7 years
Furniture and fixtures 3 years
Leasehold improvements * (*)
Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever period is shorter. 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 condensed consolidated statements of operations. Leases In
February 2016, the FASB issued ASU 2016-02 “ Leases” On
January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”)
asset and liability in the condensed consolidated balance sheet in the amount of $1,556,873 related to the operating lease for
office and warehouse space. Results for the six months ended July 31, 2019 are presented under ASC 842, while prior period amounts
were not adjusted and continue to be reported in accordance with the legacy accounting guidance under ASC Topic 840, Leases As
part of the adoption the Company elected the practical expedients permitted under the transition guidance within the new standard,
which among other things, allowed the Company to:
1. Not
separate non-lease components from lease components and instead to account for each separate lease component and the non-lease
components associated with that lease component as a single lease component.
2. Not
to apply the recognition requirements in ASC 842 to short-term leases.
3. Not
record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered
immaterial. Refer
to Note 7. Leases for additional disclosures required by ASC 842. Fair
Value of Financial Instruments For
purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s
short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments. Research
and Development Research
and development is expensed as incurred. Research and development expenses for the three months ended July 31, 2019 and 2018 were
$24,509 and $37,083, respectively. Research and development expenses for the six months ended July 31, 2019 and 2018 were $49,835
and $67,179, respectively. Shipping
and Handling Costs The
Company classifies freight billed to customers as sales revenue and the related freight costs as general and administrative expenses. Revenue
Recognition In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) Revenue Recognition Revenue
from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients The
Company adopted this guidance and related amendments as of the first quarter of fiscal 2019, applying the full retrospective transition
method. As the underlying principles of the new standard, relating to the measurement of revenue and the timing of recognition,
are closely aligned with the Company’s current business model and practices, the adoption of ASU 2014-09 did not have a
material impact on the consolidated financial statements. In addition, the adoption of ASC 606 did not impact the previously reported
financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings. The
Company’s sales predominantly are generated from the sale of finished products to customers, contain a single performance
obligation and revenue is recognized at a single point in time when ownership, risks and rewards transfer. Typically, this occurs
when the goods are shipped to the customer. Revenues are recognized in an amount that reflects the net consideration the Company
expects to receive in exchange for the goods. The Company reports all amounts billed to a customer in a sale transaction as revenue.
Under the new revenue guidance, the Company elected to treat shipping and handling activities as fulfillment activities, and the
related costs are recorded as selling expenses in general and administrative expenses on the consolidated statement of operations. The
Company promotes its products with advertising, consumer incentives and trade promotions. These programs include discounts, slotting
fees, coupons, rebates, in-store display incentives and volume-based incentives. Customer trade promotion and consumer incentive
activities are recorded as a reduction to the transaction price based on amounts estimated as being due to customers and consumers
at the end of a period. The Company derives these estimates principally on historical utilization and redemption rates. The Company
does not receive a distinct service in relation to the advertising, consumer incentives and trade promotions. Payment
terms in the Company’s invoices are based on the billing schedule established in contracts and purchase orders with customers.
The Company generally recognizes the related trade receivable when the goods are shipped. Expenses
such as slotting fees, sales discounts, and allowances are accounted for as a direct reduction of revenues as follows:
For the Six
Months Ended
July 31, 2019 July 31, 2018
Gross Sales $ 15,658,081 $ 13,585,549
Less: Slotting, Discounts, Allowances 193,812 202,725
Net Sales $ 15,464,269 $ 13,382,824 Disaggregation of Revenue from Contracts
with Customers.
For the Six Months Ended
July 31, 2019 July 31, 2018
Northeast $ 5,219,863 $ 4,115,947
Southeast 3,681,339 3,052,174
Midwest 2,134,045 2,182,830
West 2,713,142 2,547,803
Southwest 1,909,692 1,686,795
Total revenue $ 15,658,081 $ 13,585,549 Cost
of Sales Cost
of sales represents costs directly related to the production and manufacturing of the Company’s products. Costs include
product development, freight-in, packaging, and print production costs. Advertising Costs
incurred for producing and communicating advertising for the Company are charged to operations as incurred. Producing and communicating
advertising expenses for the three months ended July 31, 2019 and 2018 were $413,973 and $391,026, respectively. Producing and
communicating advertising expenses for the six months ended July 31, 2019 and 2018 were $756,795 and $906,183, respectively. Stock-Based
Compensation The
Company accounts for stock-based compensation in accordance with ASC Topic 718, “ Compensation – Stock Compensation”
The
Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at
their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest. Share-based
payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of share-based payment awards
issued to non-employees for services rendered have been recorded at the fair value of the share-based payment, which is the more
readily determinable value. The grants are amortized on a straight-line basis over the requisite service periods, which is generally
the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed
in the period related to the termination of service. Stock-based compensation expenses are included in cost of goods sold or selling,
general and administrative expenses, depending on the nature of the services provided, in the consolidated statement of operations.
Share-based payments issued to placement agents are classified as a direct cost of a stock offering and are recorded as a reduction
in additional paid in capital. For
the three months ended July 31, 2019, share-based compensation amounted to $12,686 relating to shares of common stock and options
issued to employees and consultants for services. For
the three months ended July 31, 2018, share-based compensation amounted to $36,945 relating to options issued to employees and
consultants for services. For
the six months ended July 31, 2019, share-based compensation amounted to $29,943 relating to shares of common stock and options
issued to employees and consultants for services. For
the six months ended July 31, 2018, share-based compensation amounted to $79,163 relating to options issued to employees and consultants
for services. For
the six months ended July 31, 2019 and 2018, when computing fair value of share-based payments, the Company has considered the
following variables:
July 31, 2019 July 31, 2018
Risk-free interest rate 1.84
- 2.29 % 1.99 %
Expected life of grants 3
- 3.5 years 2.0
years
Expected volatility of underlying stock 129
- 150 % 172 %
Dividends 0 % 0 % The
expected option term is computed using the “simplified” method as permitted under the provisions of ASC 718-10-S99.
The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does
not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The
expected stock price volatility for the Company’s stock options was estimated using the historical volatilities of the Company’s
common stock. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods. Earnings
(Loss) Per Share Earnings
per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term
is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards
Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available
to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the
period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred
stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned)
from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation
of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect
the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options
or warrants. The
following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income (loss)
attributable to common stockholders per common share.
For the Three Months Ended
July 31, 2019 July 31, 2018
Numerator:
Net income attributable to common stockholders $ 358,308 $ (210,195 )
Effect of dilutive securities: — —
Diluted net income (loss) $ 358,308 $ (210,195 )
Denominator:
Weighted average common shares outstanding - basic 31,947,763 31,859,812
Dilutive securities (a):
Series A Preferred - -
Options 34,043 -
Warrants - -
Weighted average common shares outstanding and assumed 31,981,806 31,859,812
Basic net income (loss) per common share $ 0.01 $ (0.01 )
Diluted net income (loss) per common share $ 0.01 $ (0.01 )
(a) - Anti-dilutive securities excluded: 6,777,164 7,216,665
For the Six Months Ended
July 31, 2019 July 31, 2018
Numerator:
Net income attributable to common stockholders $ 713,974 $ 113,806
Effect of dilutive securities: - -
Diluted net income $ 713,974 $ 113,806
Denominator:
Weighted average common shares outstanding - basic 31,907,676 31,820,898
Dilutive securities (a):
Series A Preferred - -
Options 34,043 166,259
Warrants - 577,775
Weighted average common shares outstanding and assumed conversion – diluted 31,941,719 32,564,932
Basic net income per common share $ 0.02 $ 0.00
Diluted net income per common share $ 0.02 $ 0.00
(a) - Anti-dilutive securities excluded: 6,777,164 3,365,001 Income
Taxes Income
taxes are provided in accordance with ASC No. 740, “ Accounting for Income Taxes Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment. The
Company is no longer subject to tax examinations by tax authorities for years prior to 2017. Related
Parties The
Company follows subtopic ASC 850-10 for the identification of related parties and disclosure of related party transactions. Pursuant
to Section 850-10-20, the related parties include: (a) affiliates of the Company (“Affiliate” means, with respect
to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled
by or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act);
(b) entities for which investments in their equity securities would be required, absent the election of the fair value option
under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity;
(c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship
of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may
deal if one party controls or can significantly influence the management or operating policies of the other to an extent that
one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can
significantly influence the management or operating policies of the transacting parties or that have an ownership interest in
one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties
might be prevented from fully pursuing its own separate interests. Recent
Accounting Pronouncements In
June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic718):
Improvements to Nonemployee Share-Based Payment Accounting Revenue from Contracts with Customers In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to
the Disclosure Requirements for Fair Value Measurement”. Management
does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material
effect on the accompanying condensed consolidated financial statements. Subsequent
Events The
Company evaluates subsequent events and transactions that occur after the balance sheet date for potential recognition or disclosure.
Any material events that occur between the balance sheet date and the date that the financial statements were issued are disclosed
as subsequent events, while the financial statements are adjusted to reflect any conditions that existed at the balance sheet
date. |
