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Note 2 - Summary of Significant Accounting Principles
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May 31, 2012
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| Significant Accounting Policies [Text Block] |
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING PRINCIPLES
a. Basis
of Presentation - The accompanying audited
consolidated financial statements of Artisanal Brands, Inc.
(the “Company”) have been prepared in
accordance with generally accepted accounting principles
for financial information and with the instructions to Form
10-K and Regulation SX. In the opinion of
management, all adjustments considered necessary for a fair
presentation (consisting of normal recurring accruals) have
been included.
b. Principles
of Consolidation - The consolidated financial
statements include the accounts of the Company and its
majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated on
consolidation.
c. Cash
and Cash Equivalents - The Company
considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Cash equivalents include investments in money market funds
and are stated at cost, which approximates market value.
Cash at times may exceed FDIC insurable limits.
d. Trade
Accounts Receivable and Other Receivables, Net - The
Company's accounts receivable consist primarily of amounts
due from customers for the sale of its products. The
Company records an allowance for doubtful accounts based on
management's estimate of collectability of such trade and
notes receivables outstanding. The allowance for doubtful
accounts represents an amount considered by management to
be adequate to cover potential losses, if any. The recorded
allowance at May 31, 2012 and 2011 was $20,000 and $15,000,
respectively.
e. Inventories
– Inventories are stated at the lower of cost or
market. Cost is determined using first-in,
first-out (FIFO) method for cheese, accessories and packing
materials, all finished goods.
f. Property
and Equipment - Property and equipment acquired in
the Artisanal acquisition is carried at net book value
which approximates fair market value at the date of the
acquisition. Amounts incurred for repairs and maintenance
are charged to operations in the period incurred.
Depreciation is calculated on a straight-line basis over
the following useful lives:
g. Goodwill
and Intangible Assets - Intangible assets at May 31,
2012 relates to the assets acquired by the Company in
August 2007.
The
Company reviews long-lived assets, certain identifiable
assets and any impairment related to those assets at least
annually or whenever circumstances and situations change
such that there is an indication that the carrying amounts
may not be recoverable.
h. Fair
Value of Financial Instruments - The
accounting guidance establishes a fair value hierarchy
based on whether the market participant assumptions used in
determining fair value are obtained from independent
sources (observable inputs) or reflect the Company's own
assumptions of market participant valuation (unobservable
inputs). A financial instrument's categorization within the
fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.
The accounting guidance establishes three levels of inputs
that may be used to measure fair value:
Level
1—Quoted prices in active markets that are
unadjusted and accessible at the measurement date for
identical, unrestricted assets or
liabilities;
Level
2—Quoted prices for identical assets and
liabilities in markets that are inactive; quoted prices
for similar assets and liabilities in active markets or
financial instruments for which significant inputs are
observable, either directly or indirectly;
or
Level
3—Prices or valuations that require inputs that are
both unobservable and significant to the fair value
measurement.
The
Company considers an active market to be one in which
transactions for the asset or liability occur with
sufficient frequency and volume to provide pricing
information on an ongoing basis, and views an inactive
market as one in which there are few transactions for the
asset or liability, the prices are not current, or price
quotations vary substantially either over time or among
market makers. Where appropriate the Company's or the
counterparty's non-performance risk is considered in
determining the fair values of liabilities and assets,
respectively.
i. Revenue
Recognition – The Company recognizes revenues
associated with the sale of its products at the time of
delivery to customers, when the price is fixed or
determinable, persuasive evidence of an arrangement exists
and collectability of the resulting receivable is
reasonably assured.
In
the current fiscal year the Company with its largest
distributor, began to purchase from a foreign manufacturer
and resell coolers for product displays. The sale of the
coolers are recorded once delivery is tendered to the
distributor.
j. Shipping
and Handling Costs – Shipping and handling
costs are included in cost of sales.
k. Advertising
Costs – All advertising costs are expensed as
incurred. Advertising expenses charged to
operations for the years ended May 31, 2012 and 2011
amounted to approximately $128,567 and $297,691,
respectively.
l. Interest
Income/(Expense) - Interest expense relates to
interest owed on the Company's debt. Interest expense is
recognized over the period the debt is outstanding at the
stated interest rates.
m. Income
Taxes - Income taxes have been provided using the
liability method. Deferred tax assets and liabilities are
determined based on differences between the financial
reporting and tax basis of assets and liabilities and are
measured by applying estimated tax rates and laws to
taxable years in which such differences are expected to
reverse. The deferred tax asset attributed to the net
operating losses has been fully reserved, since the Company
has yet to achieve recurring income from operations.
n. 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
revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
o. Equity-Based
Compensation - The Company accounts for equity-based
compensation in accordance with guidance issued by the
FASB, Share-Based Payment. The Company records
compensation expense using a fair-value-based measurement
method for all awards granted. In computing the impact, the
fair value of each option is estimated on the date of grant
based on the Black-Scholes options-pricing model utilizing
certain assumptions for a risk free interest rate;
volatility; and expected remaining lives of the awards. The
assumptions used in calculating the fair value of
share-based payment awards represent management’s
best estimates, but these estimates involve inherent
uncertainties and the application of management judgment.
As a result, if factors change and the Company uses
different assumptions, the Company’s equity-based
compensation expense could be materially different in the
future. In addition, the Company is required to estimate
the expected forfeiture rate and only recognize expense for
those shares expected to vest. In estimating the
Company’s forfeiture rate, the Company analyzed its
historical forfeiture rate, the remaining lives of unvested
options, and the amount of vested options as a percentage
of total options outstanding. If the Company’s actual
forfeiture rate is materially different from its estimate,
or if the Company reevaluates the forfeiture rate in the
future, the equity-based compensation expense could be
significantly different from what we have recorded in the
current period. Equity-based compensation for
the years ended May 31, 2012 and May 31, 2011, was
$1,216,254 and $131,121, respectively. Of the
equity-based compensation booked during the year ended May
31, 2012, $976,628 is attributable to the
vesting of 4,440,000 common stock options that had been
granted to KeHE Distributors in connection with the
marketing and distribution agreement entered in February
2011 and amended in May 2011 and $24,020 is attributable to
the vesting of 550,000 common stock options that had been
granted to board members to replace those options which
expired earlier in the year.
p.
Net
Income/(Loss) Per Share – In accordance with
the FASB guidance for, "Earnings Per Share", basic net
income/(loss) per share is computed using the weighted
average number of common shares outstanding during each
period. For the year ended May 31, 2012, diluted loss per
share is the same as basic loss per share since the
inclusion of the 5,430,000 outstanding stock options would
be antidilutive.
q. Segment
Disclosure – Management believes the Company
operates as one segment.
r. Recent
Accounting Pronouncements – Any new accounting
pronouncements issued but not yet effective have been
deemed not to be relevant to the operations of the Company,
hence the effects of such undisclosed new accounting
pronouncements will have no effect on the Company.
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