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Summary of Significant Accounting Policies
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9 Months Ended | 12 Months Ended | ||||||||
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Feb. 29, 2012
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May 31, 2011
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| Significant Accounting Policies [Text Block] |
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
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 February 29, 2012 and May 31,
2011, was $15,000 and $15,000, respectively.
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.
Marketing
and Advertising Costs
All
advertising costs are expensed as incurred.
Advertising expenses charged to operations for the
nine months ended February 29, 2012 and February 28,
2011 were approximately $119,318 and $162,957,
respectively.
Reclassifications
Certain
reclassifications have been made to the prior quarter
amounts presented to conform to the current period
presentations.
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.
Goodwill
and Intangible Assets
Intangible
assets at February 29, 2012 and May 31, 2011 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.
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
nine months ended February 29, 2012 and February 28,
2011 was $1,105,852 and $22,958,
respectively. Of the equity-based
compensation booked during the nine months ended
February 29, 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.
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 nine months
ended February 29, 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.
Fair
Value of Financial Instruments
The
carrying amounts of financial instruments, including
cash and cash equivalents, marketable securities,
accounts receivable, notes receivable, and accounts
payable, approximated fair value as of February 29,
2012, because of the relatively short-term maturity
of these instruments and their market interest rates.
Since a portion of long-term debt is in default, it
is not possible to estimate its value.
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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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, 2011 and 2010 was
$15,000 and $40,000, 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, 2011 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.
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, 2011 and 2010
amounted to approximately $297,691 and $356,
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. Stock-Based
Compensation - The Company accounts for
stock-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 stock-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
stock-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, 2011 and May 31, 2010 was $132,121
and $107,288, respectively.
p.
Net
Income/(Loss) Per Share – In accordance with
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 years ended May 31, 2011 and
2010, diluted loss per share is the same as basic loss
per share since the inclusion of stock options and
warrants would be antidilutive. The Company has excluded
4,880,000 and 770,000 options, respectively, as they are
antidilutive, during the years ended May 31, 2011 and
2010.
q. Segment
Disclosure – Management believes the Company
operates as one segment.
r. Recent
Accounting Pronouncements – In December
2010, the FASB issued ASC No.. 2010-28 Topic 350
“ Intangibles – Goodwill and Other, When to
perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying
Amounts”. The main provisions of this amendment
are to consider whether there are any adverse
qualitative factors indicating that an impairment may
exist. The amendments in this Update are
effective for fiscal years and interim periods within
those years beginning after December 15, 2010. Early
adoption is not permitted. All other new accounting
pronouncements issued but not yet effective have deemed
to be immaterial as to any significant effect on the
Company’s financials.
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