This discussion and analysis may include statements regarding our expectations
with respect to our future performance, liquidity, and capital resources. Such
statements, along with any other non-historical statements in the discussion,
are forward-looking. These forward-looking statements are subject to numerous
risks and uncertainties, including, but not limited to, factors listed in other
documents we file with the Securities and Exchange Commission ("SEC"). We do not
assume an obligation to update any forward- looking statement. Our actual
results may differ materially from those contained in or implied by any of the
forward-looking statements in this Quarterly Report on Form 10-Q. See "SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS" above.
Overview
Sugarmade, Inc. (hereinafter referred to as "we", "us" or the "Company") was
originally incorporated on June 5, 1986 in California as Lab, Inc., and later
that month, on June 24, 1986 changed its name to Software Professionals, Inc. On
May 21, 1996, the Company changed its name to Enlighten Software Solutions, Inc.
On June 20, 2007, Enlighten Software Solutions, Inc. was incorporated in
Delaware for the purpose of merging with Enlighten Softwear Solutions, Inc. a
California corporation so as to effect a redomicile to Delaware. On January 24,
2008, the Company changed its name to Diversified Opportunities, Inc. On May 9,
2011 we closed on a Share Exchange Agreement with Sugarmade, Inc., a California
corporation founded in 2010, and on June 24, 2011 changed our name to Sugarmade,
Inc.
On October 24, 2014 we acquired SWC Group, Inc., a California corporation doing
business as, CarryOutSupplies.com ("Carry Out Supplies").
Our Company operates much of its business activities through our subsidiaries,
SWC Group, Inc., a California corporation ("SWC''), NUG Avenue, Inc., a
California corporation and 70% owned subsidiary of the Company ("NUG Avenue"),
and Lemon Glow Company, Inc., a California corporation and wholly owned
subsidiary of the Company ("Lemon Glow").
Shares of our common stock are quoted on the OTC Pink tier of OTC Markets. Our
trading symbol is "SGMD". Our corporate website is www.sugarmade.com.
As of the date of this filing, we are involved in several business sectors and
business ventures:
Paper and paper-based products: The supply of consumable products to the
quick-service restaurant sub-sector of the restaurant industry, and as an
importer and distributor of non-medical personal protection equipment to
business and consumers, via our Carry Out Supplies subsidiary. Carry Out
Supplies is a producer and wholesaler of custom printed and generic supplies,
servicing more than 2,000 quick-service restaurants. The primary products are
plastic cold cups, paper coffee cups, yogurt cups, ice cream cups, cup lids, cup
sleeves, edible packaging, food containers, soup containers, plastic spoons, and
similar products for this market sector. This subsidiary, which was formed in
2009.
Cannabis products delivery services: Following the end of the COVID cannabis
delivery boom, along with a challenging cannabis retail climate from inflation,
the black market, increased marketing expenses, and the cannabis excise tax
moving from distribution to retail, the company has decided to reduce
investments in retail operations. The company made this decision as we see more
promising opportunities to increase shareholder equity by pivoting the business
strategy to deploy capital to invest in cannabis real estate, cultivation, and
wholesale sectors vs. cannabis retail operations.
After discussions with ECGI, Inc. and the management of Nug Avenue, we could not
find a path to short term profitability. The company then decided to cease
investing in Nug Avenue, which ultimately led to Nug Avenue discontinuing
operations.
As part of pivoting our business strategy, the company negotiated with Indigo
Dye Group Corp. ("Indigo") to exchange our 32% stake in Budcars for a stake in a
distribution and indoor cultivation company in Santa Rosa, California. The
company has already executed a share exchange agreement with Indigo. However,
the final documents and terms of the new company are still being finalized. The
company expects to complete the documents and announce the transition to new
business post filing of this 10K.
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Selected cannabis and hemp projects: On May 12, 2021, the Company entered into a
Merger Agreement by and between Carnaby Spot Bay Corp, a California corporation
and a wholly owned subsidiary of the Company ("Merger Sub"), Lemon Glow Company
and Ryan Santiago as shareholder representative, pursuant to which Merger Sub
would merge with and into Lemon Glow, with Lemon Glow being the surviving
corporation (the "Merger"). Upon the closing of the merger, Lemon Glow was
merged into the Company. The purpose of the transactions was to establish a
licensed and permitted entity which Sugarmade would cultivate, manufacture, and
distribute cannabis to the California markets. At the time of the transactions,
none of Lemon Glow, Merger Sub, or Sugarmade was permitted and licensed for such
activities.
On October 28, 2021, Lemon Glow obtained a conditional Use Permit (UP) number
from the Community Development Department of the County of Lake, California,
which the Company believes is an important step towards the conditional UP for
commercial cannabis cultivation at its property. The issuance of the conditional
UP number by the County of Lake allows the Company to proceed with the state
cannabis cultivation license application, and potentially obtain certain
applicable permits, such as from the Department of Cannabis Control, Department
of Food and Agriculture, Department of Pesticide Regulation, Department of Fish
and Wildlife, The State Water Resources Control Board, Board of Forestry and
Fire Protection, Central Valley or North Coast Regional Water Quality Control
Board, Department of Public Health, and Department of Consumer Affairs, as may
be required. The Company believes that obtaining the conditional UP number by
the County of Lake could be the first step toward full approval to cultivate
cannabis on up to 32 acres out of the total 640 acres of the property.
As of the date of this filing, Sugarmade is working diligently on satisfying the
conditions required by the County of Lake to allow the Company to cultivate
cannabis. It is the Company's intention to begin such activities at the earliest
time possible, assuming permits are ultimately issued. Upon issuance, the
company will determine the amount of acreages to grow initially based on market
demand and pre-orders. However, no such license or permits have yet been issued,
and applications are still pending. There can be no assurance that any such
license or permits will be issued in the near future or at all.
Once licensing and permits are issued, the company plans to divide the 32 canopy
grow acres between four separate grow areas. These separate grow areas will
allow the company to start with a single area and expand with demand. While
waiting for demand to rise, dividing into separate grow areas will also provide
an opportunity to lease the other grow areas to 3rd party or through partnership
under Managed Service Agreement to generate additional revenue for the company.
We believe the market demand will increase upon federal legalization allowing
for interstate commerce of cannabis. Opening the doors for out of state
licensees to purchase California grown cannabis flowers.
Once fully completed, we estimate the output of 32 acres of canopy, will have
the capacity of 64 tons of dry flower or 300 tons of fresh frozen, requiring
approximately 300,000 sq ft of storage space. We will continue to make plans to
build more storage space while concurrent with the licensing process.
COVID-19 Impact
Our business and operating results for 2022 and 2021 were impacted by the
COVID-19 pandemic. However, we have seen improvement in our business, which we
expect to continue throughout fiscal year of 2023.
Results of Operations
The following table sets forth the results of our operations for the three
months ended September 30, 2022 and 2021.
For the three months ended
September 30,
2022 2021
Net Sales $ 709,782 $ 1,168,781
Cost of Goods Sold: 462,909 386,939
Gross profit 246,873 781,842
Operating Expenses 520,155 2,034,443
Loss from Operations (273,282 ) (1,252,601 )
Other non-operating Income (Expense): 3,343,785 (605,640 )
Equity Method Investment Loss - (44,477 )
Less: net income attributable to the
noncontrolling interest (3,000 ) (307,351 )
Net Income (Loss) $ 3,073,503 $ (1,595,367 )
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Revenues
For the three months ended September 30, 2022 and 2021, revenues were $709,782
and $1,168,781, respectively. The decrease was primarily due to the company
decided to cease investing in Nug Avenue, which ultimately led to Nug Avenue
discontinuing operations during the quarter ended September 30, 2022.
Cost of goods sold
For the three months ended September 30, 2022 and 2021, costs of goods sold were
$462,909 and $386,939, respectively. The increase was primarily due to the
Company had more sales in paper products during the three months ended September
30, 2022.
Gross profit
For the three months ended September 30, 2022 and 2021, gross profit was
$246,873 and $781,842, respectively. The decrease was primarily due to the
discontinuing operation for the cannabis delivery services during the quarter
ended September 30, 2022.
Operating expenses
For the three months ended September 30, 2022 and 2021, operating expenses were
$520,155 and $2,034,443, respectively.
Other non-operating income (expense)
The Company had total other non-operating income of $3,343,785 and $605,640
expense for the three months ended 2022 and 2021, respectively. The increase in
non-operating expense is related to the accounting for the changes in fair value
of derivative liabilities.
Net income (loss)
Net income totaled $3,073,503 for the three months ended September 30, 2022,
compared to a net loss of $1,595,367 for the three-month period ended September
30, 2021. The increase was mainly due to the accounting for the changes in fair
value of derivative liabilities.
Liquidity and Capital Resources
We have primarily financed our operations through the sale of unregistered
equity and convertible notes payable. As of September 30, 2022 our Company had
cash balance of $81,216, current assets totaling $1,085,534 and total assets of
$16,822,567. We had current and total liabilities totaling $10,638,889 and
$16,693,536, respectively. As of September 30, 2022, stockholders' equity
totaled $129,030.
The following is a summary of cash provided by or used in each of the indicated
types of activities during the three months ended September 30, 2022 and 2021:
2022 2021
Cash (used in) provided by:
Operating activities $ (314,951 ) $ (1,404,590 )
Investing activities - (830,000 )
Financing activities 235,154 1,081,146
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Net cash used in operating activities was $314,951 for the three months ended
September 30, 2022, and $1,404,590 for the three months ended September 30,
2021. The decrease was attributable to the change in accounts receivable,
prepayments, and other payables.
Net cash used in investing activities was $0 for the three months ended
September 30, 2022, and $830,000 for the three months ended September 30, 2020.
The decrease was attributable to purchase of property at 5058 Valley Blvd, Los
Angeles, CA90032 in total purchase amount of $830,000 in prior year period.
Net cash provided by financing activities was $235,154 for the three months
ended September 30, 2022 and $1,081,147 for the three months ended September 30,
2021. The decrease in cash inflow in 2022 was mainly due to decreased proceeds
from share issuance and loan payables.
Our capital requirements going forward will consist of financing our operations
until we are able to reach a level of revenues and gross margins adequate to
equal or exceed our ongoing operating expenses. Other than the notes payable
discussed above, borrowings from our bank and the production credit facility
with our suppliers, we do not have any credit agreement or source of liquidity
immediately available to us.
Given estimates of our Company's future operating results and our credit
arrangements with our suppliers, we are currently forecasting that we will need
to secure additional financing to obtain adequate financial resources to reach
profitability. As of September 30, 2022, we estimate that the cash necessary to
implement our current business plan for the next twelve months is approximately
$2,000,000.
Based on our need to raise additional funds to implement our business plans for
the next twelve months, we have included a discussion concerning the
presentation of our financial statements on a going concern basis in the notes
to our unaudited condensed consolidated financial statements and our independent
public accountants have included a similar discussion in their opinion on our
financial statements through June 30, 2022. We will be required in the near
future to issue debt or sell our Company's equity securities in order to raise
additional cash, although there are no firm arrangements in place for any such
financing at this time. We cannot provide any assurances as to whether we will
be able to secure the necessary financing, or the terms of any such financing
transaction if one were to occur. The failure to secure such financing could
severely curtail our plans for future growth or in more severe scenarios, the
continued operations of our Company.
Capital Expenditures
Our current plans do not call for our Company to expend significant amounts for
capital expenditures for the foreseeable future beyond relatively insignificant
expenditures for office furniture and information technology related equipment
as we add employees to our Company. We are however continually evaluating the
production processes of our third-party contract manufacturers to determine if
there are investments we could make in their processes to achieve manufacturing
improvements and significant cost savings. Any such desired investments would
require additional cash above our current forecast requirements.
Critical Accounting Policies Involving Management Estimates and Assumptions
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") and the rules and regulations of the United
States Securities and Exchange Commission (the "SEC") for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and footnotes
necessary for a comprehensive presentation of financial position, results of
operations, or cash flows. It is management's opinion however, that all material
adjustments (consisting of normal recurring adjustments) have been made which
are necessary for a fair financial statement presentation.
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These interim unaudited condensed consolidated financial statements should be
read in conjunction with our Company's Annual Report on Form 10-K for the year
ended June 30, 2022, which contains our audited consolidated financial
statements and notes thereto, together with the Management's Discussion and
Analysis of Financial Condition and Results of Operation, for the fiscal year
ended June 30, 2022. The interim results for the period ended September 30, 2022
are not necessarily indicative of the results for the full fiscal year.
Principles of consolidation
The consolidated financial statements include the accounts of our Company, and
its wholly-owned subsidiaries: SWC, Lemon Glow, Sugarrush, Sugarrush 5058, and
its majority owned subsidiary, NUG Avenue. All significant intercompany
transactions and balances have been eliminated in consolidation.
Going concern
The Company's continuation as a going concern is dependent on its ability to
generate sufficient cash flows from operations to meet its obligations, in which
it has not been successful, and/or obtaining additional financing from its
shareholders or other sources, as may be required.
Our consolidated financial statements have been prepared assuming that we will
continue as a going concern. Such assumption contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. These
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result should the
Company be unable to continue as a going concern.
Management is endeavoring to increase revenue-generating operations. While
priority is on generating cash from operations through the sale of the Company's
products, management is also seeking to raise additional working capital through
various financing sources, including the sale of the Company's equity and/or
debt securities, which may not be available on commercially reasonable terms to
our Company, or which may not be available at all. If such financing is not
available on satisfactory terms, we may be unable to continue our business as
desired and our operating results will be adversely affected. In addition, any
financing arrangement may have potentially adverse effects on us and/or our
stockholders. Debt financing (if available and undertaken) will increase
expenses, must be repaid regardless of operating results and may involve
restrictions limiting our operating flexibility. If we issue equity securities
to raise additional funds, the percentage ownership of our existing stockholders
will be reduced, and the new equity securities may have rights, preferences or
privileges senior to those of the current holders of our common stock.
Business combinations
The Company applies the provisions of Financial Accounting Standards Board's
(the "FASB") Accounting Standards Codification ("ASC") 805, Business
Combinations, in accounting for its acquisitions. It requires the Company to
recognize separately from goodwill the assets acquired and the liabilities
assumed, at the acquisition date fair values. Goodwill as of the acquisition
date is measured as the excess of consideration transferred over the acquisition
date fair values of the net assets acquired and the liabilities assumed. The
Company used third party valuation company to determine the assets acquired and
liabilities assumed with the corresponding offset to goodwill.
Use of estimates
The preparation of financial statements in conformity with GAAP requires our
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 significantly
from those estimates.
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Revenue recognition
We recognize revenue in accordance with Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC'') No. 606, Revenue
Recognition. Sugarmade applied a five-step approach in determining the amount
and timing of revenue to be recognized: (1) identifying the contract with a
customer, (2) identifying the performance obligations in the contract, (3)
determining the transaction price, (4) allocating the transaction price to the
performance obligations in the contract and (5) recognizing revenue when the
performance obligation is satisfied.
Substantially all of the Company's revenue is recognized at the time control of
the products transfers to the customer.
Property and equipment
Property and equipment is stated at the historical cost, less accumulated
depreciation. Depreciation on property and equipment is provided using the
straight-line method over the estimated useful lives of the assets for both
financial and income tax reporting purposes as follows:
Machinery and equipment 3-5 years
Furniture and equipment 7 years
Vehicles 5 years
Leasehold improvements 30 years
Building 31.5 years
Expenditures for renewals and betterments are capitalized while repairs and
maintenance costs are normally charged to the statement of operations in the
year in which they are incurred. In situations where it can be clearly
demonstrated that the expenditure has resulted in an increase in the future
economic benefits expected to be obtained from the use of the asset, the
expenditure is capitalized as an additional cost of the asset.
Upon sale or disposal of an asset, the historical cost and related accumulated
depreciation or amortization of such asset were removed from their respective
accounts and any gain or loss is recorded in the statements of income.
The Company reviews the carrying value of property, plant, and equipment for
impairment whenever events and circumstances indicate that the carrying value of
an asset may not be recoverable from the estimated future cash flows expected to
result from its use and eventual disposition. In cases where undiscounted
expected future cash flows are less than the carrying value, an impairment loss
is recognized equal to an amount by which the carrying value exceeds the fair
value of assets. The factors considered by management in performing this
assessment include current operating results, trends and prospects, the manner
in which the property is used, and the effects of obsolescence, demand,
competition and other economic factors. Based on this assessment, no impairment
expenses for property, plant, and equipment was recorded in operating expenses
during the three months ended September 30, 2022 and 2021.
Long-lived assets, which include property, plant and equipment and intangible
assets, are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets to be held and used is measured by comparing
the carrying amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the assets. Fair value is generally determined using the asset's
expected future discounted cash flows or market value, if readily determinable.
Based on its review, there was $0 impairment loss of its long-lived assets as of
September 30, 2022 and June 30, 2022, respectively.
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Leases
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting
Standards Update ("ASU") No. 2016-02, which requires lessees to recognize the
rights and obligations created by leases on the balance sheet and disclose key
information about leasing arrangements. Topic 842 was subsequently amended by
ASU No. 2018-11, Targeted Improvements, ASU No. 2018-10, Codification
Improvements to Topic 842, and ASU No. 2018-01, Land Easement Practical
Expedient for Transition to Topic 842. The new standard establishes a
right-of-use model (ROU) that requires a lessee to recognize a ROU asset and
lease liability on the balance sheet for all leases with a term longer than 12
months. Leases will be classified as finance or operating, with classification
affecting the pattern and classification of expense recognition in the statement
of operations.
The new standard became effective April 1, 2019. A modified retrospective
transition approach is required, applying the new standard to all leases
existing at the date of initial application. An entity may choose to use either
(1) its effective date or (2) the beginning of the earliest comparative period
presented in the financial statements as its date of initial application. If an
entity chooses the second option, the transition requirements for existing
leases also apply to leases entered into between the date of initial application
and the effective date. The entity must also recast its comparative period
financial statements and provide the disclosures required by the new standard
for the comparative periods. The Company adopted the new standard on July 1,
2019 using the modified retrospective transition approach as of the effective
date of the initial application. The new standard provides a number of optional
practical expedients in transition. The Company elected the "package of
practical expedients", which permits entities not to reassess under the new
lease standard prior conclusions about lease identification, lease
classification and initial direct costs. The Company does not expect to elect
the use-of-hindsight or the practical expedient pertaining to land easements.
The most significant effects of the adoption of the new standard relate to the
recognition of new ROU assets and lease labilities on our balance sheet for
office operating leases and providing significant new disclosures about our
leasing activities.
The new standard also provides practical expedients for an entity's ongoing
accounting. The Company has also elected the short-term leases recognition
exemption for all leases that qualify. This means that the Company will not
recognize ROU assets or lease liabilities, and this includes not recognizing ROU
assets and lease liabilities, for existing short-term leases of those assets in
transition. The Company also currently expects to elect the practical expedient
to not separate lease and non-lease components for its leases. All existing
leases are reported under this rule.
Under ASC 840, leases were classified as either capital or operating, and the
classification significantly impacted the effect the contract had on the
company's financial statements. Capital lease classification resulted in a
liability that was recorded on a company's balance sheet, whereas operating
leases did not impact the balance sheet.
Goodwill and Intangible Assets
Goodwill is the excess of the purchase price over the fair value of identifiable
net assets acquired in business combinations accounted for under the acquisition
method. Intangible assets represent purchased intangible assets including
developed technology and in-process research and development, technologies
acquired or licensed from other companies, customer relationships, non-compete
covenants, backlog, and trademarks and tradenames. Purchased finite-lived
intangible assets are capitalized and amortized over their estimated useful
lives. Technologies acquired or licensed from other companies, customer
relationships, non-compete covenants, backlog, and trademarks and tradenames are
capitalized and amortized over the lesser of the terms of the agreement, or
estimated useful life. We capitalize cannabis cultivation license acquired as
part of a business combination.
Stock based compensation
Stock based compensation cost to employees is measured at the date of grant,
based on the calculated fair value of the stock-based award, and will be
recognized as expense over the employee's requisite service period (generally
the vesting period of the award). We estimate the fair value of employee stock
options granted using the Binomial Option Pricing Model. Key assumptions used to
estimate the fair value of stock options will include the exercise price of the
award, the fair value of our common stock on the date of grant, the expected
option term, the risk-free interest rate at the date of grant, the expected
volatility and the expected annual dividend yield on our common stock. We use
our company's own data among other information to estimate the expected price
volatility and the expected forfeiture rate. Share-based compensation awards
issued to non-employees for services rendered are recorded at either the fair
value of the services rendered or the fair value of the share-based payment,
whichever is more readily determinable.
Earnings (Loss) per share
We calculate basic earnings (loss) per share ("EPS") by dividing our net income
(loss) by the weighted average number of common shares outstanding for the
period, without considering common stock equivalents. Diluted EPS is computed by
dividing net income or net loss by the weighted average number of common shares
outstanding for the period and the weighted average number of dilutive common
stock equivalents, such as options and warrants. Options and warrants are only
included in the calculation of diluted EPS when their effect is dilutive.
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Fair value of financial instruments
ASC Topic 820 defines fair value, establishes a framework for measuring fair
value, establishes a three-level valuation hierarchy for disclosure of fair
value measurement and enhances disclosure requirements for fair value
measurements. The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability as of the measurement date. The three
levels are defined as follows:
Level 1 - observable inputs that reflect quoted prices (unadjusted) for
identical assets or liabilities in active markets.
Level 2 - include other inputs that are directly or indirectly observable in the
marketplace.
Level 3 - unobservable inputs which are supported by little or no market
activity.
The Company used Level 3 inputs for its valuation methodology for the derivative
liabilities in determining the fair value using the Binomial option-pricing
model for the three months ended September 30, 2022.
Derivative instruments
The fair value of derivative instruments is recorded and shown separately under
current liabilities. Changes in the fair value of derivatives liability are
recorded in the consolidated statement of operations under non-operating income
(expense).
Our 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 is then re-valued at each reporting date, with changes in the fair value
reported in the consolidated statements of operations. For stock-based
derivative financial instruments, the Company uses a weighted average Binomial
option-pricing model to value the derivative instruments at inception and on
subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting period. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based
on whether or not net-cash settlement of the derivative instrument could be
required within 12 months of the balance sheet date.
Segment Reporting
FASB ASC Topic 280, "Segment Reporting'', requires use of the "management
approach" model for segment reporting. The management approach model is based on
the way a company's management organizes segments within the Company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure, or any
other manner in which management disaggregates a company.
The Company's financial statements reflect that substantially all of its
operations are conducted in three industry segments - (1) paper and paper-based
products such as paper cups, cup lids, food containers, etc., which accounts
approx. 100% of the Company's revenues; (2) Cannabis products delivery service
and sales, which accounts approx. 0% of the Company's total revenues.
New accounting pronouncements
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for
Income Taxes". The pronouncement simplifies the accounting for income taxes by
removing certain exceptions to the general principles in ASC Topic 740, "Income
Taxes". The pronouncement also improves consistent application of and simplifies
GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
ASU 2019-12 was effective for us beginning in the first quarter of fiscal 2021,
with early adoption permitted. The adoption had no material impact on the
consolidated financial statements in the period ended September 30, 2022 and
year ended June 30, 2022.
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In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity
Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic
323), and Derivative and Hedging (Topic 815), which clarifies the interaction of
rules for equity securities, the equity method of accounting, and forward
contracts and purchase options on certain types of securities. The guidance
clarifies how to account for the transition into and out of the equity method of
accounting when considering observable transactions under the measurement
alternative. The ASU is effective for annual reporting periods beginning after
December 15, 2020, including interim reporting periods within those annual
periods, with early adoption permitted. The Company adopted this ASU on the
consolidated financial statements in the year ended June 30, 2021. The adoption
had no material impact on the consolidated financial statements in the period
ended September 30, 2022 and year ended June 30, 2022.
In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815 - 40)" ("ASU 2020-06"). ASU 2020-06 simplifies
the accounting for certain financial instruments with characteristics of
liabilities and equity, including convertible instruments and contracts on an
entity's own equity. The ASU is part of the FASB's simplification initiative,
which aims to reduce unnecessary complexity in GAAP. The ASU's amendments are
effective for fiscal years beginning after December 15, 2023, and interim
periods within those fiscal years. The Company is currently evaluating the
impact of ASU 2020-06 on its financial statements.
On March 2021, the FASB issued ASU 2021-03, "Intangibles-Goodwill and Other
(Topic 350): Accounting Alternative for Evaluating Triggering Events" ("ASU
2021-03"). The amendments in ASU 2021-03 provide private companies and
not-for-profit entities with an accounting alternative to perform the goodwill
impairment triggering event evaluation as required in ASC 350-20,
Intangibles-Goodwill and Other-Goodwill, as of the end of the reporting period,
whether the reporting period is an interim or annual period. An entity that
elects this alternative is not required to monitor for goodwill impairment
triggering events during the reporting period but, instead, should evaluate the
facts and circumstances as of the end of each reporting period to determine
whether a triggering event exists and, if so, whether it is more likely than not
that goodwill is impaired. The amendments in this ASU are effective on a
prospective basis for fiscal years beginning after December 15, 2019. Early
adoption is permitted for both interim and annual financial statements that have
not yet been issued as of March 30, 2021. The Company adopted this ASU on the
consolidated financial statements in the year ended June 30, 2021. The adoption
had no material impact on the consolidated financial statements in the period
ended September 30, 2022 and year ended June 30, 2022.
On April 2021, the FASB issued ASU 2021-04, "Earnings Per Share (Topic 260),
Debt- Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging- Contracts in Entity's Own
Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or
Exchanges of Freestanding Equity-Classified Written Call Options" ("ASU
2021-04") to clarify the accounting by issuers for modifications or exchanges of
equity-classified warrants. The new ASU is effective for all entities in fiscal
years starting after December 15, 2021. Early adoption is permitted. The Company
is currently evaluating the impact of ASU 2021-04 on its financial statements.
On July 2021, the FASB issued ASU 2021-05, "Leases (Topic 842): Lessors-Certain
Leases with Variable Lease Payments", which upon adoption requires a lessor to
classify a lease with variable lease payments (that do not depend on a rate or
index) as an operating lease on commencement date if classifying the lease as a
sales-type or direct financing lease would result in a selling loss. The
amendments in this ASU are effective for all entities in fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2021.
The adoption had no material impact on the consolidated financial statements in
the period ended September 30, 2022 and year ended June 30, 2022.
On July 2021, the FASB issued ASU 2021-07, "Stock Compensation (Topic 718):
Stock Compensation" ("ASU 2021-07") to address the concerns from stakeholders
about the cost and complexity of determining the fair value of equity-classified
share-based awards for private companies. It specifically permits private
companies to use 409A valuations prepared under U.S. Treasury regulations to
estimate the fair value of certain awards under ASC 718. The Update is effective
for private companies in fiscal years starting after December 15, 2021. Early
adoption is permitted. The Company is currently evaluating the impact of ASU
2021-07 on its financial statements.
On August 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805):
Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers" ("ASU 2021-08") to require an acquirer to recognize and measure
contract assets and contract liabilities acquired in a business combination in
accordance with revenue recognition guidance as if the acquirer had originated
the contract. That is, such acquired contracts will not be measured at fair
value. ASU 2021-08 is effective for privately held companies with fiscal years
beginning after December 15, 2023, with early adoption permitted. The Company is
currently evaluating the impact of ASU 2021-08 on its financial statements.
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