Commitments and contingencies

12 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and contingencies

15. Commitments and contingencies

During fiscal year 2018, the Company began a voluntary internal review into payments made with respect to primary stock sales. The Company has engaged outside counsel, has ceased selling the stocks, and will not make further payments with regard to stock sales, will take remedial measures (including oversight and education), and, as deemed appropriate, will take steps to recapture the value of those payments previously made. The Audit Committee is overseeing the internal review and remediation efforts.

The Company provides a one-year parts warranty on its robotic soft serve vending kiosks. However, the soft-serve component carries a five-year parts and two-year labor warranty. The robotic arm manufacturer offers no warranty to the company on this component as currently configured. Re-engineering and testing of the robotic arm are underway and the resulting component will be warranted by the supplier.

The Company currently sources the components for all of its vending robots from various vendors, and has contracted with Flex Ltd., for the assembly and manufacture of the robotic soft serve vending kiosks. Additionally, there are a number of suppliers who provide various subcomponents of the robotic kiosks. We believe that our relationships with our suppliers are excellent, and likely to continue. The Company announced an interim agreement with Stoelting Foodservice to assemble kiosks as a complement to its current contract manufacturer, Flex Ltd. In our view, the loss of our relationship with either Flex Ltd. or Stoelting Foodservice, should it occur, may result in short term immaterial, disruptions; however, the allocation of resources required to secure and onboard new manufacturers would likely have a material impact on operations.

Our frozen yogurt consumables will be supplied by several distributors, based on geographical location. However, there may be only one supplier in each geographic location. A change in suppliers, however, could cause a delay in deliveries and a possible loss of revenue from both current and prospective franchisees, which could adversely affect our operating results.

On May 19, 2018, the Company entered into an 18-month consulting contract with a franchisee. Consideration is a total of 300,000 shares of common stock. 50,000 shares of common stock vest every three months during the term of the contract. If the consultant resigns or is terminated, the Company has the option to repurchase the vested shares at the lesser of the fair market value of the shares at the time the repurchase option is exercised and the purchase price The Company accounted for the shares in accordance with ASC 505-50, Equity-Equity Based Payments to Non-Employees.

On June 2018, the Company entered into an agreement with two investors in connection with the Company’s private placement memorandum. The investors have the right to purchase:

· From June 6 through June 30, 2018, 300,000 shares of common stock at $1.00 per share. As of June 30, 2018, the investors purchased 300,000 shares of common stock.

· From July 1 through September 30, 2018, 1,000,000 shares of common stock at $1.00 per share. As of September 30, 2018, no shares were purchased.

· From October 1 through December 31, 2018, 1,333,333 shares of common stock at $1.50 per share. No shares were purchased under this provision.

From time to time, we may become involved in litigation and other legal actions, including disagreements with to any pending litigation or franchise agreement rescissions where the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated. Estimated legal costs expected to be incurred to resolve legal matters are recorded to the consolidated balance sheet and statements of operations. We have the following ongoing and potential legal matters associated to franchisee refunds all of which are provided for in the Provision for franchisee rescissions and refunds line item on our balance sheet:

· Robotreats v. Ries & Irvy’s, Inc.

· Szostack Froyo Franchising, LLC v. Reis & Irvy’s, Inc.

· Robot Vending, LLC v. Reis & Irvy’s Inc.

· Lindstrom et al. v. Generation Next Franchise Brands, Inc.

· Draw 27 Holding, LLC v. Reis & Irvy’s, Inc.

Additionally, our Company is subject to certain state reviews of our Franchise Disclosure Documents. Such state reviews could lead to our Company being fined or prohibited from entering into franchising agreements with the reviewing state.

Periodically, we are contacted by other state franchise regulatory authorities and in some cases have been required to respond to inquiries or make changes to our franchise disclosure documents or franchise offer and sale practices. Management believes these communications from state regulators and corresponding changes in our franchise disclosure documents and practices are administrative in nature and do not indicate the presence of a loss or probable potential loss.