Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2018

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in the Preparation of the Financial Statements

The preparation of unaudited consolidated financial statements in conformity with GAAP 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 unaudited consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include allowances, reserves and write-downs of receivables and inventory, valuing equity securities and hybrid instruments, share-based payment arrangements, deferred taxes and related valuation allowances, and the valuation of assets and liabilities acquired in business combinations. Certain of management’s estimates could be affected by external conditions, including those unique to the Company’s industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from those estimates. The Company re-evaluates all accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

Shipping and Handling

Shipping charges billed to customers are included in net sales and the related shipping and handling costs are included in cost of sales. For the three months ended March 31, 2018 and 2017 shipping and handling costs of approximately $12,000   and $32,000, respectively, were included in cost of sales.

Concentration of Risk

Our cash balances are kept liquid to support our growing acquisition and infrastructure needs for operational expansion. The majority of the Company’s cash and cash equivalents are concentrated in one large financial institution, which is in excess of Federal Deposit Insurance Corporation (FDIC) coverage. At March 31, 2018 and December 31, 2017, cash in excess of FDIC limits of $250,000 per financial institution were approximately $7.3 million and $7.1 million, respectively. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests, as deposits are held in excess of federally insured limits. The Company’s cash equivalents at March 31, 2018 and December 31, 2017 were money market accounts. The Company has not experienced any losses in such accounts.

Concentration of accounts receivable consist of the following, all of which are greater than 10% of the total net accounts receivable balance:

	March 31, 2018			December 31, 2017
Customers balances in excess of 10% of total accounts receivable
Customer A		-			27	%
Customer B		12	%		21	%
Customer C		-			19	%

For the three months ended March 31, 2018 and 2017, the Company did not have any customers with sales in excess of 10% of total sales.

Revenue Recognition   

Revenues from product sales and services rendered, net of promotional discounts, manufacturer coupons and rebates, return allowances, and sales and consumption taxes, are recorded when products are delivered, title passes to customers and collection is likely to occur. Title passes to customers at the point of sale for retail and at upon delivery of products for wholesale. Return allowances, which reduce revenue, are estimated using historical experience.

The Company recognizes revenue in accordance with the following five step model:

● identify arrangements with customers;

● identify performance obligations;

● determine transaction price;

● allocate transaction price to the separate performance obligations in the arrangement, if more than one exists;

● recognize revenue as performance obligations are satisfied.

Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers (“ASU 2014-9”), is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance. The Company adopted the standard on January 1, 2018 using the retrospective transition method, which requires reporting entities to apply the standard as of the earliest period presented in their financial statements. The adoption of the new standard resulted in no impact to the consolidated statements of operations and an immaterial impact to the consolidated balance sheets for reclassifying $61,312 of contract liabilities from accrued expenses as of December 31, 2017. Contract liabilities consist of gift card and loyalty point program liabilities. See “Accounts Receivable, Contract Assets, and Deferred Revenue” significant accounting policy.

Adoption of ASU 2014-09 impacted the previously reported results for the quarter ended March 31, 2017 as follows:

	As reported						After adoption
	Quarter Ended March 31,			ASU 2014-09			Quarter Ended March 31,
	2017			Impact			2017
Vapor sales, net	$	1,481,364			(1,733	)	$	1,479,631
Grocery sales, net	$	2,104,626			(13,573	)	$	2,091,053
Gross profit	$	1,825,626			(15,306	)	$	1,810,320
Net loss	$	(1,765,866	)		(15,306	)	$	(1,781,172	)

Adoption of ASU 2014-09 impacted the previously reported balance sheet as of December 31, 2017 as follows:

	As reported			ASU 2014-09			After adoption
	31-Dec-17			Impact			31-Dec-17
Accrued Expenses	$	538,204			(99,071	)	$	439,133
Contract liabilities	$	-			61,312		$	61,312
Total current liabilities	$	11,284,407			(37,759	)	$	11,246,648
Accumulated deficit	$	(12,608,586	)		37,759		$	(12,570,827	)
Total stockholders’ equity	$	406,539			37,759		$	444,298

Accounts Receivable, Contract Assets, and Contract Liabilities  

Accounts receivable are claims to consideration which are unconditional; meaning no performance obligations remain for the Company and only the passage of time is necessary before collection. Contract assets are distinguished from accounts receivable as performance obligations remain before claims to consideration become unconditional. By nature of the Company’s operations, contract assets are typically not recognized. Contract liabilities are recorded when customers transfer consideration in advance of delivery of products or services, which the Company records for gift cards and loyalty reward programs. When one party to an arrangement performs before the other(s), the Company records an accounts receivable, contract asset or contract liability.

The majority of arrangements with customers contain one performance obligation; to provide a distinct set of products or services. Most performance obligations are satisfied simultaneously as the Company exchanges products or services for customer payment. Exceptions include gift cards and loyalty rewards, for which the Company has a performance obligation to deliver products or services at a future date. As gift cards are purchased and loyalty points earned, contract liability is recorded until the performance obligation is satisfied through delivery of products or services or breakage based on gift card and loyalty reward program term limits. The Company’s breakage policy is twenty-four months for gift cards, twelve months for Grocery loyalty rewards, and six months for Vapor loyalty rewards. Loyalty rewards are earned at five percent on qualifying purchases and the reward functions as an allocation of transaction price from the period earned by the customer to the period the performance obligation is satisfied by the Company. As such, all contract liabilities are expected to be recognized within a twenty-four month period.

Adopted Accounting Pronouncements

In August 2016, the FASB issued ASU 2016-15 (Topic 230), “Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments”. The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The adoption of ASU 2016-15 was done on a retrospective basis and it did not have a significant impact on the Company’s consolidated financial statements.  

Recently Issued Accounting Pronouncements    

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and annual and interim periods thereafter, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

In July 2017, the FASB issued a two-part ASU No. 2017-11, I “Accounting for Certain Financial Instruments With Down Round Features” and II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception”. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.