| Summary of Significant Accounting Policies | 2. Except for changes to the Company’s revenue recognition policy, there have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 27, 2019. See below for additional accounting policy and transition disclosures. In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation – Stock Compensation (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this ASU provide guidance on accounting for share-based payment transactions for acquiring goods and services from nonemployees. This ASU was effective for fiscal years beginning after December 15, 2018. We adopted this ASU as of January 1, 2019 noting no material impact to the consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (“Topic 230”): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues. This ASU was effective for fiscal years beginning after December 15, 2018. We adopted this ASU as of January 1, 2019 noting no material impact to the consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). This ASU supersedes the revenue recognition requirements in ASU Topic 605, Revenue Recognition, and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Subsequently, the FASB issued several standards related to ASU 2014-09 (collectively, the “New Revenue Standard”), including the most recent ASU, ASU 2017-14, Income Statement - Reporting Comprehensive Income (“Topic 220”), Revenue Recognition (“Topic 605”), and Topic 606, which was issued in November 2017. We adopted the requirements of Topic 606 utilizing the modified retrospective method of transition to contracts as of January 1, 2019. The accumulated deficit balance was increased; thus, stockholders’ equity was decreased by $1.7 million as of January 1, 2019 due to the cumulative impact of adopting Topic 606. The impact was primarily related to:
•
$1.7 million increase in deferred revenue related to the Company’s loyalty program. Topic 606 requires us to allocate and defer a portion of revenue attributable to loyalty points earned. The deferred revenue on the loyalty program is recognized as revenue upon redemption of the points or upon breakage. Previously, the Company was recognizing loyalty points under the incremental cost method.
•
$0.1 million reduction in deferred revenue related to class packages. Topic 606 requires us to recognize revenue upon redemption of the class packages for a class or upon breakage. The expected breakage amount is recognized as revenue in proportion to the pattern of rights exercised by the customer. Previously, class packages were recognized as revenue based on aggregate use pattern and breakage was recognized upon expiration of the class packages.
•
$0.1 million increase in deferred revenue related to paid in full memberships. Due to the Company’s general cancellation policy in its membership agreement, under Topic 606 the contract duration ends when the stand-ready obligation is revoked, regardless of the contract’s stated contractual term. As such, revenue is recognized on a daily basis over the membership period. Previously, revenue was recognized ratably over the contract duration.
•
The adoption had no impact to net cash provided by or used in operating, investing or financing activities in the Company’s Condensed Consolidated Statements of Cash Flows. Impact of New Standard on Financial Statement Line Items The following tables summarize the effect of the adoption of Topic 606 on the Company’s select line items, included in the unaudited condensed consolidated financial statements as of and for the quarter ended June 30, 2019, as if the previous accounting was in effect.
As of June 30, 2019
As Reported (ASC 606)
Impacts of Adoption
Without Adoption (ASC 605)
Liabilities
Deferred revenue
$
8,736,650
$
(1,504,306
)
$
7,232,344
Stockholders’ Equity
Accumulated deficit
(101,683,962
)
1,504,306
(100,179,656
)
Three Months Ended June 30, 2019
As Reported (ASC 606)
Impacts of Adoption
Without Adoption (ASC 605)
Net revenues
$
13,913,760
$
3,019
$
13,916,779
Cost of revenues and operating expenses
18,296,220
—
18,296,220
Loss from Operations
(4,382,460
)
3,019
(4,379,441
)
Interest income, net
23,011
—
23,011
Net loss before income taxes
(4,359,449
)
3,019
(4,356,430
)
Provision for income taxes
6,769
—
6,769
Net Loss
$
(4,366,218
)
$
3,019
$
(4,363,199
)
Net loss per share, basic and diluted
$
(0.26
)
$
(0.26
)
Weighted average common stock outstanding, basic and diluted
16,604,330
16,604,330
Six Months Ended June 30, 2019
As Reported (ASC 606)
Impacts of Adoption
Without Adoption (ASC 605)
Net revenues
$
29,605,034
$
(295,987
)
$
29,309,047
Cost of revenues and operating expenses
37,333,142
—
37,333,142
Loss from Operations
(7,728,108
)
(295,987
)
(8,024,095
)
Interest income, net
62,347
—
62,347
Net loss before income taxes
(7,665,761
)
(295,987
)
(7,961,748
)
Provision for income taxes
11,794
—
11,794
Net Loss
$
(7,677,555
)
$
(295,987
)
$
(7,973,542
)
Net loss per share, basic and diluted
$
(0.46
)
$
(0.48
)
Weighted average common stock outstanding, basic and diluted
16,569,035
16,569,035
Summary of Significant Accounting Policies Revenue Recognition after the adoption of Topic 606 beginning January 1, 2019 Our Company generates revenues primarily from the sale of yoga classes, workshops, teacher training programs and yoga-related retail merchandise, net of discounts, refunds and returns at the time they are granted. Membership, class package, workshop and teacher training revenues are generally paid in advance. Classes and workshops Classes are principally sold in two formats—class packages and memberships. Workshops are sold as a single class or as a class pack. Class packages are based on a fixed number of classes, while memberships provide unlimited classes over a certain time period. Class package revenue is recognized when the performance obligation is satisfied upon transfer of a promised service to a student or upon the redemption of a class pack for a class or upon breakage. The expected breakage amount is recognized as revenue in proportion to the pattern of rights exercised by the student. Memberships are offered to students in varying lengths. Membership revenue is recognized on a daily basis during the membership period. Teacher Training and Workshops Customers are offered teacher training and workshops in varying program formats and lengths. Revenue is recognized on a straight-line basis over the event period. MyYogaworks.com Subscription Subscription Revenue is recognized on a straight-line basis during the subscription period. Loyalty Program Revenue on its loyalty program is recognized when the performance obligation is satisfied upon the redemption of the loyalty points for retail products or classes, or upon breakage. Loyalty Points earned are valued at their relative standalone selling price that is calculated using the redemption value method adjusted to reflect the likelihood that some points will not be redeemed or breakage. Retail Revenue for retail merchandise is recognized at the time of sale when the customer receives and pays for the merchandise at the stores. Taxes collected from the customer are recorded on a net basis. Sales returns by customers for yoga-related retail merchandise sales have historically not been material. Our Company sells gift cards to our customers. The gift cards sold to customers have no stated expiration dates and are subject to actual and/or potential escheatment rights in several of the jurisdictions in which we operate. We recognize income from gift cards when redeemed by the customer or upon breakage. Practical Expedients For each revenue stream, excluding revenue from retail merchandise, the Company has elected the practical expedient to apply Topic 606 to a portfolio of similar contracts on each revenue stream, as it is not reasonably expected to result in materially different outcomes compared to individually accounting for the contracts. The services promised by the Company in exchange for consideration are identical with the only variability being the number of the memberships, number of class packs, and length or format of the training, respectively. In addition, the Company has elected the practical expedient that allows an entity to recognize revenue in the amount for which it has the right to invoice. The Company’s stand-ready obligation to provide access to its facilities for members to attend any class during the duration of their membership is a performance obligation satisfied over time, which can be measured using a time-based measurement. The Company bills the monthly membership fees and recognizes the revenue on a daily basis, which corresponds to the identified contractual period. Revenue Recognition prior to the adoption of Topic 606 on January 1, 2019 Our Company generates revenues primarily from the sale of yoga classes, workshops, teacher training programs and yoga-related retail merchandise, net of discounts, refunds and returns at the time they are granted. Yoga classes are principally sold in two formats—class packages and memberships. Class packages are based on a fixed number of classes, while memberships provide unlimited classes over a certain time period. Membership, class package, workshop and teacher training revenues are generally paid in advance. There are primarily two types of memberships, monthly memberships and paid-in-full memberships (for six or twelve months), and revenue is recognized over the membership period. Class package revenue is recognized based on aggregate usage patterns. Workshop and teacher training revenue is deferred until the date of the event or is recognized over the period the event takes place. The deferred revenue balance is reduced by refunds in the reporting period which results in less revenue recognized over the service term than originally anticipated. Revenue for retail merchandise is recognized at the time of sale when the customer receives and pays for the merchandise at the stores. Taxes collected from the customer are recorded on a net basis. Sales returns by customers for yoga-related retail merchandise sales have historically not been material. Our Company sells gift cards to our customers. The gift cards sold to customers have no stated expiration dates and are subject to actual and/or potential escheatment rights in several of the jurisdictions in which we operate. We recognize income from gift cards when redeemed by the customer or upon breakage. Gift cards that do not have activity for 2 years have a remote probability of being redeemed and are considered breakage. Recent Accounting Pronouncements Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have availed ourselves of this exemption from new or revised accounting standards. The effective dates of the recent accounting pronouncements noted below reflect the private company transition date. In August 2018, the FASB issued ASU 2018-15 Intangibles – Goodwill and Other – Internal – Use Software (Subtopic 350-40). The amendments in this ASU provide guidance on the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We are evaluating the impact of implementing this update on our consolidated financial statements. In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842), Codification Improvements and ASU 2018-11 Leases (Topic 842), Targeted Improvements, to provide additional guidance for the adoption of Topic 842. ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ equity. ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard 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 2018-11, ASU 2018-10, and ASU 2016-02 (collectively, “the new lease standards”) is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Although early adoption is permitted, we anticipate adopting these provisions in the first quarter of 2020. 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. We had $51.7 million of operating lease obligations as of June 30, 2019, and upon adoption of this standard we will record a ROU asset and lease liability equal to the present value of these leases, which will have a material impact on the consolidated balance sheet. However, the recognition of lease expense in the consolidated statement of operations is not expected to change from the current methodology. |
