Note 3 – Revenue

 

The Company recognizes revenue to depict the transfer of promised goods to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the goods. The Company has two revenue channels, direct to consumer (“DTC”) and wholesale.  Nearly all of the Company’s revenue is derived from the DTC channel which represents 95% of consolidated revenue; the wholesale channel represents 5% of consolidated revenue. The majority of these sales transactions are single performance obligations that are recorded when control is transferred to the customer.  The Company offers a loyalty program to its DTC customers which creates a separate performance obligation.

The following is a description of principal activities from which the Company generates its revenue, by revenue channel.

The Company’s DTC products are offered through the online stores where customers place orders directly for delivery across the United States. Revenue is recorded, net of discounts, at the time the order is shipped to the customer as this is when it has been determined that control has been transferred, and includes shipping paid by customers. Revenue is measured as the amount of consideration, net of discounts, the Company expects to receive in exchange for transferring the merchandise. The Company has elected to exclude from revenue all collected sales taxes paid by its customers.

Revenue is deferred for orders that have been placed, and paid for, but have not yet been shipped. Customers have a 60-day guarantee on the product purchased.  Based on the historical experience, the Company records an estimated liability for returns.  Product returns have historically not been significant to the financial statements taken as a whole.

For the Company’s DTC loyalty program, a portion of revenue is deferred at the time of the sale as points are earned based on the relative stand-alone selling price, and not recognized, until the redemption of the loyalty points.  The Company has applied a redemption rate based on the historical age of the points.

The customer has a material right in the form of future discounts with their accumulated points. For these transactions, the transaction price is allocated to the separate performance obligations based on the relative standalone selling price of loyalty points.  The standalone selling price for the points earned for the Company’s loyalty program is estimated using the net retail value of the merchandise purchased, adjusted for the redemption percentage based on historical redemption patterns.  The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed. Customer points do not expire.

The Company’s wholesale channel includes the sale of goods to wholesale customers for resale. The wholesale sale of goods is considered a single performance obligation. The Company records revenue net of discounts. There is no shipping revenue on wholesale transactions and wholesale customers are not subject to sales tax.

Revenue for wholesale sales are recognized when the product is shipped to the wholesale customer as this is when it has been determined that control has been transferred, with the exception of the Company’s largest customer due to specific FOB destination shipping terms as this is when it has been determined that control has transferred.

The Company’s net revenue in the Consolidated Statements of Operations and Comprehensive Loss are net of sales taxes.