XML 27 R18.htm IDEA: XBRL DOCUMENT

Note 2 - Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2024

Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (“SEC”) on March 19, 2024. These interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the periods presented. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q reflect adoption of these changes.

Revised Prior Period Financial Statements

During the period close for the three months ended March 31, 2024, the Company discovered certain errors related to its accounting policy for the accounting of discontinued operations. The balance sheet did not segregate assets and liabilities for discontinued operations for a subsidiary of the Company on our September 30, 2023 and December 31, 2023 balance sheets that were previously filed. This lack of segregation on the balance sheet did not impact the statements of operations or stockholders' deficit.

The Company has determined that the impact of this balance sheet reclassification is not material to these previously issued balance sheets and as such no restatement was necessary. Correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. Such a correction may be made the next time the registrant files the prior year financial statements. Correcting the cumulative error in the current year would also be immaterial to the current year. Accordingly, these misstatements were corrected, and the adjustments are reflected in the related periods as noted below. The reclassifications made to the September 30, 2023 and December 31, 2023 balance sheets are summarized below.

Consolidated Balance Sheets:

		As of September 30, 2023
		Previously Reported		Adjustments			Revised
Accounts receivable	$	1,005	$	(103	)	$	902
Current assets of discontinued operations		-		902			902
Accounts payable		5,533		(4,268	)		1,265
Accrued expenses and other current liabilities		3,996		(2,151	)		1,845
Short term lease liabilities		1,087		(157	)		930
Current liabilities of discontinued operations		-		6,576			6,576
Long term lease liabilities		2,758		(323	)		2,435
Long term liabilities of discontinued operations		-		323			323

		As of December 31, 2023
		Previously Reported		Adjustments			Revised
Accounts receivable	$	2,072	$	(161	)	$	1,911
Current assets of discontinued operations		-		161			161
Accounts payable		6,803		(4,723	)		2,080
Accrued expenses and other current liabilities		4,106		(2,054	)		2,052
Short term lease liabilities		1,426		(480	)		946
Current liabilities of discontinued operations		-		7,257			7,257

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant management estimates include those with respect to returns and allowances, allowance for doubtful accounts receivable, allowance for credit losses, reserves for inventory obsolescence, the recoverability of long-lived assets, intangibles and goodwill.

Contract Liabilities

Our contract liabilities consist of customer deposits and contractual guaranteed returns. Net contract liabilities are recorded in accrued expenses and other current liabilities and consisted of the following:

	March 31, 2024		December 31, 2023
Contract Liabilities - Customer Deposits	$	1,944	$	2,022
Contract Liabilities - Guaranteed Returns		103		127
	$	2,047	$	2,149

Fair Value of Financial Instruments

We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – inputs are quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date.

Level 2 – inputs are other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.

Level 3 – inputs are unobservable inputs for the asset that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.

The Company did not have any financial instruments that are measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023.

Accounts Receivable and Allowances

Our allowance for trade receivables consists of two components: an allowance for customer claims and an allowance for credit losses.

We estimate expected credit losses on our trade receivables in accordance with Accounting Standards Codification ("ASC") 326 - Financial Instruments - Credit Losses. We adopted this accounting standard prospectively on the first day of our 2023 fiscal year.

We measure the allowance for credit losses on trade receivables on a collective (pool) basis when similar risk characteristics exist. We pool our trade receivables by type, wholesalers and retailers. Our historical credit loss experience provides the basis for our estimation of expected credit losses. We use a two-year average of annual loss rates as a starting point for our estimation and make adjustments to the historical loss rates to account for differences in current conditions impacting the collectability of our receivable pools. We generally monitor macroeconomic indicators to assess whether adjustments are necessary to reflect current conditions.

We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims related to promotional items, customer discounts, shipping shortages, damages, and doubtful accounts based upon historical bad debt and claims experience. As of March 31, 2024, total allowances amounted to $664, of which $53 was related to doubtful accounts receivable and $31 was related to expected credit losses. As of December 31, 2023, total allowances amounted to $862, of which $175 was related to doubtful accounts receivable.

Net Income (Loss) per Common Share

Basic net income (loss) per common share (“Basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per common share (“Diluted EPS”) is computed by dividing net income (loss) by the sum of the weighted average number of common shares outstanding and the dilutive potential common shares then outstanding. Potential dilutive common share equivalents consist of total shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period.

When calculating diluted income (loss) per share, if the effects are dilutive, companies are required to add back to net income the effects of the change in derivative liabilities related to warrants. Additionally, if the effects of the change in derivative liabilities are added back to net income, companies are required to include the warrants outstanding related to the derivative liability in the calculation of the weighted average dilutive shares.

The common shares used in the computation of our basic and diluted net income (loss) per share are as follows:

	Three Months Ended March 31,
		2024			2023
Numerator:
Net loss from continuing operation	$	(2,173	)	$	(2,285	)
Net income (loss) from discontinued operation, net of income taxes		77			(525	)
Net (loss)	$	(2,096	)	$	(2,810	)

Denominator:
Weighted-average number of common shares - Basic		259,092,833			259,092,833
Weighted-average number of common shares - Diluted		259,092,833			259,092,833

Net loss per common share:
Basic EPS	$	(0.01	)	$	(0.01	)
Diluted EPS	$	(0.01	)	$	(0.01	)

Significant Concentration of Credit Risk

Sales to our top three customers aggregated to approximately 56% and 23% of total sales for the three months ended March 31, 2024 and 2023, respectively. Sales to one of those customers were approximately 25% and 10% of total sales for the three months ended March 31, 2024 and 2023, respectively. Accounts receivable from these three customers were approximately 40% and 42% of total accounts receivable as of March 31, 2024 and December 31, 2023, respectively.

A single customer represents 0% and 3% of total accounts receivable as of March 31, 2024 and December 31, 2023, respectively. This customer is a related party through a director who sits on both the Company’s board of directors and that of the customer.

Revenue Recognition

The Company recognizes revenue based on a five-step model in accordance with ASC 606. For our customer contracts: (i) we identify the contract with a customer; (ii) we identify the performance obligations in the contract; (iii) we determine the transaction price; (iv) we allocate the transaction price to the performance obligation; and (v) we recognize revenue when we satisfy the performance obligation. Our revenues are recorded at a point in time when the performance is fulfilled, which is when the product is shipped to or received by the customer.

Product sales are recorded net of variable considerations, such as provisions for returns, discounts, and allowances.

We account for shipping and handling costs as costs to fulfill a contract and not as performance obligations to our customers. Shipping and handling costs are recorded in cost of sales.

Leases

The Company accounts for leases in accordance with ASC 842. The Company reviews all contracts and determines if the arrangement is or contains a lease, at inception. Operating leases are included in right-of-use (“ROU”) assets, current lease liabilities and long-term lease liabilities on the condensed consolidated balance sheets. The Company does not have any finance leases.

Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any upfront lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain any residual value guarantees.

Discontinued operations

Discontinued operations

We report financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs only when the disposal meets the criteria for classification as a discontinued operation in accordance with ASC Subtopic 205-20, Discontinued Operations (“ASC 205-20”). In our consolidated statements of cash flows, the cash flow from discontinued operations are separately classified/reported. Unless indicated otherwise, the information in the Notes to the consolidated financial statements relate to continuing operations (See Note 9, Discontinued Operations)