yoga-10q_20190930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____  to ____

Commission File Number: 001-38151

 

YogaWorks, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-1219105

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

5780 Uplander Way

Culver City, CA 90230

(Address of principal executive offices)

Registrant’s telephone number, including area code: (310) 664-6470

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Small reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(b) of the Act: None (1)

 

 

(1)

On July 25, 2019, YogaWorks, Inc. (the “Company”) filed a Form 25, Notification of Removal From Listing and/or Registration Under Section 12(b) of the Securities and Exchange Act of 1934, with the Securities and Exchange Commission to delist the Company’s common stock, par value $0.001 per share (“Common Stock”), from The NASDAQ Stock Market (“NASDAQ”).  On August 5, 2019, the Company filed a Form 15 with the Securities and Exchange Commission to deregister the Common Stock under Section 12(g) of the Securities Exchange Act of 1934. The Company intends to continue to use efforts to suspend and cease its reporting obligations under the Securities Exchange Act of 1934 as soon as reasonably practicable.

As of November 13, 2019, the registrant had 17,063,972 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Stockholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

25

Item 1.

Legal Proceedings

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

Exhibit Index

27

Signatures

28

 

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

YogaWorks, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 

 

 

As of

September 30,2019

 

 

As of

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,282,182

 

 

$

11,447,318

 

Inventories

 

 

734,711

 

 

 

1,148,449

 

Prepaid expenses and other current assets

 

 

773,842

 

 

 

936,757

 

Total current assets

 

 

5,790,735

 

 

 

13,532,524

 

Property and equipment, net

 

 

9,124,246

 

 

 

10,225,944

 

Intangible assets, net

 

 

11,444,453

 

 

 

13,291,502

 

Goodwill

 

 

 

 

 

663,954

 

Other non-current assets

 

 

999,655

 

 

 

1,327,775

 

Total assets

 

$

27,359,089

 

 

$

39,041,699

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

3,128,439

 

 

$

4,905,204

 

Accrued compensation

 

 

1,533,685

 

 

 

1,802,047

 

Deferred revenue

 

 

6,705,808

 

 

 

7,276,578

 

Related party convertible note - net of debt issuance costs

 

 

4,986,815

 

 

 

 

Current portion of deferred rent

 

 

166,191

 

 

 

124,319

 

Total current liabilities

 

 

16,520,938

 

 

 

14,108,148

 

Deferred rent, net of current portion

 

 

3,032,712

 

 

 

3,975,391

 

Total liabilities

 

 

19,553,650

 

 

 

18,083,539

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock $0.001 par value; 50,000,000 shares authorized, 17,052,340 issued

   and 16,832,593 outstanding at September 30, 2019 and 50,000,000 shares

   authorized, 16,639,586 issued and 16,494,838 outstanding at December 31, 2018

 

 

16,833

 

 

 

16,496

 

Additional paid in capital

 

 

114,124,195

 

 

 

113,260,161

 

Accumulated deficit

 

 

(106,335,589

)

 

 

(92,318,497

)

Total stockholders’ equity

 

 

7,805,439

 

 

 

20,958,160

 

Total liabilities and stockholders’ equity

 

$

27,359,089

 

 

$

39,041,699

 

 

See accompanying notes to condensed consolidated financial statements.

2


 

YogaWorks, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net revenues

 

$

16,528,694

 

 

$

15,150,692

 

 

$

46,133,728

 

 

$

45,550,867

 

Cost of revenues and operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

5,800,070

 

 

 

6,212,640

 

 

 

17,290,385

 

 

 

17,892,463

 

Center operations

 

 

6,802,923

 

 

 

7,179,487

 

 

 

20,552,361

 

 

 

21,012,976

 

General and administrative expenses

 

 

5,586,593

 

 

 

4,158,868

 

 

 

14,456,557

 

 

 

12,617,813

 

Depreciation and amortization

 

 

969,348

 

 

 

1,874,008

 

 

 

4,018,048

 

 

 

6,471,036

 

Goodwill impairment

 

 

663,954

 

 

 

5,550,000

 

 

 

663,954

 

 

 

8,024,819

 

Asset impairment

 

 

1,363,822

 

 

 

4,118,939

 

 

 

1,538,547

 

 

 

4,118,939

 

Total cost of revenues and operating expenses

 

 

21,186,710

 

 

 

29,093,942

 

 

 

58,519,852

 

 

 

70,138,046

 

Loss from operations

 

 

(4,658,016

)

 

 

(13,943,250

)

 

 

(12,386,124

)

 

 

(24,587,179

)

Interest income

 

 

(4,970

)

 

 

(46,613

)

 

 

(67,317

)

 

 

(96,886

)

Net loss before income taxes

 

 

(4,653,046

)

 

 

(13,896,637

)

 

 

(12,318,807

)

 

 

(24,490,293

)

(Benefit)/provision for income taxes

 

 

(1,419

)

 

 

2,667

 

 

 

10,375

 

 

 

20,580

 

Net loss

 

$

(4,651,627

)

 

$

(13,899,304

)

 

$

(12,329,182

)

 

$

(24,510,873

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

   attributable to common stockholders

 

$

(0.28

)

 

$

(0.84

)

 

$

(0.74

)

 

$

(1.49

)

Weighted-average number of shares used in

   calculating loss per share attributable to

   common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted common shares

 

 

16,807,366

 

 

 

16,468,085

 

 

 

16,649,375

 

 

 

16,401,589

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

YogaWorks, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

 

 

 

Three Months Ended September 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of July 1, 2018

 

 

16,460,501

 

 

$

16,461

 

 

$

112,516,233

 

 

$

(67,743,140

)

 

$

44,789,554

 

Vesting of restricted stock units

 

 

25,569

 

 

 

26

 

 

 

(26

)

 

 

 

 

 

 

Repurchase of shares to satisfy tax withholding

 

 

(8,395

)

 

 

(9

)

 

 

(13,479

)

 

 

 

 

 

(13,488

)

Stock-based compensation

 

 

 

 

 

 

 

 

334,490

 

 

 

 

 

 

334,490

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,899,304

)

 

 

(13,899,304

)

Balance as of September 30, 2018

 

 

16,477,675

 

 

$

16,478

 

 

$

112,837,218

 

 

$

(81,642,444

)

 

$

31,211,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of January 1, 2018

 

 

16,332,510

 

 

$

16,333

 

 

$

111,650,415

 

 

$

(57,131,571

)

 

$

54,535,177

 

Vesting of restricted stock units

 

 

186,102

 

 

186

 

 

 

(186

)

 

 

 

 

 

 

Repurchase of shares to satisfy tax withholding

 

 

(40,937

)

 

 

(41

)

 

 

(97,110

)

 

 

 

 

 

(97,151

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,284,099

 

 

 

 

 

 

1,284,099

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(24,510,873

)

 

 

(24,510,873

)

Balance as of September 30, 2018

 

 

16,477,675

 

 

$

16,478

 

 

$

112,837,218

 

 

$

(81,642,444

)

 

$

31,211,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of July 1, 2019

 

 

16,774,440

 

 

$

16,775

 

 

$

113,898,297

 

 

$

(101,683,962

)

 

$

12,231,110

 

Vesting of restricted stock units

 

 

65,222

 

 

 

65

 

 

 

(65

)

 

 

 

 

 

 

Repurchase of shares to satisfy tax withholding

 

 

(7,069

)

 

 

(7

)

 

 

(1,562

)

 

 

 

 

 

(1,569

)

Stock-based compensation

 

 

 

 

 

 

 

 

227,525

 

 

 

 

 

 

227,525

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,651,627

)

 

 

(4,651,627

)

Balance as of September 30, 2019

 

 

16,832,593

 

 

$

16,833

 

 

$

114,124,195

 

 

$

(106,335,589

)

 

$

7,805,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of January 1, 2019

 

 

16,494,838

 

 

$

16,496

 

 

$

113,260,161

 

 

$

(92,318,497

)

 

$

20,958,160

 

Vesting of restricted stock units

 

 

406,486

 

 

 

406

 

 

 

(406

)

 

 

 

 

 

 

Repurchase of shares to satisfy tax withholding

 

 

(68,731

)

 

 

(69

)

 

 

(39,992

)

 

 

 

 

 

(40,061

)

Stock-based compensation

 

 

 

 

 

 

 

 

904,432

 

 

 

 

 

 

904,432

 

Impact of Adopting Topic 606

 

 

 

 

 

 

 

 

 

 

 

(1,687,910

)

 

 

(1,687,910

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,329,182

)

 

 

(12,329,182

)

Balance as of September 30, 2019

 

 

16,832,593

 

 

$

16,833

 

 

$

114,124,195

 

 

$

(106,335,589

)

 

$

7,805,439

 

 

See accompanying notes to condensed consolidated financial statements.

4


 

YogaWorks, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(12,329,182

)

 

$

(24,510,873

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,018,048

 

 

 

6,471,036

 

Goodwill impairment

 

 

663,954

 

 

 

8,024,819

 

Asset impairment

 

 

1,538,547

 

 

 

4,118,939

 

Deferred tax

 

 

 

 

 

2,402

 

Interest expense on convertible note

 

 

6,667

 

 

 

 

Stock-based compensation expense

 

 

904,432

 

 

 

1,284,099

 

Changes to operating assets and liabilities, net of effects from acquisitions:

 

 

 

 

 

 

 

 

Tenant improvement allowances received

 

 

 

 

 

 

Inventories

 

 

413,738

 

 

 

4,470

 

Prepaid expenses and other current assets

 

 

162,915

 

 

 

245,137

 

Other non-current assets

 

 

328,120

 

 

 

(919

)

Accounts payable and accrued expenses

 

 

(1,951,142

)

 

 

(186,078

)

Accrued compensation

 

 

(268,362

)

 

 

(743,893

)

Deferred revenue

 

 

(2,258,680

)

 

 

(1,154,686

)

Deferred rent and other non-current liabilities

 

 

(900,807

)

 

 

71,943

 

Net cash used in operating activities

 

 

(9,671,752

)

 

 

(6,373,604

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property, equipment, and intangible assets

 

 

(2,440,138

)

 

 

(1,079,543

)

Acquisition earnout and holdback payments

 

 

 

 

 

(643,694

)

Cash paid for acquisitions, net of earnouts

 

 

 

 

 

(721,930

)

Net cash used in investing activities

 

 

(2,440,138

)

 

 

(2,445,167

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repurchase of shares to satisfy tax withholding

 

 

(40,061

)

 

 

(97,151

)

Proceeds from issuance of related party convertible note

 

 

4,986,815

 

 

 

 

Net cash from (used in) financing activities

 

 

4,946,754

 

 

 

(97,151

)

Decrease in cash and cash equivalents

 

 

(7,165,136

)

 

 

(8,915,922

)

Cash and cash equivalents, beginning of period

 

 

11,447,318

 

 

 

22,095,216

 

Cash and cash equivalents, end of period

 

$

4,282,182

 

 

$

13,179,294

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Effect of the adoption of Topic 606 on deferred revenue

 

$

1,687,910

 

 

$

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment financed by accounts payable and accrued

   expenses

 

 

167,710

 

 

 

 

Purchase consideration liabilities related to acquisitions

 

 

 

 

 

159,000

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

YogaWorks, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.Organization and Basis of Presentation

General

YogaWorks, Inc., a Delaware corporation, and its wholly-owned subsidiaries (collectively referred to as “we”, “us”, “our”, and the “Company”) are primarily engaged in operating yoga studios. Our Company was formerly known as YWX Holdings, Inc. and we changed our name to YogaWorks, Inc. on April 10, 2017. We operate under the brand names YogaWorks, Yoga Tree and certain other local brands for a period of time following the acquisition of studios. We primarily offer yoga classes, workshops, teacher training programs, and yoga-related retail merchandise across our studios. In addition to our studio locations, we offer online yoga instruction and programming through our MyYogaWorks.com web platform, which provides subscribers with a highly curated library of over 1,200 yoga classes.

NASDAQ Listing

The Company’s 7,300,000 shares of common stock (“Common Stock”) sold on our initial public offering (“IPO”) were traded on the Nasdaq Global Market. On May 3, 2019, our Company’s securities were transferred from the Nasdaq Global Market to the Nasdaq Capital Market (“NASDAQ”).

On July 25, 2019, we filed a Form 25, Notification of Removal From Listing and/or Registration Under Section 12(b) of the Securities Exchange Act of 1934, with the Securities and Exchange Commission to delist the Company’s common stock from NASDAQ.  On August 1, 2019, NASDAQ permanently suspended the trading of our common stock.

On August 5, 2019, we filed a Form 15, Certification and Notice of Termination of Registration Under Section 12(g) of the Securities Exchange Act of 1934 or Suspension of Duty to File Reports Under Sections 13 and 15(d) of the Securities Exchange Act of 1934.

 

Markets

We operate in regional markets across the United States (“U.S.”). As a result of the clustering of our studios in key geographic markets, and the flexibility offered to students to use different studios in a regional market, we do not report net revenues on an individual studio basis or report same studio sales. We prefer to analyze financial results on a regional market basis. Given the focus on acquisitions, we may acquire studios in an existing regional market to capture more regional market share, which may take some market share from our existing studios.

As of September 30, 2019, we owned and operated 63 yoga studios in nine regional markets. The following table illustrates the studio locations by regional market:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Regional Market

 

Number of

Studios(1)

 

Percentage of

Net Revenues(2)

 

 

Number of

Studios(1)

 

Percentage of

Net Revenues(2)

 

 

Number of

Studios(1)

 

Percentage of

Net Revenues(2)

 

 

Number of

Studios(1)

 

Percentage of

Net Revenues(2)

 

Los Angeles

 

16

 

 

34

%

 

17

 

 

33

%

 

16

 

 

34

%

 

17

 

 

33

%

Northern California

 

13

 

 

24

%

 

13

 

 

23

%

 

13

 

 

23

%

 

13

 

 

22

%

Houston

 

7

 

 

8

%

 

7

 

 

8

%

 

7

 

 

8

%

 

7

 

 

9

%

New York City

 

3

 

 

7

%

 

5

 

 

10

%

 

3

 

 

8

%

 

5

 

 

10

%

Baltimore

 

7

 

 

6

%

 

7

 

 

6

%

 

7

 

 

7

%

 

7

 

 

6

%

Boston

 

5

 

 

6

%

 

7

 

 

6

%

 

5

 

 

6

%

 

7

 

 

5

%

Orange County (California)

 

4

 

 

6

%

 

4

 

 

6

%

 

4

 

 

6

%

 

4

 

 

6

%

Washington, D.C.

 

4

 

 

5

%

 

6

 

 

4

%

 

4

 

 

5

%

 

6

 

 

5

%

Atlanta

 

4

 

 

4

%

 

4

 

 

4

%

 

4

 

 

3

%

 

4

 

 

4

%

Total Studios

 

63

 

 

 

 

 

70

 

 

 

 

 

63

 

 

 

 

 

70

 

 

 

 

 

 

 

(1)

Number of studios as of September 30, 2019 and 2018.

 

(2)

For the three and nine months ended September 30, 2019 and 2018, assumes that any net revenues for teacher training, workshops and MyYogaWorks.com for such period are allocated to the regional markets on a proportional basis based on the market’s share of total studio net revenues for such period.

6


 

 

We operate in a number of regional operating segments; however, we meet the aggregation criteria of Accounting Standards Codification (“ASC”) 280, Segment Reporting, and therefore report as one reportable segment. Our chief executive officer, who is our chief operating decision maker, determines our strategy and makes operating decisions for our regional operating segments, and assesses performance and allocates resources based on performance of our regional operating segments. We derive revenue from the sale of yoga classes, workshops, teacher training programs and yoga-related retail merchandise.

Liquidity and Going Concern

We have a history of operating losses and an accumulated deficit of $106.3 million as of September 30, 2019. In addition, we had negative working capital of $10.7 million and $0.6 million at September 30, 2019 and December 31, 2018, respectively. As disclosed in our most recent Annual Report on Form 10-K, the Company needs additional financing to fund its operations. These conditions raise substantial doubt about our ability to continue as a going concern. Historically, we have satisfied our liquidity needs primarily through cash generated from financing activities, which includes proceeds from debt. Our principal liquidity needs include cash used for operations (such as rent and labor costs), acquisitions, capital expenditures necessary to improve existing studios, primarily leasehold improvements and additional furniture and fixtures. We have suspended acquiring or developing new studios to reduce our liquidity needs.

The accompanying interim unaudited financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty. As of November 14, 2019, the Company is in the process of seeking additional financing. The Company may sell additional equity, issue debt securities or obtain a credit facility. However, the Company may not be able to secure such financing in a timely manner or on favorable terms.  The Company is delaying and reducing its operating and investing expenditures, and negotiated rent reductions or lease buyouts with its landlords and will continue to do so, which may have a material adverse effect on operations.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, normal recurring adjustments considered necessary for a fair presentation have been reflected in these condensed consolidated financial statements.

The consolidated balance sheet as of December 31, 2018 has been derived from the audited financial statements for the fiscal year then ended included in our Annual Report on Form 10-K filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on March 27, 2019 (the “10-K”), but does not include all of the information and notes required by GAAP for complete financial statements. The financial information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements as of and for the fiscal year ended December 31, 2018 and the related notes thereto included in the 10-K.

Effective January 1, 2019, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, as discussed further in Note 2. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q have been updated to comply with this new standard with results for reporting periods beginning after January 1, 2019 presented under ASU No. 2014-09, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

The Company has corrected an immaterial misstatement in the September 30, 2018 Statement of Cash Flows. The Company has reclassified $643,694 of cash paid related to acquisition holdback and earnouts from investing activities to financing activities. There was no impact on the cash flow from operating activities or net change in total cash flows.

 

 

2.Summary of Significant Accounting Policies

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.

7


 

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 September 30, 2019, as if the previous accounting was in effect.

 

Condensed Consolidated Balance Sheets

 

 

 

As of  September 30, 2019

 

 

 

As Reported

(ASC 606)

 

 

Impacts of

Adoption

 

 

Without

Adoption

(ASC 605)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

6,705,808

 

 

$

320,786

 

 

$

7,026,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(106,335,589

)

 

 

(320,786

)

 

 

(106,656,375

)

 

 

8


 

Condensed Consolidated Statements of Operations

 

 

 

Three Months Ended September 30, 2019

 

 

 

As Reported

(ASC 606)

 

 

Impacts of

Adoption

 

 

Without Adoption

(ASC 605)

 

Net revenues

 

$

16,528,694

 

 

$

(1,804,352

)

 

$

14,724,342

 

Cost of revenues and operating

   expenses

 

 

21,186,710

 

 

 

 

 

 

21,186,710

 

Loss from Operations

 

 

(4,658,016

)

 

 

(1,804,352

)

 

 

(6,462,368

)

Interest income, net

 

 

4,970

 

 

 

 

 

 

4,970

 

Net loss before income taxes

 

 

(4,653,046

)

 

 

(1,804,352

)

 

 

(6,457,398

)

Provision for income taxes

 

 

(1,419

)

 

 

 

 

 

(1,419

)

Net Loss

 

$

(4,651,627

)

 

$

(1,804,352

)

 

$

(6,455,979

)

Net loss per share, basic and

   diluted

 

$

(0.28

)

 

 

 

 

 

$

(0.38

)

Weighted average common stock

   outstanding, basic and diluted

 

 

16,807,366

 

 

 

 

 

 

 

16,807,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

As Reported

(ASC 606)

 

 

Impacts of

Adoption

 

 

Without Adoption

(ASC 605)

 

Net revenues

 

$

46,133,728

 

 

$

(2,100,339

)

 

$

44,033,389

 

Cost of revenues and operating

   expenses

 

 

58,519,852

 

 

 

 

 

 

58,519,852

 

Loss from Operations

 

 

(12,386,124

)

 

 

(2,100,339

)

 

 

(14,486,463

)

Interest income, net

 

 

67,317

 

 

 

 

 

 

67,317

 

Net loss before income taxes

 

 

(12,318,807

)

 

 

(2,100,339

)

 

 

(14,419,146

)

Provision for income taxes

 

 

10,375

 

 

 

 

 

 

10,375

 

Net Loss

 

$

(12,329,182

)

 

$

(2,100,339

)

 

$

(14,429,521

)

Net loss per share, basic and

   diluted

 

$

(0.74

)

 

 

 

 

 

$

(0.87

)

Weighted average common stock

   outstanding, basic and diluted

 

 

16,649,375

 

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