2. Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Basis of Presentation

The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission. Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring adjustments) to present the financial position of the Company as of September 30, 2020 and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full fiscal year. These financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent year ended December 31, 2019 have been omitted.

Inventories

Inventories

Inventory is manufactured at third party facilities. Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out method. The Company reviews its inventory for obsolescence and any inventory identified as obsolete is reserved or written off. The Company’s determination of obsolescence is based on assumptions about the demand for its products, product expiration dates, estimated future sales, and management’s future plans.

As of September 30, 2020 and December 31, 2019, inventory consists of the following components:

	September 30, 2020		December 31, 2019
Raw materials and supplies	$	41,497	$	44,515
Finished products		283,567		226,217
Total inventory	$	325,064	$	270,732

Revenue Recognition

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue From Contracts With Customers. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services. Revenue is recognized based on the following five step model:

·	Identification of the contract with a customer

·	Identification of the performance obligations in the contract

·	Determination of the transaction price

·	Allocation of the transaction price to the performance obligations in the contract

·	Recognition of revenue when, or as, the Company satisfies a performance obligation

Performance Obligations

Product sales are recognized all of the following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end user has obtained control of the product. A contract with commercial substance exists once the Company receives and accepts a purchase order or once it enters into a contract with an end user. If collectability is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk of ownership of the product has transferred to the customer. Payment is received before shipment of the product. Net revenues comprise gross revenues less customer discounts and allowances, actual and expected returns. Shipping charges billed to customers are included in net sales. Various taxes on the sale of products and enrollment packages to customers are collected by the Company as an agent and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability until remitted to the respective taxing authority. The Company allows for customers to return unopened products within 45 days. During the nine months ended September 30, 2020, there were a trivial amount of refunds processed for returned product.

During the nine months ended September 30, 2020, the Company also began generating revenue from licensing customers a proprietary software as a service (“SaaS”) application, hosting and technical services related to the e-commerce super affiliate platform it has developed. The Company enters into agreements with customers for the services, generally with a term of one year, with the ability of either party to terminate the contract with 60 days notice. SaaS services are billed monthly as the services are provided to the customer. Additional development work may be provided for agreed upon fees, which are billed and recognized as revenue as service is provided to the customer.

Contract Costs

Costs incurred to obtain a customer contract are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed and included within cost of goods and services.

Contract Liabilities

The Company may at times receive payment by credit card at the time customer places an order. Amounts received for undelivered product are considered a contract liability and are recorded as deferred revenue. Revenue for SaaS and related services is charged to the customer at the beginning of the month and recognized on a pro rata basis each month. As of September 30, 2020 and December 31, 2019, the Company had no deferred revenue related to unsatisfied performance obligations.

Disaggregated Revenue Data

The following table presents revenue disaggregated by type of good or service for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Product sales	$	38,160	$	52,992	$	135,154	$	232,781
SaaS agreements and related services		35,500		–		38,000		–
Total revenue	$	73,660	$	52,992	$	173,154	$	232,781

Cost of Sales

Cost of Sales

Cost of sales includes all of the costs to purchase and assemble the Company’s products. Products are manufactured for the Company by third-party contractors, such costs represent the amounts invoiced by the contractors. Additionally, shipping costs are included in Cost of Sales in the Statements of Operations.

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses include advertising and promotional costs and research and development costs. Also included in Selling, general and administrative expenses are stock-based compensation, certain warehousing fees, non-manufacturing overhead, personnel and related expenses, rent on operating leases, and professional fees.

Advertising and promotional costs are expensed as incurred and totaled $0 and $276 in the three and nine months ended September 30, 2020, respectively and $863 and $35,385 in the three and nine months ended September 30, 2019, respectively. Research and development costs are expensed as incurred. There were no research and development costs during the nine months ended September 30, 2020 and 2019.

Website Development Cost

Website Development Cost

The Company capitalizes certain development costs associated with internal use software incurred during the application development stage. The Company expenses costs associated with preliminary project phase activities, training, maintenance and any post-implementation period costs as incurred. Capitalization of qualifying application development cost begins when management authorized and commits to funding the project and it is probable that the project will be completed for the function intended. Capitalized internal use software costs are normally amortized over estimated useful lives ranging from 2 to 5 years once the related project has been completed and deployed for customer use. At time the software is considered to have be an indefinite lived asset in which case it is evaluated for impairment at least annually. Capitalized costs are related to the development of our website and customer portal. The Company amortizes capitalized costs over an estimated useful life of three years. Amortization expense for the nine months ended September 30, 2020 and 2019 was $44,044 and $44,044, respectively.

Recenty Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

- Definition

Disclosure of inventory accounting policy for inventory classes, including, but not limited to, basis for determining inventory amounts, methods by which amounts are added and removed from inventory classes, loss recognition on impairment of inventories, and situations in which inventories are stated above cost.

+ References + Details

Vitalibis, Inc. 10-Q