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Commitments and Contingencies

3 Months Ended

Mar. 31, 2024

Commitments and Contingencies

Commitments and Contingencies

17. Commitments and Contingencies

Operating Leases

The Company has entered into various non-cancellable operating lease agreements for certain of its offices, warehouse facilities and office equipment, vehicles, and solar energy systems, both in the U.S. and in the PRC. The Company determines if an arrangement is a lease, or contains a lease, at inception and records the leases in the condensed consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.

Related Party Lease Agreements

Effective March 31, 2024, the Company terminated its lease with Fallow Field, LLC, a related party, for office space in Diamond Bar, California. In conjunction with the early lease termination, the Company reported a gain on the lease termination of approximately $77,000.

The Company recognized a gain of approximately $4,200 for the early termination and amendment of the leases and de recognized an ROU asset of approximately $478,000 and a lease liability of approximately $520,000 on the consolidated balance sheet. Also for the amendment of one of the leases, the Company recognized an additional $221,000 for an ROU asset, in relation to the extended lease term, and a corresponding lease liability of approximately $254,000 on the consolidated balance sheet.

Future minimum lease commitments for offices, warehouse facilities and equipment, payable to related parties and other, as of March 31, 2024, are as follows:

For the year ending December 31,		Total
2024 (remainder of)		$	1,715,941
2025			1,725,564
2026			1,768,488
Thereafter			-
Total		$	5,209,993

For the three months ended March 31, 2024 and 2023, rent expense for offices, warehouse facilities and equipment, including rental expense for related party leases, was approximately $465,000 and $509,000, respectively. These amounts include short-term leases and variable lease costs, which are immaterial.

As of March 31, 2024, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows:

For the year ending December 31,		Total
2024 (remainder of)		$	1,675,305
2025			1,725,564
2026			1,768,488
Thereafter			-
Total minimum lease payments			5,169,357
Less: Interest			(802,545	)
Present value of lease obligations			4,366,812
Less: current portion			(1,465,296	)
Noncurrent portion		$	2,901,516

Other information related to leases is as follows:
		As of
		March 31, 2024
Weighted average remaining lease term (in years)			2.75
Weighted average discount rate			8.0	%

Between September and October 2022, the Company entered into subleases with one unrelated company through March 31, 2024. Monthly sublease payments totaled approximately $68,700 and the related sublease income is recognized as other income in the Company’s consolidated statements of operations. This is consistent with the Company’s recognition of sublease income prior to the adoption of FASB ASC Topic 842. The tenants under the subleases provided security deposits of approximately $73,100 to the Company. The Company continues to be responsible for performance under the lease until it expires on December 31, 2026.

The following table summarizes the Company’s operating lease cost for the three months ended March 31, 2024 and 2023:

		Three Months Ended March 31,
		2024				2023
		(Unaudited)
Operating lease cost		$	454,768			$	1,056,643
Short-term lease cost			9,813				131,414
Less: Sublease income			(247,944	)			(255,043	)
Operating lease cost, net		$	216,637			$	933,014

Employment Agreements

On October 7, 2016, the Company entered into employment agreements with its chief executive officer for a five-year term commencing on January 1, 2017 and continuing on a year-to-year basis unless terminated by the Company or the executive on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. The agreement provides for an initial annual salary of $600,000 and $560,000, respectively, with an increase of not less than 3% on January 1st of each year, commencing January 1, 2018, and an annual bonus payable in restricted stock and cash, commencing with the year ending December 31, 2017, equal to a specified percentage of consolidated revenues for each year. The bonus is based on a percentage of consolidated revenue in excess of $30 million, ranging from $250,000 and $200,000, respectively, for revenue in excess of $30 million but less than $50 million, to 1.0% and 0.9%, respectively, of revenue in excess of $300 million. The agreements provide for severance payments equal to one or two times, depending on the nature of the termination, of the highest annual total compensation of the three years preceding the year of termination, multiplied by the number of whole years the executive has been employed by the Company, which commenced in February 2008.

On February 24, 2020, the Company's then executive vice president resigned. Pursuant to a release and separation agreement dated October 1, 2020, her employment agreement was terminated and, with certain limited exceptions, the Company and the former executive vice president released each other from their obligations under the employment agreement. Pursuant the release and separation agreement, the Company paid the former executive officer $25,497, and agreed to pay to her $803,095, representing the outstanding balance due to her for her deferred salary from 2019 and 2020, cash bonus deferred from 2017 and 2018 and accrued medical and dental benefits. This amount was payable at the rate of $15,000 per month (less applicable deductions and withholding), commencing with the month of April 2020, until the completion by the Company of its public offering, and any unpaid balance then outstanding was to be paid within three business days after the Company receives the proceeds of its initial public offering. For the three months ended March 31, 2024 and 2023, the former vice president was paid approximately $883,000 and $45,000, respectively. As of March 31, 2024, all the Company’s obligations owed to the former executive vice president are fully settled.

The Company entered into a consulting agreement dated October 1, 2020 with the former executive vice president pursuant to which the Company engaged her as a consultant for a term ending December 31, 2022, and continuing thereafter on a month-to-month basis for monthly compensation of $3,000. The release and separation agreement provides that since the long-term incentive plan pursuant to which the options granted to the former executive vice president were granted provides that options may be held by and exercised by a consultant to the Company, the Company agreed that the option shall continue in full force and effect as long as she, at the request of the Company or pursuant to an agreement with the Company, serves as a consultant to the Company. As of March 31, 2024, the former executive officer was a consultant to the Company.