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Commitments and Contingencies

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

9. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company entered into the following operating facility leases

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La Floresta - On July 25, 2016, the Company entered into an operating facility lease for its store located at La Floresta Shopping Village in Brea, California with 60 months term with option to extend. The lease started on July 2016 and expires on November 2024.

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La Crescenta - On May 2017, the Company entered into an operating facility lease for its store located in La Crescenta, California with 120 months term with option to extend. The lease started on May 2017 and expires in May 2027. The Company entered into non-cancellable lease agreement for a coffee shop approximately 1,607 square feet located in La Crescenta, California commencing in May 2017 and expiring in April 2027. The monthly lease payment under the lease agreement approximately $6,026.

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Brea - On September 1, 2018, the Company entered into an operating facility lease for its corporate office located in Brea, California with 72 months term with option to extend. The lease starts on September 2018 and expires on August 2024.

	●	*Glendale* – On October 27, 2020, The Company entered a 7-year operating facility lease for its store located at the Glendale Galleria in Glendale, California. The lease starts on November 2020 and expires in October 2027.

	●	*San Francisco* - On December 22, 2020, the Company entered into an operating facility lease for its store located at Stonestown Galleria in San Francisco, California with 84 months term with option to extend. The lease starts in June 2021 and expires in April 2028.

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Santa Anita - On December 22, 2020, the Company entered into an operating facility lease for its store located at Arcadia, California with 36 months term with option to extend. The lease starts in February 2021 and expires in January 2024.

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Riverside - On February 4, 2021, the Company entered into an operating facility lease for its store located at Galleria at Tyler in Riverside, California with 84 months term with option to extend. The lease starts in April 2021 and expires in March 2028.

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Corona Del Mar - On February 5, 2021, the Company repurchased its retail store in Corona Del Mar, California. As part of that repurchase, the Company assumed the original operating lease on the facility, with 66 months term with an option to extend. The lease expires in December 2022.

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Laguna Woods - On February 12, 2021, the Company entered into an operating facility lease for its store located at Home Depot Center in Laguna Woods, California with 60 months term with option to extend. The lease starts in June 2021 and expires in May 2026.

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Huntington Beach - On November 1, 2021, the Company entered into an operating facility lease for its store located at Huntington Beach, California with 124 months term with option to extend. The lease starts in November 2021 and expires in February 2032.

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Manhattan Village - On March 1, 2022, the Company entered into an operating facility lease for its store located at Manhattan Beach, California with 60 months term with option to extend. The lease starts in March 2022 and expires in February 2027.

The Company adopted ASC 842 as of January 2018 (date of formation). The Company has operating leases for the Company’s corporate office and stores and accounts for these leases in accordance with ASC 842, which resulted in right-of-use assets and operating lease liabilities of $2,764,258 and $2,915,149, respectively, as of September 30, 2022. Certain of the leases for the Company’s retail store facilities provide for variable payments for property taxes, insurance and common area maintenance payments related to rental payments based on future sales volumes at the leased location, which are not measurable at the inception of the lease, or rental payments that are adjusted periodically for inflation.

For the new lease and adjustments, the Company recorded an additional non-cash increase of $297,385 to ROU assets and $325,028 to operational lease liabilities for the nine-month period ended September 30, 2022.

In accordance with ASC 842, the components of lease expense were as follows:

For the nine-month period ended September 30,		2022				2021
Operating lease expense		$	691,341			$	477,950
Total lease expense		$	691,341			$	477,950

In accordance with ASC 842, other information related to leases was as follows:

For the nine-month period ended September 30,		2022				2021
Operating cash flows from operating leases		$	669,265			$	383,440
Cash paid for amounts included in the measurement of lease liabilities		$	669,265			$	383,440

Weighted-average remaining lease term—operating leases							3.8 Years
Weighted-average discount rate—operating leases							8.9	%

In accordance with ASC 842, maturities of operating lease liabilities as of September 30, 2022 were as follows:

		Operating
For the years ended December 31,		Lease
2022 (remaining three months)		$	234,129
2023			864,887
2024			785,267
2025			642,387
2026			574,150
Thereafter			456,435
Total undiscounted cash flows		$	3,557,255

Reconciliation of lease liabilities:
Weighted-average remaining lease terms			3.8 Years
Weighted-average discount rate			8.9	%
Present values		$	2,915,149

Lease liabilities—current			654,145
Lease liabilities—long-term			2,261,004
Lease liabilities—total		$	2,915,149

Difference between undiscounted and discounted cash flows		$	642,106

Contingencies

The Company is subject to various legal proceedings from time to time as part of its business. As of September 30, 2022, the Company was not currently party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, it believes would have a material adverse effect on its business, financial condition, and results of operations.