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Commitments and Contingencies

6 Months Ended

Jun. 30, 2024

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

8 – Commitments and Contingencies

Operating Leases

The Company leases its warehouses and office space under long-term lease arrangements. None of its leases include characteristics specified in ASC 842, Leases, that require classification as financing leases, and accordingly, these leases are accounted for as operating leases. The Company does not recognize an ROU asset and lease liability for short-term leases, which have terms of 12 months or less. For longer-term lease arrangements that are recognized on the Company’s Balance Sheet, the ROU asset and lease liability are initially measured at the commencement date based upon the present values of the lease payments due under the leases.

The implicit interest rates of the Company’s lease arrangements are generally not readily determinable and as such, the Company applies an incremental borrowing rate, which is established based upon the information available at the lease commencement date, to determine the present value of lease payments due under the arrangement. Under ASC 842, the incremental borrowing rate (“IBR”) for leases must be (1) a rate of interest over a similar term, and (2) for an amount that is equal to the lease payments. The Company uses both the Federal Reserve Economic Data U.S. corporate debt effective yield and the U.S. Treasury rates adjusted for credit spread as the primary data points for purposes of determining the IBR.

In the first quarter of 2022, the Company entered into two new long-term, non-cancelable operating lease agreements for office and warehouse space resulting in the Company recognizing an additional lease liability totaling of $2,348,509, representing the present value of the lease payments discounted using an effective interest rate of 8.07% and 8.86%, and corresponding ROU assets of $2,348,509. The leases expire in December 2026 and December 2028, the latter of which contains one three-year option to renew.

In the first quarter of 2021, the Company entered into a long-term, non-cancelable operating lease agreement for office and warehouse space resulting in the Company recognizing an additional lease liability totaling of $1,268,089, representing the present value of the lease payments discounted using an effective interest rate of 7.47% and a corresponding ROU asset of $1,268,089. The lease expires in January 2028 and contains one three-year option to renew.

The Company has two other leases—one that expired in January 2023 and one that expires in February 2025. The leases generally provide for annual increases based on a fixed amount and generally require the Company to pay real estate taxes, insurance, and repairs.

The following is a summary of total lease costs during the three and six months ended June 30, 2024 and 2023:

Schedule of lease cost
		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Operating lease cost		$	187,316			$	187,315			$	373,661			$	375,344
Short-term lease costs			—				—				—				150
Variable lease costs			—				—				—				—
Sublease income			(10,753	)			(10,440	)			(21,298	)			(29,036	)
Total lease costs		$	176,563			$	176,875			$	352,363			$	346,458

The weighted-average remaining lease term was 4.07 years and 4.54 years as of June 30, 2024 and December 31, 2023, respectively. The weighted average discount rate was 8.45% and 8.47%, as of June 30, 2024 and December 31, 2023, respectively. Operating cash flows from the operating leases totaled $129,442 and $114,110 for the three months ended June 30, 2024 and 2023, respectively, and $255,351 and $206,217 for the six months ended June 30, 2024 and 2023, respectively.

The total lease liability as of June 30, 2024 and December 31, 2023 was $2,508,738 and $2,764,089, respectively.

The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of June 30, 2024, for years ending June 30:

			Total
2025			$	731,576
2026				722,239
2027				713,041
2028				593,930
2029				225,139
Thereafter				—
Total future minimum lease payments			$	2,985,925
Less imputed interest				(447,187	)
Total			$	2,508,738

Current lease liability			$	541,145
Non-current lease liability				1,967,593
Total			$	2,508,738

Subleases

As of June 30, 2024, the Company subleases office and warehouse space under one of its existing operating leases with similar terms as the Company’s lease agreements. Two additional leases terminated in February 2023. Because the Company is not relieved of its primary obligations under the original lease, the Company accounts for the subleases as a lessor. Sublease rental income is recorded based on the contractual rental payments which are not substantially different from recognition on a straight-line basis over the lease term and totaled $10,753 and $10,440 during the three months ended June 30, 2024 and 2023, respectively, and $21,298 and $29,036 during the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, deferred income and a sublease deposit totaled $4,549 and $4,445, respectively, and is included in accrued expenses and other current liabilities on the accompanying Balance Sheets.

The total future minimum sublease payments are $28,675, all due in the twelve months ending June 30, 2024.

Litigation

The Company may be involved from time to time in litigation or claims arising in the ordinary course of its business. While the ultimate liability, if any, arising from these claims cannot be determined with certainty, the Company believes that the resolution of any such matters will not likely have a material adverse effect on the Company’s financial statements.

SEC Investigation

As previously disclosed, on May 6, 2024, the Company received a subpoena from the SEC requesting documents and communications concerning certain press releases. On May 23, 2024, the SEC staff notified the Company that they have concluded their investigation, and based on the information acquired to date, do not intend to recommend an enforcement action against the Company.