| Summary of Significant Accounting Policies | 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act, enacted on April 5, 2021 and has elected to comply with certain reduced public company reporting requirements. Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, inventory, revenue recognition, and e-commerce accounting considerations. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. Significant Risks and Uncertainties The Company is subject to customary risks and uncertainties including, but not limited to, the need for protection of proprietary technology, dependence on key personnel, costs of services provided by third parties, the need to obtain additional financing, and limited operating history. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. At December 31, 2023 and 2022, all of the Company's cash and cash equivalents were held at one accredited financial institution. Concentrations The Company is dependent on third-party vendors for its inventory purchases. During the years ended December 31, 2023 and 2022, two vendors accounted for 35% and 59% of total purchases, respectively. The loss of these vendors may have a negative short-term impact on the Company’s operations; however, the Company believes there are acceptable substitute vendors that can be utilized longer-term. Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Fair Value Measurements Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The carrying values of the Company’s accounts receivable, prepaid expenses, accounts payable and accrued expenses approximate their fair values due to the short maturity of these instruments. The Company believes the carrying amount of its convertible notes payable and loan payable approximate fair value based on rates and other terms currently available to the Company for similar debt instruments. Accounts Receivable Accounts receivable are uncollateralized obligations due under normal trade terms generally requiring payment within 1 to 30 days from the invoice date. Accounts receivable are presented net of an allowance for credit losses, which is an estimate of amounts that may not be collectible. The Company uses a loss-rate approach based on historical loss information, adjusted for management’s expectations about current and future economic conditions, as the basis to determine expected credit losses. Management exercises significant judgment in determining expected credit losses. Key inputs include macroeconomic factors, industry trends, and the creditworthiness of counterparties. Management believes that the composition of receivables at year-end is consistent with historical conditions as credit terms and practices and the client base has not changed significantly. The Company determined it was not necessary to record an allowance for credit losses as of December 31, 2023 and 2022. Inventory Inventories consist of finished goods and products in transit from the Company’s suppliers. Finished goods inventory includes amounts primarily held at the Company’s warehouse location and at Amazon. Costs of finished goods inventories include all costs incurred to bring inventory to its current condition, including inbound freight and duties. Inventory is recorded at the lower of cost or net realizable value using the first-in-first-out (FIFO) method. If the Company determines that the estimated net realizable value of its inventory is less than the carrying value of such inventory, it records a charge to cost of goods sold to reflect the lower of cost or net realizable value. If actual market conditions are less favorable than those projected by the Company, further adjustments may be required that would increase the cost of goods sold in the period in which such a determination was made. As of December 31, 2023 and 2022, there was a reserve for obsolescence of $634,007 and $482,269, respectively. Deposits for future inventory purchases are included in prepaid expenses and other current assets. As of December 31, 2023 and 2022, prepaid expenses and other current assets included $101,802 and $330,906, respectively, in inventory deposits. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. The Company’s property and equipment includes office and computer equipment, furniture and fixtures and leasehold improvements, which are all depreciated using the straight-line method over their respective estimated useful lives. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. Intangible Assets Intangible assets consist of capitalized website development costs less accumulated amortization. Website development costs are capitalized during the application and infrastructure development stage in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-50. The Company amortizes these costs using the straight-line method over an estimated useful life of three years. Impairment of Long-Lived Assets The Company reviews its long-lived assets (property and equipment and amortizable intangible assets) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. Revenue Recognition In accordance with FASB ASC 606, Revenue from Contracts with Customers · Identification of a 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; and Recognition of revenue when or as the performance obligations are satisfied. Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers in an amount that reflects the consideration expected to be received in exchange for transferring goods or services to customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. The Company derives its revenue primarily from e-commerce transactions. For e-commerce transactions, revenue is recognized at the time the product is shipped to the customer, which is the point in time when control is transferred. The Company generates a small percentage of sales in its showroom, which revenue is recognized at the time the product is sold in store to the customer. There was no breakage income recognized for unredeemed gift cards for the years ended December 31, 2023 and 2022. The Company deducts discounts, sales tax, and estimated refunds to arrive at net revenue. Sales tax collected from clients is not considered revenue and is included in accrued expenses until remitted to the taxing authorities. Shipping and handling fees charged to customers are included in net revenues. All shipping and handling costs are accounted for as fulfil l Total shipping and handling billed to customers as a component of net revenues was $23,906 and $495,480 for the years ended December 31, 2023 and 2022, respectively. Cost of Revenue Cost of revenue consists of the costs of inventory sold, packaging materials costs, inbound freight and customs and duties. The Company includes outbound freight associated with shipping goods to customers as a component of sales and marketing expenses as noted below. Sales and Marketing Sales and marketing expenses includes fulfil l The Company also includes outbound freight associated with shipping goods to customers as a component of sales and marketing expenses. During the years ended December 31, 2023 and 2022, shipping and handling costs were $1,606,622 and $2,113,300, respectively. General and Administrative Expenses General and administrative expenses consist primarily of compensation and benefits costs, professional services and information technology. General and administrative expenses also include payment processing fees, website costs and warehousing fees. Advertising Costs Advertising costs are included in sales and marketing expenses and are expensed as incurred. Advertising costs were $1,841,677 and $1,760,166 for the years ended December 31, 2023 and 2022 respectively. Research and Development Costs Costs incurred in the research and development of the Company’s products are expensed as incurred. Comprehensive Loss The Company follows FASB ASC 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Since the Company has no items of other comprehensive income, comprehensive loss is equal to net loss. Deferred Offering Costs The Company complies with the requirements of FASB ASC 340-10-S99-1 with regards to offering costs. Prior to the completion of an offering, offering costs are capitalized. The deferred offering costs are charged to additional paid-in capital or as a discount to debt, as applicable, upon the completion of an offering or to expense if the offering is not completed. As of December 31, 2023 and 2022, the Company had capitalized $1,708,147 and $1,183,350 in deferred offering costs, respectively. Deferred offering costs includes professional fees incurred including legal, accounting, underwriting and advisory in connection with the Company’s anticipated equity offering. As of December 31, 2023, management assessed the recoverability of the capitalized deferred offering costs. Of the $1,708,147 in deferred offering costs, $1,183,350 pertain to costs incurred in 202 2 1 Accounting for Preferred Stock ASC 480, Distinguishing Liabilities from Equity, includes standards for how an issuer of equity Management is required to determine the presentation for the preferred stock as a result of the redemption and conversion provisions, among other provisions in the agreement. Specifically, management is required to determine whether the embedded conversion feature in the preferred stock is clearly and closely related to the host instrument, and whether the bifurcation of the conversion feature is required and whether the conversion feature should be accounted for as a derivative instrument. If the host instrument and conversion feature are determined to be clearly and closely related (both more akin to equity), derivative liability accounting under ASC 815, Derivatives and Hedging , is not required. Management determined that the host contract of the preferred stock is more akin to equity, and accordingly, liability accounting is not required by the Company. The Company has presented preferred stock within stockholders’ deficit. Costs incurred directly for the issuance of the preferred stock are recorded as a reduction of gross proceeds received by the Company, resulting in a discount to the preferred stock. The discount is not amortized. Warrant Valuation Stock warrant valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards is estimated using the Black-Scholes option model with a volatility figure derived from an index of historical stock prices for comparable entities. The Company accounts for the expected life based on the contractual life of the warrants. The risk-free interest rate is determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the warrants. Net Loss per Share Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive as of December 31, 2023, diluted net loss per share is the same as basic net loss per share. Potentially dilutive items outstanding as of December 31, 2023 and 2022 are as follows: December 31, 2023 2022 Convertible note payable 240,135 240,135 Convertible note payable, related party (1) 311,859 172,727 Preferred stock (convertible to common stock) 1,752,371 1,752,371 Common stock warrants 6,032,008 3,279,508 Total potentially dilutive securities 8,336,373 5,444,741 (1) The potentially dilutive shares from the $1,100,000 convertible note, related party, and accrued interest of $69,473 was estimated using a conversion price of $3.75, which is 100% of the anticipated initial public offering price per share. In 2022, the potentially dilutive shares from the $950,000 note was estimated using a conversion price of $5.50, which was 110% of the anticipated initial public offering price of $5.00 as of December 31, 2022. Leases In accordance with FASB ASC 842, Leases , upon lease commencement the Company recognizes a right-of-use asset and a corresponding lease liability measured at the present value of the fixed future minimum lease payments. The Company calculates operating lease liabilities with a risk-free discount rate, using a comparable period with the lease term. Lease and non-lease components are combined for all leases. Lease payments for leases with a term of 12 months or less are expensed on a straight-line basis over the term of the lease with no lease asset or liability recognized. Income Taxes Prior to the Merger in 2022, the Company was a limited liability company. Accordingly, under the Internal Revenue Code, all taxable income or loss flowed through to the members. Therefore, no provision for income tax had been recorded in the statements. Net loss from the Company were reported and taxed to the members on their individual tax returns. Upon the Merger in 2022, the Company is a corporation. The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes . Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is unlikely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. Recently Issued and Adopted Accounting Pronouncements In June 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances. |
