Note 7 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note 7 – Commitments and Contingencies

Commitments – The Company’s obligations include leases for office space under non-cancelable operating leases, manufacturing processing and utility servicing that expire at various dates through April 1, 2027.

Leases:

We have various noncancellable lease agreements for office and warehouse space, as well as office equipment, with original remaining lease terms of two years to five years, some of which include an option to extend the lease term for up to five years. Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments. The Company’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants.

Weighted-average remaining lease term (in years) and discount rate related to operating leases were as follows:

	As of December 31,
	2022			2021
Weighted-average remaining lease term		3.61			4.51
Weighted-average discount rate		6.2	%		6.2	%

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments.

Costs related to lease obligations for 2022 and 2021 were as follows:

	For the Twelve Months Ended December 31,
	2022		2021
Operating lease cost	$	1,752	$	1,779

Supplemental cash flow information and non-cash activity relating to operating leases are as follows:

	For the Twelve Months Ended December 31,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities	$	1,764	$	1,753

As of December 31, 2022, future minimum payments due under lease obligations for five years were as follows:

Operating Lease Obligations	As of December 31, 2022
2023	$	1,802
2024		1,511
2025		1,210
2026		1,239
2027 and beyond		337
Total lease payments	$	6,099
Less: Imputed interest		(389	)
Present value of lease liabilities	$	5,710

As of December 31, 2022, future minimum payments due under manufacturing and service obligations for five years were as follows:

Manufacturing and Servicing Obligations	December 31, 2022
2023	$	3,288
2024		4,783
2025 and beyond		712
Total Manufacturing and Servicing Obligations	$	8,783

Certain of the Company’s executives are covered by employment contracts requiring the Company to pay severance in the event of certain terminations.

Legal Obligations:

We are currently involved in various claims and legal actions that arise in the ordinary course of our business, including claims resulting from employment related matters. None of these claims or proceedings, most of which are covered by insurance, are expected to have a material adverse effect on our business, financial condition, results of operations or cash flows. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims could materially and adversely affect our business, financial condition, results of operations or cash flows. 

On April 8, 2022, Phillips Feed Service, Inc., d/b/a Phillips Feed And Pet Supply ("Phillips") filed a complaint against the Company in U.S. District Court for the Eastern District of Pennsylvania (Allentown Division) for damages allegedly sustained as a result of the termination of the Company's distribution arrangement with Phillips, a former distributor of Freshpet products. Phillips asserts a claim for breach of contract, and seeks monetary damages in excess of $8,300 based on a claimed "termination payment" under a 2018 "Letter Of Intent" and additional damages based on a claim for improper notice of termination. Phillips also claims a right of setoff with respect to monies owed by Phillips to the Company.

On July 5, 2022, the Company answered the complaint disputing the claimed damages, assertions of breach of contract, and the right of offset. In addition, the Company counterclaimed breach of contract for amounts owed to Freshpet earned while Phillips served as an authorized distributor of Freshpet product.

On November 14, 2022, the discovery deadline was extended until March 31, 2023. 

As of December 31, 2022, due to the claims and counterclaims between the parties, the Company reclassified the amounts due from Phillips of $8,971 to other noncurrent assets.

Based on information currently available and advice of counsel, we do not believe that the outcome of any of this matter is likely to have a material adverse effect on our business, financial condition, results of operations or liquidity. However, in the event of unexpected further developments, it is possible that the ultimate resolution of this matter, if unfavorable, may be materially adverse to our business, financial condition, results of operations or liquidity. Legal costs such as outside counsel fees and expenses are charged to selling, general and administrative expenses in the period incurred.