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Commitments and contingencies
 6 Months Ended
Dec. 31, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and contingencies

Note 14 - Commitments and contingencies

 

Lease commitment

 

The Company has adopted ASC842 since its inception date, April 11, 2018. The Company has entered into a lease agreement for office and warehouse space with a lease period from December 1, 2018 until December 31, 2020. On August 24, 2020, the Company negotiated for new terms to extend the lease. As a result, the lease term was amended and extended through December 31, 2023.

 

On September 1, 2020, in addition to the primary fulfillment center, the Company leased a second fulfillment center in City of Industry, California. The base rental fee is $27,921 to $29,910 per month through October 31, 2023.

 

Total commitment for the full term of these leases is $2,346,200. $1,473,397 and $1,819,421 of operating lease right-of-use assets and $1,544,049 and $1,901,496 of operating lease liabilities were reflected on the December 31, 2021 and June 30, 2021 financial statements, respectively.

  

Three Months Ended December 31, 2021 and 2020:  

          
Lease cost  12/31/2021   12/31/2020 
Operating lease cost (included in selling and fulfillment expenses in the Company's statement of operations)  $205,517   $213,423 
Other information          
Cash paid for amounts included in the measurement of lease liabilities  $212,694   $179,785 
Remaining term in years   1.75    2.75 
Average discount rate - operating leases   8%    8% 

 

Six Months Ended December 31, 2021 and 2020:

 

Lease cost  12/31/2021   12/31/2020 
Operating lease cost (included in selling and fulfillment expenses in the Company's statement of operations)  $411,034   $369,959 
Other information          
Cash paid for amounts included in the measurement of lease liabilities  $422,457   $342,392 
Remaining term in years   1.75    2.75 
Average discount rate - operating leases   8%    8% 

 

The supplemental balance sheet information related to leases for the period is as follows:

 

          
Operating leases  12/31/2021   6/30/2021 
Right of use asset - non-current  $1,473,397   $1,819,421 
           
Lease Liability - current   766,759    731,944 
Lease Liability - non-current   777,290    1,169,552 
Total operating lease liabilities  $1,544,049   $1,901,496 

 

 

Maturities of the Company’s lease liabilities are as follows: 

     
   Operating 
   Lease 
For years ending June 30:     
2022  $425,388 
2023   859,881 
2024   371,640 
Less: Imputed interest/present value discount   (112,860)
Present value of lease liabilities  $1,544,049 

 

On July 28, 2021, the Company entered into a Lease agreement (the “Lease Agreement”) with 9th & Vineyard, LLC, a Delaware limited liability company (the “Landlord”), to lease from the Landlord approximately 99,347 square feet of space located at 8798 9th Street, Rancho Cucamonga, California (the “Premises”). The Company expects to use the Premises for the storage and distribution of hydroponic equipment, lighting and garden accessories, home products, pet products, other consumer products and other ancillary uses. The term of the Lease Agreement is for 62 months, commencing on the date on which the Landlord completes certain proscribed improvements on the property (the “Rent Commencement Date”). The Lease Agreement does not provide for an option to renew.

 

Under the terms of the Lease Agreement, the Company paid an initial security deposit of $228,498.10, which was included in other non-current assets, and, upon the Rent Commencement Date (which shall be the date on which the Premises is delivered to the Company following completion of certain improvements to be made by the Landlord, with such delivery to be on or before February 28, 2022), the Company’s initial monthly base rent (the “Base Rent”) will be approximately $114,249.05 and will increase on each anniversary of the Rent Commencement Date as follows: 

   
Months Price Per Square Foot of the Premises Per Month Monthly Base Rent
1-12 $1.15 per square foot per month $114,249.05
13-24 $1.19 per square foot per month $118,222.93
25-36 $1.23 per square foot per month $122,196.81
37-48 $1.27 per square foot per month $126,170.69
49-60 $1.31 per square foot per month $130,144.57
61-62 $1.36 per square foot per month $135,111.92

 

In addition, the Company will be responsible for its pro rata share of certain costs, including utility costs, insurance and common area costs, as further detailed in the Lease Agreement. Following the Rent Commencement Date, the first two months of the Base Rent will be abated.

 

During the six months ended December 31, 2021, the Company had not paid any rental fees as the Premises has not been delivered.

 

Contingencies

 

Except as disclosed below, the Company is not currently a party to any material legal proceedings, investigation or claims. However, the Company may, from time to time, be involved in legal matters arising in the ordinary course of its business. While the Company is not presently subject to any material legal proceedings, other than the proceeding detailed below, there can be no assurance that such matters will not arise in the future or that any such matters in which the Company is involved, or which may arise in the ordinary course of the Company’s business, will not at some point proceed to litigation or that such litigation will not have a material adverse effect on the business, financial condition or results of operations of the Company.

Pursuant to an engagement agreement, dated and effective August 31, 2020 (the “Engagement Agreement”), with Boustead Securities LLC (“Boustead”), the Company engaged Boustead to act as its exclusive placement agent for private placements of its securities and as a potential underwriter for its initial public offering. On February 28, 2021, the Company informed Boustead that it was terminating the Engagement Agreement and any continuing obligations the Company may have had under its terms. On April 15, 2021, the Company provided formal written notice to Boustead of its termination of the Engagement Agreement and all obligations thereunder, effective immediately. On April 30, 2021, Boustead filed a statement of claim with the Financial Institute Regulatory Authority, or FINRA, demanding to arbitrate the dispute, and is seeking, among other things, monetary damages against the Company and D.A. Davidson & Co. (who acted as underwriter in the Company’s IPO). The FINRA arbitration has been scheduled for June 20, 2022. The Company has agreed to indemnify D.A. Davidson & Co. and the other underwriters against any liability or expense they may incur or be subject to arising out of the Boustead dispute. Additionally, Chenlong Tan, the Company’s Chairman, President and Chief Executive Officer and a beneficial owner more than 5% of the Company’s Common Stock, has agreed to reimburse the Company for any judgments, fines and amounts paid or actually incurred by the Company or an indemnitee in connection with such legal action or in connection with any settlement agreement entered into by the Company or an indemnitee up to a maximum of $3.5 million in the aggregate, with the sole source of funding of such reimbursement to come from sales of shares then owned by Mr. Tan.

 

In an effort to contain or slow the COVID-19 outbreak, authorities across the world have implemented various measures, some of which have been subsequently rescinded or modified, including travel bans, stay-at-home orders and shutdowns of certain businesses. The Company anticipates that these actions and the global health crisis caused by the COVID-19 outbreak, including any resurgences, will continue to negatively impact global economic activity. While the COVID-19 outbreak has not had a material adverse impact on the Company’s operations to date, it is difficult to predict all of the positive or negative impacts the COVID-19 outbreak will have on the Company’s business.