Commitments and Contingencies
|6 Months Ended|
Jun. 30, 2019
|Commitments and Contingencies|
|Commitments and Contingencies||
Note 8 — Commitments and Contingencies
The Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods expiring through 2021. In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the consolidated balance sheets.
As of June 30, 2019, the Company has operating lease liabilities of $813,499 and right of use assets for operating leases of $802,223. During the three and six months ended June 30, 2019, operating cash outflows relating to operating lease liabilities was $73,473 and $144,132, respectively, and the expense for right of use assets for operating leases was $77,704 and $155,408 , respectively. As of June 30, 2019, the Company’s operating leases had a weighted-average remaining term of 3.7 years and weighted-average discount rate of 4.5%. Excluded from the measurement of operating lease liabilities and operating lease right-of-use assets were certain office, warehouse and distribution contracts that either qualify for the short-term lease recognition exception.
On August 8, 2016, SRM entered into a lease for office space in Kowloon, Hong Kong. On August 8, 2018, SRM extended its lease for office space in Kowloon, Hong Kong so that the lease will now expire on August 7, 2020. Monthly lease payments are approximately $6,400 for a total of approximately $154,000 for the total term of the lease.
Total rent expense for the three and six months ended June 30, 2019 was $138,070 and $282,503, respectively. Total rent expense for the three and six months ended June 30, 2018 was $82,510 and $146,536, respectively. Rent expense is included in general and administrative expense on the Company’s condensed consolidated statements of operations.
The following is a reconciliation of future undiscounted cash flows to the operating liabilities, and the related right of use assets, included in our Condensed Consolidated Balance Sheets as of June 30, 2019:
Fergco leases a portion of the building located in Washington, New Jersey that it owns under a month to month lease. Rental income related to the leased space for both the three months ended June 30, 2019 and 2018 was $25,704, respectively. Rental income related to the leased space for both the six months ended June 30, 2019 and 2018 was $51,407, respectively. Rental income is included in other income on the consolidated statements of operations.
The Company is involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including claims for punitive damages, which are not covered by insurance. For certain pending matters, accruals have not been established because such matters have not progressed sufficiently through discovery, and/or development of important factual information and legal information is insufficient to enable the Company to estimate a range of possible loss, if any. An adverse determination in one or more of these pending matters could have an adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.
On July 15, 2019, the Company received correspondence from the staff of the Arkansas Securities Commissioner in connection with the state’s notice filing requirements for offerings exempt under Tier 2 of Regulation A, Section 18(b)(3) of the Security Act, such as the Company’s Form 1-A. Pursuant to Arkansas’ securities laws, a filer must submit a notice filing with a requisite fee prior to any offers and sales of securities made within the state. The staff of the Arkansas Securities Commissioner’s correspondence alleged a violation of these Arkansas laws in connection with the Company’s initial public offering on Form 1-A. The Company has responded to the correspondence, and is presently in discussions with the Arkansas Securities Department to enter into a consent order whereby the Company will neither admit nor deny the allegations levied by the staff of the Arkansas Securities Commissioner.
The entire disclosure for commitments and contingencies.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef