LIABILITIES AND DEBT
|3 Months Ended|
Mar. 31, 2023
|LIABILITIES AND DEBT|
|LIABILITIES AND DEBT||
NOTE 6: LIABILITIES AND DEBT
Accrued Expenses and Other Liabilities
The Company accrued expenses and other liabilities line in the consolidated balance sheets is comprised of the following as of March 31, 2023 and December 31,2022:
As of March 31, 2023, payroll liabilities included an aggregate of $1,249,060 in payroll taxes due to remit to federal and state authorities. Of this amount, $581,412 pertained to DBG and $667,648 pertained to Bailey44. The amounts are subject to further penalties and interest.
As of March 31, 2023 and December 31, 2022, accrued expenses included $535,000 in accrued common stock issuances pursuant to an advisory agreement for services performed in 2022. The 5,000 shares of common stock owed per the agreement are expected to be issued in the second quarter of 2023.
2020 Regulation D Offering
As of March 31, 2023 and December 31, 2022, there was $100,000 remaining in outstanding principal that was not converted into equity.
Convertible Promissory Note
On December 29, 2022, the Company and various purchasers executed a Securities Purchase Agreement (“December Notes”) whereby the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $4,000,000, consisting of original issue discount of $800,000. The Company received net proceeds of $3,000,000. The December Notes were due and payable on February 15, 2023. If the December Notes are not repaid in full by the maturity date or if any other event of default occurs, (1) the face value of the December Notes will be automatically increased to 120%; (2) the Notes will begin generating an annual interest rate of 20%, which will be paid in cash monthly until the default is cured; and (3) if such default continues for 14 or more calendar days, at the investors’ discretion, the December Notes shall become convertible at the option of the investors into shares of the Company’s common stock at a conversion price equal to the closing price of the Company’s common stock on the date of the note conversion.
In connection with the December Notes, the Company issued to the investors an aggregate of 469,480 warrants to purchase common stock at an exercise price equal to $4.26, and 60,000 shares of common stock. The Company recognized $428,200 as a debt discount for the fair value of the warrants and common shares using the Black-Scholes option model, resulting in a total debt discount of $1,378,200.
In February 2023, the principal of $4,000,000 of the December Notes were fully repaid. The Company amortized $689,100 of debt discount up until the repayment date, and then recognized a loss on extinguishment of debt of $689,100 which is included in other non-operating income (expenses) on the consolidated statements of operations.
The following is a summary of the convertible notes for the three months ended March 31, 2023:
During the three months ended March 31, 2022, the Company converted an aggregate of $888,930 in outstanding principal into 8,739 shares of common stock.
During the three months ended March 31, 2023 and 2022, the Company amortized $689,100 and $1,058,583, respectively of debt discount to interest expense pertaining to convertible notes.
In January 2023, the Company issued 110,000 shares of common stock at a fair value of $322,300 to a former convertible noteholder pursuant to default provisions. The amount was included in interest expense in the consolidated statements of operations.
Loan Payable — PPP and SBA Loan
As of March 31, 2023 and December 31, 2022, H&J had an outstanding loan under the EIDL program of $146,707 and $147,438, respectively.
As of both March 31, 2023 and December 31, 2022, Bailey had an outstanding PPP Loan balance of $933,295 and matures in 2026.
In May 2021, H&J entered into a loan payable with a bank and received proceeds of $75,000. The line bears interest at 7.76% and matures in December 2025. As of both March 31, 2023 and December 31, 2022, the outstanding balance was $73,187.
Note Payable – Related Party
As of both March 31, 2023 and December 31, 2022, H&J had an outstanding note payable of $129,489 owned by the H&J Seller. The note matured in July 2022, is technically in default and bears interest at 12% per annum.
In 2022, H&J entered into merchant advance loans for proceeds of $147,267. The loan bears interest at 9.9% per annum. As of December 31, 2022, the outstanding principal of the loans was $63,433, which was fully repaid in 2023.
In 2022, the Company obtained several merchant advances. These advances are, for the most part, secured by expected future sales transactions of the Company with expected payments on a weekly basis. As of December 31, 2022, $896,334 remained outstanding. During the three months ended March 31, 2023, the Company received additional proceeds totaling $1,040,148 and made repayments totaling $1,613,457. As of March 31, 2023, the remaining principal outstanding was $323,025. In connection with these advances, the Company granted 152,380 warrants to purchase common stock at an exercise price of $5.25 to the lender in connection with its merchant advances.
In 2023, the Company obtained merchant advances totaling $502,051 from Shopify Capital, all of which was outstanding as of March 31, 2023. These advances are, for the most part, secured by expected future sales transactions of the Company with expected payments on a daily basis.
Promissory Note Payable
As of March 31, 2023 and December 31, 2022, the outstanding principal on the note to the sellers of Bailey was $3,500,000. The maturity date was December 31, 2022. As of the date of these financial statements, the parties are undergoing an extension of the maturity date, but is in technical default. Interest expense was $105,000 and $105,000 for the three months ended March 31, 2023 and 2022, respectively, which was accrued and unpaid as of March 31, 2023.
The Company issued a promissory note in the principal amount of $5,500,000 to the Sundry Holders pursuant to the Sundry acquisition. The note bears interest at 8% per annum and matures on February 15, 2023. In February 2023, the parties verbally agreed to extend the maturity date to December 31, 2023. As of March 31, 2023 and December 31, 2022, the outstanding principal was $5,500,000. Interest expense was $110,000 for the three months ended March 31, 2023, which was accrued and unpaid as of March 31, 2023.
In March 2023, the Company and various purchasers executed a Securities Purchase Agreement (“March 2023 Notes”) whereby the investors purchased from the Company promissory notes in the aggregate principal amount of $2,458,750, consisting of original issue discount of $408,750. The Company received net proceeds of $1,850,000 after additional fees. The March 2023 Notes are due and payable on September 30, 2023 (the “Maturity Date”). The Company will also have the option to prepay the Notes with no penalties at any time prior to the Maturity Date. If the Company completes a debt or equity financing of less than $7,500,000, the Company is required to repay 50% of the remaining balance of the March 2023 Notes. Following such 50% repayment, the Company must also use any proceeds from any subsequent debt or equity financing to repay the March 2023 Notes. Upon the closing of any debt or equity financing of $7,500,000 or greater, the Company is required to repay 100% of the Notes with no penalties. There is no additional interest after the 20% original interest discount. The Company recognized a debt discount of $608,750, of which $64,831 was amortized through March 31, 2023.
The following is a summary of promissory notes payable, net:
No definition available.
The entire disclosure for information about Liabilities and Debt.
No definition available.