LIABILITIES AND DEBT
|6 Months Ended|
Jun. 30, 2022
|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 June 30, 2022 and December 31,2021:
Certain liabilities including sales tax and payroll related liabilities may be subject to interest and penalties. As of June 30, 2022 and December 31, 2021, payroll related labilities included approximately $262,000 in estimated penalties associated with accrued payroll taxes.
In February 2022, the Company received $237,500 in proceeds, including loan fees of $12,500, from the existing venture debt lender under the same terms as the existing facility. As of June 30, 2022 and December 31, 2021, the gross loan balance was $6,251,755 and $6,001,755, respectively.
As of June 30, 2022, all payments have been deferred to the maturity date of the loan, December 31, 2022. As of the filing date, of these financial statements, all defaults were cured and there are no additional expected defaults.
For the six months ended June 30, 2022 and 2021, $12,500 and $147,389 of loan fees and discounts from warrants were amortized to interest expense, leaving unamortized balance of $0 as of June 30, 2022.
Interest expense and effective interest rate on this loan for the three months ended June 30, 2022 and 2021, was $191,152 and $202,041, and 12.2% and 13.4% all respectively. Interest expense was $382,304 and $402,027 for the six months ended June 30, 2022 and 2021, respectively.
2020 Regulation D Offering
As of June 30, 2022 and December 31, 2021, there was $100,000 remaining in outstanding principal that was not converted into equity.
Convertible Promissory Note
During the six months ended June 30, 2022, the Company converted an aggregate of $1,432,979 in outstanding principal into 2,482,698 shares of common stock.
On April 8, 2022, the Company and various purchasers executed a Securities Purchase Agreement whereby the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $3,068,750, consisting of original issue discount of $613,750. The Company received net proceeds of $2,313,750 after the original issue discount and fees, resulting in a debt discount of $755,000. Upon the Company’s public offering in May (see below), the Company repaid $3,068,750 to the investors and the debt discount was fully amortized.
In connection with the April notes, the Company issued an aggregate of 1,257,684 warrants to purchase common stock at an exercise price of $1.22 per share. The Company recognized $98,241 as a debt discount for the fair value of the warrants using the Black-Scholes option model, which was fully amortized upon the notes’ repayment in May.
During the three and six months ended June 30, 2022, the Company amortized $1,724,591 and $2,783,174 of debt discount to interest expense.
As of June 30, 2022 and December 31, 2021, the outstanding principal was $8,032,021 and $9,465,000, respectively. The balance of the convertible notes, after unamortized debt discount of $2,904,803, was $5,671,267 as of June 30, 2022.
Loan Payable — PPP and SBA Loan
As of June 30, 2022 and December 31, 2021, H&J had an outstanding loan under the EIDL program of $148,900.
In April 2022, Bailey received notification of full forgiveness of its 2nd PPP Loan totaling $1,347,050 and partial forgiveness of its 1st PPP Loan totaling $413,705.
Note Payable – Related Party
As of June 30, 2022, H&J had an outstanding note payable of $227,637 owned by the H&J Seller. The note matures on September 10, 2022 and bears interest at 12% per annum.
Promissory Note Payable
As of June 30, 2022 and December 31, 2021, the outstanding principal on the note to the sellers of Bailey was $3,500,000. As of June 30, 2022, the lender agreed to defer all payments to the maturity date of the loan, December 31, 2022.
Interest expense was $105,000 and $120,000 for the three months ended June 30, 2022 and 2021 and $210,000 and $284,000 for the six months ended June 30, 2022 and 2021, all respectively, which was accrued and unpaid as of June 30, 2022.
Merchant Cash Advances
In March 2022, the Company obtained two short-term merchant advances, which totaled $500,000 and $250,000, respectively, from a single lender to fund operations. These advances included origination fees totaling $22,500 for net proceeds of $727,500. These advances are, for the most part, secured by expected future sales transactions of the Company with expected payments on a weekly basis The Company will repay an aggregate of $1,065,000 to the lender. These advances contain various financial and non-financial covenants. As of June 30, 2022, $255,219 remained outstanding. As of the date of these financial statements, the Company was in compliance with these covenants.