SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
| | |
Fair
Value Measurements | |
| | |
as
of December 31, 2023 Using: | |
| | |
Level 1 | | |
Level
2 | | |
Level
3 | | |
Total | |
| Liabilities: | |
| | | |
| | | |
| | | |
| | |
| Contingent
consideration | |
| — | | |
| — | | |
| — | | |
| — | |
| | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| | |
Fair Value
Measurements | |
| | |
as
of December 31, 2022 Using: | |
| | |
Level 1 | | |
Level
2 | | |
Level
3 | | |
Total | |
| Liabilities: | |
| | |
| | |
| | |
| |
| Contingent
consideration | |
| — | | |
| — | | |
| 12,098,475 | | |
| 12,098,475 | |
| | |
$ | — | | |
$ | — | | |
$ | 12,098,475 | | |
$ | 12,098,475 | |
Contingent
Consideration
The
Company records a contingent consideration liability relating to stock price guarantees included in its acquisition and consulting agreements.
The estimated fair value of the contingent consideration is recorded using significant unobservable measures and other fair value inputs
and is therefore classified as a Level 3 financial instrument.
The
Company estimates and records the acquisition date fair value of contingent consideration as part of purchase price consideration for
acquisitions. Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration and recognizes
any change in fair in the consolidated statement of operations. The estimate of the fair value of contingent consideration requires very
subjective assumptions to be made of future operating results, discount rates and probabilities assigned to various potential operating
result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration
and, therefore, materially affect the Company’s future financial results. The contingent consideration liability is to be settled
with the issuance of shares of common stock once contingent provisions set forth in respective acquisition agreements have been achieved.
Upon achievement of contingent provisions, respective liabilities are relieved and offset by increases to common stock and additional
paid-in capital in the stockholders’ equity section of the Company’s consolidated balance sheets.
The
fair value of the contingent consideration liability related to the Company’s business combinations is valued using the Monte Carlo
simulation model. The Monte Carlo simulation inputs include the stock price, volatility of common stock, timing of settlement and resale
restrictions and limits. The fair value of the contingent consideration is then calculated based on guaranteed equity values at settlement
as defined in the acquisition agreements. Changes in contingent consideration liability during the years ended December 31, 2023 and
2022 are as follows:
SCHEDULE
OF CHANGES IN ACQUISITION-RELATED CONTINGENT CONSIDERATION
| | |
Contingent | |
| | |
Consideration | |
| | |
Liability | |
| Balance as of December 31, 2022 | |
$ | 12,098,475 | |
| Norwest Waiver - settlement of Bailey44 contingent
consideration | |
| (10,698,475 | ) |
| H&J Settlement Agreement
- settlement of H&J contingent consideration | |
| (1,400,000 | ) |
| Outstanding as of December 31, 2023 | |
$ | — | |
Norwest
Waiver
On
June 21, 2023, the Company, on the one hand, and Norwest Venture Partners XI, LP and Norwest Venture Partners XII, LP (together, the
“Norwest Investors”), on the other hand, executed a Waiver and Amendment (the “Norwest Amendment”) whereby the
Norwest Investors agreed to waive and terminate certain true up rights of the Norwest Investors under the Agreement and Plan of Merger,
dated February 12, 2020 (the “Bailey Merger Agreement”), among the Company, Bailey 44, LLC, Norwest Venture Partners XI,
LP, and Norwest Venture Partners XII, LP and Denim.LA Acquisition Corp. This transaction is known as the “Norwest Waiver”.
As a result of the Norwest Waiver, the Company recorded a fair value of $0 pertaining to the contingent consideration contemplated under
the Bailey Merger Agreement, resulting in a gain in the change in fair value of contingent consideration of $10,698,475.
H&J
Settlement Agreement
On
June 21, 2023, the Company and the former owners of H&J executed a Settlement Agreement and Release (the “Settlement Agreement”)
whereby the Company transferred 100% of its membership interests in H&J to D. Jones (the “H&J Seller”). Pursuant
to the Settlement Agreement, the Company agreed to make an aggregate cash payment of $229,000 to the H&J Seller and the Company issued
1,952,580 shares of common stock to the H&J Seller. In connection with the Settlement Agreement, the parties agreed that no further
shares were owed to the H&J Seller resulting from the stock price guarantee pursuant to the May 2021 H&J acquisition. As a result,
the Company recorded a gain in the change in fair value of contingent consideration of $1,400,000. The change in fair value was included
in loss from discontinued operations in the consolidated statements of operations. See Note 4 for further detail.
The
detail of contingent consideration by company is as follows:
SCHEDULE OF CONTINGENT CONSIDERATION
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Bailey | |
$ | — | | |
| 10,698,475 | |
| Harper & Jones | |
| — | | |
| 1,400,000 | |
| | |
$ | — | | |
$ | 12,098,475 | |
Derivative
Liability
In
connection with the Company’s convertible notes, the Company recorded a derivative liability (see Note 7). The estimated fair value
of the derivative liability is recorded using significant unobservable measures and other fair value inputs and is therefore classified
as a Level 3 financial instrument.
The
fair value of the derivative liability is valued using a multinomial lattice model. The multinomial lattice inputs include the underlying
stock price, volatility of common stock and remaining term of the convertible note. Changes in derivative liability during the years
ended December 31, 2023 and 2022 are as follows:
SCHEDULE OF CHANGES IN DERIVATIVE LIABILITY
| | |
Derivative | |
| | |
Liability | |
| Outstanding as of December 31, 2021 | |
$ | 2,294,720 | |
| Initial fair value on issuance of convertible
note | |
| 559,957 | |
| Conversion of underlying
notes into common stock | |
| (1,500,243 | ) |
| Change in fair value | |
| (1,354,434 | ) |
| Outstanding as of December 31, 2022 | |
| — | |
| Initial fair value on issuance of convertible
note | |
| — | |
| Change in fair value | |
| — | |
| Outstanding as of December 31, 2023 | |
$ | — | |
During
the year ended December 31, 2022, the Company utilized the following inputs for the fair value of the derivative liability: volatility
of 70.9% - 96.7%, risk-free rate of 2.71% - 3.74%, and remaining term ranging from .08 years - 0.62 years.
The
change in fair value of the derivative liability is included in other non-operating income (expense), net in the consolidated statements
of operations.
Accounts
Receivable and Expected Credit Loss
We
carry our accounts receivable at invoiced amounts less allowances for customer credit losses and other deductions to present the net
amount expected to be collected on the financial asset. All receivables are expected to be collected within one year of the consolidated
balance sheet. We do not accrue interest on the trade receivables. Management evaluates the ability to collect accounts receivable based
on a combination of factors. Receivables are determined to be past due based on individual credit terms. An allowance for credit losses
is maintained based on the length of time receivables are past due, historical collections, or the status of a customer’s financial
position. Receivables are written off in the year deemed uncollectible after efforts to collect the receivables have proven unsuccessful.
We do not have any off-balance sheet credit exposure related to our customers.
We
periodically review accounts receivable, estimate an allowance for bad debts, and simultaneously record the appropriate expense in the
statement of operations. Such estimates are based on general economic conditions, the financial conditions of customers, and the amount
and age of past due accounts. Past due accounts are written off against that allowance only after all collection attempts have been exhausted
and the prospects for recovery are remote. Recoveries of accounts receivable previously written off are recorded as income when received.
The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes
to mitigate credit risk.
As
of December 31, 2023, the Company determined an allowance for credit losses of $41,854.
Inventory
Inventory
is stated at the lower of cost or net realizable value and accounted for using the weighted average cost method for DSTLD and H&J
and first-in, first-out method for Bailey, Stateside and Sundry. The inventory balances as of December 31, 2023 and 2022 consist substantially
of finished good products purchased or produced for resale, as well as any raw materials the Company purchased to modify the products
and work in progress.
Inventory
consisted of the following:
SCHEDULE OF INVENTORY
| | |
2023 | | |
2022 | |
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Raw materials | |
$ | 695,580 | | |
$ | 1,611,134 | |
| Work in process | |
| 585,387 | | |
| 888,643 | |
| Finished goods | |
| 3,568,633 | | |
| 2,622,787 | |
| Inventory | |
$ | 4,849,600 | | |
$ | 5,122,564 | |
Property,
Equipment, and Software
Property,
equipment, and software are recorded at cost. Depreciation/amortization is recorded for property, equipment, and software using the straight-line
method over the estimated useful lives of assets. The Company reviews the recoverability of all long-lived assets, including the related
useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable.
The balances at December 31, 2023 and 2022 consist of software with three (3) year lives, property and equipment with three (3) to ten
(10) year lives, and leasehold improvements which are depreciated over the shorter of the lease life or expected life.
Depreciation
and amortization charges on property, equipment, and software are included in general and administrative expenses and amounted to $50,823
and $75,126 for the years ended December 31, 2023 and 2022, respectively.
Business
Combinations
The
Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price
of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated
fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement
period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined,
to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business,
the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that
are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.
Goodwill
represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets
acquired and liabilities assumed in a business combination.
Intangible
assets are established with business combinations and consist of brand names and customer relationships. Intangible assets with finite
lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using
the straight- line method. The estimated useful lives of amortizable intangible assets are as follows:
SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS ACQUIRED AS PART OF BUSINESS COMBINATION
| Customer relationships | |
3 years |
Impairment
Long-Lived
Assets
The
Company reviews its long-lived assets (property and equipment and amortizable intangible assets) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than
the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its
fair value.
Goodwill
Goodwill
and identifiable intangible assets that have indefinite useful lives are not amortized, but instead are tested annually for impairment
and upon the occurrence of certain events or substantive changes in circumstances. The annual goodwill impairment test allows for the
option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units
or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment
test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less
than its carrying value, the quantitative impairment test is required.
The
quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and
its fair value, but not to exceed the carrying amount of goodwill. It is our practice, at a minimum, to perform a qualitative or quantitative
goodwill impairment test in the fourth quarter every year.
Indefinite-Lived
Intangible Assets
Indefinite-lived
intangible assets established in connection with business combinations consist of the brand name. The impairment test for identifiable
indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value.
If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
Annual
Impairment Tests
At
December 31, 2023, management determined that certain events and circumstances occurred that indicated that the carrying value of the
Company’s brand name assets, and the carrying amount of the reporting units, pertaining to Bailey44, Stateside and Sundry may not
be recoverable. The qualitative assessment was primarily due to reduced or stagnant revenues of both entities as compared to the Company’s
initial projections at the time of each respective acquisition, as well as the entities’ liabilities in excess of assets. Upon
the quantitative analysis performed, the Company determined that the fair value of the intangible assets and reporting units were greater
than the respective carrying values. As such, no impairment was recorded. The Company utilized the enterprise value approach in the impairment
tests of each reporting unit in 2023. As of December 31, 2023, the Bailey44 reporting unit, which has an attributable goodwill balance
of $3,158,123, has a negative carrying amount.
At
December 31, 2022, management determined that certain events and circumstances occurred that indicated that the carrying value of the
Company’s brand name assets, and the carrying amount of the reporting units, pertaining to Bailey44 and Harper & Jones may
not be recoverable. The qualitative assessment was primarily due to reduced or stagnant revenues of both entities as compared to the
Company’s initial projections at the time of each respective acquisition, as well as the entities’ liabilities in excess
of assets. As such, the Company compared the estimated fair value of the brand names with its carrying value and recorded an impairment
loss of $3,667,000 in the consolidated statements of operations. Additionally, the Company compared the fair value of the reporting units
to the carrying amounts and recorded an impairment loss of $11,872,332 pertaining to goodwill in the consolidated statements of operations.
The
following is a summary of goodwill and intangible impairment recorded pertaining to each entity:
SCHEDULE OF GOODWILL AND INTANGIBLE IMPAIRMENT
| | |
Year Ended
December 31, | |
| | |
2023 | | |
2022 | |
| Bailey brand name | |
$ | — | | |
$ | 2,182,000 | |
| Harper & Jones brand
name | |
| — | | |
| 1,485,000 | |
| Total impairment of intangibles | |
| — | | |
| 3,667,000 | |
| Bailey goodwill | |
| — | | |
| 3,321,095 | |
| Harper & Jones goodwill | |
| — | | |
| 8,551,237 | |
| Total
impairment of goodwill | |
| — | | |
| 11,872,332 | |
| Total
impairment | |
$ | — | | |
$ | 15,539,332 | |
In
determining the fair value of the respective reporting units, management estimated the price that would be received to sell the reporting
unit as a whole in an orderly transaction between market participants at the measurement date. This includes reviewing market comparables
such as revenue multipliers and assigning certain assets and liabilities to the reporting units, such as the respective working capital
deficits of each entity and debt obligations that would need to be assumed by a market participant buyer in an orderly transaction. The
Company calculated the carrying amounts of each reporting unit by utilizing the entities’ assets and liabilities at December 31,
2023, including the carrying value of the identifiable intangible assets and goodwill assigned to the respective reporting units.
Convertible
Instruments
U.S.
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and
risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host
contract, the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair
value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur
and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable U.S. GAAP.
When
the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records,
when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon
the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective
conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their
stated date of redemption. The Company also records, when necessary, deemed dividends for the intrinsic value of conversion options embedded
in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction
and the effective conversion price embedded in the preferred shares.
Accounting
for Preferred Stock
ASC
480, Distinguishing Liabilities from Equity, includes standards for how an issuer of equity (including equity shares issued by consolidated
entities) classifies and measures on its balance sheet certain financial instruments with characteristics of both liabilities and equity.
Management
is required to determine the presentation for the preferred stock as a result of the redemption and conversion provisions, among other
provisions in the agreement. Specifically, management is required to determine whether the embedded conversion feature in the preferred
stock is clearly and closely related to the host instrument, and whether the bifurcation of the conversion feature is required and whether
the conversion feature should be accounted for as a derivative instrument.
If
the host instrument and conversion feature are determined to be clearly and closely related (both more akin to equity), derivative liability
accounting under ASC 815, Derivatives and Hedging, is not required. Management determined that the host contract of the preferred stock
is more akin to equity, and accordingly, liability accounting is not required by the Company. The Company has presented preferred stock
within stockholders’ equity.
Costs
incurred directly for the issuance of the preferred stock are recorded as a reduction of gross proceeds received by the Company, resulting
in a discount to the preferred stock. The discount is not amortized.
Revenue
Recognition
In
accordance with FASB ASC 606, Revenue from Contracts with Customers¸ the Company determines revenue recognition through
the following steps:
| ● | Identification
of a contract with a customer; |
| ● | Identification
of the performance obligations in the contract |
| ● | Determination
of the transaction price |
| ● | Allocation
of the transaction price to the performance obligations in the contract, and |
| ● | Recognition
of revenue when or as the performance obligations are satisfied |
Revenue
is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers
in an amount that reflects the consideration expected to be received in exchange for transferring goods or services to customers. Control
transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product, upon
shipment of product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer
acceptance.
The
Company derives its revenue primarily from wholesale and e-commerce transactions. For both channels, revenue is recognized at the time
the product is shipped to the customer, which is the point in time when control is transferred. The Company considers the sale of products
as a single performance obligation.
The
Company provides the customer the right of return on the product and revenue is adjusted based on an estimate of the expected returns
based on historical rates.
The
Company deducts discounts, sales tax, and estimated refunds to arrive at net revenue. Sales tax collected from clients is not considered
revenue and is included in accrued expenses until remitted to the taxing authorities. Shipping and handling fees charged to customers
are included in net revenues. All shipping and handling costs are accounted for as distribution expenses, and are therefore not evaluated
as a separate performance obligation.
Cost
of Revenues
Cost
of revenues consists primarily of inventory sold and related freight-in. Cost of revenues includes direct labor pertaining to our inventory
production activities and an allocation of overhead costs including rent and insurance. Cost of revenues also includes inventory write-offs
and reserves.
Shipping
and Handling
The
Company recognizes shipping and handling billed to customers as a component of net revenues, and the cost of shipping and handling as
distribution costs. Total shipping and handling billed to customers as a component of net revenues was approximately $128,000 and $72,000
for the years ended December 31, 2023 and 2022, respectively. Total shipping and handling costs included in distribution costs were approximately
$1,016,716 and $525,000, respectively.
Advertising
and Promotion
Advertising
and promotional costs are expensed as incurred. Advertising and promotional expense for the years ended December 31, 2023 and 2022 amounted
to approximately $728,000 and $1,178,000, respectively. The amounts are included in sales and marketing expense.
General
and Administrative
General
and administrative expenses consist primarily of compensation and benefits costs, professional services and information technology. General
and administrative expenses also include payment processing fees, design and warehousing fees.
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
The
Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative
instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and
requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting
for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedging relationships and the types
of relationships designated are based on the exposures hedged. At December 31, 2023 and 2022, the Company did not have any derivative
instruments that were designated as hedges.
Stock
Option and Warrant Valuation
Stock
option and warrant valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards
was estimated using the Black-Scholes option model. For warrants and stock options issued to non- employees, the Company accounts for
the expected life based on the contractual life of the warrants and stock options. For employees, the Company accounts for the expected
life of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined
in the accounting standards codification. The simplified method is based on the average of the vesting tranches and the contractual life
of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate
the fair value of options grants. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds
with a remaining life consistent with the expected term of the options. The number of stock award forfeitures are recognized as incurred.
Stock-Based
Compensation
The
Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation — Stock Compensation, which requires
the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately
expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to
employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718
is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as
an expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services.
The
Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight- line
basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective
assumptions, including the fair value of the Company’s common stock, and for stock options, the expected life of the option, and
expected stock price volatility. The Company used the Black-Scholes option pricing model to value its stock option awards. The assumptions
used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties
and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based
compensation expense could be materially different for future awards.
Deferred
Offering Costs
The
Company complies with the requirements of ASC 340, Other Assets and Deferred Costs, with regards to offering costs. Prior to the completion
of an offering, offering costs are capitalized. The deferred offering costs are charged to additional paid-in capital or as a discount
to debt, as applicable, upon the completion of an offering or to expense if the offering is not completed. As of December 31, 2020, the
Company had capitalized $214,647 in deferred offering costs. Upon completion of the IPO in May 2021, all capitalized deferred offering
costs were charged to additional paid-in capital. As of December 31, 2021, the Company capitalized $367,696 in deferred offering costs
pertaining to its equity line of credit agreement with Oasis (Note 8). In 2022, the Company wrote off these costs to general and administrative
expenses in the consolidated statements of operations as the equity line of credit financing never occurred.
Segment
Information
In
accordance with ASC 280, Segment Reporting (“ASC 280”), we identify our operating segments according to how our business
activities are managed and evaluated. As of December 31, 2023 our operating segments included: DSTLD, Bailey, Stateside and Sundry. Each
operating segment currently reports to the Chief Executive Officer. Each of our brands serve or are expected to serve customers through
our wholesale, in store and online channels, allowing us to execute on our omni-channel strategy. We have determined that each of our
operating segments share similar economic and other qualitative characteristics, and therefore the results of our operating segments
are aggregated into one reportable segment. All of the operating segments have met the aggregation criteria and have been aggregated
and are presented as one reportable segment, as permitted by ASC 280. We continually monitor and review our segment reporting structure
in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments.
Income
Taxes
The
Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred
taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using
tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it
is unlikely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years
subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance
with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy
will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing
authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood
that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.
Net
Loss per Share
Net
earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during
the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or
loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during
the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation
of the diluted net loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive
as of December 31, 2023 and 2022, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive
items outstanding as of December 31, 2023 and 2022 are as follows:
SCHEDULE OF POTENTIALLY DILUTIVE ITEMS OUTSTANDING
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Convertible notes | |
| — | | |
| 37,915 | |
| Series A convertible preferred stock | |
| 27,097 | | |
| 4,320 | |
| Series C convertible preferred stock | |
| 267,001 | | |
| — | |
| Common stock warrants | |
| 1,180,220 | | |
| 176,733 | |
| Stock options | |
| 1,558 | | |
| 1,558 | |
| Total
potentially dilutive shares | |
| 1,475,876 | | |
| 220,526 | |
The
stock options and warrants above are out-of-the-money as of December 31, 2023 and 2022.
Leases
On
January 1, 2022, the Company adopted ASC 842, Leases, as amended, which supersedes the lease accounting guidance under Topic 840,
and generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use (ROU) assets on the
balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from lease arrangements.
The Company adopted the new guidance using a modified retrospective method. Under this method, the Company elected to apply the new accounting
standard only to the most recent period presented, recognizing the cumulative effect of the accounting change, if any, as an adjustment
to the beginning balance of retained earnings. Accordingly, prior periods have not been recast to reflect the new accounting standard.
The cumulative effect of applying the provisions of ASC 842 had no material impact on accumulated deficit.
The
Company elected transitional practical expedients for existing leases which eliminated the requirements to reassess existing lease classification,
initial direct costs, and whether contracts contain leases. Also, the Company elected to present the payments associated with short-
term leases as an expense in statements of operations. Short-term leases are leases with a lease term of 12 months or less.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02: Leases (Topic 842). The new guidance generally
requires an entity to recognize on its balance sheet operating and financing lease liabilities and corresponding right-of-use assets.
The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2018 and early
adoption is permitted. The new standard requires a modified retrospective transition for existing leases to each prior reporting period
presented. The Company elected to utilize the extended adoption period available to the Company as an emerging growth company. The Company
has adopted ASU 2016-02 as of January 1, 2022. See Note 11.
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instrument – Credit Losses”. This ASU, and the related ASUs
issued subsequently by the FASB introduce a new model for recognizing credit loss on financial assets not accounted for at fair values
through net income, including loans, debt securities, trade receivables, net investment in leases and available-for-sale debt securities.
The new ASU broadens the information that an entity must consider in developing estimates of expected credit losses and requires an entity
to estimate credit losses over the life of an exposure based on historical information, current information and reasonable supportable
forecasts.
The
Company adopted this ASU on January 1, 2023, using the modified retrospective approach. The adoption of this ASU did not have a material
impact on financial statements as Company’s customers are direct consumers and pay at the time of purchase. As of December 31,
2023, the Company determined an allowance for expected credit loss of $48,326.
Management
does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying
financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
The
following accounting pronouncements have been issued as of April 15, 2024 but are not yet effective and may affect the future financial
reporting by the Company:
| ● | ASU
2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity: This ASU addresses
the complexity of certain guidance for convertible instruments and contracts in an entity’s
own equity. The ASU is effective for public business entities that meet the definition of
an SEC filer, excluding entities eligible to be smaller reporting companies as defined by
the SEC, for fiscal years beginning after December 15, 2021, including interim periods within
those fiscal years. For all other entities, the ASU will be effective for fiscal years beginning
after December 15, 2023, including interim periods within those fiscal years. |
| ● | ASU
2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities
Subject to Contractual Sale Restrictions: The ASU is intended to clarify the guidance
when measuring the fair value of an equity security subject to contractual restrictions that
prohibit the sale of the security. For public business entities, the amendments in ASU 2022-
03 are effective for fiscal years beginning after December 15, 2023, and interim periods
within those fiscal years. For all other entities, the ASU is effective for fiscal years
beginning after December 15, 2024, and interim periods within those fiscal years. |
NOTE
4: BUSINESS COMBINATIONS
2022
Acquisition
Sundry
On
December 30, 2022, the Company completed its previously announced acquisition (the “ Sundry Acquisition”) of all of the issued
and outstanding membership interests of Sunnyside, LLC, a California limited liability company (“Sundry”), pursuant to that
certain Second Amended and Restated Membership Interest Purchase Agreement (the “ Sundry Agreement”), dated October 13, 2022,
by and among Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (“ Sundry Sellers”), George Levy as the Sundry
Sellers’ representative, the Company as Buyer, and Sundry.
Pursuant
to the Agreement, Sellers, as the holders of all of the outstanding membership interests of Sundry, exchanged all of such membership
interests for (i) $7.5 million in cash, (ii) $5.5 million in promissory notes of the Company (the “Sundry Notes”), and (iii)
a number of shares of common stock of the Company equal to $1.0 million (the “Sundry Shares”), calculated in accordance with
the terms of the Agreement, which consideration was paid or delivered to the Sellers, Jenny Murphy and Elodie Crichi. Each Sundry Note
bears interest at eight percent (8%) per annum and matured on February 15, 2023 (see Note 7). The Company issued 90,909 shares of common
stock to the Sundry Sellers on December 30, 2022 at a fair value of $1,000,000.
The
Company evaluated the acquisition of Sundry pursuant to ASC 805 and ASU 2017-01, Topic 805, Business Combinations. The acquisition method
of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at
their estimated respective fair values as of the closing date of the acquisition. Goodwill recognized in connection with this transaction
represents primarily the potential economic benefits that the Company believes may arise from the acquisition.
Total
fair value of the purchase price consideration was determined as follows:
SCHEDULE OF COMPONENTS OF PURCHASE PRICE CONSIDERATION
| Cash | |
$ | 7,500,000 | |
| Promissory notes payable | |
| 5,500,000 | |
| Common stock | |
| 1,000,000 | |
| Purchase price consideration | |
$ | 14,000,000 | |
The
Company has made an allocation of the purchase price in regard to the acquisition related to the assets acquired and the liabilities
assumed as of the purchase date. The following table summarizes the purchase price allocation:
SCHEDULE OF ASSETS AND LIABILITIES ACQUIRED IN BUSINESS COMBINATION
| | |
Purchase
Price | |
| | |
Allocation | |
| Cash and cash equivalents | |
$ | 252,697 | |
| Accounts receivable, net | |
| 63,956 | |
| Due from factor, net | |
| 387,884 | |
| Inventory | |
| 2,941,755 | |
| Prepaid expenses and other current assets | |
| 32,629 | |
| Property, equipment and software, net | |
| 48,985 | |
| Goodwill | |
| 3,711,322 | |
| Intangible assets | |
| 7,403,800 | |
| Accounts payable | |
| (615,706 | ) |
| Accrued expenses and
other liabilities | |
| (227,321 | ) |
| Purchase price consideration | |
$ | 14,000,000 | |
The
customer relationships and will be amortized on a straight-line basis over their estimated useful lives of three years. The brand name
is indefinite-lived. The Company used the relief of royalty and income approach to estimate the fair value of intangible assets acquired.
Goodwill
is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition and other intangible
assets that do not qualify for separate recognition. The goodwill is not deductible for tax purposes. The results of Sundry have been
included in the consolidated financial statements since the date of acquisition.
Unaudited
Pro Forma Financial Information
The
following unaudited pro forma financial information presents the Company’s financial results as if the Sundry acquisition had occurred
as of January 1, 2022. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually
would have been had the acquisitions been completed on this date. In addition, the unaudited pro forma financial information is not indicative
of, nor does it purport to project, the Company’s future financial results. The following unaudited pro forma financial information
includes incremental property and equipment depreciation and intangible asset amortization as a result of the acquisitions. The pro forma
information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the
acquisition:
SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION
| | |
Year
Ended | |
| | |
December
31, 2022 | |
| Net revenues | |
$ | 28,519,261 | |
| Net loss | |
$ | (42,001,415 | ) |
| Net loss per common share | |
$ | (54.46 | ) |
Previous
Acquisitions
Bailey
44
On
February 12, 2020, the Company acquired 100% of the membership interests of Bailey. The purchase price consideration included (i) an
aggregate of 20,754,717 shares of Series B Preferred Stock of the Company (the “Parent Stock”) and (ii) a promissory note
in the principal amount of $4,500,000. The total purchase price consideration was $15,500,000.
DBG
agreed that if at that date which is one year from the closing date of the IPO, the product of the number of shares of Parent Stock issued
under the Merger multiplied by the sum of the closing price per share of the common stock of the Company on such date, plus Sold Parent
Stock Gross Proceeds (as that term is defined in the Merger Agreement), does not exceed the sum of $11,000,000 less the value of any
Holdback Shares cancelled further to the indemnification provisions of the Merger Agreement, then the Company shall issue to the Holders
pro rata an additional aggregate number of shares of common stock of the Company equal to the valuation shortfall at a per share price
equal to the then closing price per share of the common stock of the Company.
As
of December 31, 2023 and 2022, the Company has a contingent consideration liability of $0 and $10,698,475, respectively, based on the
valuation shortfall as noted above. See Note 3.
Stateside
On
August 30, 2021, the Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with Moise Emquies pursuant
to which the Company acquired all of the issued and outstanding membership interests of MOSBEST, LLC, a California limited liability
company (“Stateside” and such transaction, the “Stateside Acquisition”). Pursuant to the MIPA, Moise Emquies,
as the holder of all of the outstanding membership interests of Stateside, exchanged all of such membership interests for $5.0 million
in cash and 1,101,538 shares of the Company’s common stock (the “Shares”), which number of Shares was calculated in
accordance with the terms of the MIPA. Of such amount, $375,000 in cash and a number of Shares equal to $375,000, or 82,615 shares (calculated
in accordance with the terms of the MIPA), is held in escrow to secure any working capital adjustments and indemnification claims. The
MIPA contains customary representations, warranties and covenants by Moise Emquies.
The
Company evaluated the acquisition of Stateside pursuant to ASC 805 and ASU 2017-01, Topic 805, Business Combinations. The acquisition
method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured
at their estimated respective fair values as of the closing date of the acquisition. Goodwill recognized in connection with this transaction
represents primarily the potential economic benefits that the Company believes may arise from the acquisition.
Total
fair value of the purchase price consideration was determined as follows:
SCHEDULE OF FAIR VALUE OF PURCHASE PRICE CONSIDERATION
| Cash | |
$ | 5,000,000 | |
| Common stock | |
| 3,403,196 | |
| Purchase price consideration | |
$ | 8,403,196 | |
The
Company has made an allocation of the purchase price in regard to the acquisition related to the assets acquired and the liabilities
assumed as of the purchase date. The following table summarizes the purchase price allocation:
SCHEDULE
OF ALLOCATION OF PURCHASE PRICE IN REGARD TO ACQUISITION
| | |
Purchase
Price Allocation
| |
| Cash and cash equivalents | |
| 32,700 | |
| Accounts receivable, net | |
| 154,678 | |
| Due from factor, net | |
| 371,247 | |
| Inventory | |
| 603,625 | |
| Prepaid expenses and other current assets | |
| 7,970 | |
| Deposits | |
| 9,595 | |
| Property, equipment and software, net | |
| — | |
| Goodwill | |
| 2,104,056 | |
| Intangible assets | |
| 5,939,140 | |
| Accounts payable | |
| (374,443 | ) |
| Accrued expenses and other liabilities | |
| (445,372 | ) |
| Purchase price consideration | |
$ | 8,403,196 | |
The
customer relationships and will be amortized on a straight-line basis over their estimated useful lives of three years. The brand name
is indefinite-lived. The Company used the relief of royalty and income approach to estimate the fair value of intangible assets acquired.
Goodwill
is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition and other intangible
assets that do not qualify for separate recognition. The goodwill is not deductible for tax purposes.
NOTE
5: DISCONTINUED OPERATIONS
On
June 21, 2023, the Company and the former owners of H&J executed a Settlement Agreement and Release (the “Settlement Agreement”)
whereby contemporaneously with the parties’ execution of the Settlement Agreement (i) the Company agreed to make an aggregate cash
payment of $229,000 to D. Jones Tailored Collection, Ltd. (“D. Jones”), (ii) the Company issued 1,952,580 shares of common
stock to D. Jones, and (iii) the Company assigned and transferred one hundred percent (100%) of the Company’s membership interest
in H&J to D. Jones. This transaction is known as the “H&J Settlement”.
The
H&J Settlement was accounted for a business disposition in accordance with ASC 810-40-40-3A. As of June 21, 2023, the Company no
longer consolidated the assets, liabilities, revenues and expenses of H&J. The components of the disposition are as follows:
SCHEDULE
OF COMPONENTS OF DISPOSITION
| | |
| | |
| Cash payment due to H&J Seller | |
$ | (229,000 | ) |
| Common shares issued to H&J Seller* | |
| (1,357,043 | ) |
| Total fair value of consideration received
(given) | |
$ | (1,586,043 | ) |
| Carrying amount
of assets and liabilities | |
| | |
| Cash and cash equivalents | |
| 18,192 | |
| Accounts receivable, net | |
| 55,782 | |
| Prepaid expenses and other current assets | |
| 25,115 | |
| Goodwill | |
| 1,130,311 | |
| Intangible assets, net | |
| 1,246,915 | |
| Deposits | |
| 4,416 | |
| Accounts payable | |
| (40,028 | ) |
| Accrued expenses and other liabilities | |
| (734,068 | ) |
| Deferred revenue | |
| (18,347 | ) |
| Due to related parties | |
| (1,008 | ) |
| Contingent consideration | |
| (1,400,000 | ) |
| Loan payable | |
| (219,894 | ) |
| Note payable - related party | |
| (129,489 | ) |
| Total carrying amount
of assets and liabilities | |
| (62,103 | ) |
| | |
| | |
| Loss on disposition
of business | |
$ | (1,523,940 | ) |
| * |
Represents the fair value
of 1,952,580 shares of common stock issued to D. Jones. |
The
net assets of the discontinued operations at December 31, 2022 were not materially different from the balances as of June 21, 2023.
Through
December 31, 2023, the Company has made payments to D. Jones totaling $200,000. The remaining balance of $29,000 is included in accrued
expenses and other liabilities on the consolidated balance sheet.
The
loss of disposition of business of $1,523,940 was included in income (loss) from discontinued operations, net of tax in the consolidated
statements of operations.
In
accordance with the provisions of ASC 205-20, the Company has excluded the results of discontinued operations from its results of continuing
operations in the accompanying consolidated statements of operations for the three and year ended December 31, 2023 and 2022. The results
of the discontinued operations of HJ for the year ended December 31, 2023 and 2022 consist of the following:
NOTE
6: DUE FROM FACTOR
The
Company, via its subsidiaries, Bailey, Stateside and Sundry, assigns a portion of its trade accounts receivable to third- party factoring
companies, who assumes the credit risk with respect to the collection of non-recourse accounts receivable. The Company may request advances
on the net sales factored at any time before their maturity date. The factor charges a commission on the net sales factored for credit
and collection services. For one factoring company, interest on advances is charged as of the last day of each month at a rate equal
to the LIBOR rate plus 2.5% for Bailey. For Stateside and Sundry, should total commission and fees payable be less than $30,000 in a
single year, then the factor shall charge the difference between the actual fees in said year and $30,000 to the Company. Interest on
advances is charged as of the last day of each month at a rate equal to the greater of either, (a) the Chase Prime Rate + (2.0)% or (b)
(4.0)% per annum. For another factoring company, interest is charged at one-thirty-third (1/33) of one percent per day, such rate to
increase or decrease in accordance with changes in the “Prime Rate”, which such prime rate to be deemed to be 4.25% on the
date of the agreement.
Advances
are collateralized by a security interest in substantially all of the companies’ assets.
Due
to/from factor consist of the following:
SCHEDULE OF DUE TO/ FROM FACTOR
| | |
2023
| | |
2022
| |
| | |
December
31, | |
| | |
2023
| | |
2022
| |
| Outstanding receivables: | |
| | | |
| | |
| Without recourse | |
$ | 808,233 | | |
$ | 1,680,042 | |
| With recourse | |
| 99,055 | | |
| 65,411 | |
| Matured funds and deposits | |
| 65,321 | | |
| 81,055 | |
| Advances | |
| (483,187 | ) | |
| (632,826 | ) |
| Credits due customers | |
| (151,611 | ) | |
| (354,282 | ) |
| Due
from factor, net | |
$ | 337,811 | | |
$ | 839,400 | |
NOTE
7: GOODWILL AND INTANGIBLE ASSETS
Goodwill
The
Company recorded goodwill from each of its business combinations. The following is a summary of goodwill by entity for the years ended
December 31, 2023 and 2022:
SCHEDULE OF GOODWILL ATTRIBUTABLE TO EACH BUSINESS COMBINATION
| | |
2023
| | |
2022
| |
| | |
December
31, | |
| | |
2023
| | |
2022
| |
| Bailey | |
$ | 3,158,123 | | |
$ | 3,158,123 | |
| Stateside | |
| 2,104,056 | | |
| 2,104,056 | |
| Sundry | |
| 3,711,322 | | |
| 3,711,322 | |
| Goodwill | |
$ | 8,973,501 | | |
$ | 8,973,501 | |
Refer
to Note 3 for discussion on the goodwill impairment recorded in 2022.
In
connection with the H&J disposition, the Company derecognized $1,130,311 in goodwill.
Intangible
Assets
The
following table summarizes information relating to the Company’s identifiable intangible assets as of December 31, 2023 and 2022:
SCHEDULE
OF INFORMATION RELATING TO THE COMPANY’S IDENTIFIABLE INTANGIBLE ASSETS
| December
31, 2023 | |
Gross
Amount | | |
Accumulated
Amortization | | |
Carrying
Value | |
| Amortized: | |
| | | |
| | | |
| | |
| Customer
relationships | |
$ | 8,634,560 | | |
$ | (4,494,223 | ) | |
$ | 4,140,337 | |
| | |
$ | 8,634,560 | | |
$ | (4,494,223 | ) | |
$ | 4,140,337 | |
| | |
| | | |
| | | |
| | |
| Indefinite-lived: | |
| | | |
| | | |
| | |
| Brand name | |
| 5,841,880 | | |
| — | | |
| 5,841,880 | |
| | |
$ | 14,476,440 | | |
$ | (4,494,223 | ) | |
$ | 9,982,217 | |
| December
31, 2022 | |
Gross
Amount
| | |
Accumulated
Amortization | | |
Carrying
Value
| |
| Amortized: | |
| | | |
| | | |
| | |
| Customer
relationships | |
$ | 9,734,560 | | |
| (2,670,202 | ) | |
$ | 7,064,358 | |
| | |
| 9,734,560 | | |
| (2,670,202 | ) | |
| 7,064,358 | |
| | |
| | | |
| | | |
| | |
| Indefinite-lived: | |
| | | |
| | | |
| | |
| Brand name | |
| 5,841,880 | | |
| — | | |
| 5,841,880 | |
| | |
$ | 15,576,440 | | |
$ | (2,670,202 | ) | |
$ | 12,906,238 | |
Refer
to Note 3 for discussion on the intangible asset impairment recorded in 2022.
The
Company recorded amortization expense of $1,993,616 and $2,151,250 during the years ended December 31, 2023 and 2022, respectively, which
is included in general and administrative expenses in the consolidated statements of operations.
Future
amortization expense at December 31, 2023 is as follows:
SCHEDULE
OF FUTURE AMORTIZATION EXPENSE
| | |
| |
| Year
Ending December 31, | |
| |
| 2024 | |
| 2,474,177 | |
| 2025 | |
| 1,666,160 | |
| Carrying
value | |
$ | 4,140,337 | |
NOTE
8: 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 December 31,
2023 and 2022:
SCHEDULE
OF ACCRUED EXPENSES AND OTHER LIABILITIES
| | |
2023
| | |
2022
| |
| | |
December
31, | |
| | |
2023
| | |
2022
| |
| Accrued expenses | |
$ | 617,374 | | |
$ | 668,714 | |
| Reserve for returns | |
| — | | |
| 307,725 | |
| Payroll related liabilities | |
| 3,895,640 | | |
| 2,618,870 | |
| Sales tax liability | |
| 145,545 | | |
| 262,765 | |
| Other liabilities | |
| 99,934 | | |
| 78,845 | |
| Accrued
expenses and other liabilities | |
$ | 4,758,492 | | |
$ | 3,936,920 | |
Payroll
related liabilities are primarily related in DBG and Bailey44 payroll taxes due to remit to federal and state authorities. The amounts
are subject to further penalties and interest.
As
of December 31, 2023, accrued expenses included $535,000 in accrued common stock issuances pursuant to an advisory agreement for services
performed in 2022. The 200 shares of common stock owed per the agreement are expected to be issued in the second quarter of 2024.
Venture
Debt
As
of December 31, 2021, the gross loan balance with Black Oak Capital (“Black Oak”) pertaining to its senior credit agreement
was $6,001,755. 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.
On
September 29, 2022, the Company and Black Oak executed a Securities Purchase Agreement (the “Black Oak SPA”) whereby the
Company issued 6,300 shares of Series A Convertible Preferred Stock to Black Oak for $1,000 per share (see Note 7). The shares were issued
pursuant to the conversion of Black Oak’s entire principal amount of $6,251,755, and the Company recorded $48,245 in interest as
part of the conversion. Pursuant to the Black Oak SPA, all accrued interest remaining outstanding. Accrued interest was $269,870 as of
December 31, 2023 and 2022.
For
the year ended December 31, 2022, $12,500 of loan fees and discounts from warrants were amortized to interest expense, leaving unamortized
balance of $0 as of December 31, 2023 and 2022. Interest expense was $0 and $573,455 for the years ended December 31, 2023 and 2022,
respectively.
Convertible
Debt
2020
Regulation CF Offering
As
of December 31, 2023 and 2022, there was $100,000 remaining in outstanding principal that was not converted into equity (see table below).
Convertible
Promissory Notes
On
April 8, 2022, the Company and various purchasers executed a Securities Purchase Agreement (“April Notes”) 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 2022 (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 12,577 warrants to purchase common stock at an exercise price of
$122 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.
On
July 22 and July 28, 2022, the Company and various purchasers executed a Securities Purchase Agreement (“July Notes”) whereby
the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $1,875,000, consisting of
original issue discount of $375,000. The Company received net proceeds of $1,450,000 after the original issue discount and fees.
In
connection with the July 22 and July 28 notes, the Company issued an aggregate of 41,124 and 27,655 warrants to purchase common stock
at an exercise price of $15.20 and $11.30 per share, respectively. The Company recognized $692,299 as a debt discount for the fair value
of the warrants using the Black-Scholes option model, which will be amortized to interest expense over the life of the notes.
If
the July Notes are not repaid in full by the maturity date or if any other event of default occurs, (1) the face value of the 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 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 on the date of the note conversion.
The
Company evaluated the terms of the conversion features of the July notes as noted above in accordance with ASC Topic No. 815 —
40, Derivatives and Hedging — Contracts in Entity’s Own Stock, and determined they are not indexed to the Company’s
common stock and that the conversion features meet the definition of a liability. The notes contain an indeterminate number of shares
to settle with conversion options outside of the Company’s control. Therefore, the Company bifurcated the conversion feature and
accounted for it as a separate derivative liability. Upon issuance of the July, the Company recognized a derivative liability at an aggregate
fair value of $559,957, which was recorded as a debt discount and will amortized over the life of the notes.
In
December 2022, the Company fully repaid the outstanding principal of $1,875,000 pertaining to the July 22 and 28 notes, as well as an
additional $416,923 due to the default provisions noted above. This amount was included in interest expense in the consolidated statements
of operations.
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
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, which will be amortized to interest expense over the life
of the notes.
In
February 2023, the principal of $4,000,000 of the December Notes were fully repaid. The Company amortized $1,220,830 of debt discount
up until the repayment date, and then recognized a loss on extinguishment of debt of $157,370 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 years ended December 31, 2023 and 2022:
SCHEDULE
OF CONVERTIBLE NOTES
| | |
Principal
| | |
Unamortized Debt
Discount | | |
Convertible
Note Payable,
Net | |
| Balance, December 31, 2022 | |
$ | 4,100,000 | | |
$ | (1,378,200 | ) | |
$ | 2,721,800 | |
| Repayments of notes | |
| (4,000,000 | ) | |
| — | | |
| (4,000,000 | ) |
| Amortization of debt discount | |
| — | | |
| 1,220,830 | | |
| 1,220,830 | |
| Loss on extinguishment
of debt | |
| — | | |
| 157,370 | | |
| 157,370 | |
| Balance, December 31, 2023 | |
$ | 100,000 | | |
$ | — | | |
$ | 100,000 | |
During
the years ended December 31, 2023 and 2022, the Company amortized $1,220,830 and $6,506,384, respectively of debt discount to interest
expense pertaining to all convertible notes. As of December 31, 2022, there was no remaining derivative liability outstanding pertaining
to any convertible notes.
Loan
Payable — PPP and SBA Loan
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. As of December 31, 2023 and December 31, 2022, Bailey had an outstanding PPP Loan balance of $933,295 and
matures in 2026.
Merchant
Advances
Future
Sales Receipts
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 2023, the Company
received additional proceeds totaling $2,452,923. The Company made total cash repayments, pertaining to principal and interest of $4,518,512.
The
following is a summary of the merchant advances as of December 31, 2023 and 2022:
SCHEDULE
OF MERCHANT ADVANCES
| | |
2023 | | |
2022 | |
| | |
December
31, | |
| | |
2023 | | |
2022 | |
| Principal | |
$ | 2,960,946 | | |
$ | 896,334 | |
| Less: unamortized debt
discount | |
| (1,966,881 | ) | |
| — | |
| Merchant
cash advances, net | |
$ | 994,065 | | |
$ | 896,334 | |
The
unamortized debt discount of $1,966,881 will be amortized to interest expense over the expected remaining terms of the agreements through
the fourth quarter of 2024. During the year ended December 31, 2023, the Company recorded $1,247,403 in interest expense pertaining to
these advances.
In
2023, the Company refinanced two merchant advance agreements. The refinances were accounted for as a loss extinguishment under ASC 470-50-40,
and accordingly the Company recognized a loss on extinguishment of $559,147 which is included in other non-operating income (expenses)
in the consolidated statements of operations.
In
connection with these advances, the Company granted 6,095 warrants to purchase common stock at an exercise price of $131.25 to the lender.
Other
In
2023, the Company obtained merchant advances totaling $690,000 from Shopify Capital and another lender and made repayments totaling $658,718.
As of December 31, 2023, the remaining principal outstanding was $149,898. These advances are, for the most part, secured by expected
future sales transactions of the Company with expected payments on a daily basis.
In
2023, the Company obtained merchant advances totaling $312,938 from Gynger Inc. As of December 31, 2023, the remaining principal outstanding
was $273,188 and technically in default.
Promissory
Note Payable
As
of December 31, 2023 and 2022, the outstanding principal on the note to the sellers of Bailey was $3,500,000. The maturity date was December
31, 2022. On July 5, 2023, the parties agreed to extend the maturity date to June 30, 2024.
The
note incurs interest at 12% per annum. Interest expense was $420,000 and $420,000 for the yeas ended December 31, 2023 and 2022, all
respectively, which was accrued and unpaid as of December 31, 2023.
As
noted in Note 4, 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 matured on February 15, 2023. In February 2023, the parties verbally agreed
to extend the maturity date to December 31, 2023. Interest expense was $259,177 for the year ended December 31, 2023. On June 21, 2023,
the Company and the Sundry Holders executed a Securities Purchase Agreement (the “Sundry SPA”) whereby the Company issued
5,761 shares of Series C Convertible Preferred Stock to the Sundry Holders for $1,000 per share (see Note 7). The shares were issued
pursuant to the cancellation of the Sundry Holders’ entire principal amount of $5,500,000 and accrued interest of $259,177.
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 $608,750. 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”). 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. Upon the Company’s equity financing in September 2023, the Company repaid an aggregate $1,247,232
in principal to the respective noteholders. The Company recognized a debt discount of $608,750, which was fully amortized through December
31, 2023. The notes contain certain conversion provisions upon an event of default.
The
parties are currently working on an extension to the Maturity Date and have acknowledged that the default provisions have not been triggered.
It is expected that the March 2023 Notes will be fully repaid by the end of the second quarter of 2024. In connection with the amendments,
the Company increased the principal owed on the March 2023 Notes to $519,222, with a corresponding increase to unamortized debt discount.
The
following is a summary of promissory notes payable, net:
SCHEDULE OF PROMISSORY NOTES PAYABLE, NET
| | |
2023
| | |
2022
| |
| | |
December
31, | |
| | |
2023
| | |
2022
| |
| Bailey Note | |
$ | 3,500,000 | | |
$ | 3,500,000 | |
| Sundry Note | |
| — | | |
| 5,500,000 | |
| March 2023 Notes - principal | |
| 1,730,740 | | |
| — | |
| March 2023 Notes - unamortized
debt discount | |
| (346,148 | ) | |
| — | |
| Promissory
note payable, net | |
$ | 4,884,592 | | |
$ | 9,000,000 | |
NOTE
9: STOCKHOLDERS’ EQUITY (DEFICIT)
Amendments
to Certificate of Incorporation
On
October 13, 2022, the Company amended its Amended and Restated Certificate of Incorporation to increase to increase the number of authorized
shares of the Company’s common stock from 200,000,000 to 1,000,000,000, and in conjunction therewith, to increase the aggregate
number of authorized shares to 1,010,000,000 shares.
On
October 21, 2022, the Board of Directors approved a one-for-100 reverse stock split of its issued and outstanding shares of common stock
and a proportional adjustment to the existing conversion ratios for each series of the Company’s preferred stock. The reverse stock
split became effective as of November 3, 2022. Accordingly, all share and per share amounts for all periods presented in the accompanying
consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock
split and adjustment of the preferred stock conversion ratios.
On
August 21, 2023, the Board of Directors approved a one-for-25 reverse stock split of its issued and outstanding shares of common stock
and a proportional adjustment to the existing conversion ratios for each series of the Company’s preferred stock. The reverse stock
split became effective as of August 22, 2023. Accordingly, all share and per share amounts for all periods presented in the accompanying
consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock
split and adjustment of the preferred stock conversion ratios.
Common
Stock
The
Company had 1,000,000,000 shares of common stock authorized with a par value of $0.0001 as of December 31, 2023.
Common
stockholders have voting rights of one vote per share. The voting, dividend, and liquidation rights of the holders of common stock are
subject to and qualified by the rights, powers, and preferences of preferred stockholders.
2023
Transactions
On
January 11, 2023, the Company, entered into a Securities Purchase Agreement with a certain accredited investor, pursuant to which the
Company agreed to issue and sell, in a private placement (the “January Private Placement”), an aggregate of 475,000 shares
of the Company’s common stock (“Common Stock”), and accompanying warrants to purchase 475,000 shares of Common Stock,
at a combined purchase price of $3.915 per share and Common Warrant, and (ii) 802,140 pre-funded warrants exercisable for 802,140 shares
of Common Stock, and accompanying common warrants to purchase 802,140 shares of Common Stock, at a combined purchase price of $3.915
per pre-funded warrant and accompanying common warrant, to the investors, for aggregate gross proceeds from the January Private Placement
of approximately $5 million before deducting placement agent fees and related offering expenses. As a result of the transaction, the
Company issued 1,277,140 shares of Common Stock, including the 475,000 shares and the immediate exercise of 802,140 pre-funded warrants,
for gross proceeds of $5.0 million. The Company received net proceeds of $4.3 million after deducting placement agent fees and offering
expenses.
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.
In
March 2023, the Company issued an aggregate of 118,890 shares of common stock to Sundry executives based on their employment agreements
with the Company. The fair value of $499,338, or $4.20 per share as determined by the agreements, was included in general and administrative
expenses in the consolidated statements of operations.
In
June 2023, the Company issued 1,952,580 shares of common stock to D. Jones at a fair value of $1,357,043 pursuant to the H&J Settlement
Agreement.
On
August 31, 2023, the Company entered into a Securities Purchase Agreement with a certain accredited investor, pursuant to which the Company
agreed to issue and sell, in a private placement (the “August Private Placement”), an aggregate of 32,000 shares of the Company’s
Common Stock and accompanying Series A warrants to purchase up to 32,000 shares of Common Stock and Series B warrants to purchase up
to 32,000 shares of Common Stock at a combined purchase price of $9.73 per share and common warrants, and (ii) 481,875 pre-funded warrants
exercisable for 481,875 shares of Common Stock, and accompanying Series A Warrants to purchase up to 481,875 shares of Common Stock and
Series B Warrants to purchase up to 481,875 shares of Common Stock, at a combined purchase price of $9.73, for aggregate gross proceeds
from the August Private Placement of approximately $5 million. The Company received net proceeds of $3.8 million after deducting placement
agent fees and offering expenses. Through December 31, 2023, all 481,875 pre-funded warrants from the August Private Placement had been
exercised for shares of Common Stock.
In
connection with the August Private Placement, the Company entered into a warrant amendment (the “Warrant Amendment”) with
certain investors to amend certain existing warrants to purchase up to 196,542 shares of Common Stock that were previously issued in
December 2022 and January 2023 to the investors, with an exercise price of $131.25 per share and $95.00 per share, respectively (the
“Amended Warrants”) as follows: (i) to reduce the exercise price of the Amended Warrants to $9.43 per share, and (ii) to
extend the original expiration date of the Amended Warrants so that they will terminate five and one half years from the closing of the
offering. Immediately following the Warrant Amendment, the Company exercised warrants for 123,814 shares of common stock for proceeds
of $1,167,566.
In
September 2023, the Company issued 42,782 shares in accrued amounts owed to Sundry executives based on their employment agreements for
a total value of $500,000.
On
September 10, 2023, the non-employee members of the board of directors adopted a 2023 Stock Purchase Plan (the “2023 Plan”)
to enable the Company to attract, retain and motivate its employees. Under the 2023 Plan, qualified employees can purchase shares of
the Company’s common stock at fair market value by either the delivery of cash or the delivery of a form of acceptable non-recourse
promissory note. The aggregate number of common stock issuable under the 2023 Plan shall not exceed 65,000 subject to certain adjustment
provided under the 2023 Plan.
Pursuant
to the 2023 Plan, the Company issued an aggregate of 63,000 shares of common stock to certain employees and consultants with accompanying
5-year non-recourse promissory notes. The issuance of the shares were considered for services, and as such the Company recorded $657,090,
or a fair value of $10.43 per share, in stock-based compensation which was included in general and administrative expenses int he consolidated
statement of operations.
In
October 2023, 975 shares of Series C Convertible Preferred Stock converted into 54,394 shares of common stock.
2022
Transactions
During
the year ended December 31, 2022, the Company issued an aggregate of 79,807 shares of common stock pursuant to the conversion of the
FirstFire and Oasis Notes (see Note 7).
In
September 2022, the Company issued 30 shares of common stock pursuant to a consultant agreement at a fair value of $123,000.
As
part of the Sundry acquisition (see Note 4), the Company issued 3,636 shares of common stock to the Sundry Sellers at a fair value of
$1,000,000.
In
connection with the December Notes, the Company issued 2,400 shares of common stock with a fair value of $264,000
Series
A Preferred Stock
On
August 31, 2022, the Company entered into a Subscription and Investment Representation Agreement with Hil Davis, its Chief Executive
Officer, pursuant to which the Company agreed to issue 1 share of the Company’s Series A Preferred Stock to for $25,000. The issuance
of the preferred stock reduced the due to related party balance. The share of Series A Preferred Stock had 250,000,000 votes per share
and voted together with the outstanding shares of the Company’s common stock as a single class exclusively with respect to any
proposals to amend the Certificate of Incorporation to effect a reverse stock split of the Company’s common stock and to increase
the authorized number of shares of the Company’s common stock. The terms of the Series A Preferred Stock provided that the outstanding
share of Series A Preferred Stock would be redeemed in whole, but not in part, at any time: (i) if such redemption is ordered by the
Board of Directors in its sole discretion or (ii) automatically upon the approval of Proposals 2 and 6 presented at the Company’s
2022 annual shareholders meeting. Following conclusion of the shareholders meeting, such share of the Company’s Series A Preferred
Stock was redeemed. On October 13, 2022, the outstanding share of the Company’s Series A Preferred Stock was redeemed for $25,000.
On
September 13, 2023, the Company filed a certificate of cancellation (the “Series A Certificate of Cancellation”) with the
Secretary of State of the State of Delaware, effective as of the time of filing, cancelling the Series A Certificate of Designation relating
to the Series A Preferred Stock.
Series
A Convertible Preferred Stock
On
September 29, 2022, the Company filed the Certificate of Designation designating up to 6,800 shares out of the authorized but unissued
shares of its preferred stock as Series A Convertible Preferred Stock.
Except
for stock dividends or distributions for which adjustments are to be made pursuant to the Certificate of Designation, the holders of
the Series A Preferred Stock (the “Holders”) shall be entitled to receive, and the Company shall pay, dividends on shares
of the Series A Preferred Stock equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually paid
on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock. No other dividends shall be paid
on shares of the Series A Preferred Stock.
With
respect to any vote with the class of Common Stock, each share of the Series A Preferred Stock shall entitle the Holder thereof to cast
that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible.
The
Series A Preferred Stock shall rank (i) senior to all of the Common Stock; (ii) senior to any class or series of capital stock of the
Company hereafter created specifically ranking by its terms junior to any Preferred Stock (“Junior Securities”); (iii) on
parity with any class or series of capital stock of the Corporation created specifically ranking by its terms on parity with the Preferred
Stock (“Parity Securities”); and (iv) junior to any class or series of capital stock of the Company hereafter created specifically
ranking by its terms senior to any Preferred Stock (“Senior Securities”), in each case, as to dividends or distributions
of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily.
Each
share of the Series A Preferred Stock shall be convertible, at any time and from time to time from and after September 29, 2022 at the
option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value of such share of the
Series A Preferred Stock ($1,000 as of September 29, 2022) by the Conversion Price. The conversion price for each share of the Series
A Preferred Stock is the closing price of the Common Stock on September 29, 2022, which was $9.30.
As
of December 31, 2023 and 2022, there were 6,300 shares of Series A Convertible Preferred Stock issued and outstanding.
Series
B Preferred Stock
On
May 30, 2023, the Company entered into a Subscription and Investment Representation Agreement (the “Subscription Agreement”)
with John Hilburn Davis IV, its Chief Executive Officer pursuant to which the Company agreed to issue and sell 1 share of the Company’s
Series B Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”) for $25,000.
On
May 30, 2023, the Company filed a certificate of designation (the “Certificate of Designation”) with the Secretary of State
of the State of Delaware, effective as of the time of filing, designating the rights, preferences, privileges and restrictions of the
share of Series B Preferred Stock. The Certificate of Designation provides that the Series B Preferred Stock will have 250,000,000 votes
per share of Series B Preferred Stock and will vote together with the outstanding shares of the Company’s common stock, par value
0.0001 per share (the “Common Stock”) and Series A Convertible Preferred Stock, par value 0.0001 per share (the “Series
A Convertible Preferred Stock”) as a single class exclusively with respect to any proposal to amend the Company’s Sixth Amended
and Restated Certificate of Incorporation (as may be amended and/or restated from time to time, the “Restated Certificate”)
to effect a reverse stock split of the Company’s common stock. The Series B Preferred Stock will be voted, without action by the
holder, on any such proposal in the same proportion as shares of Common Stock and Series A Convertible Preferred Stock are voted. The
Series B Preferred Stock otherwise has no voting rights.
The
Series B Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities
of the Company. The Series B Preferred Stock has no rights with respect to any distribution of assets of the Company, including upon
a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company, whether voluntarily or
involuntarily. The holder of the Series B Preferred Stock will not be entitled to receive dividends of any kind.
The
outstanding share of Series B Preferred Stock shall be redeemed in whole, but not in part, at any time (i) if such redemption is ordered
by the Board of Directors in its sole discretion or (ii) automatically upon the effectiveness of the amendment to the Restated Certificate
implementing a reverse stock split. Upon such redemption, the holder of the Series B Preferred Stock will receive consideration of $25,000
in cash.
On
September 13, 2023, the Company filed a certificate of cancellation (the “Series B Certificate of Cancellation”) with the
Secretary of State of the State of Delaware, effective as of the time of filing, cancelling the Series B Certificate of Designation,
and thereby eliminating all Series B Preferred Stock.
Series
C Convertible Preferred Stock
On
June 21, 2023, the Company, on the one hand, and Moise Emquies, George Levy, Matthieu Leblan, Carol Ann Emquies, Jenny Murphy and Elodie
Crichi (collectively, the “Sundry Investors”), on the other hand, executed a Securities Purchase Agreement (the “Sundry
SPA”) whereby the Company issued 5,761 shares of Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series
C Preferred Stock”) to the Sundry Investors at a purchase price of $1,000 per share. The Series C Preferred Stock is convertible
into a number of shares of the Company’s Common Stock equal to $1,000 divided by an initial conversion price of $0.717 which represents
the lower of (i) the closing price per share of the Common Stock as reported on the Nasdaq on June 20, 2023, and (ii) the average closing
price per share of Common Stock as reported on the Nasdaq for the five trading days preceding June 21, 2023. The shares of Series C Preferred
Stock were issued in consideration for the cancellation of certain promissory notes issued by the Company to the Sundry Investors dated
December 30, 2022 (the “Sundry Loan Documents”). The following is a summary of the rights and preferences of the Series C
Convertible Preferred Stock.
On
June 21, 2023, the Company filed the Certificate of Designation with the Secretary of State for the State of Delaware designating up
to 5,761 shares out of the authorized but unissued shares of its preferred stock as Series C Convertible Preferred Stock. The following
is a summary of the principal terms of the Series C Preferred Stock.
Except
for stock dividends or distributions for which adjustments are to be made pursuant to the Certificate of Designation, the holders of
the Series C Preferred Stock (the “Series C Holders”) shall be entitled to receive, and the Company shall pay, dividends
on shares of the Series C Preferred Stock equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually
paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock. No other dividends shall be
paid on shares of the Series C Preferred Stock.
The
Series C Holders are entitled to vote as a class as expressly provided in the Certificate of Designation. The Series C Holders are also
entitled to vote with the holders of shares of Common Stock, voting together as one class, on all matters in which the Series C Holders
are permitted to vote with the class of shares of Common Stock.
With
respect to any vote with the class of Common Stock, each share of the Series C Preferred Stock shall entitle the Holder thereof to cast
that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible (subject to the
ownership limitations specified in the Certificate of Designation) using the record date for determining the stockholders of the Company
eligible to vote on such matters as the date as of which the conversion price is calculated.
The
Series C Preferred Stock shall rank (i) senior to all of the Common Stock; (ii) senior to Junior Securities; (iii) on parity with Parity
Securities; and (iv) junior to Senior Securities, in each case, as to dividends or distributions of assets upon liquidation, dissolution
or winding up of the Company, whether voluntarily or involuntarily. Subject to any superior liquidation rights of the holders of any
Senior Securities of the Company and the rights of the Company’s existing and future creditors, upon a Liquidation, each Holder
shall be entitled to be paid out of the assets of the Company legally available for distribution to stockholders, prior and in preference
to any distribution of any of the assets or surplus funds of the Company to the holders of the Common Stock and Junior Securities and
pari passu with any distribution to the holders of Parity Securities, an amount equal to the Stated Value (as defined in the Certificate
of Designation) for each share of the Series C Preferred Stock held by such Holder and an amount equal to any accrued and unpaid dividends
thereon, and thereafter the Series C Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company
the same amount that a holder of Common Stock would receive if the Series C Preferred Stock were fully converted (disregarding for such
purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock.
Each
share of the Series C Preferred Stock shall be convertible, at any time and from time to time from and after June 21, 2023 at the option
of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value of such share of the Series
C Preferred Stock ($1,000 as of June 21, 2023) by the Conversion Price. The conversion price for each share of the Series C Preferred
Stock is
$0.717,
which is the lower of (a) the closing price per share of the Common Stock as reported on the NasdaqCM on June 20, 2023 (the trading day
before the date of the Sundry SPA), and (b) the average closing price per share of Common Stock as reported on the NasdaqCM for the five
trading days preceding the date of the Sundry SPA, subject to adjustment herein (the “Series C Conversion Price”).
The
Company has the option to redeem any or all of the then outstanding Series C Preferred Stock at 112% of the then Stated Value any time
after June 21, 2023 and so long as there is an effective Registration Statement covering the shares issuable upon conversion of the Series
C Preferred Stock.
In
October 2023, 975 shares of Series C Convertible Preferred Stock converted into 54,394 shares of common stock.
2022
Underwriting Agreements and Public Offerings
On
May 5, 2022, the Company entered into an underwriting agreement (the “Alexander Underwriting Agreement”) with Alexander Capital,
L.P., acting as representative of the several underwriters named in the Alexander Underwriting Agreement (the “ Alexander Underwriters”),
relating to the Company’s underwritten the offering pursuant to which the Company agreed to issue and sell 373,898 shares of the
Company’s common stock. The shares were sold to the public at a combined public offering price of $25 per share and were purchased
by the Underwriters from the Company at a price of $23 per share. The Company also granted the Alexander Underwriters a 45-day option
to purchase up to an additional 56,085 shares of Common Stock at the same price, which expired and were not purchased.
The
shares were sold in the Offering pursuant to a Registration Statement on Form S-1, as amended (File No. 333-264347) (the “Registration
Statement”), a Registration Statement on Form S-1 pursuant to 462(b) of the Securities Act of 1933, as amended (File No. 333-264775),
and a related prospectus filed with the Securities and Exchange Commission. The public offering closed on May 10, 2022 and the Company
sold 373,898 shares of common stock for total gross proceeds of $9.3 million. The Company received net proceeds of $8.1 million after
deducting underwriters’ discounts and commissions of $0.7 million and direct offering expenses of $0.5 million.
On
November 29, 2022, the Company, entered into a Securities Purchase Agreement with investors pursuant to which the Company agreed to issue
and sell, in an offering (i) an aggregate of 168,000 shares (the “Shares”) of the Company’s common stock, and accompanying
Class B Warrants (the “Class B Warrants”) to purchase 168,000 shares of common stock and accompanying Class C Warrants (the
“Class C Warrants”) to purchase 168,000 shares of Common Stock, at a combined public offering price of $5.50 per share and
Class B Warrant and Class C Warrant, and (i) 1,650,181 pre-funded warrants
(the “Pre-Funded Warrants” and together with the Class B Warrants and the Class C Warrants, the “Warrants” and
together with the Shares and the shares of common stock underlying the Warrants, the “Securities”) exercisable for 1,650,181
shares of Common Stock, and accompanying Class B Warrants to purchase 1,650,181 shares of Common Stock and Class C Warrants to purchase
1,650,181 shares of Common Stock, at a combined public offering price of $5.50, less the exercise price of $0.0001, per Pre-Funded Warrant
and accompanying Class B Warrant and Class C Warrant, to the Investors, for aggregate gross proceeds from the offering of approximately
$10 million before deducting placement agent fees and related offering expenses. As a result of the transaction, the Company issued 1,818,181
shares of common stock, including the 168,000 shares and the immediate exercise of 1,650,181 pre-funded warrants, for gross proceeds
of $10.0 million. The Company received net proceeds of $9.0 million after deducting placement agent fees and offering expenses.
NOTE
10: RELATED PARTY TRANSACTIONS
As
of December 31, 2023 and 2022, the Company made net repayments for amounts due to related parties totaling $130,205 and $170,000, respectively.
As of December 31, 2023 and December 31, 2022, amounts due to related parties were $400,012 and $556,217, respectively. The advances
are unsecured, non-interest bearing and due on demand. Amounts due to related parties consist of current and former executives, and a
board member.
As
of December 31, 2023 and 2022, due to related parties includes advances from the former officer, Mark Lynn, who also serves as a director,
totaling $104,568 and $104,568 respectively, and accrued salary and expense reimbursements of $87,222 and $100,649, respectively, to
current officers.
In
October 2022, the Company received advances from a director, Trevor Pettennude, totaling $325,000. The advances are unsecured, non- interest
bearing and due on demand. As of December 31, 2023 and 2022, the amounts $175,000 and $325,000 were outstanding.
As
of December 31, 2023, due to related parties includes advances from the Chief Executive Officer of $33,222.
NOTE
11: SHARE-BASED PAYMENTS
Common
Stock Warrants
2023
Transactions
In
connection with the January Private Placement, the Company granted 32,085 pre-funded warrants which were immediately exercised for shares
of common stock. The Company also granted an additional 51,085 warrants as part of the offering. Each warrant has an exercise price of
$9.43
per share, is immediately exercisable upon issuance and expires five years after issuance. The Company also granted the placement agent
3,831 warrants to purchase common stock at an exercise price of $122.35 per share, which is immediately exercisable upon issuance and
expires five years after issuance.
In
connection with merchant advances (Note 6), the Company granted 6,095 warrants to purchase common stock at an exercise price of $131.25.
The warrants are immediately exercisable upon issuance and expire five years after issuance.
In
connection with the August Private Placement, the Company granted 481,875 pre-funded warrants, which had not yet been exercised for shares
of common stock as of September 30, 2023. These warrants are expected to be fully sold and exercised into shares in the fourth quarter
of 2023. The Company also granted an additional 1,027,750 warrants as part of the offering. Each warrant has an exercise price of $9.43
per share, is immediately exercisable upon issuance and expires 5.5 years after issuance. The Company also granted the placement agent
38,541 warrants to purchase common stock at an exercise price of $12.16 per share, which is immediately exercisable upon issuance and
expires 5.5 years after issuance.
In
connection with the August Private Placement, the Company entered into a warrant amendment (the “Warrant Amendment”) with
certain investors to amend certain existing warrants to purchase up to 196,542 shares of Common Stock that were previously issued in
December 2022 and January 2023 to the investors, with an exercise price of $131.25 per share and $95.00 per share, respectively (the
“Amended Warrants”) as follows: (i) to reduce the exercise price of the Amended Warrants to $9.43 per share, and (ii) to
extend the original expiration date of the Amended Warrants so that they will terminate five and one half years from the closing of the
offering. Immediately following the Warrant Amendment, the Company exercised warrants for 123,814 shares of common stock for proceeds
of $1,167,566.
2022
Transactions
In
connection with the April note agreement, the Company granted warrants to acquire 12,577 shares of common stock at an exercise price
of $122.00 per share expiring in April 2027.
On
May 10, 2022, pursuant to the Underwriting Agreement, the Company issued the Underwriters’ Warrants to purchase up to an aggregate
of 14,956 shares of common stock. The Underwriters’ Warrants may be exercised beginning on November 1, 2022 until May 5, 2027.
The initial exercise price of each Underwriters’ Warrant is $32.50 per share, which represents 130% of the public offering price.
In
connection with the July 22 and July 28 notes, the Company issued an aggregate of 41,124 and 27,655 warrants to purchase common stock
at an exercise price of $15.20 and $11.30 per share, respectively. The warrants expire in July 2027.
In
connection with the November public offering, the Company granted 1,650,181 pre-funded warrants which were immediately exercised for
shares of common stock. The Company also granted an additional 1,818,181 Class B Warrants and 1,818,181 Class C Warrants as part of the
offering. Each Class B Warrant has an exercise price of $5.25 per share, is immediately exercisable upon issuance and expires five years
after issuance. Each Class C Warrant has an exercise price of $5.25 per share, is immediately exercisable upon issuance and expires thirteen
months after issuance. The Company also granted the placement agent 136,364 warrants to purchase common stock at an exercise price of
$6.88 per share, which are exercisable 180 days after issuance and expire in five years.
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 for a fair value of $164,200. The warrants are immediately exercisable.
The
Company granted 44,000 warrants to purchase common stock at an exercise price of $5.00 to the lender in connection with its merchant
advances.
A
summary of information related to common stock warrants for the years ended December 31, 2023 and 2022 is as follows:
SUMMARY OF INFORMATION RELATED TO COMMON STOCK WARRANTS
| | |
Common Stock Warrants | | |
Weighted Average Exercise
Price | |
| Outstanding - December 31, 2022 | |
| 176,733 | | |
$ | 209.25 | |
| Granted | |
| 1,641,262 | | |
| 14.69 | |
| Exercised | |
| (637,775 | ) | |
| 14.11 | |
| Forfeited | |
| — | | |
| — | |
| Outstanding - December 31, 2023 | |
| 1,180,220 | | |
$ | 25.40 | |
| | |
| | | |
| | |
| Exercisable at December 31, 2022 | |
| 171,278 | | |
$ | 210.50 | |
| Exercisable at December 31, 2023 | |
| 1,180,220 | | |
$ | 25.40 | |
Stock
Options
2020
Incentive Stock Plan
The
Company has adopted a 2020 Omnibus Incentive Stock Plan (the “2020 Plan”). An aggregate of 1,320 shares of the Company’s
common stock is reserved for issuance and available for awards under the 2020 Plan, including incentive stock options granted under the
2020 Plan. The 2020 Plan administrator may grant awards to any employee, director, consultant or other person providing services to us
or our affiliates. During 2021, 1,093 options were granted to executives and directors at an exercise price from $385 to $415 per share.
As of December 31, 2022, 227 options were available for future issuance.
2013
Incentive Stock Plan
The
Company has adopted the 2013 Stock Plan, as amended and restated (the “Plan”), which provides for the grant of shares of
stock options, stock appreciation rights, and stock awards (performance shares) to employees, non-employee directors, and non-employee
consultants. The number of shares authorized by the Plan was 11,964 shares as December 31, 2023 and 2022. The option exercise price generally
may not be less than the underlying stock’s fair market value at the date of the grant and generally have a term often years. The
amounts granted each calendar year to an employee or non-employee is limited depending on the type of award. Stock options comprise all
of the awards granted since the Plan’s inception. Shares available for grant under the Plan amounted to 333 and as of December
31, 2023. Vesting generally occurs over a period of immediately to four years.
A
summary of information related to stock options under our 2013 and 2020 Stock Plan for the years ended December 31, 2023 and 2022 is
as follows:
SUMMARY OF INFORMATION RELATED TO STOCK OPTIONS UNDER STOCK PLAN
| | |
Options | | |
Weighted
Average Exercise
Price | |
| Outstanding - December 31, 2022 | |
| 1,558 | | |
$ | 9,050 | |
| Granted | |
| — | | |
| — | |
| Exercised | |
| — | | |
| — | |
| Forfeited | |
| — | | |
| — | |
| Outstanding - December 31, 2023 | |
| 1,558 | | |
$ | 9,050 | |
| Exercisable at December 31, 2022 | |
| 1,389 | | |
$ | 10,125 | |
| Exercisable at December 31, 2023 | |
| 1,487 | | |
$ | 9,098 | |
| | |
| | | |
| | |
| Weighted average duration
(years) to expiration of outstanding options at December 31, 2023 | |
| 5.47 | | |
| | |
Stock-based
compensation expense of $408,810 and $479,038 was recognized during the year ended December 31, 2023 and 2022, respectively. During the
year ended December 31, 2023 and 2022, $351,214 and $421,442 was recorded to general and administrative expenses, and $57,596 and $57,596
was recorded to sales and marketing expense in the consolidated statements of operations, all respectively. Total unrecognized compensation
cost related to non-vested stock option awards as of December 31, 2023 amounted to $169,190 and will be recognized over a weighted average
period of 0.46 years.
NOTE
12: LEASE OBLIGATIONS
Rent
is classified by function on the consolidated statements of operations either as general and administrative, sales and marketing, or
cost of revenue.
The
Company determines whether an arrangement is or contains a lease at inception by evaluating potential lease agreements including services
and operating agreements to determine whether an identified asset exists that the Company controls over the term of the arrangement.
Lease commencement is determined to be when the lessor provides access to, and the right to control, the identified asset.
The
rental payments for the Company’s leases are typically structured as either fixed or variable payments. Fixed rent payments include
stated minimum rent and stated minimum rent with stated increases. The Company considers lease payments that cannot be predicted with
reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded
from the calculation of lease liabilities.
Management
uses judgment in determining lease classification, including determination of the economic life and the fair market value of the identified
asset. The fair market value of the identified asset is generally estimated based on comparable market data provided by third-party sources.
In
January 2023, the Company entered into a lease agreement extension for its corporate office and distribution center in Vernon, California
that expires on January 31, 2025. The lease has monthly base rent payments of $12,000. The Company recognized a right of use asset of
$31,597 and lease liability of $170,002 using a discount rate of 10.0%.
In
September 2023, the Company entered into a lease agreement extension for a showroom space in Los Angeles, California that commences in
March 2023 and expires in September 2024. The lease has a monthly base rent of $25,000. The Company recognized a right of use asset of
$658,091 and lease liability of $1,040,812 using a discount rate of 10.0%.
The
following is a summary of operating lease assets and liabilities:
SUMMARY OF OPERATING LEASE ASSETS AND LIABILITIES
| Operating
leases | |
2023 | | |
2022 | |
| | |
December
31, | |
| Operating
leases | |
2023 | | |
2022 | |
| Assets | |
| | |
| |
| ROU operating lease assets | |
$ | 689,688 | | |
$ | 102,349 | |
| | |
| | | |
| | |
| Liabilities | |
| | | |
| | |
| Current portion of operating
lease | |
| 1,210,814 | | |
| 102,349 | |
| Total operating lease
liabilities | |
$ | 1,210,814 | | |
$ | 102,349 | |
| Operating
leases | |
2023 | | |
2022 | |
| | |
December
31, | |
| Operating
leases | |
2023 | | |
2022 | |
| Weighted average remaining lease
term (years) | |
| 1.00 | | |
| 1.00 | |
| Weighted average discount rate | |
| 10.00 | % | |
| 6.00 | % |
SUMMARY OF OPERATING LEASE OBLIGATIONS
| | |
December
31, 2023 | |
| Future minimum payments - 2024 | |
$ | 1,268,230 | |
| Less imputed interest | |
| (57,416 | ) |
| Total lease obligations | |
$ | 1,210,814 | |
NOTE
13: CONTINGENCIES
| |
● |
On
March 21, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $43,501. Such
amounts include interest due, and are included in accounts payable, net of payments made to date, in the accompanying consolidated
balance sheets. The Company does not believe it is probable that the losses in excess of such trade payables will be incurred. |
| |
|
|
| |
● |
On
February 7, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $182,400.
Such amounts include interest due, and are included in accounts payable, net of payments made to date, in the accompanying consolidated
balance sheets. The Company does not believe it is probable that the losses in excess of such trade payables will be incurred. |
| |
|
|
| |
● |
On
November 9, 2022, a vendor filed a lawsuit against Digital Brand’s Group related to prior services rendered. The claims (including
fines, fees, and legal expenses) total an aggregate of $50,190. The matter was settled in January 2023 and are on payment plans which
will be paid off in the second quarter of 2024. |
| |
|
|
| |
● |
In
August 2020 and March 2021, two lawsuits were filed against Bailey’s by third-party’s related to prior services rendered.
The claims (including fines, fees, and legal expenses) total an aggregate of $96,900. Both matters were settled in February 2022
and are on payment plans which will be paid off in the second quarter of 2024. |
| |
|
|
| |
● |
On
December 21, 2020, a Company investor filed a lawsuit against DBG for reimbursement of their investment totaling $100,000. Claimed
amounts are included in short-term convertible note payable in the accompanying consolidated balance sheets and the Company does
not believe it is probable that losses in excess of such short-term note payable will be incurred. The Company is actively working
to resolve this matter. |
| |
|
|
| |
● |
On
November 16, 2023 a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $345,384
, which represents past due fees and late fees. Such amounts are included in the accompanying balance sheets. The Company does not
believe it is probable that the losses in excess of such pay trade payables will be incurred. |
| |
|
|
| |
● |
On
November 15, 2023 a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $582,208,
which represents “double damages. The amount due to the vendor is $292,604. Such amounts are included in the accompanying balance
sheets. The Company does not believe it is probable that the losses in excess of such pay trade payables will be incurred. |
| |
● |
On
December 21, 2023, a former employee from over two years ago filed a wrongful termination lawsuit against the Company. The Company
is disputing this claim. To this point, this same law firm recently sent a demand letter for another wrongful termination of a temporary
worker we used from a third party placement agency. This person was not a Company employee at any time. |
| |
|
|
| |
● |
A
vendor filed a lawsuit against Bailey 44 related to a retail store lease in the amount of $1.5 million. The Company is disputing
the claim for damages and the matter is ongoing. The vendor has recently updated the claim to now be $450,968 after signing a long-term
lease with another brand for this location. The Company is disputing this new amount after review of the lease. |
All
claims above, to the extent management believes it will be liable, have been included in accounts payable and accrued expenses and other
liabilities in the accompanying consolidated balance sheet as of December 31, 2023.
Depending
on the nature of the proceeding, claim, or investigation, we may be subject to monetary damage awards, fines, penalties, or injunctive
orders. Furthermore, the outcome of these matters could materially adversely affect our business, results of operations, and financial
condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant
judgment to determine the likelihood and amount of loss related to such matters. While it is not possible to determine the outcomes,
we believe based on our current knowledge that the resolution of all such pending matters will not, either individually or in the aggregate,
have a material adverse effect on our business, results of operations, cash flows, or financial condition.
Except
as may be set forth above the Company is not a party to any legal proceedings, and the Company is not aware of any claims or actions
pending or threatened against us. In the future, the Company might from time to time become involved in litigation relating to claims
arising from its ordinary course of business, the resolution of which the Company does not anticipate would have a material adverse impact
on our financial position, results of operations or cash flows.
NOTE
14: INCOME TAXES
Deferred
taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes.
The differences relate primarily to depreciable assets using accelerated depreciation methods for income tax purposes, share-based compensation
expense, and for net operating loss carryforwards. As of December 31, 2023, and 2022, the Company had net deferred tax assets before
valuation allowance of $17,882,355 and $16,733,585, respectively. The following table presents the deferred tax assets and liabilities
by source:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| | |
2023 | | |
2022 | |
| | |
December
31, | |
| | |
2023 | | |
2022 | |
| Deferred tax assets: | |
| | | |
| | |
| Net operating
loss carryforwards | |
$ | 19,354,491 | | |
$ | 16,733,582 | |
| Deferred tax liabilities: | |
| | | |
| | |
| Indefinite lived intangible
assets | |
| (1,840,170 | ) | |
| — | |
| Valuation allowance | |
| (17,882,355 | ) | |
| (16,733,582 | ) |
| Net
deferred tax assets (liabilities) | |
$ | (368,034 | ) | |
$ | — | |
A
reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:
SCHEDULE OF THE COMPANY'S EFFECTIVE TAX RATE TO THE STATUTORY FEDERAL RATE
| | |
2023 | | |
2022 | |
| | |
Years
Ended December
31, | |
| | |
2023 | | |
2022 | |
| Statutory federal rate | |
| 21.0 | % | |
| 21.0 | % |
| State income taxes net of federal income tax
benefit | |
| 7.0 | | |
| 7.0 | |
| Permanent adjustment | |
| (18.0 | ) | |
| — | |
| Change in valuation allowance | |
| (14.4 | ) | |
| (28.0 | ) |
| Effective income tax rate | |
| (4.4 | )% | |
| — | |
The
Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making
such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company assessed
the need for a valuation allowance against its net deferred tax assets and determined a full valuation allowance is required due, cumulative
losses through December 31, 2023, and no history of generating taxable income. Therefore, valuation allowances of $17,882,355 and $16,733,582
were recorded as of December 31, 2023 and 2022, respectively. Valuation allowance increased by $1,148,773 and $3,630,314 during the years
ended December 31, 2023 and 2022, respectively. Deferred tax assets were calculated using the Company’s combined statutory tax
rate, which it estimated to be approximately 28.0%. The Company has evaluated its valuation allowance assertion which resulted in a full
valuation allowance and residual naked credit given the net operating losses generated post 2017 are subject to a 80% limitation. As
a result, the Company recorded a net deferred tax liability of $368,034 based on its assessment of the utilization of deferred tax assets
surrounding the Company’s indefinite lived intangible assets. The effective rate is reduced to (4.4%) and 0% for 2023 and 2022
due to the full valuation allowance on its net deferred tax assets.
The
Company’s ability to utilize net operating loss carryforwards will depend on its ability to generate adequate future taxable income.
At December 31, 2023 and 2022, the Company had net operating loss carryforwards available to offset future taxable income in the amounts
of approximately $69,242,000 and $59,865,000, for which losses from 2018 forward can be carried forward indefinitely.
As
a result of prior operating losses, the Company has net operating loss, or “NOL,” carryforwards for federal income tax purposes.
The ability to utilize NOL carryforwards to reduce taxable income in future years could become subject to significant limitations under
Section 382 of the Internal Revenue Code if the Company undergoes an ownership change. The Company would undergo an ownership change
if, among other things, the stockholders who own, directly or indirectly, 5% or more of our common stock, or are otherwise treated as
“5% shareholders” under Section 382 of the U.S. Internal Revenue Code and the regulations promulgated thereunder, increase
their aggregate percentage ownership of the Company’s stock by more than 50 percentage points over the lowest percentage of the
stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential
ownership change.
The
Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions. The Company will
recognize interest and penalties related to any uncertain tax positions through its income tax expense.
The
Company is not presently subject to any income tax audit in any taxing jurisdiction, though all tax years from 2018 on remain open to
examination.
NOTE
15: SUBSEQUENT EVENTS
Through
the issuance date, the Company has issued 481,172 shares of common stock pursuant to an At-The-Market Offering Agreement for an at-the-market
offering (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as sales agent (“Wainwright”).
Through
the issuance date, the Company converted shares of Series C Preferred Stock into 50,043 shares of common stock.
