Document and Entity Information
Document and Entity Information | 9 Months Ended |
Sep. 30, 2022 | |
Document and Entity Information [Abstract] | |
Document Type | S-1 |
Entity Registrant Name | DIGITAL BRANDS GROUP, INC. |
Entity Filer Category | Non-accelerated Filer |
Entity Small Business | true |
Entity Emerging Growth Company | true |
Amendment Flag | false |
Entity Central Index Key | 0001668010 |
Entity Ex Transition Period | true |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2021 | Dec. 31, 2020 |
Current assets: | ||
Cash and cash equivalents | $ 528,394 | $ 575,986 |
Accounts receivable, net | 89,394 | 35,532 |
Due from factor, net | 985,288 | 210,033 |
Inventory, net | 2,755,358 | 1,163,279 |
Prepaid expenses and other current assets | 417,900 | 23,826 |
Total current assets | 4,776,334 | 2,008,656 |
Deferred offering costs | 367,696 | 214,647 |
Property, equipment and software, net | 97,265 | 62,313 |
Goodwill | 18,264,822 | 6,479,218 |
Intangible assets, net | 12,841,313 | 7,494,667 |
Deposits | 137,794 | 92,668 |
Total assets | 36,485,224 | 16,352,169 |
Current liabilities: | ||
Accounts payable | 6,562,690 | 5,668,703 |
Accrued expenses and other liabilities | 2,237,145 | 1,245,646 |
Deferred revenue | 276,397 | 1,667 |
Due to related parties | 277,635 | 441,453 |
Contingent consideration liability | 12,179,476 | |
Convertible notes, current | 100,000 | 700,000 |
Accrued interest payable | 1,110,679 | 737,039 |
Note payable - related party | 299,489 | 137,856 |
Venture debt, net of discount | 6,001,755 | 5,854,326 |
Loan payable, current | 2,502,000 | 992,000 |
Promissory note payable | 3,500,000 | 4,500,000 |
Total current liabilities | 35,047,266 | 20,278,690 |
Convertible note payable, net | 5,501,614 | 1,215,815 |
Loan payable | 713,182 | 709,044 |
Derivative liability | 2,294,720 | |
Warrant liability | 18,223 | 6,265 |
Total liabilities | 43,575,005 | 22,209,814 |
Commitments and contingencies (Note 12) | ||
Stockholders' deficit: | ||
Common stock, $0.0001 par, 200,000,000 and 110,000,000 shares authorized, 13,001,690 and 664,167 shares issued and outstanding as of both December 31, 2021 and 2020, respectively | 13 | 1 |
Additional paid-in capital | 58,614,160 | 27,482,060 |
Accumulated deficit | (65,703,954) | (33,345,997) |
Total stockholders' equity (deficit) | (7,089,781) | (5,857,645) |
Total liabilities and stockholders' equity (deficit) | 36,485,224 | 16,352,169 |
Previously Reported | ||
Stockholders' deficit: | ||
Common stock, $0.0001 par, 200,000,000 and 110,000,000 shares authorized, 13,001,690 and 664,167 shares issued and outstanding as of both December 31, 2021 and 2020, respectively | 13 | |
Additional paid-in capital | 58,614,160 | |
Series Seed Preferred Stock | ||
Stockholders' deficit: | ||
Preferred stock | 2,071 | |
Series A preferred stock | ||
Stockholders' deficit: | ||
Preferred stock | 565 | |
Series A-2 preferred stock | ||
Stockholders' deficit: | ||
Preferred stock | 593 | |
Series A-3 preferred stock | ||
Stockholders' deficit: | ||
Preferred stock | 904 | |
Series CF preferred stock | ||
Stockholders' deficit: | ||
Preferred stock | 83 | |
Series B Convertible Preferred Stock | ||
Stockholders' deficit: | ||
Preferred stock | $ 2,075 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) | Dec. 31, 2020 $ / shares shares |
Series Seed Preferred Stock | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.0001 |
Preferred Stock, Shares Authorized | 20,714,518 |
Preferred Stock, Shares Issued | 20,714,518 |
Preferred Stock, Shares Outstanding | 20,714,518 |
Series A preferred stock | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.0001 |
Preferred Stock, Shares Authorized | 14,481,413 |
Preferred Stock, Shares Issued | 5,654,072 |
Preferred Stock, Shares Outstanding | 5,654,072 |
Series A-2 preferred stock | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.0001 |
Preferred Stock, Shares Authorized | 20,000,000 |
Preferred Stock, Shares Issued | 5,932,742 |
Preferred Stock, Shares Outstanding | 5,932,742 |
Series A-3 preferred stock | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.0001 |
Preferred Stock, Shares Authorized | 18,867,925 |
Preferred Stock, Shares Issued | 9,032,330 |
Preferred Stock, Shares Outstanding | 9,032,330 |
Series CF preferred stock | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.0001 |
Preferred Stock, Shares Authorized | 2,000,000 |
Preferred Stock, Shares Issued | 836,331 |
Preferred Stock, Shares Outstanding | 836,331 |
Series B Convertible Preferred Stock | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.0001 |
Preferred Stock, Shares Authorized | 20,714,517 |
Preferred Stock, Shares Issued | 20,714,517 |
Preferred Stock, Shares Outstanding | 20,714,517 |
Undesignated preferred stock | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.0001 |
Preferred Stock, Shares Authorized | 936,144 |
Preferred Stock, Shares Issued | 0 |
Preferred Stock, Shares Outstanding | 0 |
Common Stock | |
Common stock, par or stated value per share | $ / shares | $ 0.0001 |
Common Stock, Shares Authorized | 110,000,000 |
Common Stock | Previously Reported | |
Common Stock, Shares, Issued | 6,642 |
Common Stock, Shares, Outstanding | 6,642 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||
Sep. 30, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2021 | Jun. 30, 2021 | Mar. 31, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||
Net revenues | $ 3,424,522 | $ 2,163,280 | $ 10,595,933 | $ 3,575,214 | $ 7,584,859 | $ 5,239,437 | ||||
Cost of net revenues | 1,771,178 | 954,137 | 5,298,011 | 2,179,023 | 4,689,200 | 4,685,755 | ||||
Gross profit (loss) | 1,653,344 | 1,209,143 | 5,297,922 | 1,396,191 | 2,895,659 | 553,682 | ||||
Operating expenses: | ||||||||||
General and administrative | 3,624,841 | 3,720,863 | 13,226,308 | 12,820,841 | 17,779,903 | 7,149,210 | ||||
Sales and marketing | 1,225,417 | 1,307,219 | 3,971,280 | 2,401,322 | 3,810,583 | 576,469 | ||||
Distribution | 97,737 | 105,332 | 522,510 | 238,774 | 489,371 | 342,466 | ||||
Loss on disposal of property and equipment | (848,927) | |||||||||
Impairment of intangible assets | 3,400,000 | 784,500 | ||||||||
Change in fair value of contingent consideration | (702,885) | 3,988,493 | 6,418,355 | 7,039,394 | 8,764,460 | |||||
Total operating expenses | 4,245,110 | 9,121,907 | 24,138,453 | 22,500,331 | 34,244,317 | 9,701,572 | ||||
Loss from operations | (2,591,766) | (7,912,764) | (18,840,531) | (21,104,140) | (31,348,658) | (9,147,890) | ||||
Other income (expense): | ||||||||||
Interest expense | (2,279,016) | (447,842) | (6,050,492) | (2,020,806) | (3,663,921) | (1,599,518) | ||||
Other non-operating income (expenses) | (23,690) | (577,441) | 2,629,685 | (634,654) | 1,554,502 | 32,754 | ||||
Total other income (expense), net | (2,302,706) | (1,025,283) | (3,420,807) | (2,655,460) | (2,109,419) | (1,566,764) | ||||
Income tax benefit (provision) | (1,100,120) | (1,100,120) | 13,641 | |||||||
Net loss | $ (4,894,472) | $ (9,533,924) | $ (7,832,942) | $ (8,938,047) | $ (10,697,498) | $ (3,023,935) | $ (22,261,338) | $ (22,659,480) | $ (32,357,957) | $ (10,728,295) |
Weighted average common shares outstanding - basic | 528,758 | 117,866 | 341,229 | 60,027 | 76,289 | 6,642 | ||||
Weighted average common shares outstanding - diluted | 528,758 | 117,866 | 341,229 | 60,027 | 76,289 | 6,642 | ||||
Net loss per common share - basic | $ (9.26) | $ (75.83) | $ (65.24) | $ (377.49) | $ (420.82) | $ (1,615.30) | ||||
Net loss per common share - diluted | $ (9.26) | $ (75.83) | $ (65.24) | $ (377.49) | $ (420.82) | $ (1,615.30) |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - USD ($) | Preferred Stock Series Seed Preferred Stock | Preferred Stock Series A preferred stock | Preferred Stock Series A-2 preferred stock | Preferred Stock Series A-3 preferred stock | Preferred Stock Series CF preferred stock | Preferred Stock Series B Preferred Stock | Common Stock Previously Reported | Common Stock | Additional Paid-in Capital Previously Reported | Additional Paid-in Capital | Subscription Receivable | Accumulated Deficit | Series A-3 preferred stock | Series CF preferred stock | Total |
Beginning balance (in shares) at Dec. 31, 2019 | 20,714,518 | 5,654,072 | 5,932,742 | 8,223,036 | 126,641 | 6,642 | |||||||||
Beginning balance at Dec. 31, 2019 | $ 2,071 | $ 565 | $ 593 | $ 823 | $ 12 | $ 1 | $ 15,486,115 | $ (22,677) | $ (22,617,702) | $ (7,150,199) | |||||
Issuance of Series CF preferred stock (in shares) | 709,690 | ||||||||||||||
Issuance of Series CF preferred stock | $ 71 | 309,679 | $ 309,750 | ||||||||||||
Issuance of Series A-3 preferred stock (in shares) | 809,294 | 809,294 | 709,690 | 0 | |||||||||||
Issuance of Series A-3 preferred stock | $ 81 | 428,845 | $ 22,677 | $ 451,603 | |||||||||||
Issuance of Series B preferred stock (in shares) | 20,754,717 | ||||||||||||||
Issuance of Series B preferred stock | $ 2,075 | 10,997,925 | 11,000,000 | ||||||||||||
Offering costs | (69,470) | (69,470) | |||||||||||||
Fair value of warrant issuances - venture debt | 184,191 | 184,191 | |||||||||||||
Stock-based compensation | 144,775 | 144,775 | |||||||||||||
Net loss | (10,728,295) | (10,728,295) | |||||||||||||
Ending balance at Dec. 31, 2020 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | $ 1 | $ 1 | $ 27,482,060 | 27,482,060 | (33,345,997) | (5,857,645) | |||
Ending balance (in shares) at Dec. 31, 2020 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | 6,642 | |||||||
Conversion of preferred stock into common stock | $ 1 | 27,519,036 | |||||||||||||
Stock-based compensation | 36,976 | 36,976 | |||||||||||||
Net loss | (3,023,935) | (3,023,935) | |||||||||||||
Ending balance at Mar. 31, 2021 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | (36,369,932) | (8,844,604) | |||||||
Ending balance (in shares) at Mar. 31, 2021 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | ||||||||
Beginning balance (in shares) at Dec. 31, 2020 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | 6,642 | |||||||
Beginning balance at Dec. 31, 2020 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | $ 1 | $ 1 | 27,482,060 | 27,482,060 | (33,345,997) | (5,857,645) | |||
Conversion of preferred stock into common stock | 6,293 | ||||||||||||||
Conversion of notes into common stock | 2,680,289 | ||||||||||||||
Issuance of common stock pursuant to equity line of credit | 367,996 | ||||||||||||||
Net loss | (22,659,480) | ||||||||||||||
Ending balance at Sep. 30, 2021 | $ 11 | 57,468,268 | (56,005,477) | 1,462,801 | |||||||||||
Ending balance (in shares) at Sep. 30, 2021 | 126,275 | ||||||||||||||
Beginning balance (in shares) at Dec. 31, 2020 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | 6,642 | |||||||
Beginning balance at Dec. 31, 2020 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | $ 1 | $ 1 | 27,482,060 | 27,482,060 | (33,345,997) | (5,857,645) | |||
Conversion of preferred stock into common stock | $ (2,071) | $ (565) | $ (593) | $ (904) | $ (83) | $ (2,075) | $ 4 | 6,287 | 6,291 | ||||||
Conversion of preferred stock into common stock (shares) | (20,714,518) | (5,654,072) | (5,932,742) | (9,032,330) | (836,331) | (20,754,717) | 40,272 | ||||||||
Issuance of common stock in public offering | $ 2 | 10,000,000 | 10,000,002 | ||||||||||||
Issuance of common stock in public offering (in shares) | 24,096 | ||||||||||||||
Offering costs | (2,116,957) | (2,116,957) | |||||||||||||
Exercise of over-allotment option | 1,364,997 | 1,364,997 | |||||||||||||
Exercise of over-allotment option (in shares) | 3,614 | ||||||||||||||
Conversion of notes into common stock | $ 1 | 2,680,288 | 2,680,289 | ||||||||||||
Conversion of notes into common stock (in shares) | 11,352 | ||||||||||||||
Conversion of related party notes and payables into common stock | 257,515 | 257,515 | |||||||||||||
Conversion of related party notes and payables into common stock (in shares) | 1,524 | ||||||||||||||
Warrants issued in connection with note | 501,658 | 501,658 | |||||||||||||
Common stock and warrants issued in connection with note (in shares) | 1,300 | ||||||||||||||
Common stock issued in connection with business combination | $ 3 | 11,428,735 | 11,428,738 | ||||||||||||
Common stock issued in connection with business combination (in shares) | 32,943 | ||||||||||||||
Exercise of warrants | 1,768,046 | 1,768,046 | |||||||||||||
Exercise of warrants (in shares) | 3,869 | ||||||||||||||
Common stock issued pursuant to consulting agreement | 595,500 | 595,500 | |||||||||||||
Common stock issued pursuant to consulting agreement (in shares) | 2,415 | ||||||||||||||
Stock-based compensation | 4,278,337 | 4,278,337 | |||||||||||||
Stock-based compensation (Shares) | 727 | ||||||||||||||
Issuance of common stock pursuant to equity line of credit | 367,696 | 367,696 | |||||||||||||
Issuance of common stock pursuant to equity line of credit (in shares) | 1,264 | ||||||||||||||
Net loss | (32,357,957) | (32,357,957) | |||||||||||||
Ending balance at Dec. 31, 2021 | $ 13 | $ 13 | 58,614,160 | 58,614,160 | (65,703,954) | (7,089,781) | |||||||||
Ending balance (in shares) at Dec. 31, 2021 | 130,018 | 130,017 | |||||||||||||
Beginning balance (in shares) at Mar. 31, 2021 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | ||||||||
Beginning balance at Mar. 31, 2021 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | (36,369,932) | (8,844,604) | |||||||
Conversion of preferred stock into common stock | $ (2,071) | $ (565) | $ (593) | $ (904) | $ (83) | $ (2,075) | $ 4 | 6,287 | |||||||
Conversion of preferred stock into common stock (shares) | (20,714,518) | (5,654,072) | (5,932,742) | (9,032,330) | (836,331) | (20,754,717) | 40,272 | ||||||||
Issuance of common stock in public offering | $ (2) | (10,000,000) | (10,000,002) | ||||||||||||
Issuance of common stock in public offering (in shares) | 24,096 | ||||||||||||||
Offering costs | (2,116,957) | (2,116,957) | |||||||||||||
Exercise of over-allotment option | 1,364,997 | 1,364,997 | |||||||||||||
Exercise of over-allotment option (in shares) | 3,614 | ||||||||||||||
Conversion of notes into common stock | $ 1 | 2,680,288 | 2,680,289 | ||||||||||||
Conversion of related party notes and payables into common stock | 257,515 | 257,515 | |||||||||||||
Conversion of related party notes and payables into common stock (in shares) | 1,524 | ||||||||||||||
Warrants issued in connection with note | 73,958 | 73,958 | |||||||||||||
Common stock and warrants issued in connection with note (in shares) | 200 | ||||||||||||||
Common stock issued in connection with business combination | $ 2 | 8,025,540 | 8,025,542 | ||||||||||||
Common stock issued in connection with business combination (in shares) | 21,928 | ||||||||||||||
Exercise of warrants | 145,696 | 145,696 | |||||||||||||
Exercise of warrants (in shares) | 319 | ||||||||||||||
Common stock issued pursuant to consulting agreement | 183,000 | 183,000 | |||||||||||||
Common stock issued pursuant to consulting agreement (in shares) | 500 | ||||||||||||||
Stock-based compensation | 3,801,553 | 3,801,553 | |||||||||||||
Net loss | (10,697,498) | (10,697,498) | |||||||||||||
Ending balance at Jun. 30, 2021 | $ 10 | 51,940,914 | (47,067,430) | 4,873,493 | |||||||||||
Ending balance (in shares) at Jun. 30, 2021 | 110,446 | ||||||||||||||
Issuance of common stock in public offering | 367,696 | 367,696 | |||||||||||||
Issuance of common stock in public offering (in shares) | 1,264 | ||||||||||||||
Common stock issued in connection with business combination | $ 1 | 3,403,195 | 3,403,196 | ||||||||||||
Common stock issued in connection with business combination (in shares) | 11,015 | ||||||||||||||
Exercise of warrants | 1,622,350 | 1,622,350 | |||||||||||||
Exercise of warrants (in shares) | 3,550 | ||||||||||||||
Stock-based compensation | 134,113 | 134,113 | |||||||||||||
Net loss | (8,938,047) | (8,938,047) | |||||||||||||
Ending balance at Sep. 30, 2021 | $ 11 | 57,468,268 | (56,005,477) | 1,462,801 | |||||||||||
Ending balance (in shares) at Sep. 30, 2021 | 126,275 | ||||||||||||||
Beginning balance (in shares) at Dec. 31, 2021 | 130,018 | 130,017 | |||||||||||||
Beginning balance at Dec. 31, 2021 | $ 13 | $ 13 | 58,614,160 | 58,614,160 | (65,703,954) | (7,089,781) | |||||||||
Stock-based compensation | 139,093 | 139,093 | |||||||||||||
Net loss | (7,832,942) | (7,832,942) | |||||||||||||
Ending balance at Mar. 31, 2022 | $ 14 | 59,954,834 | (73,536,896) | (13,582,048) | |||||||||||
Ending balance (in shares) at Mar. 31, 2022 | 138,756 | ||||||||||||||
Beginning balance (in shares) at Dec. 31, 2021 | 130,018 | 130,017 | |||||||||||||
Beginning balance at Dec. 31, 2021 | $ 13 | $ 13 | $ 58,614,160 | 58,614,160 | (65,703,954) | (7,089,781) | |||||||||
Conversion of notes into common stock | 1,802,372 | ||||||||||||||
Net loss | (22,261,338) | ||||||||||||||
Ending balance at Sep. 30, 2022 | $ 53 | 75,440,940 | (87,965,292) | (12,524,298) | |||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 1 | 529,492 | |||||||||||||
Beginning balance (in shares) at Mar. 31, 2022 | 138,756 | ||||||||||||||
Beginning balance at Mar. 31, 2022 | $ 14 | 59,954,834 | (73,536,896) | (13,582,048) | |||||||||||
Issuance of common stock in public offering | $ (37) | (9,347,413) | (9,347,450) | ||||||||||||
Issuance of common stock in public offering (in shares) | 373,898 | ||||||||||||||
Offering costs | (1,930,486) | (1,930,486) | |||||||||||||
Stock-based compensation | 119,759 | 119,759 | |||||||||||||
Net loss | (9,533,924) | (9,533,924) | |||||||||||||
Ending balance at Jun. 30, 2022 | $ 53 | 68,190,549 | (83,070,820) | (14,880,218) | |||||||||||
Ending balance (in shares) at Jun. 30, 2022 | 528,742 | ||||||||||||||
Common stock issued pursuant to consulting agreement | 123,000 | 123,000 | |||||||||||||
Common stock issued pursuant to consulting agreement (in shares) | 750 | ||||||||||||||
Stock-based compensation | 110,093 | 110,093 | |||||||||||||
Net loss | (4,894,472) | (4,894,472) | |||||||||||||
Ending balance at Sep. 30, 2022 | $ 53 | $ 75,440,940 | $ (87,965,292) | $ (12,524,298) | |||||||||||
Ending balance (in shares) at Sep. 30, 2022 | 1 | 529,492 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2021 | Dec. 31, 2020 | |
Cash flows from operating activities: | ||
Net loss | $ (32,357,957) | $ (10,728,295) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 1,220,736 | 603,857 |
Amortization of loan discount and fees | 1,382,222 | 241,878 |
Stock-based compensation | 4,800,337 | 144,775 |
Fees incurred in connection with debt financings | 560,309 | |
Change in fair value of warrant liability | 11,958 | (2,353) |
Change in fair value of derivative liability | (910,204) | |
Change in fair value of contingent consideration | 8,764,460 | |
Deferred income tax benefit | (1,100,120) | |
Impairment of intangible assets | 3,400,000 | 784,500 |
Gain on forgiveness of PPP loans | (407,994) | |
Loss on disposal of property and equipment | 848,927 | |
Change in credit reserve | 36,893 | (207,666) |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | 150,288 | 1,947 |
Due from factor, net | (399,701) | 1,616,939 |
Inventory | (911,293) | 3,202,350 |
Prepaid expenses and other current assets | (151,917) | 168,589 |
Accounts payable | 456,690 | 673,263 |
Accrued expenses and other liabilities | 834,489 | (591,028) |
Deferred revenue | 4,882 | (13,564) |
Due to related parties | (63,550) | 178,026 |
Accrued interest | 461,113 | 1,016,268 |
Net cash used in operating activities | (14,218,359) | (2,061,587) |
Cash flows from investing activities: | ||
Cash acquired (consideration) pursuant to business combination | (5,936,757) | 106,913 |
Purchase of property, equipment and software | (43,179) | (864) |
Deposits | (31,117) | 98,835 |
Net cash used in investing activities | (6,011,053) | 204,884 |
Cash flows from financing activities: | ||
Proceeds from related party advances | 22,856 | |
Repayments to factor | (41,200) | (1,931,369) |
Proceeds from venture debt | 1,050,000 | |
Proceeds from venture debt | 2,779,910 | 1,701,044 |
Repayments of promissory notes and loans payable | (2,006,628) | |
Issuance of convertible notes payable | 8,433,650 | 1,250,308 |
Proceeds from initial public offering | 10,000,002 | |
Exercise of over-allotment option with public offering, net | 1,364,997 | |
Exercise of warrants | 1,768,046 | |
Proceeds from sale of Series A-3 preferred stock | 428,926 | |
Subscription receivable from Series A-3 preferred stock | 22,677 | |
Proceeds from sale of Series CF preferred stock | 309,750 | |
Offering costs | (2,116,957) | (461,972) |
Net cash provided by financing activities | 20,181,820 | 2,392,220 |
Net increase in cash and cash equivalents | (47,592) | 535,517 |
Cash and cash equivalents at beginning of period | 575,986 | 40,469 |
Cash and cash equivalents at end of period | 528,394 | 575,986 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 902,089 | |
Supplemental disclosure of non-cash investing and financing activities: | ||
Conversion of preferred stock into common stock | 6,291 | |
Conversion of related party notes and payables into common stock | 257,515 | |
Conversion of debt into common stock | 2,680,289 | |
Derivative liability in connection with convertible note | 3,204,924 | |
Common shares issued pursuant to equity line of credit | 367,696 | |
Conversion of contingent consideration into common stock | $ 73,500 | |
Venture debt issued in exchange of forgiveness of accrued interest | 209,211 | |
Warrants issued for offering costs | 918 | |
Warrants issued with venture debt | 184,191 | |
Issuance of promissory note payable in acquisition | 4,500,000 | |
Issuance of Series B preferred stock in acquisition | $ 11,000,000 |
NATURE OF OPERATIONS
NATURE OF OPERATIONS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
NATURE OF OPERATIONS | ||
NATURE OF OPERATIONS | NOTE 1: NATURE OF OPERATIONS Digital Brands Group, Inc. (the “Company” or “DBG”), was organized on September 17, 2012 under the laws of Delaware as a limited liability company under the name Denim.LA LLC. The Company converted to a Delaware corporation on January 30, 2013 and changed its name to Denim.LA, Inc. Effective December 31, 2020, the Company changed its name to Digital Brands Group, Inc. (DBG). The Company is a curated collection of lifestyle brands, including Bailey 44, DSTLD, Harper & Jones, Stateside and ACE Studios, that offers a variety of apparel products through direct-to-consumer and wholesale distribution. On February 12, 2020, Denim.LA, Inc. entered into an Agreement and Plan of Merger with Bailey 44, LLC (“Bailey”), a Delaware limited liability company. On the acquisition date, Bailey 44, LLC became a wholly owned subsidiary of the Company. On May 18, 2021, the Company closed its acquisition of Harper & Jones, LLC (“H&J”) pursuant to its Membership Interest Stock Purchase Agreement with D. Jones Tailored Collection, Ltd. to purchase 100% of the issued and outstanding equity of Harper & Jones, LLC. On the acquisition date, H&J became a wholly owned subsidiary of the Company. On August 30, 2021, the Company closed its acquisition of Mosbest, LLC dba Stateside (“Stateside”) pursuant to its Membership Interest Purchase Agreement with Moise Emquies to purchase 100% of the issued and outstanding equity of Stateside. On the acquisition date, Stateside became a wholly owned subsidiary of the Company. | NOTE 1: NATURE OF OPERATIONS Digital Brands Group, Inc. (the “Company” or “DBG”), was organized on September 17, 2012 under the laws of Delaware as a limited liability company under the name Denim.LA LLC. The Company converted to a Delaware corporation on January 30, 2013 and changed its name to Denim.LA, Inc. Effective December 31, 2020, the Company changed its name to Digital Brands Group, Inc. (DBG). On February 12, 2020, Denim.LA, Inc. entered into an Agreement and Plan of Merger with Bailey 44, LLC (“Bailey”), a Delaware limited liability company. On the acquisition date, Bailey 44, LLC became a wholly owned subsidiary of the Company. See Note 4. On May 18, 2021, the Company closed its acquisition of Harper & Jones, LLC (“H&J”) pursuant to its Membership Interest Stock Purchase Agreement with D. Jones Tailored Collection, Ltd. to purchase 100% of the issued and outstanding equity of Harper & Jones, LLC. On the acquisition date, H&J became a wholly owned subsidiary of the Company. See Note 4. On August 30, 2021, the Company closed its acquisition of Mosbest, LLC dba Stateside (“Stateside”) pursuant to its Membership Interest Purchase Agreement with Moise Emquies to purchase 100% of the issued and outstanding equity of Stateside. On the acquisition date, Stateside became a wholly owned subsidiary of the Company. See Note 4. In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a pandemic. As the global spread of COVID-19 continues, DBG remains first and foremost focused on a people-first approach that prioritizes the health and well-being of its employees, customers, trade partners and consumers. To help mitigate the spread of COVID-19, DBG has modified its business practices in accordance with legislation, executive orders and guidance from government entities and healthcare authorities (collectively, “COVID-19 Directives”). These directives include the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines. The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, and the imposition of protective public safety measures. Reverse Stock Split On May 12, 2021, the Board of Directors approved a one On October 21, 2022, the Board of Directors approved a one Initial Public Offering On May 13, 2021, the Company’s registration statement on Form S-1 relating to its initial public offering of its common stock (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). Further to the IPO, which closed on May 18, 2021, the Company issued and sold 24,096 shares of common stock at a public offering price of $4.15 per share. Additionally, the Company issued warrants to purchase 27,711 shares, which includes 3,614 warrants sold upon the partial exercise of the over-allotment option. The aggregate net proceeds to the Company from the IPO, were $8.6 million after deducting underwriting discounts and commissions of $0.8 million and direct offering expenses of $0.6 million. Concurrent with this offering, the Company acquired H&J (see Note 4). The Company incurred an additional $0.6 million in offering costs related to the IPO that were not paid directly out of the proceeds from the offering. |
GOING CONCERN
GOING CONCERN | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
GOING CONCERN | ||
GOING CONCERN | NOTE 2: GOING CONCERN The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated profits since inception, has sustained net losses of $22,261,338 and $22,659,480 for the nine months ended September 30, 2022 and 2021, respectively, and has incurred negative cash flows from operations during these periods. The Company has historically lacked liquidity to satisfy obligations as they come due and as of September 30, 2022, and the Company had a working capital deficit of $40,731,620. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company requires significant capital to fund operations and meet its obligations as demands are made. The Company expects to continue to generate operating losses for the foreseeable future. The accompanying consolidated financial statements do not include any adjustments as a result of this uncertainty. Management Plans In August 2021, the Company entered into an equity line of credit agreement which the investor is committed to purchase up to $17,500,000 of the Company’s common stock. The Company plans to utilize multiple drawdowns on this agreement, however, it may be unable to execute on such drawdowns due to restrictions per the agreement. | NOTE 2: GOING CONCERN The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated profits since inception, has sustained net losses of $32,357,957 and $10,728,295 for the years ended December 31, 2021 and 2020, respectively, and has incurred negative cash flows from operations for the years ended December 31, 2021 and 2020. The Company has historically lacked liquidity to satisfy obligations as they come due and as of December 31, 2021, and the Company had a working capital deficit of $30,270,932. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company expects to continue to generate operating losses for the foreseeable future. The accompanying consolidated financial statements do not include any adjustments as a result of this uncertainty. Management Plans In August 2021, the Company entered into an equity line of credit agreement which the investor is committed to purchase up to $17,500,000 of the Company’s common stock (see Note 8). The Company plans to utilize multiple drawdowns on this agreement, subject to satisfying a registration rights agreement and other restrictions, some of which is out of the Company’s control. Throughout the next twelve months, the Company intends to fund its operations primarily from the funds raised through the equity line of credit agreement, if available. Through the issuance date of these consolidated financial statements, the Company has not been able to drawdown on the agreement and has received no financings from the agreement. The Company may pursue secondary offerings or debt financings to provide working capital and satisfy debt obligations. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to secure additional funding, it may be forced to curtail or suspend its business plans. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). Stock Split On October 21, 2022, the Board of Directors approved a one Unaudited Interim Financial Information The accompanying unaudited condensed consolidated balance sheet as of September 30, 2022, the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 and of cash flows for the nine months ended September 30, 2022 and 2021 have been prepared by the Company, pursuant to the rules and regulations of the SEC for the interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the consolidated results for the interim periods presented and of the consolidated financial condition as of the date of the interim consolidated balance sheet. The results of operations are not necessarily indicative of the results expected for the year ended December 31, 2022. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s Annual Form 10-K filed with SEC on March 31, 2022. Principles of Consolidation These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, inventory, impairment of long-lived assets, contingent consideration and derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of September 30, 2022 and December 31, 2021, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of September 30, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ — $ — Contingent consideration — — 18,597,831 18,597,831 Derivative liability — — 1,690,807 1,690,807 $ — $ — $ 20,288,638 $ 20,288,638 Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Contingent Consideration Changes in acquisition-related contingent consideration liabilities during the nine months ended September 30, 2022 are as follows: Contingent Consideration Liability Outstanding as of December 31, 2021 $ 12,179,476 Change in fair value 6,418,355 Outstanding as of September 30, 2022 $ 18,597,831 The detail of contingent consideration by company is as follows: Bailey $ 10,698,475 Harper & Jones 7,899,356 $ 18,597,831 The contingent consideration liabilities were revalued as of May 18, 2022, the anniversary date of the Company’s initial public offering. As of the date of the issuance of these financial statements, the contingent consideration liabilities were not yet settled with shares. On July 29, 2022, the Company entered into an amendment to the May 2021 purchase agreement with the H&J Seller based on the ultimate settlement of the H&J contingent consideration. Pursuant to the amendment, on May 18, 2023, the Company shall deliver to the H&J Seller additional shares of common stock. The number of shares of common stock to be delivered to H&J Seller shall be calculated as follows: $7,899,356 minus any cash payments received by Seller from any capital raises, divided by the average common stock closing price per share based on the thirty-day trading period preceding May 19, 2023. Derivative Liability In connection with the Company’s convertible notes with Oasis Capital, LLC (“Oasis”) and FirstFire Global Opportunities Fund, LLC (“FirstFire”), as well as its convertible notes entered into in July 2022, 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 nine months ended September 30, 2022 are as follows: Derivative Liability Outstanding as of December 31, 2021 $ 2,294,720 Issuane of convertible notes 559,957 Conversion of underlying notes into common stock (369,393) Change in fair value (794,477) Outstanding as of September 30, 2022 $ 1,690,807 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 first-in, first-out method for Bailey and Stateside. The inventory balances as of September 30, 2022 and December 31, 2021 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: September 30, December 31, 2022 2021 Raw materials $ 435,025 $ 292,167 Work in process 256,078 242,673 Finished goods 1,964,248 2,220,519 Inventory $ 2,655,352 $ 2,755,358 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. 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 September 30, 2022 and December 31, 2021, the Company capitalized $367,696 in deferred offering costs pertaining to its equity line of credit agreement with Oasis (Note 8). Management is currently reviewing the feasibility of drawdowns on the equity line of credit. 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 September 30, 2022 and 2021, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of September 30, 2022 and 2021 are as follows: September 30, 2022 2021 Convertible notes 1,177,305 22,404 Series A convertible preferred stock 108 — Common stock warrants 132,114 35,913 Stock options 38,951 38,751 Total potentially dilutive shares 1,348,477 97,069 The stock options and warrants above are out-of-the-money as of September 30, 2022. net income. 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 has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2021. The Company has adopted ASU 2016-02 as of January 1, 2022. See Note 10. 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. Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the Company’s financial results as if the H&J and Stateside acquisitions had occurred as of January 1, 2021. 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: | NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). Principles of Consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of December 31, 2021 and 2020, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. Fair Value of Financial Instruments FASB guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Fair Value Measurements as of December 31, 2020 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ 6,265 $ 6,265 $ — $ — $ 6,265 $ 6,265 Warrant Liability Certain of the Company’s common stock warrants are carried at fair value. As of December 31, 2020, the fair value of the Company’s common stock warrant liabilities was measured under the Level 3 hierarchy using the Black-Scholes pricing model as the Company’s underlying common stock had no observable market price (see Note 10). The warrant liability was valued using a market approach. Upon the IPO, the warrant liabilities were valued using quoted prices of identical assets in active markets, and was reclassified under the Level 2 hierarchy. Changes in common stock warrant liability during the year ended December 31, 2021 are as follows: Warrant Liability Outstanding as of December 31, 2020 $ 6,265 Change in fair value 11,958 Outstanding as of December 31, 2021 $ 18,223 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 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 year ended December 31, 2021 are as follows: Contingent Consideration Liability Balance as of December 31, 2020 $ — Initial recognition in connection with acquisition of Harper & Jones 3,421,516 Stock price guarantee per consulting agreement 67,000 Conversion into shares (73,500) Change in fair value 8,764,460 Outstanding as of December 31, 2021 $ 12,179,476 Derivative Liability In connection with the Company’s convertible notes with Oasis Capital, LLC (“Oasis”) and FirstFire Global Opportunities Fund, LLC (“FirstFire”), 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 year ended December 31, 2021 are as follows: Derivative Liability Outstanding as of December 31, 2020 $ — Initial fair value on issuance of convertible note 3,204,924 Change in fair value (910,204) Outstanding as of December 31, 2021 $ 2,294,720 Change in fair value of the derivative liability is included in other non-operating income (expense), net in the consolidated statements of operations. 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 first-in, first-out method for Bailey and Stateside. The inventory balances as of December 31, 2021 and 2020 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. 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, 2021 and 2020 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 $92,213 and $283,024 for the years ended December 31, 2021 and 2020, 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: Customer relationships 3 years Contingent Consideration 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. Impairment of 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 first quarter every year. In the first quarter of 2021, management performed its annual qualitative impairment test. The Company determined no factors existed to conclude that it is more likely than not that the fair value of the reporting unit was less than its carrying amount. As such, no goodwill impairment was recognized as of December 31, 2021. 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. At September 30, 2020, management determined that certain events and circumstances occurred, primarily the reduction in revenues due to COVID-19, that indicated that the carrying value of the Company’s brand name asset may, pertaining to Bailey44, not be recoverable. As such, the Company compared the estimated fair value of the brand name with its carrying value and recorded an impairment loss of $784,500 in the consolidated statements of operations. At December 31, 2021, management determined that certain events and circumstances occurred, primarily the continued reduction in revenues partially as a result of COVID-19, that indicated that the carrying value of the Company’s brand name asset may pertaining to Bailey44 not be recoverable. As such, the Company compared the estimated fair value of the brand name with its carrying value and recorded an impairment loss of $3,400,000 in the consolidated statements of operations. 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 Revenues are recognized when performance obligations are satisfied through the transfer of promised goods to the Company’s customers. Control transfers upon shipment of product and when the title has been passed to the customers. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. 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 considers the sale of products as a single performance obligation. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses. Revenue is deferred for orders received for which associated shipments have not occurred. The reserve for returns totaled $33,933 and $5,229 as of December 31, 2021 and 2020, respectively, and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets. Cost of Revenues Cost of revenues consists primarily of inventory sold and related freight-in. 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 $23,000 and $3,900 for the years ended December 31, 2021 and 2020, respectively. Total shipping and handling costs included in distribution costs were approximately $423,000 and $246,000, respectively. Advertising and Promotion Advertising and promotional costs are expensed as incurred. Advertising and promotional expense for the years ended December 31, 2021 and 2020 amounted to approximately $240,000 and $146,000, respectively. The amounts are included in sales and marketing expense. 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, 2021 and 2020, 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 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). 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 September 30, 2021 our operating segments included: DSTLD, Bailey, H&J and Stateside. 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, 2021 and 2020, 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, 2021 and 2020 are as follows: December 31, 2021 2020 Convertible notes 497,912 — Series Seed Preferred Stock (convertible to common stock) — 20,714,518 Series A Preferred Stock (convertible to common stock) — 5,654,072 Series A-2 Preferred Stock (convertible to common stock) — 5,932,742 Series CF Preferred Stock (convertible to common stock) — 836,331 Series A-3 Preferred Stock (convertible to common stock) — 9,032,330 Series B Preferred Stock (convertible to common stock) — 20,754,717 Common stock warrants 35,801 9,145 Preferred stock warrants — 806,903 Stock options 38,951 11,631 Total potentially dilutive shares 122,664 63,752,389 The potentially dilutive shares pertaining to the Company’s outstanding convertible notes was calculated based on the assumed conversion abilities as of December 31, 2021. The ultimate number of shares for which the notes can convert into is indeterminable. All shares of preferred stock were convertible into shares of common stock at a ratio of 1,563:1 per share. Upon the closing of the IPO, all 62,924,710 shares of preferred stock converted into an aggregate of 40,272 shares of common stock according to their respective terms. Additionally, all preferred stock warrants converted into 516 common stock warrants at the same ratio as the underlying preferred stock conversion. Concentrations The Company utilized two vendors that made up 40% of all inventory purchases during the year ended December 31, 2021 and three vendors that made up 100% of all inventory purchases during the year ended December 31, 2020. The loss of one of these vendors, may have a negative short-term impact on the Company’s operations; however, we believe there are acceptable substitute vendors that can be utilized longer-term. Recent Accounting Pronouncements In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company has elected to early adopt this ASU and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures. 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 has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position, results of operations and cash flows once adopted. 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. |
BUSINESS COMBINATIONS
BUSINESS COMBINATIONS | 12 Months Ended |
Dec. 31, 2021 | |
BUSINESS COMBINATIONS | |
BUSINESS COMBINATIONS | NOTE 4: BUSINESS COMBINATIONS 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. Of the shares of Parent Stock issued in connection with the Merger, 16,603,773 shares were delivered on the effective date of the Merger (the “Initial Shares”) and 4,150,944 shares were held back solely, and only to the extent necessary, to satisfy any indemnification obligations of Bailey or the Holders pursuant to the terms of the Merger Agreement (the “Holdback Shares”). 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. Series B preferred stock $ 11,000,000 Promissory note payable 4,500,000 Purchase price consideration $ 15,500,000 Purchase Price Allocation Cash and cash equivalents $ 106,913 Accounts receivable, net 37,479 Due (to) from factor, net (312,063) Inventory 3,303,660 Prepaid expenses 165,856 Deposits 187,493 Property, equipment and software, net 1,215,748 Goodwill 6,479,218 Intangible assets 8,600,000 Accounts payable (3,397,547) Accrued expenses and other liabilities (886,757) Purchase price consideration $ 15,500,000 As of December 31, 2021, the Company has a contingent consideration liability of $7,935,016 based on the valuation shortfall as noted above. See Note 3. Harper & Jones On May 18, 2021, the Company closed its acquisition of H&J pursuant to its previously disclosed Membership Interest Stock Purchase Agreement (as amended, the “Purchase Agreement”) with D. Jones Tailored Collection, Ltd. (the “Seller”), to purchase 100% of the issued and outstanding equity of Harper & Jones LLC. The purchase price consideration included (i) an aggregate of 21,928 shares of the Company’s common stock and (ii) $500,000 financed from the proceeds of the IPO. Pursuant to the H&J Purchase Agreement, the Seller, as the holder of all of the outstanding membership interests of H&J, exchanged all of such membership interests for a number of common stock of the Company equal to the lesser of (i) $9.1 million at a per share price equal to the initial public offering price of the Company’s shares offered pursuant to its initial public offering or (ii) the number of Subject Acquisition Shares; “Subject Acquisition Shares” means the percentage of the aggregate number of shares of the Company’s common stock issued pursuant to the Agreement, which is the percentage that Subject Seller Dollar Value is in relation to Total Dollar Value. “Subject Seller Dollar Value” means $9.1 million. If, at the one year anniversary of the closing date of the Company’s IPO, the product of the number of shares of the Company’s common stock issued at the closing of the acquisition multiplied by the average closing price per share of the shares of the Company’s common stock as quoted on the NasdaqCM for the thirty (30) day trading period immediately preceding such date does not exceed the sum of $9.1 million less the value of any shares of the Company’s common stock cancelled further to any indemnification claims made against the Seller then the Company shall issue to Seller an additional aggregate number of shares of the Company’s common stock equal to the valuation shortfall at a per share price equal to the then closing price per share of the Company’s common stock as quoted on the NasdaqCM. The Company evaluated the acquisition of H&J 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: Cash $ 500,000 Common stock 8,025,542 Contingent consideration 3,421,516 Purchase price consideration $ 11,947,058 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: Purchase Price Allocation Cash and cash equivalents $ 24,335 Accounts receivable, net 49,472 Inventory 77,159 Prepaid expenses 69,715 Deposits 4,416 Property, equipment and software, net 83,986 Goodwill 9,681,548 Intangible assets 3,936,030 Accounts payable (51,927) Accrued expenses and other liabilities (107,957) Deferred revenue (269,848) Due to related parties (1,361) Loan payable (148,900) Note payable - related party (299,489) Deferred tax liability (1,100,120) Purchase price consideration $ 11,947,058 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 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 Company recorded an initial contingent consideration liability at a fair value of $3,421,516 based on the valuation shortfall noted above. As of December 31, 2021, the H&J contingent consideration was valued at $4,244,460. See Note 3. The results of H&J have been included in the consolidated financial statements since the date of acquisition. H&J’s net revenue and net loss included in the consolidated financial statements since the acquisition date were approximately $1,860,000 and $390,000, respectively. 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 11,015 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 826 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: 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: 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 7,970 Deposits 9,595 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. Per the terms of the MIPA, a working capital adjustment of $493,791 was recorded during the fourth quarter. Net amounts due to the seller are $396,320 at December 31, 2021 (Note 7). The results of Stateside have been included in the consolidated financial statements since the date of acquisition. Stateside’s net revenue and net loss included in the consolidated financial statements since the acquisition date were approximately $1,695,000 and $285,000, respectively. Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the Company’s financial results as if the Bailey, H&J and Stateside acquisitions had occurred as of January 1, 2020. 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: Year Ended December 31, 2021 2020 Net revenues $ 11,834,601 $ 12,989,493 Net loss $ (33,259,224) $ (12,761,206) Net loss per common share $ (433.00) $ (1,921.00) |
DUE FROM FACTOR
DUE FROM FACTOR | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
DUE FROM FACTOR | ||
DUE FROM FACTOR | NOTE 4: DUE FROM FACTOR Due to/from factor consist of the following: September 30, December 31, 2022 2021 Outstanding receivables: $ 423,984 $ 579,295 Without recourse 83,224 361,584 With recourse 182,352 121,617 Advances (50,779) (77,208) Credits due customers $ 638,781 $ 985,288 | NOTE 5: DUE FROM FACTOR The Company, via its subsidiaries, Bailey and Stateside, 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, and up to 50% of eligible finished goods inventories based on the terms of one of our agreements that terminated in 2021. 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, 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 Advances are collateralized by a security interest in substantially all of the companies’ assets. Due to/from factor consist of the following: December 31, 2021 2020 Outstanding receivables: Without recourse $ 579,295 $ 151,158 With recourse 361,584 42,945 Advances 121,617 56,246 Credits due customers (77,208) (40,316) $ 985,288 $ 210,033 |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
GOODWILL AND INTANGIBLE ASSETS | ||
GOODWILL AND INTANGIBLE ASSETS | NOTE 5: GOODWILL AND INTANGIBLE ASSETS The Company recorded $6,479,218 in goodwill from the Bailey business combination in February 2020, $9,681,548 in goodwill from the H&J business combination in May 2021 and $2,104,056 in goodwill from the Stateside business combination in August 2021. The following table summarizes information relating to the Company’s identifiable intangible assets as of September 30, 2022: Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 6,453,750 (3,062,794) $ 3,390,956 6,453,750 (3,062,794) 3,390,956 Indefinite-lived: Brand name $ 7,836,920 — 7,836,920 $ 14,290,670 $ (3,062,794) $ 11,227,876 The Company recorded amortization expense of $537,813 and $355,808 during the three months ended September 30, 2022 and 2021, and $1,613,438 and $590,711 during the nine months ended September 30, 2022 and 2021, respectively, which is included in general and administrative expenses in the consolidated statements of operations. | NOTE 6: GOODWILL AND INTANGIBLE ASSETS The Company recorded $6,479,218 in goodwill from the Bailey business combination in February 2020, $9,681,548 in goodwill from the H&J business combination in May 2021 and $1,610,265 in goodwill from the Stateside business combination in August 2021. In the fourth quarter of 2021, the Company recorded an additional $493,791 in Stateside goodwill based on the final purchase price allocation. The following table summarizes information relating to the Company’s identifiable intangible assets as of December 31, 2021: Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 6,453,750 $ (1,449,357) $ 5,004,393 6,453,750 (1,449,357) 5,004,393 Indefinite-lived: Brand name $ 7,836,920 — 7,836,920 $ 14,290,670 $ (1,449,357) $ 12,841,313 Due to the effects of COVID-19 and revenue levels not recovering as quickly as anticipated and related uncertainty which affected Bailey’s results and near-term demand for its products, the Company determined that there were indications for further impairment analysis in both 2020 and 2021. During the years ended December 31, 201 and 2020, the Company recorded impairment losses of $3,400,000 and $784,500 for the intangible asset as management determined circumstances existed that indicated the carrying value may not be recoverable. The impairment analysis was based on the relief from royalty method using projected revenue estimates and discounts rates believed to be appropriate. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. The discount rate, revenue assumptions and terminal growth rate of our reporting unit were the material assumptions utilized in the model used to estimate the fair value of the Bailey unit. The analysis requires estimates, assumptions and judgments about future events. Our analysis uses our internally generated long-range plan. The long-range plan reflects management judgment, which includes observation of expected industry trends. The Company recorded amortization expense of $1,128,524 and $320,833 during the years ended December 31, 2021 and 2020, respectively, which is included in general and administrative expenses in the consolidated statements of operations. Future amortization expense at December 31, 2020 is as follows: Year Ending December 31, 2022 2,151,250 2023 1,830,417 2024 1,022,726 $ 5,004,393 |
LIABILITIES AND DEBT
LIABILITIES AND DEBT | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
LIABILITIES AND DEBT | ||
LIABILITIES AND DEBT | NOTE 6: LIABILITIES AND DEBT Accrued Expenses and Other Liabilities The Company accrued expenses and other liabilities line in the consolidated balance sheets is comprised of the following as of September 30, 2022 and December 31,2021: September 30, December 31, 2022 2021 Accrued expenses $ 896,043 $ 213,740 Reserve for returns 24,673 33,933 Payroll related liabilities 2,602,800 1,204,665 Sales tax liability 298,149 268,723 Due to seller — 396,320 Other liabilities 130,702 119,764 $ 3,952,366 $ 2,237,145 Certain liabilities including sales tax and payroll related liabilities may be subject to interest and penalties. As of September 30, 2022 and December 31, 2021, payroll related labilities included approximately $262,000 in estimated penalties associated with accrued payroll taxes. Venture Debt In February 2022, the Company received $237,500 in proceeds, including loan fees of $12,500, from the existing venture debt lender under the same terms as the existing facility. As of June 30, 2022 and December 31, 2021, the gross loan balance was $6,251,755 and $6,001,755, respectively. On September 29, 2022, the Company and Black Oak Capital 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 $269,880 as of September 30, 2022. For the nine months ended September 30, 2022 and 2021, $12,500 and $147,389 of loan fees and discounts from warrants were amortized to interest expense, leaving unamortized balance of $0 as of September 30, 2022. Interest expense and effective interest rate on this loan for the three months ended September 30, 2022 and 2021, was $191,152 and $189,096, and 12.2% and 13.4% all respectively. Interest expense was $573,455 and $591,123 for the nine months ended September 30, 2022 and 2021, respectively. Convertible Debt 2020 Regulation D Offering As of September 30, 2022 and December 31, 2021, there was $100,000 remaining in outstanding principal that was not converted into equity. Convertible Promissory Note During the nine months ended September 30, 2022, the Company converted an aggregate of $1,432,979 in outstanding principal into 24,827 shares of common stock. On April 8, 2022, the Company and various purchasers executed a Securities Purchase Agreement whereby the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $3,068,750, consisting of original issue discount of $613,750. The Company received net proceeds of $2,313,750 after the original issue discount and fees, resulting in a debt discount of $755,000. Upon the Company’s public offering in May (see below), the Company repaid $3,068,750 to the investors and the debt discount was fully amortized. In connection with the April notes, the Company issued an aggregate of 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 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. The July notes matured on October 31, 2022 and are in default as of the date of these financial statements. 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 increase d 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 During the three and nine months ended September 30, 2022, the Company amortized $1,792,060 and $4,575,234, respectively, of debt discount to interest expense. As of September 30, 2022 and December 31, 2021, the outstanding principal was $9,907,121 and $9,465,000, respectively. The balance of the convertible notes, after unamortized debt discount of 1,931,149, was $7,975,872 as of September 30, 2022. Loan Payable — PPP and SBA Loan As of September 30, 2022 and December 31, 2021, H&J had an outstanding loan under the EIDL program of $148,900. In April 2022, Bailey received notification of full forgiveness of its 2 nd st Note Payable — Related Party As of September 30, 2022, H&J had an outstanding note payable of $140,928 owned by the H&J Seller. The note matures on December 10, 2022 and bears interest at 12% per annum. Promissory Note Payable As of September 30, 2022 and December 31, 2021, the outstanding principal on the note to the sellers of Bailey was $3,500,000. As of September 30, 2022, the lender agreed to defer all payments to the maturity date of the loan, December 31, 2022. Interest expense was $105,000 and $105,000 for the three months ended September 30, 2022 and 2021 and $315,000 and $389,000 for the nine months ended September 30, 2022 and 2021, all respectively, which was accrued and unpaid as of September 30, 2022. Merchant Cash Advances In March 2022, the Company obtained two short-term merchant advances, which totaled $500,000 and $250,000, respectively, from a single lender to fund operations. These advances included origination fees totaling $22,500 for net proceeds of $727,500. These advances are, for the most part, secured by expected future sales transactions of the Company with expected payments on a weekly basis The Company will repay an aggregate of $1,065,000 to the lender. These advances contain various financial and non-financial covenants. In the third quarter of 2022, the Company received additional short-term advances of $607,860. As of September 30, 2022, $279,475 remained outstanding. As of the date of these financial statements, the Company was in compliance with these covenants. | NOTE 7: 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, 2021 and 2020: December 31, 2021 2020 Accrued expenses $ 213,740 $ 92,074 Reserve for returns 33,933 5,229 Payroll related liabilities 1,204,665 843,704 Sales tax liability 268,723 196,410 Due to seller 396,320 — Other liabilities 119,764 108,230 $ 2,237,145 $ 1,245,646 Due to seller represents amounts to the seller owed pursuant the Stateside Acquisition after certain purchase price adjustments were made in the fourth quarter of 2021. Certain liabilities including sales tax and payroll related liabilities maybe be subject to interest in penalties. As of December 31, 2021 and 2020, payroll related labilities included approximately $262,000 and $152,000 in estimated penalties associated with accrued payroll taxes. Venture Debt In March 2017, the Company entered into a senior credit agreement with an outside lender for up to $4,000,000, dependent upon the achievement of certain milestones. Through various amendments to the agreement, the credit agreement has been increased to approximately $6,000,000. The loan bears interest at 12.5% per annum, compounded monthly, plus fees currently at $5,000 per month. In March 2021, the Company and the lender agreed to extend the maturity date of the credit agreement to December 31, 2022, with certain payments due as follows. If the Company consummated a follow on public offering on or before July 31, 2021, the Company was required to make a $3,000,000 payment on the loan within five five loan, December 31, 2022. As of the filing date, of these financial statements, all defaults were cured and there are no additional expected defaults in the next twelve months. The Company’s credit agreement contains negative covenants that, subject to significant exceptions, limit its ability, among other things to make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, or undergo other fundamental changes. A breach of any of these covenants could result in a default under the credit facility and permit the lender to cease making loans to the Company. If for whatever reason the Company has insufficient liquidity to make scheduled payments under the Company’s credit facility or to repay such indebtedness by the schedule maturity date, the Company would seek the consent of the Company’s senior lender to modify such terms. Although the Company’s senior lender has previously agreed to seven prior modifications of the Company’s credit agreement, there is no assurance that the senior lender will agree to any such modification and could then declare an event of default. Upon the occurrence of an event of default under the credit agreement, the lender could elect to declare all amounts outstanding thereunder to be immediately due and payable. The Company has pledged all of its assets as collateral under the Company’s credit facility. If the lender accelerates the repayment of borrowings, the Company may not have sufficient assets to repay them and the Company could experience a material adverse effect on its financial condition and results of operations. Repayment is accelerated upon a change in control, as defined in the agreement. The loan is senior to all other debts and obligations of the Company, is collateralized by all assets of the Company, and shares of the Company’s common stock pledged by officers of the Company. As of December 31, 2021 and 2020, the gross loan balance was $6,001,755.During 2020, the gross balance increased by $1,459,211 resulting from cash disbursed to the Company and considerations for outstanding interest. The lender was also granted warrants to purchase common stock representing 1% of the fully diluted capitalization of the Company for each $1,000,000 of principal loaned under the agreement, which was increased to 1.358% during 2019. During the year ended December 31, 2020, the Company granted 4,935 common stock warrants, to the lender with an exercise price of $ 2.50 ten For the years ended December 31, 2021 and 2020, $147,389 and $241,878 of these loan fees and discounts from warrants were amortized to interest expense, leaving unamortized balances of $0 and $147,389 as of December 31, 2021 and 2020, respectively. Interest expense for the years ended December 31, 2021 and 2020 was $825,219 and $770,277, respectively. Effective interest rate on the loan for the years ended December 31, 2021 and 2020 was 13.7% and 14.6%, respectively. Convertible Debt 2020 Regulation CF Offering During the year ended December 31, 2020, the Company received gross proceeds of $450,308 from a Regulation CF convertible debt offering. In 2021, the Company received additional gross proceeds of $473,650. Interest was 6% per annum and the debt was due October 30, 2022. Upon closing of the IPO, the outstanding principal and accrued and unpaid interest of $16,942 was converted into 3,197 shares of common stock based on the terms of the notes. Total issuances costs were $69,627, which was recognized as a debt discount and was amortized in 2021 through the date of IPO when such debt converted. During the year ended December 31, 2021, $27,894 of the debt discount was amortized to interest expense. 2020 Regulation D Offering Concurrently with the offering above, in 2021 and 2020 the Company received gross proceeds of $55,000 and $800,000, respectively, from a Regulation D convertible debt offering. The debt accrued interest at a rate of 14% per annum with a maturity date of nine months from the date of issuance. The debt was contingently convertible and contains both automatic and optional conversions. The debt converted automatically upon an initial public offering of at least $10,000,000 in gross proceeds at a price per share equal to 50% of the IPO price. Issuance costs on the aggregate funds totaled $100,000. In addition, the Company issued 5 warrants to purchase common stock in connection with the notes. The issuance costs and warrants are recognized as a debt discount and were amortized in 2021 through the date of IPO when such debt converted. The fair value of the warrants was determined to be negligible. Upon closing of the IPO, $755,000 in outstanding principal and approximately $185,000 of the accrued and unpaid interest was converted into 4,534 shares of common stock. As of December 31, 2021, there was $100,000 remaining in outstanding principal that was not converted into equity. During the year ended December 31, 2021, $100,000 of the debt discount was amortized to interest expense. The Company recorded an additional $132,609 in default interest expense upon conversion of these notes. 2019 Regulation D Offering For the year ended December 31, 2019, the Company received gross proceeds of $799,280 from a Regulation D convertible debt offering. The debt accrued interest at a rate of 12% per annum with a maturity date of thirty-six months from the date of issuance. The debt was contingently convertible and contained both automatic and optional conversions. The debt converted automatically upon an initial public offering at $219 per share. If, prior to maturity there is a change in control event, the holders of a majority of the debt could vote to convert two times the value of the principle, with accrued interest being eliminated, at 1) the fair market value of the company’s common stock at the time of such conversion, 2) $219 per share, 3) dividing the valuation cap ($9,000,000) by the pre-money fully diluted capitalization. Upon closing of the IPO, the outstanding principal was converted into 3,621 shares of common stock. Convertible Promissory Notes On August 27, 2021, the Company entered into a Securities Purchase Agreement with Oasis Capital, LLC (“Oasis Capital”) further to which Oasis Capital purchased a senior secured convertible note (the “Oasis Note”), with an interest rate of 6% per annum, having a face value of $5,265,000 for a total purchase price of $5,000,000, secured by all assets of the Company. The Oasis Note, in the principal amount of $5,265,000, bears interest at 6% per annum and is due and payable 18 months from the date of issuance, unless sooner converted. The Oasis Note is convertible at the option of Oasis Capital into shares of the Company’s common stock at a conversion price (the “ Oasis Conversion Price”) which is the lesser of (i) $360.10, and (ii) 90% of the average of the two lowest volumed weighted average prices (“VWAPs’) during the five consecutive trading day period preceding the delivery of the notice of conversion. Oasis Capital is not permitted to submit conversion notices in any thirty day period having conversion amounts equaling, in the aggregate, in excess of $500,000. If the Oasis Conversion Price set forth in any conversion notice is less than $300 per share, the Company, at its sole option, may elect to pay the applicable conversion amount in cash rather than issue shares of its common stock. On October 1, 2021, the Company entered into an Amended and Restated Securities Purchase Agreement with FirstFire Global Opportunities Fund, LLC (“FirstFire”) and Oasis Capital further to which FirstFire purchased a Senior Secured Convertible Promissory Note (the “First FirstFire Note”), with an interest rate of 6% per annum, having a face value of $1,575,000 for a total purchase price of $1,500,000, secured by all assets of the Company. The First FirstFire Note, in the principal amount of $1,575,000, bears interest at 6% per annum and is due and payable 18 months from the date of issuance, unless sooner converted. The First FirstFire Note is convertible at the option of FirstFire into shares of the Company’s common stock at a conversion price (the “First FirstFire Conversion Price”) which is the lesser of (i) $395.20, and (ii) 90% of the average of the two lowest volume-weighted average prices during the five consecutive trading day period preceding the delivery of the notice of conversion. FirstFire is not permitted to submit conversion notices in any thirty day period having conversion amounts equaling, in the aggregate, in excess of $500,000. If the First FirstFire Conversion Price set forth in any conversion notice is less than $300 per share, we, at our sole option, may elect to pay the applicable conversion amount in cash rather than issue shares of the Company’s common stock. In connection with the issuance of the First FirstFire Note, the Company, Oasis Capital and FirstFire amended the Security Agreement to grant FirstFire a similar security interest in substantially all of our assets to secure the obligations under the First FirstFire Note. The Company, Oasis Capital and FirstFire also amended the Registrations Right Agreement (“RRA”) to join FirstFire as a party thereto and to include the shares of the Company’s common stock issuable under the First FirstFire Note as registrable securities. On November 16, 2021, the Company entered into a Securities Purchase Agreement with FirstFire further to which FirstFire purchased a Senior Secured Convertible Promissory Note (the “Second FirstFire Note” and together with the First FirstFire Note, the “FirstFire Notes”), with an interest rate of 6% per annum, having a face value of $2,625,000 for a total purchase price of $2,500,000. The Second FirstFire Note is convertible at the option of FirstFire into shares of the Company’s common stock at a conversion price (the “Second FirstFire Conversion Price”) which is the lesser of (i) $428, and (ii) 90% of the average of the two lowest volume-weighted average prices during the five consecutive trading day period preceding the delivery of the notice of conversion. FirstFire is not permitted to submit conversion notices in any thirty day period having conversion amounts equaling, in the aggregate, in excess of $500,000. If the Second FirstFire Conversion Price set forth in any conversion notice is less than $329 per share, the Company, at its sole option, may elect to pay the applicable conversion amount in cash rather than issue shares of its common stock. In addition, the Company entered into an amendment to the RRA, dated November 16, 2021. The RRA, as amended, provides that the Company shall file a registration statement registering the shares of common stock issuable upon conversion of the FirstFire Notes, and the Waiver Shares by November 30, 2021 and use best efforts to cause such registration statement to be effective with the SEC no later than 120 days from the date of the FirstFire Note. The Company filed such registration statement in December 2021 and it became effective in January 2022. The Company evaluated the terms of the conversion features of the Oasis and FirstFire 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 Oasis and FirstFire Notes, the Company recognized a derivative liability at an aggregate fair value of $3,204,924, which is recorded as a debt discount and will amortized over the life of the note. The following is a summary of the Oasis and FirstFire Notes for the year ended December 31, 2021: Unamortized Convertible Note Principal Debt Discount Payable, Net Balance, December 31, 2020 $ — $ — $ — Issuance of Oasis note, net of issuance costs 5,265,000 (715,000) 4,550,000 Issuance of FirstFire First note, net of issuance costs 1,575,000 (315,000) 1,260,000 Issuance of Second FirstFire note, net of issuance costs 2,625,000 (530,000) 2,095,000 Derivative liability in connection with notes — (3,204,924) (3,204,924) Amortization of debt discount — 801,538 801,538 Balance, December 31, 2021 $ 9,465,000 $ (3,963,386) $ 5,501,614 The original issue discount and issuance costs for the Oasis and FirstFire Notes totaled $1,560,000, which were recognized as a debt discount and will be amortized over the life of the notes. During the year ended December 31, 2021, the Company amortized $801,538 of debt discount to interest expense. As of December 31, 2021, the net balance of the Oasis and FirstFire Notes, after unamortized debt discount of $3,963,386, was $5,501,614. Interest expense for the year ended December 31, 2021 was $148,613. Loan Payable — PPP and SBA Loan In April 2020, the Company and Bailey each entered into a loan with a lender in an aggregate principal amount of $203,994 and $1,347,050, respectively, pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In February 2021, Bailey entered into an 2nd Round PPP Loan for a principal amount of $1,347,050. In May 2021, the Company entered into an 2 nd including, among other things, cross-defaults on any other loan with the lender. The PPP Loans may be accelerated upon the occurrence of an event of default. The loan proceeds were used for payroll and other covered payments including general operating costs. In December 2021, the Company received notification that both its PPP Loans of $203,994 and $204,000 were approved for full forgiveness. As such, $407,994 was recorded as other non-operating income in the consolidated financial statements. The Bailey PPP Loans have been submitted for forgiveness and is expected to be forgiven in part based on current information available; however, formal forgiveness has not yet occurred as of the date of these financial statements. The CARES Act additionally extended COVID relief funding for qualified small businesses under the Economic Injury Disaster Loan (EIDL) assistance program. On June 25, 2020 the Company was notified that their EIDL application was approved by the Small Business Association (SBA). Per the terms of the EIDL agreement, the Company received total proceeds of $150,000. The Loan matures in thirty years from the effective date of the Loan and has a fixed interest rate of 3.75% per annum. As of December 31, 2021, Harper & Jones had an outstanding loan under the EIDL program of $148,900. Loan Payable In May 2021, H&J entered into a loan payable with a bank and received proceeds of $75,000. The line bears interest at 7.76% and matures in December 2025. As of December 31, 2021, the outstanding balance was $72,269. In December 2021, H&J entered into a merchant advance loan for a principal amount of $153,860 and received proceeds of $140,000. The loan bears interest at 9.9% and matures in June 2023. As of December 31, 2021, the outstanding balance was $149,962. Note Payable — Related Party As of December 31, 2021, H&J had an outstanding note payable of $299,489 owned by the H&J Seller. The note matures on July 10, 2022 and bears interest at 12% per annum. Promissory Note Payable As noted in Note 4, the Company issued a promissory note in the principal amount of $4,500,000 to the Bailey Holders pursuant to the Bailey acquisition. In February 2021, the maturity date of the agreement was extended from December 31, 2020 to July 31, 2021. Upon the IPO closing in May 2021, the Company repaid $1,000,000 of the outstanding principal on this note in May 2021. In August 2021, the maturity date was further extended to December 31, 2022. The Company is required to make prepayments of $2,000,000 to $4,000,000 if the Company completes a secondary public offering. If a public offering is not consummated before October 31, 2021 and June 30, 2022, the Company shall repay 10% of the outstanding principal at each date. The Company did not make any payments in October 2021, and the Company and the lender agreed to defer these payments to the maturity date of the loan, December 31, 2022. The note incurs interest at 12% per annum. As of December 31, 3021, $3,500,000 remained outstanding. Interest expense was $494,000 and $472,500 for the years ended December 31, 2021 and 2020, respectively, all of which was accrued and unpaid as of December 31, 2021. In April 2021, the Company entered into a promissory note in the principal amount of $1,000,000. The Company received $810,000 in proceeds, net of issuance costs and original issue discount. Additionally, the Company issued 1,205 warrants to the lender, which was recorded as a debt discount at the time of the loan. The fair value of the warrants and shares recorded as a debt discount was $73,958. Upon the closing of the IPO, the note was repaid in full. The entire debt discount of $263,958 was amortized to interest expense upon repayment of the note. |
STOCKHOLDERS' DEFICIT
STOCKHOLDERS' DEFICIT | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
STOCKHOLDERS' DEFICIT | ||
STOCKHOLDERS' DEFICIT | NOTE 7: STOCKHOLDERS’ DEFICIT 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. During the nine months ended September 30, 2022, $1,432,979 in outstanding principal of convertible notes were converted into 24,827 shares of common stock. In September 2022, the Company issued 750 shares of common stock pursuant to a consultant agreement at a fair value of $123,000. On September 29, 2022, the Company and Black Oak Capital 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. The following is a summary of the rights and preferences of the Series A Convertible 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. Amendment to Articles 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. See Note 12. On October 21, 2022, the Board of Directors approved a one Underwriting Agreement and Public Offering On May 5, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P., acting as representative (the “Representative”) of the several underwriters named in the Underwriting Agreement (the “Underwriters”), relating to the Company’s underwritten the offering (the “Offering”) pursuant to which the Company agreed to issue and sell 373,898 shares (the “Firm Shares”) of the Company’s common stock. The Firm Shares were sold to the public at a combined public offering price of $2.50 per share and were purchased by the Underwriters from the Company at a price of $2.30 per share. The Company also granted the Underwriters a 45-day 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. | NOTE 8: STOCKHOLDERS’ DEFICIT Amended and Restated Certificate of Incorporation On May 18, 2021, the Company filed a Sixth Amended and Restated Certificate of Incorporation (the “Restated Certificate”) with the Secretary of State of the State of Delaware in connection with the Company’s IPO. The Company’s board of directors and stockholders previously approved the Restated Certificate to be effective immediately prior to the closing of the IPO. The Restated Certificate amends and restates the Company’s amended and restated certificate of incorporation, as amended, in its entirety to, among other things: (i) increase the authorized number of shares of common stock to 200,000,000 shares; (ii) authorize 10,000,000 shares of preferred stock that may be issued from time to time by the Company’s board of directors in one or more series; (iii) provide that directors may be removed from office only for cause by the affirmative vote of the holders of at least 662/3% The Restated Certificate also effected a 1-for-1,563 (see below) reverse stock split approved by the Company’s Board of Directors as described above. 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. Convertible Preferred Stock Prior to the IPO, the Company designated its preferred stock as 20,714,518 shares of Series Seed Preferred Stock,14,481,413 shares of Series A Preferred Stock, 20,000,000 shares of Series A-2 Preferred Stock, 2,000,000 shares of Series CF Preferred Stock, 18,867,925 shares of Series A-3 Preferred Stock, 20,754,717 shares of Series B Preferred Stock and with 936,144 shares of preferred stock undesignated. The preferred stock were subject to an optional conversion right, where the preferred stock is convertible into fully paid and non-assessable shares of common stock at a 1,563:1 rate, with certain dilution protections. During the year ended December 31, 2020, the Company issued 809,294 shares of Series A-3 Preferred Stock at a price of $0.53 and 709,690 shares of Series CF Preferred Stock at price per share of $0.52. In 2020, the also Company issued 20,754,717 shares of Series B Preferred Stock to the Bailey Holders pursuant to the Bailey acquisition at a price per share of $0.53 for a total fair value of $11,000,000. See Note 4. As of December 31, 2020, 20,714,518 shares of Series Seed Preferred Stock were issued and outstanding outstanding outstanding outstanding outstanding Series Upon the closing of the Company’s IPO on May 18, 2021, all then-outstanding shares of Preferred Stock converted into an aggregate of 40,272 shares of common stock according to their terms. Common Stock The Company had 200,000,000 shares of common stock authorized with a par value of $0.0001 as of December 31, 2021. 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. Equity Line of Credit On August 27, 2021 (“Execution Date”), the Company entered into an equity line of credit arrangement with Oasis Capital. Specifically, the Company entered into an equity purchase agreement (the “EPA”), pursuant to which Oasis Capital is committed to purchase up to $17,500,000 of the Company’s common stock over the 24-month term of the EPA. The Company is not obligated to request any portion of the $17,500,000. As of December 31, 2021, the Company has not drawn down any portion of this commitment, leaving the entire $17,500,000 available under the equity line of credit, and for which the Company has agreed, pursuant to a registration rights agreement (the “Oasis Equity RRA”), to register the shares of common stock issuable further to the equity line of credit with the SEC before any such issuances. The actual number of shares that the Company may issue pursuant to the equity line of credit is not determinable as it is based on the market price of the Company’s common stock from time to time and the number of shares desired to put to Oasis Capital. During the 24-month term of the investment agreement, the Company may request a drawdown on the equity line of credit by delivering a “put notice” to Oasis Capital stating the dollar amount of shares the Company intends to sell to Oasis Capital. The Company may make either an Option 1 or Option 2 request to Oasis Capital. Under Option 1, the purchase price Oasis Capital is required to pay for the shares is the lesser of (i) the lowest traded price of the common stock on the Nasdaq Capital Market on the Clearing Date, which is the date on which Oasis Capital receives the put shares as DWAC shares in its brokerage account, or (ii) the average of the three lowest closing sale prices of our Common Stock on the Nasdaq Capital Market during the period of twelve consecutive trading days immediately preceding the Clearing Date. The maximum amount the Company may request in an Option 1 request is $500,000. Under Option 2, the purchase price Oasis Capital is required to pay for the shares is the lesser of (i) 93% of the one (1) lowest traded price of our common stock on the Nasdaq Capital Market during the period of five (5) consecutive trading days immediately preceding the put date, or (ii) 93% of the VWAP on the Clearing Date, or (iii) 93% of the closing bid price of the Company’s common stock on the Nasdaq Capital Market on the Clearing Date. The maximum amount the Company may request in an Option 2 request is $2,000,000. The Company is unable to drawdown on the EPA until the lowest traded price of the common stock in the five (5) trading days immediately preceding the respective put date exceeds $300. 2021 Transactions There were no shares of common stock issued during 2020. On May 13, 2021, the Company’s registration statement on Form S-1 relating to the IPO was declared effective by the SEC. In the IPO, which closed on May 18, 2021, the Company issued and sold 24,096 shares of common stock at a public offering price of $415 per share. Additionally, the Company issued warrants to purchase 27,711 shares, which includes 3,614 warrants sold upon the partial exercise of the over-allotment option. The aggregate net proceeds to the Company from the were $8.6 million after deducting underwriting discounts and commissions of $0.8 million and direct offering expenses of $0.6 million. Upon the closing of the Company’s IPO on May 18, 2021, all then-outstanding shares of Preferred Stock converted into an aggregate of 40,272 shares of common stock according to their terms. Upon closing of the Company’s IPO, the Company converted outstanding principal totaling $2,680,289 and certain accrued and unpaid interest of the Company’s convertible debt into an aggregate of 11,352 shares of common stock. See Note 7. Upon closing of the Company’s IPO, certain officers and directors converted balances due totaling $257,515 into 1,524 shares of common stock and recorded $233,184 in compensation expense for the shares issued in excess of accrued balances owed. See Note 9. In connection with the H&J and Stateside acquisitions, the Company issued 21,928 and 11,015 shares of common stock to the respective sellers. See Note 4. Pursuant to a consulting agreement, the Company issued 500 shares of common stock with a guaranteed equity value of $250,000. In connection with the agreement, the Company recorded a contingent consideration liability of $67,000. See Note 3. An additional 415 shares were issued upon settlement of the contingent liability. In May 2021, an aggregate of 319 warrants were exercised for shares of common stock for proceeds of $145,696. In July 2021, warrant holders exercised 3,550 warrants for proceeds of $1,622,350. On June 28, 2021, the Company’s underwriters purchased 3,614 shares of common stock at a public offering price of $415 per share pursuant to the exercise of the remaining portion of their over-allotment option. The Company received net proceeds of approximately $1.4 million after deducting underwriting discounts and commissions of $0.1 million. In connection with the execution of the Oasis Capital EPA, the Company issued Oasis Capital 1,264 shares of common stock (the “Commitment Shares”). Upon nine months from the Execution Date, Oasis may return a portion of the Commitment Shares. As of December 31, 2021, the Company recorded the fair value of the Commitment Shares of $367,696 as deferred offering costs as no financings under the related EPA have occurred. In connection with the Second FirstFire Note, in November 2021 the Company issued (a) 300 additional shares of common stock to FirstFire and (b) 1,000 additional shares of common stock to Oasis Capital, as set forth in the waivers and consents (the “Waivers”), dated November 16, 2021 executed by each of FirstFire and Oasis Capital (collectively, the “Waiver Shares”). The Company recorded interest expense of $427,700 pertaining to the fair value of the Waiver Shares issued. In December 2021, the Company issued 1,500 shares of common stock pursuant to a consulting agreement. The fair value of $339,000 was based on the value of the Company’s common stock on the date of grant and is included in general and administrative expenses in the consolidated statements of operations. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
RELATED PARTY TRANSACTIONS | ||
RELATED PARTY TRANSACTIONS | NOTE 8: RELATED PARTY TRANSACTIONS Employee Backpay, Loans Receivable and Loans Payable As of September 30, 2022 and December 31, 2021, due to related parties includes advances from the former officer, Mark Lynn, who also serves as a director, totaling $104,568, and accrued salary and expense reimbursements of $120,350 and $126,706, respectively, to current officers. As of June 30, 2022, due to related parties also included an advance of $25,000 from the CEO. In August 2022, the Company issued 1 share of Series A preferred stock to the CEO for $25,000. Accordingly, the due to related parties balance was reduced to $0. As of September 30, 2022, H&J had an outstanding note payable of $140,928 owned by the H&J Seller. | NOTE 9: RELATED PARTY TRANSACTIONS Employee Backpay, Loans Receivable and Loans Payable As of December 31 2021 and 2020, due to related parties includes advances from the former officer, Mark Lynn, who also serves as a director, totaled $104,568 and $194,568 respectively, and accrued salary and expense reimbursements of $126,706 and $246,885 respectively, to current officers. Upon closing of the IPO, 251 shares of common stock were issued to directors as conversion of balances owed. The current CEO, Hil Davis, previously advanced funds to the Company for working capital. These prior advances were converted to a note payable totaling $115,000. Upon closing of the IPO, 1,273 shares of common stock were issued to the CEO as conversion of the outstanding note payable and related accrued interest, accrued compensation and other consideration. As of a result of the transaction, the Company recorded an additional $233,184 in stock compensation expense, which is included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2021, H&J had an outstanding note payable of $299,489 owned by the H&J Seller. The note matures on July 10, 2022 and bears interest at 12% per annum. |
SHARE-BASED PAYMENTS
SHARE-BASED PAYMENTS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SHARE-BASED PAYMENTS | ||
SHARE-BASED PAYMENTS | NOTE 9: SHARE-BASED PAYMENTS Common Stock Warrants 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. The following is a summary of warrant activity: Common Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2021 35,801 $ 412.00 Granted 96,313 30.71 Exercised — Forfeited — Outstanding – September 30, 2022 132,114 $ 134.13 Exercisable at September 30, 2022 104,459 $ 166.65 Stock Options As of September 30, 2022 and December 31, 2021, the Company had 38,951 stock options outstanding with a weighted average exercise price of $362.11 per share. As of September 30, 2022, there were 34,073 options exercisable. Stock-based compensation expense of $110,092 and $134,113 was recognized for the three months ended September 30, 2022 and 2021, and $368,944 and $4,155,641 was recognized for the nine months September 30, 2022 and 2021, respectively. During the nine months ended September 30,2022 and 2021, $43,196 and $5375,550 was recorded to sales and marketing expense, and all other stock compensation was included in general and administrative expense in the condensed consolidated statements of operations. Total unrecognized compensation cost related to non-vested stock option awards as of September 30, 2022 amounted to $688,092 and will be recognized over a weighted average period of 1.56 years. | NOTE 10: SHARE-BASED PAYMENTS Common Stock Warrants During the year ended December 31, 2020, the Company granted 4,935 common stock warrants to the venture debt lender with an exercise price of $250 per share. The warrants were valued at $184,191 using the below range of inputs using the Black-Scholes model. During the Company’s Series A-3 Preferred Stock raise, the Company granted 26 common stock warrants at an exercise price of $828 per share to a funding platform in the year ended December 31, 2020. The warrants are fully vested with an exercise price of $828 per share, expiring in five years. The warrants contain a put option for the Company to redeem the warrants in cash in a change-in-control transaction, equal to the Black-Scholes value immediately prior to the fundamental event. The warrants also include other down-round and anti-dilution features if shares of common stock are issued or granted at a lesser value than the strike price which may also require additional warrants to be issued, such that the aggregate value of the strike price remains the same. As the warrants include a put option and embody an obligation for the Company to redeem these warrants in cash upon a contingent event, they are presented as a liability in the consolidated balance sheets. The volatility rate of 100% was used as it is a floor volatility as defined by the warrants. As of December 31, 2021 and 2020, the Company remeasured the fair value of the warrants to be $18,223 and $6,265, respectively, and recorded a gain (loss) due to the change in fair value of ($11,958) and $2,353, respectively. Year Ended December 31, 2020 Risk Free Interest Rate 1.54 – 1.59% Expected Dividend Yield 0.00% Expected Volatility 58.0 – 100% Expected Life (years) 5 – 10 For valuing the warrants noted above, the Company uses the same assumptions used for valuing employee options as noted below in the Stock Plan section, with the exception of the useful life which is either the contractual life or the estimated life. In connection with the Regulation D offerings in 2020, the Company issued 5 warrants to purchase common stock in connection with the notes at an exercise price of $250 per share. The issuance costs and warrants are recognized as a debt discount and will be amortized over the life of the notes. In connection with the IPO, the Company issued 24,096 warrants and an additional 3,614 warrants to purchase common stock per the over-allotment option. Each warrant will have an exercise price of $457 per share (equal to 110% of the offering price of the common stock), will be exercisable upon issuance and will expire five years from issuance. On May 13, 2021, pursuant to the IPO Underwriting Agreement, the Company issued warrants to the underwriters to purchase up to an aggregate of 1,205 shares of common stock with an exercise price of $519 per share. The warrants may be exercised beginning on November 13, 2021 and will expire five years from issuance. In connection with the Company’s April 2021 note financing, the Company issued warrants to the lender to purchase up to 1,205 shares of common stock. The warrants have an exercise price of $415 per share and are exercisable immediately after issuance. In May 2021, an aggregate of 319 warrants were exercised for shares of common stock for proceeds of $145,696. In July 2021, warrant holders exercised 3,550 warrants for proceeds of $1,622,350. A summary of information related to common stock warrants for the year ended December 31, 2021 is as follows: Common Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2019 4,180 $ 281 Granted 4,966 252 Exercised — — Forfeited — — Outstanding – December 31, 2020 9,146 $ 266 Granted 30,120 458 Conversion of preferred stock warrants upon IPO 516 766 Exercised (3,869) 457 Forfeited (112) 766 Outstanding – December 31, 2021 35,801 $ 412 Exercisable at December 31, 2020 9,146 $ 266 Exercisable at December 31, 2021 35,801 $ 412 Preferred Stock Warrants A summary of information related to preferred stock warrants for the year ended December 31, 2021 is as follows: Preferred Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2019 806,903 $ 0.49 Outstanding – December 31, 2020 806,903 $ 0.49 Converted to common stock warrants upon IPO (806,903) 0.49 Exercised — — Forfeited — — Outstanding – December 31, 2021 — $ — Exercisable at December 31, 2021 — $ — Upon the IPO, all outstanding preferred stock warrants converted into common stock warrants at a ratio of 1,563:1. Stock Options 2020 Incentive Stock Plan The Company has adopted a 2020 Omnibus Incentive Stock Plan (the “2020 Plan”). An aggregate of 33,000 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, 27,320 options were granted to executives and directors at an exercise price from $385 to $415 per share. As of December 31, 2021, 5,680 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, 2021 and 2020. 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, 2021 and 2020. 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, 2021 and 2020 is as follows: Weighted Average Options Exercise Price Outstanding – December 31, 2019 10,842 $ 2.50 Granted 917 94 Exercised — — Forfeited (128) $ 328 Outstanding – December 31, 2020 11,631 $ 234 Granted 27,320 415 Exercised — — Forfeited — — Outstanding – December 31, 2021 38,951 $ 362 Exercisable at December 31, 2020 8,810 $ 234 Exercisable at December 31, 2021 31,646 $ 359 Weighted average duration (years) to expiration of outstanding options at December 31, 2021 8.00 The assumptions utilized for option grants during the years ended December 31, 2021 and 2020 are as follows: Year Ended December 31, 2021 2020 Risk Free Interest Rate 0.34% – 0.85% 0.42% – 0.51% Expected Dividend Yield 0.00% 0.00% Expected Volatility 58.00% 58.00% Expected Life (years) 5.18 6.25 The total grant-date fair value of the options granted during the years ended December 31, 2021 was $4,696,605 and $46,253, respectively. During the year ended December 31, 2021 and 2020, $3,325,897 and $144,775 was recorded to general and administrative expenses, and $551,948 and $0, 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, 2021 amounted to $1,057,036 and will be recognized over a weighted average period of 2.28 years. |
LEASE OBLIGATIONS
LEASE OBLIGATIONS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
LEASE OBLIGATIONS | ||
LEASE OBLIGATIONS | NOTE 10: LEASE OBLIGATIONS In April 2021, the Company entered into a lease agreement for operating space in Los Angeles, California. The lease expires in June 2023 and has monthly base rent payments of $17,257. The lease required a $19,500 deposit. The Company adopted ASC 842 on January 1, 2021 and recognized a right of use asset Stateside leases office and showroom facilities in Los Angeles, California. The leases expire at various dates through November 2022 with base rents ranging from $3,100 to $9,000. Total rent expense for the three months ended September 30, 2022 and 2021 was $267,041 and $246,103, and $736,523 and $551,944 for the nine months end September 30, 2022 and 2021, respectively. | NOTE 11: LEASE OBLIGATIONS In April 2021, the Company entered into a lease agreement for operating space in Los Angeles, California. The lease expires in June 2023 and has monthly base rent payments of $17,257. The lease required a $19,500 deposit. Bailey leases office and warehouse facilities in Vernon, California. The lease expires in February 2023 and has monthly base rent payments of $32,921 per month. H&J leases office and showroom facilities in Dallas and Houston, Texas, and New Orleans, Louisiana. The leases expire at various dates through June 2022 with base rents ranging from $3,400 to $6,500. Stateside leases office and showroom facilities in Los Angeles, California. The leases expire at various dates through November 2022 with base rents ranging from $3,100 to $9,000. Total rent expense for the years ended December 31, 2021 was $816,790 and $541,146, respectively. |
CONTINGENCIES
CONTINGENCIES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
CONTINGENCIES | ||
CONTINGENCIES | NOTE 11: CONTINGENCIES On March 25, 2020, a Bailey’s product vendor filed a lawsuit against Bailey for non-payment of trade payables totaling $492,390. Approximately the same amount was held in accounts payable for this vendor in the accompanying consolidated balance sheets and the Company does not believe it is probable that losses in excess of such trade payables will be incurred. The Company and product vendor have entered into a settlement, which will require the Company make ten monthly payments of approximately $37,000, starting in May 2021. Upon completion of the payment schedule, any remaining amounts will be forgiven. The payment schedule was completed in 2022. 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. 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. One matter was settled in February 2022 and the other matter is being actively worked on to achieve settlement. On September 24, 2020 a Bailey’s product vendor filed a lawsuit against Bailey’s non-payment of trade payables totaling approximately $481,000 and additional damages of approximately $296,000. Claimed amounts for trade payables are included in accounts payable in the accompanying consolidated balance sheets, net of payments made. In December 2021, the Company reached a settlement; however, the settlement terms were not met and a judgement was entered against the Company in the amount of $469,000. 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 consolidated balance sheet as of September 30, 2022. 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 12: CONTINGENCIES On February 28, 2020, a Company vendor filed a lawsuit against the Company’s non-payment of trade payables totaling $123,000. Such amounts, including expected interest, are included in accounts payable, net of payments made to date, in the consolidated balance sheets and the Company does not believe it is probable that losses in excess of such trade payables will be incurred. The matter was settled and final payment was made in full in January 2022. On March 25, 2020, a Bailey’s product vendor filed a lawsuit against Bailey for non-payment of trade payables totaling $492,390. Approximately the same amount was held in accounts payable for this vendor in the accompanying consolidated balance sheets and the Company does not believe it is probable that losses in excess of such trade payables will be incurred. The Company and product vendor have entered into a settlement, which will require the Company make ten monthly payments of approximately $37,000, starting in May 2021. Upon completion of the payment schedule, any remaining amounts will be forgiven. If the Company fails to meet its obligations based on the prescribed time frame, the full amount will be due with interest, less payments made. 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. 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. One matter was settled in February 2022 and the other matter is being actively worked on to achieve settlement. On September 24, 2020 a Bailey’s product vendor filed a lawsuit against Bailey’s non-payment of trade payables totaling approximately $481,000 and additional damages of approximately $296,000. Claimed amounts for trade payables are included in accounts payable in the accompanying consolidated balance sheets, net of payments made. In December 2021, the Company reached a settlement; however, the settlement terms were not met and the Company received a judgement of $469,000. 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 consolidated balance sheet as of December 31, 2021. 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. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2021 | |
INCOME TAXES | |
INCOME TAXES | NOTE 13: 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, 2021 and 2020, the Company had net deferred tax assets before valuation allowance of $13,103,268 and $9,128,614, respectively. The following table presents the deferred tax assets and liabilities by source: December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 13,108,371 $ 9,134,447 Stock-based compensation — 40,467 Deferred tax liabilities: Depreciation timing differences (5,103) (5,103) Unamortized debt issuance costs — (41,198) Valuation allowance (13,103,268) (9,128,614) Net deferred tax assets $ — $ — 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, 2021, and no history of generating taxable income. Therefore, valuation allowances of $13,103,268 and $9,128,614 were recorded as of December 31, 2021 and 2020, respectively. Valuation allowance increased by $3,974,654 and $3,081,497 during the years ended December 31, 2021 and 2020, respectively. Deferred tax assets were calculated using the Company’s combined effective tax rate, which it estimated to be approximately 28.0%. The effective rate is reduced to 0% for 2021 and 2020 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, 2021 and 2020, the Company had net operating loss carryforwards available to offset future taxable income in the amounts of approximately $46,896,000 and $32,680,000, for which losses from 2018 forward can be carried forward indefinitely. 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. The Company recorded a tax benefit of $1,100,200 |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SUBSEQUENT EVENTS. | ||
SUBSEQUENT EVENTS | NOTE 12: SUBSEQUENT EVENTS Management’s Evaluation On October 13, 2022, Digital Brands Group, Inc., a Delaware corporation (the “Company” or “DBG”), entered into a Second Amended and Restated Membership Interest Purchase Agreement (the “Agreement”) with Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (“Sellers”), Sunnyside, LLC, a California limited liability company (“Sundry”), and George Levy as the Sellers’ representative (the “Sellers’ Representative”), pursuant to which the Company will acquire all of the issued and outstanding membership interests of Sundry (such transaction, the “Acquisition”). Pursuant to the Agreement, Sellers, as the holders of all of the outstanding membership interests of Sundry, will exchange all of such membership interests for (i) $7.5 million in cash, of which (a) $2.5 million remaining $1.6 million will be paid to each of the Sellers, Jenny Murphy and Elodie Crichi pro rata in accordance to the percentages set forth in the Agreement; (ii) $5.5 million in promissory notes issued by the Company to each of the Sellers, Jenny Murphy and Elodie Crichi pro rata in accordance to the percentage set forth in the Agreement; and (iii) $1 million paid in the Company’s common stock, with a par value of $0.0001 per share (the “Buyer Shares”), at $11 per share, which is the per share closing price of the Buyer Shares on Nasdaq on October 13, 2022 (the “Issuance Price”) issued to each of the Sellers, Jenny Murphy and Elodie Crichi pro rata in accordance to the percentage set forth in the Agreement. Each promissory note carries an initial per annual interest rate of eight percent (8)% and a maturity date of February 15, 2023. On December 30, 2022, the Company completed its previously announced acquisition (the “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 “Agreement”), dated October 13, 2022, by and among Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (“Sellers”), George Levy as the 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 “Notes”), and (iii) a number of shares of common stock of the Company equal to $1.0 million (the “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 Note bears interest at eight percent (8%) per annum and matures on February 15, 2023. 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 From October 1, 2022 through the issuance date, the Company has converted approximately $9 million of the Oasis and FirstFire notes into 1,970,357 shares of common stock. On November 29, 2022, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with investors (the “Investors”), pursuant to which the Company agreed to issue and sell, in an offering (the “Offering”), (i) an aggregate of 168,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (“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 (ii) 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. Each Class B Warrant has an exercise price of $5.25 per share, will be immediately exercisable upon issuance and will expire five years from the date of issuance. Each Class C Warrant has an exercise price of $5.25 per share, will be immediately exercisable upon issuance and will expire thirteen months from the date of issuance. On December 29, 2022, the Company and various purchasers (the “Investors”) executed a Securities Purchase Agreement (the “SPA”) whereby the Investors purchased from the Company 20% Original Issue Discount (the “OID”) promissory notes (the “Notes”) in the aggregate principal amount of $4,000,000 (with an aggregate subscription amount of $3,200,000). Revere Securities LLC and Spartan Capital, LLC acted as placement agents for the offering of notes and warrants contemplated by the SPA. The Notes are due and payable on February 15, 2023 (the “Maturity Date”). The Company will also have the option to prepay the Notes with no penalties at any time prior to the Maturity Date. If the Company or any subsidiary of the Company completes a debt or equity financing of less than $4,000,000, the Company is required to repay 50% of the remaining balance of the Notes. Following such 50% repayment, the Company must also use any proceeds from any subsequent debt or equity financing to repay the Notes. Upon the closing of any debt or equity financing of $4,000,000 or greater, the Company is required to repay 100% of the Notes with no penalties. If the 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 (“Conversion Shares”) at a conversion price (the “Conversion Price”) equal to the Nasdaq closing price of the Company’s common stock on the date of the note conversion. In connection with the SPA, the Company issued to the Investors an aggregate of 469,480 five-year Warrants exercisable for shares of common stock at an exercise price equal to $4.26, and 60,000 shares of Common Stock of the Company. | NOTE 14: SUBSEQUENT EVENTS On January 18, 2022 the Company entered into entered into a Membership Interest Purchase Agreement (the “Agreement”) with Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (“Sellers”), Sunnyside, LLC, a California limited liability company (“Sundry”), and George Levy as the Sellers’ representative, pursuant to which the Company will acquire all of the issued and outstanding membership interests of Sundry (such transaction, the “Acquisition”). Pursuant to the Agreement, Sellers, as the holders of all of the outstanding membership interests of Sundry, will exchange all of such membership interests for (i) $7.5 million of shares of the Company’s common stock at the volume-weighted average (rounded to the nearest $0.0001) of the closing price of the Company’s common stock on the Nasdaq Capital Market (“NasdaqCM”) during the thirty (30) trading day period immediately prior to the closing, but in no event at a price less than $159; and (ii) $34.0 million in cash, $20.0 million of which will be paid at the closing and the balance of which will be evidenced by promissory notes due December 31, 2022 (“Seller Notes”); provided, however, that if the audited aggregate net revenue of Sundry for the year ended December 31, 2021 (the “Audited Net Revenue”) times 1.5 is greater than $34.0 million, the Company will pay the difference in cash pro rata to the Sellers and if the Audited Net Revenue times 1.5 is less than $34.0 million, the Seller Notes will be reduced pro rata for such difference. A portion of the purchase price will be paid to certain employees of Sundry who have a contractual right to receive a portion of the consideration payable in the Acquisition (“Payees”). Of the $34.0 million in cash payable in the Acquisition, $2.0 million will be held in escrow to cover possible indemnification claims. If the Seller Notes, plus all unpaid interest thereunder, are not repaid in full on or prior to March 31, 2022, then on March 31, 2022, the Company will issue an additional $2.5 million of shares of common stock pro rata to the Sellers and the Payees. If the Seller Notes, plus all unpaid interest thereunder remain outstanding after March 31, 2022 and are not repaid in full on or prior to June 30, 2022, then on June 30, 2022, the Company will issue an additional $2.5 million of shares of common stock pro rata to the Sellers and the Payees. If the Seller Notes, plus all unpaid interest thereunder remain outstanding after June 30, 2022 and are not repaid in full on or prior to September 30, 2022, then on September 30, 2022, the Company will issue an additional $2.5 million of shares of common stock pro rata to the Sellers and the Payees. Any shares issued on either March 31, June 30 or September 30, 2022 shall be issued at the closing price of the Company’s common stock as quoted on the NasdaqCM as of the date immediately preceding the date of issuance but in no event at a price less than $1.59. The Agreement contains customary representations, warranties and covenants by the Company, the Sellers and Sundry. The closing of the Acquisition is subject to customary closing conditions and financing and there is no assurance that we will be able to complete the Acquisition. In February and March 2022, Oasis converted an aggregate of $482,646 in outstanding principal pursuant to the Oasis Note into 4,739 shares of common stock. In March 2022, FirstFire converted an aggregate of $406,112 in outstanding principal pursuant to the FirstFire Notes into 4,000 shares of common stock. 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. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Basis of Presentation | Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). | Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). |
Principles of Consolidation | Principles of Consolidation These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. | Principles of Consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. |
Use of Estimates | Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, inventory, impairment of long-lived assets, contingent consideration and derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Cash and Equivalents and Concentration of Credit Risk | Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of September 30, 2022 and December 31, 2021, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. | Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of December 31, 2021 and 2020, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of September 30, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ — $ — Contingent consideration — — 18,597,831 18,597,831 Derivative liability — — 1,690,807 1,690,807 $ — $ — $ 20,288,638 $ 20,288,638 Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Contingent Consideration Changes in acquisition-related contingent consideration liabilities during the nine months ended September 30, 2022 are as follows: Contingent Consideration Liability Outstanding as of December 31, 2021 $ 12,179,476 Change in fair value 6,418,355 Outstanding as of September 30, 2022 $ 18,597,831 The detail of contingent consideration by company is as follows: Bailey $ 10,698,475 Harper & Jones 7,899,356 $ 18,597,831 The contingent consideration liabilities were revalued as of May 18, 2022, the anniversary date of the Company’s initial public offering. As of the date of the issuance of these financial statements, the contingent consideration liabilities were not yet settled with shares. On July 29, 2022, the Company entered into an amendment to the May 2021 purchase agreement with the H&J Seller based on the ultimate settlement of the H&J contingent consideration. Pursuant to the amendment, on May 18, 2023, the Company shall deliver to the H&J Seller additional shares of common stock. The number of shares of common stock to be delivered to H&J Seller shall be calculated as follows: $7,899,356 minus any cash payments received by Seller from any capital raises, divided by the average common stock closing price per share based on the thirty-day trading period preceding May 19, 2023. Derivative Liability In connection with the Company’s convertible notes with Oasis Capital, LLC (“Oasis”) and FirstFire Global Opportunities Fund, LLC (“FirstFire”), as well as its convertible notes entered into in July 2022, 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 nine months ended September 30, 2022 are as follows: Derivative Liability Outstanding as of December 31, 2021 $ 2,294,720 Issuane of convertible notes 559,957 Conversion of underlying notes into common stock (369,393) Change in fair value (794,477) Outstanding as of September 30, 2022 $ 1,690,807 | Fair Value of Financial Instruments FASB guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Fair Value Measurements as of December 31, 2020 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ 6,265 $ 6,265 $ — $ — $ 6,265 $ 6,265 Warrant Liability Certain of the Company’s common stock warrants are carried at fair value. As of December 31, 2020, the fair value of the Company’s common stock warrant liabilities was measured under the Level 3 hierarchy using the Black-Scholes pricing model as the Company’s underlying common stock had no observable market price (see Note 10). The warrant liability was valued using a market approach. Upon the IPO, the warrant liabilities were valued using quoted prices of identical assets in active markets, and was reclassified under the Level 2 hierarchy. Changes in common stock warrant liability during the year ended December 31, 2021 are as follows: Warrant Liability Outstanding as of December 31, 2020 $ 6,265 Change in fair value 11,958 Outstanding as of December 31, 2021 $ 18,223 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 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 year ended December 31, 2021 are as follows: Contingent Consideration Liability Balance as of December 31, 2020 $ — Initial recognition in connection with acquisition of Harper & Jones 3,421,516 Stock price guarantee per consulting agreement 67,000 Conversion into shares (73,500) Change in fair value 8,764,460 Outstanding as of December 31, 2021 $ 12,179,476 Derivative Liability In connection with the Company’s convertible notes with Oasis Capital, LLC (“Oasis”) and FirstFire Global Opportunities Fund, LLC (“FirstFire”), 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 year ended December 31, 2021 are as follows: Derivative Liability Outstanding as of December 31, 2020 $ — Initial fair value on issuance of convertible note 3,204,924 Change in fair value (910,204) Outstanding as of December 31, 2021 $ 2,294,720 Change in fair value of the derivative liability is included in other non-operating income (expense), net in the consolidated statements of operations. |
Inventory | 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 first-in, first-out method for Bailey and Stateside. The inventory balances as of September 30, 2022 and December 31, 2021 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: September 30, December 31, 2022 2021 Raw materials $ 435,025 $ 292,167 Work in process 256,078 242,673 Finished goods 1,964,248 2,220,519 Inventory $ 2,655,352 $ 2,755,358 | 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 first-in, first-out method for Bailey and Stateside. The inventory balances as of December 31, 2021 and 2020 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. |
Property, Equipment, and Software | 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, 2021 and 2020 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 $92,213 and $283,024 for the years ended December 31, 2021 and 2020, respectively. | |
Business Combinations | 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: Customer relationships 3 years | |
Contingent Consideration | Contingent Consideration 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. | |
Impairment of Long-Lived Assets | Impairment of 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 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. | 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 first quarter every year. In the first quarter of 2021, management performed its annual qualitative impairment test. The Company determined no factors existed to conclude that it is more likely than not that the fair value of the reporting unit was less than its carrying amount. As such, no goodwill impairment was recognized as of December 31, 2021. |
Indefinite-Lived Intangible Assets | 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. At September 30, 2020, management determined that certain events and circumstances occurred, primarily the reduction in revenues due to COVID-19, that indicated that the carrying value of the Company’s brand name asset may, pertaining to Bailey44, not be recoverable. As such, the Company compared the estimated fair value of the brand name with its carrying value and recorded an impairment loss of $784,500 in the consolidated statements of operations. At December 31, 2021, management determined that certain events and circumstances occurred, primarily the continued reduction in revenues partially as a result of COVID-19, that indicated that the carrying value of the Company’s brand name asset may pertaining to Bailey44 not be recoverable. As such, the Company compared the estimated fair value of the brand name with its carrying value and recorded an impairment loss of $3,400,000 in the consolidated statements of operations. | |
Convertible Instruments | 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 | 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 | Revenue Recognition Revenues are recognized when performance obligations are satisfied through the transfer of promised goods to the Company’s customers. Control transfers upon shipment of product and when the title has been passed to the customers. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. 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 considers the sale of products as a single performance obligation. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses. Revenue is deferred for orders received for which associated shipments have not occurred. The reserve for returns totaled $33,933 and $5,229 as of December 31, 2021 and 2020, respectively, and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets. | |
Cost of Revenues | Cost of Revenues Cost of revenues consists primarily of inventory sold and related freight-in. | |
Shipping and Handling | 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 $23,000 and $3,900 for the years ended December 31, 2021 and 2020, respectively. Total shipping and handling costs included in distribution costs were approximately $423,000 and $246,000, respectively. | |
Advertising and Promotion | Advertising and Promotion Advertising and promotional costs are expensed as incurred. Advertising and promotional expense for the years ended December 31, 2021 and 2020 amounted to approximately $240,000 and $146,000, respectively. The amounts are included in sales and marketing expense. | |
Common Stock Purchase Warrants and Other Derivative Financial Instruments | 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, 2021 and 2020, the Company did not have any derivative instruments that were designated as hedges. | |
Stock Option and Warrant Valuation | 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 | 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 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 | 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 September 30, 2022 and December 31, 2021, the Company capitalized $367,696 in deferred offering costs pertaining to its equity line of credit agreement with Oasis (Note 8). Management is currently reviewing the feasibility of drawdowns on the equity line of credit. | 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). |
Segment Information | 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 September 30, 2021 our operating segments included: DSTLD, Bailey, H&J and Stateside. 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 | 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 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 September 30, 2022 and 2021, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of September 30, 2022 and 2021 are as follows: September 30, 2022 2021 Convertible notes 1,177,305 22,404 Series A convertible preferred stock 108 — Common stock warrants 132,114 35,913 Stock options 38,951 38,751 Total potentially dilutive shares 1,348,477 97,069 The stock options and warrants above are out-of-the-money as of September 30, 2022. net income. | 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, 2021 and 2020, 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, 2021 and 2020 are as follows: December 31, 2021 2020 Convertible notes 497,912 — Series Seed Preferred Stock (convertible to common stock) — 20,714,518 Series A Preferred Stock (convertible to common stock) — 5,654,072 Series A-2 Preferred Stock (convertible to common stock) — 5,932,742 Series CF Preferred Stock (convertible to common stock) — 836,331 Series A-3 Preferred Stock (convertible to common stock) — 9,032,330 Series B Preferred Stock (convertible to common stock) — 20,754,717 Common stock warrants 35,801 9,145 Preferred stock warrants — 806,903 Stock options 38,951 11,631 Total potentially dilutive shares 122,664 63,752,389 The potentially dilutive shares pertaining to the Company’s outstanding convertible notes was calculated based on the assumed conversion abilities as of December 31, 2021. The ultimate number of shares for which the notes can convert into is indeterminable. All shares of preferred stock were convertible into shares of common stock at a ratio of 1,563:1 per share. Upon the closing of the IPO, all 62,924,710 shares of preferred stock converted into an aggregate of 40,272 shares of common stock according to their respective terms. Additionally, all preferred stock warrants converted into 516 common stock warrants at the same ratio as the underlying preferred stock conversion. |
Concentrations | Concentrations The Company utilized two vendors that made up 40% of all inventory purchases during the year ended December 31, 2021 and three vendors that made up 100% of all inventory purchases during the year ended December 31, 2020. The loss of one of these vendors, may have a negative short-term impact on the Company’s operations; however, we believe there are acceptable substitute vendors that can be utilized longer-term. | |
Recent Accounting Pronouncements | 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 has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2021. The Company has adopted ASU 2016-02 as of January 1, 2022. See Note 10. 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. Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the Company’s financial results as if the H&J and Stateside acquisitions had occurred as of January 1, 2021. 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: | Recent Accounting Pronouncements In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company has elected to early adopt this ASU and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures. 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 has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position, results of operations and cash flows once adopted. 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. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Schedule of financial assets and liabilities measured at fair value on recurring basis | Fair Value Measurements as of September 30, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ — $ — Contingent consideration — — 18,597,831 18,597,831 Derivative liability — — 1,690,807 1,690,807 $ — $ — $ 20,288,638 $ 20,288,638 Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 | Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Fair Value Measurements as of December 31, 2020 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ 6,265 $ 6,265 $ — $ — $ 6,265 $ 6,265 |
Schedule of changes in common stock warrant liability | Warrant Liability Outstanding as of December 31, 2020 $ 6,265 Change in fair value 11,958 Outstanding as of December 31, 2021 $ 18,223 | |
Schedule of changes in contingent consideration | Contingent Consideration Liability Outstanding as of December 31, 2021 $ 12,179,476 Change in fair value 6,418,355 Outstanding as of September 30, 2022 $ 18,597,831 Bailey $ 10,698,475 Harper & Jones 7,899,356 $ 18,597,831 | Contingent Consideration Liability Balance as of December 31, 2020 $ — Initial recognition in connection with acquisition of Harper & Jones 3,421,516 Stock price guarantee per consulting agreement 67,000 Conversion into shares (73,500) Change in fair value 8,764,460 Outstanding as of December 31, 2021 $ 12,179,476 |
Summary of changed in derivative liability | Derivative Liability Outstanding as of December 31, 2021 $ 2,294,720 Issuane of convertible notes 559,957 Conversion of underlying notes into common stock (369,393) Change in fair value (794,477) Outstanding as of September 30, 2022 $ 1,690,807 | Derivative Liability Outstanding as of December 31, 2020 $ — Initial fair value on issuance of convertible note 3,204,924 Change in fair value (910,204) Outstanding as of December 31, 2021 $ 2,294,720 |
Schedule of estimated useful lives of amortizable intangible assets | Customer relationships 3 years | |
Schedule of potentially dilutive items outstanding | September 30, 2022 2021 Convertible notes 1,177,305 22,404 Series A convertible preferred stock 108 — Common stock warrants 132,114 35,913 Stock options 38,951 38,751 Total potentially dilutive shares 1,348,477 97,069 | December 31, 2021 2020 Convertible notes 497,912 — Series Seed Preferred Stock (convertible to common stock) — 20,714,518 Series A Preferred Stock (convertible to common stock) — 5,654,072 Series A-2 Preferred Stock (convertible to common stock) — 5,932,742 Series CF Preferred Stock (convertible to common stock) — 836,331 Series A-3 Preferred Stock (convertible to common stock) — 9,032,330 Series B Preferred Stock (convertible to common stock) — 20,754,717 Common stock warrants 35,801 9,145 Preferred stock warrants — 806,903 Stock options 38,951 11,631 Total potentially dilutive shares 122,664 63,752,389 |
BUSINESS COMBINATIONS (Tables)
BUSINESS COMBINATIONS (Tables) | 12 Months Ended |
Dec. 31, 2021 | |
Business Acquisition [Line Items] | |
Schedule of components of purchase price consideration | Series B preferred stock $ 11,000,000 Promissory note payable 4,500,000 Purchase price consideration $ 15,500,000 |
Schedule of assets and liabilities acquired in business combination | Purchase Price Allocation Cash and cash equivalents $ 106,913 Accounts receivable, net 37,479 Due (to) from factor, net (312,063) Inventory 3,303,660 Prepaid expenses 165,856 Deposits 187,493 Property, equipment and software, net 1,215,748 Goodwill 6,479,218 Intangible assets 8,600,000 Accounts payable (3,397,547) Accrued expenses and other liabilities (886,757) Purchase price consideration $ 15,500,000 |
Schedule of fair value of purchase price consideration | Cash $ 500,000 Common stock 8,025,542 Contingent consideration 3,421,516 Purchase price consideration $ 11,947,058 |
Schedule of allocation of purchase price in regard to acquisition | Purchase Price Allocation Cash and cash equivalents $ 24,335 Accounts receivable, net 49,472 Inventory 77,159 Prepaid expenses 69,715 Deposits 4,416 Property, equipment and software, net 83,986 Goodwill 9,681,548 Intangible assets 3,936,030 Accounts payable (51,927) Accrued expenses and other liabilities (107,957) Deferred revenue (269,848) Due to related parties (1,361) Loan payable (148,900) Note payable - related party (299,489) Deferred tax liability (1,100,120) Purchase price consideration $ 11,947,058 |
Business acquisition Pro Forma information | Year Ended December 31, 2021 2020 Net revenues $ 11,834,601 $ 12,989,493 Net loss $ (33,259,224) $ (12,761,206) Net loss per common share $ (433.00) $ (1,921.00) |
Stateside | |
Business Acquisition [Line Items] | |
Schedule of fair value of purchase price consideration | Cash $ 5,000,000 Common stock 3,403,196 Purchase price consideration $ 8,403,196 |
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 7,970 Deposits 9,595 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 |
DUE FROM FACTOR (Tables)
DUE FROM FACTOR (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
DUE FROM FACTOR | ||
Schedule of due from factor | September 30, December 31, 2022 2021 Outstanding receivables: $ 423,984 $ 579,295 Without recourse 83,224 361,584 With recourse 182,352 121,617 Advances (50,779) (77,208) Credits due customers $ 638,781 $ 985,288 | December 31, 2021 2020 Outstanding receivables: Without recourse $ 579,295 $ 151,158 With recourse 361,584 42,945 Advances 121,617 56,246 Credits due customers (77,208) (40,316) $ 985,288 $ 210,033 |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
GOODWILL AND INTANGIBLE ASSETS | ||
Summary of amortized and indefinite-lived intangible assets | Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 6,453,750 (3,062,794) $ 3,390,956 6,453,750 (3,062,794) 3,390,956 Indefinite-lived: Brand name $ 7,836,920 — 7,836,920 $ 14,290,670 $ (3,062,794) $ 11,227,876 | Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 6,453,750 $ (1,449,357) $ 5,004,393 6,453,750 (1,449,357) 5,004,393 Indefinite-lived: Brand name $ 7,836,920 — 7,836,920 $ 14,290,670 $ (1,449,357) $ 12,841,313 |
Summary of future amortization expense | Year Ending December 31, 2022 2,151,250 2023 1,830,417 2024 1,022,726 $ 5,004,393 |
LIABILITIES AND DEBT (Tables)
LIABILITIES AND DEBT (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
LIABILITIES AND DEBT | ||
Schedule of accrued expenses and other liabilities | September 30, December 31, 2022 2021 Accrued expenses $ 896,043 $ 213,740 Reserve for returns 24,673 33,933 Payroll related liabilities 2,602,800 1,204,665 Sales tax liability 298,149 268,723 Due to seller — 396,320 Other liabilities 130,702 119,764 $ 3,952,366 $ 2,237,145 | December 31, 2021 2020 Accrued expenses $ 213,740 $ 92,074 Reserve for returns 33,933 5,229 Payroll related liabilities 1,204,665 843,704 Sales tax liability 268,723 196,410 Due to seller 396,320 — Other liabilities 119,764 108,230 $ 2,237,145 $ 1,245,646 |
Schedule of the Oasis and First Fire Notes | The following is a summary of the Oasis and FirstFire Notes for the year ended December 31, 2021: Unamortized Convertible Note Principal Debt Discount Payable, Net Balance, December 31, 2020 $ — $ — $ — Issuance of Oasis note, net of issuance costs 5,265,000 (715,000) 4,550,000 Issuance of FirstFire First note, net of issuance costs 1,575,000 (315,000) 1,260,000 Issuance of Second FirstFire note, net of issuance costs 2,625,000 (530,000) 2,095,000 Derivative liability in connection with notes — (3,204,924) (3,204,924) Amortization of debt discount — 801,538 801,538 Balance, December 31, 2021 $ 9,465,000 $ (3,963,386) $ 5,501,614 |
SHARE-BASED PAYMENTS (Tables)
SHARE-BASED PAYMENTS (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SHARE-BASED PAYMENTS | ||
Schedule of fair value measurement inputs and valuation techniques | Year Ended December 31, 2020 Risk Free Interest Rate 1.54 – 1.59% Expected Dividend Yield 0.00% Expected Volatility 58.0 – 100% Expected Life (years) 5 – 10 | |
Summary of information related to common stock and preferred stock warrants | Common Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2021 35,801 $ 412.00 Granted 96,313 30.71 Exercised — Forfeited — Outstanding – September 30, 2022 132,114 $ 134.13 Exercisable at September 30, 2022 104,459 $ 166.65 | Common Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2019 4,180 $ 281 Granted 4,966 252 Exercised — — Forfeited — — Outstanding – December 31, 2020 9,146 $ 266 Granted 30,120 458 Conversion of preferred stock warrants upon IPO 516 766 Exercised (3,869) 457 Forfeited (112) 766 Outstanding – December 31, 2021 35,801 $ 412 Exercisable at December 31, 2020 9,146 $ 266 Exercisable at December 31, 2021 35,801 $ 412 Preferred Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2019 806,903 $ 0.49 Outstanding – December 31, 2020 806,903 $ 0.49 Converted to common stock warrants upon IPO (806,903) 0.49 Exercised — — Forfeited — — Outstanding – December 31, 2021 — $ — Exercisable at December 31, 2021 — $ — |
Summary of information related to stock options under stock plan | Weighted Average Options Exercise Price Outstanding – December 31, 2019 10,842 $ 2.50 Granted 917 94 Exercised — — Forfeited (128) $ 328 Outstanding – December 31, 2020 11,631 $ 234 Granted 27,320 415 Exercised — — Forfeited — — Outstanding – December 31, 2021 38,951 $ 362 Exercisable at December 31, 2020 8,810 $ 234 Exercisable at December 31, 2021 31,646 $ 359 Weighted average duration (years) to expiration of outstanding options at December 31, 2021 8.00 | |
Schedule of assumptions utilized for option grants | Year Ended December 31, 2021 2020 Risk Free Interest Rate 0.34% – 0.85% 0.42% – 0.51% Expected Dividend Yield 0.00% 0.00% Expected Volatility 58.00% 58.00% Expected Life (years) 5.18 6.25 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2021 | |
INCOME TAXES | |
Schedule of deferred tax assets and liabilities | December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 13,108,371 $ 9,134,447 Stock-based compensation — 40,467 Deferred tax liabilities: Depreciation timing differences (5,103) (5,103) Unamortized debt issuance costs — (41,198) Valuation allowance (13,103,268) (9,128,614) Net deferred tax assets $ — $ — |
NATURE OF OPERATIONS (Details)
NATURE OF OPERATIONS (Details) $ / shares in Units, $ in Millions | 12 Months Ended | |||||||
Oct. 21, 2022 | May 10, 2022 USD ($) shares | May 13, 2021 USD ($) $ / shares shares | May 12, 2021 | Dec. 31, 2020 shares | May 05, 2022 $ / shares | Aug. 30, 2021 | May 18, 2021 | |
Subsidiary, Sale of Stock [Line Items] | ||||||||
Reverse stock split ratio | 0.01 | 0.064 | ||||||
Number of share sold or issued on closing of Public Offering | shares | 0 | |||||||
Aggregate net proceeds from the IPO, inclusive of the proceeds from the over-allotment exercise | $ 8.1 | |||||||
Harper & Jones LLC | ||||||||
Subsidiary, Sale of Stock [Line Items] | ||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 100% | |||||||
Stateside | ||||||||
Subsidiary, Sale of Stock [Line Items] | ||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 100% | |||||||
Initial Public Offering | ||||||||
Subsidiary, Sale of Stock [Line Items] | ||||||||
Number of share sold or issued on closing of Public Offering | shares | 373,898 | 24,096 | ||||||
Share issue price | $ / shares | $ 4.15 | $ 2.50 | ||||||
Warrants issued | shares | 27,711 | |||||||
Aggregate net proceeds from the IPO, inclusive of the proceeds from the over-allotment exercise | $ 8.6 | |||||||
Underwriting discounts and commissions | 0.8 | |||||||
Estimated offering expenses | 0.6 | |||||||
Additional offering costs | $ 0.6 | |||||||
Over-allotment option | ||||||||
Subsidiary, Sale of Stock [Line Items] | ||||||||
Warrants issued | shares | 3,614 |
GOING CONCERN (Details)
GOING CONCERN (Details) - USD ($) | 9 Months Ended | 12 Months Ended | ||||
Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | Aug. 31, 2021 | Aug. 27, 2021 | |
Net loss | $ (22,261,338) | $ (22,659,480) | $ (32,357,957) | $ (10,728,295) | ||
Working capital deficit | $ (40,731,620) | $ 30,270,932 | ||||
Equity purchase agreement | ||||||
Value of Common stock to be issued under the agreement | $ 17,500,000 | $ 17,500,000 |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cash and Equivalents and Concentration of Credit Risk (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Cash and cash equivalents in bank deposit | $ 250,000 | $ 250,000 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value of Financial Instruments (Details) - USD ($) | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
Liabilities, Fair Value Disclosure [Abstract] | ||||
Warrant liability | $ 18,223 | $ 6,265 | ||
Contingent consideration | $ 18,597,831 | 12,179,476 | ||
Derivative liability | 1,690,807 | 2,294,720 | ||
Total | 20,288,638 | 14,492,419 | ||
Warrant Liability | ||||
Outstanding as of December 31, 2020 | 18,223 | $ 6,265 | 6,265 | |
Change in fair value | (18,223) | 21,930 | 11,958 | (2,353) |
Outstanding as of September 30, 2021 | 18,223 | 6,265 | ||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||||
Outstanding as of December 31, 2021 | 12,179,476 | $ 0 | 0 | |
Initial recognition in connection with acquisition of Harper & Jones | 3,421,516 | |||
Stock price guarantee per consulting agreement | 67,000 | |||
Conversion into shares | (73,500) | |||
Change in fair value | 6,418,355 | 8,764,460 | ||
Outstanding as of September 30, 2022 | 18,597,831 | 12,179,476 | 0 | |
Level 2 | ||||
Liabilities, Fair Value Disclosure [Abstract] | ||||
Warrant liability | 18,223 | |||
Total | 18,223 | |||
Level 3 | ||||
Liabilities, Fair Value Disclosure [Abstract] | ||||
Warrant liability | $ 6,265 | |||
Contingent consideration | 18,597,831 | 12,179,476 | ||
Derivative liability | 1,690,807 | 2,294,720 | ||
Total | $ 20,288,638 | $ 14,474,196 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Derivative Liability (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
Outstanding as of December 31, 2021 | $ 12,179,476 | $ 0 |
Change in fair value | 6,418,355 | 8,764,460 |
Outstanding as of September 30, 2022 | 18,597,831 | 12,179,476 |
Derivative Liability | ||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
Outstanding as of December 31, 2021 | 2,294,720 | |
Initial fair value on issuance of convertible note | 559,957 | 3,204,924 |
Change in fair value | (794,477) | (910,204) |
Outstanding as of September 30, 2022 | $ 1,690,807 | $ 2,294,720 |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property, Equipment, and Software (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2021 | Dec. 31, 2020 | |
Property, Plant and Equipment [Line Items] | ||
General and administrative expenses | $ 92,213 | $ 283,024 |
Property and equipment | Minimum | ||
Property, Plant and Equipment [Line Items] | ||
Lease life or expected life | 3 years | 3 years |
Property and equipment | Maximum | ||
Property, Plant and Equipment [Line Items] | ||
Lease life or expected life | 10 years | 10 years |
Software | ||
Property, Plant and Equipment [Line Items] | ||
Lease life or expected life | 3 years | 3 years |
SUMMARY OF SIGNIFICANT ACCOUN_8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Business Combinations (Details) | 12 Months Ended |
Dec. 31, 2021 | |
Customer relationships | |
Finite-Lived Intangible Assets [Line Items] | |
Estimated useful lives | 3 years |
SUMMARY OF SIGNIFICANT ACCOUN_9
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Indefinite-Lived Intangible Assets (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2021 | Dec. 31, 2020 | |
Brand name | ||
Indefinite-lived Intangible Assets [Line Items] | ||
Impairment loss of indefinite-lived intangible assets | $ 3,400,000 | $ 784,500 |
SUMMARY OF SIGNIFICANT ACCOU_10
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue Recognition (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||
Reserve for returns | $ 24,673 | $ 33,933 | $ 5,229 |
SUMMARY OF SIGNIFICANT ACCOU_11
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Shipping and Handling (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2021 | Dec. 31, 2020 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Total shipping and handling | $ 23,000 | $ 3,900 |
Total shipping and handling costs included in distribution costs | $ 423,000 | $ 246,000 |
SUMMARY OF SIGNIFICANT ACCOU_12
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Advertising and Promotion (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2021 | Dec. 31, 2020 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Advertising and promotional expense | $ 240,000 | $ 146,000 |
SUMMARY OF SIGNIFICANT ACCOU_13
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Deferred Offering Costs (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||
Deferred offering costs | $ 214,647 | ||
Deferred offering costs capitalized | $ 367,696 | $ 367,696 | $ 214,647 |
SUMMARY OF SIGNIFICANT ACCOU_14
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Net Loss per Share (Details) | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2022 shares | Sep. 30, 2021 shares | Dec. 31, 2021 shares | Dec. 31, 2020 shares | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 1,348,477 | 97,069 | 122,664 | 63,752,389 |
Convertible ratio | 1,563 | |||
Preferred stock convertible into shares of common stock | 62,924,710 | |||
Shares of common stock | 40,272 | |||
Common stock warrants | 516 | |||
Stock options | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 38,951 | 38,751 | 38,951 | 11,631 |
Convertible notes | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 1,177,305 | 22,404 | 497,912 | |
Series Seed Preferred Stock (convertible to common stock) | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 20,714,518 | |||
Series A Convertible Preferred Stock [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 108 | 5,654,072 | ||
Series A-2 Preferred Stock (convertible to common stock) | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 5,932,742 | |||
Series CF Preferred Stock (convertible to common stock) | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 836,331 | |||
Series A-3 Preferred Stock (convertible to common stock) | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 9,032,330 | |||
Series B Preferred Stock (convertible to common stock) | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 20,754,717 | |||
Common stock warrants | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 132,114 | 35,913 | 35,801 | 9,145 |
Preferred stock warrants | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total potentially dilutive shares | 806,903 |
SUMMARY OF SIGNIFICANT ACCOU_15
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentrations (Details) - item | 12 Months Ended | |
Dec. 31, 2021 | Dec. 31, 2020 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Number of vendors | 2 | 3 |
Inventory, percentage | 40% | 100% |
BUSINESS COMBINATIONS (Details)
BUSINESS COMBINATIONS (Details) - USD ($) | May 18, 2021 | Feb. 12, 2020 |
Business Acquisition [Line Items] | ||
Trading day immediately preceding period | 30 days | |
Gross proceeds from common stock indemnification claims | $ 9,100,000 | |
Bailey | ||
Business Acquisition [Line Items] | ||
Business acquisition interest acquired | 100% | |
Number of shares connection with merger | 16,603,773 | |
Number of shares held back solely | 4,150,944 | |
Business combination indemnification provisions | $ 11,000,000 | |
Bailey | Series B Preferred Stock | ||
Business Acquisition [Line Items] | ||
Business acquisition aggregate shares issuable | 20,754,717 | |
Business acquisition issuable amount | $ 4,500,000 | |
Harper & Jones LLC | ||
Business Acquisition [Line Items] | ||
Business acquisition interest acquired | 100% | |
Number of shares connection with merger | 21,928 | |
Harper & Jones LLC | Initial Public Offering | ||
Business Acquisition [Line Items] | ||
Business acquisition issuable amount | $ 9,100,000 | |
Cash payments | $ 500,000 |
BUSINESS COMBINATIONS - Purchas
BUSINESS COMBINATIONS - Purchase price consideration (Details) - USD ($) | May 18, 2021 | Feb. 12, 2020 |
Harper & Jones LLC | ||
Business Acquisition [Line Items] | ||
Purchase price consideration | $ 11,947,058 | |
Cash | 500,000 | |
Common stock | 8,025,542 | |
Contingent consideration | 3,421,516 | |
Purchase price consideration | $ 11,947,058 | |
Bailey | ||
Business Acquisition [Line Items] | ||
Purchase price consideration | $ 15,500,000 | |
Purchase price consideration | 15,500,000 | |
Series B Preferred Stock | Bailey | ||
Business Acquisition [Line Items] | ||
Purchase price consideration | 11,000,000 | |
Purchase price consideration | 11,000,000 | |
Promissory note payable | Bailey | ||
Business Acquisition [Line Items] | ||
Purchase price consideration | 4,500,000 | |
Purchase price consideration | $ 4,500,000 |
BUSINESS COMBINATIONS - Assets
BUSINESS COMBINATIONS - Assets acquired and Liabilities assumed (Details) - USD ($) | May 18, 2021 | Feb. 12, 2020 | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
Business Acquisition [Line Items] | |||||
Goodwill | $ 18,264,822 | $ 18,264,822 | $ 6,479,218 | ||
Bailey | |||||
Business Acquisition [Line Items] | |||||
Cash and cash equivalents | $ 106,913 | ||||
Accounts receivable, net | 37,479 | ||||
Due from factor, net | (312,063) | ||||
Inventory | 3,303,660 | ||||
Prepaid expenses | 165,856 | ||||
Deposits | 187,493 | ||||
Property, equipment and software, net | 1,215,748 | ||||
Goodwill | 6,479,218 | ||||
Intangible assets | 8,600,000 | ||||
Accounts payable | (3,397,547) | ||||
Accrued expenses and other liabilities | (886,757) | ||||
Purchase price consideration | $ 15,500,000 | ||||
Harper & Jones LLC | |||||
Business Acquisition [Line Items] | |||||
Cash and cash equivalents | $ 24,335 | ||||
Accounts receivable, net | 49,472 | ||||
Inventory | 77,159 | ||||
Prepaid expenses | 69,715 | ||||
Deposits | 4,416 | ||||
Property, equipment and software, net | 83,986 | ||||
Goodwill | 9,681,548 | ||||
Intangible assets | 3,936,030 | ||||
Accounts payable | (51,927) | ||||
Accrued expenses and other liabilities | (107,957) | ||||
Deferred revenue | (269,848) | ||||
Due to related parties | (1,361) | ||||
Loan payable | (148,900) | ||||
Note Payable related party | (299,489) | ||||
Deferred Tax Liability | (1,100,120) | ||||
Purchase price consideration | $ 11,947,058 |
BUSINESS COMBINATIONS - Statesi
BUSINESS COMBINATIONS - Stateside (Details) - Stateside | Aug. 30, 2021 USD ($) shares |
Business Acquisition [Line Items] | |
Cash | $ 5,000,000 |
Value of shares of common stock transferred | shares | 11,015 |
Cash held in escrow | $ 375,000 |
Value of shares held in escrow | $ 375,000 |
Number of shares held in escrow | shares | 826 |
BUSINESS COMBINATIONS - State_2
BUSINESS COMBINATIONS - Stateside purchase price consideration (Details) - Stateside | Aug. 30, 2021 USD ($) |
Fair value of the purchase price consideration | |
Cash | $ 5,000,000 |
Common stock | 3,403,196 |
Purchase price consideration | $ 8,403,196 |
BUSINESS COMBINATIONS - State_3
BUSINESS COMBINATIONS - Stateside Assets acquired and Liabilities assumed (Details) - USD ($) | Aug. 30, 2021 | Sep. 30, 2022 | Dec. 31, 2021 | Aug. 31, 2021 | Dec. 31, 2020 |
Business Acquisition [Line Items] | |||||
Goodwill | $ 18,264,822 | $ 18,264,822 | $ 6,479,218 | ||
Stateside | |||||
Business Acquisition [Line Items] | |||||
Cash and cash equivalents | $ 32,700 | ||||
Accounts receivable, net | 154,678 | ||||
Due from factor, net | 371,247 | ||||
Inventory | 603,625 | ||||
Prepaid expenses | 7,970 | ||||
Deposits | 9,595 | ||||
Goodwill | 2,104,056 | $ 493,791 | $ 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 |
BUSINESS COMBINATIONS - State_4
BUSINESS COMBINATIONS - Stateside Additional information (Details) - USD ($) | 12 Months Ended | |
Aug. 30, 2021 | Dec. 31, 2021 | |
Customer relationships | ||
Business Acquisition [Line Items] | ||
Estimated useful lives | 3 years | |
Stateside | ||
Business Acquisition [Line Items] | ||
Net revenue since the acquisition date | $ 1,695,000 | |
Working capital adjustments | $ 493,791 | |
Net amount due to seller | $ 396,320 | |
Net income since the acquisition date | $ 285,000 | |
Stateside | Customer relationships | ||
Business Acquisition [Line Items] | ||
Estimated useful lives | 3 years |
BUSINESS COMBINATIONS - Unaudit
BUSINESS COMBINATIONS - Unaudited Pro Forma Financial Information (Details) - USD ($) | 12 Months Ended | |||
May 18, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | Sep. 30, 2022 | |
Business Acquisition [Line Items] | ||||
Contingent consideration liability | $ 12,179,476 | $ 18,597,831 | ||
Contingent consideration liability | 7,935,016 | |||
Net revenues | 11,834,601 | $ 12,989,493 | ||
Net loss | $ (33,259,224) | $ (12,761,206) | ||
Net loss per common share | $ (433) | $ (1,921) | ||
Harper & Jones LLC | ||||
Business Acquisition [Line Items] | ||||
Contingent consideration liability | $ 3,421,516 | $ 4,244,460 | ||
Net revenues | 1,860,000 | |||
Net loss | $ 390,000 | |||
Customer relationships | ||||
Business Acquisition [Line Items] | ||||
Estimated useful lives | 3 years | |||
Customer relationships | Harper & Jones LLC | ||||
Business Acquisition [Line Items] | ||||
Estimated useful lives | 3 years |
DUE FROM FACTOR (Details)
DUE FROM FACTOR (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2021 | Sep. 30, 2022 | Dec. 31, 2020 | |
Debt Instrument [Line Items] | |||
Outstanding receivables, Without recourse | $ 579,295 | $ 423,984 | $ 151,158 |
Outstanding receivables, With recourse | 361,584 | 83,224 | 42,945 |
Advances | 121,617 | 182,352 | 56,246 |
Credits due customers | (77,208) | (50,779) | (40,316) |
Due from factor | $ 985,288 | $ 638,781 | $ 210,033 |
Maximum advances on net sales can be requested, percentage | 50% | ||
LIBOR | |||
Debt Instrument [Line Items] | |||
Debt instrument variable rate | 2.50% | ||
Spread on variable interest rate | 2.50% | ||
Prime Rate | |||
Debt Instrument [Line Items] | |||
Increase (Decrease) in interest rate | 0.03% | ||
Stateside | |||
Debt Instrument [Line Items] | |||
Maximum commission and fees payable | $ 30,000 | ||
Interest rate of loans | 4% | ||
Stateside | Prime Rate | |||
Debt Instrument [Line Items] | |||
Debt instrument variable rate | 2% | ||
Maximum commission and fees payable | $ 30,000 | ||
Spread on variable interest rate | 2% | ||
Bailey | Prime Rate | |||
Debt Instrument [Line Items] | |||
Interest rate of loans | 4.25% |
GOODWILL AND INTANGIBLE ASSET_2
GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||
May 31, 2021 | Feb. 29, 2020 | Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | Aug. 31, 2021 | Aug. 30, 2021 | |
Indefinite-lived Intangible Assets [Line Items] | ||||||||||
Goodwill acquired | $ 9,681,548 | $ 6,479,218 | ||||||||
Gross Amount | $ 6,453,750 | $ 6,453,750 | $ 6,453,750 | |||||||
Accumulated Amortization | (3,062,794) | (3,062,794) | (1,449,357) | |||||||
Carrying Value | 3,390,956 | 3,390,956 | 5,004,393 | $ 5,004,393 | ||||||
Indefinite-lived | 14,290,670 | 14,290,670 | 14,290,670 | |||||||
Intangible Assets, Net (Excluding Goodwill), Total | 11,227,876 | 11,227,876 | 12,841,313 | 7,494,667 | ||||||
Amortization expense | 537,813 | $ 355,808 | 1,613,438 | $ 590,711 | 1,128,524 | 320,833 | ||||
Goodwill | 18,264,822 | 18,264,822 | 18,264,822 | 6,479,218 | ||||||
Stateside | ||||||||||
Indefinite-lived Intangible Assets [Line Items] | ||||||||||
Goodwill | 493,791 | $ 2,104,056 | $ 2,104,056 | |||||||
Stateside | Previously Reported | ||||||||||
Indefinite-lived Intangible Assets [Line Items] | ||||||||||
Goodwill | $ 1,610,265 | |||||||||
Customer relationships | ||||||||||
Indefinite-lived Intangible Assets [Line Items] | ||||||||||
Gross Amount | 6,453,750 | 6,453,750 | 6,453,750 | |||||||
Accumulated Amortization | (3,062,794) | (3,062,794) | (1,449,357) | |||||||
Carrying Value | 3,390,956 | 3,390,956 | 5,004,393 | |||||||
Brand name | ||||||||||
Indefinite-lived Intangible Assets [Line Items] | ||||||||||
Indefinite-lived | $ 7,836,920 | $ 7,836,920 | 7,836,920 | |||||||
Intangible Assets, Net (Excluding Goodwill), Total | 7,836,920 | |||||||||
Impairment loss of indefinite-lived intangible assets | $ 3,400,000 | $ 784,500 |
GOODWILL AND INTANGIBLE ASSET_3
GOODWILL AND INTANGIBLE ASSETS - Future amortization expense (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
GOODWILL AND INTANGIBLE ASSETS | |||
2022 | $ 2,151,250 | ||
2023 | 1,830,417 | ||
2024 | 1,022,726 | ||
Carrying Value | $ 3,390,956 | $ 5,004,393 | $ 5,004,393 |
LIABILITIES AND DEBT - Accrued
LIABILITIES AND DEBT - Accrued Expenses and Other Liabilities (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
LIABILITIES AND DEBT | |||
Accrued expenses | $ 896,043 | $ 213,740 | $ 92,074 |
Reserve for returns | 24,673 | 33,933 | 5,229 |
Payroll related liabilities | 2,602,800 | 1,204,665 | 843,704 |
Sales tax liability | 298,149 | 268,723 | 196,410 |
Due to seller | 396,320 | ||
Other liabilities | 130,702 | 119,764 | 108,230 |
Accrued expenses and other liabilities, Total | 3,952,366 | 2,237,145 | 1,245,646 |
Estimated Penalties Associated With Accrued Payroll Taxes | $ 262,000 | $ 262,000 | $ 152,000 |
LIABILITIES AND DEBT - Venture
LIABILITIES AND DEBT - Venture Debt (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||
Nov. 16, 2021 | Jul. 31, 2021 | May 31, 2021 | Mar. 31, 2017 | Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | Jun. 30, 2022 | |
Line of Credit Facility [Line Items] | ||||||||||||
Gross loan | $ 1,459,211 | |||||||||||
Warrants granted | 3,550 | 319 | ||||||||||
Warrants value | $ 1,622,350 | $ 145,696 | ||||||||||
Interest expense | $ 427,700 | $ 825,219 | $ 770,277 | |||||||||
Interest expense and effective interest rate | 13.70% | 14.60% | ||||||||||
Common stock warrants | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Warrants granted | 4,935 | |||||||||||
Warrants exercise price | $ 250 | |||||||||||
Warrants and rights outstanding term | 10 years | |||||||||||
Warrants value | $ 184,191 | |||||||||||
Note Warrant | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Percentage diluted capitalization | 1% | |||||||||||
Principal loaned under the agreement | 1.358% | |||||||||||
Principal loaned under the agreement | $ 1,000,000 | |||||||||||
Loan fees and discounts from warrants were amortized to interest expense | $ 147,389 | 241,878 | ||||||||||
Loan fees and discounts from warrants unamortized balance | 0 | 147,389 | ||||||||||
Venture Debt | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Interest expense | $ 191,152 | $ 189,096 | $ 573,455 | $ 591,123 | ||||||||
Interest expense and effective interest rate | 12.20% | 13.40% | ||||||||||
Venture Debt | Note Warrant | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Loan fees and discounts from warrants were amortized to interest expense | 12,500 | $ 147,389 | ||||||||||
Loan fees and discounts from warrants unamortized balance | $ 0 | |||||||||||
Venture Debt | Secured Debt | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Maximum borrowing capacity | $ 4,000,000 | |||||||||||
Amended Venture Debt | Secured Debt | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Maximum borrowing capacity | $ 6,000,000 | |||||||||||
Loan bears interest rate | 12.50% | |||||||||||
Compounded monthly fees | $ 5,000 | |||||||||||
Gross loan | $ 6,001,755 | $ 6,001,755 | $ 6,251,755 | |||||||||
Amended Venture Debt | Secured Debt | Follow-On Public Offering | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Line of credit facility, frequency of payments | $3,000,000 | |||||||||||
Line of credit facility days | 5 days | |||||||||||
Amended Venture Debt | Secured Debt | Secondary Follow-On Public Offering Prior To September 30 2021 | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Loan payment | $ 3,000,000 | |||||||||||
Line of credit facility days | 5 days | |||||||||||
Amended Venture Debt | Secured Debt | Secondary Follow-On Public Offering After September 30 2021 | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Loan payment | $ 300,000 |
LIABILITIES AND DEBT - Converti
LIABILITIES AND DEBT - Convertible Debt (Details) | 9 Months Ended | 12 Months Ended | |||
Apr. 01, 2021 shares | Sep. 30, 2022 USD ($) shares | Dec. 31, 2021 USD ($) shares | Dec. 31, 2020 USD ($) shares | Dec. 31, 2019 USD ($) item $ / shares | |
Debt Instrument [Line Items] | |||||
Gross proceeds received | $ 237,500 | $ 2,779,910 | $ 1,701,044 | ||
Number of shares resulting from conversion | shares | 24,827 | ||||
Convertible Debt 2020 Regulation CF Offering | |||||
Debt Instrument [Line Items] | |||||
Outstanding principal and accrued interest upon closing of IPO | $ 16,942 | ||||
Conversion of shares | shares | 3,197 | ||||
Convertible Debt 2020 Regulation CF Offering | Promissory note | |||||
Debt Instrument [Line Items] | |||||
Gross proceeds received | $ 473,650 | $ 450,308 | |||
Interest rate of loans | 6% | ||||
Issuance costs | 69,627 | ||||
Amortization of debt issuance costs | $ 27,894 | ||||
Convertible Debt 2020 Regulation D Offering | |||||
Debt Instrument [Line Items] | |||||
Gross proceeds received | 755,000 | ||||
Outstanding principal and accrued interest upon closing of IPO | $ 100,000 | 100,000 | 185,000 | ||
Amortization of debt issuance costs | 100,000 | ||||
Default interest expense | 132,609 | ||||
Convertible Debt 2020 Regulation D Offering | Promissory note | |||||
Debt Instrument [Line Items] | |||||
Gross proceeds received | $ 55,000 | $ 800,000 | |||
Interest rate of loans | 14% | ||||
Debt instrument term | 9 months | ||||
Issuance costs | $ 100,000 | ||||
Gross proceeds from converted debt conversion | $ 10,000,000 | ||||
Converted percentage of IPO price | 50% | ||||
Common stock warrants issued | shares | 5 | ||||
Convertible Debt 2020 Regulation D Offering | Debt Converted Into Common Stock [Member] | Promissory note | |||||
Debt Instrument [Line Items] | |||||
Number of shares resulting from conversion | shares | 4,534 | ||||
Convertible Debt 2019 Regulation D Offering | Promissory note | |||||
Debt Instrument [Line Items] | |||||
Gross proceeds received | $ 799,280 | ||||
Interest rate of loans | 12% | ||||
Debt instrument term | 36 months | ||||
Debt conversion price | $ / shares | $ 219 | ||||
Debt conversion share price triggering conversion | $ / shares | $ 219 | ||||
Debt conversion based on value of the principle | item | 2 | ||||
Valuation cap | $ 9,000,000 | ||||
Convertible Debt 2019 Regulation D Offering | Debt Converted Into Common Stock [Member] | Promissory note | |||||
Debt Instrument [Line Items] | |||||
Number of shares resulting from conversion | shares | 3,621 |
LIABILITIES AND DEBT - Conver_2
LIABILITIES AND DEBT - Convertible Promissory Note (Details) | 12 Months Ended | ||||
Nov. 16, 2021 USD ($) item D $ / shares | Oct. 01, 2021 USD ($) item D $ / shares | Dec. 31, 2021 USD ($) D $ / shares | Sep. 30, 2022 USD ($) | Aug. 27, 2021 USD ($) | |
Debt Instrument [Line Items] | |||||
Derivative liability at fair value | $ 2,294,720 | $ 1,690,807 | |||
Oasis Note | |||||
Debt Instrument [Line Items] | |||||
Interest rate of loans | 6% | 6% | |||
Face value | $ 5,265,000 | $ 5,265,000 | |||
Total purchase price | $ 5,000,000 | ||||
Term of debt | 18 months | ||||
Debt conversion price | $ / shares | $ 360.10 | ||||
Threshold percentage of stock price | 90% | ||||
Number of lowest vwaps | D | 2 | ||||
Number of consecutive trading days | D | 5 | ||||
Period not to submit notice | 30 days | ||||
Minimum conversion amount | $ 500,000 | ||||
Minimum conversion price | $ / shares | $ 300 | ||||
Derivative liability at fair value | $ 3,204,924 | $ 1,931,149 | |||
First First Fire Note | |||||
Debt Instrument [Line Items] | |||||
Interest rate of loans | 6% | ||||
Face value | $ 1,575,000 | ||||
Total purchase price | $ 1,500,000 | ||||
Term of debt | 18 months | ||||
Debt conversion price | $ / shares | $ 395.20 | ||||
Threshold percentage of stock price | 90% | ||||
Number of lowest vwaps | item | 2 | ||||
Number of consecutive trading days | D | 5 | ||||
Period not to submit notice | 30 days | ||||
Minimum conversion amount | $ 500,000 | ||||
Minimum conversion price | $ / shares | $ 300 | ||||
Second First Fire Note | |||||
Debt Instrument [Line Items] | |||||
Interest rate of loans | 6% | ||||
Face value | $ 2,625,000 | ||||
Total purchase price | $ 2,500,000 | ||||
Debt conversion price | $ / shares | $ 428 | ||||
Threshold percentage of stock price | 90% | ||||
Number of lowest vwaps | item | 2 | ||||
Number of consecutive trading days | D | 5 | ||||
Period not to submit notice | 30 days | ||||
Minimum conversion amount | $ 500,000 | ||||
Minimum conversion price | $ / shares | $ 329 |
LIABILITIES AND DEBT - Oasis an
LIABILITIES AND DEBT - Oasis and First Fire Notes (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
Promissory note | ||
Short-term Debt [Line Items] | ||
Principal, beginning balance | $ 9,465,000 | |
Unamortized Debt Discount, beginning balance | 3,963,386 | |
Debt, net, beginning balance | 5,501,614 | |
Amortization of debt discount | $ 801,538 | |
Principal, ending balance | 9,465,000 | |
Unamortized Debt Discount, ending balance | 3,963,386 | |
Debt, net, ending balance | 5,501,614 | |
Unamortized debt discount | 3,963,386 | |
Net balance after unamortized debt discount | 5,501,614 | |
Oasis Note | ||
Short-term Debt [Line Items] | ||
Unamortized Debt Discount, beginning balance | 3,963,386 | |
Debt, net, beginning balance | 5,501,614 | |
Amortization of debt discount | 7,975,872 | 801,538 |
Unamortized Debt Discount, ending balance | 3,963,386 | |
Debt, net, ending balance | 5,501,614 | |
Unamortized debt discount | 3,963,386 | |
Net balance after unamortized debt discount | 5,501,614 | |
Interest expense | 148,613 | |
Oasis Note | Promissory note | ||
Short-term Debt [Line Items] | ||
Principal, beginning balance | 5,265,000 | |
Unamortized Debt Discount, beginning balance | 715,000 | |
Debt, net, beginning balance | 4,550,000 | |
Principal, ending balance | 5,265,000 | |
Unamortized Debt Discount, ending balance | 715,000 | |
Debt, net, ending balance | 4,550,000 | |
Unamortized debt discount | 715,000 | |
Net balance after unamortized debt discount | 4,550,000 | |
First First Fire Note | Promissory note | ||
Short-term Debt [Line Items] | ||
Principal, beginning balance | 1,575,000 | |
Unamortized Debt Discount, beginning balance | 315,000 | |
Debt, net, beginning balance | 1,260,000 | |
Principal, ending balance | 1,575,000 | |
Unamortized Debt Discount, ending balance | 315,000 | |
Debt, net, ending balance | 1,260,000 | |
Unamortized debt discount | 315,000 | |
Net balance after unamortized debt discount | 1,260,000 | |
Second First Fire Note | Promissory note | ||
Short-term Debt [Line Items] | ||
Principal, beginning balance | 2,625,000 | |
Unamortized Debt Discount, beginning balance | 530,000 | |
Debt, net, beginning balance | 2,095,000 | |
Principal, ending balance | 2,625,000 | |
Unamortized Debt Discount, ending balance | 530,000 | |
Debt, net, ending balance | 2,095,000 | |
Unamortized debt discount | 530,000 | |
Net balance after unamortized debt discount | 2,095,000 | |
Derivative liability. | Promissory note | ||
Short-term Debt [Line Items] | ||
Unamortized Debt Discount, beginning balance | 3,204,924 | |
Debt, net, beginning balance | $ 3,204,924 | |
Unamortized Debt Discount, ending balance | 3,204,924 | |
Debt, net, ending balance | 3,204,924 | |
Unamortized debt discount | 3,204,924 | |
Net balance after unamortized debt discount | 3,204,924 | |
Oasis and First Fire notes | ||
Short-term Debt [Line Items] | ||
Debt discount | $ 1,560,000 |
LIABILITIES AND DEBT - Loan Pay
LIABILITIES AND DEBT - Loan Payable - PPP and SBA Loan (Details) - USD ($) | 1 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Jun. 25, 2020 | Apr. 30, 2020 | Sep. 30, 2022 | Dec. 31, 2021 | May 31, 2021 | Feb. 28, 2021 | Dec. 31, 2020 | |
Debt Instrument [Line Items] | |||||||
Note payable - related party | $ 299,489 | $ 137,856 | |||||
Aggregate Principal Amount | 72,269 | ||||||
Loan payable | $ 298,900 | 713,182 | $ 709,044 | ||||
other non-operating income | 1,760,755 | 407,994 | |||||
Harper & Jones LLC | |||||||
Debt Instrument [Line Items] | |||||||
Note payable - related party | 299,489 | ||||||
Face value | 140,928 | $ 153,860 | $ 75,000 | ||||
Interest rate of loans | 12% | 7.76% | |||||
Loan payable | $ 149,962 | ||||||
Proceeds from Loan Originations | $ 140,000 | ||||||
Interest rates of notes | 12% | ||||||
Harper & Jones LLC | Previously Reported | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate of loans | 9.90% | ||||||
Paycheck Protection Program, Cares Act | |||||||
Debt Instrument [Line Items] | |||||||
Face value | $ 203,994 | ||||||
Interest rate of loans | 1% | ||||||
Interest deferral term | 6 months | ||||||
Debt instrument term | 2 years | ||||||
Convertible Note Payable, Net | $ 203,994 | ||||||
other non-operating income | 407,994 | ||||||
Paycheck Protection Program, Cares Act | Bailey LLC. | |||||||
Debt Instrument [Line Items] | |||||||
Face value | $ 1,347,050 | $ 204,000 | $ 1,347,050 | ||||
Convertible Note Payable, Net | 204,000 | ||||||
Economic Injury Disaster Loan | |||||||
Debt Instrument [Line Items] | |||||||
Face value | $ 150,000 | $ 148,900 | $ 148,900 | ||||
Interest rate of loans | 3.75% | ||||||
Debt instrument term | 30 years |
LIABILITIES AND DEBT - Promisso
LIABILITIES AND DEBT - Promissory Note Payable (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
May 31, 2021 USD ($) | Apr. 30, 2021 USD ($) shares | Sep. 30, 2022 USD ($) | Sep. 30, 2021 USD ($) | Sep. 30, 2022 USD ($) | Sep. 30, 2021 USD ($) | Dec. 31, 2021 USD ($) | Dec. 31, 2020 USD ($) | |
Debt Instrument [Line Items] | ||||||||
Gross proceeds received | $ 237,500 | $ 2,779,910 | $ 1,701,044 | |||||
Debt Discount Cost | 263,958 | |||||||
Promissory note payable | ||||||||
Debt Instrument [Line Items] | ||||||||
Face value | $ 1,000,000 | 3,500,000 | ||||||
Gross proceeds received | $ 810,000 | |||||||
Warrants issued | shares | 1,205 | |||||||
Debt discount | $ 73,958 | |||||||
Promissory note payable | Secondary Public Offering | ||||||||
Debt Instrument [Line Items] | ||||||||
Percentage of outstanding principal | 10 | |||||||
Promissory note payable | Secondary Public Offering | Maximum | ||||||||
Debt Instrument [Line Items] | ||||||||
Face value | $ 4,000,000 | |||||||
Promissory note payable | Secondary Public Offering | Minimum | ||||||||
Debt Instrument [Line Items] | ||||||||
Face value | 2,000,000 | |||||||
Promissory note payable | Bailey LLC. | ||||||||
Debt Instrument [Line Items] | ||||||||
Face value | $ 4,500,000 | |||||||
Repayment of outstanding principal amount | $ 1,000,000 | |||||||
Promissory note payable | Notes Payable to Banks | ||||||||
Debt Instrument [Line Items] | ||||||||
Interest rate of loans | 12% | |||||||
Interest expense | $ 105,000 | $ 105,000 | 315,000 | $ 389,000 | $ 494,000 | $ 472,500 | ||
Promissory note payable | Notes Payable to Banks | Bailey LLC. | ||||||||
Debt Instrument [Line Items] | ||||||||
Face value | $ 3,500,000 | $ 3,500,000 | $ 3,500,000 |
STOCKHOLDERS' DEFICIT (Details)
STOCKHOLDERS' DEFICIT (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||||||||||
Oct. 21, 2022 | May 10, 2022 shares | Nov. 16, 2021 USD ($) | Aug. 27, 2021 USD ($) | Jun. 28, 2021 USD ($) $ / shares shares | May 18, 2021 USD ($) $ / shares shares | May 13, 2021 USD ($) shares | Dec. 31, 2021 USD ($) D $ / shares shares | Nov. 30, 2021 shares | Jul. 31, 2021 USD ($) shares | May 31, 2021 USD ($) shares | Sep. 30, 2022 USD ($) shares | Sep. 30, 2021 USD ($) | Sep. 30, 2022 USD ($) shares | Sep. 30, 2021 USD ($) | Dec. 31, 2021 USD ($) D $ / shares shares | Dec. 31, 2020 USD ($) $ / shares shares | Oct. 13, 2022 shares | Oct. 12, 2022 shares | May 05, 2022 $ / shares | Aug. 31, 2021 USD ($) | |
Class of Stock [Line Items] | |||||||||||||||||||||
Convertible preferred stock in ratio | 1,563 | ||||||||||||||||||||
Percentage of affirmative votes required to remove directors from the Board | 2.207% | ||||||||||||||||||||
Reverse stock split conversion ratio | one-for-100 | 1-for-1,563 | |||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 0 | ||||||||||||||||||||
Value of shares issued | $ | $ 451,603 | ||||||||||||||||||||
Common stock, share authorized (in shares) | 200,000,000 | ||||||||||||||||||||
Common stock voting rights | one vote per share | ||||||||||||||||||||
Number of shares resulting from conversion | 24,827 | ||||||||||||||||||||
Stock-based compensation expense | $ | $ 110,092 | $ 134,113 | $ 368,944 | $ 4,155,641 | |||||||||||||||||
Contingent consideration liability | $ | $ 12,179,476 | 18,597,831 | 18,597,831 | $ 12,179,476 | |||||||||||||||||
Proceeds from exercise of warrants | $ | $ 1,768,046 | 1,768,046 | |||||||||||||||||||
Deferred offering costs | $ | 367,696 | 367,696 | 367,696 | 367,696 | 214,647 | ||||||||||||||||
Interest expense | $ | $ 427,700 | $ 825,219 | 770,277 | ||||||||||||||||||
Equity purchase agreement | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 1,264 | ||||||||||||||||||||
Value of Common stock to be issued under the agreement | $ | $ 17,500,000 | $ 17,500,000 | |||||||||||||||||||
Term of agreement | 24 months | ||||||||||||||||||||
Available under the equity line of credit | $ | $ 17,500,000 | $ 17,500,000 | |||||||||||||||||||
Number of lowest closing sale prices of Common Stock during the period of twelve consecutive trading days | D | 12 | 12 | |||||||||||||||||||
Number of consecutive trading days when there is three lowest closing sale prices of Common Stock | D | 3 | 3 | |||||||||||||||||||
Number of consecutive trading days immediately preceding the put date | D | 5 | 5 | |||||||||||||||||||
Maximum amount the Company may request | $ | $ 17,500,000 | ||||||||||||||||||||
Deferred offering costs | $ | $ 367,696 | $ 367,696 | |||||||||||||||||||
First Fire Note | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 300 | ||||||||||||||||||||
Oasis Note | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 1,000 | ||||||||||||||||||||
Option 1 | Equity purchase agreement | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Maximum amount the Company may request | $ | $ 500,000 | $ 500,000 | |||||||||||||||||||
Option 2 | Equity purchase agreement | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Percentage of one lowest traded price of our common stock on the Nasdaq Capital Market | 93% | 93% | |||||||||||||||||||
Percentage of VWAP on the Clearing Date | 93% | 93% | |||||||||||||||||||
Percentage of closing bid price of the common stock on the Nasdaq Capital Market on the Clearing Date | 93% | 93% | |||||||||||||||||||
Maximum amount the Company may request | $ | $ 2,000,000 | $ 2,000,000 | |||||||||||||||||||
Bailey LLC. | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Contingent consideration liability | $ | $ 10,698,475 | $ 10,698,475 | |||||||||||||||||||
General and Administrative Expense. | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Value of shares issued | $ | 339,000 | ||||||||||||||||||||
Stock-based compensation expense | $ | $ 3,325,897 | $ 144,775 | |||||||||||||||||||
Initial Public Offering | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 373,898 | 24,096 | |||||||||||||||||||
Issue price (in dollars per share) | $ / shares | $ 2.30 | ||||||||||||||||||||
Stock issued upon conversion (in shares) | 40,272 | ||||||||||||||||||||
Warrants issued | 27,711 | ||||||||||||||||||||
Aggregate net proceeds | $ | $ 8,600,000 | ||||||||||||||||||||
Amount of debt converted into shares | $ | 2,680,289 | ||||||||||||||||||||
Underwriting commissions | $ | 800,000 | ||||||||||||||||||||
Direct offering expenses | $ | 600,000 | ||||||||||||||||||||
Underwriting discounts and commissions | $ | $ 800,000 | ||||||||||||||||||||
Initial Public Offering | Certain officers and directors | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Amount of debt converted into shares | $ | $ 257,515 | ||||||||||||||||||||
Number of shares resulting from conversion | 1,524 | ||||||||||||||||||||
Stock-based compensation expense | $ | $ 233,184 | ||||||||||||||||||||
Over-allotment option | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Warrants issued | 3,614 | ||||||||||||||||||||
Consulting agreement | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 500 | ||||||||||||||||||||
Issued upon settlement of contingent liability | 415 | ||||||||||||||||||||
Value of shares issued | $ | 1,500 | ||||||||||||||||||||
Guaranteed equity value of shares issued | $ | $ 250,000 | ||||||||||||||||||||
Contingent consideration liability | $ | $ 67,000 | $ 67,000 | |||||||||||||||||||
Preferred Stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Preferred Stock, Shares Authorized | 10,000,000 | ||||||||||||||||||||
Preferred Stock | Initial Public Offering | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Stock issued upon conversion (in shares) | 40,272 | ||||||||||||||||||||
Common Stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Common stock, share authorized (in shares) | 200,000,000 | 200,000,000 | 200,000,000 | 1,000,000,000 | 200,000,000 | ||||||||||||||||
Common stock par value (in dollars per share) | $ / shares | $ 0.0001 | $ 0.0001 | |||||||||||||||||||
Common stock, capital shares reserved for future issuance | 1,010,000,000 | ||||||||||||||||||||
Number of warrants exercised | 3,550 | 319 | |||||||||||||||||||
Proceeds from exercise of warrants | $ | $ 1,622,350 | $ 145,696 | |||||||||||||||||||
Common Stock | H&J acquisition | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Shares issued in connection with acquisition | 21,928 | ||||||||||||||||||||
Common Stock | Stateside | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Shares issued in connection with acquisition | 11,015 | ||||||||||||||||||||
Common Stock | Initial Public Offering | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 24,096 | ||||||||||||||||||||
Issue price (in dollars per share) | $ / shares | $ 415 | ||||||||||||||||||||
Number of shares resulting from conversion | 11,352 | ||||||||||||||||||||
Common Stock | Over-allotment option | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 3,614 | ||||||||||||||||||||
Issue price (in dollars per share) | $ / shares | $ 415 | ||||||||||||||||||||
Aggregate net proceeds | $ | $ 1,400,000 | ||||||||||||||||||||
Underwriting discounts and commissions | $ | $ 100,000 | ||||||||||||||||||||
Series Seed Preferred Stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Preferred Stock, Shares Authorized | 0 | 0 | 20,714,518 | ||||||||||||||||||
Preferred stock issued (in shares) | 0 | 0 | 20,714,518 | ||||||||||||||||||
Preferred stock, shares outstanding (in shares) | 0 | 0 | 20,714,518 | ||||||||||||||||||
Series A preferred stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Preferred Stock, Shares Authorized | 0 | 1 | 1 | 0 | 14,481,413 | ||||||||||||||||
Preferred stock issued (in shares) | 0 | 1 | 1 | 0 | 5,654,072 | ||||||||||||||||
Preferred stock, shares outstanding (in shares) | 0 | 1 | 1 | 0 | 5,654,072 | ||||||||||||||||
Series A-2 preferred stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Preferred Stock, Shares Authorized | 0 | 0 | 20,000,000 | ||||||||||||||||||
Preferred stock issued (in shares) | 0 | 0 | 5,932,742 | ||||||||||||||||||
Preferred stock, shares outstanding (in shares) | 0 | 0 | 5,932,742 | ||||||||||||||||||
Series CF preferred stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Preferred Stock, Shares Authorized | 0 | 0 | 2,000,000 | ||||||||||||||||||
Preferred stock issued (in shares) | 0 | 0 | 836,331 | ||||||||||||||||||
Preferred stock, shares outstanding (in shares) | 0 | 0 | 836,331 | ||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 709,690 | ||||||||||||||||||||
Issue price (in dollars per share) | $ / shares | $ 0.52 | ||||||||||||||||||||
Series A-3 preferred stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Preferred Stock, Shares Authorized | 0 | 0 | 18,867,925 | ||||||||||||||||||
Preferred stock issued (in shares) | 0 | 0 | 9,032,330 | ||||||||||||||||||
Preferred stock, shares outstanding (in shares) | 0 | 0 | 9,032,330 | ||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 809,294 | ||||||||||||||||||||
Issue price (in dollars per share) | $ / shares | $ 0.53 | ||||||||||||||||||||
Series A-3 preferred stock | Preferred Stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 809,294 | ||||||||||||||||||||
Value of shares issued | $ | $ 81 | ||||||||||||||||||||
Series B Preferred Stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Preferred Stock, Shares Authorized | 20,754,717 | ||||||||||||||||||||
Preferred stock issued (in shares) | 20,754,717 | ||||||||||||||||||||
Preferred stock, shares outstanding (in shares) | 20,754,717 | ||||||||||||||||||||
Series B Preferred Stock | Bailey LLC. | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Number of share sold or issued on closing of Public Offering | 20,754,717 | ||||||||||||||||||||
Issue price (in dollars per share) | $ / shares | $ 0.53 | ||||||||||||||||||||
Value of shares issued | $ | $ 11,000,000 | ||||||||||||||||||||
Undesignated preferred stock | |||||||||||||||||||||
Class of Stock [Line Items] | |||||||||||||||||||||
Preferred Stock, Shares Authorized | 10,000,000 | 9,993,199 | 9,993,199 | 10,000,000 | 936,144 | ||||||||||||||||
Preferred stock issued (in shares) | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||
Preferred stock, shares outstanding (in shares) | 0 | 0 | 0 | 0 | 0 |
RELATED PARTY TRANSACTIONS - Du
RELATED PARTY TRANSACTIONS - Due to Related Parties (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2021 | Sep. 30, 2022 | Dec. 31, 2020 | |
Due to related parties | |||
Conversion of stock, shares converted | 251 | ||
Advances | |||
Due to related parties | |||
Advance due to related parties | $ 104,568 | $ 104,568 | $ 194,568 |
Accrued Salary | |||
Due to related parties | |||
Advance due to related parties | 120,350 | $ 120,350 | |
Accrued Salary | Previously Reported | |||
Due to related parties | |||
Advance due to related parties | 126,706 | ||
Expense Reimbursements | |||
Due to related parties | |||
Advance due to related parties | $ 126,706 | $ 246,885 |
RELATED PARTY TRANSACTIONS - No
RELATED PARTY TRANSACTIONS - Note Payable (Details) - Chief Executive Officer - USD ($) | 12 Months Ended | |
Dec. 31, 2021 | Sep. 30, 2022 | |
Related Party Transaction [Line Items] | ||
Common Stock, Shares, Issued | 1,273 | |
Additional Stock Compensation Expense | $ 233,184 | |
Interest rate of loans | 12% | |
Notes Payable, Other Payables | Note Payable, Chief Executive Officer | ||
Related Party Transaction [Line Items] | ||
Increase (Decrease) in Notes Receivables | $ 115,000 | |
Face value | $ 299,489 | $ 140,928 |
SHARE-BASED PAYMENTS - Common S
SHARE-BASED PAYMENTS - Common Stock Warrants - General Information (Details) | 1 Months Ended | 9 Months Ended | 12 Months Ended | |||||
May 13, 2021 $ / shares shares | Jul. 31, 2021 USD ($) shares | May 31, 2021 USD ($) shares | Apr. 30, 2021 $ / shares shares | Sep. 30, 2022 USD ($) | Sep. 30, 2021 USD ($) | Dec. 31, 2021 USD ($) $ / shares shares | Dec. 31, 2020 USD ($) $ / shares shares | |
Class of Warrant or Right [Line Items] | ||||||||
Class of warrant or right, warrants issued | 3,550 | 319 | ||||||
Warrants value | $ | $ 1,622,350 | $ 145,696 | ||||||
Fair value of the warrants | $ | $ 18,223 | $ 6,265 | ||||||
Change in fair value | $ | $ (18,223) | $ 21,930 | $ 11,958 | $ (2,353) | ||||
Expected Volatility | ||||||||
Class of Warrant or Right [Line Items] | ||||||||
Floor volatility rate (in percentage) | 100 | |||||||
Common stock warrants | ||||||||
Class of Warrant or Right [Line Items] | ||||||||
Class of warrant or right, warrants issued | 4,935 | |||||||
Warrants exercise price | $ / shares | $ 250 | |||||||
Warrants value | $ | $ 184,191 | |||||||
Warrants and Rights Outstanding, Term | 10 years | |||||||
Common stock warrants | Initial Public Offering | ||||||||
Class of Warrant or Right [Line Items] | ||||||||
Class of warrant or right, warrants issued | 1,205 | 24,096 | ||||||
Warrants exercise price | $ / shares | $ 519 | $ 457 | ||||||
Percentage of warrants exercise price | 110% | |||||||
Warrants expiration term | 5 years | 5 years | ||||||
Common stock warrants | Over-allotment option | ||||||||
Class of Warrant or Right [Line Items] | ||||||||
Class of warrant or right, warrants issued | 3,614 | |||||||
Common stock warrants | Convertible Debt 2020 Regulation D Offering | ||||||||
Class of Warrant or Right [Line Items] | ||||||||
Class of warrant or right, warrants issued | 5 | |||||||
Warrants exercise price | $ / shares | $ 250 | |||||||
Common Stock Warrants, Venture Debt Lender | ||||||||
Class of Warrant or Right [Line Items] | ||||||||
Class of warrant or right, warrants issued | 1,205 | |||||||
Warrants exercise price | $ / shares | $ 415 | |||||||
Common Stock Warrants, Funding Platform, Preferred Stock Raise | ||||||||
Class of Warrant or Right [Line Items] | ||||||||
Class of warrant or right, warrants issued | 26 | |||||||
Warrants exercise price | $ / shares | $ 828 | $ 828 | ||||||
Warrants and Rights Outstanding, Term | 5 years |
SHARE-BASED PAYMENTS - Common_2
SHARE-BASED PAYMENTS - Common Stock Warrants - Valuation (Details) | Dec. 31, 2021 Y | Dec. 31, 2020 |
Expected Volatility | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Warrants measurement input | 100 | |
Common stock warrants | Risk Free Interest Rate | Minimum | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Warrants measurement input | 1.54 | |
Common stock warrants | Risk Free Interest Rate | Maximum | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Warrants measurement input | 1.59 | |
Common stock warrants | Expected Dividend Yield | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Warrants measurement input | 0 | |
Common stock warrants | Expected Volatility | Minimum | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Warrants measurement input | 58 | |
Common stock warrants | Expected Volatility | Maximum | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Warrants measurement input | 100 | |
Common stock warrants | Expected Life (years) | Minimum | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Warrants measurement input | 5 | |
Common stock warrants | Expected Life (years) | Maximum | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Warrants measurement input | 10 |
SHARE-BASED PAYMENTS - Warrants
SHARE-BASED PAYMENTS - Warrants Roll Forward (Details) | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2022 $ / shares shares | Dec. 31, 2021 $ / shares shares | Dec. 31, 2020 $ / shares shares | |
Class of Warrant or Right [Line Items] | |||
Convertible ratio | 1,563 | ||
Common stock warrants | |||
Class of Warrant or Right [Line Items] | |||
Warrant Outstanding Beginning Balance | shares | 35,801 | 9,146 | 4,180 |
Granted | shares | 96,313 | 30,120 | 4,966 |
Conversion of stock warrants upon IPO | shares | 516 | ||
Exercised | shares | (3,869) | ||
Forfeited | shares | (112) | ||
Warrant Outstanding Ending Balance | shares | 132,114 | 35,801 | 9,146 |
Common Stock Warrants Exercisable | shares | 104,459 | 35,801 | 9,146 |
Weighted Average Exercise Price Outstanding Beginning Balance | $ / shares | $ 412 | $ 266 | $ 281 |
Granted | $ / shares | 30.71 | $ 458 | 252 |
Conversion of stock warrants upon IPO | $ / shares | 766 | ||
Exercised | $ / shares | $ 457 | ||
Forfeited | $ / shares | 766 | ||
Weighted Average Exercise Price Outstanding Ending Balance | $ / shares | 134.13 | 412 | 266 |
Weighted Average Exercise Price Exercisable | $ / shares | $ 166.65 | $ 412 | $ 266 |
Common stock warrants | Previously Reported | |||
Class of Warrant or Right [Line Items] | |||
Warrant Outstanding Beginning Balance | shares | 35,801 | ||
Warrant Outstanding Ending Balance | shares | 35,801 | ||
Weighted Average Exercise Price Outstanding Beginning Balance | $ / shares | $ 412 | ||
Weighted Average Exercise Price Outstanding Ending Balance | $ / shares | $ 412 | ||
Preferred stock warrants | |||
Class of Warrant or Right [Line Items] | |||
Warrant Outstanding Beginning Balance | shares | 806,903 | 806,903 | |
Conversion of stock warrants upon IPO | shares | (806,903) | ||
Warrant Outstanding Ending Balance | shares | 806,903 | ||
Weighted Average Exercise Price Outstanding Beginning Balance | $ / shares | $ 0.49 | $ 0.49 | |
Conversion of stock warrants upon IPO | $ / shares | 0.49 | ||
Weighted Average Exercise Price Outstanding Ending Balance | $ / shares | $ 0.49 |
SHARE-BASED PAYMENTS - Stock Op
SHARE-BASED PAYMENTS - Stock Options - Activity (Details) - $ / shares | 12 Months Ended | ||
Dec. 31, 2021 | Dec. 31, 2020 | Sep. 30, 2022 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance | 11,631 | 10,842 | |
Granted | 27,320 | 917 | |
Forfeited | 128 | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance | 38,951 | 11,631 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract] | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance | $ 234 | $ 2.50 | |
Granted | 415 | 94 | |
Forfeited | 328 | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance | $ 362.11 | $ 234 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract] | |||
Share-based Compensation Arrangement by Share-based Option Exercisable | 31,646 | 8,810 | 34,073 |
Share-based Compensation Arrangement by Weighted Average Exercise Price at December 31, 2021 | $ 359 | $ 234 | |
Weighted average duration (years) to expiration of outstanding options at December 31, 2021 | 8 years | ||
Previously Reported | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance | 38,951 | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract] | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance | $ 362 |
SHARE-BASED PAYMENTS - Assumpti
SHARE-BASED PAYMENTS - Assumptions utilized for option grants (Details) | 12 Months Ended | |
Dec. 31, 2021 | Dec. 31, 2020 | |
SHARE-BASED PAYMENTS | ||
Risk Free Interest Rate, Minimum | 0.34% | 0.42% |
Risk Free Interest Rate, Maximum | 0.85% | 0.51% |
Expected Dividend Yield | 0% | 0% |
Expected Volatility | 58% | 58% |
Expected Life (years) | 5 years 2 months 4 days | 6 years 3 months |
SHARE-BASED PAYMENTS - 2020 & 2
SHARE-BASED PAYMENTS - 2020 & 2013 Incentive Stock Plan (Details) - $ / shares | 12 Months Ended | |||
Dec. 31, 2021 | Dec. 31, 2020 | May 05, 2022 | May 13, 2021 | |
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | ||||
Aggregate shares of stock options granted | 27,320 | 917 | ||
Initial Public Offering | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | ||||
Share issue price | $ 2.50 | $ 4.15 | ||
Omnibus Incentive Stock Plan, 2020 | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | ||||
Common stock, capital shares reserved for future issuance | 33,000 | |||
Omnibus Incentive Stock Plan, 2020 | Initial Public Offering | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | ||||
Common stock, capital shares reserved for future issuance | 5,680 | |||
Aggregate shares of stock options granted | 27,320 | |||
Omnibus Incentive Stock Plan, 2020 | Initial Public Offering | Minimum | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | ||||
Share issue price | $ 385 | |||
Omnibus Incentive Stock Plan, 2020 | Initial Public Offering | Maximum | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | ||||
Share issue price | $ 415 | |||
2013 Incentive Stock Plan | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | ||||
Number of shares authorized | 11,964 | 11,964 | ||
Number of shares available for grant | 333 | 333 | ||
Vesting period | 4 years |
SHARE-BASED PAYMENTS - Stock-ba
SHARE-BASED PAYMENTS - Stock-based Compensation - Stock options granted (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Total grant-date fair value of the options granted | $ 4,696,605 | $ 46,253 | ||||
Stock-based compensation expense | $ 110,092 | $ 134,113 | $ 368,944 | $ 4,155,641 | ||
Unrecognized compensation cost related to non-vested stock option | $ 688,092 | $ 688,092 | $ 1,057,036 | |||
Share-based arrangement, non-vested weighted average period | 1 year 6 months 21 days | 2 years 3 months 10 days | ||||
Sales and Marketing Expense | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Stock-based compensation expense | $ 43,196 | $ 5,375,550 | $ 551,948 | 0 | ||
General and Administrative Expense. | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Stock-based compensation expense | $ 3,325,897 | $ 144,775 |
LEASE OBLIGATIONS (Details)
LEASE OBLIGATIONS (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Apr. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
Operating lease agreements | |||||||
Rent expense | $ 17,257 | $ 267,041 | $ 246,103 | $ 736,523 | $ 551,944 | $ 816,790 | $ 541,146 |
Minimum Rent base | 3,400 | ||||||
Maximum Rent base | 6,500 | ||||||
Monthly base rent payments | 32,921 | ||||||
Security deposit | $ 19,500 | ||||||
Stateside | |||||||
Operating lease agreements | |||||||
Minimum Rent base | 3,100 | 3,100 | |||||
Maximum Rent base | $ 9,000 | $ 9,000 |
CONTINGENCIES (Details)
CONTINGENCIES (Details) | 1 Months Ended | 12 Months Ended | ||||||
Dec. 21, 2020 USD ($) | Sep. 24, 2020 USD ($) | Mar. 25, 2020 USD ($) item | Feb. 28, 2020 USD ($) | Dec. 31, 2021 USD ($) | Mar. 31, 2021 USD ($) item | Aug. 31, 2020 USD ($) item | Dec. 31, 2021 USD ($) | |
Litigation Matters | ||||||||
Settlement amount payable to vendor | $ 37,000 | |||||||
Number of monthly payments to be made | item | 10 | |||||||
Judgement received | $ 469,000 | |||||||
Lawsuits filed related to prior services rendered | ||||||||
Litigation Matters | ||||||||
Damages sought | $ 96,900 | $ 96,900 | ||||||
Number of lawsuits filed | item | 2 | 2 | ||||||
Non-payment of trade payables | ||||||||
Litigation Matters | ||||||||
Damages sought | $ 492,390 | $ 123,000 | ||||||
Non-payment of trade payables | Lawsuits filed related to prior services rendered | ||||||||
Litigation Matters | ||||||||
Damages sought | $ 481,000 | |||||||
Additional damages sought | $ 296,000 | |||||||
Judgement received | $ 469,000 | |||||||
Reimbursement Of Investment | ||||||||
Litigation Matters | ||||||||
Damages sought | $ 100,000 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 9 Months Ended | 12 Months Ended | 24 Months Ended | |
Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2021 | |
INCOME TAXES | ||||
Income Tax Expense (Benefit) | $ (1,100,120) | $ (1,100,120) | $ 13,641 | |
Deferred tax assets before valuation allowance | 13,103,268 | 9,128,614 | $ 13,103,268 | |
Increase in valuation allowance | $ 3,974,654 | 3,081,497 | ||
Tax rate | 28% | 0% | ||
Operating loss carry forward indefinitely | $ 46,896,000 | 32,680,000 | $ 46,896,000 | |
Unrecognized tax positions | $ 13,641 |
INCOME TAXES - Deferred tax ass
INCOME TAXES - Deferred tax assets and liabilities by source (Details) - USD ($) | Dec. 31, 2021 | Dec. 31, 2020 |
Deferred tax assets: | ||
Net operating loss carryforwards | $ 13,108,371 | $ 9,134,447 |
Stock-based compensation | 40,467 | |
Deferred tax liabilities: | ||
Depreciation timing differences | (5,103) | (5,103) |
Unamortized debt issuance costs | (41,198) | |
Valuation allowance | $ (13,103,268) | $ (9,128,614) |
SUBSEQUENT EVENTS (Details)
SUBSEQUENT EVENTS (Details) - USD ($) | 1 Months Ended | 2 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||||
Dec. 30, 2022 | Oct. 21, 2022 | Oct. 13, 2022 | Sep. 30, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Jan. 18, 2022 | May 18, 2021 | Mar. 31, 2022 | Mar. 31, 2022 | Sep. 30, 2022 | Dec. 31, 2021 | Oct. 12, 2022 | Aug. 27, 2021 | |
Subsequent Event [Line Items] | ||||||||||||||
Outstanding principal amount of convertible debt converted | $ 1,432,979 | |||||||||||||
Number of shares resulting from conversion | 24,827 | |||||||||||||
Common stock, share authorized (in shares) | 200,000,000 | |||||||||||||
Reverse stock split conversion ratio | one-for-100 | 1-for-1,563 | ||||||||||||
Common Stock | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Common stock, share authorized (in shares) | 1,000,000,000 | 200,000,000 | 200,000,000 | 200,000,000 | ||||||||||
Common stock, capital shares reserved for future issuance | 1,010,000,000 | |||||||||||||
Subsequent Events | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Common stock, share authorized (in shares) | 1,000,000,000 | 200,000,000 | ||||||||||||
Reverse stock split conversion ratio | one-for-100 | |||||||||||||
Subsequent Events | Common Stock | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Common stock, share authorized (in shares) | 1,000,000,000 | 200,000,000 | ||||||||||||
Common stock, capital shares reserved for future issuance | 1,010,000,000 | |||||||||||||
Subsequent Events | Sunnyside, LLC | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Cash | $ 7,500,000 | $ 7,500,000 | ||||||||||||
Contingent consideration | $ 5,500,000 | |||||||||||||
Interest rate of loans | 8% | |||||||||||||
Subsequent Events | Membership interest purchase agreement | Sunnyside, LLC | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Value of shares of common stock transferred | 2,500,000 | 2,500,000 | 2,500,000 | 7,500,000 | ||||||||||
Round off value of Volume-Weighted Average | $ 0.0001 | |||||||||||||
Trading day period | 30 days | |||||||||||||
Volume-Weighted Average | $ 1.59 | $ 1.59 | $ 1.59 | $ 159 | $ 1.59 | $ 1.59 | $ 1.59 | |||||||
Cash | $ 34,000,000 | |||||||||||||
Contingent consideration | 20,000,000 | |||||||||||||
Escrow deposit | $ 2,000,000 | |||||||||||||
Oasis Note | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Interest rate of loans | 6% | 6% | ||||||||||||
Face value | $ 5,265,000 | $ 5,265,000 | ||||||||||||
Total purchase price | $ 5,000,000 | |||||||||||||
Debt instrument term | 18 months | |||||||||||||
Oasis Note | Subsequent Events | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Outstanding principal amount of convertible debt converted | $ 482,646 | |||||||||||||
Number of shares resulting from conversion | 4,739 | |||||||||||||
First Fire Note | Subsequent Events | ||||||||||||||
Subsequent Event [Line Items] | ||||||||||||||
Outstanding principal amount of convertible debt converted | $ 406,112 | |||||||||||||
Number of shares resulting from conversion | 4,000 |
CONDENSED CONSOLIDATED BALANC_3
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 |
Current assets: | ||
Cash and cash equivalents | $ 195,399 | $ 528,394 |
Accounts receivable, net | 378,455 | 89,394 |
Due from factor, net | 638,781 | 985,288 |
Inventory | 2,655,352 | 2,755,358 |
Prepaid expenses and other current assets | 940,334 | 417,900 |
Total current assets | 4,808,321 | 4,776,334 |
Deferred offering costs | 367,696 | 367,696 |
Property, equipment and software, net | 46,454 | 97,265 |
Goodwill | 18,264,822 | 18,264,822 |
Intangible assets, net | 11,227,876 | 12,841,313 |
Deposits | 137,794 | 137,794 |
Right of use asset | 152,387 | |
Total assets | 35,005,350 | 36,485,224 |
Current liabilities: | ||
Accounts payable | 6,945,633 | 6,562,690 |
Accrued expenses and other liabilities | 3,952,366 | 2,237,145 |
Deferred revenue | 396,374 | 276,397 |
Due to related parties | 209,943 | 277,635 |
Contingent consideration liability | 18,597,831 | 12,179,476 |
Convertible note payable, net | 8,075,872 | 100,000 |
Accrued interest payable | 2,103,161 | 1,110,679 |
Note payable - related party | 179,489 | 299,489 |
Venture debt, net of discount | 6,001,755 | |
Loan payable, current | 1,426,885 | 2,502,000 |
Promissory note payable | 3,500,000 | 3,500,000 |
Right of use liability, current portion | 152,387 | |
Total current liabilities | 45,539,941 | 35,047,266 |
Convertible note payable, net | 5,501,614 | |
Loan payable | 298,900 | 713,182 |
Derivative liability | 1,690,807 | 2,294,720 |
Warrant liability | 18,223 | |
Total liabilities | 47,529,648 | 43,575,005 |
Commitments and contingencies (Note 11) | ||
Stockholders' equity (deficit): | ||
Common stock, $0.0001 par, 1,000,000,000 shares authorized, 529,492 and 528,742 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 53 | 13 |
Additional paid-in capital | 75,440,940 | 58,614,160 |
Accumulated deficit | (87,965,292) | (65,703,954) |
Total stockholders' equity (deficit) | (12,524,298) | (7,089,781) |
Total liabilities and stockholders' equity (deficit) | 35,005,350 | 36,485,224 |
Undesignated preferred stock | ||
Stockholders' equity (deficit): | ||
Preferred stock | ||
Series A preferred stock | ||
Stockholders' equity (deficit): | ||
Preferred stock | ||
Series A Convertible Preferred Stock | ||
Stockholders' equity (deficit): | ||
Preferred stock | $ 1 |
CONDENSED CONSOLIDATED BALANC_4
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
Undesignated preferred stock | |||
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized (in shares) | 9,993,199 | 10,000,000 | 936,144 |
Preferred stock, shares issued (in shares) | 0 | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 | 0 |
Series A preferred stock | |||
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized (in shares) | 1 | 0 | 14,481,413 |
Preferred stock, shares issued (in shares) | 1 | 0 | 5,654,072 |
Preferred stock, shares outstanding (in shares) | 1 | 0 | 5,654,072 |
Series A Convertible Preferred Stock | |||
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | |
Preferred stock, shares authorized (in shares) | 6,800 | 0 | |
Preferred stock, shares issued (in shares) | 6,300 | ||
Preferred stock, shares outstanding (in shares) | 6,300 | 0 | |
Common stock | |||
Common stock par value (in dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 |
Common stock, share authorized (in shares) | 1,000,000,000 | 1,000,000,000 | 110,000,000 |
Common stock, share issued (in shares) | 529,492 | 528,742 | |
Common stock, shares outstanding (in shares) | 529,492 | 528,742 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||
Sep. 30, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2021 | Jun. 30, 2021 | Mar. 31, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||
Net revenues | $ 3,424,522 | $ 2,163,280 | $ 10,595,933 | $ 3,575,214 | $ 7,584,859 | $ 5,239,437 | ||||
Cost of net revenues | 1,771,178 | 954,137 | 5,298,011 | 2,179,023 | 4,689,200 | 4,685,755 | ||||
Gross profit (loss) | 1,653,344 | 1,209,143 | 5,297,922 | 1,396,191 | 2,895,659 | 553,682 | ||||
Operating expenses: | ||||||||||
General and administrative | 3,624,841 | 3,720,863 | 13,226,308 | 12,820,841 | 17,779,903 | 7,149,210 | ||||
Sales and marketing | 1,225,417 | 1,307,219 | 3,971,280 | 2,401,322 | 3,810,583 | 576,469 | ||||
Distribution | 97,737 | 105,332 | 522,510 | 238,774 | 489,371 | 342,466 | ||||
Change in fair value of contingent consideration | (702,885) | 3,988,493 | 6,418,355 | 7,039,394 | 8,764,460 | |||||
Total operating expenses | 4,245,110 | 9,121,907 | 24,138,453 | 22,500,331 | 34,244,317 | 9,701,572 | ||||
Loss from operations | (2,591,766) | (7,912,764) | (18,840,531) | (21,104,140) | (31,348,658) | (9,147,890) | ||||
Other income (expense): | ||||||||||
Interest expense | (2,279,016) | (447,842) | (6,050,492) | (2,020,806) | (3,663,921) | (1,599,518) | ||||
Other non-operating income (expenses) | (23,690) | (577,441) | 2,629,685 | (634,654) | 1,554,502 | 32,754 | ||||
Total other income (expense), net | (2,302,706) | (1,025,283) | (3,420,807) | (2,655,460) | (2,109,419) | (1,566,764) | ||||
Income tax benefit (provision) | (1,100,120) | (1,100,120) | 13,641 | |||||||
Net loss | $ (4,894,472) | $ (9,533,924) | $ (7,832,942) | $ (8,938,047) | $ (10,697,498) | $ (3,023,935) | $ (22,261,338) | $ (22,659,480) | $ (32,357,957) | $ (10,728,295) |
Weighted average common shares outstanding - basic | 528,758 | 117,866 | 341,229 | 60,027 | 76,289 | 6,642 | ||||
Weighted average common shares outstanding - diluted | 528,758 | 117,866 | 341,229 | 60,027 | 76,289 | 6,642 | ||||
Net loss per common share - basic | $ (9.26) | $ (75.83) | $ (65.24) | $ (377.49) | $ (420.82) | $ (1,615.30) | ||||
Net loss per common share - diluted | $ (9.26) | $ (75.83) | $ (65.24) | $ (377.49) | $ (420.82) | $ (1,615.30) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - USD ($) | Preferred Stock Series Seed Preferred Stock | Preferred Stock Series A preferred stock | Preferred Stock Series A-2 Preferred Stock | Preferred Stock Series A-3 Preferred Stock | Preferred Stock Series CF Preferred Stock | Preferred Stock Series B Preferred Stock | Preferred Stock Series A Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total |
Beginning balance (in shares) at Dec. 31, 2019 | 20,714,518 | 5,654,072 | 5,932,742 | 8,223,036 | 126,641 | 6,642 | |||||
Beginning balance at Dec. 31, 2019 | $ 2,071 | $ 565 | $ 593 | $ 823 | $ 12 | $ 1 | $ 15,486,115 | $ (22,617,702) | $ (7,150,199) | ||
Offering costs | (69,470) | (69,470) | |||||||||
Stock-based compensation | 144,775 | 144,775 | |||||||||
Net loss | (10,728,295) | (10,728,295) | |||||||||
Ending balance at Dec. 31, 2020 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | $ 1 | 27,482,060 | (33,345,997) | (5,857,645) | |
Ending balance (in shares) at Dec. 31, 2020 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | ||||
Conversion of preferred stock into common stock | $ 1 | 27,519,036 | |||||||||
Stock-based compensation | 36,976 | 36,976 | |||||||||
Net loss | (3,023,935) | (3,023,935) | |||||||||
Ending balance at Mar. 31, 2021 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | (36,369,932) | (8,844,604) | |||
Ending balance (in shares) at Mar. 31, 2021 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | ||||
Beginning balance (in shares) at Dec. 31, 2020 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | ||||
Beginning balance at Dec. 31, 2020 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | $ 1 | 27,482,060 | (33,345,997) | (5,857,645) | |
Conversion of preferred stock into common stock | 6,293 | ||||||||||
Conversion of debt into common stock | 2,680,289 | ||||||||||
Issuance of common stock pursuant to equity line of credit | 367,996 | ||||||||||
Net loss | (22,659,480) | ||||||||||
Ending balance at Sep. 30, 2021 | $ 11 | 57,468,268 | (56,005,477) | 1,462,801 | |||||||
Ending balance (in shares) at Sep. 30, 2021 | 126,275 | ||||||||||
Beginning balance (in shares) at Dec. 31, 2020 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | ||||
Beginning balance at Dec. 31, 2020 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | $ 1 | 27,482,060 | (33,345,997) | (5,857,645) | |
Conversion of preferred stock into common stock | $ (2,071) | $ (565) | $ (593) | $ (904) | $ (83) | $ (2,075) | $ 4 | 6,287 | 6,291 | ||
Conversion of preferred stock into common stock (shares) | (20,714,518) | (5,654,072) | (5,932,742) | (9,032,330) | (836,331) | (20,754,717) | 40,272 | ||||
Issuance of common stock in public offering | $ 2 | 10,000,000 | 10,000,002 | ||||||||
Issuance of common stock in public offering (in shares) | 24,096 | ||||||||||
Offering costs | (2,116,957) | (2,116,957) | |||||||||
Exercise of over-allotment option, net of offering costs | 1,364,997 | 1,364,997 | |||||||||
Exercise of over-allotment option, net of offering costs (in shares) | 3,614 | ||||||||||
Conversion of debt into common stock | $ 1 | 2,680,288 | 2,680,289 | ||||||||
Conversion of debt into common stock (In shares) | 11,352 | ||||||||||
Conversion of related party notes and payables into common stock | 257,515 | 257,515 | |||||||||
Conversion of related party notes and payables into common stock (in shares) | 1,524 | ||||||||||
Common stock and warrants issued in connection with note | 501,658 | 501,658 | |||||||||
Common stock and warrants issued in connection with note (in shares) | 1,300 | ||||||||||
Common stock issued in connection with business combination | $ 3 | 11,428,735 | 11,428,738 | ||||||||
Common stock issued in connection with business combination (in shares) | 32,943 | ||||||||||
Exercise of warrants | 1,768,046 | 1,768,046 | |||||||||
Exercise of warrants (in shares) | 3,869 | ||||||||||
Common stock issued pursuant to consulting agreement | 595,500 | 595,500 | |||||||||
Common stock issued pursuant to consulting agreement (in shares) | 2,415 | ||||||||||
Issuance of common stock pursuant to equity line of credit | 367,696 | 367,696 | |||||||||
Stock-based compensation | 4,278,337 | 4,278,337 | |||||||||
Stock-based compensation (Shares) | 727 | ||||||||||
Net loss | (32,357,957) | (32,357,957) | |||||||||
Ending balance at Dec. 31, 2021 | $ 13 | 58,614,160 | (65,703,954) | (7,089,781) | |||||||
Ending balance (in shares) at Dec. 31, 2021 | 130,017 | ||||||||||
Beginning balance (in shares) at Mar. 31, 2021 | 20,714,518 | 5,654,072 | 5,932,742 | 9,032,330 | 836,331 | 20,754,717 | 6,642 | ||||
Beginning balance at Mar. 31, 2021 | $ 2,071 | $ 565 | $ 593 | $ 904 | $ 83 | $ 2,075 | (36,369,932) | (8,844,604) | |||
Conversion of preferred stock into common stock | $ (2,071) | $ (565) | $ (593) | $ (904) | $ (83) | $ (2,075) | $ 4 | 6,287 | |||
Conversion of preferred stock into common stock (shares) | (20,714,518) | (5,654,072) | (5,932,742) | (9,032,330) | (836,331) | (20,754,717) | 40,272 | ||||
Issuance of common stock in public offering | $ (2) | (10,000,000) | (10,000,002) | ||||||||
Issuance of common stock in public offering (in shares) | 24,096 | ||||||||||
Offering costs | (2,116,957) | (2,116,957) | |||||||||
Exercise of over-allotment option, net of offering costs | 1,364,997 | 1,364,997 | |||||||||
Exercise of over-allotment option, net of offering costs (in shares) | 3,614 | ||||||||||
Conversion of debt into common stock | $ 1 | 2,680,288 | 2,680,289 | ||||||||
Conversion of related party notes and payables into common stock | 257,515 | 257,515 | |||||||||
Conversion of related party notes and payables into common stock (in shares) | 1,524 | ||||||||||
Common stock and warrants issued in connection with note | 73,958 | 73,958 | |||||||||
Common stock and warrants issued in connection with note (in shares) | 200 | ||||||||||
Common stock issued in connection with business combination | $ 2 | 8,025,540 | 8,025,542 | ||||||||
Common stock issued in connection with business combination (in shares) | 21,928 | ||||||||||
Exercise of warrants | 145,696 | 145,696 | |||||||||
Exercise of warrants (in shares) | 319 | ||||||||||
Common stock issued pursuant to consulting agreement | 183,000 | 183,000 | |||||||||
Common stock issued pursuant to consulting agreement (in shares) | 500 | ||||||||||
Stock-based compensation | 3,801,553 | 3,801,553 | |||||||||
Net loss | (10,697,498) | (10,697,498) | |||||||||
Conversion of notes into common stock (in shares) | 11,352 | ||||||||||
Ending balance at Jun. 30, 2021 | $ 10 | 51,940,914 | (47,067,430) | 4,873,493 | |||||||
Ending balance (in shares) at Jun. 30, 2021 | 110,446 | ||||||||||
Issuance of common stock in public offering | 367,696 | 367,696 | |||||||||
Issuance of common stock in public offering (in shares) | 1,264 | ||||||||||
Common stock issued in connection with business combination | $ 1 | 3,403,195 | 3,403,196 | ||||||||
Common stock issued in connection with business combination (in shares) | 11,015 | ||||||||||
Exercise of warrants | 1,622,350 | 1,622,350 | |||||||||
Exercise of warrants (in shares) | 3,550 | ||||||||||
Stock-based compensation | 134,113 | 134,113 | |||||||||
Net loss | (8,938,047) | (8,938,047) | |||||||||
Ending balance at Sep. 30, 2021 | $ 11 | 57,468,268 | (56,005,477) | 1,462,801 | |||||||
Ending balance (in shares) at Sep. 30, 2021 | 126,275 | ||||||||||
Beginning balance (in shares) at Dec. 31, 2021 | 130,017 | ||||||||||
Beginning balance at Dec. 31, 2021 | $ 13 | 58,614,160 | (65,703,954) | (7,089,781) | |||||||
Stock-based compensation | 139,093 | 139,093 | |||||||||
Net loss | (7,832,942) | (7,832,942) | |||||||||
Conversion of notes into common stock | $ 1 | 1,201,581 | 1,201,582 | ||||||||
Conversion of notes into common stock (in shares) | 8,739 | ||||||||||
Ending balance at Mar. 31, 2022 | $ 14 | 59,954,834 | (73,536,896) | (13,582,048) | |||||||
Ending balance (in shares) at Mar. 31, 2022 | 138,756 | ||||||||||
Beginning balance (in shares) at Dec. 31, 2021 | 130,017 | ||||||||||
Beginning balance at Dec. 31, 2021 | $ 13 | 58,614,160 | (65,703,954) | (7,089,781) | |||||||
Conversion of debt into common stock | 1,802,372 | ||||||||||
Net loss | (22,261,338) | ||||||||||
Ending balance at Sep. 30, 2022 | $ 1 | $ 53 | 75,440,940 | (87,965,292) | (12,524,298) | ||||||
Ending balance (in shares) at Sep. 30, 2022 | 1 | 6,300 | 529,492 | ||||||||
Beginning balance (in shares) at Mar. 31, 2022 | 138,756 | ||||||||||
Beginning balance at Mar. 31, 2022 | $ 14 | 59,954,834 | (73,536,896) | (13,582,048) | |||||||
Issuance of common stock in public offering | $ (37) | (9,347,413) | (9,347,450) | ||||||||
Issuance of common stock in public offering (in shares) | 373,898 | ||||||||||
Offering costs | (1,930,486) | (1,930,486) | |||||||||
Stock-based compensation | 119,759 | 119,759 | |||||||||
Net loss | (9,533,924) | (9,533,924) | |||||||||
Conversion of notes and derivative liability into common stock | $ 2 | 600,788 | 600,790 | ||||||||
Conversion of notes and derivative liability into common stock (in shares) | 16,088 | ||||||||||
Warrants issued in connection with note | 98,241 | 98,241 | |||||||||
Ending balance at Jun. 30, 2022 | $ 53 | 68,190,549 | (83,070,820) | (14,880,218) | |||||||
Ending balance (in shares) at Jun. 30, 2022 | 528,742 | ||||||||||
Common stock issued pursuant to consulting agreement | 123,000 | 123,000 | |||||||||
Common stock issued pursuant to consulting agreement (in shares) | 750 | ||||||||||
Stock-based compensation | 110,093 | 110,093 | |||||||||
Net loss | (4,894,472) | (4,894,472) | |||||||||
Warrants issued in connection with note | 692,299 | 692,299 | |||||||||
Issuance of Series A preferred stock | 25,000 | 25,000 | |||||||||
Issuance of Series A preferred stock (in shares) | 1 | ||||||||||
Conversion of venture debt into Series A convertible preferred stock | $ 1 | 6,299,999 | 6,300,000 | ||||||||
Conversion of venture debt into Series A convertible preferred stock (in shares) | 6,300 | ||||||||||
Ending balance at Sep. 30, 2022 | $ 1 | $ 53 | $ 75,440,940 | $ (87,965,292) | $ (12,524,298) | ||||||
Ending balance (in shares) at Sep. 30, 2022 | 1 | 6,300 | 529,492 |
CONDENSED CONSOLIDATED STATEM_4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 9 Months Ended | |
Sep. 30, 2022 | Sep. 30, 2021 | |
Cash flows from operating activities: | ||
Net loss | $ (22,261,338) | $ (22,659,480) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 1,669,782 | 652,732 |
Amortization of loan discount and fees | 4,610,234 | 682,956 |
Stock-based compensation | 491,945 | 4,155,641 |
Fees incurred in connection with debt financings | 48,245 | 132,609 |
Change in fair value of warrant liability | (18,223) | 21,930 |
Change in fair value of derivative liability | (794,477) | 627,956 |
Change in fair value of contingent consideration | 6,418,355 | 7,039,394 |
Forgiveness of Payroll Protection Program | (1,760,755) | |
Deferred income tax benefit | (1,100,120) | |
Change in credit reserve | (26,429) | 66,748 |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | (289,061) | (32,582) |
Due from factor, net | 433,671 | (540,257) |
Inventory | 100,006 | (483,477) |
Prepaid expenses and other current assets | (522,434) | (1,259,835) |
Accounts payable | 382,943 | 749,352 |
Accrued expenses and other liabilities | 1,715,221 | 451,298 |
Deferred revenue | 119,977 | (78,492) |
Accrued compensation - related party | (108,550) | |
Accrued interest | 992,482 | 206,163 |
Net cash used in operating activities | (8,689,857) | (11,476,015) |
Cash flows from investing activities: | ||
Cash acquired (consideration) pursuant to business combination | (5,442,966) | |
Purchase of property, equipment and software | (5,533) | (13,585) |
Deposits | (67,431) | |
Net cash used in investing activities | (5,533) | (5,523,982) |
Cash flows from financing activities: | ||
Proceeds (repayments) from related party advances | (162,692) | |
Advances (repayments) from factor | (60,735) | (39,520) |
Proceeds from venture debt | 237,500 | |
Issuance of loans payable | 248,858 | 2,626,050 |
Repayments of convertible and promissory notes | (3,068,750) | (2,002,731) |
Issuance of convertible notes payable | 3,751,250 | 5,078,650 |
Proceeds from initial public offering | 9,347,450 | 10,000,002 |
Exercise of over-allotment option with public offering, net | 1,364,997 | |
Exercise of warrants | 1,768,046 | |
Offering costs | (1,930,486) | (2,116,957) |
Net cash provided by financing activities | 8,362,395 | 16,678,537 |
Net increase in cash and cash equivalents | (332,995) | (321,460) |
Cash and cash equivalents at beginning of period | 528,394 | 575,986 |
Cash and cash equivalents at end of period | 195,399 | 254,526 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 318,576 | 460,179 |
Supplemental disclosure of non-cash investing and financing activities: | ||
Conversion of notes into common stock | 1,802,372 | 2,680,289 |
Right of use asset | 152,387 | |
Warrants issued in connection with note | 790,540 | |
Derivative liability in connection with convertible note | 559,957 | 1,858,887 |
Conversion of related party notes and payables into preferred and common stock | 25,000 | 257,515 |
Conversion of venture debt into preferred stock | $ 6,300,000 | |
Conversion of preferred stock into common stock | 6,293 | |
Common shares issued pursuant to equity line of credit | $ 367,996 |
NATURE OF OPERATIONS_2
NATURE OF OPERATIONS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
NATURE OF OPERATIONS | ||
NATURE OF OPERATIONS | NOTE 1: NATURE OF OPERATIONS Digital Brands Group, Inc. (the “Company” or “DBG”), was organized on September 17, 2012 under the laws of Delaware as a limited liability company under the name Denim.LA LLC. The Company converted to a Delaware corporation on January 30, 2013 and changed its name to Denim.LA, Inc. Effective December 31, 2020, the Company changed its name to Digital Brands Group, Inc. (DBG). The Company is a curated collection of lifestyle brands, including Bailey 44, DSTLD, Harper & Jones, Stateside and ACE Studios, that offers a variety of apparel products through direct-to-consumer and wholesale distribution. On February 12, 2020, Denim.LA, Inc. entered into an Agreement and Plan of Merger with Bailey 44, LLC (“Bailey”), a Delaware limited liability company. On the acquisition date, Bailey 44, LLC became a wholly owned subsidiary of the Company. On May 18, 2021, the Company closed its acquisition of Harper & Jones, LLC (“H&J”) pursuant to its Membership Interest Stock Purchase Agreement with D. Jones Tailored Collection, Ltd. to purchase 100% of the issued and outstanding equity of Harper & Jones, LLC. On the acquisition date, H&J became a wholly owned subsidiary of the Company. On August 30, 2021, the Company closed its acquisition of Mosbest, LLC dba Stateside (“Stateside”) pursuant to its Membership Interest Purchase Agreement with Moise Emquies to purchase 100% of the issued and outstanding equity of Stateside. On the acquisition date, Stateside became a wholly owned subsidiary of the Company. | NOTE 1: NATURE OF OPERATIONS Digital Brands Group, Inc. (the “Company” or “DBG”), was organized on September 17, 2012 under the laws of Delaware as a limited liability company under the name Denim.LA LLC. The Company converted to a Delaware corporation on January 30, 2013 and changed its name to Denim.LA, Inc. Effective December 31, 2020, the Company changed its name to Digital Brands Group, Inc. (DBG). On February 12, 2020, Denim.LA, Inc. entered into an Agreement and Plan of Merger with Bailey 44, LLC (“Bailey”), a Delaware limited liability company. On the acquisition date, Bailey 44, LLC became a wholly owned subsidiary of the Company. See Note 4. On May 18, 2021, the Company closed its acquisition of Harper & Jones, LLC (“H&J”) pursuant to its Membership Interest Stock Purchase Agreement with D. Jones Tailored Collection, Ltd. to purchase 100% of the issued and outstanding equity of Harper & Jones, LLC. On the acquisition date, H&J became a wholly owned subsidiary of the Company. See Note 4. On August 30, 2021, the Company closed its acquisition of Mosbest, LLC dba Stateside (“Stateside”) pursuant to its Membership Interest Purchase Agreement with Moise Emquies to purchase 100% of the issued and outstanding equity of Stateside. On the acquisition date, Stateside became a wholly owned subsidiary of the Company. See Note 4. In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a pandemic. As the global spread of COVID-19 continues, DBG remains first and foremost focused on a people-first approach that prioritizes the health and well-being of its employees, customers, trade partners and consumers. To help mitigate the spread of COVID-19, DBG has modified its business practices in accordance with legislation, executive orders and guidance from government entities and healthcare authorities (collectively, “COVID-19 Directives”). These directives include the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines. The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, and the imposition of protective public safety measures. Reverse Stock Split On May 12, 2021, the Board of Directors approved a one On October 21, 2022, the Board of Directors approved a one Initial Public Offering On May 13, 2021, the Company’s registration statement on Form S-1 relating to its initial public offering of its common stock (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). Further to the IPO, which closed on May 18, 2021, the Company issued and sold 24,096 shares of common stock at a public offering price of $4.15 per share. Additionally, the Company issued warrants to purchase 27,711 shares, which includes 3,614 warrants sold upon the partial exercise of the over-allotment option. The aggregate net proceeds to the Company from the IPO, were $8.6 million after deducting underwriting discounts and commissions of $0.8 million and direct offering expenses of $0.6 million. Concurrent with this offering, the Company acquired H&J (see Note 4). The Company incurred an additional $0.6 million in offering costs related to the IPO that were not paid directly out of the proceeds from the offering. |
GOING CONCERN_2
GOING CONCERN | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
GOING CONCERN | ||
GOING CONCERN | NOTE 2: GOING CONCERN The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated profits since inception, has sustained net losses of $22,261,338 and $22,659,480 for the nine months ended September 30, 2022 and 2021, respectively, and has incurred negative cash flows from operations during these periods. The Company has historically lacked liquidity to satisfy obligations as they come due and as of September 30, 2022, and the Company had a working capital deficit of $40,731,620. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company requires significant capital to fund operations and meet its obligations as demands are made. The Company expects to continue to generate operating losses for the foreseeable future. The accompanying consolidated financial statements do not include any adjustments as a result of this uncertainty. Management Plans In August 2021, the Company entered into an equity line of credit agreement which the investor is committed to purchase up to $17,500,000 of the Company’s common stock. The Company plans to utilize multiple drawdowns on this agreement, however, it may be unable to execute on such drawdowns due to restrictions per the agreement. | NOTE 2: GOING CONCERN The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated profits since inception, has sustained net losses of $32,357,957 and $10,728,295 for the years ended December 31, 2021 and 2020, respectively, and has incurred negative cash flows from operations for the years ended December 31, 2021 and 2020. The Company has historically lacked liquidity to satisfy obligations as they come due and as of December 31, 2021, and the Company had a working capital deficit of $30,270,932. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company expects to continue to generate operating losses for the foreseeable future. The accompanying consolidated financial statements do not include any adjustments as a result of this uncertainty. Management Plans In August 2021, the Company entered into an equity line of credit agreement which the investor is committed to purchase up to $17,500,000 of the Company’s common stock (see Note 8). The Company plans to utilize multiple drawdowns on this agreement, subject to satisfying a registration rights agreement and other restrictions, some of which is out of the Company’s control. Throughout the next twelve months, the Company intends to fund its operations primarily from the funds raised through the equity line of credit agreement, if available. Through the issuance date of these consolidated financial statements, the Company has not been able to drawdown on the agreement and has received no financings from the agreement. The Company may pursue secondary offerings or debt financings to provide working capital and satisfy debt obligations. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to secure additional funding, it may be forced to curtail or suspend its business plans. |
SUMMARY OF SIGNIFICANT ACCOU_16
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). Stock Split On October 21, 2022, the Board of Directors approved a one Unaudited Interim Financial Information The accompanying unaudited condensed consolidated balance sheet as of September 30, 2022, the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 and of cash flows for the nine months ended September 30, 2022 and 2021 have been prepared by the Company, pursuant to the rules and regulations of the SEC for the interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the consolidated results for the interim periods presented and of the consolidated financial condition as of the date of the interim consolidated balance sheet. The results of operations are not necessarily indicative of the results expected for the year ended December 31, 2022. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s Annual Form 10-K filed with SEC on March 31, 2022. Principles of Consolidation These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, inventory, impairment of long-lived assets, contingent consideration and derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of September 30, 2022 and December 31, 2021, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of September 30, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ — $ — Contingent consideration — — 18,597,831 18,597,831 Derivative liability — — 1,690,807 1,690,807 $ — $ — $ 20,288,638 $ 20,288,638 Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Contingent Consideration Changes in acquisition-related contingent consideration liabilities during the nine months ended September 30, 2022 are as follows: Contingent Consideration Liability Outstanding as of December 31, 2021 $ 12,179,476 Change in fair value 6,418,355 Outstanding as of September 30, 2022 $ 18,597,831 The detail of contingent consideration by company is as follows: Bailey $ 10,698,475 Harper & Jones 7,899,356 $ 18,597,831 The contingent consideration liabilities were revalued as of May 18, 2022, the anniversary date of the Company’s initial public offering. As of the date of the issuance of these financial statements, the contingent consideration liabilities were not yet settled with shares. On July 29, 2022, the Company entered into an amendment to the May 2021 purchase agreement with the H&J Seller based on the ultimate settlement of the H&J contingent consideration. Pursuant to the amendment, on May 18, 2023, the Company shall deliver to the H&J Seller additional shares of common stock. The number of shares of common stock to be delivered to H&J Seller shall be calculated as follows: $7,899,356 minus any cash payments received by Seller from any capital raises, divided by the average common stock closing price per share based on the thirty-day trading period preceding May 19, 2023. Derivative Liability In connection with the Company’s convertible notes with Oasis Capital, LLC (“Oasis”) and FirstFire Global Opportunities Fund, LLC (“FirstFire”), as well as its convertible notes entered into in July 2022, 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 nine months ended September 30, 2022 are as follows: Derivative Liability Outstanding as of December 31, 2021 $ 2,294,720 Issuane of convertible notes 559,957 Conversion of underlying notes into common stock (369,393) Change in fair value (794,477) Outstanding as of September 30, 2022 $ 1,690,807 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 first-in, first-out method for Bailey and Stateside. The inventory balances as of September 30, 2022 and December 31, 2021 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: September 30, December 31, 2022 2021 Raw materials $ 435,025 $ 292,167 Work in process 256,078 242,673 Finished goods 1,964,248 2,220,519 Inventory $ 2,655,352 $ 2,755,358 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. 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 September 30, 2022 and December 31, 2021, the Company capitalized $367,696 in deferred offering costs pertaining to its equity line of credit agreement with Oasis (Note 8). Management is currently reviewing the feasibility of drawdowns on the equity line of credit. 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 September 30, 2022 and 2021, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of September 30, 2022 and 2021 are as follows: September 30, 2022 2021 Convertible notes 1,177,305 22,404 Series A convertible preferred stock 108 — Common stock warrants 132,114 35,913 Stock options 38,951 38,751 Total potentially dilutive shares 1,348,477 97,069 The stock options and warrants above are out-of-the-money as of September 30, 2022. net income. 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 has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2021. The Company has adopted ASU 2016-02 as of January 1, 2022. See Note 10. 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. Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the Company’s financial results as if the H&J and Stateside acquisitions had occurred as of January 1, 2021. 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: | NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). Principles of Consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of December 31, 2021 and 2020, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. Fair Value of Financial Instruments FASB guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Fair Value Measurements as of December 31, 2020 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ 6,265 $ 6,265 $ — $ — $ 6,265 $ 6,265 Warrant Liability Certain of the Company’s common stock warrants are carried at fair value. As of December 31, 2020, the fair value of the Company’s common stock warrant liabilities was measured under the Level 3 hierarchy using the Black-Scholes pricing model as the Company’s underlying common stock had no observable market price (see Note 10). The warrant liability was valued using a market approach. Upon the IPO, the warrant liabilities were valued using quoted prices of identical assets in active markets, and was reclassified under the Level 2 hierarchy. Changes in common stock warrant liability during the year ended December 31, 2021 are as follows: Warrant Liability Outstanding as of December 31, 2020 $ 6,265 Change in fair value 11,958 Outstanding as of December 31, 2021 $ 18,223 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 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 year ended December 31, 2021 are as follows: Contingent Consideration Liability Balance as of December 31, 2020 $ — Initial recognition in connection with acquisition of Harper & Jones 3,421,516 Stock price guarantee per consulting agreement 67,000 Conversion into shares (73,500) Change in fair value 8,764,460 Outstanding as of December 31, 2021 $ 12,179,476 Derivative Liability In connection with the Company’s convertible notes with Oasis Capital, LLC (“Oasis”) and FirstFire Global Opportunities Fund, LLC (“FirstFire”), 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 year ended December 31, 2021 are as follows: Derivative Liability Outstanding as of December 31, 2020 $ — Initial fair value on issuance of convertible note 3,204,924 Change in fair value (910,204) Outstanding as of December 31, 2021 $ 2,294,720 Change in fair value of the derivative liability is included in other non-operating income (expense), net in the consolidated statements of operations. 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 first-in, first-out method for Bailey and Stateside. The inventory balances as of December 31, 2021 and 2020 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. 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, 2021 and 2020 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 $92,213 and $283,024 for the years ended December 31, 2021 and 2020, 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: Customer relationships 3 years Contingent Consideration 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. Impairment of 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 first quarter every year. In the first quarter of 2021, management performed its annual qualitative impairment test. The Company determined no factors existed to conclude that it is more likely than not that the fair value of the reporting unit was less than its carrying amount. As such, no goodwill impairment was recognized as of December 31, 2021. 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. At September 30, 2020, management determined that certain events and circumstances occurred, primarily the reduction in revenues due to COVID-19, that indicated that the carrying value of the Company’s brand name asset may, pertaining to Bailey44, not be recoverable. As such, the Company compared the estimated fair value of the brand name with its carrying value and recorded an impairment loss of $784,500 in the consolidated statements of operations. At December 31, 2021, management determined that certain events and circumstances occurred, primarily the continued reduction in revenues partially as a result of COVID-19, that indicated that the carrying value of the Company’s brand name asset may pertaining to Bailey44 not be recoverable. As such, the Company compared the estimated fair value of the brand name with its carrying value and recorded an impairment loss of $3,400,000 in the consolidated statements of operations. 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 Revenues are recognized when performance obligations are satisfied through the transfer of promised goods to the Company’s customers. Control transfers upon shipment of product and when the title has been passed to the customers. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. 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 considers the sale of products as a single performance obligation. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses. Revenue is deferred for orders received for which associated shipments have not occurred. The reserve for returns totaled $33,933 and $5,229 as of December 31, 2021 and 2020, respectively, and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets. Cost of Revenues Cost of revenues consists primarily of inventory sold and related freight-in. 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 $23,000 and $3,900 for the years ended December 31, 2021 and 2020, respectively. Total shipping and handling costs included in distribution costs were approximately $423,000 and $246,000, respectively. Advertising and Promotion Advertising and promotional costs are expensed as incurred. Advertising and promotional expense for the years ended December 31, 2021 and 2020 amounted to approximately $240,000 and $146,000, respectively. The amounts are included in sales and marketing expense. 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, 2021 and 2020, 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 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). 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 September 30, 2021 our operating segments included: DSTLD, Bailey, H&J and Stateside. 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, 2021 and 2020, 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, 2021 and 2020 are as follows: December 31, 2021 2020 Convertible notes 497,912 — Series Seed Preferred Stock (convertible to common stock) — 20,714,518 Series A Preferred Stock (convertible to common stock) — 5,654,072 Series A-2 Preferred Stock (convertible to common stock) — 5,932,742 Series CF Preferred Stock (convertible to common stock) — 836,331 Series A-3 Preferred Stock (convertible to common stock) — 9,032,330 Series B Preferred Stock (convertible to common stock) — 20,754,717 Common stock warrants 35,801 9,145 Preferred stock warrants — 806,903 Stock options 38,951 11,631 Total potentially dilutive shares 122,664 63,752,389 The potentially dilutive shares pertaining to the Company’s outstanding convertible notes was calculated based on the assumed conversion abilities as of December 31, 2021. The ultimate number of shares for which the notes can convert into is indeterminable. All shares of preferred stock were convertible into shares of common stock at a ratio of 1,563:1 per share. Upon the closing of the IPO, all 62,924,710 shares of preferred stock converted into an aggregate of 40,272 shares of common stock according to their respective terms. Additionally, all preferred stock warrants converted into 516 common stock warrants at the same ratio as the underlying preferred stock conversion. Concentrations The Company utilized two vendors that made up 40% of all inventory purchases during the year ended December 31, 2021 and three vendors that made up 100% of all inventory purchases during the year ended December 31, 2020. The loss of one of these vendors, may have a negative short-term impact on the Company’s operations; however, we believe there are acceptable substitute vendors that can be utilized longer-term. Recent Accounting Pronouncements In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company has elected to early adopt this ASU and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures. 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 has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position, results of operations and cash flows once adopted. 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. |
DUE FROM FACTOR_2
DUE FROM FACTOR | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
DUE FROM FACTOR | ||
DUE FROM FACTOR | NOTE 4: DUE FROM FACTOR Due to/from factor consist of the following: September 30, December 31, 2022 2021 Outstanding receivables: $ 423,984 $ 579,295 Without recourse 83,224 361,584 With recourse 182,352 121,617 Advances (50,779) (77,208) Credits due customers $ 638,781 $ 985,288 | NOTE 5: DUE FROM FACTOR The Company, via its subsidiaries, Bailey and Stateside, 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, and up to 50% of eligible finished goods inventories based on the terms of one of our agreements that terminated in 2021. 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, 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 Advances are collateralized by a security interest in substantially all of the companies’ assets. Due to/from factor consist of the following: December 31, 2021 2020 Outstanding receivables: Without recourse $ 579,295 $ 151,158 With recourse 361,584 42,945 Advances 121,617 56,246 Credits due customers (77,208) (40,316) $ 985,288 $ 210,033 |
GOODWILL AND INTANGIBLE ASSET_4
GOODWILL AND INTANGIBLE ASSETS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
GOODWILL AND INTANGIBLE ASSETS | ||
GOODWILL AND INTANGIBLE ASSETS | NOTE 5: GOODWILL AND INTANGIBLE ASSETS The Company recorded $6,479,218 in goodwill from the Bailey business combination in February 2020, $9,681,548 in goodwill from the H&J business combination in May 2021 and $2,104,056 in goodwill from the Stateside business combination in August 2021. The following table summarizes information relating to the Company’s identifiable intangible assets as of September 30, 2022: Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 6,453,750 (3,062,794) $ 3,390,956 6,453,750 (3,062,794) 3,390,956 Indefinite-lived: Brand name $ 7,836,920 — 7,836,920 $ 14,290,670 $ (3,062,794) $ 11,227,876 The Company recorded amortization expense of $537,813 and $355,808 during the three months ended September 30, 2022 and 2021, and $1,613,438 and $590,711 during the nine months ended September 30, 2022 and 2021, respectively, which is included in general and administrative expenses in the consolidated statements of operations. | NOTE 6: GOODWILL AND INTANGIBLE ASSETS The Company recorded $6,479,218 in goodwill from the Bailey business combination in February 2020, $9,681,548 in goodwill from the H&J business combination in May 2021 and $1,610,265 in goodwill from the Stateside business combination in August 2021. In the fourth quarter of 2021, the Company recorded an additional $493,791 in Stateside goodwill based on the final purchase price allocation. The following table summarizes information relating to the Company’s identifiable intangible assets as of December 31, 2021: Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 6,453,750 $ (1,449,357) $ 5,004,393 6,453,750 (1,449,357) 5,004,393 Indefinite-lived: Brand name $ 7,836,920 — 7,836,920 $ 14,290,670 $ (1,449,357) $ 12,841,313 Due to the effects of COVID-19 and revenue levels not recovering as quickly as anticipated and related uncertainty which affected Bailey’s results and near-term demand for its products, the Company determined that there were indications for further impairment analysis in both 2020 and 2021. During the years ended December 31, 201 and 2020, the Company recorded impairment losses of $3,400,000 and $784,500 for the intangible asset as management determined circumstances existed that indicated the carrying value may not be recoverable. The impairment analysis was based on the relief from royalty method using projected revenue estimates and discounts rates believed to be appropriate. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. The discount rate, revenue assumptions and terminal growth rate of our reporting unit were the material assumptions utilized in the model used to estimate the fair value of the Bailey unit. The analysis requires estimates, assumptions and judgments about future events. Our analysis uses our internally generated long-range plan. The long-range plan reflects management judgment, which includes observation of expected industry trends. The Company recorded amortization expense of $1,128,524 and $320,833 during the years ended December 31, 2021 and 2020, respectively, which is included in general and administrative expenses in the consolidated statements of operations. Future amortization expense at December 31, 2020 is as follows: Year Ending December 31, 2022 2,151,250 2023 1,830,417 2024 1,022,726 $ 5,004,393 |
LIABILITIES AND DEBT_2
LIABILITIES AND DEBT | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
LIABILITIES AND DEBT | ||
LIABILITIES AND DEBT | NOTE 6: LIABILITIES AND DEBT Accrued Expenses and Other Liabilities The Company accrued expenses and other liabilities line in the consolidated balance sheets is comprised of the following as of September 30, 2022 and December 31,2021: September 30, December 31, 2022 2021 Accrued expenses $ 896,043 $ 213,740 Reserve for returns 24,673 33,933 Payroll related liabilities 2,602,800 1,204,665 Sales tax liability 298,149 268,723 Due to seller — 396,320 Other liabilities 130,702 119,764 $ 3,952,366 $ 2,237,145 Certain liabilities including sales tax and payroll related liabilities may be subject to interest and penalties. As of September 30, 2022 and December 31, 2021, payroll related labilities included approximately $262,000 in estimated penalties associated with accrued payroll taxes. Venture Debt In February 2022, the Company received $237,500 in proceeds, including loan fees of $12,500, from the existing venture debt lender under the same terms as the existing facility. As of June 30, 2022 and December 31, 2021, the gross loan balance was $6,251,755 and $6,001,755, respectively. On September 29, 2022, the Company and Black Oak Capital 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 $269,880 as of September 30, 2022. For the nine months ended September 30, 2022 and 2021, $12,500 and $147,389 of loan fees and discounts from warrants were amortized to interest expense, leaving unamortized balance of $0 as of September 30, 2022. Interest expense and effective interest rate on this loan for the three months ended September 30, 2022 and 2021, was $191,152 and $189,096, and 12.2% and 13.4% all respectively. Interest expense was $573,455 and $591,123 for the nine months ended September 30, 2022 and 2021, respectively. Convertible Debt 2020 Regulation D Offering As of September 30, 2022 and December 31, 2021, there was $100,000 remaining in outstanding principal that was not converted into equity. Convertible Promissory Note During the nine months ended September 30, 2022, the Company converted an aggregate of $1,432,979 in outstanding principal into 24,827 shares of common stock. On April 8, 2022, the Company and various purchasers executed a Securities Purchase Agreement whereby the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $3,068,750, consisting of original issue discount of $613,750. The Company received net proceeds of $2,313,750 after the original issue discount and fees, resulting in a debt discount of $755,000. Upon the Company’s public offering in May (see below), the Company repaid $3,068,750 to the investors and the debt discount was fully amortized. In connection with the April notes, the Company issued an aggregate of 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 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. The July notes matured on October 31, 2022 and are in default as of the date of these financial statements. 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 increase d 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 During the three and nine months ended September 30, 2022, the Company amortized $1,792,060 and $4,575,234, respectively, of debt discount to interest expense. As of September 30, 2022 and December 31, 2021, the outstanding principal was $9,907,121 and $9,465,000, respectively. The balance of the convertible notes, after unamortized debt discount of 1,931,149, was $7,975,872 as of September 30, 2022. Loan Payable — PPP and SBA Loan As of September 30, 2022 and December 31, 2021, H&J had an outstanding loan under the EIDL program of $148,900. In April 2022, Bailey received notification of full forgiveness of its 2 nd st Note Payable — Related Party As of September 30, 2022, H&J had an outstanding note payable of $140,928 owned by the H&J Seller. The note matures on December 10, 2022 and bears interest at 12% per annum. Promissory Note Payable As of September 30, 2022 and December 31, 2021, the outstanding principal on the note to the sellers of Bailey was $3,500,000. As of September 30, 2022, the lender agreed to defer all payments to the maturity date of the loan, December 31, 2022. Interest expense was $105,000 and $105,000 for the three months ended September 30, 2022 and 2021 and $315,000 and $389,000 for the nine months ended September 30, 2022 and 2021, all respectively, which was accrued and unpaid as of September 30, 2022. Merchant Cash Advances In March 2022, the Company obtained two short-term merchant advances, which totaled $500,000 and $250,000, respectively, from a single lender to fund operations. These advances included origination fees totaling $22,500 for net proceeds of $727,500. These advances are, for the most part, secured by expected future sales transactions of the Company with expected payments on a weekly basis The Company will repay an aggregate of $1,065,000 to the lender. These advances contain various financial and non-financial covenants. In the third quarter of 2022, the Company received additional short-term advances of $607,860. As of September 30, 2022, $279,475 remained outstanding. As of the date of these financial statements, the Company was in compliance with these covenants. | NOTE 7: 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, 2021 and 2020: December 31, 2021 2020 Accrued expenses $ 213,740 $ 92,074 Reserve for returns 33,933 5,229 Payroll related liabilities 1,204,665 843,704 Sales tax liability 268,723 196,410 Due to seller 396,320 — Other liabilities 119,764 108,230 $ 2,237,145 $ 1,245,646 Due to seller represents amounts to the seller owed pursuant the Stateside Acquisition after certain purchase price adjustments were made in the fourth quarter of 2021. Certain liabilities including sales tax and payroll related liabilities maybe be subject to interest in penalties. As of December 31, 2021 and 2020, payroll related labilities included approximately $262,000 and $152,000 in estimated penalties associated with accrued payroll taxes. Venture Debt In March 2017, the Company entered into a senior credit agreement with an outside lender for up to $4,000,000, dependent upon the achievement of certain milestones. Through various amendments to the agreement, the credit agreement has been increased to approximately $6,000,000. The loan bears interest at 12.5% per annum, compounded monthly, plus fees currently at $5,000 per month. In March 2021, the Company and the lender agreed to extend the maturity date of the credit agreement to December 31, 2022, with certain payments due as follows. If the Company consummated a follow on public offering on or before July 31, 2021, the Company was required to make a $3,000,000 payment on the loan within five five loan, December 31, 2022. As of the filing date, of these financial statements, all defaults were cured and there are no additional expected defaults in the next twelve months. The Company’s credit agreement contains negative covenants that, subject to significant exceptions, limit its ability, among other things to make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, or undergo other fundamental changes. A breach of any of these covenants could result in a default under the credit facility and permit the lender to cease making loans to the Company. If for whatever reason the Company has insufficient liquidity to make scheduled payments under the Company’s credit facility or to repay such indebtedness by the schedule maturity date, the Company would seek the consent of the Company’s senior lender to modify such terms. Although the Company’s senior lender has previously agreed to seven prior modifications of the Company’s credit agreement, there is no assurance that the senior lender will agree to any such modification and could then declare an event of default. Upon the occurrence of an event of default under the credit agreement, the lender could elect to declare all amounts outstanding thereunder to be immediately due and payable. The Company has pledged all of its assets as collateral under the Company’s credit facility. If the lender accelerates the repayment of borrowings, the Company may not have sufficient assets to repay them and the Company could experience a material adverse effect on its financial condition and results of operations. Repayment is accelerated upon a change in control, as defined in the agreement. The loan is senior to all other debts and obligations of the Company, is collateralized by all assets of the Company, and shares of the Company’s common stock pledged by officers of the Company. As of December 31, 2021 and 2020, the gross loan balance was $6,001,755.During 2020, the gross balance increased by $1,459,211 resulting from cash disbursed to the Company and considerations for outstanding interest. The lender was also granted warrants to purchase common stock representing 1% of the fully diluted capitalization of the Company for each $1,000,000 of principal loaned under the agreement, which was increased to 1.358% during 2019. During the year ended December 31, 2020, the Company granted 4,935 common stock warrants, to the lender with an exercise price of $ 2.50 ten For the years ended December 31, 2021 and 2020, $147,389 and $241,878 of these loan fees and discounts from warrants were amortized to interest expense, leaving unamortized balances of $0 and $147,389 as of December 31, 2021 and 2020, respectively. Interest expense for the years ended December 31, 2021 and 2020 was $825,219 and $770,277, respectively. Effective interest rate on the loan for the years ended December 31, 2021 and 2020 was 13.7% and 14.6%, respectively. Convertible Debt 2020 Regulation CF Offering During the year ended December 31, 2020, the Company received gross proceeds of $450,308 from a Regulation CF convertible debt offering. In 2021, the Company received additional gross proceeds of $473,650. Interest was 6% per annum and the debt was due October 30, 2022. Upon closing of the IPO, the outstanding principal and accrued and unpaid interest of $16,942 was converted into 3,197 shares of common stock based on the terms of the notes. Total issuances costs were $69,627, which was recognized as a debt discount and was amortized in 2021 through the date of IPO when such debt converted. During the year ended December 31, 2021, $27,894 of the debt discount was amortized to interest expense. 2020 Regulation D Offering Concurrently with the offering above, in 2021 and 2020 the Company received gross proceeds of $55,000 and $800,000, respectively, from a Regulation D convertible debt offering. The debt accrued interest at a rate of 14% per annum with a maturity date of nine months from the date of issuance. The debt was contingently convertible and contains both automatic and optional conversions. The debt converted automatically upon an initial public offering of at least $10,000,000 in gross proceeds at a price per share equal to 50% of the IPO price. Issuance costs on the aggregate funds totaled $100,000. In addition, the Company issued 5 warrants to purchase common stock in connection with the notes. The issuance costs and warrants are recognized as a debt discount and were amortized in 2021 through the date of IPO when such debt converted. The fair value of the warrants was determined to be negligible. Upon closing of the IPO, $755,000 in outstanding principal and approximately $185,000 of the accrued and unpaid interest was converted into 4,534 shares of common stock. As of December 31, 2021, there was $100,000 remaining in outstanding principal that was not converted into equity. During the year ended December 31, 2021, $100,000 of the debt discount was amortized to interest expense. The Company recorded an additional $132,609 in default interest expense upon conversion of these notes. 2019 Regulation D Offering For the year ended December 31, 2019, the Company received gross proceeds of $799,280 from a Regulation D convertible debt offering. The debt accrued interest at a rate of 12% per annum with a maturity date of thirty-six months from the date of issuance. The debt was contingently convertible and contained both automatic and optional conversions. The debt converted automatically upon an initial public offering at $219 per share. If, prior to maturity there is a change in control event, the holders of a majority of the debt could vote to convert two times the value of the principle, with accrued interest being eliminated, at 1) the fair market value of the company’s common stock at the time of such conversion, 2) $219 per share, 3) dividing the valuation cap ($9,000,000) by the pre-money fully diluted capitalization. Upon closing of the IPO, the outstanding principal was converted into 3,621 shares of common stock. Convertible Promissory Notes On August 27, 2021, the Company entered into a Securities Purchase Agreement with Oasis Capital, LLC (“Oasis Capital”) further to which Oasis Capital purchased a senior secured convertible note (the “Oasis Note”), with an interest rate of 6% per annum, having a face value of $5,265,000 for a total purchase price of $5,000,000, secured by all assets of the Company. The Oasis Note, in the principal amount of $5,265,000, bears interest at 6% per annum and is due and payable 18 months from the date of issuance, unless sooner converted. The Oasis Note is convertible at the option of Oasis Capital into shares of the Company’s common stock at a conversion price (the “ Oasis Conversion Price”) which is the lesser of (i) $360.10, and (ii) 90% of the average of the two lowest volumed weighted average prices (“VWAPs’) during the five consecutive trading day period preceding the delivery of the notice of conversion. Oasis Capital is not permitted to submit conversion notices in any thirty day period having conversion amounts equaling, in the aggregate, in excess of $500,000. If the Oasis Conversion Price set forth in any conversion notice is less than $300 per share, the Company, at its sole option, may elect to pay the applicable conversion amount in cash rather than issue shares of its common stock. On October 1, 2021, the Company entered into an Amended and Restated Securities Purchase Agreement with FirstFire Global Opportunities Fund, LLC (“FirstFire”) and Oasis Capital further to which FirstFire purchased a Senior Secured Convertible Promissory Note (the “First FirstFire Note”), with an interest rate of 6% per annum, having a face value of $1,575,000 for a total purchase price of $1,500,000, secured by all assets of the Company. The First FirstFire Note, in the principal amount of $1,575,000, bears interest at 6% per annum and is due and payable 18 months from the date of issuance, unless sooner converted. The First FirstFire Note is convertible at the option of FirstFire into shares of the Company’s common stock at a conversion price (the “First FirstFire Conversion Price”) which is the lesser of (i) $395.20, and (ii) 90% of the average of the two lowest volume-weighted average prices during the five consecutive trading day period preceding the delivery of the notice of conversion. FirstFire is not permitted to submit conversion notices in any thirty day period having conversion amounts equaling, in the aggregate, in excess of $500,000. If the First FirstFire Conversion Price set forth in any conversion notice is less than $300 per share, we, at our sole option, may elect to pay the applicable conversion amount in cash rather than issue shares of the Company’s common stock. In connection with the issuance of the First FirstFire Note, the Company, Oasis Capital and FirstFire amended the Security Agreement to grant FirstFire a similar security interest in substantially all of our assets to secure the obligations under the First FirstFire Note. The Company, Oasis Capital and FirstFire also amended the Registrations Right Agreement (“RRA”) to join FirstFire as a party thereto and to include the shares of the Company’s common stock issuable under the First FirstFire Note as registrable securities. On November 16, 2021, the Company entered into a Securities Purchase Agreement with FirstFire further to which FirstFire purchased a Senior Secured Convertible Promissory Note (the “Second FirstFire Note” and together with the First FirstFire Note, the “FirstFire Notes”), with an interest rate of 6% per annum, having a face value of $2,625,000 for a total purchase price of $2,500,000. The Second FirstFire Note is convertible at the option of FirstFire into shares of the Company’s common stock at a conversion price (the “Second FirstFire Conversion Price”) which is the lesser of (i) $428, and (ii) 90% of the average of the two lowest volume-weighted average prices during the five consecutive trading day period preceding the delivery of the notice of conversion. FirstFire is not permitted to submit conversion notices in any thirty day period having conversion amounts equaling, in the aggregate, in excess of $500,000. If the Second FirstFire Conversion Price set forth in any conversion notice is less than $329 per share, the Company, at its sole option, may elect to pay the applicable conversion amount in cash rather than issue shares of its common stock. In addition, the Company entered into an amendment to the RRA, dated November 16, 2021. The RRA, as amended, provides that the Company shall file a registration statement registering the shares of common stock issuable upon conversion of the FirstFire Notes, and the Waiver Shares by November 30, 2021 and use best efforts to cause such registration statement to be effective with the SEC no later than 120 days from the date of the FirstFire Note. The Company filed such registration statement in December 2021 and it became effective in January 2022. The Company evaluated the terms of the conversion features of the Oasis and FirstFire 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 Oasis and FirstFire Notes, the Company recognized a derivative liability at an aggregate fair value of $3,204,924, which is recorded as a debt discount and will amortized over the life of the note. The following is a summary of the Oasis and FirstFire Notes for the year ended December 31, 2021: Unamortized Convertible Note Principal Debt Discount Payable, Net Balance, December 31, 2020 $ — $ — $ — Issuance of Oasis note, net of issuance costs 5,265,000 (715,000) 4,550,000 Issuance of FirstFire First note, net of issuance costs 1,575,000 (315,000) 1,260,000 Issuance of Second FirstFire note, net of issuance costs 2,625,000 (530,000) 2,095,000 Derivative liability in connection with notes — (3,204,924) (3,204,924) Amortization of debt discount — 801,538 801,538 Balance, December 31, 2021 $ 9,465,000 $ (3,963,386) $ 5,501,614 The original issue discount and issuance costs for the Oasis and FirstFire Notes totaled $1,560,000, which were recognized as a debt discount and will be amortized over the life of the notes. During the year ended December 31, 2021, the Company amortized $801,538 of debt discount to interest expense. As of December 31, 2021, the net balance of the Oasis and FirstFire Notes, after unamortized debt discount of $3,963,386, was $5,501,614. Interest expense for the year ended December 31, 2021 was $148,613. Loan Payable — PPP and SBA Loan In April 2020, the Company and Bailey each entered into a loan with a lender in an aggregate principal amount of $203,994 and $1,347,050, respectively, pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In February 2021, Bailey entered into an 2nd Round PPP Loan for a principal amount of $1,347,050. In May 2021, the Company entered into an 2 nd including, among other things, cross-defaults on any other loan with the lender. The PPP Loans may be accelerated upon the occurrence of an event of default. The loan proceeds were used for payroll and other covered payments including general operating costs. In December 2021, the Company received notification that both its PPP Loans of $203,994 and $204,000 were approved for full forgiveness. As such, $407,994 was recorded as other non-operating income in the consolidated financial statements. The Bailey PPP Loans have been submitted for forgiveness and is expected to be forgiven in part based on current information available; however, formal forgiveness has not yet occurred as of the date of these financial statements. The CARES Act additionally extended COVID relief funding for qualified small businesses under the Economic Injury Disaster Loan (EIDL) assistance program. On June 25, 2020 the Company was notified that their EIDL application was approved by the Small Business Association (SBA). Per the terms of the EIDL agreement, the Company received total proceeds of $150,000. The Loan matures in thirty years from the effective date of the Loan and has a fixed interest rate of 3.75% per annum. As of December 31, 2021, Harper & Jones had an outstanding loan under the EIDL program of $148,900. Loan Payable In May 2021, H&J entered into a loan payable with a bank and received proceeds of $75,000. The line bears interest at 7.76% and matures in December 2025. As of December 31, 2021, the outstanding balance was $72,269. In December 2021, H&J entered into a merchant advance loan for a principal amount of $153,860 and received proceeds of $140,000. The loan bears interest at 9.9% and matures in June 2023. As of December 31, 2021, the outstanding balance was $149,962. Note Payable — Related Party As of December 31, 2021, H&J had an outstanding note payable of $299,489 owned by the H&J Seller. The note matures on July 10, 2022 and bears interest at 12% per annum. Promissory Note Payable As noted in Note 4, the Company issued a promissory note in the principal amount of $4,500,000 to the Bailey Holders pursuant to the Bailey acquisition. In February 2021, the maturity date of the agreement was extended from December 31, 2020 to July 31, 2021. Upon the IPO closing in May 2021, the Company repaid $1,000,000 of the outstanding principal on this note in May 2021. In August 2021, the maturity date was further extended to December 31, 2022. The Company is required to make prepayments of $2,000,000 to $4,000,000 if the Company completes a secondary public offering. If a public offering is not consummated before October 31, 2021 and June 30, 2022, the Company shall repay 10% of the outstanding principal at each date. The Company did not make any payments in October 2021, and the Company and the lender agreed to defer these payments to the maturity date of the loan, December 31, 2022. The note incurs interest at 12% per annum. As of December 31, 3021, $3,500,000 remained outstanding. Interest expense was $494,000 and $472,500 for the years ended December 31, 2021 and 2020, respectively, all of which was accrued and unpaid as of December 31, 2021. In April 2021, the Company entered into a promissory note in the principal amount of $1,000,000. The Company received $810,000 in proceeds, net of issuance costs and original issue discount. Additionally, the Company issued 1,205 warrants to the lender, which was recorded as a debt discount at the time of the loan. The fair value of the warrants and shares recorded as a debt discount was $73,958. Upon the closing of the IPO, the note was repaid in full. The entire debt discount of $263,958 was amortized to interest expense upon repayment of the note. |
STOCKHOLDERS' DEFICIT_2
STOCKHOLDERS' DEFICIT | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
STOCKHOLDERS' DEFICIT | ||
STOCKHOLDERS' DEFICIT | NOTE 7: STOCKHOLDERS’ DEFICIT 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. During the nine months ended September 30, 2022, $1,432,979 in outstanding principal of convertible notes were converted into 24,827 shares of common stock. In September 2022, the Company issued 750 shares of common stock pursuant to a consultant agreement at a fair value of $123,000. On September 29, 2022, the Company and Black Oak Capital 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. The following is a summary of the rights and preferences of the Series A Convertible 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. Amendment to Articles 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. See Note 12. On October 21, 2022, the Board of Directors approved a one Underwriting Agreement and Public Offering On May 5, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Alexander Capital, L.P., acting as representative (the “Representative”) of the several underwriters named in the Underwriting Agreement (the “Underwriters”), relating to the Company’s underwritten the offering (the “Offering”) pursuant to which the Company agreed to issue and sell 373,898 shares (the “Firm Shares”) of the Company’s common stock. The Firm Shares were sold to the public at a combined public offering price of $2.50 per share and were purchased by the Underwriters from the Company at a price of $2.30 per share. The Company also granted the Underwriters a 45-day 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. | NOTE 8: STOCKHOLDERS’ DEFICIT Amended and Restated Certificate of Incorporation On May 18, 2021, the Company filed a Sixth Amended and Restated Certificate of Incorporation (the “Restated Certificate”) with the Secretary of State of the State of Delaware in connection with the Company’s IPO. The Company’s board of directors and stockholders previously approved the Restated Certificate to be effective immediately prior to the closing of the IPO. The Restated Certificate amends and restates the Company’s amended and restated certificate of incorporation, as amended, in its entirety to, among other things: (i) increase the authorized number of shares of common stock to 200,000,000 shares; (ii) authorize 10,000,000 shares of preferred stock that may be issued from time to time by the Company’s board of directors in one or more series; (iii) provide that directors may be removed from office only for cause by the affirmative vote of the holders of at least 662/3% The Restated Certificate also effected a 1-for-1,563 (see below) reverse stock split approved by the Company’s Board of Directors as described above. 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. Convertible Preferred Stock Prior to the IPO, the Company designated its preferred stock as 20,714,518 shares of Series Seed Preferred Stock,14,481,413 shares of Series A Preferred Stock, 20,000,000 shares of Series A-2 Preferred Stock, 2,000,000 shares of Series CF Preferred Stock, 18,867,925 shares of Series A-3 Preferred Stock, 20,754,717 shares of Series B Preferred Stock and with 936,144 shares of preferred stock undesignated. The preferred stock were subject to an optional conversion right, where the preferred stock is convertible into fully paid and non-assessable shares of common stock at a 1,563:1 rate, with certain dilution protections. During the year ended December 31, 2020, the Company issued 809,294 shares of Series A-3 Preferred Stock at a price of $0.53 and 709,690 shares of Series CF Preferred Stock at price per share of $0.52. In 2020, the also Company issued 20,754,717 shares of Series B Preferred Stock to the Bailey Holders pursuant to the Bailey acquisition at a price per share of $0.53 for a total fair value of $11,000,000. See Note 4. As of December 31, 2020, 20,714,518 shares of Series Seed Preferred Stock were issued and outstanding outstanding outstanding outstanding outstanding Series Upon the closing of the Company’s IPO on May 18, 2021, all then-outstanding shares of Preferred Stock converted into an aggregate of 40,272 shares of common stock according to their terms. Common Stock The Company had 200,000,000 shares of common stock authorized with a par value of $0.0001 as of December 31, 2021. 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. Equity Line of Credit On August 27, 2021 (“Execution Date”), the Company entered into an equity line of credit arrangement with Oasis Capital. Specifically, the Company entered into an equity purchase agreement (the “EPA”), pursuant to which Oasis Capital is committed to purchase up to $17,500,000 of the Company’s common stock over the 24-month term of the EPA. The Company is not obligated to request any portion of the $17,500,000. As of December 31, 2021, the Company has not drawn down any portion of this commitment, leaving the entire $17,500,000 available under the equity line of credit, and for which the Company has agreed, pursuant to a registration rights agreement (the “Oasis Equity RRA”), to register the shares of common stock issuable further to the equity line of credit with the SEC before any such issuances. The actual number of shares that the Company may issue pursuant to the equity line of credit is not determinable as it is based on the market price of the Company’s common stock from time to time and the number of shares desired to put to Oasis Capital. During the 24-month term of the investment agreement, the Company may request a drawdown on the equity line of credit by delivering a “put notice” to Oasis Capital stating the dollar amount of shares the Company intends to sell to Oasis Capital. The Company may make either an Option 1 or Option 2 request to Oasis Capital. Under Option 1, the purchase price Oasis Capital is required to pay for the shares is the lesser of (i) the lowest traded price of the common stock on the Nasdaq Capital Market on the Clearing Date, which is the date on which Oasis Capital receives the put shares as DWAC shares in its brokerage account, or (ii) the average of the three lowest closing sale prices of our Common Stock on the Nasdaq Capital Market during the period of twelve consecutive trading days immediately preceding the Clearing Date. The maximum amount the Company may request in an Option 1 request is $500,000. Under Option 2, the purchase price Oasis Capital is required to pay for the shares is the lesser of (i) 93% of the one (1) lowest traded price of our common stock on the Nasdaq Capital Market during the period of five (5) consecutive trading days immediately preceding the put date, or (ii) 93% of the VWAP on the Clearing Date, or (iii) 93% of the closing bid price of the Company’s common stock on the Nasdaq Capital Market on the Clearing Date. The maximum amount the Company may request in an Option 2 request is $2,000,000. The Company is unable to drawdown on the EPA until the lowest traded price of the common stock in the five (5) trading days immediately preceding the respective put date exceeds $300. 2021 Transactions There were no shares of common stock issued during 2020. On May 13, 2021, the Company’s registration statement on Form S-1 relating to the IPO was declared effective by the SEC. In the IPO, which closed on May 18, 2021, the Company issued and sold 24,096 shares of common stock at a public offering price of $415 per share. Additionally, the Company issued warrants to purchase 27,711 shares, which includes 3,614 warrants sold upon the partial exercise of the over-allotment option. The aggregate net proceeds to the Company from the were $8.6 million after deducting underwriting discounts and commissions of $0.8 million and direct offering expenses of $0.6 million. Upon the closing of the Company’s IPO on May 18, 2021, all then-outstanding shares of Preferred Stock converted into an aggregate of 40,272 shares of common stock according to their terms. Upon closing of the Company’s IPO, the Company converted outstanding principal totaling $2,680,289 and certain accrued and unpaid interest of the Company’s convertible debt into an aggregate of 11,352 shares of common stock. See Note 7. Upon closing of the Company’s IPO, certain officers and directors converted balances due totaling $257,515 into 1,524 shares of common stock and recorded $233,184 in compensation expense for the shares issued in excess of accrued balances owed. See Note 9. In connection with the H&J and Stateside acquisitions, the Company issued 21,928 and 11,015 shares of common stock to the respective sellers. See Note 4. Pursuant to a consulting agreement, the Company issued 500 shares of common stock with a guaranteed equity value of $250,000. In connection with the agreement, the Company recorded a contingent consideration liability of $67,000. See Note 3. An additional 415 shares were issued upon settlement of the contingent liability. In May 2021, an aggregate of 319 warrants were exercised for shares of common stock for proceeds of $145,696. In July 2021, warrant holders exercised 3,550 warrants for proceeds of $1,622,350. On June 28, 2021, the Company’s underwriters purchased 3,614 shares of common stock at a public offering price of $415 per share pursuant to the exercise of the remaining portion of their over-allotment option. The Company received net proceeds of approximately $1.4 million after deducting underwriting discounts and commissions of $0.1 million. In connection with the execution of the Oasis Capital EPA, the Company issued Oasis Capital 1,264 shares of common stock (the “Commitment Shares”). Upon nine months from the Execution Date, Oasis may return a portion of the Commitment Shares. As of December 31, 2021, the Company recorded the fair value of the Commitment Shares of $367,696 as deferred offering costs as no financings under the related EPA have occurred. In connection with the Second FirstFire Note, in November 2021 the Company issued (a) 300 additional shares of common stock to FirstFire and (b) 1,000 additional shares of common stock to Oasis Capital, as set forth in the waivers and consents (the “Waivers”), dated November 16, 2021 executed by each of FirstFire and Oasis Capital (collectively, the “Waiver Shares”). The Company recorded interest expense of $427,700 pertaining to the fair value of the Waiver Shares issued. In December 2021, the Company issued 1,500 shares of common stock pursuant to a consulting agreement. The fair value of $339,000 was based on the value of the Company’s common stock on the date of grant and is included in general and administrative expenses in the consolidated statements of operations. |
RELATED PARTY TRANSACTIONS_2
RELATED PARTY TRANSACTIONS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
RELATED PARTY TRANSACTIONS | ||
RELATED PARTY TRANSACTIONS | NOTE 8: RELATED PARTY TRANSACTIONS Employee Backpay, Loans Receivable and Loans Payable As of September 30, 2022 and December 31, 2021, due to related parties includes advances from the former officer, Mark Lynn, who also serves as a director, totaling $104,568, and accrued salary and expense reimbursements of $120,350 and $126,706, respectively, to current officers. As of June 30, 2022, due to related parties also included an advance of $25,000 from the CEO. In August 2022, the Company issued 1 share of Series A preferred stock to the CEO for $25,000. Accordingly, the due to related parties balance was reduced to $0. As of September 30, 2022, H&J had an outstanding note payable of $140,928 owned by the H&J Seller. | NOTE 9: RELATED PARTY TRANSACTIONS Employee Backpay, Loans Receivable and Loans Payable As of December 31 2021 and 2020, due to related parties includes advances from the former officer, Mark Lynn, who also serves as a director, totaled $104,568 and $194,568 respectively, and accrued salary and expense reimbursements of $126,706 and $246,885 respectively, to current officers. Upon closing of the IPO, 251 shares of common stock were issued to directors as conversion of balances owed. The current CEO, Hil Davis, previously advanced funds to the Company for working capital. These prior advances were converted to a note payable totaling $115,000. Upon closing of the IPO, 1,273 shares of common stock were issued to the CEO as conversion of the outstanding note payable and related accrued interest, accrued compensation and other consideration. As of a result of the transaction, the Company recorded an additional $233,184 in stock compensation expense, which is included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2021, H&J had an outstanding note payable of $299,489 owned by the H&J Seller. The note matures on July 10, 2022 and bears interest at 12% per annum. |
SHARE-BASED PAYMENTS_2
SHARE-BASED PAYMENTS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SHARE-BASED PAYMENTS | ||
SHARE-BASED PAYMENTS | NOTE 9: SHARE-BASED PAYMENTS Common Stock Warrants 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. The following is a summary of warrant activity: Common Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2021 35,801 $ 412.00 Granted 96,313 30.71 Exercised — Forfeited — Outstanding – September 30, 2022 132,114 $ 134.13 Exercisable at September 30, 2022 104,459 $ 166.65 Stock Options As of September 30, 2022 and December 31, 2021, the Company had 38,951 stock options outstanding with a weighted average exercise price of $362.11 per share. As of September 30, 2022, there were 34,073 options exercisable. Stock-based compensation expense of $110,092 and $134,113 was recognized for the three months ended September 30, 2022 and 2021, and $368,944 and $4,155,641 was recognized for the nine months September 30, 2022 and 2021, respectively. During the nine months ended September 30,2022 and 2021, $43,196 and $5375,550 was recorded to sales and marketing expense, and all other stock compensation was included in general and administrative expense in the condensed consolidated statements of operations. Total unrecognized compensation cost related to non-vested stock option awards as of September 30, 2022 amounted to $688,092 and will be recognized over a weighted average period of 1.56 years. | NOTE 10: SHARE-BASED PAYMENTS Common Stock Warrants During the year ended December 31, 2020, the Company granted 4,935 common stock warrants to the venture debt lender with an exercise price of $250 per share. The warrants were valued at $184,191 using the below range of inputs using the Black-Scholes model. During the Company’s Series A-3 Preferred Stock raise, the Company granted 26 common stock warrants at an exercise price of $828 per share to a funding platform in the year ended December 31, 2020. The warrants are fully vested with an exercise price of $828 per share, expiring in five years. The warrants contain a put option for the Company to redeem the warrants in cash in a change-in-control transaction, equal to the Black-Scholes value immediately prior to the fundamental event. The warrants also include other down-round and anti-dilution features if shares of common stock are issued or granted at a lesser value than the strike price which may also require additional warrants to be issued, such that the aggregate value of the strike price remains the same. As the warrants include a put option and embody an obligation for the Company to redeem these warrants in cash upon a contingent event, they are presented as a liability in the consolidated balance sheets. The volatility rate of 100% was used as it is a floor volatility as defined by the warrants. As of December 31, 2021 and 2020, the Company remeasured the fair value of the warrants to be $18,223 and $6,265, respectively, and recorded a gain (loss) due to the change in fair value of ($11,958) and $2,353, respectively. Year Ended December 31, 2020 Risk Free Interest Rate 1.54 – 1.59% Expected Dividend Yield 0.00% Expected Volatility 58.0 – 100% Expected Life (years) 5 – 10 For valuing the warrants noted above, the Company uses the same assumptions used for valuing employee options as noted below in the Stock Plan section, with the exception of the useful life which is either the contractual life or the estimated life. In connection with the Regulation D offerings in 2020, the Company issued 5 warrants to purchase common stock in connection with the notes at an exercise price of $250 per share. The issuance costs and warrants are recognized as a debt discount and will be amortized over the life of the notes. In connection with the IPO, the Company issued 24,096 warrants and an additional 3,614 warrants to purchase common stock per the over-allotment option. Each warrant will have an exercise price of $457 per share (equal to 110% of the offering price of the common stock), will be exercisable upon issuance and will expire five years from issuance. On May 13, 2021, pursuant to the IPO Underwriting Agreement, the Company issued warrants to the underwriters to purchase up to an aggregate of 1,205 shares of common stock with an exercise price of $519 per share. The warrants may be exercised beginning on November 13, 2021 and will expire five years from issuance. In connection with the Company’s April 2021 note financing, the Company issued warrants to the lender to purchase up to 1,205 shares of common stock. The warrants have an exercise price of $415 per share and are exercisable immediately after issuance. In May 2021, an aggregate of 319 warrants were exercised for shares of common stock for proceeds of $145,696. In July 2021, warrant holders exercised 3,550 warrants for proceeds of $1,622,350. A summary of information related to common stock warrants for the year ended December 31, 2021 is as follows: Common Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2019 4,180 $ 281 Granted 4,966 252 Exercised — — Forfeited — — Outstanding – December 31, 2020 9,146 $ 266 Granted 30,120 458 Conversion of preferred stock warrants upon IPO 516 766 Exercised (3,869) 457 Forfeited (112) 766 Outstanding – December 31, 2021 35,801 $ 412 Exercisable at December 31, 2020 9,146 $ 266 Exercisable at December 31, 2021 35,801 $ 412 Preferred Stock Warrants A summary of information related to preferred stock warrants for the year ended December 31, 2021 is as follows: Preferred Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2019 806,903 $ 0.49 Outstanding – December 31, 2020 806,903 $ 0.49 Converted to common stock warrants upon IPO (806,903) 0.49 Exercised — — Forfeited — — Outstanding – December 31, 2021 — $ — Exercisable at December 31, 2021 — $ — Upon the IPO, all outstanding preferred stock warrants converted into common stock warrants at a ratio of 1,563:1. Stock Options 2020 Incentive Stock Plan The Company has adopted a 2020 Omnibus Incentive Stock Plan (the “2020 Plan”). An aggregate of 33,000 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, 27,320 options were granted to executives and directors at an exercise price from $385 to $415 per share. As of December 31, 2021, 5,680 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, 2021 and 2020. 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, 2021 and 2020. 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, 2021 and 2020 is as follows: Weighted Average Options Exercise Price Outstanding – December 31, 2019 10,842 $ 2.50 Granted 917 94 Exercised — — Forfeited (128) $ 328 Outstanding – December 31, 2020 11,631 $ 234 Granted 27,320 415 Exercised — — Forfeited — — Outstanding – December 31, 2021 38,951 $ 362 Exercisable at December 31, 2020 8,810 $ 234 Exercisable at December 31, 2021 31,646 $ 359 Weighted average duration (years) to expiration of outstanding options at December 31, 2021 8.00 The assumptions utilized for option grants during the years ended December 31, 2021 and 2020 are as follows: Year Ended December 31, 2021 2020 Risk Free Interest Rate 0.34% – 0.85% 0.42% – 0.51% Expected Dividend Yield 0.00% 0.00% Expected Volatility 58.00% 58.00% Expected Life (years) 5.18 6.25 The total grant-date fair value of the options granted during the years ended December 31, 2021 was $4,696,605 and $46,253, respectively. During the year ended December 31, 2021 and 2020, $3,325,897 and $144,775 was recorded to general and administrative expenses, and $551,948 and $0, 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, 2021 amounted to $1,057,036 and will be recognized over a weighted average period of 2.28 years. |
LEASE OBLIGATIONS_2
LEASE OBLIGATIONS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
LEASE OBLIGATIONS | ||
LEASE OBLIGATIONS | NOTE 10: LEASE OBLIGATIONS In April 2021, the Company entered into a lease agreement for operating space in Los Angeles, California. The lease expires in June 2023 and has monthly base rent payments of $17,257. The lease required a $19,500 deposit. The Company adopted ASC 842 on January 1, 2021 and recognized a right of use asset Stateside leases office and showroom facilities in Los Angeles, California. The leases expire at various dates through November 2022 with base rents ranging from $3,100 to $9,000. Total rent expense for the three months ended September 30, 2022 and 2021 was $267,041 and $246,103, and $736,523 and $551,944 for the nine months end September 30, 2022 and 2021, respectively. | NOTE 11: LEASE OBLIGATIONS In April 2021, the Company entered into a lease agreement for operating space in Los Angeles, California. The lease expires in June 2023 and has monthly base rent payments of $17,257. The lease required a $19,500 deposit. Bailey leases office and warehouse facilities in Vernon, California. The lease expires in February 2023 and has monthly base rent payments of $32,921 per month. H&J leases office and showroom facilities in Dallas and Houston, Texas, and New Orleans, Louisiana. The leases expire at various dates through June 2022 with base rents ranging from $3,400 to $6,500. Stateside leases office and showroom facilities in Los Angeles, California. The leases expire at various dates through November 2022 with base rents ranging from $3,100 to $9,000. Total rent expense for the years ended December 31, 2021 was $816,790 and $541,146, respectively. |
CONTINGENCIES_2
CONTINGENCIES | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
CONTINGENCIES | ||
CONTINGENCIES | NOTE 11: CONTINGENCIES On March 25, 2020, a Bailey’s product vendor filed a lawsuit against Bailey for non-payment of trade payables totaling $492,390. Approximately the same amount was held in accounts payable for this vendor in the accompanying consolidated balance sheets and the Company does not believe it is probable that losses in excess of such trade payables will be incurred. The Company and product vendor have entered into a settlement, which will require the Company make ten monthly payments of approximately $37,000, starting in May 2021. Upon completion of the payment schedule, any remaining amounts will be forgiven. The payment schedule was completed in 2022. 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. 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. One matter was settled in February 2022 and the other matter is being actively worked on to achieve settlement. On September 24, 2020 a Bailey’s product vendor filed a lawsuit against Bailey’s non-payment of trade payables totaling approximately $481,000 and additional damages of approximately $296,000. Claimed amounts for trade payables are included in accounts payable in the accompanying consolidated balance sheets, net of payments made. In December 2021, the Company reached a settlement; however, the settlement terms were not met and a judgement was entered against the Company in the amount of $469,000. 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 consolidated balance sheet as of September 30, 2022. 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 12: CONTINGENCIES On February 28, 2020, a Company vendor filed a lawsuit against the Company’s non-payment of trade payables totaling $123,000. Such amounts, including expected interest, are included in accounts payable, net of payments made to date, in the consolidated balance sheets and the Company does not believe it is probable that losses in excess of such trade payables will be incurred. The matter was settled and final payment was made in full in January 2022. On March 25, 2020, a Bailey’s product vendor filed a lawsuit against Bailey for non-payment of trade payables totaling $492,390. Approximately the same amount was held in accounts payable for this vendor in the accompanying consolidated balance sheets and the Company does not believe it is probable that losses in excess of such trade payables will be incurred. The Company and product vendor have entered into a settlement, which will require the Company make ten monthly payments of approximately $37,000, starting in May 2021. Upon completion of the payment schedule, any remaining amounts will be forgiven. If the Company fails to meet its obligations based on the prescribed time frame, the full amount will be due with interest, less payments made. 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. 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. One matter was settled in February 2022 and the other matter is being actively worked on to achieve settlement. On September 24, 2020 a Bailey’s product vendor filed a lawsuit against Bailey’s non-payment of trade payables totaling approximately $481,000 and additional damages of approximately $296,000. Claimed amounts for trade payables are included in accounts payable in the accompanying consolidated balance sheets, net of payments made. In December 2021, the Company reached a settlement; however, the settlement terms were not met and the Company received a judgement of $469,000. 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 consolidated balance sheet as of December 31, 2021. 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. |
SUBSEQUENT EVENTS_2
SUBSEQUENT EVENTS | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SUBSEQUENT EVENTS. | ||
SUBSEQUENT EVENTS | NOTE 12: SUBSEQUENT EVENTS Management’s Evaluation On October 13, 2022, Digital Brands Group, Inc., a Delaware corporation (the “Company” or “DBG”), entered into a Second Amended and Restated Membership Interest Purchase Agreement (the “Agreement”) with Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (“Sellers”), Sunnyside, LLC, a California limited liability company (“Sundry”), and George Levy as the Sellers’ representative (the “Sellers’ Representative”), pursuant to which the Company will acquire all of the issued and outstanding membership interests of Sundry (such transaction, the “Acquisition”). Pursuant to the Agreement, Sellers, as the holders of all of the outstanding membership interests of Sundry, will exchange all of such membership interests for (i) $7.5 million in cash, of which (a) $2.5 million remaining $1.6 million will be paid to each of the Sellers, Jenny Murphy and Elodie Crichi pro rata in accordance to the percentages set forth in the Agreement; (ii) $5.5 million in promissory notes issued by the Company to each of the Sellers, Jenny Murphy and Elodie Crichi pro rata in accordance to the percentage set forth in the Agreement; and (iii) $1 million paid in the Company’s common stock, with a par value of $0.0001 per share (the “Buyer Shares”), at $11 per share, which is the per share closing price of the Buyer Shares on Nasdaq on October 13, 2022 (the “Issuance Price”) issued to each of the Sellers, Jenny Murphy and Elodie Crichi pro rata in accordance to the percentage set forth in the Agreement. Each promissory note carries an initial per annual interest rate of eight percent (8)% and a maturity date of February 15, 2023. On December 30, 2022, the Company completed its previously announced acquisition (the “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 “Agreement”), dated October 13, 2022, by and among Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (“Sellers”), George Levy as the 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 “Notes”), and (iii) a number of shares of common stock of the Company equal to $1.0 million (the “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 Note bears interest at eight percent (8%) per annum and matures on February 15, 2023. 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 From October 1, 2022 through the issuance date, the Company has converted approximately $9 million of the Oasis and FirstFire notes into 1,970,357 shares of common stock. On November 29, 2022, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with investors (the “Investors”), pursuant to which the Company agreed to issue and sell, in an offering (the “Offering”), (i) an aggregate of 168,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (“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 (ii) 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. Each Class B Warrant has an exercise price of $5.25 per share, will be immediately exercisable upon issuance and will expire five years from the date of issuance. Each Class C Warrant has an exercise price of $5.25 per share, will be immediately exercisable upon issuance and will expire thirteen months from the date of issuance. On December 29, 2022, the Company and various purchasers (the “Investors”) executed a Securities Purchase Agreement (the “SPA”) whereby the Investors purchased from the Company 20% Original Issue Discount (the “OID”) promissory notes (the “Notes”) in the aggregate principal amount of $4,000,000 (with an aggregate subscription amount of $3,200,000). Revere Securities LLC and Spartan Capital, LLC acted as placement agents for the offering of notes and warrants contemplated by the SPA. The Notes are due and payable on February 15, 2023 (the “Maturity Date”). The Company will also have the option to prepay the Notes with no penalties at any time prior to the Maturity Date. If the Company or any subsidiary of the Company completes a debt or equity financing of less than $4,000,000, the Company is required to repay 50% of the remaining balance of the Notes. Following such 50% repayment, the Company must also use any proceeds from any subsequent debt or equity financing to repay the Notes. Upon the closing of any debt or equity financing of $4,000,000 or greater, the Company is required to repay 100% of the Notes with no penalties. If the 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 (“Conversion Shares”) at a conversion price (the “Conversion Price”) equal to the Nasdaq closing price of the Company’s common stock on the date of the note conversion. In connection with the SPA, the Company issued to the Investors an aggregate of 469,480 five-year Warrants exercisable for shares of common stock at an exercise price equal to $4.26, and 60,000 shares of Common Stock of the Company. | NOTE 14: SUBSEQUENT EVENTS On January 18, 2022 the Company entered into entered into a Membership Interest Purchase Agreement (the “Agreement”) with Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (“Sellers”), Sunnyside, LLC, a California limited liability company (“Sundry”), and George Levy as the Sellers’ representative, pursuant to which the Company will acquire all of the issued and outstanding membership interests of Sundry (such transaction, the “Acquisition”). Pursuant to the Agreement, Sellers, as the holders of all of the outstanding membership interests of Sundry, will exchange all of such membership interests for (i) $7.5 million of shares of the Company’s common stock at the volume-weighted average (rounded to the nearest $0.0001) of the closing price of the Company’s common stock on the Nasdaq Capital Market (“NasdaqCM”) during the thirty (30) trading day period immediately prior to the closing, but in no event at a price less than $159; and (ii) $34.0 million in cash, $20.0 million of which will be paid at the closing and the balance of which will be evidenced by promissory notes due December 31, 2022 (“Seller Notes”); provided, however, that if the audited aggregate net revenue of Sundry for the year ended December 31, 2021 (the “Audited Net Revenue”) times 1.5 is greater than $34.0 million, the Company will pay the difference in cash pro rata to the Sellers and if the Audited Net Revenue times 1.5 is less than $34.0 million, the Seller Notes will be reduced pro rata for such difference. A portion of the purchase price will be paid to certain employees of Sundry who have a contractual right to receive a portion of the consideration payable in the Acquisition (“Payees”). Of the $34.0 million in cash payable in the Acquisition, $2.0 million will be held in escrow to cover possible indemnification claims. If the Seller Notes, plus all unpaid interest thereunder, are not repaid in full on or prior to March 31, 2022, then on March 31, 2022, the Company will issue an additional $2.5 million of shares of common stock pro rata to the Sellers and the Payees. If the Seller Notes, plus all unpaid interest thereunder remain outstanding after March 31, 2022 and are not repaid in full on or prior to June 30, 2022, then on June 30, 2022, the Company will issue an additional $2.5 million of shares of common stock pro rata to the Sellers and the Payees. If the Seller Notes, plus all unpaid interest thereunder remain outstanding after June 30, 2022 and are not repaid in full on or prior to September 30, 2022, then on September 30, 2022, the Company will issue an additional $2.5 million of shares of common stock pro rata to the Sellers and the Payees. Any shares issued on either March 31, June 30 or September 30, 2022 shall be issued at the closing price of the Company’s common stock as quoted on the NasdaqCM as of the date immediately preceding the date of issuance but in no event at a price less than $1.59. The Agreement contains customary representations, warranties and covenants by the Company, the Sellers and Sundry. The closing of the Acquisition is subject to customary closing conditions and financing and there is no assurance that we will be able to complete the Acquisition. In February and March 2022, Oasis converted an aggregate of $482,646 in outstanding principal pursuant to the Oasis Note into 4,739 shares of common stock. In March 2022, FirstFire converted an aggregate of $406,112 in outstanding principal pursuant to the FirstFire Notes into 4,000 shares of common stock. 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. |
SUMMARY OF SIGNIFICANT ACCOU_17
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Basis of Presentation | Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). | Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). |
Stock Split | Stock Split On October 21, 2022, the Board of Directors approved a one | |
Unaudited Interim Financial Information | Unaudited Interim Financial Information The accompanying unaudited condensed consolidated balance sheet as of September 30, 2022, the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 and of cash flows for the nine months ended September 30, 2022 and 2021 have been prepared by the Company, pursuant to the rules and regulations of the SEC for the interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the consolidated results for the interim periods presented and of the consolidated financial condition as of the date of the interim consolidated balance sheet. The results of operations are not necessarily indicative of the results expected for the year ended December 31, 2022. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s Annual Form 10-K filed with SEC on March 31, 2022. | |
Principles of Consolidation | Principles of Consolidation These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. | Principles of Consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. |
Use of Estimates | Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, inventory, impairment of long-lived assets, contingent consideration and derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Cash and Equivalents and Concentration of Credit Risk | Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of September 30, 2022 and December 31, 2021, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. | Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of December 31, 2021 and 2020, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of September 30, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ — $ — Contingent consideration — — 18,597,831 18,597,831 Derivative liability — — 1,690,807 1,690,807 $ — $ — $ 20,288,638 $ 20,288,638 Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Contingent Consideration Changes in acquisition-related contingent consideration liabilities during the nine months ended September 30, 2022 are as follows: Contingent Consideration Liability Outstanding as of December 31, 2021 $ 12,179,476 Change in fair value 6,418,355 Outstanding as of September 30, 2022 $ 18,597,831 The detail of contingent consideration by company is as follows: Bailey $ 10,698,475 Harper & Jones 7,899,356 $ 18,597,831 The contingent consideration liabilities were revalued as of May 18, 2022, the anniversary date of the Company’s initial public offering. As of the date of the issuance of these financial statements, the contingent consideration liabilities were not yet settled with shares. On July 29, 2022, the Company entered into an amendment to the May 2021 purchase agreement with the H&J Seller based on the ultimate settlement of the H&J contingent consideration. Pursuant to the amendment, on May 18, 2023, the Company shall deliver to the H&J Seller additional shares of common stock. The number of shares of common stock to be delivered to H&J Seller shall be calculated as follows: $7,899,356 minus any cash payments received by Seller from any capital raises, divided by the average common stock closing price per share based on the thirty-day trading period preceding May 19, 2023. Derivative Liability In connection with the Company’s convertible notes with Oasis Capital, LLC (“Oasis”) and FirstFire Global Opportunities Fund, LLC (“FirstFire”), as well as its convertible notes entered into in July 2022, 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 nine months ended September 30, 2022 are as follows: Derivative Liability Outstanding as of December 31, 2021 $ 2,294,720 Issuane of convertible notes 559,957 Conversion of underlying notes into common stock (369,393) Change in fair value (794,477) Outstanding as of September 30, 2022 $ 1,690,807 | Fair Value of Financial Instruments FASB guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Fair Value Measurements as of December 31, 2020 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ 6,265 $ 6,265 $ — $ — $ 6,265 $ 6,265 Warrant Liability Certain of the Company’s common stock warrants are carried at fair value. As of December 31, 2020, the fair value of the Company’s common stock warrant liabilities was measured under the Level 3 hierarchy using the Black-Scholes pricing model as the Company’s underlying common stock had no observable market price (see Note 10). The warrant liability was valued using a market approach. Upon the IPO, the warrant liabilities were valued using quoted prices of identical assets in active markets, and was reclassified under the Level 2 hierarchy. Changes in common stock warrant liability during the year ended December 31, 2021 are as follows: Warrant Liability Outstanding as of December 31, 2020 $ 6,265 Change in fair value 11,958 Outstanding as of December 31, 2021 $ 18,223 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 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 year ended December 31, 2021 are as follows: Contingent Consideration Liability Balance as of December 31, 2020 $ — Initial recognition in connection with acquisition of Harper & Jones 3,421,516 Stock price guarantee per consulting agreement 67,000 Conversion into shares (73,500) Change in fair value 8,764,460 Outstanding as of December 31, 2021 $ 12,179,476 Derivative Liability In connection with the Company’s convertible notes with Oasis Capital, LLC (“Oasis”) and FirstFire Global Opportunities Fund, LLC (“FirstFire”), 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 year ended December 31, 2021 are as follows: Derivative Liability Outstanding as of December 31, 2020 $ — Initial fair value on issuance of convertible note 3,204,924 Change in fair value (910,204) Outstanding as of December 31, 2021 $ 2,294,720 Change in fair value of the derivative liability is included in other non-operating income (expense), net in the consolidated statements of operations. |
Inventory | 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 first-in, first-out method for Bailey and Stateside. The inventory balances as of September 30, 2022 and December 31, 2021 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: September 30, December 31, 2022 2021 Raw materials $ 435,025 $ 292,167 Work in process 256,078 242,673 Finished goods 1,964,248 2,220,519 Inventory $ 2,655,352 $ 2,755,358 | 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 first-in, first-out method for Bailey and Stateside. The inventory balances as of December 31, 2021 and 2020 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. |
Goodwill | 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. | 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 first quarter every year. In the first quarter of 2021, management performed its annual qualitative impairment test. The Company determined no factors existed to conclude that it is more likely than not that the fair value of the reporting unit was less than its carrying amount. As such, no goodwill impairment was recognized as of December 31, 2021. |
Deferred Offering Costs | 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 September 30, 2022 and December 31, 2021, the Company capitalized $367,696 in deferred offering costs pertaining to its equity line of credit agreement with Oasis (Note 8). Management is currently reviewing the feasibility of drawdowns on the equity line of credit. | 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). |
Net Loss per Share | 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 September 30, 2022 and 2021, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of September 30, 2022 and 2021 are as follows: September 30, 2022 2021 Convertible notes 1,177,305 22,404 Series A convertible preferred stock 108 — Common stock warrants 132,114 35,913 Stock options 38,951 38,751 Total potentially dilutive shares 1,348,477 97,069 The stock options and warrants above are out-of-the-money as of September 30, 2022. net income. | 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, 2021 and 2020, 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, 2021 and 2020 are as follows: December 31, 2021 2020 Convertible notes 497,912 — Series Seed Preferred Stock (convertible to common stock) — 20,714,518 Series A Preferred Stock (convertible to common stock) — 5,654,072 Series A-2 Preferred Stock (convertible to common stock) — 5,932,742 Series CF Preferred Stock (convertible to common stock) — 836,331 Series A-3 Preferred Stock (convertible to common stock) — 9,032,330 Series B Preferred Stock (convertible to common stock) — 20,754,717 Common stock warrants 35,801 9,145 Preferred stock warrants — 806,903 Stock options 38,951 11,631 Total potentially dilutive shares 122,664 63,752,389 The potentially dilutive shares pertaining to the Company’s outstanding convertible notes was calculated based on the assumed conversion abilities as of December 31, 2021. The ultimate number of shares for which the notes can convert into is indeterminable. All shares of preferred stock were convertible into shares of common stock at a ratio of 1,563:1 per share. Upon the closing of the IPO, all 62,924,710 shares of preferred stock converted into an aggregate of 40,272 shares of common stock according to their respective terms. Additionally, all preferred stock warrants converted into 516 common stock warrants at the same ratio as the underlying preferred stock conversion. |
Recent Accounting Pronouncements | 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 has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2021. The Company has adopted ASU 2016-02 as of January 1, 2022. See Note 10. 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. Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the Company’s financial results as if the H&J and Stateside acquisitions had occurred as of January 1, 2021. 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: | Recent Accounting Pronouncements In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company has elected to early adopt this ASU and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures. 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 has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position, results of operations and cash flows once adopted. 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. |
SUMMARY OF SIGNIFICANT ACCOU_18
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Schedule of financial assets and liabilities measured at fair value on recurring basis | Fair Value Measurements as of September 30, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ — $ — Contingent consideration — — 18,597,831 18,597,831 Derivative liability — — 1,690,807 1,690,807 $ — $ — $ 20,288,638 $ 20,288,638 Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 | Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ 18,223 $ — $ 18,223 Contingent consideration — — 12,179,476 12,179,476 Derivative liability — — 2,294,720 2,294,720 $ — $ 18,223 $ 14,474,196 $ 14,492,419 Fair Value Measurements as of December 31, 2020 Using: Level 1 Level 2 Level 3 Total Liabilities: Warrant liability $ — $ — $ 6,265 $ 6,265 $ — $ — $ 6,265 $ 6,265 |
Schedule of changes in acquisition-related contingent consideration | Contingent Consideration Liability Outstanding as of December 31, 2021 $ 12,179,476 Change in fair value 6,418,355 Outstanding as of September 30, 2022 $ 18,597,831 Bailey $ 10,698,475 Harper & Jones 7,899,356 $ 18,597,831 | Contingent Consideration Liability Balance as of December 31, 2020 $ — Initial recognition in connection with acquisition of Harper & Jones 3,421,516 Stock price guarantee per consulting agreement 67,000 Conversion into shares (73,500) Change in fair value 8,764,460 Outstanding as of December 31, 2021 $ 12,179,476 |
Schedule of changes in derivative liability | Derivative Liability Outstanding as of December 31, 2021 $ 2,294,720 Issuane of convertible notes 559,957 Conversion of underlying notes into common stock (369,393) Change in fair value (794,477) Outstanding as of September 30, 2022 $ 1,690,807 | Derivative Liability Outstanding as of December 31, 2020 $ — Initial fair value on issuance of convertible note 3,204,924 Change in fair value (910,204) Outstanding as of December 31, 2021 $ 2,294,720 |
Schedule of inventory | September 30, December 31, 2022 2021 Raw materials $ 435,025 $ 292,167 Work in process 256,078 242,673 Finished goods 1,964,248 2,220,519 Inventory $ 2,655,352 $ 2,755,358 | |
Schedule of potentially dilutive items outstanding | September 30, 2022 2021 Convertible notes 1,177,305 22,404 Series A convertible preferred stock 108 — Common stock warrants 132,114 35,913 Stock options 38,951 38,751 Total potentially dilutive shares 1,348,477 97,069 | December 31, 2021 2020 Convertible notes 497,912 — Series Seed Preferred Stock (convertible to common stock) — 20,714,518 Series A Preferred Stock (convertible to common stock) — 5,654,072 Series A-2 Preferred Stock (convertible to common stock) — 5,932,742 Series CF Preferred Stock (convertible to common stock) — 836,331 Series A-3 Preferred Stock (convertible to common stock) — 9,032,330 Series B Preferred Stock (convertible to common stock) — 20,754,717 Common stock warrants 35,801 9,145 Preferred stock warrants — 806,903 Stock options 38,951 11,631 Total potentially dilutive shares 122,664 63,752,389 |
DUE FROM FACTOR (Tables)_2
DUE FROM FACTOR (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
DUE FROM FACTOR | ||
Schedule of due to/ from factor | September 30, December 31, 2022 2021 Outstanding receivables: $ 423,984 $ 579,295 Without recourse 83,224 361,584 With recourse 182,352 121,617 Advances (50,779) (77,208) Credits due customers $ 638,781 $ 985,288 | December 31, 2021 2020 Outstanding receivables: Without recourse $ 579,295 $ 151,158 With recourse 361,584 42,945 Advances 121,617 56,246 Credits due customers (77,208) (40,316) $ 985,288 $ 210,033 |
GOODWILL AND INTANGIBLE ASSET_5
GOODWILL AND INTANGIBLE ASSETS (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
GOODWILL AND INTANGIBLE ASSETS | ||
Summary of amortized and indefinite-lived intangible assets | Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 6,453,750 (3,062,794) $ 3,390,956 6,453,750 (3,062,794) 3,390,956 Indefinite-lived: Brand name $ 7,836,920 — 7,836,920 $ 14,290,670 $ (3,062,794) $ 11,227,876 | Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 6,453,750 $ (1,449,357) $ 5,004,393 6,453,750 (1,449,357) 5,004,393 Indefinite-lived: Brand name $ 7,836,920 — 7,836,920 $ 14,290,670 $ (1,449,357) $ 12,841,313 |
Summary of future amortization expense | Year Ending December 31, 2022 2,151,250 2023 1,830,417 2024 1,022,726 $ 5,004,393 |
LIABILITIES AND DEBT (Tables)_2
LIABILITIES AND DEBT (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
LIABILITIES AND DEBT | ||
Schedule of accrued expenses and other liabilities | September 30, December 31, 2022 2021 Accrued expenses $ 896,043 $ 213,740 Reserve for returns 24,673 33,933 Payroll related liabilities 2,602,800 1,204,665 Sales tax liability 298,149 268,723 Due to seller — 396,320 Other liabilities 130,702 119,764 $ 3,952,366 $ 2,237,145 | December 31, 2021 2020 Accrued expenses $ 213,740 $ 92,074 Reserve for returns 33,933 5,229 Payroll related liabilities 1,204,665 843,704 Sales tax liability 268,723 196,410 Due to seller 396,320 — Other liabilities 119,764 108,230 $ 2,237,145 $ 1,245,646 |
Schedule of the Oasis and First Fire Notes | The following is a summary of the Oasis and FirstFire Notes for the year ended December 31, 2021: Unamortized Convertible Note Principal Debt Discount Payable, Net Balance, December 31, 2020 $ — $ — $ — Issuance of Oasis note, net of issuance costs 5,265,000 (715,000) 4,550,000 Issuance of FirstFire First note, net of issuance costs 1,575,000 (315,000) 1,260,000 Issuance of Second FirstFire note, net of issuance costs 2,625,000 (530,000) 2,095,000 Derivative liability in connection with notes — (3,204,924) (3,204,924) Amortization of debt discount — 801,538 801,538 Balance, December 31, 2021 $ 9,465,000 $ (3,963,386) $ 5,501,614 |
SHARE-BASED PAYMENTS (Tables)_2
SHARE-BASED PAYMENTS (Tables) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
SHARE-BASED PAYMENTS | ||
Schedule of fair value measurement inputs and valuation techniques | Year Ended December 31, 2020 Risk Free Interest Rate 1.54 – 1.59% Expected Dividend Yield 0.00% Expected Volatility 58.0 – 100% Expected Life (years) 5 – 10 | |
Summary of information related to common stock and preferred stock warrants | Common Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2021 35,801 $ 412.00 Granted 96,313 30.71 Exercised — Forfeited — Outstanding – September 30, 2022 132,114 $ 134.13 Exercisable at September 30, 2022 104,459 $ 166.65 | Common Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2019 4,180 $ 281 Granted 4,966 252 Exercised — — Forfeited — — Outstanding – December 31, 2020 9,146 $ 266 Granted 30,120 458 Conversion of preferred stock warrants upon IPO 516 766 Exercised (3,869) 457 Forfeited (112) 766 Outstanding – December 31, 2021 35,801 $ 412 Exercisable at December 31, 2020 9,146 $ 266 Exercisable at December 31, 2021 35,801 $ 412 Preferred Weighted Stock Average Warrants Exercise Price Outstanding – December 31, 2019 806,903 $ 0.49 Outstanding – December 31, 2020 806,903 $ 0.49 Converted to common stock warrants upon IPO (806,903) 0.49 Exercised — — Forfeited — — Outstanding – December 31, 2021 — $ — Exercisable at December 31, 2021 — $ — |
Summary of information related to stock options under stock plan | Weighted Average Options Exercise Price Outstanding – December 31, 2019 10,842 $ 2.50 Granted 917 94 Exercised — — Forfeited (128) $ 328 Outstanding – December 31, 2020 11,631 $ 234 Granted 27,320 415 Exercised — — Forfeited — — Outstanding – December 31, 2021 38,951 $ 362 Exercisable at December 31, 2020 8,810 $ 234 Exercisable at December 31, 2021 31,646 $ 359 Weighted average duration (years) to expiration of outstanding options at December 31, 2021 8.00 | |
Schedule of assumptions utilized for option grants | Year Ended December 31, 2021 2020 Risk Free Interest Rate 0.34% – 0.85% 0.42% – 0.51% Expected Dividend Yield 0.00% 0.00% Expected Volatility 58.00% 58.00% Expected Life (years) 5.18 6.25 |
NATURE OF OPERATIONS (Details_2
NATURE OF OPERATIONS (Details) | Aug. 30, 2021 | May 18, 2021 |
Harper & Jones LLC | ||
NATURE OF OPERATIONS | ||
Percentage of equity acquired | 100% | |
Stateside | ||
NATURE OF OPERATIONS | ||
Percentage of equity acquired | 100% |
GOING CONCERN (Details)_2
GOING CONCERN (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||
Sep. 30, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2021 | Jun. 30, 2021 | Mar. 31, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | Aug. 31, 2021 | Aug. 27, 2021 | |
Net loss | $ (4,894,472) | $ (9,533,924) | $ (7,832,942) | $ (8,938,047) | $ (10,697,498) | $ (3,023,935) | $ (22,261,338) | $ (22,659,480) | $ (32,357,957) | $ (10,728,295) | ||
Working capital deficit | $ (40,731,620) | $ (40,731,620) | $ 30,270,932 | |||||||||
Equity purchase agreement | ||||||||||||
Value of common stock to be issued under the agreement | $ 17,500,000 | $ 17,500,000 |
SUMMARY OF SIGNIFICANT ACCOU_19
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | Oct. 21, 2022 | May 12, 2021 | Sep. 30, 2022 USD ($) | Dec. 31, 2021 USD ($) |
Summary Of Significant Accounting Policies [Line Items] | ||||
Reverse stock split conversion ratio | 0.01 | 0.064 | ||
Cash and cash equivalents in bank deposit | $ 250,000 | $ 250,000 | ||
Subsequent Events | ||||
Summary Of Significant Accounting Policies [Line Items] | ||||
Reverse stock split conversion ratio | 0.01 |
SUMMARY OF SIGNIFICANT ACCOU_20
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value of Financial Instruments (Details) - USD ($) | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2022 | Dec. 31, 2021 | Jul. 29, 2022 | Dec. 31, 2020 | |
Liabilities: | ||||
Warrant liability | $ 18,223 | $ 6,265 | ||
Contingent consideration | $ 18,597,831 | 12,179,476 | ||
Derivative liability | 1,690,807 | 2,294,720 | ||
Total | 20,288,638 | 14,492,419 | ||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation | ||||
Outstanding as of December 31, 2021 | 12,179,476 | 0 | ||
Change in fair value | 6,418,355 | 8,764,460 | ||
Outstanding as of September 30, 2022 | 18,597,831 | 12,179,476 | ||
Harper & Jones, LLC | ||||
Liabilities: | ||||
Contingent consideration | 7,899,356 | $ 7,899,356 | ||
Bailey LLC. | ||||
Liabilities: | ||||
Contingent consideration | 10,698,475 | |||
Level 2 | ||||
Liabilities: | ||||
Warrant liability | 18,223 | |||
Total | 18,223 | |||
Level 3 | ||||
Liabilities: | ||||
Warrant liability | $ 6,265 | |||
Contingent consideration | 18,597,831 | 12,179,476 | ||
Derivative liability | 1,690,807 | 2,294,720 | ||
Total | $ 20,288,638 | $ 14,474,196 |
SUMMARY OF SIGNIFICANT ACCOU_21
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Derivative Liability (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation | ||
Outstanding as of December 31, 2021 | $ 12,179,476 | $ 0 |
Change in fair value | 6,418,355 | 8,764,460 |
Outstanding as of September 30, 2022 | 18,597,831 | 12,179,476 |
Derivative Liability | ||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation | ||
Outstanding as of December 31, 2021 | 2,294,720 | |
Issuane of convertible notes | 559,957 | 3,204,924 |
Conversion of underlying notes into common stock | (369,393) | |
Change in fair value | (794,477) | (910,204) |
Outstanding as of September 30, 2022 | $ 1,690,807 | $ 2,294,720 |
SUMMARY OF SIGNIFICANT ACCOU_22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Inventory (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Raw materials | $ 435,025 | $ 292,167 |
Work in process | 256,078 | 242,673 |
Finished goods | 1,964,248 | 2,220,519 |
Inventory | $ 2,655,352 | $ 2,755,358 |
SUMMARY OF SIGNIFICANT ACCOU_23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Deferred Offering Costs (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||
Deferred offering costs capitalized | $ 367,696 | $ 367,696 | $ 214,647 |
SUMMARY OF SIGNIFICANT ACCOU_24
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Net Loss per Share (Details) - shares | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||||
Total potentially dilutive shares | 1,348,477 | 97,069 | 122,664 | 63,752,389 |
Stock options | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||||
Total potentially dilutive shares | 38,951 | 38,751 | 38,951 | 11,631 |
Convertible notes | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||||
Total potentially dilutive shares | 1,177,305 | 22,404 | 497,912 | |
Series A convertible preferred stock | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||||
Total potentially dilutive shares | 108 | 5,654,072 | ||
Common stock warrants | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||||
Total potentially dilutive shares | 132,114 | 35,913 | 35,801 | 9,145 |
DUE FROM FACTOR (Details)_2
DUE FROM FACTOR (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
Outstanding receivables: | |||
Without recourse | $ 423,984 | $ 579,295 | $ 151,158 |
With recourse | 83,224 | 361,584 | 42,945 |
Advances | 182,352 | 121,617 | 56,246 |
Credits due customers | (50,779) | (77,208) | (40,316) |
Due from factor | $ 638,781 | $ 985,288 | $ 210,033 |
GOODWILL AND INTANGIBLE ASSET_6
GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||
May 31, 2021 | Feb. 29, 2020 | Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | Aug. 31, 2021 | Aug. 30, 2021 | Feb. 12, 2020 | |
Indefinite-lived Intangible Assets | |||||||||||
Goodwill acquired | $ 9,681,548 | $ 6,479,218 | |||||||||
Gross Amount | $ 6,453,750 | $ 6,453,750 | $ 6,453,750 | ||||||||
Accumulated Amortization | (3,062,794) | (3,062,794) | (1,449,357) | ||||||||
Carrying Value | 3,390,956 | 3,390,956 | 5,004,393 | $ 5,004,393 | |||||||
Indefinite-lived | 14,290,670 | 14,290,670 | 14,290,670 | ||||||||
Intangible assets, net | 11,227,876 | 11,227,876 | 12,841,313 | 7,494,667 | |||||||
Amortization expense | 537,813 | $ 355,808 | 1,613,438 | $ 590,711 | 1,128,524 | 320,833 | |||||
Goodwill | 18,264,822 | 18,264,822 | 18,264,822 | $ 6,479,218 | |||||||
Bailey | |||||||||||
Indefinite-lived Intangible Assets | |||||||||||
Goodwill acquired | $ 6,479,218 | ||||||||||
Goodwill | $ 6,479,218 | ||||||||||
H&J acquisition | |||||||||||
Indefinite-lived Intangible Assets | |||||||||||
Goodwill acquired | $ 9,681,548 | ||||||||||
Stateside | |||||||||||
Indefinite-lived Intangible Assets | |||||||||||
Goodwill | 493,791 | $ 2,104,056 | $ 2,104,056 | ||||||||
Customer relationships | |||||||||||
Indefinite-lived Intangible Assets | |||||||||||
Gross Amount | 6,453,750 | 6,453,750 | 6,453,750 | ||||||||
Accumulated Amortization | (3,062,794) | (3,062,794) | (1,449,357) | ||||||||
Carrying Value | 3,390,956 | 3,390,956 | 5,004,393 | ||||||||
Brand name | |||||||||||
Indefinite-lived Intangible Assets | |||||||||||
Indefinite-lived | $ 7,836,920 | $ 7,836,920 | 7,836,920 | ||||||||
Intangible assets, net | $ 7,836,920 |
LIABILITIES AND DEBT - Accrue_2
LIABILITIES AND DEBT - Accrued Expenses and Other Liabilities (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
LIABILITIES AND DEBT | |||
Accrued expenses | $ 896,043 | $ 213,740 | $ 92,074 |
Reserve for returns | 24,673 | 33,933 | 5,229 |
Payroll related liabilities | 2,602,800 | 1,204,665 | 843,704 |
Sales tax liability | 298,149 | 268,723 | 196,410 |
Due to seller | 396,320 | ||
Other liabilities | 130,702 | 119,764 | 108,230 |
Accrued expenses and other liabilities, Total | 3,952,366 | 2,237,145 | 1,245,646 |
Estimated penalties associated with accrued payroll taxes | $ 262,000 | $ 262,000 | $ 152,000 |
LIABILITIES AND DEBT - Ventur_2
LIABILITIES AND DEBT - Venture Debt (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||||
Nov. 16, 2021 | Sep. 29, 2021 | Feb. 28, 2022 | Jul. 31, 2021 | May 31, 2021 | Mar. 31, 2017 | Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | Sep. 29, 2022 | Jun. 30, 2022 | |
Line of Credit Facility | |||||||||||||||
Gross proceeds received | $ 237,500 | $ 2,779,910 | $ 1,701,044 | ||||||||||||
Gross loan | 1,459,211 | ||||||||||||||
Warrants granted | 3,550 | 319 | |||||||||||||
Warrants value | $ 1,622,350 | $ 145,696 | |||||||||||||
Interest expense | $ 427,700 | $ 825,219 | $ 770,277 | ||||||||||||
Interest expense and effective interest rate | 13.70% | 14.60% | |||||||||||||
Outstanding principal amount of debt converted | 1,432,979 | ||||||||||||||
Common stock warrants | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Warrants granted | 4,935 | ||||||||||||||
Warrants and rights outstanding term | 10 years | ||||||||||||||
Warrants value | $ 184,191 | ||||||||||||||
Note Warrant | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Percentage diluted capitalization | 1% | ||||||||||||||
Principal loaned under the agreement | 1.358% | ||||||||||||||
Principal loaned under the agreement | $ 1,000,000 | ||||||||||||||
Loan fees and discounts from warrants were amortized to interest expense | $ 147,389 | 241,878 | |||||||||||||
Loan fees and discounts from warrants unamortized balance | 0 | 147,389 | |||||||||||||
Venture Debt | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Interest expense | $ 191,152 | $ 189,096 | 573,455 | $ 591,123 | |||||||||||
Interest expense and effective interest rate | 12.20% | 13.40% | |||||||||||||
Venture Debt | Black Oak SPA | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Outstanding principal amount of debt converted | $ 6,251,755 | ||||||||||||||
Accrued interest | $ 269,880 | 269,880 | $ 48,245 | ||||||||||||
Venture Debt | Note Warrant | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Loan fees and discounts from warrants were amortized to interest expense | 12,500 | $ 147,389 | |||||||||||||
Loan fees and discounts from warrants unamortized balance | $ 0 | ||||||||||||||
Venture Debt | Secured Debt | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Gross proceeds received | $ 237,500 | ||||||||||||||
Maximum borrowing capacity | $ 4,000,000 | ||||||||||||||
Amended Venture Debt | Secured Debt | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Loan fees | $ 12,500 | ||||||||||||||
Gross loan | $ 6,001,755 | $ 6,001,755 | $ 6,251,755 | ||||||||||||
Maximum borrowing capacity | $ 6,000,000 | ||||||||||||||
Loan bears interest rate | 12.50% | ||||||||||||||
Compounded monthly fees | $ 5,000 | ||||||||||||||
Amended Venture Debt | Secured Debt | Follow-On Public Offering | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Line of credit facility, frequency of payments | $3,000,000 | ||||||||||||||
Line of credit facility days | 5 days | ||||||||||||||
Amended Venture Debt | Secured Debt | Secondary Follow-On Public Offering Prior To September 30 2021 | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Loan payment | $ 3,000,000 | ||||||||||||||
Line of credit facility days | 5 days | ||||||||||||||
Amended Venture Debt | Secured Debt | Secondary Follow-On Public Offering After September 30 2021 | |||||||||||||||
Line of Credit Facility | |||||||||||||||
Loan payment | $ 300,000 |
LIABILITIES AND DEBT - Conver_3
LIABILITIES AND DEBT - Convertible Debt (Details) | 12 Months Ended | |||
Dec. 31, 2021 USD ($) shares | Dec. 31, 2020 USD ($) shares | Dec. 31, 2019 USD ($) item $ / shares | Sep. 30, 2022 USD ($) | |
Convertible Debt 2020 Regulation CF Offering | ||||
Debt Instrument | ||||
Outstanding principal and accrued interest upon closing of IPO | $ 16,942 | |||
Conversion of shares | shares | 3,197 | |||
Convertible Debt 2020 Regulation CF Offering | Promissory note | ||||
Debt Instrument | ||||
Issuance costs | $ 69,627 | |||
Amortization of debt issuance costs | $ 27,894 | |||
Convertible Debt 2020 Regulation D Offering | ||||
Debt Instrument | ||||
Outstanding principal and accrued interest upon closing of IPO | 100,000 | $ 185,000 | $ 100,000 | |
Amortization of debt issuance costs | 100,000 | |||
Default interest expense | $ 132,609 | |||
Convertible Debt 2020 Regulation D Offering | Promissory note | ||||
Debt Instrument | ||||
Debt instrument term | 9 months | |||
Issuance costs | $ 100,000 | |||
Gross proceeds from converted debt conversion | $ 10,000,000 | |||
Converted percentage of IPO price | 50% | |||
Common stock warrants issued | shares | 5 | |||
Convertible Debt 2019 Regulation D Offering | Promissory note | ||||
Debt Instrument | ||||
Debt instrument term | 36 months | |||
Debt conversion share price triggering conversion | $ / shares | $ 219 | |||
Debt conversion based on value of the principle | item | 2 | |||
Valuation cap | $ 9,000,000 |
LIABILITIES AND DEBT - Conver_4
LIABILITIES AND DEBT - Convertible Promissory Note (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||
Jul. 28, 2022 USD ($) | Jul. 22, 2022 USD ($) | Apr. 08, 2022 USD ($) $ / shares shares | Nov. 16, 2021 USD ($) item D $ / shares | Oct. 01, 2021 USD ($) item D $ / shares | Apr. 30, 2020 USD ($) | Sep. 30, 2022 USD ($) $ / shares shares | Sep. 30, 2022 USD ($) $ / shares shares | Sep. 30, 2021 USD ($) | Dec. 31, 2021 USD ($) D $ / shares | Aug. 27, 2021 USD ($) | |
Debt Instrument | |||||||||||
Percentage of annual interest rate | 20% | ||||||||||
Derivative liability in connection with convertible note | $ 559,957 | $ 1,858,887 | $ 3,204,924 | ||||||||
Repayments of debt | $ 3,068,750 | $ 2,002,731 | |||||||||
Number of shares resulting from conversion | shares | 24,827 | ||||||||||
Outstanding principal amount of convertible debt converted | $ 1,432,979 | ||||||||||
Derivative liability at fair value | $ 1,690,807 | 1,690,807 | 2,294,720 | ||||||||
Outstanding principal amount | 9,907,121 | 9,465,000 | |||||||||
Oasis Note | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | 5,265,000 | $ 5,265,000 | |||||||||
Debt discount | 3,963,386 | ||||||||||
Amortization of debt discount | 7,975,872 | 801,538 | |||||||||
Derivative liability at fair value | 1,931,149 | 1,931,149 | $ 3,204,924 | ||||||||
Total purchase price | $ 5,000,000 | ||||||||||
Term of debt | 18 months | ||||||||||
Threshold percentage of stock price | 90% | ||||||||||
Number of lowest vwaps | D | 2 | ||||||||||
Number of consecutive trading days | D | 5 | ||||||||||
Period not to submit notice | 30 days | ||||||||||
Minimum conversion amount | $ 500,000 | ||||||||||
Minimum conversion price | $ / shares | $ 300 | ||||||||||
First First Fire Note | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | $ 1,575,000 | ||||||||||
Total purchase price | $ 1,500,000 | ||||||||||
Term of debt | 18 months | ||||||||||
Threshold percentage of stock price | 90% | ||||||||||
Number of lowest vwaps | item | 2 | ||||||||||
Number of consecutive trading days | D | 5 | ||||||||||
Period not to submit notice | 30 days | ||||||||||
Minimum conversion amount | $ 500,000 | ||||||||||
Minimum conversion price | $ / shares | $ 300 | ||||||||||
Second First Fire Note | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | $ 2,625,000 | ||||||||||
Total purchase price | $ 2,500,000 | ||||||||||
Threshold percentage of stock price | 90% | ||||||||||
Number of lowest vwaps | item | 2 | ||||||||||
Number of consecutive trading days | D | 5 | ||||||||||
Period not to submit notice | 30 days | ||||||||||
Minimum conversion amount | $ 500,000 | ||||||||||
Minimum conversion price | $ / shares | $ 329 | ||||||||||
Paycheck Protection Program, Cares Act | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | $ 203,994 | ||||||||||
Total purchase price | $ 203,994 | ||||||||||
Term of debt | 2 years | ||||||||||
Convertible Promissory Note | |||||||||||
Debt Instrument | |||||||||||
Amortization of debt discount | $ 1,792,060 | $ 4,575,234 | |||||||||
Number of shares resulting from conversion | shares | 24,827 | ||||||||||
Outstanding principal amount of convertible debt converted | $ 1,432,979 | ||||||||||
Convertible Promissory Note | Securities Purchase Agreement | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | $ 1,875,000 | $ 1,875,000 | $ 3,068,750 | ||||||||
Original issue discount | 375,000 | 375,000 | 613,750 | ||||||||
Net proceeds after the original issue discount and fees | $ 1,450,000 | $ 1,450,000 | 2,313,750 | ||||||||
Debt discount | 755,000 | ||||||||||
Repayments of debt | 3,068,750 | ||||||||||
April notes | |||||||||||
Debt Instrument | |||||||||||
Debt discount | $ 98,241 | ||||||||||
Warrants issued to purchase common stock | shares | 12,577 | 12,577 | 12,577 | ||||||||
Exercise price of warrants | $ / shares | $ 122 | $ 122 | $ 122 | ||||||||
July 2022 notes | |||||||||||
Debt Instrument | |||||||||||
Debt discount | $ 692,299 | $ 692,299 | |||||||||
Percentage of increase in face value | 120% | ||||||||||
July 22 notes | Securities Purchase Agreement | |||||||||||
Debt Instrument | |||||||||||
Warrants issued to purchase common stock | shares | 41,124 | 41,124 | |||||||||
Exercise price of warrants | $ / shares | $ 15.20 | $ 15.20 | |||||||||
July 28 notes | Securities Purchase Agreement | |||||||||||
Debt Instrument | |||||||||||
Warrants issued to purchase common stock | shares | 27,655 | 27,655 | |||||||||
Exercise price of warrants | $ / shares | $ 11.30 | $ 11.30 |
LIABILITIES AND DEBT - Loan P_2
LIABILITIES AND DEBT - Loan Payable - PPP and SBA Loan (Details) - USD ($) | 1 Months Ended | 12 Months Ended | ||||||
Jun. 25, 2020 | Apr. 30, 2022 | Apr. 30, 2020 | Dec. 31, 2021 | Sep. 30, 2022 | May 31, 2021 | Feb. 28, 2021 | Dec. 31, 2020 | |
Debt Instrument | ||||||||
Note payable - related party | $ 299,489 | $ 137,856 | ||||||
Aggregate of principal amount | 72,269 | |||||||
Harper & Jones LLC | ||||||||
Debt Instrument | ||||||||
Note payable - related party | 299,489 | |||||||
Aggregate principal amount | $ 153,860 | $ 140,928 | $ 75,000 | |||||
Promissory note, annual interest rate (as a percent) | 12% | 7.76% | ||||||
Proceeds from loan originations | $ 140,000 | |||||||
Interest rates of notes | 12% | |||||||
Paycheck Protection Program, Cares Act | ||||||||
Debt Instrument | ||||||||
Aggregate principal amount | $ 203,994 | |||||||
Promissory note, annual interest rate (as a percent) | 1% | |||||||
Interest deferral term | 6 months | |||||||
Debt instrument term | 2 years | |||||||
Convertible Note Payable, Net | $ 203,994 | |||||||
Paycheck Protection Program, Cares Act | Bailey LLC. | ||||||||
Debt Instrument | ||||||||
Aggregate principal amount | $ 1,347,050 | $ 204,000 | $ 1,347,050 | |||||
Convertible Note Payable, Net | 204,000 | |||||||
Economic Injury Disaster Loan | ||||||||
Debt Instrument | ||||||||
Aggregate principal amount | $ 150,000 | $ 148,900 | $ 148,900 | |||||
Promissory note, annual interest rate (as a percent) | 3.75% | |||||||
Debt instrument term | 30 years | |||||||
1st PPP loan | Bailey LLC. | ||||||||
Debt Instrument | ||||||||
Loan forgiveness amount | $ 413,705 | |||||||
2nd PPP loan | Bailey LLC. | ||||||||
Debt Instrument | ||||||||
Loan forgiveness amount | $ 1,347,050 |
LIABILITIES AND DEBT - Promis_2
LIABILITIES AND DEBT - Promissory Note Payable (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||
Mar. 31, 2022 USD ($) | May 31, 2021 USD ($) | Apr. 30, 2021 USD ($) shares | Sep. 30, 2022 USD ($) | Sep. 30, 2021 USD ($) | Sep. 30, 2022 USD ($) | Sep. 30, 2021 USD ($) | Dec. 31, 2021 USD ($) | Dec. 31, 2020 USD ($) | Feb. 28, 2021 USD ($) | Apr. 30, 2020 USD ($) | |
Debt Instrument | |||||||||||
Gross proceeds received | $ 237,500 | $ 2,779,910 | $ 1,701,044 | ||||||||
Outstanding balance | $ 1,426,885 | 1,426,885 | 2,502,000 | 992,000 | |||||||
Debt Discount Cost | 263,958 | ||||||||||
Promissory note payable | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | $ 1,000,000 | $ 3,500,000 | |||||||||
Gross proceeds received | $ 810,000 | ||||||||||
Warrants issued | shares | 1,205 | ||||||||||
Outstanding balance | 279,475 | 279,475 | |||||||||
Promissory note payable | Secondary Public Offering | |||||||||||
Debt Instrument | |||||||||||
Percentage of outstanding principal | 10 | ||||||||||
Promissory note payable | Secondary Public Offering | Maximum | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | $ 4,000,000 | ||||||||||
Promissory note payable | Secondary Public Offering | Minimum | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | 2,000,000 | ||||||||||
Promissory note payable | Bailey LLC. | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | 4,500,000 | ||||||||||
Repayment of outstanding principal amount | $ 1,000,000 | ||||||||||
Promissory note payable | Notes Payable to Banks | |||||||||||
Debt Instrument | |||||||||||
Interest expense | 105,000 | $ 105,000 | 315,000 | $ 389,000 | 494,000 | $ 472,500 | |||||
Promissory note payable | Notes Payable to Banks | Bailey LLC. | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | 3,500,000 | $ 3,500,000 | $ 3,500,000 | ||||||||
Paycheck Protection Program, Cares Act | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | $ 203,994 | ||||||||||
Paycheck Protection Program, Cares Act | Bailey LLC. | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | $ 204,000 | $ 1,347,050 | $ 1,347,050 | ||||||||
Merchant Cash Advances | |||||||||||
Debt Instrument | |||||||||||
Aggregate principal amount | $ 500,000 | ||||||||||
Repayment of outstanding principal amount | 1,065,000 | ||||||||||
Gross proceeds received | 250,000 | ||||||||||
Net proceeds | 22,500 | ||||||||||
Additional short term advances | $ 607,860 | ||||||||||
Merchant Cash Advances | Common Stock | |||||||||||
Debt Instrument | |||||||||||
Net proceeds | $ 727,500 |
STOCKHOLDERS' DEFICIT (Detail_2
STOCKHOLDERS' DEFICIT (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||||||
Oct. 21, 2022 | Sep. 29, 2022 USD ($) $ / shares shares | Aug. 31, 2022 USD ($) shares | May 10, 2022 USD ($) shares | May 05, 2022 $ / shares shares | Sep. 29, 2021 USD ($) | May 13, 2021 USD ($) $ / shares shares | May 12, 2021 | Sep. 30, 2022 USD ($) shares | Aug. 31, 2022 USD ($) shares | Sep. 30, 2022 USD ($) shares | Jun. 30, 2021 USD ($) | Sep. 30, 2022 USD ($) shares | Dec. 31, 2021 USD ($) shares | Dec. 31, 2020 USD ($) shares | Oct. 13, 2022 shares | Oct. 12, 2022 shares | |
Class of Stock | |||||||||||||||||
Outstanding principal amount of convertible debt converted | $ | $ 1,432,979 | ||||||||||||||||
Number of share sold or issued on closing of Public Offering | 0 | ||||||||||||||||
Proceeds from issuance of common stock | $ | $ 8,100,000 | ||||||||||||||||
Net proceeds of after deducting underwriting discounts and commissions | $ | 700,000 | ||||||||||||||||
Direct offering expenses | $ | $ 500,000 | ||||||||||||||||
Value of shares issued | $ | $ 451,603 | ||||||||||||||||
Common stock issued pursuant to consulting agreement (in shares) | 750 | ||||||||||||||||
Common stock issued pursuant to consulting agreement | $ | $ 123,000 | $ 123,000 | $ 183,000 | $ 595,500 | |||||||||||||
Number of shares resulting from conversion | 24,827 | ||||||||||||||||
Common stock, Shares authorized (in shares) | 200,000,000 | ||||||||||||||||
Reverse stock split conversion ratio | 0.01 | 0.064 | |||||||||||||||
Subsequent event | |||||||||||||||||
Class of Stock | |||||||||||||||||
Common stock, Shares authorized (in shares) | 1,000,000,000 | 200,000,000 | |||||||||||||||
Aggregate number of authorized shares (in shares) | 1,010,000,000 | ||||||||||||||||
Reverse stock split conversion ratio | 0.01 | ||||||||||||||||
Venture Debt | Black Oak SPA | |||||||||||||||||
Class of Stock | |||||||||||||||||
Outstanding principal amount of convertible debt converted | $ | $ 6,251,755 | ||||||||||||||||
Series A Convertible Preferred Stock | |||||||||||||||||
Class of Stock | |||||||||||||||||
Preferred stock, shares outstanding | 6,300 | 6,300 | 6,300 | 0 | |||||||||||||
Shares designated (in shares) | 6,800 | ||||||||||||||||
Stated Value | $ | $ 1,000 | $ 1 | $ 1 | $ 1 | |||||||||||||
Conversion price (in dollars per share) | $ / shares | $ 9.30 | ||||||||||||||||
Series A Convertible Preferred Stock | Venture Debt | Black Oak SPA | |||||||||||||||||
Class of Stock | |||||||||||||||||
Number of shares resulting from conversion | 6,300 | ||||||||||||||||
Debt conversion price (in dollars per share) | $ / shares | $ 1,000 | ||||||||||||||||
Series A preferred stock | |||||||||||||||||
Class of Stock | |||||||||||||||||
Preferred stock, shares outstanding | 1 | 1 | 1 | 0 | 5,654,072 | ||||||||||||
Stated Value | $ | $ 565 | ||||||||||||||||
Series A preferred stock | Chief Executive Officer | |||||||||||||||||
Class of Stock | |||||||||||||||||
Number of share sold or issued on closing of Public Offering | 1 | 1 | |||||||||||||||
Value of shares issued | $ | $ 25,000 | $ 25,000 | |||||||||||||||
Preferred stock, shares outstanding | 250,000,000 | 250,000,000 | |||||||||||||||
Initial Public Offering | |||||||||||||||||
Class of Stock | |||||||||||||||||
Share price | $ / shares | $ 2.50 | $ 4.15 | |||||||||||||||
Number of shares agreed to issued and sell | 373,898 | ||||||||||||||||
Issue price (in dollars per share) | $ / shares | $ 2.30 | ||||||||||||||||
Number of option days granted to purchase an additional shares | 45 days | ||||||||||||||||
Number of share sold or issued on closing of Public Offering | 373,898 | 24,096 | |||||||||||||||
Maximum number of additional shares allowed to purchase within 45 option days | 56,085 | ||||||||||||||||
Gross proceeds from the offering | $ | $ 9,300,000 | ||||||||||||||||
Proceeds from issuance of common stock | $ | $ 8,600,000 |
RELATED PARTY TRANSACTIONS - _2
RELATED PARTY TRANSACTIONS - Due to Related Parties (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
Advances | |||
Due to related parties | |||
Advance due to related parties | $ 104,568 | $ 104,568 | $ 194,568 |
Accrued Salary | |||
Due to related parties | |||
Advance due to related parties | $ 120,350 | 120,350 | |
Expense Reimbursements | |||
Due to related parties | |||
Advance due to related parties | $ 126,706 | $ 246,885 |
RELATED PARTY TRANSACTIONS - _3
RELATED PARTY TRANSACTIONS - Note Payable (Details) - USD ($) | 1 Months Ended | 12 Months Ended | ||||
Aug. 31, 2022 | Aug. 31, 2022 | Dec. 31, 2020 | Sep. 30, 2022 | Jun. 30, 2022 | Dec. 31, 2021 | |
Related Party Transaction | ||||||
Number of share sold or issued on closing of Public Offering | 0 | |||||
Value of shares issued | $ 451,603 | |||||
Chief Executive Officer | ||||||
Related Party Transaction | ||||||
Due to related parties | $ 0 | $ 25,000 | ||||
Chief Executive Officer | Series A preferred stock | ||||||
Related Party Transaction | ||||||
Number of share sold or issued on closing of Public Offering | 1 | 1 | ||||
Value of shares issued | $ 25,000 | $ 25,000 | ||||
Notes Payable, Other Payables | Chief Executive Officer | Note Payable, Chief Executive Officer | ||||||
Related Party Transaction | ||||||
Aggregate principal amount | $ 140,928 | $ 299,489 |
SHARE-BASED PAYMENTS - Common_3
SHARE-BASED PAYMENTS - Common Stock Warrants - General Information (Details) - $ / shares | May 10, 2022 | Sep. 30, 2022 | Apr. 08, 2022 |
April notes | |||
Class of Warrant or Right | |||
Number of common shares to be acquired on exercise of warrants | 12,577 | 12,577 | |
Warrants exercise price | $ 122 | $ 122 | |
July 22 notes | Securities Purchase Agreement | |||
Class of Warrant or Right | |||
Number of common shares to be acquired on exercise of warrants | 41,124 | ||
Warrants exercise price | $ 15.20 | ||
July 28 notes | Securities Purchase Agreement | |||
Class of Warrant or Right | |||
Number of common shares to be acquired on exercise of warrants | 27,655 | ||
Warrants exercise price | $ 11.30 | ||
Underwriters Warrants | |||
Class of Warrant or Right | |||
Number of common shares to be acquired on exercise of warrants | 14,956 | ||
Percentage of initial exercise price representing the public offering price | 130% | ||
Warrants exercise price | $ 32.50 |
SHARE-BASED PAYMENTS - Stock-_2
SHARE-BASED PAYMENTS - Stock-based Compensation - Stock options granted (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | |
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Total grant-date fair value of the options granted | $ 4,696,605 | $ 46,253 | |||||
Option outstanding | 38,951 | 38,951 | 38,951 | 11,631 | 10,842 | ||
Option outstanding exercise price (in dollars per share) | $ 362.11 | $ 362.11 | $ 362.11 | $ 234 | $ 2.50 | ||
Option exercisable | 34,073 | 34,073 | 31,646 | 8,810 | |||
Stock-based compensation expense | $ 110,092 | $ 134,113 | $ 368,944 | $ 4,155,641 | |||
Unrecognized compensation cost related to non-vested stock option | $ 688,092 | $ 688,092 | $ 1,057,036 | ||||
Share-based arrangement, non-vested weighted average period | 1 year 6 months 21 days | 2 years 3 months 10 days | |||||
Sales and Marketing Expense | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Stock-based compensation expense | $ 43,196 | $ 5,375,550 | $ 551,948 | $ 0 | |||
General and Administrative Expense. | |||||||
Share-based Compensation Arrangement by Share-based Payment Award | |||||||
Stock-based compensation expense | $ 3,325,897 | $ 144,775 |
SHARE-BASED PAYMENTS - Warran_2
SHARE-BASED PAYMENTS - Warrants Roll Forward (Details) - Common stock warrants - $ / shares | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2022 | Dec. 31, 2021 | Dec. 31, 2020 | |
Class of Warrant or Right | |||
Warrant Outstanding Beginning Balance | 35,801 | 9,146 | 4,180 |
Granted | 96,313 | 30,120 | 4,966 |
Exercised | (3,869) | ||
Forfeited | (112) | ||
Warrant Outstanding Ending Balance | 132,114 | 35,801 | 9,146 |
Common Stock Warrants Exercisable | 104,459 | 35,801 | 9,146 |
Weighted Average Exercise Price Outstanding Beginning Balance | $ 412 | $ 266 | $ 281 |
Granted | 30.71 | 458 | 252 |
Weighted Average Exercise Price Outstanding Ending Balance | 134.13 | 412 | 266 |
Weighted Average Exercise Price Exercisable | $ 166.65 | $ 412 | $ 266 |
LEASE OBLIGATIONS (Details)_2
LEASE OBLIGATIONS (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Apr. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
Operating lease agreements | |||||||
Rent expense | $ 17,257 | $ 267,041 | $ 246,103 | $ 736,523 | $ 551,944 | $ 816,790 | $ 541,146 |
Security deposit | $ 19,500 | ||||||
Right of use asset | $ 152,387 | 152,387 | |||||
Discount rate | 6% | ||||||
Maximum Rent base | 6,500 | ||||||
Minimum Rent base | 3,400 | ||||||
Accounting Standards Update 2016-02 | |||||||
Operating lease agreements | |||||||
Operating lease liability | $ 250,244 | ||||||
Right of use asset | $ 250,244 | ||||||
Stateside | |||||||
Operating lease agreements | |||||||
Maximum Rent base | 9,000 | 9,000 | |||||
Minimum Rent base | $ 3,100 | $ 3,100 |
CONTINGENCIES (Details)_2
CONTINGENCIES (Details) | 1 Months Ended | 12 Months Ended | |||||||
Dec. 21, 2020 USD ($) | Sep. 24, 2020 USD ($) | Mar. 25, 2020 USD ($) item | Feb. 28, 2020 USD ($) | Feb. 28, 2022 item | Dec. 31, 2021 USD ($) | Mar. 31, 2021 USD ($) item | Aug. 31, 2020 USD ($) item | Dec. 31, 2021 USD ($) | |
Litigation Matters | |||||||||
Settlement amount payable to vendor | $ 37,000 | ||||||||
Number of monthly payments to be made | item | 10 | ||||||||
Judgement received | $ 469,000 | ||||||||
Lawsuits filed related to prior services rendered | |||||||||
Litigation Matters | |||||||||
Damages sought | $ 96,900 | $ 96,900 | |||||||
Number of lawsuits filed | item | 2 | 2 | |||||||
Number of lawsuit settled | item | 1 | ||||||||
Non-payment of trade payables | |||||||||
Litigation Matters | |||||||||
Damages sought | $ 492,390 | $ 123,000 | |||||||
Non-payment of trade payables | Lawsuits filed related to prior services rendered | |||||||||
Litigation Matters | |||||||||
Damages sought | $ 481,000 | ||||||||
Additional damages sought | $ 296,000 | ||||||||
Judgement received | $ 469,000 | ||||||||
Reimbursement Of Investment | |||||||||
Litigation Matters | |||||||||
Damages sought | $ 100,000 |
SUBSEQUENT EVENTS (Details)_2
SUBSEQUENT EVENTS (Details) | Dec. 30, 2022 USD ($) | Dec. 29, 2022 USD ($) D $ / shares shares | Nov. 29, 2022 USD ($) $ / shares shares | Oct. 21, 2022 | Oct. 13, 2022 USD ($) $ / shares shares | Oct. 01, 2022 USD ($) shares | Sep. 30, 2022 $ / shares shares | Jun. 30, 2022 $ / shares shares | Mar. 31, 2022 $ / shares shares | Jan. 18, 2022 USD ($) $ / shares shares | May 12, 2021 | Oct. 12, 2022 shares | May 05, 2022 $ / shares | Dec. 31, 2021 USD ($) $ / shares shares | May 13, 2021 $ / shares shares | Dec. 31, 2020 $ / shares shares |
Subsequent Event | ||||||||||||||||
Common stock, share authorized (in shares) | shares | 200,000,000 | |||||||||||||||
Reverse stock split conversion ratio | 0.01 | 0.064 | ||||||||||||||
Common Stock | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Shares, par value (in dollars per share) | $ / shares | $ 0.0001 | $ 0.0001 | $ 0.0001 | |||||||||||||
Common stock, share authorized (in shares) | shares | 1,000,000,000 | 1,000,000,000 | 110,000,000 | |||||||||||||
Subsequent event | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Common stock, share authorized (in shares) | shares | 1,000,000,000 | 200,000,000 | ||||||||||||||
Aggregate number of authorized shares (in shares) | shares | 1,010,000,000 | |||||||||||||||
Reverse stock split conversion ratio | 0.01 | |||||||||||||||
Subsequent event | Sundry | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Cash consideration used to pay off outstanding indebtedness of acquiree | $ 900,000 | |||||||||||||||
Consideration in promissory notes | $ 5,500,000 | |||||||||||||||
Shares, par value (in dollars per share) | $ / shares | $ 0.0001 | |||||||||||||||
Buyer Shares, issuance price (in dollars per share) | $ / shares | $ 11 | |||||||||||||||
Promissory note, annual interest rate (as a percent) | 8% | |||||||||||||||
Consideration in paid in shares | 1,000,000 | $ 1,000,000 | ||||||||||||||
Consideration in cash | $ 7,500,000 | 7,500,000 | ||||||||||||||
Subsequent event | Sundry | George Levy And Matthieu Leblan [Member] | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Consideration in cash | 5,000,000 | |||||||||||||||
Subsequent event | Sundry | George Levy | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Consideration in cash | 2,500,000 | |||||||||||||||
Subsequent event | Sundry | Matthieu Leblan | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Consideration in cash | 2,500,000 | |||||||||||||||
Subsequent event | Sundry | Jenny Murphy and Elodie Crichi | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Consideration in promissory notes | 5,500,000 | |||||||||||||||
Consideration in cash | $ 1,600,000 | |||||||||||||||
Subsequent event | Membership interest purchase agreement | Sundry | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Consideration in promissory notes | $ 20,000,000 | |||||||||||||||
Value of shares of common stock transferred | shares | 2,500,000 | 2,500,000 | 2,500,000 | 7,500,000 | ||||||||||||
Round off value of Volume-Weighted Average | $ / shares | $ 0.0001 | |||||||||||||||
Trading day period | 30 days | |||||||||||||||
Volume-Weighted Average | $ / shares | $ 1.59 | $ 1.59 | $ 1.59 | $ 159 | ||||||||||||
Escrow deposit | $ 2,000,000 | |||||||||||||||
Consideration in cash | $ 34,000,000 | |||||||||||||||
Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants issued to purchase common stock | shares | 60,000 | |||||||||||||||
Warrants exercisable | shares | 469,480 | |||||||||||||||
Warrants exercise price | $ / shares | $ 4.26 | |||||||||||||||
Warrants exercisable term | 5 years | |||||||||||||||
Subsequent event | Common Stock | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Converted common stock value | $ 9,000,000 | |||||||||||||||
Converted common stock shares | shares | 1,970,357 | |||||||||||||||
Promissory Note | Subsequent event | Sundry | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Promissory note, annual interest rate (as a percent) | 8% | |||||||||||||||
Promissory Note | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Promissory note, annual interest rate (as a percent) | 20% | |||||||||||||||
Percentage of original issue discount. | 20% | |||||||||||||||
Aggregate principal amount | $ 4,000,000 | |||||||||||||||
Aggregate subscription amount | $ 3,200,000 | |||||||||||||||
Percent of increase in face value | 120% | |||||||||||||||
Minimum threshold days required for conversion | D | 14 | |||||||||||||||
Promissory note | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Total purchase price | $ 9,465,000 | |||||||||||||||
Initial Public Offering | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants issued to purchase common stock | shares | 27,711 | |||||||||||||||
Share price | $ / shares | $ 2.50 | $ 4.15 | ||||||||||||||
Over-allotment option | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants issued to purchase common stock | shares | 3,614 | |||||||||||||||
Class B Warrants [Member] | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants exercise price | $ / shares | $ 5.25 | |||||||||||||||
Warrants exercisable term | 5 years | |||||||||||||||
Class C Warrants [Member] | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants exercise price | $ / shares | $ 5.25 | |||||||||||||||
Warrants exercisable term | 13 months | |||||||||||||||
Statement Scenario One [Member] | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Share price | $ / shares | $ 5.50 | |||||||||||||||
Statement Scenario One [Member] | Subsequent event | Common Stock | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Shares, par value (in dollars per share) | $ / shares | $ 0.0001 | |||||||||||||||
Aggregate number of authorized shares (in shares) | shares | 168,000 | |||||||||||||||
Statement Scenario One [Member] | Class B Warrants [Member] | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants issued to purchase common stock | shares | 168,000 | |||||||||||||||
Statement Scenario One [Member] | Class C Warrants [Member] | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants issued to purchase common stock | shares | 168,000 | |||||||||||||||
Statement Scenario Two [Member] | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants issued to purchase common stock | shares | 1,650,181 | |||||||||||||||
Share price | $ / shares | $ 5.50 | |||||||||||||||
Warrants exercise price | $ / shares | $ 0.0001 | |||||||||||||||
Aggregate gross proceeds from Offering | $ 10,000,000 | |||||||||||||||
Statement Scenario Two [Member] | Class B Warrants [Member] | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants issued to purchase common stock | shares | 1,650,181 | |||||||||||||||
Statement Scenario Two [Member] | Class C Warrants [Member] | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants issued to purchase common stock | shares | 1,650,181 | |||||||||||||||
Statement Scenario Two [Member] | Pre-Funded Warrants [Member] | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Warrants exercisable | shares | 1,650,181 | |||||||||||||||
Debt or Equity Financing of Less Than $4,000,000 [Member] | Promissory Note | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Percentage of notes required to repay | 50% | |||||||||||||||
Debt or Equity Financing of Less Than $4,000,000 [Member] | Minimum | Subsequent event | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Debt or equity financing | $ 4,000,000 | |||||||||||||||
Debt or Equity Financing of $4,000,000 or Greater [Member] | Promissory Note | Subsequent event | Securities Purchase Agreement | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Percentage of notes required to repay | 100% | |||||||||||||||
Debt or Equity Financing of $4,000,000 or Greater [Member] | Maximum | Subsequent event | ||||||||||||||||
Subsequent Event | ||||||||||||||||
Debt or equity financing | $ 4,000,000 |