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Loans payable
 3 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
Loans payable

Note 12 – Loans payable

 

Short-term loans

 

Revolving credit facility

 

On May 3, 2019, the Company entered into an agreement with WFC Fund LLC (“WFC”) for a revolving loan of up to $2,000,000. The revolving loan bore interest equal to the prime rate plus 4.25% per annum on the outstanding amount. On May 26, 2020, the Loan and Security Agreement was amended and restated as a Receivable Purchase Agreement (the “Original RPA”). On November 16, 2020, the Original RPA was further amended and restated (the “Restated RPA”) to increase the credit limit of the revolving credit facility from $2,000,000 to $3,000,000. The Restated RPA bore a discount rate of 3.055555%, subject to a rebate of 0.0277% per day. This revolving credit facility was secured by all of the Company’s assets and guaranteed by Chenlong Tan, the CEO and one of the Company’s major shareholders and founders. Pursuant to the terms of the agreement, all purchases of accounts receivable were without recourse to the Company, and WFC assumed the risk of nonpayment of the accounts receivable due to a customer’s financial inability to pay the accounts receivable or the customer’s insolvency but not the risk of non-payment of the accounts receivable for any other reason. The Company was obligated to collect the accounts receivables and to repurchase or pay back the amount drawn down if the accounts receivable were not collected.

 

During the three months ended September 30, 2021, the Company terminated the Restated RPA and paid off the balance due to WFC.

 

As of September 30, 2022 and June 30, 2022, the outstanding balance due under the RPA was $0 and $0, respectively.

 

Long-term loan

 

SBA loan payable

 

On April 18, 2020, the Company entered into an agreement with the U.S. Small Business Administration (“SBA”) for a loan of $500,000 under Section 7(b) of the Small Business Act pursuant to which we issued a promissory note (the “SBA Note”) to the SBA. The SBA Note bears interest at the rate of 3.75% per annum and matures 30 years from the date of the SBA Note. Monthly installment payments, including principal and interest, will begin twelve months from the date of the SBA Note. During the quarter ended June 30, 2022, the Company paid off the SBA Note, including accrued interest expense of $39,237. As of September 30, 2022 and June 30, 2022, the outstanding balance of the SBA Note was $0 and $0, respectively.

 

Asset-based revolving loan

 

On November 12, 2021, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender, for an asset-based revolving loan (“ABL”) of up to $25 million with key terms listed as follows:

 

  ·  Borrowing base equal to the sum of

  Ø Up to 90% of eligible credit card receivables
  Ø Up to 85% of eligible trade accounts receivable
  Ø Up to the lesser of (i) 65% of cost of eligible inventory or (ii) 85% of net orderly liquidation value of eligible inventory

 

  ·  Interest rates of between LIBOR plus 2% and LIBOR plus 2.25% depending on utilization
  ·  Undrawn fee of between 0.25% and 0.375% depending on utilization
  ·  Maturity Date of November 12, 2024

 

In addition, the ABL includes an accordion feature that allows the Company to borrow up to an additional $25.0 million. To secure complete payment and performance of the secured obligations, the Company granted a security interest in all of its right, title and interest in, to and under all of the Company’s assets as collateral to the ABL. Upon closing of the ABL, the Company paid $796,035 in financing fees including 2% of $25.0 million or $500,000 paid to its financial advisor. The financing fees are recorded as debt discount and to be amortized over three years as financing expenses, the term of the ABL. For the three months ended September 30, 2022, the Company recorded the following as interest expense: $66,305 of amortization of debt discount and $163,017 of interest expense and credit utilization fees.

 

Below is a summary of the interest expense recorded for the three months ended September 30, 2022 and 2021: 

        
   2022   2021 
Accrued interest  $156,255   $– 
Credit utilization fees   6,762    – 
Amortization of debt discount   66,305    – 
Total  $229,322   $– 

 

As of September 30, 2022, the outstanding amount of the long-term revolving loan payable, net of debt discount, was $15,192,660, including interest payable of $338,798. As of June 30, 2022, the outstanding amount of the long-term revolving loan payable, net of debt discount, was $12,314,627, including interest payable of $182,543.

 

On October 7, 2022, the Company entered into a second amendment to the credit agreement and consent (the “Second Amendment to the Credit Agreement”), originally dated November 12, 2021, as amended, with JPMorgan Chase Bank, N.A., as administrative agent and lender (“JPMorgan”). The Company entered in the Second Amendment to the Credit Agreement primarily for the purpose of changing the interest rate repayment calculations from LIBOR to the Secured Overnight Financing Rate, or SOFR, which adjustment had originally been anticipated under the terms of the original Credit Agreement. In addition, two of the negative covenants set forth in the original credit agreement were amended in order to (i) adjust the definition of “Covenant Testing Trigger Period” to increase the required cash availability from $3,000,000 to $4,000,000, or 10% of the aggregate revolving commitment for the preceding 30 days, and (ii) require that the Company will not and will not permit any of its subsidiaries, after reasonable due diligence and due inquiry, to knowingly sell their products, inventory or services directly to any commercial businesses that grow or cultivate cannabis; it being acknowledged, however, that the Company does not generally conduct due diligence on its individual retail customers.

 

On November 11, 2022, the Company and JPMorgan entered into a default waiver and consent agreement (the “Waiver Letter”) pursuant to which the parties recognized that the Company was in default on its failure to satisfy the minimum Excess Availability requirement of $7,500,000, as defined in the Credit Agreement, and deliver a certificate to JPMorgan accurately reflecting the Excess Availability (together, the “Existing Defaults”). Under the terms of the Waiver Letter, JPMorgan agreed to waive the right to enforce an event of default based on the aforementioned Existing Defaults.

 

Promissory note payable

 

On February 15, 2022, as part of the consideration for acquisition of Anivia Limited, the Company issued a two-year unsecured 6% subordinated promissory note, payable in equal semi-annual installments commencing August 15, 2022 (the “Purchase Note”). The principal amount of the Purchase Note was $3.5 million with a fair value of $3.6 million as of February 15, 2022. For the three months ended September 30, 2022, the Company recorded accrued interest of $52,500 and amortization of note premium of $12,682. As of September 30, 2022, including $131,250 of accrued interest and $69,338 of unamortized premium, the total outstanding balance of the Purchase Note was $3,700,588, which was presented on the consolidated balance sheet as a current portion of $2,806,565 and a non-current portion of $894,023. In October 2022, the Company paid the first installment of $875,000.