美国
证券交易委员会
华盛顿特区，20549
表格
| 根据1934年证券交易法第13条或15(d)条的规定的季度报告 |
截至季度结束
| 根据1934年证券交易法第13或第15(d)款的规定，根据过渡报告 |
对于 从 _______ 到 ______ 的过渡期
佣金
文件编号:
（公司章程中指定的准确公司名称）
| （注册地或组织所在管辖区） | （美国国税局雇主号码） | |
| 文件号码） | (主要 执行人员之地址) |
（总部地址，包括邮政编码）
电话：
根据交易所法规（17 CFR 240.14a-12）第14a-12规定的招股材料
无适用
(公司更名、更改地址和更改财年情况的以往名称、以前地址和以前财年，如与上次报告有所改变)
根据法案第12(b)节注册的证券:
| 每一类别的名称 | 交易符号 | 在每个交易所注册的名称 | ||
| 该 股票市场有限责任公司 | ||||
| 股票 股票市场有限责任公司 |
请勾选标记以指示注册者是否（1）在过去12个月内（或注册者需要提交这些报告的更短时间内）已提交证券交易所法案第13或15（d）节要求提交的所有报告，及 （2）是否已被提交要求过去90天的提交要求所制约。
通过勾选圆圈表明注册者是否在过去12个月内(或注册者需要提交这些文件的较短期限内)已经递交规章S-T(本章第232.405条)规定的每个交互式数据文件。
用复选标记表示注册人是大型高速申报者、高速申报者、非高速申报者、小型报告公司还是新兴成长型公司。请参阅《交易所法案》第120亿.2条中“大型高速申报者”、“高速申报者”、“小型报告公司”和“新兴成长型公司”的定义。
| 大型加速文件提交人 | ☐ | 加速文件提交人 | ☐ |
| ☒ | 小型报告公司 | ||
| 新兴成长公司 |
如果是新兴成长公司，请在这里打勾，表示该注册人已选择不使用根据证券交易所法第13(a)条规定提供的遵守任何新的或修订财务会计准则所规定的延长过渡期。
请勾选适用的圆圈，表示注册登记者是否是空壳公司(根据交易所法案第12b-2条的定义)。是 ☐ 否
截至2024年11月14日，公司已经 普通股股票，$ 面值、发行和流通量。
数字品牌集团，北卡罗来纳州。
10-Q表格
目录
| 页面 | |||
| 关于前瞻性声明的警示说明 | 3 | ||
| 第一部分 财务信息 | 4 | ||
| 项目1. | 基本报表 | 4 | |
| 截至2024年9月30日的未经审计的简明综合资产负债表，以及2023年12月31日 | 4 | ||
| 2024年9月30日和2023年三个月及九个月结束的未经审计简明综合损益表 | 5 | ||
| 2024年9月30日和2023年的三个月和九个月未经审计的简明综合股东权益（赤字）报表 | 6 | ||
| 2024年9月30日和2023年未经审计的简明合并现金流量表 | 7 | ||
| 简明联合财务报表附注(未经审计) | 8 | ||
| 项目 2. | 分销计划 | 20 | |
| 项目 3 | 市场风险的定量和定性披露 | 32 | |
| 项目 4. | 控制和程序 | 32 | |
| 第二部分.其他信息 | 34 | ||
| 项目 1. | 法律诉讼 | 34 | |
| 条目 1A. | 风险因素 | 35 | |
| 项目 2. | 未注册的股票股权销售和筹款用途 | 35 | |
| 项目 3. | 对高级证券的违约。 | 35 | |
| 项目 4. | 矿山安全披露 | 35 | |
| 条目 5。 | 其他信息 | 35 | |
| 条目 6。 | 展示资料 | 36 | |
| 签名 | 37 | ||
| 2 |
关于前瞻性声明的注意事项
除历史信息外，这份10-Q表格的季度报告包含根据《1933年证券法》第27（a）条修正案（“证券法”）和《1934年证券交易法》第21（E）条修正案（“交易所法案”）的涉及风险和不确定性的前瞻性声明。这些前瞻性声明可以通过使用前瞻性术语来识别，包括“相信，”“估计，”“项目，”“目标，”“预期，”“寻找，”“预测，”“考虑，”“持续，”“可能，”“打算，”“可能”，“计划，”“预测，”“未来，”“可能，”“将会，”“可以，“将”或“应该”或, 在各种情况下，它们的否定或其他变体或可比术语。这些前瞻性声明包括所有不是历史事实的事项。它们出现在这份10-k年度报告中的多个地方，包括有关我们意图、信仰或目前对我们的运营结果、财务状况、流动性、前景、增长战略、我们所在行业和潜在收购等事项的声明。我们的许多前瞻性声明源自我们的运营预算和预测，这些预测基于许多详细的假设。虽然我们认为我们的假设是合理的，但我们警告说，预测已知因素的影响非常困难，当然，我们无法预料可能影响我们实际结果的所有因素。所有前瞻性声明均基于我们在本季度10-Q表格上获得的信息日期。
由于其本质，前瞻性声明涉及风险和不确定性，因为它们与事件相关，并依赖于可能在未来发生或不发生的情况。我们提醒您，前瞻性声明并不是未来表现的保证，并且我们的实际经营结果、财务状况和流动性，以及我们所处行业的稳定性，可能与在本季度10-Q报告中包含的前瞻性声明中作出的或提示的内容存在实质性差异。此外，即使我们的经营结果、财务状况和流动性以及我们所处行业的发展与本季度10-Q报告中包含的前瞻性声明一致，这些结果或发展也可能不代表后续期间的结果或发展。可能导致我们结果与预期不同的重要因素包括在我们最近的10-K年度报告中讨论的“风险因素”，并可能会不时更新。
估计和前瞻性声明仅代表其作出之日期的情况，并且除非法律要求，我们不承担更新或审查任何估计和/或前瞻性声明的义务，也不因新信息、未来事件或其他因素而另行审查。
| 3 |
部分I—财务信息
项目 1. 合并基本报表
数字品牌集团公司
汇编简明资产负债表
（未经审计）
| 2023年9月30日 | 2024年12月31日， | |||||||
| 2024 | 2023 | |||||||
| 资产 | ||||||||
| 流动资产： | ||||||||
| 现金及现金等价物 | $ | $ | ||||||
| 应收账款净额 | ||||||||
| Due from factor, net | ||||||||
| 存货 | ||||||||
| 预付费用及其他流动资产 | ||||||||
| 总流动资产 | ||||||||
| 资产、设备及软件净额 | ||||||||
| 商誉 | ||||||||
| 无形资产-净额 | ||||||||
| 存款 | ||||||||
| 使用权资产 | ||||||||
| 总资产 | $ | $ | ||||||
| 负债和股东权益 | ||||||||
| 流动负债: | ||||||||
| 应付账款 | $ | $ | ||||||
| 应计费用和其他负债 | ||||||||
| 应付关联方 | ||||||||
| 可转换票据应付款，净额 | ||||||||
| 应付应计利息 | ||||||||
| 应付贷款，流动 | ||||||||
| 应付本票净额 | ||||||||
| 租赁负债，流动部分 | ||||||||
| 总流动负债 | ||||||||
| 应付贷款 | ||||||||
| Right of use liability, non current portion | ||||||||
| 递延所得税负债 | ||||||||
| 总负债 | ||||||||
| 承诺和 contingencies | ||||||||
| 股东权益: | ||||||||
| 未指定优先股，每股面值为美元 par, 授权股份， 截至2024年9月30日和2023年12月31日，已发行并流通的股份 | ||||||||
| A轮可转换首选股，$ 每股面值， 股份指定, 截至2024年9月30日和2023年12月31日期间已发行和流通的股份数 | ||||||||
| 系列C可转换优先股，每股面值 $; 每股面值， 和 截至2024年9月30日和2023年12月31日期间分别已发行和流通的股份数 | ||||||||
| 普通股，每股面值为 $0.0001； 每股面值， 已获得授权的股份， 和 截至2024年9月30日和 2023年12月31日分别发行和流通的股份 | ||||||||
| 其他资本公积 | ||||||||
| 累积赤字 | ( | ) | ( | ) | ||||
| 股东权益总额 | ||||||||
| 总负债和股东权益 | $ | $ | ||||||
请参阅未审计的简明合并基本报表附带说明
| 4 |
数字化 品牌集团有限公司
精简 合并损益表
（未经审计）
| 三个月结束 | 截至九个月 | |||||||||||||||
| 9月30日 | 九月三十日 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 净收入 | $ | $ | $ | $ | ||||||||||||
| 净收入成本 | ||||||||||||||||
| 毛利 | ||||||||||||||||
| 营业费用： | ||||||||||||||||
| 一般与管理 | ||||||||||||||||
| 销售和市场推广 | ||||||||||||||||
| 分销 | ||||||||||||||||
| 无形资产减值 | ||||||||||||||||
| 可换履行条件公允价值变动 | ( | ) | ||||||||||||||
| 总营业费用 | ||||||||||||||||
| 经营活动收入（损失） | ( | ) | ( | ) | ( | ) | ||||||||||
| 其他收入（费用）： | ||||||||||||||||
| 利息费用 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 其他营业外收入（费用） | ( | ) | ( | ) | ( | ) | ||||||||||
| 其他总收益（费用），净额 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 所得税费用 | ||||||||||||||||
| 持续经营的净亏损 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (损失) 来自已终止的经营活动，税后 | ( | ) | ||||||||||||||
| 净损失 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 加权平均普通股在外流通股数 - 基本和摊薄 | ||||||||||||||||
| Revenue | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
请参阅未经审计的简明合并基本报表附带的说明。
| 5 |
数字品牌集团公司
凝缩 合并股东权益（赤字）报表
（未经审计）
| A系列可转换债券 | C轮可转换债券 | 附加 | 总计 股东权益 | |||||||||||||||||||||||||||||||||
| 优先股 | 优先股 | 普通股 | 实缴资本 | 累计 | 股本 | |||||||||||||||||||||||||||||||
| 股份 | 数量 | 股份 | 数量 | 股份 | 金额 | 资本 | 亏损 | (亏损) | ||||||||||||||||||||||||||||
| 2022年12月31日的余额 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| 根据私人配售发行普通股 | - | - | ||||||||||||||||||||||||||||||||||
| 发行成本 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 为服务发行的股份 | - | - | ||||||||||||||||||||||||||||||||||
| 发行附有票据的股份和warrants | - | - | ||||||||||||||||||||||||||||||||||
| 股票-based补偿 | - | - | - | |||||||||||||||||||||||||||||||||
| 净损失 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 2023年3月31日的余额 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| 取消票据及发行优先股 | - | - | ||||||||||||||||||||||||||||||||||
| 发行B系列优先股 | - | - | - | |||||||||||||||||||||||||||||||||
| 根据处置发行普通股 | - | - | ||||||||||||||||||||||||||||||||||
| 股权奖励 | - | - | - | |||||||||||||||||||||||||||||||||
| 净收入 | - | - | - | |||||||||||||||||||||||||||||||||
| 2023年6月30日的余额 | ( | ) | ||||||||||||||||||||||||||||||||||
| 取消B系列优先股 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 根据定向增发发行普通股，扣除发行费用 | - | - | ||||||||||||||||||||||||||||||||||
| 因服务发行的普通股 | - | - | ||||||||||||||||||||||||||||||||||
| 行使认股权 | - | - | ||||||||||||||||||||||||||||||||||
| 股权奖励 | - | - | - | |||||||||||||||||||||||||||||||||
| 净亏损 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 2023年9月30日的余额 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| 2023年12月31日的余额。 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| 发行普通股以换取现金 | - | - | ||||||||||||||||||||||||||||||||||
| 为服务发行的股份 | - | - | ||||||||||||||||||||||||||||||||||
| 优先股转换为普通股 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| 基于股票的补偿 | - | - | - | |||||||||||||||||||||||||||||||||
| 净亏损 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 2024年3月31日的结余 | ( | ) | ||||||||||||||||||||||||||||||||||
| 现金发行的普通股 | - | - | ||||||||||||||||||||||||||||||||||
| 贷款转换为普通股 | - | - | ||||||||||||||||||||||||||||||||||
| 优先股转换为普通股 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| 基于股票的补偿 | - | - | - | |||||||||||||||||||||||||||||||||
| 净亏损 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 截至2024年6月30日的余额 | ( | ) | ||||||||||||||||||||||||||||||||||
| 以现金发行的普通股 | - | - | ||||||||||||||||||||||||||||||||||
| 为服务发行的股份 | - | - | ||||||||||||||||||||||||||||||||||
| 优先股转换为普通股 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| 股票基础补偿 | - | - | - | |||||||||||||||||||||||||||||||||
| 净损失 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 截至2024年9月30日的余额 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
请参阅未经审计的简明合并基本报表附带的说明。
| 6 |
数字品牌集团公司
简明综合现金流量表
（未经审计）
| 截至九个月 | ||||||||
| 2023年9月30日 | ||||||||
| 2024 | 2023 | |||||||
| 经营活动现金流量： | ||||||||
| 净损失 | $ | ( | ) | $ | ( | ) | ||
| 调整为净损失到经营活动现金流量净使用： | ||||||||
| 折旧与摊销 | ||||||||
| 贷款折扣和费用的摊销 | ||||||||
| 无形资产减值 | ||||||||
| 债务摊销损失 | ||||||||
| 处置业务损失 | ||||||||
| 股票-based补偿 | ||||||||
| 为服务发行的股份 | ||||||||
| 信贷准备金的变化 | ( | ) | ||||||
| 可换履行条件公允价值变动 | ( | ) | ||||||
| 停止操作 | ||||||||
| 非现金租赁费用 | ||||||||
| 运营资产和负债的变化： | ||||||||
| 应收账款净额 | ( | ) | ||||||
| 来自保理商的应收款 | ||||||||
| 存货 | ( | ) | ||||||
| 预付费用及其他流动资产 | ( | ) | ( | ) | ||||
| 应付账款 | ( | ) | ||||||
| 应计费用和其他负债 | ||||||||
| 递延收入 | ( | ) | ||||||
| 应付应计利息 | ||||||||
| 应付关联方 | ||||||||
| 租赁负债 | ( | ) | ||||||
| 用于经营活动的净现金 | ( | ) | ( | ) | ||||
| 投资活动现金流量： | ||||||||
| 现金处置 | ( | ) | ||||||
| 购买固定资产、设备和软件 | ( | ) | ( | ) | ||||
| 存款 | ( | ) | ||||||
| 投资活动产生的净现金流量 | ( | ) | ||||||
| 筹集资金的现金流量： | ||||||||
| 关联方借款的偿还款项 | ( | ) | ||||||
| 来自因素的预付款 | ||||||||
| 贷款和应付票据的发行 | ||||||||
| 可转换票据和应付贷款的还款 | ( | ) | ( | ) | ||||
| 现金购买普通股的保险 | ||||||||
| 行使权证 | ||||||||
| 公开发行普通股 | ||||||||
| 发行成本 | ( | ) | ||||||
| 融资活动提供的净现金 | ||||||||
| 现金及现金等价物净变动额 | ( | ) | ||||||
| 期初现金及现金等价物余额 | ||||||||
| 期末现金及现金等价物 | $ | $ | ||||||
| 现金流量补充披露： | ||||||||
| 支付的所得税费用 | ||||||||
| 支付的利息现金 | $ | $ | ||||||
| 非现金投资和筹资活动的补充披露: | ||||||||
| 使用权资产 | $ | $ | ||||||
| 用于服务和应付账款转换的股份 | $ | $ | ||||||
| 将优先股转换为普通股 | $ | $ | ||||||
| 将票据转换为优先股 | $ | $ | ||||||
请参阅未经审计的简明合并基本报表附带的说明。
| 7 |
注意事项1：综述业务性质
数字品牌集团公司（“公司”或“DBG”）于2012年9月17日在特拉华州根据法律组织，原名为Denim.LA LLC的有限责任公司。公司于2013年1月30日转为特拉华州公司，并更改名称为Denim.LA, Inc. 自2020年12月31日起，公司更名为数字品牌集团公司（DBG）。
公司是一个精心挑选的生活方式品牌集合，包括Bailey 44、DSTLD、Stateside和ACE Studios，通过直接面向消费者和批发分销提供各种服装产品。
在2020年2月12日，Denim.LA, Inc.与德拉瓦州有限责任公司Bailey 44, LLC（“Bailey”）签署了一项合并协议与计划。在收购日期，Bailey 44, LLC成为公司的全资子公司。
在2021年5月18日，公司完成了对Harper & Jones, LLC（“H&J”）的收购，依据与D. Jones Tailored Collection, Ltd.的会员权益股票购买协议。
在
2021年8月30日，公司完成了对Mosbest, LLC（以Stateside为名）("Stateside")的收购，依据其与Moise Emquies签署的成员权益购买协议，购买了
2022年12月30日，公司完成了之前宣布的对Sunnyside, LLC dba Sundry（“Sundry”）的收购，依据与Moise Emquies的第二次修订并重述的会员权益购买协议，购买
在2023年6月21日，公司与H&J的前所有者签署了一份和解协议（“和解协议”），根据该协议，双方同时签署和解协议，(i) 公司同意向D. Jones Tailored Collection, Ltd.（“D. Jones”）支付总计现金
注释2：经营情况
附注的简明综合基本报表已根据持续经营原则进行编制，这意味着在业务正常运作过程中实现资产和偿付负债。公司自成立以来尚未盈利，截至$
公司在财务报表可用之日起的未来12个月内继续作为持续经营实体的能力，取决于其能否生成足够的经营现金流以满足其义务，迄今尚未能够实现，并/或获得额外的资金融资。截至财务报表可用之日，公司主要通过发行股份和债务融资。如果公司无法生成足够的营业收入来维持其经营，公司将需要减少支出或通过出售债务和/或股本证券融资。发行额外股本将导致现有股东的稀释。如果公司在需要时无法获得额外资金，或者无法获得公司接受的条件下获得这些资金，公司将无法执行业务计划或支付费用和支出，这将对业务、财务状况和运营结果产生重大不利影响。不能保证公司在这些努力中将取得成功。
| 8 |
注意 3: 重要会计政策摘要
表述基础
公司的会计和报告政策符合美国通行的会计原则（"GAAP"）。
反向 股票拆分
在
2023年8月21日，董事会批准了一项
未经审计的中期财务信息
截至2024年9月30日的附注未经审计的简明综合资产负债表、2024年9月30日、2023年9月30日三个和九个月度营业的简明综合利润表以及2024年9月30日、2023年9月30日九个月度现金流量表已按照公司根据SEC的中期财务报表的规则和法规编制。根据规则和法规，按照GAAP编制的财务报表通常包含的某些信息和脚注披露已被压缩或省略。然而，公司认为披露充分可以使所呈现的信息不具有误导性。未经审计的中期综合财务报表已按照经审计的综合财务报表保持一致的原则编制，在管理层看法中，体现了所有调整，仅包括正常的回顾调整，以便公平呈现所呈现的中期业绩和截至中期综合资产负债表日的综合财务状况的所有板块结果。经营业绩不一定能反映2024年12月31日结束的年度预期结果。
随附的未经审计的临时简明合并基本报表应与公司截至2023年12月31日的经审计合并基本报表及其附注一起阅读，这些信息包含在公司于2024年4月15日向SEC提交的年度表格10-k中。
合并原则
这些 合并后的基本报表包括本公司及其全资子公司Bailey和Stateside的账户，自收购之日起计算。所有的内部交易和余额已在合并时被消除。
中止营业
某些 前年的账户已重新分类，以符合当前年度关于已终止经营业务的收入（损失）的展示。
使用估计值
公司的基本报表的编制必须遵循GAAP，这要求管理层做出影响资产和负债报告金额、财务报表日期的或有资产和负债的披露以及报告期内收入和费用报告金额的估计和假设。这些基本报表中反映的重要估计和假设包括但不限于库存、长期资产减值、或有对价和衍生负债。公司根据历史经验、已知趋势及其他市场特定或其他相关因素来制定其估计，这些因素在当时的情况下被认为是合理的。管理层在情况、事实和经验发生变化时，持续评估其估计。估计的变化在其被知晓的期间内记录。实际结果可能与这些估计有所不同。
| 9 |
现金 及等价物和信用风险集中
公司认为所有原始期限不超过六个月的高流动性证券均可视为现金等价物。截至2024年9月30日和2023年12月31日，公司未持有任何现金等价物。公司在银行存款账户中的现金及现金等价物，有时可能超过由联邦保险覆盖的极限金额$。
金融工具的公允价值
公司的金融工具包括现金及现金等价物、预付费用、应付账款、应计费用、应付关联方款项、关联方应付款和可转换债务。这些资产和负债的账面价值代表了它们的公允市场价值，因为这些工具的到期较快。
应收账款和预期信用损失
我们按发票金额减少客户信用损失和其他扣款后载列应收账款，以呈现对金融资产的预期收回净额。所有应收款项预期在合并资产负债表一年内收回。我们不对贸易应收账款计提利息。管理根据多种因素评估收回应收账款的能力。根据各自的信用条件，确定应收账款是否逾期。根据逾期时间、历史回收情况或客户财务状况维护信用损失准备金。在收集应收款项未能成功的努力之后，认定无法收回的年份将核销应收款项。我们与客户关联的资产负债表外信贷敞口为零。
我们 定期审查应收账款，估算坏账准备金，并同时在 运营报表中记录适当的费用。这些估算基于一般经济情况、客户的财务状况以及逾期账款的金额 和年龄。逾期账款只有在所有催收尝试都已耗尽且回收前景渺茫的情况下，才能从准备金中核销。 之前核销的应收账款的回收在收到时记录为收入。 公司在正常业务中向客户提供信用，并已建立信用评估和监控流程 以降低信用风险。
截至2024年9月30日和2023年12月31日，公司确定了$的信贷损失准备金。
存货
库存 按成本或可变现净值中较低者计提，并且使用加权平均成本法对DSTLD进行会计处理，而对Bailey、Stateside和Sundry则采用先进先出法。 截至2024年9月30日和2023年12月31日的库存余额主要由购入或生产用于转售的成品，以及公司购入以修改产品的任何原材料和在制品组成。
存货包括以下内容:
| 2023年9月30日 | 2024年12月31日， | |||||||
| 2024 | 2023 | |||||||
| 原材料 | $ | $ | ||||||
| 在制品 | ||||||||
| 成品 | ||||||||
| 存货 | $ | $ | ||||||
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.
| 10 |
Annual Impairment
At December 31, 2023, management determined that certain events and circumstances occurred that indicated that the carrying value of the Company’s brand name assets, and the carrying amount of the reporting units, pertaining to Bailey44, Stateside and Sundry may not be recoverable. The qualitative assessment was primarily due to reduced or stagnant revenues of both entities as compared to the Company’s initial projections at the time of each respective acquisition, as well as the entities’ liabilities in excess of assets. Upon the quantitative analysis performed, the Company determined that the fair value of the intangible assets and reporting units were greater than the respective carrying values. As such, no impairment was recorded. The Company utilized the enterprise value approach in the impairment tests of each reporting unit in 2023.
At September 30, 2024, management determined that indicators of impairment
existed with regards to the Bailey44 reporting unit. The qualitative assessment was primarily due to reduced revenues of Bailey44 as compared
to the Company’s projections, as well as the entity’ liabilities in excess of assets. As such, the Company recorded an impairment
to intangible assets of $
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, 2024 and 2023, 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, 2024 and 2023 are as follows:
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Series A convertible preferred stock | ||||||||
| Series C convertible preferred stock | ||||||||
| Common stock warrants | ||||||||
| Stock options | ||||||||
| Total potentially dilutive shares | ||||||||
The stock options and warrants above are out-of-the-money as of September 30, 2024 and 2023.
Recent Accounting Pronouncements
在 2024年1月，公司采用了 ASU 2020-06，债务—具有转换及其他期权的债务（子主题470-20）以及衍生工具 和对冲—实体自身权益的合同（子主题815-40）： 可转换工具和合同会计 在实体自身权益中的：此ASU解决了某些可转换工具和合同在 实体自身权益中的指引的复杂性。该ASU适用于满足SEC申报人定义的公共业务实体，排除符合SEC定义的较小报告公司的实体，适用于在2021年12月15日后开始的财政年度，包括这些财政年度内的中期期间。对于所有其他实体，ASU将在2023年12月15日后开始的财政年度中生效，包括这些财政年度内的中期期间。该ASU对合并基本报表没有产生重大影响。
管理层认为最近发布的但尚未生效的任何其他会计准则对附带的基本报表可能产生重大影响。随着新的会计准则的发布，公司将根据情况采纳适用的准则。
截至2024年5月20日，以下会计公告已发布，但尚未生效，可能会影响公司未来的财务报告：
| ● | ASU 2022-03，公允价值计量（主题820）：受合同销售限制的股权证券公允价值计量： 该ASU旨在澄清在计量受合同限制的股权证券公允价值时的指导原则，这些限制禁止出售该证券。对于公开业务实体，ASU 2022-03中的修订自2023年12月15日之后开始的财政年度生效，以及这些财政年度内的中期期间。对于所有其他实体，该ASU自2024年12月15日之后开始的财政年度生效，以及这些财政年度内的中期期间。 |
| 11 |
注释4:来自因素的到期
由于/来自因素包括以下内容:
| 2023年9月30日 | 2024年12月31日， | |||||||
| 2024 | 2023 | |||||||
| 未收账款： | ||||||||
| 无追索权 | $ | $ | ||||||
| 有追索权 | ||||||||
| 到期基金和存款 | ||||||||
| 预付款项 | ( | ) | ( | ) | ||||
| 向客户应付的贷款 | ( | ) | ||||||
| $ | $ | |||||||
注意 5: 商誉和无形资产
以下是每个业务合并对应的商誉摘要：
| 2023年9月30日 | 12月31日 | |||||||
| 2024 | 2023 | |||||||
| 贝利 | $ | $ | ||||||
| 美国本土 | ||||||||
| 其他 | ||||||||
| $ | $ | |||||||
下表总结了截至2024年9月30日公司可识别的无形资产相关信息：
| 总计 | 累积 | 携带 | ||||||||||
| 金额 | 摊销 | 价值 | ||||||||||
| 摊销： | ||||||||||||
| 客户关系 | $ | $ | ( | ) | $ | |||||||
| $ | $ | ( | ) | $ | ||||||||
| Infinite-Lived： | ||||||||||||
| 品牌名称 | ||||||||||||
| $ | $ | ( | ) | $ | ||||||||
2024年9月30日，管理层确定贝利44报告单位存在减值指标。定性评估主要是因为贝利44的收入较公司的预测有所下降，以及实体的负债超过资产。因此，公司对品牌名称无形资产进行减值，金额为$
公司在截至2024年9月30日和2023年9月30日的三个月内记录了$的摊销费用，
注意 6: 负债与债务
应计 费用和其他负债
截至2024年9月30日和2023年12月31日，合并资产负债表中的公司应计费用及其他负债项目包括以下内容：
| 2023年9月30日 | 2024年12月31日， | |||||||
| 2024 | 2023 | |||||||
| 应计费用 | $ | $ | ||||||
| 与工资相关的负债 | ||||||||
| 销售税负债 | ||||||||
| 其他负债 | ||||||||
| $ | $ | |||||||
| 12 |
可转换债务
截至2024年9月30日和2023年12月31日，尚有$
目标 资本可转换本票
在2024年4月30日，公司签发了一张可转换的 promissory note，原始本金金额为$
贷款 应付 — PPP和SBA贷款
2022年4月，贝利的第一笔PPP贷款部分获得豁免，总额为$
商家 预付款
未来 销售收据
在
2022年和2023年，公司获得了几笔商户预付款。这些预付款大部分是由公司预计未来销售交易担保的，预计每周付款。公司总现金还款，包括本金
和利息，金额为$
以下是截至2024年9月30日和2023年12月31日的商家融资摘要：
| 9月30日, | 2023年12月31日, | |||||||
| 2024 | 2023 | |||||||
| 负责人 | $ | $ | ||||||
| 减：未摊销债券折价 | ( | ) | ( | ) | ||||
| 商户现金预支，净额 | $ | $ | ||||||
未摊销的债务折价为$
其他
公司通过shopify资本获得了杰出的商户预付款。2024年9月结束的三个月里，公司还款金额为$
公司还与Gynger, Inc.有未偿商户预付款。2024年5月，公司将欠Gynger的未偿本金和应计利息$
| 13 |
本票 应付票据
截至2024年9月30日和2023年12月31日，向Bailey卖方的票据未偿本金为$
2023年3月，公司与各购买方签署了一份《证券购买协议》（以下简称“2023年3月票据”），投资者从公司购买了总本金金额为$的本票。
2024年5月，公司偿还了$
以下是应付票据净额摘要：
| 9月30日, | 2023年12月31日, | |||||||
| 2024 | 2023 | |||||||
| 贝利笔记 | $ | $ | ||||||
| 2023年三月票据 - 本金 | ||||||||
| 2023年三月票据 - 未摊销债务折扣 | ( | ) | ||||||
| 应付本票净额 | $ | $ | ||||||
注意 7: 股东权益亏损
对公司章程的修订
在
2023年8月21日，董事会批准了一项
普通股
截至2024年6月30日，公司共有1113622份认股权证尚未行使，按照加权平均行权价格计算为$。 每股面值。 截至2024年9月30日，应付票据余额降至$。
普通
股东拥有每股的投票权。
| 14 |
2024年交易
在截至2024年9月30日的九个月期间，公司发行了
截至2024年9月30日为止的九个月里，公司总计发行了 根据服务和应付账款转换，共计以公允价值计算的普通股股份。
截至9月30日的九个月期间， C系列可转换优先股转为 股普通股。
正如之前所报道的，公司与一名合格投资者（“投资者”）签署了一份证券购买协议，依据该协议，公司于2023年9月5日发行了某些系列A warrants。
在2024年5月3日，公司与投资者签署了某项诱导性股票购买权行使提案（“诱导协议”），根据该协议（i）公司同意将现有股票权证的行使价格降低至$
2024年5月，公司将欠Gynger的未偿本金和应计利息￥
A系列可转换优先股
在 2022年9月29日，公司提交了指定证书，指定最多 从授权但未发行的优先股中 作为A系列可转换优先股的股份。
除非根据指定证书应进行调整的股票股利或分配，否则持有人应有权获得并由公司支付对等（按照转换为普通股的基础）于并形式相同的优先股的股票上实际支付的股息，在普通股的股票上支付的如果有其他股息将不会支付的优先股上。
就普通股类别的任何表决事宜而言，每股A系列优先股应赋予持有人投票权，其数量等于其可转换为的普通股数量。
A类优先股应排在（i）优先于所有普通股; （ii）优先于公司此后创建的任何一类或一系列资本股票，该股票特别按其条款排名低于任何优先股（“较低证券”）; （iii）与公司创建的任何一类或一系列资本股票并按其条款与优先股平等排名的资本股票（“平级证券”）; 以及（iv）优先于公司此后创建的任何一类或一系列资本股票，该股票特别按其条款排名高于任何优先股（“高级证券”），在每种情况下，就分红或公司清算、解散或清盘时的资产分配而言，无论是自愿还是非自愿。
每股A种优先股可于2022年9月29日起的任何时间，由持有人选择，转换为普通股数量，该数量通过将A种优先股的面值（$
截至2024年9月30日和2023年12月31日，共有 股A系列可转换优先股已发行并流通。
| 15 |
2023 年 3 月 4 日，公司向怀俄明州国务印发了一份指定证书，成立了公司的 C 系列可转换优先股，其 规定的陈述价值为 $
开启
2023 年 6 月 21 日，公司一方面是 Moise Emquies、George Levy、Matthieu Leblan、Carol Ann Emquies、Jenny Murphy 和 Elodie
另一方面，Crichi（统称为 “杂项投资者”）签署了证券购买协议（“杂项投资者”）
SPA”），公司据此发行 C系列可转换优先股的股份，面值美元 每股（“系列”
C 优先股”）以美元收购价向杂项投资者提供 每股。C系列优先股可兑换
转化为等于美元的公司普通股的数股
在 2023年6月21日，公司向特拉华州国务卿提交了指定证书，指定了高达 的股份作为其优先股的授权但未发行的股份中的C系列可转换优先股。以下是C系列优先股主要条款的摘要。
除了根据指定证明书进行调整的送转股分红或分配，C系列优先股的持有人（“C系列持有人”）将有权获得，并且公司将支付对C系列优先股进行分红派息的权益（按转换为普通股计算），分红的形式与对普通股进行实际支付的分红相同。C系列优先股将不再支付其他分红。
系列C持有人有权作为一个类别投票，具体条款在指定证书中明确规定。系列C持有人也有权与普通股的持有人一起投票，作为一个类别对所有系列C持有人被允许与普通股类别投票的事项进行投票。
关于普通股类别的任何投票，每股C系列优先股应使持有者有权投票，其投票数量等于当前可转换为的普通股的股数（受《指定证书》中规定的持有限制的约束），以确定有资格投票的股东的记录日期作为计算转换价格的日期。
C系列优先股应按以下顺序排位：(i) 在所有普通股之前；(ii) 在初级证券之前；(iii) 与平价证券平等；(iv) 在高级证券之后，在上述每种情况下，关于分红或在公司清算、解散或结束时分配资产，无论是自愿还是非自愿。根据公司的高级证券持有者的任何优先清算权以及公司现有和未来债权人的权利，在清算时，每位持有者有权从公司合法可供向股东分配的资产中优先获得支付，优先于任何对普通股和初级证券持有者的资产或盈余资金的分配，与平价证券持有者的任何分配等同。持有者每持有一股C系列优先股，应获得等于规定价值（在指定证书中定义）的金额以及任何累计和未支付的分红；之后，C系列持有者有权从公司的资产中获得与普通股持有者在C系列优先股完全转换为普通股时（在此情况下忽略任何转换限制）将获得的相同金额，这些金额应与所有普通股持有者平等支付。
每股C系列优先股在2023年6月21日后的任何时间，持有人可以选择将其转换为普通股数量，所转换普通股的数量应根据C系列优先股的面值（$
公司有权在截至日期后的任何时候以折合时估值的%的价格赎回当时的C系列优先股
In October 2023, shares of Series C Convertible Preferred Stock converted into shares of common stock.
During the nine months ended September 30, 2024, shares of Series C Convertible Preferred Stock converted into shares of common stock.
| 16 |
NOTE 8: RELATED PARTY TRANSACTIONS
As
of September 30, 2024 and December 31, 2023, amounts due to related parties were $
Common Stock Warrants
A summary of information related to common stock warrants for the nine months ended September 30, 2024 is as follows:
| Common | Weighted | |||||||
| Stock | Average | |||||||
| Warrants | Exercise Price | |||||||
| Outstanding - December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited | ||||||||
| Outstanding - September 30, 2024 | $ | |||||||
| Exercisable at December 31, 2023 | $ | |||||||
| Exercisable at September 30, 2024 | $ | |||||||
Stock Options
As of September 30, 2024 and December 31, 2023, the Company had stock options outstanding with a weighted average exercise price of $ per share.
Stock-based compensation expense of $ and $ was recognized for the three months ended September 30, 2024 and 2023, respectively and $ and $ was recognized for the nine months ended September 30, 2024 and 2023. During the nine months ended September 30, 2024 and 2023, $ and $ 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, 2024 amounted to $ and will be recognized over a weighted average period of years.
NOTE 10: LEASE OBLIGATIONS
Rent is classified by function on the consolidated statements of operations either as general and administrative, sales and marketing, or cost of revenue.
The Company determines whether an arrangement is or contains a lease at inception by evaluating potential lease agreements including services and operating agreements to determine whether an identified asset exists that the Company controls over the term of the arrangement. Lease commencement is determined to be when the lessor provides access to, and the right to control, the identified asset.
The rental payments for the Company’s leases are typically structured as either fixed or variable payments. Fixed rent payments include stated minimum rent and stated minimum rent with stated increases. The Company considers lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from the calculation of lease liabilities.
| 17 |
Management uses judgment in determining lease classification, including determination of the economic life and the fair market value of the identified asset. The fair market value of the identified asset is generally estimated based on comparable market data provided by third-party sources.
In
January 2023, the Company entered into a lease agreement extension for its corporate office and distribution center in Vernon, California
that expires on January 31, 2025. The lease has monthly base rent payments of $
In
September 2023, the Company entered into a lease agreement extension for a showroom space in Los Angeles, California that commences
in March 2023 which expired in September 2024. The lease had a monthly base rent of $
In
April 2024, the Company entered into a lease agreement extension for a retail outlet space in Allen, Texas that commences in April 2024
and expires in April 2027. The lease has a monthly base rent of $
The following is a summary of operating lease assets and liabilities:
| September 30, | December 31, | |||||||
| Operating leases | 2024 | 2023 | ||||||
| Assets | ||||||||
| ROU operating lease assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current portion of operating lease | ||||||||
| Non Current portion of lease liability | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Operating leases | September 30, 2024 | December 31, 2023 | ||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
| September 30, 2024 | ||||
| Future minimum payments | $ | |||
| Less imputed interest | ( | ) | ||
| Total lease obligations | $ | |||
NOTE 11: CONTINGENCIES
We are currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary course of business. These include proceedings, claims, and investigations relating to, among other things, regulatory matters, commercial matters, intellectual property, competition, tax, employment, pricing, discrimination, consumer rights, personal injury, and property rights. These matters also include the following:
On
March 21, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $
On
February 7, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $
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 $
On
December 21, 2020, a Company investor filed a lawsuit against DBG for reimbursement of their investment totaling $
On
November 16, 2023 a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $
On
November 15, 2023 a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $
On December 21, 2023, a former employee from over two years ago filed a wrongful termination lawsuit against the Company. The Company is disputing this claim. To this point, this same law firm recently sent a demand letter for another wrongful termination of a temporary worker we used from a third party placement agency. This person was not a Company employee at any time.
A
vendor filed a lawsuit against Bailey 44 related to a retail store lease in the amount of $
All claims above, to the extent management believes it will be liable, have been included in accounts payable and accrued expenses and other liabilities in the accompanying consolidated balance sheet as of September 30, 2024.
Depending on the nature of the proceeding, claim, or investigation, we may be subject to monetary damage awards, fines, penalties, or injunctive orders. Furthermore, the outcome of these matters could materially adversely affect our business, results of operations, and financial condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant judgment to determine the likelihood and amount of loss related to such matters. While it is not possible to determine the outcomes, we believe based on our current knowledge that the resolution of all such pending matters will not, either individually or in the aggregate, have a material adverse effect on our business, results of operations, cash flows, or financial condition.
Except as may be set forth above the Company is not a party to any legal proceedings, and the Company is not aware of any claims or actions pending or threatened against us. In the future, the Company might from time to time become involved in litigation relating to claims arising from its ordinary course of business, the resolution of which the Company does not anticipate would have a material adverse impact on our financial position, results of operations or cash flows.
| 18 |
NOTE 12: SUBSEQUENT EVENTS
As previously reported, the Company and various purchasers (the “Investors”) executed a securities purchase agreement (the
“SPA”) on or around April 7, 2023, whereby the Investors purchased from the Company promissory notes in the aggregate principal
amount of approximately $
Between October 3, 2024 and October 15, 2024, the Company issued shares of the Company’s common stock (the “Shares”) to a certain note holder upon conversion of a portion of their promissory note originally issued by the Company on or around October 1, 2023 (the “Note”). On October 16, 2024, the Company became aware that the issuance of the Shares was in error and not permitted under the terms of the Note due to the requirement thereunder that stockholder approval be obtained prior to the issuance of more than % of the Company’s pre-transaction shares outstanding upon conversion(s) of the Note, as referenced and specifically required under Nasdaq Listing Rule 5635(d). The Company then notified the note holder that the Shares must be returned to the Company’s transfer agent for cancellation. Accordingly, the note holder is in the process of returning the Shares to the Company’s transfer agent for cancellation. Upon cancellation of the Shares, the Company’s issued and outstanding common stock count will decrease by shares. The Company is in communications with The Nasdaq Stock Market LLC regarding the aforementioned erroneous issuance of the Shares and subsequent remediation actions.
On November 5, 2024, the Holder facilitated the cancellation of shares of the Company’s common stock in accordance with the Company’s remediation plan.
Completion of offering Common Stock and Pre-Funded Warrants
On October 28, 2024, the Company
entered into securities purchase agreements (the “Purchase Agreements”) with certain accredited investors named therein (the
“Purchasers”), pursuant to which the Company agreed to issue and sell, in a best efforts offering (the “Offering”):
(i) shares of common stock (the “Common Stock”), at a purchase price of $ per share of Common Stock, and (ii)
The Common Stock, the Pre-Funded Warrants, and the Common Stock issuable upon exercise of the Pre-Funded Warrants were offered pursuant to a registration statement on Form S-1 as filed with the SEC on October 24, 2024, as amended, and was declared effective on October 28, 2024 (the “Registration Statement”).
RBW Capital Partners LLC, acting through Dominari Securities LLC (the “Placement Agent”), acted as the exclusive placement agent for the Offering pursuant to a Placement Agency Agreement dated October 28, 2024 (the “Placement Agency Agreement”) by and between the Company and the Placement Agent.
The Offering resulted in gross
proceeds to the Company of approximately $
| 19 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the historical financial statements of the relevant entities and the pro forma financial statements and the notes thereto included elsewhere in this Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Unless otherwise indicated by the context, references to “DBG” refer to Digital Brands Group, Inc. solely, and references to the “Company,” “our,” “we,” “us” and similar terms refer to Digital Brands Group, Inc., together with its wholly-owned subsidiaries Bailey 44, LLC (“Bailey”), MOSBEST, LLC (“Stateside”) and Sunnyside (“Sundry”).
Some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly including those risks identified in Part II-Item 1A “Risk Factors” and our other filings with the SEC.
Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements
| 20 |
Business Overview
Recent Developments
Nasdaq Listing
On October 2, 2024, the Company received a letter from the Staff of Nasdaq notifying the Company that the Staff has determined to delist the Company’s common stock from Nasdaq at the opening of business on October 11, 2024, based on the Company’s failure to maintain a minimum bid price of $1 per share per Listing Rule 5550(a)(2), unless the Company requests an appeal of such determination by October 9, 2024. The Company submitted the appeal request to Nasdaq on October 9, 2024. Nasdaq granted a hearing of the appeal to be held on December 3, 2024.
The Company and various purchasers (the “Investors”) executed a securities purchase agreement (the “SPA”) on or around April 7, 2023, whereby the Investors purchased from the Company promissory notes in the aggregate principal amount of approximately $2,500,000 (the “Original Notes”), and the remaining balances of such Original Notes as of October 1, 2023, were exchanged by the Investors for replacement promissory notes issued on October 1, 2023, in the aggregate principal amount of approximately $1,789,668.37 (the “2023 Notes”). On May 24, 2024, the Company entered into settlement agreements with the Investors (each a “Settlement Agreement”), pursuant to which the Company agreed to pay aggregate cash payments equal to $1,789,668.37 to extinguish all obligations and claims under the SPA, Original Notes, and 2023 Notes, as follows: (i) $500,000.00 on or before May 28, 2024 and (ii) $1,289,668.37 on or before September 30, 2024 (the “Final Payment”). On or around October 3, 2024, the Company entered into amendments to each Settlement Agreement with the Investors, whereby the Final Payment due date was extended to October 31, 2024.
Between July 1, 2024 and October 22, 2024, the Company issued and sold 5,256,263 shares of Common Stock (the “Recent ATM Share Sales”) to H.C. Wainwright & Co., LLC (the “Agent”) as sales agent or principal, pursuant to the terms of the Company’s previously announced At-The-Market Offering Agreement, dated December 27, 2023, between us and the Agent (the “Sales Agreement”). The Company received net proceeds of $2,063,396.00 from the Recent ATM Share Sales.
Completion of Offering Common Stock and Pre-Funded Warrants
On October 28, 2024, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain accredited investors named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a best efforts offering (the “Offering”): (i) 6,233,650 shares of common stock (the “Common Stock”), at a purchase price of $0.10 per share of Common Stock, and (ii) 24,109,350 pre-funded warrants (“Pre-Funded Warrants”) to purchase Common Stock, at a purchase price of $0.0999 per Pre-Funded Warrant, immediately exercisable at an exercise price of $0.0001 per share. The Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchasers and customary indemnification rights and obligations of the parties. The Offering closed on October 30, 2024.
The Offering resulted in gross proceeds to the Company of approximately $3,000,000, before deducting placement agent fees and commissions and other offering expenses, and excluding proceeds to the Company, if any, that may result from the future exercise of the Pre-Funded Warrants issued in the Offering. As compensation to the Placement Agent, as the exclusive placement agent in connection with the Offering, the Company paid to the Placement Agent a cash fee of 8.0% of the aggregate gross proceeds raised in the Offering, a non-accountable expense allowance of 1.0% of the aggregate gross proceeds raised in the Offering, reimbursement of up to $50,000 for expenses of legal counsel and other actual out-of-pocket expenses, and up to $15,950 for clearing agent closing costs.
Our Company
Digital Brands is a curated collection of lifestyle brands, including Bailey, DSTLD, Sundry and Avo, that offers a variety of apparel products through direct-to- consumer and wholesale distribution. Our complementary brand portfolio provides us with the unique opportunity to cross merchandise our brands. We aim for our customers to wear our brands head to toe and to capture what we call “closet share” by gaining insight into their preferences to create targeted and personalized content specific to their cohort. Operating our brands under one portfolio provides us with the ability to better utilize our technological, human capital and operational capabilities across all brands. As a result, we have been able to realize operational efficiencies and continue to identify additional cost saving opportunities to scale our brands and overall portfolio.
| 21 |
Our portfolio consists of four significant brands that leverage our three channels: our websites, wholesale and our own stores.
● Bailey 44 combines beautiful, luxe fabrics and on-trend designs to create sophisticated ready-to-wear capsules for women on-the-go. Designing for real life, this brand focuses on feeling and comfort rather than how it looks on a runway. Bailey 44 is primarily a wholesale brand, which we are transitioning to a digital, direct-to-consumer brand.
● DSTLD offers stylish high-quality garments without the luxury retail markup valuing customer experience over labels. DSTLD is primarily a digital direct-to-consumer brand, to which we recently added select wholesale retailers to generate brand awareness.
● Stateside is an elevated, America first brand with all knitting, dyeing, cutting and sewing sourced and manufactured locally in Los Angeles. The collection is influenced by the evolution of the classic T-shirt offering a simple yet elegant look. Stateside is primarily a wholesale brand that we will be transitioning to a digital, direct-to-consumer brand.
● Sundry offers distinct collections of women’s clothing, including dresses, shirts, sweaters, skirts, shorts, athleisure bottoms and other accessory products. Sundry’s products are coastal casual and consist of soft, relaxed and colorful designs that feature a distinct French chic, resembling the spirits of the French Mediterranean and the energy of Venice Beach in Southern California. Sundry is primarily a wholesale brand that we will be transitioning to a digital, direct-to-consumer brand.
We believe that successful apparel brands sell in all revenue channels. However, each channel offers different margin structures and requires different customer acquisition and retention strategies. We were founded as a digital-first retailer that has strategically expanded into select wholesale and direct retail channels. We strive to strategically create omnichannel strategies for each of our brands that blend physical and online channels to engage consumers in the channel of their choosing. Our products are sold direct-to-consumers principally through our websites and our own showrooms, but also through our wholesale channel, primarily in specialty stores and select department stores. With the continued expansion of our wholesale distribution, we believe developing an omnichannel solution further strengthens our ability to efficiently acquire and retain customers while also driving high customer lifetime value.
We believe that by leveraging a physical footprint to acquire customers and increase brand awareness, we can use digital marketing to focus on retention and a very tight, disciplined high value new customer acquisition strategy, especially targeting potential customers lower in the sales funnel. Building a direct relationship with the customer as the customer transacts directly with us allows us to better understand our customer’s preferences and shopping habits. Our substantial experience as a company originally founded as a digitally native-first retailer gives us the ability to strategically review and analyze the customer’s data, including contact information, browsing and shopping cart data, purchase history and style preferences. This in turn has the effect of lowering our inventory risk and cash needs since we can order and replenish product based on the data from our online sales history, replenish specific inventory by size, color and SKU based on real times sales data, and control our mark-down and promotional strategies versus being told what mark downs and promotions we have to offer by the department stores and boutique retailers.
We define “closet share” as the percentage (“share”) of a customer’s clothing units that (“of closet”) she or he owns in her or his closet and the amount of those units that go to the brands that are selling these units. For example, if a customer buys 20 units of clothing a year and the brands that we own represent 10 of those units purchased, then our closet share is 50% of that customer’s closet, or 10 of our branded units divided by 20 units they purchased in entirety. Closet share is a similar concept to the widely used term wallet share, it is just specific to the customer’s closet. The higher our closet share, the higher our revenue as higher closet share suggests the customer is purchasing more of our brands than our competitors.
We have strategically expanded into an omnichannel brand offering these styles and content not only on-line but at selected wholesale and retail storefronts. We believe this approach allows us opportunities to successfully drive Lifetime Value (“LTV”) while increasing new customer growth. We define Lifetime Value or LTV as an estimate of the average revenue that a customer will generate throughout their lifespan as our customer. This value/revenue of a customer helps us determine many economic decisions, such as marketing budgets per marketing channel, retention versus acquisition decisions, unit level economics, profitability and revenue forecasting.
We acquired Bailey in February 2020, Stateside in August 2021 and Sundry in December 2022. We agreed on the consideration that we paid in each acquisition in the course of arm’s length negotiations with the holders of the membership interests in each of Bailey, H&J, Stateside and Sundry. In determining and negotiating this consideration, we relied on the experience and judgment of our management and our evaluation of the potential synergies that could be achieved in combining the operations of Bailey, Stateside and Sundry. We did not obtain independent valuations, appraisals or fairness opinions to support the consideration that we paid/agreed to pay.
| 22 |
Avo – Brand Summary
Avo is a women’s essential brand that will offer t-shirts, sweats, dresses, sweaters and athleisure. Avo eliminates the wholesale mark-up, so its products have a sharper price point. Avo also offers larger discounts when the customer bundles multiple products to their cart, which allows Avo to leverage its shipping and fulfillment costs. Avo leverages the Company’s current design and supply chain infrastructure, so we use similar or the same fabrics and contractors for Avo that we do for our other brands.
Avo launched in late August 2024 and prices for t-shirts range from $20 to $50 based on the size of the customer’s bundle. Other product prices will range from $17.50 for tanks to $198 for sweaters with no retail price above $99 if the customer bundles three units or more. If the customer bundles two units then they receive a 40% discount and if they bundle three units or more the customer receives a 60% discount.
Material Trends, Events and Uncertainties
Supply Chain Disruptions
We are subject to global supply chain disruptions, which may include longer lead times for raw fabrics, inbound shipping and longer production times. Supply chain issues have specifically impacted the following for our brands:
● Increased costs in raw materials from fabric prices, which have increased 10% to 100% depending on the fabric, the time of year, and the origin of the fabric, as well as where the fabric is being shipped;
● Increased cost per kilo to ship via sea or air, which has increased from 25% to 300% depending on the time of year and from the country we are shipping from;
● Increased transit time via sea or air, which have increased by two weeks to two months; and
● Increased labor costs for producing the finished goods, which have increased 5% to 25% depending on the country and the labor skill required to produce the goods. We have been able to pass along some of these increased costs and also offset some of these increased costs with higher gross margin online revenue
Seasonality
Our quarterly operating results vary due to the seasonality of our individual brands and are historically stronger in the second half of the calendar year.
Substantial Indebtedness
As of September 30, 2024, we had an aggregate principal amount of debt outstanding of approximately $8.2 million. We believe this is an amount of indebtedness which may be considered significant for a company of our size and current revenue base. Our substantial debt could have important consequences to us. For example, it could:
● make it more difficult for us to satisfy our obligations to the holders of our outstanding debt, resulting in possible defaults on and acceleration of such indebtedness;
● require us to dedicate a substantial portion of our cash flows from operations to make payments on our debt, which would reduce the availability of our cash flows from operations to fund working capital, capital expenditures or other general corporate purposes;
● increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations;
● place us at a competitive disadvantage to our competitors with proportionately less debt for their size;
● limit our ability to refinance our existing indebtedness or borrow additional funds in the future;
● limit our flexibility in planning for, or reacting to, changing conditions in our business; and
● limit our ability to react to competitive pressures or make it difficult for us to carry out capital spending that is necessary or important to our growth strategy.
Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our business, financial condition and results of operations.
| 23 |
We currently have $3.5 million in notes outstanding pursuant to our Bailey acquisition. We are currently unable to repay or refinance borrowings so any such action by these lenders could force us into bankruptcy or liquidation.
In addition, our ability to make scheduled payments on our indebtedness or to refinance our obligations under our debt agreements, will depend on our financial and operating performance, which, in turn, will be subject to prevailing economic and competitive conditions and to the financial and business risk factors we face as described in this section, many of which may be beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures or planned growth objectives, seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flows and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet scheduled debt service obligations. In addition, the recent worldwide credit crisis could make it more difficult for us to refinance our indebtedness on favorable terms, or at all.
In the absence of such operating results and resources, we may be required to dispose of material assets to meet our debt service obligations. We may not be able to consummate those sales, or, if we do, we will not control the timing of the sales or whether the proceeds that we realize will be adequate to meet debt service obligations when due.
Performance Factors
We believe that our future performance will depend on many factors, including the following:
Ability to Increase Our Customer Base in both Online and Traditional Wholesale Distribution Channels
We are currently growing our customer base through both paid and organic online channels, as well as by expanding our presence in a variety of physical retail distribution channels. Online customer acquisitions typically occur at our direct websites for each brand. Our online customer acquisition strategies include paid and unpaid social media, search, display and traditional media. Our products for Bailey, DSTLD and Stateside are also sold through a growing number of physical retail channels, including specialty stores, department stores and online multi-brand platforms.
Ability to Acquire Customers at a Reasonable Cost
We believe an ability to consistently acquire customers at a reasonable cost relative to customer retention rates, contribution margins and projected life-time value will be a key factor affecting future performance. To accomplish this goal, we intend to balance advertising spend between online and offline channels, as well as cross marketing and cross merchandising our portfolio brands and their respective products. We believe the ability to cross merchandise products and cross market brands, will decrease our customer acquisition costs while increasing the customer’s lifetime value and contribution margin. We will also balance marketing spend with advertising focused on creating emotional brand recognition, which we believe will represent a lower percentage of our spend.
Ability to Drive Repeat Purchases and Customer Retention
We accrue substantial economic value and margin expansion from customer cohort retention and repeat purchases of our products on an annual basis. Our revenue growth rate and operating margin expansion will be affected by our customer cohort retention rates and the cohorts annual spend for both existing and newly acquired customers.
Ability to Expand Our Product Lines
Our goal is to expand our product lines over time to increase our growth opportunity. Our customer’s annual spend and brand relevance will be driven by the cadence and success of new product launches.
| 24 |
Ability to Expand Gross Margins
Our overall profitability will be impacted by our ability to expand gross margins through effective sourcing and leveraging buying power of finished goods and shipping costs, as well as pricing power over time.
Ability to Expand Operating Margins
Our ability to expand operating margins will be impacted by our ability to leverage (1) fixed general and administrative costs, (2) variable sales and marketing costs, (3) elimination of redundant costs as we acquire and integrate brands, (4) cross marketing and cross merchandising brands in our portfolio, and (4) drive customer retention and customer lifetime value. Our ability to expand operating margins will result from increasing revenue growth above our operating expense growth, as well as increasing gross margins. For example, we anticipate that our operating expenses will increase substantially in the foreseeable future as we undertake the acquisition and integration of different brands, incur expenses associated with maintaining compliance as a public company, and increased marketing and sales efforts to increase our customer base. While we anticipate that the operating expenses in absolute dollars will increase, we do not anticipate that the operating expenses as a percentage of revenue will increase. We anticipate that the operating expenses as a percentage of revenue will decrease as we eliminate duplicative costs across brands including a reduction in similar labor roles, contracts for technologies and operating systems and creating lower costs from higher purchasing power from shipping expenses to purchase orders of products. This reduction of expenses and lower cost per unit due to purchasing power should create meaningful savings in both dollars and as a percentage of revenue.
As an example, we were able to eliminate several million in expenses within six months of acquiring Bailey. Examples of these savings include eliminating several Bailey teams, which our teams took over.
We merged over half of the technology contracts and operating systems contracts from two brands into one brand contract at significant savings. We also eliminated our office space and rent and moved everyone into the Bailey office space. Finally, we eliminated DSTLD’s third-party logistics company and started using Bailey’s internal logistics. This resulted in an increase in our operating expenses in absolute dollars as there were now two brands versus one brand. However, the operating expenses as a percentage of pre-COVID revenue declined meaningfully and as we increase revenue for each brand, we expect to experience higher margins.
Ability to Create Free Cash Flow
Our goal is to achieve near term free cash flow through cash flow positive acquisitions, elimination of redundant expenses in acquired companies, increasing customer annual spend and lowering customer acquisition costs through cross merchandising across our brand portfolio.
Components of Our Results of Operations
Bailey
Net Revenue
Bailey sells its products directly to customers. Bailey also sells its products indirectly through wholesale channels that include third-party online channels and physical channels such as specialty retailers and department stores.
Cost of Net Revenue
Bailey’s cost of net revenue includes the direct cost of purchased and manufactured merchandise; inventory shrinkage; inventory adjustments due to obsolescence including excess and slow-moving inventory and lower of cost and net realizable reserves; duties; and inbound freight. Cost of net revenue also includes direct labor to production activities such as pattern makers, cutters and sewers. Cost of net revenue includes an allocation of overheard costs such as rent, utilities and commercial insurance pertaining to direct inventory activities.
| 25 |
Operating Expenses
Bailey’s operating expenses include all operating costs not included in cost of net revenues and sales and marketing. These costs consist of general and administrative, fulfillment and shipping expense to the customer.
General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, occupancy expenses related to Bailey’s operations at its headquarters, including utilities, depreciation and amortization, and other costs related to the administration of its business.
Bailey’s fulfillment and shipping expenses include the cost to operate its warehouse including occupancy and labor costs to pick and pack customer orders and any return orders; packaging; and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse.
Sales & Marketing
Bailey’s sales and marketing expense primarily includes digital advertising; photo shoots for wholesale and direct-to-consumer communications, including email, social media and digital advertisements; and commission expenses associated with sales representatives.
Interest Expense
Bailey’s interest expense consists primarily of interest related to its outstanding debt to our senior lender.
DBG
Net Revenue
We sell our products to our customers directly through our website. In those cases, sales, net represents total sales less returns, promotions and discounts.
Cost of Net Revenue
Cost of net revenue include direct cost of purchased merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost and net realizable reserves.
Operating Expenses
Our operating expenses include all operating costs not included in cost of net revenues. These costs consist of general and administrative, sales and marketing, and fulfillment and shipping expense to the customer.
General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, and expenses related to our operations at our headquarters, including utilities, depreciation and amortization, and other costs related to the administration of our business.
We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and higher expenses for insurance, investor relations and professional services. We expect these costs will increase our operating costs.
Fulfillment and shipping expenses include the cost to operate our warehouse — or prior to Bailey 44 acquisition, costs paid to our third-party logistics provider — including occupancy and labor costs to pick and pack customer orders and any return orders; packaging; and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse.
In addition, going forward, the amortization of the identifiable intangibles acquired in the acquisitions will be included in operating expenses.
| 26 |
Interest Expense
Interest expense consists primarily of interest related to our debt outstanding to our senior lender, convertible debt, and other interest bearing liabilities.
Stateside
Net Revenue
Stateside sells its products directly to customers. Stateside also sells its products indirectly through wholesale channels that include third-party online channels and physical channels such as specialty retailers and department stores.
Cost of Net Revenue
Stateside’s cost of net revenue includes the direct cost of purchased and manufactured merchandise; inventory shrinkage; inventory adjustments due to obsolescence including excess and slow-moving inventory and lower of cost and net realizable reserves; duties; and inbound freight. Cost of net revenue also includes direct labor to production activities such as pattern makers, cutters and sewers. Cost of net revenue includes an allocation of overheard costs such as rent, utilities and commercial insurance pertaining to direct inventory activities.
Operating Expenses
Stateside’s operating expenses include all operating costs not included in cost of net revenues and sales and marketing. These costs consist of general and administrative, fulfillment and shipping expense to the customer.
General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, occupancy expenses related to Stateside’s stores and to Stateside’s operations at its headquarters, including utilities, depreciation and amortization, and other costs related to the administration of its business.
Stateside’s fulfillment and shipping expenses include the cost to operate its warehouse including occupancy and labor costs to pick and pack customer orders and any return orders; packaging; and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse.
Sales & Marketing
Stateside’s sales and marketing expense primarily includes digital advertising; photo shoots for wholesale and direct-to-consumer communications, including email, social media and digital advertisements; and commission expenses associated with sales representatives.
Sundry
Net Revenue
Sundry sells its products directly to customers. Sundry also sells its products indirectly through wholesale channels that include third-party online channels and physical channels such as specialty retailers and department stores.
Cost of Net Revenue
Sundry’s cost of net revenue includes the direct cost of purchased and manufactured merchandise; inventory shrinkage; inventory adjustments due to obsolescence including excess and slow-moving inventory and lower of cost and net realizable reserves; duties; and inbound freight. Cost of net revenue also includes direct labor to production activities such as pattern makers, cutters and sewers. Cost of net revenue includes an allocation of overheard costs such as rent, utilities and commercial insurance pertaining to direct inventory activities.
| 27 |
Operating Expenses
Our operating expenses include all operating costs not included in cost of net revenues. These costs consist of general and administrative, sales and marketing, and fulfillment and shipping expense to the customer.
General and administrative expenses consist primarily of all payroll and payroll-related expenses, stock-based compensation, professional fees, insurance, software costs, and expenses related to our operations at our headquarters, including utilities, depreciation and amortization, and other costs related to the administration of our business.
Sales and marketing expense primarily includes digital advertising; photo shoots for wholesale and direct-to-consumer communications, including email, social media and digital advertisements; and commission expenses associated with sales representatives.
We expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and higher expenses for insurance, investor relations and professional services. We expect these costs will increase our operating costs.
Distribution expenses includes costs paid to our third-party logistics provider, packaging and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse.
At each reporting period, we estimate changes in the fair value of contingent consideration and recognize any change in fair in our consolidated statement of operations, which is included in operating expenses. Additionally, amortization of the identifiable intangibles acquired in the acquisitions is also included in operating expenses.
Interest Expense
Interest expense consists primarily of interest related to our debt outstanding to promissory notes, convertible debt, and other interest bearing liabilities
| 28 |
Results of Operations
Three Months Ended September 30, 2024 compared to Three Months Ended September 30, 2023
The following table presents our results of operations for the Three months ended September 30, 2024 and 2023:
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenues | $ | 2,440,801 | $ | 3,257,332 | ||||
| Cost of net revenues | 1,319,214 | 1,554,044 | ||||||
| Gross profit | 1,121,587 | 1,703,288 | ||||||
| General and administrative | 2,429,040 | 3,735,527 | ||||||
| Sales and marketing | 655,833 | 1,151,326 | ||||||
| Other operating (income) / expenses | 780,879 | 238,546 | ||||||
| Operating (loss) /income | (2,144,165 | ) | (3,422,162 | ) | ||||
| Other expenses | (797,072 | ) | (2,013,832 | ) | ||||
| Loss before provision for income taxes | (3,541,237 | ) | (5,435,994 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net income/(loss) from continuing operations | $ | (3,541,237 | ) | $ | (5,435,994 | ) | ||
Net Revenues
Revenues decreased by $0.8 million to $2.4 million for the three months ended September 30, 2024, compared to $3.3 million in the corresponding fiscal period in 2023. The decrease was primarily due to a delay in wholesale shipments in April 2024, and lower ecommerce revenues across each brand due to less digital advertising spend.
Gross Profit
Our gross profit decreased by $0.6 million for the three months ended September 30, 2024 to $1.1 million from a gross profit of $1.7 million for the corresponding fiscal period in 2023. The decrease in gross margin was primarily attributable to a decrease in sales.
Our gross margin was 46% for three months ended September 30, 2024, compared to 52% for the three months ended June 30, 2023. The decrease in gross margin was due to corresponding decrease in the ecommerce revenue.
Operating Expenses/(Income)
Our operating expenses decreased by $1.3 million for the three months ended September 30, 2024 to $3.8 million compared to $5.1 million for the corresponding fiscal period in 2023. General and administrative expenses decreased by $1.3 million, and sales and marketing expenses decreased by $0.5 million. The deceases were primarily due to cost cutting measures and synergies from the Sundry acquisition including the elimination of its warehouse, office, fulfillment and redundancies in headcount. In the third quarter of 2024, the Company recorded impairment expense of $600,000 pertaining to Bailey’s intangibles.
Other Income (Expenses)
Other expenses were $0.8 million while other expense was $2.0 million for the three months ended September 30, 2024 and 2023, respectively, primarily consisting of interest expense.
| 29 |
Net Loss from Continuing Operations
Our net loss from continuing operations decreased by $1.9 million to a net loss from continuing operations of $3.5 million for the three months ended September 30, 2024 compared to income from continuing operations of $5.4 million for the corresponding fiscal period in 2023, primarily due to the change in fair value of contingent consideration in 2023 and lower gross profit in 2024, partially offset by lower general and administrative and sales and marketing expenses.
Nine Months Ended September 30, 2024 compared to Nine Months Ended September 30, 2023
The following table presents our results of operations for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenues | $ | 9,413,457 | $ | 12,127,135 | ||||
| Cost of net revenues | 5,012,457 | 6,054,532 | ||||||
| Gross profit | 4,401,000 | 6,032,603 | ||||||
| General and administrative | 6,347,460 | 12,115,590 | ||||||
| Sales and marketing | 1,979,173 | 3,188,054 | ||||||
| Other operating expenses/(income) | 1,345,412 | (9,947,530 | ) | |||||
| Operating (loss)/income | (4,671,045 | ) | 676,489 | |||||
| Other expenses | (2,464,407 | ) | (5,642,068 | ) | ||||
| Loss before provision for income taxes | (7,735,453 | ) | (4,965,579 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net income/(loss) from continuing operations | $ | (7,735,453 | ) | $ | (4,965,579 | ) | ||
Net Revenues
Revenues decreased by $2.7 million to $9.4 million for the nine months ended September 30, 2024, compared to $12.1 million in the corresponding fiscal period in 2023. The decrease was primarily due to a delay in wholesale shipments in April 2024, and lower ecommerce revenues across each brand due to less digital advertising spend.
Gross Profit
Our gross profit decreased by $1.6 million for the nine months ended September 30, 2024 to $4.4 million from a gross profit of $6 million for the corresponding fiscal period in 2023. The decrease in gross margin was primarily attributable to a decrease in sales.
Our gross margin was 47% for nine months ended September 30, 2024, compared to 50% for the nine months ended September 30, 2023. The decrease in gross margin was due to corresponding decrease in the ecommerce revenue.
Operating Expenses
Our operating expenses increased by $4.3 million for the nine months ended September 30, 2024 to $9.7 million compared to $5.4 million for the corresponding fiscal period in 2023. General and administrative expenses decreased by $5.7 million, and sales and marketing expenses decreased by $1.2 million. The deceases were primarily due to cost cutting measures and synergies from the Sundry acquisition including the elimination of its warehouse, office, fulfillment and redundancies in headcount. Other operating expenses included a gain of $10.7 million in 2023 due to the change in fair value of contingent consideration. In the third quarter of 2024, the Company recorded impairment expense of $600,000 pertaining to Bailey’s intangibles.
Other Income (Expenses)
Other expenses were $2.5 million while other expense was $5.6 million for the nine months ended September 30, 2024 and 2023, respectively. Interest expense in 2024 decreased due to less merchant advances and lower principal on outstanding loans.
Net Loss from Continuing Operations
Our net loss from continuing operations increased by $2.7 million to a net loss from continuing operations of $7.7 million for the nine months ended September 30, 2024 compared to income from continuing operations of $5.0 million for the corresponding fiscal period in 2023, primarily due to the change in fair value of contingent consideration in 2023 and lower gross profit in 2024, partially offset by lower general and administrative and sales and marketing expenses.
| 30 |
Liquidity and Capital Resources
Each of DBG, Bailey, Stateside and Sundry has historically satisfied our liquidity needs and funded operations with borrowings capital raises and internally generated cash flow, Changes in working capital, most notably accounts receivable, are driven primarily by levels of business activity. Historically each of DBG, Bailey, Stateside and Sundry has maintained credit line facilities to support such working capital needs and makes repayments on that facility with excess cash flow from operations.
As of September 30, 2024, we had cash of $158,601, but we had a working capital deficit of $16.0 million. The Company requires significant capital to meet its obligations as they become due. These factors raise substantial doubt about our Company’s ability to continue as a going concern. Throughout the next twelve months, the Company intends to fund its operations primarily from the funds raised through the equity line of credit 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.
Cash Flow Activities
The following table presents selected captions from our condensed statement of cash flows for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by operating activities: | ||||||||
| Net loss | $ | (7,735,453 | ) | $ | (6,582,082 | ) | ||
| Non-cash adjustments | $ | 6,025,549 | $ | (1,717,038 | ) | |||
| Change in operating assets and liabilities | $ | (1,583,366 | ) | $ | 1,787,481 | |||
| Net cash used in operating activities | $ | (3,293,269 | ) | $ | (6,457,639 | ) | ||
| Net cash provided by (used in) investing activities | $ | (101,081 | ) | $ | 41,331 | |||
| Net cash provided by financing activities | $ | 3,662,923 | $ | 6,207,950 | ||||
| Net change in cash | $ | 268,573 | $ | (208,357 | ) | |||
Cash Flows Used In Operating Activities
Our cash used by operating activities decreased by $3.2 million to cash used of $3.3 million for the nine months ended September 30, 2024, as compared to cash used of $6.5 million for the corresponding fiscal period in 2023. The decrease in net cash used in operating activities was primarily driven by non-cash charges in 2024, partially offset by our net loss and cash used in operating assets and liabilities.
Cash Flows Provided By (Used in) Investing Activities
Our cash used investing activities was $101,080 in the nine months ended September 30, 2024, primarily due to purchase of property, equipment & software and deposits on leases.
Our cash provided by investing activities was $41,331 in 2023 primarily due to a reduction of deposits, partially offset by purchase of property and cash sold in the H&J disposition.
Cash Flows Provided by Financing Activities
Cash provided by financing activities was $3.7 million for the nine months ended September 30, 2024. Cash inflows included $5.4 million in net proceeds from the issuance from the common stock for cash and $0.8 million in proceeds from loans and notes. Cash outflows are primarily due to $2.5 million in repayments of notes.
| 31 |
Contractual Obligations and Commitments
As of September 30, 2024, we had $8.2 million in outstanding principal on debt, primarily our promissory notes due to the Bailey44 Sellers, the March 2023 Notes, PPP and merchant advances. Aside from our remaining non-current SBA obligations, all outstanding loans have maturity dates through 2024.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
Emerging Growth Company Status
We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements.
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may, therefore, not be comparable to those of companies that comply with such new or revised accounting standards.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
| 32 |
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, who serve as our principal executive officer and principal financial and accounting officer, respectively, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. In making this evaluation, our management considered the material weakness in our internal control over financial reporting described below. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of such date.
We have initiated various remediation efforts, including the hiring of additional financial personnel/consultants with the appropriate public company and technical accounting expertise and other actions that are more fully described below. As such remediation efforts are still ongoing, we have concluded that the material weaknesses have not been fully remediated. Our remediation efforts to date have included the following:
● We have made an assessment of the basis of accounting, revenue recognition policies and accounting period cutoff procedures. In some cases, we made the necessary adjustments to convert the basis of accounting from cash basis to accrual basis. In all cases we have done the required analytical work to ensure the proper cutoff of the financial position and results of operations for the presented accounting periods.
● We have made an assessment of the current accounting personnel, financial reporting and information system environments and capabilities. Based on our preliminary findings, we have found these resources and systems lacking and have concluded that these resources and systems will need to be supplemented and/or upgraded. We are in the process of identifying a single, unified accounting and reporting system that can be used by the Company and Bailey, with the goal of ensuring consistency and timeliness in reporting, real time access to data while also ensuring ongoing data integrity, backup and cyber security procedures and processes.
● We engaged external consultants with public company and technical accounting experience to facilitate accurate and timely accounting closes and to accurately prepare and review the financial statements and related footnote disclosures. We plan to retain these financial consultants until such time that the internal resources of the Company have been upgraded and the required financial controls have been fully implemented.
● We have made an assessment on significant judgments and estimates, including impairment of long-lived assets and inventory valuation. We plan to take the steps as noted above to have the proper resources to conduct proper analyses on areas requiring judgments and estimates.
The actions that have been taken are subject to continued review, implementation and testing by management, as well as audit committee oversight. While we have implemented a variety of steps to remediate these weaknesses, we cannot assure you that we will be able to fully remediate them, which could impair our ability to accurately and timely meet our public company reporting requirements.
Notwithstanding the assessment that our internal controls over financial reporting are not effective and that material weaknesses exist, we believe that we have employed supplementary procedures to ensure that the financial statements contained in this filing fairly present our financial position, results of operations and cash flows for the reporting periods covered herein in all material respects.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Management believes that the material weakness set forth above did not have an effect on our financial results.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 33 |
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary course of business. These include proceedings, claims, and investigations relating to, among other things, regulatory matters, commercial matters, intellectual property, competition, tax, employment, pricing, discrimination, consumer rights, personal injury, and property rights. These matters also include the following:
| On March 21, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $43,501. Such amounts include interest due, and are included in accounts payable, net of payments made to date, in the accompanying consolidated balance sheets. The Company does not believe it is probable that the losses in excess of such trade payables will be incurred. | |
| On February 7, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $182,400. Such amounts include interest due, and are included in accounts payable, net of payments made to date, in the accompanying consolidated balance sheets. The Company settled for $250,000, in October 2024, which included additional legal costs. | |
| In August 2020 and March 2021, two lawsuits were filed against Bailey’s by third-party’s related to prior services rendered. The claims (including fines, fees, and legal expenses) total an aggregate of $96,900. Both matters were settled in February 2022 and are on payment plans which will be paid off in the second quarter of 2025. | |
| On December 21, 2020, a Company investor filed a lawsuit against DBG for reimbursement of their investment totaling $100,000. Claimed amounts are included in short-term convertible note payable in the accompanying consolidated balance sheets and the Company does not believe it is probable that losses in excess of such short-term note payable will be incurred. The Company is actively working to resolve this matter. | |
| On November 16, 2023 a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $345,384 , which represents past due fees and late fees. Such amounts are included in the accompanying balance sheets. The Company does not believe it is probable that the losses in excess of such pay trade payables will be incurred. | |
| On November 15, 2023 a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $582,208, which represents “double damages. The amount due to the vendor is $292,604. Such amounts are included in the accompanying balance sheets. The Company does not believe it is probable that the losses in excess of such pay trade payables will be incurred. |
| 34 |
On December 21, 2023, a former employee from over two years ago filed a wrongful termination lawsuit against the Company. The Company is disputing this claim. To this point, this same law firm recently sent a demand letter for another wrongful termination of a temporary worker we used from a third party placement agency. This person was not a Company employee at any time.
| A vendor filed a lawsuit against Bailey 44 related to a retail store lease in the amount of $1.5 million. The Company is disputing the claim for damages and the matter is ongoing. The vendor has recently updated the claim to now be $450,968 after signing a long-term lease with another brand for this location. The Company is disputing this new amount after review of the lease. |
All claims above, to the extent management believes it will be liable, have been included in accounts payable and accrued expenses and other liabilities in the accompanying consolidated balance sheet as of September 30, 2024.
Depending on the nature of the proceeding, claim, or investigation, we may be subject to monetary damage awards, fines, penalties, or injunctive orders. Furthermore, the outcome of these matters could materially adversely affect our business, results of operations, and financial condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant judgment to determine the likelihood and amount of loss related to such matters. While it is not possible to determine the outcomes, we believe based on our current knowledge that the resolution of all such pending matters will not, either individually or in the aggregate, have a material adverse effect on our business, results of operations, cash flows, or financial condition.
ITEM 1A. RISK FACTORS
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the nine months ended September 30, 3,442 shares of Series C Convertible Preferred Stock converted into 192,027 shares of common stock.
As previously reported, the Company entered into a securities purchase agreement with an accredited investor (the “Investor”), pursuant to which the Company issued on September 5, 2023 those certain Series A warrants to purchase 513,875 shares of common stock and Series B warrants to purchase 513,875 shares of common stock (collectively, the “Existing Warrants”), amongst other securities.
On May 3, 2024, the Company entered into that certain inducement offer to exercise common stock purchase warrants with the Investor (the “Inducement Agreement”), pursuant to which (i) the Company agreed to lower the exercise price of the Existing Warrants to $3.13 per share and (ii) the Investor agreed to exercise the Existing Warrants into 1,027,750 shares of common stock (the “Exercise Shares”) by payment of the aggregate exercise price of $3,216,857. The closing occurred on May 7, 2024.
Through September 30, 2024, the Company had exercised 378,750 of the 1,027,750 warrants at the amended exercise price of $3.13 per share. The Company received the entire gross proceeds of $3,216,857 in May 2024, which represents the exercise of the entire 1,027,750 warrants at the $3.13 exercise price. The Company received net proceeds of $2,877,475 after placement agent fees and expenses. Company also exercised 649,000 warrants which were prefunded through PIPE offerings in the third of 2023.
In July 2024, the Company issued 60,527 shares of common stock to a vendor for services rendered for a total value of $172,501.
In July 2024, 299 shares of Series C Convertible Preferred Stock converted into 16,681 shares of common stock.
In August 2024, 101 shares of Series C Convertible Preferred Stock converted into 5,635 shares of common stock.
In August 2024, the Company issued 106,020 shares of common stock to a commercial debt holder in satisfaction of $313,816.45 of debt.
Between October 3, 2024 and October 15, 2024, the Company issued 1,311,345 shares of the Company’s common stock (the “Shares”) to a certain note holder upon conversion of a portion of their promissory note originally issued by the Company on or around October 1, 2023 (the “Note”). On October 16, 2024, the Company became aware that the issuance of the Shares was in error and not permitted under the terms of the Note due to the requirement thereunder that stockholder approval be obtained prior to the issuance of more than 19.9% of the Company’s pre-transaction shares outstanding upon conversion(s) of the Note, as referenced and specifically required under Nasdaq Listing Rule 5635(d). The Company then notified the note holder that the Shares must be returned to the Company’s transfer agent for cancellation. Accordingly, the note holder is in the process of returning the Shares to the Company’s transfer agent for cancellation. Upon cancellation of the Shares, the Company’s issued and outstanding common stock count will decrease by 1,311,345 shares. On November 5, 2024, the Holder facilitated the cancellation of 1,311,345 shares of the Company’s common stock in accordance with the Company’s remediation plan.
The above issuances were made pursuant to an exemption from registration pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
(a) None.
(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.
(c)
During the quarter ended September 30, 2024, no director or officer of the Company
| 35 |
ITEM 6. EXHIBITS
* Filed herewith.
** Furnished herewith
# Indicates management contract or compensatory plan or arrangement.
| 36 |
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DIGITAL BRANDS GROUP, INC. | ||
| November 14, 2024 | By: | /s/ John Hilburn Davis, IV |
| John Hilburn Davis, IV, Chief Executive Officer | ||
| November 14, 2024 | By: | /s/ Reid Yeoman |
| Reid Yeoman, Chief Financial Officer | ||
| 37 |