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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission file number: 001-40400

DIGITAL BRANDS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

46-1942864

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1400 Lavaca Street

Austin, TX 78701

(Address of principal executive offices, including zip code)

Tel: (209) 651-0172

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

DBGI

The Nasdaq Stock Market LLC

Warrants, each exercisable to purchase one share of common stock

DBGIW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if this registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 

As of November 14, 2022 the Company had 1,073,337 shares of common stock, $0.0001 par value, issued and outstanding.

Table of Contents

DIGITAL BRANDS GROUP, NC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

3

ITEM 1.

Condensed Consolidated Financial Statements – Unaudited

3

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021

4

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months ended September 30, 2022 and 2021

5

Condensed Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2022 and 2021

6

Notes to Condensed Consolidated Financial Statements

7

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

ITEM 3

Quantitative and Qualitative Disclosures about Market Risk

26

ITEM 4.

Controls and Procedures

26

PART II. OTHER INFORMATION

28

ITEM 1.

Legal Proceedings

28

ITEM 1A.

Risk Factors

28

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

ITEM 3.

Defaults upon Senior Securities

29

ITEM 4.

Mine Safety Disclosures

29

ITEM 5.

Other Information

29

ITEM 6.

Exhibits

30

SIGNATURES

32

2

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

DIGITAL BRANDS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

    

September 30, 

    

December 31, 

2022

2021

ASSETS

Current assets:

 

  

 

  

Cash and cash equivalents

$

195,399

$

528,394

Accounts receivable, net

 

378,455

 

89,394

Due from factor, net

 

638,781

 

985,288

Inventory

 

2,655,352

 

2,755,358

Prepaid expenses and other current assets

 

940,334

 

417,900

Total current assets

 

4,808,321

 

4,776,334

Deferred offering costs

 

367,696

 

367,696

Property, equipment and software, net

 

46,454

 

97,265

Goodwill

 

18,264,822

 

18,264,822

Intangible assets, net

 

11,227,876

 

12,841,313

Deposits

 

137,794

 

137,794

Right of use asset

152,387

Total assets

$

35,005,350

$

36,485,224

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

  

Current liabilities:

 

 

  

Accounts payable

$

6,945,633

$

6,562,690

Accrued expenses and other liabilities

 

3,952,366

 

2,237,145

Deferred revenue

 

396,374

 

276,397

Due to related parties

 

209,943

 

277,635

Contingent consideration liability

18,597,831

12,179,476

Convertible note payable, net

 

8,075,872

 

100,000

Accrued interest payable

 

2,103,161

 

1,110,679

Note payable - related party

 

179,489

 

299,489

Venture debt, net of discount

 

 

6,001,755

Loan payable, current

 

1,426,885

 

2,502,000

Promissory note payable

 

3,500,000

 

3,500,000

Right of use liability, current portion

152,387

Total current liabilities

 

45,539,941

 

35,047,266

Convertible note payable, net

 

 

5,501,614

Loan payable

 

298,900

 

713,182

Derivative liability

 

1,690,807

 

2,294,720

Warrant liability

 

 

18,223

Total liabilities

 

47,529,648

 

43,575,005

Commitments and contingencies (Note 11)

 

 

  

Stockholders’ equity (deficit):

 

 

  

Undesignated preferred stock, $0.0001 par, 9,993,199 shares authorized, 0 shares issued and outstanding as September 30, 2022, 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2021

 

 

Series A preferred stock, $0.0001 par, 1 share authorized, issued and outstanding as of September 30, 2022, none authorized or outstanding as of December 31, 2021

Series A convertible preferred stock, $0.0001 par, 6,800 shares designated, 6,300 shares issued and outstanding as of September 30, 2022, none authorized or outstanding as of December 31, 2021

1

Common stock, $0.0001 par, 1,000,000,000 shares authorized, 529,492 and 528,742 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

53

13

Additional paid-in capital

 

75,440,940

 

58,614,160

Accumulated deficit

 

(87,965,292)

 

(65,703,954)

Total stockholders’ equity (deficit)

 

(12,524,298)

 

(7,089,781)

Total liabilities and stockholders’ equity (deficit)

$

35,005,350

$

36,485,224

See the accompanying notes to the unaudited condensed consolidated financial statements

3

Table of Contents

DIGITAL BRANDS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Net revenues

3,424,522

2,163,280

$

10,595,933

$

3,575,214

Cost of net revenues

 

1,771,178

 

954,137

 

5,298,011

 

2,179,023

Gross profit (loss)

 

1,653,344

 

1,209,143

 

5,297,922

 

1,396,191

Operating expenses:

 

 

 

 

General and administrative

 

3,624,841

 

3,720,863

 

13,226,308

 

12,820,841

Sales and marketing

 

1,225,417

 

1,307,219

 

3,971,280

 

2,401,322

Distribution

 

97,737

 

105,332

 

522,510

 

238,774

Change in fair value of contingent consideration

(702,885)

3,988,493

6,418,355

7,039,394

Total operating expenses

 

4,245,110

 

9,121,907

 

24,138,453

 

22,500,331

Loss from operations

 

(2,591,766)

 

(7,912,764)

 

(18,840,531)

 

(21,104,140)

Other income (expense):

 

 

 

 

Interest expense

 

(2,279,016)

 

(447,842)

 

(6,050,492)

 

(2,020,806)

Other non-operating income (expenses)

 

(23,690)

 

(577,441)

 

2,629,685

 

(634,654)

Total other income (expense), net

 

(2,302,706)

 

(1,025,283)

 

(3,420,807)

 

(2,655,460)

Income tax benefit (provision)

 

 

 

 

1,100,120

Net loss

$

(4,894,472)

$

(8,938,047)

$

(22,261,338)

$

(22,659,480)

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

528,758

 

117,866

 

341,229

 

60,027

Net loss per common share - basic and diluted

$

(9.26)

$

(75.83)

$

(65.24)

$

(377.49)

See the accompanying notes to the unaudited condensed consolidated financial statements

4

Table of Contents

DIGITAL BRANDS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

Series Seed

Series A

Series A-2

Series A-3

Series CF

Series B

Series A Convertible

Additional

Total

Preferred Stock

Preferred Stock

Preferred Stock

Preferred Stock

Preferred Stock

Preferred Stock

Preferred Stock

Common Stock

Paid-in

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balances at December 31, 2020

20,714,518

$

2,071

 

5,654,072

$

565

 

5,932,742

$

593

 

9,032,330

$

904

 

836,331

$

83

 

20,754,717

$

2,075

 

$

 

6,642

$

1

$

27,482,060

$

(33,345,997)

$

(5,857,645)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,976

 

 

36,976

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,023,935)

 

(3,023,935)

Balances at March 31, 2021

20,714,518

2,071

5,654,072

565

5,932,742

593

9,032,330

904

836,331

83

20,754,717

2,075

6,642

1

27,519,036

(36,369,932)

(8,844,604)

Conversion of preferred stock into common stock

(20,714,518)

(2,071)

(5,654,072)

(565)

(5,932,742)

(593)

(9,032,330)

(904)

(836,331)

(83)

(20,754,717)

(2,075)

40,272

4

6,287

Issuance of common stock in public offering

24,096

2

10,000,000

10,000,002

Offering costs

(2,116,957)

(2,116,957)

Exercise of over-allotment option, net of offering costs

 

 

 

 

 

 

 

3,614

1,364,997

1,364,997

Conversion of debt into common stock

11,352

1

2,680,288

2,680,289

Conversion of related party notes and payables into common stock

 

 

 

 

 

 

 

1,524

257,515

257,515

Common stock and warrants issued in connection with note

200

73,958

73,958

Common stock issued in connection with business combination

21,928

2

8,025,540

8,025,542

Exercise of warrants

319

145,696

145,696

Common stock issued pursuant to consulting agreement

500

183,000

183,000

Stock-based compensation

 

 

 

 

 

 

 

3,801,553

3,801,553

Net loss

 

 

 

(10,697,498)

(10,697,498)

Balances at June 30, 2021

 

 

 

 

 

 

 

110,446

10

51,940,914

(47,067,430)

4,873,493

Issuance of common stock in public offering

1,264

367,696

367,696

Common stock issued in connection with business combination

11,015

1

3,403,195

3,403,196

Exercise of warrants

3,550

1,622,350

1,622,350

Stock-based compensation

134,113

134,113

Net loss

(8,938,047)

(8,938,047)

Balances at September 30, 2021

$

$

$

$

$

$

$

126,275

$

11

$

57,468,268

$

(56,005,477)

$

1,462,801

Balances at December 31, 2021

$

 

$

 

$

 

$

 

$

 

$

 

$

 

130,017

$

13

$

58,614,160

$

(65,703,954)

$

(7,089,781)

Conversion of notes into common stock

 

 

 

 

 

 

 

8,739

1

1,201,581

1,201,582

Stock-based compensation

139,093

139,093

Net loss

(7,832,942)

(7,832,942)

Balances at March 31, 2022

138,756

14

59,954,834

(73,536,896)

(13,582,048)

Issuance of common stock in public offering

373,898

37

9,347,413

9,347,450

Offering costs

(1,930,486)

(1,930,486)

Conversion of notes and derivative liability into common stock

16,088

2

600,788

600,790

Warrants issued in connection with note

98,241

98,241

Stock-based compensation

119,759

119,759

Net loss

(9,533,924)

(9,533,924)

Balances at June 30, 2022

 

 

 

 

 

 

 

528,742

53

68,190,549

(83,070,820)

(14,880,218)

Common stock issued pursuant to consulting agreement

750

123,000

123,000

Issuance of Series A preferred stock

1

25,000

25,000

Conversion of venture debt into Series A convertible preferred stock