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

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

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

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


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