Digital Brands Group, Inc 10-Q for FY2022 Q3

Digital Brands Group, Inc. (DBGI)

10-Q 2022-11-14 For: 2022-09-30

Added on April 07, 2026

About this 10-Q

Digital Brands Group, Inc filed this 10-Q on November 14, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).

Headline figures

Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $3.42M; up 58.3% from $2.16M a year earlier
Net loss: $4.89M; compared with a net loss of $8.94M a year earlier

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Delaware		46-1942864
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒


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


	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


	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)


	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		—		—	—		—	—		—	—		—	—		—	—		—	6,300		1	—		—		6,299,999		—		6,300,000
Warrants issued in connection with note		—		—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		692,299		—		692,299
Stock-based compensation		—		—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		110,093		—		110,093
Net loss		—		—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		(4,894,472)		(4,894,472)
Balances at September 30, 2022	$	—	$	—	1	$	—	—	$	—	—	$	—	—	$	—	—	$	—	6,300	$	1	529,492	$	53	$	75,440,940	$	(87,965,292)	$	(12,524,298)


	Fair Value Measurements
	as of September 30, 2022 Using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liability	$	—	$	—	$	—	$	—
Contingent consideration		—		—		18,597,831		18,597,831
Derivative liability		—		—		1,690,807		1,690,807
	$	—	$	—	$	20,288,638	$	20,288,638


	Fair Value Measurements
	as of December 31, 2021 Using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liability	$	—	$	18,223	$	—	$	18,223
Contingent consideration		—		—		12,179,476		12,179,476
Derivative liability		—		—		2,294,720		2,294,720
	$	—	$	18,223	$	14,474,196	$	14,492,419


	Contingent
	Consideration
	Liability
Outstanding as of December 31, 2021	$	12,179,476
Change in fair value		6,418,355
Outstanding as of September 30, 2022	$	18,597,831


	Derivative
	Liability
Outstanding as of December 31, 2021	$	2,294,720
Issuane of convertible notes		559,957
Conversion of underlying notes into common stock		(369,393)
Change in fair value		(794,477)
Outstanding as of September 30, 2022	$	1,690,807


	Gross		Accumulated		Carrying
	Amount		Amortization		Value
Amortized:
Customer relationships	$	6,453,750		(3,062,794)	$	3,390,956
		6,453,750		(3,062,794)		3,390,956

Indefinite-lived:
Brand name	$	7,836,920		—		7,836,920
	$	14,290,670	$	(3,062,794)	$	11,227,876


	Common	Weighted
	Stock	Average
	Warrants	Exercise Price
Outstanding - December 31, 2021	35,801	$	412.00
Granted	96,313		30.71
Exercised	—
Forfeited	—
Outstanding - September 30, 2022	132,114	$	134.13
Exercisable at September 30, 2022	104,459	$	166.65


Exhibit Number		Description of Exhibit

2.1		Membership Interest Purchase Agreement dated October 14, 2020 among D. Jones Tailored Collection, LTD and Digital Brands Group (formerly known as Denim.LA, Inc.) (incorporated by reference to our Current Report on Form 1-U (File No. 24R-00032), filed with the Commission on November 18, 2020)
2.2		First Amendment to Membership Interest Purchase Agreement dated December 31, 2020 among D. Jones Tailored Collection, LTD and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 2.2 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 13, 2021)
2.3		Agreement and Plan of Merger with Bailey 44, LLC dated February 11, 2020 among Bailey 44, LLC, Norwest Venture Partners XI, and Norwest Venture Partners XII, LP and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to exhibit 7.1 of our Current Report on Form 1-U, filed with the Commission on February 13, 2020)
2.4		Second Amendment to Membership Interest Purchase Agreement Dated May 10, 2021 among D. Jones Tailored Collection, LTD and Digital Brands Group (formerly known as Denim. LA, Inc.) (incorporated by reference to Exhibit 2.4 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on May 11, 2021)
3.1		Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to exhibit 2.1 of our Regulation A Offering Statement on Form 1-A (Commission File No. 024-10535), filed with the Commission on March 23, 2016)
3.2		Amendment to Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 13, 2021)
3.3		Form of Sixth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.3 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on May 12, 2021)
3.4		Bylaws of the Registrant (incorporated by reference to exhibit 2.2 of our Regulation A Offering Statement on Form 1-A (Commission File No. 024-10535), filed with the Commission on March 23, 2016)
3.5		Form of Amended and Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.5 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on May 12, 2021)
4.1		Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 27, 2021)
4.2		Form of Warrant Agency Agreement, including Form of Warrant Certificate (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 27, 2021)
4.3		Form of Underwriter’s Warrants (incorporated by reference to Exhibit 1.1 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on May 11, 2021)
4.4		Form of Lender’s Warrants (incorporated by reference to Exhibit 4.4 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 27, 2021)
4.5		Form of Series Seed Preferred Stock Purchase Agreement (incorporated by reference to Exhibit 4.5 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 13, 2021)
4.6		Form of Series A Preferred Stock Subscription Agreement (incorporated by reference to exhibit 4 of our Form 1-A/A (Commission File No. 024-10718), filed with the Commission on March 23, 2016)
4.7		Form of Series A-2 Preferred Stock Subscription Agreement (incorporated by reference to exhibit 4.1 of our Form 1-A/A (Commission File No. 024-10718), filed with the Commission on August 8, 2017)
4.8		Form of Series A-3 Preferred Stock Subscription Agreement (incorporated by reference to exhibit 4 of our Form 1-A/A (Commission File No. 024-10718), filed with the Commission on September 13, 2018)
4.9		Form of Series CF Preferred Stock Purchase Agreement (incorporated by reference to Exhibit 4.9 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 13, 2021)
4.10		Form of 2019 Regulation D Convertible Note (incorporated by reference to Exhibit 4.10 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on May 11, 2021)

4.11		Form of 2020 Regulation D Convertible Note (incorporated by reference to Exhibit 4.11 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on May 11, 2021)
10.1		Form of Indemnification Agreement between the Registrant and each of its directors and officers (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 13, 2021)
10.2		Form of Option Agreement with each of John “Hil” Davis, Laura Dowling and Reid Yeoman (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on May 11, 2021)
10.3		Amendment No. 7 to Senior Credit Agreement, dated as of April 1, 2021 between bocm3-DSTLD-Senior Debt, LLC, bocm3-DSTLD-Senior Debt 2, LLC, Stockholders and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 27, 2021)
10.4		Form of Board of Directors Agreement, entered into by each of the Director Nominees (incorporated by reference to Exhibit 10.27 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on April 13, 2021)
10.5		Original Issue Discount Promissory Note by Digital Brands Group, Inc. in favor of Target Capital 2, LLC in the aggregate amount of $1,000,000 dated as of April 8, 2021 (incorporated by reference to Exhibit 10.29 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on May 11, 2021)
10.6		Consulting Agreement dated as of April 8, 2021 between Alchemy Advisory LLC and Digital Brands Group, Inc. (incorporated by reference to Exhibit 10.30 to our Registration Statement on Form S-1/A (Commission File No. 333-255193), filed with the Commission on May 11, 2021)
Exhibit 31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 104		The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL.


Bailey	$	10,698,475
Harper & Jones		7,899,356
	$	18,597,831


	September 30,		December 31,
	2022		2021
Raw materials	$	435,025	$	292,167
Work in process		256,078		242,673
Finished goods		1,964,248		2,220,519
Inventory	$	2,655,352	$	2,755,358


	September 30,		December 31,
	2022		2021
Outstanding receivables:	$	423,984	$	579,295
Without recourse		83,224		361,584
With recourse		182,352		121,617
Advances		(50,779)		(77,208)
Credits due customers	$	638,781	$	985,288


	DIGITAL BRANDS GROUP, INC.

November 14, 2022	By:	/s/ John Hilburn Davi, IV
		John Hilburn Davis, IV, Chief Executive Officer


November 14, 2022	By:	/s/ Reid Yeoman
		Reid Yeoman, Chief Financial Officer

Date: November 14, 2022	By:	/s/ John Hilburn Davis
		John Hilburn Davis
		Chief Executive Officer
		(Principal Executive Officer)

Date: November 14, 2022	By:	/s/ Reid Yeoman
		Reid Yeoman
		Chief Financial Officer
		(Principal Financial Officer)