Digital Brands Group, Inc 10-Q for FY2023 Q3

Digital Brands Group, Inc. (DBGI)

10-Q 2023-11-14 For: 2023-09-30

Added on April 07, 2026

About this 10-Q

Digital Brands Group, Inc filed this 10-Q on November 14, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $3.26M; up 22.5% from $2.66M a year earlier
Net loss: $5.44M; compared with a net loss of $4.89M 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, 2023, and December 31, 2022	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023, and 2022	4

	Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2023, and 2022	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023, and 2022	6

	Notes to Condensed Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	31

ITEM 4.	Controls and Procedures	31

PART II. OTHER INFORMATION		33

ITEM 1.	Legal Proceedings	33

ITEM 1A.	Risk Factors	34

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

ITEM 3.	Defaults upon Senior Securities	39

ITEM 4.	Mine Safety Disclosures	39

ITEM 5.	Other Information	40

ITEM 6.	Exhibits	41

SIGNATURES		43


	September 30,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	1,067,259	$	1,275,616
Accounts receivable, net		419,125		583,368
Due from factor, net		258,825		839,400
Inventory		4,710,327		5,122,564
Prepaid expenses and other current assets		1,194,544		766,901
Assets per discontinued operations, current		—		241,544
Total current assets		7,650,080		8,829,393
Property, equipment and software, net		98,170		104,512
Goodwill		8,973,501		8,973,501
Intangible assets, net		10,701,764		12,906,238
Deposits		106,547		193,926
Right of use asset		207,745		102,349
Assets per discontinued operations		—		2,628,136
Total assets	$	27,737,807	$	33,738,055

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	8,273,340	$	8,016,173
Accrued expenses and other liabilities		4,781,632		3,936,920
Due to related parties		336,250		555,217
Contingent consideration liability		—		12,098,475
Convertible note payable, net		100,000		2,721,800
Accrued interest payable		1,888,014		1,561,795
Loan payable, current		1,878,023		1,829,629
Promissory note payable, net		4,899,018		9,000,000
Right of use liability, current portion		203,401		102,349
Liabilities per discontinued operations, current		—		1,071,433
Total current liabilities		22,359,678		40,893,791
Loan payable		150,000		150,000
Right of use liability		6,784		—
Liabilities per discontinued operations		—		147,438
Total liabilities		22,516,462		41,191,229

Commitments and contingencies

Stockholders’ equity (deficit):
Undesignated preferred stock, $0.0001 par, 10,000,000 shares authorized, 0 shares issued and outstanding as of both September 30, 2023 and December 31, 2022		—		—
Series A convertible preferred stock, $0.0001 par, 6,800 shares designated, 6,300 shares issued and outstanding as of both September 30, 2023 and December 31, 2022		1		1
Series C convertible preferred stock, $0.0001 par, 5,671 shares designated, 5,671 and 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		1		—
Common stock, $0.0001 par, 1,000,000,000 shares authorized, 578,090 and 317,502 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		58		18
Additional paid-in capital		115,496,683		96,294,123
Accumulated deficit		(110,275,397)		(103,747,316)
Total stockholders’ equity (deficit)		5,221,345		(7,453,174)
Total liabilities and stockholders’ equity (deficit)	$	27,737,807	$	33,738,055


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
			Restated				Restated
Net revenues	$	3,257,332	$	2,658,844	$	12,127,135	$	7,937,406
Cost of net revenues		1,554,044		1,700,547		6,094,532		5,252,943
Gross profit		1,703,288		958,298		6,032,603		2,684,464

Operating expenses:
General and administrative		3,735,527		2,979,915		12,115,590		11,053,536
Sales and marketing		1,151,377		1,022,331		3,188,054		3,252,418
Distribution		238,546		97,737		750,945		522,510
Change in fair value of contingent consideration		—		(702,885)		(10,698,475)		6,418,355
Total operating expenses		5,125,450		3,397,098		5,356,114		21,246,820

Income (loss) from operations		(3,422,162)		(2,438,800)		676,489		(18,562,356)

Other income (expense):
Interest expense		(1,956,080)		(2,271,548)		(4,907,567)		(6,002,160)
Other non-operating income (expenses)		(57,752)		(23,690)		(734,501)		2,629,685
Total other income (expense), net		(2,013,832)		(2,295,238)		(5,642,068)		(3,372,475)

Income tax benefit (provision)		—		—		—		—
Net loss from continuing operations		(5,435,994)		(4,734,038)		(4,965,579)		(21,934,831)
Income (loss) from discontinued operations, net of tax		—		(160,433)		(1,562,503)		(326,507)
Net loss	$	(5,435,994)	$	(4,894,471)	$	(6,528,082)	$	(22,261,338)

Weighted average common shares outstanding - basic and diluted		373,498		21,150		283,673		13,649

Net loss from continuing per common share - basic and diluted	$	(14.55)	$	(223.83)	$	(17.50)	$	(1,607.05)


	Series A Convertible			Series B			Series C Convertible						Additional				Total
	Preferred Stock			Preferred Stock			Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balances at December 31, 2021	—	$	—	—	$	—	—	$	—	5,201	$	1	$	58,614,172	$	(65,703,954)	$	(7,089,781)
Conversion of notes into common stock	—		—	—		—	—		—	350		—		1,201,582		—		1,201,582
Stock-based compensation	—		—	—		—	—		—	—		—		139,093		—		139,093
Net loss	—		—	—		—	—		—	—		—		—		(7,832,942)		(7,832,942)
Balances at March 31, 2022	—	$	—	—	$	—	—	$	—	5,550		1		59,954,847		(73,536,896)		(13,582,048)
Issuance of common stock in public offering	—		—	—		—	—		—	14,956		1		9,347,449		—		9,347,450
Offering costs	—		—	—		—	—		—	-		—		(1,930,486)		—		(1,930,486)
Conversion of notes and derivative liability into common stock	—		—	—		—	—		—	644		—		600,790		—		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	—		—	—		—	—		—	21,150		2		68,190,600		(83,070,820)		(14,880,218)
Common stock issued pursuant to consulting agreement	—		—	—		—	—		—	30		—		123,000		—		123,000
Issuance of Series A preferred stock	—		—	—		—	—		—	—		—		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	—		—	—		—	—		—	—		—		—		(4,894,471)		(4,894,471)
Balances at September 30, 2022	6,300		1	—		—	—		—	21,180		2		75,440,991		(87,965,292)		(12,524,298)

Balances at December 31, 2022	6,300	$	1	—	$	—	—	$	—	178,758	$	18	$	96,294,123	$	(103,747,316)	$	(7,453,174)
Issuance of common stock pursuant to private placement, net of offering costs	—		—	—		—	—		—	51,086		5		4,463,071		—		4,463,076
Shares issued for services	—		—	—		—	—		—	4,756		—		499,337		—		499,338
Shares and warrants issued with notes	—		—	—		—	—		—	4,400		—		658,494		—		658,494
Stock-based compensation	—		—	—		—	—		—	—		—		105,594		—		105,594
Net loss	—		—	—		—	—		—	—		—		—		(6,136,349)		(6,136,349)
Balances at March 31, 2023	6,300		1	—		—	—		—	238,999		24		102,020,619		(109,883,665)		(7,863,021)
Conversion of notes into preferred stock	—		—	—		—	5,761		1	—		—		5,759,177		—		5,759,177
Issuance of Series B preferred stock	—		—	1		—	—		—	—		—		25,000		—		25,000
Issuance of common stock pursuant to disposition	—		—	—		—	—		—	78,103		8		1,357,035		—		1,357,043
Stock-based compensation	—		—	—		—	—		—	—		—		101,500		—		101,500
Net income	—		—	—		—	—		—	—		—		—		5,044,261		5,044,262
Balances at June 30, 2023	6,300	$	1	1	$	—	5,761	$	1	317,102	$	32		109,263,331		(104,839,403)		4,423,961
Cancellation of Series B preferred stock	—		—	(1)		—	—		—	—		—		(25,000)		—		(25,000)
Issuance of common stock pursuant to private placement, net of offering costs	—		—	—		—	—		—	32,000		3		3,832,302		—		3,832,305
Common stock issued for services	—		—	—		—	—		—	105,174		11		1,157,079		—		1,157,090
Exercise of warrants	—		—	—		—	—		—	123,814		12		1,167,554		—		1,167,566
Stock-based compensation	—		—	—		—	—		—	—		—		101,417		—		101,417
Net loss	—		—	—		—	—		—	—		—		—		(5,435,994)		(5,435,994)
Balances at September 30, 2023	6,300	$	1	—	$	—	5,761	$	1	578,090	$	58	$	115,496,683	$	(110,275,397)	$	5,221,345


	Fair Value Measurements
	as of December 31, 2022 Using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent consideration	$	—	$	—	$	12,098,475	$	12,098,475
	$	—	$	—	$	12,098,475	$	12,098,475


Cash payment due to H&J Seller	$	(229,000)
Common shares issued to H&J Seller*		(1,357,043)
Total fair value of consideration received (given)	$	(1,586,043)

Carrying amount of assets and liabilities
Cash and cash equivalents		18,192
Accounts receivable, net		55,782
Prepaid expenses and other current assets		25,115
Goodwill		1,130,311
Intangible assets, net		1,246,915
Deposits		4,416
Accounts payable		(40,028)
Accrued expenses and other liabilities		(734,068)
Deferred revenue		(18,347)
Due to related parties		(1,008)
Contingent consideration		(1,400,000)
Loan payable		(219,894)
Note payable - related party		(129,489)
Total carrying amount of assets and liabilities		(62,103)

Loss on disposition of business	$	(1,523,940)


	September 30,		December 31
	2023		2022
Bailey	$	3,158,123	$	3,158,123
Stateside		2,104,056		2,104,056
Sundry		3,711,322		3,711,322
	$	8,973,501	$	8,973,501


	Gross		Accumulated		Carrying
	Amount		Amortization		Value
Amortized:
Customer relationships	$	9,734,560	$	(4,874,676)	$	4,859,884
	$	9,734,560	$	(4,874,676)	$	4,859,884

Indefinite-lived:
Brand name	$	5,841,880		—		5,841,880
	$	15,576,440	$	(4,874,676)	$	10,701,764


			Unamortized		Convertible Note
	Principal		Debt Discount		Payable, Net
Balance, December 31, 2022	$	4,100,000	$	(1,378,200)	$	2,721,800
Repayments of notes		(4,000,000)		—		(4,000,000)
Amortization of debt discount		—		689,100		689,100
Loss on extinguishment of debt		—		689,100		689,100
Balance, September 30, 2023	$	100,000	$	—	$	100,000


	Common	Weighted
	Stock	Average
	Warrants	Exercise Price
Outstanding - December 31, 2022	176,733	$	209.25
Granted	1,641,262		14.69
Exercised	(155,899)		27.63
Forfeited	—		—
Outstanding - September 30, 2023	1,662,096	$	20.86
Exercisable at December 31, 2022	171,278	$	210.50
Exercisable at September 30, 2023	1,662,096	$	26.19


Exhibit Number		Description
3.1		Sixth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.3 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg. No. 333-261865), filed with the SEC on January 6, 2022).
3.2		Certificate of Amendment of Certificate of Incorporation of Digital Brands Group, Inc. dated October 13, 2022 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 18, 2022).
3.3		Certificate of Amendment of Certificate of Incorporation of Digital Brands Group, Inc. dated October 21, 2022 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 26, 2022).
3.4		Certificate of Amendment of Certificate of Incorporation of Digital Brands Group, Inc. dated August 21, 2023 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 23, 2023).
3.5		Amended and Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.5 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg. No. 333-261865), filed with the SEC on January 6, 2022).
3.6		Amendment No. 1 to the Amended and Restated Bylaws of Digital Brands Group, Inc., as amended (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 12, 2022).
3.7		Amendment No. 2 to the Amended and Restated Bylaws of Digital Brands Group, Inc., as amended (incorporated by reference to Exhibit 3.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 31, 2022).
3.8		Certificate of Designation of Series B Preferred Stock, dated May 30, 2023 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on June 1, 2023).
3.9		Certificate of Designation of Series C Convertible Preferred Stock, dated June 21, 2023 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on June 27, 2023).
3.10		Series A Preferred Stock Certificate of Cancellation filed on September 13, 2023 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on September 14, 2023).
3.11		Series B Preferred Stock Certificate of Cancellation filed on September 13, 2023 (incorporated by reference to Exhibit 3.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on September 14, 2023).
4.1		Fourth Amendment to Promissory Note, dated as of July 5, 2023, by Digital Brands Group, Inc. in favor of Norwest Venture Partners XI, LP and Norwest Venture Partners XII, LP (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on July 7, 2023).
4.2		Form of Series A Warrant (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on September 5, 2023).
4.3		Form of Series B Warrant (incorporated by reference to Exhibit 4.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on September 5, 2023).
4.4		Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.3 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on September 5, 2023).
4.5		Form of Warrant Amendment (incorporated by reference to Exhibit 4.4 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on September 5, 2023).
4.6		Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.5 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on September 5, 2023).
10.1		Fourth Amendment to Promissory Note, dated as of July 5, 2023 (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on July 7, 2023).
10.2		Form of Securities Purchase Agreement, dated as of August 31, 2023, by and among the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on September 5, 2023).
10.3		Form of Registration Rights Agreement, dated as of August 31, 2023, by and among the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on September 5, 2023).
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350

101.INS*		Inline XBRL Instance
101.SCH*		Inline XBRL Taxonomy Extension Schema
101.CAL*		Inline XBRL Taxonomy Extension Calculation
101.LAB*		Inline XBRL Taxonomy Extension Labels
101.PRE*		Inline XBRL Taxonomy Extension Presentation
104		Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)


	September 30,		December 31,
	2023		2022
Raw materials	$	1,508,416	$	1,611,134
Work in process		653,412		888,643
Finished goods		2,548,499		2,622,787
Inventory	$	4,710,327	$	5,122,564


	September 30,		December 31,
	2023		2022
Outstanding receivables:
Without recourse	$	308,918	$	1,680,042
With recourse		29,843		65,411
Matured funds and deposits		103,095		81,055
Advances		(172,285)		(632,826)
Credits due customers		(10,746)		(354,282)
	$	258,825	$	839,400


	DIGITAL BRANDS GROUP, INC.

November 14, 2023	By:	/s/ John Hilburn Davis, IV
		John Hilburn Davis, IV, Chief Executive Officer


November 14, 2023	By:	/s/ Reid Yeoman
		Reid Yeoman, Chief Financial Officer


Date: November 14, 2023	By:	/s/ John Hilburn Davis
		John Hilburn Davis
		Chief Executive Officer
		(Principal Executive Officer)

Date: November 14, 2023	By:	/s/ Reid Yeoman
		Reid Yeoman
		Chief Financial Officer
		(Principal Financial Officer)