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What changed in Digital Brands Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Digital Brands Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+279 added−284 removedSource: 10-K (2024-04-15) vs 10-K (2023-04-17)

Top changes in Digital Brands Group, Inc.'s 2023 10-K

279 paragraphs added · 284 removed · 216 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

58 edited+28 added−13 removed55 unchanged
Biggest changeWe believe that we can sell our other menswear products and brands in the H&J showrooms. Since all the product is custom made, there is no old stock to sell off. Stateside and Sundry products are distributed through wholesale and direct-to-consumer channels includes premium department stores and national chains, select independent boutiques and third-party online stores.
Biggest changeSales and Distribution Bailey products are distributed through wholesale and direct-to-consumer channels. The wholesale channel includes premium department stores, select independent boutiques and third-party online stores. Since all the product is custom made, there is no old stock to sell off.
Sundry is mostly a wholesale brand with meaningful online revenue. Their T-shirt prices range from $68 to $98, their other tops range from $98 to $198, and their bottoms from $80 to $228.
Sundry is mostly a wholesale brand with meaningful online revenue. Their T-shirt prices range from $68 to $98, their other tops range from $98 to $198, and their bottoms range from $80 to $228.
We do not own or operate any manufacturing facilities and rely solely on third-party contract manufacturers operating primarily in Europe, United States, and the Asia Pacific region for the production of our products depending on the brand.
We do not own or operate any manufacturing facilities and rely solely on third-party contract manufacturers operating primarily in Europe, the United States, and the Asia Pacific region for the production of our products, depending on the brand.
Principal Products and Services Bailey — Brand Summary In February 2020, we acquired Bailey. Bailey delivers distinct high-quality, well-fitting, on-trend contemporary apparel using at an entry contemporary price point. Bailey combines beautiful, luxe fabrics and on-trend designs to offer clean, sophisticated ready-to-wear separates that easily transition from day to night and for date night.
Principal Products and Services Bailey — Brand Summary In February 2020, we acquired Bailey. Bailey delivers distinct high-quality, well-fitting, on-trend contemporary apparel using an entry contemporary price point. Bailey combines beautiful, luxe fabrics and on-trend designs to offer clean, sophisticated ready-to-wear separates that easily transition from day to night and for date night.
As such, DSTLD boasts an line of key wardrobe pieces in a fundamental color palette of black, white, grey, and denim. Our denim prices generally range from $75 to $95; similar quality brands produced at the same factories wholesale for approximately $95 to $125 and retail for $185 to $350.
As such, DSTLD boasts a line of key wardrobe pieces in a fundamental color palette of black, white, grey, and denim. Our denim prices generally range from $75 to $95; similar quality brands produced at the same factories wholesale for approximately $95 to $125 and retail for $185 to $350.
Stateside is primarily a wholesale brand with very limited online revenue. Their T-shirt prices range from $68 to $94, their other tops range from $98 to $130, and their bottoms from $80 to $144. Sunnyside — Brand Summary We acquired Sundry in December 2022.
Stateside is primarily a wholesale brand with very limited online revenue. Their T-shirt prices range from $68 to $94, their other tops range from $98 to $130, and their bottoms from $80 to $144. Sundry — Brand Summary We acquired Sundry in December 2022.
Our suits are expected to range from $295 to $495; similar quality brands produced at the same factories wholesale for approximately $300 to $600 and retail for $600 to $1,200. Our dress shirts will range $55 to $65, similar quality brands produced at the same factories wholesale for approximately $50 to $75 and retail for $95 to $150.
Our suits are expected to range from $295 to $495; similar quality brands produced at the same factories wholesale for approximately $300 to $600 and retail for $600 to $1,200. Our dress shirts will range from $55 to $65, while similar quality brands produced at the same factories wholesale for approximately $50 to $75 and retail for $95 to $150.
When deciding which factory to source a specific product from, we take into account the following factors: ● Cost of garment ● Retail price for end consumer ● Production time ● Minimum order quantity ● Shipping/delivery time ● Payment terms By taking all of these into consideration, we can focus on making sure we have access to in-demand and high quality products available for sale to our customer at the competitive price points and sustainable margins for our business.
When deciding which factory to source a specific product from, we take into account the following factors: ● Cost of garment ● Retail price for end consumer ● Production time ● Minimum order quantity ● Shipping/delivery time ● Payment terms By taking all of these into consideration, we can focus on making sure we have access to in-demand and high quality products available for sale to our customers at competitive price points and sustainable margins for our business.
Further to the H&J Purchase Agreement, we agreed that if, at May 18, 2022, the one year anniversary of the closing date of our initial public offering, the product of the number of shares of our common stock issued at the closing of such acquisition multiplied by the average closing price per share of our shares of common stock 2 Table of Contents as quoted on the NasdaqCM for the thirty (30) day trading period immediately preceding such date plus the gross proceeds, if any, of shares of our stock issued to such sellers and sold by them during the one year period from the closing date of the offering does not exceed the sum of $9.1 million, less the value of any shares of common stock cancelled further to any indemnification claims or post-closing adjustments under the H&J Purchase Agreement, then we shall issue to the subject sellers an additional aggregate number of shares of common stock equal to any such valuation shortfall at a per share price equal to the then closing price per share of our common stock as quoted on the NasdaqCM.
Further to the H&J Purchase Agreement, we agreed that if, at May 18, 2022, the one year anniversary of the closing date of our initial public offering, the product of the number of shares of our common stock issued at the closing of such acquisition multiplied by the average closing price per share of our shares of common stock as quoted on the NasdaqCM for the thirty (30) day trading period immediately preceding such date plus the gross proceeds, if any, of shares of our stock issued to such sellers and sold by them during the one year period from the closing date of the offering does not exceed the sum of $9.1 million, less the value of any shares of common stock cancelled further to any indemnification claims or post-closing adjustments under the H&J Purchase Agreement, then we shall issue to the subject sellers an additional aggregate number of shares of common stock equal to any such valuation shortfall at a per share price equal to the then closing price per share of our common stock as quoted on the NasdaqCM.
Marketing We believe marketing is a critical element in creating brand awareness and an emotional connection, as well as driving new customer acquisition and retention. Each brand has their own in-house marketing department, which creates and produces marketing initiatives specific to each marketing channel and based on the specific purpose, such as acquisition, retention or brand building.
Marketing We believe marketing is a critical element in creating brand awareness and an emotional connection, as well as driving new customer acquisition and retention. Each brand has its own in-house marketing department, which creates and produces marketing initiatives specific to each marketing channel and based on the specific purpose, such as acquisition, retention or brand building.
We believe we are well-positioned to compete in the apparel, leather products and accessories segments by developing high quality, well designed products at competitive prices that are often below our competitor’s pricing. We focus on designing products that we hope exceed consumer expectations, which should result in retention and repurchases.
We believe we are well-positioned to compete in the apparel, leather products and accessories segments by developing high quality, well designed products at competitive prices that are often below our competitors’ pricing. We focus on designing products that we hope exceed consumer expectations, which should result in retention and repurchases.
With our acquisition of Sundry, we view the following as tangible near-term growth opportunities: ● Increase online revenues significantly as we cross market their customer base with the customer bases from our other brands, especially on the Bailey Shop. ● Increase gross margin dollars by updating the product line and driving increased volume through the wholesale and online channels. ● Launch a new product category for 2024 in women’s athleisure.
With our acquisition of Sundry, we view the following as tangible near-term growth opportunities: ● Increase online revenues significantly as we cross-market their customer base with the customer bases from our other brands, especially on the Bailey Shop. ● Increase gross margin dollars by updating the product line and driving increased volume through the wholesale and online channels. 6 Table of Contents ● Launch a new product category for 2024 in women’s athleisure.
Our international business is subject to additional laws and regulations, including restrictions on imports from, exports to, and services provided to persons located in certain countries and territories, as well as foreign laws and regulations addressing topics such as advertising and marketing practices, customs duties and taxes, privacy, data protection, information security and consumer rights, any of which might apply by virtue of our operations in foreign countries and territories or our contacts with consumers in such foreign 10 Table of Contents countries and territories.
Our international business is subject to additional laws and regulations, including restrictions on imports from, exports to, and services provided to persons located in certain countries and territories, as well as foreign laws and regulations addressing topics such as advertising and marketing practices, customs duties and taxes, privacy, data protection, information security and consumer rights, any of which might apply by virtue of our operations in foreign countries and territories or our contacts with consumers in such foreign countries and territories.
Historically, these factors are driven by the wholesale buyer’s belief of how well they think the product will sell at their stores. For example, if the collection is considered very strong by the wholesale buyer, we usually achieve higher quantities, higher margins and lower future markdown guarantees.
Historically, these factors are driven by the wholesale buyer’s belief of how well they think the product will sell at their stores. For example, if the collection is considered very strong by the wholesale 7 Table of Contents buyer, we usually achieve higher quantities, higher margins and lower future markdown guarantees.
We deliver casual luxury rooted in denim; garments that are made with exhaustive attention to detail from the finest materials for a closet of timeless, functional staples. 5 Table of Contents Our brand name “DSTLD” is derived from the word ‘distilled,’ meaning to extract only the essentials.
We deliver casual luxury rooted in denim; garments that are made with exhaustive attention to detail from the finest materials for a closet of timeless, functional staples. Our brand name “DSTLD” is derived from the word ‘distilled,’ meaning to extract only the essentials.
All of our contract 7 Table of Contents manufacturers are evaluated for quality systems, social compliance and financial strength by our internal teams prior to being selected and on an ongoing basis. Where appropriate, we strive to qualify multiple manufacturers for particular product types and fabrications.
All of our contract manufacturers are evaluated for quality systems, social compliance and financial strength by our internal teams prior to being selected and on an ongoing basis. Where appropriate, we strive to qualify multiple manufacturers for particular product types and fabrications.
Bailey offers fashionable staples with timeless design features, making them wearable for any occasion — majority of products are tops, sweaters and dresses. 4 Table of Contents Bailey’s full seasonal collections of dresses, tops, jumpsuits, bottoms, sets, jackets and rompers retail at price points between $90 – $350.
Bailey offers fashionable staples with timeless design features, making them wearable for any occasion — the majority of products are tops, sweaters and dresses. Bailey’s full seasonal collections of dresses, tops, jumpsuits, bottoms, sets, jackets and rompers retail at price points between $90 and $350.
Affiliate Marketing: With select online publications and influencers, we’ve sought to establish CPA or revenue sharing agreements. We believe these agreements are effective in incentivizing influencers or media to push our product and allowing us to only pay partners based on performance. Email Marketing: We utilize email marketing to build awareness and drive repeat purchases.
Affiliate Marketing: With select online publications and influencers, we’ve sought to establish [cost/commission] per action (“CPA”) or revenue sharing agreements. We believe these agreements are effective in incentivizing influencers or media to push our product and allowing us to only pay partners based on performance. Email Marketing: We utilize email marketing to build awareness and drive repeat purchases.
As an example, the Digital Brand’s Group marketing and data team reviews the customer data across all our portfolio brands and will work with each brand to identify the new customers from our other portfolio brands that they can target and what styles and looks should be created for each of those customer cohorts.
As an example, the Digital Brand Group’s marketing and data team reviews 5 Table of Contents the customer data across all our portfolio brands and will work with each brand to identify the new customers from our other portfolio brands that they can target and what styles and looks should be created for each of those customer cohorts.
All of our garments are produced according to each brand’s specifications and requires that all of manufacturers adhere to strict regulatory compliance and standards of conduct.
All of our garments are produced according to each brand’s specifications and we require that all manufacturers adhere to strict regulatory compliance and standards of conduct.
ITEM 1. BUSINESS Recent Development We have been involved in a dispute with the former owners of H&J regarding our obligation to “true up” their ownership interest in our company further to that membership interest purchase agreement dated May 10, 2021 whereby we acquired all of the outstanding membership interests of H&J (as amended, the “H&J Purchase Agreement”).
H&J Settlement Agreement and Disposition of H&J We have been involved in a dispute with the former owners of H&J regarding our obligation to “true up” their ownership interest in our company further to that membership interest purchase agreement dated May 10, 2021 whereby we acquired all of the outstanding membership interests of H&J (as amended, the “H&J Purchase Agreement”).
We believe that we can create more compelling price points as we leverage our direct-to-consumer expertise. As we increase the direct-to-consumer revenue mix, we believe we will have opportunities to increase our margins, which will mostly be passed along to the customer with lower price points.
We believe that we can create more compelling price points as we leverage our direct-to-consumer expertise. As we increase the direct-to-consumer revenue mix, we believe we will have opportunities to increase our margins, which will mostly be passed along to the customer with lower price points. Stateside — Brand Summary We acquired Stateside in August 2021.
Our Sundry products will be shipped from our suppliers to our distribution center in Los Angeles, CA which will handle all our warehousing, fulfillment, outbound shipping and returns processing. In 2023, we will review maintaining our own distribution centers versus using a third-party solution.
Currently, our Bailey, DSTLD, Stateside and Sundry products are shipped from our suppliers to our distribution center in Los Angeles, CA, which currently handles all our warehousing, fulfillment, outbound shipping and returns processing. In 2023, we will review maintaining our own distribution centers versus using a third-party solution.
Our tee shirts and tops range $30 to $90, similar quality brands produced at the same factories wholesale for approximately $25 to $75 and retail for $60 to $250. Our casual pants range $85 to $109, similar quality brands produced at the same factories wholesale for approximately $85 to $115 and retail for $175 to $250.
Our t-shirts and tops range from $30 to $90, while similar quality brands produced at the same factories wholesale for approximately $25 to $75 and retail for $60 to $250. Our casual pants range from $85 to $109, with similar quality brands produced at the same factories wholesaling for approximately $85 to $115 and retailing for $175 to $250.
We will also use loyalty point multipliers to create customer purchases, especially, which is a strategy beauty retailer have effectively used. Competition Our business depends on our ability to create consumer demand for our brands and products.
Customers will earn reward points that can be used to purchase products. We will also use loyalty point multipliers to create customer purchases, especially, which is a strategy beauty retailer have effectively used. Competition Our business depends on our ability to create consumer demand for our brands and products.
Available Information Our Internet address is https://www.digitalbrandsgroup.co. Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form 10-K.
We also provide robust compensation and benefits programs to help meet the needs of our employees. Available Information Our Internet address is https://www.digitalbrandsgroup.co. Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form 10-K.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a), 14, and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available through the SEC’s Interactive Data Electronic Applications system at http://www.sec.gov .
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a), 14, and 15(d) of the Exchange Act are available on the SEC’s website http://www.sec.gov .
As is customary in the wholesale side of the retail apparel industry, we work with the wholesale buyers for every product collection and season to develop a purchase order based on quantities, pricing, profit margin and any future mark- down agreements.
We do not have material terms or arrangements with our third-party distributors. As is customary in the wholesale side of the retail apparel industry, we work with the wholesale buyers for every product collection and season to develop a purchase order based on quantities, pricing, profit margin and any future mark-down agreements.
We plan to visit the major fashion, tech, and news outlets in New York City on a quarterly basis to keep them up to date on our latest launches and any relevant company developments. We also plan to host local Los Angeles press at our office space. Celebrity gifting We approach celebrity gifting in a strategic, discerning manner.
We may utilize outside agencies from time to time. We visit the major fashion, tech, and news outlets in New York City on a quarterly basis to keep them up to date on our latest launches and any relevant company developments. We also plan to host local Los Angeles press at our office space.
Further, any actual or alleged failure to comply with any of these laws or regulations by us, our vendors or our network of influencers could hurt our reputation, brand and business, force us to incur significant expenses in defending against proceedings or investigations, distract our management, increase our costs of doing business, result in a loss of customers and suppliers and may result in the imposition of monetary penalties.
Further, any actual or alleged failure to comply with any of these laws or regulations by us, our vendors or our network of influencers could hurt our reputation, brand and business, force us to incur significant expenses in defending against proceedings or investigations, distract our management, increase our costs of doing business, result in a loss of customers and suppliers and may result in the imposition of monetary penalties. 11 Table of Contents Employees As of December 31, 2023, we had 56 employees, all of whom were full-time employees.
We also contracted with a third-party designer for Bailey in June 2020. We rely on a limited number of suppliers to provide our finished products, so we can aggregate pricing power. As we continue to increase our volumes, we will source additional factories to spread out our risks.
We rely on a limited number of suppliers to provide our finished products, so we can aggregate pricing power. As we continue to increase our volumes, we will source additional factories to spread out our risks.
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.
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.
Our casual pants will range $85 to $109, similar quality brands produced at the same factories wholesale for approximately $85 to $115 and retail for $175 to $250. We anticipate rolling out the ACE Studios brand in the second quarter of 2023 as a digitally native first brand. Sales and Distribution Bailey products are distributed through wholesale and direct-to-consumer channels.
Our casual pants will range $85 to $109, with similar quality brands produced at the same factories wholesaling for approximately $85 to $115 and retailing for $175 to $250. We anticipate rolling out the ACE Studios brand in the second quarter of 2024 as a digitally native first brand.
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.
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.
The vendors’ factories are monitored by each brand’s production team to ensure quality control, and they are monitored by independent third-party inspectors we employ for compliance with local manufacturing standards and regulations on an annual basis. We also monitor our vendors’ manufacturing facilities regularly, providing technical assistance and performing in-line and final audits to ensure the highest possible quality.
The vendors’ factories are monitored by each brand’s production team to ensure quality control, and they are monitored by independent third-party inspectors we employ for compliance with local manufacturing standards 8 Table of Contents and regulations on an annual basis.
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. 3 Table of Contents 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.
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.
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.
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.
Conversely, when the wholesale buyer considers the collection to be weak, we experience lower quantities, lower margins and higher mark-down guarantees. Our direct-to-consumer channels include our own website.
Conversely, when the wholesale buyer considers the collection to be weak, we experience lower quantities, lower margins and higher mark-down guarantees. Our direct-to-consumer channels include our own website. Old season stock is sold through selected off-price retailers, with additional sales generated through specifically cut product for select off-price retailers.
Employees As of December 31, 2022, we had 58 employees, all of whom were full-time employees. We believe our relationship with our employees is good. None of our employees are currently covered by a collective bargaining agreement. We have had no labor-related work stoppages and we believe our relationship with our employees is strong.
None of our employees is currently covered by a collective bargaining agreement. We have had no labor-related work stoppages and we believe our relationship with our employees is strong. We believe that a diverse workforce is important to our success.
DSTLD products have historically been sold solely direct-to-consumer, via our website. We started offering DSTLD products through a wholesale channel in October 2020. We intend to leverage the Bailey sales force to sell DSTLD products into their select independent boutiques and select department stores.
Stateside and Sundry products are distributed through wholesale and direct-to-consumer channels, including premium department stores and national chains, select independent boutiques and third-party online stores. DSTLD products have historically been sold solely direct-to-consumer, via our website. We started offering DSTLD products through a wholesale channel in October 2020.
We have longstanding, personal relationships with the industries top stylists; we do not send clothing blindly or unsolicited. We have successfully placed clothing (and as a result, fashion press) on a number of well-known A-list celebrities. Loyalty Program We plan to develop and launch a company-wide loyalty program, which would include all our brands.
Celebrity gifting We approach celebrity gifting in a strategic, discerning manner. We have longstanding, personal relationships with the industry’s top stylists; we do not send clothing blindly or unsolicited. We have successfully placed clothing (and as a result, fashion press) on a number of well-known A-list celebrities.
We use an email service provider that enables us to send out a variety of promotional, transactional, and retargeting emails, 8 Table of Contents with the main goal of driving increased site traffic and purchases.
We believe this can be the most personalized customer communication channel for our brands, and therefore should continue to be one of our highest performing channels. We use an email service provider that enables us to send out a variety of promotional, transactional, and retargeting emails, with the main goal of driving increased site traffic and purchases.
The continued collaboration between design and merchandising ensures it responds to consumer preferences and market trends with new innovative product offerings while maintaining its core fashion foundation. In-house design and production teams in Los Angeles perform development of the sample line allowing for speed to market, flexibility and quality of fit.
Design and Development Our products are designed at the headquarters of each brand Each brand’s design efforts are supported by well-established product development and production teams. The continued collaboration between design and merchandising ensures it responds to consumer preferences and market trends with new innovative product offerings while maintaining its core fashion foundation.
Content Marketing: We use content marketing platforms that allow us to serve up native ads in the form of articles promoting our brand story and specific products. Search Engine Optimization: This is the process of maximizing the number of visitors to our website by increasing our rankings in the search results on internet search engines.
Search Engine Optimization: This is the process of maximizing the number of visitors to our website by increasing our rankings in the search results on internet search engines.
We have developed a certain set of criteria for working with influencers (for example, engagement level, aesthetic, audience demographic) that have enabled us to garner impactful impressions. Our focus is not on the size of an account, but on creating organic relationships with influencers who are excited to tell our story.
Our focus is not on the size of an account, but on creating organic relationships with influencers who are excited to tell our story.
As we grow the entire DBG portfolio, we will test “pop up” locations for specific brands, and also develop a multi-line pop up that incorporates our other brands into the “pop-up”. We believe this strategy should be cost effective given the number of store closures from COVID-19.
As we grow the entire DBG portfolio, we will test “pop up” locations for specific brands, and also develop a multi-line pop up that incorporates our other brands into the “pop-up”. We will determine whether a “pop up” or wholesale specialty boutique is the better option for each market and brand.
Our customer loyalty program will be designed to engage and reward our customers in a direct and targeted manner, and to cross merchandise our portfolio brands to our customers. Customers will earn reward points that can be used to purchase products.
Loyalty Program We plan to develop and launch a company-wide loyalty program, which would include all our brands. Our customer loyalty program will be designed to engage and reward our customers in a direct and targeted manner, and to cross merchandise our portfolio brands to 10 Table of Contents our customers.
We are in contact with leading fashion, business, and tech writers in order to capitalize 9 Table of Contents on celebrity fashion features, e-commerce trend pieces, or general brand awareness articles. We may utilize outside agencies from time to time.
Public Relations To generate ongoing organic and word-of-mouth awareness, we intend to work with print and online media outlets to announce new products and develop timely news stories. We are in contact with leading fashion, business, and tech writers in order to capitalize on celebrity fashion features, e-commerce trend pieces, or general brand awareness articles.
We maintain a database through which we track and utilize key metrics such as customer acquisition cost, lifetime value per customer, cost per impression and cost per click. Retargeting: We engage the services of certain retargeting engines that allow us to dynamically target our visitors on third-party websites via banner/content ads.
We maintain a database through which we track and utilize key metrics such as customer acquisition cost, lifetime value per customer, cost per impression and cost per click.
Old season stock is sold through selected off- price retailers, with additional sales generated through specifically cut product for select off-price retailers. 6 Table of Contents All of our DSTLD, Bailey, Stateside and Sundry sellable products are stored at our corporate warehouse and distribution center in Vernon, CA, which also houses our corporate office.
All of our DSTLD, Bailey, Stateside, Sundry and ACE Studios sellable products are, or will be with respect to ACE Studios, stored at our corporate warehouse and distribution center in Vernon, CA, which also houses our corporate office.
If goods are received to our showrooms or clothiers, we arrange pickups without the end customer. They also receive and process new product deliveries, process and ship outbound orders, and process and ship customer returns through their showrooms or clothiers. We offer free shipping and returns above to all our customers in the United States.
In addition to storing product, we also receive and process new product deliveries, process and ship outbound orders, and process and ship customer returns in this same facility. We offer free shipping and returns to all our customers in the United States. We also offer customers the option to upgrade to 2-Day or Overnight Shipping for an additional cost.
As of December 31, 2022, products are distributed through 75+ doors at major department stores, over 350 points of sale at boutique stores and several major e-commerce multi-brand platform wholesale customers. We do not have material terms or arrangements with our third-party distributors.
We will start selling old season stock through selected off-price retailers, with additional sales expected to be generated through specifically-cut product for select off-price retailers. As of December 31, 2023, products are distributed through 75+ doors at major department stores, over 350 points of sale at boutique stores and several major e-commerce multi-brand platform wholesale customers.
Such tentative terms are to be memorialized in definitive purchase agreements and as such there is no assurance that such arrangements will be finalized. Our Company Digital Brands Group is a curated collection of lifestyle brands that offers a variety of apparel products through direct-to-consumer and wholesale distribution.
Our Company Digital Brands Group is a curated collection of lifestyle brands 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 are engaged in analyzing trends, markets, and social media feedback along with utilizing historical data and industry tools to identify essential styles and proper replenishment timing and quantities. We hired a new head designer for DSTLD Men’s in December 2019 and contracted with a third-party designer for DSTLD Women’s in June 2020.
In-house design and production teams in Los Angeles perform development of the sample line allowing for speed to market, flexibility and quality of fit. We are engaged in analyzing trends, markets, and social media feedback along with utilizing historical data and industry tools to identify essential styles and proper replenishment timing and quantities.
Harper & Jones is primarily a direct-to-consumer brand using its own showrooms. ● 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.
DSTLD is primarily a digital direct-to-consumer brand, to which we recently added select wholesale retailers to generate brand awareness. 4 Table of Contents ● Stateside is an elevated, America first brand with all knitting, dyeing, cutting and sewing sourced and manufactured locally in Los Angeles.
We will determine whether a “pop up” or wholesale specialty boutique is the better option for each market and brand. Instagram and Influencer Marketing Instagram and influencer marketing is one of our largest initiatives. On a weekly basis, we reach out to and receive requests from tastemakers in fashion, lifestyle, and photography.
Instagram and Influencer Marketing Instagram and influencer marketing is one of our largest initiatives. On a weekly basis, we reach out to and receive requests from tastemakers in fashion, lifestyle, and photography. We have developed a certain set of criteria for working with influencers (for example, engagement level, aesthetic, audience demographic) that have enabled us to garner impactful impressions.
We believe that we can increase the brand awareness, new customer acquisition and revenue by leveraging the Bailey independent boutiques. We will start selling old season stock through selected off-price retailers, with additional sales expected to be generated through specifically-cut product for select off-price retailers.
We intend to leverage the Bailey sales force to sell DSTLD products into their select independent boutiques and select department stores. We believe that we can increase the brand awareness, new customer acquisition and revenue by leveraging the Bailey independent boutiques.
We source our products from a variety of domestic and international manufacturers.
We also monitor our vendors’ manufacturing facilities regularly, providing technical assistance and performing in-line and final audits to ensure the highest possible quality. We source our products from a variety of domestic and international manufacturers.
Removed
As part of a proposed settlement with such holders, we have tentatively agreed to the following: (i) to transfer all membership interests of H&J back to the original owners, (ii) to pay such owners the sum of $229,000, (iii) issue the former owners of H&J an aggregate of $1,400,000 worth of our common stock to be issued on May 16, 2023 based on the lower of (a) the stock closing price per share on May 15, 2023, and (b) the average common stock closing price based on the average of the 5 trading days preceding May 16, 2023, with the closing price on May 9, 2023.
Added
ITEM 1. BUSINESS Recent Developments Business We entered into a license deal for Bailey 44 in January 2023 that is paid quarterly based on the results. We have received two license payouts since November 2023 for approximately $124,000 in total.
Removed
DSTLD is primarily a digital direct-to-consumer brand, to which we recently added select wholesale retailers to generate brand awareness. ● Harper & Jones was built with the goal of inspiring men to dress with intention. It offers hand- crafted custom fit suits for those looking for a premium experience.
Added
The licensee has asked to add additional categories to their current offering, which we agreed to. 2 Table of Contents We entered into a retail store sublease for approximately 3.5 years at the Simon Premium Outlet in Allen, TX, a suburb of Dallas. We plan to open the store in April 2024.
Removed
Harper & Jones — Brand Summary H&J is well-known for delivering extremely high-quality, luxury custom and made-to-measure suiting and sportswear. The company provides full-closet customization, including shirts, jackets, pants, shorts, polos, plus more products that made-to-measure.
Added
We expect the store to generate meaningful cash flow as we already have excess product that we can sell, which means we will not have to use cash to create inventory for sale. We expect the store to generate over $1.5 million in annual revenue and over $500,000 in free cash flow.
Removed
H&J offers a proprietary custom and made-to-measure supply chain, which creates positive working capital since the customer pays for the product upfront and we have terms with vendors to pay 60+ days later.
Added
Reverse Stock Split On August 22, 2023, following the approval of shareholders at a special meeting held on August 21, 2023, we completed a one-for-twenty-five (1-for-25) reverse stock split (the “Reverse Stock Split”).
Removed
Their custom bench-made suit prices range between $1,995 – $4,995, custom bench-made jacket prices range from $1,895 – $3,495, custom-bench made trousers range from $600 – $1,100, and custom bench- made shirts range from $250 – $450. Stateside — Brand Summary We acquired Stateside in August 2021.
Added
As a result of the Reverse Stock Split, every twenty-five (25) shares of the Company’s pre-Reverse Stock Split common stock was combined and automatically became one (1) share of common stock. The Company’s post-Reverse Stock Split common stock began trading on August 22, 2023 with a new CUSIP number of 25401N408.
Removed
The wholesale channel includes premium department stores, select independent boutiques and third-party online stores. H&J products are currently sold solely through direct-to-consumer, via their three showrooms. The three showrooms are located in Dallas, Houston and New Orleans. We expect to open additional showrooms in the future.
Added
The Reverse Stock Split did not (i) change the authorized number of shares, (ii) change the par value of the common stock, or (iii) modify any voting rights of the common stock.
Removed
In addition to storing product, we also receive and process new product deliveries, process and ship outbound orders, and process and ship customer returns in this same facility. All of H&J product is sent directly to the showroom, clothier or customer from our custom tailor vendors.
Added
Also, at the effective time of the Reverse Stock Split, the number of shares of common stock issuable upon exercise of warrants (including public warrants under the trading symbol “DBGIW”), preferred stock, and other convertible securities, as well as any commitments to issue securities, that provide for adjustments in the event of a reverse stock split will be appropriately adjusted pursuant to their applicable terms for the Reverse Stock Split.
Removed
We also offer customers the option to upgrade to 2-Day or Overnight Shipping for an additional cost. Design and Development Our products are designed at headquarters of each brand, which are in in Los Angeles, CA and Dallas, TX in the top floor of H&J’s showroom. Each brand’s design efforts are supported by well-established product development and production teams.
Added
If applicable, the conversion price for each outstanding share of preferred stock and the exercise price for each outstanding warrant will be increased, pursuant to their terms, in inverse proportion to the 1-for-25 split ratio such that upon conversion or exercise, the aggregate conversion price for conversion of preferred stock and the aggregate exercise price payable by the warrant holder to the Company for shares of common stock subject to such warrant will remain approximately the same as the aggregate conversion or exercise price, as applicable, prior to the Reverse Stock Split.
Removed
Currently, our Bailey, DSTLD and Stateside and Sundry products are shipped from our suppliers to our distribution center in Los Angeles, CA which currently handles all our warehousing, fulfillment, outbound shipping and returns processing.
Added
On June 21, 2023, the Company and the former owners of H&J executed a Settlement Agreement and Release (the “Settlement Agreement”) whereby contemporaneously with the parties’ execution of the Settlement Agreement (i) the Company made aggregate cash payments of $229,000 to D. Jones Tailored Collection, Ltd. (“D. Jones”), (ii) the Company issued 78,103 shares of common stock to D.
Removed
For Harper & Jones, finished product is shipped to either the Company’s headquarters in Dallas Texas, or directly to one of their showroom locations. For Harper & Jones, finished product is shipped to either the Company’s headquarters in Dallas Texas, or directly to one of their showroom locations.
Added
Jones at a per share purchase price of $17.925 which represented the lower of (i) the closing price per share of the Company’s common stock as reported on Nasdaq on June 20, 2023, and (ii) the average closing price per share of common stock as reported on the NasdaqCM for the five trading days preceding June 21, 2023, and (iii) the Company assigned and transferred one hundred percent (100%) of the Company’s membership interest in H&J to D.
Removed
We believe this can be the most personalized customer communication channel for our brands, and therefore should continue to be one of our highest performing channels.
Added
Jones. This transaction is known as the “H&J Settlement”.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

81 edited+8 added−21 removed181 unchanged
Biggest changeEven if we are able to report our consolidated financial statements accurately and timely, if we do not make all the necessary improvements to address the material weaknesses, continued disclosure of our material weaknesses will be required in future filings with the SEC, which could reduce investor confidence in our reported results and our cause our stock price to decline.
Biggest changeEven if we are able to report our consolidated financial statements accurately and timely, if we do not make all the necessary improvements to address the material weaknesses, continued disclosure of our material weaknesses will be required in future filings with the SEC, which could reduce investor confidence in our reported results and our cause our stock price to decline. 29 Table of Contents We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies and smaller reporting companies, our common stock may be less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are currently unable to repay or refinance these borrowings so any such action by these lenders could force us into bankruptcy or liquidation.
We are currently unable to repay or refinance borrowings so any such action by these lenders could force us into bankruptcy or liquidation.
Any of these factors could result in the decline the trading price of our common stock, causing investors in our common stock to lose all or a portion of their investment. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Any of these factors could result in the decline of the trading price of our common stock, causing investors in our common stock to lose all or a portion of their investment. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Our principal trademark assets include the registered trademarks “DSTLD”, “Bailey 44”, “ACE STUDIOS”, “STATESIDE” ad “SUNDRY” and our logos and taglines. Our trademarks are valuable assets that support our brand and consumers’ perception of our services and merchandise. We also hold the rights to the “www.digitalbrandsgroup.co”, www.dstld.com, “www.bailey44.com”, and www.harperandjones.com.
Our principal trademark assets include the registered trademarks “DSTLD”, “Bailey 44”, “ACE STUDIOS”, “STATESIDE” and “SUNDRY” and our logos and taglines. Our trademarks are valuable assets that support our brand and consumers’ perception of our services and merchandise. We also hold the rights to the “www.digitalbrandsgroup.co”, www.dstld.com, “www.bailey44.com”, and www.harperandjones.com.
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.
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 18 Table of Contents ● 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.
If we do not regain compliance with the bid price requirement by November 28, 2022, we may be eligible for an additional 180-calendar day compliance period so long as it satisfies the criteria for initial listing on the Nasdaq Capital Market and the continued listing requirement for market value of publicly held shares and we provide written notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
If we do not regain compliance with the bid price requirement by November 28, 2022, we may be eligible for an additional 180-calendar day compliance period so long as it satisfies the criteria for initial listing on the NasdaqCM and the continued listing requirement for market value of publicly held shares and we provide written notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
Our sixth amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable because they, among other things: ● establish a supermajority voting requirement of at least 66 2∕3% of the outstanding voting stock in order to amend certain provisions in our sixth amended and restated certificate of incorporation, which makes it more difficult for stockholders to eliminate anti- takeover provisions; 27 Table of Contents ● eliminate stockholder-initiated action by written consent in lieu of a meeting, which hampers the ability of stockholders to take action during the interim periods between annual meetings of stockholders; and ● require the written request of stockholders holding an aggregate of 25% of shares of our common stock in order for stockholders to call a special meeting, which together with the elimination of stockholder action by written consent described above, makes it very difficult for stockholders to take action during the interim periods between annual meetings of stockholders.
Our sixth amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable because they, among other things: ● establish a supermajority voting requirement of at least 66 2∕3% of the outstanding voting stock in order to amend certain provisions in our sixth amended and restated certificate of incorporation, which makes it more difficult for stockholders to eliminate anti- takeover provisions; ● eliminate stockholder-initiated action by written consent in lieu of a meeting, which hampers the ability of stockholders to take action during the interim periods between annual meetings of stockholders; and ● require the written request of stockholders holding an aggregate of 25% of shares of our common stock in order for stockholders to call a special meeting, which together with the elimination of stockholder action by written consent described above, makes it very difficult for stockholders to take action during the interim periods between annual meetings of stockholders.
We do not expect to pay any dividends in the foreseeable future. We intend to retain our future earnings, if any, in order to reinvest in the development and growth of our business and, therefore, do not intend to pay dividends on our common stock for the foreseeable future.
We intend to retain our future earnings, if any, in order to reinvest in the development and growth of our business and, therefore, do not intend to pay dividends on our common stock for the foreseeable future.
If we are not able to comply with the applicable continued listing requirements or standards of NasdaqCM, NasdaqCM could delist our common stock. Our common stock is listed on the NasdaqCM.
If we are not able to comply with the applicable continued listing requirements or standards of the NasdaqCM, Nasdaq could delist our common stock. Our common stock is listed on the NasdaqCM.
If we fail to increase and maintain the number and expertise of our staff for our accounting and finance functions and to improve and maintain internal control over financial reporting adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act of 2002, or the Sarbanes- Oxley Act, we may be unable to report our financial results accurately and prevent fraud.
If we fail to increase and maintain the number and expertise of our staff for our accounting and finance functions and to improve and maintain internal control over financial reporting adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to report our financial results accurately and prevent fraud.
On November 29, 2022, Nasdaq formally notified the Company that it had regained compliance with the Bid Price Rule. On November 3, 2022, Digital Brands Group, Inc.
On November 29, 2023, Nasdaq formally notified the Company that it had regained compliance with the Bid Price Rule. On November 3, 2022, Digital Brands Group, Inc.
On July 21, 2022, we received a letter from Nasdaq stating that the Company has not regained compliance with the MVLS Standard, since our common stock was below the $35 million minimum MVLS requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2) (the “MLVS Rule”) and had not been at least $35 million for a minimum of 10 consecutive business days at any time during the 180-day grace period granted to us.
On July 21, 2022, we received a letter from Nasdaq stating that the Company has not regained compliance with the MVLS Standard, since our common stock was below the $35 million minimum MVLS requirement for continued listing on the NasdaqCM under Nasdaq Listing Rule 5550(b)(2) (the “MLVS Rule”) and had not been at least $35 million for a minimum of 10 consecutive business days at any time during the 180-day grace period granted to us.
The report of our independent registered public accounting firm for the year ended December 31, 2022 included herein contains an explanatory paragraph indicating that there is substantial doubt as to our ability to continue as a going concern as a result of recurring losses from operations.
The report of our independent registered public accounting firm for the year ended December 31, 2023 included herein contains an explanatory paragraph indicating that there is substantial doubt as to our ability to continue as a going concern as a result of recurring losses from operations.
Nasdaq’s notice has no immediate effect on the listing of common stock on Nasdaq. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we were afforded a 180-calendar day grace period, through November 28, 2022, to regain compliance with the bid price requirement.
Nasdaq’s notice had no immediate effect on the listing of common stock on Nasdaq. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we were afforded a 180-calendar day grace period, through November 28, 2022, to regain compliance with the bid price requirement.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of our most recent offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior December 31st, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior December 31st, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment. Risks related to our financial condition and business.
If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.
The Company remains subject to a “Panel Monitor,” as that term is defined by Nasdaq Listing Rule 5815(d)(4)(A), through January 17, 2024. There can be no assurance that we will be successful in its efforts to maintain the Nasdaq listing.
The Company remained subject to a “Panel Monitor,” as that term is defined by Nasdaq Listing Rule 5815(d)(4)(A), through January 17, 2024. There can be no assurance that we will be successful in its efforts to maintain the Nasdaq listing.
As a result of such failures, we could also become subject to investigations by NasdaqCM, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, any of which could harm our reputation and financial condition and divert financial and management resources.
As a result of such failures, we could also become subject to investigations by Nasdaq, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, any of which could harm our reputation and financial condition and divert financial and management resources.
The enforceability of similar exclusive federal forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and while the Delaware Supreme Court has ruled that this type of exclusive federal forum provision is facially valid under Delaware law, there is uncertainty as to whether other courts would enforce such provisions and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
The enforceability of similar exclusive federal forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and while the Delaware Supreme Court has ruled that this type of 31 Table of Contents exclusive federal forum provision is facially valid under Delaware law, there is uncertainty as to whether other courts would enforce such provisions and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
Those exemptions include, 26 Table of Contents but are not limited to, a requirement to present only two years of audited financial statements, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act, reduced disclosure about executive compensation arrangements in our periodic reports and proxy statements, and no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements.
Those exemptions include, but are not limited to, a requirement to present only two years of audited financial statements, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act, reduced disclosure about executive compensation arrangements in our periodic reports and proxy statements, and no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements.
This situation is changing rapidly and additional impacts may arise that we are not aware of currently. If our efforts to locate desirable targets are unsuccessful or if we are unable to acquire desirable companies on commercially reasonable terms , we may not be able to grow the business and our revenues and operating results will be adversely affected.
This situation is changing rapidly and additional impacts may arise that we are not aware of currently. 16 Table of Contents If our efforts to locate desirable targets are unsuccessful or if we are unable to acquire desirable companies on commercially reasonable terms, we may not be able to grow the business and our revenues and operating results will be adversely affected.
Acquisitions also may require us to spend a substantial portion of our available cash, incur debt or other liabilities, amortize expenses related to intangible assets, incur write-offs of goodwill or other 13 Table of Contents assets or obligate us to issue a substantial number of shares of our capital stock, which would result in dilution for our existing stockholders.
Acquisitions also may require us to spend a substantial portion of our available cash, incur debt or other liabilities, amortize expenses related to intangible assets, incur write-offs of goodwill or other assets or obligate us to issue a substantial number of shares of our capital stock, which would result in dilution for our existing stockholders.
Specifically, COVID has impacted 12 Table of Contents our business in several ways, including store closings, supply chain disruptions and delivery delays, meaningfully lower net revenue, furloughs and layoffs of 52 employees and increased costs to operate our warehouse to ensure a healthy and safe work environment.
Specifically, COVID has impacted our business in several ways, including store closings, supply chain disruptions and delivery delays, meaningfully lower net revenue, furloughs and layoffs of 52 employees and increased costs to operate our warehouse to ensure a healthy and safe work environment.
There can be no assurance that any patents we obtain will adequately protect our inventions or survive a legal challenge, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain.
There can be no assurance that any 25 Table of Contents patents we obtain will adequately protect our inventions or survive a legal challenge, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain.
Eastern Time on July 28, 2022, our Common Stock would be delisted from The Nasdaq Capital Market, trading of our Common Stock would be suspended at the opening of business on August 1, 2022, and a Form 25-NSE will be filed with the Securities and Exchange Commission, which will remove the our securities from listing and registration on Nasdaq.
Eastern Time on July 28, 2022, our Common Stock would be delisted from The NasdaqCM, trading of our Common Stock would be suspended at the opening of business on August 1, 2022, and a Form 25-NSE will be filed with the Securities and Exchange Commission, which will remove the our securities from listing and registration on Nasdaq.
In addition, we have in the past and may in the future be restricted or limited by our current outstanding indebtedness on our ability to enter into additional indebtedness and any future debt financing based upon covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.
In addition, we have in the past and may in the future be restricted or limited by our current outstanding indebtedness on our ability to enter into additional indebtedness and 15 Table of Contents any future debt financing based upon covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.
Alternatively, if 28 Table of Contents a court were to find this choice of forum provision in our sixth amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
Alternatively, if a court were to find this choice of forum provision in our sixth amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
(the “Company”) was notified by the Nasdaq Hearings Panel (the “Panel”) that the Company has evidenced compliance with all applicable requirements for continued listing on The Nasdaq Capital Market, including the $2.5 million stockholders’ equity requirement set forth in Nasdaq Listing Rule 5550(b).
(the “Company”) was notified by the Nasdaq Hearings Panel (the “Panel”) that the Company has evidenced compliance with all applicable requirements for continued listing on The NasdaqCM, including the $2.5 million stockholders’ equity requirement set forth in Nasdaq Listing Rule 5550(b).
As of the close of business on November 11, 2022, the Company had evidenced a closing bid price in excess of $1.00 per share for six consecutive business days. 25 Table of Contents On January 17, 2023, Digital Brands Group, Inc.
As of the close of business on November 11, 2022, the Company had evidenced a closing bid price in excess of $1.00 per share for six consecutive business days. On January 17, 2023, Digital Brands Group, Inc.
On September 21, 2022, the Nasdaq Listing Qualifications Panel (the “Hearings Panel”) granted the Company an extension until January 17, 2022, to demonstrate compliance with Listing Rule 5550(b)(1) to allow continued listing requirement of The Nasdaq Capital Market, conditioned upon achievement of certain milestones included in a plan of compliance which the Company previously submitted to the Hearings Panel.
On September 21, 2022, the Nasdaq Listing Qualifications Panel (the “Hearings Panel”) granted the Company an extension until January 17, 2023, to demonstrate compliance with Listing Rule 5550(b)(1) to allow continued listing requirement of The NasdaqCM, conditioned upon achievement of certain milestones included in a plan of compliance which the Company previously submitted to the Hearings Panel.
For example, global economic conditions may also adversely affect our suppliers’ access to capital and liquidity with which to maintain their inventory, production levels, and product quality and to operate their businesses, all of which could adversely affect our supply chain.
For example, global economic conditions may also adversely affect our suppliers’ access to capital and liquidity with which to maintain their inventory, production levels, and product quality and to operate their 20 Table of Contents businesses, all of which could adversely affect our supply chain.
As of December 31, 2022, we had an accumulated deficit of $103.9 million. We may continue to incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications, delays, and other unknown events, as well as the inflationary and potentially recessive economic environment.
As of December 31, 2023, we had an accumulated deficit of $113.9 million. We may continue to incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications, delays, and other unknown events, as well as the inflationary and potentially recessive economic environment.
Increases in the costs of labor and other costs of doing business in these countries could significantly increase our costs to produce our products and could have a negative impact on our operations, net revenue, and earnings.
Increases in the costs of labor and other costs of doing business in these countries could significantly 22 Table of Contents increase our costs to produce our products and could have a negative impact on our operations, net revenue, and earnings.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act are required to comply with the new or revised financial accounting standards.
Our sixth amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: ● any derivative action or proceeding brought on our behalf; ● any action asserting a breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; ● any action asserting a claim against us or our directors, officers or other employees arising under the Delaware General Corporation Law, our sixth amended and restated certificate of incorporation or our bylaws; ● any action or proceeding to interpret, apply, enforce or determine the validity of our sixth amended and restated certificate of incorporation or our bylaws; ● any action or proceeding as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; or ● any action asserting a claim against us or our directors, officers or other employees that is governed by the “internal affairs doctrine” as that term is defined in Section 115 of the Delaware General Corporation Law, Our sixth amended and restated certificate of incorporation further provides that unless the Company consents in writing to the selection of an alternative forum, the U.S. federal district courts have exclusive jurisdiction of the resolution of any complaint asserting a cause of action arising under the Securities Act.
Our sixth amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: ● any derivative action or proceeding brought on our behalf; ● any action asserting a breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; ● any action asserting a claim against us or our directors, officers or other employees arising under the Delaware General Corporation Law, our sixth amended and restated certificate of incorporation or our bylaws; ● any action or proceeding to interpret, apply, enforce or determine the validity of our sixth amended and restated certificate of incorporation or our bylaws; ● any action or proceeding as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; or ● any action asserting a claim against us or our directors, officers or other employees that is governed by the “internal affairs doctrine” as that term is defined in Section 115 of the Delaware General Corporation Law.
Influencers with whom we maintain relationships could 18 Table of Contents engage in behavior or use their platforms to communicate directly with our customers in a manner that reflects poorly on our brand and may be attributed to us or otherwise adversely affect us.
Influencers with whom we maintain relationships could engage in behavior or use their platforms to communicate directly with our customers in a manner that reflects poorly on our brand and may be attributed to us or otherwise adversely affect us.
In addition, certain of our manufacturers are subject to government regulations related to wage rates, and therefore the labor costs to produce our 19 Table of Contents products may fluctuate.
In addition, certain of our manufacturers are subject to government regulations related to wage rates, and therefore the labor costs to produce our products may fluctuate.
Market instability could make it more difficult for us and our suppliers 17 Table of Contents to accurately forecast future product demand trends, which could cause us to carry too much or too little merchandise in various product categories.
Market instability could make it more difficult for us and our suppliers to accurately forecast future product demand trends, which could cause us to carry too much or too little merchandise in various product categories.
We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting for that purpose. We have identified material weaknesses in our internal control over financial reporting.
We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting for that purpose. We have identified material weaknesses in our internal control over financial reporting.
Finally, acquisitions could be viewed negatively by analysts, investors or our customers. In addition, we may not be successful in acquiring businesses and may expend time and expenses in connection with failed acquisitions.
Finally, acquisitions could be viewed negatively by analysts, investors or our customers. 17 Table of Contents In addition, we may not be successful in acquiring businesses and may expend time and expenses in connection with failed acquisitions.
If our Common Stock and warrants cease to be listed for trading on the Nasdaq Capital Market, we would expect that our Common Stock and warrants would be traded on one of the three tiered marketplaces of the OTC Markets Group.
If our Common Stock and warrants cease to be listed for trading on the NasdaqCM, we would expect that our Common Stock and warrants would be traded on one of the three tiered marketplaces of the OTC Markets Group.
ITEM 1A. RISK FACTORS Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, including our consolidated financial statements and related notes included elsewhere in this Form 10-K, before making an investment decision.
ITEM 1A. RISK FACTORS Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, as well as our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, before making an investment decision.
We have an amount of debt which may be considered significant for a company of our size which could adversely affect our financial condition and our ability to react to changes in our business. As of December 31, 2022, we had an aggregate principal amount of debt outstanding of approximately $15.4 million.
We have an amount of debt which may be considered significant for a company of our size, which could adversely affect our financial condition and our ability to react to changes in our business. As of December 31, 2023, we had an aggregate principal amount of debt outstanding of approximately $9.7 million.
We have incurred significant net losses since our inception and cannot assure you that we will achieve or maintain profitable operations. We have incurred significant net losses since inception. Our net loss was approximately $38.0 and $32.4 million for the years ended December 31, 2022 and 2021, respectively.
We have incurred significant net losses since our inception and cannot assure you that we will achieve or maintain profitable operations. We have incurred significant net losses since inception. Our net loss was approximately $10.2 and $38.0 million for the years ended December 31, 2023 and 2022, respectively.
In addition, our ability to meet customer demand has been and may be in the future negatively impacted by disruptions in the supply chain from a number of factors, including, for example, the COVID-19 coronavirus outbreak in China.
In addition, our ability to meet customer demand has been and may be in the future negatively impacted by disruptions in the supply chain from a number of factors, including, for example, the COVID-19 coronavirus outbreak in China. The COVID-19 coronavirus has impacted our supply chain and may delay or prevent the manufacturing or transport of product.
We have grown and expect to continue to grow rapidly and to effectively manage our growth, we must continue to implement our operational plans and strategies, improve our business processes, improve and expand our infrastructure of people and information systems, and expand, train and manage our employee base.
To effectively manage our growth, we must continue to implement our operational plans and strategies, improve our business processes, improve and expand our infrastructure of people and information systems, and expand, train and manage our employee base.
We have incurred a net loss in each year since our inception and expect to incur losses in future periods as we continue to increase our expenses in order to grow our business. We have a working capital deficit of $32.3 million at December 31, 2022.
We have incurred a net loss in each year since our inception and expect to incur losses in future periods as we continue to increase our expenses in order to grow our business. We had a working capital deficit of $17.65 million at December 31, 2023.
This seasonality may adversely affect our business and cause our results of operations to fluctuate, and, as a result, we believe that comparisons of our operating results between different quarters within a single fiscal year are not necessarily meaningful and that results of operations in any period should not be considered indicative of the results to be expected for any future period.
This seasonality may adversely affect our business and cause our results of operations to fluctuate, and, as a result, we believe that comparisons of our operating results between different quarters within a single fiscal year are not necessarily meaningful and that results of operations in any period should not be considered indicative of the results to be expected for any future period. 26 Table of Contents Risks Related to our Common Stock The price of our common stock has in the past and may in the future fluctuate substantially.
We are an emerging growth company, as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
There can be no assurances that we will be able to comply with the applicable listing standards. 24 Table of Contents On May 31, 2022, we received a letter from the Listing Qualifications Staff (the “Staff”) of Nasdaq indicating that the bid price of our common stock had closed below $1.00 per share for 30 consecutive business days and, as a result, we are not in compliance with Nasdaq Listing Rule 5550(a)(2), which sets forth the minimum bid price requirement for continued listing on the Nasdaq Capital Market (the “Minimum Bid Requirement”).
On May 31, 2022, we received a letter from the Listing Qualifications Staff (the “Staff”) of Nasdaq indicating that the bid price of our common stock had closed below $1.00 per share for 30 consecutive business days and, as a result, we are not in compliance with Nasdaq Listing Rule 5550(a)(2), which sets forth the minimum bid price requirement for continued listing on the NasdaqCM (the “Minimum Bid Requirement”).
If we are unable to manage the growth of our organization effectively, our business, financial condition and operating results may be adversely affected. If we are unable to anticipate and respond to changing customer preferences and shifts in fashion and industry trends in a timely manner, our business, financial condition and operating results could be harmed.
If we are unable to anticipate and respond to changing customer preferences and shifts in fashion and industry trends in a timely manner, our business, financial condition and operating results could be harmed.
Goodwill and other intangible assets that have indefinite useful lives cannot be amortized, but instead must be tested at least annually for impairment. As a result of our acquisitions of Sundry, Stateside, H&J and Bailey, our goodwill and intangible assets as of December 31, 2022 were $10.1 and $14.4 million, respectively.
Goodwill and other intangible assets that have indefinite useful lives cannot be amortized, but instead must be tested at least annually for impairment. As a result of our acquisitions of Sundry, Stateside and Bailey, our goodwill and intangible assets as of December 31, 2023 were $19.0 and $21.9 million, respectively.
As a result, termination of these supply arrangements, an adverse change in the financial condition of these suppliers or an adverse change in their ability to manufacture and/or deliver desired products on a timely basis each could have a material adverse effect on our business, financial condition and results of operations. 20 Table of Contents Our sales and gross margins may decline as a result of increasing product costs and decreasing selling prices.
As a result, termination of these supply arrangements, an adverse change in the financial condition of these 23 Table of Contents suppliers or an adverse change in their ability to manufacture and/or deliver desired products on a timely basis each could have a material adverse effect on our business, financial condition and results of operations.
From May 2021 to March 31, 2023, the high and low prices of our common stock as quoted on the NasdaqCM was $880 and $2.38, respectively (as appropriately adjusted for a 1-100 reverse stock split effected by the Company in November 2022).
From May 2021 to March 31, 2023, the high and low prices of our common stock as quoted on the NasdaqCM was $22,000 and $2.30, respectively (as appropriately adjusted for the 1-for-100 and 1-for-25 reverse stock splits effectuated by the Company in November 2022 and August 2023, respectively).
In addition, our efforts to grow our business may be more expensive than we expect, and we may not be able to generate sufficient revenue to offset increased operating expenses. If we are required to reduce our expenses, our growth strategy could be 11 Table of Contents materially affected.
These increased expenditures may make it more difficult to achieve and maintain profitability. In addition, our efforts to grow our business may be more expensive than we expect, and we may not be able to generate sufficient revenue to offset increased operating expenses. If we are required to reduce our expenses, our growth strategy could be materially affected.
If we are unable to successfully obtain insurance coverage of third-party claims or enforce our indemnification rights against the former owners, or if the former owners are unable to satisfy their obligations for any reason, including because of their current financial position, we could be held liable for the costs or obligations associated with such claims or liabilities, which could adversely affect our financial condition and results of operations. 14 Table of Contents Our ability to acquire additional businesses may require issuances of our common stock and/or debt financing that we may be unable to obtain on acceptable terms.
If we are unable to successfully obtain insurance coverage of third-party claims or enforce our indemnification rights against the former owners, or if the former owners are unable to satisfy their obligations for any reason, including because of their current financial position, we could be held liable for the costs or obligations associated with such claims or liabilities, which could adversely affect our financial condition and results of operations.
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. These increased expenditures may make it more difficult to achieve and maintain profitability.
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 incur increased marketing and sales expenses in an effort to grow our customer base.
If we fail to effectively manage our hiring needs or successfully integrate new hires, our efficiency, our ability to meet forecasts and our employee morale, productivity and retention could suffer, which may have an adverse effect on our business, financial condition and operating results.
If we fail to effectively manage our hiring needs or successfully integrate new hires, our efficiency, our ability to meet forecasts and our employee morale, productivity and retention could suffer, which may have an adverse effect on our business, financial condition and operating results. 19 Table of Contents We are also required to manage numerous relationships with various vendors and other third parties.
If competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline and could have a material adverse effect on our business, financial condition and results of operations. 21 Table of Contents Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
If competitive pressures or other 24 Table of Contents factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline and could have a material adverse effect on our business, financial condition and results of operations.
Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our business, financial condition and results of operations. We are currently in technical default under certain of our outstanding indebtedness.
Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our business, financial condition and results of operations.
Advanced attacks are multi-staged, unfold over time, and utilize a range of attack vectors with military-grade cyber weapons and proven techniques, such as spear phishing and social engineering, leaving organizations and users at high risk of being compromised.
Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen. Advanced attacks are multi-staged, unfold over time, and utilize a range of attack vectors with military-grade cyber weapons and proven techniques, such as spear phishing and social engineering, leaving organizations and users at high risk of being compromised.
In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements.
In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, 27 Table of Contents minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable listing standards.
The trading price for our common stock will depend in part on the research and reports about us that are published by analysts in the financial industry. Analysts could issue negative commentary about us or our industry, or they could downgrade our common stock. We may also not receive sufficient research coverage or visibility in the market.
Analysts could issue negative commentary about us or our industry, or they could downgrade our common stock. We may also not receive sufficient research coverage or visibility in the market.
These sales, or the perception that these sales might occur, could depress the market price of our common stock or make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
These sales, or the perception that these sales might occur, could depress the market price of our common stock or make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. 30 Table of Contents Provisions in our sixth amended and restated certificate of incorporation and bylaws and under Delaware law could discourage a takeover that stockholders may consider favorable.
In addition, we may not be able to generate sufficient cash to service all of our debt or refinance our obligations and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful. We issued a promissory note in the principal amount of $4,500,000 pursuant to the Bailey acquisition.
We may not be able to generate sufficient cash to service all of our debt or refinance our obligations and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful. We currently have $3.5 million in notes outstanding pursuant to our Bailey acquisition.
Risks Related to our Common Stock 23 Table of Contents The price of our common stock has in the past and may in the future fluctuate substantially. The market price of our common stock has in the past and could in the future be extremely volatile.
The market price of our common stock has in the past and could in the future be extremely volatile.
Increasingly, customers are using tablets and smart phones to shop online with us and with our competitors and to do comparison shopping.
A substantial number of our customers currently shop with us through our e-commerce website and mobile application. Increasingly, customers are using tablets and smart phones to shop online with us and with our competitors and to do comparison shopping.
Any future impairments, including impairments of goodwill, intangible assets, long- lived assets or investments, could have a material adverse effect on our financial condition and results of operations for the period in which the impairment is recognized. If we fail to effectively manage our growth, our business, financial condition and operating results could be harmed.
During the years ended December 31, 2023, we recorded impairment expense of $0.0 million and $15.5 million pertaining to the goodwill and intangible assets. Any future impairments, including impairments of goodwill, intangible assets, long-lived assets or investments, could have a material adverse effect on our financial condition and results of operations for the period in which the impairment is recognized.
We do not prescribe what our influencers post, and if we were held responsible for the content of their posts or their actions, we could be fined or forced to alter our practices, which could have an adverse impact on our business.
We do not prescribe what our influencers post, and if we were held responsible for the content of their posts or their actions, we could be fined or forced to alter our practices, which could have an adverse impact on our business. 21 Table of Contents Negative commentary regarding us, our products or influencers and other third parties who are affiliated with us may also be posted on social media platforms and may be adverse to our reputation or business.
Effective as of 5 pm EST on November 3, 2022, the Company implemented a reverse stock split at a ratio of 1-for-100 shares, which the Company believes will remedy both the $0.10 threshold price deficiency and the $1.00 bid price deficiency cited by the Staff.
Effective as of 5 pm EST on November 3, 2022, the Company implemented a reverse stock split at a ratio of 1-for-100 shares, which the Company believes will remedy both the $0.10 threshold price deficiency and the $1.00 bid price deficiency cited by the Staff. 28 Table of Contents In order to evidence compliance with Nasdaq’s bid price criteria, the Company must evidence a closing bid price of at least $1.00 per share for a minimum of 10 (though generally not more than 20) consecutive business days.
The fabrics used in our products include synthetic fabrics whose raw materials include petroleum-based products, as well as natural fibers such as cotton. Significant price fluctuations or shortages in petroleum or other raw materials can materially adversely affect our cost of net revenues.
Significant price fluctuations or shortages in petroleum or other raw materials can materially adversely affect our cost of net revenues.
Accordingly, investors in our common stock may need to sell their shares to realize a return on their investment in our common stock, and investors may not be able to sell their shares at or above the prices paid for them. 29 Table of Contents If securities analysts do not publish favorable reports about us or if we, or our industry, are the subject of unfavorable commentary, the price of our common stock could decline.
Accordingly, investors in our common stock may need to sell their shares to realize a return on their investment in our common stock, and investors may not be able to sell their shares at or above the prices paid for them.
The timing, size and success of our acquisition efforts and the associated capital commitments cannot be readily predicted. We intend to use our common stock, cash, debt and borrowings under our credit facility, if necessary, as consideration for future acquisitions of companies.
We intend to use our common stock, cash, debt and borrowings under our credit facility, if necessary, as consideration for future acquisitions of companies. The issuance of additional common stock in connection with future acquisitions may be dilutive to holders of shares of common stock.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information, and financial and other personally identifiable information of our customers and employees. The secure processing, maintenance, and transmission of this information is critical to our operations and business strategy.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer. In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information, and financial and other personally identifiable information of our customers and employees.
The COVID-19 coronavirus has and is expected to continue to impact our supply chain and may delay or prevent the manufacturing or transport of product. Any of the above may materially and adversely affect our business, financial condition and operating results. Merchandise returns could harm our business. We allow our customers to return products, subject to our return policy.
Any of the above may materially and adversely affect our business, financial condition and operating results. Merchandise returns could harm our business. We allow our customers to return products, subject to our return policy. If the rate of merchandise returns increases significantly or if merchandise return economics become less efficient, our business, financial condition and operating results could be harmed.
From time to time our products are damaged in transit, which can increase return rates and harm our brands.
Further, we modify our policies relating to returns from time to time, which may result in customer dissatisfaction or an increase in the number of product returns. From time to time our products are damaged in transit, which can increase return rates and harm our brands.
We may be subject to claims arising from the operations of our various businesses for periods prior to the dates we acquired them.
In addition to such time and expenses, public announcement of a failed acquisition could also negatively impact the trading price of our common stock. We may be subject to claims arising from the operations of our various businesses for periods prior to the dates we acquired them.
We are also required to manage numerous relationships with various vendors and other third parties. 16 Table of Contents Further growth of our operations, vendor base, fulfillment center, information technology systems or internal controls and procedures may not be adequate to support our operations.
Further growth of our operations, vendor base, fulfillment center, information technology systems or internal controls and procedures may not be adequate to support our operations. If we are unable to manage the growth of our organization effectively, our business, financial condition and operating results may be adversely affected.
If the technology-based systems that give our customers the ability to shop with us online do not function effectively, our operating results could be materially adversely affected. A substantial number of our customers currently shop with us through our e-commerce website and mobile application.
We may be required to spend significant resources to monitor and protect our intellectual property rights, and the efforts we take to protect our proprietary rights may not be sufficient. If the technology-based systems that give our customers the ability to shop with us online do not function effectively, our operating results could be materially adversely affected.
Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen.
The secure processing, maintenance, and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table sets forth information with respect to our facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Square ​ ​ ​ ​ ​ Footage ​ Lease Location ​ Type ​ (approximate) ​ Expiration Vernon, California Corporate Warehouse and Distribution Center 42,206 2023 Los Angeles, California Showroom 2,000 2020 (1) Austin, Texas Interim Corporate Headquarters 500 2021 (2) Dallas, Texas Office Space and Showroom 2,860 2022 Houston, Texas Showroom 1,117 2024 New Orleans, Louisiana Showroom 1,015 2024 (1) Bailey’s lease for its showroom in Los Angeles, California expired on May 31, 2020.
Biggest changeThe following table sets forth information with respect to our facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Square ​ ​ ​ ​ ​ ​ Footage ​ Lease ​ Location ​ Type ​ (approximate) ​ Expiration ​ Vernon, California Corporate Warehouse and Distribution Center 42,206 2024 ​ Los Angeles, California Showroom 2,000 2025 ​ Austin, Texas Interim Corporate Headquarters 500 2024 (1) ​ (1) We are currently leveraging shared office space and working remotely as we work with an agent to secure long-term office space in Austin, TX for our corporate headquarters. ​ 33 Table of Contents
ITEM 2. PROPERTIES We currently lease approximately 49,198 square feet of office and showroom spaces in the states of California, Dallas, Texas and Louisiana, United States, with leases that expire through 2023. We believe that our existing facilities, will be sufficient for our needs for the foreseeable future.
ITEM 2. PROPERTIES We currently lease approximately 44,706 square feet of office and showroom spaces in California and Texas, with leases that expire through 2025. We believe that our existing facilities will be sufficient for our needs for the foreseeable future.
Removed
The lease is now a month-to-month lease. (2) We are currently leveraging shared office space and working remotely as we work with an agent to secure long-term office space in Austin, TX for our corporate headquarters. ​ 30 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSuch tentative terms are to be memorialized in definitive purchase agreements and as such there is no assurance that such arrangements will be finalized. ​ 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 December 31, 2022.
Biggest changeAll 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 December 31, 2023. Depending on the nature of the proceeding, claim, or investigation, we may be subject to monetary damage awards, fines, penalties, or injunctive orders.
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 4. MINE SAFETY DISCLOSURES Not applicable. PART II
While it is not possible to determine the 34 Table of Contents 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 4. MINE SAFETY DISCLOSURES Not applicable.
The matter was settled in January 2023 and are on payment plans which will be paid off in April 2023. ● 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.
The matter was settled in January 2023 and are on payment plans which will be paid off in the second quarter of 2024. ● In August 2020 and March 2021, two lawsuits were filed against Bailey’s by third- parties 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 July and September of 2023 ● On December 21, 2020, a Company investor filed a lawsuit against DBG for reimbursement of their investment totaling $100,000.
Both matters were settled in February 2022 and are on payment plans which will be paid off in second quarter of 2024. ● On December 21, 2020, a Company investor filed a lawsuit against DBG for reimbursement of their investment totaling $100,000.
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.
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.
The amount due has been paid, the lawsuit dismissed and there is no claim or amount due. ● 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 this claim. ● 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 Company is actively working to resolve this matter. ● On September 24, 2020 a Bailey’s product vendor filed a lawsuit against Bailey’s non-payment of trade payables totaling approximately $481,000 and additional damages of approximately $296,000. Claimed amounts for trade payables are included in accounts payable in the accompanying consolidated balance sheets, net of payments made.
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.
Removed
In December 2021, the Company reached a settlement; however, the settlement terms were not met and the Company received a judgement of $496,000.
Added
The Company does not believe it is probable that 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.
Removed
The Company is disputing the claim for damages and the matter is ongoing. ● We have been involved in a dispute with the former owners of H&J regarding our obligation to “true up” their ownership interest in our company further to that membership interest purchase agreement dated May 18, 2021 whereby we acquired all of the outstanding membership interests of H&J (the “H&J Purchase Agreement”).
Added
Such amounts are included in the accompanying balance sheets. The Company does not believe it is probable that losses in excess of such pay trade payables will be incurred. ● On December 21, 2023, a former employee filed a wrongful termination lawsuit against the Company.
Removed
Further to the H&J Purchase Agreement, we agreed that if, at May 18, 2022, the one year anniversary of the closing date of our initial public offering, the product of the number of shares of our common stock issued at the closing of such acquisition multiplied by the average closing price per share of our shares of common stock as quoted on the NasdaqCM for the thirty (30) day trading period immediately preceding such date plus the gross proceeds, if any, of shares of our stock issued to such sellers and sold by them during the one year period from the closing date of the offering does not exceed the sum of $9.1 million, less the value of any shares of common stock cancelled further to any indemnification claims or post-closing adjustments under the H&J Purchase Agreement, then we shall issue to the subject sellers an additional aggregate number of shares of common stock equal to any such valuation shortfall at a per share price equal to the then closing price per share of our common stock as quoted on the NasdaqCM.
Added
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.
Removed
We did not honor our obligation to issue such shares and the former owner of H&J have claimed that they were damaged as a result.
Removed
As part of a proposed settlement with such holders, we have tentatively agreed to the following: (i) to transfer all membership interests of H&J back to the original owners, (ii) to pay such owners the sum of $229,000, (iii) issue 31 Table of Contents the former owners of H&J an aggregate of $1,400,000 worth of our common stock to be issued on May 16, 2023 based on the lower of (a) the stock closing price per share on May 15, 2023, and (b) the average common stock closing price based on the average of the 5 trading days preceding May 16, 2023, with the closing price on May 9, 2023.
Removed
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs a result, capital appreciation, if any, of our shares of common stock will be your sole source of gain for the foreseeable future. 32 Table of Contents Recent Sales of Unregistered Securities Upon the closing of the IPO on May 18, 2021, all then-outstanding shares of preferred stock converted into an aggregate of 4,027,181 shares of common stock according to their terms.
Biggest changeIn addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our shares of common stock will be your sole source of gain for the foreseeable future.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock and Class A Warrants began trading on the NasdaqCM (“NasdaqCM”) under the symbols “DBGI” and “DBGIW,” respectively, on May 14, 2021. Prior to that time, there was no public market for our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock and Class A Warrants began trading on the NasdaqCM under the symbols “DBGI” and “DBGIW,” respectively, on May 14, 2021. Prior to that time, there was no public market for our common stock.
The Company also granted the placement agent 136,364 warrants, which are exercisable 180 days after issuance and expire in five years. In connection with the December Notes, the Company issued to the investors an aggregate of 469,480 warrants to purchase common stock at an exercise price equal to $4.26. The warrants are immediately exercisable.
The Company also granted the placement agent 136,364 warrants, which are exercisable 180 days after issuance and expire in five years. In connection with the December 2022 Notes, the Company issued to the investors an aggregate of 469,480 warrants to purchase common stock at an exercise price equal to $4.26. The warrants are immediately exercisable.
In connection with the July 22 and July 28 notes, the Company issued an aggregate of 41,124 and 27,655 warrants to purchase common stock at an exercise price of $15.20 and $11.30 per share, respectively. The warrants expire in July 2027.
In connection with the July 22 and July 28, 2022 notes, the Company issued an aggregate of 41,124 and 27,655 warrants to purchase common stock at an exercise price of $15.20 and $11.30 per share, respectively. The warrants expire in July 2027.
In connection with the November public offering, the Company granted 1,650,181 pre-funded warrants which were immediately exercised for shares of common stock. The Company also granted an additional 1,818,181 Class B Warrants and 1,818,181 Class C Warrants as part of the offering.
In connection with the November 2022 public offering, the Company granted 1,650,181 pre-funded warrants which were immediately exercised for shares of common stock. The Company also granted an additional 1,818,181 Class B Warrants and 1,818,181 Class C Warrants as part of the offering.
No awards may be made under the 2020 Plan after the tenth anniversary of its effective date. Awards under the 2020 Plan may include incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted shares of common stock, restricted stock Units, performance share or Unit awards, other stock-based awards and cash-based incentive awards. ITEM 6. RESERVED
No awards may be made under the 2020 Plan after the tenth anniversary of its effective date. Awards under the 2020 Plan may include incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted shares of common stock, restricted stock Units, performance share or Unit awards, other stock-based awards and cash-based incentive awards.
The following table sets forth the high and low closing bid prices for our common stock for the fiscal quarters indicated as reported on NasdaqCM.
The following table sets forth the high and low closing bid prices for our common stock for the fiscal quarters indicated as reported on Nasdaq.
During the year ended December 31, 2022, the Company issued an aggregate of 1,995,183 shares of common stock pursuant to the conversion of the FirstFire and Oasis Notes. In September 2022, the Company issued 750 shares of common stock pursuant to a consultant agreement at a fair value of $123,000.
Recent Sales of Unregistered Securities During the year ended December 31, 2022, the Company issued an aggregate of 1,995,183 shares of common stock pursuant to the conversion of the FirstFire and Oasis Notes. In September 2022, the Company issued 750 shares of common stock pursuant to a consultant agreement at a fair value of $123,000.
Each Class B Warrant has an exercise price of $5.25 per share, is immediately exercisable upon issuance 33 Table of Contents and expires five years after issuance. Each Class C Warrant has an exercise price of $5.25 per share, is immediately exercisable upon issuance and expires thirteen months after issuance.
Each Class B Warrant has an exercise price of $5.25 per share, is immediately exercisable upon issuance and expires five years after issuance. Each Class C Warrant has an exercise price of $5.25 per share, is immediately exercisable upon issuance and expires thirteen months after issuance.
Securities Authorized for Issuance Under Equity Compensation Plans We have adopted a 2020 Omnibus Incentive Stock Plan (the “2020 Plan”). An aggregate of 33,000 shares of our common stock is reserved for issuance and available for awards under the 2020 Plan, including incentive stock options granted under the 2020 Plan.
Securities Authorized for Issuance Under Equity Compensation Plans We have adopted a 2020 Omnibus Incentive Stock Plan (the “2020 Plan”). An aggregate of 1,320 shares of our common stock is reserved for issuance and available for awards under the 2020 Plan, including incentive stock options granted under the 2020 Plan.
As part of the Sundry acquisition, the Company issued 90,909 shares of common stock to the Sundry Sellers at a fair value of $1,000,000. In connection with the December Notes, the Company issued 60,000 shares of common stock.
As part of the Sundry acquisition, the Company issued 90,909 shares of common stock to the Sundry Sellers at a fair value of $1,000,000. 35 Table of Contents In connection with the December 2022 Notes, the Company issued 60,000 shares of common stock.
The 2020 Plan administrator may grant awards to any employee, director, and consultants of the company and its subsidiaries. To date, 27,320 grants (as adjusted for the Reverse Stock Split) have been made under the 2020 Plan and 5,680 shares remain eligible for issuance under the Plan.
The 2020 Plan administrator may grant awards to any employee, director, and consultants of the company and its subsidiaries. To date, grants covering 1,093 shares of common stock (as adjusted for the Reverse Stock Split) have been made under the 2020 Plan and 227 shares remain eligible for issuance under the 2020 Plan.
Dividends We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends.
Holders As of April 15, 2024, there were 3,747 holders of record of our common stock. Dividends We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. ​ ​ ​ ​ ​ ​ ​ ​ High Low March 31, 2023 ​ $ 4.27 ​ $ 1.11 December 31, 2022 ​ $ 13.00 ​ $ 3.21 September 30, 2022 ​ $ 22.80 ​ $ 22.80 June 30, 2022 ​ $ 184.00 ​ $ 16.00 March 31, 2022 ​ $ 275.00 ​ $ 91.00 December 31, 2021 ​ $ 664.00 ​ $ 209.00 September 30, 2021 ​ $ 880.00 ​ $ 232.00 June 30, 2021 ​ $ 750.00 ​ $ 280.00 ​ Holders As of April 17, 2023, there were 3,747 holders of record of our common stock.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. ​ ​ ​ ​ ​ ​ ​ Fiscal Quarter Ended High Low March 31, 2024 ​ $ 12.80 ​ $ 2.30 December 31, 2023 ​ $ 8.49 ​ $ 2.79 September 30, 2023 ​ $ 24.75 ​ $ 7.34 June 30, 2023 ​ $ 39.00 ​ $ 14.50 March 31, 2023 ​ $ 106.75 ​ $ 27.75 December 31, 2022 ​ $ 13.00 ​ $ 3.21 September 30, 2022 ​ $ 22.80 ​ $ 22.80 June 30, 2022 ​ $ 184.00 ​ $ 16.00 March 31, 2022 ​ $ 275.00 ​ $ 91.00 ​ The closing price of our common stock on April 12, 2024 was $4.21.
Unless otherwise stated, the sales of the below securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4 (a)(2) of the Securities Act (or Regulation D or Regulation S promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701.
Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act (or Regulation D or Regulation S promulgated thereunder).
Removed
Upon closing of the IPO, we converted outstanding principal totaling $2,680,289 and certain accrued and unpaid interest of our convertible debt into an aggregate of 1,135,153 shares of common stock.
Added
In connection with the January 2023 Private Placement, the Company, entered into a Securities Purchase Agreement with a certain accredited investor, pursuant to which the Company agreed to issue and sell, in a private placement (the “January Private Placement”), an aggregate of 475,000 shares of the Company’s common stock (“Common Stock”), and accompanying warrants to purchase 475,000 shares of Common Stock, at a combined purchase price of $3.915 per share and Common Warrant, and (ii) the Company granted 802,140 pre-funded warrants which were immediately exercised for shares of common stock.
Removed
Upon closing of the IPO, certain officers and directors converted balances due totaling $257,515 into 152,357 shares of common stock and recorded $233,184 in compensation expense for the shares issued in excess of accrued balances owed. In connection with the H&J acquisition, we issued 2,192,771 shares of common stock to the seller.
Added
The Company also granted an additional 1,277,140 warrants as part of the offering. Each warrant has an exercise price of $3.80 per share, is immediately exercisable upon issuance and expires five years after issuance.
Removed
Pursuant to a consulting agreement, we issued 50,000 shares of common stock. In May 2021, an aggregate of 31,881 warrants were exercised for shares of common stock for proceeds of $145,696. In July 2021, an aggregate of 355,000 warrants were exercised for shares of common stock for proceeds of $1,622,350.
Added
The Company also granted the placement agent 95,786 warrants to purchase common stock at an exercise price of $4.8938 per share, which is immediately exercisable upon issuance and expires five years after issuance. In January 2023, the Company issued 110,000 shares of common stock at a fair value of $322,300 to a former convertible noteholder pursuant to default provisions.
Removed
In August 2021, an aggregate of 1,101,538 shares of common stock were issued in exchange for 100% of the outstanding membership interests in Stateside. In connection with the execution of the Oasis Capital equity purchase agreement, the Company issued 126,356 shares of common stock as commitment shares.
Added
In March 2023, in connection with merchant advances, the Company granted 152,380 warrants to purchase common stock at an exercise price of $5.25. The warrants were immediately exercisable upon issuance and expire five years after issuance.
Removed
In November 2021, we issued an aggregate 130,000 shares of common stock to Oasis Capital and FirstFire pursuant to waivers and consents in connection with the November note. In December 2021, we issued an aggregate of 191,459 shares of common stock pursuant to consulting agreements.
Added
In March 2023, the Company issued an aggregate of 118,890 shares of common stock to Sundry executives based on their employment agreements with the Company. The fair value of $499,338, or $4.20 per share, as determined by the agreements, was included in general and administrative expenses in the consolidated statements of operations.
Added
In June 2023, the Company issued 1,952,580 shares of common stock to D. Jones at a fair value of $1,357,043 pursuant to the H&J Settlement Agreement. In connection with the January 2023 Private Placement, the Company granted 32,085 pre-funded warrants which were immediately exercised for shares of common stock.
Added
The Company also granted an additional 51,085 warrants as part of the offering. Each warrant has an exercise price of $9.43 per share, is immediately exercisable upon issuance and expires five years after issuance.
Added
The Company also granted the placement agent 3,831 warrants to purchase common stock at an exercise price of $122.35 per share, which is immediately exercisable upon issuance and expires five years after issuance. 36 Table of Contents In connection with merchant advances (Note 6), the Company granted 6,095 warrants to purchase common stock at an exercise price of $131.25.
Added
The warrants are immediately exercisable upon issuance and expire five years after issuance. In connection with the August 2023 Private Placement, the Company granted 481,875 pre-funded warrants, which had not yet been exercised for shares of common stock as of September 30, 2023. The Company also granted an additional 1,027,750 warrants as part of the offering.
Added
Each warrant has an exercise price of $9.43 per share, is immediately exercisable upon issuance and expires 5.5 years after issuance. The Company also granted the placement agent 38,541 warrants to purchase common stock at an exercise price of $12.16 per share, which is immediately exercisable upon issuance and expires 5.5 years after issuance.
Added
In connection with the August Private Placement, the Company entered into a warrant amendment (the “Warrant Amendment”) with certain investors to amend certain existing warrants to purchase up to 196,542 shares of Common Stock that were previously issued in December 2022 and January 2023 to the investors, with an exercise price of $131.25 per share and $95.00 per share, respectively (the “Amended Warrants”) as follows: (i) to reduce the exercise price of the Amended Warrants to $9.43 per share, and (ii) to extend the original expiration date of the Amended Warrants so that they will terminate five and one half years from the closing of the offering.
Added
Immediately following the Warrant Amendment, the Company exercised warrants for 123,814 shares of common stock for proceeds of $1,167,566. In October 2023, 975 Series C Convertible Preferred Stock, par value $0.0001 per share (the “Preferred Stock”), converted into 54,394 shares of common stock, par value $0.0001 per share (the “Common Stock”).
Added
In December 2023, the Company granted 481,875 pre-funded warrants in August Private Placement, were fully sold and exercised with an exercise price of $9.73.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

53 edited+11 added−22 removed67 unchanged
Biggest changeCash Flow Activities The following table presents selected captions from our condensed statement of cash flows for the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2022 2021 Net cash provided by operating activities: ​ ​ ​ ​ Net loss ​ $ (38,043,362) ​ $ (32,357,957) Non-cash adjustments ​ $ 23,122,024 ​ $ 17,758,597 Change in operating assets and liabilities ​ $ 4,350,447 ​ $ 381,001 Net cash used in operating activities ​ $ (10,570,889) ​ $ (14,218,359) Net cash used in investing activities ​ $ (7,313,384) ​ $ (6,011,053) Net cash provided by financing activities ​ $ 18,639,161 ​ $ 20,181,820 Net change in cash ​ $ 754,888 ​ $ (47,592) ​ Cash Flows Used In Operating Activities Our cash used in operating activities decreased by $3.6 million to $10.6 million to cash used for the year ended December 31, 2022 as compared to cash used of $14.2 million for the corresponding fiscal period in 2021.
Biggest changeThe report of our independent registered public accounting firm for the year ended December 31, 2023 included herein contains an explanatory paragraph indicating that there is substantial doubt as to our ability to continue as a going concern as a result of recurring losses from operations. 48 Table of Contents Cash Flow Activities The following table presents selected captions from our condensed statement of cash flows for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2023 2022 Net loss ​ $ (10,247,133) ​ $ (38,043,363) Non-cash adjustments ​ $ 1,364,216 ​ $ 23,122,024 Change in operating assets and liabilities ​ $ 2,869,975 ​ $ 4,350,445 Net cash used in operating activities ​ $ (6,012,942) ​ $ (10,570,889) Net cash provided by investing activities ​ $ 88,819 ​ $ (7,313,384) Net cash provided by financing activities ​ $ 4,661,614 ​ $ 18,639,161 Net change in cash ​ $ (1,254,843) ​ $ 747,221 ​ Cash Flows Used In Operating Activities Our cash used in operating activities decreased by $4.6 million to $6.0 million to cash used for the year ended December 31, 2023 as compared to cash used of $10.6 million for the corresponding fiscal period in 2022.
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.
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; 40 Table of Contents ● 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.
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, H&J, Stateside and Sundry. We did not obtain independent valuations, appraisals or fairness opinions to support the consideration that we paid/agreed to pay.
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.
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.
Cost of net revenue includes an allocation of overheard costs such as rent, utilities and commercial insurance pertaining to direct inventory activities. Operating Expenses Sundry’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.
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.
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. 41 Table of Contents 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.
Actual results could differ from those estimates. 39 Table of Contents Business Acquisitions We record our acquisitions under the acquisition method of accounting, under which most of the assets acquired and liabilities assumed are initially recorded at their respective fair values and any excess purchase price is reflected as goodwill.
Actual results could differ from those estimates. Business Acquisitions We record our acquisitions under the acquisition method of accounting, under which most of the assets acquired and liabilities assumed are initially recorded at their respective fair values and any excess purchase price is reflected as goodwill.
We test these assets for recoverability by comparing the net carrying amount of the asset or asset group to the undiscounted net 40 Table of Contents cash flows to be generated from the use and eventual disposition of that asset or asset group. If the assets are recoverable, an impairment loss does not exist, and no loss is recorded.
We test these assets for recoverability by comparing the net carrying amount of the asset or asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset or asset group. If the assets are recoverable, an impairment loss does not exist, and no loss is recorded.
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.
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. 44 Table of Contents Interest Expense Bailey’s interest expense consists primarily of interest related to its outstanding debt to our senior lender.
Liquidity and Capital Resources Each of DBG, Bailey, H&J and Stateside has historically satisfied our liquidity needs and funded operations with internally generated cash flow and borrowings and capital raises. Changes in working capital, most notably accounts receivable, are driven primarily by levels of business activity.
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.
Cost of net revenue includes an allocation of overheard costs such as rent, utilities and commercial insurance pertaining to direct inventory activities. 43 Table of Contents Operating Expenses Sundry’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.
Cost 45 Table of Contents 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.
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.
Operating our brands under one portfolio provides us with the ability to better utilize our technological, human capital and 38 Table of Contents 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.
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. 38 Table of Contents Ability to Expand Our Product Lines Our goal is to expand our product lines over time to increase our growth opportunity.
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.
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 December 31, 2022, we had an aggregate principal amount of debt outstanding of approximately $15.4 million.
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 December 31, 2023, we had an aggregate principal amount of debt outstanding of approximately $9.7 million.
In addition, going forward, the amortization of the identifiable intangibles acquired in the acquisitions will be included in operating expenses. Interest Expense Interest expense consists primarily of interest related to our debt outstanding to our senior lender, convertible debt, and other interest bearing liabilities. H&J Net Revenue H&J sells its products directly to customers through their showrooms and sales reps.
In addition, going forward, the amortization of the identifiable intangibles acquired in the acquisitions will be included in operating expenses. 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.
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.
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 acquired Bailey in February 2020, H&J in May 2021, 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.
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.
The decrease in net cash used in operating activities was primarily driven by an increase in non-cash adjustments of $5.4 million and more cash provided by changes in our operating assets and liabilities in 2022, partially offset by an increase in our net loss in 2022.
The decrease in net cash used in operating activities was primarily driven by a lower net loss in 2023, partially offset by a decrease in non-cash adjustments of $21.8 million and more cash provided by changes in our operating assets and liabilities in 2022.
The increase was primarily due to full results in 2022 pertaining to the acquisition of H&J in May 2021 and Stateside in August 2021. Gross Profit Our gross profit increased by $4.0 million for the year ended December 31, 2022 to $5.9 million from $1.9 million for the corresponding fiscal period in 2021.
The increase was primarily due to full results in 2023 pertaining to the acquisition of Sundry in December 2022. Gross Profit Our gross profit increased by $0.6 million for the year ended December 31, 2023 to $6.5 million from $5.9 million for the corresponding fiscal period in 2022.
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.
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.
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.
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.
Historically each of DBG, Bailey, H&J and Stateside 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 December 31, 2022, we had cash of $1,283,282, but we had a working capital deficit of $32,064,398.
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 December 31, 2023, we had cash of $20,773, but we had a working capital deficit of $17,655,720.
Harper & Jones is primarily a direct-to-consumer brand using its own showrooms. ● 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.
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.
Aside from our remaining non-current SBA obligations, all outstanding loans have maturity dates through 2023. 46 Table of Contents Off-Balance Sheet Arrangements and Future Commitments We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Off-Balance Sheet Arrangements and Future Commitments We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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’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.
General and administrative expenses as a percentage of revenue was 117% in 2022 as compared to 221% in 2021. Sales and Marketing Sales and marketing expenses increased by $1.1 million for the year ended December 31, 2022 to $4.9 million compared to $3.8 million in 2021.
General and administrative expenses as a percentage of revenue was 95% in 2023 as compared to 117% in 2022. 47 Table of Contents Sales and Marketing Expenses Sales and marketing expenses decreased by $0.9 million for the year ended December 31, 2023 to $4.0 million compared to $4.9 million in 2022.
We are also assessing our forward inventory purchase commitments to ensure proper matching of supply and demand, which will result in an overall reduction in future commitments.
We are also assessing our forward inventory purchase commitments to ensure proper matching of supply and demand, which will result in an overall reduction in future commitments. As we continue to actively monitor the situation, we may take further actions that affect our operations.
Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses. Revenue is deferred for orders received for which associated shipments have not occurred. Accounts Receivable We carry our accounts receivable at invoiced amounts less allowances for customer credits, doubtful accounts, and other deductions.
Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses. Revenue is deferred for orders received for which associated shipments have not occurred.
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Critical Accounting Policies and Estimates Basis of Presentation and Principles of Consolidation Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”). 42 Table of Contents Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
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 Disclosure 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”), Harper & Jones LLC (“H&J”), MOSBEST, LLC (“Stateside”) and Sunnyside (“Sundry”). 34 Table of Contents Business Overview Recent Development We have been involved in a dispute with the former owners of H&J regarding our obligation to “true up” their ownership interest in our company further to that membership interest purchase agreement dated May 10, 2021 whereby we acquired all of the outstanding membership interests of H&J (as amended, the “H&J Purchase Agreement”).
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”), Harper & Jones LLC (“H&J”), MOSBEST, LLC (“Stateside”) and Sunnyside (“Sundry”).
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.
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.
The increase in sales and marketing expenses was primarily due to full-year advertising and marketing efforts by each subsidiary. Sales and marketing expenses as a percentage of revenue was 35% in 2022 as compared to 50% in 2021. Other Operating Expenses Other operating expenses includes distribution expenses, impairment and change in fair value of contingent consideration.
The decrease in sales and marketing expenses was primarily due to decreased spending on advertising and other cost-cutting marketing efforts. Sales and marketing expenses as a percentage of revenue was 27% in 2023 as compared to 35% in 2022. Other Operating Expenses Other operating expenses included distribution expenses, impairment and change in fair value of contingent consideration.
Cash used in 2021 was primarily related to the cash consideration in the H&J and Stateside acquisitions. Cash Flows Provided by Financing Activities Cash provided by financing activities was $18.6 million for the year ended December 31, 2022 compared to cash provided of $20.2 million for the corresponding fiscal period in 2021.
Cash Flows Provided by Financing Activities Cash provided by financing activities was $4.7 million for the year ended December 31, 2023 compared to cash provided of $18.6 million for the corresponding fiscal period in 2022.
Cash Flows Used in Investing Activities Our cash used in investing activities was $7.3 million in the year ended December 31, 2022 as compared to cash used of $6.0 million for the corresponding fiscal period in 2021. Cash used in 2022 was primarily related to the cash consideration in the Sundry acquisition.
Cash Flows Used in Investing Activities Our cash provided by investing activities was $0.1 million in the year ended December 31, 2023 as compared to cash used of $7.3 million for the corresponding fiscal period in 2022. Cash provided in 2023 was primarily due to a reduction of deposits, partially offset by purchase of property.
The increase in other expenses in 2022 was primarily due to amortization of debt discount and related interest expense on the Company’s various convertible notes and change in fair value of derivative liability, partially offset by PPP forgiveness.
The increase in other expenses in 2023 was primarily due to $1.4 million on loss on extinguishment of debt in 2023 and the change in fair value of derivative liability, partially offset by PPP forgiveness.
As we continue to actively monitor the situation, we may take further actions that affect our operations. 36 Table of Contents 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 Disruptions We are subject to global supply chain disruptions, which may include longer lead times for raw fabrics, inbound shipping and longer production times.
Sundry is primarily a wholesale brand that we will be transitioning to a digital, direct-to-consumer brand. 35 Table of Contents 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 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.
In those cases, sales, net represents total sales less returns, promotions and discounts. 41 Table of Contents 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.
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.
Sales and Marketing Sundry’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’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. 46 Table of Contents Sales and Marketing Sundry’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.
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.
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.
DBG Net Revenue We sell our products to our customers directly through our website.
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.
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 define Lifetime Value or LTV as an estimate of the average revenue that a customer will generate throughout their lifespan as our customer.
We do not accrue interest on its trade receivables. Management evaluates the ability to collect accounts receivable based on a combination of factors. Receivables are determined to be past due based on individual credit terms.
Management evaluates the ability to collect accounts receivable based on a combination of factors. Receivables are determined to be past due based on individual credit terms. An allowance for credit losses is maintained based on the length of time receivables are past due, historical collections, or the status of a customer’s financial position.
Results of Operations Year ended December 31, 2022 compared to year ended December 31, 2021 The following table presents our results of operations for the year ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2022 2021 Net revenues ​ $ 13,971,178 ​ $ 7,584,859 Cost of net revenues ​ 8,030,908 ​ 5,716,587 Gross profit ​ 5,940,270 ​ 1,868,272 General and administrative ​ ​ 16,371,536 ​ ​ 16,752,516 Sales and marketing ​ ​ 4,950,635 ​ ​ 3,810,583 Other operating expenses ​ ​ 16,715,204 ​ ​ 12,653,831 Operating loss ​ (32,097,105) ​ (31,348,658) Other expenses ​ (5,946,257) ​ (2,109,419) Loss before provision for income taxes ​ (38,043,362) ​ (33,458,077) Provision for income taxes ​ — ​ 1,100,120 Net loss ​ $ (38,043,362) ​ $ (32,357,957) ​ Net Revenues Revenue increased by $6.4 million to $14.0 million for the year ended December 31, 2022, compared to $7.6 million in the corresponding fiscal period in 2021.
Results of Operations Year ended December 31, 2023 compared to year ended December 31, 2022 The following table presents our results of operations for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2023 2022 Net revenues ​ $ 14,916,422 ​ $ 13,971,178 Cost of net revenues ​ 8,372,642 ​ 8,030,908 Gross profit ​ 6,543,780 ​ 5,940,270 General and administrative ​ ​ 14,299,389 ​ ​ 16,371,536 Sales and marketing ​ ​ 4,035,835 ​ ​ 4,950,635 Impairment ​ ​ — ​ ​ 15,539,332 Other operating expenses ​ ​ (9,696,132) ​ ​ 1,175,872 Loss from Operations ​ (2,095,312) ​ (32,097,105) Other expenses ​ (6,221,284) ​ (5,946,257) Loss before provision for income taxes ​ (8,316,596) ​ (38,043,362) Provision for income taxes ​ (368,034) ​ — Net loss from continuing operations ​ ​ (8,684,630) ​ ​ (38,043,362) (Loss) income from discontinued operations, net of tax ​ ​ (1,562,503) ​ ​ — Net loss ​ $ (10,247,133) ​ $ (38,043,362) ​ Net Revenues Net revenues increased by $0.9 million to $14.9 million for the year ended December 31, 2023, compared to $14.0 million in the corresponding fiscal period in 2022.
Such tentative terms are to be memorialized in definitive purchase agreements and as such there is no assurance that such arrangements will be finalized. Our Company Digital Brands Group is a curated collection of lifestyle brands, including Bailey 44, DSTLD, Harper & Jones, Stateside, Sundry and ACE Studios, that offers a variety of apparel products through direct-to-consumer and wholesale distribution.
Jones. This transaction is known as the “H&J Settlement”. Our Company Digital Brands Group is a curated collection of lifestyle brands, including Bailey 44, DSTLD, Stateside, Sundry and ACE Studios, 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.
Net Loss Our net loss increased by $5.6 million to a loss of $38.0 million for the year ended December 31, 2022 compared to a loss of $32.4 million for the corresponding fiscal period in 2021 primarily due to our increased operating expenses and other expenses, partially offset by a higher gross profit in 2022 and tax benefit recorded in 2021.
Net Loss from Continuing Operations Our net loss from continuing operations decreased by $29.3 million to a loss of $8.7 million for the year ended December 31, 2023 compared to a loss of $38.0 million for the corresponding fiscal period in 2022 primarily due to the impairment, change in fair value of contingent consideration and higher gross profit.
The increase in gross margin was primarily attributable to increased revenue in 2022 and the gross profit achieved by H&J and Stateside since the acquisitions, as well as discounting and liquidation measures by both DBG and Bailey to sell aged inventory in 2021. 44 Table of Contents Our gross margin was 42.5% for the year ended December 31, 2022 compared to 24.6% for year ended December 31, 2021.
The increase in gross margin was primarily attributable to increased revenue in 2023 and the gross profit achieved by Sundry since the acquisition. Our gross margin was 43.9% for the year ended December 31, 2023 compared to 42.5% for year ended December 31, 2022.
We are currently unable to repay or refinance these borrowings so any such action by these lenders could force us into bankruptcy or liquidation.
Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our business, financial condition and results of operations. 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.
As of December 31, 2022, we have an additional 10.4 million in outstanding principal on other loans, primarily our promissory notes due to the Bailey44 and Sundry Sellers.
Contractual Obligations and Commitments As of December 31, 2023, we have $9.7 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.
Other Income (Expense) Other expenses increased by $3.8 million to $5.9 million in the year ended December 31, 2022 compared to $2.1 million in the corresponding fiscal period in 2021.
In 2023, the Company recorded a $10.7 million increase in the change in fair value of contingent consideration pertaining to the Norwest waiver for Bailey and H&J Settlement. Other Expenses Other expenses increased by $0.3 million to $6.2 million in the year ended December 31, 2023 compared to $5.9 million in the corresponding fiscal period in 2022.
Other operating expenses was $16.7 million in 2022 as compared to $12.7 million in 2021, an increase of $4.0 million. The increase was primarily due to a $12.1 million increase in impairment charges on Bailey and Harper’s goodwill and intangible assets, partially offset by a decrease in the change in fair value of contingent consideration of $8.2 million.
Other operating expenses represented a gain of $9.7 million in 2023 as compared to $16.7 million in 2022, a decrease in expenses of $10.9 million. In 2022, there were $15.5 million in impairment charges on Bailey’s and Harper’s goodwill and intangible assets.
We periodically review accounts receivable, estimate an allowance for bad debts, and simultaneously record the appropriate expense in the statement of operations. Such estimates are based on general economic conditions, the financial conditions of customers, and the amount and age of past due accounts.
Receivables are written off in the year deemed uncollectible after efforts to collect the receivables have proven unsuccessful. We do not have any off balance sheet cried exposure related to our customers. We periodically review accounts receivable, estimate an allowance for bad debts, and simultaneously record the appropriate expense in the statement of operations.
Past due accounts are written off against that allowance only after all collection attempts have been exhausted and the prospects for recovery are remote. Goodwill Impairment We are required to assess our goodwill for impairment at least annually for each reporting unit that carries goodwill.
Such estimates are based on general economic conditions, the financial conditions of customers, and the amount and age of past due accounts. Past due accounts are written off against that allowance only after all collection attempts have been exhausted and the prospects for recovery are remote. Recovering of accounts receivable previously written off are recorded as income when received.
The increase in the gross margin was due to H&J and Stateside’s margins in 2022, as well as discounting and liquidation measures by both DBG and Bailey to sell aged inventory in 2021. General and Administrative General and administrative expenses decreased by $0.4 million for the year ended December 31, 2022 to $16.4 million compared to $16.8 million in 2021.
The increase in gross margin was due to a shift in sales mix towards e-commerce, led by the Sundry business, which is able to achieve higher margins than wholesale. General and Administrative Expenses General and administrative expenses decreased by $2.1 million for the year ended December 31, 2023 to $14.3 million compared to $16.4 million in 2022.
Removed
As part of a proposed settlement with such holders, we have tentatively agreed to the following: (i) to transfer all membership interests of H&J back to the original owners, (ii) to pay such owners the sum of $229,000, (iii) issue the former owners of H&J an aggregate of $1,400,000 worth of our common stock to be issued on May 16, 2023 based on the lower of (a) the stock closing price per share on May 15, 2023, and (b) the average common stock closing price based on the average of the 5 trading days preceding May 16, 2023, with the closing price on May 9, 2023.
Added
Business Overview Recent Developments We entered into a license deal for Bailey 44 in January 2023 that is paid quarterly based on the results. We have received two license payouts since November 2023 for approximately $124,000 in total. The licensee has asked to add additional categories to their current offering, which we agreed to.
Removed
DSTLD is primarily a digital direct-to-consumer brand, to which we recently added select wholesale retailers to generate brand awareness. ● Harper & Jones was built with the goal of inspiring men to dress with intention. It offers hand- crafted custom fit suits for those looking for a premium experience.
Added
We entered into a retail store sublease for approximately 3.5 years at the Simon Premium Outlet in Allen, TX, a suburb of Dallas. We plan to open the store in April 2024.
Removed
Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our business, financial condition and results of operations. We issued a promissory note in the principal amount of $4,500,000 pursuant to the Bailey acquisition. Upon the IPO closing in May 2021, we repaid $1,000,000 of the outstanding principal on this note in May 2021.
Added
We expect the store to generate meaningful cash flow as we already have excess product that we can sell, which means we will not have to use cash to create inventory for sale. We expect the store to generate over $1.5 million in annual revenue and over $500,000 in free cash flow.
Removed
In August 2021, the maturity date was further 37 Table of Contents extended to December 31, 2022. We are required to make prepayments of $2,000,000 to $4,000,000 if we complete a secondary public offering.
Added
We have been involved in a dispute with the former owners of Haper & Jones, LLC (“H&J”) regarding our obligation to “true up” their ownership interest in our company further to that membership interest purchase agreement dated May 10, 2021 whereby we acquired all of the outstanding membership interests of H&J (as amended, the “H&J Purchase Agreement”).
Removed
If a public offering is not consummated before October 31, 2021 and June 30, 2022, we were obligated to repay 10% of the outstanding principal at each date. We did not make any payments in October 2021, and the lender agreed to defer these payments to the maturity date of the loan, December 31, 2022.
Added
On June 21, 2023, the Company and the former owners of H&J executed a Settlement Agreement and Release (the “Settlement Agreement”) whereby contemporaneously with the parties’ execution of the Settlement Agreement (i) the Company made aggregate cash payment of $229,000 to D. Jones Tailored Collection, Ltd. (“D. Jones”), (ii) the Company issued 78,103 shares of common stock to D.
Removed
However, no payments have been made - while the parties are undergoing an extension of the maturity date, the note is in technical default. In addition, we issued promissory notes in the aggregate principal amount of $5,500,000 pursuant to the Sundry acquisition with a maturity date of February 15, 2023.
Added
Jones at a per share purchase price of $17.925 which represented the lower of (i) the closing price per share of the Common Stock as reported on Nasdaq on June 20, 2023, and (ii) the average closing price per share of Common Stock as reported on the Nasdaq for the five trading days preceding June 21, 2023, and (iii) the Company assigned and transferred one hundred percent (100%) of the Company’s membership interest in H&J to D.
Removed
However no payments have been made and the notes are in technical default. If such holders enforce their rights in connection with such defaults and achieve a default judgement, this may also result in the acceleration of or default under any other debt to which a cross-acceleration or cross-default provision applies.
Added
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. 39 Table of Contents We acquired Bailey in February 2020, Stateside in August 2021 and Sundry in December 2022.
Removed
Our products for Harper & Jones are sold through its own showrooms and its outside sales reps, which can use the showrooms to meet clients.
Added
Accounts Receivable and Expected Credit Loss We carry our accounts receivable at invoiced amounts less allowances for customer credit losses and other deductions to present the net amount expected to be collected on the financial asset. All receivables are expected to be collected within one year of the consolidated balance sheet. We do not accrue interest on the trade receivables.
Removed
Critical Accounting Policies and Estimates Basis of Presentation and Principles of Consolidation Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”).
Added
The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. 43 Table of Contents Goodwill Impairment We are required to assess our goodwill for impairment at least annually for each reporting unit that carries goodwill.
Removed
A reserve for doubtful accounts is maintained based on the length of time receivables are past due, historical collections, or the status of a customer’s financial position. Receivables are written off in the year deemed uncollectible after efforts to collect the receivables have proven unsuccessful.
Added
The decrease in general and administrative expenses was primarily due to lower consulting and professional fees, as well as other cost cutting measures across our company, as all brands achieved operational synergies in 2023.
Removed
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.
Added
Cash inflows in 2023 included $8.1 million in equity proceeds after offering costs, $1.2 million in proceeds from the exercise of warrants, $5.4 million from the issuance of notes, loans and merchant advances, partially offset by note, loan and merchant advance repayments of 10.1 million.
Removed
Cost of Net Revenue H&J’s cost of net revenue sold is associated with procuring fabric and custom tailoring each garment. Operating Expenses H&J’s operating expenses include all operating costs not included in cost of net revenue.
Removed
General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, occupancy expenses related to H&J’s stores and to H&J’s operations at its headquarters, including utilities, depreciation and amortization, and other costs related to the administration of its business.
Removed
H&J’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. 42 Table of Contents Interest Expense H&J’s interest expense consists primarily of interest related to its outstanding debt. Stateside Net Revenue Stateside sells its products directly to customers.
Removed
Sundry’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.
Removed
The decrease in general and administrative expenses was primarily due to non-cash charges incurred in 2021 upon the IPO, including stock-based compensation expense of $4.8. This was partially offset by increased general and administrative expenses in 2022 due to full scale operations of all subsidiaries, as well as increased headcount and corporate costs.

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