Digital Brands Group Inc
For the period ended Jun 30, 2024. Filed Aug 19, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 19, 2024
DBGI$0.28-39.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-20.
0001493152-24-020763
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-19.
0001493152-24-033177
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 142 previous paragraphs and 153 current paragraphs.
117 unchanged; 20 reworded; 13 added; 5 removed; 0 previous and 3 current paragraphs rearranged.
Tables are not compared: 2 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (13)
Current report
Operating Expenses/(Income)
Current report
Other expenses were $1.2 million while other expense was $1.1 million for the three months ended June 30, 2024 and 2023, respectively, primarily consisting of interest expense.
Current report
Six Months Ended June 30, 2024 compared to Six Months Ended June 30, 2023
Current report
Net Revenues
Current report
Revenues decreased by $1.9 million to $7.0 million for the six months ended June 30, 2024, compared to $8.9 million in the corresponding fiscal period in 2023. The decrease was primarily due to a delay in wholesale shipments in April 2024, and lower ecommerce revenues across each brand due to less digital advertising spend.
Current report
Gross Profit
Current report
Our gross margin was 47% for six months ended June 30, 2024, compared to 49% for the six months ended June 30, 2023. The decrease in gross margin was due to corresponding decrease in the ecommerce revenue.
Current report
Other Income (Expenses)
Current report
Other expenses were $1.7 million while other expense was $3.6 million for the six months ended June 30, 2024 and 2023, respectively. Interest expense in 2024 decreased due to less merchant advances and lower principal on outstanding loans.
Current report
Net Loss from Continuing Operations
Current report
Our net loss from continuing operations increased by $4.7 million to a net loss from continuing operations of $4.2 million for the six months ended June 30, 2024 compared to income from continuing operations of $0.5 million for the corresponding fiscal period in 2023, primarily due to the change in fair value of contingent consideration in 2023 and lower gross profit in 2024, partially offset by lower general and administrative and sales and marketing expenses.
Current report
Our cash provided by investing activities was $41,331 in 2023 primarily due to a reduction of deposits, partially offset by purchase of property and cash sold in the H&J disposition.
Current report
ContractualObligations and Commitments
Removed paragraphs (5)
Previous report
Target Capital Convertible Promissory Note
Previous report
On April 30, 2024 (the “Issue Date”), the Company issued a convertible promissory note in the original principal amount of $250,000 (the “Note”) to Target Capital 1 LLC, an Arizona limited liability company (the “Note Holder”), with a maturity date of April 30, 2025 (the “Maturity Date”). Pursuant to the terms of the Note, the Company agreed to pay the principal sum and a one-time interest charge of $50,000 to the Note Holder. The Note Holder may convert the Note into the Company’s common stock, par value of $0.0001 per share (the “Common Stock”), at any time at a price of $3.50 per share, subject to beneficial ownership limitations contained in the Note. The Company agreed to issue 50,000 shares of restricted Common Stock (the “Commitment Shares”) to the Note Holder within ten (10) calendar days after the Issue Date, as a commitment fee. If this Note is not repaid in cash or converted into Common Stock by October 31, 2024 (the “Trigger Date”), then the Company shall issue an additional 50,000 shares of restricted Common Stock to the Holder within ten (10) calendar days after the Trigger Date. The Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of covenants.
Previous report
Other income (expense) was $0.04 million and $(0.67) million for the three months ended March 31, 2024 and 2023, respectively. In 2023, the Company had $0.7 million in other expense because of loss on extinguishment of debt. The Company had less notes outstanding in 2024 and therefore less amortization of debt discount.
Previous report
Our cash provided by investing activities was $87,379 in 2023 due to return of deposits.
Previous report
Contractual Obligations and Commitments
Reworded paragraphs (20)
Previous wording
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the historical financial statements of the relevant entities and the pro forma financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. 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.”
Current wording
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the historical financial statements of the relevant entities and the pro forma financial statements and the notes thereto included elsewhere in this Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. 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.”
Previous wording
Some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly including those risks identified in Part II-Item 1A “Risk Factors” and our other filings with the Securities and Exchange Commission (the “SEC”).
Current wording
Some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly including those risks identified in Part II-Item 1A “Risk Factors” and our other filings with the SEC.
Previous wording
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 opened the store in mid April 2024. 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 on an annual basis.
Current wording
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 opened the store in md April 2024. 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 on an annual basis.
Previous wording
As of March 31, 2024, we had an aggregate principal amount of debt outstanding of approximately $9.1 million. We believe this is an amount of indebtedness which may be considered significant for a company of our size and current revenue base. Our substantial debt could have important consequences to us. For example, it could:
Current wording
As of June 30, 2024, we had an aggregate principal amount of debt outstanding of approximately $8.7 million. We believe this is an amount of indebtedness which may be considered significant for a company of our size and current revenue base. Our substantial debt could have important consequences to us. For example, it could:
Previous wording
● make it more difficult for us to satisfy our obligations to the holders of our outstanding debt, resulting in possible defaults on and accelerationof such indebtedness;
Current wording
● 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;
Previous wording
● 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 ourgrowth strategy.
Current wording
● 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.
Previous wording
Revenues decreased by $0.8 million to $3.6 million for the three months ended March 31, 2024, compared to $4.4 million in the corresponding fiscal period in 2023. The decrease was primarily due to a delay in wholesale shipments in April 2024.
Current wording
Revenues decreased by $1.1 million to $3.4 million for the three months ended June 30, 2024, compared to $4.5 million in the corresponding fiscal period in 2023. The decrease was primarily due to a delay in wholesale shipments in April 2024, and lower ecommerce revenues across each brand due to less digital advertising spend.
Previous wording
Our gross profit decreased by $0.3 million for the three months ended March 31, 2024 to $1.7 million from a gross profit of $2.0 million for the corresponding fiscal period in 2023. The decrease in gross margin was primarily attributable to a decrease in sales.
Current wording
Our gross profit decreased by $0.7 million for the three months ended June 30, 2024 to $1.6 million from a gross profit of $2.3 million for the corresponding fiscal period in 2023. The decrease in gross margin was primarily attributable to a decrease in sales.
Previous wording
Our gross margin was 48.1% for three months ended March 31, 2024, compared to 45.5% for the three months ended March 31, 2023. The increase in gross margin was primarily attributable to the ability to leverage fixed costs across all brands.
Current wording
Our gross margin was 46% for three months ended June 30, 2024, compared to 52% for the three months ended June 30, 2023. The decrease in gross margin was due to corresponding decrease in the ecommerce revenue.
Previous wording
Our operating expenses decreased by $3.7 million for the three months ended March 31, 2024 to $1.9 million compared to $5.7 million for the corresponding fiscal period in 2023. General and administrative expenses decreased by $3.5 million, and sales and marketing expenses decreased by $0.3 million. The deceases were primarily due to cost cutting measures and synergies from the Sundry acquisition including the elimination of its warehouse, office, fulfillment and redundancies in headcount.
Current wording
Our operating expenses increased by $9.1 million for the three months ended June 30, 2024 to $3.8 million compared to $(5.2) million for the corresponding fiscal period in 2023. General and administrative expenses decreased by $1.1 million, and sales and marketing expenses decreased by $0.5 million. The deceases were primarily due to cost cutting measures and synergies from the Sundry acquisition including the elimination of its warehouse, office, fulfillment and redundancies in headcount. Other operating expenses included a gain of $10.7 million in 2023 due to the change in fair value of contingent consideration.
Previous wording
Our net loss from continuing operations decreased by $5.5 million to a net loss from continuing operations of $0.7 million for the three months ended March 31, 2024 compared to a net loss from continuing operations of $6.2 million for the corresponding fiscal period in 2023, primarily due to lower other expenses and operating expenses in 2024.
Current wording
Our net loss from continuing operations decreased by $10.0 million to a net loss from continuing operations of $3.5 million for the three months ended June 30, 2024 compared to income from continuing operations of $6.5 million for the corresponding fiscal period in 2023, primarily due to the change in fair value of contingent consideration in 2023 and lower gross profit in 2024, partially offset by lower general and administrative and sales and marketing expenses.
Previous wording
As of March 31, 2024, we had cash of $0.1 million, but we had a working capital deficit of $15 million. The Company requires significant capital to meet its obligations as they become due. These factors raise substantial doubt about our Company’s ability to continue as a going concern. Throughout the next twelve months, the Company intends to fund its operations primarily from the funds raised through the equity line of credit agreement. 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.
Current wording
As of June 30, 2024, we had cash of $92,794, but we had a working capital deficit of $14.9 million. The Company requires significant capital to meet its obligations as they become due. These factors raise substantial doubt about our Company’s ability to continue as a going concern. Throughout the next twelve months, the Company intends to fund its operations primarily from the funds raised through the equity line of credit agreement. 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.
Previous wording
The following table presents selected captions from our condensed statement of cash flows for the three months ended March 31, 2024 and 2023:
Current wording
The following table presents selected captions from our condensed statement of cash flows for the six months ended June 30, 2024 and 2023:
Previous wording
Our cash used in operating activities decreased by $0.5 million to cash used of $1.2 million for the three months ended March 31, 2024, as compared to cash used of $1.7 million for the corresponding fiscal period in 2023. The increase in net cash used in operating activities was primarily driven by a lower net loss in 2024, partially offset by changes in our operating assets and liabilities,
Current wording
Our cash used by operating activities decreased by $0.2 million to cash used of $2.8 million for the six months ended June 30, 2024, as compared to cash used of $3.0 million for the corresponding fiscal period in 2023. Thedecrease in net cash used in operating activities was primarily driven by non-cash charges in 2024, partially offset by our net loss and cash used in operating assets and liabilities.
Previous wording
Cash Flows Provided By Investing Activities
Current wording
Cash Flows Provided By (Used in) Investing Activities
Previous wording
Our cash provided by investing activities was $13,785 in the three months ended March 31, 2024, primarily due to purchase of property, equipment and software.
Current wording
Our cash used investing activities was $101,080 in the six months ended June 30, 2024, primarily due to purchase of property, equipment & software and deposits on leases.
Previous wording
Cash provided by financing activities was $1.2 million for the three months ended March 31, 2024. Cash inflows included $1.7 million in net proceeds from the issuance from the common stock for cash. Cash outflows are primarily due to $0.5 million in repayments of notes of $0.5 million.
Current wording
Cash provided by financing activities was $2.9 million for the six months ended June 30, 2024. Cash inflows included $4.6 million in net proceeds from the issuance from the common stock for cash and $0.5 million in proceeds from loans and notes. Cash outflows are primarily due to $2.2 million in repayments of notes.
Previous wording
Cash provided by financing activities was $2.3 million for the three months ended March 31, 2023. Cash inflows included $4.3 million in net proceeds from the January Private Transaction, $3.5 million in proceeds from loans and promissory notes and $0.2 million in advances from the factor.
Current wording
Cash provided by financing activities was $2.0 million for the six months ended June 30, 2023. Cash inflows included $5.0 million in net proceeds from the January Private Transaction, $4.19 million in proceeds from loans and promissory notes and $0.2 million in advances from the factor.
Previous wording
As of March 31, 2024, we had $9.1 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.
Current wording
As of June 30, 2024, we had $8.7 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.
Previous wording
We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and, as such, have elected to comply with certain reduced public company reporting requirements.
Current wording
We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
The following table presents our results of operations for the six months ended June 30, 2024 and 2023:
Current report — wording carried from elsewhere
Our gross profit decreased by $1.0 million for the six months ended June 30, 2024 to $3.3 million from a gross profit of $4.3 million for the corresponding fiscal period in 2023. The decrease in gross margin was primarily attributable to a decrease in sales.
Current report — wording carried from elsewhere
Our operating expenses increased by $5.6 million for the six months ended June 30, 2024 to $5.8 million compared to $0.2 million for the corresponding fiscal period in 2023. General and administrative expenses decreased by $4.5 million, and sales and marketing expenses decreased by $0.7 million. The deceases were primarily due to cost cutting measures and synergies from the Sundry acquisition including the elimination of its warehouse, office, fulfillment and redundancies in headcount. Other operating expenses included a gain of $10.7 million in 2023 due to the change in fair value of contingent consideration.