UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
For
the fiscal year ended December 31, 2024
For
the transition period from ____________ to ____________
Commission
file number: 001-40400
DIGITAL
BRANDS GROUP, INC.
(Exact
name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400
Lavaca Street
Austin,
TX78701
(Address
of principal executive offices, including zip code)
(209)651-0172
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
N/A N/A N/A
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if this registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates of the registrant, based on the closing price of the shares of common
stock on June 28, 2024 was approximately $3,341,932. Shares of the registrant’s
common stock held by each executive officer and director and by each other person who may be deemed to be an affiliate of the registrant
have been excluded from this computation. This calculation does not reflect a determination that certain persons are affiliates of the
registrant for any other purpose.
As
of April 9, 2025, the Company had 4,146,494 shares of common stock, $0.0001 par value, issued and outstanding.
Documents
Incorporated by Reference: None.
DIGITAL
BRANDS GROUP, NC.
FORM
10-K
TABLE
OF CONTENTS
PART I
Item 1. Business 2
Item 1A. Risk Factors 18
Item 1B. Unresolved Staff Comments 35
Item 1C. Cybersecurity 35
Item 2. Properties 36
Item 3. Legal Proceedings 37
Item 4. Mine Safety Disclosures 37
PART II
Item 6. Reserved 41
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 53
Item 8. Financial Statements and Supplementary Data 53
Item 9A. Controls and Procedures 53
Item 9B. Other Information 54
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 54
PART III
Item 10. Directors, Executive Officers and Corporate Governance 55
Item 11. Executive Compensation 60
Item 14. Principal Accountant Fees and Services 65
PART IV
Item 15. Exhibits and Financial Statement Schedules 65
i
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except
for historical information, this Annual Report on Form 10-K contains 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”), which involve risks and uncertainties. These forward-looking statements can be identified by
the use of forward- looking terminology, including the terms “believe,” “estimate,” “project,” “aim,”
“anticipate,” “expect,” “seek,” “predict,” “contemplate,” “continue,”
“possible,” “intend,” “may,” “plan,” “forecast,” “future,” “might,”
“will,” “could,” would” or “should” or, in each case, their negative, or other variations or
comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of
places throughout this Annual Report on Form 10-K and include statements regarding our intentions, beliefs or current expectations concerning,
among other things, our results of operations, financial condition, liquidity, prospects, growth strategies, the industry in which we
operate and potential acquisitions. We derive many of our forward- looking statements from our operating budgets and forecasts, which
are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult
to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual
results. All forward-looking statements are based upon information available to us on the date of this Annual Report on Form 10-K.
By
their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that
may or may not occur in the future. We caution you that forward- looking statements are not guarantees of future performance and that
our actual results of operations, financial condition and liquidity, and the stability of the industry in which we operate may differ
materially from those made in or suggested by the forward-looking statements contained in this Annual Report on Form 10-K. In addition,
even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent
with the forward-looking statements contained in this Annual Report on Form 10-K, those results or developments may not be indicative
of results or developments in subsequent periods.
Important
factors that could cause our results to vary from expectations include, but are not limited to:
● the potential for additional impairments of intangible assets;
● our lack of combined operating history;
● the impact of a potentially moderate or severe economic recession;
● the highly fragmented and competitive nature of our industry;
● loss of any of our executives and managers;
● quarterly variations in our operating results;
● disruptions in the manufacturing and supply chains;
● our exposure to claims arising from our acquired operations;
● the potential for asset impairments when we acquire businesses;
● disruptions in our information technology systems;
Other
sections of this Annual Report on Form 10-K include additional factors that could adversely impact our business and financial performance.
In light of these risks, uncertainties and assumptions, the forward-looking events described in this Annual Report on Form 10-K may not
occur. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time, and it is not possible
for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the
extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements. We qualify all of our forward-looking statements by these cautionary statements.
Estimates
and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation
to update or to review any estimate and/or forward- looking statement because of new information, future events or other factors. Estimates
and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks
and uncertainties described above, the estimates and forward-looking statements discussed in this Annual Report on Form 10-K might not
occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to,
but not limited to, the factors mentioned above.
Because
of these uncertainties, you should not place undue reliance on these forward-looking statements when making an investment decision.
PART
I
References
in this Annual Report on Form 10-K to “we,” “us,” “Digital Brands Group,” “DBG,” “Company,”
or “our company” are to Digital Brands Group, Inc., a Delaware corporation, and its consolidated subsidiaries, Bailey 44,
LLC (“Bailey”), MOSBEST, LLC (“Stateside”) and SUNNYSIDE, LLC (“Sundry”). References to “management”
or our “management team” are to our executive officers and directors.
On August 22,
2023, the Company effectuated a 1-for-25 reverse stock split of its outstanding common stock (the “2023 Reverse Stock Split”).
On December 12, 2024, the Company effectuated a 1-for-50 reverse stock split of its outstanding common stock (the “2024 Reverse
Stock Split,” and together with the 2023 Reverse Stock Split, the “Reverse Stock Splits”). Unless
otherwise indicated, all amounts and values presented in this Annual Report on Form 10-K have been retroactively adjusted to reflect
the Reverse Stock Splits for all periods presented.
ITEM 1. BUSINESS
Company Overview
We are a curated collection of lifestyle brands, including Bailey, DSTLD, Stateside, Sundry and Avo, 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 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. 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.
Recent
Developments
In
April of 2024, 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 April 2024. The Company closed the store in October 2024 to focus on its e-commerce strategy with VaynerCommerce,
a digital marketing agency.
On
October 2, 2024, the Company received a letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market
LLC (“Nasdaq”) notifying the Company that the Staff has determined to delist the Company’s common stock from Nasdaq
at the opening of business on October 11, 2024, based on the Company’s failure to maintain a minimum bid price of $1 per share
per Listing Rule 5550(a)(2), unless the Company requests an appeal of such determination by October 9, 2024. The Company submitted the
appeal request to Nasdaq on October 9, 2024. Nasdaq granted a hearing of the appeal to be held on December 3, 2024. On November 20, 2024,
the Company received notice from the Staff of Nasdaq that the Company no longer satisfied the $35,000,000 market value of listed securities
requirement, or the alternative $2,500,000 stockholders’ equity requirement, as set forth in Listing Rule 5550(b), and that such
failure would serve as an additional basis for the delisting of the Company’s securities from Nasdaq. In the Company’s Amendment
No. 1 to its Quarterly Report on Form 10-Q/A for the period ended September 30, 2024 (the “Q3 Report”), filed with the SEC
on November 15, 2024, the Company reported stockholders’ equity of $19,046 and, therefore, no longer complied with the Rule. On
December 16, 2024, the Staff of Nasdaq notified the Company that the Nasdaq Hearings Panel (the “Panel”) determined to delist
the Company’s common stock and trading of the Company’s securities was suspended on Nasdaq at the open of trading on December
18, 2024. Immediately after the delisting of the Company’s common stock, the Company’s common stock began being quoted on
the OTC Pink Market under its existing symbol, “DBGI”. The Panel reached its decision because the Company was in violation
of Listing Rules 5550(a)(2), 5550(b)(1), and 5635, the Bid Price, Shareholders’ Equity, and Shareholder Approval Rules, respectively.
The
Company and various purchasers (the “Investors”) executed a securities purchase agreement (the “SPA”) on or around
April 7, 2023, whereby the Investors purchased from the Company promissory notes in the aggregate principal amount of approximately $2,500,000
(the “Original Notes”), and the remaining balances of such Original Notes as of October 1, 2023, were exchanged by the Investors
for replacement promissory notes issued on October 1, 2023, in the aggregate principal amount of approximately $1,789,668.37 (the “2023
Notes”). On May 24, 2024, the Company entered into settlement agreements with the Investors (each a “Settlement Agreement”),
pursuant to which the Company agreed to pay aggregate cash payments equal to $1,789,668.37 to extinguish all obligations and claims under
the SPA, Original Notes, and 2023 Notes, as follows: (i) $500,000.00 on or before May 28, 2024 and (ii) $1,289,668.37 on or before September
30, 2024 (the “Final Payment”). On or around October 3, 2024, the Company entered into amendments to each Settlement Agreement
with the Investors, whereby the Final Payment due date was extended to October 31, 2024. On November 1, 2024, the Company entered into
a second amendment to each Settlement Agreement with the Investors, whereby the Final Payment due date was extended to November 4, 2024.
On November 4, 2024, the Company paid the Final Payment to extinguish all obligations and claims under the SPA, Original Notes, and 2023
Notes.
Between
July 1, 2024 and October 22, 2024, the Company issued and sold 105,125 shares of Common Stock (the “Recent ATM Share Sales”)
to H.C. Wainwright & Co., LLC (the “Agent”) as sales agent or principal, pursuant to the terms of the Company’s
previously announced At-The-Market Offering Agreement, dated December 27, 2023, between us and the Agent (the “Sales Agreement”).
The Company received net proceeds of $2,063,386 from the Recent ATM Share Sales. Between October 23, 2024 and December 17, 2024, the
Company issued and sold 65,236 shares of Common Stock to the Agent as sales agent or principal, pursuant to the terms of the Sales Agreement,
and received net proceeds of $278,160.
Between
October 3, 2024 and October 15, 2024, the Company issued 26,226 shares of the Company’s common stock (the “Shares”)
to a certain note holder upon conversion of a portion of their promissory note originally issued by the Company on or around October
1, 2023 (the “Note”). On October 16, 2024, the Company became aware that the issuance of the Shares was in error and not
permitted under the terms of the Note due to the requirement thereunder that stockholder approval be obtained prior to the issuance of
more than 19.9% of the Company’s pre-transaction shares outstanding upon conversion(s) of the Note, as referenced and specifically
required under Nasdaq Listing Rule 5635(d). The Company then notified the note holder that the Shares must be returned to the Company’s
transfer agent for cancellation. On November 5, 2024, the holder facilitated the cancellation of 26,226 shares of the Company’s
common stock in accordance with the Company’s remediation plan. The Company communicated with The Nasdaq Stock Market LLC regarding
the aforementioned erroneous issuance of the Shares and subsequent remediation actions. The Listing Qualifications Staff (the “Staff”)
of The Nasdaq Stock Market LLC considered the Company’s non-compliance with Nasdaq Listing Rule 5635(d) as an additional basis
for the delisting of the Company’s securities from Nasdaq.
On
October 28, 2024, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain accredited
investors named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a best efforts offering
(the “Offering”): (i) 124,673 shares of common stock (the “Common Stock”), at a purchase price of $5.00 per share
of Common Stock, and (ii) 482,187 pre-funded warrants (“Pre-Funded Warrants”) to purchase Common Stock, at a purchase price
of $4.995 per Pre-Funded Warrant, immediately exercisable at an exercise price of $0.005 per share. The Purchase Agreement contained
customary representations and warranties and agreements of the Company and the Purchasers and customary indemnification rights and obligations
of the parties. The Offering closed on October 30, 2024.
The
Company offered Pre-Funded Warrants to those Purchasers whose purchase of Common Stock in the Offering would have resulted in the Purchaser,
together with its affiliates and certain related parties, beneficially owning more than 4.99% (or at the election of the Purchaser, 9.99%)
of our Common Stock immediately following the consummation of the Offering in lieu of the Common Stock that would otherwise result in
ownership in excess of 4.99% (or at the election of the purchaser, 9.99%) of the outstanding Common Stock of the Company. The Pre-Funded
Warrants may be exercised commencing on the issuance date and do not expire. The Pre-Funded Warrants are exercisable for cash; provided,
however that they may be exercised on a cashless exercise basis if, at the time of exercise, there is no effective registration statement
registering, or no current prospectus available for, the issuance or resale of the Common Stock issuable upon exercise of the Pre-Funded
Warrants.
The
Common Stock, the Pre-Funded Warrants, and the Common Stock issuable upon exercise of the Pre-Funded Warrants were offered pursuant to
a registration statement on Form S-1 as filed with the SEC on October 24, 2024, as amended, and was declared effective on October 28,
2024 (the “Registration Statement”).
RBW
Capital Partners LLC, acting through Dominari Securities LLC (the “Placement Agent”), acted as the exclusive placement agent
for the Offering pursuant to a Placement Agency Agreement dated October 28, 2024 (the “Placement Agency Agreement”) by and
between the Company and the Placement Agent.
The
Offering resulted in gross proceeds to the Company of approximately $3,000,000, before deducting placement agent fees and commissions
and other offering expenses, and excluding proceeds to the Company, if any, that may result from the future exercise of the Pre-Funded
Warrants issued in the Offering. As compensation to the Placement Agent, as the exclusive placement agent in connection with the Offering,
the Company paid to the Placement Agent a cash fee of 8.0% of the aggregate gross proceeds raised in the Offering, a non-accountable
expense allowance of 1.0% of the aggregate gross proceeds raised in the Offering, reimbursement of up to $50,000 for expenses of legal
counsel and other actual out-of-pocket expenses, and up to $15,950 for clearing agent closing costs. The Company received net proceeds
of approximately $2,555,261 from the Offering (the “Public Offering Proceeds”).
On
December 9, 2024, the Company filed a certificate of amendment to its Certificate of Incorporation with the Secretary of State of
the State of Delaware to effectuate the 2024 Reverse Stock Split at a
ratio of 1-for-50 (the “Amendment”). The Amendment became effective at 5:00 PM ET on December 12, 2024.
On
or around January 17, 2025, the Company closed a private placement pursuant to a securities purchase agreement with a certain accredited
investor, pursuant to which the Company agreed to issue and sell, in a private placement, a promissory note in the principal amount of
$121,900 (the “January 2025 Note”). The January 2025 Note is convertible into common stock upon default at a conversion price
equal to 61% of the lowest closing bid price during the ten trading days prior to the conversion date. The January 2025 Note provides
that the total number of shares of common stock that may be issued upon conversion thereof shall not exceed 19.99% of the shares of Common
Stock outstanding as of the issuance date of the January 2025 Note.
On
or around January 20, 2025, the Company entered into a vendor agreement (the “Vendor Agreement”) with MavDB Consulting LLC
(the “Vendor”). The engagement of the Vendor is for a five (5) year period and the vendor services to be provided include,
but are not limited to, product content production, social media marketing, engagement of influencers and student athletes for product
awareness, and event and staffing costs (the “Services”). In consideration for the Services, the Company will pay the Vendor
a vendor fee equal to $3,000,000 (the “Cash Fee”) within thirty calendar days after the date of the Vendor Agreement (the
“Payment Period”), provided, however, that Vendor may elect to receive the Vendor Shares (as defined below) and/or Vendor
Pre-Funded Warrants (as defined below) as described below in lieu of the Cash Fee by providing written notice to the Company of such
election during the Payment Period (the “Written Notice”). The “Vendor Shares” shall mean a number of Common
Stock equal to the Cash Fee divided by $1.45, provided, however, if the issuance of any of the Vendor Shares would cause the Vendor to
exceed 4.99% of the of the outstanding Common Stock, as determined in accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder, then the Company shall instead issue to Vendor pre-funded warrants (the “Vendor Pre-Funded Warrants”)
for the purchase of the amount of Vendor Shares in excess of the beneficial ownership limitation, provided, further, that if the Vendor
specifies in the Written Notice that the Vendor elects to receive Vendor Pre-Funded Warrants in lieu of the entire amount of the Vendor
Shares, then the Company shall instead issue to Vendor the Vendor Pre-Funded Warrants to purchase the entire amount of the Vendor Shares.
The Vendor delivered the Written Notice to the Company during the Payment Period and the Company issued the Vendor Pre-Funded Warrants
for the purchase of 2,068,965 shares of Common Stock to Vendor on January 21, 2025.
The
Vendor Pre-Funded Warrants have an initial exercise price per share of Common Stock equal to $0.01. The Vendor Pre-Funded Warrants are
immediately exercisable and will expire five (5) years after the issuance date of the Vendor Pre-Funded Warrants. The exercise price
and number of shares of Common Stock issuable upon exercise is subject to appropriate adjustment in the event of share dividends, share
splits, reorganizations or similar events. The Vendor Pre-Funded Warrants will be exercisable, at the option of the Vendor, in whole
or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of shares of Common Stock
purchased upon such exercise (except in the case of a cashless exercise). The Vendor (together with its affiliates) may not exercise
any portion of the Vendor Pre-Funded Warrants to the extent that the Vendor would own more than 4.99% of the outstanding shares of Common
Stock immediately after exercise, except that upon at least 61 days’ prior notice from the Vendor to us, the Vendor may increase
the amount of beneficial ownership of outstanding shares after exercising the Vendor’s Pre-Funded Warrants up to 9.99% of the number
of our shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined
in accordance with the terms of the Vendor Pre-Funded Warrants. In lieu of making the cash payment otherwise contemplated to be made
to us upon such exercise in payment of the aggregate exercise price, the Vendor may elect instead to receive upon such exercise (either
in whole or in part) the number of shares of Common Stock determined according to a formula set forth in the Vendor Pre-Funded Warrants.
On
January 22, 2025, the Company issued a promissory note in the principal amount of $260,000.00 (the “Second Note”) to an accredited
investor (“Investor”), pursuant to which the Investor made a loan to the Company. The Second Note carries an original issue
discount of $60,000.00, and accordingly the purchase price of the Second Note is $200,000.00. The Second Note matures on April 22, 2025,
and contains customary events of default. Upon the occurrence of any event of default under the Second Note, the Second Note will become
immediately due and payable in an amount equal to the outstanding principal and accrued interest under the Second Note plus default interest
at the rate of sixteen percent (16%) per annum.
2024
Reverse Stock Split
In
December 2024, following the approval of shareholders, we completed the 2024 Reverse Stock Split in the ratio of 1-for-50. As a
result of the 2024 Reverse Stock Split, every fifty (50) shares of the Company’s pre-reverse stock split common stock was
combined and automatically became one (1) share of common stock. The 2024 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.
Also,
at the effective time of the 2024 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 2024 Reverse Stock Split. 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-50 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 2024 Reverse Stock Split.
Completion
of Offering of Common Stock and Pre-Funded Warrants
On
February 13, 2025, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain accredited
investors named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a best efforts offering
(the “Offering”) 11,365,340 units (the “Units”), including (i) 125,535 units consisting of one share of common
stock, par value $0.0001 per share (the “Common Stock”) and two warrants to purchase one share of Common Stock each (the
“Share Unit Warrants”), at a purchase price per unit equal to $0.66, and (ii) 11,239,805 units consisting of a pre-funded
warrant to purchase one share of Common Stock (“Pre-Funded Warrants”), immediately exercisable at an exercise price of $0.0001
per share, and two warrants to purchase one share of Common Stock each (the “PFW Unit Warrants, and collectively with the Share
Unit Warrants, the “Warrants”), at a purchase price per unit equal to $0.6599. The Warrants may be exercised for an aggregate
of 22,730,680 shares of Common Stock at an exercise price equal to $0.66 per share, subject to adjustment for stock splits and similar
events. The Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchasers and
customary indemnification rights and obligations of the parties. The Offering closed on February 18, 2025.
The
Company offered Pre-Funded Warrants to those Purchasers whose purchase of Common Stock in the Offering would have resulted in the Purchaser,
together with its affiliates and certain related parties, beneficially owning more than 4.99% (or at the election of the Purchaser, 9.99%)
of our Common Stock immediately following the consummation of the Offering in lieu of the Common Stock that would otherwise result in
ownership in excess of 4.99% (or at the election of the purchaser, 9.99%) of the outstanding Common Stock of the Company. The Pre-Funded
Warrants may be exercised commencing on the issuance date and do not expire. The Pre-Funded Warrants are exercisable for cash; provided,
however that they may be exercised on a cashless exercise basis if, at the time of exercise, there is no effective registration statement
registering, or no current prospectus available for, the issuance or resale of the Common Stock issuable upon exercise of the Pre-Funded
Warrants. The exercise of the Pre-Funded Warrants will be subject to a beneficial ownership limitation, which will prohibit the exercise
thereof, if upon such exercise the holder of the Pre-Funded Warrants, its affiliates and any other persons or entities acting as a group
together with the holder or any of the holder’s affiliates would hold 4.99% (or, upon election of a Purchaser prior to the issuance
of any shares, 9.99%) of the number of Common Stock outstanding immediately after giving effect to the issuance of Common Stock issuable
upon exercise of the Pre-Funded Warrant held by the applicable holder, provided that the holder may increase or decrease the beneficial
ownership limitation (up to a maximum of 9.99%) upon 60 days advance notice to the Company, which 60 day period cannot be waived
The
Warrants may be exercised commencing on the issuance date and expire one year from issuance. The Warrants are exercisable for cash at
an exercise price of $0.66 per share; provided, however that they may be exercised on a cashless exercise basis if, at the time of exercise,
there is no effective registration statement registering, or no current prospectus available for, the issuance or resale of the Common
Stock issuable upon exercise of the Warrants. The exercise of the Warrants will be subject to a beneficial ownership limitation, which
will prohibit the exercise thereof, if upon such exercise the holder of the Warrants, its affiliates and any other persons or entities
acting as a group together with the holder or any of the holder’s affiliates would hold 4.99% (or, upon election of a Purchaser
prior to the issuance of any shares, 9.99%) of the number of Common Stock outstanding immediately after giving effect to the issuance
of Common Stock issuable upon exercise of the Warrants held by the applicable holder, provided that the holder may increase or decrease
the beneficial ownership limitation (up to a maximum of 9.99%) upon 60 days advance notice to the Company, which 60 day period cannot
be waived.
At
the closing of the Offering, the Company issued warrants to RBW Capital Partners LLC, acting through Dawson James Securities, Inc. (the
“Placement Agent”), for the purchase of 568,267 shares of Common Stock at an exercise price of $0.759 per share (the “Placement
Agent Warrants”), which is equal to 115% of the price per Unit. The Placement Agent Warrants are exercisable at any time commencing
six (6) months from the date of commencement of sales in the Offering and expiring five (5) years from the commencement of sales in the
Offering. During the aforementioned six (6) month period, the Placement Agent Warrant may not be sold, transferred, assigned, pledged,
or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective
economic disposition of the Placement Agent Warrant pursuant to FINRA Rule 5110(e)(1)(A).
The
Common Stock, Pre-Funded Warrants, Common Stock issuable upon exercise of the Pre-Funded Warrants, Warrants, Common Stock issuable upon
exercise of the Warrants, Placement Agent Warrants, and Common Stock issuable upon exercise of the Placement Agent Warrants were offered
pursuant to a registration statement on Form S-1 (File No. 333-284508), as filed with the Securities and Exchange Commission (the “Commission”)
on January 27, 2025, as amended, and was declared effective on February 11, 2025 (the “Registration Statement”).
The
Placement Agent acted as the exclusive placement agent for the Offering pursuant to a Placement Agency Agreement dated February 13, 2025
(the “Placement Agency Agreement”) by and between the Company and the Placement Agent. The Placement Agency Agreement contains
customary conditions to closing, representations and warranties of the Company, and termination rights of the parties, as well as certain
indemnification obligations of the Company and ongoing covenants for the Company.
The
Offering resulted in gross proceeds to the Company of approximately $7,500,000, before deducting placement agent fees and commissions
and other offering expenses, and excluding proceeds to the Company, if any, that may result from the future exercise of the Pre-Funded
Warrants or Warrants issued in the Offering. As compensation to the Placement Agent, as the exclusive placement agent in connection with
the Offering, the Company paid to the Placement Agent a cash fee of 8.0% of the aggregate gross proceeds raised in the Offering (which
amount shall not include any additional proceeds the Company may receive from the exercise of the Warrants, or the Pre-Funded Warrants,
issued in this Offering) and reimbursement of up to $150,000 for expenses of legal counsel and other actual out-of-pocket expenses.
National
Securities Exchange Application
On
February 20, 2025, the Company issued a press release announcing that it has submitted an application to list its common stock on a national
securities exchange. The successful listing of the Company’s common shares is subject to the approval of the listing application
by the national securities exchange and the satisfaction of all applicable listing criteria and requirements. No assurance can be given
that the listing application will be approved or that such listing will be completed.
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 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. 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
portfolio currently consists of five brands that leverage our three channels: our websites, wholesale and royalty (license revenue).
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. 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. 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.
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. Building a direct relationship with the customer as the customer transacts directly with us allows us to better
understand our customer’s preferences and shopping habits. Our substantial experience as a company originally founded as a digitally
native-first retailer gives us the ability to strategically review and analyze the customer’s data, including contact information,
browsing and shopping cart data, purchase history and style preferences. This in turn has the effect of lowering our inventory risk and
cash needs since we can order and replenish product based on the data from our online sales history, replenish specific inventory by
size, color and SKU based on real times sales data, and control our mark-down and promotional strategies versus being told what mark
downs and promotions we have to offer by the department stores and boutique retailers.
We
define “closet share” as the percentage (“share”) of a customer’s clothing units that (“of closet”)
she or he owns in her or his closet and the amount of those units that go to the brands that are selling these units. For example, if
a customer buys 20 units of clothing a year and the brands that we own represent 10 of those units purchased, then our closet share is
50% of that customer’s closet, or 10 of our branded units divided by 20 units they purchased in entirety. Closet share is a similar
concept to the widely used term wallet share, it is just specific to the customer’s closet. The higher our closet share, the higher
our revenue as higher closet share suggests the customer is purchasing more of our brands than our competitors.
We
have strategically expanded into an omnichannel brand offering these styles and content not only on-line but at selected wholesale and
retail storefronts. We believe this approach allows us opportunities to successfully drive Lifetime Value (“LTV”) while increasing
new customer growth. 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.
In
April of 2024, 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 April 2024. The Company closed the store in October 2024 to focus on its e-commerce strategy with VaynerCommerce,
a digital marketing agency.
We
intend to continue to actively pursue acquisitions to increase and tighten customer cohorts and increase our ability to create more customized
content and personalized looks and styles for each customer cohort. We believe that customers want and trust brands that can deliver
customized content and personalized looks and styles. We expect this should result in higher customer loyalty, higher lifetime value,
higher average order value and lower customer acquisition cost.
Organizational
Structure
We
operate the brands on a decentralized basis with an emphasis on brand level execution supported by corporate coordination. The brand’s
executive teams will continue to operate and leverage relationships with customers and suppliers, including designing and producing product
and developing marketing plans including social media, email and digital communications.
We
consolidate marketing and tech contracts as we have done with Bailey’s contracts, which has provided significant cost savings.
We review the fabric mills and factories used by each brand to see if we can consolidate or cross utilize these mills and factories,
which will drive increased volumes, lower production costs and higher gross margins. We are also consolidating production into a few
factories in Europe from China and the U.S., which lowers our average production cost per unit.
We
leverage the Digital Brands Group marketing and data analytics team to create cross-marketing campaigns based on the customer data respective
to each brand’s customer base. As an example, the Digital Brand Group’s 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. The brand level employees then execute the
looks and styles and create the customized customer communication based on the information and data from the Digital Brand Group marketing
and data teams.
Certain
administrative functions are centralized on a regional and, in certain circumstances, a national basis following, including but not limited
to accounting support functions, corporate strategy and acquisitions, human resources, information technology, insurance, marketing,
data analytics and customer cross-merchandising, advertising buys, contract negotiations, safety, systems support and transactional processing.
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. 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.
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.
With
our acquisition of Bailey 44, LLC, we view the following as tangible near term growth opportunities:
● International expansion and licensing opportunities in select categories.
Stateside
— Brand Summary
We
acquired Stateside in August 2021. Stateside is a collection of elevated American basics influenced by the evolution of the classic T-shirt.
All garments are designed and produced in Los Angeles from the finest fabrics. All knitting, dyeing, cutting and sewing is sourced and
manufactured locally in Los Angeles.
Stateside
is known for delivering high quality, luxury T-shirts, tops and bottoms. 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.
With
our acquisition of Stateside, we view the following as tangible near-term growth opportunities:
Sundry — Brand
Summary
We
acquired Sundry in December 2022. Sundry offers distinct collections of women’s clothing, including dresses, shirts, sweaters,
skirts, shorts, athleisure bottoms and other accessory products. 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. The products are designed and mostly produced in Los Angeles from the finest fabrics. The majority of the
knitting, dyeing, cutting and sewing is sourced and manufactured locally in Los Angeles, with some sweaters made overseas.
Sundry
is known for delivering high quality novelty and resort style T-shirts, tops and bottoms. 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.
With
our acquisition of Sundry, we view the following as tangible near-term growth opportunities:
DSTLD
— Brand Summary
DSTLD
focuses on minimalist design, superior quality, and only the essential wardrobe pieces. 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. 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. 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.
Avo
— Brand Summary
Avo
is a women’s essential brand that will offer t-shirts, sweats, dresses, sweaters and athleisure. Avo eliminates the wholesale mark-up,
so its products have a sharper price point. Avo also offers larger discounts when the customer bundles multiple products to their cart,
which allows Avo to leverage its shipping and fulfillment costs. Avo leverages the Company’s current design and supply chain infrastructure,
so we use similar or the same fabrics and contractors for Avo that we do for our other brands.
Avo
launched in late August 2024 and prices for t-shirts range from $20 to $50 based on the size of the customer’s bundle. Other product
prices will range from $17.50 for tanks to $198 for sweaters with no retail price above $99 if the customer bundles three units or more.
If the customer bundles two units then they receive a 40% discount and if they bundle three units or more the customer receives a 60%
discount.
ACE
Studios — Brand Summary
ACE
Studios will design and offer luxury men’s suiting with superior performance, superb fits, and excellent quality at an exceptional
value. We will offer men’s classic tailored apparel with premium and luxury fabrics and manufacturing. We work with the same high-quality
mills and factories in the world as the leading luxury brands. We believe most customers have different shapes and sizes, so we plan
to offer multiple fits for our products. We sidestep the middleman and sell our products ourselves, allowing us to offer top-tier quality
without the standard retail markup.
Our
suits had 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 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
discontinued the operations of the ACE Studios brand in the second quarter of 2024 as a digitally native first brand.
Sales
and Distribution
DSTLD
and Avo products are sold primarily direct-to-consumer, via our website. We utilize a build your own bundle strategy to increase the
cart size and create cost savings per unit sold. By selling direct-to-consumer, we are able to eliminate the wholesale mark-up and offer
sharper pricing to the customer.
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.
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.
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. 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. 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.
All
of our DSTLD, Avo, Bailey and Stateside and Sundry sellable product is stored at our corporate warehouse and distribution center in Los
Angeles, CA, which also houses our corporate office. 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 above to all our customers in the United States once they achieve a cart size amount of $50 for all brands
but Avo and $99 for Avo. 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 the headquarters of each brand, which are in Los Angeles, CA. Each brand’s design efforts are supported
by well-established product development and production teams. The continued collaboration between design and merchandising ensures we
respond to consumer preferences and market trends with new innovative product offerings while maintaining our 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.
We
analyze trends, markets, and social media feedback along and utilize historical data and industry tools to identify essential styles
and proper replenishment timing and quantities.
We