Financial Performance - Net revenues decreased by $0.8 million to $2.4 million for the three months ended September 30, 2024, compared to $3.3 million in the same period in 2023 [186]. - Gross profit decreased by $0.6 million to $1.1 million for the three months ended September 30, 2024, with a gross margin of 46%, down from 52% in the previous year [187]. - Operating loss for the three months ended September 30, 2024, was $(2,144,165), compared to $(3,422,162) in the same period in 2023 [185]. - Loss before provision for income taxes was $(3,541,237) for the three months ended September 30, 2024, compared to $(5,435,994) in the previous year [185]. - Net revenues decreased by $2.7 million to $9.4 million for the nine months ended September 30, 2024, compared to $12.1 million in the same period in 2023 [191]. - Gross profit decreased by $1.6 million to $4.4 million for the nine months ended September 30, 2024, with a gross margin of 47%, down from 50% in the same period in 2023 [192]. - Net loss from continuing operations increased by $2.7 million to $7.7 million for the nine months ended September 30, 2024, compared to a net loss of $5.0 million in the same period in 2023 [194]. Operating Expenses - Operating expenses decreased by $1.3 million to $3.8 million for the three months ended September 30, 2024, primarily due to cost-cutting measures and synergies from the Sundry acquisition [188]. - General and administrative expenses decreased by $1.3 million, while sales and marketing expenses decreased by $0.5 million in the same period [188]. - Operating expenses increased by $4.3 million to $9.7 million for the nine months ended September 30, 2024, primarily due to a gain of $10.7 million in 2023 from the change in fair value of contingent consideration [193]. - Other expenses decreased to $2.5 million for the nine months ended September 30, 2024, compared to $5.6 million in the same period in 2023, primarily due to lower interest expenses [194]. Cash Flow and Financing - Cash used in operating activities decreased by $3.2 million to $3.3 million for the nine months ended September 30, 2024, compared to $6.5 million in the same period in 2023 [199]. - Cash provided by financing activities was $3.7 million for the nine months ended September 30, 2024, including $5.4 million in net proceeds from the issuance of common stock [200]. - As of September 30, 2024, the company had cash of $158,601 and a working capital deficit of $16.0 million, raising substantial doubt about its ability to continue as a going concern [197]. - The company intends to fund its operations primarily from funds raised through the equity line of credit agreement and may pursue secondary offerings or debt financings [197]. Debt and Bankruptcy Risks - As of September 30, 2024, the Company had an aggregate principal amount of debt outstanding of approximately $8.2 million, which is considered significant for its size and revenue base [143]. - The Company is currently unable to repay or refinance $3.5 million in notes related to the Bailey acquisition, posing a risk of bankruptcy or liquidation [145]. Market and Operational Challenges - Supply chain disruptions have led to increased costs in raw materials, with fabric prices rising between 10% to 100%, and shipping costs increasing from 25% to 300% [141]. - The decrease in revenues was attributed to a delay in wholesale shipments and lower e-commerce revenues due to reduced digital advertising spend [186]. Strategic Initiatives - The Company aims to enhance "closet share," defined as the percentage of a customer's clothing units owned from its brands, to drive higher revenue [136]. - Avo, a new women's essential brand launched in August 2024, offers products with prices ranging from $20 to $198, leveraging the Company's existing design and supply chain [140]. - The Company has strategically expanded into omnichannel offerings, blending online and physical retail to enhance customer engagement and lifetime value [137]. - The company aims to achieve near-term free cash flow through cash flow positive acquisitions and reducing customer acquisition costs [154]. - Future performance will depend on the ability to increase the customer base through both online and traditional wholesale distribution channels [149]. Securities and Stock Offerings - The Company executed a securities purchase agreement on April 7, 2023, resulting in promissory notes totaling approximately $2,500,000, with a remaining balance of about $1,789,668.37 exchanged for replacement notes [125]. - Between July 1, 2024, and October 22, 2024, the Company sold 5,256,263 shares of common stock, generating net proceeds of $2,063,396 [126]. - The recent offering on October 30, 2024, resulted in gross proceeds of approximately $3,000,000 from the sale of 6,233,650 shares of common stock and 24,109,350 pre-funded warrants [128]. Nasdaq Delisting Notification - The Company received a letter from Nasdaq notifying that its common stock will be delisted due to failure to maintain a minimum bid price of $1 per share, with an appeal submitted on October 9, 2024 [124].
Digital Brands Group(DBGI) - 2024 Q3 - Quarterly Report