Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2023 | May 22, 2023 | |
Document and Entity Information | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Mar. 31, 2023 | |
Document Transition Report | false | |
Entity File Number | 001-40400 | |
Entity Registrant Name | Digital Brands Group, Inc. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 46-1942864 | |
Entity Address, Address Line One | 1400 Lavaca Street | |
Entity Address, City or Town | Austin | |
Entity Address State Or Province | TX | |
Entity Address, Postal Zip Code | 78701 | |
City Area Code | 209 | |
Local Phone Number | 651-0172 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 5,974,969 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2023 | |
Entity Central Index Key | 0001668010 | |
Amendment Flag | false | |
Entity Ex Transition Period | false | |
Common Stock | ||
Document and Entity Information | ||
Title of 12(b) Security | Common Stock, par value $0.0001 per share | |
Trading Symbol | DBGI | |
Security Exchange Name | NASDAQ | |
Warrants, each exercisable to purchase one share of common stock | ||
Document and Entity Information | ||
Title of 12(b) Security | Warrants, each exercisable to purchase one share of common stock | |
Trading Symbol | DBGIW | |
Security Exchange Name | NASDAQ |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2023 | Dec. 31, 2022 |
Current assets: | ||
Cash and cash equivalents | $ 1,969,250 | $ 1,283,282 |
Accounts receivable, net | 345,439 | 628,386 |
Due from factor, net | 590,253 | 839,400 |
Inventory | 4,926,094 | 5,225,282 |
Prepaid expenses and other current assets | 1,071,330 | 853,044 |
Total current assets | 8,902,366 | 8,829,394 |
Property, equipment and software, net | 71,803 | 76,657 |
Goodwill | 10,103,812 | 10,103,812 |
Intangible assets, net | 13,473,151 | 14,427,503 |
Deposits | 110,962 | 198,341 |
Right of use asset | 467,738 | 102,349 |
Total assets | 33,129,832 | 33,738,056 |
Current liabilities: | ||
Accounts payable | 7,671,050 | 8,098,165 |
Accrued expenses and other liabilities | 4,921,970 | 4,457,115 |
Deferred revenue | 317,421 | 202,129 |
Due to related parties | 452,055 | 556,225 |
Contingent consideration liability | 12,098,475 | 12,098,475 |
Convertible note payable, net | 100,000 | 2,721,800 |
Accrued interest payable | 1,780,535 | 1,561,795 |
Note payable - related party | 129,489 | 129,489 |
Loan payable, current | 1,329,507 | 1,966,250 |
Promissory note payable, net | 10,914,831 | 9,000,000 |
Right of use liability, current portion | 425,654 | 102,349 |
Total current liabilities | 40,140,987 | 40,893,792 |
Loans payable, net of current portion | 798,759 | 297,438 |
Right of use liability | 53,107 | |
Total liabilities | 40,992,853 | 41,191,230 |
Commitments and contingencies | ||
Stockholders' deficit: | ||
Additional paid-in capital | 102,020,045 | 96,293,694 |
Accumulated deficit | (109,883,665) | (103,747,316) |
Total stockholders' deficit | (7,863,021) | (7,453,174) |
Total liabilities and stockholders' deficit | 33,129,832 | 33,738,056 |
Undesignated preferred stock | ||
Stockholders' deficit: | ||
Preferred stock | ||
Series A preferred stock | ||
Stockholders' deficit: | ||
Preferred stock | ||
Series A Convertible Preferred Stock | ||
Stockholders' deficit: | ||
Preferred stock | 1 | 1 |
Common stock | ||
Stockholders' deficit: | ||
Common stock, $0.0001 par, 1,000,000,000 shares authorized, 5,746,079 and 4,468,939 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | $ 598 | $ 447 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2023 | Dec. 31, 2022 |
Common stock par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, share authorized (in shares) | 1,000,000,000 | 1,000,000,000 |
Common stock, share issued (in shares) | 5,974,969 | 4,468,939 |
Common stock, shares outstanding (in shares) | 5,974,969 | 4,468,939 |
Undesignated preferred stock | ||
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Series A preferred stock | ||
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized (in shares) | 1 | 1 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Series A Convertible Preferred Stock | ||
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized (in shares) | 6,800 | 6,800 |
Preferred stock, shares issued (in shares) | 6,300 | 6,300 |
Preferred stock, shares outstanding (in shares) | 6,300 | 6,300 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||
Net revenues | $ 5,095,234 | $ 3,432,410 |
Cost of net revenues | 2,656,652 | 2,292,191 |
Gross profit | 2,438,582 | 1,140,219 |
Operating expenses: | ||
General and administrative | 4,636,844 | 4,277,955 |
Sales and marketing | 1,115,643 | 1,040,572 |
Distribution | 270,185 | 202,848 |
Change in fair value of contingent consideration | 1,200,321 | |
Total operating expenses | 6,022,672 | 6,721,696 |
Loss from operations | (3,584,090) | (5,581,477) |
Other income (expense): | ||
Interest expense | (1,873,270) | (1,567,877) |
Other non-operating income (expenses) | (678,989) | (683,588) |
Total other income (expense), net | (2,552,259) | (2,251,465) |
Net loss | $ (6,136,349) | $ (7,832,942) |
Weighted average common shares outstanding - basic | 5,670,362 | 132,351 |
Weighted average common shares outstanding - diluted | 5,575,794 | 132,351 |
Net loss per common share - basic | $ (1.08) | $ (59.18) |
Net loss per common share - diluted | $ (1.08) | $ (59.18) |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - USD ($) | Preferred Stock Series A Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total |
Beginning balance (in shares) at Dec. 31, 2021 | 130,018 | ||||
Beginning balance at Dec. 31, 2021 | $ 13 | $ 58,614,160 | $ (65,703,954) | $ (7,089,781) | |
Stock-based compensation | 139,093 | 139,093 | |||
Net loss | (7,832,942) | (7,832,942) | |||
Conversion of notes into common stock | $ 1 | 1,201,581 | 1,201,582 | ||
Conversion of notes into common stock (in shares) | 8,739 | ||||
Ending balance (in shares) at Mar. 31, 2022 | 138,757 | ||||
Ending balance at Mar. 31, 2022 | $ 14 | 59,954,834 | (73,536,896) | (13,582,048) | |
Beginning balance (in shares) at Dec. 31, 2022 | 6,300 | 4,468,939 | |||
Beginning balance at Dec. 31, 2022 | $ 1 | $ 447 | 96,293,694 | (103,747,316) | (7,453,174) |
Offering costs | (536,927) | (536,927) | |||
Issuance of common stock pursuant to private placement | $ 128 | 4,999,875 | $ 5,000,003 | ||
Issuance of common stock pursuant to private placement (in shares) | 1,277,140 | 1,277,140 | |||
Shares issued for services | $ 12 | 499,326 | $ 499,338 | ||
Shares issued for services (in shares) | 118,890 | 118,890 | |||
Shares and warrants issued with notes | $ 11 | 658,483 | $ 658,494 | ||
Shares and warrants issued with notes (in shares) | 110,000 | ||||
Stock-based compensation | 105,594 | 105,594 | |||
Net loss | (6,136,349) | (6,136,349) | |||
Ending balance (in shares) at Mar. 31, 2023 | 6,300 | 5,974,969 | |||
Ending balance at Mar. 31, 2023 | $ 1 | $ 598 | $ 102,020,045 | $ (109,883,665) | $ (7,863,021) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Cash flows from operating activities: | ||
Net loss | $ (6,136,349) | $ (7,832,942) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 959,207 | 552,004 |
Amortization of loan discount and fees | 1,412,425 | 1,093,583 |
Loss on extinguishment of debt | 689,100 | |
Stock-based compensation | 105,594 | 139,093 |
Shares issued for services | 499,338 | |
Change in credits due customers | 109,298 | (9,067) |
Change in fair value of warrant liability | (5,970) | |
Change in fair value of derivative liability | 682,103 | |
Change in fair value of contingent consideration | 1,200,321 | |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | 282,947 | (49,554) |
Factored receivables | (77,776) | 294,439 |
Inventory | 299,188 | 262,753 |
Prepaid expenses and other current assets | (218,286) | (126,369) |
Accounts payable | (416,093) | 1,972,441 |
Accrued expenses and other liabilities | 464,855 | 669,514 |
Deferred revenue | 115,292 | 71,707 |
Accrued interest | 218,740 | 450,788 |
Net cash used in operating activities | (1,692,520) | (635,156) |
Cash flows from investing activities: | ||
Purchase of property, equipment and software | (5,576) | |
Deposits | 87,379 | |
Net cash provided by (used in) investing activities | 87,379 | (5,576) |
Cash flows from financing activities: | ||
Proceeds (repayments) from related party advances | (104,170) | (11,105) |
Advances (repayments) from factor | 217,625 | (179,126) |
Issuance of loans and note payable | 3,542,199 | 868,582 |
Repayment of convertible notes and loan payable | (5,677,621) | |
Issuance of common stock pursuant to private placement | 5,000,003 | |
Offering costs | (686,927) | |
Net cash provided by financing activities | 2,291,109 | 678,351 |
Net change in cash and cash equivalents | 685,968 | 37,619 |
Cash and cash equivalents at beginning of period | 1,283,282 | 528,394 |
Cash and cash equivalents at end of period | 1,969,250 | 566,013 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 60,465 | |
Supplemental disclosure of non-cash investing and financing activities: | ||
Conversion of notes into common stock | 1,201,582 | |
Right of use asset | $ 467,738 | $ 250,244 |
NATURE OF OPERATIONS
NATURE OF OPERATIONS | 3 Months Ended |
Mar. 31, 2023 | |
NATURE OF OPERATIONS | |
NATURE OF OPERATIONS | NOTE 1: NATURE OF OPERATIONS Digital Brands Group, Inc. (the “Company” or “DBG”), was organized on September 17, 2012 under the laws of Delaware as a limited liability company under the name Denim.LA LLC. The Company converted to a Delaware corporation on January 30, 2013 and changed its name to Denim.LA, Inc. Effective December 31, 2020, the Company changed its name to Digital Brands Group, Inc. (DBG). The Company is a curated collection of lifestyle brands, including Bailey 44, DSTLD, Harper & Jones, Stateside and ACE Studios, that offers a variety of apparel products through direct-to-consumer and wholesale distribution. On February 12, 2020, Denim.LA, Inc. entered into an Agreement and Plan of Merger with Bailey 44, LLC (“Bailey”), a Delaware limited liability company. On the acquisition date, Bailey 44, LLC became a wholly owned subsidiary of the Company. On May 18, 2021, the Company closed its acquisition of Harper & Jones, LLC (“H&J”) pursuant to its Membership Interest Stock Purchase Agreement with D. Jones Tailored Collection, Ltd. to purchase 100% of the issued and outstanding equity of Harper & Jones, LLC. On the acquisition date, H&J became a wholly owned subsidiary of the Company. On August 30, 2021, the Company closed its acquisition of Mosbest, LLC dba Stateside (“Stateside”) pursuant to its Membership Interest Purchase Agreement with Moise Emquies to purchase 100% of the issued and outstanding equity of Stateside. On the acquisition date, Stateside became a wholly owned subsidiary of the Company. On December 30, 2022, the Company closed its previously announced acquisition of Sunnyside, LLC dba Sundry (“Sundry”) pursuant to its Second Amended and Restated Membership Interest Purchase Agreement with Moise Emquies to purchase 100% of the issued and outstanding equity of Sundry. On the acquisition date, Sundry became a wholly owned subsidiary of the Company. |
GOING CONCERN
GOING CONCERN | 3 Months Ended |
Mar. 31, 2023 | |
GOING CONCERN | |
GOING CONCERN | NOTE 2: GOING CONCERN The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated profits since inception, has sustained net losses of $6,136,349 and $7,832,942 for the three months ended March 31, 2023 and 2022, respectively, and has incurred negative cash flows from operations for the three months ended March 31, 2023 and 2022. The Company has historically lacked liquidity to satisfy obligations as they come due and as of March 31, 2023, and the Company had a working capital deficit of $31,238,621. These factors, among others, arise substantial doubt about the Company’s ability to continue as a going concern. The Company expects to continue to generate operating losses for the foreseeable future. The accompanying consolidated financial statements do not include any adjustments as a result of this uncertainty. The Company’s ability to continue as a going concern for the next 12 months from the date the financial statements were available to be issued is dependent upon its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and/or to obtain additional capital financing. Through the date the financial statements were available to be issued, the Company has been primarily financed through the issuance of capital stock and debt. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses or obtain financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing shareholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company would be unable to execute upon the business plan or pay costs and expenses as they are incurred, which would have a material, adverse effect on the business, financial condition and results of operations. No assurance can be given that the Company will be successful in these efforts. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2023 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). Reverse Stock Split On October 21, 2022, the Board of Directors approved a one Unaudited Interim Financial Information The accompanying unaudited condensed consolidated balance sheet as of March 31, 2023, the unaudited condensed consolidated statements of operations for the three and three months ended March 31, 2023 and 2022 and of cash flows for the three months ended March 31, 2023 and 2022 have been prepared by the Company, pursuant to the rules and regulations of the SEC for the interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the consolidated results for the interim periods presented and of the consolidated financial condition as of the date of the interim consolidated balance sheet. The results of operations are not necessarily indicative of the results expected for the year ended December 31, 2023. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s Annual Form 10-K filed with SEC on April 17, 2023. Principles of Consolidation These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, inventory, impairment of long-lived assets, contingent consideration and derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. Restatement of Previously Issued Financial Statements Certain prior year accounts have been reclassified to conform with current year presentation pertaining to cost of net revenue and general and administrative expenses. The Company has reclassified $333,280 in general and administrative expenses per previously reported financial statements to cost of net revenues in the accompanying consolidated statements of operations for the three months ended March 31, 2022. The reclassified costs from general and administrative expense to cost of net revenues are primarily personnel and warehouse related costs. The reclassification had no effect on the reported results of operations. Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of March 31, 2023 and December 31, 2022, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of March 31, 2023 Using: Level 1 Level 2 Level 3 Total Liabilities: Contingent consideration $ — $ — $ 12,098,475 $ 12,098,475 $ — $ — $ 12,098,475 $ 12,098,475 Fair Value Measurements as of December 31, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Contingent consideration $ — $ — $ 12,098,475 $ 12,098,475 $ — $ — $ 12,098,475 $ 12,098,475 Contingent Consideration The Company records a contingent consideration liability relating to stock price guarantees included in its acquisitions of Bailey44 and H&J. The estimated fair value of the contingent consideration is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument. The Company estimates and records the acquisition date fair value of contingent consideration as part of purchase price consideration for acquisitions. Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration and recognizes any change in fair in the consolidated statement of operations. The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of future operating results, discount rates and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and, therefore, materially affect the Company’s future financial results. The contingent consideration liability is to be settled with the issuance of shares of common stock once contingent provisions set forth in respective acquisition agreements have been achieved. Upon achievement of contingent provisions, respective liabilities are relieved and offset by increases to common stock and additional paid-in capital in the stockholders’ equity section of the Company’s consolidated balance sheets. The fair value of the contingent consideration liability related to the Company’s business combinations is valued using the Monte Carlo simulation model. The Monte Carlo simulation inputs include the stock price, volatility of common stock, timing of settlement and resale restrictions and limits. The fair value of the contingent consideration is then calculated based on guaranteed equity values at settlement as defined in the acquisition agreements. The detail of contingent consideration by company is as follows: March 31, December 31, 2023 2022 Bailey $ 10,698,475 $ 10,698,475 Harper & Jones 1,400,000 1,400,000 $ 12,098,475 $ 12,098,475 The contingent consideration liabilities were revalued for a final time as of May 18, 2022, the anniversary date of the Company’s initial public offering. As of the date of the issuance of these financial statements, the contingent consideration liabilities were not yet settled with shares. In December 2022, the Company paid $645,304 to the H&J Seller to partially reduce the contingent consideration balance owed. As of the date of these financial statements, the Company and the H&J Seller are in the process of amending the May 2021 purchase agreement to determine the ultimate settlement of the Company’s common stock to the H&J Seller by the second quarter of 2023. Inventory Inventory is stated at the lower of cost or net realizable value and accounted for using the weighted average cost method for DSTLD and first-in, first-out method for Bailey, Stateside and Sundry. The inventory balances as of March 31, 2023 and December 31, 2022 consist substantially of finished good products purchased or produced for resale, as well as any raw materials the Company purchased to modify the products and work in progress. Inventory consisted of the following: March 31, December 31, 2023 2022 Raw materials $ 1,512,651 $ 1,611,134 Work in process 653,412 888,643 Finished goods 2,760,031 2,725,505 Inventory $ 4,926,094 $ 5,225,282 Goodwill Goodwill and identifiable intangible assets that have indefinite useful lives are not amortized, but instead are tested annually for impairment and upon the occurrence of certain events or substantive changes in circumstances. The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. Annual Impairment At December 31, 2022, management determined that certain events and circumstances occurred that indicated that the carrying value of the Company’s brand name assets, and the carrying amount of the reporting units, pertaining to Bailey44 and Harper & Jones may not be recoverable. The qualitative assessment was primarily due to reduced or stagnant revenues of both entities as compared to the Company’s initial projections at the time of each respective acquisition, as well as the entities’ liabilities in excess of assets. As such, the Company compared the estimated fair value of the brand names with its carrying value and recorded an impairment loss of $3,667,000 in the consolidated statements of operations. Additionally, the Company compared the fair value of the reporting units to the carrying amounts and recorded an impairment loss of $11,872,332 pertaining to goodwill in the consolidated statements of operations. Net Loss per Share Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive as of March 31, 2023 and 2022, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of March 31, 2023 and 2022 are as follows: March 31, 2023 2022 Convertible notes — 51,648 Series A convertible preferred stock 108 — Common stock warrants 5,943,626 9,145 Stock options 38,951 38,951 Total potentially dilutive shares 5,982,685 99,744 The stock options and warrants above are out-of-the-money as of March 31, 2023 and 2022. Recent Accounting Pronouncements In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which amends and clarifies several provisions of Topic 326. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which amends Topic 326 to allow the fair value option to be elected for certain financial instruments upon adoption. ASU 2019-10 extended the effective date of ASU 2016-13 until December 15, 2022. The Company adopted this new guidance, including the subsequent updates to Topic 326, on January 1, 2023 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the Company’s financial results as if the Sundry acquisition had occurred as of January 1, 2022. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisitions been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the Company’s future financial results. The following unaudited pro forma financial information includes incremental property and equipment depreciation and intangible asset amortization as a result of the acquisitions. The pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition: Three Months Ended March 31, 2022 Net revenues $ 8,606,548 Net loss $ (8,292,427) Net loss per common share $ (62.65) |
DUE FROM FACTOR
DUE FROM FACTOR | 3 Months Ended |
Mar. 31, 2023 | |
DUE FROM FACTOR | |
DUE FROM FACTOR | NOTE 4: DUE FROM FACTOR Due to/from factor consist of the following: March 31, December 31, 2023 2022 Outstanding receivables: Without recourse $ 1,065,335 $ 1,680,042 With recourse 76,956 65,411 Matured funds and deposits 108,147 81,055 Advances (415,201) (632,826) Credits due customers (244,984) (354,282) $ 590,253 $ 839,400 |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS | 3 Months Ended |
Mar. 31, 2023 | |
GOODWILL AND INTANGIBLE ASSETS | |
GOODWILL AND INTANGIBLE ASSETS | NOTE 5: GOODWILL AND INTANGIBLE ASSETS The following is a summary of goodwill attributable to each business combination: March 31, December 31 2023 2022 Bailey $ 3,158,123 $ 3,158,123 Harper & Jones 1,130,311 1,130,311 Stateside 2,104,056 2,104,056 Sundry 3,711,322 3,711,322 $ 10,103,812 $ 10,103,812 The following table summarizes information relating to the Company’s identifiable intangible assets as of March 31, 2023: Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 11,452,230 $ (4,554,959) $ 6,897,271 $ 11,452,230 $ (4,554,959) $ 6,897,271 Indefinite-lived: Brand name $ 6,575,880 — 6,575,880 $ 18,028,110 $ (4,554,959) $ 13,473,151 The Company recorded amortization expense of $954,353 and $537,813 during the three months ended March 31, 2023 and 2022, respectively, which is included in general and administrative expenses in the consolidated statements of operations. |
LIABILITIES AND DEBT
LIABILITIES AND DEBT | 3 Months Ended |
Mar. 31, 2023 | |
LIABILITIES AND DEBT | |
LIABILITIES AND DEBT | NOTE 6: LIABILITIES AND DEBT Accrued Expenses and Other Liabilities The Company accrued expenses and other liabilities line in the consolidated balance sheets is comprised of the following as of March 31, 2023 and December 31,2022: March 31, December 31, 2023 2022 Accrued expenses $ 602,053 $ 705,135 Reserve for returns 294,147 307,725 Payroll related liabilities 3,586,356 2,974,362 Sales tax liability 267,419 339,843 Other liabilities 171,995 130,050 $ 4,921,970 $ 4,457,115 As of March 31, 2023, payroll liabilities included an aggregate of $1,249,060 in payroll taxes due to remit to federal and state authorities. Of this amount, $581,412 pertained to DBG and $667,648 pertained to Bailey44. The amounts are subject to further penalties and interest. As of March 31, 2023 and December 31, 2022, accrued expenses included $535,000 in accrued common stock issuances pursuant to an advisory agreement for services performed in 2022. The 5,000 shares of common stock owed per the agreement are expected to be issued in the second quarter of 2023. Convertible Debt 2020 Regulation D Offering As of March 31, 2023 and December 31, 2022, there was $100,000 remaining in outstanding principal that was not converted into equity. Convertible Promissory Note On December 29, 2022, the Company and various purchasers executed a Securities Purchase Agreement (“December Notes”) whereby the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $4,000,000, consisting of original issue discount of $800,000. The Company received net proceeds of $3,000,000. The December Notes were due and payable on February 15, 2023. If the December Notes are not repaid in full by the maturity date or if any other event of default occurs, (1) the face value of the December Notes will be automatically increased to 120%; (2) the Notes will begin generating an annual interest rate of 20%, which will be paid in cash monthly until the default is cured; and (3) if such default continues for 14 or more calendar days, at the investors’ discretion, the December Notes shall become convertible at the option of the investors into shares of the Company’s common stock at a conversion price equal to the closing price of the Company’s common stock on the date of the note conversion. 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, and 60,000 shares of common stock. The Company recognized $428,200 as a debt discount for the fair value of the warrants and common shares using the Black-Scholes option model, resulting in a total debt discount of $1,378,200. In February 2023, the principal of $4,000,000 of the December Notes were fully repaid. The Company amortized $689,100 of debt discount up until the repayment date, and then recognized a loss on extinguishment of debt of $689,100 which is included in other non-operating income (expenses) on the consolidated statements of operations. The following is a summary of the convertible notes for the three months ended March 31, 2023: Unamortized Convertible Note Principal Debt Discount Payable, Net Balance, December 31, 2022 $ 4,100,000 $ (1,378,200) $ 2,721,800 Repayments of notes (4,000,000) — (4,000,000) Amortization of debt discount — 689,100 689,100 Loss on extinguishment of debt — 689,100 689,100 Balance, March 31, 2023 $ 100,000 $ — $ 100,000 During the three months ended March 31, 2022, the Company converted an aggregate of $888,930 in outstanding principal into 8,739 shares of common stock. During the three months ended March 31, 2023 and 2022, the Company amortized $689,100 and $1,058,583, respectively of debt discount to interest expense pertaining to convertible notes. 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. The amount was included in interest expense in the consolidated statements of operations. Loan Payable — PPP and SBA Loan As of March 31, 2023 and December 31, 2022, H&J had an outstanding loan under the EIDL program of $146,707 and $147,438, respectively. As of both March 31, 2023 and December 31, 2022, Bailey had an outstanding PPP Loan balance of $933,295 and matures in 2026. Loan Payable In May 2021, H&J entered into a loan payable with a bank and received proceeds of $75,000. The line bears interest at 7.76% and matures in December 2025. As of both March 31, 2023 and December 31, 2022, the outstanding balance was $73,187. Note Payable – Related Party As of both March 31, 2023 and December 31, 2022, H&J had an outstanding note payable of $129,489 owned by the H&J Seller. The note matured in July 2022, is technically in default and bears interest at 12% per annum. Merchant Advances In 2022, H&J entered into merchant advance loans for proceeds of $147,267. The loan bears interest at 9.9% per annum. As of December 31, 2022, the outstanding principal of the loans was $63,433, which was fully repaid in 2023. In 2022, the Company obtained several merchant advances. These advances are, for the most part, secured by expected future sales transactions of the Company with expected payments on a weekly basis. As of December 31, 2022, $896,334 remained outstanding. During the three months ended March 31, 2023, the Company received additional proceeds totaling $1,040,148 and made repayments totaling $1,613,457. As of March 31, 2023, the remaining principal outstanding was $323,025. In connection with these advances, the Company granted 152,380 warrants to purchase common stock at an exercise price of $5.25 to the lender in connection with its merchant advances. In 2023, the Company obtained merchant advances totaling $502,051 from Shopify Capital, all of which was outstanding as of March 31, 2023. These advances are, for the most part, secured by expected future sales transactions of the Company with expected payments on a daily basis. Promissory Note Payable As of March 31, 2023 and December 31, 2022, the outstanding principal on the note to the sellers of Bailey was $3,500,000. The maturity date was December 31, 2022. As of the date of these financial statements, the parties are undergoing an extension of the maturity date, but is in technical default. Interest expense was $105,000 and $105,000 for the three months ended March 31, 2023 and 2022, respectively, which was accrued and unpaid as of March 31, 2023. The Company issued a promissory note in the principal amount of $5,500,000 to the Sundry Holders pursuant to the Sundry acquisition. The note bears interest at 8% per annum and matures on February 15, 2023. In February 2023, the parties verbally agreed to extend the maturity date to December 31, 2023. As of March 31, 2023 and December 31, 2022, the outstanding principal was $5,500,000. Interest expense was $110,000 for the three months ended March 31, 2023, which was accrued and unpaid as of March 31, 2023. In March 2023, the Company and various purchasers executed a Securities Purchase Agreement (“March 2023 Notes”) whereby the investors purchased from the Company promissory notes in the aggregate principal amount of $2,458,750, consisting of original issue discount of $408,750. The Company received net proceeds of $1,850,000 after additional fees. The March 2023 Notes are due and payable on September 30, 2023 (the “Maturity Date”). The Company will also have the option to prepay the Notes with no penalties at any time prior to the Maturity Date. If the Company completes a debt or equity financing of less than $7,500,000, the Company is required to repay 50% of the remaining balance of the March 2023 Notes. Following such 50% repayment, the Company must also use any proceeds from any subsequent debt or equity financing to repay the March 2023 Notes. Upon the closing of any debt or equity financing of $7,500,000 or greater, the Company is required to repay 100% of the Notes with no penalties. There is no additional interest after the 20% original interest discount. The Company recognized a debt discount of $608,750, of which $64,831 was amortized through March 31, 2023. The following is a summary of promissory notes payable, net: March 31, December 31, 2023 2022 Bailey Note $ 3,500,000 $ 3,500,000 Sundry Note 5,500,000 5,500,000 March 2023 Notes - principal 2,458,750 — March 2023 Notes - unamortized debt discount (543,919) — Promissory note payable, net $ 10,914,831 $ 9,000,000 |
STOCKHOLDERS' DEFICIT
STOCKHOLDERS' DEFICIT | 3 Months Ended |
Mar. 31, 2023 | |
STOCKHOLDERS' DEFICIT | |
STOCKHOLDERS' DEFICIT | NOTE 7: STOCKHOLDERS’ DEFICIT On January 11, 2023, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a certain accredited investor (the “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 (the “Shares”) of the Company’s common stock (“Common Stock”), and accompanying warrants (the “Common Warrants”) to purchase 475,000 shares of Common Stock, at a combined purchase price of $3.915 per share and Common Warrant, and (ii) 802,140 pre-funded warrants (the “Pre-Funded Warrants” and together with the Common Warrants, the “Warrants” and together with the Shares and the shares of Common Stock underlying the Warrants, the “Securities”) exercisable for 802,140 shares of Common Stock, and accompanying Common Warrants to purchase 802,140 shares of Common Stock, at a combined purchase price of $3.915 per Pre-Funded Warrant and accompanying Common Warrant, to the Investors, for aggregate gross proceeds from the Private Placement of approximately $5 million before deducting placement agent fees and related offering expenses. As a result of the transaction, the Company issued 1,277,140 shares of common stock, including the 475,000 shares and the immediate exercise of 802,140 pre-funded warrants, for gross proceeds of $5.0 million. The Company received net proceeds of $4.3 million after deducting placement agent fees and offering expenses. 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. The amount was included in interest expense in the consolidated statements of operations. 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. During the three months ended March 31, 2022, the Company converted an aggregate of $888,930 in outstanding principal into 8,739 shares of common stock. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2023 | |
RELATED PARTY TRANSACTIONS | |
RELATED PARTY TRANSACTIONS | NOTE 8: RELATED PARTY TRANSACTIONS During the three months ended March 31, 2023 and 2022, the Company made repayments for amounts due to related parties totaling $104,170 and $11,105, respectively. As of March 31, 2023 and December 31, 2022, amounts due to related parties were $452,055 and $556,225, respectively. The advances are unsecured, non-interest bearing and due on demand. Amounts due to related parties consist of current and former executives, and a board member. As of March 31, 2023 and December 31, 2022, H&J had an outstanding note payable of $129,489 owned by the H&J Seller. The note matured on December 10, 2022 and bears interest at 12% per annum. The note is in technical default. |
SHARE-BASED PAYMENTS
SHARE-BASED PAYMENTS | 3 Months Ended |
Mar. 31, 2023 | |
SHARE-BASED PAYMENTS | |
SHARE-BASED PAYMENTS | NOTE 9: SHARE-BASED PAYMENTS Common Stock Warrants In connection with the January Private Placement, the Company granted 802,140 pre-funded warrants which were immediately exercised for shares of common stock. 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. 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 In connection with merchant advances (Note 6), the Company granted 152,380 warrants to purchase common stock at an exercise price of $5.25. The warrants are immediately exercisable upon issuance and expire five years after issuance. The following is a summary of warrant activity: Common Weighted Stock Average Warrants Exercise Price Outstanding - December 31, 2022 4,418,320 $ 8.37 Granted 2,327,446 3.98 Exercised (802,140) 3.92 Forfeited — — Outstanding - March 31, 2023 5,943,626 $ 7.75 Exercisable at December 31, 2022 4,281,956 $ 8.42 Exercisable at March 31, 2023 5,807,262 $ 7.78 Stock Options As of March 31, 2023 and December 31, 2022, the Company had 38,951 stock options outstanding with a weighted average exercise price of $362.11 per share. As of March 31, 2023, there were 35,365 options exercisable. Stock-based compensation expense of $105,594 and $139,093 was recognized for the three months ended March 31, 2023 and 2022. During the three months ended March 31, 2023 and 2022, $14,399 and $14,399 was recorded to sales and marketing expense, and all other stock compensation was included in general and administrative expense in the condensed consolidated statements of operations. Total unrecognized compensation cost related to non-vested stock option awards as of March 31, 2023 amounted to $472,406 and will be recognized over a weighted average period of 1.2 years. |
LEASE OBLIGATIONS
LEASE OBLIGATIONS | 3 Months Ended |
Mar. 31, 2023 | |
LEASE OBLIGATIONS | |
LEASE OBLIGATIONS | NOTE 10: LEASE OBLIGATIONS In January 2023, the Company entered into a lease agreement extension for its corporate office and distribution center in Vernon, California that expires on December 31, 2023. The lease has monthly base rent payments of $38,105. As a result of the extension, the Company recognized a right of use asset and liability of $342,341 using a discount rate of 8.0%. As of March 31, 2023, the Company has $954,722 in accounts payable for past rents due to the landlord pertaining to this lease. In May 2023, the Company entered into a lease agreement extension for a showroom space in Los Angeles, California that commences in March 2023 and expires in January 2025. The original lease began in April 2018 and terminated in May 2020, at which point the lease was month to month. The lease has a monthly base rent of $6,520 until January 31, 2025, at which point the base rent increases to $6,781 until the end of the lease. As a result of the extension, the Company recognized a right of use asset and liability of $125,397 using a discount rate of 8.0%. As of March 31, 2023, the Company has $187,032 in accounts payable for past rents due to the landlord pertaining to this lease. Stateside and Sundry utilize a lease for a showroom in Los Angeles, California which is month to month. Total rent expense for the three months ended March 31, 2023 and 2022 was $172,685 and $274,422, respectively. |
CONTINGENCIES
CONTINGENCIES | 3 Months Ended |
Mar. 31, 2023 | |
CONTINGENCIES | |
CONTINGENCIES | NOTE 11: CONTINGENCIES On March 21, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $43,501. Such amounts include interest due, and are included in accounts payable, net of payments made to date, in the accompanying consolidated balance sheets. The Company does not believe it is probable that the losses in excess of such trade payables will be incurred. On February 7, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $182,400. Such amounts include interest due, and are included in accounts payable, net of payments made to date, in the accompanying consolidated balance sheets. The Company does not believe it is probable that the losses in excess of such trade payables will be incurred. On November 9, 2022, a vendor filed a lawsuit against Digital Brand’s Group related to prior services rendered. The claims (including fines, fees, and legal expenses) total an aggregate of $50,190. 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. 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. Claimed amounts are included in short-term convertible note payable in the accompanying consolidated balance sheets and the Company does not believe it is probable that losses in excess of such short-term note payable will be incurred. The Company is actively working to resolve this matter. 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 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. The Company has been involved in a dispute with the former owners of H&J regarding its 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”). 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 5 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 March 31, 2023. Except as may be set forth above the Company is not a party to any legal proceedings, and the Company is not aware of any claims or actions pending or threatened against us. In the future, the Company might from time to time become involved in litigation relating to claims arising from its ordinary course of business, the resolution of which the Company does not anticipate would have a material adverse impact on our financial position, results of operations or cash flows. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2023 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation | Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). |
Reverse Stock Split | Reverse Stock Split On October 21, 2022, the Board of Directors approved a one |
Unaudited Interim Financial Information | Unaudited Interim Financial Information The accompanying unaudited condensed consolidated balance sheet as of March 31, 2023, the unaudited condensed consolidated statements of operations for the three and three months ended March 31, 2023 and 2022 and of cash flows for the three months ended March 31, 2023 and 2022 have been prepared by the Company, pursuant to the rules and regulations of the SEC for the interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the consolidated results for the interim periods presented and of the consolidated financial condition as of the date of the interim consolidated balance sheet. The results of operations are not necessarily indicative of the results expected for the year ended December 31, 2023. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s Annual Form 10-K filed with SEC on April 17, 2023. |
Principles of Consolidation | Principles of Consolidation These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation. |
Use of Estimates | Use of Estimates The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, inventory, impairment of long-lived assets, contingent consideration and derivative liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. |
Restatement of Previously Issued Financial Statements | Restatement of Previously Issued Financial Statements Certain prior year accounts have been reclassified to conform with current year presentation pertaining to cost of net revenue and general and administrative expenses. The Company has reclassified $333,280 in general and administrative expenses per previously reported financial statements to cost of net revenues in the accompanying consolidated statements of operations for the three months ended March 31, 2022. The reclassified costs from general and administrative expense to cost of net revenues are primarily personnel and warehouse related costs. The reclassification had no effect on the reported results of operations. |
Cash and Equivalents and Concentration of Credit Risk | Cash and Equivalents and Concentration of Credit Risk The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of March 31, 2023 and December 31, 2022, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments. The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of March 31, 2023 Using: Level 1 Level 2 Level 3 Total Liabilities: Contingent consideration $ — $ — $ 12,098,475 $ 12,098,475 $ — $ — $ 12,098,475 $ 12,098,475 Fair Value Measurements as of December 31, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Contingent consideration $ — $ — $ 12,098,475 $ 12,098,475 $ — $ — $ 12,098,475 $ 12,098,475 Contingent Consideration The Company records a contingent consideration liability relating to stock price guarantees included in its acquisitions of Bailey44 and H&J. The estimated fair value of the contingent consideration is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument. The Company estimates and records the acquisition date fair value of contingent consideration as part of purchase price consideration for acquisitions. Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration and recognizes any change in fair in the consolidated statement of operations. The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of future operating results, discount rates and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and, therefore, materially affect the Company’s future financial results. The contingent consideration liability is to be settled with the issuance of shares of common stock once contingent provisions set forth in respective acquisition agreements have been achieved. Upon achievement of contingent provisions, respective liabilities are relieved and offset by increases to common stock and additional paid-in capital in the stockholders’ equity section of the Company’s consolidated balance sheets. The fair value of the contingent consideration liability related to the Company’s business combinations is valued using the Monte Carlo simulation model. The Monte Carlo simulation inputs include the stock price, volatility of common stock, timing of settlement and resale restrictions and limits. The fair value of the contingent consideration is then calculated based on guaranteed equity values at settlement as defined in the acquisition agreements. The detail of contingent consideration by company is as follows: March 31, December 31, 2023 2022 Bailey $ 10,698,475 $ 10,698,475 Harper & Jones 1,400,000 1,400,000 $ 12,098,475 $ 12,098,475 The contingent consideration liabilities were revalued for a final time as of May 18, 2022, the anniversary date of the Company’s initial public offering. As of the date of the issuance of these financial statements, the contingent consideration liabilities were not yet settled with shares. In December 2022, the Company paid $645,304 to the H&J Seller to partially reduce the contingent consideration balance owed. As of the date of these financial statements, the Company and the H&J Seller are in the process of amending the May 2021 purchase agreement to determine the ultimate settlement of the Company’s common stock to the H&J Seller by the second quarter of 2023. |
Inventory | Inventory Inventory is stated at the lower of cost or net realizable value and accounted for using the weighted average cost method for DSTLD and first-in, first-out method for Bailey, Stateside and Sundry. The inventory balances as of March 31, 2023 and December 31, 2022 consist substantially of finished good products purchased or produced for resale, as well as any raw materials the Company purchased to modify the products and work in progress. Inventory consisted of the following: March 31, December 31, 2023 2022 Raw materials $ 1,512,651 $ 1,611,134 Work in process 653,412 888,643 Finished goods 2,760,031 2,725,505 Inventory $ 4,926,094 $ 5,225,282 |
Goodwill | Goodwill Goodwill and identifiable intangible assets that have indefinite useful lives are not amortized, but instead are tested annually for impairment and upon the occurrence of certain events or substantive changes in circumstances. The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. |
Annual Impairment | Annual Impairment At December 31, 2022, management determined that certain events and circumstances occurred that indicated that the carrying value of the Company’s brand name assets, and the carrying amount of the reporting units, pertaining to Bailey44 and Harper & Jones may not be recoverable. The qualitative assessment was primarily due to reduced or stagnant revenues of both entities as compared to the Company’s initial projections at the time of each respective acquisition, as well as the entities’ liabilities in excess of assets. As such, the Company compared the estimated fair value of the brand names with its carrying value and recorded an impairment loss of $3,667,000 in the consolidated statements of operations. Additionally, the Company compared the fair value of the reporting units to the carrying amounts and recorded an impairment loss of $11,872,332 pertaining to goodwill in the consolidated statements of operations. |
Net Loss per Share | Net Loss per Share Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive as of March 31, 2023 and 2022, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of March 31, 2023 and 2022 are as follows: March 31, 2023 2022 Convertible notes — 51,648 Series A convertible preferred stock 108 — Common stock warrants 5,943,626 9,145 Stock options 38,951 38,951 Total potentially dilutive shares 5,982,685 99,744 The stock options and warrants above are out-of-the-money as of March 31, 2023 and 2022. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which amends and clarifies several provisions of Topic 326. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which amends Topic 326 to allow the fair value option to be elected for certain financial instruments upon adoption. ASU 2019-10 extended the effective date of ASU 2016-13 until December 15, 2022. The Company adopted this new guidance, including the subsequent updates to Topic 326, on January 1, 2023 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. |
Unaudited Pro Forma Financial Information, Policy [Policy Text Block] | Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the Company’s financial results as if the Sundry acquisition had occurred as of January 1, 2022. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisitions been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the Company’s future financial results. The following unaudited pro forma financial information includes incremental property and equipment depreciation and intangible asset amortization as a result of the acquisitions. The pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition: Three Months Ended March 31, 2022 Net revenues $ 8,606,548 Net loss $ (8,292,427) Net loss per common share $ (62.65) |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of financial assets and liabilities measured at fair value on recurring basis | Fair Value Measurements as of March 31, 2023 Using: Level 1 Level 2 Level 3 Total Liabilities: Contingent consideration $ — $ — $ 12,098,475 $ 12,098,475 $ — $ — $ 12,098,475 $ 12,098,475 Fair Value Measurements as of December 31, 2022 Using: Level 1 Level 2 Level 3 Total Liabilities: Contingent consideration $ — $ — $ 12,098,475 $ 12,098,475 $ — $ — $ 12,098,475 $ 12,098,475 |
Summary of contingent consideration | March 31, December 31, 2023 2022 Bailey $ 10,698,475 $ 10,698,475 Harper & Jones 1,400,000 1,400,000 $ 12,098,475 $ 12,098,475 |
Schedule of inventory | March 31, December 31, 2023 2022 Raw materials $ 1,512,651 $ 1,611,134 Work in process 653,412 888,643 Finished goods 2,760,031 2,725,505 Inventory $ 4,926,094 $ 5,225,282 |
Schedule of potentially dilutive items outstanding | March 31, 2023 2022 Convertible notes — 51,648 Series A convertible preferred stock 108 — Common stock warrants 5,943,626 9,145 Stock options 38,951 38,951 Total potentially dilutive shares 5,982,685 99,744 |
Schedule of business acquisition pro forma information | Three Months Ended March 31, 2022 Net revenues $ 8,606,548 Net loss $ (8,292,427) Net loss per common share $ (62.65) |
DUE FROM FACTOR (Tables)
DUE FROM FACTOR (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
DUE FROM FACTOR | |
Schedule of due to/ from factor | March 31, December 31, 2023 2022 Outstanding receivables: Without recourse $ 1,065,335 $ 1,680,042 With recourse 76,956 65,411 Matured funds and deposits 108,147 81,055 Advances (415,201) (632,826) Credits due customers (244,984) (354,282) $ 590,253 $ 839,400 |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
GOODWILL AND INTANGIBLE ASSETS | |
Summary of amortized and indefinite-lived intangible assets | Gross Accumulated Carrying Amount Amortization Value Amortized: Customer relationships $ 11,452,230 $ (4,554,959) $ 6,897,271 $ 11,452,230 $ (4,554,959) $ 6,897,271 Indefinite-lived: Brand name $ 6,575,880 — 6,575,880 $ 18,028,110 $ (4,554,959) $ 13,473,151 |
Schedule of goodwill attributable to each business combination | March 31, December 31 2023 2022 Bailey $ 3,158,123 $ 3,158,123 Harper & Jones 1,130,311 1,130,311 Stateside 2,104,056 2,104,056 Sundry 3,711,322 3,711,322 $ 10,103,812 $ 10,103,812 |
LIABILITIES AND DEBT (Tables)
LIABILITIES AND DEBT (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
LIABILITIES AND DEBT | |
Schedule of accrued expenses and other liabilities | March 31, December 31, 2023 2022 Accrued expenses $ 602,053 $ 705,135 Reserve for returns 294,147 307,725 Payroll related liabilities 3,586,356 2,974,362 Sales tax liability 267,419 339,843 Other liabilities 171,995 130,050 $ 4,921,970 $ 4,457,115 |
Summary of the convertible notes | Unamortized Convertible Note Principal Debt Discount Payable, Net Balance, December 31, 2022 $ 4,100,000 $ (1,378,200) $ 2,721,800 Repayments of notes (4,000,000) — (4,000,000) Amortization of debt discount — 689,100 689,100 Loss on extinguishment of debt — 689,100 689,100 Balance, March 31, 2023 $ 100,000 $ — $ 100,000 |
summary of promissory notes payable, net | March 31, December 31, 2023 2022 Bailey Note $ 3,500,000 $ 3,500,000 Sundry Note 5,500,000 5,500,000 March 2023 Notes - principal 2,458,750 — March 2023 Notes - unamortized debt discount (543,919) — Promissory note payable, net $ 10,914,831 $ 9,000,000 |
SHARE-BASED PAYMENTS (Tables)
SHARE-BASED PAYMENTS (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
SHARE-BASED PAYMENTS | |
Summary of information related to common stock and preferred stock warrants | Common Weighted Stock Average Warrants Exercise Price Outstanding - December 31, 2022 4,418,320 $ 8.37 Granted 2,327,446 3.98 Exercised (802,140) 3.92 Forfeited — — Outstanding - March 31, 2023 5,943,626 $ 7.75 Exercisable at December 31, 2022 4,281,956 $ 8.42 Exercisable at March 31, 2023 5,807,262 $ 7.78 |
NATURE OF OPERATIONS (Details)
NATURE OF OPERATIONS (Details) | Dec. 30, 2022 | Aug. 30, 2021 | May 18, 2021 |
Harper & Jones | |||
NATURE OF OPERATIONS | |||
Percentage of equity acquired | 100% | ||
Stateside | |||
NATURE OF OPERATIONS | |||
Percentage of equity acquired | 100% | ||
Sundry | |||
NATURE OF OPERATIONS | |||
Percentage of equity acquired | 100% |
GOING CONCERN (Details)
GOING CONCERN (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
GOING CONCERN | ||
Net loss | $ (6,136,349) | $ (7,832,942) |
Working capital deficit | $ (31,238,621) |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 3 Months Ended | ||
Oct. 21, 2022 | Mar. 31, 2022 USD ($) | Mar. 31, 2023 USD ($) | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||
Reverse stock split conversion ratio | 0.01 | ||
Reclassification adjustment | $ 333,280 | ||
Cash and cash equivalents in bank deposit | $ 250,000 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value of Financial Instruments (Details) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2023 | Dec. 31, 2022 | |
Liabilities: | ||
Contingent consideration | $ 12,098,475 | $ 12,098,475 |
Total | 12,098,475 | 12,098,475 |
Harper & Jones, LLC | ||
Liabilities: | ||
Contingent consideration | 1,400,000 | 1,400,000 |
Bailey LLC | ||
Liabilities: | ||
Contingent consideration | 10,698,475 | 10,698,475 |
Level 3 | ||
Liabilities: | ||
Contingent consideration | 12,098,475 | 12,098,475 |
Total | $ 12,098,475 | $ 12,098,475 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Deferred Offering Costs (Details) | 12 Months Ended |
Dec. 31, 2022 USD ($) | |
Harper & Jones, LLC | |
Restructuring Cost and Reserve | |
Repayments of notes | $ 645,304 |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Inventory (Details) - USD ($) | Mar. 31, 2023 | Dec. 31, 2022 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Raw materials | $ 1,512,651 | $ 1,611,134 |
Work in process | 653,412 | 888,643 |
Finished goods | 2,760,031 | 2,725,505 |
Inventory | $ 4,926,094 | $ 5,225,282 |
SUMMARY OF SIGNIFICANT ACCOUN_8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Impairment (Details) | 3 Months Ended |
Mar. 31, 2023 USD ($) | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Total impairment of intangibles | $ 3,667,000 |
Total impairment of goodwill | $ 11,872,332 |
SUMMARY OF SIGNIFICANT ACCOUN_9
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Net Loss per Share (Details) - shares | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||
Total potentially dilutive shares | 5,982,685 | 99,744 |
Stock options | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||
Total potentially dilutive shares | 38,951 | 38,951 |
Convertible notes | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||
Total potentially dilutive shares | 51,648 | |
Series A convertible preferred stock | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||
Total potentially dilutive shares | 108 | |
Common stock warrants | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share | ||
Total potentially dilutive shares | 5,943,626 | 9,145 |
SUMMARY OF SIGNIFICANT ACCOU_10
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Unaudited Pro Forma Financial Information (Details) | 3 Months Ended |
Mar. 31, 2022 USD ($) $ / shares | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Net revenues | $ 8,606,548 |
Net loss | $ (8,292,427) |
Net loss per common share | $ / shares | $ (62.65) |
DUE FROM FACTOR (Details)
DUE FROM FACTOR (Details) - USD ($) | Mar. 31, 2023 | Dec. 31, 2022 |
Outstanding receivables: | ||
Without recourse | $ 1,065,335 | $ 1,680,042 |
With recourse | 76,956 | 65,411 |
Matured funds and deposits | 108,147 | 81,055 |
Advances | 415,201 | 632,826 |
Credits due customers | (244,984) | (354,282) |
Due from factor | $ 590,253 | $ 839,400 |
GOODWILL AND INTANGIBLE ASSET_2
GOODWILL AND INTANGIBLE ASSETS - Summary of goodwill by entity (Details) - USD ($) | Mar. 31, 2023 | Dec. 31, 2022 |
GOODWILL AND INTANGIBLE ASSETS | ||
Goodwill | $ 10,103,812 | $ 10,103,812 |
Bailey | ||
GOODWILL AND INTANGIBLE ASSETS | ||
Goodwill | 3,158,123 | 3,158,123 |
Harper & Jones | ||
GOODWILL AND INTANGIBLE ASSETS | ||
Goodwill | 1,130,311 | 1,130,311 |
Stateside | ||
GOODWILL AND INTANGIBLE ASSETS | ||
Goodwill | 2,104,056 | 2,104,056 |
Sundry | ||
GOODWILL AND INTANGIBLE ASSETS | ||
Goodwill | $ 3,711,322 | $ 3,711,322 |
GOODWILL AND INTANGIBLE ASSET_3
GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | |
Indefinite-lived Intangible Assets | |||
Gross Amount | $ 11,452,230 | ||
Accumulated Amortization | (4,554,959) | ||
Carrying Value | 6,897,271 | ||
Indefinite-lived | 18,028,110 | ||
Intangible assets, net | 13,473,151 | $ 14,427,503 | |
Amortization expense | 954,353 | $ 537,813 | |
Customer relationships | |||
Indefinite-lived Intangible Assets | |||
Gross Amount | 11,452,230 | ||
Accumulated Amortization | (4,554,959) | ||
Carrying Value | 6,897,271 | ||
Brand name | |||
Indefinite-lived Intangible Assets | |||
Indefinite-lived | $ 6,575,880 |
LIABILITIES AND DEBT - Accrued
LIABILITIES AND DEBT - Accrued Expenses and Other Liabilities (Details) - USD ($) | Mar. 31, 2023 | Dec. 31, 2022 |
LIABILITIES AND DEBT | ||
Accrued expenses | $ 602,053 | $ 705,135 |
Reserve for returns | 294,147 | 307,725 |
Payroll related liabilities | 3,586,356 | 2,974,362 |
Sales tax liability | 267,419 | 339,843 |
Other liabilities | 171,995 | 130,050 |
Accrued expenses and other liabilities, Total | 4,921,970 | 4,457,115 |
Estimated penalties associated with accrued payroll taxes | 1,249,060 | |
Accrued expenses included in accrued common stock | $ 535,000 | $ 535,000 |
Number of common shares owed per the agreement | 5,000 | |
DBG | ||
LIABILITIES AND DEBT | ||
Sales tax liability | $ 581,412 | |
Bailey | ||
LIABILITIES AND DEBT | ||
Sales tax liability | $ 667,648 |
LIABILITIES AND DEBT - Converti
LIABILITIES AND DEBT - Convertible Debt (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | |
LIABILITIES AND DEBT | |||
Amortization of debt discount | $ 689,100 | ||
Unamortized debt discount | $ 1,378,200 | ||
Convertible Debt | |||
LIABILITIES AND DEBT | |||
Amortization of debt discount | 689,100 | $ 1,058,583 | |
Principal | 100,000 | 4,100,000 | |
Number of shares resulting from conversion | 8,739 | ||
Convertible Debt 2020 Regulation D Offering | |||
LIABILITIES AND DEBT | |||
Outstanding principal and accrued interest upon closing of IPO | $ 100,000 | $ 100,000 |
LIABILITIES AND DEBT - Conver_2
LIABILITIES AND DEBT - Convertible Promissory Note (Details) - USD ($) | 1 Months Ended | 3 Months Ended | ||||
Dec. 29, 2022 | Feb. 28, 2023 | Jan. 31, 2023 | Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | |
LIABILITIES AND DEBT | ||||||
Unamortized debt discount | $ (1,378,200) | |||||
Amortization of debt discount | $ 689,100 | |||||
Loss on extinguishment of debt | $ (689,100) | |||||
Percentage of increase in face value | 120% | |||||
Percentage of annual interest rate | 20% | |||||
Exercise price of warrants | $ 3.80 | |||||
Debt Instrument, Unamortized Discount | 1,378,200 | |||||
Outstanding principal amount converted | $ 888,930 | |||||
Number of shares of common stock issued | 1,277,140 | |||||
Value of shares issued | $ 5,000,003 | |||||
Securities purchase agreement | ||||||
LIABILITIES AND DEBT | ||||||
Aggregate principal amount | $ 4,000,000 | |||||
Original issue discount | 800,000 | |||||
Net proceeds | $ 3,000,000 | |||||
Promissory note | ||||||
LIABILITIES AND DEBT | ||||||
Number of shares of common stock issued | 110,000 | |||||
Value of shares issued | $ 322,300 | |||||
Promissory note | ||||||
LIABILITIES AND DEBT | ||||||
Principal | 100,000 | 4,100,000 | ||||
Convertible Note Payable, Net | 100,000 | $ 2,721,800 | ||||
Amortization of debt discount | 689,100 | $ 1,058,583 | ||||
Loss on extinguishment of debt | 689,100 | |||||
Number of shares of common stock issued upon conversion of debt | 8,739 | |||||
Outstanding principal amount converted | $ 888,930 | |||||
Repayments of notes | Promissory note | ||||||
LIABILITIES AND DEBT | ||||||
Repayments of notes | (4,000,000) | |||||
December Notes | Securities purchase agreement | ||||||
LIABILITIES AND DEBT | ||||||
Unamortized debt discount | (1,378,200) | |||||
Amortization of debt discount | 689,100 | |||||
Loss on extinguishment of debt | $ 689,100 | |||||
Repayments of debt | $ 4,000,000 | |||||
Number of warrants issued to purchase common stock | 469,480 | |||||
Exercise price of warrants | $ 4.26 | |||||
Debt discount for the fair value of the warrants | $ 428,200 | |||||
Debt Instrument, Unamortized Discount | $ 1,378,200 | |||||
Number of shares of common stock issued | 60,000 |
LIABILITIES AND DEBT - Loan Pay
LIABILITIES AND DEBT - Loan Payable - PPP and SBA Loan (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2023 | Dec. 31, 2022 | May 31, 2021 | |
LIABILITIES AND DEBT | |||
Outstanding balance | $ 798,759 | $ 297,438 | |
H&J | |||
LIABILITIES AND DEBT | |||
Note payable - related party | $ 129,489 | 129,489 | |
Aggregate principal amount | $ 75,000 | ||
Promissory note, annual interest rate (as a percent) | 7.76% | ||
Interest rates of notes | 12% | ||
Interest rate | 7.76% | ||
Outstanding balance | $ 73,187 | 73,187 | |
PPP Loan | Bailey LLC | |||
LIABILITIES AND DEBT | |||
Convertible Note Payable, Net | 933,295 | 933,295 | |
Economic Injury Disaster Loan | |||
LIABILITIES AND DEBT | |||
Aggregate principal amount | 146,707 | $ 147,438 | |
Merchant Advances | |||
LIABILITIES AND DEBT | |||
Net proceeds | 1,040,148 | ||
Repayments of debt | $ 1,613,457 |
LIABILITIES AND DEBT- Merchant
LIABILITIES AND DEBT- Merchant Advances (Details) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2023 | Dec. 31, 2022 | |
LIABILITIES AND DEBT | ||
Exercise price per share | $ 3.80 | |
Loans payable, net of current portion | $ 798,759 | $ 297,438 |
Merchant Advance from Shopify Capital | ||
LIABILITIES AND DEBT | ||
Proceeds from debt | 502,051 | |
Merchant Advances | ||
LIABILITIES AND DEBT | ||
Secured Debt | 323,025 | 896,334 |
Net proceeds | 1,040,148 | |
Repayments of debt | $ 1,613,457 | |
Warrants issued | 152,380 | |
Exercise price per share | $ 5.25 | |
Merchant Advances | Harper & Jones | ||
LIABILITIES AND DEBT | ||
Proceeds from debt | 147,267 | |
Interest rate | 9.90% | |
Loans payable, net of current portion | $ 63,433 |
LIABILITIES AND DEBT - Promisso
LIABILITIES AND DEBT - Promissory Note Payable (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | |
Debt Instrument | |||
Repayment of outstanding principal amount | $ 5,677,621 | ||
Outstanding balance | 1,329,507 | $ 1,966,250 | |
Debt discount | 1,378,200 | ||
Amortization of debt discount | 689,100 | ||
Promissory note payable, net | 10,914,831 | 9,000,000 | |
Notes Payable to Banks | |||
Debt Instrument | |||
Interest expense | $ 105,000 | ||
PPP Loan | Bailey LLC | |||
Debt Instrument | |||
Principal | 933,295 | 933,295 | |
Bailey Note [Member] | |||
Debt Instrument | |||
Aggregate principal amount | 3,500,000 | 3,500,000 | |
Interest expense | 105,000 | ||
Promissory note payable, net | 3,500,000 | 3,500,000 | |
Sundry Note [Member] | |||
Debt Instrument | |||
Interest expense | $ 110,000 | ||
Promissory note, annual interest rate (as a percent) | 8% | ||
Promissory note payable, net | $ 5,500,000 | $ 5,500,000 | |
March 2023 Notes [Member] | |||
Debt Instrument | |||
Debt discount | 608,750 | ||
Original issue discount | 408,750 | ||
Net proceeds | $ 1,850,000 | ||
Prepayment penalty | 0% | ||
Percentage of notes to be repaid, if the Company completes a debt or equity financing of less than the threshold amount | $ 7,500,000 | ||
Percentage of notes to be repaid, if the Company completes a debt or equity financing of amount equal to or greater than the threshold amount | 100% | ||
Penalty percentage on notes to be repaid, if the Company completes a debt or equity financing of amount equal to or greater than the threshold amount | 0% | ||
Additional interest percentage | 0% | ||
Original interest discount percentage | 20% | ||
Amortization of debt discount | $ 64,831 | ||
Debt discount | (543,919) | ||
Promissory note payable, net | $ 2,458,750 | ||
Percentage of notes to be repaid, if the Company completes a debt or equity financing of less than the threshold amount | 50% |
STOCKHOLDERS' DEFICIT (Details)
STOCKHOLDERS' DEFICIT (Details) - USD ($) | 1 Months Ended | 3 Months Ended | ||
Jan. 11, 2023 | Jan. 31, 2023 | Mar. 31, 2023 | Mar. 31, 2022 | |
Class of Stock | ||||
Number of shares of common stock issued | 1,277,140 | |||
Value of shares issued | $ 5,000,003 | |||
Stock issued (in shares) | 118,890 | |||
Stock issued | $ 499,338 | |||
Issue price (in dollars per share) | $ 4.20 | |||
Aggregate amount issued to investor | $ 5,000,003 | |||
Converted outstanding principal | $ 888,930 | |||
Promissory note | ||||
Class of Stock | ||||
Number of shares of common stock issued | 110,000 | |||
Value of shares issued | $ 322,300 | |||
Common Stock | ||||
Class of Stock | ||||
Number of shares of common stock issued | 1,277,140 | |||
Value of shares issued | $ 128 | |||
Stock issued (in shares) | 118,890 | |||
Stock issued | $ 12 | |||
Number of shares resulting from conversion | 8,739 | |||
Gross proceeds | 5,000,000 | |||
Net proceeds | $ 4,300,000 | |||
Common Warrant | ||||
Class of Stock | ||||
Warrants issued | 475,000 | |||
Volume-Weighted Average | $ 3.915 | |||
Number of shares resulting from conversion | 802,140 | |||
Common Warrant | Common Stock | ||||
Class of Stock | ||||
Number of shares of common stock issued | 475,000 | |||
Pre-funded warrants | ||||
Class of Stock | ||||
Number of shares of common stock issued | 802,140 | |||
Warrants issued | 802,140 | |||
Volume-Weighted Average | $ 3.915 | |||
Number of shares resulting from conversion | 802,140 | |||
Private Placement | ||||
Class of Stock | ||||
Number of shares of common stock issued | 475,000 | |||
Aggregate amount issued to investor | $ 5,000,000 |
RELATED PARTY TRANSACTIONS - (D
RELATED PARTY TRANSACTIONS - (Details) - USD ($) | 3 Months Ended | |||
Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | Dec. 10, 2022 | |
RELATED PARTY TRANSACTIONS | ||||
Repayments from related parties | $ 104,170 | $ 11,105 | ||
Due to related parties | 452,055 | $ 556,225 | ||
Notes Payable, Other Payables | ||||
RELATED PARTY TRANSACTIONS | ||||
Interest rate | 12% | |||
Notes Payable, Other Payables | H&J | ||||
RELATED PARTY TRANSACTIONS | ||||
Aggregate principal amount | $ 129,489 | $ 129,489 |
SHARE-BASED PAYMENTS - Common S
SHARE-BASED PAYMENTS - Common Stock Warrants - General Information (Details) - $ / shares | 3 Months Ended | ||
Mar. 31, 2023 | Jan. 11, 2023 | Dec. 31, 2022 | |
SHARE-BASED PAYMENTS | |||
Exercise price per share | $ 3.80 | ||
Aggregate shares of stock options granted | 1,277,140 | ||
Option outstanding exercise price (in dollars per share) | $ 362.11 | $ 362.11 | |
Option outstanding exercise price | $ 362.11 | $ 362.11 | |
Weighted average duration (Years) | 5 years | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | 1,277,140 | ||
Pre-funded warrants | |||
SHARE-BASED PAYMENTS | |||
Warrants issued | 802,140 | ||
Aggregate shares of stock options granted | 802,140 | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | 802,140 | ||
Placement Agent Warrant | |||
SHARE-BASED PAYMENTS | |||
Exercise price per share | $ 4.8938 | ||
Aggregate shares of stock options granted | 95,786 | ||
Weighted average duration (Years) | 5 years | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | 95,786 | ||
Aggregate Warrant | |||
SHARE-BASED PAYMENTS | |||
Warrants issued | 152,380 | ||
Exercise price of additional units | $ 5.25 |
SHARE-BASED PAYMENTS - Warrants
SHARE-BASED PAYMENTS - Warrants Roll Forward (Details) - Common stock warrants - $ / shares | 3 Months Ended | 12 Months Ended |
Mar. 31, 2023 | Dec. 31, 2022 | |
SHARE-BASED PAYMENTS | ||
Warrant Outstanding Beginning Balance | 4,418,320 | |
Granted | 2,327,446 | |
Exercised | (802,140) | |
Warrant Outstanding Ending Balance | 5,943,626 | 4,418,320 |
Common Stock Warrants Exercisable | 5,807,262 | 4,281,956 |
Weighted Average Exercise Price Outstanding Beginning Balance | $ 8.37 | |
Granted | 3.98 | |
Weighted Average Exercise Price Outstanding Ending Balance | 7.75 | $ 8.37 |
Weighted Average Exercise Price Exercisable | 7.78 | 8.42 |
Exercised | 3.92 | |
Weighted Average Exercise Price Outstanding Beginning Balance | $ 7.75 | $ 8.37 |
SHARE-BASED PAYMENTS - Stock Op
SHARE-BASED PAYMENTS - Stock Options - Activity (Details) | 3 Months Ended |
Mar. 31, 2023 $ / shares shares | |
SHARE-BASED PAYMENTS | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance | 38,951 |
Granted | 1,277,140 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance | 38,951 |
SHARE-BASED PAYMENTS | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance | $ / shares | $ 362.11 |
SHARE-BASED PAYMENTS | |
Share-based Compensation Arrangement by Share-based Option Exercisable | 35,365 |
SHARE-BASED PAYMENTS - Stock-ba
SHARE-BASED PAYMENTS - Stock-based Compensation - Stock options granted (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
SHARE-BASED PAYMENTS | ||
Stock-based compensation expense | $ 105,594 | $ 139,093 |
Unrecognized compensation cost related to non-vested stock option | $ 472,406 | |
Share-based arrangement, non-vested weighted average period | 1 year 2 months 12 days | |
Sales and marketing expense | ||
SHARE-BASED PAYMENTS | ||
Stock-based compensation expense | $ 14,399 | $ 14,399 |
LEASE OBLIGATIONS (Details)
LEASE OBLIGATIONS (Details) - USD ($) | 1 Months Ended | 3 Months Ended | |||
May 31, 2023 | Jan. 31, 2023 | Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | |
Operating lease agreements | |||||
Rent expense | $ 172,685 | $ 274,422 | |||
Right of use asset | 467,738 | $ 102,349 | |||
Corporate office and distribution center | |||||
Operating lease agreements | |||||
Rent expense | $ 38,105 | ||||
Right of use asset | $ 342,341 | ||||
Discount rate | 8% | ||||
Operating lease accounts payable past rent due to landlord | 954,722 | ||||
Showroom Space | |||||
Operating lease agreements | |||||
Operating lease accounts payable past rent due to landlord | $ 187,032 | ||||
Showroom Space | Subsequent events | |||||
Operating lease agreements | |||||
Rent expense | $ 6,520 | ||||
Right of use asset | $ 125,397 | ||||
Discount rate | 8% | ||||
Base rent increases | $ 6,781 |
CONTINGENCIES (Details)
CONTINGENCIES (Details) | 1 Months Ended | 3 Months Ended | |||||||||
May 18, 2023 USD ($) | May 16, 2023 | Mar. 21, 2023 USD ($) | Feb. 07, 2023 USD ($) | Dec. 21, 2020 USD ($) | Sep. 24, 2020 USD ($) | Mar. 31, 2023 USD ($) | Mar. 31, 2021 item | Aug. 31, 2020 item | Mar. 31, 2023 USD ($) | Nov. 09, 2023 USD ($) | |
Litigation Matters | |||||||||||
Settlement amount payable to vendor | $ 50,190 | ||||||||||
Claims settled after signing long-term lease | $ 450,968 | ||||||||||
Value of shares issued | 5,000,003 | ||||||||||
Common Stock | |||||||||||
Litigation Matters | |||||||||||
Value of shares issued | $ 128 | ||||||||||
Common Stock | Subsequent events | |||||||||||
Litigation Matters | |||||||||||
Trading day immediately preceding period | 5 days | ||||||||||
H&J Purchase Agreement | |||||||||||
Litigation Matters | |||||||||||
Trading day immediately preceding period | 30 days | ||||||||||
Gross proceeds from common stock indemnification claims | $ 9,100,000 | ||||||||||
Transfer of membership interests | 229,000 | ||||||||||
Value of shares issued | $ 1,400,000 | ||||||||||
Lawsuits filed related to prior services rendered | |||||||||||
Litigation Matters | |||||||||||
Damages sought | $ 100,000 | $ 96,900 | |||||||||
Number of lawsuit settled | item | 2 | 2 | |||||||||
lawsuit against Bailey 44 related to a retail store lease | |||||||||||
Litigation Matters | |||||||||||
Damages sought | $ 1,500,000 | ||||||||||
Non-payment of trade payables | |||||||||||
Litigation Matters | |||||||||||
Damages sought | $ 43,501 | $ 182,400 |