Digital Brands Group, Inc. (NASDAQ:DBGI), a retailer in apparel and accessories, has reported an inadvertent issuance of equity shares that was not in compliance with Nasdaq rules. The company disclosed in a recent SEC filing that between October 3 and October 15, 2024, it mistakenly issued 1,311,345 shares of common stock to a note holder due to a conversion of a portion of their promissory note. This issuance brought the total outstanding common stock to 9,415,783 shares as of October 16, 2024.
The company acknowledged that the shares were issued in error, as the conversion of the note exceeded the limit set by Nasdaq Listing Rule 5635(d), which requires stockholder approval for the issuance of more than 19.9% of the company’s pre-transaction shares outstanding. As a result, Digital Brands Group has informed the note holder that the shares must be returned for cancellation.
In other recent news, Digital Brands Group (DBG) has been navigating a challenging fiscal quarter, reporting a decline in net revenue to $3.4 million. Despite this, the company made significant strides in reducing its debt and liabilities, paying off over $5 million in the first half of the year. DBG also introduced AVO, a new direct-to-consumer women's apparel brand, aiming to offer premium apparel at competitive prices.
In addition, DBG has amended its debt settlement agreements, extending the final payment deadline, and is currently facing delisting from The Nasdaq Stock Market due to non-compliance with minimum bid price requirements. The company plans to request a hearing before the Nasdaq Hearings Panel to address this issue.
Despite a net loss of $3.5 million, DBG is optimistic about achieving profitability and is close to reaching cash flow breakeven with a small revenue increase. The company has received offers for its NASDAQ shell, valuing it between $3.5 million to $5 million.
DBG plans to ramp up growth marketing spending in the second half of the year, with initiatives including the addition of brands to a major department store, the launch of a new licensed brand, and the introduction of new direct-to-consumer brands.
InvestingPro Insights
Digital Brands Group's recent compliance issue with Nasdaq comes amid significant financial challenges for the company. According to InvestingPro data, DBGI has a market capitalization of just $0.64 million, reflecting its micro-cap status. The company's financial health appears precarious, with InvestingPro Tips indicating that DBGI is "quickly burning through cash" and "operates with a significant debt burden." These factors may have contributed to the oversight in share issuance.
The company's stock performance has been notably poor, with InvestingPro data showing a staggering 95.7% decline in the one-year price total return as of the latest available data. This aligns with the InvestingPro Tip that the "price has fallen significantly over the last year." Despite these challenges, the stock has seen a significant return over the last week, with a 29.85% increase, possibly reflecting market reactions to the company's efforts to rectify the Nasdaq compliance issue.
Investors considering DBGI should note that the company is not currently profitable, as highlighted by another InvestingPro Tip. With 15 additional tips available on InvestingPro, investors can gain further insights into DBGI's financial situation and market position to make more informed decisions.
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