What changed in this filing

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Item 9A. Controls and Procedures

2024-04-15 compared with 2023-04-17 · 518 added, 540 removed, 1232 unchanged (46% of the section changed)

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Based on our preliminary findings, we have found these resources and systems lacking and have concluded that these resources and systems will need to be supplemented and/or upgraded.

We are in the process of identifying a single, unified accounting and reporting system that can be used by the Company and Bailey, with the goal of ensuring consistency

and timeliness in reporting, real time access to data while also ensuring ongoing data integrity, backup and cyber security procedures and processes.

We are in the process of identifying a single, unified accounting and reporting system that can be used by the Company and Bailey, with the goal of ensuring consistency and timeliness in reporting, real time access to data while also ensuring ongoing data integrity, backup and cyber security procedures and processes.

● We engaged external consultants with public company and technical accounting experience to facilitate accurate and timely accounting closes and to accurately prepare and review the financial statements and related footnote disclosures.

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OTHER INFORMATION

ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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President and Chief Executive Officer

Laura Dowling

Chief Marketing Officer

Chief Financial Officer

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Davis filed for personal bankruptcy through the filing of a Chapter 7 bankruptcy petition in Texas federal court.

Laura Dowling has served as our Chief Marketing Officer since February 2019.

Prior to that she was the Divisional Vice President of Marketing & PR, North America at Coach from February 2016 to August 2018.

Dowling led a team of 25 and was held accountable for $45 million profit and loss.

From August 2011 to February 2016, she was the Director of Marketing & PR at Harry Winston and from March 2009 to August 2011 she was the Director of Wholesale Marketing at Ralph Lauren.

Dowling holds both a Masters degree (2002) and Bachelors degree (2001) in Communications & Media Studies with a Minor in French from Fordham University.

Reid Yeoman has served as our Chief Financial Officer since October 2019.

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Nonemployee Board Members

Lynn has been a director of our company since inception and served as our Co-Chief Executive Officer from September 2013 to the October 2018.

Lynn has been a director of our company since inception and served as our Co-Chief Executive Officer from September 2013 to October 2018.

Prior to joining us, until September 2011 he was Co-Founder of WINC, a direct-to-consumer e-commerce company which was then the fastest growing winery in the world, backed by Bessemer Venture Partners.

Prior to Club W, Mr.

Prior to WINC, Mr.

Lynn co-founded a digital payments company that was sold in 2011.

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Aaron is the Chief Information Security Officer at Auth0.

Ms Aaron is responsible for the holistic security and compliance of Auth0’s platform, products, and corporate environment.

Aaron is responsible for the holistic security and compliance of Auth0’s platform, products, and corporate environment.

Auth0 provides a platform to authenticate, authorize, and secure access for applications, devices, and users.

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The board of directors may also establish other committees from time to time to assist our company and the board of directors.

The composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, NasdaqCM and SEC rules and regulations, if applicable.

The composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act, NasdaqCM and SEC rules and regulations, if applicable.

Each committee’s charter is available on our website at www.digitalbrandsgroup.co.

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President and Chief Executive Officer

Laura Dowling

Chief Marketing Officer

Chief Financial Officer

(1) Upon closing of the IPO, 1,273 shares of common stock were issued to the CEO as conversion of an outstanding note payable and related accrued interest, accrued compensation and other consideration.

As of a result of the transaction, the Company recorded an additional $233,184 in stock compensation expense, which is included in general and administrative expenses in the condensed consolidated statements of operations.

(1) This amount represents the amount of salary Mr.

Yeoman was entitled to receive under his agreement with the Company.

Such amount has not yet been paid to Mr.

Executive Officer Outstanding Equity Awards at Fiscal Year-End

The following table provides certain information concerning any common share purchase options, stock awards or equity incentive plan awards held by each of our named executive officers that were outstanding as of December 31, 2023.

The number of shares of common stock referred to in this “Executive Compensation” section gives effect to the one-for 100 share reverse stock split that we effectuated on November 3, 2022, unless the context clearly indicates otherwise.

The number of shares of common stock referred to in this “Executive Compensation” section gives effect to the one-for-100 reverse stock split that we effectuated on November 3, 2022, unless the context clearly indicates otherwise.

On August 21, 2023, the Board of Directors approved a one - for - 25 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s preferred stock.

Option Awards

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John “Hil” Davis

Laura Dowling

Employment Agreements

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Davis is also eligible to receive an annual bonus with a target of 175%, and with a range from 0% to a maximum of 225%, of his base salary based upon achievement of Company and individual goals.

also eligible to participate in employee benefit plans that we offer to our other senior executives.

He is also eligible to participate in employee benefit plans that we offer to our other senior executives.

In the event of a termination of his employment after June 30, 2021, Mr.

Davis is eligible for severance benefits as may be approved by the Board.

Davis is subject to our recoupment, insider trading and other company policies, a perpetual non-disclosure of confidential information covenant, a non-disparagement covenant and a non-solicitation of employees covenant.

Davis is subject to our recoupment, insider trading and other company policies, a perpetual non-disclosure of confidential information covenant, a non-

disparagement covenant and a non-solicitation of employees covenant.

Davis’ offer letter also provided for an option grant exercisable for up to 2,144,000 shares of our common stock to him at a per share exercise price equal to the IPO price, of which 75% of the options vested on the effective date of the IPO and 25% of the options vest in accordance with the vesting schedule provided in the Company’s 2020 Stock Plan.

Davis is an at- will employee and does not have a fixed employment term.

In December 2020, we entered into an offer letter with Ms.

Dowling, our Chief Marketing Officer.

The offer letter provides for an annual base salary of $300,000 effective upon the closing of the IPO.

Effective January 1, 2021, Ms.

Dowling is also eligible to receive an annual bonus with a target of 100%, and with a range from 0% to a maximum of 125%, of her base salary based upon achievement of Company and individual goals.

She is also eligible to participate in employee benefit plans that we offer to our other senior executives.

In the event of a termination of her employment after June 30, 2021, Ms.

Dowling is eligible for severance benefits as may be approved by the Board.

Dowling is subject to our recoupment, insider trading and other company policies, a perpetual non-disclosure of confidential information covenant, a non- disparagement covenant and a non-solicitation of employees covenant.

Dowling’s offer letter also provided for an option grant exercisable for up to 288,000 shares of our common stock to her at a per share exercise price equal to the IPO price, of which 75% of the options vested on the effective date of the IPO and 25% of the options vest in accordance with the vesting schedule provided in the Company’s 2020 Stock Plan.

Dowling is an at-will employee and does not have a fixed employment term.

In December 2020, we entered into an offer letter with Mr.

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Going forward, our board of directors believes that attracting and retaining qualified non-employee directors will be critical to the future value growth and governance of our company.

Our board of directors also believes that any compensation package for our non-employee directors should be equity-based to align the interest of these directors with our stockholders.

On the effective date of the previous offerings, each of our director nominees were granted options to purchase 20,000 shares of common stock at a per share exercise price equal to the price of the shares of common stock per the offering.

Our board of directors also believes that any compensation package for our non-employee directors should be equity-based to align the interests of these directors with our stockholders.

On the effective date of the previous offerings, each of our director nominees was granted options to purchase 20,000 shares of common stock at a per share exercise price equal to the price of the shares of common stock per the offering.

The options will vest over a one year period of time.

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The 2020 Plan administrator has the authority to determine, within the limits of the express provisions of the 2020 Plan, the individuals to whom awards will be granted, the nature, amount and terms of such awards and the objectives and conditions for earning such awards.

The Board may at any time amend or terminate the 2020 Plan, provided that no such action may be taken that adversely affects any rights or obligations with respect to any awards previously made under the 2020 Plan without the consent of the recipient.

No awards may be made under the 2020 Plan after the tenth anniversary of its effective date.

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The terms and conditions of stock option grants, including the quantity, price, vesting periods, and other conditions on exercise will be determined by the 2020 Plan administrator.

The exercise price for stock options will be determined by the 2020 Plan administrator in its discretion, but non-qualified stock options and incentive stock options may not be less than 100% of the fair market value of one share of our company’s common stock on the date when the stock option is granted.

The exercise price for stock

options will be determined by the 2020 Plan administrator in its discretion, but non-qualified stock options and incentive stock options may not be less than 100% of the fair market value of one share of our company’s common stock on the date when the stock option is granted.

Additionally, in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of our stock on the date of grant, the exercise price may not be less than 110% of the fair market value of one share of common stock on the date the stock option is granted.

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In the event that shares that would have otherwise been issuable under the 2013 Stock Plan were withheld in payment of the purchase price, exercise price, or withholding taxes, such shares will remain available for issuance under the 2013 Stock Plan.

In the event that an outstand option or other right is cancelled or expired, the shares allocable to the unexcised portion of the option or other right will be added to the number of shares available under the 2013 Stock Plan.

In the event that an outstanding option or other right is cancelled or expired, the shares allocable to the unexcised portion of the option or other right will be added to the number of shares available under the 2013 Stock Plan.

The 2013 Stock Plan will terminate automatically 10 years after the later of (i) the date when the board of directors adopted the 2013 Stock Plan or (ii) the date when the board of directors approved the most recent increase in the number of shares reserved under the 2013 Stock Plan that was also approved by our stockholders.

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All awards under the 2013 Stock plan will be det forth in award agreements, which will detail the terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations.

As of December 31, 2021, there were options to purchase up to 38,951 shares of our common stock at exercise prices between $94 and $415 expiring between June 2024 and May 2031.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The table below sets forth information regarding the projected beneficial ownership of our common stock immediately after the closing of this offering by the following individuals or groups:

The table below sets forth information regarding the projected beneficial ownership of our common stock as of April [•], 2024 by the following individuals or groups:

● each person or entity who is known by us to own beneficially more than 5% of our outstanding stock;

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Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all shares of our common stock held by them.

Shares of common stock issuable pursuant to a stock option, warrant or convertible note that is currently exercisable or convertible, or is exercisable or convertible within 60 days after the date of determination of ownership, are deemed to be outstanding and beneficially owned for purposes of computing the percentage ownership of the holder of the stock option, warrant or convertible note but are not treated as outstanding for purposes of computing the percentage ownership of any other person.

The applicable percentage ownership “Before the Offering” in the following table is based on 5,746,079 shares of our common stock outstanding as of April 17, 2023.

owned for purposes of computing the percentage ownership of the holder of the stock option, warrant or convertible note but are not treated as outstanding for purposes of computing the percentage ownership of any other person.

The applicable percentage ownership in the following table is based on 1,698,568 shares of our common stock outstanding as of April 15, 2024.

After giving effect to the exercise of the Pre-Funded Warrants and excludes as of such date:

● Shares of common stock underlying the Warrants (other than any Pre-Funded Warrants);

● Shares of common stock underlying other outstanding warrants, which include, without limitation, (i) warrants to acquire up to 781,958 shares of our common stock at exercise prices between $4.26 and $766 expiring between October 2021 and October 2030, (ii) Class B Warrants to acquire up to 1,818,181 shares of our common stock at an exercise price of $5.25 expiring December 2027, and (iii) Class C Warrants, to acquire up to 1,818,181 shares of our common stock at an exercise price of $5.25 expiring January 2024.

● Outstanding stock options to acquire up to 38,951 shares of our common stock at exercise prices between $94 and $415 expiring between June 2024 and May 2031;

● Up to 677,419 shares of our common stock issuable upon conversion of outstanding shares of Series A Preferred Stock;

● Up to 58,300 shares of common stock issuable further to a $17.5 million equity line of credit;

● 5,680 shares of our common stock reserved for future issuance under our 2020 Omnibus Incentive Plan.

The applicable percentage ownership “After the Offering” in the following table assumes the exercise of the Warrants and sale of all shares available for sale under this prospectus and no further acquisitions of shares by the selling stockholders.

Unless otherwise indicated, the address for each officer, director and director nominee in the following table is c/o Digital Brands Group, Inc., 1400 Lavaca Street, Austin, TX 78701.

Percentage of

Name of Beneficial Owner

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John “Hil” Davis(1)

Laura Dowling(2)

Reid Yeoman(2)

Trevor Pettennude(5)

Trevor Pettenude(4)

Jameeka Aaron(5)

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(2) Represents options to acquire up to 38 shares of common stock, exercisable at $1,000 per share and options to acquire up to 8 shares of common stock, exercisable at $8,200 per share.

(3) Represents options to acquire up to 960 shares of common stock, exercisable at $4.00 per share and options to acquire up to 180 shares of common stock, exercisable at $328 per share.

(3) Includes options to acquire up to 128 shares of common stock exercisable between $3,900 and $8,200 per share.

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(6) Represents options exercisable at $8,900 per share.

(8) Includes options to acquire up to 24,526 shares of common stock exercisable between $156 and $400.

(7) Includes options to acquire up to 1,076 shares of common stock.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

On the effective date of the IPO, we granted stock options to acquire up to an aggregate of 267,200 shares to our Chief Executive Officer, Chief Marketing Officer and Chief Financial Officer at a per share exercise price equal to the initial public offering price of the shares.

DBG uses Banctek Solutions, a registered independent sales organization (ISO) of FirstData as its back- end payment processor.

Trevor Pettennude is majority owner of Banctek Solutions.

We started to use Banctek Solutions services prior to Mr.

Pettennude’s involvements with DBG.

Total expenses for the years ended December 31, 2022 and 2021 were approximately $0 and $14,000, respectively, and included in sales and marketing in the consolidated statements of operations.

As of December 31, 2023 and 2022, the Company made net repayments for amounts due to related parties totaling $130,205 and $170,000, respectively.

As of December 31, 2023 and December 31, 2022, amounts due to related parties were $400,012 and $556,217, 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 December 31, 2023 and 2022, due to related parties includes advances from the former officer, Mark Lynn, who also serves as a director, totaling $104,568 and $104,568, respectively, and accrued salary and expense reimbursements of $87,221 and $100,649, respectively, to current officers.

Upon closing of the IPO, 25,080 shares of common stock were issued to directors as conversion of balances owed.

In October 2022, the Company received advances from Trevor Pettennude totaling $325,000.

In October 2022, the Company received advances from a director, Trevor Pettennude, totaling $325,000.

The advances are unsecured, non-interest bearing and due on demand.

As of December 31, 2022, the amounts were outstanding.

The current CEO, Hil Davis, previously advanced funds to the Company for working capital.

These prior advances were converted to a note payable totaling $115,000.

Upon closing of the IPO, 127,278 shares of common stock were issued to the CEO as conversion of the outstanding note payable and related accrued interest, accrued compensation and other consideration.

A portion of the net proceeds of the IPO were used to pay salary and expenses to Laura Dowling, our Chief Marketing Officer, and Mark Lynn, a director.

In addition, each of Mark Lynn, John “Hil” Davis, and Trevor Pettennude converted certain amounts owed to them into shares of common stock at the effective date of the IPO at a 30% discount to the IPO price as part of the debt conversion.

As of December 31, 2022 and 2021, H&J had an outstanding note payable of $129,1489 and $299,489, respectively, owned by the H&J Seller.

The note matured in July 2022 and bears interest at 12% per annum.

The parties are currently discussing extension options.

At the time of the Stateside acquisition, Moise Emquies was a member of the Board of Directors of the Company.

The Stateside acquisition was unanimously approved by all of the members of the Company’s Board of Directors (other than Moise Emquies who recused himself).

We have been involved in a dispute with the former owners of H&J regarding our obligation to “true up” their ownership interest in our company further to that membership interest purchase agreement dated May 10, 2021 whereby we acquired all of the outstanding membership interests of H&J (as amended.

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) day trading period immediately preceding such date plus the gross proceeds, if any, of shares of our stock issued to such sellers and sold by them during the one year period from the closing date of the offering does not exceed the sum of $9.1 million, less the value of any shares of common stock cancelled further to any indemnification claims or post-closing adjustments under the H&J Purchase Agreement, then we shall issue to the subject sellers an additional aggregate number of shares of common stock equal to any such valuation shortfall at a per share price equal to the then closing price per share of our common stock as quoted on the NasdaqCM.

We did not honor our obligation to issue such shares and the former owner of H&J have claimed that they were damaged as a result.

As part of a proposed settlement with such holders, we have tentatively agreed to the following:

(i) to transfer all membership interests of H&J back to the original owners, (ii) to pay such owners the sum of $229,000, (iii) issue the former owners of H&J an aggregate of $1,400,000 worth of our common stock to be issued on May 16, 2023 based on the lower of (a) the stock closing price per share on May 15, 2023, and (b) the average common stock closing price based on the average of the 5 trading days preceding May 16, 2023, with the closing price on May 9, 2023.

Such tentative terms are to be memorialized in definitive purchase agreements and as such there is no assurance that such arrangements will be finalized.

As of the issuance date of these financial statements, the above terms and continued negotiations have been verbally approved by the Board.

As of December 31, 2023 and 2022, the amounts $175,000 and $325,000, respectively, were outstanding .

Policies and Procedures for Related Person Transactions

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PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table provides information regarding the fees billed to us by dbb mckennon , in the fiscal years ended December 31, 2022 and 2021.

The following table provides information regarding the fees billed to us by Macias Gini & O’Connell LLP and dbb mckennon , in the fiscal years ended December 31, 2023 and 2022, respectively.

All fees described below were approved by the Board:

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