The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the historical financial statements of the relevant entities and the pro forma financial statements and the notes thereto included elsewhere in this Form 10-K. This discussion and analysis contains forward- looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and "Cautionary Disclosure Regarding Forward-Looking Statements."
Unless otherwise indicated by the context, references to "DBG" refer to
Business Overview
Our portfolio consists of four significant brands that leverage our three channels: our websites, wholesale and our own stores.
Bailey 44 combines beautiful, luxe fabrics and on-trend designs to create
sophisticated ready-to-wear capsules for women on-the-go. Designing for real
? life, this brand focuses on feeling and comfort rather than how it looks on a
runway. Bailey 44 is primarily a wholesale brand, which we are transitioning to
a digital, direct-to-consumer brand.
DSTLD offers stylish high-quality garments without the luxury retail markup
? valuing customer experience over labels. DSTLD is primarily a digital
direct-to-consumer brand, to which we recently added select wholesale retailers
to generate brand awareness.
Harper & Jones was built with the goal of inspiring men to dress with
? intention. It offers hand- crafted custom fit suits for those looking for a
premium experience. Harper & Jones is primarily a direct-to-consumer brand
using its own showrooms.
Stateside is an elevated, America first brand with all knitting, dyeing,
cutting and sewing sourced and manufactured locally in
? collection is influenced by the evolution of the classic t-shirt offering a
simple yet elegant look. Stateside is primarily a wholesale brand that we will
be transitioning to a digital, direct-to-consumer brand.
ACE STUDIOS will be built with the goal of inspiring men to dress with a
? purpose. . It will offer premium apparel with a sophisticated casual approach.
Harper & Jones will primarily be a direct-to-consumer brand.
We believe that successful apparel brands sell in all revenue channels. However, each channel offers different margin structures and requires different customer acquisition and retention strategies. We were founded as a digital-first retailer that has strategically expanded into select wholesale and direct retail channels. We strive to strategically create omnichannel strategies for each of our brands that blend physical and online channels to engage consumers in the channel of their choosing. Our products are sold direct-to- consumers principally through our websites and our own showrooms, but also through our wholesale channel, primarily in specialty stores and select department stores. With the continued expansion of our wholesale distribution, we believe developing an omnichannel solution further strengthens our ability to efficiently acquire and retain customers while also driving high customer lifetime value.
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We believe that by leveraging a physical footprint to acquire customers and increase brand awareness, we can use digital marketing to focus on retention and a very tight, disciplined high value new customer acquisition strategy, especially targeting potential customers lower in the sales funnel. Building a direct relationship with the customer as the customer transacts directly with us allows us to better understand our customer's preferences and shopping habits. Our substantial experience as a company originally founded as a digitally native-first retailer gives us the ability to strategically review and analyze the customer's data, including contact information, browsing and shopping cart data, purchase history and style preferences. This in turn has the effect of lowering our inventory risk and cash needs since we can order and replenish product based on the data from our online sales history, replenish specific inventory by size, color and SKU based on real times sales data, and control our mark-down and promotional strategies versus being told what mark downs and promotions we have to offer by the department stores and boutique retailers.
We define "closet share" as the percentage ("share") of a customer's clothing units that ("of closet") she or he owns in her or his closet and the amount of those units that go to the brands that are selling these units. For example, if a customer buys 20 units of clothing a year and the brands that we own represent 10 of those units purchased, then our closet share is 50% of that customer's closet, or 10 of our branded units divided by 20 units they purchased in entirety. Closet share is a similar concept to the widely used term wallet share, it is just specific to the customer's closet. The higher our closet share, the higher our revenue as higher closet share suggests the customer is purchasing more of our brands than our competitors.
We have strategically expanded into an omnichannel brand offering these styles and content not only on-line but at selected wholesale and retail storefronts. We believe this approach allows us opportunities to successfully drive Lifetime Value ("LTV") while increasing new customer growth. We define Lifetime Value or LTV as an estimate of the average revenue that a customer will generate throughout their lifespan as our customer. This value/revenue of a customer helps us determine many economic decisions, such as marketing budgets per marketing channel, retention versus acquisition decisions, unit level economics, profitability and revenue forecasting.
We acquired Bailey in
On
Pursuant to the Agreement, Sellers, as the holders of all of the outstanding
membership interests of Sundry, will exchange all of such membership interests
for (i)
Of the
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rata to the Sellers and the Payees. Any shares issued on either
The Agreement contains customary representations, warranties and covenants by the Company, the Sellers and Sundry. The closing of the Acquisition is subject to customary closing conditions and financing and there is no assurance that we will be able to complete the Acquisition.
Material Trends, Events and Uncertainties
COVID-19
In
Our digital platform remains a high priority through which its brands stay connected with consumer communities while providing experiential content. In accordance with local government guidelines and in consultation with the guidance of global health professionals, DBG has implemented measures designed to ensure the health, safety and well-being of associates employed in its distribution and fulfillment centers. Many of these facilities remain operational and support digital consumer engagement with its brands and to service retail partners as needed.
Our business has been, and will continue to be, impacted by the effects of the COVID-19 global pandemic in countries where our suppliers, third-party service providers or consumers are located. These effects include recommendations or mandates from governmental authorities to close businesses, limit travel, avoid large gatherings or to self-quarantine, as well as temporary closures and decreased operations of the facilities of our suppliers, service providers and customers. The impacts on us have included, and in the future could include, but are not limited to:
significant uncertainty and turmoil in global economic and financial market
conditions causing, among other things: decreased consumer confidence and
decreased consumer spending, now and in the mid and long-term. Specifically,
COVID has impacted our business in several ways, including store closings,
supply chain disruptions and delivery delays, meaningfully lower net revenue,
furloughs and layoffs of 52 employees and increased costs to operate our
warehouse to ensure a healthy and safe work environment. Approximately 220
boutique stores where we sold our products closed temporarily and permanently
in 2020 and into 2021, representing a reduction in approximately 40% of such
? stores prior to COVID. Additionally, approximately 40 department stores that
carried our products have closed as well, representing a reduction of
approximately 35% of such stores prior to COVID. We do not anticipate the
department stores will open those stores back up, and we do not anticipate a
majority of the closed boutique stores will reopen. We also waited to hire a
new designer until the summer, once we knew that stores would open back up at
some capacity. This delay in hiring a new designer also impacted the first four
months of 2021, as her first collection was not offered until recently for a
quantities from our accounts throughout the first half of 2022 versus pre-COVID
levels, but meaningfully higher than 2021 or 2020.
inability to access financing in the credit and capital markets at reasonable
rates (or at all) in the event we, or our suppliers find it desirable to do so,
increased exposure to fluctuations in foreign currency exchange rates relative
? to the
commodities and raw materials we use for our products and in our supply chain.
Specifically, the pandemic shut down our supply chain for several months in
2020, and delayed deliveries throughout the year.
inability to meet our consumers' needs for inventory production and fulfillment
due to disruptions in our supply chain and increased costs associated with
mitigating the effects of the pandemic caused by, among other things: reduction
? or loss of workforce due to illness, quarantine or other restrictions or
facility closures, scarcity of and/or increased prices for raw materials,
scrutiny or embargoing of goods produced in infected areas, and increased
freight and logistics costs, expenses and
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times; failure of third parties on which we rely, including our suppliers,
customers, distributors, service providers and commercial banks, to meet their
obligations to us or to timely meet those obligations, or significant
disruptions in their ability to do so, which may be caused by their own
financial or operational difficulties, including business failure or insolvency
and collectability of existing receivables; and
significant changes in the conditions in markets in which we do business,
including quarantines, governmental or regulatory actions, closures or other
restrictions that limit or close our operating and manufacturing facilities
? and restrict our employees' ability to perform necessary business functions,
including operations necessary for the design, development, production,
distribution, sale, marketing and support of our products. Specifically, we had
to furlough and layoff a significant amount of employees to adjust to our lower
revenues.
The COVID-19 pandemic is ongoing and dynamic in nature, and continues to drive global uncertainty and disruption. As a result, COVID-19 had a significant negative impact on the Company's business, including the consolidated financial condition, results of operations and cash flows through of 2021. While we are not able to determine the ultimate length and severity of the COVID-19 pandemic, we expect store closures, an anticipated reduction in traffic once stores initially reopen and a highly promotional marketplace will have a significant negative impact on our financial performance for at least the first two quarters of 2022.
We have implemented cost controls to reduce discretionary spending to help mitigate the loss of sales and to conserve cash while continuing to support employees. We are also assessing our forward inventory purchase commitments to ensure proper matching of supply and demand, which will result in an overall reduction in future commitments. As we continue to actively monitor the situation, we may take further actions that affect our operations.
Although we have taken several measures to maximize liquidity and flexibility to maintain operations during the disruptions caused by the COVID-19 pandemic, uncertainty regarding the duration and severity of the COVID-19 pandemic, governmental actions in response to the pandemic, and the impact on us and our consumers, customers and suppliers, there is no certainty that the measures we take will be sufficient to mitigate the risks posed by COVID-19.
Supply Chain Disruptions
We are subject to global supply chain disruptions, which may include longer lead times for raw fabrics, inbound shipping and longer production times. Supply chain issues have specifically impacted the following for our brands:
Increased costs in raw materials from fabric prices, which have increased 10%
? to 100% depending on the fabric, the time of year, and the origin of the
fabric, as well as where the fabric is being shipped;
? Increased cost per kilo to ship via sea or air, which has increased from 25% to
300% depending on the time of year and from the country we are shipping from;
? Increased transit time via sea or air, which have increased by two weeks to two
months; and
Increased labor costs for producing the finished goods, which have increased 5%
? to 25% depending on the country and the labor skill required to produce the
goods. We have been able to pass along some of these increased costs and also
offset some of these increased costs with higher gross margin online revenue.
Seasonality
Our quarterly operating results vary due to the seasonality of our individual brands, and are historically stronger in the second half of the calendar year. However, the second half of each of 2021 and 2020 were negatively impacted by the COVID-19 global pandemic.
Senior Credit Facility
As of
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undergo other fundamental changes. A breach of any of these covenants could result in a default under the credit facility and permit the lender to cease making loans to us. If for whatever reason we have insufficient liquidity to make scheduled payments under our credit facility or to repay such indebtedness by the scheduled maturity date, we would seek the consent of our senior lender to modify such terms. Although our senior lender has previously agreed to seven prior modifications of our credit agreement, there is no assurance that it will agree to any such modification and could then declare an event of default. Upon the occurrence of an event of default under this agreement, the lender could elect to declare all amounts outstanding thereunder to be immediately due and payable. We have pledged all of our assets as collateral under our credit facility. If the lender accelerates the repayment of borrowings, we may not have sufficient assets to repay them and we could experience a material adverse effect on our financial condition and results of operations. For a description of our other outstanding indebtedness, please see "- Liquidity and Capital Resources" below.
Performance Factors
We believe that our future performance will depend on many factors, including the following:
Ability to Increase Our Customer Base in both Online and Traditional Wholesale Distribution Channels
We are currently growing our customer base through both paid and organic online channels, as well as by expanding our presence in a variety of physical retail distribution channels. Online customer acquisitions typically occur at our direct websites for each brand. Our online customer acquisition strategies include paid and unpaid social media, search, display and traditional media. Our products for Bailey, DSTLD and Stateside are also sold through a growing number of physical retail channels, including specialty stores, department stores and online multi-brand platforms. Our products for Harper & Jones are sold through its own showrooms and its outside sales reps, which can use the showrooms to meet clients.
Ability to Acquire Customers at a Reasonable Cost
We believe an ability to consistently acquire customers at a reasonable cost relative to customer retention rates, contribution margins and projected life-time value will be a key factor affecting future performance. To accomplish this goal, we intend to balance advertising spend between online and offline channels, as well as cross marketing and cross merchandising our portfolio brands and their respective products. We believe the ability to cross merchandise products and cross market brands, will decrease our customer acquisition costs while increasing the customer's lifetime value and contribution margin. We will also balance marketing spend with advertising focused on creating emotional brand recognition, which we believe will represent a lower percentage of our spend.
Ability to Drive Repeat Purchases and Customer Retention
We accrue substantial economic value and margin expansion from customer cohort retention and repeat purchases of our products on an annual basis. Our revenue growth rate and operating margin expansion will be affected by our customer cohort retention rates and the cohorts annual spend for both existing and newly acquired customers.
Ability to Expand Our Product Lines
Our goal is to expand our product lines over time to increase our growth opportunity. Our customer's annual spend and brand relevance will be driven by the cadence and success of new product launches.
Ability to Expand Gross Margins
Our overall profitability will be impacted by our ability to expand gross margins through effective sourcing and leveraging buying power of finished goods and shipping costs, as well as pricing power over time.
Ability to Expand Operating Margins
Our ability to expand operating margins will be impacted by our ability to leverage (1) fixed general and administrative costs, (2) variable sales and marketing costs, (3) elimination of redundant costs as we acquire and integrate brands, (4) cross marketing and cross merchandising brands in our portfolio, and (4) drive customer retention and customer lifetime value. Our ability to expand operating margins will result from increasing revenue growth above our operating expense growth, as well as increasing gross margins. For example, we anticipate that our operating expenses will increase substantially in the foreseeable future as we undertake the acquisition
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and integration of different brands, incur expenses associated with maintaining compliance as a public company, and increased marketing and sales efforts to increase our customer base. While we anticipate that the operating expenses in absolute dollars will increase, we do not anticipate that the operating expenses as a percentage of revenue will increase. We anticipate that the operating expenses as a percentage of revenue will decrease as we eliminate duplicative costs across brands including a reduction in similar labor roles, contracts for technologies and operating systems and creating lower costs from higher purchasing power from shipping expenses to purchase orders of products. This reduction of expenses and lower cost per unit due to purchasing power should create meaningful savings in both dollars and as a percentage of revenue.
As an example, we were able to eliminate several million in expenses within six months of acquiring Bailey. Examples of these savings include eliminating several Bailey teams, which our teams took over.
We merged over half of the technology contracts and operating systems contracts from two brands into one brand contract at significant savings. We also eliminated our office space and rent and moved everyone into the Bailey office space. Finally, we eliminated DSTLD's third-party logistics company and started using Bailey's internal logistics. This resulted in an increase in our operating expenses in absolute dollars as there were now two brands versus one brand. However, the operating expenses as a percentage of pre-COVID revenue declined meaningfully and as we increase revenue for each brand, we expect to experience higher margins.
Ability to Create Free Cash Flow
Our goal is to achieve near term free cash flow through cash flow positive acquisitions, elimination of redundant expenses in acquired companies, increasing customer annual spend and lowering customer acquisition costs through cross merchandising across our brand portfolio.
Critical Accounting Policies and Estimates
Basis of Presentation and Principles of Consolidation
Our accounting and reporting policies conform to accounting principles generally
accepted in
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Business Acquisitions
We record our acquisitions under the acquisition method of accounting, under which most of the assets acquired and liabilities assumed are initially recorded at their respective fair values and any excess purchase price is reflected as goodwill. We utilize management estimates and, in some instances, independent third-party valuation firms to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration, if any. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.
The fair value of customer relationships, backlog and trade names/trademarks acquired in our acquisitions are determined using various valuation methods, based on a number of significant assumptions.
We determine which assets have finite lives and then determine the estimated useful life of finite assets.
The expected useful life of customer relationships is established as three years, which is the period over which these assets are expected to reasonably contribute to future cash flows. We expect to amortize such customer relationships using the straight-line method.
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The estimated fair values are subject to change during the measurement period, which is limited to one year subsequent to the acquisition date.
Revenue Recognition
Revenues are recognized when performance obligations are satisfied through the transfer of promised goods to our customers. Control transfers upon shipment of product and when the title has been passed to the customers. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. We provide the customer the right of return on the product and revenue is adjusted based on an estimate of the expected returns based on historical rates. We consider the sale of products as a single performance obligation. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included in accrued expenses. Revenue is deferred for orders received for which associated shipments have not occurred.
Accounts Receivable
We carry our accounts receivable at invoiced amounts less allowances for customer credits, doubtful accounts, and other deductions. We do not accrue interest on its trade receivables. Management evaluates the ability to collect accounts receivable based on a combination of factors. Receivables are determined to be past due based on individual credit terms. A reserve for doubtful accounts is maintained based on the length of time receivables are past due, historical collections, or the status of a customer's financial position. Receivables are written off in the year deemed uncollectible after efforts to collect the receivables have proven unsuccessful.
We periodically review accounts receivable, estimate an allowance for bad debts, and simultaneously record the appropriate expense in the statement of operations. Such estimates are based on general economic conditions, the financial conditions of customers, and the amount and age of past due accounts. Past due accounts are written off against that allowance only after all collection attempts have been exhausted and the prospects for recovery are remote.
Goodwill Impairment
We are required to assess our goodwill for impairment at least annually for each reporting unit that carries goodwill. We may elect to first do a qualitative assessment to determine whether it is more likely than not that a reporting unit's fair value is in excess of its carrying value. If the qualitative assessment concludes that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed. If the fair value is determined to be less than its carrying value, we record goodwill impairment equal to the amount by which the reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Intangible Assets Impairment
We evaluate the carrying amount of intangible assets and other long-lived assets for impairment whenever indicators of impairment exist. We test these assets for recoverability by comparing the net carrying amount of the asset or asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset or asset group. If the assets are recoverable, an impairment loss does not exist, and no loss is recorded. If the carrying amounts of the assets are not recoverable, an impairment loss is recognized for any deficiency of the asset or asset group's fair value compared to their carrying amount. Although we base cash flow forecasts on assumptions that are consistent with plans and estimates we use to manage our business, there is significant judgment in determining the cash flows attributable to these assets, including markets and market share, sales volumes and mix, and working capital changes.
Stock Based Compensation
We account for stock-based compensation costs under the provisions of ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as expense over the employee's requisite vesting period and over the nonemployee's period of providing goods or services.
38 Table of Contents Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is unlikely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.
Financial Statement Components
Bailey
Net Revenue
Bailey sells its products directly to customers. Bailey also sells its products indirectly through wholesale channels that include third-party online channels and physical channels such as specialty retailers and department stores.
Cost of Net Revenue
Bailey's cost of net revenue includes the direct cost of purchased and manufactured merchandise; inventory shrinkage; inventory adjustments due to obsolescence including excess and slow-moving inventory and lower of cost and net realizable reserves; duties; and inbound freight.
Operating Expenses
Bailey's operating expenses include all operating costs not included in cost of net revenues and sales and marketing. These costs consist of general and administrative, fulfillment and shipping expense to the customer.
General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, occupancy expenses related to Bailey's operations at its headquarters, including utilities, depreciation and amortization, and other costs related to the administration of its business.
Bailey's fulfillment and shipping expenses include the cost to operate its warehouse including occupancy and labor costs to pick and pack customer orders and any return orders; packaging; and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse.
Sales & Marketing
Bailey's sales and marketing expense primarily includes digital advertising; photo shoots for wholesale and direct-to-consumer communications, including email, social media and digital advertisements; and commission expenses associated with sales representatives.
Interest Expense
Bailey's interest expense consists primarily of interest related to its outstanding debt to our senior lender.
39 Table of Contents DBG Net Revenue
We sell our products to our customers directly through our website. In those cases, sales, net represents total sales less returns, promotions and discounts.
Cost of Net Revenue
Cost of net revenue include direct cost of purchased merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost and net realizable reserves.
Operating Expenses
Our operating expenses include all operating costs not included in cost of net revenues. These costs consist of general and administrative, sales and marketing, and fulfillment and shipping expense to the customer.
General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, and expenses related to our operations at our headquarters, including utilities, depreciation and amortization, and other costs related to the administration of our business.
We expect to continue to incur additional expenses as a result of operating as a
public company, including costs to comply with the rules and regulations
applicable to companies listed on a national securities exchange, costs related
to compliance and reporting obligations pursuant to the rules and regulations of
the
Fulfillment and shipping expenses include the cost to operate our warehouse - or prior to Bailey 44 acquisition, costs paid to our third-party logistics provider - including occupancy and labor costs to pick and pack customer orders and any return orders; packaging; and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse.
In addition, going forward, the amortization of the identifiable intangibles acquired in the acquisitions will be included in operating expenses.
Interest Expense
Interest expense consists primarily of interest related to our debt outstanding to our senior lender, convertible debt, and other interest bearing liabilities.
H&J
Net Revenue
H&J sells its products directly to customers through their showrooms and sales reps.
Cost of Net Revenue
H&J's cost of net revenue sold is associated with procuring fabric and custom tailoring each garment.
Operating Expenses
H&J's operating expenses include all operating costs not included in cost of net revenue.
40 Table of Contents
General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, occupancy expenses related to H&J's stores and to H&J's operations at its headquarters, including utilities, depreciation and amortization, and other costs related to the administration of its business.
H&J's sales and marketing expense primarily includes digital advertising; photo shoots for wholesale and direct-to-consumer communications, including email, social media and digital advertisements; and commission expenses associated with sales representatives.
Interest Expense
H&J's interest expense consists primarily of interest related to its outstanding debt.
Stateside Net Revenue
Stateside sells its products directly to customers. Stateside also sells its products indirectly through wholesale channels that include third-party online channels and physical channels such as specialty retailers and department stores.
Cost of Net Revenue
Stateside's cost of net revenue includes the direct cost of purchased and manufactured merchandise; inventory shrinkage; inventory adjustments due to obsolescence including excess and slow-moving inventory and lower of cost and net realizable reserves; duties; and inbound freight.
Operating Expenses
Stateside's operating expenses include all operating costs not included in cost of net revenues and sales and marketing. These costs consist of general and administrative, fulfillment and shipping expense to the customer.
General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, occupancy expenses related to Stateside's stores and to Stateside's operations at its headquarters, including utilities, depreciation and amortization, and other costs related to the administration of its business.
Stateside's fulfillment and shipping expenses include the cost to operate its warehouse including occupancy and labor costs to pick and pack customer orders and any return orders; packaging; and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse.
Sales & Marketing
Stateside's sales and marketing expense primarily includes digital advertising; photo shoots for wholesale and direct-to-consumer communications, including email, social media and digital advertisements; and commission expenses associated with sales representatives.
41 Table of Contents Results of Operations
Year ended
The following table presents our results of operations for the year endedDecember 31, 2021 and 2020: Year Ended December 31, 2021 2020 Net revenues$ 7,584,859 $ 5,239,437 Cost of net revenues 4,689,200 4,685,755 Gross profit 2,895,659 553,682 General and administrative 17,779,903 7,149,210 Sales and marketing 3,810,583 576,469 Other operating expenses 12,653,831 1,975,893 Operating loss (31,348,658) (9,147,890) Other expenses (2,109,419) (1,566,764) Loss before provision for income taxes (33,458,077) (10,714,654) Provision for income taxes 1,100,120 (13,641) Net loss$ (32,357,957) $ (10,728,295) Net Revenues
Revenue increased by
Gross Profit
Our gross profit increased by
Our gross margin was 38.2% for the year ended
Operating Expenses
Our operating expenses increased by
Other Income (Expense)
Other expenses increased by
42 Table of Contents Net Loss
Our net loss increased by
Liquidity and Capital Resources
Each of DBG, Bailey, H&J and Stateside has historically satisfied our liquidity needs and funded operations with internally generated cash flow and borrowings and capital raises. Changes in working capital, most notably accounts receivable, are driven primarily by levels of business activity. Historically each of DBG, Bailey, H&J and Stateside has maintained credit line facilities to support such working capital needs and makes repayments on that facility with excess cash flow from operations.
As of
In 2020 and 2021, each of DBG, Bailey, H&J and Stateside have benefited from PPP and EIDL loans to fund operations. PPP loans are to be partially or fully forgiven based on the terms of the notes and related expenses incurred. DBG has also benefited from convertible debt, which may convert upon a public offering into common stock.
Cash Flow Activities
The following table presents selected captions from our condensed statement of
cash flows for the years ended
Year Ended December 31, 2021 2020 Net cash provided by operating activities: Net loss$ (32,357,957) $ (10,728,295) Non-cash adjustments$ 17,758,597 $ 2,413,918
Change in operating assets and liabilities
$ (47,591) $ 535,517
Cash Flows Used In Operating Activities
Our cash used in operating activities increased by
Cash Flows Used in Investing Activities
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Our cash used in investing activities was
Cash Flows Provided by Financing Activities
Cash provided by financing activities was
Cash inflows in 2020 were primarily related to proceeds from PPP and SBA loans
of
Contractual Obligations and Commitments
In
Repayment is accelerated upon a change in control, as defined in the senior
credit agreement. The loan is senior to all other debts and obligations of DBG,
is collateralized by all assets of DBG, and shares of DBG's common stock pledged
by officers of DBG. As of
The lender was also granted warrants to purchase common stock representing 1% of
the fully diluted capitalization of DBG for each
As of
Interest expense and effective interest rate on this loan for the years ended
44 Table of Contents
On
On
On
having a face value of
Equity Line of Credit
On
45
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In connection with the execution of the Equity Purchase Agreement, we issued
As of the date of this Form 10-K, we have not drawn down any portion of this
commitment, leaving the entire
During the 24-month term of the Equity Purchase Agreement, we may request a
drawdown on the equity line of credit by delivering a "put notice" to
We are not entitled to request a drawdown unless each of the following conditions is satisfied:
(a) a registration statement is and remains effective for the resale of
securities in connection with the equity line of credit;
the trading of our common stock shall not have been suspended by the
(b) NasdaqCM or
shall have been approved for listing or quotation on and shall not have been
delisted from the NasdaqCM;
(c) we have complied with its obligations and are otherwise not in breach or
default of any agreement related to the equity line of credit; no statute, regulation, order, guidance, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any
(d) federal, state, local or foreign court or governmental authority of competent
jurisdiction, including, without limitation, theSEC , which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by the equity line of credit;
(e) our common stock must be DWAC eligible and not subject to a "DTC chill";
all reports, schedules, registrations, forms, statements, information and
other documents required to have been filed by us with the
(f) the reporting requirements of the Exchange Act of 1934 (other than Forms 8-K)
shall have been filed with theSEC within the applicable time periods prescribed for such filings; to the extent the issuance of the put shares requires shareholder approval
(g) under the listing rules of the NasdaqCM, we have or will seek such approval;
and
(h) the lowest traded price of the common stock in the five (5) trading days
immediately preceding the respective put date must exceed$3.00 . 46 Table of Contents
If any of the events described in clauses (a) through (h) above occurs after we
make a drawdown request, then
The equity line of credit terminates when
Under the terms of the Equity Purchase Agreement,
The Company is unable to drawdown on the Equity Purchase Agreement until the
lowest traded price of the common stock in the five (5) trading days immediately
preceding the respective put date exceeds
Off-Balance Sheet Arrangements and Future Commitments
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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