Digital Brands Group, Inc. (NASDAQ:DBGI), a retail apparel company, is confronted with a potential delisting from the Nasdaq Stock Market. The company disclosed on Monday that it had erroneously issued shares in excess of the permitted amount under Nasdaq rules.
The issue came to light when Digital Brands Group's transfer agent released 1,311,345 shares of common stock to a note holder upon conversion of a promissory note, which was originally issued around October 1, 2023. This issuance breached Nasdaq Rule 5635(d), which restricts discounted issuances to no more than 19.9% of the company's total common shares outstanding at the time of the transaction without prior shareholder approval.
The shares in question were issued at a discount exceeding the 19.9% threshold, contravening both the note's terms and the Nasdaq rule. Upon discovering the error, the company took immediate action to rectify the situation by instructing the holder to return the shares for cancellation. Digital Brands Group also informed Nasdaq's Listing Qualifications Staff of the erroneous issuance and the steps being taken to correct it.
The delisting warning, received on October 28, 2024, adds to the company's existing challenges with Nasdaq's minimum bid price requirement, which was previously reported on October 4, 2024. The company is scheduled to address these issues in a hearing before the Nasdaq Hearings Panel, where it will present its plan to resolve the bid price deficiency and the latest rule violation.
Digital Brands Group, known for its apparel retail, has its principal executive offices located in Austin, TX, and operates under the jurisdiction of Delaware. The company's common stock and warrants are currently listed under the symbols DBGI and DBGIW, respectively.
This news is based on a recent SEC filing that outlines the company's current predicament with Nasdaq and its efforts to maintain compliance with market listing standards.
In other recent news, Digital Brands Group (DBG) reported a challenging fiscal quarter, with a net revenue decline to $3.4 million. Despite this, DBG has made significant strides in reducing its debt and liabilities, paying off over $5 million in the first half of the year. The company also introduced a new direct-to-consumer women's apparel brand, AVO, 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. 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 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. These are recent developments in DBG's strategic transition, focusing on reducing liabilities and positioning itself for future growth.
InvestingPro Insights
Digital Brands Group's recent challenges with Nasdaq compliance are reflected in its financial metrics and market performance. According to InvestingPro data, the company's market capitalization has dwindled to a mere $0.95 million, underscoring the severity of its current situation. The stock has experienced a dramatic decline, with a one-week price total return of -55.73% and a one-year return of -97.44%, highlighting the steep downward trajectory that aligns with the company's regulatory troubles.
InvestingPro Tips indicate that DBGI is "trading near its 52-week low" and has "fallen significantly over the last year," which correlates directly with the company's disclosure of potential delisting. Moreover, the tip that the company is "quickly burning through cash" suggests ongoing financial strain that could complicate its efforts to regain compliance with Nasdaq requirements.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips that could provide further insight into DBGI's financial health and market position.
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