Greetings. Welcome to the Digital Brands Group Second Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, John McNamara of Investor Relations. You may begin.

Thank you. Good afternoon, everyone, and thank you for joining us on the Digital Brands Group 2024 second quarter earnings conference call and webcast. With us on the line from management this afternoon is Hil Davis, Chief Executive Officer. Hill will begin the call with an overview of the quarter, and then we will open up the line for questions. As usual, we would remind you that this call may contain forward-looking statements, as defined in Section 27A of the Securities Act of 1933 as amended. This may include statements regarding, among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on the company's expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control. Future developments and actual results could differ materially from those set forth in these forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate. With that, I will turn -- now turn the call over to Hil Davis. Go ahead, Hil. Hil, is your phone on mute?

Hil, your line is live. Okay. We still have Hil's line connected. I can try to dial back out to him just one moment.

Hi. Sorry about that. Can everyone hear me okay?

Yes.

All right. Sorry about that. Good afternoon, everyone, and welcome to our second quarter conference call. I think the first thing I want to highlight on today's call is that we paid-off over $5 million in debt and other liabilities during the first half of the year, which is very significant as you can imagine. This was driven by conversations with strategic partners as part of our strategic review. And what they wanted to see us do was start to clean up the balance sheet, which we've done now. And that was an incredibly important attribute for them, especially, as they look at potential opportunities with us. Also I'd like to highlight that we continue to get offers for our NASDAQ shell that are between $3.5 million to $5 million in value plus a percentage of whatever company would be coming in, that's usually $10 million to $20 million. So as you can imagine, there's value in our shell alone. And so one of the things as part of the strategic review process was based on feedback from strategic partners, what was most critical for them to focus on and the debt cleanup, which we did, which was $5 million in debt and other liabilities was a big piece of that. As part of that too, just through our Sundry acquisition and basically focusing on those synergies, we've lowered our G&A expenses by $4.5 million during the first-six months. We're going to continue to see those savings in the back half of the year. And in our conversations with strategic partners that has been incredibly well received. In the private markets as you can imagine, you get your cost to good or your cost down and then any incremental revenue really starts to flow through at a much higher level.…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Richard Malinski, Private Investor. Please proceed.

Hi. How are you? I'm a recent shareholder of the company. My course is around probably $1.50, $1.60. But I just was curious to find out how do you pay off the $5 million in the debt? Was that cash that was on the balance sheet? Was there an equity line on that? Just curious first how that was paid off.

Yeah. So it's a combination of two things primarily. It was working capital from the business, which we continue to use to pay that down and we'll continue to use. And then secondly except there's -- almost 100% toward that. And then secondly, we did that warrant exchange in May and we used a lot of that. It was $3.3 million before all the fees and everything else. It was approximately $2.8 million after all fees and expenses and that was a piece of it. So it's both working capital as well as that piece.

Okay. My biggest concern is also when you look at the balance sheet, you see the current assets over current liabilities. I like the business that you have and I think what you're saying in the second half could be very exciting for me as a shareholder in the company. But my biggest concern is, are you going to be okay with the capital that you currently have? Or have you publicly disclosed that you're going to be looking to raise more money in the second half of this year to have that growth? Do you have enough at this point?

Yeah. I think we're just taking it week by week. We're looking at everything that's going on and what makes sense and what doesn't make sense. The warrant exchange came out of just kind of an offer out of nowhere and it gave us an opportunity to clean up some stuff. So we'll be proactive where it makes sense. I think the other thing as we look at it is, what do we ever get credit for? We got to start getting credit for something. And so that's especially in talks in the private markets, they look at the business, they look at the baseline business and they feel like, the interesting thing is the valuation we get in the private market seems drastically different than what we get in the public markets to the positive in the private markets, which there shouldn't be such a disassociation between those two markets, especially when it's private values you more than the public.

No, I understand that. But at the end of the day, they do see the last quarter was off, we're still losing money. My biggest concern is that can you go the next six months and prove to Wall Street that, look, what you're discussing publicly, there's a chance it's going to happen. We're going to see a nice ramp up. And now you don't have the debt expense, but I'm just concerned that do you have that capital? If we didn't have to raise money, do you have enough at this point because you did get that warrant money?

Yeah. We can continue to go along this pace. The question is what makes the most sense for the business and that's why we're always reviewing, right? I mean that's why we're always in talks with private investors and looking at all the different options sets, debt, convertible debt, nothing, raising capital, not, it's always it's all very fluid and we're looking at all of it. So I can't answer the question because it's always a point.

Okay, no problem. Yeah. The last thing I'll just mention is just one good thing is that if you do a raise, it's always good to see in size participate in the raise and that was always I'm always interested in that when you in size is participating too. But look, I'm looking forward to the future and seeing you execute on the plan that you discussed. It should be interesting.

Yeah. And I think, just so everyone understands too on the insider, and I agree with that. The problem is because we are in these strategic discussions, we're privy to material non-public information. And so that prevents us from doing anything. So it's kind of a double edged sword, right? Like, it's doing a strategic review and in talks and I mean we get an offer once a week to reverse, right? I mean, there's no in this market, no one can really get public. So the shell is worth a lot of money to people, which is really interesting. We think we have a growth concept and we think we're working. I mean, you look at our -- I guess what we put up almost $7 million in revenue in the first half of the year and we're trading what a fraction of even that. So -- and it's a good idea too, it's sorry, go ahead.

No, here's the good news on your part. Because there's a few shares out there's not many shares outstanding on the company, there was a company like last week. It had it only had like a 1 million shares outstanding called Sealy. Stock was trading below $2 a share and it went up to over $20 in just a couple of days because it was a small float and they came out some good news. So I don't know when that's going to happen, but if you continue to come out with contracts or news, you're going to get caught. I think that someone's going to recognize that, look, this is a small float that has exciting potential and even [indiscernible] is like $1 billion worth of stock. It was amazing. What happened, but it was a small float and people got excited about it. So the small flow is very positive.

Well, there is a cutting edge. Like, it does -- now I don't think we have a lot of institutional investors that are market caps shifting around, but when they do, they do want to see a larger float. Having said that, yeah, we're just going to. It's fine. We're not going to make a decision based on float to your point, right?

No. Like I said, there's so many companies with small floats that have had runs over the last year or so that people love it. For some reason, it's got caught up. So that's an advantage, not a disadvantage. And then when it runs up, then you could raise money at your price. But hopefully, you'll see that soon enough as you announce developments. All right. But I appreciate your time. I know I'm taking up too much time.

That's right. No, I appreciate the questions.

All right. Thank you, [indiscernible]. Thank you very much and good luck.

Thanks.

[Operator Instructions] Up next, we have Timothy Endachter (ph), Private Investor. Timothy, please proceed.

The only question I have -- yeah, I'm here. The only question I have is, I'm not long time investor. I'm not rich. I've dumped up a bunch of money into this thing. What are you going to do to prevent this from RS-ing, from reverse splitting? I mean, are you going to start maybe do you want a stock buyback? Are you going to -- do you have any plan to prevent this from reverse splitting again?

Well, I think all we can do is continue to focus on the fundamentals, right? I mean, that's the thing. It's like it's -- I mean, look at our market cap relative to where we are. It's definitely a dislocation and that's not lost on people in the private markets, right? Because with especially our leverage on our fixed costs, we're $250,000 a month, $300,000 a month in revenue away from being cash flow breakeven. That's not a massive increase in anything, right? It's not like we've got to get up to $100 million in revenue to breakeven. And so we're just going to continue to focus on that. We just kind of felt, the big thing for us is with the [indiscernible] opportunity, the new brand we're launching is there is -- in this market right now, there is value wins. I mean, when Walmart tells you they have more 100,000 plus household income shoppers shopping at Walmart than they've ever seen in their history, that tells you where the consumer is. So we had a decision, do we continue to do what we're doing, which we're going to do or do we also step back and say, hey, how can we participate in this shift that consumers are experiencing? And given that we already have a supply chain, given that we already have fabrics and products, how can we step back and figure out how to take advantage of that? And so that's what we're doing and all that becomes incremental to us. And I think that's what really gets exciting. I mean, you look at our revenue and we've had very little growth capital in a year and a half. It's all going back to service debt and old AP. So imagine as we shift into more of that mode what can happen. So there's not -- I don't know if share buyback is the best use of capital right now versus starting to see where the growth is especially after cleaning up the balance sheet. But we're going to just focus on executing the business and see where it goes and really focus on driving that top line because we're knocking on the door of profitability. It's not very far away and we believe we can achieve it, especially, as we shift from clean up balance sheet to growth, especially post-election. The election creates a lot of hangover when you talk to people. And then I think everyone kind of feels like a Fed rate cut is coming, which I think will also help. And as those things start to get behind us, that gets really interesting for us.

All right. Thank you.

Yeah. Thank you. Thanks for the question.

[Operator Instructions] Okay. It appears we have no further questions in queue. We've reached the end of the question-and-answer session. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.