Exhibit 99.1

 

Digital Brands Group Reports Second Quarter 2021 Financial Results

 

AUSTIN, Texas, Aug. 12, 2021 /PRNewswire/ -- Digital Brands Group, Inc. ("DBG") (NASDAQ: DBGI), a curated collection of luxury lifestyle, digital-first brands, today reported financial results for its second quarter ended June 30, 2021.

 

Second quarter 2021 net loss attributable to common stockholders was $10.7 million, or $1.97 per diluted share, on revenue of $1.0 million.  The net loss included a non-cash expense associated with stock-based compensation expense associated with the IPO of $3.9 million and a non-cash expense associated with a change in the fair value of contingent liabilities of $3.1 million.

 

"Our second quarter 2021 results reflect a meaningful improvement in our business results from our first quarter results as we were able to benefit from the cash inflows from our IPO in the middle of May," said Hil Davis, Chief Executive Officer of Digital Brands Group.  "These improving business trends have continued into the third quarter, and we expect them to improve throughout the third and fourth quarters of 2021 now that we have sufficient cash and inventory to support expected levels of operations."

 

"As we stated in our first quarter 2021 earnings release, a combination of factors negatively impacted our pre-IPO results, which included limited cash, limited inventory, minimal marketing spend, and the continued effects of COVID-19's impact on Bailey 44," said Reid Yeoman, Chief Financial Officer of Digital Brands Group.  "We are experiencing improving results as we move past our IPO date in May as we are able to use the IPO cash proceeds to order inventory, spend on marketing and invest into our brands."

 

Since our IPO this past May, which bolstered our balance sheet with cash for working capital, we have been able to:

 

·ship inventory for DSTLD, which is contributing to our improved results in July and August;

·ship Bailey 44 product to wholesale accounts starting mid-May, with a significant acceleration in wholesale booking orders for this fall that are in-line with pre-pandemic wholesale levels, and;

·develop a marketing and advertising plan, including an Amazon marketing strategy, which we are rolling out starting mid-July, with the majority of the spend starting this fall.

 

Finally, as we discussed in our S-1, we expect to continue to grow through acquisitions and expect to continue to acquire companies this year, most of which will require GAAP PCAOB audits. These audits take time, which results in a delayed acquisition timeframe weighted toward the back three to four months of 2021.

 

Davis concluded, "this is really the tale of two companies, one pre-IPO with limited cash, inventory and marketing dollars and one post-IPO with a stronger cash position, fully stocked inventory and a meaningful marketing budget and strategy to drive revenue and earnings. We believe that our second quarter results, which only benefited from six weeks of the IPO cash proceeds, reflect this.  We expect the bulk of the post-IPO benefit to come in the third and fourth quarter as inventory is 100% in stock, the marketing strategy is in full force and Bailey-44 wholesale shipments are back to pre-pandemic levels."

 

Second Quarter 2021 Highlights

 

·Net Sales were $1.0 million versus $664,000 in the year ago quarter, an increase of 51% year over year. The increase in net sales was driven by the increase in revenue at Bailey 44 and the addition of Harper & Jones on a pro-rata basis.

·Our gross profit margin increased 79.7% year over year to 39.3% from negative 40.4%. Gross profit increased by 663,000 due to improved gross margins at all our brands.

·Net loss attributable to common stockholders was $10.7 million, or $1.97 per diluted share, compared to net loss attributable to common stockholders of $2.3 million, or $3.41 per diluted share, in the prior year period.

 

 

 

 

·Net loss in the second quarter of 2021 included a non-cash expense associated with stock-based compensation expense associated with the IPO of $3.9 million and a non-cash expense associated with a change in the fair value of contingent liabilities of $3.1 million.

 

In addition to second quarter results, we wish to make you aware of the following:

 

·Third quarter operating results will experience similar, although less adverse impacts by those factors which impacted the first and second quarter operating results.

 

Conference Call and Webcast Details

 

The Company will host a conference call and webcast at 9:00 a.m. ET today to discuss results. The live conference call can be accessed by dialing (866) 605-1828 from the U.S. or internationally. The conference I.D. code is 13722399 or via the web by using the following link: https://tinyurl.com/2v5jdex2.

 

Forward-looking Statements

 

Certain statements included in this release are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting DBG and therefore involve several risks and uncertainties. You can identify these statements by the fact that they use words such as "will," "anticipate," "estimate," "expect," "should," and "may" and other words and terms of similar meaning or use of future dates, however, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements regarding DBG's plans, objectives, projections and expectations relating to DBG's operations or financial performance, and assumptions related thereto are forward-looking statements. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. DBG undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Potential risks and uncertainties that could cause the actual results of operations or financial condition of DBG to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: risks arising from the widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the coronavirus (COVID-19) global pandemic; the level of consumer demand for apparel and accessories; disruption to DBGs distribution system; the financial strength of DBG's customers; fluctuations in the price, availability and quality of raw materials and contracted products; disruption and volatility in the global capital and credit markets; DBG's response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior; intense competition from online retailers; manufacturing and product innovation; increasing pressure on margins; DBG's ability to implement its business strategy; DBG's ability to grow its wholesale and direct-to-consumer businesses; retail industry changes and challenges; DBG's and its vendors' ability to maintain the strength and security of information technology systems; the risk that DBG's facilities and systems and those of our third-party service providers may be vulnerable to and unable to anticipate or detect data security breaches and data or financial loss; DBG's ability to properly collect, use, manage and secure consumer and employee data; stability of DBG's manufacturing facilities and foreign suppliers; continued use by DBG's suppliers of ethical business practices; DBG's ability to accurately forecast demand for products; continuity of members of DBG's management; DBG's ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment; DBG's ability to execute and integrate acquisitions; changes in tax laws and liabilities; legal, regulatory, political and economic risks; adverse or unexpected weather conditions; DBG's indebtedness and its ability to obtain financing on favorable terms, if needed, could prevent DBG from fulfilling its financial obligations; and climate change and increased focus on sustainability issues. More information on potential factors that could affect DBG's financial results is included from time to time in DBG's public reports filed with the SEC, including DBG's Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q, and Forms 8-K filed or furnished with the SEC.

 

 

 

 

DIGITAL BRANDS GROUP, INC

STATEMENT OF OPERATIONS

 

   Three Months Ended 
   June 30, 
   2021   2020 
Net revenues  $1,003,529   $664,017 
Cost of net revenues   608,944    932,362 
Gross profit (loss)   394,585    (268,345)
           
Operating expenses:          
General and administrative   7,192,460    1,426,388 
Sales and marketing   923,283    124,370 
Distribution   69,864    75,246 
Change in fair value of contingent consideration   3,050,901    - 
Total operating expenses   11,236,508    1,626,004 
           
Loss from operations   (10,841,923)   (1,894,349)
           
Other income (expense):          
Interest expense   (897,920)   (373,957)
Other non-operating income (expenses)   (57,775)   - 
Total other income (expense), net   (955,695)   (373,957)
           
Income tax benefit (provision)   1,100,120    709 
Net loss  $(10,697,498)  $(2,267,597)
           
Weighted average common shares outstanding -          
basic and diluted   5,435,023    664,167 
Net loss per common share - basic and diluted  $(1.97)  $(3.41)

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

DIGITAL BRANDS GROUP, INC

STATEMENTS OF CASH FLOW

 

   Six Months Ended 
   June 30, 
   2021   2020 
Cash flows from operating activities:          
Net loss  $(13,721,433)  $(4,174,124)
Adjustments to reconcile net loss to net cash used in operating activities:          
  Depreciation and amortization   291,661    318,057 
  Amortization of loan discount and fees   580,684    82,210 
  Stock-based compensation   4,021,529    99,864 
  Fees incurred in connection with debt financings   132,609    - 
  Change in fair value of warrant liability   72,445    - 
  Change in fair value of contingent consideration   3,050,901    - 
  Deferred income tax benefit   (1,100,120)   - 
  Change in credit reserve   9,748    (58,132)
Changes in operating assets and liabilities:          
    Accounts receivable, net   (261,386)   12,399 
    Due from factor, net   139,629    (67,361)
    Inventory   75,287    639,006 
    Prepaid expenses   (688,893)   (40,248)
    Accounts payable   575,513    1,410,536 
    Accrued expenses and other liabilities   262,019    (825,344)
    Deferred revenue   (99,045)   (15,231)
    Accrued compensation - related party   (88,550)   (28,807)
    Accrued interest   151,465    434,482 
  Net cash used in operating activities   (6,595,937)   (2,212,696)
Cash flows from investing activities:          
Cash acquired (consideration) pursuant to business combination   (475,665)   106,913 
Issuance of related party receivable   -    (20,000)
Purchase of property, equipment and software   (10,277)   - 
Deposits   (19,115)   43,510 
  Net cash provided by (used in) investing activities   (505,056)   130,423 
Cash flows from financing activities:          
Proceeds from related party advances   -    35,231 
Advances from factor   53,797    180,552 
Proceeds from venture debt   -    250,000 
Issuance of loans payable   2,626,050    1,701,044 
Repayments of promissory notes and loans payable   (2,001,305)   - 
Issuance of convertible notes payable   528,650    - 
Proceeds from initial public offering   10,000,002    - 
Exercise of over-allotment option with public offering, net   1,364,997    - 
Exercise of warrants   145,696    - 
Proceeds from sale of Series A-3 preferred stock   -    483,387 
Subscription receivable from Series A-3 preferred stock   -    9,223 
Proceeds from sale of Series CF preferred stock   -    286,518 
Offering costs   (2,116,959)   (43,353)
  Net cash provided by financing activities   10,600,928    2,902,602 
Net increase in cash and cash equivalents   3,499,935    820,329 
Cash and cash equivalents at beginning of period   575,986    40,469 
Cash and cash equivalents at end of period  $4,075,921   $860,798 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

DIGITAL BRANDS GROUP, INC

STATEMENT OF BALANCE SHEETS

 

   Three Months Ended 
   June 30, 
   2021   2020 
ASSETS          
Current assets:          
   Cash and cash equivalents  $4,075,921    860,797 
   Accounts receivable, net   346,390    45,080 
   Due from factor, net   6,859    (367,122)
   Inventory   1,165,152    3,726,623 
   Prepaid expenses   849,434    269,620 
       Total current assets   6,443,756    4,534,999 
Deferred offering costs   -    - 
Property, equipment and software, net   119,817    1,107,950 
Goodwill   16,160,766    6,479,218 
Intangible assets, net   11,175,794    8,462,500 
Deposits   116,199    187,493 
       Total assets  $34,016,332   $20,772,160 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
Current liabilities:          
   Accounts payable  $6,307,071    6,405,936 
   Accrued expenses and other liabilities   1,615,622    1,182,730 
   Deferred revenue   172,470    - 
   Due to related parties   252,635    234,620 
   Contingent consideration liability   6,539,417    - 
   Convertible notes, current   100,000    - 
   Accrued interest payable   801,031    355,253 
   Note payable - related party   299,489    150,231 
   Venture debt, current   300,000    - 
   Loan payable, current   1,712,000    - 
   Promissory note payable   3,500,000    4,500,000 
       Total current liabilities   21,599,735    12,828,770 
Convertible notes   -    799,280 
Loan payable   1,762,639    1,701,044 
Venture debt, net of discount   5,701,755    4,853,049 
Warrant liability   78,710    8,618 
       Total liabilities   29,142,839    20,190,760 
           
Stockholders' equity (deficit):          
Series Seed convertible preferred stock, $0.0001 par, no shares and 20,714,518 shares, authorized, issued and outstanding at June 30, 2021 and December 31, 2020, respectively   -    2,071 
Series A convertible preferred stock, $0.0001 par, no shares and 14,481,413 shares authorized, no shares and 5,654,072 shares issued and outstanding at June 30, 2021, and  December 31, 2020, respectively   -    565 
Series A-2 convertible preferred stock, $0.0001 par, no shares and 20,000,000 shares authorized, no shares and 5,932,742 shares issued and outstanding at June 30, 2021, and  December 31, 2020, respectively   -    593 
Series A-3 convertible preferred stock, $0.0001 par, no shares and 18,867,925 shares authorized, no shares and 9,032,330 shares issued and outstanding at June 30, 2021, and  December 31, 2020, respectively   -    904 
Series CF convertible preferred stock, $0.0001 par, no shares and 2,000,000 shares authorized, no shares and 836,331 shares issued and outstanding at June 30, 2021, and  December 31, 2020, respectively   -    83 
Series B convertible preferred stock, $0.0001 par, no shares and 20,714,517 shares authorized, no shares and 20,714,517 shares issued and outstanding at June 30, 2021, and  December 31, 2020, respectively   -    2,075 
Undesignated preferred stock, $0.0001 par, 10,000,000 shares and 936,144 shares authorized, 0 shares  issued and outstanding as of both June 30, 2021 and December 31, 2020   -      
Common stock, $0.0001 par, 200,000,000 and 110,000,000 shares authorized, 11,044,594 and 664,167 shares issued and outstanding as of both June 30, 2021 and December 31, 2020, respectively   1,104    66 
Additional paid-in capital   51,939,819    27,366,845 
Accumulated deficit   (47,067,430)   (26,791,805)
    Total stockholders' equity (deficit)   4,873,493    581,399 
    Total liabilities and stockholders' equity (deficit)  $34,016,332   $20,772,160 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

About Digital Brands Group

 

We offer a wide variety of apparel through numerous brands on a both direct-to-consumer and wholesale basis. We have created a business model derived from our founding as a digitally native-first vertical brand. Digital native first brands are brands founded as e-commerce driven businesses, where online sales constitute a meaningful percentage of net sales, although they often subsequently also expand into wholesale or direct retail channels., Unlike typical e-commerce brands, as a digitally native vertical brand we control our own distribution, sourcing products directly from our third-party manufacturers and selling directly to the end consumer. We focus on owning the customer's "closet share" by leveraging their data and purchase history to create personalized targeted content and looks for that specific customer cohort. 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.

 

Digital Brands Group, Inc. Company Contact
Hil Davis, CEO
Email: invest@digitalbrandsgroup.co
Phone: (800) 593-1047