UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 001-40400

DIGITAL BRANDS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		46-1942864
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1400 Lavaca Street

Austin, TX 78701

(Address of principal executive offices, including zip code)

Tel: (209) 651-0172

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if this registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 16, 2021 the Company had 11,399,594 shares of common stock, $0.0001 par value, issued and outstanding

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

DIGITAL BRANDS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	June 30,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	4,075,921	$	575,986
Accounts receivable, net		346,390		35,532
Due from factor, net		6,859		210,033
Inventory		1,165,152		1,163,279
Prepaid expenses		849,434		23,826
Total current assets		6,443,756		2,008,656
Deferred offering costs		—		214,647
Property, equipment and software, net		119,817		62,313
Goodwill		16,160,766		6,479,218
Intangible assets, net		11,175,794		7,494,667
Deposits		116,199		92,668
Total assets	$	34,016,332	$	16,352,169

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	6,307,071	$	5,668,703
Accrued expenses and other liabilities		1,615,622		1,245,646
Deferred revenue		172,470		1,667
Due to related parties		252,635		441,453
Contingent consideration liability		6,539,417		—
Convertible notes, current		100,000		700,000
Accrued interest payable		801,031		737,039
Note payable - related party		299,489		137,856
Venture debt, current		300,000		5,854,326
Loan payable, current		1,712,000		992,000
Promissory note payable		3,500,000		4,500,000
Total current liabilities		21,599,735		20,278,690
Convertible notes		—		1,215,815
Loan payable		1,762,639		709,044
Venture debt, net of discount		5,701,755		—
Warrant liability		78,710		6,265
Total liabilities		29,142,839		22,209,814

Commitments and contingencies (Note 12)

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		27,481,995
Accumulated deficit		(47,067,430)		(33,345,997)
Total stockholders' equity (deficit)		4,873,493		(5,857,645)
Total liabilities and stockholders' equity (deficit)	$	34,016,332	$	16,352,169

See the accompanying notes to the unaudited condensed consolidated financial statements

Table of Contents

DIGITAL BRANDS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Net revenues	$	1,003,529	$	664,017	$	1,411,934	$	3,240,702
Cost of net revenues		608,944		932,362		1,224,886		2,155,155
Gross profit (loss)		394,585		(268,345)		187,048		1,085,547
Operating expenses:
General and administrative		7,192,460		1,426,388		9,099,978		3,901,431
Sales and marketing		923,283		124,370		1,094,103		442,246
Distribution		69,864		75,246		133,442		213,681
Change in fair value of contingent consideration		3,050,901		—		3,050,901		—
Total operating expenses		11,236,508		1,626,004		13,378,424		4,557,358
Loss from operations		(10,841,923)		(1,894,349)		(13,191,376)		(3,471,811)
Other income (expense):
Interest expense		(897,920)		(373,957)		(1,572,964)		(688,932)
Other non-operating income (expenses)		(57,775)		—		(57,213)		—
Total other income (expense), net		(955,695)		(373,957)		(1,630,177)		(688,932)
Income tax benefit (provision)		1,100,120		709		1,100,120		(13,381)
Net loss	$	(10,697,498)	$	(2,267,597)	$	(13,721,433)	$	(4,174,124)
Weighted average common shares outstanding -
basic and diluted		5,435,023		664,167		3,062,774		664,167
Net loss per common share - basic and diluted	$	(1.97)	$	(3.41)	$	(4.48)	$	(6.28)

See the accompanying notes to the unaudited condensed consolidated financial statements

Table of Contents

DIGITAL BRANDS GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)


	Series Seed			Series A			Series A-2			Series A-3			Series CF			Series B						Additional						Total
	Preferred Stock			Preferred Stock			Preferred Stock			Preferred Stock			Preferred Stock			Preferred Stock			Common Stock			Paid-in		Subscription		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Receivable		Deficit		Equity (Deficit)

Balances at December 31, 2019	20,714,518	$	2,071	5,654,072	$	565	5,932,742	$	593	8,223,036	$	823	126,641	$	12	—	$	—	664,167	$	66	$	15,486,050	$	(22,677)	$	(22,617,702)	$	(7,150,199)
Stock-based compensation	—		—	—		—	—		—	—		—	—		—	—		—	—		—		49,932		—		—		49,932
Issuance of Series A-3 preferred stock for cash	—		—	—		—	—		—	809,294		81	—		—	—		—	—		—		428,845		(117,614)		—		311,312
Issuance of Series B preferred stock for cash	—		—	—		—	—		—	—		—	—		—	20,754,717		2,075	—		—		10,997,925		—		—		11,000,000
Offering costs	—		—	—		—	—		—	—		—	—		—	—		—	—		—		(31,690)		—		—		(31,690)
Fair value of warrant issuances - venture debt	—		—	—		—	—		—	—		—	—		—	—		—	—		—		58,421		—		—		58,421
Net loss	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		—		(1,906,527)		(1,906,527)
Balances at March 31, 2020	20,714,518	$	2,071	5,654,072	$	565	5,932,742	$	593	9,032,330	$	904	126,641	$	12	20,754,717	$	2,075	664,167	$	66	$	26,989,483	$	(140,291)	$	(24,524,229)	$	2,331,249
Stock-based compensation	—		—	—		—	—		—	—		—	—		—	—		—	—		—		49,932		-		-		49,932
Issuance of Series CF preferred stock for cash	—		—	—		—	—		—	—		—	709,690		71	—		—	—		—		286,447		-		-		286,518
Issuance of Series A-3 preferred stock for cash	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		126,837		-		126,837
Net loss	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		-		(2,267,597)		(2,267,597)
Balances at June 30, 2020	20,714,518	$	2,071	5,654,072	$	565	5,932,742	$	593	9,032,330	$	904	836,331	$	83	20,754,717	$	2,075	664,167	$	66	$	27,325,862	$	(13,454)	$	(26,791,826)	$	526,939

Balances at December 31, 2020	20,714,518	$	2,071	5,654,072	$	565	5,932,742	$	593	9,032,330	$	904	836,331	$	83	20,754,717	$	2,075	664,167	$	66	$	27,481,995	$	—	$	(33,345,997)	$	(5,857,645)
Stock-based compensation	—		—	—		—	—		—	—		—	—		—	—		—	—		—		36,976		—		—		36,976
Net loss	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		—		(3,023,935)		(3,023,935)
Balances at March 31, 2021	20,714,518	$	2,071	5,654,072	$	565	5,932,742	$	593	9,032,330	$	904	836,331	$	83	20,754,717	$	2,075	664,167	$	66	$	27,518,971	$	—	$	(36,369,932)	$	(8,844,604)
Conversion of preferred stock into common stock	(20,714,518)		(2,071)	(5,654,072)		(565)	(5,932,742)		(593)	(9,032,330)		(904)	(836,331)		(83)	(20,754,717)		(2,075)	4,027,181		403		5,888		—		—		—
Issuance of common stock in public offering	—		—	—		—	—		—	—		—	—		—	—		—	2,409,639		241		9,999,761		—		—		10,000,002
Offering costs	—		—	—		—	—		—	—		—	—		—	—		—	—		—		(2,116,957)		—		—		(2,116,957)
Exercise of over-allotment option, net of offering costs	—		—	—		—	—		—	—		—	—		—	—		—	361,445		36		1,364,961		—		—		1,364,997
Conversion of debt into common stock	—		—	—		—	—		—	—		—	—		—	—		—	1,135,153		114		2,680,175		—		—		2,680,289
Conversion of related party notes and payables into common stock	—		—	—		—	—		—	—		—	—		—	—		—	152,357		15		257,500		—		—		257,515
Common stock and warrants issued in connection with note	—		—	—		—	—		—	—		—	—		—	—		—	20,000		2		73,956		—		—		73,958
Common stock issued in connection with business combination	—		—	—		—	—		—	—		—	—		—	—		—	2,192,771		219		8,025,323		—		—		8,025,542
Exercise of warrants	—		—	—		—	—		—	—		—	—		—	—		—	31,881		3		145,693		—		—		145,696
Common stock issued pursuant to consulting agreement	—		—	—		—	—		—	—		—	—		—	—		—	50,000		5		182,995		—		—		183,000
Stock-based compensation	—		—	—		—	—		—	—		—	—		—	—		—	—		—		3,801,553		—		—		3,801,553
Net loss	—		—	—		—	—		—	—		—	—		—	—		—	—		—		—		—		(10,697,498)		(10,697,498)
Balances at June 30, 2021	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	11,044,594	$	1,104	$	51,939,819	$	—	$	(47,067,430)	$	4,873,493

See the accompanying notes to the unaudited condensed consolidated financial statements

Table of Contents

DIGITAL BRANDS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	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		69,710
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)		(40,165)
Accounts payable		575,513		1,410,476
Accrued expenses and other liabilities		262,019		(770,907)
Deferred revenue		(99,045)		(15,231)
Accrued compensation - related party		(88,550)		(28,807)
Accrued interest		151,465		446,854
Net cash used in operating activities		(6,595,937)		(2,158,361)
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		(10,276)		—
Deposits


PART I. FINANCIAL INFORMATION		3


ITEM 1.	Condensed Consolidated Financial Statements – Unaudited	3

	Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020	4

	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020	6

	Notes to Condensed Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	37

ITEM 4.	Controls and Procedures	37

PART II. OTHER INFORMATION		38

ITEM 1.	Legal Proceedings	38

ITEM 1A.	Risk Factors	39

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

ITEM 3.	Defaults upon Senior Securities	40

ITEM 4.	Mine Safety Disclosures	40

ITEM 5.	Other Information	40

ITEM 6.	Exhibits	41

SIGNATURES		43