PR Newswire | Jun 28, 2021 08:31AM EDT

06/28 07:30 CDT

Digital Brands Group Reports First Quarter 2021 Financial Results AUSTIN, Texas, June 28, 2021

AUSTIN, Texas, June 28, 2021 /PRNewswire/ -- Digital Brands Group, Inc. ("DBG")(NASDAQ: DBGI), a curated collection of luxury lifestyle, digital-first brands, today reported financial results for its first quarter ended March 31, 2021.

First quarter 2021 Net loss attributable to common stockholders was $3.0 million, or $4.55 per diluted share, on revenue of $408,000.

"Our first quarter 2021 results are a reflection of a combination of factors - limited cash, limited inventory, minimal marketing spend, and the continued effects of COVID-19's impact on Bailey 44," said Hil Davis, Chief Executive Officer of Digital Brands Group. "We expect to see improved operating results in the second quarter and significantly improved operating results in the third and fourth quarters of 2021 now that we have sufficient cash and inventory to support expected levels of operations."

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 started to arrive at our warehouse in late May, with the majority arriving mid-July to mid-September; * 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.

Additionally, we closed our acquisition of Harper & Jones as part of the IPO. We were not able to include operating of Harper and Jones in our Q1 earnings, as it was not acquired at that point. For the first quarter of 2021, harper and Jones had $903,000 in revenue.

Finally, we announced the non-binding LOI to acquire Stateside, which, if the acquisition is consummated, will be accretive to revenue and operating results. The Stateside acquisition and our goal to acquire additional accretive acquisitions, as noted in our S-1, would not have been possible if we had not gone public.

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. Importantly, we expect the second quarter to be better than the first quarter, with the bulk of the post-IPO benefit coming in the third quarter and going forward as the inventory is 100% in stock, the marketing strategy is in full force and Bailey-44 wholesale shipments are back to pre-pandemic levels."

First Quarter 2021 Highlights

* Net Sales were $408,000 versus $2.6 million in the year ago quarter. The decline in net sales was driven by COVID-19 delaying the start date of our new Bailey 44 designer until the fall of 2020, and limited inventory at DSTLD due to limited cash. * Gross profit declined $1.6 million due to a liquidation of old and obsolescent Bailey 44 and DSTLD inventory at values below the production cost amount. * Net loss attributable to common stockholders was $3.0 million, or $4.55 per diluted share, compared to net loss attributable to common stockholders of $1.9 million, or $2.87 per diluted share, in the prior year period.

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

Second quarter operating results are still expected to be adversely impacted by those factors which impacted the first quarter operating results. However, the adverse impact will be lesser in the second quarter due to the Harper & Jones contribution, Bailey 44 wholesale shipments for May and June, and some inventory levels starting in late May for DSTLD.

Second Quarter 2021 Updates

* Bailey 44 started shipping wholesale orders in May, which is the first time in fifteen months that Bailey 44 has shipped wholesale orders. * Bailey 44 fall 2021 wholesale bookings are in-line with pre-pandemic revenue levels. * DSTLD received a men's denim inventory shipment in May, with more men's denim inventory landing in July. * DSTLD will receive women's denim inventory shipment in July. * DSTLD will receive men's and women's tee shirt inventory shipment in July.

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 13721021 or via the web by using the following link: https://tinyurl.com/3zs4cx93.

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

March 31,

2021 2020

Net revenues $ 408,405 $ 2,576,685

Cost of net revenues 615,942 1,222,793

Gross profit (loss) (207,537) 1,353,892

Operating expenses:

General and administrative 1,907,518 2,475,043

Sales and marketing 170,820 317,876

Distribution 63,578 138,435

Total operating expenses 2,141,916 2,931,354

Loss from operations (2,349,453) (1,577,462)

Other income (expense):

Interest expense (675,044) (314,975)

Other non-operating income 562 - (expenses)

Total other income (expense), (674,482) (314,975) net

Provision for income taxes - 14,090

Net loss $ (3,023,935) $ (1,906,527)

Weighted average common sharesoutstanding -

basic and diluted 664,167 664,167

Net loss per common share - basic and $ $ diluted (4.55) (2.87)

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

DIGITAL BRANDS GROUP, INC

STATEMENTS OF CASH FLOW

Three Months Ended

March 31,

2021 2020

Cash flows from operatingactivities:

Net loss $ (3,023,935) $ (1,906,527)

Adjustments to reconcile netloss to net cash used inoperating activities:

Depreciation and 100,687 110,882 amortization

Amortization of loan 223,065 52,140 discount and fees

Stock-based compensation 36,976 49,932

Change in fair value of (562) - warrant liability

Change in credit reserve 3,335 (58,132)

Changes in operating assets and liabilities:

Accounts receivable, net 22,700 45,637

Due from factor, net (6,950) (67,378)

Inventory 573,496 30,224

Other current assets (195,027) 155,411

Accounts payable 195,528 1,135,762

Accrued expenses and other 98,075 (608,047) liabilities

Deferred revenue (1,667) (15,231)

Accrued compensation - (62,777) (16,107) related party

Accrued interest 394,479 251,230

Net cash (used in) provided (1,642,577) (840,204) by operating activities

Cash flows from investingactivities:

Cash acquired in business - 106,913combination

Deposits - 43,510

Net cash provided by - 150,423 investing activities

Cash flows from financingactivities:

Proceeds from related party - 122,414advances

Advances from factor 32,617 180,552

Proceeds from venture debt - 250,000

Issuance of loans payable 1,347,050 -

Issuance of convertible notes 528,650 -payable

Proceeds from sale of Series - 428,926A-3 preferred stock

Subscription receivable from - (117,614)Series A-3 preferred stock

Offering costs (130,523) (43,353)

Net cash provided by (used 1,777,794 820,925 in) financing activities

Net increase (decrease) in 135,217 131,144cash and cash equivalents

Cash and cash equivalents at 575,986 40,469beginning of period

Cash and cash equivalents at $ 711,203 $ 171,613end of period

Supplemental disclosure ofcash flow information:

Cash paid for income taxes $ - $ -

Cash paid for interest $ - $ -

Supplemental disclosure ofnon-cash investing andfinancing activities:

Venture debt issued inexchange of forgiveness of $ - $ 209,211accrued interest

Warrants issued for offering $ - $ 918costs

Warrants issued with venture $ - $ 58,421debt

Issuance of promissory note $ - $ 4,500,000payable in acquisition

Issuance of Series B preferred $ - $ 11,000,000stock in acquisition

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

DIGITAL BRANDS GROUP, INC

STATEMENT OF BALANCE SHEETS

March 31, December 31,

2021 2020

ASSETS

Current assets:

Cash and cash equivalents $ 711,203 $ 575,986

Accounts receivable, net 12,832 35,532

Due from factor, net 181,032 210,033

Inventory 589,783 1,163,279

Prepaid expenses 218,853 23,826

Total current assets 1,713,703 2,008,656

Deferred offering costs 409,409 214,647

Property, equipment and software, 53,293 62,313net

Goodwill 6,479,218 6,479,218

Intangible assets, net 7,403,000 7,494,667

Deposits 92,668 92,668

Total assets $ 16,151,291 $ 16,352,169

LIABILITIES AND STOCKHOLDERS'DEFICIT

Current liabilities:

Accounts payable $ 5,964,045 $ 5,668,703

Accrued expenses and other 1,343,721 1,245,646 liabilities

Deferred revenue - 1,667

Due to related parites 378,676 441,453

Convertible notes, current 100,000 700,000

Accrued interest payable 1,131,518 737,039

Note payable - related party 137,856 137,856

Venture debt, current 300,000 5,854,326

Loan payable, current 1,563,000 992,000

Promissory note payable 4,500,000 4,500,000

Total current liabilities 15,418,816 20,278,690

Convertible notes 2,418,013 1,215,815

Loan payable 1,485,044 709,044

Venture debt, net of discount 5,668,319 -

Warrant liability 5,703 6,265

Total liabilities 24,995,895 22,209,814

Commitments and contingencies(Note 12)

Stockholders' deficit:

Series Seed convertible preferred stock, $0.0001 par, 20,714,518 shares authorized, 20,714,518 shares issued

and outstanding at both March 31, 2021 and December 31, 2020. Convertible into one share of common stock. Liquidation 2,071 2,071 preference of $5,633,855 as of both March 31, 2021 and December 31, 2020

Series A convertible preferred stock, $0.0001 par, 14,481,413 shares authorized, 5,654,072 shares issued

and outstanding at both March 31, 2021 and December 31, 2020. Convertible into one share of common stock. Liquidation 565 565 preference of $2,713,955 as of both March 31, 2021 and December 31, 2020

Series A-2 convertible preferred stock, $0.0001 par, 20,000,000 shares authorized, 5,932,742 shares issued

and outstanding at both March 31, 2021 and December 31, 2020. Convertible into one share of common stock. Liquidation 593 593 preference of $2,966,371 as of both March 31, 2021 and December 31, 2020

Series A-3 convertible preferred stock, $0.0001 par, 18,867,925 shares authorized, 9,032,330 shares issued

and outstanding at both March 31, 2021 and December 31, 2020. Convertible into one share of common stock. Liquidation 904 904 preference of $4,787,135 as both March 31, 2021 and December 31, 2020

Series CF convertible preferred stock, $0.0001 par, 2,000,000 shares authorized, 836,331 shares issued

and outstanding at both March 31, 2021 and December 31, 2020. Convertible into one share of common stock. Liquidation 83 83 preference of $434,890 as of both March 31, 2021 and December 31, 2020

Series B convertible preferred stock, $0.0001 par, 20,714,517 shares authorized, issued and outstanding

at both March 31, 2021 and December 31, 2020. Convertible into one share of common stock.

Liquidation preference of $11,000,000 as of both March 2,075 2,075 31, 2021 and December 31, 2020

Undesignated preferred stock, $0.0001 par, 936,144 shares authorized, 0 shares issued and outstanding as

of both March 31, 2021 and December 31, 2020

Common stock, $0.0001 par, 110,000,000 shares authorized, 664,167 and 664,167 shares issued and

outstanding as of both March 66 66 31, 2021 and December 31, 2020

Additional paid-in capital 27,518,971 27,481,995

Accumulated deficit (36,369,932) (33,345,997)

Total stockholders' deficit (8,844,604) (5,857,645)

Total liabilities and $ 16,151,291 $ 16,352,169 stockholders' deficit

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

Related Links https://www.digitalbrandsgroup.cohttps://ir.digitalbrandsgroup.co

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SOURCE Digital Brands Group, Inc.