DBGI 10-Q
Digital Brands Group, Inc. (DBGI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| 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:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
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.
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).
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 | ☐ |
| ☒ | 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 19, 2026, the Company had shares of common stock, $ par value, issued and outstanding, after giving effect to the one-for-forty reverse stock split effected July 24, 2026.
DIGITAL BRANDS GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which involve risks and uncertainties. These forward-looking statements can be identified by the use of forward- looking terminology, including the terms “believe,” “estimate,” “project,” “aim,” “anticipate,” “expect,” “seek,” “predict,” “contemplate,” “continue,” “possible,” “intend,” “may,” “plan,” “forecast,” “future,” “might,” “will,” “could,” would” or “should” or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Annual Report on Form 10-K and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth strategies, the industry in which we operate and potential acquisitions. We derive many of our forward- looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on the date of this Quarterly Report on Form 10-Q.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward- looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the stability of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause our results to vary from expectations include those discussed in “Risk Factors” in our most recent Annual Report on Form 10-K, as the same may be updated from time to time.
Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors.
| 3 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGITAL BRANDS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Due from factor, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, equipment and software, net | ||||||||
| Right of use asset | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Deposits | ||||||||
| Prepaid marketing expenses | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other liabilities | ||||||||
| Due to related parties | ||||||||
| Right of use liability, current portion | ||||||||
| Accrued interest payable | ||||||||
| Loan payable, current | ||||||||
| Stock payable | ||||||||
| Promissory note payable | ||||||||
| Note payable, current | ||||||||
| Total current liabilities | ||||||||
| Share based payment liability | ||||||||
| Right of use liability, net of current portion | ||||||||
| Note payable, net of current portion | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Undesignated preferred stock, $ par, shares authorized, shares issued and outstanding as of both June 30, 2026 and December 31, 2025 | ||||||||
| Series A convertible preferred stock, $ par, shares designated, shares issued and outstanding as of both June 30, 2026 and December 31, 2025 | ||||||||
| Series C convertible preferred stock, $ par, shares issued and outstanding as of both June 30, 2026 and December 31, 2025 | ||||||||
| Series D convertible preferred stock, $ par, and shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively | ||||||||
| Common stock, $ par, shares authorized, and shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 4 |
DIGITAL BRANDS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of net revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Distribution | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Change in fair value of share based payment liability | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other non-operating income (expenses) | ( | ) | ||||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (provision) | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
The accompanying notes are an integral part of these financial statements
| 5 |
DIGITAL BRANDS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| Series A Preferred | Series C Preferred | Series D Preferred | Common Stock | Common Stock To Be Issued | Additional Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Exercise of cash warrants in connection with private placement | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Extinguishment of share-based payment liability | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock to be issued pursuant to pre-funded warrant exercises | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of pre-funded warrants pursuant to service contracts | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series D preferred stock into common stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2026 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in settlement of stock payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock previously classified as to be issued | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Exercise of pre-funded warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to ATM offering, net of commissions | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2026 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of pre-funded warrants in connection with vendor agreement | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock and pre-funded warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Exercise of pre-funded warrants in connection with private placement | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2025 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with acquisition of intangible assets | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 6 |
DIGITAL BRANDS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of loan discount and fees | ||||||||
| Change in fair value of share based payment liability | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Due from factor | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Accrued interest payable | ||||||||
| Lease liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, equipment and software | ( | ) | ||||||
| Deposits | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Repayments from related party advances | ( | ) | ||||||
| Issuance of loans and note payable | ||||||||
| Payments on RallyTown secured payment obligation | ( | ) | ||||||
| Repayments of loan payable | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from issuance of pre-funded warrants | ||||||||
| Issuance of common stock for cash | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash, cash equivalents, and restricted cash | ( | ) | ||||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
| Reconciliation of cash and restricted cash: | ||||||||
| Cash at beginning of period | $ | $ | ||||||
| Restricted cash at beginning of period | ||||||||
| Cash and restricted cash at beginning of period | ||||||||
| Cash at end of period | ||||||||
| Restricted cash at end of period | ||||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Issuance of pre-funded warrants for prepaid marketing services | $ | $ | ||||||
| Shares issued for prepaid marketing services | $ | $ | ||||||
| Issuance of shares as a reduction to stock payable | $ | $ | ||||||
| Prepaid marketing services recognized as stock payable | $ | $ | ||||||
| Common stock to be issued pursuant to pre-funded warrant exercises | $ | $ | ||||||
| Extinguishment of share based payment liability | $ | $ | ||||||
| Purchase of vehicle with debt | $ | $ | ||||||
| Non-cash purchase of intangible assets | $ | $ | ||||||
| Recognition of right-of-use asset and lease liability | $ | $ | ||||||
| Reclassification of share based payment liability to note payable | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 7 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
NOTE 1: NATURE OF OPERATIONS
Digital Brands Group, Inc. (the “Company”) was organized on September 17, 2012 and is a portfolio company of apparel brands, including Bailey 44, Stateside and Sundry. The Company completed the acquisitions of Bailey 44 in February 2020, Stateside in August 2021 and Sundry in December 2022.
Reverse Stock Split
On July 15, 2026 the Board of Directors approved a reverse stock split of the Company’s issued and outstanding common stock at a ratio of one-for-forty. A Certificate of Change was filed with the Secretary of State of the State of Nevada on July 20, 2026 and the reverse stock split became effective at 12:01 a.m. Eastern Time on July 24, 2026, at which time the common stock began trading on a post-split basis under a new CUSIP number. The number of authorized shares of common stock was reduced from to and the par value per share remained unchanged at $. Proportionate adjustments were made to the exercise prices and the number of shares issuable under the Company’s outstanding warrants and equity awards, and to the conversion factors applicable to the Company’s outstanding preferred stock. No fractional shares were issued.
All share and per-share amounts in these unaudited
condensed consolidated financial statements and the accompanying notes have been retroactively adjusted to reflect the reverse stock split
for all periods presented. The reduction in the aggregate par value of common stock of $
NOTE 2: LIQUIDITY AND GOING CONCERN
The
Company has not generated profits since inception and has sustained net losses of $
Through the date these financial statements were available to be issued, the Company has been primarily financed through the issuance of capital stock and debt. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses, which it has done, or obtain financing through the sale of debt and/or equity securities, which it has done. The issuance of additional equity would result in dilution to existing shareholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company would be unable to execute upon the business plan or pay costs and expenses as they are incurred, which would have a material, adverse effect on the business, financial condition and results of operations. While the Company has several potential sources of cash, including the ability to sell shares under its at-the-market (“ATM”) facility and the pending equity line of credit, no assurance can be given that the Company will be successful in these efforts.
Management’s Plans
On
April 15, 2026, the Company entered into an At-the-Market Issuance Sales Agreement with Aegis Capital Corp., pursuant to which the Company
may offer and sell, from time to time, shares of its common stock having an aggregate offering price of up to $
As
of the date of issuance of these unaudited condensed consolidated financial statements, the Company expects that its cash and cash equivalents
of $
Throughout the next twelve months, the Company intends to fund its operations from the funds raised through equity offerings, including at-the-market equity financings or other public or private equity offerings. Additionally, the Company intends to fund operations from increased revenues due to its new marketing efforts, including its collegiate apparel program and increased wholesale pricing, through settlement and renegotiation of aged payables, conversions of outstanding debt and accrued interest, and continuing its cost-cutting measures implemented during 2025 and the six months ended June 30, 2026.
The conditions described above — including the Company’s recurring losses, negative operating cash flows, working capital deficit, the matured Bailey sellers’ promissory note and the monthly payment obligations under the RallyTown secured note (see Note 7) — raise substantial doubt about the Company’s ability to continue as a going concern, and the Company’s plans depend in significant part on its ability to sell equity securities under the at-the-market facility and the equity line of credit and to realize expected revenues from its collegiate apparel program, which are subject to market conditions and other factors, certain of which are not within the Company’s control. After considering these conditions and management’s plans described above, management has concluded that its plans cannot be considered probable of being effectively implemented and of fully mitigating these conditions within twelve months from the date these financial statements are issued, because the plans depend in significant part on the sale of equity securities and other financing transactions that are not solely within the Company’s control. Accordingly, substantial doubt about the Company’s ability to continue as a going concern exists. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments that might result from the outcome of this uncertainty.
There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to access capital, sell equity securities in the amounts or at the times anticipated, or if expected revenues from its collegiate apparel program do not materialize, the Company may be forced to curtail or suspend its business plans.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the unaudited condensed financial statements included herein contain all adjustments necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the period presented. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes to those statements for the year ended December 31, 2025 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2026.
| 8 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Principles of Consolidation
These condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries (Bailey, Stateside and Sundry). All inter-company transactions and balances have been eliminated on consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Equivalents and Concentration of Credit Risk
The
Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of June
30, 2026 and December 31, 2025, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank
deposit accounts, at times, may exceed federally insured limits of $
The Company enters into long-term marketing, licensing, manufacturing, and sponsorship arrangements with third-party service providers under which it may issue common stock or equity-linked instruments in exchange for future services, including distribution, licensing access, product specification support, and marketing and promotional activities. These arrangements are accounted for as share-based payments to nonemployees in accordance with ASC 718, Compensation—Stock Compensation.
Where share-based consideration is determined to be in exchange for distinct goods or services, including those received from a customer, the Company accounts for such transactions as the purchase of services. The Company recognizes a prepaid marketing or service asset measured at the grant-date fair value of the share-based consideration issued, representing the value of services to be received over the contractual term. Such prepaid assets are amortized on a straight-line basis over the period in which the related services are received, which generally corresponds to the contractual service period.
Certain share-based arrangements include make-whole provisions that require the Company to deliver a fixed monetary value using a variable number of shares, or, in certain cases, cash. These provisions result in liability classification under ASC 718 and ASC 480, Distinguishing Liabilities from Equity, as the Company has an obligation to settle a fixed dollar amount rather than a fixed number of shares.
Liability-classified share-based awards are initially measured at fair value on the grant date and subsequently remeasured at fair value at each reporting date until settlement. Changes in fair value are recognized in earnings in the period of change. Compensation cost is recognized over the requisite service period, with cumulative adjustments recorded for changes in fair value.
The Company evaluates features within these arrangements, including make-whole provisions, under ASC 815, Derivatives and Hedging, to determine whether such features should be accounted for separately as derivatives. The Company has concluded that these features qualify for the scope exception applicable to share-based payment arrangements and therefore are not accounted for as freestanding or embedded derivatives. Accordingly, no bifurcation is required.
The fair value of liability-classified share-based awards is estimated using a Monte Carlo simulation model. This valuation technique incorporates significant assumptions, including the Company’s stock price, expected volatility, risk-free interest rate, expected term, and other market-based inputs. Due to the use of significant unobservable inputs, these measurements are classified within Level 3 of the fair value hierarchy.
Separately, certain contractual marketing investment commitments represent best-efforts obligations and do not create a present obligation or identifiable asset. Accordingly, such costs are expensed as incurred in accordance with ASC 720, Advertising Costs.
| 9 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Fair Value of Financial Instruments
The Company measures certain assets and liabilities at fair value on a recurring basis in accordance with ASC 820, Fair Value Measurement. ASC 820 establishes a three-level hierarchy that prioritizes the inputs used in valuation techniques:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement. These inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.
The Company’s only recurring fair value measurements are its share-based payment liabilities arising from the make-whole provisions in the collegiate apparel agreements. These are classified as Level 3, as their valuation relies on significant unobservable inputs that are significant to the overall fair value measurement. Specifically, the expected stock price volatility is estimated from the Company’s own historical stock price data; because the Company does not have actively traded options or other instruments from which implied volatility could be observed, this input is unobservable. Under ASC 820-10-35-52, an instrument is classified based on the lowest level input that is significant to the fair value measurement. Changes in fair value are recognized in earnings each reporting period. See Note 9.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and short-term debt approximate fair value due to their short-term nature. The carrying value of the Company’s long-term SBA loan approximates fair value as the interest rate is fixed at a rate commensurate with current market rates for similar instruments.
Accounts Receivable and Expected Credit Loss
We carry our accounts receivable at invoiced amounts less allowances for customer credit losses and other deductions to present the net amount expected to be collected on the financial asset. All receivables are expected to be collected within one year of the consolidated balance sheet. We do not accrue interest on the trade receivables. Management evaluates the ability to collect accounts receivable based on a combination of factors. Receivables are determined to be past due based on individual credit terms. An allowance for credit losses is maintained based on the length of time receivables are past due, historical collections, or the status of a customer’s financial position. Receivables are written off in the year deemed uncollectible after efforts to collect the receivables have proven unsuccessful. We do not have any off-balance sheet credit exposure related to our customers.
We periodically review accounts receivable, estimate an allowance for bad debts, and simultaneously record the appropriate expense in the statements of operations. Such estimates are based on general economic conditions, the financial conditions of customers, and the amount and age of past due accounts. Past due accounts are written off against that allowance only after all collection attempts have been exhausted and the prospects for recovery are remote. Recoveries of accounts receivable previously written off are recorded as income when received. The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk.
As
of June 30, 2026, and December 31, 2025, the Company determined an allowance for credit losses of $
Inventory
Inventory is stated at the lower of cost or net realizable value and accounted for using the weighted average cost method for the Company’s DSTLD brand and first-in, first-out method for Bailey, Stateside and Sundry. The inventory balances as of June 30, 2026, and December 31, 2025 consist substantially of blanks and other raw materials purchased for modification, work in process, and finished goods purchased or produced for resale.
| 10 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Inventory consisted of the following:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Inventory | $ | $ | ||||||
Property, Equipment, and Software
Property,
equipment, and software are recorded at cost. Depreciation/amortization is recorded for property, equipment, and software using the
straight-line method over the estimated useful lives of assets. The Company reviews the recoverability of all long-lived assets,
including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived
asset might not be recoverable. The balances at June 30, 2026 and December 31, 2025 consist of software with three
year lives, property and equipment with three to
Depreciation
and amortization charges on property, equipment, and software are included in general and administrative expenses and amounted to $
Business Combinations
The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.
Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.
Intangible assets are established through business combinations and asset acquisitions. Technology assets are acquired through asset acquisitions, while brand names and customer relationships are primarily recognized in connection with business combinations. Intangible assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. The estimated useful lives of amortizable intangible assets are as follows:
| Customer relationships | ||||
| Technology assets |
| 11 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Impairment
Long-Lived Assets
The Company reviews its long-lived assets (property and equipment and amortizable intangible assets) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Goodwill
Goodwill and identifiable intangible assets that have indefinite useful lives are not amortized, but instead are tested annually for impairment and upon the occurrence of certain events or substantive changes in circumstances. The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required.
The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. It is our practice, at a minimum, to perform a qualitative or quantitative goodwill impairment test in the fourth quarter at every year end on December 31st.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets established in connection with business combinations consist of the brand name. The impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
Convertible Instruments
U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable U.S. GAAP.
| 12 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The Company also records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares.
Accounting for Preferred Stock
ASC 480, Distinguishing Liabilities from Equity, includes standards for how an issuer of equity (including equity shares issued by consolidated entities) classifies and measures on its balance sheet certain financial instruments with characteristics of both liabilities and equity.
Management is required to determine the presentation for the preferred stock as a result of the redemption and conversion provisions, among other provisions in the agreement. Specifically, management is required to determine whether the embedded conversion feature in the preferred stock is clearly and closely related to the host instrument, and whether the bifurcation of the conversion feature is required and whether the conversion feature should be accounted for as a derivative instrument.
If the host instrument and conversion feature are determined to be clearly and closely related (both more akin to equity), derivative liability accounting under ASC 815, Derivatives and Hedging, is not required. Management determined that the host contract of the preferred stock is more akin to equity, and accordingly, liability accounting is not required by the Company. The Company has presented preferred stock within stockholders’ equity.
Costs incurred directly for the issuance of the preferred stock are recorded as a reduction of gross proceeds received by the Company, resulting in a discount to the preferred stock. The discount is not amortized.
Revenue Recognition
In accordance with FASB ASC 606, Revenue from Contracts with Customers¸ the Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer; | |
| ● | Identification of the performance obligations in the contract | |
| ● | Determination of the transaction price | |
| ● | Allocation of the transaction price to the performance obligations in the contract, and | |
| ● | Recognition of revenue when or as the performance obligations are satisfied |
Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers in an amount that reflects the consideration expected to be received in exchange for transferring goods or services to customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product, upon shipment of product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance.
The Company derives its revenue primarily from wholesale and e-commerce transactions. For both channels, revenue is recognized at the time the product is shipped to the customer, which is the point in time when control is transferred. The Company considers the sale of products as a single performance obligation. For the Company’s licensing agreement via Bailey44, the Company recognizes royalty revenue on a monthly basis over the term of the license agreement.
| 13 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
The Company provides the customer the right of return on the product and revenue is adjusted based on an estimate of the expected returns based on historical rates.
The Company deducts discounts, sales tax, and estimated refunds to arrive at net revenue. Sales tax collected from clients is not considered revenue and is included in accrued expenses until remitted to the taxing authorities. Shipping and handling fees charged to customers are included in net revenues. All shipping and handling costs are accounted for as distribution expenses, and are therefore not evaluated as a separate performance obligation.
University Collegiate Apparel Revenue
The Company generates revenue through collegiate apparel agreements with university-affiliated collectives, licensing agents and marketing partners (see Note 4). Revenue is recognized through two channels: (i) university store consignment, under which products are shipped to university campus bookstores and revenue is recognized based on actual sales reported by the store, and (ii) university online direct-to-consumer, under which revenue is recognized based on Shopify sales data from each university’s dedicated online portal when products are sold to end customers. In both cases, products are placed with the counterparty on consignment and the Company recognizes revenue only when a sale to an end consumer has occurred, consistent with ASC 606-10-55-37. Revenue from university channels is tracked separately in dedicated receivable accounts.
Cost of Revenues
Cost of revenues consists primarily of inventory sold and related freight-in. Cost of revenues includes direct labor pertaining to our inventory production activities and an allocation of overhead costs including rent and insurance.
Shipping and Handling
The
Company recognizes shipping and handling billed to customers as a component of net revenues, and the cost of shipping and handling
as distribution costs. Total shipping and handling billed to customers as a component of net revenues was approximately $
Advertising and Promotion
Advertising and promotional costs are expensed as incurred. These costs are included in sales and marketing expense.
General and Administrative
General and administrative expenses consist primarily of compensation and benefits costs, professional services and information technology. General and administrative expenses also include payment processing fees, design and warehousing fees.
Common Stock Purchase Warrants and Other Derivative Financial Instruments
The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedging relationships and the types of relationships designated are based on the exposures hedged. At June 30, 2026 and December 31, 2025, the Company did not have any derivative instruments that were designated as hedges.
Stock Option and Warrant Valuation
Stock option and warrant valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model. For warrants and stock options issued to non- employees, the Company accounts for the expected life based on the contractual life of the warrants and stock options. For employees, the Company accounts for the expected life of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in the accounting standards codification. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of options grants. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. The Company recognizes forfeitures as they occur.
The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation — Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as an expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services.
| 14 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for stock options, the expected life of the option, and expected stock price volatility. The Company used the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
Segment Information
In
accordance with ASC 280, Segment Reporting, we identify our operating segments according to how our business activities are managed
and evaluated. As of June 30, 2026, we had one
operating segment which pertains to the sale of apparel. All brands and reporting units currently report to the Chief Executive
Officer. Each of our brands serve or are expected to serve customers through our wholesale, in store and online channels, allowing
us to execute on our omni-channel strategy. We have determined that each of our brands share similar economic and other qualitative
characteristics, and therefore the results of our operating businesses are aggregated into one reportable segment. All of the
operating businesses have met the aggregation criteria and have been aggregated and are presented as
Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive as of June 30, 2026 and 2025, diluted net loss per share is the same as basic net loss per share for each period. Potentially dilutive items outstanding as of June 30, 2026 and 2025 are as follows:
| June 30, | ||||||||
| 2026 | 2025 | |||||||
| Series A convertible preferred stock | ||||||||
| Series C convertible preferred stock | ||||||||
| Series D convertible preferred stock | ||||||||
| Common stock warrants | ||||||||
| Stock options | ||||||||
| Total potentially dilutive shares | ||||||||
The stock options and warrants above are out-of-the-money as of June 30, 2026 and 2025.
Leases
The
Company accounts for leases in accordance with ASC 842, Leases. The Company determines whether an arrangement contains a lease at inception
and recognizes operating lease right-of-use (“ROU”) assets and corresponding lease liabilities at the commencement date based
on the present value of lease payments over the lease term. Lease expense for operating leases is recognized on a straight-line basis
over the lease term. The Company uses its incremental borrowing rate in determining the present value of lease payments when the implicit
rate is not readily determinable. The Company has elected the short-term lease exemption for leases with an initial term of
Recent Accounting Pronouncements
In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income (Topic 220): Expense Disaggregation Disclosures. This update requires entities to disaggregate operating expenses into specific categories, such as salaries and wages, depreciation, and amortization, to provide enhanced transparency into the nature and function of expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. ASU 2024-03 may be applied retrospectively or prospectively. The Company is currently evaluating the impact of this standard on its financial statement presentation and disclosures.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
| 15 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
NOTE 4: PREPAID MARKETING EXPENSES
The Company has entered into multi-year marketing, licensing, sponsorship, and service agreements under which it provides equity instruments, pre-funded warrants, or cash as consideration. Amounts paid or the fair value of instruments issued in excess of amounts currently expensed are recorded as prepaid assets and amortized over the contractual service period on a straight-line basis.
University Marketing Agreements
AAA Tuscaloosa, LLC — University of Alabama
Effective July 16, 2025, the Company entered into a three-year Exclusive Private Label Manufacturing Agreement with AAA Tuscaloosa, LLC (“AAA”), pursuant to which the Company manufactures University of Alabama–branded apparel. AAA is responsible for marketing and selling the products through its website and campus bookstores and is considered the Company’s customer under ASC 606; revenue is recognized upon sale of products to end customers through AAA’s distribution channels.
As
consideration, the Company agreed to issue common stock valued at $
| 16 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
The
agreement includes a 15-month make-whole provision (through March 12, 2027), under which the Company is required to issue additional
shares or cash if the fair value of shares delivered falls below the $
RallyTown, LLC (formerly Traffic Holdco, LLC) — Collegiate NIL Program
Effective July 16, 2025, the Company entered into a three-year Exclusive Private Label Manufacturing Agreement with RallyTown, LLC, formerly Traffic Holdco, LLC (“RallyTown”), pursuant to which the Company obtained exclusive apparel manufacturing rights for collegiate Name, Image and Likeness (“NIL”) programs at a minimum of three universities. RallyTown is responsible for licensing, marketing, and distribution through university channels and is considered the Company’s customer under ASC 606; revenue is recognized upon sale of products to end customers through RallyTown’s distribution channels.
As
consideration, the Company agreed to issue common stock valued at $
per university per year over the three-year term (minimum total equity commitment of $
The agreement includes a 15-month make-whole provision (through March 12, 2027), under which the Company is required to issue additional shares or cash if the fair value of shares delivered falls below the guaranteed commitment. That obligation, together with the AAA Tuscaloosa obligation, is determined under the Setoff and Reimbursement Agreement dated March 30, 2026 and is presented within notes payable at June 30, 2026; see Note 7.
The Grove Collective, LLC — University of Mississippi
Effective November 19, 2025, the Company entered into a three-year Exclusive Private Label Manufacturing Agreement with The Grove Collective, LLC (“Grove”), pursuant to which the Company will exclusively manufacture apparel products to be sold through Grove’s website and retail channels. The agreement supports marketing and brand development initiatives related to the University of Mississippi NIL program. Grove is considered the Company’s customer under ASC 606; revenue is recognized upon sale of products to end customers through Grove’s channels.
As
consideration, the Company issued
shares of common stock at a grant-date fair value of $
per share (aggregate equity fair value: $
The agreement includes a 15-month make-whole provision; accordingly, the award is liability-classified under ASC 718. The make-whole provision had a fair value of $ at June 30, 2026. See Note 8 for the fair value detail and Monte Carlo assumptions.
Buffalo Sports Properties / Learfield — University of Colorado
Effective December 3, 2025, the Company entered into a three-year Marketing and Sponsorship Agreement with Buffalo Sports Properties, LLC and Learfield (the “Provider”) for the University of Colorado athletic program. Under the agreement, the Company receives sponsorship, media, and NIL marketing benefits in exchange for a combination of cash and equity consideration. The Provider is considered the Company’s customer under ASC 606; revenue is recognized upon delivery of sponsorship and marketing benefits over the term.
As
consideration, the Company agreed to pay $
The agreement includes an 18-month make-whole provision (through June 12, 2027), under which the Company is required to issue additional shares or cash if the fair value of shares delivered falls below the guaranteed amount; accordingly, the award is liability-classified under ASC 718. The related make-whole obligation was settled during the three months ended March 31, 2026, and the liability of $ was reclassified to additional paid-in capital; its fair value was $ at June 30, 2026. See Note 8.
| 17 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Athlete Capital Sports
Effective
March 12, 2026, the Company entered into a consulting agreement with Athlete Capital Sports LLC to participate in The Pennsylvania
State University’s name, image and likeness (“NIL”) program for student-athletes, pursuant to which the Company is
required to issue shares with an aggregate value of $
Learfield College LLC
Effective January 26, 2026, the
Company entered into a Marketing and Sponsorship Agreement with Learfield relating to Vanderbilt University, providing for equity
consideration of $
The Battle’s End, LLC — Florida State University
Effective May 1, 2026, the Company entered into a three-year Exclusive Private Label Manufacturing Agreement with
The Battle’s End, LLC (“The Battle’s End”), the name, image and likeness collective supporting Florida State University
athletics, pursuant to which the Company is engaged as the exclusive manufacturer of private label apparel bearing The Battle’s
End’s and Florida State University marks. As consideration, the Company agreed to issue common stock with an aggregate value of
$
Other Marketing Agreements
MavDB Consulting LLC
In
January 2025, the Company entered into a two-year marketing services agreement with MavDB Consulting LLC for content production,
social media marketing, student athlete engagement, and event staffing. The consideration was satisfied through the issuance of
pre-funded warrants with an aggregate fair value of $
Other
Costs associated with all cash-based agreements are recognized as prepaid assets and expensed over the respective contractual service periods.
Summary of Consideration and Prepaid Balances
The following table summarizes the consideration provided under each agreement and the resulting prepaid marketing balances as of June 30, 2026:
| Consideration | Agreement | Term | June 30, | December 31, | ||||||||||||||
| Agreement | Type | Amount | (Years) | 2026 | 2025 | |||||||||||||
| MavDB (Jan 2025) | $ | $ | $ | |||||||||||||||
| RallyTown (f/k/a Traffic Holdco) | ||||||||||||||||||
| AAA Tuscaloosa | ||||||||||||||||||
| Grove Collective | ||||||||||||||||||
| Buffalo Sports / Learfield | ||||||||||||||||||
| Learfield College (Vanderbilt) | ||||||||||||||||||
| Athlete Capital Sports (Penn State) | ||||||||||||||||||
| The Battle’s End (Florida State) | ||||||||||||||||||
| $ | $ | $ | ||||||||||||||||
| * | ||
| ** |
| 18 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
The Company’s collegiate apparel and marketing agreements include make-whole provisions under which the Company may be required to deliver additional shares or cash to satisfy guaranteed value commitments. Because the settlement value may vary based on the Company’s stock price, these arrangements are classified as liability-classified share-based payment awards under ASC 718 and are remeasured at fair value at each reporting date, with changes in fair value recognized in earnings.
| Grant-Date Fair Value of Equity | Share-Based | |||||||||||
| (Shares & PFW) | Payment Liability at Grant Date | Total | ||||||||||
| RallyTown (f/k/a Traffic Holdco)* | $ | $ | $ | |||||||||
| AAA Tuscaloosa* | ||||||||||||
| Grove | ||||||||||||
| Buffalo Sports / Learfield | ||||||||||||
| $ | $ | $ | ||||||||||
| * |
See Note 8 for the fair value of the remaining share-based payment liabilities as of June 30, 2026 and December 31, 2025. The amounts in the table above are grant-date fair values and do not represent balances at June 30, 2026.
As of June 30, 2026, the aggregate fair value of the Company’s share-based payment liabilities related to make-whole provisions was $. During the three and six months ended June 30, 2026, the Company recognized fair value losses of $ and $, respectively. Of those amounts, $and $, respectively, relate to the obligations owed to RallyTown, LLC and AAA Tuscaloosa, LLC, including the remeasurement of those obligations to the settlement amount determined under the Setoff and Reimbursement Agreement described in Note 7, and the remainder relates to the remeasurement of the other arrangements, primarily attributable to changes in the Company’s stock price and other valuation assumptions utilized in the Monte Carlo simulation model. The obligations arising under the Company’s arrangements with RallyTown, LLC and AAA Tuscaloosa, LLC are no longer measured on that basis and are presented within notes payable at June 30, 2026, as described in Note 7.
Classification and Future Amortization
Prepaid marketing expenses are classified as current or non-current based on the portion of each agreement expected to be amortized within the next twelve months from the balance sheet date. Current prepaid balances represent the pro-rata share of total consideration allocable to services to be received in the twelve months ending June 30, 2027. Non-current prepaid balances represent the remaining unamortized consideration allocable to periods beyond June 30, 2027.
Total
prepaid marketing expense recognized during the three and six months ended June 30, 2026 was $
| Amount | ||||
| 2026 (remainder) | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| $ | ||||
NOTE 5: DUE FROM FACTOR
The
Company, via its subsidiaries, Bailey, Stateside and Sundry, assigns a portion of its trade accounts receivable to third-party factoring
companies, who assumes the credit risk with respect to the collection of non-recourse accounts receivable. The Company may request advances
on the net sales factored at any time before their maturity date. The factor charges a commission on the net sales factored for credit
and collection services. For one factoring company, interest on advances is charged as of the last day of each month at a rate equal
to the LIBOR rate plus
Advances are collateralized by a security interest in substantially all of the companies’ assets.
Due to/from factor consist of the following:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Outstanding receivables: | ||||||||
| Without recourse | $ | $ | ||||||
| With recourse | ||||||||
| Matured funds and deposits | ||||||||
| Advances | ( | ) | ( | ) | ||||
| Credits due customers | ||||||||
| $ | $ | |||||||
| 19 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
NOTE 6: GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Company recorded goodwill from each of its business combinations. The following is a summary of goodwill by entity as of June 30, 2026, and December 31, 2025:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Bailey | $ | $ | ||||||
| Sundry | ||||||||
| $ | $ | |||||||
Intangible Assets
The following table summarizes information relating to the Company’s identifiable intangible assets as of June 30, 2026 and December 31, 2025:
| June 30, 2026 | ||||||||||||||||
| Gross | Accumulated | Carrying | ||||||||||||||
| Amount | Impairment | Amortization | Value | |||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | $ | $ | $ | ( | ) | $ | ||||||||||
| Technology asset | ( | ) | ( | ) | ||||||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | |||||||||
| Indefinite-lived: | ||||||||||||||||
| Brand name | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| December 31, 2025 | Gross | Accumulated | Carrying | |||||||||||||
| Amount | Impairment | Amortization | Value | |||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | $ | $ | $ | ( | ) | $ | ||||||||||
| Technology asset | ( | ) | ( | ) | ||||||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | |||||||||
| Indefinite-lived: | ||||||||||||||||
| Brand name | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
On April 1, 2025, the Company entered into an Asset Purchase Agreement (the “Open Daily APA”) with Open Daily Technologies Inc. (“Open Daily”). Pursuant to the terms of the Open Daily APA, the Company agreed to purchase, and Open Daily agreed to sell certain intellectual property owned by Open Daily, including, but not limited to, patent applications, trademarks, and software products and platforms (the “Open Daily Assets”), but not any liability or obligation of Open Daily in connection with the Company’s purchase of the Open Daily Assets, in exchange for the issuance by the Company of shares of the Company’s common stock (the “Open Daily Acquisition”).
The technology asset acquired from Open Daily Technologies Inc. was placed in service during 2025 and is being amortized on a straight-line basis over its estimated useful life.
The
Company recorded amortization expense of $
| 20 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
NOTE 7: LIABILITIES AND DEBT
Accrued Expenses and Other Liabilities
The Company accrued expenses and other liabilities line in the condensed consolidated balance sheets is comprised of the following as of June 30, 2026 and December 31, 2025:
| June 30, 2026 | December 31, 2025 | |||||||
| Accrued payroll and payroll taxes | $ | $ | ||||||
| Accrued expenses and other | ||||||||
| Gift card liability | ||||||||
| Sales tax payable | ||||||||
| Derivative liability — 1800 Diagonal conversion feature | ||||||||
| Due to seller | ||||||||
| $ | $ | |||||||
Payroll related liabilities are primarily related to overdue payroll taxes due to be remitted to federal and state authorities by the parent company (Digital Brands Group, Inc.) and Bailey.
Accrued
interest payable of $
Debt
The following table summarizes the Company’s outstanding debt obligations as of June 30, 2026 and December 31, 2025:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Current: | ||||||||
| Advantage Capital (merchant cash advance) | $ | $ | ||||||
| Sunnyside Shopify loan, net of discount | ||||||||
| B44 PPP note payable | ||||||||
| Promissory note payable, net | ||||||||
| Sunnyside Motor loan | ||||||||
| 1800 Diagonal Lending note, net of discount | ||||||||
| RallyTown secured payment obligation | ||||||||
| Notes payable | ||||||||
| Total current debt | ||||||||
| Non-current: | ||||||||
| RallyTown secured payment obligation, non-current | ||||||||
| Total non-current debt | ||||||||
| Total debt | $ | $ | ||||||
Loan Payable — PPP and SBA Loan
In
April 2022, Bailey received notification of full forgiveness of its second SBA Paycheck Protection Program (“PPP”) loan totaling
$
In
June 2020, the Company received a SBA loan in the principal amount of $
The
Company’s Sunnyside subsidiary maintains a Shopify Capital loan with an outstanding balance of $
In
January 2026, the Company’s subsidiary availed a motor loan with an outstanding balance of $
Merchant Advances
Future Sales Receipts
From
2022 through 2024, the Company obtained several merchant advances. These advances are, for the most part, secured by expected future
sales transactions of the Company with expected payments on a weekly basis. The Company made total cash repayments, pertaining to principal
and interest, of $
| 21 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Promissory Note Payable
As
of June 30, 2026 and December 31, 2025, the outstanding principal on the note payable to the sellers of Bailey 44, LLC was $
The note matured on December 8, 2025. As of June 30, 2026, the note has not been repaid and is in technical default. The Company is currently in discussions with the lender regarding repayment, extension, or refinancing of the obligation. Management has not identified any cross-default provisions in other material agreements that would be triggered by this default. This default has been considered in the Company’s going concern assessment.
As
of June 30, 2026, the note remains outstanding and unpaid. The Company continues to accrue interest at the contractual rate of
1800 Diagonal Lending Promissory Note
On
June 9, 2026, the Company issued a promissory note to 1800 Diagonal Lending LLC in the principal amount of $
At
any time following an event of default, the holder may convert the outstanding balance of the note into common stock at a conversion
price equal to
The
derivative liability was measured using a Monte Carlo simulation reflecting the ten-trading-day lookback in the conversion price, applied
to the unpaid balance of the note at each scheduled payment date, using a common stock price of $, expected volatility of %
and a risk-free rate of %. The resulting fair value is weighted for the probability that an event of default occurs, which management
estimated at %. The fair value of the derivative liability was $
RallyTown Secured Payment Obligation
The Company’s
make-whole obligations to RallyTown, LLC and AAA Tuscaloosa, LLC arose under the collegiate marketing arrangements described in Note
4 and were previously liability-classified share-based payment awards measured at fair value under ASC 718 (see Note 8). Under the Setoff
and Reimbursement Agreement dated March 30, 2026, the amount payable became fixed by formula: $
On July 16, 2026, subsequent to the balance sheet date, the Company and RallyTown entered into a Secured Payment
and Security Agreement establishing the terms of payment. Under ASC 855-10-25-1, that agreement provides additional evidence about conditions
that existed at the balance sheet date — the amount of the obligation determined under the Setoff and Reimbursement Agreement —
and is therefore a recognized subsequent event reflected in the June 30, 2026 measurement above. On the Calculation Date of July 16, 2026,
the $
The remaining obligation bears
interest at
At June 30,
2026, $
| Amount | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total | $ | |||
| 22 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
The Company’s collegiate apparel agreements (AAA Tuscaloosa, RallyTown (formerly Traffic Holdco), Grove Collective, Buffalo Sports / Learfield, Athlete Capital Sports, Learfield College and The Battle’s End – see Note 4) include make-whole provisions under which the Company is required to deliver a guaranteed aggregate dollar value through a variable number of common shares. Because the number of shares required for settlement varies based on the Company’s stock price, these arrangements are classified as liability-classified share-based payment awards under ASC 718. At inception, the Company measures the liability at fair value using a Monte Carlo simulation model, with a corresponding prepaid marketing asset recognized. The liability is remeasured at fair value at each subsequent reporting date, with changes recognized in earnings. The prepaid marketing asset is amortized on a straight-line basis over the contractual service period. See Note 4 for prepaid marketing balances.
The share-based payment liability is classified within Level 3 of the fair value hierarchy under ASC 820, consistent with the Company’s accounting policy described in Note 3, because expected volatility — a significant input to the Monte Carlo simulation — is estimated from the Company’s own historical share prices and is unobservable. The other primary inputs are the Company’s common stock price, the guaranteed value per share under each arrangement, the risk-free rate for the corresponding term and the remaining measurement period. The derivative liability arising from the conversion feature embedded in the 1800 Diagonal Lending promissory note is also classified within Level 3, because its fair value reflects an unobservable input in the form of the probability that an event of default occurs. See Note 7.
| Amount | ||||
| The Grove | $ | |||
| Athlete Capital Sports | ||||
| Learfield (Vanderbilt) | ||||
| Total share-based payment liability | $ | |||
RallyTown and AAA Tuscaloosa — Setoff and Reimbursement Agreement
The Company’s make-whole obligations to RallyTown, LLC (formerly Traffic
Holdco, LLC) and AAA Tuscaloosa, LLC are determined under a Setoff and Reimbursement Agreement dated March 30, 2026. That agreement fixes
the amount payable by formula: $
At Remeasurement (June 30, 2026)
| Stock Price | Strike Price | Term (Yrs) | Volatility | Risk-Free Rate | Total Fair Value | |||||||||||||||||||
| The Grove | % | % | ||||||||||||||||||||||
| Athlete Capital Sports | % | % | ||||||||||||||||||||||
| Learfield (Vanderbilt) | % | % | ||||||||||||||||||||||
| Share counts, per-share amounts and strike prices are stated on a post-split basis. |
The fair value of share based payment liability for Buffalo Sports/Learfield agreement is $ as of June 30, 2026.
Volatility was estimated based on the historical stock price of the Company over the applicable measurement period. The risk-free rate is based on the U.S. Treasury yield curve for the instrument’s remaining term as of the measurement date. The strike price represents the minimum guaranteed aggregate value per the respective agreement divided by the number of shares issued.
| 23 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
| Fair Value Measurements as of June 30, 2026 Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Share based payment liability | $ | $ | $ | $ | ||||||||||||
| Derivative liability — 1800 Diagonal conversion feature | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurements as of December 31, 2025 Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Share based payment liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Level 3 Rollforward — Share-Based Payment Liability
| Share-Based Payment | ||||
| Liability | ||||
| Balance, December 31, 2025 | $ | |||
| Initial recognition — make-whole provisions | ||||
| Change in fair value | ||||
| Reclassification to equity — Buffalo/Learfield | ( | ) | ||
| Payment applied — RallyTown (Setoff and Reimbursement Agreement) | ( | ) | ||
| Reclassification to notes payable — RallyTown and AAA Tuscaloosa | ( | ) | ||
| Balance, June 30, 2026 | $ | |||
There were no transfers between levels during the six months ended June 30, 2026.
NOTE 9: STOCKHOLDERS’ EQUITY
Amendments to Certificate of Incorporation and Reincorporation
On
August 21, 2023, the Board of Directors approved a
Effective December 29, 2025, the Company reincorporated from the State of Delaware to the State of Nevada pursuant to a plan of conversion approved by the Board of Directors. The reincorporation did not affect the Company’s authorized capital structure, par values, or outstanding equity.
Common Stock
As of June 30, 2026, the Company had shares of common stock, $ par value per share, authorized. Effective July 24, 2026, authorized common stock was reduced to shares in connection with the reverse stock split (see Note 16).
Common
stockholders have voting rights of
2026 Transactions
During
the three months ended June 30, 2026, the Company issued shares of common stock upon the exercise of pre-funded warrants previously
issued in connection with a January 2025 marketing services agreement, for exercise proceeds of $
During
the six months ended June 30, 2026, holders converted shares of Series D Preferred Stock, with an aggregate stated value of $
During
the six months ended June 30, 2026, the Company issued shares of common stock upon the exercise of common stock purchase
warrants originally issued in connection with the February 2025 Offering — of which
During
the three months ended June 30, 2026, the Company issued shares of common stock related to warrant exercises at $
During the three months ended June
30, 2026, the Company issued
shares of common stock to Athlete Capital Sports and
shares of common stock to Learfield College and Crimson Tide Sports Marketing in settlement of stock payable, at an aggregate value of
$
During
the three months ended June 30, 2026, the Company also issued shares of common stock under its at-the-market sales agreement for
net proceeds of $
| 24 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Stock Payable
As
of June 30, 2026, stock payable of $
During the six months ended June 30, 2026, the Company issued shares in settlement of obligations under the Athlete Capital Sports, Learfield College and Crimson Tide Sports Marketing agreements for which the corresponding balances had been previously recorded within stock payable, and accordingly reclassified those balances from stock payable to common stock and additional paid-in capital within stockholders’ equity.
The
balance at June 30, 2026 includes $
No balance remained within common stock to be issued at June 30, 2026.
The
stock payable balance also includes obligations to issue shares under certain marketing and consulting agreements, including $
Series A Convertible Preferred Stock
On
September 29, 2022, the Company designated up to shares of Series A Convertible Preferred Stock, par value $, with a stated
value of $ per share. Each share of Series A Preferred Stock is convertible at the holder’s option into a number of shares
of common stock determined by dividing the stated value ($) by the conversion price of $
As
of June 30, 2026 and December 31, 2025, there were shares of Series A Convertible Preferred Stock issued and outstanding, with
an aggregate liquidation preference of $
Series C Convertible Preferred Stock
On
June 21, 2023, the Company issued shares of Series C Convertible Preferred Stock, par value $, with a stated value of $
per share, to the Sundry sellers in exchange for cancellation of promissory notes issued in December 2022. Each share of Series C Preferred
Stock is convertible at the holder’s option into common stock at a conversion price of $
As
of June 30, 2026 and December 31, 2025, there were shares of Series C Convertible Preferred Stock issued and outstanding, with
an aggregate liquidation preference of $
| 25 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Series D Convertible Preferred Stock
2026 Transactions
During the six months ended June 30, 2026, holders converted shares of Series D Preferred Stock into shares of common stock.
As of June 30, 2026, there were shares of Series D Convertible Preferred Stock issued and outstanding.
Conversion:
Dividends: Series D holders are entitled to receive dividends equal (on an as-converted basis) to dividends paid on common stock, when and if declared. No dividends have been declared or paid.
Voting: Series D holders vote with holders of common stock on an as-converted basis, subject to ownership limitations.
Liquidation
Preference: Series D ranks senior to common stock and Junior Securities, pari passu with Series A and Series C, and junior to Senior
Securities. Upon liquidation, each Series D holder is entitled to receive the greater of: (i) the stated value plus accrued dividends,
or (ii) the amount such holder would receive if Series D were converted to common stock immediately prior to such liquidation. As of
June 30, 2026, the aggregate liquidation preference of the Series D Preferred Stock was approximately $
Under ASC 480-10-S99-3A, the Company evaluated whether the Series D should be classified as temporary equity. Because there are no redemption features exercisable at the option of the holder or upon the occurrence of events not solely within the Company’s control, the Series D Preferred Stock does not meet the criteria for temporary equity classification. Accordingly, the Series D is classified as permanent equity in the Consolidated Balance Sheets.
The beneficial conversion feature (“BCF”) guidance under ASC 470-20 was superseded by ASU 2020-06, which the Company has adopted. Accordingly, no BCF was recognized at issuance.
Liquidation Preferences
As of June 30, 2026, the aggregate liquidation preferences of the Company’s preferred stock were as follows:
| Series | Liquidation Preference | |||
| Series A Convertible Preferred Stock | $ | |||
| Series C Convertible Preferred Stock | ||||
| Series D Convertible Preferred Stock | ||||
| Total | $ | |||
NOTE 10: WARRANTS AND STOCK OPTIONS
Common Stock Warrants
A summary of common stock warrant activity for the six months ended June 30, 2026 is as follows:
| Weighted Average | ||||||||
| Shares | Exercise Price | |||||||
| Outstanding, December 31, 2025 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding, June 30, 2026 | $ | |||||||
| Exercisable, June 30, 2026 | ||||||||
| 26 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Warrant Transactions
MavDB Consulting LLC Pre-Funded Warrants
During the six months ended June 30, 2026, holders exercised pre-funded warrants resulting in the issuance of
February 2025 Offering Warrants
During
the six months ended June 30, 2026, holders exercised common stock purchase warrants — of which were exercised
in April and May 2026 with proceeds received prior to March 31, 2026 — at an exercise price of $
In June 2026, an aggregate of common stock purchase warrants issued in connection with the February 2026 warrant inducement, which were previously unexercised, expired unexercised. In addition, on June 15, 2026, the Company placed a hold on pre-funded warrants issued in connection with the February 2025 Offering, pending their expected cancellation; the warrants remain outstanding on the transfer agent’s records and the outcome of the related dispute has not been determined (see Note 13).
On
February 16, 2026, the Company entered into warrant inducement agreements with certain existing holders of common stock purchase warrants
previously issued in connection with the Company’s February 2025 financing. Pursuant to the agreements, the holders exercised an
aggregate of
The Company evaluated the transaction in accordance with the accounting guidance applicable to modifications and inducements of freestanding equity-classified warrants. The Company concluded that the modified warrants substantially represent a continuation and extension of the existing warrants rather than the issuance of entirely new freestanding instruments, as the exercise price and underlying economics remained substantially unchanged and the primary modification related to the extension of the contractual term. The Company further evaluated the accounting impact of the transaction, including the shares issued upon exercise, cash proceeds received, and the modification of the warrant terms. Based on such evaluation, the Company concluded that any accounting impact associated with the warrant modification represents an equity-classified financing-related adjustment within additional paid-in capital and therefore did not result in recognition of an operating expense in the accompanying condensed consolidated financial statements for the three months ended June 30, 2026
Stock Options
As of June 30, 2026 and December 31, 2025, the Company had stock option outstanding with a weighted average exercise price of $ per share, in each case on a post-split basis reflecting the reverse stock split effected July 24, 2026. All outstanding options are exercisable. options were granted, exercised, or forfeited during the three or six months ended June 30, 2026 or 2025.
There was stock-based compensation expense for the three or six months ended June 30, 2026 or 2025. There is unrecognized compensation cost related to outstanding stock options as of June 30, 2026.
| 27 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
NOTE 11: RELATED PARTY TRANSACTIONS
As
of both June 30, 2026 and December 31, 2025, amounts due to related parties was $
As
of both June 30, 2026 and December 31, 2025, due to related parties includes $
In
October 2022, the Company received advances from a director, Trevor Pettennude, totaling $
NOTE 12: LEASE OBLIGATIONS
Management uses judgment in determining lease classification, including determination of the economic life and the fair market value of the identified asset. The fair market value of the identified asset is generally estimated based on comparable market data provided by third-party sources.
The following is a summary of operating lease assets and liabilities:
| June 30, | ||||
| 2026 | ||||
| Assets | ||||
| ROU operating lease assets | $ | |||
| Liabilities | ||||
| Current portion of operating lease | ||||
| Non-current portion of lease liability | ||||
| Total operating lease liabilities | $ | |||
| June 30, | ||||
| 2026 | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
| June 30, | ||||
| 2026 | ||||
| Future minimum payments | $ | |||
| Less imputed interest | ( | ) | ||
| Total lease obligations | $ | |||
| 28 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
NOTE 13: CONTINGENCIES
Marketing Agreement Commitments
The Company has entered into multi-year marketing and sponsorship agreements with AAA Tuscaloosa, LLC, RallyTown, LLC (formerly Traffic Holdco, LLC), The Grove Collective, LLC, Athlete Capital Sports LLC and Learfield, each of which includes equity and, in some cases, cash commitments over three-year terms. Certain of these agreements include make-whole provisions under which the Company may be required to issue additional shares or cash if the fair value of shares delivered falls below the guaranteed commitment during the protection period. These arrangements are accounted for as liability-classified share-based payment awards; the related liabilities are measured at fair value at each reporting date using Monte Carlo simulation models. See Note 4 for the prepaid marketing balances and Note 8 for the fair value of those liabilities as of June 30, 2026.
Legal Contingencies
| ● | In
June 2022, a dispute originated due to a contractual arrangement involving alleged unpaid service fees of approximately $ | |
| ● | On
March 20, 2024, a former temporary worker engaged through a third-party placement agency, who was never an employee of the Company,
filed a wrongful termination lawsuit against the Company. The Company disputed this claim, and the matter was settled in February
2026 for $ |
| ● | In
June 2021, a vendor filed a lawsuit against Bailey related to a retail store lease in the amount of $ | |
| ● | A model has asserted a claim against Mosbest, LLC seeking $ | |
| ● | The Company is currently in a pending dispute regarding cash-funded and pre-funded warrant exercises with a stockholder and affiliated entities. The underlying shares have not been issued due to the ongoing dispute. The Company is unable to predict the outcome of this matter, and an unfavorable outcome could require the Company to issue the underlying shares, return the amounts received or incur other losses. In addition, certain pre-funded warrants issued in connection with the February 2025 Offering have been placed on hold pending the outcome of this matter, which is not yet determined. |
All claims above, to the extent management believes it will be liable, have been included in accounts payable and accrued expenses and other liabilities in the accompanying condensed consolidated balance sheet as of June 30, 2026.
Depending on the nature of the proceeding, claim, or investigation, we may be subject to monetary damage awards, fines, penalties, or injunctive orders. Furthermore, the outcome of these matters could materially adversely affect our business, results of operations, and financial condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant judgment to determine the likelihood and amount of loss related to such matters. While it is not possible to determine the outcomes, we believe based on our current knowledge that the resolution of all such pending matters will not, either individually or in the aggregate, have a material adverse effect on our business, results of operations, cash flows, or financial condition.
Except as may be set forth above the Company is not a party to any legal proceedings, and the Company is not aware of any claims or actions pending or threatened against us. In the future, the Company might from time to time become involved in litigation relating to claims arising from its ordinary course of business, the resolution of which the Company does not anticipate would have a material adverse impact on our financial position, results of operations or cash flows.
NOTE 14: INCOME TAXES
The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. The Company has used a discrete effective tax rate method to calculate taxes for the fiscal three month periods ended June 30, 2026. The Company determined that since small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the fiscal three month period ended June 30, 2026.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company assessed the need for a valuation allowance against its net deferred tax assets and determined a full valuation allowance is required due, cumulative losses through June 30, 2026, and no history of generating taxable income.
| 29 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
NOTE 15: SEGMENT REPORTING
The Company operates as a single reportable segment — direct-to-consumer (“DTC”) fashion brands. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”). The CODM reviews consolidated financial results to evaluate performance, allocate resources, and make operating decisions for the Company as a whole.
In accordance with ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, effective for annual periods beginning after December 15, 2023, the Company is required to disclose significant segment expenses regularly provided to the CODM and included in the reported measure of segment profit or loss, even as a single reportable segment entity.
The CODM uses net loss as the measure of segment profit or loss to assess performance and allocate resources. The significant segment expenses regularly provided to the CODM are presented in the table below.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Significant segment expenses: | ||||||||||||||||
| Cost of net revenues | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Distribution | ||||||||||||||||
| Impairment of goodwill and intangible assets | ||||||||||||||||
| Other income (expense), net: | ||||||||||||||||
| Change in fair value of share-based payment liability | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other non-operating income (expense) | ( | ) | ||||||||||||||
| Income tax benefit (provision) | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| (a) | Other segment items consists of change in fair value of contingent consideration, change in credit reserve, and other immaterial items not separately identified as significant segment expenses. Since the Company operates as a single reportable segment, there are no reconciling items between segment totals and consolidated totals. |
Total
segment assets as of June 30, 2026 and 2025 were $
All revenues and long-lived assets are attributable to operations within the United States. No single customer accounted for more than 10% of net revenues during either period presented
NOTE 16: SUBSEQUENT EVENTS
RallyTown Secured Payment and Security Agreement
On July 16, 2026, the Company and RallyTown, LLC, formerly Traffic Holdco, LLC, entered into a Secured Payment and
Security Agreement establishing the terms of payment of the obligation described in Note 7. The obligation is payable in monthly installments
of $
Convertible Note Financing
On July 23, 2026, the Company issued a convertible promissory note to Shakawe Capital LLC in the original principal
amount of $
| 30 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
Collegiate Sponsorship and Name-Image-Likeness Agreements
Subsequent
to June 30, 2026, the Company entered into additional multi-year collegiate sponsorship and name-image-likeness agreements, including agreements with Playfly Sports Properties, LLC and its affiliates relating to Baylor University, the University
of Nebraska-Lincoln, the University of Virginia and Auburn University, and agreements relating to North Carolina State University, in
each case with terms commencing on or after July 1, 2026. First-contract-year consideration under these agreements aggregates approximately
$
Reverse Stock Split
On
July 15, 2026 the Board of Directors approved a
Amendment to Series D Certificate of Designations and Lock-Up Agreement
On July 17, 2026 the Company filed an amendment to the certificate of designations of its Series D Convertible Preferred Stock with the State of Nevada, revising the definition of Floor Price to 20% of the lower of the closing price on the preceding trading day and the average closing price over the preceding five trading days. As an inducement for the amendment, the majority holder of the Series D Preferred Stock entered into a Lock-Up and Leak-Out Agreement imposing a restricted period of 180 days, during which sales are limited to 3% of the daily trading volume of the common stock, subject to waiver by the Company. The Company is determining the impact of the amendment to the classification and carrying value of the Series D Preferred Stock.
Equity Line of Credit
On
July 23, 2026, the Company entered into a purchase agreement providing for an equity line of credit of up to $
At-the-Market Offering
Subsequent to June 30, 2026 and through August 17, 2026, the Company sold shares of common stock,
on a post-split basis, through its sales agent under the at-the-market offering program established pursuant to the Company’s registration
statement on Form S-3, for gross proceeds of $
Conversions of Series D Convertible Preferred Stock
Between July 20, 2026 and August 17, 2026, holders
converted an aggregate of shares of Series D Convertible Preferred Stock, having an aggregate stated value of $
Appointment of Director
On
July 14, 2026 the Board of Directors appointed David Sosnowski as an independent director under a board agreement with an initial term
of one year, renewable annually. Mr. Sosnowski is entitled to an annual cash retainer of $
Management has evaluated subsequent events through the date these unaudited condensed consolidated financial statements were issued and has determined that, other than as described above, no events have occurred that would require recognition or disclosure in these financial statements.
| 31 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the historical financial statements of the relevant entities and the pro forma financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Unless otherwise indicated by the context, references to “DBG” refer to Digital Brands Group, Inc. solely, and references to “Digital Brands Group,” the “Company,” “our,” “we,” “us” and similar terms refer to Digital Brands Group, Inc., together with its wholly owned subsidiaries Bailey 44, LLC (“Bailey”), MOSBEST, LLC (“Stateside”) and Sunnyside (“Sundry”).
Overview
Our Company
Digital Brands Group is a curated collection of lifestyle brands, including Bailey 44, DSTLD, Stateside, Sundry and Avo, that offers a variety of apparel products through direct-to-consumer and wholesale distribution. Our complementary brand portfolio provides us with the unique opportunity to cross merchandise our brands. We aim for our customers to wear our brands head to toe and to capture what we call “closet share” by gaining insight into their preferences to create targeted and personalized content specific to their cohort. Operating our brands under one portfolio provides us with the ability to better utilize our technological, human capital and operational capabilities across all brands. As a result, we have been able to realize operational efficiencies and continue to identify additional cost-saving opportunities to scale our brands and overall portfolio.
Our portfolio consists of five significant brands that leverage our three channels: our websites, wholesale and license revenue.
| ● | Bailey 44 combines beautiful, luxe fabrics and on-trend designs to create sophisticated ready-to-wear capsules for women on-the-go. Designing for real life, this brand focuses on feeling and comfort rather than how it looks on a runway. Bailey 44 is primarily a wholesale brand, which we are transitioning to a digital, direct-to-consumer brand. | |
| ● | DSTLD offers stylish high-quality garments without the luxury retail markup valuing customer experience over labels. DSTLD is primarily a digital direct-to-consumer brand, to which we recently added select wholesale retailers to generate brand awareness. | |
| ● | Stateside is an elevated, America-first brand with all knitting, dyeing, cutting and sewing sourced and manufactured locally in Los Angeles. The collection is influenced by the evolution of the classic T-shirt offering a simple yet elegant look. Stateside is primarily a wholesale brand that we will be transitioning to a digital, direct-to-consumer brand. | |
| ● | Sundry offers distinct collections of women’s clothing, including dresses, shirts, sweaters, skirts, shorts, athleisure bottoms and other accessory products. Sundry’s products are coastal casual and consist of soft, relaxed and colorful designs that feature a distinct French chic, resembling the spirits of the French Mediterranean and the energy of Venice Beach in Southern California. Sundry is primarily a wholesale brand that we will be transitioning to a digital, direct-to-consumer brand. | |
| ● | Avo is a women’s essential brand that will offer t-shirts, sweats, dresses, sweaters and athleisure. Avo eliminates the wholesale mark-up, so its products have a sharper price point. Avo also offers larger discounts when the customer bundles multiple products to their cart, which allows Avo to leverage its shipping and fulfillment costs. Avo leverages the Company’s current design and supply chain infrastructure, so we use similar or the same fabrics and contractors for Avo that we do for our other brands. |
| 32 |
We believe that successful apparel brands sell in all revenue channels. However, each channel offers different margin structures and requires different customer acquisition and retention strategies. We were founded as a digital-first retailer that has strategically expanded into select wholesale and direct retail channels. We strive to strategically create omnichannel strategies for each of our brands that blend physical and online channels to engage consumers in the channel of their choosing. Our products are sold direct-to-consumers principally through our websites and our own showrooms, but also through our wholesale channel, primarily in specialty stores and select department stores. With the continued expansion of our wholesale distribution, we believe developing an omnichannel solution further strengthens our ability to efficiently acquire and retain customers, while also driving high customer lifetime value (“LTV”), which we define as an estimate of the average revenue that a customer will generate throughout their lifespan as our customer. This value/revenue of a customer helps us determine many economic decisions, such as marketing budgets per marketing channel, retention versus acquisition decisions, unit level economics, profitability and revenue forecasting.
We believe that by leveraging a physical footprint to acquire customers and increase brand awareness, we can use digital marketing to focus on retention and a very tight, disciplined high value new customer acquisition strategy, especially targeting potential customers lower in the sales funnel. Building a direct relationship with the customer as the customer transacts directly with us allows us to better understand our customer’s preferences and shopping habits. Our substantial experience as a company originally founded as a digitally native-first retailer gives us the ability to strategically review and analyze the customer’s data, including contact information, browsing and shopping cart data, purchase history and style preferences. This in turn has the effect of lowering our inventory risk and cash needs since we can order and replenish product based on the data from our online sales history, replenish specific inventory by size, color and SKU based on real times sales data, and control our mark-down and promotional strategies versus being told what mark downs and promotions we have to offer by the department stores and boutique retailers.
We define “closet share” as the percentage (“share”) of a customer’s clothing units that (“of closet”) she or he owns in her or his closet and the amount of those units that go to the brands that are selling these units. For example, if a customer buys 20 units of clothing a year and the brands that we own represent 10 of those units purchased, then our closet share is 50% of that customer’s closet, or 10 of our branded units divided by 20 units they purchased in the entirety. Closet share is a similar concept to the widely used term wallet share; it is just specific to the customer’s closet. The higher our closet share, the higher our revenue, as higher closet share suggests the customer is purchasing more of our brands than our competitors.
We have strategically expanded into an omnichannel brand offering these styles and content not only online but at selected wholesale and retail storefronts. We believe this approach provides us opportunities to successfully drive LTV, while increasing new customer growth.
Material Trends, Events and Uncertainties
Supply Chain Disruptions
We are subject to global supply chain disruptions, which may include longer lead times for raw fabrics, inbound shipping and longer production times. Supply chain issues have specifically impacted our brands as follows:
| ● | Increased costs in raw materials from fabric prices, which have increased 10% to 100% depending on the fabric, the time of year, and the origin of the fabric, as well as where the fabric is being shipped; | |
| ● | Increased cost per kilo to ship via sea or air, which has increased from 25% to 300% depending on the time of year and the country we are shipping from; | |
| ● | Increased transit time via sea or air, which has increased by two weeks to two months; and | |
| ● | Increased labor costs for producing the finished goods, which have increased 5% to 25% depending on the country and the labor skill required to produce the goods. | |
| We have been able to pass along some of these increased costs and also offset some of these increased costs with higher gross margin online revenue. |
| 33 |
Seasonality
Our quarterly operating results vary due to the seasonality of our individual brands, and are historically stronger in the second half of the calendar year.
Substantial Indebtedness
As of June 30, 2026, we had an aggregate principal amount of debt outstanding of approximately $17.4 million, including $11.2 million payable under our secured payment obligation to RallyTown, LLC. We believe this amount of indebtedness may limit our ability to obtain additional financing on acceptable terms, requires us to dedicate a portion of any cash flow from operations to debt service, and may restrict our flexibility in planning for changes in our business. In addition, subsequent to June 30, 2026 we issued a convertible promissory note in the principal amount of $3.5 million for gross proceeds of $3.0 million.
| ● | Make it more difficult for us to satisfy our obligations to the holders of our outstanding debt, resulting in possible defaults on and acceleration of such indebtedness; | |
| ● | Require us to dedicate a substantial portion of our cash flows from operations to make payments on our debt, which would reduce the availability of our cash flows from operations to fund working capital, capital expenditures or other general corporate purposes; | |
| ● | Increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations; | |
| ● | Place us at a competitive disadvantage to our competitors with proportionately less debt for their size; | |
| ● | Limit our ability to refinance our existing indebtedness or borrow additional funds in the future; | |
| ● | Limit our flexibility in planning for, or reacting to, changing conditions in our business; and | |
| ● | Limit our ability to react to competitive pressures or make it difficult for us to carry out capital spending that is necessary or important to our growth strategy. |
Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
We currently have $3.5 million in notes outstanding pursuant to our Bailey acquisition. However, we have recently generated cash flows through a private offering and have established business plans that we believe are sufficient to enable us to repay the outstanding notes, including principal, premium (if any), and interest on our indebtedness.
In addition, while our ability to make scheduled payments or refinance obligations under our debt agreements remains subject to prevailing economic and competitive conditions—as well as the financial and business risks described herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025—we believe our current liquidity position and forward-looking strategies provide us with the necessary resources to meet these obligations as they come due.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures or planned growth objectives, seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flows and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet scheduled debt service obligations. In addition, the recent worldwide credit crisis could make it more difficult for us to refinance our indebtedness on favorable terms, or at all.
| 34 |
In the absence of such operating results and resources, we may be required to dispose of material assets to meet our debt service obligations. We may not be able to consummate those sales, or, if we do, we will not control the timing of the sales or whether the proceeds that we realize will be adequate to meet debt service obligations when due.
Performance Factors
We believe that our future performance will depend on many factors, including the following:
| ● | Ability to Increase Our Customer Base in both Online and Traditional Wholesale Distribution Channels. We are currently growing our customer base through both paid and organic online channels, as well as by expanding our presence in a variety of physical retail distribution channels. Online customer acquisitions typically occur at our direct websites for each brand. Our online customer acquisition strategies include paid and unpaid social media, search, display and traditional media. Our products for Bailey, DSTLD and Stateside are also sold through a growing number of physical retail channels, including specialty stores, department stores and online multi-brand platforms. | |
| ● | Ability to Acquire Customers at a Reasonable Cost. We believe an ability to consistently acquire customers at a reasonable cost relative to customer retention rates, contribution margins and projected life-time value will be a key factor affecting future performance. To accomplish this goal, we intend to balance advertising spend between online and offline channels, as well as cross marketing and cross merchandising our portfolio brands and their respective products. We believe the ability to cross-merchandise products and cross-market brands, will decrease our customer acquisition costs while increasing the customer’s lifetime value and contribution margin. We will also balance marketing spend with advertising focused on creating emotional brand recognition, which we believe will represent a lower percentage of our spend. | |
| ● | Ability to Drive Repeat Purchases and Customer Retention. We accrue substantial economic value and margin expansion from customer cohort retention and repeat purchases of our products on an annual basis. Our revenue growth rate and operating margin expansion will be affected by our customer cohort retention rates and the cohorts annual spend for both existing and newly acquired customers. | |
| ● | Ability to Expand Our Product Lines. Our goal is to expand our product lines over time to increase our growth opportunity. Our customers’ annual spend and brand relevance will be driven by the cadence and success of new product launches. | |
| ● | Ability to Expand Gross Margins. Our overall profitability will be impacted by our ability to expand gross margins through effective sourcing and leveraging buying power of finished goods and shipping costs, as well as pricing power over time. | |
| ● | Ability to Expand Operating Margins. Our ability to expand operating margins will be impacted by our ability to leverage (i) fixed general and administrative costs; (ii) variable sales and marketing costs; (iii) elimination of redundant costs as we acquire and integrate brands; (iv) cross marketing and cross merchandising brands in our portfolio; and (v) drive customer retention and customer lifetime value. Our ability to expand operating margins will result from increasing revenue growth above our operating expense growth, as well as increasing gross margins. For example, we anticipate that our operating expenses will increase substantially in the foreseeable future as we undertake the acquisition and integration of different brands, incur expenses associated with maintaining compliance as a public company, and increased marketing and sales efforts to increase our customer base. While we anticipate that the operating expenses in absolute dollars will increase, we do not anticipate that the operating expenses as a percentage of revenue will increase. We anticipate that the operating expenses as a percentage of revenue will decrease as we eliminate duplicative costs across brands including a reduction in similar labor roles, contracts for technologies and operating systems and creating lower costs from higher purchasing power from shipping expenses to purchase orders of products. This reduction of expenses and lower cost per unit due to purchasing power should create meaningful savings in both dollars and as a percentage of revenue. |
| 35 |
| As an example, we were able to eliminate several million in expenses within six months of acquiring Bailey. Examples of these savings include eliminating several Bailey teams, which our teams took over. We merged over half of the technology contracts and operating systems contracts from two brands into one brand contract at significant savings. We also eliminated our office space and rent and moved everyone into the Bailey office space. Finally, we eliminated DSTLD’s third-party logistics company and started using Bailey’s internal logistics. This resulted in an increase in our operating expenses in absolute dollars as there were now two brands versus one brand. However, the operating expenses as a percentage of pre-COVID revenue declined meaningfully and as we increase revenue for each brand, we expect to experience higher margins. | ||
| ● | Ability to Create Free Cash Flow. Our goal is to achieve near term free cash flow through cash flow positive acquisitions, elimination of redundant expenses in acquired companies, increasing customer annual spend and lowering customer acquisition costs through cross merchandising across our brand portfolio. |
Financial Statement Components
Bailey
| ● | Net Revenue. Bailey sells its products directly to customers. Bailey also sells its products indirectly through wholesale channels that include third-party online channels and physical channels such as specialty retailers and department stores. | |
| ● | Cost of Net Revenue. Bailey’s cost of net revenue includes the direct cost of purchased and manufactured merchandise; inventory shrinkage; inventory adjustments due to obsolescence including excess and slow-moving inventory and lower of cost and net realizable reserves; duties; and inbound freight. Cost of net revenue also includes direct labor to production activities such as pattern makers, cutters and sewers. Cost of net revenue includes an allocation of overheard costs such as rent, utilities and commercial insurance pertaining to direct inventory activities. | |
| ● | Operating Expenses. Bailey’s operating expenses include all operating costs not included in cost of net revenues and sales and marketing. These costs consist of general and administrative, fulfillment and shipping expense to the customer. | |
| General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, occupancy expenses related to Bailey’s operations at its headquarters, including utilities, depreciation and amortization, and other costs related to the administration of its business. | ||
| Bailey’s fulfillment and shipping expenses include the cost to operate its warehouse including occupancy and labor costs to pick and pack customer orders and any return orders; packaging; and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse. | ||
| ● | Sales & Marketing. Bailey’s sales and marketing expense primarily includes digital advertising; photo shoots for wholesale and direct-to-consumer communications, including email, social media and digital advertisements; and commission expenses associated with sales representatives. | |
| ● | Interest Expense. Bailey’s interest expense consists primarily of interest related to its outstanding debt to our senior lender. |
| 36 |
DBG
| ● | Net Revenue. We sell our products to our customers directly through our website. In those cases, sales, net represents total sales less returns, promotions and discounts. | |
| ● | Cost of Net Revenue. Cost of net revenue includes direct cost of purchased merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost and net realizable reserves. | |
| ● | Operating Expenses. Our operating expenses include all operating costs not included in cost of net revenues. These costs consist of general and administrative, sales and marketing, and fulfillment and shipping expense to the customer. | |
| General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, and expenses related to our operations at our headquarters, including utilities, depreciation and amortization, and other costs related to the administration of our business. | ||
| We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and higher expenses for insurance, investor relations and professional services. We expect these costs will increase our operating costs. | ||
| Fulfillment and shipping expenses include the cost to operate our warehouse — or prior to Bailey 44 acquisition, costs paid to our third-party logistics provider — including occupancy and labor costs to pick and pack customer orders and any return orders; packaging; and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse. | ||
| In addition, going forward, the amortization of the identifiable intangibles acquired in the acquisitions will be included in operating expenses. | ||
| ● | Interest Expense. Interest expense consists primarily of interest related to our debt outstanding to our senior lender, convertible debt, and other interest-bearing liabilities. |
Stateside
| ● | Net Revenue. Stateside sells its products directly to customers. Stateside also sells its products indirectly through wholesale channels that include third-party online channels and physical channels such as specialty retailers and department stores. | |
| ● | Cost of Net Revenue. Stateside’s cost of net revenue includes the direct cost of purchased and manufactured merchandise; inventory shrinkage; inventory adjustments due to obsolescence including excess and slow-moving inventory and lower of cost and net realizable reserves; duties; and inbound freight. Cost of net revenue also includes direct labor to production activities such as pattern makers, cutters and sewers. Cost of net revenue includes an allocation of overheard costs such as rent, utilities and commercial insurance pertaining to direct inventory activities. | |
| ● | Operating Expenses. Stateside’s operating expenses include all operating costs not included in cost of net revenues and sales and marketing. These costs consist of general and administrative, fulfillment and shipping expense to the customer. |
| 37 |
| General and administrative expenses consist primarily of all payroll and payroll-related expenses, professional fees, insurance, software costs, occupancy expenses related to Stateside’s stores and to Stateside’s operations at its headquarters, including utilities, depreciation and amortization, and other costs related to the administration of its business. | ||
| Stateside’s fulfillment and shipping expenses include the cost to operate its warehouse including occupancy and labor costs to pick and pack customer orders and any return orders; packaging; and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse. | ||
| ● | Sales & Marketing. Stateside’s sales and marketing expense primarily includes digital advertising; photo shoots for wholesale and direct-to-consumer communications, including email, social media and digital advertisements; and commission expenses associated with sales representatives. |
Sundry
| ● | Net Revenue. Sundry sells its products directly to customers. Sundry also sells its products indirectly through wholesale channels that include third-party online channels and physical channels such as specialty retailers and department stores. | |
| ● | Cost of Net Revenue. Sundry’s cost of net revenue includes the direct cost of purchased and manufactured merchandise; inventory shrinkage; inventory adjustments due to obsolescence including excess and slow-moving inventory and lower of cost and net realizable reserves; duties; and inbound freight. Cost of net revenue also includes direct labor to production activities such as pattern makers, cutters and sewers. Cost of net revenue includes an allocation of overheard costs such as rent, utilities and commercial insurance pertaining to direct inventory activities. | |
| ● | Operating Expenses. Our operating expenses include all operating costs not included in cost of net revenues. These costs consist of general and administrative, sales and marketing, and fulfillment and shipping expense to the customer. | |
| General and administrative expenses consist primarily of all payroll and payroll-related expenses, stock-based compensation, professional fees, insurance, software costs, and expenses related to our operations at our headquarters, including utilities, depreciation and amortization, and other costs related to the administration of our business. | ||
| Sales and marketing expense primarily includes digital advertising; photo shoots for wholesale and direct-to-consumer communications, including email, social media and digital advertisements; and commission expenses associated with sales representatives. | ||
| We expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and higher expenses for insurance, investor relations and professional services. We expect these costs will increase our operating costs. | ||
| Distribution expenses includes costs paid to our third-party logistics provider, packaging and shipping costs to the customer from the warehouse and any returns from the customer to the warehouse. | ||
| At each reporting period, we estimate changes in the fair value of contingent consideration and recognize any change in fair in our consolidated statement of operations, which is included in operating expenses. Additionally, amortization of the identifiable intangibles acquired in the acquisitions is also included in operating expenses. | ||
| ● | Interest Expense. Interest expense consists primarily of interest related to our debt outstanding to promissory notes, convertible debt, and other interest-bearing liabilities. |
| 38 |
Recent Developments
During the six months ended June 30, 2026, the Company continued to expand its collegiate apparel, marketing and name-image-likeness platform, entering into agreements covering additional universities and issuing common stock as consideration under several of those arrangements.
Effective January 26, 2026, the Company entered into a Marketing and Sponsorship Agreement with Learfield College, LLC relating to Vanderbilt University, providing for equity consideration of $925,000 over four contract years through June 30, 2029, together with cash and trade consideration. In May 2026 the Company issued 3,108 shares of common stock in satisfaction of the equity consideration.
Effective March 12, 2026, the Company entered into a consulting agreement with Athlete Capital Sports LLC, and in May 2026 issued 23,511 shares of common stock in settlement of the related stock payable. On May 1, 2026 the Company entered into an Exclusive Private Label Manufacturing Agreement with The Battle’s End, LLC, the marketing agent for Florida State University athletics, with stock consideration of $1,050,000.
During the six months ended June 30, 2026, holders exercised pre-funded warrants resulting in the issuance of 46,497 shares of common stock and exercised 203,613 common stock purchase warrants issued in connection with the February 2025 offering. On June 15, 2026 the Company placed a hold on 179,690 pre-funded warrants pending their expected cancellation, and on June 17, 2026 240,851 warrants issued under the February 2026 inducement expired unexercised.
During the six months ended June 30, 2026, holders converted 1,250 shares of Series D Preferred Stock into 14,082 shares of common stock. In June 2026 the Company sold 36,335 shares under its at-the-market program for net proceeds of $1,677,052, and issued a promissory note to 1800 Diagonal Lending LLC in the principal amount of $238,050 for cash proceeds of $200,000.
No Exposure to de-Minimis
The Company does not use and has never used the “de minimis” exemption. The “de minimis” provision, which allowed duty-free entry for low-value imports (under $800), has been overturned for goods from China and Hong Kong, effective May 2, 2025. This means that goods imported from these countries, even if under the $800 threshold, will now be subject to tariffs.
A significant number of e-commerce retailers relied on the de minimis exemption, which the Company believes will require them to significantly increase their prices or to experience a significant decline in gross margin and profitability. The Company has been approached by several e-commerce companies with the de minimis exposure seeking to sell their company at meaningfully reduced valuations. The Company believes this change in the de minimis policy should reduce the number of online apparel brands, and create a less crowded marketplace.
| 39 |
Our Financial Position
For the three months ended June 30, 2026 and 2025, we generated net revenues of $1.2 million and $2.3 million, respectively, and reported net losses of $9.0 million and $2.1 million, respectively. For the six months ended June 30, 2026 and 2025, we generated net revenues of $2.5 million and $4.1 million, respectively, and reported net losses of $20.4 million and $4.2 million, respectively.
Results of Operations
Three and Six Months Ended June 30, 2026 compared to Three and Six Months Ended June 30, 2025.
The following table presents our results of operations for the three and six months ended June 30, 2026 and 2025:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Net revenues | $ | 1,208,170 | $ | 2,251,379 | $ | 2,524,154 | $ | 4,123,080 | ||||||||
| Cost of net revenues | 883,905 | 1,539,827 | 2,154,508 | 2,539,073 | ||||||||||||
| Gross profit | 324,265 | 711,552 | 369,646 | 1,584,007 | ||||||||||||
| General and administrative | 2,408,904 | 1,527,249 | 4,981,188 | 3,501,052 | ||||||||||||
| Sales and marketing | 5,276,497 | 1,031,594 | 10,028,752 | 1,860,382 | ||||||||||||
| Other operating expenses | 112,070 | 137,926 | 252,044 | 204,350 | ||||||||||||
| Operating loss | (7,473,206 | ) | (1,985,217 | ) | (14,892,338 | ) | (3,981,777 | ) | ||||||||
| Other expenses | (1,510,216 | ) | (132,645 | ) | (5,483,117 | ) | (225,995 | ) | ||||||||
| Loss before provision for income taxes | (8,983,422 | ) | (2,117,862 | ) | (20,375,455 | ) | (4,207,772 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss from continuing operations | (8,983,422 | ) | (2,117,862 | ) | (20,375,455 | ) | (4,207,772 | ) | ||||||||
| Loss from discontinued operations | - | - | - | - | ||||||||||||
| Net loss | $ | (8,983,422 | ) | $ | (2,117,862 | ) | $ | (20,375,455 | ) | $ | (4,207,772 | ) | ||||
Net Revenues
Net revenues decreased by $1.1 million to $1.2 million for the three months ended June 30, 2026, compared to $2.3 million in the corresponding period of 2025, and decreased by $1.6 million to $2.5 million for the six months ended June 30, 2026, compared to $4.1 million in the corresponding period of 2025. The decrease was driven primarily by lower wholesale shipments across the Company’s brands.
The Company expects wholesale revenue to benefit in the remainder of 2026 from its collegiate apparel programs, including the college bookstore distribution arrangement announced in July 2026, and has issued revenue guidance for the third quarter of 2026 of $8.5 million to $11.0 million.
Gross Profit
Our gross profit decreased by $0.4 million to $324,265 for the three months ended June 30, 2026, from $711,552 for the corresponding period in 2025, and decreased by $1.2 million to $369,646 for the six months ended June 30, 2026, from $1,584,007 for the corresponding period in 2025.
| 40 |
Our gross margin was approximately 27% for the three months ended June 30, 2026, compared to 32% for the three months ended June 30, 2025, and 15% for the six months ended June 30, 2026 compared to 38% for the corresponding period in 2025. The compression reflects lower revenue against fixed costs of production together with a higher proportion of off-price wholesale shipments.
The Company expects gross margins to expand as revenues increase and leverage fixed costs, with a higher mix of e-commerce and collegiate revenue, which carry higher gross margins than off-price wholesale.
Operating Expenses
Operating expenses totaled $7.8 million for the three months ended June 30, 2026, compared to $2.7 million for the corresponding period in 2025, and $15.3 million for the six months ended June 30, 2026 compared to $5.6 million for the corresponding period in 2025. The increase is attributable principally to amortization of prepaid marketing arising from the Company’s collegiate apparel and name-image-likeness agreements, which is recorded within sales and marketing expenses and totaled $2.8 million and $5.3 million for the three and six months ended June 30, 2026, respectively, together with the impairment of the remaining MavDB Consulting prepaid balance of $764,424 recognized in the second quarter.
Other Expense
Other expense was $1.5 million for the three months ended June 30, 2026, compared to $0.1 million for the three months ended June 30, 2025. For the six months ended June 30, 2026 other expense was $5.5 million, compared to $0.2 million for the corresponding period in 2025. The movement is driven principally by changes in the fair value of the Company’s share-based payment liabilities, which produced a charge of $1.8 million in the second quarter and a charge of $5.6 million for the six-month period.
Net Loss
Our net loss was $9.0 million for the three months ended June 30, 2026, compared to a net loss of $2.1 million for the three months ended June 30, 2025, and $20.4 million for the six months ended June 30, 2026, compared to $4.2 million for the corresponding period in 2025.
Liquidity and Capital Resources
Each of DBG, Bailey, Stateside and Sundry has historically satisfied both liquidity needs and funding of operations through borrowings capital raises and internally generated cash flow, Changes in working capital, are driven primarily by levels of business activity. Historically each of DBG, Bailey, Stateside and Sundry has maintained credit line facilities to support such working capital needs and makes repayments on that facility with excess cash flow from operations.
The Company requires significant capital to meet its obligations as they become due. Management believes its existing cash resources and planned operations — including revenues expected from its collegiate apparel program and continued cost reduction measures — together with sales of equity securities under the Company’s at-the-market facility and equity line of credit, may not be sufficient to fund operations for at least twelve months from the date of issuance of these financial statements, and substantial doubt exists about the Company’s ability to continue as a going concern. These plans depend in part on factors that are not within the Company’s control, including equity market conditions; see Note 2 to the condensed consolidated financial statements. The Company may also pursue additional equity or debt financings as needed. There can be no assurance as to the availability or terms upon which such financing might be available. The Bailey sellers’ promissory note of $3,500,000 matured on December 8, 2025 and remains in default; management is in active discussions with the lender regarding repayment or extension.
| 41 |
Cash Flow Activities
The following table presents selected captions from our condensed consolidated statements of cash flows for the six months ended June 30, 2026 and 2025:
| Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Net loss | $ | (20,375,455 | ) | $ | (4,207,772 | ) | ||
| Non-cash adjustments | 6,086,226 | 861,253 | ||||||
| Change in operating assets and liabilities | 3,986,272 | (2,737,756 | ) | |||||
| Net cash used in operating activities | (10,302,957 | ) | (6,084,275 | ) | ||||
| Net cash used in investing activities | (223,644 | ) | - | |||||
| Net cash provided by financing activities | 4,233,763 | 6,462,422 | ||||||
| Net change in cash | $ | (6,292,838 | ) | $ | 378,147 | |||
Cash Flows Used In Operating Activities
Our cash used in operating activities was $10.3 million for the six months ended June 30, 2026, compared to $4.5 million for the corresponding period in 2025. The increase reflects the higher operating loss for the period, partly offset by non-cash charges for amortization of prepaid marketing, the impairment of the MavDB prepaid balance and changes in the fair value of share-based payment liabilities.
Cash Flows Used in Investing Activities
Net cash used in investing activities was approximately $0.2 million for the six months ended June 30, 2026, compared to nil for the corresponding period in 2025, and related to purchases of property and equipment.
Cash Flows Provided by Financing Activities
Cash provided by financing activities was $4.2 million for the six months ended June 30, 2026, compared to $6.6 million for the corresponding period in 2025, and comprised proceeds from warrant exercises, net proceeds of $1,677,052 from sales under the at-the-market program and $200,000 from the issuance of a promissory note, partly offset by repayments of merchant advances and other borrowings and a $70,000 payment applied to the RallyTown secured payment obligation.
Contractual Obligations and Commitments
As of June 30, 2026, we had $17.4 million in outstanding principal on debt, consisting principally of our secured payment obligation to RallyTown, LLC of $11.2 million, our promissory note due to the Bailey sellers of $3.5 million, a U.S. Small Business Administration loan, a Paycheck Protection Program note, merchant cash advances and the 1800 Diagonal Lending note. The RallyTown obligation is payable in monthly installments of $400,000 commencing August 1, 2026 and bears interest at 10% per annum. We also have operating lease obligations in respect of our Round Rock, Texas facility with future minimum payments of $6.1 million.
Off-Balance Sheet Arrangements and Future Commitment
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. See Note 3 to the accompanying unaudited condensed consolidated financial statements, which disclosure is incorporated herein by reference.
| 42 |
Emerging Growth Company Status
We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and, as such, have elected to comply with certain reduced public company reporting requirements.
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may, therefore, not be comparable to those of companies that comply with such new or revised accounting standards.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 promulgated under the Exchange Act and are not required to provide the information required by this Item 3.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, who serve as our principal executive officer and principal financial and accounting officer, respectively, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2026. In making this evaluation, our management considered the material weakness in our internal control over financial reporting described below. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2026.
| 43 |
The material weakness relates to an insufficient complement of qualified accounting personnel and a lack of formalized controls over the financial close and reporting process, including controls over the accounting for and review of complex equity, share-based payment and non-routine transactions. We have initiated various remediation efforts, including the hiring of additional financial personnel/consultants with the appropriate public company and technical accounting expertise and other actions that are more fully described below. As such remediation efforts are still ongoing, we have concluded that the material weaknesses have not been fully remediated. Our remediation efforts to date have included the following:
| ● | We have made an assessment of the basis of accounting, revenue recognition policies and accounting period cutoff procedures. In some cases, we made the necessary adjustments to convert the basis of accounting from cash basis to accrual basis. In all cases we have done the required analytical work to ensure the proper cutoff of the financial position and results of operations for the presented accounting periods. | |
| ● | We have made an assessment of the current accounting personnel, financial reporting and information system environments and capabilities. Based on our preliminary findings, we have found these resources and systems lacking and have concluded that these resources and systems will need to be supplemented and/or upgraded. We are in the process of identifying a single, unified accounting and reporting system that can be used by the Company and Bailey, with the goal of ensuring consistency and timeliness in reporting, real time access to data while also ensuring ongoing data integrity, backup and cyber security procedures and processes. | |
| ● | We engaged external consultants with public company and technical accounting experience to facilitate accurate and timely accounting closes and to accurately prepare and review the financial statements and related footnote disclosures. We plan to retain these financial consultants until such time that the internal resources of the Company have been upgraded and the required financial controls have been fully implemented. | |
| ● | We have made an assessment on significant judgments and estimates, including impairment of long-lived assets and inventory valuation. We plan to take the steps as noted above to have the proper resources to conduct proper analyses on areas requiring judgments and estimates. |
The actions that have been taken are subject to continued review, implementation and testing by management, as well as audit committee oversight. While we have implemented a variety of steps to remediate these weaknesses, we cannot assure you that we will be able to fully remediate them, which could impair our ability to accurately and timely meet our public company reporting requirements.
Notwithstanding the assessment that our internal control over financial reporting is not effective and that material weaknesses exist, we believe that we have employed supplementary procedures to ensure that the financial statements contained in this filing fairly present our financial position, results of operations and cash flows for the reporting periods covered herein in all material respects.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Notwithstanding the material weakness, management believes that the condensed consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting
Except for the remediation measures described above, no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 44 |
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary course of business. These include proceedings, claims, and investigations relating to commercial and contractual disputes, intellectual property, employment matters, and tax and other regulatory matters.
| ● | In June 2022, a dispute originated due to a contractual arrangement involving alleged unpaid service fees of approximately $28,000, as well as additional disputed amounts, and counterclaims asserted by the Company for damages arising from website-related issues. A default judgment of approximately $28,000 was entered against the Company in January 2025. The Company is currently challenging the judgment and has initiated a new action reasserting its claims. | |
| ● | On March 20, 2024, a former temporary worker engaged through a third-party placement agency, who was never an employee of the Company, filed a wrongful termination lawsuit against the Company. The Company disputed this claim, and the matter was settled in February 2026 for $16,000. | |
| ● | In June 2021, a vendor filed a lawsuit against Bailey related to a retail store lease in the amount of $1,500,000. The Company is disputing the claim for damages and the matter is ongoing. The vendor has recently updated the claim to now be $450,968 after signing a long-term lease with another brand for this location. The Company is disputing this new amount after review of the lease. In the summer of 2024, Century City Mall, LLC obtained a judgment against Bailey 44, LLC in the amount of approximately $1.4 million, inclusive of both damages for unpaid rent and attorney fees and costs. This amount is included within the liabilities of Bailey 44, LLC in these accompanying financial statements. In this action, Century City Mall is attempting to hold Digital liable for the judgment against Bailey 44 on the theory that Digital is Bailey 44’s “alter ego.” The case is set for trial on July 21, 2026. The Company is unable to weigh in on the likely outcome of the case but will vigorously defend. |
All claims above, to the extent management believes it will be liable, have been included in accounts payable and accrued expenses and other liabilities in the accompanying condensed consolidated balance sheet as of June 30, 2026.
Depending on the nature of the proceeding, claim, or investigation, we may be subject to monetary damage awards, fines, penalties, or injunctive orders. Furthermore, the outcome of these matters could materially adversely affect our business, results of operations, and financial condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant judgment to determine the likelihood and amount of loss related to such matters. While it is not possible to determine the outcomes, we believe based on our current knowledge that the resolution of all such pending matters will not, either individually or in the aggregate, have a material adverse effect on our business, results of operations, cash flows, or financial condition.
Except as may be set forth above the Company is not a party to any legal proceedings, and the Company is not aware of any claims or actions pending or threatened against us. In the future, the Company might from time to time become involved in litigation relating to claims arising from its ordinary course of business, the resolution of which the Company does not anticipate would have a material adverse impact on our financial position, results of operations or cash flows.
| 45 |
ITEM 1A. RISK FACTORS
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
See Note 9 and Note 16 to the financial statements. During the quarter ended June 30, 2026 the Company issued 23,511 shares of common stock to Athlete Capital Sports LLC, 3,108 shares to Learfield College, LLC and 680 shares to Crimson Tide Sports Marketing, LLC in settlement of amounts recorded within stock payable, and 14,608 shares upon the exercise of pre-funded warrants, in each case on a post-split basis. Subsequent to quarter end the Company issued an unsecured convertible promissory note and entered into an equity line of credit, as described in Note 16.
The above issuances were made pursuant to an exemption from registration pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The promissory note payable to the sellers of Bailey 44, LLC in the principal amount of $3,500,000 matured on December 8, 2025 and remains outstanding. Accrued and unpaid interest on the note was $3,019,888 as of June 30, 2026. The Company has not received a notice of acceleration from the holders. See Note 7.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
(a) On July 15, 2026 the Board of Directors approved a reverse stock split of the Company’s issued and outstanding common stock at a ratio of one-for-forty. A Certificate of Change was filed with the Secretary of State of the State of Nevada on July 20, 2026 and the reverse stock split became effective at 12:01 a.m. Eastern Time on July 24, 2026, at which time the common stock began trading on a post-split basis under a new CUSIP number. The number of authorized shares of common stock was reduced from 1,000,000,000 to 25,000,000 and the par value per share remained unchanged at $0.0001. Proportionate adjustments were made to the exercise prices and the number of shares issuable under the Company’s outstanding warrants and equity awards, and to the conversion factors applicable to the Company’s outstanding preferred stock. No fractional shares were issued. See Note 3 and Note 16.
(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.
(c)
During the quarter ended June 30, 2026, no director or officer of the Company
ITEM 6. EXHIBITS
* Filed herewith.
** Furnished herewith
| 46 |
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DIGITAL BRANDS GROUP, INC. | ||
| Date: August 19, 2026 | By: | /s/ John Hilburn Davis IV |
| John Hilburn Davis IV | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 19, 2026 | By: | /s/ Reid Yeoman |
| Reid Yeoman | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| 47 |