[10-Q] Digital Brands Group, Inc. Quarterly Earnings Report
Digital Brands Group (DBGI) filed its Q3 2025 10-Q, showing lower sales but a stronger balance sheet after recent financings. Net revenues were $1,653,776 for the quarter and $5,776,856 for the nine months, down from $2,440,801 and $9,413,457 a year ago. Gross profit was $706,609 in Q3 and $2,290,616 year‑to‑date. The company reported a net loss of $3,451,950 in Q3 and $7,659,722 for the nine months, similar to last year’s losses.
Cash and cash equivalents rose to $6,701,820, with $5,705,179 in restricted cash, lifting total assets to $41,194,919. Stockholders’ equity turned positive at $15,988,868, compared with a $(1,328,541) deficit at year‑end 2024. Management cites February 2025 gross proceeds of $7,500,000 from a unit offering and August–September 2025 gross proceeds of $17,755,000 from Series D preferred stock and warrant exercises as key liquidity drivers. Operating cash outflow was $11,153,543, while financing inflows totaled $23,396,112.
The company implemented a one‑for‑50 reverse split effective December 11, 2024. Shares outstanding were 5,726,930 as of September 30, 2025; as of November 14, 2025, they were 6,326,930. Management states that, with current cash and recent actions, substantial doubt about continuing as a going concern has been alleviated.
- None.
- None.
Insights
Losses persist, but equity raises strengthened liquidity and flipped equity positive.
DBGI posted declining net revenues for Q3 and year‑to‑date while maintaining similar net losses versus 2024. Despite weaker sales, the balance sheet improved materially: cash and cash equivalents reached
Total assets increased to
Key items to track in subsequent filings include deployment of prepaid marketing tied to the collegiate program, any release of restricted cash upon approvals, and the maturity of the
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 | ||
| N/A | N/A | N/A |
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 November 14, 2025, the Company had
DIGITAL BRANDS GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
| Page | ||
| CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | 3 | |
| PART I. FINANCIAL INFORMATION | 4 | |
| ITEM 1. | Financial Statements | 4 |
| Condensed Consolidated Balance Sheets as of September 30, 2025 (Unaudited), and December 31, 2024 | 4 | |
| Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2025, and 2024 | 5 | |
| Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2025, and 2024 | 6 | |
| Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025, and 2024 | 7 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | 8 | |
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
| ITEM 3 | Quantitative and Qualitative Disclosures about Market Risk | 39 |
| ITEM 4. | Controls and Procedures | 39 |
| PART II. OTHER INFORMATION | 41 | |
| ITEM 1. | Legal Proceedings | 41 |
| ITEM 1A. | Risk Factors | 42 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42 |
| ITEM 3. | Defaults upon Senior Securities | 42 |
| ITEM 4. | Mine Safety Disclosures | 42 |
| ITEM 5. | Other Information | 42 |
| ITEM 6. | Exhibits | 42 |
| SIGNATURES | 43 | |
| 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
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| 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 | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Deposits | ||||||||
| Prepaid marketing expenses | - | |||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other liabilities | ||||||||
| Due to related parties | ||||||||
| Convertible note payable, net | - | |||||||
| Accrued interest payable | ||||||||
| Loan payable, current | ||||||||
| Stock payable | - | |||||||
| Promissory note payable, net | ||||||||
| Total current liabilities | ||||||||
| Loan payable | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Undesignated preferred stock, $ | - | - | ||||||
| Series A convertible preferred stock, $ | ||||||||
| Series C convertible preferred stock, $ | ||||||||
| Series D convertible preferred stock, $ | - | |||||||
| Preferred stock, value | - | |||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
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)
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September, 30 | September, 30 | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of net revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Distribution | ||||||||||||||||
| Impairment of intangible assets | - | - | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| 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)
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Series A Convertible | Series C Convertible | Series D Convertible | Additional | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | - | - | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to private placements | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Shares issued for services | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Conversion of preferred shares into common stock | - | - | ( | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances at March 31, 2024 | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Conversion of loan into common stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Conversion of preferred shares into common stock | - | - | ( | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| stock based compensation | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances at June 30, 2024 | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Shares issued for Services | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Conversion of preferred shares into common stock | - | - | ( | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| stock based compensation | - | - | - | - | - | - | - | - | $ | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | - | $ | - | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||
| Balances at December 31, 2024 | $ | $ | - | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of pre-funded warrants in connection with services contract | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock and pre-funded warrants pursuant to private placement offering | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Exercise of pre-funded warrants in connection with private placement offering | - | - | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances at March 31, 2025 | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Shares issuance in pursuant to acquisition of intangibles | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances at June 30, 2025 | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Series D preferred stock per private placement offering, net of issuance costs | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Exercise of warrants in connection with private placement offering | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Shares issued for services | - | - | - | - | - | - | 29,582 | - | ||||||||||||||||||||||||||||||||||||
| Conversion of accounts payable in common stock | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances at September 30, 2025 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Balances | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
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
(UNUDITED)
| 2025 | 2024 | |||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| 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 | ||||||||
| Impairment of intangibles | - | |||||||
| Stock-based compensation | - | |||||||
| Loss on conversion of accounts payable into common stock | - | |||||||
| Shares issued for services | ||||||||
| Change in credit reserve | - | ( | ) | |||||
| Non-cash lease expense | - | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Due from factor | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Prepaid marketing expense | ( | ) | - | |||||
| Accounts payable | ( | ) | ( | ) | ||||
| Stock payable | - | |||||||
| Accrued expenses and other liabilities | ||||||||
| Accrued interest payable | - | |||||||
| Lease liabilities | - | ( | ) | |||||
| Deposits | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, equipment and software | - | ( | ) | |||||
| Net cash used in investing activities | - | ( | ) | |||||
| Cash flows from financing activities: | ||||||||
| Due to related parties | ( | ) | ||||||
| Issuance of loans and note payable | ||||||||
| Repayments of convertible notes and loan payable | ( | ) | ( | ) | ||||
| Proceeds of issuance of Series D preferred stock, net of issuance costs | - | |||||||
| Proceeds for exercise of warrants and stock payable | - | |||||||
| Proceeds for issuance of pre-funded warrants | - | |||||||
| Issuance of common stock in cash | - | |||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents and restricted cash at beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Reconciliation of cash and restricted cash: | ||||||||
| Cash and cash equivalents at beginning of period | $ | $ | ||||||
| Restricted cash at beginning of period | - | - | ||||||
| Cash and cash equivalents and restricted cash at beginning of period | $ | $ | ||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Restricted cash at end of period | - | |||||||
| Cash and cash equivalents 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 in connection with services contract | $ | $ | - | |||||
| Non-cash purchase of intangible assets | $ | $ | - | |||||
Right of use asset | $ | - | $ | |||||
| Shares issued for services and conversion of accounts payable | $ | $ | ||||||
| Conversion of preferred shares into common stock | $ | - | $ | |||||
Non-cash issuance of shares | $ | $ | - | |||||
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
SEPTEMBER 30, 2025
NOTE 1: NATURE OF OPERATIONS
Digital Brands Group, Inc. (the “Company”) was organized on September 17, 2012 under the laws of Delaware as a limited liability company under the name Denim.LA LLC. The Company converted to a Delaware corporation on January 30, 2013 and changed its name to Denim.LA, Inc. Effective December 31, 2020, the Company changed its name to Digital Brands Group, Inc.
On February 12, 2020, Denim.LA, Inc. entered into an Agreement and Plan of Merger with Bailey 44, LLC (“Bailey”), a Delaware limited liability company. On the acquisition date, Bailey became a wholly owned subsidiary of the Company. See Note 4.
On
August 30, 2021, the Company closed its acquisition of Mosbest, LLC dba Stateside (“Stateside”) pursuant to its Membership
Interest Purchase Agreement with Moise Emquies to purchase
On
December 30, 2022, the Company closed the acquisition of Sunnyside, LLC dba Sundry (“Sundry”) pursuant to its Second Amended
and Restated Membership Interest Purchase Agreement with Moise Emquies to purchase
Reverse Stock Split
On
December 11, 2024, the Board of Directors approved a
NOTE 2: LIQUIDITY
The
Company has not generated profits since inception and has sustained net losses of $
| 8 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Through the date the 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 cash warrants that are registered and exercisable that are in the money, the ability to initiate an at-the-market (“ATM”) offering under its current shelf registration statement, no assurance can be given that the Company will be successful in these efforts.
Management’s Plans
In
February 2025, the Company completed an offering consisting of the sale of common stock, warrants and pre-funded warrants for gross proceeds
of $
In
August and September 2025, the Company completed a private offering consisting of the sale of shares of Series D convertible preferred
stock for $
As
of November 14, 2025, 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, further warrant exercises 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, which the Company has already made during the nine months of 2025.
Based
on the current state of operations, the additional capital sources available to the Company, and the cash on hand of approximately
$
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 secure additional funding, it 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, 2024 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 9, 2025.
| 9 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Principles of Consolidation
These 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 September
30, 2025 and December 31, 2024, 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 $
Restricted Cash
The Company maintains
restricted cash in a segregated bank account established under the Securities Purchase Agreement related to its Series D Preferred
Stock Offering (see Note 7). The funds are restricted until the satisfaction of certain conditions, including shareholder and SEC approvals. At
September 30, 2025, the Company had a restricted cash balance of $
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, due to related parties, related party note payable, and convertible debt. The carrying value of these assets and liabilities is representative of their fair market value, due to the short maturity of these 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 September 30, 2025, and December 31, 2024, 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 September 30, 2025, and December 31, 2024 consist substantially of finished good products purchased or produced for resale, as well as any raw materials the Company purchased to modify the products and work in progress.
| 10 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Inventory consisted of the following:
SCHEDULE OF INVENTORY
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| 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 September 30, 2025 and December 31, 2024 consist of software with
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:
SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS ACQUIRED AS PART OF BUSINESS COMBINATION
| Customer relationships | ||
| Technology assets |
| 11 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
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
SEPTEMBER 30, 2025
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
The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“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
SEPTEMBER 30, 2025
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.
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.
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 September 30, 2025 and December 31, 2024, 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 number of stock award forfeitures are recognized as incurred.
Stock-Based Compensation
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
SEPTEMBER 30, 2025
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 September 30, 2025, we had
Net Loss per Share
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 September 30, 2025, and 2024, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of September 30, 2025 and 2024 are as follows:
SCHEDULE OF POTENTIALLY DILUTIVE ITEMS OUTSTANDING
| 2025 | 2024 | |||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| 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 September 30, 2025 and 2024.
Leases
The
Company accounts for leases in accordance with ASC 842, Leases, which requires the recognition of right-of-use (ROU) assets and corresponding
lease liabilities on the balance sheet for both operating and finance leases. However, the Company has elected to apply the short-term
lease exemption under ASC 842, whereby leases with a term of
| 15 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
NOTE 4: 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:
SCHEDULE OF DUE TO/ FROM FACTOR
| September 30 | December 31 | |||||||
| 2025 | 2024 | |||||||
| Outstanding receivables: | ||||||||
| Without recourse | $ | $ | ||||||
| With recourse | ||||||||
| Matured funds and deposits | ||||||||
| Advances | ( | ) | ( | ) | ||||
| Due from factor, net | $ | $ | ||||||
NOTE 5: CERTAIN ASSETS
Prepaid Expenses and Other Current Assets
As
of September 30, 2025, prepaid expenses and other assets included $
| 16 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
In
January 2025, the Company entered into a marketing services agreement for a
In
March 2025, Bailey entered into a long-term marketing service agreement with the same vendor as above. The Company paid $
In August 2025, the Company entered into
a long-term marketing service agreement with the same vendor as above. The Company paid $
In September 2025, the Company
entered into two marketing service agreements with third-party service provider for a term of 12 months. The Company paid $
In September 2025, Bailey entered into
a marketing service agreement with a third-party service provider. The Company paid $
All marketing agreements were entered into for the purpose of assisting the Company in its strategic shift towards the collegiate athletic program line of business.
Goodwill
The Company recorded goodwill from each of its business combinations. The following is a summary of goodwill by entity as of September 30, 2025, and December 31, 2024:
SCHEDULE OF GOODWILL ATTRIBUTABLE TO EACH BUSINESS COMBINATION
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Bailey | $ | $ | ||||||
| Stateside | ||||||||
| Sundry | ||||||||
| Goodwill | $ | $ | ||||||
Intangible Assets
The following table summarizes information relating to the Company’s identifiable intangible assets as of September 30, 2025:
SCHEDULE OF INFORMATION RELATING TO THE COMPANY’S IDENTIFIABLE INTANGIBLE ASSETS
| September 30, 2025 | Gross | Accumulated | Carrying | |||||||||||||
| Amount | Impairment | Amortization | Value | |||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | - | ( | ) | |||||||||||||
| Technology asset | - | - | ||||||||||||||
| $ | $ | - | $ | ( | ) | $ | ||||||||||
| Indefinite-lived: | ||||||||||||||||
| Brand name | - | - | ||||||||||||||
| Total | $ | $ | - | $ | ( | ) | $ | |||||||||
| December 31, 2024 | Gross | Accumulated | Carrying | |||||||||||||
| Amount | Impairment | Amortization | Value | |||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | ( | ) | ( | ) | ||||||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | |||||||||
| 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
The
Open Daily Acquisition was determined to be an asset acquisition as it met the concentration test under ASC 805-10-55 and was and does
not meet the definition of a business under ASC 805-10-20. Pursuant to ASC 805-20-55, the Company identified a single unit of account
for the acquired assets, which was deemed to be technology assets. The fair value of the technology assets was $
The
Company recorded amortization expense of $
| 17 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
NOTE 6: LIABILITIES AND DEBT
Accrued Expenses and Other Liabilities
The Company accrued expenses and other liabilities line in the consolidated balance sheets is comprised of the following as of September 30, 2025 and December 31, 2024:
SCHEDULE OF ACCRUED EXPENSES AND OTHER LIABILITIES
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accrued expenses | $ | $ | ||||||
| Payroll related liabilities | ||||||||
| Sales tax liability | ||||||||
| Other liabilities | ||||||||
| Accrued expenses and other liabilities | $ | $ | ||||||
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.
As
of September 30, 2025, accrued expenses included $
Convertible Debt
On
February 20, 2025, the Company settled the remaining convertible debt principal in cash, along with $
Sixth Street Diagonal Promissory Note
On
January 16, 2025, the Company entered into a loan agreement with 1800 Diagonal Lending, LLC for a $
Loan Payable — PPP and SBA Loan
In
April 2022, Bailey received notification of full forgiveness of its second U.S. Small Business Administration (“SBA”) Paycheck
Protection Program (“PPP”) loan totaling $
In
June 2020, the Company received a SBA loan in the principal amount 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 $
| 18 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
The following is a summary of the merchant advances as of September 30, 2025 and December 31,2024:
SCHEDULE OF MERCHANT ADVANCES
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Principal | $ | $ | ||||||
| Less: unamortized debt discount | - | - | ||||||
| Merchant cash advances, net | $ | $ | ||||||
Promissory Note Payable
As
of September 30, 2025, and December 31, 2024, the outstanding principal on the note to the sellers of Bailey was $
NOTE 7: STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
As
of September 30, 2025, the Company had
Common
stockholders have voting rights of
2025 Transactions
On
April 1, 2025, the Company issued
During
nine months ended September 30, 2025, the Company issued
During nine months ended September 30, 2025, the Company issued
Offerings
On
February 13, 2025, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain accredited
investors named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a best efforts offering
(the “February 2025 Offering”)
| 19 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
During
the nine months ended September 30, 2025, the Company issued an aggregate of
Series A Convertible Preferred Stock
On
September 29, 2022, the Company filed the Certificate of Designations designating up to
Except for stock dividends or distributions for which adjustments are to be made pursuant to the Certificate of Designations, the holders of the Series A Preferred Stock (the “Holders”) shall be entitled to receive, and the Company shall pay, dividends on shares of the Series A Preferred Stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of the Series A Preferred Stock.
With respect to any vote with the class of common stock, each share of the Series A Preferred Stock shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of common stock into which it is then convertible.
The Series A Preferred Stock shall rank (i) senior to all of the common stock; (ii) senior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms junior to any Preferred Stock (“Junior Securities”); (iii) on parity with any class or series of capital stock of the Company created specifically ranking by its terms on parity with the Preferred Stock (“Parity Securities”); and (iv) junior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms senior to any Preferred Stock (“Senior Securities”), in each case, as to dividends or distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily.
Each
share of the Series A Preferred Stock shall be convertible, at any time and from time to time from and after September 29, 2022 at the
option of the Holder thereof, into that number of shares of common stock determined by dividing the Stated Value of such share of the
Series A Preferred Stock ($
As
of September 30, 2025 and December 31, 2024, there were
| 20 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Series C Convertible Preferred Stock
On
June 21, 2023, the Company, on the one hand, and Moise Emquies, George Levy, Matthieu Leblan, Carol Ann Emquies, Jenny Murphy and Elodie
Crichi (collectively, the “Sundry Investors”), on the other hand, executed a Securities Purchase Agreement (the “Sundry
SPA”) whereby the Company issued
On
June 21, 2023, the Company filed the Certificate of Designation with the Secretary of State for the State of Delaware designating up
to
Except for stock dividends or distributions for which adjustments are to be made pursuant to the Certificate of Designations, the holders of the Series C Preferred Stock (the “Series C Holders”) shall be entitled to receive, and the Company shall pay, dividends on shares of the Series C Preferred Stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of the Series C Preferred Stock.
The Series C Holders are entitled to vote as a class as expressly provided in the Certificate of Designation. The Series C Holders are also entitled to vote with the holders of shares of common stock, voting together as one class, on all matters in which the Series C Holders are permitted to vote with the class of shares of Common Stock.
With respect to any vote with the class of common stock, each share of the Series C Preferred Stock shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of common stock into which it is then convertible (subject to the ownership limitations specified in the Certificate of Designation) using the record date for determining the stockholders of the Company eligible to vote on such matters as the date as of which the conversion price is calculated.
The Series C Preferred Stock shall rank (i) senior to all of the common stock; (ii) senior to Junior Securities; (iii) on parity with Parity Securities; and (iv) junior to Senior Securities, in each case, as to dividends or distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily. Subject to any superior liquidation rights of the holders of any Senior Securities of the Company and the rights of the Company’s existing and future creditors, upon a Liquidation, each Holder shall be entitled to be paid out of the assets of the Company legally available for distribution to stockholders, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of the common stock and Junior Securities and pari passu with any distribution to the holders of Parity Securities, an amount equal to the Stated Value (as defined in the Certificate of Designation) for each share of the Series C Preferred Stock held by such Holder and an amount equal to any accrued and unpaid dividends thereon, and thereafter the Series C Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Series C Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to common stock which amounts shall be paid pari passu with all holders of common stock.
Each
share of the Series C Preferred Stock shall be convertible, at any time and from time to time from and after June 21, 2023 at the option
of the Holder thereof, into that number of shares of common stock determined by dividing the Stated Value of such share of the Series
C Preferred Stock ($
| 21 |
DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
The
Company has the option to redeem any or all of the then outstanding Series C Preferred Stock at
As
of both September 30, 2025 and December 31, 2024, there were
Series D Convertible Preferred Stock
On
August 13, 2025, the Company completed the initial closing of a private equity offering, issuing
On
September 26, 2025, pursuant to an amendment to the original agreement, the Company issued an additional
As of September 30, 2025, there were
The Series D Preferred Stock carries a conversion feature into common stock, subject to Nasdaq ownership limitations, and was issued at
a discount, resulting in aggregate gross proceeds of $
The Company received aggregate net proceeds of $
The Company is required to hold the proceeds from the offering in a segregated bank account, with 50% released upon the second closing and the remaining 50% to be released upon satisfaction of the following conditions: (i) shareholder approval of the reverse stock split and 20% rule, and (ii) SEC effectiveness of the resale registration statement.
Based on ASC 815 and the terms of the Series D Convertible Preferred Stock, all features of the Series D Preferred Stock are clearly and closely related to the equity host. No bifurcation of embedded features is required, as the conversion options, participating dividends, protective rights, price protection, liquidation preference, and other features all bear the risks and economics of the residual equity interest. The Series D Convertible Preferred Stock does not include any mandatory redemption provisions or obligations that require the Company to deliver cash or other assets to the holders. Conversion features are equity-settled, allowing holders to convert shares into common stock at a price based on the lowest five-day closing price prior to conversion, and any ownership limits are designed to maintain equity characteristics rather than create a redemption obligation. There are no put features, mandatory repurchase provisions, or redemption rights exercisable at the option of the holder or upon events outside the Company’s control.
Under ASC 480-10-S99-3A, the Series D shares do not meet the criteria for temporary equity under ASC 480 for SEC registrants.
The Series D shall rank (i) senior to all of the Common Stock; (ii) senior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms junior to any Series D (“Junior Securities”); (iii) on parity with the Company’s Series A Convertible Preferred Stock, Series C Preferred Stock, as well as any class or series of capital stock of the Company created specifically ranking by its terms on parity with the Preferred Stock (“Parity Securities”); and (iv) junior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms senior to any Series D (“Senior Securities”), in each case, as to dividends or distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily. Subject to any superior liquidation rights of the holders of any Senior Securities of the Company and the rights of the Company’s existing and future creditors, upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), each Holder shall be entitled to be paid out of the assets of the Company legally available for distribution to stockholders, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock and Junior Securities and pari passu with any distribution to the holders of Parity Securities, an amount equal to the Stated Value for each share of Series D held by such Holder and an amount equal to any accrued and unpaid dividends thereon, and thereafter the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Seres D were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock. The Company shall mail written notice of any such Liquidation, not less than sixty (60) days prior to the payment date stated therein, to each Holder.
Liquidation Preferences
As of September 30, 2025, the liquidation preferences of the preferred stock were as follows:
SCHEDULE OF LIQUIDATION PREFERENCE
| Series A convertible preferred stock | $ | |||
| Series C convertible preferred stock | $ | |||
| Series D convertible preferred stock | $ | |||
| Liquidation preferences series of convertible preferred stock | $ |
NOTE 8: RELATED PARTY TRANSACTIONS
As
of September 30, 2025 and December 31, 2024, amounts due to related parties was $
As
of September 30, 2025 and December 31, 2024, due to related parties includes $
In
October 2022, the Company received advances from a director, Trevor Pettennude, totaling $
NOTE 9: WARRANTS AND OPTIONS
Common Stock Warrants
A summary of information related to common stock warrants for the nine months ended September 30, 2025 is as follows:
SCHEDULE OF INFORMATION RELATED TO COMMON STOCK WARRANTS
| Common | Weighted | |||||||
| Stock | Average | |||||||
| Warrants | Exercise Price | |||||||
| Outstanding - December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited | ( | ) | - | |||||
| Outstanding - September 30, 2025 | $ | |||||||
| Exercisable at September 30, 2025 | $ | |||||||
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DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Warrant Transactions
Vendor Agreement
On
or around January 21, 2025, the Company entered into a vendor agreement (the “Vendor Agreement”) with MavDB Consulting LLC
(the “Vendor”). The engagement of the Vendor is for a five year period and the vendor services to be provided include, but
are not limited to, product content production, social media marketing, engagement of influencers and student athletes for product awareness,
and event and staffing costs (the “Services”). In consideration for the Services, the Company will pay the Vendor a vendor
fee equal to $
The
Vendor Pre-Funded Warrants have an initial exercise price per share of common stock equal to $
February 2025 Offering
On
February 18, 2025, the Company issued
In
February 2025, the Company issued
The Company received proceeds of $
Stock Options
As
of September 30, 2025, and December 31, 2024, the Company had 31 stock options outstanding with a weighted average exercise price of
$
Stock-based
compensation expense of $
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DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
NOTE 10: LEASE OBLIGATIONS
Rent is classified by function on the consolidated statements of operations either as general and administrative, sales and marketing, or cost of revenue.
The Company determines whether an arrangement is or contains a lease at inception by evaluating potential lease agreements including services and operating agreements to determine whether an identified asset exists that the Company controls over the term of the arrangement. Lease commencement is determined to be when the lessor provides access to, and the right to control, the identified asset.
The
Company currently maintains one leased property under a month-to-month agreement, which is classified as a short-term leases in
accordance with ASC 842. The first property, located in Vernon, California, serves as the Company’s warehouse and distribution
Center, encompassing approximately
NOTE 11: STOCK PAYABLE
In
July 2025, the Company entered into a three-year exclusive private label manufacturing agreement with AAA Tuscaloosa, LLC to produce
knit apparel for the University of Alabama. In return, the Company agreed to issue $
In
July and August 2025, the Company received $
NOTE 12: CONTINGENCIES
| ● | On March 21, 2023, a vendor
filed a lawsuit against the Company related to trade payables totaling approximately $ | |
| ● | On November 16, 2023 a
vendor filed a lawsuit against the company related to trade payables totaling 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 is disputing this claim. The matter is scheduled for arbitration this fall. | |
| ● | On
April 17, 2024, a former employee filed a wrongful termination lawsuit against the Company. The employee was part of the marketing
team, which was fully transitioned to a third-party outsourced marketing solution. The Company disputed the claim and initially pursued
arbitration; however, the matter was settled in May 2025 for a payment by the company of $ |
| ● | In June 2021, a vendor
filed a lawsuit against Bailey related to a retail store lease in the amount of $ | |
| ● | On November 15, 2023, a
vendor, Simon Showroom, filed a lawsuit against the company related to trade payables totaling approximately $ |
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 consolidated balance sheet as of September 30, 2025.
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.
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DIGITAL BRANDS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
NOTE 13: 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 nine months ended September 30, 2025. 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 nine months ended September 30, 2025.
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 September 30, 2025, and no history of generating taxable income.
NOTE 14: SUBSEQUENT EVENTS
On October 17, 2025, the Company filed a registration statement on Form S-1 (the
“Prospectus”) with the U.S. Securities and Exchange Commission (the “SEC”) to register the resale, from time to
time, of up to
The registered shares consist of (i) up to 360,577 shares issuable to AAA Tuscaloosa,
LLC, pursuant to the Exclusive Private Label Manufacturing Agreement dated July 16, 2025 (the “AAA Agreement”), and (ii) up
to
The Company will not receive any proceeds from the sale of shares by the selling stockholders under this registration.
In
October 2025, the Company issued
On November 7, 2025, the Company filed a shelf registration statement under
Form S-3 to register up to US $
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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. |
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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. |
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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 September 30, 2025, we had an aggregate principal amount of debt outstanding of approximately $6.4 million. We believe this amount of indebtedness may be considered significant for a company of our size and current revenue base. Our substantial debt could have important consequences to us. For example, it could:
| ● | 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, 2024—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.
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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. |
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| 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. |
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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. |
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| 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. |
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Recent Developments
Limited Tariff Exposure
The Company produces the vast majority of its products in Los Angeles, with the exception of sweaters. As a result, over 90% of its products are Made in the USA, which significantly limits the Company’s exposure to tariff impositions or increases, or potential tariff impositions or increases, on imported goods. This domestic production strategy has proven to be a competitive advantage, particularly in the first half of 2025, when increased China-related tariffs impacted the broader apparel industry. While many competitors were forced to raise prices in both retail and wholesale channels to offset tariff-driven cost increases on imported goods, the Company’s brands maintained stable pricing. This allowed the Company to preserve margin integrity and potentially gain wholesale market share, as customers sought more consistent and competitively priced domestic supply alternatives. Management believes this will continue to serve as a meaningful advantage for the Company’s online and wholesale segments moving forward.
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 believes this change in the de minimis policy should reduce the number of online apparel brands, and create a less crowded marketplace.
Series D Preferred Stock Offering
In August 2025, the Company completed the initial closing of a private investment in public equity (PIPE) offering, issuing approximately 14,031.25 shares of Series D Convertible Preferred Stock, par value $0.0001 per share, with a stated value of $1,000 per share, for gross cash proceeds of approximately $11.2 million (aggregate stated value of $14.0 million). The shares are convertible into common stock at a price equal to 80% of the lowest closing price of the Company’s common stock for the five trading days immediately preceding the conversion date, subject to ownership limitations.
In September 2025, pursuant to an amendment to the original agreement, the Company issued an additional 1,875 Series D Preferred shares to an investor for gross proceeds of $1.5 million, increasing the stated value to $1,150 per share (aggregate stated value of $2.16 million).
The Company is required to hold the proceeds from the offering in a segregated bank account, with 50% released upon the second closing and the remaining 50% to be released upon satisfaction of the following conditions: (i) shareholder approval of the reverse stock split and 20% rule, and (ii) SEC effectiveness of the resale registration statement.
The Series D Preferred Stock carries a conversion feature into common stock, subject to Nasdaq ownership limitations, and was issued at a discount, resulting in aggregate gross proceeds of $12.7 million before deducting offering costs.
Alabama Exclusive Private Label Manufacturing Agreement
On July 21, 2025, the Company signed and entered into that certain Exclusive Private Label Manufacturing Agreement (the “Alabama Agreement”) with AAA Tuscaloosa, LLC (“AAA”). Although the Alabama Agreement has a stated effective Date of July 16, 2025, the Alabama Agreement did not become a binding obligation of the Company until it was fully executed by the parties on July 21, 2025. AAA is acting as the name, image, and likeness (“NIL”) marketing agent for student-athletes attending the University of Alabama (the “University”). Pursuant to the terms of the Alabama Agreement, AAA has engaged the Company to manufacture private label knit apparel products for the University as set forth in the Alabama Agreement, but excluding any and all jerseys, polo shirts, collared shirts, quarter zips, and t-shirts or sweatshirts featuring the NIL, or trademark owned by a student-athlete or any game-related or team-related content (the “Alabama Exclusive Apparel Products”). Such Alabama Exclusive Apparel Products, manufactured exclusively by the Company, are to be sold directly by AAA through its website or any brick-and-mortar locations in Tuscaloosa, Alabama.
The Company has general discretion to develop designs, technical specifications, and prototypes for the Alabama Exclusive Apparel Products and has agreed to use its best efforts to invest approximately $1,000,000 in its continued marketing, technology and product development by the end of 2025, with the majority of such investment to be deployed by the Company on digital ad spend, influencer marketing and related expenses.
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Traffic Holdco Private Label Manufacturing Agreement
On July 21, 2025, the Company entered into that certain Exclusive Private Label Manufacturing Agreement (the “Traffic Holdco Agreement”) with Traffic Holdco, LLC,(“Traffic Holdco”). While the Traffic Holdco Agreement has a stated effective date of July 16, 2025, the Traffic Holdco Agreement did not become a binding obligation of the Company until it was fully executed by the parties on July 21, 2025. Holdco is acting as the NIL marketing agent for many universities (the “University Clients”) and hold the necessary licenses (the “Local Licenses”) to grant exclusive manufacturing rights to produce apparel products bearing the University Clients logos and trademarks, and using student-athlete NIL for distribution as a local licensee of the University Clients.
Pursuant to the terms of the Traffic Holdco Agreement, Traffic Holdco engaged the Company to manufacture private label knit apparel products for the University Clients as set forth in the Traffic Holdco Agreement, but excluding any and all jerseys, polo shirts, collared shirts, quarter zips, and t-shirts or sweatshirts featuring the NIL, or trademark owned by a student-athlete or any game-related or team-related content (the “University Client Exclusive Apparel Products”). Such University Client Exclusive Apparel Products, manufactured exclusively by the Company, are to be sold directly by the University Clients through their respective websites or any brick-and-mortar locations within close proximity to such University Clients.
Traffic Holdco has guaranteed that at least three University Clients will grant the Company exclusive manufacturing rights with respect to University Client Exclusive Apparel Products, whereby each of the University Clients will enter into a private label manufacturing agreement (each, an “Authorized Manufacturing Agreement”) with the Company, with current plans to secure additional agreements from collegiate institutions, including, but not limited to, instructions from the Southeastern Conference and the Big Ten Conference.
The Company has general discretion to develop designs, technical specifications, and prototypes for the University Client Exclusive Apparel Products. In connection with the Company’s continued marketing, technology and product development initiatives, it has agreed to use its best efforts to invest approximately $1,000,000 during the first year of each Authorized Manufacture Agreement it enters into with each University Client, with the majority of such investment to be deployed by the Company on digital ad spend, influencer marketing and related expenses.
Sundry License Agreement
On June 9, 2025, the Company entered into a license agreement with The TJX Companies, Inc. (“TJX”), granting TJX a license to use the Company’s SUNDRY trademark and related intellectual property on specified categories of women’s apparel, accessories, and related promotional materials. TJX operates several retail chains, including T.J. Maxx, Marshalls, HomeGoods and HomeSense in the U.S. Under the terms of the agreement, the Company will receive royalties based on TJX’s cost of licensed merchandise. The agreement has an initial term through January 27, 2029, with automatic two-year renewal periods unless terminated by either party with advance notice. This agreement represents a significant expansion of the Company’s brand distribution into TJX’s retail channels.
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Our Financial Position
For the three months ended September 30, 2025 and 2024, we generated net revenues of $1.6 million and $2.4 million, respectively, and reported net loss of $3.5 million and $3.5 million, respectively. For the nine months ended September 30, 2025 and 2024, we generated net revenues of $5.8 million and $9.4 million, respectively, and reported net loss of $7.7 million and $7.7 million, respectively. As noted in our unaudited condensed consolidated financial statements, as of September 30, 2025, we had an accumulated deficit of $134.8 million.
Results of Operations
Three Months Ended September 30, 2025 compared to Three Months Ended September 30, 2024
The following table presents our results of operations for the three months ended September 30, 2025 and 2024:
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net revenues | $ | 1,653,776 | $ | 2,440,801 | ||||
| Cost of net revenues | 947,167 | 1,319,214 | ||||||
| Gross profit | 706,609 | 1,121,587 | ||||||
| General and administrative | 2,193,205 | 2,429,040 | ||||||
| Sales and marketing | 1,603,728 | 655,833 | ||||||
| Other operating expenses | 238,880 | 780,879 | ||||||
| Operating loss | (3,329,204 | ) | (2,144,165 | ) | ||||
| Other expenses | (122,746 | ) | (797,072 | ) | ||||
| Loss before provision for income taxes | (3,451,950 | ) | (3,541,237 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (3,451,950 | ) | $ | (3,541,237 | ) | ||
Net Revenues
Net revenues decreased by $0.8 million to $1.6 million for the three months ended September 30, 2025, compared to $2.4 million in the corresponding fiscal period in 2024. The decrease was primarily associated with the Company dropping its largest wholesale account due to its very low gross margins and operational costs required to manage this account.
The Company expects this decline in wholesale revenue to be offset in the remainder of 2025 as a result of the Company’s second largest wholesale account’s anticipated doubling of the number of its domestic retail doors from 50 to 100 and expansion of its international doors.
Gross Profit
Our gross profit decreased by $0.4 million for the three months ended September 30, 2025 to $0.7 million from a gross profit of $1.1 million for the corresponding fiscal period in 2024. The decrease in gross profit was primarily attributable to a decrease in sales compared to corresponding figure in 2024.
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Our gross margin was 43% for three months ended September 30, 2025, compared to 46% for the three months ended September 30, 2024.
The Company expects gross margins to expand as revenues increase and leverage fixed costs, a higher mix of e-commerce revenue, which as higher gross margins and the mix of wholesale accounts with higher gross margins.
Operating Expenses
Operating expenses totaled $4.0 million for the three months ended September 30, 2025, consistent with $3.9 million for the corresponding period in 2024, reflecting no significant change year over year.
Other Expense
Other expense was $0.1 million for the three months ended September 30, 2025, compared to $0.8 million for the three months ended September 30, 2024, primarily consisting of interest expense.
Net Loss
Our net loss was $3.5 million for the three months ended September 30, 2025 compared to $3.5 million in 2024.
Nine Months Ended September 30, 2025 compared to Nine Months Ended September 30, 2024
The following table presents our results of operations for the nine months ended September 30, 2025 and 2024:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net revenues | $ | 5,776,856 | $ | 9,413,457 | ||||
| Cost of net revenues | 3,486,240 | 5,012,457 | ||||||
| Gross profit | 2,290,616 | 4,401,000 | ||||||
| General and administrative | 5,694,257 | 6,347,460 | ||||||
| Sales and marketing | 3,464,110 | 1,979,173 | ||||||
| Other operating expenses | 443,230 | 1,345,412 | ||||||
| Operating loss | (7,310,981 | ) | (4,671,045 | ) | ||||
| Other expenses | (348,741 | ) | (2,464,407 | ) | ||||
| Loss before provision for income taxes | (7,659,722 | ) | (7,735,453 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (7,659,722 | ) | $ | (7,735,453 | ) | ||
Net Revenues
Net revenues decreased by $3.6 million to $5.8 million for the nine months ended September 30, 2025, compared to $9.4 million in the corresponding fiscal period in 2024. The decrease was primarily associated with the Company dropping its largest wholesale account due to its very low gross margins and operational costs required to manage this account. The other major factor for the decline was limited cash for marketing for half the first quarter until the closing of February 2025 Offering, a delay in wholesale shipments, and lower ecommerce revenues across each brand due to less digital advertising spend.
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This decline in wholesale revenue will be offset throughout the year by the Company’s second largest wholesale account asking to double the number of domestic retail doors from 50 to 100 and also expand to their international doors.
With the Company’s continued increase in marketing spend, digital revenue also showed growth during the third quarter.
Gross Profit
Our gross profit decreased by $2.1 million for the nine months ended September 30, 2025 to $2.3 million from a gross profit of $4.4 million for the corresponding fiscal period in 2024. The decrease in gross margin was primarily attributable to a decrease in sales, as well as approximately $0.5 million in inventory write-offs incurred in the second quarter of 2025.
Our gross margin was 40% for nine months ended September 30, 2025, compared to 47% for the nine months ended September 30, 2024. The decrease in gross margin was due to the deleverage associated with fixed costs in gross margins including warehouse and distribution rent, patternmakers and other fixed costs over a lower revenue total, as well as approximately $0.5 million in inventory write-offs incurred in the second quarter of 2025.
The Company expects gross margins to expand as revenues increase and leverage fixed costs, a higher mix of e-commerce revenue, which as higher gross margins and the mix of wholesale accounts with higher gross margins.
Operating Expenses
Operating expenses decreased by $0.1 million for the nine months ended September 30, 2025, as compared to $9.7 million for the corresponding fiscal period in 2024.
Other Expense
Other expense was $0.4 million for the nine months ended September 30, 2025, compared to $2.46 million for the nine months ended September 30, 2024, primarily consisting of interest expense.
Net Loss
Our net loss was $7.7 million for the nine months ended September 30, 2025 compared to $7.7 million in 2024. Despite a decline in revenue, the Company maintained its net loss due to effective cost-cutting measures and operational efficiencies.
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.
In February 2025, the Company completed an offering consisting of the sale of common stock, warrants and pre-funded warrants for gross proceeds of $7,500,000, before deducting placement agent fees and commissions and other offering expenses.
As of September 30, 2025, we had cash of $6.7 million, restricted cash of $5.7 million and a working capital deficit of $4.8 million. The Company requires significant capital to meet its obligations as they become due. As of November 14, 2025, based on the current state of operations, and the unrestricted cash on hand of approximately $5.7 million, the Company believes that the substantial doubt about the Company’s ability to continue as a going concern has been alleviated. Management believes that the Company has sufficient capital to meet its financial obligations for the next 12 months.
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Cash Flow Activities
The following table presents selected captions from our condensed statements of cash flows for the nine months ended September 30, 2025, and 2024:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net cash provided by operating activities: | ||||||||
| Net loss | $ | (7,659,722 | ) | $ | (7,735,452 | ) | ||
| Non-cash adjustments | $ | 1,615,530 | $ | 6,025,549 |
||||
| Change in operating assets and liabilities | $ | (5,109,352 | ) | $ | (1,583,366 |
) | ||
| Net cash used in operating activities | $ | (11,153,544 | ) | $ | (3,293,269 |
) | ||
| Net cash used in investing activities | $ | - | $ | (101,081 |
) | |||
| Net cash provided by financing activities | $ | 23,396,112 | $ | 3,662,923 |
||||
| Net change in cash | $ | 12,242,568 | $ | 268,573 | ||||
Cash Flows Used In Operating Activities
Our cash used in operating activities increased by $7.8 million to $11.2 million for the nine months ended September 30, 2025, compared to cash used in operating activities of $3.3 million for the corresponding fiscal period in 2024. The increase in net cash used in operating activities was primarily driven by higher operational losses, including increased sales and marketing expenses, and lower non-cash charges in 2025.
Cash Flows Used in Investing Activities
Our cash used in investing activities was nominal in 2025 and 2024.
Cash Flows Provided by Financing Activities
Cash provided by financing activities was $23.4 million for the nine months ended September 30, 2025, compared to $3.7 million for the nine months ended September 30, 2024. Cash inflows in 2025 included $6.6 million in net proceeds from the issuance from the common stock and pre-funded warrants and $11.4 million from issuance of series D preferred stock and $ 5.5 million from proceeds received from exercise of warrants.
Contractual Obligations and Commitments
As of September 30, 2025, we had $6.4 million in outstanding principal on debt, primarily our promissory notes due to the Bailey sellers, U.S. Small Business Association (“SBA”) Paycheck Protection Program (PPP) loans, and merchant advances. Aside from our remaining non-current SBA obligations, all outstanding loans have maturity dates through 2025.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our 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.
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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 September 30, 2025. 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 September 30, 2025.
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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.
Management believes that the material weakness set forth above did not have an effect on our financial results.
Changes in Internal Control over Financial Reporting
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 September 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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, among other things, regulatory matters, commercial matters, intellectual property, competition, tax, employment, pricing, discrimination, consumer rights, personal injury, and property rights. These matters also include the following:
| ● | On March 21, 2023, a vendor filed a lawsuit against the Company related to trade payables totaling approximately $43,501. Such amounts include interest due, and are included in accounts payable, net of payments made to date, in the accompanying consolidated balance sheets. The Company does not believe it is probable that the losses in excess of such trade payables will be incurred. | |
| ● | On November 16, 2023, a vendor filed a lawsuit against the Company related to trade payables totaling approximately $345,384, which represents past due fees and late fees. Such amounts are included in the accompanying balance sheets. The Company does not believe it is probable that the losses in excess of such pay trade payables will be incurred. | |
| ● | 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 is disputing this claim. The individual has since engaged a new law firm, The Finkel Firm, and the matter is scheduled for arbitration this fall. | |
| ● | On April 17, 2024, a former employee filed a wrongful termination lawsuit against the Company. The employee was part of the marketing team, which was fully transitioned to a third-party outsourced marketing solution. The Company disputed the claim and initially pursued arbitration; however, the matter was settled in May 2025 for a total of $81,000. Of this amount, $41,000 was paid in late June 2025, with the remaining $40,000 to be paid in three equal installments of $13,000 at the end of July, August, and September 2025. | |
| ● | In June 2021, a vendor filed a lawsuit against Bailey 44 related to a retail store lease in the amount of $1.5 million. 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. | |
| ● | On November 15, 2023, a vendor, Simon Showroom, filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $582,208, representing “double damages,” while the actual amount due to the vendor was $292,604. The case was settled in full on December 10, 2024, for a total settlement amount of $400,000. As part of the settlement, the Company paid $50,000 in December 2024, followed by a $60,000 payment in February 2025. As of September 30, 2025, the Company has an outstanding balance of $130,000 remaining, with monthly payments of $30,000 being made under the terms of the settlement agreement. |
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 unaudited condensed consolidated balance sheet as of September 30, 2025.
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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 have a material adverse effect on 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.
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 7 to the financial statements.
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
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
(a) None.
(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 September 30, 2025, no director or officer of the Company
ITEM 6. EXHIBITS
| Exhibit Number | Description | |
| 4.1 | Description of Securities (incorporated by reference to Exhibit 4.29 to the registrant’s Annual Report on Form 10-K filed with the SEC on April 9, 2025). | |
| 10.1 | Asset Purchase Agreement, entered into as of April 1, 2025, by and between the Company and Open Daily Technologies Inc. (incorporated by reference to the registrant’s Current Report on Form 8-K filed with the SEC on April 2, 2025). | |
| 10.2 | Exclusive Private Label Manufacturing Agreement, entered into as of July 21, 2025, by and between the registrant and AAA Tuscaloosa, LLC (incorporated by reference to Exhibit 10.1 the registrant’s Current Report on Form 8-K filed with the SEC on July 24, 2025). | |
| 10.3 | Exclusive Private Label Manufacturing Agreement, entered into as of July 21, 2025, by and between the registrant and Traffic Holdco, LLC (incorporated by reference to Exhibit 10.2 the registrant’s Current Report on Form 8-K filed with the SEC on July 24, 2025). | |
| 31.1* | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a). | |
| 31.2* | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a). | |
| 32.1** | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350. | |
| 101.INS* | Inline XBRL Instance. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith
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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: November 14, 2025 | By: | /s/ John Hilburn Davis IV |
| John Hilburn Davis IV | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2025 | By: | /s/ Reid Yeoman |
| Reid Yeoman | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
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FAQ
What were DBGI’s Q3 2025 revenues and net loss?
How did year-to-date results compare to last year for DBGI?
What is DBGI’s cash position as of September 30, 2025?
Did DBGI raise capital in 2025?
What is DBGI’s stockholders’ equity now?
How many DBGI shares are outstanding?
Did DBGI perform a reverse stock split?
