DBGI

Business Context and Reporting Period

Digital Brands Group, Inc. (DBGI) is a portfolio company of apparel brands including Bailey 44, Stateside, Sundry, DSTLD, and Avo. The company operates as a single reportable segment focusing on direct-to-consumer and wholesale distribution. This Form 10-Q covers the quarterly and six-month periods ended June 30, 2026. The company is classified as a non-accelerated filer, smaller reporting company, and emerging growth company.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net revenues decreased 46% year-over-year for the three months ended June 30, 2026, and 39% for the six-month period. This was driven primarily by lower wholesale shipments.
• Margin Compression: Gross margin fell to 27% (Q2) and 15% (YTD) compared to 32% and 38% in the prior year periods, attributed to lower revenue against fixed production costs and a higher mix of off-price wholesale shipments.
• Expense Surge: Operating expenses increased significantly to $7.80 million (Q2) and $15.26 million (YTD) from $2.70 million and $5.57 million in the prior year. This increase is primarily due to the amortization of prepaid marketing expenses related to new collegiate apparel agreements ($2.84 million Q2; $5.26 million YTD) and a $0.76 million impairment of the MavDB Consulting prepaid asset.
• Non-Operating Losses: Other expenses increased to $1.51 million (Q2) and $5.48 million (YTD) due to a $1.77 million (Q2) and $5.64 million (YTD) loss from the change in fair value of share-based payment liabilities.

Guidance, Outlook, Risks, and Unusual Items

Going Concern and Liquidity

The company has raised substantial doubt about its ability to continue as a going concern. It reported a working capital deficit of $12.85 million and negative operating cash flow of $10.30 million for the six months ended June 30, 2026. Management's plans to fund operations depend on selling equity securities under an At-The-Market (ATM) facility and an equity line of credit, as well as realizing expected revenues from collegiate apparel programs.

Debt and Defaults

• Defaulted Note: A $3.5 million promissory note to Bailey 44 sellers matured on December 8, 2025, and remains in technical default with $3.02 million in accrued interest. No acceleration notice has been received.
• RallyTown Obligation: A significant secured payment obligation of $11.25 million to RallyTown, LLC (formerly Traffic Holdco) was reclassified from a share-based liability to a note payable. Monthly payments of $400,000 commenced August 1, 2026.
• Subsequent Financing: In July 2026, the company issued a $3.53 million convertible promissory note and entered into a $100 million equity line of credit.

Unusual Items

• Reverse Stock Split: A 1-for-40 reverse stock split became effective on July 24, 2026. All share data in the filing has been retroactively adjusted.
• Legal Proceedings: A vendor (Century City Mall, LLC) obtained a $1.4 million judgment against Bailey 44, LLC. The vendor is attempting to hold Digital Brands Group liable as an "alter ego." A bench trial was held in July 2026.

Guidance

Management provided revenue guidance for the third quarter of 2026 of $8.5 million to $11.0 million, anticipating benefits from collegiate apparel programs.

Investor Verification Checklist

• Debt Default Status: Verify the current status of the $3.5 million Bailey sellers' note and whether an acceleration notice has been issued.
• Going Concern Mitigation: Confirm the execution of the $100 million equity line of credit and the ability to access the ATM facility given market conditions.
• Legal Exposure: Monitor the outcome of the Century City Mall "alter ego" litigation, which could expose the parent company to the $1.4 million judgment.
• Revenue Realization: Assess the actual revenue contribution from the new collegiate apparel agreements (RallyTown, AAA Tuscaloosa, etc.) against the $8.5M-$11.0M Q3 guidance.
• Share-Based Liability Volatility: Review the impact of stock price fluctuations on the remaining $6.02 million share-based payment liability, which causes significant non-cash losses.