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Item 9A. Controls and Procedures

2023-04-17 compared with 2022-03-31 · 606 added, 429 removed, 1166 unchanged (47% of the section changed)

8 unchanged sentences

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.

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:

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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 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.

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Executive Officers and Directors

John “Hil” Davis

President, Chief Executive Officer and a Director

John Hilburn Davis IV

President and Chief Executive Officer

Laura Dowling

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From August 2011 to February 2016, she was the Director of Marketing & PR at Harry Winston and from March 2009 to August 2011 she was the Director of Wholesale Marketing at Ralph Lauren.

Dowling holds both

a Masters degree (2002) and Bachelors degree (2001) in Communications & Media Studies with a Minor in French from Fordham University.

Dowling holds both a Masters degree (2002) and Bachelors degree (2001) in Communications & Media Studies with a Minor in French from Fordham University.

Reid Yeoman has served as our Chief Financial Officer since October 2019.

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Chief Financial Officer

(1) 2021 salaries represent gross pay per the respective employment contracts, not actual salaries paid to officer during 2021.

(1) Upon closing of the IPO, 1,273 shares of common stock were issued to the CEO as conversion of an outstanding note payable and related accrued interest, accrued compensation and other consideration.

As of a result of the transaction, the Company recorded an additional $233,184 in stock compensation expense, which is included in general and administrative expenses in the condensed consolidated statements of operations.

Executive Officer Outstanding Equity Awards at Fiscal Year-End

The following table provides certain information concerning any common share purchase options, stock awards or equity incentive plan awards held by each of our named executive officers that were outstanding as of December 31, 2022.

The number of shares of common stock referred to in this “Executive Compensation” section gives effect to the one-for 100 share reverse stock split that we effectuated on November 3, 2022, unless the context clearly indicates otherwise.

Option Awards

Option Exercise

Unexercisable

John “Hil” Davis

Laura Dowling

Employment Agreements

5 unchanged sentences

Davis is also eligible to receive an annual bonus with a target of 175%, and with a range from 0% to a maximum of 225%, of his base salary based upon achievement of Company and individual goals.

He is also eligible to participate in employee benefit plans that we offer to our other senior executives.

also eligible to participate in employee benefit plans that we offer to our other senior executives.

In the event of a termination of his employment after June 30, 2021, Mr.

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Dowling is eligible for severance benefits as may be approved by the Board.

Dowling is subject to our recoupment, insider trading and other company policies, a perpetual non-disclosure of

confidential information covenant, a non- disparagement covenant and a non-solicitation of employees covenant.

Dowling is subject to our recoupment, insider trading and other company policies, a perpetual non-disclosure of confidential information covenant, a non- disparagement covenant and a non-solicitation of employees covenant.

Dowling’s offer letter also provided for an option grant exercisable for up to 288,000 shares of our common stock to her at a per share exercise price equal to the IPO price, of which 75% of the options vested on the effective date of the IPO and 25% of the options vest in accordance with the vesting schedule provided in the Company’s 2020 Stock Plan.

24 unchanged sentences

The 2020 Plan administrator may grant awards to any employee, director, and consultants of the company and its subsidiaries.

To date, 2,732,000 grants have been made under the 2020 Plan and 568,000 shares remain eligible for issuance under the Plan.

To date, 27,320 grants (as adjusted for the Reverse Stock Split) have been made under the 2020 Plan and 5,680 shares remain eligible for issuance under the Plan.

The 2020 Plan is currently administered by the Compensation Committee of the Board as the Plan administrator.

4 unchanged sentences

Stock Options

The 2020 Plan administrator may grant to a participant options to purchase our common stock that qualify as incentive stock options for purposes of Section 422 of the Internal Revenue Code (“incentive stock options”), options that do not qualify as incentive stock

options (“non-qualified stock options”) or a combination thereof.

The terms and conditions of stock option grants, including the quantity, price, vesting periods, and other conditions on exercise will be determined by the 2020 Plan administrator.

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The board of directors has the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the 2013 Stock Plan, subject to its express terms and conditions.

The number of shares authorized by the 2013 Stock Plan is 1,196,356 shares.

Shares Available and Termination

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All awards under the 2013 Stock plan will be det forth in award agreements, which will detail the terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations.

As of December 31, 2021, there were options to purchase 1,163,103 shares of our common stock at a weighted average exercise price of $2.34 per share.

As of December 31, 2021, there were options to purchase up to 38,951 shares of our common stock at exercise prices between $94 and $415 expiring between June 2024 and May 2031.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information regarding beneficial ownership of our capital stock by:

The table below sets forth information regarding the projected beneficial ownership of our common stock immediately after the closing of this offering by the following individuals or groups:

● each person or entity who is known by us to own beneficially more than 5% of our outstanding stock;

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Shares of common stock issuable pursuant to a stock option, warrant or convertible note that is currently exercisable or convertible, or is exercisable or convertible within 60 days after the date of determination of ownership, are deemed to be outstanding and beneficially owned for purposes of computing the percentage ownership of the holder of the stock option, warrant or convertible note but are not treated as outstanding for purposes of computing the percentage ownership of any other person.

The applicable percentage ownership “Before the Offering” in the following table is based on 5,746,079 shares of our common stock outstanding as of April 17, 2023.

After giving effect to the exercise of the Pre-Funded Warrants and excludes as of such date:

● Shares of common stock underlying the Warrants (other than any Pre-Funded Warrants);

● Shares of common stock underlying other outstanding warrants, which include, without limitation, (i) warrants to acquire up to 781,958 shares of our common stock at exercise prices between $4.26 and $766 expiring between October 2021 and October 2030, (ii) Class B Warrants to acquire up to 1,818,181 shares of our common stock at an exercise price of $5.25 expiring December 2027, and (iii) Class C Warrants, to acquire up to 1,818,181 shares of our common stock at an exercise price of $5.25 expiring January 2024.

● Outstanding stock options to acquire up to 38,951 shares of our common stock at exercise prices between $94 and $415 expiring between June 2024 and May 2031;

● Up to 677,419 shares of our common stock issuable upon conversion of outstanding shares of Series A Preferred Stock;

● Up to 58,300 shares of common stock issuable further to a $17.5 million equity line of credit;

● 5,680 shares of our common stock reserved for future issuance under our 2020 Omnibus Incentive Plan.

The applicable percentage ownership “After the Offering” in the following table assumes the exercise of the Warrants and sale of all shares available for sale under this prospectus and no further acquisitions of shares by the selling stockholders.

Unless otherwise indicated, the address for each officer, director and director nominee in the following table is c/o Digital Brands Group, Inc., 1400 Lavaca Street, Austin, TX 78701.

Percentages of

Percentage of

Name of Beneficial Owner

Executive Officers and Directors

John "Hil"

John “Hil” Davis(1)

Laura Dowling(2)

Reid Yeoman(3)

Trevor Pettenude(5)

Trevor Pettennude(5)

Jameeka Aaron(6)

Huong "Lucy"

All executive officers, directors and director nominees

as a group (7 persons)(8)

Additional 5% Stockholders

Drew Jones(9)

2736 Routh Street

Dallas, Texas 75201

Moise Emquies

Norwest Venture Partners XI, LP

Norwest Venture Partners XII, LP

Huong “Lucy” Doan(7)

All executive officers, directors and director nominees as a group (7 persons) (8)

Less than one percent.

7 unchanged sentences

(8) Includes options to acquire up to 24,526 shares of common stock exercisable between $156 and $400.

Represents shares issued to D.

Jones Tailored Collection, Ltd., a Texas limited partnership, an entity controlled by Drew Jones.

Securities Authorized for Issuance Under Equity Compensation Plans

We have adopted a 2020 Omnibus Incentive Stock Plan (the “2020 Plan”).

An aggregate of 3,300,000 shares of our common stock is reserved for issuance and available for awards under the 2020 Plan, including incentive stock options granted under the 2020 Plan.

The 2020 Plan administrator may grant awards to any employee, director, and consultants of the company and its subsidiaries.

To date, 2,732,000 grants have been made under the 2020 Plan and 588,000 shares remain eligible for issuance under the Plan.

The 2020 Plan is currently administered by the Compensation Committee of the Board as the Plan administrator.

The 2020 Plan administrator has the authority to determine, within the limits of the express provisions of the 2020 Plan, the individuals to whom awards will be granted, the nature, amount and terms of such awards and the objectives and conditions for earning such awards.

The Board may at any time amend or terminate the 2020 Plan, provided that no such action may be taken that adversely affects any rights or obligations with respect to any awards previously made under the 2020 Plan without the consent of the recipient.

No awards may be made under the 2020 Plan after the tenth anniversary of its effective date.

Awards under the 2020 Plan may include incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted shares of common stock, restricted stock Units, performance share or Unit awards, other stock-based awards and cash-based incentive awards.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

7 unchanged sentences

Upon closing of the IPO, 25,080 shares of common stock were issued to directors as conversion of balances owed.

In October 2022, the Company received advances from Trevor Pettennude totaling $325,000.

The advances are unsecured, non-interest bearing and due on demand.

As of December 31, 2022, the amounts were outstanding.

The current CEO, Hil Davis, previously advanced funds to the Company for working capital.

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In addition, each of Mark Lynn, John “Hil” Davis, and Trevor Pettennude converted certain amounts owed to them into shares of common stock at the effective date of the IPO at a 30% discount to the IPO price as part of the debt conversion.

As of December 31, 2021, H&J had an outstanding note payable of $299,489 owned by the H&J Seller.

The note matures on July 10, 2022 and bears interest at 12% per annum.

As of December 31, 2022 and 2021, H&J had an outstanding note payable of $129,1489 and $299,489, respectively, owned by the H&J Seller.

The note matured in July 2022 and bears interest at 12% per annum.

The parties are currently discussing extension options.

At the time of the Stateside acquisition, Moise Emquies was a member of the Board of Directors of the Company.

The Stateside acquisition was unanimously approved by all of the members of the Company’s Board of Directors (other than Moise Emquies who recused himself).

We have been involved in a dispute with the former owners of H&J regarding our obligation to “true up” their ownership interest in our company further to that membership interest purchase agreement dated May 10, 2021 whereby we acquired all of the outstanding membership interests of H&J (as amended.

the “H&J Purchase Agreement”).

Further to the H&J Purchase Agreement, we agreed that if, at May 18, 2022, the one year anniversary of the closing date of our initial public offering, the product of the number of shares of our common stock issued at the closing of such acquisition multiplied by the average closing price per share of our shares of common stock as quoted on the NasdaqCM for the thirty (30) day trading period immediately preceding such date plus the gross proceeds, if any, of shares of our stock issued to such sellers and sold by them during the one year period from the closing date of the offering does not exceed the sum of $9.1 million, less the value of any shares of common stock cancelled further to any indemnification claims or post-closing adjustments under the H&J Purchase Agreement, then we shall issue to the subject sellers an additional aggregate number of shares of common stock equal to any such valuation shortfall at a per share price equal to the then closing price per share of our common stock as quoted on the NasdaqCM.

We did not honor our obligation to issue such shares and the former owner of H&J have claimed that they were damaged as a result.

As part of a proposed settlement with such holders, we have tentatively agreed to the following:

(i) to transfer all membership interests of H&J back to the original owners, (ii) to pay such owners the sum of $229,000, (iii) issue the former owners of H&J an aggregate of $1,400,000 worth of our common stock to be issued on May 16, 2023 based on the lower of (a) the stock closing price per share on May 15, 2023, and (b) the average common stock closing price based on the average of the 5 trading days preceding May 16, 2023, with the closing price on May 9, 2023.

Such tentative terms are to be memorialized in definitive purchase agreements and as such there is no assurance that such arrangements will be finalized.

As of the issuance date of these financial statements, the above terms and continued negotiations have been verbally approved by the Board.

Policies and Procedures for Related Person Transactions

38 unchanged sentences

333-261865), filed with the SEC on January 6, 2022).

Membership Interest Purchase Agreement, dated January 18, 2022, by and among Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies, Sunnyside, LLC, and George Levy as the Sellers’ representative (incorporated by reference to Exhibit 1.1 of Digital Brands Group Inc.’s Form 8-K filed with the ESC on January 20, 2022).

Amended and Restated Membership Interest Purchase Agreement, dated June 17, 2022, by and among Digital Brands Group, Inc.

and Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (incorporated by reference to Exhibit 2.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on June 23, 2022).

Second Amended and Restated Membership Interest Purchase Agreement, dated October 13, 2022, by and among Digital Brands Group, Inc.

and Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (incorporated by reference to Exhibit 2.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 18, 2022).

Sixth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.3 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Certificate of Designation of Series A Preferred Stock, dated August 31, 2022 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 31, 2022).

Certificate of Designation of Series A Convertible Preferred Stock, dated September 29, 2022 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 5, 2022).

Certificate of Correction of Series A Convertible Preferred Stock, dated October 3, 2022 (incorporated by reference to Exhibit 3.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 5, 2022).

Certificate of Amendment of Certificate of Incorporation of Digital Brands Group, Inc.

dated October 13, 2022 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 18, 2022).

Certificate of Amendment of Certificate of Incorporation of Digital Brands Group, Inc.

dated October 21, 2022 (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 26, 2022).

Amended and Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.5 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Amendment No.

1 to the Amended and Restated Bylaws of Digital Brands Group, Inc., as amended (incorporated by reference to Exhibit 3.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 12, 2022).

Amendment No.

2 to the Amended and Restated Bylaws of Digital Brands Group, Inc., as amended (incorporated by reference to Exhibit 3.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 31, 2022).

Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

4 unchanged sentences

333-261865), filed with the SEC on January 6, 2022).

Form of Series Seed Preferred Stock Purchase Agreement (incorporated by reference to Exhibit 4.5 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Form of Series A Preferred Stock Subscription Agreement (incorporated by reference to Exhibit 4.6 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Form of Series A-2 Preferred Stock Subscription Agreement (incorporated by reference to Exhibit 4.7 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Form of Series A-3 Preferred Stock Subscription Agreement (incorporated by reference to Exhibit 4.8 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Form of Series CF Preferred Stock Purchase Agreement (incorporated by reference to Exhibit 4.9 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Form of 2019 Regulation D Convertible Note (incorporated by reference to Exhibit 4.10 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022)

Form of 2020 Regulation D Convertible Note (incorporated by reference to Exhibit 4.11 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Description of Securities

Form of Promissory Note, dated July 22, 2022, by Digital Brands Group, Inc.

in favor each Investor (incorporated by reference to Exhibit 10.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on July 27, 2022).

Form of Warrant, dated July 22, 2022, by Digital Brands Group, Inc.

in favor each Investor (incorporated by reference to Exhibit 10.3 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on July 27, 2022).

Form of Promissory Note, dated July 28, 2022, by Digital Brands Group, Inc.

in favor the New Investor (incorporated by reference to Exhibit 10.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 2, 2022).

Form of Warrant, dated July 28, 2022, by Digital Brands Group, Inc.

in favor the New Investor (incorporated by reference to Exhibit 10.3 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 2, 2022).

Form of Promissory Notes issued to each of the Sellers, Jenny Murphy and Elodie Crichi (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 18, 2022).

Registration Rights Agreement, dated August 30, 2021, by and between Digital Brands Group, Inc.

and Moise Emquies (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 31, 2021).

Registration Rights Agreement, dated August 27, 2021, by and between Digital Brands Group, Inc.

and Oasis Capital, LLC (Note) (incorporated by reference to Exhibit 4.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 31, 2021).

Registration Rights Agreement, dated August 27, 2021, by and between Digital Brands Group, Inc.

and Oasis Capital, LLC (ELOC) (incorporated by reference to Exhibit 4.3 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 31, 2021).

Joinder and Amendment to Registration Rights Agreement, dated October 1, 2021, by and among Digital Brands Group, Inc., Oasis Capital, LLC and FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 4.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 6, 2021).

Amendment to Registration Rights Agreement, dated November 16, 2021, by and among Digital Brands Group, Inc., Oasis Capital, LLC and FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 4.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on November 19, 2021).

Registration Rights Agreement, dated April 8, 2022, by and among Digital Brands Group, Inc.

and certain Investors (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on April 12, 2022).

Registration Rights Agreement, dated July 22, 2022, by and among Digital Brands Group, Inc.

and certain Investors (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on July 27, 2022).

Registration Rights Agreement, dated September 29, 2022, by and among Digital Brands Group, Inc.

and the Investor (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 5, 2022).

Underwriter’s Warrants issued to Alexander Capital L.P.

on May 5, 2022 (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on May 10, 2022)

Underwriter’s Warrants issued to Revere Securities, LLC (incorporated by reference to Exhibit 4.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on May 10, 2022)

Form of Class B Warrant (incorporated by reference to Exhibit 4.27 to the Registrant’s Registration Statement on Form S-1/A, filed with the SEC on November 29, 2022 (File no.

333-268213)).

Form of Class C Warrant (incorporated by reference to Exhibit 4.28 to the Registrant’s Registration Statement on Form S-1/A, filed with the SEC on November 29, 2022 (File no.

333-268213)).

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.29 to the Registrant’s Registration Statement on Form S-1/A, filed with the SEC on November 29, 2022 (File no.

333-268213)).

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.30 to the Registrant’s Registration Statement on Form S-1/A, filed with the SEC on November 29, 2022 (File no.

333-268213)).

Registration Rights Agreement, dated December 29, 2022, by and among Digital Brands Group, Inc.

and the Investors (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 4, 2023).

Registration Rights Agreement, dated December 30, 2022, by and among Digital Brands Group, Inc.

and Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 4, 2023).

Form of Common Warrant (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 11, 2023).

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 11, 2023).

Form of Placement Agent Warrant(incorporated by reference to Exhibit 4.3 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 11, 2023).

Form of Indemnification Agreement between the Registrant and each of its directors and officers (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

2 unchanged sentences

333-261865), filed with the SEC on January 6, 2022).

Amendment No.

7 to Senior Credit Agreement, dated as of April 1, 2021 between bocm3- DSTLD-Senior Debt, LLC, bocm3-DSTLD-Senior Debt 2, LLC, Stockholders and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.3 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Form of Board of Directors Agreement, entered into by each of the Director Nominees (incorporated by reference to Exhibit 10.4 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Original Issue Discount Promissory Note by Digital Brands Group, Inc.

in favor of Target Capital 2, LLC in the aggregate amount of $1,000,000 dated as of April 8, 2021 (incorporated by reference to Exhibit 10.5 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Consulting Agreement dated as of April 8, 2021 between Alchemy Advisory LLC and Digital Brands Group, Inc.

3 unchanged sentences

333-261865), filed with the SEC on January 6, 2022).

Senior Credit Agreement dated March 10, 2017 among bocm3-DSTLD-Senior Debt, LLC, Stockholders and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.8 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Amendment No.

1 to Senior Credit Agreement, dated as of July 1, 2017 among bocm3-DSTLD- Senior Debt, LLC, Stockholders and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.9 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Amendment No.

2 to Credit Agreement, Security Agreement and Management, dated as of March 30, 2018 among bocm3-DSTLD-Senior Debt, LLC, Stockholders, bocm3-DSTLD- Senior Debt 2, LLC and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.10 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Limited Waiver and Amendment No.

3 to Senior Credit Agreement, dated as of April 30, 2018 among bocm3-DSTLD-Senior Debt, LLC, Stockholders, bocm3-DSTLD-Senior Debt 2, LLC and Digital Brands Group (formerly

known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.11 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Amendment No.

4 to Senior Credit Agreement, dated as of February 28, 2019 among bocm3- DSTLD-Senior Debt, LLC, Stockholders, bocm3-DSTLD-Senior Debt 2, LLC and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.12 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Amendment No.

5 to Senior Credit Agreement and Security Agreement, dated as of February 7, 2020 among bocm3-DSTLD-Senior Debt, LLC, Stockholders, bocm3-DSTLD- Senior Debt 2, LLC and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.13 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Amendment No.

6 to Senior Credit Agreement, dated as of September 9, 2020 among bocm3- DSTLD-Senior Debt, LLC, Stockholders, bocm3-DSTLD-Senior Debt 2, LLC and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.14 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Amendment No.

7 to Senior Credit Agreement, dated as of April 1, 2021 between bocm3- DSTLD-Senior Debt, LLC, bocm3-DSTLD-Senior Debt 2, LLC, Stockholders and Digital Brands Group (formerly known as Denim.LA, Inc) (incorporated by reference to Exhibit 10.15 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Promissory Note, dated April 10, 2020, between Digital Brands Group (formally known as Denim.LA, Inc.) and JPMorgan Chase Bank, N.A.

47 unchanged sentences

333-261865), filed with the SEC on January 6, 2022).

Registration Rights Agreement, dated August 27, 2021, by and between Digital Brands Group, Inc.

and Oasis Capital, LLC (incorporated by reference to Exhibit 10.38 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Amendment to Registration Rights Agreement, dated November 16, 2021, by and among Digital Brands Group, Inc., Oasis Capital, LLC and FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.39 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333-261865), filed with the SEC on January 6, 2022).

Securities Purchase Agreement, dated November 16, 2021, by and among Digital Brands Group, Inc., Oasis Capital, LLC and FirstFire Global Opportunities Fund, LLC (incorporated by reference to Exhibit 10.40 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

7 unchanged sentences

333-261865), filed with the SEC on January 6, 2022).

List of Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

Registration Rights Agreement, dated April 8, 2022, by among Digital Brands Group, Inc.

and the Investors (incorporated by reference to Exhibit 4.1 of Digital Brands Group Inc.’s Current Report on Form 8-K, filed with the SEC on April 12, 2022).

Securities Purchase Agreement, dated April 8, 2022, by among Digital Brands Group, Inc.

and the Investors (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Current Report on Form 8-K, filed with the SEC on April 12, 2022).

Form of Warrant, dated April 8, 2022, by Digital Brands Group, Inc.

in favor of the Investors (incorporated by reference to Exhibit 10.3 of Digital Brands Group Inc.’s Current Report on Form 8-K, filed with the SEC on April 12, 2022).

Agreement for the Purchase and Sale of Future Receipts, dated March 21, 2022, between Digital Brands Group, Inc.

and Advantage Platform Services Inc.

d/b/a Advantage Capital Funding (incorporated by reference to Exhibit 10.45 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333- 264347), filed with the SEC on May 5, 2022).

Agreement for the Purchase and Sale of Future Receipts, dated March 29, 2022, between Digital Brands Group, Inc.

and Advantage Platform Services Inc.

d/b/a Advantage Capital Funding (incorporated by reference to Exhibit 10.46 of Digital Brands Group Inc.’s Registration Statement on Form S-1/A (Reg.

333- 264347), filed with the SEC on May 5, 2022).

First Amendment to Securities Purchase Agreement, dated July 28, 2022, by and among Digital Brands Group, Inc.

and certain Investors (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on August 2, 2022).

Securities Purchase Agreement, dated September 29, 2022, by and among Digital Brands Group, Inc.

and the investor thereto (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on October 5, 2022).

Form of Securities Purchase Agreement, by and between Digital Brands Group, Inc.

and the purchasers party thereto (incorporated by reference to Exhibit 10.38 to the Registrant’s Registration Statement on Form S-1/A, filed with the SEC on November 29, 2022 (File no.

333-268213)).

Securities Purchase Agreement, dated December 29, 2022, by and among Digital Brands Group, Inc.

and the Investors (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 4, 2023).

Form of Promissory Note, dated December 29, 2022, by Digital Brands Group, Inc.

in favor each Investor (incorporated by reference to Exhibit 10.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 4, 2023).

Form of Securities Purchase Agreement, dated as of January 11, 2023, by and among the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 11, 2023).

Form of Registration Rights Agreement, dated as of January 11, 2023, by and among the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 11, 2023).

Form of Warrant, dated December 29, 2022, by Digital Brands Group, Inc.

in favor each Investor (incorporated by reference to Exhibit 10.3 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on January 4, 2023).

Form of Securities Purchase Agreement, dated April 7, 2023, by and among Digital Brands Group, Inc.

and the Investors (incorporated by reference to Exhibit 10.1 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on April 13, 2023).

Form of Promissory Note, dated April 7, 2023, by Digital Brands Group, Inc.

in favor each Investor (incorporated by reference to Exhibit 10.2 of Digital Brands Group Inc.’s Form 8-K filed with the SEC on April 13, 2023).

List of Subsidiaries of the Registrant.

(incorporated by reference to Exhibit 21.1 of Digital Brands Group Inc.’s Registration Statement on Form S-1 (Reg.

333-269463), filed with the SEC on January 30, 2023).

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Consent of dbbmckennon for Digital Brands Group, Inc.

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a)

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a)

Certification of Principal Executive Officer Pursuant to 18 U.S.C.

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to 18 U.S.C.

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Interactive Data Files.

Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Inline XBRL Instance

Inline XBRL Taxonomy Extension Schema

Inline XBRL Taxonomy Extension Calculation

Inline XBRL Taxonomy Extension Labels

Inline XBRL Taxonomy Extension Presentation

Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith

# Indicates management contract or compensatory plan or arrangement.

3 unchanged sentences

/s/ John Hilburn Davis IV

March 31, 2022

April 17, 2023

John Hilburn Davis IV

2 unchanged sentences

Director, President and Chief Executive Officer

March 31, 2022

April 17, 2023

John Hilburn Davis IV

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Chief Financial Officer

March 31, 2022

April 17, 2023

(Principal Financial and Accounting Officer)

March 31, 2022

April 17, 2023

/s/ Trevor Pettennude

March 31, 2022

April 17, 2023

Trevor Pettennude

/s/ Jameeka Aaron Green

March 31, 2022

April 17, 2023

Jameeka Aaron Green

/s/ Huong “Lucy” Doan

March 31, 2022

April 17, 2023

Huong “Lucy” Doan

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FINANCIAL STATEMENTS

DECEMEMBER 31, 2021 AND 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID:

DECEMBER 31, 2022 AND 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB IS:

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICI)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

CONSOLIDATED STATEMENTS OF CASH FLOWS

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In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matter – Correction of Error

As described in Note 2 to the consolidated financial statements, the Company corrected the classification of certain costs and expenses, and accordingly, restated amounts included in the 2021 consolidated statement of operations to conform with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.

As discussed in Note 2 to the financial statements, the Company’s net losses from inception, negative cash flow from operations, and lack of liquidity raise substantial doubt about its ability to continue as a going concern.

As discussed in Note 2 to the consolidated financial statements, the Company’s net losses from inception, negative cash flow from operations, and lack of liquidity raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 2.

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Accordingly, we express no such opinion.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

/s/ dbb mckennon

We have served as the Company’s auditor since 2018

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ dbb mckennon (Firm No.

Newport Beach, California

March 31, 2022

April 17, 2023

We have served as the Company’s auditor since 2018

DIGITAL BRANDS GROUP, INC.

4 unchanged sentences

Due from factor, net

Inventory, net

Prepaid expenses and other current assets

3 unchanged sentences

Intangible assets, net

Right of use asset, net

LIABILITIES AND STOCKHOLDERS’ DEFICIT

5 unchanged sentences

Contingent consideration liability

Convertible notes, current

Convertible note payable, net

Accrued interest payable

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Promissory note payable

Right of use liability, current portion

Total current liabilities

3 unchanged sentences

Total liabilities

Commitments and contingencies (Note 12)

Commitments and contingencies

Stockholders’ deficit:

Series Seed convertible preferred stock, $ 0.0001 par, no shares and 20,714,518 shares, authorized, issued and outstanding at December 31, 2021 and 2020 , respectively

Series A convertible preferred stock, $ 0.0001 par, no shares and 14,481,413 shares authorized, no shares and 5,654,072 shares issued and outstanding at December 31, 2021 and 2020, respectively

Series A-2 convertible preferred stock, $ 0.0001 par, no shares and 20,000,000 shares authorized, no shares and 5,932,742 shares issued and outstanding at December 31, 2021 and 2020, respectively

Series A-3 convertible preferred stock, $ 0.0001 par, no shares and 18,867,925 shares authorized, no shares and 9,032,330 shares issued and outstanding at December 31, 2021 and 2020, respectively

Series CF convertible preferred stock, $ 0.0001 par, no shares and 2,000,000 shares authorized, no shares and 836,331 shares issued and outstanding at December 31, 2021 and 2020, respectively

Series B convertible preferred stock, $ 0.0001 par, no shares and 20,714,517 shares authorized, no shares and 20,714,517 shares issued and outstanding at December 31, 2021 and 2020, respectively

Undesignated preferred stock, $ 0.0001 par, 10,000,000 shares and 936,144 shares authorized, 0 shares issued and outstanding as of both December 31, 2021 and 2020

Common stock, $ 0.0001 par, 200,000,000 and 110,000,000 shares authorized, 13,001,690 and 664,167 shares issued and outstanding as of both December 31, 2021 and 2020, respectively

Undesignated preferred stock, $ 0.0001 par, 10,000,000 shares authorized, 0 shares issued and outstanding as of both December 31, 2022 and 2021

Series A preferred stock, $ 0.0001 par, 1 share authorized, no shares issued and outstanding as of December 31, 2022 or 2021

Series A convertible preferred stock, $ 0.0001 par, 6,800 shares designated, 6,300 shares issued and outstanding as of December 31, 2022, none authorized or outstanding as of December 31, 2021

Common stock, $ 0.0001 par, 1,000,000,000 shares authorized, 4,468,939 and 130,018 shares issued and outstanding as of December 31, 2022 and 2021, respectively

Additional paid-in capital

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Sales and marketing

Loss on disposal of property and equipment

Impairment of intangible assets

Change in fair value of contingent consideration

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Series A Convertible

Preferred Stock

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Preferred Stock

Stockholders’

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( 5,857,645 )

Stock-based compensation

Issuance of Series CF preferred stock

Issuance of Series A-3 preferred stock

Issuance of Series B preferred stock

Offering costs

Fair value of warrant issuances - venture debt

( 10,728,295 )

Balances at December 31, 2020

( 33,345,997 )

( 5,857,645 )

Conversion of preferred stock into common stock

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Exercise of warrants

Common stock issued pursuant to consulting agreements

Common stock issued pursuant to consulting agreement

Issuance of common stock pursuant to equity line of credit

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( 7,089,781 )

Issuance of common stock in public offering

Issuance of common stock and exercise of pre-funded warrants in public offering

Offering costs

( 2,921,646 )

Common stock issued in connection with business combination

Common stock issued pursuant to consulting agreement

Warrant and common shares issued with notes

Conversion of notes and derivative liability into common stock

Conversion of venture debt into Series A convertible preferred stock

Stock-based compensation

( 38,043,362 )

Balances at December 31, 2022

( 103,747,316 )

( 7,453,174 )

See the accompanying notes to the consolidated financial statements.

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Change in fair value of derivative liability

( 1,354,434 )

Change in fair value of contingent consideration

Deferred income tax benefit

Impairment of goodwill and intangible assets

Forgiveness of Payroll Protection Program

( 1,760,755 )

Impairment of intangible assets

Gain on forgiveness of PPP loans

Loss on disposal of property and equipment

Change in credit reserve

Deferred offering costs

Deferred income tax benefit

( 1,100,120 )

Changes in operating assets and liabilities:

13 unchanged sentences

( 7,247,303 )

( 5,936,757 )

Purchase of property, equipment and software

Net cash provided by (used in) investing activities

Net cash used in investing activities

( 7,313,384 )

Cash flows from financing activities:

Proceeds from related party advances

Repayments to factor

( 6,011,053 )

Cash flows from financing activities:

Repayments of related party notes

Advances (repayments) from factor

Repayment of contingent consideration

Proceeds from venture debt

Issuance of loans payable

Repayments of promissory notes and loans payable

Repayments of convertible and promissory notes

( 7,437,349 )

( 2,006,628 )

Issuance of convertible notes payable

Proceeds from initial public offering

Proceeds from public offering

Exercise of over-allotment option with public offering, net

Exercise of warrants

Proceeds from sale of Series A-3 preferred stock

Subscription receivable from Series A-3 preferred stock

Proceeds from sale of Series CF preferred stock

Offering costs

( 2,921,646 )

( 2,116,957 )

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosure of cash flow information:

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Supplemental disclosure of non-cash investing and financing activities:

Conversion of preferred stock into common stock

Conversion of related party notes and payables into common stock

Conversion of debt into common stock

Conversion of notes, warrants and derivatives into common stock

Right of use asset

Warrant and common shares issued with notes

Derivative liability in connection with convertible note

Common shares issued pursuant to equity line of credit

Conversion of venture debt into preferred stock

Conversion of related party notes and payables into preferred and common stock

Conversion of preferred stock into common stock

Conversion of contingent consideration into common stock

Venture debt issued in exchange of forgiveness of accrued interest

Warrants issued for offering costs

Warrants issued with venture debt

Issuance of promissory note payable in acquisition

Issuance of Series B preferred stock in acquisition

Common shares issued pursuant to equity line of credit

See the accompanying notes to the consolidated financial statements.

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On the acquisition date, Stateside became a wholly owned subsidiary of the Company.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a pandemic.

As the global spread of COVID-19 continues, DBG remains first and foremost focused on a people-first approach that prioritizes the health and well-being of its employees, customers, trade partners and consumers.

To help mitigate the spread of COVID-19, DBG has modified its business practices in accordance with legislation, executive orders and guidance from government entities and healthcare authorities (collectively, “COVID-19 Directives”).

These directives include the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines.

The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, and the imposition of protective public safety measures.

On December 30, 2022, the Company closed its previously announced acquisition of Sunnyside, LLC dba Sundry (“Sundry”) pursuant to its Second Amended and Restated Membership Interest Purchase Agreement with Moise Emquies to purchase 100 % of the issued and outstanding equity of Sundry.

On the acquisition date, Sundry became a wholly owned subsidiary of the Company.

Reverse Stock Split

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Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

On October 21, 2022, the Board of Directors approved a one -for-100 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s preferred stock.

The reverse stock split became effective as of November 3, 2022.

Initial Public Offering

9 unchanged sentences

The Company has historically lacked liquidity to satisfy obligations as they come due and as of December 31, 2022, and the Company had a working capital deficit of $ 32,064,398 .

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

These factors, among others, arise substantial doubt about the Company’s ability to continue as a going concern.

The Company expects to continue to generate operating losses for the foreseeable future.

The accompanying consolidated financial statements do not include any adjustments as a result of this uncertainty.

Management Plans

In August 2021, the Company entered into an equity line of credit agreement which the investor is committed to purchase up to $ 17,500,000 of the Company’s common stock (see Note 8).

The Company plans to utilize multiple drawdowns on this agreement, subject to satisfying a registration rights agreement and other restrictions, some of which is out of the Company’s control.

Throughout the next twelve months, the Company intends to fund its operations primarily from the funds raised through the equity line of credit agreement, if available.

Through the issuance date of these consolidated financial statements, the Company has not been able to drawdown on the agreement and has received no financings from the agreement.

The Company may pursue secondary offerings or debt financings to provide working capital and satisfy debt obligations.

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.

The Company’s ability to continue as a going concern for the next 12 months from the date the financial statements were available to be issued is dependent upon its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and/or to obtain additional capital financing.

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 or obtain financing through the sale of debt and/or equity securities.

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.

No assurance can be given that the Company will be successful in these efforts.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 unchanged sentences

Principles of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J and Stateside from the dates of acquisition.

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, H&J, Stateside and Sundry from the dates of acquisition.

All inter-company transactions and balances have been eliminated on consolidation.

2 unchanged sentences

Actual results could differ from those estimates.

Restatement of Previously Issued Financial Statements

Certain prior year accounts have been reclassified to conform with current year presentation pertaining to cost of net revenue and general and administrative expenses.

The Company has reclassified $ 1,027,387 in general and administrative expenses per previously reported financial statements to cost of net revenues in the accompanying consolidated statements of operations for the year ended December 31, 2021.

The reclassified costs from general and administrative expense to cost of net revenues made in the fourth quarter of 2022 and 2021 are fixed in nature as they are personnel and warehouse related costs.

The impact of the reclassification was approximately $ 290,000 for each of the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022.

The impact of the reclassification was approximately $ 255,000 for each of the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021.

Cash and Equivalents and Concentration of Credit Risk

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Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or

liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

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Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

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 Company’s financial instruments consist of cash and cash equivalents, accounts receivable, due from factor, prepaid expenses, accounts payable, accrued expenses, deferred revenue, due to related parties, related party note payable, accrued interest, loan 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.

8 unchanged sentences

Warrant liability

Contingent consideration

Derivative liability

Warrant Liability

3 unchanged sentences

Upon the IPO, the warrant liabilities were valued using quoted prices of identical assets in active markets, and was reclassified under the Level 2 hierarchy.

Changes in common stock warrant liability during the year ended December 31, 2021 are as follows:

Changes in common stock warrant liability during the years ended December 31, 2022 and 2021 are as follows:

Outstanding as of December 31, 2020

1 unchanged sentence

Outstanding as of December 31, 2021

Change in fair value

Outstanding as of December 31, 2022

Contingent Consideration

1 unchanged sentence

The estimated fair value of the contingent consideration is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.

The Company estimates and records the acquisition date fair value of contingent consideration as part of purchase price consideration for acquisitions.

Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration and recognizes any change in fair in the consolidated statement of operations.

The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of future operating results, discount rates and probabilities assigned to various potential operating result scenarios.

Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and, therefore, materially affect the Company’s future financial results.

The contingent consideration liability is to be settled with the issuance of shares of common stock once contingent provisions set forth in respective acquisition agreements have been achieved.

Upon achievement of contingent provisions, respective liabilities are relieved and offset by increases to common stock and additional paid-in capital in the stockholders’ equity section of the Company’s consolidated balance sheets.

The fair value of the contingent consideration liability related to the Company’s business combinations is valued using the Monte Carlo simulation model.

1 unchanged sentence

The fair value of the contingent consideration is then calculated based on guaranteed equity values at settlement as defined in the acquisition agreements.

Changes in contingent consideration liability during the year ended December 31, 2021 are as follows:

Changes in contingent consideration liability during the years ended December 31, 2022 and 2021 are as follows:

Consideration

5 unchanged sentences

Outstanding as of December 31, 2021

Repayments to Harper & Jones seller

Change in fair value

Outstanding as of December 31, 2022

During the year ended December 31, 2022, the Company utilized the following inputs for the fair value of the contingent consideration:

volatilities of 79.3 % and 88.9 %, risk-free rate of 0.25 %, expected share increase of 5 % per annum, and the guaranteed stock price of $ 828 for Bailey and $ 415 for Harper & Jones.

The detail of contingent consideration by company is as follows:

Harper & Jones

The contingent consideration liabilities were revalued for a final time as of May 18, 2022, the anniversary date of the Company’s initial public offering.

As of the date of the issuance of these financial statements, the contingent consideration liabilities were not yet settled with shares.

In December 2022, the Company paid $ 645,304 to the H&J Seller to partially reduce the contingent consideration balance owed.

The Company and the H&J Seller are in the process of amending the May 2021 purchase agreement to determine the ultimate settlement of the Company’s common stock to the H&J Seller by May 16, 2023.

Refer to Note 12.

Derivative Liability

In connection with the Company’s convertible notes with Oasis Capital, LLC (“Oasis”) and FirstFire Global Opportunities Fund, LLC (“FirstFire”), the Company recorded a derivative liability (see Note 7).

In connection with the Company’s convertible notes, the Company recorded a derivative liability (see Note 7).

The estimated fair value of the derivative liability is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.

1 unchanged sentence

The multinomial lattice inputs include the underlying stock price, volatility of common stock and remaining term of the convertible note.

Changes in derivative liability during the year ended December 31, 2021 are as follows:

Changes in derivative liability during the years ended December 31, 2022 and 2021 are as follows:

Outstanding as of December 31, 2020

2 unchanged sentences

Outstanding as of December 31, 2021

Change in fair value of the derivative liability is included in other non-operating income (expense), net in the consolidated statements of operations.

Inventory is stated at the lower of cost or net realizable value and accounted for using the weighted average cost method for DSTLD and first-in, first-out method for Bailey and Stateside.

Initial fair value on issuance of convertible note

Conversion of underlying notes into common stock

( 1,500,243 )

Change in fair value

( 1,354,434 )

Outstanding as of December 31, 2022

During the year ended December 31, 2022, the Company utilized the following inputs for the fair value of the derivative liability:

volatility of 70.9 % - 96.7 %, risk-free rate of 2.71 % - 3.74 %, and remaining term ranging from .08 years - 0.62 years.

The change in fair value of the derivative liability is included in other non-operating income (expense), net in the consolidated statements of operations.

Inventory is stated at the lower of cost or net realizable value and accounted for using the weighted average cost method for DSTLD and H&J and first-in, first-out method for Bailey, Stateside and Sundry.

The inventory balances as of December 31, 2022 and 2021 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.

Inventory consisted of the following:

Raw materials

Work in process

Finished goods

Property, Equipment, and Software

2 unchanged sentences

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 December 31, 2021 and 2020 consist of software with three ( 3 ) year lives, property and

equipment with three ( 3 ) to ten ( 10 ) year lives, and leasehold improvements which are depreciated over the shorter of the lease life or expected life.

The balances at December 31, 2022 and 2021 consist of software with three ( 3 ) year lives, property and equipment with three ( 3 ) to ten ( 10 ) year lives, and leasehold improvements which are depreciated over the shorter of the lease life or expected life.

Depreciation and amortization charges on property, equipment, and software are included in general and administrative expenses and amounted to $ 75,126 and $ 92,213 for the years ended December 31, 2022 and 2021, respectively.

12 unchanged sentences

Customer relationships

Contingent Consideration

The Company estimates and records the acquisition date fair value of contingent consideration as part of purchase price consideration for acquisitions.

Additionally, each reporting period, the Company estimates changes in the fair value of contingent consideration and recognizes any change in fair in the consolidated statement of operations.

Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and, therefore, materially affect the Company’s future financial results.

The contingent consideration liability is to be settled with the issuance of shares of common stock once contingent provisions set forth in respective acquisition agreements have been achieved.

Upon achievement of contingent provisions, respective liabilities are relieved and offset by increases to common stock and additional paid in capital in the stockholders’ equity section of the Company’s consolidated balance sheets.

Impairment of Long-Lived Assets

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.

1 unchanged sentence

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.

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.

1 unchanged sentence

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 first quarter every year.

In the first quarter of 2021, management performed its annual qualitative impairment test.

The Company determined no factors existed to conclude that it is more likely than not that the fair value of the reporting unit was less than its carrying amount.

As such, no goodwill impairment was recognized as of December 31, 2021.

It is our practice, at a minimum, to perform a qualitative or quantitative goodwill impairment test in the fourth quarter every year.

Indefinite-Lived Intangible Assets

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If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

At September 30, 2020, management determined that certain events and circumstances occurred, primarily the reduction in revenues due to COVID-19, that indicated that the carrying value of the Company’s brand name asset may, pertaining to Bailey44, not be recoverable.

As such, the Company compared the estimated fair value of the brand name with its carrying value and recorded an impairment loss of $ 784,500 in the consolidated statements of operations.

At December 31, 2021, management determined that certain events and circumstances occurred, primarily the continued reduction in revenues partially as a result of COVID-19, that indicated that the carrying value of the Company’s brand name asset may pertaining to Bailey44 not be recoverable.

Annual Impairment Tests

As such, the Company compared the estimated fair value of the brand name with its carrying value and recorded an impairment loss of $ 3,400,000 in the consolidated statements of operations.

At December 31, 2022, management determined that certain events and circumstances occurred that indicated that the carrying value of the Company’s brand name assets, and the carrying amount of the reporting units, pertaining to Bailey44 and Harper & Jones may not be recoverable.

The qualitative assessment was primarily due to reduced or stagnant revenues of both entities as compared to the Company’s initial projections at the time of each respective acquisition, as well as the entities’ liabilities in excess of assets.

As such, the Company compared the estimated fair value of the brand names with its carrying value and recorded an impairment loss of $ 3,667,000 in the consolidated statements of operations.

Additionally, the Company compared the fair value of the reporting units to the carrying amounts and recorded an impairment loss of $ 11,872,332 pertaining to goodwill in the consolidated statements of operations.

The following is a summary of goodwill and intangible impairment recorded pertaining to each entity:

Bailey brand name

Harper & Jones brand name

Total impairment of intangibles

Bailey goodwill

Harper & Jones goodwill

Total impairment of goodwill

Total impairment

In determining the fair value of the respective reporting units, management estimated the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants at the measurement date.

This includes reviewing market comparables such as revenue multipliers and assigning certain assets and liabilities to the reporting units, such as the respective working capital deficits of each entity and debt obligations that would need to be assumed by a market participant buyer in an orderly transaction.

The Company calculated the carrying amounts of each reporting unit by utilizing the entities’ assets and liabilities at December 31, 2022, including the carrying value of the identifiable intangible assets and goodwill assigned to the respective reporting units.

Refer to Note 12 for the related developments with H&J.

Convertible Instruments

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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.

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.

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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.

Cost of revenues also includes inventory write-offs and reserves.

Shipping and Handling

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The amounts are included in sales and marketing expense.

General and Administrative

General and administrative expenses consist primarily of compensation and benefits costs, professional services and information technology.

General and administrative expenses also include payment processing fees, design and warehousing fees.

Common Stock Purchase Warrants and Other Derivative Financial Instruments

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ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported.

Stock-based compensation is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services.

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.

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.

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As of December 31, 2021, the Company capitalized $ 367,696 in deferred offering costs pertaining to its equity line of credit agreement with Oasis (Note 8).

In 2022, the Company wrote off these costs to general and administrative expenses in the consolidated statements of operations as the equity line of credit financing never occurred.

Segment Information

In accordance with ASC 280, Segment Reporting (“ASC 280”), we identify our operating segments according to how our business activities are managed and evaluated.

As of September 30, 2021 our operating segments included:

DSTLD, Bailey, H&J and Stateside.

As of December 31, 2022 our operating segments included:

DSTLD, Bailey, H&J, Stateside and Sundry.

Each operating segment currently reports to the Chief Executive Officer.

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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.

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.

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Convertible notes

Series Seed Preferred Stock (convertible to common stock)

Series A Preferred Stock (convertible to common stock)

Series A-2 Preferred Stock (convertible to common stock)

Series CF Preferred Stock (convertible to common stock)

Series A-3 Preferred Stock (convertible to common stock)

Series B Preferred Stock (convertible to common stock)

Series A convertible preferred stock

Common stock warrants

Preferred stock warrants

Stock options

Total potentially dilutive shares

The potentially dilutive shares pertaining to the Company’s outstanding convertible notes was calculated based on the assumed conversion abilities as of December 31, 2021.

The potentially dilutive shares pertaining to the Company’s outstanding convertible notes were calculated based on the assumed conversion abilities as of December 31, 2022 and 2021.

The ultimate number of shares for which the notes can convert into is indeterminable.

All shares of preferred stock were convertible into shares of common stock at a ratio of 15.625 :1 per share.

Upon the closing of the IPO, all 62,924,710 shares of preferred stock converted into an aggregate of 4,027,181 shares of common stock according to their respective terms.

Additionally, all preferred stock warrants converted into 51,642 common stock warrants at the same ratio as the underlying preferred stock conversion.

The stock options and warrants above are out-of-the-money as of December 31, 2022 and 2021.

Concentrations

The Company utilized two vendors that made up 40 % of all inventory purchases during the year ended December 31, 2021 and three vendors that made up 100 % of all inventory purchases during the year ended December 31, 2020.

The Company utilized three and two vendors that made up 30 % and 40 %, respectively, of all inventory purchases during the years ended December 31, 2022 and 2021.

The loss of one of these vendors, may have a negative short-term impact on the Company’s operations;

however, we believe there are acceptable substitute vendors that can be utilized longer-term.

On January 1, 2022, the Company adopted ASC 842, Leases , as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from lease arrangements.

The Company adopted the new guidance using a modified retrospective method.

Under this method, the Company elected to apply the new accounting standard only to the most recent period presented, recognizing the cumulative effect of the accounting change, if any, as an adjustment to the beginning balance of retained earnings.

Accordingly, prior periods have not been recast to reflect the new accounting standard.

The cumulative effect of applying the provisions of ASC 842 had no material impact on accumulated deficit.

The Company elected transitional practical expedients for existing leases which eliminated the requirements to reassess existing lease classification, initial direct costs, and whether contracts contain leases.

Also, the Company elected to present the payments associated with short-term leases as an expense in statements of operations.

Short-term leases are leases with a lease term of 12 months or less.

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature.

As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met.

The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06.

ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020.

The Company has elected to early adopt this ASU and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02:

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This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2021.

The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position, results of operations and cash flows once adopted.

The Company has adopted ASU 2016-02 as of January 1, 2022.

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements.

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BUSINESS COMBINATIONS

On February 12, 2020, the Company acquired 100 % of the membership interests of Bailey.

The purchase price consideration included (i) an aggregate of 20,754,717 shares of Series B Preferred Stock of the Company (the “Parent Stock”) and (ii) a promissory note in the principal amount of $ 4,500,000 .

Of the shares of Parent Stock issued in connection with the Merger, 16,603,773 shares were delivered on the effective date of the Merger (the “Initial Shares”) and 4,150,944 shares were held back solely, and only to the extent necessary, to satisfy any indemnification obligations of Bailey or the Holders pursuant to the terms of the Merger Agreement (the “Holdback Shares”).

DBG agreed that if at that date which is one year from the closing date of the IPO, the product of the number of shares of Parent Stock issued under the Merger multiplied by the sum of the closing price per share of the common stock of the Company on such date, plus Sold Parent Stock Gross Proceeds (as that term is defined in the Merger Agreement), does not exceed the sum of $ 11,000,000 less the value of any Holdback Shares cancelled further to the indemnification provisions of the Merger Agreement, then the Company shall issue to the Holders pro rata an additional aggregate number of shares of common stock of the Company equal to the valuation shortfall at a per share price equal to the then closing price per share of the common stock of the Company.

Series B preferred stock

Promissory note payable

2022 Acquisition

On December 30, 2022, the Company completed its previously announced acquisition (the “ Sundry Acquisition”) of all of the issued and outstanding membership interests of Sunnyside, LLC, a California limited liability company (“Sundry”), pursuant to that certain Second Amended and Restated Membership Interest Purchase Agreement (the “ Sundry Agreement”), dated October 13, 2022, by and among Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (“ Sundry Sellers”), George Levy as the Sundry Sellers’ representative, the Company as Buyer, and Sundry.

Pursuant to the Agreement, Sellers, as the holders of all of the outstanding membership interests of Sundry, exchanged all of such membership interests for (i) $ 7.5 million in cash, (ii) $ 5.5 million in promissory notes of the Company (the “Sundry Notes”), and (iii) a number of shares of common stock of the Company equal to $ 1.0 million (the “Sundry Shares”), calculated in accordance with the terms of the Agreement, which consideration was paid or delivered to the Sellers, Jenny Murphy and Elodie Crichi.

Each Sundry Note bears

interest at eight percent (8%) per annum and matured on February 15, 2023 (see Note 7).

The Company issued 90,909 shares of common stock to the Sundry Sellers on December 30, 2022 at a fair value of $ 1,000,000 .

The Company evaluated the acquisition of Sundry pursuant to ASC 805 and ASU 2017-01, Topic 805, Business Combinations.

The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their estimated respective fair values as of the closing date of the acquisition.

Goodwill recognized in connection with this transaction represents primarily the potential economic benefits that the Company believes may arise from the acquisition.

Total fair value of the purchase price consideration was determined as follows:

Promissory notes payable

Purchase price consideration

The Company has made an allocation of the purchase price in regard to the acquisition related to the assets acquired and the liabilities assumed as of the purchase date.

The following table summarizes the purchase price allocation:

Purchase Price

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Accounts receivable, net

Due (to) from factor, net

Prepaid expenses

Due from factor, net

Prepaid expenses and other current assets

Property, equipment and software, net

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Accounts payable

( 3,397,547 )

Accrued expenses and other liabilities

Purchase price consideration

As of December 31, 2021, the Company has a contingent consideration liability of $ 7,935,016 based on the valuation shortfall as noted above.

The customer relationships and will be amortized on a straight-line basis over their estimated useful lives of three years .

The brand name is indefinite-lived.

The Company used the relief of royalty and income approach to estimate the fair value of intangible assets acquired.

Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition and other intangible assets that do not qualify for separate recognition.

The goodwill is not deductible for tax purposes.

The results of Sundry have been included in the consolidated financial statements since the date of acquisition.

Previous Acquisitions

On February 12, 2020, the Company acquired 100 % of the membership interests of Bailey.

The total purchase price consideration was $ 15,500,000 .

As of December 31, 2022 and 2021, the Company has a contingent consideration liability of $ 10,698,475 and $ 7,935,016 , respectively, based on the valuation shortfall as noted above.

Harper & Jones

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Accounts receivable, net

Prepaid expenses

Due from factor, net

Prepaid expenses and other current assets

Property, equipment and software, net

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Accrued expenses and other liabilities

Deferred revenue

Due to related parties

Note payable - related party

Deferred tax liability

( 1,100,120 )

Purchase price consideration

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The Company recorded an initial contingent consideration liability at a fair value of $ 3,421,516 based on the valuation shortfall noted above.

As of December 31, 2021, the H&J contingent consideration was valued at $ 4,244,460 .

As of December 31, 2022 and 2021, the H&J contingent consideration was valued at $ 1,400,000 and $ 4,244,460 , respectively.

The results of H&J have been included in the consolidated financial statements since the date of acquisition.

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Due from factor, net

Prepaid expenses

Prepaid expenses and other current assets

Property, equipment and software, net

Intangible assets

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Accrued expenses and other liabilities

Purchase price consideration

The customer relationships and will be amortized on a straight-line basis over their estimated useful lives of three years .

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Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the Company’s financial results as if the Bailey, H&J and Stateside acquisitions had occurred as of January 1, 2020.

The following unaudited pro forma financial information presents the Company’s financial results as if the Bailey, H&J, Stateside and Sundry acquisitions had occurred as of January 1, 2021.

The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisitions been completed on this date.

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The following unaudited pro forma financial information includes incremental property and equipment depreciation and intangible asset amortization as a result of the acquisitions.

The pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition:

The unaudited pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition:

( 42,001,415 )

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DUE FROM FACTOR

The Company, via its subsidiaries, Bailey and Stateside, 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, 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, and up to 50 % of eligible finished goods inventories based on the terms of one of our agreements that terminated in 2021.

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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 2.5 % for Bailey.

For Stateside, should total commission and fees payable be less than $ 30,000 in a single year, then the factor shall charge the difference between the actual fees in said year and $ 30,000 to the Company.

For Stateside and Sundry, should total commission and fees payable be less than $ 30,000 in a single year, then the factor shall charge the difference between the actual fees in said year and $ 30,000 to the Company.

Interest on advances is charged as of the last day of each month at a rate equal to the greater of either, (a) the Chase Prime Rate + ( 2.0 )% or (b) ( 4.0 )% per annum.

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GOODWILL AND INTANGIBLE ASSETS

The Company recorded $ 6,479,218 in goodwill from the Bailey business combination in February 2020, $ 9,681,548 in goodwill from the H&J business combination in May 2021 and $ 1,610,265 in goodwill from the Stateside business combination in August 2021.

In the fourth quarter of 2021, the Company recorded an additional $ 493,791 in Stateside goodwill based on the final purchase price allocation.

The following table summarizes information relating to the Company’s identifiable intangible assets as of December 31, 2021:

The Company recorded goodwill from each of its business combinations.

The following is a summary of goodwill by entity for the years ended December 31, 2022 and 2021:

Harper & Jones

Balances at December 31, 2020

Business combinations

Balances at December 31, 2021

Business combination

( 3,321,095 )

( 8,551,237 )

( 11,872,332 )

Balances at December 31, 2022

Refer to Note 3 for discussion on the goodwill impairment recorded in 2022.

Intangible Assets

The following table summarizes information relating to the Company’s identifiable intangible assets as of December 31, 2022 and 2021:

December 31, 2022

Customer relationships

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( 3,600,607 )

December 31, 2021

Customer relationships

( 1,449,357 )

Indefinite-lived:

( 1,449,357 )

Due to the effects of COVID-19 and revenue levels not recovering as quickly as anticipated and related uncertainty which affected Bailey’s results and near-term demand for its products, the Company determined that there were indications for further impairment analysis in both 2022 and 2021.

During the years ended December 31, 201 and 2020, the Company recorded impairment losses of $ 3,400,000 and $ 784,500 for the intangible asset as management determined circumstances existed that indicated the carrying value may not be recoverable.

Due to Harper’s revenue levels lower as compared to initial projects, the Company determined that there were indications for further impairment analysis in 2022.

Refer to Note 3 for discussion on the intangible asset impairment recorded in 2022 and 2021.

Management determined circumstances existed that indicated the carrying value may not be recoverable.

The impairment analysis was based on the relief from royalty method using projected revenue estimates and discounts rates believed to be appropriate.

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Other liabilities

Due to seller represents amounts to the seller owed pursuant the Stateside Acquisition after certain purchase price adjustments were made in the fourth quarter of 2021.

Certain liabilities including sales tax and payroll related liabilities maybe be subject to interest in penalties.

As of December 31, 2021 and 2020, payroll related labilities included approximately $ 262,000 and $ 152,000 in estimated penalties associated with accrued payroll taxes.

In March 2017, the Company entered into a senior credit agreement with an outside lender for up to $ 4,000,000 , dependent upon the achievement of certain milestones.

Through various amendments to the agreement, the credit agreement has been increased to approximately $ 6,000,000 .

The loan bears interest at 12.5 % per annum, compounded monthly, plus fees currently at $ 5,000 per month.

In March 2021, the Company and the lender agreed to extend the maturity date of the credit agreement to December 31, 2022, with certain payments due as follows.

If the Company consummated a follow on public offering on or before July 31, 2021, the Company was required to make a $3,000,000 payment on the loan within five business days after such public offering.

In addition, if the Company consummated an additional follow-on offering thereafter on or before September 30, 2021, the Company was required to make another $ 3,000,000 payment on the loan within five business days after such public offering.

If the Company did not consummate the initial follow on offering or, if the Company did not consummate the aforementioned second follow-on offering by September 30, 2021, the Company was required to make a $ 300,000 payment on the loan by September 30, 2021.

As of the filing date of these financial statements, the Company and the lender agreed to defer the September 30, 2021 payment to the maturity date of the loan, December 31, 2022.

As of the filing date, of these financial statements, all defaults were cured and there are no additional expected defaults in the next twelve months.

The Company’s credit agreement contains negative covenants that, subject to significant exceptions, limit its ability, among other things to make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, or undergo other fundamental changes.

A breach of any of these covenants could result in a default under the credit facility and permit the lender to cease making loans to the Company.

If for whatever reason the Company has insufficient liquidity to make scheduled payments under the Company’s credit facility or to repay such indebtedness by the schedule maturity date, the Company would seek the consent of the Company’s senior lender to modify such terms.

Although the Company’s senior lender has previously agreed to seven prior modifications of the Company’s credit agreement, there is no assurance that the senior lender will agree to any such modification and could then declare an event of default.

Upon the occurrence of an event of default under the credit agreement, the lender could elect to declare all amounts outstanding thereunder to be immediately due and payable.

The Company has pledged all of its assets as collateral under the Company’s credit facility.

If the lender accelerates the repayment of borrowings, the Company may not have sufficient assets to repay them and the Company could experience a material adverse effect on its financial condition and results of operations.

Repayment is accelerated upon a change in control, as defined in the agreement.

The loan is senior to all other debts and obligations of the Company, is collateralized by all assets of the Company, and shares of the Company’s common stock pledged by officers of the Company.

As of December 31, 2021 and 2020, the gross loan balance was $ 6,001,755 .During 2020, the gross balance increased by $ 1,459,211 resulting from cash disbursed to the Company and considerations for outstanding interest.

The lender was also granted warrants to purchase common stock representing 1 % of the fully diluted capitalization of the Company for each $ 1,000,000 of principal loaned under the agreement, which was increased to 1.358 % during 2019.

During the year ended December 31, 2020, the Company granted 493,462 common stock warrants, to the lender with an exercise price of $ 2.50 per share and a ten -year contractual life.

The warrants were valued at $ 184,191 .

The relative fair value of the warrants is initially recorded as a discount to the note, which were amortized over its term of the then existing note prior to amendment.

See Note 10 for further detail.

For the years ended December 31, 2021 and 2020, $ 147,389 and $ 241,878 of these loan fees and discounts from warrants were amortized to interest expense, leaving unamortized balances of $ 0 and $ 147,389 as of December 31, 2021 and 2020, respectively.

Interest expense for the years ended December 31, 2021 and 2020 was $ 825,219 and $ 770,277 , respectively.

Effective interest rate on the loan for the years ended December 31, 2021 and 2020 was 13.7 % and 14.6 %, respectively.

As of December 31, 2022, payroll liabilities included an aggregate of $ 1,074,316 in payroll taxes due to remit to federal and state authorities.

Of this amount, $ 539,839 pertained to DBG and $ 534,477 pertained to Bailey44.

The amounts are subject to further penalties and interest.

As of December 31, 2022, accrued expenses included $ 535,000 in accrued common stock issuances pursuant to an advisory agreement for services performed in 2022.

The 5,000 shares of common stock owed per the agreement are expected to be issued in the second quarter of 2023.

Due to seller represents amounts to the seller owed pursuant the Stateside Acquisition after certain purchase price adjustments were made in the fourth quarter of 2021, and repaid in 2022.

As of December 31, 2021, the gross loan balance with Black Oak Capital (“Black Oak”) pertaining to its senior credit agreement was $ 6,001,755 .

In February 2022, the Company received $ 237,500 in proceeds, including loan fees of $ 12,500 , from the existing venture debt lender under the same terms as the existing facility.

On September 29, 2022, the Company and Black Oak executed a Securities Purchase Agreement (the “Black Oak SPA”) whereby the Company issued 6,300 shares of Series A Convertible Preferred Stock to Black Oak for $1,000 per share (see Note 7).

The shares were issued pursuant to the conversion of Black Oak’s entire principal amount of $ 6,251,755 , and the Company recorded $ 48,245 in interest as part of the conversion.

Pursuant to the Black Oak SPA, all accrued interest remaining outstanding.

Accrued interest was $ 269,880 as of December 31, 2022.

For the year ended December 31, 2022 and 2021, $ 12,500 and $ 147,389 of loan fees and discounts from warrants were amortized to interest expense, leaving unamortized balance of $ 0 as of December 31 2022.

Interest expense was $ 573,455 and $ 825,219 for the years ended December 31, 2022 and 2021, respectively.

Convertible Debt

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During the year ended December 31, 2021, $ 27,894 of the debt discount was amortized to interest expense.

2020 Regulation D Offering

Concurrently with the offering above, in 2021 and 2020 the Company received gross proceeds of $ 55,000 and $ 800,000 , respectively, from a Regulation D convertible debt offering.

The debt accrued interest at a rate of 14 % per annum with a maturity date of nine months from the date of issuance.

The debt was contingently convertible and contains both automatic and optional conversions.

The debt converted automatically upon an initial public offering of at least $ 10,000,000 in gross proceeds at a price per share equal to 50 % of the IPO price.

Issuance costs on the aggregate funds totaled $ 100,000 .

In addition, the Company issued 5 warrants to purchase common stock in connection with the notes.

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Upon closing of the IPO, $ 755,000 in outstanding principal and approximately $ 185,000 of the accrued and unpaid interest was converted into 4,534 shares of common stock.

As of December 31, 2021, there was $ 100,000 remaining in outstanding principal that was not converted into equity.

As of December 31, 2022 and 2021, there was $ 100,000 remaining in outstanding principal that was not converted into equity (see table below).

During the year ended December 31, 2021, $ 100,000 of the debt discount was amortized to interest expense.

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The debt was contingently convertible and contained both automatic and optional conversions.

The debt converted automatically upon an initial public offering at $ 2.19 per share.

If, prior to maturity there is a change in control event, the holders of a majority of the debt could vote to convert two times the value of the principle, with accrued interest being eliminated, at 1) the fair market value of the company’s common stock at the time of such conversion, 2) $ 2.19 per share, 3) dividing the valuation cap ($ 9,000,000 ) by the pre-money fully diluted capitalization.

Upon closing of the IPO, the outstanding principal was converted into 3,621 shares of common stock.

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The First FirstFire Note is convertible at the option of FirstFire into shares of the Company’s common stock at a conversion price (the “First FirstFire Conversion Price”) which is the lesser of (i) $ 395.20 , and (ii) 90 % of the average of the two lowest volume-weighted average prices during the five consecutive trading day period preceding the delivery of the notice of conversion.

FirstFire is not permitted to submit conversion notices in any thirty day period having conversion amounts equaling, in the aggregate, in excess of $ 500,000 .

If the First FirstFire Conversion Price set forth in any conversion notice is less than $ 3.00 per share, we, at our sole option, may elect to pay the applicable conversion amount in cash rather than issue shares of the Company’s common stock.

In connection with the issuance of the First FirstFire Note, the Company, Oasis Capital and FirstFire amended the Security Agreement to grant FirstFire a similar security interest in substantially all of our assets to secure the obligations under the First FirstFire Note.

The Company, Oasis Capital and FirstFire also amended the Registrations Right Agreement (“RRA”) to join FirstFire as a party thereto and to include the shares of the Company’s common stock issuable under the First FirstFire Note as registrable securities.

On November 16, 2021, the Company entered into a Securities Purchase Agreement with FirstFire further to which FirstFire purchased a Senior Secured Convertible Promissory Note (the “Second FirstFire Note” and together with the First FirstFire Note, the “FirstFire Notes”), with an interest rate of 6 % per annum, having a face value of $ 2,625,000 for a total purchase price of $ 2,500,000 .

The Second FirstFire Note is convertible at the option of FirstFire into shares of the Company’s common stock at a conversion price (the “Second FirstFire Conversion Price”) which is the lesser of (i) $ 428 , and (ii) 90 % of the average of the two lowest volume-weighted average prices during the five consecutive trading day period preceding the delivery of the notice of conversion.

FirstFire is not permitted to submit conversion notices in any thirty day period having conversion amounts equaling, in the aggregate, in excess of $ 500,000 .

If the Second FirstFire Conversion Price set forth in any conversion notice is less than $ 3.29 per share, the Company, at its sole option, may elect to pay the applicable conversion amount in cash rather than issue shares of its common stock.

In addition, the Company entered into an amendment to the RRA, dated November 16, 2021.

The RRA, as amended, provides that the Company shall file a registration statement registering the shares of common stock issuable upon conversion of the FirstFire Notes, and the Waiver Shares by November 30, 2021 and use best efforts to cause such registration statement to be effective with the SEC no later than 120 days from the date of the FirstFire Note.

The Company filed such registration statement in December 2021 and it became effective in January 2022.

The Company evaluated the terms of the conversion features of the Oasis and FirstFire Notes as noted above in accordance with ASC Topic No.

2 unchanged sentences

Therefore, the Company bifurcated the conversion feature and accounted for it as a separate derivative liability.

Upon issuance of the Oasis and FirstFire Notes, the Company recognized a

derivative liability at an aggregate fair value of $ 3,204,924 , which is recorded as a debt discount and will amortized over the life of the note.

The following is a summary of the Oasis and FirstFire Notes for the year ended December 31, 2021:

Upon issuance of the Oasis and FirstFire Notes, the Company recognized a derivative liability at an aggregate fair value of $ 3,204,924 , which is recorded as a debt discount and was amortized over the life of the notes.

The original issue discount and issuance costs for the Oasis and FirstFire Notes totaled $ 1,560,000 , which were recognized as a debt discount and was amortized over the life of the notes.

As of December 31, 2021, the outstanding principal of the FirstFire and Oasis Notes was $ 9,465,000 .

During the year ended December 31, 2022, the Company fully converted the outstanding principal of $ 9,465,000 and accrued interest of $ 533,242 into an aggregate of 1,995,183 shares of commons stock.

The Company recorded an additional $ 484,904 in interest expense as a result of the conversions.

As a result of the conversions, all terms and conditions under the notes were met and no further obligations exist.

On April 8, 2022, the Company and various purchasers executed a Securities Purchase Agreement (“April Notes”) whereby the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $ 3,068,750 , consisting of original issue discount of $ 613,750 .

The Company received net proceeds of $ 2,313,750 after the original issue discount and fees, resulting in a debt discount of $ 755,000 .

Upon the Company’s public offering in May 2022 (see below), the Company repaid $ 3,068,750 to the investors and the debt discount was fully amortized.

In connection with the April Notes, the Company issued an aggregate of 12,577 warrants to purchase common stock at an exercise price of $ 122 per share.

The Company recognized $ 98,241 as a debt discount for the fair value of the warrants using the Black-Scholes option model, which was fully amortized upon the notes’ repayment in May.

On July 22 and July 28, 2022, the Company and various purchasers executed a Securities Purchase Agreement (“July Notes”) whereby the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $ 1,875,000 , consisting of original issue discount of $ 375,000 .

The Company received net proceeds of $ 1,450,000 after the original issue discount and fees.

In connection with the July 22 and July 28 notes, the Company issued an aggregate of 41,124 and 27,655 warrants to purchase common stock at an exercise price of $ 15.20 and $ 11.30 per share, respectively.

The Company recognized $ 692,299 as a debt discount for the fair value of the warrants using the Black-Scholes option model, which will be amortized to interest expense over the life of the notes.

If the July Notes are not repaid in full by the maturity date or if any other event of default occurs, (1) the face value of the notes will be automatically increased to 120 %;

(2) the notes will begin generating an annual interest rate of 20 %, which will be paid in cash monthly until the default is cured;

and (3) if such default continues for 14 or more calendar days, at the Investors’ discretion, the notes shall become convertible at the option of the investors into shares of the Company’s common stock at a conversion price equal to the closing price of the Company’s common stock on the on the date of the note conversion.

The Company evaluated the terms of the conversion features of the July notes as noted above in accordance with ASC Topic No.

815 — 40, Derivatives and Hedging — Contracts in Entity’s Own Stock , and determined they are not indexed to the Company’s common stock and that the conversion features meet the definition of a liability.

The notes contain an indeterminate number of shares to settle with conversion options outside of the Company’s control.

Therefore, the Company bifurcated the conversion feature and accounted for it as a separate derivative liability.

Upon issuance of the July, the Company recognized a derivative liability at an aggregate fair value of $ 559,957 , which was recorded as a debt discount and will amortized over the life of the notes.

In December 2022, the Company fully repaid the outstanding principal of $ 1,875,000 pertaining to the July 22 and 28 notes, as well as an additional $ 416,923 due to the default provisions noted above.

This amount was included in interest expense in the consolidated statements of operations.

On December 29, 2022, the Company and various purchasers executed a Securities Purchase Agreement (“December Notes”) whereby the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $ 4,000,000 , consisting of original issue discount of $ 800,000 .

The Company received net proceeds of $ 3,000,000 .

The December Notes were due and payable on February 15, 2023.

If the December Notes are not repaid in full by the maturity date or if any other event of default occurs, (1) the face value of the December Notes will be automatically increased to 120 %;

(2) the Notes will begin generating an annual interest rate of 20 %, which will be paid in cash monthly until the default is cured;

and (3) if such default continues for 14 or more calendar days, at the investors’ discretion, the December Notes shall become convertible at the option of the investors into shares of the Company’s common stock at a conversion price equal to the closing price of the Company’s common stock on the date of the note conversion.

The December Notes were fully repaid in February 2023.

In connection with the December Notes, the Company issued to the investors an aggregate of 469,480 warrants to purchase common stock at an exercise price equal to $ 4.26 , and 60,000 shares of common stock.

The Company recognized $ 428,200 as a debt discount for the fair value of the warrants and common shares using the Black-Scholes option model, which will be amortized to interest expense over the life of the notes.

The following is a summary of the convertible notes for the years ended December 31, 2022 and 2021:

Convertible Note

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( 3,963,386 )

The original issue discount and issuance costs for the Oasis and FirstFire Notes totaled $ 1,560,000 , which were recognized as a debt discount and will be amortized over the life of the notes.

During the year ended December 31, 2021, the Company amortized $ 801,538 of debt discount to interest expense.

As of December 31, 2021, the net balance of the Oasis and FirstFire Notes, after unamortized debt discount of $ 3,963,386 , was $ 5,501,614 .

Interest expense for the year ended December 31, 2021 was $ 148,613 .

Proceeds from issuance of notes

( 1,992,500 )

Repayments of notes

( 4,943,750 )

Conversion of notes into common stock

( 9,465,000 )

Warrant and common shares issued with convertible notes

( 1,368,741 )

Derivative liability in connection with notes

Amortization of debt discount

Balance, December 31, 2022

( 1,378,200 )

As of December 31, 2022, the December Notes remained outstanding with a principal of $ 4,000,000 and unamortized debt discount of $ 1,278,200 , consisting of the original issue discount, $ 50,000 in other financing fees, and the fair value of warrants and shares.

The December Notes were fully repaid in February 2023 (see Note 14).

During the years ended December 31, 2022 and 2021, the Company amortized $ 6,506,384 and $ 801,538 , respectively of debt discount to interest expense pertaining to all convertible notes.

As of December 31, 2022, there was no remaining derivative liability outstanding pertaining to any convertible notes.

Loan Payable — PPP and SBA Loan

In April 2020, the Company and Bailey each entered into a loan with a lender in an aggregate principal amount of $ 203,994 and $ 1,347,050 , respectively, pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

In February 2021, Bailey entered into an 2nd Round PPP Loan for a principal amount of $ 1,347,050 .

In May 2021, the Company entered into an 2 nd Round PPP loan for a principal amount of $ 204,000 .The PPP Loans are evidenced by a promissory note (“Note”).

Subject to the terms of the Note, the PPP Loans bear interest at a fixed rate of one percent ( 1 %) per annum, with the first six months of interest deferred, has an initial term of two years , and is unsecured and guaranteed by the Small Business Administration.

The Company may apply to the Lender for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent, and covered utility payments incurred by the Company during the applicable forgiveness period, calculated in accordance with the terms of the CARES Act.

The Note provides for customary events of default including, among other things, cross-defaults on any other loan with the lender.

The PPP Loans may be accelerated upon the occurrence of an event of default.

The loan proceeds were used for payroll and other covered payments including general operating costs.

In December 2021, the Company received notification that both its PPP Loans of $ 203,994 and $ 204,000 were approved for full forgiveness.

As such, $ 407,994 was recorded as other non-operating income in the consolidated financial statements.

The Bailey PPP Loans have been submitted for forgiveness and is expected to be forgiven in part based on current information available;

however, formal forgiveness has not yet occurred as of the date of these financial statements.

The CARES Act additionally extended COVID relief funding for qualified small businesses under the Economic Injury Disaster Loan (EIDL) assistance program.

On June 25, 2020 the Company was notified that their EIDL application was approved by the Small Business Association (SBA).

Per the terms of the EIDL agreement, the Company received total proceeds of $ 150,000 .

The Loan matures in thirty years from the effective date of the Loan and has a fixed interest rate of 3.75 % per annum.

As of December 31, 2021, Harper & Jones had an outstanding loan under the EIDL program of $ 148,900 .

In April 2022, Bailey received notification of full forgiveness of its 2 nd PPP Loan totaling $ 1,347,050 and partial forgiveness of its 1 st PPP Loan totaling $ 413,705 .

As of December 31, 2022, Bailey had an outstanding PPP Loan balance of $ 933,295 and matures in 2026.

As of December 31, 2022, the Company and H&J had outstanding loans under the EIDL program of $ 150,000 and $ 147,438 , respectively.

The EIDL Loans mature in thirty years from the effective date of the Loan and has a fixed interest rate of 3.75 % per annum.

In May 2021, H&J entered into a loan payable with a bank and received proceeds of $ 75,000 .

The line bears interest at 7.76 % and matures in December 2025.

As of December 31, 2021, the outstanding balance was $ 72,269 .

As of December 31, 2022 and 2021, the outstanding balance was $ 73,187 and $ 72,269 , respectively.

In December 2021, H&J entered into a merchant advance loan for a principal amount of $ 153,860 and received proceeds of $ 140,000 .

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Note Payable – Related Party

As of December 31, 2021, H&J had an outstanding note payable of $ 299,489 owned by the H&J Seller.

The note matures on July 10, 2022 and bears interest at 12 % per annum.

As of December 31, 2022 and 2021, H&J had an outstanding note payable of $ 129,489 and $ 299,489 , respectively owned by the H&J Seller.

The note matured in July 2022 and bears interest at 12 % per annum.

Merchant Advances

In 2022 and 2021, H&J entered into merchant advance loans for proceeds of $ 147,267 and $ 140,000 , respectively.

The loan bears interest at 9.9 % per annum.

As of December 31, 2022 and 2021, the outstanding principal of the loans was $ 63,433 and $ 149,962 , respectively.

The outstanding loan at December 31, 2022 matures in November 2023.

In 2022, the Company obtained several merchant advances for net proceeds of $ 1,335,360 to fund operations.

These advances are, for the most part, secured by expected future sales transactions of the Company with expected payments on a weekly basis.

During 2022, the Company made repayments totaling $ 1,078,385 and $ 896,334 remained outstanding, which is expected to be repaid in 2023.

As of the date of these financial statements, the Company was in compliance with these covenants.

Promissory Note Payable

As noted in Note 4, the Company issued a promissory note in the principal amount of $ 4,500,000 to the Bailey Holders pursuant to the Bailey acquisition.

In February 2021, the maturity date of the agreement was extended from December 31, 2020 to July 31, 2021.

Upon the IPO closing in May 2021, the Company repaid $ 1,000,000 of the outstanding principal on this note in May 2021.

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The Company did not make any payments in October 2021, and the Company and the lender agreed to defer these payments to the maturity date of the loan, December 31, 2022.

As of the date of these financial statements, the parties are undergoing an extension of the maturity date, but is in technical default.

The note incurs interest at 12 % per annum.

As of December 31, 3021, $ 3,500,000 remained outstanding.

As of December 31, 2022 and 2021, $ 3,500,000 remained outstanding.

Interest expense was $ 420,000 and $ 494,000 for the years ended December 31, 2022 and 2021, respectively, all of which was accrued and unpaid as of December 31, 2022.

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The entire debt discount of $ 263,958 was amortized to interest expense upon repayment of the note.

As noted in Note 4, the Company issued a promissory note in the principal amount of $ 5,500,000 to the Sundry Holders pursuant to the Sundry acquisition.

The note bears interest at 8 % per annum and matures on February 15, 2023.

In February 2023, the parties verbally agreed to extend the maturity date to December 31, 2023.

STOCKHOLDERS’ DEFICIT

Amended and Restated Certificate of Incorporation

Amendments to Articles of Incorporation

On October 13, 2022, the Company amended its Amended and Restated Certificate of Incorporation to increase to increase the number of authorized shares of the Company’s common stock from 200,000,000 to 1,000,000,000 , and in conjunction therewith, to increase the aggregate number of authorized shares to 1,010,000,000 shares.

The reverse stock split became effective as of November 3, 2022.

On May 18, 2021, the Company filed a Sixth Amended and Restated Certificate of Incorporation (the “Restated Certificate”) with the Secretary of State of the State of Delaware in connection with the Company’s IPO.

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The Restated Certificate also effected a 1 -for-15.625 reverse stock split approved by the Company’s Board of Directors as described above.

Convertible Preferred Stock

Prior to the IPO, the Company designated its preferred stock as 20,714,518 shares of Series Seed Preferred Stock, 14,481,413 shares of Series A Preferred Stock, 20,000,000 shares of Series A-2 Preferred Stock, 2,000,000 shares of Series CF Preferred Stock, 18,867,925 shares of Series A-3 Preferred Stock, 20,754,717 shares of Series B Preferred Stock and with 936,144 shares of preferred stock undesignated.

The preferred stock were subject to an optional conversion right, where the preferred stock is convertible into fully paid and non-assessable shares of common stock at a 15.625 :1 rate, with certain dilution protections.

During the year ended December 31, 2020, the Company issued 809,294 shares of Series A-3 Preferred Stock at a price of $ 0.53 and 709,690 shares of Series CF Preferred Stock at price per share of $ 0.52 .

In 2020, the also Company issued 20,754,717 shares of

Series B Preferred Stock to the Bailey Holders pursuant to the Bailey acquisition at a price per share of $ 0.53 for a total fair value of $ 11,000,000 .

As of December 31, 2020, 20,714,518 shares of Series Seed Preferred Stock were issued and outstanding , 5,654,072 shares of Series A Preferred Stock were issued and outstanding , 5,932,742 shares of Series A-2 Preferred Stock were issued and outstanding , 836,331 shares of Series CF Preferred Stock were issued and outstanding , 9,032,330 shares of Series A-3 Preferred Stock were issued and outstanding , and 20,754,717 shares Series B Preferred Stock, all respectively.

Upon the closing of the Company’s IPO on May 18, 2021, all then-outstanding shares of Preferred Stock converted into an aggregate of 4,027,181 shares of common stock according to their terms.

Series A Preferred Stock

On August 31, 2022, the Company entered into a Subscription and Investment Representation Agreement with Hil Davis, its Chief Executive Officer, pursuant to which the Company agreed to issue 1 share of the Company’s Series A Preferred Stock to for $ 25,000 .

The issuance of the preferred stock reduced the due to related party balance.

The share of Series A Preferred Stock had 250,000,000 votes per share and voted together with the outstanding shares of the Company’s common stock as a single class exclusively with respect to any proposals to amend the Certificate of Incorporation to effect a reverse stock split of the Company’s common stock and to increase the authorized number of shares of the Company’s common stock.

The terms of the Series A Preferred Stock provided that the outstanding share of Series A Preferred Stock would be redeemed in whole, but not in part, at any time:

(i) if such redemption is ordered by the Board of Directors in its sole discretion or (ii) automatically upon the approval of Proposals 2 and 6 presented at the Company’s 2022 annual shareholders meeting.

Following conclusion of the shareholders meeting, such share of the Company’s Series A Preferred Stock was redeemed.

On October 13, 2022, the outstanding share of the Company’s Series A Preferred Stock was redeemed for $ 25,000 .

Series A Convertible Preferred Stock

On September 29, 2022, the Company filed the Certificate of Designation designating up to 6,800 shares out of the authorized but unissued shares of its preferred stock as Series A Convertible Preferred Stock.

Except for stock dividends or distributions for which adjustments are to be made pursuant to the Certificate of Designation, 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 Corporation 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 ($ 1,000 as of September 29, 2022) by the Conversion Price.

The conversion price for each share of the Series A Preferred Stock is the closing price of the Common Stock on September 29, 2022, which was $ 9.30 .

The Company had 1,000,000,000 shares of common stock authorized with a par value of $ 0.0001 as of December 31, 2022.

1 unchanged sentence

The voting, dividend, and liquidation rights of the holders of common stock are subject to and qualified by the rights, powers, and preferences of preferred stockholders.

Equity Line of Credit

On August 27, 2021 (“Execution Date”), the Company entered into an equity line of credit arrangement with Oasis Capital.

Specifically, the Company entered into an equity purchase agreement (the “EPA”), pursuant to which Oasis Capital is committed to purchase up to $ 17,500,000 of the Company’s common stock over the 24-month term of the EPA.

The Company is not obligated to request any portion of the $ 17,500,000 .

As of December 31, 2021, the Company has not drawn down any portion of this commitment, leaving the entire $ 17,500,000 available under the equity line of credit, and for which the Company has agreed, pursuant to a registration rights agreement (the “Oasis Equity RRA”), to register the shares of common stock issuable further to the equity line of credit with the SEC before any such issuances.

The actual number of shares that the Company may issue pursuant to the equity line of credit is not determinable as it is based on the market price of the Company’s common stock from time to time and the number of shares desired to put to Oasis Capital.

During the 24-month term of the investment agreement, the Company may request a drawdown on the equity line of credit by delivering a “put notice” to Oasis Capital stating the dollar amount of shares the Company intends to sell to Oasis Capital.

The Company may make either an Option 1 or Option 2 request to Oasis Capital.

Under Option 1, the purchase price Oasis Capital is required to pay for the shares is the lesser of (i) the lowest traded price of the common stock on the Nasdaq Capital Market on the Clearing Date, which is the date on which Oasis Capital receives the put shares as DWAC shares in its brokerage account, or (ii) the average of the three lowest closing sale prices of our Common Stock on the Nasdaq Capital Market during the period of twelve consecutive trading days immediately preceding the Clearing Date.

The maximum amount the Company may request in an Option 1 request is $ 500,000 .

Under Option 2, the purchase price Oasis Capital is required to pay for the shares is the lesser of (i) 93 % of the one (1) lowest traded price of our common stock on the Nasdaq Capital Market during the period of five (5) consecutive trading days immediately preceding the put date, or (ii) 93 % of the VWAP on the Clearing Date, or (iii) 93 % of the closing bid price of the Company’s common stock on the Nasdaq Capital Market on the Clearing Date.

The maximum amount the Company may request in an Option 2 request is $ 2,000,000 .

The Company is unable to drawdown on the EPA until the lowest traded price of the common stock in the five (5) trading days immediately preceding the respective put date exceeds $3.00.

2022 Transactions

There were no shares of common stock issued during 2020.

During the year ended December 31, 2022, the Company issued an aggregate of 1,995,183 shares of common stock pursuant to the conversion of the FirstFire and Oasis Notes (see Note 7).

In September 2022, the Company issued 750 shares of common stock pursuant to a consultant agreement at a fair value of $ 123,000 .

As part of the Sundry acquisition (see Note 4), the Company issued 90,909 shares of common stock to the Sundry Sellers at a fair value of $ 1,000,000 .

In connection with the December Notes, the Company issued 60,000 shares of common stock with a fair value of $ 264,000 .

Underwriting Agreements and Public Offerings

On May 5, 2022, the Company entered into an underwriting agreement (the “Alexander Underwriting Agreement”) with Alexander Capital, L.P., acting as representative of the several underwriters named in the Alexander Underwriting Agreement (the “ Alexander Underwriters”), relating to the Company’s underwritten the offering pursuant to which the Company agreed to issue and sell 373,898 shares of the Company’s common stock.

The shares were sold to the public at a combined public offering price of $ 25 per share and were purchased by the Underwriters from the Company at a price of $ 23 per share.

The Company also granted the Alexander Underwriters a 45-day option to purchase up to an additional 56,085 shares of Common Stock at the same price, which expired and were not purchased.

The shares were sold in the Offering pursuant to a Registration Statement on Form S-1, as amended (File No.

333-264347) (the “Registration Statement”), a Registration Statement on Form S-1 pursuant to 462(b) of the Securities Act of 1933, as amended (File No.

333-264775), and a related prospectus filed with the Securities and Exchange Commission.

The public offering closed on May 10, 2022 and the Company sold 373,898 shares of common stock for total gross proceeds of $ 9.3 million.

The Company received net proceeds of $ 8.1 million after deducting underwriters’ discounts and commissions of $ 0.7 million and direct offering expenses of $ 0.5 million.

On November 29, 2022, the Company, entered into a Securities Purchase Agreement with investors pursuant to which the Company agreed to issue and sell, in an offering (i) an aggregate of 168,000 shares (the “Shares”) of the Company’s common stock, and accompanying Class B Warrants (the “Class B Warrants”) to purchase 168,000 shares of common stock and accompanying Class C Warrants (the “Class C Warrants”) to purchase 168,000 shares of Common Stock, at a combined public offering price of $ 5.50 per share and Class B Warrant and Class C Warrant, and (ii) 1,650,181 pre-funded warrants (the “Pre-Funded Warrants” and together with the Class B Warrants and the Class C Warrants, the “Warrants” and together with the Shares and the shares of common stock underlying the Warrants, the “Securities”) exercisable for 1,650,181 shares of Common Stock, and accompanying Class B Warrants to purchase 1,650,181 shares of Common Stock and Class C Warrants to purchase 1,650,181 shares of Common Stock, at a combined public offering price of $ 5.50 , less the exercise price of $ 0.0001 , per Pre-Funded Warrant and accompanying Class B Warrant and Class C Warrant, to the Investors, for aggregate gross proceeds from the offering of approximately $ 10 million before deducting placement agent fees and related offering expenses.

As a result of the transaction, the Company issued 1,818,181 shares of common stock, including the 168,000 shares and the immediate exercise of 1,650,181 pre-funded warrants, for gross proceeds of $ 10.0 million.

The Company received net proceeds of $ 9.0 million after deducting placement agent fees and offering expenses.

2021 Transactions

On May 13, 2021, the Company’s registration statement on Form S-1 relating to the IPO was declared effective by the SEC.

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RELATED PARTY TRANSACTIONS

Employee Backpay, Loans Receivable and Loans Payable

As of December 31 2021 and 2020, due to related parties includes advances from the former officer, Mark Lynn, who also serves as a director, totaled $ 104,568 and $ 194,568 respectively, and accrued salary and expense reimbursements of $ 126,706 and $ 246,885 respectively, to current officers.

As of December 31, 2022 and 2021, due to related parties includes advances from the former officer, Mark Lynn, who also serves as a director, totaling $ 104,568 and $ 104,568 respectively, and accrued salary and expense reimbursements of $ 100,649 and $ 126,706 , respectively, to current officers.

Upon closing of the IPO, 25,080 shares of common stock were issued to directors as conversion of balances owed.

In October 2022, the Company received advances from a director, Trevor Pettennude, totaling $ 325,000 .

The advances are unsecured, non-interest bearing and due on demand.

As of December 31, 2022, the amounts were outstanding.

The current CEO, Hil Davis, previously advanced funds to the Company for working capital.

1 unchanged sentence

Upon closing of the IPO, 127,278 shares of common stock were issued to the CEO as conversion of the outstanding note payable and related accrued interest, accrued compensation and other consideration.

As of a result of the

transaction, the Company recorded an additional $ 233,184 in stock compensation expense, which is included in general and administrative expenses in the consolidated statements of operations.

As of December 31, 2021, H&J had an outstanding note payable of $ 299,489 owned by the H&J Seller.

The note matures on July 10, 2022 and bears interest at 12 % per annum.

As of a result of the transaction, the Company recorded an additional $ 233,184 in stock compensation expense, which is included in general and administrative expenses in the consolidated statements of operations.

As of December 31, 2022 and 2021, H&J had an outstanding note payable of $ 129,489 and $ 299,489 , respectively, owned by the H&J Seller.

The note matured on December 10, 2022 and bears interest at 12 % per annum.

The note is in technical default.

SHARE-BASED PAYMENTS

Common Stock Warrants

During the year ended December 31, 2020, the Company granted 493,462 common stock warrants to the venture debt lender with an exercise price of $ 2.50 per share.

The warrants were valued at $ 184,191 using the below range of inputs using the Black-Scholes model.

During the Company’s Series A-3 Preferred Stock raise, the Company granted 2,603 common stock warrants at an exercise price of $ 8.28 per share to a funding platform in the year ended December 31, 2020.

The warrants are fully vested with an exercise price of $ 8.28 per share, expiring in five years .

The warrants contain a put option for the Company to redeem the warrants in cash in a change-in-control transaction, equal to the Black-Scholes value immediately prior to the fundamental event.

The warrants also include other down-round and anti-dilution features if shares of common stock are issued or granted at a lesser value than the strike price which may also require additional warrants to be issued, such that the aggregate value of the strike price remains the same.

As the warrants include a put option and embody an obligation for the Company to redeem these warrants in cash upon a contingent event, they are presented as a liability in the consolidated balance sheets.

The volatility rate of 100 % was used as it is a floor volatility as defined by the warrants.

As of December 31, 2021 and 2020, the Company remeasured the fair value of the warrants to be $ 18,223 and $ 6,265 , respectively, and recorded a gain (loss) due to the change in fair value of ($ 11,958 ) and $ 2,353 , respectively.

Risk Free Interest Rate

Expected Dividend Yield

Expected Volatility

Expected Life (years)

For valuing the warrants noted above, the Company uses the same assumptions used for valuing employee options as noted below in the Stock Plan section, with the exception of the useful life which is either the contractual life or the estimated life.

In connection with the Regulation D offerings in 2020, the Company issued 512 warrants to purchase common stock in connection with the notes at an exercise price of $ 2.50 per share.

The issuance costs and warrants are recognized as a debt discount and will be amortized over the life of the notes.

2022 Transactions

In connection with the April note agreement, the Company granted warrants to acquire 12,577 shares of common stock at an exercise price of $ 122.00 per share expiring in April 2027.

On May 10, 2022, pursuant to the Underwriting Agreement, the Company issued the Underwriters’ Warrants to purchase up to an aggregate of 14,956 shares of common stock.

The Underwriters’ Warrants may be exercised beginning on November 1, 2022 until May 5, 2027.

The initial exercise price of each Underwriters’ Warrant is $ 32.50 per share, which represents 130 % of the public offering price.

The warrants expire in July 2027.

In connection with the November public offering, the Company granted 1,650,181 pre-funded warrants which were immediately exercised for shares of common stock.

The Company also granted an additional 1,818,181 Class B Warrants and 1,818,181 Class C Warrants as part of the offering.

Each Class B Warrant has an exercise price of $ 5.25 per share, is immediately exercisable upon issuance and expires five years after issuance.

Each Class C Warrant has an exercise price of $ 5.25 per share, is immediately exercisable upon issuance and expires thirteen months after issuance.

The Company also granted the placement agent 136,364 warrants to purchase common stock at an exercise price of $ 6.88 per share, which are exercisable 180 days after issuance and expire in five years .

In connection with the December Notes, the Company issued to the investors an aggregate of 469,480 warrants to purchase common stock at an exercise price equal to $ 4.26 for a fair value of $ 164,200 .

The warrants are immediately exercisable.

The Company granted 44,000 warrants to purchase common stock at an exercise price of $ 5.00 to the lender in connection with its merchant advances.

2021 Transactions

In connection with the IPO, the Company issued 24,096 warrants and an additional 3,614 warrants to purchase common stock per the over-allotment option.

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In July 2021, warrant holders exercised 3,550 warrants for proceeds of $ 1,622,350 .

A summary of information related to common stock warrants for the year ended December 31, 2021 is as follows:

A summary of information related to common stock warrants for the years ended December 31, 2022 and 2021 is as follows:

Exercise Price

Outstanding - December 31, 2020

Conversion of preferred stock warrants upon IPO

Outstanding - December 31, 2021

( 1,650,181 )

Outstanding - December 31, 2022

Exercisable at December 31, 2021

1 unchanged sentence

Preferred Stock Warrants

A summary of information related to preferred stock warrants for the year ended December 31, 2021 is as follows:

Exercise Price

Outstanding - December 31, 2019

Outstanding - December 31, 2020

Converted to common stock warrants upon IPO

Outstanding – December 31, 2021

Exercisable at December 31, 2021

Upon the IPO, all outstanding preferred stock warrants converted into common stock warrants at a ratio of 1,563 :1.

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The number of shares authorized by the Plan was 11,964 shares as December 31, 2022 and 2021.

The option exercise price generally may not be less than the underlying stock’s fair market value at the date of the grant and generally have a term often years.

The option exercise price generally may not be less than the underlying stock’s fair market value at the date of the grant and generally have a term

The amounts granted each calendar year to an employee or non-employee is limited depending on the type of award.

Stock options comprise all of the awards granted since the Plan’s inception.

Shares available for grant under the Plan amounted to 33,253 and as of December 31, 2021 and 2020.

Shares available for grant under the Plan amounted to 333 and as of December 31, 2022.

Vesting generally occurs over a period of immediately to four years .

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0.34 % - 0.85

0.42 % - 0.51

Expected Dividend Yield

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Expected Life (years)

The total grant-date fair value of the options granted during the years ended December 31, 2021 was $ 4,696,605 and $ 46,253 , respectively.

The total grant-date fair value of the options granted during the years ended December 31, 2021 was $ 4,696,605 .

During the year ended December 31, 2022 and 2021, $ 421,442 and $ 3,325,897 was recorded to general and administrative expenses, and $ 57,596 and $ 551,948 was recorded to sales and marketing expense in the consolidated statements of operations, all respectively.

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The lease required a $ 19,500 deposit.

Bailey leases office and warehouse facilities in Vernon, California.

The lease expires in February 2023 and has monthly base rent payments of $ 32,921 per month.

H&J leases office and showroom facilities in Dallas and Houston, Texas, and New Orleans, Louisiana.

The leases expire at various dates through June 2022 with base rents ranging from $ 3,400 to $ 6,500 .

The Company adopted ASC 842 on January 1, 2021 and recognized a right of use asset and liability of $ 250,244 using a discount rate of 6.0 %.

Under ASC 842, the lease was classified as an operating lease.

Stateside leases office and showroom facilities in Los Angeles, California.

The leases expire at various dates through November 2022 with base rents ranging from $ 3,100 to $ 9,000 .

Total rent expense for the years ended December 31, 2021 was $ 816,790 and $ 541,146 , respectively.

Total rent expense for the years ended December 31, 2022 and 2021 was $ 945,216 and $ 816,790 , respectively.

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 rental payments for the Company’s leases are typically structured as either fixed or variable payments.

Fixed rent payments include stated minimum rent and stated minimum rent with stated increases.

The Company considers lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from the calculation of lease liabilities.

Management uses judgment in determining lease classification, including determination of the economic life and the fair market value of the identified asset.

The fair market value of the identified asset is generally estimated based on comparable market data provided by third-party sources.

CONTINGENCIES

On February 28, 2020, a Company vendor filed a lawsuit against the Company’s non-payment of trade payables totaling $ 123,000 .

Such amounts, including expected interest, are included in accounts payable, net of payments made to date, in the consolidated balance sheets and the Company does not believe it is probable that losses in excess of such trade payables will be incurred.The matter was settled and final payment was made in full in January 2022.

On March 25, 2020, a Bailey’s product vendor filed a lawsuit against Bailey for non-payment of trade payables totaling $ 492,390 .

Approximately the same amount was held in accounts payable for this vendor in the accompanying consolidated balance sheets and the Company does not believe it is probable that losses in excess of such trade payables will be incurred.

The Company and product vendor have entered into a settlement, which will require the Company make ten monthly payments of approximately $ 37,000 , starting in May 2021.

Upon completion of the payment schedule, any remaining amounts will be forgiven.

If the Company fails to meet its obligations based on the prescribed time frame, the full amount will be due with interest, less payments made.

On March 21, 2023, a vendor filed a lawsuit against Digital Brands Group 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 February 7, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $ 182,400 .

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 9, 2022, a vendor filed a lawsuit against Digital Brand's Group related to prior services rendered.

The claims (including fines, fees, and legal expenses) total an aggregate of $ 50.190 .

The matter was settled in January 2023 and are on payment plans which will be paid off in April 2023.

In August 2020 and March 2021, two lawsuits were filed against Bailey’s by third-party’s related to prior services rendered.

The claims (including fines, fees, and legal expenses) total an aggregate of $ 96,900 .

Both matters were settled in February 2022 and are on payment plans which will be paid off in July and September of 2023

On December 21, 2020, a Company investor filed a lawsuit against DBG for reimbursement of their investment totaling $ 100,000 .

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The Company is actively working to resolve this matter.

In August 2020 and March 2021, two lawsuits were filed against Bailey’s by third-party’s related to prior services rendered.

The claims (including fines, fees, and legal expenses) total an aggregate of $ 96,900 .

One matter was settled in February 2022 and the other matter is being actively worked on to achieve settlement.

On September 24, 2020 a Bailey’s product vendor filed a lawsuit against Bailey’s non-payment of trade payables totaling approximately $ 481,000 and additional damages of approximately $ 296,000 .

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however, the settlement terms were not met and the Company received a judgement of $ 496,000 .

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 consolidated balance sheet as of December 31, 2021.

The amount due has been paid, the lawsuit dismissed and there is no claim or amount due.

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 Company has been involved in a dispute with the former owners of H&J regarding its obligation to “true up” their ownership interest in our company further to that membership interest purchase agreement dated May 18, 2021 whereby we acquired all of the outstanding membership interests of H&J (the “H&J Purchase Agreement”).

Further to the H&J Purchase Agreement, we agreed that if, at May 18, 2022, the one year anniversary of the closing date of our initial public offering, the product of the number of shares of our common stock issued at the closing of such acquisition multiplied by the average closing price per share of our shares of common stock as quoted on the NasdaqCM for the thirty ( 30 ) day trading period immediately preceding such date plus the gross proceeds, if any, of shares of our stock issued to such sellers and sold by them during the one year period from the closing date of the offering does not exceed the sum of $ 9.1 million, less the value of any shares of common stock cancelled further to any indemnification claims or post-closing adjustments under the H&J Purchase Agreement, then we shall issue to the subject sellers an additional aggregate number of shares of common stock equal to any such valuation shortfall at a per share price equal to the then closing price per share of our common stock as quoted on the NasdaqCM.

We did not honor our obligation to issue such shares and the former owner of H&J have claimed that they were damaged as a result.

As part of a proposed settlement with such holders, the Company has tentatively agreed to the following:

(i) to transfer all membership interests of H&J back to the original owners, (ii) to pay such owners the sum of $ 229,000 , (iii) issue the former owners of H&J an aggregate of $ 1,400,000 worth of our common stock to be issued on May 16, 2023 based on the lower of (a) the stock closing price per share on May 15, 2023, and (b) the average common stock closing price based on the average of the 5 trading days preceding May 16, 2023, with the closing price on May 9, 2023.

Such tentative terms are to be memorialized in definitive purchase agreements and as such there is no assurance that such arrangements will be finalized.

As of the issuance date of these financial statements, the above terms and continued negotiations have been verbally approved by the Board.

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 December 31, 2022.

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.

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Net operating loss carryforwards

Stock-based compensation

Deferred tax liabilities:

Depreciation timing differences

Unamortized debt issuance costs

Valuation allowance

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The effective rate is reduced to 0 % for 2022 and 2021 due to the full valuation allowance on its net deferred tax assets.

The Company has permanent differences, consisting of non-deductible impairments of goodwill and intangible assets of $ 17.7 million and amortization of non-cash debt issuance costs of $ 6.5 million.

The Company’s ability to utilize net operating loss carryforwards will depend on its ability to generate adequate future taxable income.

At December 31, 2022 and 2021, the Company had net operating loss carryforwards available to offset future taxable income in the amounts of approximately $ 59,865,000 and $ 46,896,000 , for which losses from 2018 forward can be carried forward indefinitely.

As a result of prior operating losses, the Company has net operating loss, or “NOL,” carryforwards for federal income tax purposes.

The ability to utilize NOL carryforwards to reduce taxable income in future years could become subject to significant limitations under Section 382 of the Internal Revenue Code if the Company undergoes an ownership change.

The Company would undergo an ownership change if, among other things, the stockholders who own, directly or indirectly, 5 % or more of our common stock, or are otherwise treated as “5% shareholders” under Section 382 of the U.S.

Internal Revenue Code and the regulations promulgated thereunder, increase their aggregate percentage ownership of the Company’s stock by more than 50 percentage points over the lowest percentage of the stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change.

The Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions.

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The acquisition of H&J created a deferred tax liability position, and those deferred tax liabilities can be used as a source of income for the Company’s existing deferred tax assets.

A $ 13,641 provision for income taxes has been recognized for the year ended December 31, 2020.

SUBSEQUENT EVENTS

On January 18, 2022 the Company entered into entered into a Membership Interest Purchase Agreement (the “Agreement”) with Moise Emquies, George Levy, Matthieu Leblan and Carol Ann Emquies (“Sellers”), Sunnyside, LLC, a California limited liability company (“Sundry”), and George Levy as the Sellers’ representative, pursuant to which the Company will acquire all of the issued and outstanding membership interests of Sundry (such transaction, the “Acquisition”).

Pursuant to the Agreement, Sellers, as the holders of all of the outstanding membership interests of Sundry, will exchange all of such membership interests for (i) $ 7.5 million of shares of the Company’s common stock at the volume-weighted average (rounded to the nearest $ 0.0001 ) of the closing price of the Company’s common stock on the Nasdaq Capital Market (“NasdaqCM”) during the thirty ( 30 ) trading day period immediately prior to the closing, but in no event at a price less than $ 1.59 ;

and (ii) $ 34.0 million in cash, $ 20.0 million of which will be paid at the closing and the balance of which will be evidenced by promissory notes due December 31, 2022 (“Seller Notes”);

provided, however, that if the audited aggregate net revenue of Sundry for the year ended December 31, 2021 (the “Audited Net Revenue”) times 1.5 is greater than $ 34.0 million, the Company will pay the difference in cash pro rata to the Sellers and if the Audited Net Revenue times 1.5 is less than $ 34.0 million, the Seller Notes will be reduced pro rata for such difference.

A portion of the purchase price will be paid to certain employees of Sundry who have a contractual right to receive a portion of the consideration payable in the Acquisition (“Payees”).

Of the $ 34.0 million in cash payable in the Acquisition, $ 2.0 million will be held in escrow to cover possible indemnification claims.

If the Seller Notes, plus all unpaid interest thereunder, are not repaid in full on or prior to March 31, 2022, then on March 31, 2022, the Company will issue an additional $ 2.5 million of shares of common stock pro rata to the Sellers and the Payees.

If the Seller Notes, plus all unpaid interest thereunder remain outstanding after March 31, 2022 and are not repaid in full on or prior to June 30, 2022, then on June 30, 2022, the Company will issue an additional $ 2.5 million of shares of common stock pro rata to the Sellers and the Payees.

If the Seller Notes, plus all unpaid interest thereunder remain outstanding after June 30, 2022 and are not repaid in full on or prior to September 30, 2022, then on September 30, 2022, the Company will issue an additional $ 2.5 million of shares of common stock pro rata to the Sellers and the Payees.

Any shares issued on either March 31, June 30 or September 30, 2022 shall be issued at the closing price of the Company’s common stock as quoted on the NasdaqCM as of the date immediately preceding the date of issuance but in no event at a price less than $ 1.59 .

The Agreement contains customary representations, warranties and covenants by the Company, the Sellers and Sundry.

The closing of the Acquisition is subject to customary closing conditions and financing and there is no assurance that we will be able to complete the Acquisition.

In February and March 2022, Oasis converted an aggregate of $ 482,646 in outstanding principal pursuant to the Oasis Note into 473,901 shares of common stock.

In March 2022, FirstFire converted an aggregate of $ 406,112 in outstanding principal pursuant to the FirstFire Notes into 400,000 shares of common stock.

On January 11, 2023, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a certain accredited investor (the “Investor”), pursuant to which the Company agreed to issue and sell, in a private placement (the “Private Placement”), an aggregate of 475,000 shares (the “Shares”) of the Company’s common stock, par value $ 0.0001 per share (“Common Stock”), and accompanying warrants (the “Common Warrants”) to purchase 475,000 shares of Common Stock, at a combined purchase price of $ 3.915 per share and Common Warrant, and (ii) 802,140 pre-funded warrants (the “Pre-Funded Warrants” and together with the Common Warrants, the “Warrants” and together with the Shares and the shares of Common Stock underlying the Warrants, the “Securities”) exercisable for 802,140 shares of Common Stock, and accompanying Common Warrants to purchase 802,140 shares of Common Stock, at a combined purchase price of $ 3.915 , less the exercise price of $ 0.0001 , per Pre-Funded Warrant and accompanying Common Warrant, to the Investors, for aggregate gross proceeds from the Private Placement of approximately $ 5 million.

Each Common Warrant has an exercise price of $ 3.80 per share, will be immediately exercisable upon issuance and will expire five years from the date of issuance.

In February 2023, the Company fully repaid the December Notes for $ 4.0 million.

In February 2023, the Company and the Sundry Sellers verbally agreed to extend the maturity date to December 31, 2023.

On April 7, 2023, the Company and various purchasers executed a Securities Purchase Agreement (“April 2023 Notes”) whereby the investors purchased from the Company convertible promissory notes in the aggregate principal amount of $ 2,208,750 , consisting of original issue discount of $ 408,750 .

The Company received net proceeds of $ 1,800,000 .

The April 2023 Notes are due and payable on September 30, 2023.

If the April 2023 Notes are not repaid in full by the maturity date or if any other event of default occurs, (1) the face value of the April Notes will be automatically increased to 120 %;

(2) the April 2023 Notes will begin generating an annual interest rate of 20 %, which will be paid in cash monthly until the default is cured;

and (3) if such default continues for 14 or more calendar days, at the investors’ discretion, the April 2023 Notes shall become convertible at the option of the investors into shares of the Company’s common stock at a conversion price equal to the closing price of the Company’s common stock on the date of the note conversion.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures