Digital Brands Group, Inc. 10-K

ITEM 3. LEGAL PROCEEDINGS We are currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary course of business. These include proceedings, claims, and investigations relating to, among other things, regulatory matters, commercial matters, intellectual property, competition, tax, employment, pricing, discrimination, consumer rights, personal injury, and property rights. These matters also include the following: ● On March 20, 2024, a former temporary worker engaged through a third-party placement agency, who was never an employee of the Company, filed a wrongful termination lawsuit against the Company. The Company is disputing this claim. The Company settled this matter in March 2026 for $16,000. ● On April 17, 2024, a former employee filed a wrongful termination lawsuit against the Company. The employee was part of the marketing team, which was fully transitioned to a third-party outsourced marketing solution. The Company disputed the claim and initially pursued arbitration; however, the matter was settled in May 2025 for a payment by the company of $81,000. Of this amount, $41,000 was paid in June 2025, with the remaining $40,000 to be paid in three equal installments of $13,000 in July, August 2025, and September 2025. The Company has made all the payments and the lawsuit is dismissed. ● In June 2021, a vendor filed a lawsuit against Bailey related to a retail store lease in the amount of $1,500,000. The Company is disputing the claim for damages and the matter is ongoing. The vendor has recently updated the claim to now be $450,968 after signing a long-term lease with another brand for this location. The Company is disputing this new amount after review of the lease. In the summer of 2024, Century City Mall, LLC obtained a judgment against Bailey 44, LLC in the amount of approximately $1.4 million, inclusive of both damages for unpaid rent and attorney fees and costs. This amount is included within the liabilities of Bailey 44, LLC in these accompanying financial statements. In this action, Century City Mall is attempting to hold Digital liable for the judgment against Bailey 44 on the theory that Digital is Bailey 44’s “alter ego.” The case is set for trial on July 21, 2026. The Company is unable to weigh in on the likely outcome of the case but will vigorously defend. ● In June 2022, a dispute originated due to a contractual arrangement involving alleged unpaid service fees of approximately $28,000, as well as additional disputed amounts, and counterclaims asserted by the Company for damages arising from website-related issues. A default judgment of approximately $28,000 was entered against the Company in January 2025. The Company is currently challenging the judgment and has initiated a new action reasserting its claims. ● On November 15, 2023, a vendor, Simon Showroom, filed a lawsuit against the company related to trade payables totaling approximately $582,208, representing “double damages,” while the actual amount due to the vendor was $292,604. The case was settled in full on December 10, 2024, for a total settlement amount of $400,000. As part of the settlement, the Company paid $50,000 in December 2024, followed by a $60,000 payment in February 2025. As of December 31, 2025, the Company had an outstanding balance of $130,000 remaining, with monthly payments of $30,000 being made under the terms of the settlement agreement. The Company has made all payments, and the lawsuit is dismissed. 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, 2025. Depending on the nature of the proceeding, claim, or investigation, we may be subject to monetary damage awards, fines, penalties, or injunctive orders. Furthermore, the outcome of these matters could materially adversely affect our business, results of operations, and financial condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant judgment to determine the likelihood and amount of loss related to such matters. While it is not possible to determine the outcomes, we believe based on our current knowledge that the resolution of all such pending matters will not, either individually or in the aggregate, have a material adverse effect on our business, results of operations, cash flows, or financial condition. Except as may be set forth above the Company is not a party to any legal proceedings, and the Company is not aware of any claims or actions pending or threatened against us. In the future, the Company might from time to time become involved in litigation relating to claims arising from its ordinary course of business, the resolution of which the Company does not anticipate would have a material adverse impact on our financial position, results of operations or cash flows. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 36 PART II ITEM. 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our Common Stock is quoted on The OTC Pink Marketplace under the symbol “DBGI”. Prior to December 18, 2024, the Company’s common stock was listed on the Nasdaq Capital Market. The OTC Market is a computer network that provides information on current “bids” and “asks,” as well as volume information. For the fiscal years ended December 31, 2024 (through December 17, 2024) and 2023, the following table sets forth the high and low sale prices for our common stock as reported by The Nasdaq Stock Market (“Nasdaq”). Beginning on December 18, 2024, the Company’s common stock was quoted on the OTC Pink Marketplace. Accordingly, the table below sets forth the range of high and low closing bid quotations for our common stock as reported by the OTC Markets Group, beginning on December 18, 2024. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. On August 22, 2023, the Company effectuated a 1-for-25 reverse stock split of its outstanding common stock (the “2023 Reverse Stock Split”). On December 12, 2024, the Company effectuated a 1-for-50 reverse stock split of its outstanding common stock (the “2024 Reverse Stock Split,” and together with the 2023 Reverse Stock Split, the “Reverse Stock Splits”). Dollar amounts included in the table have been adjusted to reflect the Reverse Stock Splits. Low High Fiscal 2024 First Quarter (January 1, 2024 - March 31, 2024) $ 115 $ 640 Second Quarter (April 1, 2024 - June 30, 2024) $ 65.50 $ 242.50 Third Quarter (July 1, 2024 - September 30, 2024) $ 15 $ 105.50 Fourth Quarter (October 1, 2024 - December 31, 2024) $ 1.03 $ 30.34 Fiscal 2025 First Quarter (February 13, 2025 - March 20, 2025) $ 1.06 $ 10.19 Second Quarter (May 6, 2025 - May 27, 2025) $ 7.12 $ 17.13 Third Quarter (September 23, 2025 - August 25, 2025) $ 4.245 $ 12.75 Fourth Quarter (November 20, 2025 - December 30, 2025) $ 6.50 $ 13.25 Holders On December 31, 2025, the last reported sale price of our Common Stock was $12.68 per share. There is no established public trading market for the Units, the Warrants or the Pre-Funded Warrants. We do not intend to apply for listing of the Units, the Warrants or the Pre-Funded Warrants on any securities exchange or recognized trading system. As of the date of this financial statement, 14,083,794 shares of common stock were issued and outstanding. Dividends We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our shares of common stock will be your sole source of gain for the foreseeable future. 37 Recent Sales of Unregistered Securities During the year ended December 31, 2025, the Company issued the following unregistered securities: On January 21, 2025, the Company issued pre-funded warrants to purchase 2,068,965 shares of common stock to MavDB Consulting LLC in exchange for five-year marketing services. The warrants have an exercise price of $0.01 per share and are exercisable immediately. On February 18, 2025, pursuant to securities purchase agreements, the Company issued 125,535 shares of common stock and 11,239,805 pre-funded warrants in an S-1 registered offering for aggregate gross proceeds of approximately $7.5 million. On April 1, 2025, the Company issued 344,827 shares of common stock as consideration for the acquisition of certain technology assets from Open Daily Technologies Inc., representing fair value of approximately $2,948,276. On August 13, 2025, the Company completed the initial closing of a private placement, issuing 14,031.25 shares of Series D Convertible Preferred Stock for gross proceeds of approximately $11.2 million to accredited investors. On September 3, 2025, the Company issued 36,488 shares of common stock to Tradigital Marketing Group, LLC and 11,582 shares to Donohoe Advisory Associates LLC for services and conversion of accounts payable, respectively. On September 26, 2025, the Company issued 1,875 additional shares of Series D Convertible Preferred Stock to an accredited investor for gross proceeds of $1.5 million pursuant to an amendment to the original Securities Purchase Agreement. On December 12, 2025, the Company issued an aggregate of 1,721,000 shares of common stock to AAA Tuscaloosa, LLC (285,714 shares), Traffic Holdco, LLC (857,143 shares), The Grove Collective, LLC (385,107 shares), and Learfield Communications LLC (193,036 shares) as consideration under the respective collegiate apparel agreements. All of the foregoing issuances were made without registration under the Securities Act of 1933 in reliance on the exemption from registration provided by Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder. Each of the recipients represented that they were accredited investors and acquired the securities for investment purposes only. Securities Authorized for Issuance Under Equity Compensation Plans We have adopted a 2020 Omnibus Incentive Stock Plan (the “2020 Plan”). An aggregate of 26 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, grants covering 22 shares of common stock (as adjusted for the Reverse Stock Split) have been made under the 2020 Plan and 4 shares remain eligible for issuance under the 2020 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. ITEM 6. RESERVED