Digital Brands Group, Inc.

NOTE 1: NATURE OF OPERATIONS

Digital Brands Group, Inc. (the “Company” or “DBG”), was organized on September 17, 2012 under the laws of Delaware as a limited liability company under the name Denim.LA LLC. The Company converted to a Delaware corporation on January 30, 2013 and changed its name to Denim.LA, Inc. Effective December 31, 2020, the Company changed its name to Digital Brands Group, Inc. (DBG).

On February 12, 2020, Denim.LA, Inc. entered into an Agreement and Plan of Merger with Bailey 44, LLC (“Bailey”), a Delaware limited liability company. On the acquisition date, Bailey 44 , LLC became a wholly owned subsidiary of the Company. See Note 4.

On August 30, 2021, the Company closed its acquisition of Mosbest, LLC dba Stateside (“Stateside”) pursuant to its Membership Interest Purchase Agreement with Moise Emquies to purchase 100% of the issued and outstanding equity of Stateside. On the acquisition date, Stateside became a wholly owned subsidiary of the Company. See Note 4.

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. See Note 4.

Effective December 29, 2025, the Company reincorporated from the State of Delaware to the State of Nevada pursuant to a plan of conversion. The Company filed a certificate of conversion with the Delaware Secretary of State and articles of incorporation with the Nevada Secretary of State. The Reincorporation did not result in any change in the Company’s business, management, assets, or liabilities. All outstanding shares continued without change. The Company’s affairs are now governed by the Nevada Revised Statutes and its Nevada Articles of Incorporation and Bylaws.

Reverse Stock Split

On December 11, 2024, the Board of Directors approved a 1-for-50 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 December 11, 2024. 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.

NOTE 2: GOING CONCERN

The Company has not generated profits since inception, has sustained net losses of $28,252,558 and $13,106,589 for the years ended December 31, 2025 and 2024, respectively, and has incurred negative cash flows from operations for the years ended December 31, 2025 and 2024. 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.

As of December 31, 2025, the Company had an accumulated deficit of $155,353,596 and a working capital deficit of $5,450,644, calculated as the excess of current liabilities over current assets.

Through the date the financial statements were available to be issued, the Company has been primarily financed through the issuance of capital stock and debt. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses, which it has done, or obtain financing through the sale of debt and/or equity securities, which it has done. The issuance of additional equity would result in dilution to existing shareholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company would be unable to execute upon the business plan or pay costs and expenses as they are incurred, which would have a material, adverse effect on the business, financial condition and results of operations. While the Company has several potential sources of cash including cash warrants that are registered and exercisable that are in the money, the ability to initiate an at-the-market (“ATM”) offering under its current shelf registration statement, no assurance can be given that the Company will be successful in these efforts.

Management’s Plans

During 2025, the Company completed several equity raises: (i) in February 2025, gross proceeds of $7,500,000 from common stock, warrants and pre-funded warrants; (ii) in August and September 2025, gross proceeds of approximately $12,725,000 from Series D Convertible Preferred Stock and additional warrant exercises of approximately $6,642,000; and (iii) at-the-market equity financings under the Company’s shelf registration.

As of December 31, 2025, the Company had cash and cash equivalents of $1,934,831 and restricted cash of $5,744,174 (aggregate $7,679,005). The Company believes its existing cash resources and planned operations—including its collegiate apparel program under agreements with AAA Tuscaloosa, LLC, Traffic Holdco, LLC, The Grove Collective, LLC, and Buffalo Sports Properties, LLC (Learfield), increased wholesale pricing, and continued cost reduction measures—will be sufficient to fund operations for at least one year from the date these financial statements are issued.

The Company also notes that the Bailey promissory note with a principal balance of $3,500,000 and accrued interest of approximately $2,624,000 matured on December 8, 2025 and remains unpaid as of December 31, 2025. Management is currently in discussions with the lender regarding repayment or potential extension of the note. In addition, management continues to monitor the release conditions for the $5,744,174 of restricted cash held pursuant to the Series D Securities Purchase Agreement, the release of which would further support liquidity.

Throughout the next twelve months, the Company intends to fund its operations from the funds raised through equity offerings, including at-the-market equity financings, equity line of credits (“ELOC”), further warrant exercises or other public or private equity offerings. Additionally, the Company intends to fund operations from increased revenues due to its new marketing efforts, including its collegiate apparel program and increased wholesale pricing, through settlement and renegotiation of aged payables, conversions of outstanding debt and accrued interest, and continuing its cost cutting measures, which the Company has already made during the nine months of 2025.

Based on the current state of operations, the additional capital sources available to the Company, and the cash on hand of approximately $7.7 million (aggregate unrestricted and restricted), management believes that the Company has sufficient capital to meet its financial obligations for the next 12 months as of the issuance date of these financial statements.

There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to secure additional funding, it may be forced to curtail or suspend its business plans.

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bailey, Stateside and Sundry from the dates of acquisition. All inter-company transactions and balances have been eliminated on consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the fair value of equity instruments, share-based payment liabilities, prepaid marketing assets, goodwill and intangible asset impairment assessments, and income tax valuation allowances. Actual results could differ from those estimates.

Cash and Equivalents and Concentration of Credit Risk

The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. As of December 31, 2025 and 2024, the Company did not hold any cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits of $250,000.

Restricted Cash

As of December 31, 2025, the Company had restricted cash of $5,744,174 held in a segregated bank account pursuant to the terms of the Securities Purchase Agreement related to the Series D Convertible Preferred Stock offering. These funds are restricted pending release upon satisfaction of the applicable conditions, including shareholder approval and SEC effectiveness of the resale registration statement. As of December 31, 2024, there wasno restricted cash. The Company includes restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the consolidated statement of cash flows.

Prepaid Marketing Expenses and Liability-Classified Share-Based Awards

The Company enters into long-term marketing, licensing, manufacturing, and sponsorship arrangements with third-party service providers under which it may issue common stock or equity-linked instruments in exchange for future services, including distribution, licensing access, product specification support, and marketing and promotional activities. These arrangements are accounted for as share-based payments to nonemployees in accordance with ASC 718,Compensation—Stock Compensation.

Where share-based consideration is determined to be in exchange for distinct goods or services, including those received from a customer, the Company accounts for such transactions as the purchase of services. The Company recognizes a prepaid marketing or service asset measured at the grant-date fair value of the share-based consideration issued, representing the value of services to be received over the contractual term. Such prepaid assets are amortized on a straight-line basis over the period in which the related services are received, which generally corresponds to the contractual service period.

Certain share-based arrangements include make-whole provisions that require the Company to deliver a fixed monetary value using a variable number of shares, or, in certain cases, cash. These provisions result in liability classification under ASC 718 and ASC 480,Distinguishing Liabilities from Equity, as the Company has an obligation to settle a fixed dollar amount rather than a fixed number of shares.

Liability-classified share-based awards are initially measured at fair value on the grant date and subsequently remeasured at fair value at each reporting date until settlement. Changes in fair value are recognized in earnings in the period of change. Compensation cost is recognized over the requisite service period, with cumulative adjustments recorded for changes in fair value.

The Company evaluates features within these arrangements, including make-whole provisions, under ASC 815,Derivatives and Hedging, to determine whether such features should be accounted for separately as derivatives. The Company has concluded that these features qualify for the scope exception applicable to share-based payment arrangements and therefore are not accounted for as freestanding or embedded derivatives. Accordingly, no bifurcation is required.

The fair value of liability-classified share-based awards is estimated using a Monte Carlo simulation model. This valuation technique incorporates significant assumptions, including the Company’s stock price, expected volatility, risk-free interest rate, expected term, and other market-based inputs. Due to the use of significant unobservable inputs, these measurements are classified within Level 2 of the fair value hierarchy.

Separately, certain contractual marketing investment commitments represent best-efforts obligations and do not create a present obligation or identifiable asset. Accordingly, such costs are expensed as incurred in accordance with ASC 720,Advertising Costs.

Fair Value of Financial Instruments

The Company measures certain assets and liabilities at fair value on a recurring basis in accordance with ASC 820, Fair Value Measurement. ASC 820 establishes a three-level hierarchy that prioritizes the inputs used in valuation techniques:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement. These inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The Company’s only recurring fair value measurements are its share-based payment liabilities arising from the make-whole provisions in the collegiate apparel agreements. These are classified as Level 2, as their valuation relies on significant unobservable inputs that are significant to the overall fair value measurement. Specifically, the expected stock price volatility is estimated from the Company’s own historical stock price data; because the Company does not have actively traded options or other instruments from which implied volatility could be observed, this input is unobservable. Under ASC 820-10-35-52, an instrument is classified based on the lowest level input that is significant to the fair value measurement. Changes in fair value are recognized in earnings each reporting period. See Note 9.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and short-term debt approximate fair value due to their short-term nature. The carrying value of the Company’s long-term SBA loan approximates fair value as the interest rate is fixed at a rate commensurate with current market rates for similar instruments.

Accounts Receivable and Expected Credit Loss

We carry our accounts receivable at invoiced amounts less allowances for customer credit losses and other deductions to present the net amount expected to be collected on the financial asset. All receivables are expected to be collected within one year of the consolidated balance sheet. We do not accrue interest on the trade receivables. Management evaluates the ability to collect accounts receivable based on a combination of factors. Receivables are determined to be past due based on individual credit terms. An allowance for credit losses is maintained based on the length of time receivables are past due, historical collections, or the status of a customer’s financial position. Receivables are written off in the year deemed uncollectible after efforts to collect the receivables have proven unsuccessful. We do not have any off-balance sheet credit exposure related to our customers.

We periodically review accounts receivable, estimate an allowance for credit losses, and simultaneously record the appropriate expense in the statement of operations. Such estimates are based on general economic conditions, the financial conditions of customers, and the amount and age of past due accounts. Past due accounts are written off against that allowance only after all collection attempts have been exhausted and the prospects for recovery are remote. Recoveries of accounts receivable previously written off are recorded as income when received. The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk.

As of December 31, 2025 and 2024, the Company determined an allowance for credit losses of $307,526 and $295,837 respectively.

Net accounts receivable was $74,833 as of December 31, 2023.

Inventory

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, Stateside and Sundry. The inventory balances as of December 31, 2025 and 2024 consist substantially of finished good products purchased or produced for resale, as well as any raw materials the Company purchased to modify the products and work in progress.

Inventory consisted of the following:

Property, Equipment, and Software

Property, equipment, and software are recorded at cost. Depreciation/amortization is recorded for property, equipment, and software using the straight-line method over the estimated useful lives of assets. The Company reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. The balances at December 31, 2025 and 2024 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 theshorter 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 $8,353 and $31,422 for the years ended December 31, 2025 and 2024, respectively.

Business Combinations

The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase.

Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.

Intangible assets are established with business combinations and consist of brand names and customer relationships. Intangible assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. The estimated useful lives of amortizable intangible assets are as follows:

Impairment

Long-Lived Assets

The Company reviews its long-lived assets (property and equipment and amortizable intangible assets) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.

Goodwill

Goodwill and identifiable intangible assets that have indefinite useful lives are not amortized, but instead are tested annually for impairment and upon the occurrence of certain events or substantive changes in circumstances. The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step one of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required.

The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. It is our practice, at a minimum, to perform a qualitative or quantitative goodwill impairment test in the fourth quarter every year.

Indefinite-Lived Intangible Assets

Indefinite-lived intangible assets established in connection with business combinations consist of the brand name. The impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Annual Impairment Tests

At December 31, 2025, 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 each reporting unit (Bailey44, Stateside and Sundry) may not be recoverable. The qualitative assessment was primarily due to reduced or stagnant revenues of each entity as compared to the Company’s initial projections at the time of each respective acquisitions, as well as certain 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 $1,260,500 in the consolidated statements of operations, as detailed below by entity. The Company also compared the fair value of the reporting units to their carrying amounts and recorded goodwill impairment of $3,185,056 ($1,081,000 for Bailey and $2,104,056 for Stateside) in the consolidated statements of operations. No goodwill impairment was recorded for Sundry. The Company utilized the enterprise value approach in the impairment tests of each reporting unit in 2025.

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

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, 2025 and 2024 respectively, including the carrying value of the identifiable intangible assets and goodwill assigned to the respective reporting units.

Convertible Instruments

U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional as that term is described under applicable U.S. GAAP.

When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The Company also records, when necessary, deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares.

Accounting for Preferred Stock

ASC 480, Distinguishing Liabilities from Equity, includes standards for how an issuer of equity (including equity shares issued by consolidated entities) classifies and measures on its balance sheet certain financial instruments with characteristics of both liabilities and equity.

Management is required to determine the presentation for the preferred stock as a result of the redemption and conversion provisions, among other provisions in the agreement. Specifically, management is required to determine whether the embedded conversion feature in the preferred stock is clearly and closely related to the host instrument, and whether the bifurcation of the conversion feature is required and whether the conversion feature should be accounted for as a derivative instrument.

If the host instrument and conversion feature are determined to be clearly and closely related (both more akin to equity), derivative liability accounting under ASC 815, Derivatives and Hedging, is not required. Management determined that the host contract of the preferred stock is more akin to equity, and accordingly, liability accounting is not required by the Company. The Company has presented preferred stock within stockholders’ equity.

Costs incurred directly for the issuance of the preferred stock are recorded as a reduction of gross proceeds received by the Company, resulting in a discount to the preferred stock. The discount is not amortized.

Revenue Recognition

In accordance with FASB ASC 606,Revenue from Contracts with Customers¸ the Company determines revenue recognition through the following steps:

Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers in an amount that reflects the consideration expected to be received in exchange for transferring goods or services to customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product, upon shipment of product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance.

The Company derives its revenue primarily from wholesale and e-commerce transactions. For both channels, revenue is recognized at the time the product is shipped to the customer, which is the point in time when control is transferred. The Company considers the sale of products as a single performance obligation. For the Company’s licensing agreement via Bailey44, the Company recognizes royalty revenue on a monthly basis over the term of the license agreement.

The Company provides the customer the right of return on the product and revenue is adjusted based on an estimate of the expected returns based on historical rates.

The Company deducts discounts, sales tax, and estimated refunds to arrive at net revenue. Sales tax collected from clients is not considered revenue and is included in accrued expenses until remitted to the taxing authorities. Shipping and handling fees charged to customers are included in net revenues. All shipping and handling costs are accounted for as distribution expenses, and are therefore not evaluated as a separate performance obligation.

University Collegiate Apparel Revenue

Starting in 2025, the Company generates revenue through its collegiate apparel agreements with AAA Tuscaloosa, LLC, Traffic Holdco, LLC, The Grove Collective, LLC, and Buffalo Sports Properties / Learfield. Revenue is recognized through two channels: (i) university store consignment, under which products are shipped to university campus bookstores and revenue is recognized based on actual sales reported by the store, and (ii) university online direct-to-consumer, under which revenue is recognized based on Shopify sales data from each university’s dedicated online portal when products are sold to end customers. In both cases, products are placed with the counterparty on consignment and the Company recognizes revenue only when a sale to an end consumer has occurred, consistent with ASC 606-10-55-37. Revenue from university channels is tracked separately in dedicated receivable accounts.

Cost of Revenues

Cost of revenues consists primarily of inventory sold and related freight-in. Cost of revenues includes direct labor pertaining to our inventory production activities and an allocation of overhead costs including rent and insurance. Cost of revenues also includes inventory write-offs and reserves.

Shipping and Handling

The Company recognizes shipping and handling billed to customers as a component of net revenues, and the cost of shipping and handling as distribution costs. Total shipping and handling billed to customers as a component of net revenues was approximately $45,000 and $75,000 for the years ended December 31, 2025 and 2024, respectively. Total shipping and handling costs included in distribution costs were $643,569 and $907,843, respectively.

Advertising and Promotion

Advertising and promotional costs are expensed as incurred. Advertising and promotional expense for the years ended December 31, 2025 and 2024 amounted to approximately $465,000 and $138,000, respectively. 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

The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedging relationships and the types of relationships designated are based on the exposures hedged. At December 31, 2025 and 2024, the Company did not have any derivative instruments that were designated as hedges.

Stock Option and Warrant Valuation

Stock option and warrant valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model. For warrants and stock options issued to non- employees, the Company accounts for the expected life based on the contractual life of the warrants and stock options. For employees, the Company accounts for the expected life of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in the accounting standards codification. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of options grants. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. The number of stock award forfeitures are recognized as incurred.

Stock-Based Compensation

The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation — Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as an expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services.

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for stock options, the expected life of the option, and expected stock price volatility. The Company used the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

Segment Information

In accordance with ASC 280, Segment Reporting (“ASC 280”), we identify our operating segments according to how our business activities are managed and evaluated. As of December 31, 2025, we had one operating segment which pertains to the sale of apparel. All brands and reporting units currently report to the Chief Executive Officer. Each of our brands serve or are expected to serve customers through our wholesale, in store and online channels, allowing us to execute on our omni-channel strategy. We have determined that each of our brands share similar economic and other qualitative characteristics, and therefore the results of our operating businesses are aggregated intoone reportable segment. All of the operating businesses have met the aggregation criteria and have been aggregated and are presented asone reportable segment, as permitted by ASC 280. We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments.

Income Taxes

The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is unlikely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.

Net Loss per Share

Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. As all potentially dilutive securities are anti-dilutive as of December 31, 2025 and 2024, diluted net loss per share is the same as basic net loss per share for each year. Potentially dilutive items outstanding as of December 31, 2025 and 2024 are as follows:

The stock options and warrants above are out-of-the-money as of December 31, 2025 and 2024.

As of December 31, 2025, there were 10,240,894 pre-funded warrants included in the denominator of weighted average shares outstanding, as shown below:

Leases

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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, which requires greater disaggregation of income tax disclosures related to the income tax reconciliation and income taxes paid. The amendments improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The new standard is effective for annual periods beginning after December 15, 2024, and early adoption is permitted. The Company adopted ASU 2023-09 on January 1, 2025 and it did not have any material impact on the consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income (Topic 220): Expense Disaggregation Disclosures. This update requires entities to disaggregate operating expenses into specific categories, such as salaries and wages, depreciation, and amortization, to provide enhanced transparency into the nature and function of expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. ASU 2024-03 may be applied retrospectively or prospectively. The Company is currently evaluating the impact of this standard on its financial statement presentation and disclosures.

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

NOTE 4: ACQUISITIONS

Business Combinations

Sundry

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. The Sundry Notes have been fully settled. 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.

Bailey 44

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

Stateside

On August 30, 2021, the Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with Moise Emquies pursuant to which the Company acquired all of the issued and outstanding membership interests of MOSBEST, LLC, a California limited liability company (“Stateside” and such transaction, the “Stateside Acquisition”). Pursuant to the MIPA, Moise Emquies, as the holder of all of the outstanding membership interests of Stateside, exchanged all of such membership interests for $5.0 million in cash and 22,031 shares of the Company’s common stock (the “Shares”), which number of Shares was calculated in accordance with the terms of the MIPA. Of such amount, $375,000 in cash and a number of Shares equal to $375,000, or 1,652 shares (calculated in accordance with the terms of the MIPA), is held in escrow to secure any working capital adjustments and indemnification claims. The MIPA contains customary representations, warranties and covenants by Moise Emquies.

Asset Acquisition

On April 1, 2025, the Company entered into an Asset Purchase Agreement with Open Daily Technologies Inc., pursuant to which the Company acquired intellectual property and related assets for total consideration of $3,000,000. The consideration was settled through issuance of 344,827 shares of restricted Common Stock at $8.70 per share. The transaction closed on April 2, 2025.

The acquired assets primarily comprise technology infrastructure (including the Outfit platform, iOS applications, Shopify-integrated web application, and related source code), registered intellectual property such as patents and trademarks, proprietary technical knowledge, and strategic business relationships. No liabilities were assumed as part of the transaction.

The transaction has been accounted for as an asset acquisition in accordance with ASC 805-10, as substantially all of the fair value of the gross assets acquired is concentrated in a group of similar identifiable intangible assets, thereby satisfying the concentration test. Additionally, no substantive processes or workforce were transferred, further supporting the conclusion that the transaction does not constitute a business combination.

The total purchase consideration has been allocated to the acquired assets on a relative fair value basis as follows:

Accordingly, no goodwill has been recognized. The total consideration has been measured based on the acquisition-date fair value of the equity instruments issued, determined using the quoted market price of the Company’s common stock on the acquisition date. The aggregate cost recognized amounts to $2,948,276, reflecting the fair value of 344,827 shares issued on the closing date.

The consideration transferred has been measured based on the fair value of equity instruments issued. While the transaction was initially recorded at $8.70 per share (as agreed in the Asset Purchase Agreement), subsequent evaluation of observable market data indicates that the closing market price of the Company’s common stock on April 30, 2025 was $8.55 per share. Accordingly, a difference of $0.15 per share resulted in a total adjustment of $51,724 (344,827 shares × $0.15), and the aggregate consideration has been revised to $2,948,276 based on the acquisition-date fair value of the equity consideration. The $51,724 adjustment was allocated proportionately in all acquired intangible assets.

All acquired intangible assets meet the asset recognition criteria under U.S. GAAP, as they embody probable future economic benefits, are controlled by the Company, and arise from a completed transaction. Further, none of the acquired assets qualify as in-process research and development under ASC 730, as the technology and related assets are fully developed and commercially deployable. The acquired technology assets were placed into service during 2025 and are being amortized on a straight-line basis over their estimated useful lives. Amortization expense is included in operating expenses.

NOTE 5: PREPAID MARKETING EXPENSES

In 2025, the Company entered into multi-year marketing, licensing, sponsorship, and service agreements under which it provides equity instruments, pre-funded warrants, or cash as consideration. Amounts paid or the fair value of instruments issued in excess of amounts currently expensed are recorded as prepaid assets and amortized over the contractual service period on a straight-line basis.

University Marketing Agreements

AAA Tuscaloosa, LLC — University of Alabama

Effective July 16, 2025, the Company entered into a three-year Exclusive Private Label Manufacturing Agreement with AAA Tuscaloosa, LLC (“AAA”), pursuant to which the Company manufactures University of Alabama–branded apparel. AAA is responsible for marketing and selling the products through its website and campus bookstores and is considered the Company’s customer under ASC 606; revenue is recognized upon sale of products to end customers through AAA’s distribution channels.

As consideration, the Company agreed to issue common stock valued at $1,000,000 per year over the three-year term (total equity commitment of $3,000,000). On December 12, 2025, the Company issued 285,714 shares of common stock at a grant-date fair value of $7.92 per share (grant date: September 22, 2025; aggregate equity fair value: $2,262,855). The share-based consideration represents payment for distinct services, including licensing access, distribution, and marketing services, and is accounted for under ASC 718. The total consideration, including the equity component and the initial fair value of the make-whole provision at grant date, was $4,341,104. The Company recorded a prepaid asset equal to the fair value of consideration provided, amortized on a straight-line basis over the three-year term. For the year ended December 31, 2025, the Company recognized $666,032 of marketing expense, representing 168 days of amortization. As of December 31, 2025, the prepaid balance was $3,675,072, of which $1,357,173 is classified as current and $2,317,899 as non-current.

The agreement includes a 15-month make-whole provision (through March 12, 2027), under which the Company is required to issue additional shares or cash if the fair value of shares delivered falls below the $3,000,000 commitment; accordingly, the award is liability-classified under ASC 718. See Note 9 for the fair value detail and Monte Carlo assumptions.

Traffic Holdco, LLC — Collegiate NIL Program

Effective July 16, 2025, the Company entered into a three-year Exclusive Private Label Manufacturing Agreement with Traffic Holdco, LLC (“Traffic”), pursuant to which the Company obtained exclusive apparel manufacturing rights for collegiate Name, Image and Likeness (“NIL”) programs at a minimum of three universities. Traffic is responsible for licensing, marketing, and distribution through university channels and is considered the Company’s customer under ASC 606; revenue is recognized upon sale of products to end customers through Traffic’s distribution channels.

As consideration, the Company agreed to issue common stock valued at $1,000,000 per university per year over the three-year term (minimum total equity commitment of $9,000,000). On December 12, 2025, the Company issued 857,143 shares of common stock at a grant-date fair value of $7.92 per share (grant date: September 22, 2025; aggregate equity fair value: $6,788,573). The share-based consideration represents payment for distinct services, including licensing access, distribution, marketing, and compliance services, and is accounted for under ASC 718. The total consideration, including the equity component and the initial fair value of the make-whole provision, was $13,023,328. The Company recorded a prepaid asset equal to the fair value of consideration provided, amortized on a straight-line basis over the three-year term. For the year ended December 31, 2025, the Company recognized $1,998,100 of marketing expense, representing 168 days of amortization. As of December 31, 2025, the prepaid balance was $11,025,228, of which $4,341,109 is classified as current and $6,684,119 as non-current.

The agreement includes a 15-month make-whole provision (through March 12, 2027), under which the Company is required to issue additional shares or cash if the fair value of shares delivered falls below the guaranteed commitment; accordingly, the award is liability-classified under ASC 718. See Note 9 for the fair value detail and Monte Carlo assumptions.

The Grove Collective, LLC — University of Mississippi

Effective November 19, 2025, the Company entered into a three-year Exclusive Private Label Manufacturing Agreement with The Grove Collective, LLC (“Grove”), pursuant to which the Company will exclusively manufacture apparel products to be sold through Grove’s website and retail channels. The agreement supports marketing and brand development initiatives related to the University of Mississippi NIL program. Grove is considered the Company’s customer under ASC 606; revenue is recognized upon sale of products to end customers through Grove’s channels.

As consideration, the Company issued 385,107 shares of common stock at a grant-date fair value of $7.50 per share (aggregate equity fair value: $2,888,303), representing a total equity commitment of $3,000,000. The share-based consideration is accounted for as payment for distinct marketing, distribution, and related services under ASC 718. The total consideration, including the equity component and the initial fair value of the make-whole provision at grant date, was $4,970,835. The Company recorded a prepaid asset equal to the fair value of consideration provided, amortized on a straight-line basis over the three-year term. For the year ended December 31, 2025, the Company recognized $190,662 of marketing expense, representing 42 days of amortization. As of December 31, 2025, the prepaid balance was $4,780,173, of which $1,656,945 is classified as current and $3,123,228 as non-current.

The agreement includes a 15-month make-whole provision; accordingly, the award is liability-classified under ASC 718. See Note 9 for the fair value detail and Monte Carlo assumptions.

Buffalo Sports Properties / Learfield — University of Colorado

Effective December 3, 2025, the Company entered into a three-year Marketing and Sponsorship Agreement with Buffalo Sports Properties, LLC and Learfield (the “Provider”) for the University of Colorado athletic program. Under the agreement, the Company receives sponsorship, media, and NIL marketing benefits in exchange for a combination of cash and equity consideration. The Provider is considered the Company’s customer under ASC 606; revenue is recognized upon delivery of sponsorship and marketing benefits over the term.

As consideration, the Company agreed to pay $550,000 per year over the three-year term, consisting of $350,000 per year in common stock (total equity commitment: $1,050,000) and $200,000 per year in cash (total cash: $537,931). On December 12, 2025, the Company issued 193,036 shares of common stock at $6.68 per share (grant date: December 3, 2025; aggregate equity fair value: $1,289,480). The equity component is accounted for as payment for distinct sponsorship, media, and marketing services under ASC 718. The total consideration, including the equity component and the initial fair value of the make-whole provision, was $2,014,433. The Company recorded a prepaid asset equal to the fair value of consideration provided, amortized on a straight-line basis over the three-year term. For the year ended December 31, 2025, the Company recognized $51,881 of marketing expense, representing 29 days of amortization. As of December 31, 2025, the prepaid balance was $1,962,551, of which $671,478 is classified as current and $1,291,073 as non-current. The cash component is recognized as prepaid sponsorship expense and amortized as benefits are received; the first cash installment is due under the January 2026 billing schedule.

The agreement includes an 18-month make-whole provision (through June 12, 2027), under which the Company is required to issue additional shares or cash if the fair value of shares delivered falls below the guaranteed amount; accordingly, the award is liability-classified under ASC 718. See Note 9 for the fair value detail and Monte Carlo assumptions.

Other Marketing Agreements

MavDB Consulting LLC

In January 2025, the Company entered into a two-year marketing services agreement with MavDB Consulting LLC for content production, social media marketing, student athlete engagement, and event staffing. The consideration was satisfied through the issuance of 2,068,965 pre-funded warrants with an aggregate fair value of $2,689,656, accounted for as share-based consideration for marketing and advisory services. The warrants are equity-classified with no make-whole provision. The Company recognized $1,269,193 of marketing expense for the year ended December 31, 2025, representing 344 days of amortization over the two-year term. As of December 31, 2025, the prepaid balance was $1,420,463, of which $1,344,828 is classified as current and $75,635 as non-current.

In September 2025, the Company entered into a two-year cash-based marketing agreement with MavDB Consulting LLC for $1,240,000. The Company recognized $1,240,000 of marketing expense for the year ended December 31, 2025, representing the full contract value. No prepaid balance remains as of December 31, 2025.

In March 2025, Bailey entered into a five-year cash-based marketing services agreement with MavDB Consulting LLC for $2,500,000. The Company recognized $2,500,000 of marketing expense for the year ended December 31, 2025, representing the full contract value. No prepaid balance remains as of December 31, 2025.

MavDB is controlled by a shareholder who holds a significant amount of warrants and prefunded warrants. See Notes 10 and 11 for further detail on the equity transactions related to MavDB.

Other

In September 2025, the Company entered into a one-year agreement with Velora Marketing Services for $350,000 and a one-year agreement with i2i Marketing for $425,000. The Company recognized $350,000 and $425,000 of marketing expense, respectively, for the year ended December 31, 2025, representing the full contract value of each agreement. No prepaid balance remains as of December 31, 2025.

In September 2025, Bailey entered into a one-year marketing agreement with Candlelight Ventures for $350,000. The Company recognized $350,000 of marketing expense for the year ended December 31, 2025, representing the full contract value. No prepaid balance remains as of December 31, 2025.

Costs associated with all cash-based agreements are recognized as prepaid assets and expensed over the respective contractual service periods.

Summary of Consideration and Prepaid Balances

The following table summarizes the consideration provided under each agreement and the resulting prepaid marketing balances as of December 31, 2025:

The following table disaggregates total consideration for the share-based agreements between the equity component (fair value of shares or warrants issued, recorded in equity) and the liability component (initial fair value of the make-whole provision, recorded as share-based payment liability on the consolidated balance sheet):

Total aggregate consideration for all share-based agreements was $24,349,700 at initial recognition, comprising $13,229,211 in equity fair value and $11,120,489 in share-based payment liability (make-whole provisions). At December 31, 2025, the total share-based payment liability was remeasured to $9,405,699, resulting in a recognized gain of $1,714,790.

Classification and Future Amortization

Prepaid marketing expenses are classified as current or non-current based on the portion of each agreement expected to be amortized within the next twelve months from the balance sheet date. Current prepaid balances represent the pro-rata share of total consideration allocable to services to be received in the twelve months ending December 31, 2026. Non-current prepaid balances represent the remaining unamortized consideration allocable to periods beyond December 31, 2026.

For agreements where amortization commenced during 2025, the current portion reflects the next twelve months of straight-line amortization based on the original contract term. For agreements entered into near year-end (primarily Learfield, commencing December 3, 2025), the current portion reflects the estimated twelve-month share based on the contractual service start date. Amortization begins on the service commencement date of each agreement.

Total prepaid marketing expenses recognized during the year ended December 31, 2025 was $3,978,943. Estimated future amortization of prepaid marketing expenses as of December 31, 2025 is as follows:

NOTE 6: DUE FROM FACTOR

The Company, via its subsidiaries, Bailey, Stateside and Sundry, assigns a portion of its trade accounts receivable to third- party factoring companies, who assumes the credit risk with respect to the collection of non-recourse accounts receivable. The Company may request advances on the net sales factored at any time before their maturity date. The factor charges a commission on the net sales factored for credit and collection1 services. For one factoring company, interest on advances is charged as of the last day of each month at a rate equal to the Term SOFR rate plus 2.5% for Bailey. 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. For another factoring company, interest is charged at one-thirty-third (1/33) of one percent per day, such rate to increase or decrease in accordance with changes in the “Prime Rate”, which such prime rate to be deemed to be 4.25% on the date of the agreement.

Advances are collateralized by a security interest in substantially all of the companies’ assets.

Due to/from factor consist of the following:

NOTE 7: GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company recorded goodwill from each of its business combinations. As part of its 2025 annual impairment testing, the Company recorded goodwill impairment charges of $3,185,056 ($1,081,000 for the Bailey reporting unit and $2,104,056 for the Stateside reporting unit). No goodwill impairment was recorded in 2024. The following is a summary of goodwill activity by entity for the years ended December 31, 2025 and 2024:

Intangible Assets

For the year ended December 31, 2025, the Company recorded intangible asset impairment charges of $2,488,948, comprising: (i) $1,260,500 related to the Stateside brand name (indefinite-lived), reflecting the Company’s assessment that the carrying value exceeded the estimated fair value based on the reporting unit’s performance; and (ii) $1,228,448 related to the OpenDaily technology asset and associated intangible assets acquired in April 2025 pursuant to the asset acquisition of Open Daily Technologies, Inc., which were fully impaired based on a reassessment of recoverability. No intangible asset impairment was recorded in 2024, other than $1,388,000 related to HJ customer relationships. Total impairment charges (goodwill and intangible assets) for the year ended December 31, 2025 were $5,674,004.

The following table summarizes information relating to the Company’s identifiable intangible assets as of December 31, 2025 and 2024:

Refer to Note 3 for discussion on the intangible asset impairment recorded in 2025.

The Company recorded amortization expense of $2,084,496 and $2,474,178 during the years ended December 31, 2025 and 2024, respectively, which is included in general and administrative expenses in the consolidated statements of operations.

The technology asset acquired from Open Daily Technologies Inc. (see Note 3) was placed in service during 2025 and is being amortized on a straight-line basis over its estimated useful life. Amortization expense is included in operating expenses.

NOTE 8: LIABILITIES AND DEBT

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities is comprised of the following:

Payroll related liabilities are primarily related to overdue payroll taxes due to be remitted to federal and state authorities by Digital Brands Group, Inc. and Bailey. The amounts may be subject to further penalties and interest.

As of December 31, 2025, accrued expenses include $535,000 in accrued common stock issuances pursuant to an advisory agreement for services performed in 2022. The shares of common stock owed under the agreement are expected to be issued in early 2026.

Accrued interest payable of $2,787,506 as of December 31, 2025 (December 31, 2024: $2,328,078) relates primarily to unpaid interest on the Bailey sellers’ promissory note and is presented separately on the Consolidated Balance Sheet.

Debt

The following table summarizes the Company’s outstanding debt obligations as of December 31, 2025 and 2024:

Convertible Debt

On February 20, 2025, the Company settled the remaining convertible debt principal in cash, along with $47,000 of accrued interest. As of December 31, 2025 and 2024, the outstanding principal balance was $0 and $100,000, respectively.

Loan Payable — PPP, SBA, and Shopify

In April 2022, Bailey received notification of full forgiveness of its second SBA Paycheck Protection Program (“PPP”) loan totaling $1,347,050 and partial forgiveness of its first PPP loan totaling $413,705. As of December 31, 2025 and December 31, 2024, Bailey had an outstanding PPP loan balance of $933,294, classified as current. The loan matures in April 2026. No additional forgiveness was recognized during 2025.

In June 2020, the Company received an SBA Economic Injury Disaster Loan of $150,000 bearing interest at 3.75% per annum, maturing April 2050. The outstanding balance was $150,000 as of December 31, 2025 and 2024, classified as current in 2025 due to technical default.

The Company’s Sunnyside subsidiary maintains a Shopify Capital loan with an outstanding balance of $58,296 as of December 31, 2025, classified as current.

Merchant Advances

From 2022 through 2024, the Company obtained several merchant cash advances secured by expected future sales receipts, with repayments made on a weekly basis. The Company made total cash repayments of $374,998 for the year ended December 31, 2025. The advances are non-interest bearing.

The following is a summary of the merchant advances:

Promissory Note Payable

As of December 31, 2025 and 2024, the outstanding principal on the note payable to the sellers of Bailey 44, LLC was $3,500,000. The note bears interest at 12% per annum, payable quarterly. Interest expense was $420,000 for the year ended December 31, 2025 ($105,000 per quarter). Accrued and unpaid interest was $2,624,000 as of December 31, 2025, recorded separately as accrued interest payable on the consolidated balance sheet.

The note matured on December 8, 2025. As of December 31, 2025, the note has not been repaid and is in technical default. The Company is currently in discussions with the lender regarding repayment, extension, or refinancing of the obligation. Management has not identified any cross-default provisions in other material agreements that would be triggered by this default. This default has been considered in the Company’s going concern assessment. See Note 2.

Subsequent to December 31, 2025, the note remains outstanding and unpaid. The Company continues to accrue interest at the contractual rate of 12% per annum. No formal acceleration notice has been received from the lender as of the date these financial statements were available to be issued.

Target Capital Convertible Promissory Note

On April 30, 2024, the Company issued a convertible promissory note in the original principal amount of $250,000 (the “Note”) to Target Capital 1 LLC, an Arizona limited liability company (the “Note Holder”), with a maturity date of April 30, 2025 (the “Maturity Date”). Pursuant to the terms of the Note, the Company agreed to pay the principal sum and a one-time interest charge of $50,000 to the Note Holder. In May 2024, the Company fully repaid the Note Holder $300,000, including the principal and interest. The Company issued 1,000 shares of common stock to the Note Holder as commitment shares.

NOTE 9: SHARE-BASED PAYMENT LIABILITY

The Company’s collegiate apparel agreements (AAA Tuscaloosa, Traffic Holdco, Grove Collective, Buffalo Sports / Learfield – see Note 5) include make-whole provisions under which the Company is required to deliver a guaranteed aggregate dollar value through a variable number of common shares. Because the number of shares required for settlement varies based on the Company’s stock price, these arrangements are classified as liability-classified share-based payment awards under ASC 718. At inception, the Company measures the liability at fair value using a Monte Carlo simulation model, with a corresponding prepaid marketing asset recognized. The liability is remeasured at fair value at each subsequent reporting date, with changes recognized in earnings. The prepaid marketing asset is amortized on a straight-line basis over the contractual service period. See Note 5 for prepaid marketing balances.

The share-based payment liability is classified within Level 2 of the fair value hierarchy under ASC 820. The primary inputs to the Monte Carlo simulation model — including the Company’s stock price, risk-free interest rate, and contractual term — are observable market inputs. Accordingly, the Company classifies these liabilities as Level 2. There were no transfers between levels during the year ended December 31, 2025.

The following assumptions were used in the Monte Carlo simulation model at initial recognition and remeasurement as of December 31, 2025 of each make-whole liability:

At Initial Recognition

At Remeasurement (December 31, 2025)

Volatility was estimated based on the historical stock price of the Company over the applicable measurement period. The risk-free rate is based on the U.S. Treasury yield curve for the instrument’s remaining term as of the measurement date. The strike price represents the minimum guaranteed aggregate value per the respective agreement divided by the number of shares issued.

The following is a summary of activity of the share-based payment liability for the year ended December 31, 2025:

There were no transfers between levels during the year ended December 31, 2025.

NOTE 10: STOCKHOLDERS’ EQUITY (DEFICIT)

Amendments to Certificate of Incorporation and Reincorporation

Effective December 29, 2025, the Company reincorporated from the State of Delaware to the State of Nevada pursuant to a plan of conversion approved by the Board of Directors. The reincorporation did not affect the Company’s authorized capital structure, par values, or outstanding equity.

Common Stock

As of December 31, 2025, the Company had 1,000,000,000 shares of common stock, $0.0001 par value per share, authorized. As of December 31, 2025 and December 31, 2024, there were 8,788,335 and 838,583 shares of common stock issued and outstanding, respectively.

Common stockholders have voting rights ofone vote per share. 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.

2025 Common Stock Transactions

During the year ended December 31, 2025, the Company issued common stock and equity instruments in the following transactions:

February 2025 Offering

On February 13, 2025, the Company entered into securities purchase agreements with certain accredited investors, pursuant to which the Company agreed to issue and sell in a best efforts offering 11,365,340 units at a purchase price of $0.66 per unit, including: (i)125,535 units consisting of one share of common stock and two common stock purchase warrants; and (ii)11,239,805 units consisting of one pre-funded warrant (exercisable at $0.0001 per share with no expiration) and two common stock purchase warrants. The common stock purchase warrants are exercisable for an aggregate of 22,730,680 shares of common stock at $0.66 per share. The February 2025 Offering closed on February 18, 2025, generating net proceeds of $6,642,433 after placement agent fees and expenses.

Pre-Funded Warrants were offered to purchasers whose purchase of common stock would have resulted in beneficial ownership exceeding 4.99% (or 9.99% at the purchaser’s election) of outstanding common stock. Pre-Funded Warrants are immediately exercisable, do not expire, and may be exercised on a cashless basis if no effective registration statement is available.

Stock Payable

As of December 31, 2025, stock payable of $4,951,128 represents amounts received from warrant holders for exercises in which the underlying shares of common stock had not yet been issued as of December 31, 2025. During August 2025, certain warrant holders exercised Common Share Purchase Warrants at $0.66 per share for aggregate proceeds of approximately $5.0 million; the shares had not been issued as of December 31, 2025 and accordingly the proceeds were recorded as stock payable. As of December 31, 2025, the Company had exercised warrants representing an obligation to issue shares of common stock. Upon issuance, the balance will be reclassified to stockholders’ equity. See Note 17 for shares issued subsequent to December 31, 2025.

2024 Common Stock Transactions

Offerings

On May 3, 2024, the Company entered into that certain inducement offer to exercise common stock purchase warrants with the Investor (the “Inducement Agreement”), pursuant to which (i) the Company agreed to lower the exercise price of the Existing Warrants to $156.50 per share and (ii) the Investor agreed to exercise the Existing Warrants into 20,555 shares of common stock (the “Exercise Shares”) by payment of the aggregate exercise price of $3,216,857. The closing occurred on May 7, 2024. The Company has issued all of the 20,555 shares of common stock underlying the Existing Warrants. The Company received the entire gross proceeds of $3,216,857 in May 2024, which represents the exercise of the entire 20,555 warrants at the $156.50 exercise price. The Company received net proceeds of $2,877,475 after placement agent fees and expenses. In addition, pursuant to the Inducement Agreement, the Company issued to the Investor a Series A-1 common share purchase warrant to purchase up to 20,555 shares of Common Stock (“Series A-1 Warrant”) and Series B-1 common share purchase warrant to purchase up to 20,555 shares of Common Stock (“Series B-1 Warrant”, and collectively with the Series A-1 Warrant, the “Warrants”) on May 7, 2024, each at an initial exercise price equal to $144 per share of Common Stock. The Series A-1 Warrant are exercisable immediately upon issuance and expires five and one-half (5.5) years following the issuance date and the Series B-1 Warrant are exercisable immediately upon issuance and expires fifteen (15) months following the issuance date. In connection with the Inducement Agreement, we entered into an engagement agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we have, among other things, issued to Wainwright’s designees warrants to purchase up to 1,541 shares of Common Stock (the “Wainwright Warrants”). The terms of the Wainwright Warrants are substantially the same as the terms of the Series A-1 Warrant except that they have an exercise price of $195.63 per share.

Between July 1, 2024 and October 22, 2024, the Company issued and sold 105,125 shares of Common Stock (the “Recent ATM Share Sales”) to H.C. Wainwright & Co., LLC (the “Agent”) as sales agent or principal, pursuant to the terms of the Company’s previously announced At-The-Market Offering Agreement, dated December 27, 2023, between us and the Agent (the “Sales Agreement”). The Company received net proceeds of $2,063,386 from the Recent ATM Share Sales. Between October 23, 2024 and December 17, 2024, the Company issued and sold 65,236 shares of Common Stock to the Agent as sales agent or principal, pursuant to the terms of the Sales Agreement, and received net proceeds of $278,160.

On October 28, 2024, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain accredited investors named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a best efforts offering (the “Offering”): (i)124,673 shares of common stock (the “Common Stock”), at a purchase price of $5.00 per share of Common Stock, and (ii)482,187 pre-funded warrants (“Pre-Funded Warrants”) to purchase Common Stock, at a purchase price of $4.995 per Pre-Funded Warrant, immediately exercisable at an exercise price of $0.005 per share. The Purchase Agreement contained customary representations and warranties and agreements of the Company and the Purchasers and customary indemnification rights and obligations of the parties. The Offering closed on October 30, 2024.

The Offering resulted in gross proceeds to the Company of approximately $3,000,000, before deducting placement agent fees and commissions and other offering expenses, and excluding proceeds to the Company, if any, that may result from the future exercise of the Pre-Funded Warrants issued in the Offering. As compensation to the Placement Agent, as the exclusive placement agent in connection with the Offering, the Company paid to the Placement Agent a cash fee of 8.0% of the aggregate gross proceeds raised in the Offering, a non-accountable expense allowance of 1.0% of the aggregate gross proceeds raised in the Offering, reimbursement of up to $50,000 for expenses of legal counsel and other actual out-of-pocket expenses, and up to $15,950 for clearing agent closing costs. The Company received net proceeds of approximately $2,546,213 from the Offering (the “Public Offering Proceeds”).

During the year ended December 31, 2024, the Company issued an aggregate of 806,754 shares of common stock pursuant to the offerings detailed above for net proceeds of $9,374,441.

Series A Convertible Preferred Stock

On September 29, 2022, the Company designated up to 6,800 shares of Series A Convertible Preferred Stock, par value $0.0001, with a stated value of $1,000 per share. Each share of Series A Preferred Stock is convertible at the holder’s option into a number of shares of common stock determined by dividing the stated value ($1,000) by the conversion price of $9.30 (the closing price on September 29, 2022). Series A holders are entitled to vote with the holders of common stock on an as-converted basis. Series A Preferred Stock ranks senior to common stock and junior to Senior Securities as to dividends and liquidation.

As of December 31, 2025 and December 31, 2024, there were 6,300 shares of Series A Convertible Preferred Stock issued and outstanding, with an aggregate liquidation preference of $6,300,000.

Series C Convertible Preferred Stock

On June 21, 2023, the Company issued 5,761 shares of Series C Convertible Preferred Stock, par value $0.0001, with a stated value of $1,000 per share, to the Sundry sellers in exchange for cancellation of promissory notes issued in December 2022. Each share of Series C Preferred Stock is convertible at the holder’s option into common stock at a conversion price of $0.717 per share (the lower of the closing price on June 20, 2023 and the five-day average preceding the issuance date). The Company may redeem all or any portion of the outstanding Series C shares at 112% of the then-current stated value at any time after June 21, 2023, provided an effective registration statement is in place. Series C holders are entitled to vote with common stockholders on an as-converted basis. Series C ranks pari passu with Series A and senior to common stock.

As of December 31, 2025 and December 31, 2024, there were 1,344 shares of Series C Convertible Preferred Stock issued and outstanding, with an aggregate liquidation preference of $1,344,000.

Series D Convertible Preferred Stock

2025 Transactions

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, par value $0.0001 per share, with a stated value of $1,000 per share, for gross cash proceeds of approximately $11.2 million (aggregate stated value of $14.0 million).

On September 26, 2025, pursuant to an amendment to the Securities Purchase Agreement, the Company issued an additional 1,875 shares of Series D Preferred Stock to an investor for gross cash proceeds of $1.5 million, at a stated value of $1,150 per share (aggregate stated value of $2.16 million for this tranche).

Total gross proceeds from the Series D offerings were $12.7 million. Net proceeds received, after deducting offering costs, were $11.4 million.

As of December 31, 2025, there were 15,906 shares of Series D Convertible Preferred Stock issued and outstanding.

Conversion: Each share of Series D Preferred Stock is convertible at the holder’s option into common stock at a price equal to 80% of the lowest closing price of the Company’s common stock for the five trading days immediately preceding the conversion date, subject to beneficial ownership limitations of 4.99% (adjustable to 9.99%).

Dividends: Series D holders are entitled to receive dividends equal (on an as-converted basis) to dividends paid on common stock, when and if declared. No dividends have been declared or paid.

Voting: Series D holders vote with holders of common stock on an as-converted basis, subject to ownership limitations.

Liquidation Preference: Series D ranks senior to common stock and Junior Securities, pari passu with Series A and Series C, and junior to Senior Securities. Upon liquidation, each Series D holder is entitled to receive the greater of: (i) the stated value plus accrued dividends, or (ii) the amount such holder would receive if Series D were converted to common stock immediately prior to such liquidation. As of December 31, 2025, the aggregate liquidation preference of the Series D Preferred Stock was approximately $23,859,375.

The Company is required to hold the offering proceeds in a segregated bank account. As of December 31, 2025, $5,744,174 remains in the segregated account as restricted cash, pending release upon: (i) shareholder approval of thereverse stock split and 20% rule, and (ii) SEC effectiveness of the resale registration statement. See Note 3.

ASC 480 and 815 Analysis

The Company evaluated the Series D Convertible Preferred Stock under ASC 480, ASC 815, and ASC 480-10-S99-3A.

Under ASC 480, the Series D does not meet the definition of a mandatorily redeemable instrument, as there are no mandatory redemption provisions or obligations requiring the Company to deliver cash or other assets to holders. The instrument is therefore not classified as a liability under ASC 480.

Under ASC 815, the Company evaluated all embedded features of the Series D Preferred Stock, including the conversion option, participating dividends, price protection, protective rights, and liquidation preference. The Company determined that all such features are clearly and closely related to the equity host and do not require bifurcation as separate derivative instruments. The conversion option is equity-settled, the ownership limitations maintain equity characteristics, and there are no put features, mandatory repurchase provisions, or redemption rights exercisable at the option of holders or upon events outside the Company’s control.

Under ASC 480-10-S99-3A, the Company evaluated whether the Series D should be classified as temporary equity. Because there are no redemption features exercisable at the option of the holder or upon the occurrence of events not solely within the Company’s control, the Series D Preferred Stock does not meet the criteria for temporary equity classification. Accordingly, the Series D is classified as permanent equity in the Consolidated Balance Sheets.

Modification

On September 23, 2025, the Company amended the Certificate of Designations for the Series D Convertible Preferred Stock to increase the stated value from $1,000 to $1,150 per share and expand the authorized shares from 15,000 to 17,500. The amendment was accounted for as a modification by analogy to ASC 718-20, and the Company recognized a deemed dividend of $2,104,688, representing the aggregate increase in stated value transferred to preferred shareholders.

Liquidation Preferences

As of December 31, 2025, the aggregate liquidation preferences of the Company’s preferred stock were as follows:

NOTE 11: WARRANTS AND STOCK OPTIONS

Common Stock Warrants

A summary of common stock warrant activity for the years ended December 31, 2025 and 2024 is as follows:

Warrant Transactions

MavDB Consulting LLC Pre-Funded Warrants

On January 21, 2025, in connection with a two-year marketing services agreement, the Company issued 2,068,965 pre-funded warrants to MavDB Consulting LLC at an exercise price of $0.01 per share. The fair value of the pre-funded warrants was $2,689,656 ($1.30 per share), recorded as a prepaid marketing asset. The warrants are immediately exercisable and expire two years from issuance. See Note 5.

February 2025 Offering Warrants

In February 2025, the Company issued 33,970,485 warrants pursuant to the February 2025 Offering (see Note 10), including 11,239,805 pre-funded warrants exercisable at $0.0001 per share with no expiration date, and 22,730,680 common stock purchase warrants exercisable at $0.66 per share. During the year ended December 31, 2025,8,730,796 warrants were exercised for shares of common stock, generating aggregate proceeds of $5,807,576. The Company also issued placement agent warrants to purchase up to 748,705 shares of common stock at $0.76 per share in connection with the February 2025 Offering.

As of December 31, 2025, stock payable of $4,951,128 represents amounts received from warrant holders for exercises in which the underlying shares of common stock had not yet been issued as of December 31, 2025. During August 2025, certain warrant holders exercised Common Share Purchase Warrants at $0.66 per share for aggregate proceeds of approximately $5.0 million; the shares had not been issued as of December 31, 2025 and accordingly the proceeds were recorded as stock payable.

Stock Options

As of December 31, 2025 and 2024, the Company had 31 stock options outstanding with a weighted average exercise price of $452,500 per share. All outstanding options are exercisable. No options were granted, exercised, or forfeited during the year ended December 31, 2025.

Stock-based compensation expense of $0 and $169,614 was recognized for the years ended December 31, 2025 and 2024, respectively. There isno unrecognized compensation cost related to outstanding stock options as of December 31, 2025.

The 2020 Omnibus Incentive Stock Plan (the “2020 Plan”) authorizes an aggregate of 26 shares of common stock for awards. As of December 31, 2025, grants covering 22 shares have been made and 4 shares remain available for future issuance under the 2020 Plan.

NOTE 12: RELATED PARTY TRANSACTIONS

As of December 31, 2025 and 2024, amounts due to related parties was $370,921 and $411,921, respectively. The advances are unsecured, non-interest bearing and due on demand. Amounts due to related parties consist of amounts due to current and former executives, and a board member.

As of December 31, 2025 and 2024, due to related parties includes $87,222 in advances from Mark Lynn, a director and former officer of the company, and accrued salary and expense reimbursements of $134,699 to current officers of the company.

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, 2025 and December 31, 2024, $149,000 and $190,000, respectively, was outstanding.

NOTE 13: LEASE OBLIGATIONS

Rent is classified by function on the consolidated statements of operations either as general and administrative, sales and marketing, or cost of revenue.

The Company determines whether an arrangement is or contains a lease at inception by evaluating potential lease agreements including services and operating agreements to determine whether an identified asset exists that the Company controls over the term of the arrangement. Lease commencement is determined to be when the lessor provides access to, and the right to control, the identified asset.

The company currently maintains two leased properties under month-to-month agreements, which are classified as short-term leases in accordance with ASC 842. The first property, located in Vernon, California, serves as the Corporate Warehouse and Distribution Center, encompassing approximately 42,000 square feet with a monthly base rent of $12,000. The second property is a showroom or office location also operated on a month-to-month basis. Because both leases are month-to-month with terms of 12 months or less, the Company has elected the short-term lease practical expedient and no right-of-use asset or lease liability has been recognized. Rent expense related to these leases is recognized on a straight-line basis over the applicable monthly periods.

Refer to Note 17 for detail on a lease entered into 2026.

NOTE 14: COMMITMENTS AND CONTINGENCIES

Marketing Agreement Commitments

The Company has entered into multi-year marketing and sponsorship agreements with AAA Tuscaloosa, LLC, Traffic Holdco, LLC, The Grove Collective, LLC, and Buffalo Sports Properties/Learfield, each of which includes equity and, in some cases, cash commitments over three-year terms. Certain of these agreements include make-whole provisions under which the Company may be required to issue additional shares or cash if the fair value of shares delivered falls below the guaranteed commitment during the protection period. These arrangements are accounted for as liability-classified share-based payment awards; the related liabilities are measured at fair value at each reporting date using Monte Carlo simulation models. See Note 5 for the prepaid marketing balances and Note 9 for the fair value of those liabilities as of December 31, 2025.

Legal Contingencies

The Company is subject to various legal proceedings arising in the ordinary course of business. Liabilities are recorded when losses are considered probable and reasonably estimable.

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.

NOTE 15: INCOME TAXES

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for temporary differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates expected to apply in the years in which those differences are expected to reverse. The Company maintains a full valuation allowance against all net deferred tax assets due to its history of operating losses.

Income Tax Provision

For the year ended December 31, 2025, the Company recorded no current or deferred income tax expense or benefit. For the year ended December 31, 2024, the Company recorded a deferred income tax benefit of $119,044. The components of the income tax provision are as follows:

Deferred Tax Assets and Liabilities

The Company’s deferred tax assets arise primarily from net operating loss carryforwards. The Company has recorded a full valuation allowance against its net deferred tax assets as it is not more likely than not that these assets will be realized. The following table presents deferred tax assets and liabilities as of December 31, 2025 and 2024:

Effective Tax Rate Reconciliation

The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, effective for the year ended December 31, 2025. This standard requires the effective tax rate reconciliation to be presented in tabular format using both dollar amounts and percentages, disaggregated into prescribed categories. The reconciliation from the U.S. federal statutory rate of 21% to the Company’s effective rate of 0% and 0.9%, respectively, for the years ended December 31, 2025 and 2024 is as follows:

Income Taxes Paid

The Company paidno federal, state, or local income taxes for the years ended December 31, 2025 and 2024.

Valuation Allowance

The Company maintained a full valuation allowance against its net deferred tax assets as of December 31, 2025 and 2024, due to its history of operating losses and uncertainty regarding the generation of future taxable income. The valuation allowance increased by $7,649,130 during 2025 and decreased by $5,419,573 during 2024, reflecting growth in net operating loss carryforwards.

Net Operating Loss Carryforwards

As of December 31, 2025, the Company had federal net operating loss carryforwards of approximately $108.7 million. Approximately $15.7 million relates to pre-2018 tax years and expires between 2033 and 2038. The remaining $93.7 million of post-2017 losses carry forward indefinitely but are subject to an annual 80% taxable income limitation under IRC §172. The Company also had California state NOL carryforwards of approximately $108.7 million, subject to a 20-year carryforward period.

The ability to utilize these carryforwards could become subject to annual limitations under Section 382 of the Internal Revenue Code if the Company undergoes an ownership change, generally defined as a cumulative shift of more than 50 percentage points in ownership among 5%-or-greater stockholders over a three-year period.

Uncertain Tax Positions

The Company has not identified any uncertain tax positions as of December 31, 2025 or 2024, and has recorded no related liabilities. The Company is subject to examination by U.S. federal and California state tax authorities for all tax years from 2021 forward.

NOTE 16: SEGMENT REPORTING

The Company operates as asingle reportable segment — direct-to-consumer (“DTC”) fashion brands. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”). The CODM reviews consolidated financial results to evaluate performance, allocate resources, and make operating decisions for the Company as a whole.

In accordance with ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, effective for annual periods beginning after December 15, 2023, the Company is required to disclose significant segment expenses regularly provided to the CODM and included in the reported measure of segment profit or loss, even as a single reportable segment entity.

The CODM uses net loss as the measure of segment profit or loss to assess performance and allocate resources. The significant segment expenses regularly provided to the CODM are presented in the table below.

Total segment assets as of December 31, 2025 and 2024 were $44,489,380 and $19,890,327, respectively, equal to total consolidated assets. All assets are attributable to the Company’s single operating segment.

All revenues and long-lived assets are attributable to operations within the United States. No single customer accounted for more than 10% of net revenues during either period presented.

NOTE 17: SUBSEQUENT EVENTS

The Company has evaluated subsequent events through April 15, 2026, the date the financial statements were available to be issued.

Bailey Note Payable

The Company’s promissory note payable to Bailey, with a principal balance of $3,500,000, matured on December 8, 2025. As of the date of issuance of these financial statements, the note has not been repaid and remains outstanding. The Company is currently evaluating its options, including potential extension or refinancing of the obligation. The status of this note may have implications on the Company’s liquidity and going concern assessment. See Note 8 for further details.

Warrant Exchange

On February 13, 2026, the Company entered into letter agreements with certain holders of Common Share Purchase Warrants originally issued in the February 2025 offering at an exercise price of $0.66 per share. Pursuant to the agreements, the holders exercised 2,365,968 existing warrants generating aggregate proceeds to the Company of approximately $1.6 million. In exchange, the Company issued 9,634,032 new Common Share Purchase Warrants exercisable at $0.66 per share expiring June 17, 2026. Certain holders received pre-funded warrants in lieu of common stock to the extent issuance would exceed their 4.99% beneficial ownership limitation. The Company agreed to register the shares issuable upon exercise of the new warrants on a Form S-3 registration statement to be filed by February 27, 2026.

In February 2026, a holder of certain Company common stock warrants exercised 660,000 warrants at an exercise price of $0.66 per share, resulting in aggregate proceeds of approximately $1,000,000. The Company is in the process of issuing the related shares, which have been recorded in stock payable.

Marketing NIL Agreement

On March 12, 2026, the Company entered into a three-year consulting agreement with Athlete Capital Sports LLC to participate in The Pennsylvania State University’s name, image and likeness (“NIL”) program for student-athletes. As consideration, the Company agreed to issue shares of common stock with an aggregate value of $3.0 million (determined based on the five-day VWAP or prior-day closing price, whichever is lower) on April 11, 2026. The shares are subject to a make-whole provision through the later of 15 months from the effective date or six months following effectiveness of the resale registration statement. The Company also agreed to invest $500,000 per year for three years into University student-athlete funds as directed by Athlete Capital Sports.

Common Stock Issuances

Subsequent to December 31, 2025 and through April 15, 2026, the Company issued an aggregate of 7,541,036 shares of common stock in the following transactions: (i) shares issued in satisfaction of stock payable obligations to investors in connection with warrant and pre-funded warrant exercises completed during 2025 for which the underlying shares had not yet been delivered as of December 31, 2025; (ii) shares issued upon the exercise of pre-funded warrants and cash warrants by investors; and (iii) shares issued pursuant to vendor marketing agreements. The Company continues to issue shares in the ordinary course as outstanding stock payable obligations are settled and warrants are exercised.

Texas Lease Agreement

Effective December 1, 2025, the Company entered into a lease agreement for approximately 70,301 square feet of warehouse and office space located at Round Rock, Texas. The lease commences on February 1, 2026 and has a term of 89 months, expiring on approximately June 30, 2033. The lease provides for a rent-free period from February 1, 2026 through June 30, 2026. Monthly base rent begins at approximately $45,627 in July 2026 and escalates annually, ranging from approximately $67,372 to $84,025 per month over the remaining term. Total base rent over the lease term is approximately $6.9 million. The Company is also responsible for its proportionate share of operating expenses, including taxes, insurance, and common area maintenance costs, initially estimated at approximately $16,783 per month. A security deposit of $140,500 was paid at signing, of which $70,250 is returnable after the 30th month of the term provided no default has occurred. The lease includes one five-year renewal option at fair market rent. The Company will account for this lease as an operating lease under ASC 842, with a right-of-use asset and corresponding lease liability to be recognized on the commencement date of February 1, 2026.