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LIABILITIES AND DEBT
 12 Months Ended
Dec. 31, 2025
Liabilities And Debt  
LIABILITIES AND DEBT

NOTE 8: LIABILITIES AND DEBT

 

Accrued Expenses and Other Liabilities

 

Accrued expenses and other liabilities is comprised of the following:

 

   2025   2024 
   December 31, 
   2025   2024 
Accrued expenses  $591,371   $591,371 
Payroll related liabilities   4,646,647    4,268,880 
Sales tax liability   158,571    187,971 
Other liabilities   164,902    208,880 
Accrued expenses and other liabilities  $5,561,491   $5,257,102 

 

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:

  

   2025   2024 
   December 31, 
   2025   2024 
Current:        
Merchant cash advances  $1,483,159   $1,858,157 
Sunnyside Shopify loan, net of discount   58,296    - 
B44 PPP note payable   933,294    939,959 
Convertible note payable, net   -    100,000 
Promissory note payable, net   3,500,000    3,500,000 
Notes payable   150,000    - 
Total current debt   6,124,749    6,398,116 
           
Non-current:          
Notes payable (long-term)   -    150,000 
Total non-current debt   -    150,000 
           
Total debt  $6,124,749   $6,548,116 

 

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:

 

   2025   2024 
   December 31, 
   2025   2024 
Principal  $1,483,159   $1,858,157 
Less: unamortized debt discount   -    - 
Merchant cash advances, net  $1,483,159   $1,858,157 

 

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.