Digital Brands Discloses Two Notes Worth $3.5 Million Amid Acute Liquidity Pressure
Key Facts
The public filings reviewed do not establish that Digital Brands Group received a new notice of default on its convertible note, although an initial installment of $1,000,000 was due on October 23, 2026. The company issued the note to Shakawe Capital in July, while it had a separate $3,500,000 note owed to Bailey 44 sellers that remained in technical default as of June 30, 2026. Distinguishing between the two notes matters because their similar amounts could lead to confusion between an older note in default and a newer financing instrument with a separate repayment schedule. In its quarterly filing, the company said the Bailey 44 note “had not been paid” and was in technical default at the end of June. The filing on the July note sets out its terms and installment dates; it does not establish that the first installment went unpaid or that a new default notice was issued.
The company entered into an agreement to issue the convertible note on July 23, 2026, to Shakawe Capital, with principal of $3,529,412 in exchange for aggregate proceeds of $3,000,000. The note is unsecured and calls for repayment of principal in installments starting in October. $1,000,000 is due no later than November 23, another $1,000,000 no later than December 23, and $529,412 on January 23, 2027, the maturity date. The agreement provides for annual default interest of 20% on amounts not paid when due, and, upon an event of default, a mandatory amount equal to 120% of outstanding principal, interest and other amounts. These terms show the scale of the company’s near-term repayment obligations, but their inclusion in the agreement does not by itself mean a default has occurred.
The Bailey 44 note matured on December 8, 2025, and the company disclosed that it remained unpaid and in technical default as of June 30, 2026. Accrued and unpaid interest on the note was $3,019,888 on that date, according to the quarterly report; its annual interest rate was 12%, with interest payable quarterly. The company said it had not identified cross-default provisions in other material agreements that could be triggered by this default. It also said management considered the note’s status as part of its going-concern assessment. This obligation remains separate from the Shakawe convertible note issued in July.
The debt obligations coincided with a financial position that the company said raised substantial doubt about its ability to continue as a going concern. At June 30, 2026, working capital deficit stood at $12,851,221, against cash and cash equivalents of $1,386,167. For the six months ended on that date, operating activities used net cash of $10,302,957, compared with $6,084,275 in the corresponding period of 2025. The company said its available cash, operating plans and equity financing might not be sufficient to fund operations for 12 months from the date the financial statements were issued. This formal assessment places the new note’s installment dates in the broader context of financing and liquidity pressure.
Second-quarter 2026 results showed revenue falling to $1.2 million from $2.3 million in the same quarter of 2025, while net loss widened to $9.0 million from $2.1 million. The company attributed the revenue decline mainly to lower wholesale shipments across its brands. It expected wholesale revenue for the rest of 2026 to benefit from collegiate apparel programs, including a distribution agreement through campus stores announced in July. It issued third-quarter revenue guidance of between $8.5 million and $11 million. These forecasts set the company’s commercial plans alongside its reported losses, without changing the fact that management disclosed substantial doubt about its ability to continue as a going concern.
In an update dated October 26, 2026, the company said it would keep its listing public for the time being and review investor interest monthly. It raised its forecast for guaranteed cash flow from a government contract between September 1 and December 31, 2026, to $4.7 million from an initial estimate of $3.3 million. It also had an equity line of credit of up to $100 million that expires on July 23, 2029, but the filing said funding from that line or from at-the-market equity sale facilities was not guaranteed. In the market, the company’s shares closed at $0.705 on October 30, after closing at $1.17 on October 26, $0.9993 on October 27, $0.84 on October 28 and $0.7309 on October 29. The next installment date specified in the note filing remains November 23, 2026.