0001558370-24-008490.txt : 20240520 0001558370-24-008490.hdr.sgml : 20240520 20240520171103 ACCESSION NUMBER: 0001558370-24-008490 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 74 CONFORMED PERIOD OF REPORT: 20240331 FILED AS OF DATE: 20240520 DATE AS OF CHANGE: 20240520 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XCel Brands, Inc. CENTRAL INDEX KEY: 0001083220 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] ORGANIZATION NAME: 05 Real Estate & Construction IRS NUMBER: 760307819 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37527 FILM NUMBER: 24965657 BUSINESS ADDRESS: STREET 1: 1333 BROADWAY STREET 2: 10TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: (347) 727-2474 MAIL ADDRESS: STREET 1: 1333 BROADWAY STREET 2: 10TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 FORMER COMPANY: FORMER CONFORMED NAME: NETFABRIC HOLDINGS, INC DATE OF NAME CHANGE: 20050516 FORMER COMPANY: FORMER CONFORMED NAME: HOUSTON OPERATING CO DATE OF NAME CHANGE: 19990402 10-Q 1 xelb-20240331x10q.htm 10-Q
0.310.2920374920196331940001083220--12-312024Q1false002345211719795053P6YP4Y1M17DP4Y6MP25Y0001083220xelb:ImWhpLlcMemberxelb:IMTopcoLLCMemberus-gaap:SubsequentEventMemberxelb:BusinessVentureAgreementMember2024-04-120001083220xelb:ImWhpLlcMemberxelb:BusinessVentureAgreementMember2022-05-310001083220xelb:BusinessVentureAgreementMember2022-05-310001083220xelb:ImTopcoMemberxelb:ServicesAgreementMember2023-11-012023-11-300001083220xelb:HalstonBrandMembersrt:MinimumMember2023-05-152023-05-150001083220xelb:HalstonBrandMembersrt:MaximumMember2023-05-152023-05-150001083220us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberxelb:IsaacMizrahiSaleTransactionWithImTopcoMember2022-05-312022-05-3100010832202023-01-012023-12-310001083220xelb:ImWhpLlcMemberxelb:IMTopcoLLCMemberus-gaap:SubsequentEventMemberxelb:BusinessVentureAgreementMember2024-04-122024-04-120001083220xelb:ImWhpLlcMemberxelb:BusinessVentureAgreementMember2022-05-312022-05-310001083220xelb:BusinessVentureAgreementMember2022-05-312022-05-310001083220xelb:ImWhpLlcMemberxelb:IMTopcoLLCMemberxelb:IfRoyaltiesReceivableLessThanSpecifiedAmountMemberus-gaap:SubsequentEventMember2024-04-122024-04-120001083220us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberxelb:IsaacMizrahiSaleTransactionWithImTopcoMember2022-05-310001083220xelb:ImWhpLlcMemberxelb:IMTopcoLLCMemberus-gaap:SubsequentEventMember2024-04-300001083220us-gaap:WarrantMember2023-01-012023-12-310001083220xelb:LoriGoldsteinBrandMember2021-04-012021-04-0100010832202024-02-162024-02-160001083220xelb:LoriGoldsteinBrandMember2024-01-012024-03-310001083220xelb:LoriGoldsteinBrandMember2023-01-012023-12-310001083220xelb:LoriGoldsteinBrandMember2022-01-012022-12-310001083220xelb:Lease1113BroadwayMember2024-01-262024-01-260001083220xelb:Lease530SeventhAvenueMember2024-02-292024-02-290001083220xelb:Lease1113BroadwayMember2024-01-012024-03-310001083220xelb:HalstonBrandMember2023-05-152023-05-150001083220xelb:HilcoGlobalMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberxelb:LongabergerLicensingLLCMember2024-01-012024-03-310001083220us-gaap:VariableInterestEntityPrimaryBeneficiaryMemberxelb:LongabergerLicensingLLCMember2024-01-012024-03-310001083220xelb:ConsultantsMemberus-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001083220xelb:ConsultantsMember2023-01-012023-03-310001083220xelb:ConsultantsMemberus-gaap:CommonStockMember2024-01-012024-03-310001083220xelb:ConsultantsMemberus-gaap:CommonStockMember2023-01-012023-03-310001083220us-gaap:RetainedEarningsMember2024-03-310001083220us-gaap:NoncontrollingInterestMember2024-03-310001083220us-gaap:AdditionalPaidInCapitalMember2024-03-310001083220us-gaap:RetainedEarningsMember2023-12-310001083220us-gaap:NoncontrollingInterestMember2023-12-310001083220us-gaap:AdditionalPaidInCapitalMember2023-12-310001083220us-gaap:RetainedEarningsMember2023-03-310001083220us-gaap:NoncontrollingInterestMember2023-03-310001083220us-gaap:AdditionalPaidInCapitalMember2023-03-310001083220us-gaap:RetainedEarningsMember2022-12-310001083220us-gaap:NoncontrollingInterestMember2022-12-310001083220us-gaap:AdditionalPaidInCapitalMember2022-12-310001083220xelb:ConsultantsMemberus-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001083220xelb:ConsultantsMember2024-01-012024-03-310001083220us-gaap:CommonStockMember2024-03-310001083220us-gaap:CommonStockMember2023-12-310001083220us-gaap:CommonStockMember2023-03-310001083220us-gaap:CommonStockMember2022-12-310001083220us-gaap:PrivatePlacementMember2024-03-140001083220us-gaap:EmployeeStockOptionMember2023-01-012023-12-310001083220us-gaap:EmployeeStockOptionMember2023-12-310001083220us-gaap:EmployeeStockOptionMember2024-03-310001083220us-gaap:EmployeeStockOptionMember2023-12-310001083220xelb:HalstonBrandMemberus-gaap:WarrantMember2023-05-152023-05-150001083220xelb:ConsultantMember2024-01-122024-01-120001083220xelb:IMTopcoLLCMemberxelb:YearEndingDecember312025Memberus-gaap:SubsequentEventMember2024-04-120001083220xelb:IMTopcoLLCMemberxelb:TwelveMonthPeriodEndingMarch312025Memberus-gaap:SubsequentEventMember2024-04-120001083220xelb:ImTopcoMemberxelb:LicenseAgreementMember2023-03-310001083220srt:MaximumMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberxelb:IsaacMizrahiSaleTransactionWithImTopcoMember2022-05-310001083220xelb:ImTopcoMemberxelb:LicenseAgreementMember2022-05-310001083220xelb:ImTopcoMemberxelb:ServicesAgreementMember2024-01-012024-03-310001083220xelb:ImTopcoMemberxelb:ServicesAgreementMember2023-01-012023-03-310001083220xelb:QurateRetailGroupMemberus-gaap:LicenseMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2024-01-012024-03-310001083220xelb:HalstonBrandMember2024-01-012024-03-310001083220us-gaap:LicenseMember2024-01-012024-03-310001083220xelb:QurateRetailGroupMemberus-gaap:LicenseMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2023-01-012023-03-310001083220us-gaap:ProductMember2023-01-012023-03-310001083220us-gaap:LicenseMember2023-01-012023-03-310001083220us-gaap:RetainedEarningsMember2024-01-012024-03-310001083220us-gaap:NoncontrollingInterestMember2024-01-012024-03-310001083220us-gaap:RetainedEarningsMember2023-01-012023-03-310001083220us-gaap:NoncontrollingInterestMember2023-01-012023-03-310001083220xelb:PublicOfferingAndPrivatePlacementMember2024-03-152024-03-1500010832202024-03-012024-03-310001083220us-gaap:CommonStockMemberxelb:PublicOfferingAndPrivatePlacementMember2024-01-012024-03-310001083220us-gaap:AdditionalPaidInCapitalMemberxelb:PublicOfferingAndPrivatePlacementMember2024-01-012024-03-310001083220xelb:PublicOfferingAndPrivatePlacementMember2024-01-012024-03-310001083220us-gaap:PrivatePlacementMember2024-03-142024-03-140001083220xelb:PublicOfferingMember2024-03-192024-03-190001083220xelb:OrmeLiveMember2023-12-012023-12-310001083220xelb:ImTopcoMemberxelb:ServicesAgreementMember2022-05-310001083220us-gaap:SellingGeneralAndAdministrativeExpensesMember2024-01-012024-03-310001083220us-gaap:SellingGeneralAndAdministrativeExpensesMember2023-01-012023-03-310001083220xelb:ImTopcoMemberxelb:LicenseAgreementMember2023-11-012023-11-300001083220xelb:OrmeLiveMember2024-03-310001083220xelb:IMTopcoLLCMember2024-03-310001083220xelb:OrmeLiveMember2023-12-310001083220xelb:IMTopcoLLCMember2022-05-310001083220xelb:IMTopcoLLCMember2023-07-012023-09-300001083220xelb:OrmeLiveMember2024-01-012024-03-310001083220xelb:Lease1113BroadwayMemberxelb:RightOfUseAssetMember2024-02-292024-02-290001083220xelb:Lease1113BroadwayMemberus-gaap:LeaseholdImprovementsMember2024-01-012024-03-310001083220xelb:IMTopcoLLCMember2024-01-012024-03-310001083220xelb:IMTopcoLLCMember2023-01-012023-03-310001083220us-gaap:TrademarksMember2024-03-310001083220us-gaap:IntellectualPropertyMember2024-03-310001083220us-gaap:TrademarksMember2023-12-310001083220us-gaap:IntellectualPropertyMember2023-12-310001083220xelb:ImWhpLlcMemberxelb:IMTopcoLLCMemberxelb:IfRoyaltiesReceivableLessThanSpecifiedAmountMemberus-gaap:SubsequentEventMember2024-04-120001083220xelb:ImWhpLlcMemberxelb:IMTopcoLLCMemberus-gaap:SubsequentEventMember2024-04-120001083220xelb:IMTopcoLLCMemberxelb:IfRoyaltiesReceivableLessThanSpecifiedAmountMemberus-gaap:SubsequentEventMember2024-04-120001083220xelb:IMTopcoLLCMemberus-gaap:SubsequentEventMember2024-04-120001083220xelb:IMTopcoLLCMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberxelb:IsaacMizrahiBrandTrademarksAndOtherIntellectualPropertyMember2024-03-310001083220xelb:IMTopcoLLCMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberxelb:IsaacMizrahiBrandTrademarksAndOtherIntellectualPropertyMember2022-05-270001083220us-gaap:RestrictedStockMember2024-01-012024-03-310001083220us-gaap:EmployeeStockOptionMember2024-03-310001083220us-gaap:SwapMember2023-10-190001083220xelb:IsraelDiscountBankOfNewYorkMemberus-gaap:SwapMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-10-190001083220xelb:HalstonBrandMember2024-03-310001083220xelb:HalstonBrandMember2023-12-310001083220xelb:NewLoanAndSecurityAgreementMember2023-10-192023-10-190001083220xelb:NewLoanAndSecurityAgreementMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-10-190001083220xelb:NewLoanAndSecurityAgreementMember2024-03-310001083220xelb:NewLoanAndSecurityAgreementMember2023-10-190001083220xelb:QurateRetailGroupMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2024-01-012024-03-310001083220xelb:QurateRetailGroupMemberus-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2024-01-012024-03-310001083220xelb:HalstonBrandMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2024-01-012024-03-310001083220xelb:QurateRetailGroupMemberus-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2023-01-012023-12-310001083220xelb:QurateRetailGroupMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2023-01-012023-03-310001083220xelb:PublicOfferingMember2024-03-190001083220xelb:PublicOfferingMember2024-03-150001083220us-gaap:CommonStockMemberxelb:PublicOfferingAndPrivatePlacementMember2024-03-310001083220us-gaap:RestrictedStockMember2024-03-310001083220srt:ExecutiveVicePresidentMemberxelb:PublicOfferingMember2024-03-190001083220srt:DirectorMemberxelb:PublicOfferingMember2024-03-190001083220srt:ChiefExecutiveOfficerMemberxelb:PublicOfferingMember2024-03-190001083220xelb:PublicOfferingAndPrivatePlacementMember2024-03-150001083220xelb:AgreementsMemberus-gaap:PrivatePlacementMember2024-03-140001083220srt:ExecutiveVicePresidentMemberus-gaap:PrivatePlacementMember2024-03-140001083220srt:DirectorMemberus-gaap:PrivatePlacementMember2024-03-140001083220srt:ChiefExecutiveOfficerMemberus-gaap:PrivatePlacementMember2024-03-140001083220us-gaap:RestrictedStockMember2023-12-310001083220xelb:UnexercisedStockOptionsMemberxelb:EquityIncentivePlan2021Member2024-03-310001083220xelb:UnexercisedStockOptionsMemberxelb:EquityIncentivePlan2011Member2024-03-310001083220xelb:EquityIncentivePlan2021Member2024-03-310001083220us-gaap:WarrantMember2024-03-310001083220us-gaap:WarrantMember2023-12-310001083220us-gaap:WarrantMember2024-03-190001083220xelb:HalstonBrandMemberus-gaap:WarrantMember2023-05-1500010832202022-12-3100010832202023-03-310001083220xelb:LoriGoldsteinBrandMember2023-12-310001083220us-gaap:WarrantMember2024-01-012024-03-310001083220us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001083220us-gaap:WarrantMember2023-01-012023-03-310001083220us-gaap:EmployeeStockOptionMember2023-01-012023-03-310001083220us-gaap:WarrantMember2024-01-012024-03-310001083220us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001083220us-gaap:CommonStockMember2024-01-012024-03-310001083220us-gaap:WarrantMember2023-01-012023-03-310001083220us-gaap:EmployeeStockOptionMember2023-01-012023-03-310001083220us-gaap:CommonStockMember2023-01-012023-03-310001083220us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001083220us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-3100010832202023-01-012023-03-310001083220xelb:QurateRetailGroupMemberus-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2024-03-310001083220xelb:QurateRetailGroupMemberus-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2023-12-3100010832202024-03-3100010832202023-12-3100010832202024-05-0100010832202024-01-012024-03-31xbrli:sharesiso4217:USDiso4217:USDxbrli:sharesxbrli:purexelb:item

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the transition period from ___ to ___

Commission File Number: 001-37527

XCEL BRANDS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

76-0307819

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

550 Seventh Avenue, 11th Floor, New York, NY 10018

 

 

(Address of Principal Executive Offices)

 

(347) 727-2474

(Issuer’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Common Stock, $0.001 par value per share

XELB

NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes         No   

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company   

 

Emerging growth company   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No   

As of May 1, 2024, there were 23,492,117 shares of common stock, $.001 par value per share, of the issuer outstanding.

XCEL BRANDS, INC.

INDEX

a

Page

PART I - FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

Unaudited Condensed Consolidated Balance Sheets

3

Unaudited Condensed Consolidated Statements of Operations

4

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

5

Unaudited Condensed Consolidated Statements of Cash Flows

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

PART II - OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

32

Signatures

32

2

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

    

March 31, 2024

    

December 31, 2023

(Unaudited)

(Note 1)

Assets

 

  

 

  

Current Assets:

 

  

 

  

Cash and cash equivalents

$

1,552

$

2,998

Accounts receivable, net of allowances for credit losses of $75 at March 31, 2024 and December 31, 2023

 

3,603

 

3,454

Inventory

 

445

 

453

Prepaid expenses and other current assets

 

471

 

398

Total current assets

 

6,071

 

7,303

Non-current Assets:

Property and equipment, net

 

133

 

634

Operating lease right-of-use assets

2,535

4,453

Trademarks and other intangibles, net

 

39,986

 

41,520

Equity method investment in IM Topco, LLC

17,070

17,585

Other assets

 

969

 

165

Total non-current assets

 

60,693

 

64,357

Total Assets

$

66,764

$

71,660

Liabilities and Stockholders' Equity

 

  

 

  

Current Liabilities:

 

  

 

  

Accounts payable, accrued expenses and other current liabilities

$

1,918

$

2,236

Deferred revenue

 

889

 

889

Accrued income taxes payable

372

372

Current portion of operating lease obligations

1,278

1,258

Current portion of long-term debt

 

1,000

 

750

Current portion of contingent obligation

 

723

 

964

Total current liabilities

 

6,180

 

6,469

Long-Term Liabilities:

 

  

 

  

Deferred revenue

3,333

3,556

Long-term portion of operating lease obligations

3,694

4,021

Long-term debt, net, less current portion

 

3,747

 

3,971

Long-term portion of contingent obligation

5,432

5,432

Other long-term liabilities

 

506

 

40

Total long-term liabilities

 

16,712

 

17,020

Total Liabilities

 

22,892

 

23,489

Commitments and Contingencies

 

  

 

  

Stockholders' Equity:

 

  

 

  

Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding

 

 

Common stock, $.001 par value, 50,000,000 shares authorized, and 23,452,117 and 19,795,053 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

23

 

20

Paid-in capital

 

105,904

 

103,861

Accumulated deficit

 

(60,143)

 

(53,849)

Total Xcel Brands, Inc. stockholders' equity

 

45,784

 

50,032

Noncontrolling interest

(1,912)

(1,861)

Total Stockholders' Equity

 

43,872

 

48,171

Total Liabilities and Stockholders' Equity

$

66,764

$

71,660

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

For the Three Months Ended

March 31, 

    

2024

    

2023

Revenues

  

 

  

Net licensing revenue

$

2,184

$

2,222

Net sales

 

 

3,828

Net revenue

 

2,184

 

6,050

Cost of goods sold

 

 

2,693

Gross profit

 

2,184

 

3,357

Direct operating costs and expenses

 

  

 

  

Salaries, benefits and employment taxes

 

1,933

 

3,465

Other selling, general and administrative expenses

 

2,029

 

3,493

Total direct operating costs and expenses

 

3,962

 

6,958

Operating loss before other operating costs and expenses

(1,778)

(3,601)

Other operating costs and expenses

Depreciation and amortization

 

1,589

 

1,797

Asset impairment charges

2,295

Loss from equity method investments

533

515

Operating loss

 

(6,195)

 

(5,913)

Interest and finance (income) expense

 

  

 

  

Interest expense - term loan debt

 

146

 

Other interest and finance charges (income), net

 

4

 

25

Total interest and finance (income) expense

 

150

 

25

Loss before income taxes

 

(6,345)

 

(5,938)

Income tax benefit

 

 

Net loss

(6,345)

(5,938)

Net loss attributable to noncontrolling interest

(51)

(295)

Net loss attributable to Xcel Brands, Inc. stockholders

$

(6,294)

$

(5,643)

Loss per common share attributable to Xcel Brands, Inc. stockholders:

 

  

 

  

Basic and diluted net loss per share

$

(0.31)

$

(0.29)

Weighted average number of common shares outstanding:

 

  

 

  

Basic and diluted weighted average common shares outstanding

 

20,374,920

 

19,633,194

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

Xcel Brands, Inc. Stockholders

Common Stock

Number of

Paid-In

Accumulated

Noncontrolling

    

Shares

    

Amount

    

Capital

    

Deficit

    

Interest

Total

Balance as of December 31, 2022

 

19,624,860

$

20

$

103,592

$

(32,797)

$

(676)

$

70,139

Compensation expense related to stock options and restricted stock

51

51

Shares issued to consultant in connection with stock grant

8,334

6

6

Net loss

 

 

 

 

(5,643)

(295)

 

(5,938)

Balance as of March 31, 2023

 

19,633,194

$

20

$

103,649

$

(38,440)

$

(971)

$

64,258

Balance as of December 31, 2023

 

19,795,053

$

20

$

103,861

$

(53,849)

$

(1,861)

$

48,171

Compensation expense related to stock options and restricted stock

36

36

Contra-revenue related to warrants held by licensee

10

10

Shares issued to consultant in connection with stock grant

 

78,000

 

 

98

 

 

 

98

Shares issued in connection with public offering and private placement transactions, net of transaction costs

3,579,064

3

1,899

1,902

Net loss

 

 

 

 

(6,294)

(51)

 

(6,345)

Balance as of March 31, 2024

 

23,452,117

$

23

$

105,904

$

(60,143)

$

(1,912)

$

43,872

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

For the Three Months Ended March 31, 

    

2024

    

2023

Cash flows from operating activities

 

  

 

  

Net loss

$

(6,345)

$

(5,938)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

  

Depreciation and amortization expense

 

1,589

 

1,797

Asset impairment charges

 

2,295

 

Amortization of deferred finance costs included in interest expense

 

26

 

Stock-based compensation and cost of licensee warrants

 

144

 

57

Undistributed proportional share of net loss of equity method investees

533

515

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

(149)

 

(859)

Inventory

 

8

 

(254)

Prepaid expenses and other current and non-current assets

 

(156)

 

425

Deferred revenue

(223)

240

Accounts payable, accrued expenses, accrued income taxes payable, and other current liabilities

 

(560)

 

1,156

Lease-related assets and liabilities

(237)

(54)

Other long-term liabilities

 

466

 

Net cash used in operating activities

 

(2,609)

 

(2,915)

Cash flows from investing activities

 

  

 

  

Purchase of property and equipment

 

 

(81)

Net cash used in investing activities

 

 

(81)

Cash flows from financing activities

 

  

 

  

Proceeds from public offering and private placement transactions, net of transaction costs

1,902

Net cash provided by financing activities

 

1,902

 

Net decrease in cash, cash equivalents, and restricted cash

 

(707)

 

(2,996)

Cash, cash equivalents, and restricted cash at beginning of period

2,998

4,608

Cash, cash equivalents, and restricted cash at end of period

$

2,291

$

1,612

Reconciliation to amounts on consolidated balance sheets:

 

  

 

  

Cash and cash equivalents

$

1,552

$

1,612

Restricted cash (reported in other non-current assets)

 

739

 

Total cash, cash equivalents, and restricted cash

$

2,291

$

1,612

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid during the period for interest

$

119

$

Cash paid during the period for income taxes

$

$

16

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

1. Nature of Operations, Background, and Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2023 (which has been derived from audited financial statements) and the unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements were prepared following the same policies and procedures used in the preparation of the audited consolidated financial statements and reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the results of operations, financial position, and cash flows of Xcel Brands, Inc. and its subsidiaries (the “Company” or "Xcel"). The results of operations for the interim periods presented herein are not necessarily indicative of the results for the entire fiscal year or for any future interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 19, 2024.

The Company is a media and consumer products company engaged in the design, licensing, marketing, live streaming, and social commerce sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands.

Currently, the Company’s brand portfolio consists of the Halston brands (the "Halston Brand"), the Judith Ripka brands (the "Ripka Brand"), the C Wonder brands (the "C Wonder Brand"), the LOGO by Lori Goldstein brand (the “Lori Goldstein Brand”), the Longaberger brand (the “Longaberger Brand”), the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the TowerHill by Christie Brinkley brand (the “CB Brand”), and other proprietary brands.

The Halston Brand, Ripka Brand, C Wonder Brand, and Lori Goldstein Brand are wholly owned by the Company.
The Company manages the Longaberger Brand through its 50% ownership interest in Longaberger Licensing, LLC; the Company consolidates Longaberger Licensing, LLC and recognizes noncontrolling interest for the remaining ownership interest held by a third party.
The Company holds a noncontrolling interest in the Isaac Mizrahi Brand through its 30% ownership interest in IM Topco, LLC; the Company accounts for its interest in IM Topco, LLC using the equity method of accounting.
The CB Brand is a new co-branded collaboration between Xcel and Christie Brinkley, announced in 2023 and planned to launch by the end of May 2024.

The Company also owns a 30% interest in ORME Live, Inc. (“ORME”), a short-form video and social commerce marketplace that is planned to launch in 2024.

The Company primarily generates revenue through the licensing of its brands through contractual arrangements with manufacturers and retailers. The Company, through its licensees, distributes through an omni-channel and social commerce sales strategy, which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, social commerce, traditional brick-and-mortar retailers, and e-commerce channels, to be everywhere its customers shop.

7

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

Prior to and for a portion of 2023, the Company also engaged in wholesale and direct-to-consumer sales of products under its brands. The Company’s former wholesale and direct-to-consumer operations were presented as "Net sales" and "Cost of goods sold" in the condensed consolidated statements of operations, separately from the Company’s licensing revenues.

Liquidity and Management’s Plans  

The Company incurred a net loss attributable to Company stockholders of approximately $6.3 million during the three months ended March 31, 2024 (which included non-cash expenses of approximately $4.6 million), and had an accumulated deficit of approximately $60.1 million as of March 31, 2024. Net cash used in operating activities was approximately $2.6 million for the three months ended March 31, 2024. The Company had working capital (current assets less current liabilities, excluding the current portions of lease obligations, deferred revenue, and any contingent obligations payable in common stock) of approximately $2.1 million as of March 31, 2024. The Company’s unrestricted cash and cash equivalents were approximately $1.6 million as of March 31, 2024. The aforementioned factors raise uncertainties about the Company’s ability to continue as a going concern.

During the year ended December 31, 2023, management implemented a plan to mitigate an expected shortfall of capital and to support future operations by shifting its business from a wholesale/licensing hybrid model into a “licensing plus” model. To affect this transition, the Company entered into various new licensing agreements and joint venture arrangements with best-in-class business partners. These restructuring initiatives were substantially completed as of June 30, 2023. Management believes that this evolution of the Company’s operating model will provide the Company with significant cost savings and allow the Company to reduce and better manage its exposure to operating risks. As of December 31, 2023, the Company had reduced payroll costs by approximately $6 million and operating expenses (excluding non-recurring charges related to the restructuring) by approximately $9 million, on an annualized basis when compared to the corresponding periods in the prior year.

Also during the year ended December 31, 2023, the Company entered into a new term loan agreement in the amount of $5 million, which provided the Company with additional liquidity.

Further, in March 2024, the Company issued new shares of common stock for net proceeds of approximately $1.9 million, which provided the Company with additional liquidity.

Based on the aforementioned events and changes, management expects that existing cash and future operating cash flows will be adequate to meet the Company’s operating needs, term debt service obligations, and capital expenditure needs, for at least the twelve months subsequent to the filing date of this Quarterly Report on Form 10-Q; therefore, such conditions and uncertainties with respect to the Company’s ability to continue as a going concern as of March 31, 2024, have been alleviated.

2.      Investments in Unconsolidated Affiliates and Variable Interest Entities  

Investment in IM Topco, LLC

On May 27, 2022, Xcel (along with IM Topco, LLC (“IM Topco”) and IM Brands, LLC (“IMB”), both wholly owned subsidiaries of the Company) and IM WHP, LLC (“WHP”), a subsidiary of WHP Global, a private equity-backed brand management and licensing company, entered into a membership purchase agreement. Pursuant to this agreement, on May 31, 2022, (i) the Company contributed assets owned by IMB, including the Isaac Mizrahi Brand trademarks and other intellectual property rights relating thereto into IM Topco, and (ii) the Company sold 70% of the membership interests of IM Topco to WHP.

8

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

The Company accounts for its 30% interest in the ongoing operations of IM Topco as other operating costs and expenses under the equity method of accounting. Pursuant to the business venture agreement between the Company and WHP governing the operation of IM Topco, IM Topco’s net cash flow (as defined in the agreement) shall be distributed to the members during each fiscal year no less than once per fiscal quarter, as follows:

(i)first, 100% to WHP, until WHP has received an aggregate amount during such fiscal year equal to $8,852,000 (subject to adjustment in certain circumstances as set forth in the agreement);
(ii)second, 100% to Xcel, until Xcel has received an aggregate amount during such fiscal year equal to $1,316,200 (subject to adjustment in certain circumstances as set forth in the agreement); and
(iii)thereafter, in proportion to the members’ respective percentage interests.

Based on these distribution provisions, the Company recognized an equity method loss of $0.52 million related to its investment in IM Topco for each of the three-month periods ended March 31, 2024 and 2023. For cash flow earnings (i.e., net income before intangible asset amortization expense), management allocated the amounts based on the preferences outlined above. As such, Xcel recognized no cash-based earnings for both of the periods presented. For non-cash amortization expense, management allocated the amounts based on the relative ownership of each member (i.e., 70% WHP and 30% Xcel). The equity method loss for each period presented is equal Xcel’s share of amortization expense.

Summarized financial information for IM Topco for the three months ended March 31, 2024 and 2023 is as follows:

    

For the three months ended

March 31,

($ in thousands)

2024

2023

Revenues

$

2,752

$

3,346

Gross profit

2,752

3,346

Loss from continuing operations

(437)

(143)

Net loss

(437)

(143)

Refer to Notes 10, 11, and 12 for other information regarding the Company’s ongoing relationship with IM Topco.

Investment in Orme Live, Inc.

In December 2023, the Company contributed $0.15 million of cash to ORME in exchange for a 30% equity ownership interest in ORME. The carrying value of this investment is included within other assets in the Company’s condensed consolidated balance sheets.

The Company accounts for its 30% interest in the operations of ORME as a component of other operating costs and expenses under the equity method of accounting. The Company’s proportional share of the operating results of ORME for the three months ended March 31, 2024 was a loss of approximately $0.02 million.

9

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

Longaberger Licensing, LLC Variable Interest Entity

Since 2019, Xcel has been party to a limited liability company agreement with a subsidiary of Hilco Global related to Longaberger Licensing, LLC (“LL”). Hilco Global is the sole Class A Member of LL, and Xcel is the sole Class B Member of LL (each individually a “Member”). Each Member holds a 50% equity ownership interest in LL; however, based on an analysis of the contractual terms and rights contained in the LLC agreement and related agreements, the Company has previously determined that under the applicable accounting standards, LL is a variable interest entity and the Company has effective control over LL. Therefore, as the primary beneficiary, the Company has consolidated LL since 2019, and has recognized the assets, liabilities, revenues, and expenses of LL as part of its consolidated financial statements, along with a noncontrolling interest which represents Hilco Global’s 50% ownership share in LL.

3.      Trademarks and Other Intangibles  

Trademarks and other intangibles, net consist of the following:

    

Weighted

    

    

    

 

Average

 

March 31, 2024

 

Amortization

Gross Carrying

Accumulated

Net Carrying

($ in thousands)

Period

Amount

Amortization

Amount

Trademarks (finite-lived)

 

15 years

 

68,880

 

28,950

 

39,930

Copyrights and other intellectual property

 

8 years

 

429

 

373

 

56

Total

$

69,309

$

29,323

$

39,986

    

Weighted

    

    

    

 

Average

 

December 31, 2023

 

Amortization

 

Gross Carrying

Accumulated

Net Carrying

($ in thousands)

Period

Amount

Amortization

Amount

Trademarks (finite-lived)

 

15 years

 

68,880

 

27,431

 

41,449

Copyrights and other intellectual property

 

8 years

 

429

 

358

 

71

Total

 

  

$

69,309

$

27,789

$

41,520

Amortization expense for intangible assets was approximately $1.53 million for the three-month period ended March 31, 2024 (the "current quarter") and approximately $1.54 million for the three-month period ended March 31, 2023 (the "prior year quarter").

4.      Significant Contracts and Concentrations

Qurate Agreements

Under the Company’s agreements with Qurate Retail Group (“Qurate”), collectively referred to as the Qurate Agreements, Qurate is obligated to make payments to the Company on a quarterly basis, based primarily upon a percentage of net retail sales of certain specified branded merchandise. Net retail sales are defined as the aggregate amount of all revenue generated through the sale of the specified branded products by Qurate and its subsidiaries under the Qurate Agreements, net of customer returns, and excluding freight, shipping and handling charges, and sales, use, or other taxes. Net licensing revenue from the Qurate Agreements represents a significant portion of the Company’s total net revenue.

Net licensing revenue from the Qurate Agreements totaled $1.61 million and $1.52 million for the current quarter and prior year quarter, respectively, representing approximately 59% and 25% of the Company’s total net revenue for the current quarter and prior year quarter, respectively.

10

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

As of March 31, 2024 and December 31, 2023, the Company had receivables from Qurate of $1.3 million and $1.5 million, respectively, representing approximately 37% and 43% of the Company’s total net accounts receivable, respectively.

Halston Master License

On May 15, 2023, the Company, through its wholly owned subsidiaries, H Halston, LLC and H Heritage Licensing, LLC (collectively, the “Licensor”), entered into a master license agreement relating to the Halston Brand (the “Halston Master License”) with G-III Apparel Group (“G-III”), an industry-leading wholesale apparel company, for men’s and women’s apparel, men’s and women’s fashion accessories, children’s apparel and accessories, home, airline amenity and amenity kits, and such other product categories as mutually agreed upon. The Halston Master License provided for an upfront cash payment and royalties payable to the Company, including certain guaranteed minimum royalties, includes annual minimum net sales requirements, and has a twenty-five-year term (consisting of an initial five-year period, followed by a twenty-year period), subject to G-III’s right to terminate with at least 120 days’ notice prior to the end of each five-year period during the term. G-III has an option to purchase the Halston Brand for $5.0 million at the end of the twenty-five-year term, which right may be accelerated under certain conditions associated with an uncured material breach of the Halston Master License in accordance with the terms of the Halston Master License. The Licensor granted G-III a security interest in the Halston trademarks to secure the Licensor’s obligations under the Halston Master License, including to honor the obligations under the purchase option.

As a result of the upfront cash payment and guaranteed minimum royalties discussed above, the Company has recognized $4.2 million and $4.4 million of deferred revenue contract liabilities on its condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023, respectively. As of December 31, 2023, $0.9 million of the contract liability balance was classified as a current liability and approximately $3.5 million was classified as a long-term liability. As of March 31, 2024, $0.9 million of the contract liability balance was classified as a current liability and approximately $3.3 million was classified as a long-term liability.

The balance of the deferred revenue contract liabilities will be recognized ratably as revenue over the next 4.13 years. Net licensing revenue recognized from the Halston Master License was $0.6 million for the current quarter, representing approximately 30% of the Company’s total net revenue for the current quarter.

5. Leases

The Company is party to operating leases for real estate, and for certain equipment with a term of 12 months or less. The Company is currently not a party to any finance leases.

Lease expense (net of sublease income) included in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations was approximately $0.2 million and $0.4 million for the current quarter and prior year quarter, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was approximately $0.4 million in both the current quarter and prior year quarter.

1333 Broadway

The Company has an operating lease for offices located at 1333 Broadway, 10th floor, New York, New York, which commenced on March 1, 2016 and expires on October 30, 2027. The average annual fixed rent over the term of this lease is approximately $1.3 million per year, and the lease requires the Company to pay additional rents related to increases in certain taxes and other costs on the property.

11

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

On January 26, 2024, the Company (as sublessor) entered into an agreement for the sublease of the offices located at 1333 Broadway to a third-party subtenant through October 30, 2027. The average annual fixed rent over the term of the sublease is approximately $0.8 million per year. As a result of entering into the sublease, the Company recognized a non-cash impairment charge of approximately $1.9 million effective February 29, 2024 (which was determined to be the date of a fundamental change to the use of the 1333 Broadway premises) related to the right-of-use asset. Also in connection with entering into the sublease, the Company recognized a non-cash impairment charge of approximately $0.4 million during the current quarter related to leasehold improvement assets at this location.

As of March 31, 2024, the Company’s lease of 1333 Broadway has a remaining lease term of approximately 3.58 years, and the lease liability recorded on the Company’s condensed consolidated balance sheet is measured using a discount rate of 6.25%.

550 Seventh Avenue

Effective February 29, 2024, the Company entered into an operating lease for new corporate offices located at 550 Seventh Avenue, 11th floor, New York, New York. This lease commenced in April 2024 and expires in April 2031. The average annual lease cost over the term of this lease is approximately $0.5 million per year. As of March 31, 2024, no right-of-use asset or lease liability was recorded in the Company’s condensed consolidated balance sheet related to this lease, as the lease had not yet commenced.

Future Lease Obligations

As of March 31, 2024, the maturities of lease obligations were as follows:

Amount

Year

    

(in thousands)

2024 (April 1 through December 31)

$

1,164

2025

1,552

2026

 

1,552

2027

 

1,294

Total lease payments

5,562

Less: Discount

590

Present value of lease liabilities

4,972

Current portion of lease liabilities

1,278

Non-current portion of lease liabilities

$

3,694

6. Debt

The Company’s net carrying amount of debt was comprised of the following:

March 31, 

December 31, 

($ in thousands)

    

2024

    

2023

Term loan debt

$

5,000

$

5,000

Unamortized deferred finance costs related to term loan debt

 

(253)

 

(279)

Total

 

4,747

 

4,721

Current portion of debt

 

1,000

 

750

Long-term debt

$

3,747

$

3,971

12

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

On October 19, 2023, H Halston IP, LLC (the “Borrower”), a wholly owned indirect subsidiary of Xcel Brands, Inc., entered into a term loan agreement with Israel Discount Bank of New York (“IDB”). Pursuant to this loan agreement, IDB made a term loan to the Company in the aggregate amount of $5.0 million. The proceeds of this term loan were used to pay fees, costs, and expenses incurred in connection with entering into the loan agreement, and may be used for working capital purposes. Such costs incurred in connection with the borrowing included a commitment fee paid to IDB, plus various legal and other fees. These fees and costs totaling $0.3 million have been deferred on the Company’s balance sheet as a reduction of the carrying value of the term loan debt, and are being amortized to interest expense over the term of the debt using the effective interest method.

In connection with this term loan agreement, the Borrower and H Licensing, LLC (“H Licensing”), a wholly owned subsidiary of Xcel, entered into a security agreement (the “Security Agreement”) in favor of IDB, and Xcel entered into a Membership Interest Pledge Agreement (the “Pledge Agreement”) in favor of IDB. Pursuant to the Security Agreement, the Borrower and H Licensing granted to IDB a security interest in substantially all of their respective assets, other than the trademarks owned by the Borrower and H Licensing, to secure the Borrower’s obligations under the October 2023 loan agreement.  Pursuant to the Pledge Agreement, Xcel granted to IDB a security interest in its membership interests in H Licensing to secure the Borrower’s obligations under the October 2023 loan agreement.

The term loan matures on October 19, 2028. Principal on the term loan is payable in quarterly installments of $250,000 on each of January 2, April 1, July 1, and October 1 of each year, commencing on April 1, 2024. The Borrower has the right to prepay all or any portion of the term loan at any time without penalty.

As of March 31, 2024, the aggregate remaining principal payments under the term loan were as follows:

Amount of

($ in thousands)

 

Principal

Year Ending December 31, 

    

Payment

2024 (April 1 through December 31)

$

750

2025

 

1,000

2026

1,000

2027

1,000

2028

 

1,250

Total

$

5,000

Interest on the term loan accrues at “Term SOFR” (as defined in the loan agreement as the forward-looking term rate based on secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to one month on the day that is two U.S. Government Securities Business Days prior to the first day of each calendar month) plus 4.25% per annum. Interest on the term loan is payable on the first day of each calendar month. In addition, on October 19, 2023, the Borrower also entered into a swap agreement with IDB, pursuant to which IDB will pay the Borrower Term SOFR plus 4.25% per annum on the notional amount of the swap in exchange for the Borrower paying IDB 9.46% per annum on such notional amount. The term and declining notional amount of the swap agreement is aligned with the amortization of the October 2023 term loan principal amount. The fair value of this swap agreement was immaterial as of March 31, 2024 and December 31, 2023.

For the current quarter, the Company incurred interest expense (including both interest paid in cash and the amortization of deferred finance costs) related to term loan debt of approximately $0.15 million, reflecting an effective interest rate of approximately 11.6%.

The term loan agreement also contains customary covenants, including reporting requirements, trademark preservation, and certain financial covenants including annual guaranteed minimum royalty ratio, annual fixed charge coverage ratio,

13

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

and minimum cash balance levels, all as specified and defined in the loan agreement. The Company was in compliance with all applicable covenants under the loan agreement as of and for all periods presented in the financial statements.

7. Stockholders’ Equity

Public Offering and Private Placement Transactions

On March 15, 2024, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC (the “Representative”), as the representative of the underwriters, relating to a firm commitment underwritten public offering (the “Offering”) of 3,284,422 shares of the Company’s common stock at a price to the public of $0.65 per share.

The closing of the Offering occurred on March 19, 2024. The net proceeds to the Company from the sale of the shares, after deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company, were approximately $1.7 million.

Upon closing of the Offering, the Company issued the Representative certain warrants to purchase up to 182,952 shares of common stock (the “Representative’s Warrants”) as compensation, which amount was offset against the proceeds received. The Representative’s Warrants will be exercisable at a per share exercise price of $0.8125. The Representative’s Warrants are exercisable, in whole or in part, during the four and one-half-year period commencing 180 days from the commencement of sales of the shares of common stock in the Offering.

In connection with the Offering, on March 14, 2024, the Company entered into subscription agreements with each of Robert W. D’Loren, Chairman and Chief Executive Officer of the Company; an affiliate of Mark DiSanto, a director of the Company; and Seth Burroughs, Executive Vice President of Business Development and Treasury of the Company to purchase 132,589, 132,589, and 29,464 shares, respectively (collectively, the “Private Placement Shares”), at a price of $0.98 per Private Placement Share. The total number of Private Placement Shares purchased was 294,642. Net proceeds after payment of agent fees to the Representative were approximately $0.3 million. The purchase of the Private Placement Shares closed concurrently with the Offering.

The aggregate number of shares of common stock issued from the Offering and the Private Placement was 3,579,064 shares and the total net proceeds received was approximately $1.9 million.

Equity Incentive Plans

A total of 4,000,000 shares of common stock are eligible for issuance under the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of any or all of the following types of awards: stock options (incentive or non-qualified), restricted stock, restricted stock units, performance awards, or cash awards. The 2021 Plan is administered by the Company’s Board of Directors, or, at the Board’s discretion, a committee of the Board.

In addition, stock-based awards (including options, warrants, and restricted stock) previously granted under the Company’s 2011 Equity Incentive Plan (the “2011 Plan”) remain outstanding and shares of common stock may be issued to satisfy options or warrants previously granted under the 2011 Plan, although no new awards may be granted under the 2011 Plan.

Stock-based Compensation

The Company accounts for stock-based compensation by recognizing the fair value of such compensation as an operating expense over the service period of the award or term of the corresponding contract, as applicable. Forfeitures are accounted for as a reduction of compensation cost in the period when such forfeitures occur. For stock option awards for which vesting is contingent upon the achievement of certain performance targets, the timing and amount of compensation expense

14

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

recognized is based upon the Company’s projections and estimates of the relevant performance metric(s) until the time the performance obligation is satisfied. Expense for such awards is recognized only to the extent that the achievement of the specified performance target(s) has been met or is considered probable.

Total expense recognized for all forms of stock-based compensation was approximately $0.13 million and $0.06 million for the current quarter and prior year quarter, respectively. For both periods, substantially all of the expense was related to directors and consultants, and was recorded as operating costs within “other selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations.

Stock Options

A summary of the Company’s stock options activity for the current quarter is as follows:

Weighted

Average

Weighted

Remaining

Average

Contractual

Aggregate

Number of

Exercise

Life

Intrinsic

    

Options

    

Price

    

(in Years)

    

Value

Outstanding at January 1, 2024

 

5,148,540

$

2.03

 

4.26

$

Granted

 

 

 

  

 

  

Exercised

 

 

 

  

 

  

Expired/Forfeited

 

(259,500)

 

4.21

 

  

 

  

Outstanding at March 31, 2024, and expected to vest

 

4,889,040

$

1.91

 

4.24

$

Exercisable at March 31, 2024

 

1,139,040

$

2.58

 

1.78

$

Compensation expense related to stock options for the current quarter and the prior year quarter was approximately $0.02 million and $0.03 million, respectively. Total unrecognized compensation expense related to unvested stock options at March 31, 2024 was approximately $0.05 million and is expected to be recognized over a weighted average period of approximately 0.97 years.

A summary of the Company’s non-vested stock options activity for the current quarter is as follows:

    

    

Weighted

 Average 

Number of

Grant Date 

    

Options

    

Fair Value

Balance at January 1, 2024

 

3,750,000

$

0.05

Granted

 

 

Vested

 

Forfeited or Canceled

 

 

Balance at March 31, 2024

 

3,750,000

$

0.05

15

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

Stock Awards

A summary of the Company’s restricted stock activity for the current quarter is as follows:  

Weighted

Number of

Average

Restricted

Grant Date

    

Shares

    

Fair Value

Outstanding at January 1, 2024

 

333,333

$

3.69

Granted

 

78,000

 

1.25

Vested

 

(78,000)

 

1.25

Expired/Forfeited

 

 

Outstanding at March 31, 2024

 

333,333

$

3.69

On January 12, 2024, the Company issued 78,000 shares of common stock to a consultant, which shares vested immediately.

Compensation expense related to stock awards was approximately $0.11 million for the current quarter and approximately $0.03 million for the prior year quarter. Total unrecognized compensation expense related to unvested restricted stock grants at March 31, 2024 was approximately $0.04 million and is expected to be recognized over a weighted average period of approximately 0.96 years.

Restricted Stock Units

There were no restricted stock units outstanding as of March 31, 2024 and December 31, 2023, and no restricted stock units have been issued since the inception of the 2021 Plan.

Shares Available Under the Company’s Equity Incentive Plans

At March 31, 2024, there were 3,025,941 shares of common stock available for future award grants under the 2021 Plan.

Shares Reserved for Issuance

As of March 31, 2024, there were 8,031,046 shares of common stock reserved for issuance, including 4,511,755 shares reserved pursuant to unexercised warrants and stock options previously granted under the 2011 Plan, 493,350 shares reserved pursuant to unexercised stock options granted under the 2021 Plan, and 3,025,941 shares available for issuance under the 2021 Plan.

16

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

Warrants

A summary of the Company’s warrants activity for the current quarter is as follows:

Weighted

Average

Weighted

Remaining

 

Average

 

Contractual

Aggregate

Number of

Exercise

 

Life

Intrinsic

    

Warrants

    

Price

    

(in Years)

    

Value

Outstanding and exercisable at January 1, 2024

 

1,116,065

$

1.67

 

8.46

$

Issued

 

182,952

 

0.81

 

 

  

Exercised

 

 

 

 

  

Expired/Forfeited

 

 

 

 

  

Outstanding at March 31, 2024

 

1,299,017

$

1.55

 

7.75

$

Exercisable at March 31, 2024

 

116,065

$

3.15

 

0.30

$

Warrants issued during the current quarter were related to the March 19, 2024 Offering (see “Public Offering and Private Placement Transactions” above for details). There was no compensation expense recognized during the current quarter related to these warrants.

In connection with the entrance into the Halston Master License (see Note 4), the Company issued to G-III a ten-year warrant to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $1.50 per share, which vests based upon certain annual royalty targets being satisfied under the license agreement. The fair value of this warrant is being recognized as a reduction of revenue over the term of the related license agreement, with an offsetting increase to stockholders’ equity as additional paid-in capital. The amount of contra-revenue recorded related to this warrant during the current quarter was approximately $0.01 million. As of March 31, 2024, no portion of this warrant had vested.

Excluding the contra-revenue recognized with respect to the Halston Master License warrant, there was no compensation expense related to warrants recognized in the current quarter or prior year quarter.

8.    Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS reflects, in periods in which they have a dilutive effect, the effect of common shares issuable upon the exercise of stock options and warrants, using the treasury stock method. Diluted EPS excludes all potentially dilutive shares of common stock if their effect is anti-dilutive.

17

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

The following table is a reconciliation of the numerator and denominator of the basic and diluted net loss per share computations for the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31, 

    

2024

    

2023

Numerator:

Net loss attributable to Xcel Brands, Inc. stockholders (in thousands)

$

(6,294)

$

(5,643)

Denominator:

Basic weighted average number of shares outstanding

20,374,920

 

19,633,194

 

Add: Effect of warrants

 

 

Add: Effect of stock options

Diluted weighted average number of shares outstanding

20,374,920

 

19,633,194

Basic net loss per share

$

(0.31)

$

(0.29)

Diluted net loss per share

$

(0.31)

$

(0.29)

As a result of the net loss for the current quarter and prior year quarter, the Company calculated diluted EPS using basic weighted average shares outstanding for such periods, as utilizing diluted shares would be anti-dilutive to loss per share for such periods.

The computation of diluted EPS excludes the following potentially dilutive securities because their inclusion would be anti-dilutive:  

Three Months Ended

March 31, 

    

2024

    

2023

Stock options

4,889,040

5,368,780

Warrants

1,299,017

116,065

Total

6,188,057

 

5,484,845

 

9.    Income Taxes

The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately 0% for both periods, resulting in an income tax benefit of $0 for both periods.

For both the current quarter and the prior year quarter, the federal statutory rate differed from the effective tax rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

18

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

10.    Related Party Transactions

IM Topco, LLC

As described in Note 2, the Company holds a noncontrolling interest in IM Topco, which is accounted for under the equity method of accounting.

Service Agreement

On May 31, 2022, the Company entered into a services agreement with IM Topco, pursuant to which the Company provides certain design and support services (including assistance with the operations of the interactive television business and related talent support) to IM Topco in exchange for payments of $300,000 per year.

In November 2023, the services agreement was amended such that the Company agreed to provide IM Topco with a $600,000 reduction of future service fees over the next eighteen months, beginning on July 1, 2023.

The Company recognized service fee income related to this agreement of $37,500 and $75,000 for the current quarter and prior year quarter, respectively.

License Agreement

On May 31, 2022, the Company entered into a license agreement with IM Topco, pursuant to which IM Topco granted the Company a license to use certain Isaac Mizrahi trademarks on and in connection with the design, manufacture, distribution, sale, and promotion of women’s sportswear products in the United States and Canada during the term of the agreement, in exchange for the payment of royalties in connection therewith. The initial term of this agreement was set to end on December 31, 2026, and provided guaranteed minimum royalties to IM Topco of $400,000 per year.

Effective December 16, 2022, the license agreement between IM Topco and Xcel was terminated in favor of a new similar license agreement between IM Topco and an unrelated third party. However, as part of the termination of the May 31, 2022 license agreement, Xcel provided a guarantee to IM Topco for the payment of any difference between (i) the royalties received by IM Topco from the unrelated third party under the new agreement and (ii) the amount of guaranteed royalties that IM Topco would have received from Xcel under the May 31, 2022 agreement. For the prior year quarter, the estimated amount of such shortfall was approximately $60,000, which the Company recognized as royalty expense in the condensed consolidated statements of operations.

In November 2023, the Company, WHP, and IM Topco entered into an amendment of the May 27, 2022 membership purchase agreement, under which Xcel agreed to make additional royalty payments to IM Topco totaling $