UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
or
ACT OF 1934
For the transition period from ___ to ___
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of |
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Incorporation or Organization) |
| Identification No.) |
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| (Address of Principal Executive Offices) |
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(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 |
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.
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).
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 ☐ |
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
As of May 1, 2024, there were
XCEL BRANDS, INC.
INDEX
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 |
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Current Assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net of allowances for credit losses of $ |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Non-current Assets: | ||||||
Property and equipment, net |
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Operating lease right-of-use assets | | | ||||
Trademarks and other intangibles, net |
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Equity method investment in IM Topco, LLC | | | ||||
Other assets |
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Total non-current assets |
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Total Assets | $ | | $ | | ||
Liabilities and Stockholders' Equity |
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Current Liabilities: |
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Accounts payable, accrued expenses and other current liabilities | $ | | $ | | ||
Deferred revenue |
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Accrued income taxes payable | | | ||||
Current portion of operating lease obligations | | | ||||
Current portion of long-term debt |
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Current portion of contingent obligation |
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Total current liabilities |
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Long-Term Liabilities: |
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Deferred revenue | | | ||||
Long-term portion of operating lease obligations | | | ||||
Long-term debt, net, less current portion |
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Long-term portion of contingent obligation | | | ||||
Other long-term liabilities |
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Total long-term liabilities |
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Total Liabilities |
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Commitments and Contingencies |
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Stockholders' Equity: |
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Preferred stock, $ |
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Common stock, $ |
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Paid-in capital |
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Accumulated deficit |
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Total Xcel Brands, Inc. stockholders' equity |
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Noncontrolling interest | ( | ( | ||||
Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity | $ | | $ | |
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 |
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Net licensing revenue | $ | | $ | | ||
Net sales |
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Net revenue |
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Cost of goods sold |
| — |
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Gross profit |
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Direct operating costs and expenses |
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Salaries, benefits and employment taxes |
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Other selling, general and administrative expenses |
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Total direct operating costs and expenses |
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Operating loss before other operating costs and expenses | ( | ( | ||||
Other operating costs and expenses | ||||||
Depreciation and amortization |
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Asset impairment charges | | — | ||||
Loss from equity method investments | | | ||||
Operating loss |
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Interest and finance (income) expense |
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Interest expense - term loan debt |
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Other interest and finance charges (income), net |
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Total interest and finance (income) expense |
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Loss before income taxes |
| ( |
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Income tax benefit |
| — |
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Net loss | ( | ( | ||||
Net loss attributable to noncontrolling interest | ( | ( | ||||
Net loss attributable to Xcel Brands, Inc. stockholders | $ | ( | $ | ( | ||
Loss per common share attributable to Xcel Brands, Inc. stockholders: |
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Basic and diluted net loss per share | ( | ( | ||||
Weighted average number of common shares outstanding: |
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Basic and diluted weighted average common shares outstanding |
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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 |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Compensation expense related to stock options and restricted stock | — | — | | — | — | | ||||||||||||
Shares issued to consultant in connection with stock grant | | — | | — | — | | ||||||||||||
Net loss |
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| — |
| — |
| ( | ( |
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Balance as of March 31, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Balance as of December 31, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Compensation expense related to stock options and restricted stock | — | — | | — | — | | ||||||||||||
Contra-revenue related to warrants held by licensee | — | — | | — | — | | ||||||||||||
Shares issued to consultant in connection with stock grant |
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Shares issued in connection with public offering and private placement transactions, net of transaction costs | | | | — | — | | ||||||||||||
Net loss |
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Balance as of March 31, 2024 |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
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 |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization expense |
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Asset impairment charges |
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Amortization of deferred finance costs included in interest expense |
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Stock-based compensation and cost of licensee warrants |
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Undistributed proportional share of net loss of equity method investees | | | ||||
Changes in operating assets and liabilities: |
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Accounts receivable |
| ( |
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Inventory |
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Prepaid expenses and other current and non-current assets |
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Deferred revenue | ( | | ||||
Accounts payable, accrued expenses, accrued income taxes payable, and other current liabilities |
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Lease-related assets and liabilities | ( | ( | ||||
Other long-term liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities |
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Purchase of property and equipment |
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Net cash used in investing activities |
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Cash flows from financing activities |
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Proceeds from public offering and private placement transactions, net of transaction costs | | — | ||||
Net cash provided by financing activities |
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Net decrease in cash, cash equivalents, and restricted cash |
| ( |
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Cash, cash equivalents, and restricted cash at beginning of period | | | ||||
Cash, cash equivalents, and restricted cash at end of period | $ | | $ | | ||
Reconciliation to amounts on consolidated balance sheets: |
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Cash and cash equivalents | $ | | $ | | ||
Restricted cash (reported in other non-current assets) |
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Total cash, cash equivalents, and restricted cash | $ | | $ | | ||
Supplemental disclosure of cash flow information: |
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Cash paid during the period for interest | $ | | $ | — | ||
Cash paid during the period for income taxes | $ | — | $ | |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
6
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 |
● | The Company holds a noncontrolling interest in the Isaac Mizrahi Brand through its |
● | 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
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
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 $
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 $
Also during the year ended December 31, 2023, the Company entered into a new term loan agreement in the amount of $
Further, in March 2024, the Company issued new shares of common stock for net proceeds of approximately $
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
8
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2024
(Unaudited)
The Company accounts for its
(i) | first, |
(ii) | second, |
(iii) | thereafter, in proportion to the members’ respective percentage interests. |
Based on these distribution provisions, the Company recognized an equity method loss of $
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 | $ | | $ | | ||
Gross profit | | | ||||
Loss from continuing operations | ( | ( | ||||
Net loss | ( | ( |
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 $
The Company accounts for its
9
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
3. Trademarks and Other Intangibles
Trademarks and other intangibles, net consist of the following:
| Weighted |
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| Average |
| March 31, 2024 | ||||||||
| Amortization | Gross Carrying | Accumulated | Net Carrying | |||||||
($ in thousands) | Period | Amount | Amortization | Amount | |||||||
Trademarks (finite-lived) |
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Copyrights and other intellectual property |
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Total | $ | | $ | | $ | |
| Weighted |
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| Average |
| December 31, 2023 | ||||||||
| Amortization |
| Gross Carrying | Accumulated | Net Carrying | ||||||
($ in thousands) | Period | Amount | Amortization | Amount | |||||||
Trademarks (finite-lived) |
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Copyrights and other intellectual property |
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Total |
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| $ | | $ | | $ | |
Amortization expense for intangible assets was approximately $
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 $
10
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 $
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
As a result of the upfront cash payment and guaranteed minimum royalties discussed above, the Company has recognized $
The balance of the deferred revenue contract liabilities will be recognized ratably as revenue over the next . Net licensing revenue recognized from the Halston Master License was $
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 $
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
11
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 $
As of March 31, 2024, the Company’s lease of 1333 Broadway has a remaining lease term of approximately
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 $
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) | $ | ||
2025 | |||
2026 |
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2027 |
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Total lease payments | |||
Less: Discount | |||
Present value of lease liabilities | |||
Current portion of lease liabilities | |||
Non-current portion of lease liabilities | $ |
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 | $ | | $ | | |||
Unamortized deferred finance costs related to term loan debt |
| ( |
| ( | |||
Total |
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Current portion of debt |
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Long-term debt | $ | | $ | |
12
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 $
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 $
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) | $ | | |
2025 |
| | |
2026 | | ||
2027 | | ||
2028 |
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Total | $ | |
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
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 $
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
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
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 $
Upon closing of the Offering, the Company issued the Representative certain warrants to purchase up to
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
The aggregate number of shares of common stock issued from the Offering and the Private Placement was
Equity Incentive Plans
A total of
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
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 $
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 |
| | $ | |
| $ | | |||
Granted |
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Exercised |
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Expired/Forfeited |
| ( |
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Outstanding at March 31, 2024, and expected to vest |
| | $ | |
| $ | | |||
Exercisable at March 31, 2024 |
| | $ | |
| $ | |
Compensation expense related to stock options for the current quarter and the prior year quarter was approximately $
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 |
| | $ | | |
Granted |
| — |
| — | |
Vested |
| — | — | ||
Forfeited or Canceled |
| — |
| — | |
Balance at March 31, 2024 |
| | $ | |
15
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 |
| | $ | | |
Granted |
| |
| | |
Vested |
| ( |
| | |
Expired/Forfeited |
| |
| | |
Outstanding at March 31, 2024 |
| | $ | |
On January 12, 2024, the Company issued
Compensation expense related to stock awards was approximately $
Restricted Stock Units
There were
Shares Available Under the Company’s Equity Incentive Plans
At March 31, 2024, there were
Shares Reserved for Issuance
As of March 31, 2024, there were
16
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 |
| | $ | |
| $ | | |||
Issued |
| |
| |
|
|
|
| ||
Exercised |
| |
| |
|
|
|
| ||
Expired/Forfeited |
| |
| |
|
|
|
| ||
Outstanding at March 31, 2024 |
| | $ | |
| $ | | |||
Exercisable at March 31, 2024 |
| | $ | |
| $ | |
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
In connection with the entrance into the Halston Master License (see Note 4), the Company issued to G-III a
Excluding the contra-revenue recognized with respect to the Halston Master License warrant, there was
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
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) | $ | ( | $ | ( | |||
Denominator: | |||||||
Basic weighted average number of shares outstanding | |
| |
| |||
Add: Effect of warrants | — |
| — |
| |||
Add: Effect of stock options | — | — | |||||
Diluted weighted average number of shares outstanding | |
| | ||||
Basic net loss per share | $ | ( | $ | ( | |||
Diluted net loss per share | $ | ( | $ | ( |
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 | | | |||
Warrants | | | |||
Total | |
| |
|
9. Income Taxes
The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately
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
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 $
In November 2023, the services agreement was amended such that the Company agreed to provide IM Topco with a $
The Company recognized service fee income related to this agreement of $
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 $
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 $
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 $