Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this report are forward-looking statements that involve a number of known and unknown risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks are detailed in the Risk Factors section of our Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC on May 28, 2025. The words “believe,” “anticipate,” “expect,” “continue,” “estimate,” “appear,” “suggest,” “goal,” “potential,” “predicts,” “seek,” “will,” “confident,” “project,” “provide,” “plan,” “likely,” “future,” “ongoing,” “intend,” “may,” “should,” “would,” “could,” “guidance,” and similar expressions identify forward-looking statements.
Overview
Xcel Brands, Inc. (“Xcel,” the “Company,” “we,” “us,” or “our”) 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. Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as social commerce.
Currently, our brand portfolio consists of the following:
● the Halston, Judith Ripka, and C Wonder brands, which are wholly owned by Xcel;
● the TowerHill by Christie Brinkley brand, which is a new co-branded collaboration between Xcel and Christie Brinkley that launched in May 2024;
● the LB70 by Lloyd Boston brand, which is a new co-branded collaboration between Xcel and Lloyd Boston that launched in August 2024;
● the Trust, Respect, Love by Cesar Millan brand, which is a new co-branded collaboration between Xcel and Cesar Millan that is planned to launch in the fourth quarter of 2025;
● the Longaberger brand, which Xcel manages through its 50% ownership interest in Longaberger Licensing, LLC;
● GemmaMade, which is a co-branded collaboration between Xcel and baking influencer Gemma Stafford which is planned to launch in the fourth quarter of 2025; and
● Mesa Mia, which is a brand owned by Mexican home influencer Jenny Martinez, and for which Xcel holds the television rights through a long-term license agreement and expects to launch in the fourth quarter of 2025.
Additionally, through October 1, 2025, we held a noncontrolling interest in the Isaac Mizrahi brand.
The Company also holds a 19% noncontrolling interest in ORME Live, Inc. (“ORME”), a short-form video and social commerce marketplace that launched in April 2024.
Xcel is pioneering a true 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, brick-and-mortar retailers, and e-commerce channels. Xcel currently operates in a working-capital light model, with our licensees and/or retail partners responsible for the procurement and sale of inventory. As such, our revenues primarily consist of royalty revenues, and we do not have risk of carrying aged inventory. As a result, fluctuations in product costs and tariffs do not
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have a direct impact on us, but do impact us indirectly as our royalty revenues are typically based on the net sales and success of our licensees.
Our objective is to build a diversified portfolio of lifestyle consumer products brands through organic growth and the strategic acquisition of new brands. To grow our brands, we are focused on the following primary strategies:
● licensing of our brands for sale through interactive television (e.g., QVC, HSN, JTV, etc.);
● licensing of our brands to retailers that sell to the end consumer;
● licensing our brands to manufacturers and retailers for promotion and distribution through e-commerce, social commerce, live streaming, and traditional brick-and-mortar retail channels; and
● acquiring additional consumer brands and integrating them into our operating platform, and leveraging our operating infrastructure and distribution relationships.
We believe that Xcel offers a unique value proposition to our retail and direct-to-consumer customers and our licensees for the following reasons:
● our management team, including our officers’ and directors’ experience in, and relationships within the industry;
● our deep knowledge, expertise, and proprietary technology in live streaming and social commerce;
● our design, sales, marketing, and technology platform that enables us to design trend-right product; and
● our significant media and internet presence.
Summary of Operating Results
Three months ended September 30, 2025 (the “current quarter”) compared with the three months ended September 30, 2024 (the “prior year quarter”)
Revenues
Current quarter net revenue decreased by $0.79 million to $1.12 million from $1.91 million for the prior year quarter. This decrease was driven by the combination of (i) the fact that in the prior year quarter, we recognized $0.41 million of net product sales from the sale of all remaining inventory of the Longaberger Brand to a third party at cost, and (ii) declines in our licensing revenues. The declines in licensing revenue were primarily attributable to (i) lower service fees related to IM Topco (see Note 10 to the financial statements for additional details related to the services agreement with IM Topco) and (ii) lower sales of branded products by our licensees mainly due to more cautious consumer spending in the current economic environment.
Direct Operating Costs and Expenses
Direct operating costs and expenses decreased approximately $0.66 million, from $2.83 million in the prior year quarter to $2.17 million in the current quarter. This decrease was primarily attributable to the 2023 restructuring and transformation of our business operating model, along with additional cost reduction actions taken by management in 2024, which significantly reduced the Company’s payroll, operating, and overhead costs.
Management has continued to implement additional cost cutting measures throughout 2025 to further optimize the Company’s cost structure. Currently, the Company has reduced its direct operating expenses to an expected run rate of less than $10 million per annum.
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Other Operating Costs and Expenses (Income)
Depreciation and amortization expense was reasonably consistent with the prior year, approximating $0.90 million in the current quarter and $0.91 million in the prior year quarter.
We recognized losses related to our equity investments in unconsolidated affiliates (IM Topco, LLC and ORME Live Inc.) of approximately $5.49 million and $6.85 million for the current quarter and prior year quarter, respectively. The current quarter loss was primarily attributable to a non-cash impairment charge related to the disposition of our remaining equity interest in IM Topco, which closed in October 2025. The prior year quarter amount was primarily attributable to the combination of (i) $0.60 million of equity method losses and (ii) a $6.25 million non-cash charge to recognize a contractual contingent obligation related to IM Topco, which was subsequently satisfied and discharged in April 2025.
Interest and Finance Expense
Interest and finance expense was approximately $0.52 million for the current quarter, compared with approximately $0.14 million for the prior year quarter. This increase was primarily attributable to the higher interest rate and higher principal balance on outstanding term loan debt in the current quarter as compared to the prior year quarter.
Income Taxes
The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately -0.3% and 0% respectively, resulting in an income tax provision (benefit) of $0.03 million and $0, respectively. 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.
Net Loss Attributable to Xcel Brands, Inc. Stockholders
We had a net loss of $7.90 million for the current quarter, compared with a net loss of $9.21 million for the prior year quarter, due to the combination of the factors outlined above.
Non-GAAP Net Income (Loss), Non-GAAP Diluted EPS, and Adjusted EBITDA
We had a non-GAAP net loss of approximately $1.34 million, or $(0.34) per diluted share (“non-GAAP diluted EPS”), for the current quarter and a non-GAAP net loss of $1.33 million, or $(0.57) per diluted share, for the prior year quarter. Non-GAAP net income (loss) is a non-GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders, exclusive of amortization of trademarks, income (loss) from equity method investments, stock-based compensation and cost of licensee warrants, loss on early extinguishment of debt (if any), gains on sales of assets and investments (if any), asset impairment charges (if any), and income taxes (if any). Non-GAAP net income (loss) and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy.
We had Adjusted EBITDA of approximately $(0.65) million for the current quarter, compared with approximately $(1.05) million for the prior year quarter. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders before interest and finance expense (including loss on extinguishment of debt, if any), accretion of lease liability for exited leases, income taxes, other state and local franchise taxes, depreciation and amortization, income (loss) from equity method investments, asset impairment charges (if any), stock-based compensation and cost of licensee warrants, gains on sales of assets and investments (if any), and costs associated with restructuring of operations.
Management uses non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the Company’s results of operations. Management believes non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA are also useful because these measures adjust for certain costs and other events that
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management believes are not representative of our core business operating results, and thus, these non-GAAP measures provide supplemental information to assist investors in evaluating the Company’s financial results.
Non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Given that non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA in a different manner than we calculate these measures.
In evaluating non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this report. Our presentation of non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any other unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results, and not rely on any single financial measure.
The following table is a reconciliation of net loss attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net loss:
Three Months Ended
September 30,
($ in thousands)
2025
2024
Net loss attributable to Xcel Brands, Inc. stockholders
$
(7,899)
$
(9,213)
Amortization of trademarks
876
875
Loss from equity method investments
5,494
6,847
Stock-based compensation and cost of licensee warrants
161
158
Income tax provision (benefit)
25
—
Non-GAAP net loss
$
(1,343)
$
(1,333)
The following table is a reconciliation of diluted loss per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:
Three Months Ended
September 30,
2025
2024
Diluted loss per share
$
(2.02)
$
(3.92)
Amortization of trademarks
0.23
0.37
Loss from equity method investments
1.40
2.91
Stock-based compensation and cost of licensee warrants
0.04
0.07
Income tax provision (benefit)
0.01
—
Non-GAAP diluted EPS
$
(0.34)
$
(0.57)
Non-GAAP weighted average diluted shares
3,918,993
2,352,135
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The following table is a reconciliation of net loss attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:
Three Months Ended
September 30,
($ in thousands)
2025
2024
Net loss attributable to Xcel Brands, Inc. stockholders
$
(7,899)
$
(9,213)
Interest and finance expense
522
142
Accretion of lease liability for exited lease
48
98
Income tax provision (benefit)
25
—
State and local franchise taxes
10
9
Depreciation and amortization
896
910
Loss from equity method investments
5,494
6,847
Stock-based compensation and cost of licensee warrants
161
158
Costs associated with restructuring of operations
90
—
Adjusted EBITDA
$
(653)
$
(1,049)
Nine months ended September 30, 2025 (the “current nine months”) compared with the nine months ended September 30, 2024 (the “prior year nine months”)
Revenues
Current nine months net revenue decreased $3.28 million to $3.77 million from $7.05 million for the prior year nine months. This decrease was primarily attributable to the June 30, 2024 divestiture of the Lori Goldstein brand and the loss of the licensing revenues associated with that brand. This decrease was also partially driven by the fact that in the prior year nine months we recognized $0.54 million of net product sales from the final sale of certain residual jewelry inventories and the sale of all remaining inventory related to the Longaberger brand.
Direct Operating Costs and Expenses
Direct operating costs and expenses decreased approximately $3.56 million, from $9.91 million in the prior year nine months to $6.35 million in the current nine months. This decrease was primarily attributable to the combination of (i) the 2023 restructuring and transformation of our business operating model, along with additional cost reduction actions taken by management in 2024, which significantly reduced the Company’s payroll, operating, and overhead costs, and (ii) the impact of the employee retention tax credit recognized in the current nine months.
Management has continued to implement additional cost cutting measures throughout 2025 to further optimize the Company’s cost structure. Currently, the Company has reduced its direct operating expenses to an expected run rate of less than $10 million per annum.
Other Operating Costs and Expenses (Income)
Depreciation and amortization expense decreased approximately $1.34 million, from $4.04 million in the prior year nine months to $2.70 million in the current nine months. This decrease is primarily attributable to the June 30, 2024 divestiture of the Lori Goldstein brand, which included trademarks related to that brand with a net book value of approximately $1.93 million at the time of the divestiture.
We recognized losses related to our equity investments in unconsolidated affiliates (IM Topco, LLC and ORME Live Inc.) of $6.01 million and $7.94 million for the current nine months and prior year nine months, respectively. The current nine months loss was primarily attributable to a $5.53 million non-cash impairment charge related to the disposition of our remaining equity interest in IM Topco, which closed in October 2025. The prior year nine months amount was composed of (i) $1.69 million of equity method losses and (ii) a $6.25 million non-cash charge to recognize a contractual contingent obligation related to IM Topco, which was subsequently satisfied and discharged in April 2025.
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During the prior year nine months we recognized asset impairment charges of $3.48 million related to our exit from and sublease of our office space at 1333 Broadway, of which approximately $3.1 million related to the operating lease right-of-use asset and approximately $0.4 million related to leasehold improvements at that location. There were no similar asset impairment charges recognized during the current nine months.
Also during the prior year nine months, we recognized a $3.80 million gain on the divestiture of the Lori Goldstein Brand. The consideration received from this transaction was non-cash in nature, and consisted of approximately $6.08 million of relief from certain accrued earn-out payments and the release of contingent obligations under contractual agreements with the buyer. The net book value of the intangible assets sold was approximately $1.93 million, and we also incurred approximately $0.35 million of legal fees in connection with the sale.
Interest and Finance Expense
Interest and finance expense was approximately $3.42 million for the current nine months, representing an increase of approximately $2.98 million compared with interest and finance expense of approximately $0.44 million for the prior year nine months. This increase was primarily attributable to the combination of (i) the $1.85 million loss on early extinguishment of debt recognized during the current nine months as a result of the April 2025 refinancing of our term loan debt, and (ii) the higher interest rates and higher principal balance on outstanding term loan debt in the current nine months as compared to the prior year nine months.
Income Taxes
The estimated annual effective income tax rate for the current nine months and the prior year nine months was approximately -0.5% and 0% respectively, resulting in an income tax provision (benefit) of $0.08 million and $0, respectively. 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.
Net Loss Attributable to Xcel Brands, Inc. Stockholders
We had a net loss of $14.68 million for the current nine months, compared with a net loss of $15.31 million for the prior year nine months, due to the combination of the factors outlined above.
Non-GAAP Net Income (Loss), Non-GAAP Diluted EPS, and Adjusted EBITDA
We had a non-GAAP net loss of approximately $3.61 million, or $(1.24) per diluted share (“non-GAAP diluted EPS”), for the current nine months and a non-GAAP net loss of approximately $3.44 million, or $(1.53) per diluted share, for the prior year nine months.
We had Adjusted EBITDA of approximately $(1.65) million for the current nine months, compared with approximately $(2.66) million for the prior year nine months.
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The following table is a reconciliation of net loss attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net loss:
Nine Months Ended
September 30,
($ in thousands)
2025
2024
Net loss attributable to Xcel Brands, Inc. stockholders
$
(14,684)
$
(15,312)
Amortization of trademarks
2,627
3,914
Loss from equity method investments
6,010
7,937
Stock-based compensation and cost of licensee warrants
513
344
Loss on early extinguishment of debt
1,850
—
Gains on sales of assets and investments
—
(3,801)
Asset impairment charges
—
3,483
Income tax provision (benefit)
75
—
Non-GAAP net loss
$
(3,609)
$
(3,435)
The following table is a reconciliation of diluted loss per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:
Nine Months Ended
September 30,
2025
2024
Diluted loss per share
$
(5.06)
$
(6.82)
Amortization of trademarks
0.90
1.74
Loss from equity method investments
2.07
3.54
Stock-based compensation and cost of licensee warrants
0.18
0.15
Loss on early extinguishment of debt
0.64
—
Gains on sales of assets and investments
—
(1.69)
Asset impairment charges
—
1.55
Income tax provision
0.03
—
Non-GAAP diluted EPS
$
(1.24)
$
(1.53)
Non-GAAP weighted average diluted shares
2,904,399
2,246,569
The following table is a reconciliation of net loss attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:
Nine Months Ended
September 30,
($ in thousands)
2025
2024
Net loss attributable to Xcel Brands, Inc. stockholders
$
(14,684)
$
(15,312)
Interest and finance expense
3,419
438
Accretion of lease liability for exited lease
168
174
Income tax provision (benefit)
75
—
State and local franchise taxes
24
33
Depreciation and amortization
2,695
4,044
Loss from equity method investments
6,010
7,937
Asset impairment charges
—
3,483
Stock-based compensation and cost of licensee warrants
513
344
Gains on sales of assets and investments
—
(3,801)
Costs associated with restructuring of operations
129
—
Adjusted EBITDA
$
(1,651)
$
(2,660)
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Liquidity and Capital Resources
General
As of September 30, 2025 and December 31, 2024, our unrestricted cash and cash equivalents were approximately $1.5 million and $1.3 million, respectively.
Restricted cash at September 30, 2025 consisted of $0.7 million of cash deposited as collateral for a standby letter of credit associated with a real estate lease and $1.0 million of cash deposited in a bank account to satisfy a liquidity covenant in the Company’s term loan debt agreement. Restricted cash at December 31, 2024 consisted of $0.7 million of cash deposited as collateral for a standby letter of credit associated with a real estate lease.
Our principal capital requirements have generally been to fund working capital needs and acquire new brands. Our current “licensing plus” operating model is a working capital light business model, and generally does not require material capital expenditures. As of September 30, 2025, we have no significant commitments for future capital expenditures.
Working Capital
We had a working capital deficit (which we calculate in a non-GAAP manner as current assets less current liabilities, excluding the current portions of lease obligations, deferred revenue, and any contingent obligations payable in shares or via other non-cash means) of approximately $0.89 million as of September 30, 2025. This working capital deficit includes and is primarily reflective of the November 2025 amendment to our term loan debt, which resulted in the accelerated maturity of a significant portion of our Term Loan A debt and the associated reclassification of $1.0 million of restricted cash from non-current assets to current assets; absent these impacts of this amendment, our working capital at September 30, 2025 would have been approximately $0.61 million. We had working capital of approximately $0.76 million as of December 31, 2024.
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As of September 30, 2025, we have incurred recurring losses, a history of cash flows used in operating activities, and an accumulated deficit. While we have undertaken significant restructuring efforts during 2023 and 2024, and have implemented additional measures during 2025 to further optimize its cost structure, management has determined that, absent additional funding, there is substantial doubt about the Company’s ability to meet its financial obligations as they become due within twelve months from the date these accompanying unaudited condensed consolidated financial statements are issued.
In April 2025, we restructured our outstanding debt and received net proceeds from financing activities. In August 2025, we closed on a public offering and private placement of our common stock, which provided us with additional net proceeds. While these transactions have significantly improved our liquidity position, the proceeds received may still be insufficient to fully address our liquidity needs.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management intends to continue exploring strategic financing alternatives and operational efficiencies to improve liquidity. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Commentary on the components of our cash flows for the current nine months as compared with the prior year nine months is set forth below.
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Operating Activities
Net cash used in operating activities was approximately $5.20 million in the current nine months, compared with approximately $3.31 million in the prior year nine months.
The current nine months net cash used in operating activities was primarily attributable to the combination of the net loss of $(14.78) million plus non-cash items of approximately $11.62 million and the net change in operating assets and liabilities of approximately $(2.04) million. Non-cash items were primarily comprised of $6.01 million of losses and impairment charges related to our equity method investments, $1.85 million from the loss on early extinguishment of debt, $2.70 million of depreciation and amortization expense, and $0.69 million of aggregate non-cash interest expenses. The net change in operating assets and liabilities was primarily driven by approximately $(2.05) million of payments of accounts payable, accrued expenses, accrued income taxes payable, and other current liabilities.
The prior year nine months net cash used in operating activities was primarily attributable to the combination of the net loss of $(15.40) million plus non-cash items of approximately $11.99 million and the net change in operating assets and liabilities of approximately $0.11 million. Non-cash items were primarily comprised of approximately $6.25 million for the change in value of contingent obligations related to our equity method investments, our $1.68 million undistributed proportional share of net losses from equity method investees, $4.04 million of depreciation and amortization expense, and $3.48 million of asset impairment charges, partially offset by a $(3.80) million gain on the divestiture of the Lori Goldstein Brand. The net change in operating assets and liabilities was primarily comprised of decreases in accounts receivable and inventory of approximately $0.59 million and $0.45 million, respectively, partially offset by a decrease in lease-related assets and liabilities of $(0.71) million.
Investing Activities
Net cash used in investing activities in the current nine months was comprised of purchases of equipment totaling approximately $0.01 million. Net cash used in investing activities in the prior year nine months was comprised of purchases of furniture and fixtures totaling approximately $0.11 million
Financing Activities
Net cash provided by financing activities in the current nine months was primarily attributable to $2.05 million of proceeds received from the delayed draw portion of the Company’s December 2024 term loan agreement, $3.62 million of proceeds received from the April 2025 refinancing of our term loan debt, and $1.97 million of proceeds generated by equity offerings undertaken in August 2025. These items were partially offset by $0.57 million of deferred finance costs paid in connection with debt refinancing, and $0.50 million of principal payments made on the Company’s term loan debt.
Net cash provided by financing activities in the prior year nine months was primarily attributable to $1.90 million of net proceeds generated by equity offerings undertaken during the first quarter of 2024, partially offset by $0.50 million of scheduled principal payments made on our term loan debt.
April 2025 Debt Refinancing
On April 21, 2025, the Company and its lenders and FEAC Agent, LLC entered into an amendment of the December 12, 2024 loan and security agreement, which provided for $1.5 million repayment of the $3.95 million Term Loan A and an additional Term Loan B in the amount of $5.12 million. The term loans outstanding after giving effect to the April 21, 2025 amendment and the application of the proceeds of the additional Term Loan B are as follows: (1) Term Loan A in the amount of $4.50 million, and (2) Term Loan B in the amount of $9.12 million. The proceeds from the additional Term Loan B were used to repay a portion of Term Loan A, as well as to pay fees, costs, and expenses incurred in connection with entering into the April 21, 2025 amendment, and the balance will be used for working capital purposes.
In connection with the April 21, 2025 amendment and refinancing transaction, UTG Capital, Inc., a Delaware corporation (“UTG”), purchased a 100% undivided, participation interest in Term Loan B for a purchase price of $9.12 million. Also
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in connection with this refinancing transaction, IPX’s participation in Term Loan B was repaid and IPX purchased a $0.50 million undivided, last-out, subordinated participation interest in Term Loan A.
On May 15, 2025, the Company repaid $0.50 million of the outstanding principal amount of Term Loan A.
Principal on the Term Loan A is payable on a pro rata basis in quarterly installments of $250,000 on each of March 31, June 30, September 30, and December 31 of each year, commencing on March 31, 2026, with the unpaid balance due on the maturity date of December 12, 2028. Principal on the Term Loan B is payable on the maturity date of December 12, 2028.
From and after April 21, 2025, interest on each Term Loan A accrues at an annual rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to three months, subject to a 2.0% floor, plus 8.5%. From and after April 21, 2025, interest on each Term Loan B accrues at an annual rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to three months, subject to a 2.0% floor, plus 6.5%. From and after April 21, 2025 through March 31, 2027, interest on the Term Loan B will be paid in-kind by being capitalized and added to the principal amount of the Term Loan B at the end of each calendar month.
The Term Loans are guaranteed by certain direct and indirect subsidiaries of the Company, and are secured by all of the assets of the Company and such subsidiaries. The April 21, 2025 amendment contains various customary financial covenants and reporting requirements, as specified and defined therein; the Company is currently in compliance with all applicable covenants.
On October 7, 2025, the Company and certain of its subsidiaries and its lenders and FEAC Agent, LLC entered into a further amendment of the December 12, 2024 loan and security agreement, pursuant to which the (i) the agents and lenders (as defined in the loan and security agreement) consented to the transfer and the release of the termination of the pledge agreement and the release of the agents’ liens on the equity interests of IM Topco, LLC; (ii) the liquid asset covenant requirement was reduced to $1,000,000; and (iii) Xcel made a prepayment of $250,000 against the outstanding principal amount of Term Loan A, of which $140,000 was paid from the blocked account.
On November 18, 2025, the Company and certain of its subsidiaries and its lenders and FEAC Agent, LLC entered into the fourth amendment of the December 12, 2024 loan and security agreement, pursuant to which (i) the agents and lenders (as defined in the loan and security agreement) provided the Company with a limited waiver with respect to certain specified events of default, and also amended certain financial covenants related to the term loan agreement; (ii) the Company committed to make a prepayment of $3,250,000 on Term Loan A by February 20, 2026, along with the payment of an amendment fee of $450,000 (of which $125,000 is payable on December 5, 2025 and the remaining $325,000 will be due if the $3,250,000 principal amount of Term Loan A is not repaid on or prior to February 20, 2026); and (iii) the payment of the remaining principal balance on Term Loan A of $500,000 was changed to be due on December 31, 2026 which shall be held by a related party. In addition, upon the repayment of the $3.25 million of Term Loan A, the Company will have revised financial covenants. The minimum revenue requirement for the rolling 12 months ending December 31, 2025 will be $3.9 million and $1.7 million for the Included Subsidiaries and Halston, respectively, each as defined in the loan agreements. And after the Term Loan A payment is made, the minimum revenue requirement covenants shall remain at these levels for the duration of the loans and the minimum liquidity requirement shall be zero, which includes the lenders’ release of $1.0 million of restricted cash within the blocked account back to the Company.
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August 2025 Public Offering and Private Placement Transactions
On August 1, 2025, the Company entered into a placement agency agreement with Maxim Group LLC (the “Placement Agent”), as lead placement agent, relating to a best efforts public offering (the “2025 Offering”) of 2,181,818 shares of the Company’s common stock at a price to the public of $1.10 per share.
The closing of the 2025 Offering occurred on August 4, 2025. 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 $1.8 million.
In connection with the 2025 Offering, on August 1, 2025, the Company entered into subscription agreements with each of Robert W. D’Loren, Chairman and Chief Executive Officer of the Company, and Mark DiSanto, a director of the Company, to purchase 82,159 and 60,883 shares, respectively, at a price of $1.38 per share. The total number of shares purchased was 143,042. Net proceeds after payment of agent fees were approximately $0.2 million. The purchase of such shares closed concurrently with the 2025 Offering.
The aggregate number of shares of common stock issued from the 2025 Public Offering and Private Placement Transactions was 2,324,860 shares and the total net proceeds received was approximately $2.0 million.
Other Factors
We continue to seek to expand and diversify the types of licensed products being produced under our brands. We plan to continue to diversify the distribution channels and product categories within which licensed products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands. The Halston brand, C Wonder brand, TowerHill by Christie Brinkley brand, and the LB70 by Lloyd Boston brand, which together currently represent a majority of our revenues, have a core business in fashion apparel and accessories. Our other brands – including the Judith Ripka brand, which is a fine jewelry brand; the Longaberger brand, which focuses on home good products; GemmaMade and Mesa Mia, which focus on cooking and baking related products; and Trust, Respect, Love, which focuses on pet-related products – help to diversify our industry focus while at the same time complement our business operations and relationships.
While the 2022 sale of a majority interest in the Isaac Mizrahi brand and the 2024 divestiture of the LOGO by Lori Goldstein brand resulted in significant decreases in our licensing revenues, we have taken and continue to take actions to replace those revenues with new strategic business initiatives, as we concentrate our resources on growing our brands, launching new brands, and entering into new business partnerships. We continue to seek new opportunities, including expansion through interactive television, live streaming, and additional domestic and international licensing arrangements, and acquiring and collaborating with additional brands, including the TowerHill by Christie Brinkley brand and LB70 by Lloyd Boston brand, both of which launched in 2024. We plan to launch three new brands in the fourth quarter of 2025, including Trust, Respect, Love by Cesar Millan, GemmaMade, and Mesa Mia.
During 2023 and throughout 2024, we have restructured our business operations into a leaner, more focused “licensing plus” business model. We have entered into structured contractual arrangements with best-in-class business partners in order to more efficiently operate our former wholesale and e-commerce businesses while reducing and better managing our exposure to operating risks, and taken additional actions to generate cost savings. Based on all of these actions taken to date, plus additional measures implemented during the current year to further optimize the Company’s cost structure, the Company’s direct operating costs on an annualized basis have been reduced from approximately $8 million per quarter under our previous operating model to less than $2.5 million per quarter on a going-forward basis. This represents more than $22 million of cost savings on an annualized basis compared to our cost structure in 2022.
In April 2025, we restructured our outstanding term debt and received additional net proceeds, which improved our liquidity position. The higher outstanding principal balance under our refinanced term loan debt will result in higher interest payments over the term of the debt, although a substantial portion of that interest will be paid in-kind through March 2027 by being capitalized and added to the principal amount of the debt.
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Nonetheless, we continue to face a number of headwinds in the current macroeconomic environment. Poor economic and market conditions, including the impacts of inflation and rising consumer debt levels, may negatively impact market sentiment, decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and other consumer products, which would adversely affect our operating income and results of operations. If we are unable to take effective measures in a timely manner to mitigate the impact of inflation and/or a potential recession, our business, financial condition, and results of operations could be adversely affected.
Our long-term success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and continue to attract wholesale and direct-to-consumer customers, and contract with and retain key licensees and business partners, as well as our and our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer bases and fulfill the product requirements of the particular retail channels within the global marketplace. Unanticipated changes in consumer fashion preferences and purchasing patterns, slowdowns in the U.S. economy, changes in the prices of supplies, consolidation of retail establishments, and other factors noted in Item 1A of our most recent Annual Report on Form 10-K could adversely affect our licensees’ ability to meet and/or exceed their contractual commitments to us and thereby adversely affect our future operating results.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, or liquidity.
Critical Accounting Policies and Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires management to exercise judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates and judgments on a variety of factors, including our historical experience, knowledge of our business and industry, and current and expected economic conditions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Because the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
Please refer to our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on May 28, 2025, for a discussion of our critical accounting policies and estimates. During the three months ended September 30, 2025, there were no material changes to our critical accounting policies or estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
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