−Removed: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
+Added: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
−Removed: Our common stock is listed on the NASDAQ Global Market, under the trading symbol “XELB.”
+Added: Our common stock is listed on the NASDAQ Global Market, under the trading symbol “XELB.”
The table below sets forth the range of quarterly high and low sales prices for our common stock in 2020 and 2019:
19 unchanged sentences
The following is a description of the Plan, as amended.
−Removed: The Plan provides for the grant of stock options or restricted stock (any grant under the Plan, an “Award”).
+Added: ● The Plan provides for the grant of stock options or restricted stock (any grant under the Plan, an “Award”).
The stock options may be incentive stock options or non-qualified stock options.
● A total of 13,000,000 shares of common stock are eligible for issuance under the Plan, and the maximum number of shares of common stock with respect to which incentive stock options may be granted under the Plan is 5,000,000.
−Removed: The Plan may be administered by the Board of Directors (the “Board”) or a committee consisting of two or more members of the Board of Directors appointed by the Board (for purposes of this description, any such committee, a “Committee”).
+Added: ● The Plan may be administered by the Board of Directors (the “Board”) or a committee consisting of two or more members of the Board of Directors appointed by the Board (for purposes of this description, any such committee, a “Committee”).
● Officers and other employees of our Company or any parent or subsidiary of our Company who are at the time of the grant of an Award employed by us or any parent or subsidiary of our Company are eligible to be granted options or other Awards under the Plan.
In addition, non-qualified stock options and other Awards may be granted under the Plan to any person, including, but not limited to, directors, independent agents, consultants and attorneys who the Board or the Committee, as the case may be, believes has contributed or will contribute to our success.
−Removed: With respect to incentive stock options granted to an eligible employee owning stock possessing more than 10% of the total combined voting power of all classes of our stock or the stock of a parent or subsidiary of our Company immediately before the grant (each, a “10% Stockholder”), such incentive stock option shall not be exercisable more than 5 years from the date of grant.
+Added: ● With respect to incentive stock options granted to an eligible employee owning stock possessing more than 10% of the total combined voting power of all classes of our stock or the stock of a parent or subsidiary of our Company immediately before the grant (each, a “10% Stockholder”), such incentive stock option shall not be exercisable more than 5 years from the date of grant.
● The exercise price of an incentive stock option will not be less than the fair market value of the shares underlying the option on the date the option is granted, provided, however, that the exercise price of an incentive stock option granted to a 10% Stockholder may not be less than 110% of such fair market value.
● The exercise price of a non-qualified stock option may not be less than fair market value of the shares of common stock underlying the option on the date the option is granted.
−Removed: Under the Plan, we may not, in the aggregate, grant incentive stock options that are first exercisable by any individual optionee during any calendar year (under all such plans of the optionee’s employer corporation and its “parent”
−Removed: and “subsidiary”
−Removed: corporations, as those terms are defined in Section 424 of the Internal Revenue Code) to the extent that the aggregate fair market value of the underlying stock (determined at the time the option is granted) exceeds $100,000.
+Added: ● Under the Plan, we may not, in the aggregate, grant incentive stock options that are first exercisable by any individual optionee during any calendar year (under all such plans of the optionee’s employer corporation and its “parent” and “subsidiary” corporations, as those terms are defined in Section 424 of the Internal Revenue Code) to the extent that the aggregate fair market value of the underlying stock (determined at the time the option is granted) exceeds $100,000.
● Restricted stock awards give the recipient the right to receive a specified number of shares of common stock, subject to such terms, conditions and restrictions as the Board or the Committee, as the case may be, deems appropriate.
Restrictions may include limitations on the right to transfer the stock until the expiration of a specified period of time and forfeiture of the stock upon the occurrence of certain events such as the termination of employment prior to expiration of a specified period of time.
−Removed: Certain Awards made under the Plan may be granted so that they qualify as “performance-based compensation”
−Removed: (as this term is used in Internal Revenue Code Section 162(m) and the regulations thereunder) and are exempt from the deduction limitation imposed by Code Section 162(m) (these Awards are referred to as “Performance-Based Awards”).
+Added: ● Certain Awards made under the Plan may be granted so that they qualify as “performance-based compensation” (as this term is used in Internal Revenue Code Section 162(m) and the regulations thereunder) and are exempt from the deduction limitation imposed by Code Section 162(m) (these Awards are referred to as “Performance-Based Awards”).
Under Internal Revenue Code Section 162(m), our tax deduction may be limited to the extent total compensation paid to the chief executive officer, or any of the four most highly compensated executive officers (other than the chief executive officer) exceeds $1 million in any one tax year.
In accordance with the 2017 Tax Cuts and Jobs Act, the tax deductibility for each of these executives will be limited to $1,000,000 of compensation annually, including any performance-based compensation.
−Removed: Among other criteria, Awards only qualify as performance-based awards if at the time of grant the compensation committee is comprised solely of two or more “outside directors”
−Removed: (as this term is used in Internal Revenue Code Section 162(m) and the regulations thereunder).
−Removed: In addition, we must obtain stockholder approval of material terms of performance goals for such “performance-based compensation.”
+Added: Among other criteria, Awards only qualify as performance-based awards if at the time of grant the compensation committee is comprised solely of two or more “outside directors” (as this term is used in Internal Revenue Code Section 162(m) and the regulations thereunder).
+Added: In addition, we must obtain stockholder approval of material terms of performance goals for such “performance-based compensation.”
● All stock options and certain stock awards, performance awards, and stock units granted under the Plan, and the compensation attributable to such Awards, are intended to (i) qualify as performance-based awards or (ii) be otherwise exempt from the deduction limitation imposed by Internal Revenue Code Section 162(m).
4 unchanged sentences
Options may be exercised in whole or in part.
−Removed: The exercise price of stock options granted is generally the fair market value of the Company’s common stock as determined by the Board on the date of grant, considering factors such as the sale of stock, results of operations, and consideration of the fair value of comparable private companies in the industry.
+Added: The exercise price of stock options granted is generally the fair market value of the Company’s common stock as determined by the Board on the date of grant, considering factors such as the sale of stock, results of operations, and consideration of the fair value of comparable private companies in the industry.
The fair value of each stock option award is estimated using the Black-Scholes option pricing model based on certain assumptions.
3 unchanged sentences
Treasury rates at the date of grant with maturity dates approximately equal to the expected term at the grant date.
−Removed: The historical volatility of comparable companies’
−Removed: stock is used as the basis for the volatility assumption.
+Added: The historical volatility of comparable companies’ stock is used as the basis for the volatility assumption.
The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus assumes a 0% dividend yield.
26 unchanged sentences
Plan or Program
+Added: March 1, 2020 to March 31, 2020 (i)
+Added: May 1, 2020 to May 31, 2020 (i)
+Added: December 1, 2020 to December 31, 2020 (i)
+Added: Total year ended December 31, 2020
September 1, 2019 to September 30, 2019 (i)
3 unchanged sentences
Total year ended December 31, 2019
−Removed: March 1, 2018 to March 31, 2018 (i)
−Removed: April 1, 2018 to April 30, 2018 (i)
−Removed: May 1, 2018 to May 31, 2018 (i)
−Removed: November 1, 2018 to November 30, 2018 (i)
−Removed: Total year ended December 31, 2018
−Removed: The shares were exchanged from employees and directors in connection with the income tax withholding obligations on behalf of such employees and directors from the vesting of restricted stock.
+Added: (i) The shares were exchanged from employees and directors in connection with the income tax withholding obligations on behalf of such employees and directors from the vesting of restricted stock.
Selected Financial Data
Smaller reporting companies are not required to provide the information required by this Item 6.
−Removed: Management’s Discussion and Analysis of Financial Condition and Results of Operations
−Removed: The following discussion and analysis should be read together with our consolidated financial statements and the notes thereto, included in Item 8 of this Annual Report on Form 10‑K.
−Removed: This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and liquidity and cash flows for the years ended December 31, 2019 and 2018.
−Removed: Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning factors that are beyond our control.
−Removed: We are a media and consumer products company engaged in the design, production, marketing, wholesale distribution, and direct-to-consumer sales of branded apparel, footwear, accessories, jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands.
−Removed: We have developed a design, production, and supply chain capability driven by its proprietary integrated technology platform.
−Removed: Currently, our brand portfolio consists of the Isaac Mizrahi Brand, the Judith Ripka Brand, the Halston Brand, the C Wonder Brand, and other proprietary brands.
−Removed: We also manage the Longaberger brand through our 50% ownership interest in Longaberger Licensing, LLC.
−Removed: Our objective is to build a diversified portfolio of lifestyle consumer brands through organic growth and the strategic acquisition of new brands.
−Removed: To grow our brands, we are focused on the following primary strategies:
−Removed: distribution and/or licensing our brands for distribution through interactive television (i.e.
−Removed: QVC, The Shopping Channel) whereby we design, manage production, merchandise the shows, and manage the on-air talent;
−Removed: licensing our brands to manufacturers and retailers for promotion and distribution through e-commerce, social commerce, and traditional brick-and-mortar retail channels whereby we provide certain design services and, in certain cases, manage supply and merchandising;
−Removed: wholesale distribution of our brands to retailers that sell to the end consumer;
−Removed: distribution of our brands through our e-commerce site directly to the end consumer;
−Removed: quickly integrate additional consumer brands into our platform and leverage our design, production and marketing capabilities, and distribution relationships.
−Removed: We believe that we offer a unique value proposition to our retail and direct-to-consumer customers, and our licensees for the following reasons:
−Removed: our management team, including our officers’
−Removed: and directors’
−Removed: experience in, and relationships within the industry;
−Removed: our design, production, sales, marketing, and supply chain and integrated technology platform enables us to design and distribute trend-right product;
−Removed: our operating strategy, significant media and internet presence and distribution network.
−Removed: In January 2018, we launched our Judith Ripka Fine Jewelry e-commerce and wholesale operations and in November 2018, we launched our apparel wholesale business.
−Removed: In support of these new operations, we hired a new Chief Merchandising Officer and built out the infrastructure to support these operations.
−Removed: Our vision is intended to reimagine shopping, entertainment, and social as one.
−Removed: By leveraging digital and social media content across all distribution channels, we seek to drive consumer engagement and generate retail sales across our brands.
−Removed: Our strong relationships with leading retailers and interactive television companies and cable networks enable us to reach consumers in over 380 million homes worldwide and hundreds of millions of social media followers.
−Removed: We believe our design, production and supply chain platform provides significant competitive advantages compared with traditional wholesale apparel companies that design, manufacture, and distribute products.
−Removed: We focus on our core competencies of design, integrated technologies, design, production and supply chain platform, marketing, and brand development.
−Removed: We believe that we offer a 360 degree solution to our retail partners that addresses many of the challenges facing the retail industry today.
−Removed: We believe our platform is highly scalable.
−Removed: Additionally, we believe we can quickly integrate additional brands into our platform in order to leverage our design, production, and marketing capabilities, and distribution network.
−Removed: Summary of Critical Accounting Policies
−Removed: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
−Removed: Critical accounting policies are those that are the most important to the portrayal of our financial condition and results of operations, and that require our most difficult, subjective, and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain.
−Removed: While our significant accounting policies are described in more detail in the notes to our financial statements, our most critical accounting policies, discussed below, pertain to revenue recognition, trademarks and other intangible assets, stock-based compensation, fair value of contingent obligations, and income taxes.
−Removed: In applying such policies, we must use some amounts that are based upon our informed judgments and best estimates.
−Removed: Estimates, by their nature, are based upon judgments and available information.
−Removed: The estimates that we make are based upon historical factors, current circumstances, and the experience and judgment of management.
−Removed: We evaluate our assumptions and estimates on an ongoing basis.
−Removed: Revenue Recognition
−Removed: In connection with our licensing model, we follow Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 606‑10‑55‑65, by which we recognize revenue at the later of when (1) the subsequent sale or usage occurs or (2) the performance obligation to which some or all of the sales- or usage-based royalty has been allocated is satisfied (in whole or in part).
−Removed: More specifically, we separately identify:
−Removed: (i) Contracts for which, based on experience, royalties are expected to exceed any applicable minimum guaranteed payments, and to which an output-based measure of progress based on the “right to invoice”
−Removed: practical expedient is applied because the royalties due for each period correlate directly with the value to the customer of our performance in each period (this approach is identified as “View A”
−Removed: by the FASB Revenue Recognition Transition Resource Group, “TRG”);
−Removed: (ii) Contracts for which revenue is recognized based on minimum guaranteed payments using an appropriate measure of progress, in which minimum guaranteed payments are straight-lined over the term of the contract and recognized ratably based on the passage of time, and to which the royalty recognition constraint to the sales-based royalties in excess of minimum guaranteed is applied and such sales-based royalties are recognized to distinct period only when the minimum guaranteed is exceeded on a cumulative basis (this approach is identified as “View C”
−Removed: The Company earns design fees for serving as a buying agent for apparel under private labels for large retailers.
−Removed: As a buying agent, the Company utilizes its expertise and relationships with manufacturers to facilitate the production of private label apparel to customer specifications.
−Removed: The Company’s design fee revenue also includes fees charged for its design and product development services provided to certain suppliers.
−Removed: The Company satisfies its performance obligation to its customers by performing the services in buyer agency agreements and thereby earning its design fee at the point in time when the customer’s freight forwarder takes control of the goods.
−Removed: The Company satisfies its performance obligation with the suppliers and earns its design fee from the factory at the point in time when the customer’s freight forwarder takes control of the goods.
−Removed: Wholesale Sales
−Removed: The Company generates revenue through sale of branded jewelry and apparel to both domestic and international customers who, in turn, sell the products to their consumers.
−Removed: The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which occurs upon the transfer of control of the merchandise in accordance with the contractual terms and conditions of the sale.
−Removed: Direct to Consumer Sales
−Removed: The Company’s revenue associated with its e-commerce jewelry operations is recognized at a point in time when product is shipped to the customer.
−Removed: Trademarks and Other Intangible Assets
−Removed: We follow ASC Topic 350, “Intangibles - Goodwill and Other.”
−Removed: Under this standard, goodwill and indefinite-lived intangible assets are not amortized, but are required to be assessed for impairment at least annually.
−Removed: Our finite-lived intangible assets are amortized over their estimated useful lives.
−Removed: We perform our annual quantitative analysis of indefinite-lived intangible assets as of December 31 each year.
−Removed: As a result of performing our annual impairment testing for the year ended December 31, 2019, we recorded a $6.2 million impairment charge related to the Ripka Brand trademarks, driven by the timing of the continued transition from a licensing model to a wholesale and direct to consumer model.
−Removed: No other impairment charges were recorded for the years ended December 31, 2019 and 2018.
−Removed: Indefinite-Lived Intangibles
−Removed: The Company tests its indefinite-lived intangible assets for recovery in accordance with ASC‑820‑10‑55‑3F, which states that the income approach (“Income Approach”) converts future amounts (for example cash flows) in a single current (that is, discounted) amount.
−Removed: When the Income Approach is used, fair value measurement reflects current market expectations about those future amounts.
−Removed: The Income Approach is based on the present value of future earnings expected to be generated by a business or asset.
−Removed: Income projections for a future period are discounted at a rate commensurate with the degree of risk associated with future proceeds.
−Removed: A residual or terminal value is also added to the present value of the income to quantify the value of the business beyond the projection period.
−Removed: As such, recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to its expected future discounted net cash flows.
−Removed: If the carrying amount of such assets is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the recoverability of the assets.
−Removed: Finite-Lived Intangibles
−Removed: With reference to our finite-lived intangible assets impairment process, the Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of undiscounted future cash flows.
−Removed: If the undiscounted cash flows do not indicate
−Removed: the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flows analysis or appraisals.
−Removed: Stock-Based Compensation
−Removed: We account for stock-based compensation in accordance with ASC Topic 718, “Compensation - Stock Compensation,”
−Removed: by recognizing the fair value of stock-based compensation as an operating expense over the service period of the award or term of the corresponding contract, as applicable.
−Removed: Stock option awards are valued using a Black-Scholes option pricing model, which requires the input of subjective assumptions including expected stock price volatility and the estimated life of each award.
−Removed: Restricted stock awards are valued using the fair value of our common stock at the date the common stock is granted.
−Removed: For stock option awards for which vesting is contingent upon the achievement of certain performance targets, the timing and amount of compensation expense recognized is based upon the Company’s projections and estimates of the relevant performance metric(s).
−Removed: Fair Value of Contingent Obligations
−Removed: ASC 805-50-30 requires that, when accounting for asset acquisitions, when the fair value of the assets acquired is greater than the consideration paid, any contingent obligations shall be recognized and recorded as the positive difference between the fair value of the assets acquired and the consideration paid for the acquired assets.
−Removed: ASC 805-50-30 also requires that when the fair value of the assets acquired is equal to the consideration paid, any contingent obligations shall be recognized based upon the Company’s best estimate of the amount that will be paid to settle the liability.
−Removed: We recognized contingent obligations in connection with the acquisition of Judith Ripka Trademarks in 2014, the acquisition of the C Wonder Trademarks in 2015, and the acquisition of the Halston Heritage Trademarks in 2019.
−Removed: We determine if an arrangement is a lease at inception.
−Removed: At commencement of a lease, we recognize an operating lease right-of-use (“ROU”) asset, representing our right to use the underlying leased asset for the lease term, and a lease liability, representing our obligation to make future lease payments, based on the present value of the remaining lease payments over the lease term.
−Removed: As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
−Removed: We may use the implicit rate when readily determinable.
−Removed: Operating lease ROU assets also include scheduled lease payments made and initial direct costs, and exclude lease incentives and accrued rent.
−Removed: Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
−Removed: Lease expense for operating lease payments is generally recognized on a straight-line basis over the lease term.
−Removed: For real estate leases of office space, we account for the lease and non-lease components as a single lease component.
−Removed: Variable lease payments that do not depend on an index or rate (such as real estate taxes and building insurance and lessee’s shares thereof), if any, are excluded from lease payments at lease commencement date for initial measurement.
−Removed: Subsequent to initial measurement, these variable payments are recognized when the event determining the amount of variable consideration to be paid occurs.
−Removed: For leases with a term of 12 months or less, we do not recognize lease liabilities and ROU assets, but recognize the lease payments in net income on a straight-line basis over the respective lease terms.
−Removed: We recognize income from subleases (in which we are the sublessor) on a straight-line basis over the term of the sublease, as a reduction to lease expense.
−Removed: Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.
−Removed: Deferred income taxes are determined based on the temporary difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in which the differences are expected to reverse.
−Removed: allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
−Removed: ASC Topic 740, “Accounting for Income Taxes”
−Removed: clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements.
−Removed: Tax positions shall initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities.
−Removed: Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a probability of fifty percent or greater of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts.
−Removed: Tax years that remain open for assessment for federal and state tax purposes include the years ended December 31, 2016 through December 31, 2019.
−Removed: Recently Issued Accounting Pronouncements
−Removed: In August 2018, the FASB issued ASU No.
−Removed: 2018‑13, “Fair Value Measurement (Topic 820):
−Removed: Disclosure Framework –
−Removed: Changes to the Disclosure Requirements for Fair Value Measurement.”
−Removed: This ASU adds, modifies, and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.”
−Removed: This guidance is effective for public companies for fiscal years beginning after December 15, 2019, with early adoption permitted.
−Removed: We are currently evaluating the new guidance to determine the impact the adoption of this guidance will have on our results of operations, cash flows, and financial condition.
−Removed: In December 2019, the FASB issued ASU No.
−Removed: 2019-12, “Income Taxes (Topic 740):
−Removed: Simplifying the Accounting for Income Taxes.”
−Removed: This ASU removes certain exceptions to the general principles in Topic 740, including, but not limited to, intraperiod tax allocations and interim period tax calculations.
−Removed: The ASU also provides additional clarification and guidance related to recognition of franchise taxes and changes in tax laws.
−Removed: This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.
−Removed: We are currently evaluating the new guidance to determine the impact the adoption of this guidance will have on our results of operations, cash flows, and financial condition.
−Removed: Recently Adopted Accounting Pronouncements
−Removed: We adopted ASU No.
−Removed: 2016-02, “Leases,”
−Removed: effective January 1, 2019, by applying the new guidance under the additional and alternative transition method allowed by ASU No.
−Removed: 2018-11, “Leases (Topic 842):
−Removed: Targeted Improvements.”
−Removed: The core principle of this standard is that an entity should recognize on its balance sheet assets and liabilities arising from a lease.
−Removed: In accordance with that principle, the new lease accounting guidance requires that a lessee recognize a liability to make future lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying leased asset for the lease term.
−Removed: As of January 1, 2019, the adoption resulted in the recognition of operating lease right-of-use ("ROU") assets of approximately $10.4 million, lease liabilities of approximately $13.2 million, and a decrease of approximately $2.8 million in accrued rent.
−Removed: The adoption of the new lease accounting guidance did not have an impact on our consolidated statement of operations, and had no impact on cash provided by or used in operating, financing, or investing activities in our consolidated statement of cash flows.
−Removed: We elected the available practical expedients under ASC 842-10-15-37 (thereby not separating lease components from non-lease components and instead accounting for all components as a single lease component) and ASC 842-10-65-1 (thereby, among other things, not reassessing lease classification), and implemented changes to our processes and methodologies related to leases to enable the preparation of financial information upon adoption and to allow for the correct identification, classification, and measurement of leases in accordance with the new guidance going forward.
−Removed: We determine if an arrangement is a lease at inception.
−Removed: Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of the remaining lease payments over the lease term.
−Removed: As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
−Removed: We may use the implicit rate when readily determinable.
−Removed: Operating lease ROU assets also include scheduled lease payments made and initial direct costs, and exclude lease incentives and accrued rent.
−Removed: Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
−Removed: Lease expense for operating lease payments is generally recognized on a straight-line basis over the lease term.
−Removed: For real estate leases of office space, we account for the lease and non-lease components as a single lease component.
−Removed: Variable lease payments that do not depend on an index or rate (such as real estate taxes and building insurance and lessee’s shares thereof), if any, are excluded from lease payments at lease commencement date for initial measurement.
−Removed: Subsequent to initial measurement, these variable payments are recognized when the event determining the amount of variable consideration to be paid occurs.
−Removed: For leases with a term of 12 months or less, we do not recognize lease liabilities and ROU assets, but recognize the lease payments in net income on a straight-line basis over the respective lease terms.
−Removed: We recognize income from subleases (in which we are the sublessor) on a straight-line basis over the term of the sublease, as a reduction to lease expense.
−Removed: Summary of Operating Results
−Removed: The consolidated financial statements and related notes included elsewhere in this Form 10‑K are as of, or for the year ended December 31, 2019 (the “Current Year”), and the year ended December 31, 2018 (the “Prior Year”).
−Removed: Current Year net revenue increased approximately $6.2 million to $41.7 million from $35.5 million for the Prior Year.
−Removed: Our jewelry wholesale and e-commerce sales and apparel wholesale sales contributed $15.3 million to net revenue in the Current Year, compared with $4.3 million in the Prior Year.
−Removed: This $11.0 million increase was primarily attributable to the launch of our apparel wholesale business in November 2018, as well as growth in our Judith Ripka Fine Jewelry e-commerce business.
−Removed: Net licensing revenue decreased by approximately $4.8 million in the Current Year to $26.4 million, compared with $31.2 million in the Prior Year.
−Removed: This decline was primarily driven by (i) revenues from one of our existing licensing arrangements changing from guaranteed minimum amounts to sales-based royalties effective April 1, 2019, and (ii) a decrease in design and service fees in our department store business attributable to the transition from a licensing model to a wholesale model.
−Removed: These declines were partially offset by growth in other existing and new licensing arrangements, as well as revenues recognized in the Current Year related to the recently acquired Halston Heritage brand.
−Removed: Cost of Goods Sold
−Removed: Current Year cost of goods sold was $10.3 million, compared with $2.7 million for the Prior Year.
−Removed: This increase was due to higher volume of wholesale and e-commerce sales in the Current Year.
−Removed: Current Year gross profit (which includes cost of goods sold) decreased approximately $1.3 million to $31.5 million from $32.8 million for the Prior Year, while gross profit margin decreased from 92% to 75%.
−Removed: This decrease was primarily attributable to the decrease in net licensing revenue, partially offset by an increase in net margin from product sales.
−Removed: Operating Costs and Expenses
−Removed: Operating costs and expenses increased approximately $8.1 million to $36.9 million for the Current Year from approximately $28.8 million in the Prior Year.
−Removed: This increase was primarily attributable to a $6.2 million non-cash impairment charge recorded in the Current Year related to the Ripka Brand trademarks, driven by the timing of the continued transition from a licensing model to a wholesale and direct to consumer model.
−Removed: Also contributing to the increase in total operating costs and expenses was a $2.1 million increase in amortization expense for our intangible assets, due to the change in the previously-owned Halston trademarks from indefinite-lived assets to finite-lived assets as of January 1, 2019, and the February 2019 acquisition of the Halston and Halston Heritage trademarks, also determined to be finite-lived assets.
−Removed: In addition, we incurred $1.3 million of costs in the Current Year in connection with potential acquisitions.
−Removed: These various expense increases were partially offset by a reduction in salary and benefit costs and lower stock-based compensation of $0.7 million and $0.8 million, respectively.
−Removed: During the Current Year, we recognized a $2.85 million gain on the reduction of contingent obligations related to the 2015 acquisition of the C Wonder Brand.
−Removed: As part of that acquisition, the seller was eligible to earn additional consideration based on future royalties related to the C Wonder Brand exceeding certain thresholds, and we recorded a liability for the potential future payment of such consideration.
−Removed: The final earn-out period ended on June 30, 2019, and the seller ultimately did not earn any additional consideration under the terms of the purchase agreement.
−Removed: Interest and Finance Expense
−Removed: Interest and finance expense for the Current Year was $1.47 million, compared with $1.01 million for the Prior Year.
−Removed: This increase was mainly attributable to the February 11, 2019 term loan amendment, which resulted in (i) a $0.19 million loss on extinguishment of debt (consisting of unamortized deferred finance costs), (ii) a higher outstanding principal balance as compared with the prior year period, and (iii) a higher interest rate than under the previous term loan.
−Removed: Income Tax (Benefit) Provision
−Removed: The effective income tax rate for the Current Year was approximately 15.8% resulting in a $0.6 million income tax benefit.
−Removed: During the Current Year, the effective tax rate was impacted by the vesting of restricted shares of common stock.
−Removed: The excess tax deficiencies were treated as a discrete item in the determination of the tax provision as required by ASU 2016‑09, “Improvements to Employee Share-Based Payment Accounting,”
−Removed: decreasing the effective rate by approximately 7.0%.
−Removed: The effective tax rate was also impacted by recurring permanent differences, which, based on the amount of income before income taxes compared to the permanent differences, increased the effective rate in 2019 by approximately 1.8%.
−Removed: The largest such recurring permanent differences were state and local tax provisions, which increased the effective rate in 2019 by approximately 7.4%, and was largely offset by the effect of disallowed excess compensation, which decreased the effective rate in 2019 by approximately 5.1%.
−Removed: The effective income tax rate for the Prior Year was approximately 62.7% resulting in a $1.8 million income tax expense.
−Removed: During the Prior Year, the effective tax rate was impacted by recurring permanent differences, which, based on the amount of income before income taxes compared to the permanent differences, increased the effective rate by 23.4%.
−Removed: The largest such recurring permanent difference was disallowed excess compensation, which increased the effective rate in 2018 by 8.4%.
−Removed: The effective tax rate was also impacted by the vesting of restricted shares of common stock.
−Removed: The excess tax deficiencies were treated as a discrete item for tax as required by ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, and this item increased the effective rate by approximately 18.3%.
−Removed: Net (Loss) Income
−Removed: We had a net loss of approximately $3.4 million for the Current Year, compared with net income of approximately $1.1 million for the Prior Year, as a result of the factors discussed above.
−Removed: Non-GAAP Net Income, Non-GAAP Diluted EPS and Adjusted EBITDA
−Removed: We had non-GAAP net income of $4.8 million or $0.25 per share (“non-GAAP diluted EPS”) based on 18,858,379 weighted average shares outstanding for the Current Year, compared with non-GAAP net income of $6.5 million, or $0.36 per share based on 18,281,638 weighted average shares outstanding for the Prior Year.
−Removed: Non-GAAP net income is a non-GAAP unaudited term, which we define as net income, exclusive of intangible asset impairments, amortization of trademarks, stock-based compensation, non-cash interest and finance expense from discounted debt related to acquired assets, loss on extinguishment of debt, gain on reduction of contingent obligations, costs in connection with potential acquisitions, non-recurring facility exit charges, and deferred income taxes.
−Removed: Non-GAAP net income 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.
−Removed: We had Adjusted EBITDA of $7.1 million for the Current Year, compared with Adjusted EBITDA of approximately $8.4 million for the Prior Year.
−Removed: Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income before interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, depreciation and amortization, intangible asset impairments, stock-based compensation, gain on reduction of contingent obligations, costs in connection with potential acquisitions, and non-recurring facility exit charges.
−Removed: Management uses non-GAAP net income, 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.
−Removed: Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because these measures adjust for certain costs and other events that 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.
−Removed: Non-GAAP net income, 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.
−Removed: Given that non-GAAP net income, 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, 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 these measures in a different manner than we do.
−Removed: In evaluating non-GAAP net income, 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.
−Removed: Our presentation of non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items.
−Removed: When evaluating our performance, you should consider non-GAAP net income, 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.
−Removed: The following table is a reconciliation of net (loss) income (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:
−Removed: Year Ended December 31,
−Removed: ($ in thousands)
−Removed: Net (loss) income attributable to Xcel Brands, Inc.
−Removed: Intangible asset impairment
−Removed: Amortization of trademarks
−Removed: Non-cash interest and finance expense
−Removed: Stock-based compensation
−Removed: Costs in connection with potential acquisition
−Removed: Loss on extinguishment of debt
−Removed: Gain on reduction of contingent obligation
−Removed: Non-recurring facility exit charges
−Removed: Deferred income tax (benefit) provision
−Removed: Non-GAAP net income
−Removed: The following table is a reconciliation of diluted (loss) earnings per share to non-GAAP diluted EPS:
−Removed: Year Ended December 31,
−Removed: Diluted (loss) earnings per share, attributable to Xcel Brands, Inc.
−Removed: Intangible asset impairment
−Removed: Amortization of trademarks
−Removed: Non-cash interest and finance expense
−Removed: Stock-based compensation
−Removed: Costs in connection with potential acquisition
−Removed: Loss on extinguishment of debt
−Removed: Gain on reduction of contingent obligation
−Removed: Non-recurring facility exit charges
−Removed: Deferred income tax (benefit) provision
−Removed: Non-GAAP diluted EPS
−Removed: Diluted weighted average shares outstanding
−Removed: The following table is a reconciliation of basic weighted average shares outstanding to non-GAAP diluted weighted average shares outstanding:
−Removed: Year Ended December 31,
−Removed: Basic weighted average shares
−Removed: Effect of exercising warrants
−Removed: Non-GAAP diluted weighted average shares outstanding
−Removed: The following table is a reconciliation of net (loss) income (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:
−Removed: Year Ended December 31,
−Removed: ($ in thousands)
−Removed: Net (loss) income attributable to Xcel Brands, Inc.
−Removed: Intangible asset impairment
−Removed: Depreciation and amortization
−Removed: Interest and finance expense
−Removed: Income tax (benefit) provision
−Removed: State and local franchise taxes
−Removed: Costs in connection with potential acquisition
−Removed: Stock-based compensation
−Removed: Gain on reduction of contingent obligation
−Removed: Non-recurring facility exit charges
−Removed: Adjusted EBITDA
−Removed: Liquidity and Capital Resources
−Removed: Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures.
−Removed: As of December 31, 2019 and December 31, 2018, our cash and cash equivalents were $4.6 million and $8.8 million, respectively.
−Removed: Restricted cash at December 31, 2019 consisted of $1.1 million of cash deposited with Bank Hapoalim B.M.
−Removed: (“BHI”) as collateral for an irrevocable standby letter of credit associated with the lease of our current corporate office and operating facility.
−Removed: Restricted cash at December 31, 2018 consisted of (i) $1.1 million of cash deposited with BHI as collateral for an
−Removed: irrevocable standby letter of credit associated with the lease of our current corporate office and operating facility, and (ii) $0.4 million of cash held as a security deposit for the sublease of our former corporate offices by us to a third-party subtenant.
−Removed: We expect that existing cash and operating cash flows will be adequate to meet our operating needs, term debt service obligations, and capital expenditure needs, for at least the twelve months subsequent to the filing date of this Annual Report on Form 10‑K.
−Removed: Our contingent obligation of $0.9 million related to the acquisition of the Halston Heritage trademarks (see Note 3 in the Notes to Consolidated Financial Statements) is generally required to be paid in shares of our common stock, subject to certain limitations.
−Removed: Payment of this obligation in stock would not affect our liquidity.
−Removed: Changes in Working Capital
−Removed: Our working capital (current assets less current liabilities, excluding the current portion of lease obligations and any contingent liabilities payable in common stock) was $9.5 million and $10.7 million as of December 31, 2019 and 2018, respectively.
−Removed: Commentary on components of our cash flows for the Current Year compared with the Prior Year is set forth below.
−Removed: Working capital as of December 31, 2019 included $10.6 million of accounts receivable;
−Removed: substantially all of this balance was collected subsequent to year-end.
−Removed: Operating Activities
−Removed: Net cash provided by operating activities was approximately $3.5 million and $6.6 million in the Current Year and Prior Year, respectively.
−Removed: The Current Year’s cash provided by operating activities was primarily attributable to the combination of the net loss of $(3.4) million plus non-cash expenses of approximately $7.8 million, partially offset by a net change in operating assets and liabilities of approximately $(0.9) million.
−Removed: Non-cash net expenses mainly consisted of a $6.2 million intangible asset impairment charge, $3.9 million of depreciation and amortization, $1.0 million of stock-based compensation, $(0.7) million of deferred income tax benefit, $(2.9) million of gain on reduction of contingent obligations, and $0.2 million of loss on extinguishment of debt.
−Removed: The net change in operating assets and liabilities includes a decrease in accounts receivable of $0.4 million, a decrease in inventory of $1.1 million, and a decrease in accounts payable, accrued expenses and other current liabilities of $(1.7) million, all of which are primarily due to timing of collections and payments, and cash paid in excess of rent expense of $(0.4) million.
−Removed: The Prior Year’s cash provided by operating activities was primarily attributable to the combination of a net income of $1.1 million plus non-cash expenses of approximately $5.7 million and net change in operating assets and liabilities of approximately $(0.2) million.
−Removed: Non-cash net expenses primarily consisted of $1.8 million of stock-based compensation, $1.8 million of depreciation and amortization, and $1.8 million of deferred income tax expense.
−Removed: The net change in operating assets and liabilities includes a net increase in accounts receivable of $(2.7) million, an increase in inventory of $(2.0) million, an increase in prepaid expenses of $(0.4) million, partially offset by an increase in accounts payable, accrued expenses and other current liabilities of $4.6 million, and increases of $0.2 million in other liabilities.
−Removed: The changes in accounts receivable, inventory, and accounts payable were mainly due to operations related to wholesale and e-commerce that were launched in 2018.
−Removed: Investing Activities
−Removed: Net cash used in investing activities for the Current Year was approximately $10.3 million, compared with $1.5 million in the Prior Year.
−Removed: Cash used in investing activities for the Current Year was primarily related to $8.8 million in cash consideration paid to acquire the Halston Heritage Brands, as well as capital expenditures of $1.1 million predominantly related to implementation of our ERP system.
−Removed: Cash used in investing activities in the Prior Year was primarily attributable to capital expenditures of $1.0 million related to the launch of our wholesale business and $0.4 million related to the implementation of our ERP system.
−Removed: Financing Activities
−Removed: Net cash provided by (used in) financing activities for the Current Year was approximately $2.3 million, and was primarily attributable to proceeds received from long-term debt of $7.5 million, partially offset by payments made on our senior term debt obligation of $(4.0) million, the final payment on the IM Seller Note obligation of $(0.7) million, and payment of $(0.3) million of deferred finance costs.
−Removed: Net cash used in financing activities for the Prior Year was approximately $6.5 million, and was primarily attributable to payments made on our senior term debt obligation of $4.0 million, payments on the IM Seller Note obligation of $1.5 million, and shares repurchased related to vested restricted stock in exchange for withholding taxes of $1.0 million.
−Removed: Obligations and Commitments
−Removed: Term Loan Debt
−Removed: On February 26, 2016, the Company and its wholly owned subsidiaries, IM Brands, LLC, JR Licensing, LLC, H Licensing, LLC, C Wonder Licensing, LLC, Xcel Design Group, LLC, IMNY Retail Management, LLC, and IMNY E-Store, USA, LLC (each a “Guarantor”
−Removed: and collectively, the “Guarantors”), as Guarantors, entered into an amended and restated loan and security agreement (the “Loan Agreement”) with Bank Hapoalim B.M.
−Removed: as agent, and the financial institutions party thereto as lenders.
−Removed: The Loan Agreement amended and restated the previous IM Term Loan, JR Term Loan, and H Term Loan.
−Removed: Pursuant to the Loan Agreement, Xcel assumed the obligations of each of IM Brands, LLC, JR Licensing, LLC, and H Licensing, LLC under the respective term loans with BHI in the aggregate principal amount of $27.9 million (the loan under the Loan Agreement is referred to as the “Xcel Term Loan”).
−Removed: The Xcel Term Loan was due to mature on January 1, 2021.
−Removed: Principal on the Xcel Term Loan was payable in quarterly installments on each of January 1, April 1, July 1 and October 1.
−Removed: The Xcel Term Loan was amended in February 2017 and again in June 2017.
−Removed: Under these amendments, principal payments for the year ended December 31, 2017 were increased by a total of $0.8 million, principal payments for the year ended December 31, 2019 were increased by a total of $1.0 million, and principal payments for the year ending December 31, 2021 were decreased by $1.8 million.
−Removed: In addition, the minimum EBITDA (as defined in the Loan Agreement) requirement for the year ended December 31, 2017 was changed from $9.0 million to $7.0 million, and the minimum EBITDA requirements for the years ended December 31, 2018 and 2019 were changed from $9.0 million to $8.0 million, respectively.
−Removed: There were no changes to the total principal balance, interest rate, maturity date, or other terms of the Loan Agreement.
−Removed: Management assessed and determined that these amendments represented debt modifications and, accordingly, no gain or loss was recorded.
−Removed: On February 11, 2019 (also referred to herein as the “Closing Date”), the Company entered into an amended loan agreement with BHI (the “Second Amended and Restated Loan and Security Agreement”), which amended and restated the Prior Xcel Term Loan.
−Removed: Immediately prior to February 11, 2019, the aggregate principal amount of the Prior Xcel Term loan was $14.5 million.
−Removed: Pursuant to the Loan Agreement, the Lenders have extended to Xcel an additional term loan in the amount of $7.5 million, such that, as of February 11, 2019, the aggregate outstanding balance of all the term loans extended by BHI to Xcel was $22.0 million, which amount has been divided under the Loan Agreement into two term loans:
−Removed: (1) a term loan in the amount of $7.3 million (“Term Loan A”) and (2) a term loan in the amount of $14.7 million (“Term Loan B”
−Removed: and, together with Term Loan A, the “Term Loans”).
−Removed: The terms and conditions of the Second Amended and Restated Xcel Term Loan resulted in significantly different debt service payment requirements, compared with the Prior Xcel Term Loan, which included an increase of $7.5 million in the principal balance, and related changes to the timing and amount of principal payments, as well as changes in the interest rate.
−Removed: Management assessed and determined that this amendment resulted in an extinguishment of debt and recognized a loss of $0.2 million (consisting of unamortized deferred finance costs) during the year ended December 31, 2019.
−Removed: The Second Amended and Restated Loan and Security Agreement also contemplates that BHI, or their affiliates (collectively, the “Lenders”) can provide to Xcel a revolving loan facility and a letter of credit facility, the terms of each
−Removed: of which shall be agreed to by Xcel and the Lenders.
−Removed: Amounts advanced under the revolving loan facility (the “Revolving Loans”) will be used for the purpose of consummating acquisitions by Xcel or its subsidiaries that are or become parties to the Second Amended and Restated Loan and Security Agreement.
−Removed: Xcel will have the right to convert Revolving Loans to incremental term loans (the “Incremental Term Loans”) in minimum amounts of $5.0 million.
−Removed: The Company has not drawn down any funds under either the revolving loan facility or letter of credit facility.
−Removed: The Term Loans mature on December 31, 2023, Incremental Term Loans shall mature on the date set forth in the applicable term note, and Revolving Loans and the letter of credit facility shall mature on such date as agreed upon by Xcel and the Lenders.
−Removed: Any letter of credit issued under Second Amended and Restated Loan and Security Agreement shall terminate no later than one year following the date of issuance thereof.
−Removed: On April 13, 2020, the Company further amended its Second Amended and Restated Loan and Security Agreement with BHI.
−Removed: Under this amendment, the quarterly installment payment due March 31, 2020 was deferred, and the amounts of the quarterly installment payments due throughout the remainder of 2020 were reduced, while the amount of principal to be repaid through variable payments based on excess cash flow was increased.
−Removed: In addition, there were multiple changes and waivers to the various financial covenants.
−Removed: Further, this amendment permits Xcel to incur unsecured debt through the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and excludes any associated PPP debt and debt service from the covenant calculations.
−Removed: There were no changes to the total principal balance, interest rate, or maturity date.
−Removed: Principal on the Xcel Term Loan, as amended, is payable in fixed installments as follows:
−Removed: ($ in thousands)
−Removed: Installment Payment Dates
−Removed: June 30, 2020, September 30, 2020, and December 31, 2020
−Removed: March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021
−Removed: April 30, 2021
−Removed: March 31, 2022, June 30, 2022, September 30, 2022, and December 31, 2022
−Removed: March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023
−Removed: In addition to the fixed installments outlined above, commencing with the fiscal quarter ended March 31, 2021, the Company is required to repay a portion of the Xcel Term Loan in an amount equal to 50% of the excess cash flow for the fiscal quarter, provided that no early termination fee shall be payable with respect to any such payment.
−Removed: Excess cash flow means, for any period, cash flow from operations (before certain permitted distributions) less (i) capital expenditures not made through the incurrence of indebtedness, (ii) all cash principal paid or payable during such period, and (iii) all dividends declared and paid (or which could have been declared and paid) during such period to equity holders of any credit party treated as a disregarded entity for tax purposes.
−Removed: To the extent that the cumulative amount of such variable repayments made is less than $2.00 million as of March 31, 2022, any such shortfall must be repaid at that date.
−Removed: Thus, the aggregate remaining annual principal payments under the Xcel Term Loan are as follows:
−Removed: ($ in thousands)
−Removed: Year Ending December 31,
−Removed: Xcel has the right to prepay the Term Loans, Incremental Term Loans, Revolving Loans, and obligations with respect to letters of credit and accrued and unpaid interest thereon and to terminate the Lenders’
−Removed: obligations to make Revolving Loans and issue letters of credit, provided that any prepayment of less than all of the outstanding balances of the Term Loans and Incremental Term Loans shall be applied to the remaining amounts due in inverse order of maturity.
−Removed: If any Term Loan or any Incremental Term Loan is prepaid on or prior to the third anniversary of the Closing Date (including as a result of an event of default), Xcel shall pay an early termination fee as follows:
−Removed: an amount equal to the principal amount of the Term Loan or Incremental Term Loan, as applicable, being prepaid, multiplied by:
−Removed: (i) two percent (2.00%) if any of Term Loan B or any Incremental Term Loan is prepaid on or before the second anniversary of the later of the Closing Date or the date such Incremental Term Loan was made, as applicable;
−Removed: (ii) one percent (1.00%) if any of Term Loan A is prepaid on or before the second anniversary of the Closing Date;
−Removed: (iii) one percent (1.00%) if any of Term Loan B or any Incremental Term Loan is prepaid after the second anniversary of the later of the Closing Date or such Incremental Term Loan was made, as applicable, but on or before the third anniversary of such date;
−Removed: (iv) one-half of one percent (0.50%) if any of Term Loan A is prepaid after the second anniversary of the Closing Date, but on or before the third anniversary of such date;
−Removed: or (v) zero percent (0.00%) if any Term Loan or any Incremental Term Loan is prepaid after the third anniversary of the later of the Closing Date or the date such Incremental Term Loan was made, as applicable.
−Removed: Notwithstanding the above, Xcel may make a voluntary prepayment of up to $0.75 million without any early termination fees, after any PPP loan proceeds have been received by the Company.
−Removed: Any such prepayment would be applied against the April 30, 2021 fixed installment payment and would be excluded from the computation of excess cash flows.
−Removed: Xcel’s obligations under the Xcel Term Loan are guaranteed by and secured by all of the assets of Xcel and its wholly owned subsidiaries, as well as any subsidiary formed or acquired that becomes a credit party to the Xcel Term Loan agreement (the “Guarantors”) and, subject to certain limitations contained in Xcel Term Loan, equity interests of the Guarantors.
−Removed: Xcel also granted the Lenders a right of first offer to finance any acquisition for which the consideration will be paid other than by cash of Xcel or by the issuance of equity interest of Xcel.
−Removed: The Amended Loan Agreement contains customary covenants, including reporting requirements, trademark preservation, and the following financial covenants of the Company (on a consolidated basis with the Guarantors under the Second Amended and Restated Loan and Security Agreement):
−Removed: net worth of at least $90.0 million at the end of each fiscal quarter;
−Removed: liquid assets of at least $3.25 million through the earlier of December 31, 2020 or such time as any PPP loan proceeds are received by the Company, at least $4.0 million through December 31, 2020 provided that PPP loan proceeds have been received by the Company, and at least $5.0 million thereafter;
−Removed: EBITDA shall not be less than $6.8 million for the fiscal year ended December 31, 2019, $5.0 million for the twelve fiscal month period ending March 31, 2020, and $4.8 million for the twelve fiscal month period ending June 30, 2020;
−Removed: the fixed charge coverage ratio for the twelve fiscal month period ending at the end of each fiscal quarter shall not be less than the ratio set forth below:
−Removed: Fiscal Quarter End
−Removed: Fixed Charge Coverage Ratio
−Removed: September 30, 2020
−Removed: December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and thereafter
−Removed: capital expenditures (excluding any capitalized compensation costs) shall not exceed $1.7 million for the fiscal year ended December 31, 2018;
−Removed: $0.7 million for the fiscal year ended December 31, 2019;
−Removed: $1.6 million for the fiscal year ending December 31, 2020, and $0.7 million for any fiscal year beginning after December 31, 2020;
−Removed: the leverage ratio for the twelve fiscal month period ending at the end of each fiscal period set forth below shall not exceed the ratio set forth below:
−Removed: Fiscal Period
−Removed: Maximum Leverage Ratio
−Removed: December 31, 2018
−Removed: June 30, 2020
−Removed: September 30, 2020
−Removed: December 31, 2020
−Removed: March 31, 2021, June 30, 2021 and September 30, 2021
−Removed: December 31, 2021 and each Fiscal Quarter end thereafter
−Removed: The Company was in compliance with all applicable covenants under the Second Amended and Restated Loan and Security Agreement as of and for the fiscal year ended December 31, 2019.
−Removed: Interest on Term Loan A accrues at a fixed rate of 5.1% per annum and is payable on each day on which the scheduled principal payments on Term Loans are required to be made.
−Removed: Interest on Term Loan B accrues at a fixed rate of 6.25% per annum and is payable on each day on which the scheduled principal payments on Term Loans are required to be made.
−Removed: Interest on the Revolving Loans will accrue at either the Base Rate or LIBOR, as elected by Xcel, plus a margin to be agreed to by Xcel and the Lenders and will be payable on the first day of each month.
−Removed: Base Rate is defined in the Xcel Term Loan agreement as the greater of (a) BHI’s stated prime rate or (b) 2.00% per annum plus the overnight federal funds rate published by the Federal Reserve Bank of New York.
−Removed: Interest on the Incremental Term Loans will accrue at rates to be agreed to by Xcel and the Lenders and will be payable on each day on which the scheduled principal payments under the applicable note are required to be made.
−Removed: For the Current Year and Prior Year, the Company incurred interest expense of approximately $1.2 million and $0.9 million, respectively, related to term loan debt.
−Removed: Contingent Obligations –
−Removed: HH Seller (Halston Heritage Earn-Out)
−Removed: In connection with the February 11, 2019 purchase of the Halston Heritage Trademarks from HIP, the Company agreed to pay HIP additional consideration (the “Halston Heritage Earn-Out”) of up to $6.0 million, based on royalties earned through December 31, 2022.
−Removed: The Halston Heritage Earn-Out of $0.9 million is recorded as a long-term liability as of December 31, 2019 in the accompanying condensed consolidated balance sheets, based on the difference between the fair value of the acquired assets of the Halston Heritage Trademarks and the total consideration paid.
−Removed: In accordance with ASC Topic 480, the Halston Heritage Earn-Out obligation is treated as a liability in the accompanying consolidated balance sheets because of the variable number of shares payable under the agreement.
−Removed: Other Long-Term Liabilities
−Removed: Other long-term liabilities consist of the Company’s obligations to subtenants for security deposits under sublease arrangements, which were $0.2 million and $0.4 million as of December 31, 2019 and 2018, respectively.
−Removed: We believe that cash from future operations as well as currently available cash will be sufficient to satisfy our anticipated working capital requirements for the foreseeable future, including our debt service requirements and making necessary investments in our infrastructure and technology.
−Removed: The following is a summary of contractual cash obligations that existed as of December 31, 2019 for the future periods indicated:
−Removed: ($ in thousands)
−Removed: 2022 and After
−Removed: Term debt interest
−Removed: Operating leases
−Removed: Employment contracts
−Removed: Total contractual cash obligations
−Removed: Other Factors
−Removed: We continue to seek to expand and diversify the types of licensed products being produced under our brands.
−Removed: We plan to continue to diversify the distribution channels 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.
−Removed: The Mizrahi brand, Halston brand, and C Wonder brand have a core business in fashion apparel and accessories.
−Removed: The Ripka brand is a fine jewelry business, and the Longaberger brand focuses on home good products, which we believe helps diversify our industry focus while at the same time complements our business operations and relationships.
−Removed: We continue to expand our Judith Ripka Fine Jewelry wholesale and e-commerce business, and in November 2018, we transitioned our department store business from a licensing model to a wholesale model.
−Removed: Our strategy is to manage our working capital needs by utilizing back-to-back sales and purchase orders and minimizing inventory risk.
−Removed: This change should increase our total and net revenues as compared to the licensing model.
−Removed: We expect to develop a core licensing business for the Longaberger brand, in addition to a direct-to-consumer business.
−Removed: In addition, we continue to seek new opportunities, including expansion through interactive television, our design, production and supply chain platform, additional domestic and international licensing arrangements, and acquiring additional brands.
−Removed: In November 2019, we acquired an ownership interest in the Longaberger brand through a joint venture, and launched the brand on QVC that same month.
−Removed: We are also actively pursuing the potential acquisition of other brands and business operations which we believe are synergistic to our existing portfolio of brands and our operating platform, and are complementary to our overall strategy.
−Removed: However, the impacts of the COVID-19 pandemic are broad reaching, and are having an impact on our licensing and wholesale businesses.
−Removed: The COVID-19 pandemic is impacting our supply chain as most of our products are manufactured in China, Thailand, and other places around the world affected by this event.
−Removed: Temporary factory closures and the pace of workers returning to work have impacted our contract manufacturers’
−Removed: ability to source certain raw materials and to produce finished goods in a timely manner.
−Removed: The outbreak is also impacting distribution and logistics providers' ability to operate in the normal course of business.
−Removed: Further, the pandemic has resulted in a sudden decrease in sales for many of our products, resulting in order cancelations.
−Removed: Financial impacts associated with the COVID-19 pandemic include, but are not limited to, lower net sales, the delay of inventory production and fulfillment, potentially further impacting net sales, and potential incremental costs associated with mitigating the effects of the pandemic, including increased freight and logistics costs and other expenses.
−Removed: We expect that the impact the COVID-19 pandemic will have on our operating results could result in our inability to comply with certain debt covenants and require Bank Hapoalim B.M.
−Removed: to waive compliance with, or agree to amend, any such covenant to avoid a default.
−Removed: The COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the pandemic, and actions that would be taken by governmental authorities to contain the pandemic or to treat its impact, makes it difficult to forecast any effects on our 2020 results.
−Removed: However, as of the date of this filing we expect our results for 2020 to be significantly affected.
−Removed: Our success, however, will still remain largely dependent on our ability to build and maintain our brands’
−Removed: awareness and continue to attract wholesale and direct-to-consumer customers, and contract with and retain key licensees, as well as our and our licensees’
−Removed: 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.
−Removed: Unanticipated changes in consumer fashion preferences and purchasing patterns, slowdowns in the U.S.
−Removed: economy, changes in the prices of
−Removed: supplies, consolidation of retail establishments, and other factors noted in “Risk Factors”
−Removed: could adversely affect our licensees’
−Removed: ability to meet and/or exceed their contractual commitments to us and thereby adversely affect our future operating results.
−Removed: Effects of Inflation
−Removed: We do not believe that the relatively moderate rates of inflation experienced over the past two years in the United States, where we primarily compete, have had a significant effect on revenues or profitability.
−Removed: Our wholesale operations suppliers (most of which are abroad) could face economic pressures as a result of rising wages and inflation or be affected by trade wars or increases in tariffs materially impacting their business.
−Removed: If there were an adverse change in the rate of inflation by less than 10%, the expected effect on net income and cash flows would be immaterial.
−Removed: Off-Balance Sheet Arrangements
−Removed: 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.
−Removed: Quantitative and Qualitative Disclosures About Market Risk
−Removed: Not applicable.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.