XCel Brands, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS ​ Xcel Brands, Inc. and Subsidiaries Unaudited Condensed Consolidated Balance Sheets (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2021 December 31, 2020 ​ ​ (Unaudited) ​ (Note 1) Assets ​ ​ Current Assets: ​ ​ Cash and cash equivalents ​ $ 2,969 ​ $ 4,957 Accounts receivable, net of allowances of $1,284 and $1,151, respectively ​ 8,647 ​ 8,889 Inventory ​ 2,785 ​ 1,216 Prepaid expenses and other current assets ​ 1,797 ​ 1,085 Total current assets ​ 16,198 ​ 16,147 Property and equipment, net ​ 3,360 ​ 3,367 Operating lease right-of-use assets ​ ​ 8,296 ​ ​ 8,668 Trademarks and other intangibles, net ​ 92,627 ​ 93,535 Restricted cash ​ 1,109 ​ 1,109 Other assets ​ 225 ​ 228 Total non-current assets ​ 105,617 ​ 106,907 ​ ​ ​ ​ ​ ​ ​ Total Assets ​ $ 121,815 ​ $ 123,054 ​ ​ ​ ​ ​ ​ ​ Liabilities and Equity ​ ​ Current Liabilities: ​ ​ Accounts payable, accrued expenses and other current liabilities ​ $ 5,938 ​ $ 4,442 Accrued payroll ​ 1,283 ​ 973 Current portion of operating lease obligation ​ ​ 1,927 ​ ​ 2,101 Current portion of long-term debt ​ 2,500 ​ 2,800 Total current liabilities ​ 11,648 ​ 10,316 Long-Term Liabilities: ​ ​ Long-term portion of operating lease obligation ​ ​ 8,171 ​ ​ 8,469 Long-term debt, less current portion ​ 14,158 ​ 13,838 Contingent obligation ​ ​ 900 ​ ​ 900 Deferred tax liabilities, net ​ 2,918 ​ 3,052 Other long-term liabilities ​ 224 ​ 224 Total long-term liabilities ​ 26,371 ​ 26,483 Total Liabilities ​ 38,019 ​ 36,799 ​ ​ ​ ​ ​ ​ ​ Commitments and Contingencies ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity: ​ ​ Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding ​ — ​ — Common stock, $.001 par value, 50,000,000 shares authorized, and 19,262,529 and 19,260,862 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively ​ 19 ​ 19 Paid-in capital ​ 102,493 ​ 102,324 Accumulated deficit ​ (19,142) ​ (16,595) Total Xcel Brands, Inc. stockholders' equity ​ 83,370 ​ 85,748 Noncontrolling interest ​ ​ 426 ​ ​ 507 Total Equity ​ 83,796 ​ 86,255 ​ ​ ​ ​ ​ ​ ​ Total Liabilities and Equity ​ $ 121,815 ​ $ 123,054 ​ See Notes to Unaudited Condensed Consolidated Financial Statements. ​ 3 Table of Contents Xcel Brands, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ ​ March 31, ​ ​ 2021 2020 ​ Revenues ​ ​ ​ ​ Net licensing revenue ​ $ 4,307 ​ $ 5,641 ​ Net sales ​ 3,502 ​ 3,886 ​ Net revenue ​ 7,809 ​ 9,527 ​ Cost of goods sold (sales) ​ 1,835 ​ 2,400 ​ Gross profit ​ 5,974 ​ 7,127 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating costs and expenses ​ ​ ​ Salaries, benefits and employment taxes ​ 4,052 ​ 3,948 ​ Other selling, general and administrative expenses ​ 3,038 ​ 2,649 ​ Costs in connection with potential acquisitions ​ — ​ 80 ​ Stock-based compensation ​ 160 ​ 243 ​ Depreciation and amortization ​ 1,210 ​ 1,303 ​ Total operating costs and expenses ​ 8,460 ​ 8,223 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating loss ​ (2,486) ​ (1,096) ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense and other finance charges ​ ​ 280 ​ ​ 294 ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss before income taxes ​ (2,766) ​ (1,390) ​ ​ ​ ​ ​ ​ ​ ​ ​ Income tax benefit ​ (138) ​ (552) ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ ​ (2,628) ​ ​ (838) ​ Less: Net loss attributable to noncontrolling interest ​ ​ (81) ​ ​ (33) ​ Net loss attributable to Xcel Brands, Inc. stockholders ​ $ (2,547) ​ $ (805) ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss per share attributable to Xcel Brands, Inc. common stockholders: ​ ​ ​ Basic net loss per share: ​ $ (0.13) ​ $ (0.04) ​ Diluted net loss per share: ​ $ (0.13) ​ $ (0.04) ​ Weighted average number of common shares outstanding: ​ ​ ​ Basic weighted average common shares outstanding ​ 19,261,436 ​ 18,870,398 ​ Diluted weighted average common shares outstanding ​ 19,261,436 ​ 18,870,398 ​ ​ See Notes to Unaudited Condensed Consolidated Financial Statements. ​ 4 Table of Contents ​ Xcel Brands, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Xcel Brands, Inc. Stockholders ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ Paid-In ​ Accumulated ​ Noncontrolling ​ ​ Total ​ Shares Amount Capital Deficit Interest ​ ​ Equity Balance as of December 31, 2019 18,866,417 ​ $ 19 ​ $ 101,736 ​ $ (3,659) ​ $ 356 ​ ​ $ 98,452 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares issued to employees in connection with stock grants for bonus payments ​ 336,700 ​ ​ — ​ ​ 220 ​ ​ — ​ ​ — ​ ​ ​ 220 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares repurchased from employees in exchange for withholding taxes ​ (155,556) ​ ​ — ​ ​ (102) ​ ​ — ​ ​ — ​ ​ ​ (102) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation expense in connection with stock options and restricted stock ​ — ​ ​ — ​ ​ 91 ​ ​ — ​ ​ — ​ ​ ​ 91 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss — ​ — ​ — ​ (805) ​ (33) ​ ​ (838) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of March 31, 2020 19,047,561 ​ $ 19 ​ $ 101,945 ​ $ (4,464) ​ $ 323 ​ ​ $ 97,823 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of December 31, 2020 19,260,862 ​ $ 19 ​ $ 102,324 ​ $ (16,595) ​ $ 507 ​ ​ $ 86,255 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation expense in connection with stock options and restricted stock ​ — ​ ​ — ​ ​ 169 ​ ​ — ​ ​ — ​ ​ ​ 169 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares issued on exercise of stock options, net ​ 1,667 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss — ​ — ​ — ​ (2,547) ​ ​ (81) ​ ​ (2,628) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of March 31, 2021 19,262,529 ​ $ 19 ​ $ 102,493 ​ $ (19,142) ​ $ 426 ​ ​ $ 83,796 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ See Notes to Unaudited Condensed Consolidated Financial Statements. ​ 5 Table of Contents Xcel Brands, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended March 31, ​ 2021 2020 Cash flows from operating activities ​ ​ Net loss ​ $ (2,628) ​ $ (838) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: ​ ​ ​ Depreciation and amortization expense ​ 1,210 ​ 1,303 Amortization of deferred finance costs ​ 20 ​ 25 Stock-based compensation ​ 160 ​ 243 Allowance for doubtful accounts ​ ​ 132 ​ ​ 211 Deferred income tax benefit ​ (138) ​ (552) Changes in operating assets and liabilities: ​ ​ ​ ​ Accounts receivable ​ (377) ​ 1,568 Inventory ​ (1,569) ​ 111 Prepaid expenses and other assets ​ (222) ​ (13) Accounts payable, accrued expenses and other current liabilities ​ 1,819 ​ (1,656) Cash paid in excess of rent expense ​ ​ (100) ​ ​ (91) Other liabilities ​ — ​ — Net cash (used in) provided by operating activities ​ (1,693) ​ 311 ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities ​ ​ Purchase of property and equipment ​ (295) ​ (604) Net cash used in investing activities ​ (295) ​ (604) ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities ​ ​ Shares repurchased including vested restricted stock in exchange for withholding taxes ​ — ​ (102) Net cash used in financing activities ​ — ​ (102) ​ ​ ​ ​ ​ ​ ​ Net decrease in cash, cash equivalents, and restricted cash ​ (1,988) ​ (395) ​ ​ ​ ​ ​ ​ ​ Cash, cash equivalents, and restricted cash at beginning of period ​ ​ 6,066 ​ ​ 5,750 ​ ​ ​ ​ ​ ​ ​ Cash, cash equivalents, and restricted cash at end of period ​ $ 4,078 ​ $ 5,355 ​ ​ ​ ​ ​ ​ ​ Reconciliation to amounts on consolidated balance sheets: ​ ​ Cash and cash equivalents ​ $ 2,969 ​ $ 4,246 Restricted cash ​ 1,109 ​ 1,109 Total cash, cash equivalents, and restricted cash ​ $ 4,078 ​ $ 5,355 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of non-cash activities: ​ ​ Liability for equity-based bonuses ​ $ (9) ​ $ (68) ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ Cash paid during the period for income taxes ​ $ 15 ​ $ 17 Cash paid during the period for interest ​ $ 236 ​ $ 290 ​ See Notes to Unaudited Condensed Consolidated Financial Statements. ​ ​ 6 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) 1. Nature of Operations, Background, and Basis of Presentation The accompanying condensed consolidated balance sheet as of December 31, 2020 (which has been derived from audited financial statements) and the unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements were prepared following the same policies and procedures used in the preparation of the audited consolidated financial statements and reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the results of operations, financial position, and cash flows of Xcel Brands, Inc. and its subsidiaries (the “Company” or "Xcel"). The results of operations for the interim periods presented herein are not necessarily indicative of the results for the entire fiscal year or for any future interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 23, 2021. The Company is a media and consumer products company engaged in the design, production, marketing, live streaming, wholesale distribution, and direct-to-consumer sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Currently, the Company’s brand portfolio consists of the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the Judith Ripka brands (the "Ripka Brand"), the Halston brands (the "Halston Brands"), the C Wonder brands (the "C Wonder Brand"), and other proprietary brands. The Company also manages the Longaberger brand (the “Longaberger Brand”) through its 50% ownership interest in Longaberger Licensing, LLC. The Company acquired the LOGO by Lori Goldstein brand, and the various labels under the brand, on April 1, 2021 (see Note 12). The Company designs, produces, markets, and distributes products, licenses its brands to third parties, and generates licensing revenues. The Company and its licensees distribute through an omni-channel retail sales strategy, which includes distribution through interactive television, digital live-stream shopping, brick-and-mortar retail, wholesale, and e-commerce channels to be everywhere its customers shop. Recently Adopted Accounting Pronouncements On January 1, 2021, the Company adopted Accounting Standards Update ("ASU") No. 2019‑12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” 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. The ASU also provides additional clarification and guidance related to recognition of franchise taxes and changes in tax laws. The adoption of this new guidance did not have any impact on the Company’s results of operations, cash flows, and financial condition. ​ ​ 7 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) 2. Trademarks and Other Intangibles Trademarks and other intangibles, net consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Average March 31, 2021 ​ Amortization ​ Gross Carrying ​ Accumulated ​ Net Carrying ($ in thousands) ​ Period ​ Amount ​ Amortization ​ Amount Trademarks (indefinite-lived) n/a ​ $ 44,500 ​ $ — ​ $ 44,500 Trademarks (finite-lived) 15 years ​ 20,386 ​ 5,985 ​ 14,401 Trademarks (finite-lived) ​ 18 years ​ ​ 38,194 ​ ​ 4,723 ​ ​ 33,471 Other intellectual property 7 years ​ 762 ​ 564 ​ 198 Copyrights and other intellectual property 10 years ​ 190 ​ 133 ​ 57 Total ​ ​ ​ $ 104,032 ​ $ 11,405 ​ $ 92,627 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Average December 31, 2020 ​ Amortization Gross Carrying ​ Accumulated ​ Net Carrying ($ in thousands) ​ Period ​ Amount ​ Amortization ​ Amount Trademarks (indefinite-lived) n/a ​ $ 44,500 ​ $ — ​ $ 44,500 Trademarks (finite-lived) 15 years ​ 20,386 ​ 5,640 ​ 14,746 Trademarks (finite-lived) ​ 18 years ​ ​ 38,194 ​ ​ 4,192 ​ ​ 34,002 Other intellectual property 7 years ​ 762 ​ 537 ​ 225 Copyrights and other intellectual property 10 years ​ 190 ​ 128 ​ 62 Total ​ $ 104,032 ​ $ 10,497 ​ $ 93,535 ​ Amortization expense for intangible assets was approximately $0.91 million for the three-month period ended March 31, 2021 (the "current quarter") and was approximately $1.14 million for the three-month period ended March 31, 2020 (the "prior year quarter"). The trademarks related to the Isaac Mizrahi Brand have been determined to have indefinite useful lives and, accordingly, no amortization has been recorded for these assets. 3. Significant Contracts QVC Agreements Under the Company’s agreements with Qurate Retail Group (“Qurate”), collectively referred to as the QVC Agreements, Qurate is required to pay the Company fees based primarily on a percentage of its net sales of Isaac Mizrahi, Ripka, and Longaberger branded merchandise. Qurate royalty revenue represents a significant portion of the Company’s total revenues. ● Revenues from the QVC Agreements totaled $3.79 million and $4.69 million for the current and prior year quarter, respectively, representing approximately 49% of the Company’s total net revenues for both the current and prior year quarter. ● As of March 31, 2021 and December 31, 2020, the Company had receivables from Qurate of $3.84 million and $4.46 million, respectively, representing approximately 44% and 50% of the Company’s total accounts receivable, respectively. 8 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) ​ 4. Allowance for Doubtful Accounts Accounts receivable are presented on the Company’s condensed consolidated balance sheets net of allowances of $1,284,000 and $1,151,000 as of March 31, 2021 and December 31, 2020, respectively. The Company recognized bad debt expense of $132,000 and $211,000 for the current quarter and prior year quarter, respectively. Included within these amounts, the current quarter and prior year quarter reflect $132,000 and $114,000, respectively, of bad debt expense related to the bankruptcy of and economic impact on certain retail customers due to the COVID-19 pandemic. The total allowance of $1.10 million against such customers’ outstanding receivable balances of $1.21 million at March 31, 2021 represents management’s best estimate of collectibility, based on information currently available. ​ 5. Leases The Company has operating leases for its current office, former office, and a planned retail store location, as well as certain equipment with a term of 12 months or less. The Company’s real estate leases have remaining lease terms of between approximately 1 to 8 years. Under GAAP, a lessee is generally required to recognize a liability for its obligation 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. The Company determines if an arrangement is a lease at inception. Operating leases are recorded in operating lease ROU assets, current portion of operating lease liabilities, and long-term operating lease liabilities on the Company’s condensed consolidated balance sheets. The Company does not recognize lease liabilities and ROU assets for lease terms of 12 months or less, but recognizes such lease payments in net income on a straight-line basis over the lease terms. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is generally recognized on a straight-line basis over the lease term. For both the current and prior year quarter, lease expense included in selling, general and administrative expenses on the Company’s unaudited condensed consolidated statements of operations was approximately $0.4 million. As of March 31, 2021, the weighted average remaining operating lease term was approximately 6.2 years and the weighted average discount rate for operating leases was 6.25%. Cash paid for amounts included in the measurement of operating lease liabilities was $0.5 million and $0.4 million in the current quarter and prior year quarter, respectively. 9 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) As of March 31, 2021, the maturities of lease liabilities were as follows: ​ ​ ​ ​ ​ ($ in thousands) ​ ​ 2021 ​ $ 1,892 2022 ​ ​ 1,891 2023 ​ 1,711 2024 ​ 1,711 2025 ​ 1,710 After 2025 ​ 3,321 Total lease payments ​ ​ 12,236 Less: Discount ​ ​ 2,138 Present value of lease liabilities ​ ​ 10,098 Current portion of lease liabilities ​ ​ 1,927 Non-current portion of lease liabilities ​ $ 8,171 ​ ​ ​ ​ ​ ​ ​ 6. Debt The Company’s net carrying amount of debt was comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ ($ in thousands) 2021 2020 ​ Term loan debt ​ $ 16,750 ​ $ 16,750 ​ Unamortized deferred finance costs related to term loan ​ (92) ​ (112) ​ Total ​ 16,658 ​ 16,638 ​ Current portion of long-term debt (i) ​ 2,500 ​ 2,800 ​ Long-term debt ​ $ 14,158 ​ $ 13,838 ​ ​ (i) The current portion of long-term debt as of March 31, 2021 is based upon the payment terms specified in the new loan and security agreement entered into on April 14, 2021, which resulted in the extinguishment of the term loan debt that existed as of March 31, 2021. See Note 12 for further details. Term Loan Debt On February 11, 2019, the Company entered into an amended loan agreement (the “Loan Agreement”) with Bank Hapoalim B.M. (“BHI”), which amended and restated the prior term loan, 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 was divided under the Xcel Term Loan agreement into two term loans: (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” and, together with Term Loan A, the “Term Loans”). The Loan Agreement also allows that BHI and any other lender party to the Loan Agreement (collectively, the “Lenders”) can provide to Xcel a revolving loan facility and a letter of credit facility, the terms of each of which shall be agreed to by Xcel and the Lenders. 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 Loan Agreement. Xcel will have the right to convert Revolving Loans to incremental term loans (the “Incremental Term Loans”) in minimum amounts of $5.0 million. The Company has not drawn down any funds under either the revolving loan facility or letter of credit facility. 10 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) On April 13, 2020, the Company and BHI amended the Loan Agreement. 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. In addition, there were multiple changes and waivers to the various financial covenants. Further, this amendment permitted 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. There were no changes to the total principal balance, interest rate, or maturity date. On August 18, 2020, the Company and BHI further amended the Loan Agreement. Under this amendment, the amounts of the quarterly installment payments due throughout 2021 were reduced, and the amount of principal to be repaid through variable payments based on excess cash flow was increased. In addition, there were multiple changes and waivers to the various financial covenants. There were no changes to the total principal balance, interest rate, or maturity date. Management assessed and determined that the 2020 amendments represented debt modifications and, accordingly, no gain or loss was recorded. In connection with the 2020 amendments, the Company incurred fees to or on behalf of BHI of approximately $27,000; these fees, along with deferred finance costs related to financing transactions that took place in prior years, have been deferred on the condensed consolidated balance sheets as a reduction to the carrying value of the term loan debt, and are being amortized to interest expense over the term of the Loan Agreement using the effective interest method. The Term Loans mature on December 31, 2023; Incremental Term Loans shall mature on the date set forth in the applicable term note; and Revolving Loans and the letter of credit facility shall mature on such date as agreed upon by Xcel and the Lenders. Any letter of credit issued under the Xcel Term Loan shall terminate no later than one year following the date of issuance thereof. On March 31, 2021, concurrent with the negotiations to enter into a new loan and security agreement (see Note 12), the Company and BHI entered into a waiver and consent to the Loan Agreement, which deferred the principal payment due March 31, 2021 until May 1, 2021. The remaining principal balance of the Term Loans outstanding as of March 31, 2021 is payable in fixed installments as set forth in the following table, plus the variable payments as described below: ​ ​ ​ ​ ​ ($ in thousands) Installment Payment Dates Amount May 1, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 ​ $ 700 ​ ​ ​ ​ March 31, 2022, June 30, 2022, September 30, 2022, and December 31, 2022 ​ $ 1,125 ​ ​ ​ ​ March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023 ​ $ 1,250 ​ 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. 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. To the extent that the cumulative amount of such variable repayments made is less than $4.45 million as of March 31, 2022, any such shortfall must be repaid at that date. No such payments based on excess cash flow were made for the quarter ended March 31, 2021. 11 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) Thus, the aggregate remaining annual scheduled principal payments under the Term Loans at March 31, 2021 were as follows: ​ ​ ​ ​ ​ ​ ​ Amount of ($ in thousands) Principal Year Ending December 31, Payment 2021 ​ $ 2,800 2022 ​ 8,950 2023 ​ 5,000 Total ​ $ 16,750 ​ 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’ 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. 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: an amount equal to the principal amount of the Term Loan or Incremental Term Loan, as applicable, being prepaid, multiplied by: (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; (ii) one percent (1.00%) if any of Term Loan A is prepaid on or before the second anniversary of the Closing Date; (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; (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; 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. Xcel’s obligations under the Loan Agreement 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 Term Loans (the “Guarantors”) and, subject to certain limitations contained in the Term Loans, equity interests of the Guarantors. 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. 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. 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. 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. 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. 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. The Loan Agreement contains customary covenants, including reporting requirements, trademark preservation, and the following financial covenants of Xcel (on a consolidated basis with Xcel and the Guarantors under the Loan Agreement): ● net worth as defined in the loan agreements of at least $90.0 million at the end of each fiscal quarter; 12 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) ● liquid assets of at least $2.5 million for the fiscal quarters ending March 31, 2021 through September 30, 2021, at least $3.0 million for the fiscal quarter ending December 31, 2021, and at least $5.0 million thereafter; ● 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: ​ ​ ​ ​ Fiscal Quarter End Fixed Charge Coverage Ratio March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 ​ 1.25 to 1.00 March 31, 2022, and thereafter ​ 1.10 to 1.00 ​ ● capital expenditures (excluding any capitalized compensation costs) shall not exceed $0.7 million for any fiscal year beginning after December 31, 2020; and ● 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 below: ​ ​ ​ ​ Fiscal Period Maximum Leverage Ratio March 31, 2021 ​ 3.15 to 1.00 June 30, 2021 ​ 3.00 to 1.00 September 30, 2021 ​ 2.75 to 1.00 December 31, 2021 ​ 2.50 to 1.00 March 31, 2022 and each Fiscal Quarter end thereafter ​ 1.50 to 1.00 ​ For the current and prior year quarter, the Company incurred aggregate interest expense related to term loan debt of approximately $256,000 and $288,000, respectively. The effective interest rate related to term loan debt was approximately 6.6% for the current quarter and prior year quarter. Subsequent to March 31, 2021, the Company and its wholly-owned subsidiaries entered into a new loan and security agreement, which resulted in the extinguishment of the term loan debt that existed as of March 31, 2021. See Note 12 for further details. ​ 7. Stockholders’ Equity 2011 Equity Incentive Plan The Company’s 2011 Equity Incentive Plan, as amended and restated (the “Plan”), is designed and utilized to enable the Company to provide its employees, officers, directors, consultants, and others whose past, present, and/or potential contributions to the Company have been, are, or will be important to the success of the Company, an opportunity to acquire a proprietary interest in the Company. A total of 13,000,000 shares of common stock are eligible for issuance under the Plan. The Plan provides for the grant of any or all of the following types of awards: stock options, restricted stock, deferred stock, stock appreciation rights, and other stock-based awards. The Plan is administered by the Company’s Board of Directors, or, at the Board’s discretion, a committee of the Board. The Company accounts for stock-based compensation in accordance with Accounting Standards Codification Topic 718, “Compensation - Stock Compensation,” 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. 13 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) The fair value of options and warrants is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The risk-free rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based on the long-term implied volatilities of the Company’s stock, and expected life is based on the estimated average of the life of options and warrants using the simplified method. The Company utilizes the simplified method to determine the expected life of the options and warrants due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. Restricted stock awards are valued using the fair value of the Company’s stock at the date of grant. 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) until the time the performance obligation is satisfied. Forfeitures are accounted for as a reduction of compensation cost in the period when such forfeitures occur. Stock Options Options granted under the Plan expire at various times - either five, seven, or ten years from the date of grant, depending on the particular grant. A summary of the Company’s stock options activity for the current quarter is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ Weighted ​ Remaining ​ ​ ​ ​ ​ ​ ​ Average ​ Contractual ​ Aggregate ​ ​ Number of ​ Exercise ​ Life ​ Intrinsic ​ Options Price (in Years) Value Outstanding at January 1, 2021 7,179,375 ​ $ 3.14 4.93 ​ $ — Granted 365,390 ​ 1.86 ​ Canceled — ​ — ​ Exercised (5,000) ​ 1.38 ​ Expired/Forfeited (1,639,000) ​ 5.79 ​ Outstanding at March 31, 2021, and expected to vest 5,900,765 ​ $ 2.33 5.98 ​ $ — Exercisable at March 31, 2021 1,887,098 ​ $ 3.56 2.58 ​ $ — ​ On March 15, 2021, the Company granted options to purchase an aggregate of 365,390 shares of common stock to various employees. The exercise price of the options is $1.86 per share, and all options vested immediately on the date of grant. Compensation expense related to stock options for the current quarter and the prior year quarter was approximately $158,000 and $68,000, respectively. Total unrecognized compensation expense related to unvested stock options at March 31, 2021 amounts to approximately $119,000 and is expected to be recognized over a weighted average period of approximately 0.85 years. 14 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) A summary of the Company’s non-vested stock options activity for the current quarter is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ Number of ​ Grant Date ​ Options Fair Value Balance at January 1, 2021 4,116,167 ​ $ 0.08 Granted 365,390 ​ 0.32 Vested (467,890) ​ 0.52 Forfeited or Canceled — ​ — Balance at March 31, 2021 4,013,667 ​ $ 0.05 ​ Warrants Warrants expire at various times - either five or ten years from the date of grant, depending on the particular grant. A summary of the Company’s warrants activity for the current quarter is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ Weighted ​ Remaining ​ ​ ​ ​ ​ ​ Average Contractual ​ Aggregate ​ ​ Number of ​ Exercise Life ​ Intrinsic ​ Warrants Price (in Years) Value Outstanding and exercisable at January 1, 2021 579,815 ​ $ 4.63 1.32 ​ $ — Granted — ​ — ​ ​ Canceled — ​ — ​ ​ Exercised — ​ — ​ ​ Expired/Forfeited — ​ — ​ ​ Outstanding and exercisable at March 31, 2021 579,815 ​ $ 4.63 1.07 ​ $ — ​ No compensation expense related to warrants was recognized in the current quarter or prior year quarter. Stock Awards A summary of the Company’s restricted stock activity for the current quarter is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ Number of ​ Average ​ ​ Restricted ​ Grant Date ​ Shares Fair Value Outstanding at January 1, 2021 780,833 ​ $ 4.09 Granted — ​ — Canceled — ​ — Vested — ​ — Expired/Forfeited — ​ — Outstanding at March 31, 2021 780,833 ​ $ 4.09 ​ Compensation expense related to restricted stock grants for the current and prior year quarter was approximately $10,000 and $23,000, respectively. 15 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) There was no remaining unrecognized compensation expense related to unvested restricted stock grants at March 31, 2021. Additionally, during the current quarter, the Company recognized a reduction to compensation expense of approximately $(8,000) related to certain senior management bonuses earned and accrued as liabilities in 2020, which will be paid in a variable number of shares in 2021. Shares Available Under the Company’s 2011 Equity Incentive Plan As of March 31, 2021, there were 2,826,541 shares of common stock available for issuance under the Plan. Shares Reserved for Issuance As of March 31, 2021, there were 9,307,121 shares of common stock reserved for issuance pursuant to unexercised warrants and stock options, or available for issuance under the Plan. Dividends The Company has not paid any dividends to date. 8. Earnings Per Share Basic earnings per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period, including stock options and warrants, using the treasury stock method. Diluted EPS excludes all potentially dilutive shares of common stock if their effect is anti-dilutive. ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, ​ ​ 2021 2020 ​ Basic ​ 19,261,436 18,870,398 Effect of exercise of warrants ​ — — Effect of exercise of stock options ​ — ​ — ​ Diluted ​ 19,261,436 18,870,398 ​ As a result of the net loss presented for the current quarter and prior year quarter, the Company calculated diluted earnings per share using basic weighted average shares outstanding for such period, as utilizing diluted shares would be anti-dilutive to loss per share. ​ The computation of diluted EPS excludes the following potentially dilutive securities because their inclusion would be anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, ​ ​ 2021 2020 ​ Stock options and warrants ​ 6,475,580 7,911,440 ​ ​ 16 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) 9. Income Tax The effective income tax rate for the current quarter and the prior year quarter was approximately 5% and 40%, respectively, resulting in an income tax benefit provision of $0.14 million and $0.55 million, respectively. For the current quarter, the federal statutory rate differed from the effective tax rate primarily due to recurring permanent differences, which decreased the effective tax rate by approximately 17%, partially offset by state taxes, which increased the effective tax rate by approximately 1%. For the prior year quarter, the federal statutory rate differed from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 8% and 4%, respectively. The effective tax rate was also attributable to the tax impact of a potential federal net operating loss carryback due to the CARES Act. This item increased the effective rate by 7%. 10. Related Party Transactions Robert W. D’Loren Jennifer D’Loren is the wife of Robert W. D’Loren, the Company’s Chief Executive Officer and Chairman of the Board, and is employed by the Company. Mrs. D’Loren brings vast experience in project management and implementation of financial IT solutions. During the past two years, Mrs. D’Loren has worked on the implementation of the Company’s ERP system. Mrs. D’Loren received compensation of $10,000 and $37,000 for the current quarter and prior year quarter, respectively. Isaac Mizrahi On February 24, 2020, the Company entered into an employment agreement with Isaac Mizrahi, a principal stockholder of the Company, for Mr. Mizrahi to continue to serve as Chief Design Officer of the Isaac Mizrahi Brand. The term of the employment agreement expires on December 31, 2022, subject to earlier termination, and may be extended, at the Company’s option, for two successive one-year terms (each, a “Renewal Period”). Mr. Mizrahi’s base salary shall be $1.8 million, $2.0 million, and $2.1 million per annum during the term of the agreement and $2.25 million and $2.4 million during 2023 and 2024 if the term is extended, in each case, subject to adjustment in the event Mr. Mizrahi does not make a specified number of appearances on the QVC channel. Mr. Mizrahi shall be eligible to receive an annual cash bonus (the “Bonus”) up to an amount equal to $2.5 million less base salary for 2020 and $3.0 million less base salary for 2021, 2022, and any year during the Renewal Period. The Bonus shall consist of the DRT Revenue, Bonus, the Brick-and-Mortar Bonus, the Endorsement Bonus and the Monday Bonus, if any, as determined in accordance with the below: ● “DRT Bonus” means for any calendar year an amount equal to 10% of the aggregate net revenue related to sales of Isaac Mizrahi Brand products through direct response television. The DRT Revenue Bonus shall be reduced by the amount of the Monday Bonus. ● “Brick-and-Mortar Bonus” means for any calendar year an amount equal to 10% of the net revenues from sales of products under the Isaac Mizrahi Brand, excluding DRT revenue and endorsement revenues. ● “Endorsement Bonus” means for any calendar year an amount equal to 40% of revenues derived from projects undertaken by the Company with one or more third parties solely for Mr. Mizrahi to endorse the third party’s products through the use of Mr. Mizrahi’s name, likeness, and/or image, and neither the Company nor Mr. Mizrahi provides licensing or design. 17 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) ● “Monday Bonus” means $10,000 for each appearance by Mr. Mizrahi on the QVC channel on Mondays (subject to certain expectations) up to a maximum of 40 such appearances in a calendar year. Mr. Mizrahi is required to devote his full business time and attention to the business and affairs of the Company and its subsidiaries; however, Mr. Mizrahi is the principal of IM Ready-Made, LLC and Laugh Club, Inc. (“Laugh Club”), and accordingly, he may undertake promotional activities related thereto (including the promotion of his name, image, and likeness) through television, video, and other media (and retain any compensation he receives for such activities) (referred to as “Retained Media Rights”) so long as such activities (i) do not utilize the IM Trademarks, (ii) do not have a mutually negative impact upon or materially conflict with Mr. Mizrahi’s duties under the employment agreement, or (iii) are consented to by the Company. The Company believes that it benefits from Mr. Mizrahi’s independent promotional activities by increased brand awareness of IM Brands and the IM Trademarks. Severance . If Mr. Mizrahi’s employment is terminated by the Company without “cause,” or if Mr. Mizrahi resigns with “good reason,” then Mr. Mizrahi will be entitled to receive his unpaid base salary and cash bonuses through the termination date and an amount equal to his base salary in effect on the termination date for the longer of six months and the remainder of the then-current term, but in no event exceeding 18 months. If Mr. Mizrahi’s employment is terminated by the Company without “cause” or if Mr. Mizrahi resigns with “good reason” within six months following a change of control (as defined in the employment agreement), Mr. Mizrahi shall be eligible to receive a lump-sum payment equal to two times the sum of (i) his base salary (at an average rate that would have been in effect for such two-year period following termination) plus (ii) the bonus paid or due to Mr. Mizrahi in the year prior to the change in control. Non-Competition and Non-Solicitation . During the term of Mr. Mizrahi’s employment by the Company and for a one-year period after the termination of such employment (unless his employment was terminated without “cause” or was terminated by him for “good reason”), Mr. Mizrahi may not permit his name to be used by or to participate in any business or enterprise (other than the mere passive ownership of not more than 3% of the outstanding stock of any class of a publicly held corporation whose stock is traded on a national securities exchange or in the over-the-counter market) that engages or proposes to engage in the Company’s business anywhere in the world other than the Company and its subsidiaries. Also during his employment and for a one-year period after the termination of such employment, Mr. Mizrahi may not, directly or indirectly, solicit, induce, or attempt to induce any customer, supplier, licensee, or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or any or its subsidiaries; or solicit, induce, or attempt to induce any person who is, or was during the then-most recent 12-month period, a corporate officer, general manager, or other employee of the Company or any of its subsidiaries, to terminate such employee’s employment with the Company or any of its subsidiaries; or hire any such person unless such person’s employment was terminated by the Company or any of its subsidiaries; or in any way interfere with the relationship between any such customer, supplier, licensee, employee, or business relation and the Company or any of its subsidiaries. On February 24, 2020, the Company entered into a services agreement with Laugh Club, an entity wholly-owned by Mr. Mizrahi, pursuant to which Laugh Club shall provide services to Mr. Mizrahi necessary for Mr. Mizrahi to perform his services pursuant to the employment agreement. The Company will pay Laugh Club an annual fee of $0.72 million for such services. 11. Commitments and Contingencies Contingent Obligation In connection with the February 11, 2019 purchase of the Halston Heritage Trademarks from H Company IP, LLC (“HIP”), the Company agreed to pay HIP additional consideration (the “Halston Heritage Earn-Out”) of up to an aggregate of $6.0 million, based on royalties earned through December 31, 2022. The Halston Heritage Earn-Out of $0.9 million is recorded as a long-term liability at March 31, 2021 and December 31, 2020 in the accompanying condensed consolidated balance 18 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) sheets, based on the difference between the fair value of the acquired assets of the Halston Heritage Trademarks and the total consideration paid. In accordance with Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity,” the Halston Heritage Earn-Out obligation is treated as a liability in the accompanying condensed consolidated balance sheets because of the variable number of shares payable under the agreement. Coronavirus Pandemic In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic, which continues to spread throughout the U.S. COVID-19 is having an unprecedented impact on the U.S. economy as federal, state, and local governments react to this public health crisis. The impacts of the current COVID-19 pandemic are broad reaching and are having an impact on the Company’s licensing and wholesale businesses. The COVID-19 pandemic is impacting the Company’s supply chain as most of the Company’s products are manufactured in China, Thailand, and other places around the world affected by this event. Temporary factory closures and the pace of workers returning to work have impacted contract manufacturers’ ability to source certain raw materials and to produce finished goods in a timely manner. The outbreak is also impacting distribution and logistics providers' ability to operate in the normal course of business. Further, the pandemic has resulted in a sudden and continuing decrease in sales for many of the Company’s products, resulting in order cancellations, and a decrease in accounts receivable collections, as the Company recorded approximately $1 million of additional allowance for doubtful accounts for the year ended December 31, 2020, and approximately $0.1 million for the current quarter, for retailers that have filed for bankruptcy. Due to the COVID-19 outbreak, there is significant uncertainty surrounding the potential impact on the Company’s future results of operations and cash flows. Continued impacts of the pandemic could materially adversely affect the Company’s near-term and long-term revenues, earnings, liquidity, and cash flows as the Company’s customers and/or licensees may request temporary relief, delay, or not make scheduled payments. ​ 12. Subsequent Events Acquisition of Lori Goldstein Brand On April 1, 2021, the Company and its wholly-owned subsidiary, Gold Licensing, LLC, acquired the “Lori Goldstein” trademarks and other intellectual property rights related thereto, from Lori Goldstein, Ltd. (the “Seller”), in exchange for initial cash consideration of $1.6 million, an additional $2.0 million of cash consideration payable upon the earlier of (i) the Company’s receipt of the first royalty payment from QVC with respect to the acquired trademarks or (ii) July 29, 2021, plus additional cash earn-out consideration of up to $12.5 million based on the future performance of the brand. Concurrent with the acquisition, the Company also entered into a 10-year employment agreement with the shareholder of the Seller to serve as the brand’s Chief Creative Officer and Spokesperson, with a base salary of $0.9 million per annum through December 31, 2021 and $1.2 million per annum thereafter, and the opportunity to earn additional incentives based on the future net royalties related to the brand. Additionally, the Company concurrently entered into a consulting agreement with the Seller to provide creative advice and consultation, for a fee of $0.6 million per annum through December 31, 2021 and $0.8 million per annum thereafter. Upon the consummation of the acquisition of the Lori Goldstein Brand described above, the Company incurred cash bonuses totaling $175,000 to certain members of the Company’s senior management (including $100,000 to the Chief Executive Officer, and $25,000 each to the Chief Financial Officer, President and Chief Operating Officer, and Executive Vice President of Business Development and Treasury), such success-related bonuses having been approved by the Board of Directors on March 18, 2021. 19 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2021 (Unaudited) Debt Refinancing Transaction On April 14, 2021, the Company and its wholly-owned subsidiaries entered into a new loan and security agreement with BHI and First Eagle Alternative Credit, LLC (“FEAC”), which resulted in the extinguishment of the term loan debt that existed as of March 31, 2021. Under this transaction, the Company’s term loan debt obligation increased to $25.0 million, payable in 16 equal quarterly installments of $625,000, commencing June 30, 2021 and ending on March 31, 2025, with a final payment of $15.0 million payable on the maturity date of April 14, 2025. The new term loan debt bears interest at a weighted average rate of LIBOR plus 6.2% per annum. In addition, the facility provides for up to $25.0 million of future acquisition financing, subject to lender approval on a deal-by-deal basis. The Company’s obligations under the new loan and security agreement are secured by all of the assets of the Company and, subject to certain limitations, equity interests of the Company’s wholly-owned subsidiaries. The new loan and security agreement contains customary covenants, including reporting requirements, trademark preservation, and financial covenants. The Company paid an upfront fee of $625,000 to the lenders in connection with this transaction. ​ 20 Table of Contents