What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-04-15 compared with 2021-04-23 · 482 added, 509 removed, 631 unchanged (61% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firms (PCAOB ID:

688 and PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Xcel Brands, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Xcel Brands, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Tradename Impairment Testing – Refer to Note 2 and Note 4 to the Consolidated Financial Statements

Description of the Matter

The Company evaluates indefinite-lived intangible assets for impairment annually by comparing the carrying values to their estimated fair values as of the evaluation dates unless an interim evaluation is required due to the presence of indictors that the tradenames may be impaired.

The Company uses the income approach using a discounted cash flow model to value the indefinite-lived tradename, comparing its fair value to carrying value to determine impairment.

If the carrying value of this asset is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds fair value.

As of December 31, 2021, the Company had one indefinite-lived tradename (Isaac Mizrahi Brand) with a carrying value of $44,500,000.

We identified the Company’s indefinite-lived tradename impairment evaluation as a critical audit matter.

Auditing the Company’s tradename impairment evaluation was complex and subjective due to the significant estimation required to determine the forecasted cash flows used in the Company’s evaluation.

Specifically, the forecasted cash flows are sensitive to significant assumptions such as revenue growth rates, including the terminal growth rates, margins, expenses, and discount rates, all of which are affected by expected future market or economic conditions, including the effects of the global pandemic.

In addition, our audit effort involved the use of professionals within our firm with specialized skill and knowledge in valuation methods and models.

How We Addressed the Matter in our Audit

The primary procedures we performed, with the assistance of professionals within our firm with specialized skills and knowledge in valuation methods and models, where necessary, to address this critical audit matter included the following, among others.

(1) We evaluated the Company’s forecasted revenue (2) Evaluated the guideline companies used that operated in similar industries.

(3) The Company used the appropriate modified capital asset pricing model and a weighted average cost of capital.

(4) We performed independent calculations to evaluate the sensitivity of the key assumptions used by management.

/s/ Marcum LLP

We have served as the Company’s auditor since 2021.

April 14, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Xcel Brands, Inc.

and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of Xcel Brands, Inc.

and Subsidiaries (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

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The Company uses the income approach using a discounted cash flow model to value the indefinite-lived tradename, comparing its fair value to carrying value to determine impairment.

If the carrying value 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 fair value.

If the carrying value 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 fair value.

Finite-lived tradenames are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

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As of December 31, 2020, the Company had one indefinite-lived tradename (Isaac Mizrahi Brand) with a carrying value of $44,500,000.

As of December 31, 2019, the Company had two indefinite-lived tradenames (Isaac Mizrahi Brand and Ripka Brand) with a carrying value of $62,900,000.

As of December 31, 2020, the Company had four finite-lived tradenames (Ripka Brand, Halston Brand, C Wonder Brand and Longaberger Brand) with an aggregate carrying value of $48,748,000.

As of December 31, 2019, the Company had three finite-lived tradenames (Halston Brand, C Wonder Brand and Longaberger Brand) with an aggregate carrying value of $47,780,000.

We identified the Company’s tradename impairment testing as a critical audit matter.

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The primary procedures we performed to address this critical audit matter included the following.

● We obtained an understanding of and evaluated the Company’s process to estimate future cashflows, including methods, data, and significant assumptions used in developing the discounted cashflow analysis as well as the completeness and accuracy of the underlying data used by the Company in its analyses.

● We evaluated the reasonableness of the Company’s forecasted revenues, operating results, and cash flows by comparing those forecasts to the underlying business strategies and growth plans, including existing license arrangements.

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As disclosed in Note 10 to the consolidated financial statements, in March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic, negatively and materially impacting the Company’s financial results and liquidity.

Specifically, licensing and wholesale revenues decreased primarily due to lower customer sales by its licensees and wholesale customers as a result of government-ordered retail store closures as well as

an overall slowdown in economic activity related to the COVID-19 pandemic.

This resulted in significant uncertainty surrounding the potential impact on the Company’s future results of operations and cash flows.

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/s/ CohnReznick LLP

We have served as the Company’s auditors since 2012.

New York, New York

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Total current assets

Non-current Assets:

Property and equipment, net

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Restricted cash

Deferred tax assets, net

Total non-current assets

Liabilities and Equity

Liabilities and Stockholders' Equity

Current Liabilities:

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Accrued payroll

Current portion of operating lease obligation

Current portion of operating lease obligations

Current portion of long-term debt

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Long-Term Liabilities:

Long-term portion of operating lease obligation

Long-term debt, less current portion

Contingent obligation

Long-term portion of operating lease obligations

Long-term debt, net, less current portion

Contingent obligations

Deferred tax liabilities, net

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Commitments and Contingencies

Stockholders' Equity:

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

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Noncontrolling interest

Total Liabilities and Equity

See Notes to Consolidated Financial Statements.

Total Stockholders' Equity

Total Liabilities and Stockholders' Equity

See accompanying Notes to Consolidated Financial Statements.

Xcel Brands, Inc.

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Net licensing revenue

Cost of goods sold (sales)

Cost of goods sold

Operating costs and expenses

Salaries, benefits and employment taxes

Other design and marketing costs

Other selling, general and administrative expenses

(Recovery of) costs in connection with potential acquisitions

Stock-based compensation

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Interest and finance expense

Interest expense and other finance charges

Interest expense - term loan debt

Other interest and finance charges (income), net

Loss on extinguishment of debt

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Net loss attributable to Xcel Brands, Inc.

Loss per share attributable to Xcel Brands, Inc.

common stockholders:

Basic net loss per share:

Diluted net loss per share:

Loss per common share attributable to Xcel Brands, Inc.

stockholders:

Basic and diluted net loss per share

Weighted average number of common shares outstanding:

Basic weighted average common shares outstanding

Diluted weighted average common shares outstanding

See Notes to Consolidated Financial Statements.

Basic and diluted weighted average common shares outstanding

See accompanying Notes to Consolidated Financial Statements.

Xcel Brands, Inc.

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Balance as of January 1, 2020

Issuance of common stock in connection with the acquisition of Halston Heritage

Shares issued to directors in connection with restricted stock grants, net of forfeitures

Shares issued on exercise of stock options, net

Compensation expense in connection with stock options and restricted stock

Shares repurchased including vested restricted stock in exchange for withholding taxes

Consolidation of Longaberger Licensing, LLC variable interest entity

Shares issued to executive in connection with stock grants for bonus payments

Shares issued to other employees in connection with stock grants

Shares repurchased from employees in exchange for withholding taxes

Additional investment in Longaberger Licensing, LLC by non-controlling interest

Net loss for the year ended December 31, 2020

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Shares issued to executive in connection with stock grants for bonus payments

Shares issued to other employees in connection with stock grants

Shares issued to directors in connection with restricted stock grants

Shares issued to consultants in connection with restricted stock grants

Shares issued to employee in connection with contractual agreement

Shares issued on exercise of stock options, net of shares surrendered for cashless exercises

Shares repurchased from employees in exchange for withholding taxes

Additional investment in Longaberger Licensing, LLC by non-controlling interest

Additional investment in Longaberger Licensing, LLC by noncontrolling interest

Net loss for the year ended December 31, 2021

Balance as of December 31, 2021

See Notes to Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial Statements.

Xcel Brands, Inc.

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Cash flows from operating activities

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization expense

Asset impairment charges

Amortization of deferred finance costs

Amortization of deferred finance costs included in interest expense

Stock-based compensation

Amortization of note discount

Allowance for doubtful accounts

Provision for doubtful accounts

Loss on extinguishment of debt

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Net gain on sale of assets

Gain on reduction of contingent obligation

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Prepaid expenses and other current and non-current assets

Accounts payable, accrued expenses and other current liabilities

Cash paid in excess of rent expense

Other liabilities

Net cash provided by operating activities

Lease-related assets and liabilities

Net cash (used in) provided by operating activities

Cash flows from investing activities

Cash consideration for acquisition of Halston Heritage assets

Cash consideration for acquisition of Lori Goldstein assets

Net proceeds from sale of assets

Investment in Longaberger Licensing, LLC

Purchase of other intangible assets

Purchase of property and equipment

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Cash flows from financing activities

Proceeds from exercise of stock options

Shares repurchased including vested restricted stock in exchange for withholding taxes

Cash contribution from non-controlling interest

Payment of deferred finance costs

Proceeds from revolving loan debt

Proceeds from long-term debt

Payment of deferred finance costs

Payment of revolving loan debt

Payment of long-term debt

Net cash (used in) provided by financing activities

Net increase (decrease) in cash, cash equivalents, and restricted cash

Payment of breakage and other fees associated with extinguishment of long-term debt

Net cash provided by (used in) financing activities

Net (decrease) increase in cash, cash equivalents, and restricted cash

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

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Supplemental disclosure of non-cash activities:

Operating lease right-of-use asset

Operating lease obligation

Accrued rent offset to operating lease right-of-use assets

Settlement of seller note through offset to receivable

Settlement of contingent obligation through offset to note receivable

Issuance of common stock in connection with Halston Heritage assets acquisition

Contingent obligation related to acquisition of Halston Heritage assets at fair value

Liability for equity-based bonuses

Operating lease right-of-use assets

Operating lease obligations

Contingent obligation related to acquisition of Lori Goldstein assets at fair value

Liability for equity-based bonuses and other equity-based payments

Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes

Cash paid during the period for interest

See Notes to Consolidated Financial Statements.

Cash paid during the year for interest

Cash paid during the year for income taxes

See accompanying Notes to Consolidated Financial Statements.

XCEL BRANDS, INC.

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(“Xcel” and, together with its subsidiaries, 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 Brand"), 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 designs, produces, markets, and distributes products, and in certain cases, licenses its brands to third parties, and generates licensing and other revenues through contractual arrangements with manufacturers and retailers.

This includes licensing its own brands for promotion and distribution through a ubiquitous-channel retail sales strategy, which includes distribution through interactive television, the internet, and traditional brick-and-mortar retail channels.

The Company’s wholesale and e-commerce operations are presented as "Net sales"

and "Cost of goods sold (sales)"

Currently, the Company’s brand portfolio consists of the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the LOGO by Lori Goldstein brand, the Judith Ripka brands (the "Ripka Brand"), the Halston brands (the "Halston Brand"), 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 (see Note 3).

The Company designs, produces, markets, and distributes products, licenses its brands to third parties, and generates licensing revenues through contractual arrangements with manufacturers and retailers.

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.

The Company’s wholesale and direct-to-consumer operations are presented as "Net sales"

and "Cost of goods sold"

in the Consolidated Statements of Operations, separately from the Company’s licensing revenues.

The Company incurred net losses of approximately $ 13.0 million and $ 13.1 million during the years ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of approximately $ 28.8 million and $ 16.6 million as of December 31, 2021 and 2020, respectively.

The Company had working capital (current assets less current liabilities, excluding the current portion of lease obligations) of approximately $ 7.9 million as of both December 31, 2021 and 2020.

The Company’s cash and cash equivalents were approximately $ 4.5 million as of December 31, 2021.

Management expects that existing cash and operating cash flows will be adequate to meet the Company’s operating needs, term debt service obligations, and capital expenditure needs, for at least the twelve months subsequent to the filing date of this Annual Report on Form 10-K.

Summary of Significant Accounting Policies

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GAAP”) and in accordance with the accounting rules under Regulation S-X, as promulgated by the Securities and Exchange Commission (“SEC”).

All significant intercompany accounts and transactions have been eliminated in consolidation.

and net earnings have been adjusted by the portion of operating results of consolidated entities attributable to noncontrolling interests.

All significant intercompany accounts and transactions have been eliminated in consolidation, and net earnings have been adjusted by the portion of operating results of consolidated entities attributable to noncontrolling interests.

Use of Estimates

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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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

Making estimates requires management to exercise significant judgment.

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● Useful lives of trademarks;

● Assumptions used in the valuation of intangible assets, including cash flow estimates for impairment analysis;

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020 and 2019

● Black-Scholes option pricing model assumptions for stock option values;

● Assumptions used in the valuation of intangible assets, including cash flow estimates for initial determinations of fair value and/or impairment analysis;

● Black-Scholes option pricing model assumptions for the grant date fair value of stock options;

● Incremental borrowing rate;

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Reclassifications

Certain reclassifications have been made to Prior Year financial statements to conform to classifications used in the Current Year – specifically, the aggregation of interest expense with other finance charges, the latter of which was not material in Current Year or Prior Year.

This reclassification had no impact on net income, stockholders’ equity, or cash flows as previously reported.

Certain reclassifications have been made to Prior Year financial statements to conform to classifications used in the Current Year – specifically, the classification and aggregation / disaggregation of certain types of operating costs and expenses, and the disaggregation of the components of interest and finance expense.

These reclassifications had no impact on total operating costs and expenses, total interest and finance expense, net loss, stockholders’ equity, or cash flows as previously reported.

Cash and Cash Equivalents

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As of December 31, 2021 and 2020, the Company had $ 7.6 million and $ 8.9 million, respectively, of accounts receivable, net of allowances for doubtful accounts of $ 1.1 million and $ 1.2 million, respectively.

The Company recognized bad debt expense of $1.1 million for the Current Year and a recovery of $(0.1) million for the Prior Year.

Included within these amounts, the Current Year reflects $1.0 million of bad debt expense related to the bankruptcy of several retail customers due to the novel coronavirus disease pandemic.

The total allowance of $1.0 million against such customers’ outstanding receivable balances of $1.2 million at December 31, 2020 represents management’s best estimate of collectibility, based on information currently available.

The Company recognized bad debt expense of $ 0.1 million and $ 1.1 million for the Current Year and Prior Year, respectively, of which the Current Year and Prior Year reflected $ 0.1 million and $ 1.0 million, respectively, of bad debt expense related to the bankruptcy of several retail customers due to the novel coronavirus disease pandemic.

The allowance of approximately $ 1.1 million against such customers’ outstanding receivable balances of $ 1.4 million at December 31, 2021 represents management’s best estimate of collectibility, based on information currently available.

The allowance of $ 1.0 million against such customers’ outstanding receivable balances of $ 1.2 million at December 31, 2020 represented management’s best estimate of collectibility based on information available at that time.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

There is no earned revenue that has been accrued but not billed as of December 31, 2021 and 2020.

Inventory is recorded at the lower of cost or net realizable value, with cost determined on a weighted average basis.

The Company holds finished goods inventory for its e-commerce jewelry operations.

The Company holds finished goods inventory for its direct-to-consumer operations.

Apparel and jewelry finished goods inventory is purchased to satisfy orders received from its wholesale operations.

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If non-saleable items are observed and there are no alternate uses for the inventories, the Company will record a write-down to net realizable value in the period that the decline in value is first recognized.

Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts.

Write-downs for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts.

Property and Equipment

Furniture, equipment, and software are stated at cost less accumulated depreciation and amortization, and are depreciated using the straight-line method over their estimated useful lives, generally three (3) to seven (7) years.

Depreciation expense for the years ended December 31, 2021 and 2020 was approximately $ 1.3 million and $ 0.9 million, respectively.

Leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of the leases.

Betterments and improvements are capitalized, while repairs and maintenance are expensed as incurred.

Costs to develop or acquire software for internal use incurred during the preliminary project stage and the post implementation stage are expensed, while internal and external costs to acquire or develop software for internal use incurred during the application development stage – including design, configuration, coding, testing, and installation – are generally capitalized.

The Company’s long-lived property and equipment assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

An impairment loss is recognized if the carrying amount of an asset is not recoverable and its carrying amount exceeds its fair value.

With reference to such impairment testing, 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 evaluates the asset group against the sum of undiscounted future cash flows.

If the undiscounted cash flows do not indicate 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 undiscounted cash flows analysis or appraisals.

The inputs utilized in the impairment analysis are classified as Level 3 inputs within the fair value hierarchy as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurement.”

As a result of management’s decision to close its brick-and-mortar fine jewelry retail store, the Company recognized a $ 0.7 million impairment charge in the Current Year related to furniture and fixtures, equipment, and leasehold improvement assets of the store, and a $ 0.7 million impairment charge in the Current Year related to the operating lease right-of-use asset for the store.

As a result of the bankruptcy of Lord & Taylor in 2020, the Company recognized a $ 0.1 million impairment charge in the Prior Year related to certain furniture and fixture assets physically located in Lord & Taylor’s stores.

XCEL BRANDS, INC.

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December 31, 2021 and 2020

improvements are amortized over the shorter of their estimated useful lives or the terms of the leases.

Betterments and improvements are capitalized, while repairs and maintenance are expensed as incurred.

As a result of the bankruptcy of Lord & Taylor in the Current Year, the Company recognized a $0.1 million impairment related to certain furniture and fixture assets physically located in Lord & Taylor’s stores.

Trademarks and Other Intangible Assets

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other.” Under this standard, goodwill and indefinite-lived intangible assets are not amortized, but are required to be assessed for impairment at least annually (the Company utilizes December 31 as its testing date) and when events occur or circumstances change that would more likely than not reduce the fair value of the asset below its carrying amount.

Indefinite-Lived Intangible Assets

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) to a single current (that is, discounted) amount.

The Company follows FASB ASC Topic 350, “Intangibles - Goodwill and Other.” Under this standard, goodwill and indefinite-lived intangible assets are not amortized, but are required to be assessed for impairment at least annually (the Company utilizes December 31 as its testing date) and when events occur or circumstances change that would more likely than not reduce the fair value of the asset below its carrying amount.

Indefinite-Lived Intangible Asset

The Company tests its indefinite-lived intangible asset 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) to a single current (that is, discounted) amount.

When the Income Approach is used, fair value measurement reflects current market expectations about those future amounts.

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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 recoverable amount of the assets.

The Company performed its annual impairment testing as described above for the year ended December 31, 2020, and concluded that there was no impairment of its indefinite-lived intangible assets.

As a result of performing its annual impairment testing as described above for the year ended December 31, 2019, the Company recorded a $6.2 million impairment 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.

No other impairment charges were recorded for the year ended December 31, 2019.

The Company performed its annual impairment testing as described above for the years ended December 31, 2021 and 2020, and concluded that there was no impairment of its indefinite-lived intangible asset.

The Company also re-evaluates on an annual basis whether events and circumstances continue to support an indefinite useful life.

Finite-Lived Intangible Assets

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An impairment loss is recognized if the carrying amount of a finite-lived intangible asset is not recoverable and its carrying amount exceeds its fair value.

With reference to finite-lived intangible assets impairment testing, 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.

With reference to finite-lived intangible assets impairment testing, 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 evaluates the asset group against the sum of undiscounted future cash flows.

The inputs utilized in the

The inputs utilized in the finite-lived intangible assets impairment analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC Topic 820, “Fair Value Measurement.”

As a result of performing its required impairment testing as described above for the year ended December 31, 2020, the Company recorded a $ 13.0 million impairment charge in the Prior Year related to the Ripka Brand trademarks, driven by delays and uncertainty in implementing the brick-and-mortar retail store strategy for a portion of the brand, primarily as a result of the novel coronavirus disease pandemic.

No other impairment charges were recorded for the year ended December 31, 2020, and no impairment charges were recorded related to finite-lived intangible assets for the year ended December 31, 2021.

The Company’s finite-lived intangible assets are amortized over their estimated useful lives of four (4) to eighteen (18) years.

The Company re-evaluates the remaining useful life of its finite-lived intangible assets on an annual basis, based on consideration of current events and circumstances, the expected use of the asset, and the effects of demand, competition, and other economic factors.

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2021 and 2020

finite-lived intangible assets impairment analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC Topic 820, “Fair Value Measurement.”

As a result of performing its annual impairment testing as described above for the year ended December 31, 2020, the Company recorded a $13.0 million impairment related to the Ripka Brand trademarks, driven by delays and uncertainty in implementing the brick-and-mortar retail store strategy for a portion of the brand, primarily as a result of the novel coronavirus disease pandemic.

No other impairment charges were recorded for the year ended December 31, 2020.

No impairment charges were recorded related to finite-lived intangible assets for the year ended December 31, 2019.

The Company’s finite-lived intangible assets are amortized over their estimated useful lives of seven (7) to eighteen (18) years.

Restricted Cash

Restricted cash was $1.1 million as of December 31, 2020 and 2019, respectively.

This balance consisted of $1.1 million of cash deposited with Bank Hapoalim B.M.

(“BHI”) as collateral for an irrevocable standby letter of credit associated with the lease of the Company’s current corporate office and operating facility at 1333 Broadway, New York City.

Restricted cash was $ 0.7 million and $ 1.1 million as of December 31, 2021 and 2020, respectively.

This balance consisted of cash deposited as collateral for an irrevocable standby letter of credit associated with the lease of the Company’s current corporate office and operating facility at 1333 Broadway, New York City.

Investment in Unconsolidated Affiliate

The Company holds a limited partner ownership interest in an unconsolidated affiliate, which was entered into in 2016.

This investment is accounted for in accordance with Accounting Standards Update (“ASU”) No.

2016-01, "Financial Instruments – Overall (Subtopic 825-10):

"Recognition and Measurement of Financial Assets and Financial Liabilities,"

and is included within other assets on the Company’s consolidated balance sheets at December 31, 2020 and 2019.

This investment is accounted for in accordance with ASC Topic 321, “Investments – Equity Securities,” and is included within other assets on the Company’s consolidated balance sheets at December 31, 2021 and 2020.

As of December 31, 2021 and 2020, the carrying value of this investment was $ 0.1 million.

This investment does not have a readily determinable fair value and in accordance with ASC 820-10-35-59, the investment is valued at cost, less impairment, plus or minus observable price changes of an identical or similar investment of the same issuer.

Note Receivable

The Company previously entered into a promissory note receivable from a certain key employee in the amount of $0.9 million.

This note receivable bore interest at 5.1%, was due and payable in full on April 1, 2019, and was fully collateralized by various assets of the employee in which the Company had been granted a security interest.

The note receivable was satisfied on March 31, 2019, and as of December 31, 2019, there were no amounts remaining outstanding under the note.

Deferred Finance Costs

The Company incurred costs (primarily professional fees and lender underwriting fees) in connection with borrowings under the senior secured term loans.

The Company has incurred costs (primarily professional fees and lender underwriting fees) in connection with borrowings under senior secured term loans.

These costs have been deferred on the consolidated balance sheets as a reduction to the carrying value of the associated borrowings.

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When accounting for asset acquisitions, if any contingent obligations exist and the fair value of the assets acquired is greater than the consideration paid, any contingent obligations are recognized and recorded as the positive difference between the fair value of the assets acquired and the consideration paid for the acquired assets.

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Notes to Consolidated Financial Statements

December 31, 2020 and 2019

When accounting for asset acquisitions, if any contingent obligations exist and the fair value of the assets acquired are equal to the consideration paid, any contingent obligations are recognized based upon the Company’s best estimate of the amount that will be paid to settle the liability.

The Company recorded contingent obligations in connection with the acquisition of the Judith Ripka Trademarks in 2014, the C Wonder Trademarks in 2015, and the Halston Heritage Trademarks in 2019.

The Company recorded contingent obligations in connection with the acquisitions of the Halston Heritage trademarks in 2019 and the LOGO by Lori Goldstein trademarks in 2021.

See Note 3 and Note 10 for additional information related to contingent obligations.

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Payments are typically due after sales have occurred and have been reported by the licensees or, where applicable, in accordance with minimum guaranteed payment provisions.

The timing of performance obligations is typically consistent with the timing of payments, though there may be differences if contracts provide for advances or significant escalations of contractually guaranteed minimum payments.

The timing of performance obligations is typically consistent with the timing of payments, though there may be differences if contracts provide for advances or

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Notes to Consolidated Financial Statements

December 31, 2021 and 2020

significant escalations of contractually guaranteed minimum payments.

There were no such differences that would have a material impact on the Company’s consolidated balance sheets at December 31, 2021 and 2020.

In accordance with ASC 606-10-55-65, the Company recognizes 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).

In accordance with ASC 606-10-55-65, the Company recognizes net licensing 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).

More specifically, the Company separately identifies:

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(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” by the TRG).

The Company does not typically perform by transferring goods or services to customers before the customer pays consideration or before payment is due, thus the amounts of contract assets as defined by ASC 606-10-45-3 were not material as of December 31, 2020 and 2019.

The Company does not typically perform by transferring goods or services to customers before the customer pays consideration or before payment is due, thus the amounts of contract assets as defined by ASC 606-10-45-3 related to licensing contracts were not material as of December 31, 2021 and 2020.

The Company’s unconditional right to receive consideration based on the terms and conditions of licensing contracts is presented as accounts receivable on the accompanying consolidated balance.

The Company typically does not receive consideration in advance of performance and, consequently, amounts of contract liabilities as defined by ASC 606-10-45-2 were not material as of December 31, 2020 and 2019.

The Company does not disclose the amount attributable to unsatisfied or partially satisfied performance obligations for variable revenue contracts (identified under “View A” above) in accordance with the optional exemption allowed under

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Notes to Consolidated Financial Statements

December 31, 2020 and 2019

The Company typically does not receive consideration in advance of performance and, consequently, amounts of contract liabilities as defined by ASC 606-10-45-2 related to licensing contracts were not material as of December 31, 2021 and 2020.

The Company did not have any revenue recognized in the reporting period from performance obligations satisfied, or partially satisfied, in previous periods.

Remaining minimum guaranteed payments for active contracts as of December 31, 2020 are expected to be recognized ratably in accordance with View C over the remaining term of each contract based on the passage of time and through December 2023.

Remaining minimum guaranteed payments for active contracts as of December 31, 2021 are expected to be recognized ratably in accordance with View C over the remaining term of each contract based on the passage of time and through December 2024, subject to renewal or extension upon termination.

Wholesale Sales

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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.

Shipping to customers is accounted for as a fulfillment activity and is recorded within other selling, general and administrative expenses.

Direct to Consumer Sales

The Company’s revenue associated with its e-commerce businesses is recognized at a point in time when product is shipped to the customer.

Shipping to customers is accounted for as a fulfillment activity and is recorded within other selling, general and administrative expenses.

The Company’s revenue related to its brick-and-mortar retail store is recognized at the point of sale to the customer.

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Notes to Consolidated Financial Statements

December 31, 2021 and 2020

Advertising Costs

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All other advertising costs, such as print and online media, are expensed when the advertisement occurs.

The Company incurred $0.9 million in advertising and marketing costs for each of the years ended December 31, 2020 and December 31, 2019.

The Company determines if an arrangement is a lease at inception.

The Company generally recognizes a right-of-use (“ROU”) asset, representing its right to use the underlying leased asset for the lease term, and a liability for its obligation to make future lease payments (the lease liability) at commencement date based on the present value of lease payments over the lease term.

The Company does not recognize ROU assets and lease liabilities 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.

The Company incurred $ 2.5 million and $ 0.9 million in advertising and marketing costs for the Current Year and Prior Year, respectively.

The Company determines if an arrangement is a lease (as defined in ASC Topic 842, “Leases”) at the inception of the arrangement.

The Company generally recognizes a right-of-use (“ROU”) asset, representing its right to use the underlying leased asset for the lease term, and a liability for its obligation to make future lease payments (the lease liability) at commencement date (the date on which the lessor makes the underlying asset available for use) based on the present value of lease payments over the lease term.

The Company does not recognize ROU assets and lease liabilities for lease terms of 12 months or less, but recognizes such lease payments in operations on a straight-line basis over the lease terms.

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.

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Subsequent to initial measurement, these variable payments are recognized when the event determining the amount of variable consideration to be paid occurs.

Lease expense for operating lease payments related to office leases is recognized on a straight-line basis over the lease term.

Lease expense for operating lease payments related to retail leases is recognized on a straight-line basis over the period of operation, as this is representative of the pattern in which benefit is derived from the lease.

Lease expense for operating lease payments is generally recognized on a straight-line basis over the lease term.

The Company recognizes income from subleases (in which the Company is the sublessor) on a straight-line basis over the term of the sublease, as a reduction to lease expense.

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Notes to Consolidated Financial Statements

December 31, 2020 and 2019

Stock-Based Compensation

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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 terms 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 average long-term implied volatilities of peer companies, and expected life is based on the estimated average life of options and warrants using the simplified method.

These variables include, but are not limited to, the expected life of the awards and the expected stock price volatility over the terms of the awards.

The expected life is based on the estimated average 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.

The Company accounts for non-employee awards in accordance with ASU 2018-07, “Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting.” Such awards are measured at the grant date fair value of the equity instruments to be issued, and the Company recognizes compensation cost for grants to non-employees on a straight-line basis over the period of the grant.

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 historical volatility of the Company’s common stock, and 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, based on the quoted market price of the Company’s common shares on the NASDAQ Global Market.

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Notes to Consolidated Financial Statements

December 31, 2021 and 2020

Non-employee awards are measured at the grant date fair value of the equity instruments to be issued, and the Company recognizes compensation cost for grants to non-employees on a straight-line basis over the period of the grant.

The Company accounts for forfeitures as a reduction of compensation cost in the period when such forfeitures occur.

For stock option awards for which vesting is contingent upon the achievement of certain performance targets, the timing and amount of compensation expense recognized is based upon the Company’s projections and estimates of the relevant performance metric(s) until the time the performance obligation is satisfied.

Expense for such awards is recognized only to the extent that the achievement of the specified performance target(s) has been met or is considered probable.

Current income taxes are based on the respective period’s taxable income for federal and state income tax reporting purposes.

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ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value and establishes a framework for measuring fair value under U.S.

The fair value of the Company’s financial assets and liabilities reflects management’s

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Notes to Consolidated Financial Statements

December 31, 2020 and 2019

estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date.

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date.

In connection with measuring the fair value of the Company’s assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).

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When debt interest rates are below market rates, the Company considers the discounted value of the difference of actual interest rates and its internal borrowing against the scheduled debt payments.

The fair value of the Company’s cost method investment does not have a readily determinable fair value and in accordance with ASC 820-10-35-59, the investment is valued at cost, less impairment, plus or minus observable price changes of an identical or similar investment of the same issuer.

The fair value of the Company’s investment in an unconsolidated affiliate does not have a readily determinable fair value and in accordance with ASC 820-10-35-59, the investment is valued at cost, less impairment, plus or minus observable price changes of an identical or similar investment of the same issuer.

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Notes to Consolidated Financial Statements

December 31, 2021 and 2020

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, accounts receivable, and notes receivable.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, and accounts receivable.

The Company limits its credit risk with respect to cash by maintaining cash, cash equivalents, and restricted cash balances with high quality financial institutions.

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Generally, the Company does not require collateral or other security to support accounts receivable.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities.

Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon the exercise of stock options and warrants using the treasury stock method.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities.

Diluted earnings (loss) per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon the exercise of stock options and warrants using the treasury stock method.

The difference between basic and diluted weighted-average common shares results from the assumption that all dilutive stock options and warrants outstanding were exercised into common stock if the effect is not anti-dilutive.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued 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.

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.

The adoption of this new guidance in 2021 will not have any significant impact on the Company’s results of operations, cash flows, and financial condition.

In June 2016, the FASB issued ASU No.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-13, "Financial Instruments – Credit Losses (Topic 326):

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In November 2019, the FASB issued ASU No.

2019-10, which, among other things, deferred the application of the new guidance on credit losses for smaller reporting

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Notes to Consolidated Financial Statements

December 31, 2020 and 2019

companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

2019-10, which, among other things, deferred the application of the new guidance on credit losses for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Company is currently evaluating the new guidance to determine the impact the adoption of this guidance will have on the Company’s results of operations, cash flows, and financial condition.

In November 2021, the FASB issued ASU No.

2021-10, “Government Assistance (Topic 823):

Disclosures by Business Entities about Government Assistance.” This ASU will require certain financial statement disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.

This guidance is effective for financial statements issued for annual periods beginning after December 15, 2021.

As this ASU only affects financial statement disclosures, the adoption of this guidance will not have any impact on the Company’s results of operations, cash flows, or financial condition.

Recently Adopted Accounting Pronouncements

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The Company adopted ASU No.

2016-02, “Leases,” effective January 1, 2019, by applying the new guidance under the additional and alternative transition method allowed by ASU No.

2018-11, “Leases (Topic 842):

Targeted Improvements.” 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.

The adoption of the new lease accounting guidance did not have an impact on the Company’s consolidated statement of operations, and had no impact on cash provided by or used in operating, financing, or investing activities in the Company's consolidated statement of cash flows.

The Company 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 its 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.

Acquisition of Halston Heritage Trademarks

On February 11, 2019 (the “Closing Date”), the Company and its wholly owned subsidiary, H Heritage Licensing, LLC, entered into an asset purchase agreement (the "Heritage Asset Purchase Agreement") with the H Company IP, LLC (the "Seller"

or "HIP") and its parent, House of Halston LLC ("HOH"), pursuant to which the Company acquired certain assets of HIP, including the "Halston", "Halston Heritage", and "Roy Frowick"

trademarks (collectively, the "Halston Heritage Trademarks") and other intellectual property rights relating thereto.

Benjamin Malka, who was a director of the Company, is a 25% equity holder of HOH and former Chief Executive Officer of HOH.

Pursuant to the Heritage Asset Purchase Agreement, at closing, the Company delivered in escrow for HIP or its designees (collectively, the “Sellers”) an aggregate of $8.4 million in cash and 777,778 shares of the Company’s common stock valued at $1.1 million (the “Xcel Shares”), subject to a voting agreement and a lock-up agreement relating to the Xcel Shares and a consent and waiver agreement each in form satisfactory to Xcel within three months from the date of the Heritage Asset Purchase Agreement.

Such agreements were executed and delivered to Xcel, and the Xcel Shares were issued and delivered to the Sellers.

In addition to the closing considerations, HIP is eligible to earn up to an aggregate of $6.0 million (the “Earn-Out Value”) through December 31, 2022 based on Excess Net Royalties.

“Excess Net Royalties” during any calendar year for 2019 through 2022 (each, a “Royalty Target Year”) is equal to (a) the positive amount, if any, of the Net Royalties as calculated for such Royalty Target Year, less the greater of (i) One Million Five Hundred Thousand Dollars ($1.5 million), or (ii) the maximum Net Royalties for any previous Royalty Target Year.

“Applicable Percentage” means (a) 50% of the first $10.0 million of Excess Net Royalties during the Earn-Out Period, (b) 20% of aggregate Excess Net Royalties during the Earn-Out Period greater than $10.0 million and up to $15.0 million and (c) 0% of aggregate Excess Net Royalties during the

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” effective January 1, 2021.

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.

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December 31, 2021 and 2020

Earn-Out Period in excess of $15.0 million.

The Earn-Out Consideration shall be payable in common stock of Xcel (the “Earn-Out Shares”);

provided, however, that if the number of Earn-Out Shares, when combined with the number of Xcel Shares issued at the Closing Date, will exceed 4.99% of the aggregate number of shares of Xcel common stock outstanding as of the Closing Date (calculated in accordance with Nasdaq Rule 5635(a)) (the “Xcel Share Limit”), then Xcel may, in its sole and unfettered discretion, elect to (x) pay cash for the Earn-Out Value attributable to the Earn-Out Shares that would exceed the Xcel Share Limit;

(y) solicit stockholder approval for the issuance of Earn-Out Shares in excess of the Xcel Share Limit in accordance with Nasdaq Rule 5635(a)(2) and, if such stockholder approval is obtained, issue such Earn-Out Shares to HIP;

or (z) solicit stockholder approval for the issuance of Shares in excess of the Xcel Share Limit in accordance with Nasdaq Rule 5635(a)(2) and, if such stockholder approval is obtained, pay the applicable Earn-Out Consideration with a combination of cash and Earn-Out Shares.

The Halston Heritage Trademark acquisition was accounted for as an asset purchase.

The aggregate purchase price has been allocated to the following assets based on the fair value of the assets on the date of acquisition:

($ in thousands)

Allocated to:

Halston archives

Total acquisition price

The Halston Heritage Trademarks have been determined by management to have a finite useful life, and accordingly, amortization is recorded in the Company’s consolidated statements of operations.

The Halston Heritage Trademarks and archives are amortized on a straight-line basis over their expected useful lives of eighteen and seven years, respectively.

Acquisitions and Variable Interest Entities

Acquisition of LOGO by Lori Goldstein Brand

On March 30, 2021, the Company and its wholly owned subsidiary, Gold Licensing, LLC, entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Lori Goldstein, Ltd.

(the “Seller”) and Lori Goldstein (“Shareholder”), pursuant to which the Company agreed to acquire, and the Seller and Shareholder agreed to sell, certain assets of the Seller, including the “LOGO by Lori Goldstein” trademark and other intellectual property rights relating thereto.

On April 1, 2021 (the “Closing Date”), the Company completed the acquisition of the assets specified in the Asset Purchase Agreement.

Pursuant to the Asset Purchase Agreement, on the Closing Date, the Company delivered $ 1.6 million in cash consideration to the Seller.

In addition, the Company was required to deliver $ 2.0 million in cash consideration to the Seller on the earlier of (i) the Company’s receipt of the first royalty payment from QVC, Inc.

in respect of the acquired assets, or (ii) July 29, 2021.

This payment was made in July 2021.

In addition to the consideration described above, the Seller is eligible to earn additional consideration of up to $ 12.5 million (the “Lori Goldstein Earn-Out”), which would be payable, in cash, within 45 days after the end of each applicable calendar year during the six calendar year period commencing 2021 in an amount equal to 75 % percent of the Royalty Contribution (as defined in the Asset Purchase Agreement) for such calendar year.

The Company recorded a contingent obligation of $ 6.6 million related to the Lori Goldstein Earn-Out, based on the difference between the fair value of the acquired assets of the LOGO by Lori Goldstein brand and the total consideration paid, in accordance with the guidance in Accounting Standards Codification (“ASC”) Subtopic 805-50.

The LOGO by Lori Goldstein brand acquisition was accounted for as an asset purchase.

The following represents the aggregate purchase price of $ 10.3 million:

($ in thousands, except share amounts)

Fair value of Common Stock issued (777,778 shares)

($ in thousands)

Cash paid at closing

Cash paid subsequent to closing

Total direct initial consideration

Direct transaction expenses

Contingent obligation

Contingent obligation (Lori Goldstein Earn-Out)

Total consideration

Consolidation of Longaberger Licensing, LLC Variable Interest Entity and Acquisition of Longaberger Trademarks

On November 12, 2019, the Company entered into a limited liability company agreement (the “LLC Agreement”) with a subsidiary of Hilco Global for Longaberger Licensing, LLC (“LL”).

Hilco Global became the sole Class A Member of LL, and Xcel became the sole Class B Member of LL.

Each member committed to an initial capital contribution of $425,000 in return for a 50% equity ownership interest in LL, with each member actually contributing $375,000 upon execution of the LLC Agreement.

Simultaneously on November 12, 2019, Longaberger Licensing, LLC completed the acquisition of the Longaberger trademarks and other intellectual property rights relating thereto from the trustee for the Longaberger Company.

The total purchase price for such assets was $750,000.

No other assets or liabilities were acquired as part of this transaction, and the acquisition was accounted for as an asset purchase.

Based on an analysis of the contractual terms and rights contained in the related agreements, the Company determined that under the applicable accounting standards, LL is a variable interest entity and the Company has effective control over the entity.

Therefore, as the primary beneficiary, the Company has consolidated LL as of November 12, 2019.

Upon consolidation, the Company recognized $750,000 of intangible assets and a noncontrolling interest of $375,000.

The aggregate purchase price was allocated entirely to the trademarks of the brand.

Such trademarks have been determined by management to have a finite useful life, and accordingly, amortization is recorded in the Company’s consolidated statements of operations.

The Lori Goldstein trademarks are being amortized on a straight-line basis over their expected useful life of four years .

Upon the consummation of the acquisition of the LOGO by Lori Goldstein brand as 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.

These bonuses were expensed on the Closing Date and were subsequently paid in May 2021.

Additionally, concurrent with the acquisition, the Company also entered into a 10-year employment agreement with the Shareholder to serve as the LOGO by Lori Goldstein 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.

Further, 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

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December 31, 2021 and 2020

The Longaberger trademarks have been determined by management to have a finite useful life, and accordingly, amortization is recorded in the Company’s consolidated statements of operations.

The Longaberger trademarks are amortized on a straight-line basis over their expected useful life of fifteen (15) years.

During the Current Year, Hilco Global and Xcel each contributed $300,000 to LL in order to fund LL’s working capital requirements, which resulted in an increase of $300,000 to the carrying value of Hilco Global’s non-controlling interest.

through December 31, 2021 and $ 0.8 million per annum thereafter.

The Company therefore recognized $ 0.9 million of salary expense and $ 0.6 million of consulting expense in the Current Year related to such agreements.

Longaberger Licensing, LLC Variable Interest Entity

Xcel is party to a limited liability company agreement (the “LLC Agreement”) with a subsidiary of Hilco Global related to Longaberger Licensing, LLC (“LL”).

Hilco Global is the sole Class A Member of LL, and Xcel is the sole Class B Member of LL (each individually a “Member,” and collectively, the “Members”).

Each Member holds a 50 % equity ownership interest in LL;

however, based on an analysis of the contractual terms and rights contained in the LLC Agreement and related agreements, the Company has previously determined that under the applicable accounting standards, LL is a variable interest entity and the Company has effective control over LL.

Therefore, as the primary beneficiary, the Company has consolidated LL since 2019, and has recognized the assets, liabilities, revenues, and expenses of LL as part of its consolidated financial statements, along with a noncontrolling interest which represents Hilco Global’s 50 % ownership share in LL.

During the Current Year and Prior Year, the Members made capital contributions to LL of $ 0.3 million each and $ 1.0 million each, respectively, in order to fund LL’s working capital requirements.

This resulted in increases to the carrying value of Hilco Global’s non-controlling interest in LL for the Current Year and Prior year of $ 0.3 million and $ 1.0 million, respectively.

The impacts of Xcel’s capital contributions were eliminated in consolidation.

Trademarks and Other Intangibles

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Trademarks (finite-lived)

Other intellectual property

Non-compete agreement

Copyrights and other intellectual property

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Trademarks (finite-lived)

Other intellectual property

Non-compete agreement

Copyrights and other intellectual property

During the year ended December 31, 2020, the Company recorded a non-cash impairment charge of $ 13.0 million related to the Ripka Brand trademarks, driven by delays and uncertainty in implementing the brick-and-mortar retail store strategy for a portion of the brand, primarily as a result of the novel coronavirus disease pandemic.

During the year ended December 31, 2019, the Company recorded a non-cash impairment charge of $6.2 million 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.

The net carrying amount of the Ripka Brand trademarks (which were considered finite-lived intangible assets effective as of January 1, 2020) immediately prior to the impairment was approximately $ 17.2 million;

following the impairment, the remaining balance of approximately $ 4.2 million became the new gross carrying basis for the Ripka Brand trademarks.

No other intangible asset impairment charges were recorded for the years ended December 31, 2021 and 2020.

Amortization expense for intangible assets for the years ended December 31, 2020 and 2019 was approximately $4.6 million and $3.2 million, respectively.

Effective January 1, 2020, the Company determined that the Ripka Brand, inclusive of all its trademarks, has a finite life of 15 years, and is amortized on a straight-line basis accordingly.

Prior to January 1, 2020, the Ripka Brand trademarks were considered indefinite-lived assets.

The trademarks of the Isaac Mizrahi Brand have been determined to have indefinite useful lives and accordingly, no amortization has been recorded for those intangible assets.

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2021 and 2020

Amortization expense for intangible assets for the years ended December 31, 2021 and 2020 was approximately $ 5.6 million and $ 4.6 million, respectively.

The trademarks of the Isaac Mizrahi Brand have been determined to have indefinite useful lives and accordingly, no amortization has been recorded for those intangible assets.

Estimated future amortization expense related to finite-lived intangible assets over the remaining useful lives is as follows:

1 unchanged sentence

Year Ending December 31,

Thereafter (through 2036)

Significant Contracts

QVC Agreements

Through its wholly owned subsidiaries, the Company has direct-to-retail license agreements with Qurate Retail Group (“Qurate”), pursuant to which the Company designs, and Qurate sources and sells, various products under the IsaacMizrahiLIVE brand, the Judith Ripka brand, the H by Halston brand, and the Longaberger brand.

These agreements include, respectively, the IM QVC Agreement, the Ripka QVC Agreement, the H QVC Agreement, and the Longaberger QVC Agreement (collectively, the “QVC Agreements”).

Qurate owns the rights to all designs produced under the QVC Agreements, and the QVC Agreements include the sale of products across various categories through Qurate’s television media and related internet sites.

Qurate Agreements

Through its wholly owned subsidiaries, the Company has direct-to-retail license agreements with Qurate Retail Group (“Qurate”), pursuant to which the Company designs, and Qurate sources and sells, various products under the IsaacMizrahiLIVE brand, the LOGO by Lori Goldstein brand, the Judith Ripka brand, the H by Halston brand, and the Longaberger brand.

These agreements include, respectively, the IM Qurate Agreement, the LOGO Qurate Agreement, the Ripka Qurate Agreement, the H Qurate Agreement, and the Longaberger Qurate Agreement (collectively, the “Qurate Agreements”).

Qurate owns the rights to all designs produced under the Qurate Agreements, and the Qurate Agreements include the sale of products across various categories through Qurate’s television media (including QVC and HSN) and related internet sites.

Pursuant to the agreements, the Company has granted to Qurate and its affiliates the exclusive, worldwide right to promote the Company’s branded products, and the right to use and publish the related trademarks, service marks, copyrights, designs, logos, and other intellectual property rights owned, used, licensed, and/or developed by the Company, for varying terms as set forth below.

The QVC Agreements include automatic renewal periods as detailed below unless terminated by either party.

The Qurate Agreements include automatic renewal periods as detailed below unless terminated by either party.

Xcel Commenced

Brand with QVC

IM QVC Agreement

IM Qurate Agreement

September 30, 2022

1 unchanged sentence

September 2011

Ripka QVC Agreement

LOGO Qurate Agreement

November 1, 2022

one-year period

Ripka Qurate Agreement

March 31, 2022

one-year period

H QVC Agreement

H Qurate Agreement

December 31, 2022

three-year period

Longaberger QVC Agreement

Longaberger Qurate Agreement

October 31, 2023

1 unchanged sentence

November 2019

* On March 31, 2022, the Ripka Qurate Agreement was automatically renewed for a one-year period, and the new term expiry is March 31, 2023 .

In connection with the foregoing and during the same periods, Qurate and its subsidiaries have the exclusive, worldwide right to use the names, likenesses, images, voices, and performances of the Company’s spokespersons to promote the respective products.

Under the IM QVC Agreement, IM Brands has also granted to Qurate and its affiliates, during the same period, exclusive, worldwide rights to promote third-party vendor co-branded products that, in addition to bearing and being marketed in connection with the trademarks and logos of such third-party vendors, also bear or are marketed in connection with the IsaacMizrahiLIVE trademark and related logo.

Under the QVC Agreements, Qurate is obligated to make payments to the Company on a quarterly basis, based primarily upon a percentage of the net retail sales of the specified branded products.

Net retail sales are defined as the aggregate amount of all revenue generated through the sale of the specified branded products by Qurate and its subsidiaries under the QVC Agreements, excluding freight, shipping and handling charges, customer returns, and sales, use, or other taxes.

Also, under the QVC Agreements, except for the Longaberger QVC Agreement, the Company will pay a royalty participation fee to Qurate on revenue earned from the sale, license, consignment, or any other form of distribution of any products, bearing, marketed in connection with, or otherwise associated with the specified trademarks and brands.

Under the IM Qurate Agreement, IM Brands has also granted to Qurate and its affiliates, during the

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2021 and 2020

Net revenue from Qurate totaled $17.61 million and $22.24 million for the Current Year and Prior Year, respectively, representing approximately 60% and 53% of the Company’s total revenues, respectively.

same period, exclusive, worldwide rights to promote third-party vendor co-branded products that, in addition to bearing and being marketed in connection with the trademarks and logos of such third-party vendors, also bear or are marketed in connection with the IsaacMizrahiLIVE trademark and related logo.

Under the Qurate Agreements, Qurate is obligated to make payments to the Company on a quarterly basis, based primarily upon a percentage of the net retail sales of the specified branded products.

Net retail sales are defined as the aggregate amount of all revenue generated through the sale of the specified branded products by Qurate and its subsidiaries under the Qurate Agreements, net of customer returns, and excluding freight, shipping and handling charges, and sales, use, or other taxes.

Also, under the Qurate Agreements, except for the Longaberger Qurate Agreement, the Company will pay for a period of time a royalty participation fee to Qurate on revenue earned from the sale, license, consignment, or any other form of distribution of any products, bearing, marketed in connection with, or otherwise associated with the specified trademarks and brands.

Such royalty participation fees are recorded as a reduction to net licensing revenue.

Net licensing revenue from Qurate totaled $ 18.8 million and $ 17.6 million for the Current Year and Prior Year, respectively, representing approximately 50 % and 60 % of the Company’s total net revenue, respectively.

As of December 31, 2021 and 2020, the Company had receivables from Qurate of $ 3.5 million and $ 4.5 million, representing approximately 46 % and 50 % of the Company’s accounts receivable, respectively.

4 unchanged sentences

Term loan debt

Unamortized deferred finance costs related to term loan

Current portion of long-term debt

Unamortized deferred finance costs related to term loan debt

Current portion of debt

Long-term debt

Term Loan Debt

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” and collectively, the “Guarantors”), as Guarantors, entered into an amended and restated loan and security agreement with Bank Hapoalim B.M.

as agent, and the financial institutions party thereto as lenders.

On February 11, 2019, concurrent with the Closing Date of the acquisition of the Halston Heritage Brands (see Note 3), the Company entered into an amended loan agreement with BHI (the “Loan Agreement”), which amended and restated the prior term loan.

Immediately prior to February 11, 2019, the aggregate principal amount of the prior term loan was $14.5 million.

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:

(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 proceeds of the additional term loan were used to finance the Halston Heritage Brands acquisition described in Note 3.

The terms and conditions of the Loan Agreement resulted in significantly different debt service payment requirements, compared with the prior term loan, including 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.

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.

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.

Previous Term Loan Debt

On February 11, 2019, the Company entered into an amended loan agreement with Bank Hapoalim B.M.

(“BHI”), which amended and restated a prior term loan with BHI.

Under that amended loan agreement, the aggregate amount of all the term loans extended by BHI to Xcel was $ 22.0 million, which amount was divided into two term loans:

(1) a term loan in the amount of $ 7.3 million and (2) a term loan in the amount of $ 14.7 million.

These two term loans bore interest at a fixed rate of 5.1 % and 6.25 % per annum, respectively.

Such loan agreement was subsequently amended on April 13, 2020 and again on August 18, 2020;

such amendments changed the timing and amount of quarterly installment payments, but did not change the total principal balance, interest rate, or maturity date.

These amendments during 2020 were accounted for as debt modifications and, accordingly, no gain or loss was recorded.

April 2021 Term Loan Debt

On April 14, 2021, Xcel, as Borrower, and its wholly-owned subsidiaries entered into a Loan and Security Agreement (the “Loan Agreement”) with BHI as administrative agent and collateral agent, FEAC Agent, LLC (“FEAC”) as co-collateral agent, and the financial institutions party thereto as lenders.

Pursuant to the Loan Agreement, the lenders made two term

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2021 and 2020

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.

See Note 7 for details regarding the Company’s accounting for the PPP.

There were no changes to the total principal balance, interest rate, or maturity date.

On August 18, 2020, the Company and BHI further amended its 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 Current Year amendments represented debt modifications and, accordingly, no gain or loss was recorded.

In connection with the Current Year 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 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 Loan Agreement shall terminate no later than one year following the date of issuance thereof.

The remaining principal balance of the Term Loans, as amended, outstanding at December 31, 2020 is payable in fixed installments as set forth in the following table, plus the variable payments as described below:

($ in thousands)

Installment Payment Dates

March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021

March 31, 2022, June 30, 2022, September 30, 2022, and December 31, 2022

March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023

In addition to the fixed installments outlined above, commencing with the fiscal quarter ending March 31, 2021, the Company is required to repay a portion of the Term Loans 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.

(1) a term loan in the amount of $ 10.0 million (“Term Loan A”) and (2) a term loan in the amount of $ 15.0 million (“Term Loan B” and, together with Term Loan A, the “Term Loans”).

The Loan Agreement also provided that the lenders make available to Xcel a revolving loan facility in an amount up to $ 4.0 million on a discretionary basis, but not to exceed 85 % of the amount of eligible accounts receivable, as defined.

Management assessed and determined that this new agreement resulted in an extinguishment of the previous term loan debt, and accordingly recognized a loss of approximately $ 0.8 million (consisting of $ 0.1 million of unamortized deferred finance costs and $ 0.7 million of breakage fees owed to the old lender under the terms of the previous debt agreement) during the Current Year.

Approximately $ 0.4 million of such aforementioned breakage fees were paid at time of extinguishment, with the remaining $ 0.4 million of such fees payable in three equal payments on each of May 1, 2022, 2023, and 2024.

Upon entering into the Loan Agreement, Xcel paid a 2.5 % closing fee in the amount of $ 0.6 million to the administrative agent for the benefit of each lender having a term loan commitment;

the Company also paid approximately $ 0.6 million of various legal and other fees in connection with the execution of the Loan Agreement.

These fees and costs totaling approximately $ 1.2 million were deferred on the Company’s balance sheet as a reduction of the carrying value of the Term Loans, to be subsequently amortized to interest expense over the term of the Term Loans using the effective interest method.

The Term Loans were to mature on April 14, 2025, with principal payable in 16 quarterly installments of $ 625,000 on each of March 31, June 30, September 30, and December 31 of each year, commencing on June 30, 2021 and ending on March 31, 2025, with a final payment of $ 15.0 million on the maturity date of April 14, 2025.

The Company made the required principal payments on June 30, 2021 and September 30, 2021 (totaling $ 1.25 million) as scheduled.

Interest on Term Loan A accrued at LIBOR plus 4.0 % per annum, and interest on the Term Loan B accrued at LIBOR plus 8.0 % per annum.

Interest on the Loans was paid on the last business day of each calendar month.

Base Rate was defined in the 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.

LIBOR was defined in the Loan Agreement as the greater of (a) the rate of interest per annum for deposits in dollars for an interest period equal to one month as published by ICE Benchmark Administration Limited or a comparable or successor quoting service at approximately 11:00 a.m.

(London time) on such date of determination or (b) 1.0 % per annum.

The Loan Agreement also contained customary covenants, including reporting requirements, trademark preservation, and financial covenants (on a consolidated basis with Xcel and its wholly-owned subsidiaries).

The Company, BHI, FEAC, and the lenders subsequently amended the Loan Agreement multiple times during 2021 – on August 12, 2021, September 29, 2021, and November 12, 2021.

While these amendments modified financial covenants and/or adjusted the maximum amount available under the revolving loan facility, there were no changes made to the total principal balance, interest rate, maturity date, or any other terms of the Loan Agreement.

December 2021 Term Loan Debt

On December 30, 2021, Xcel, as Borrower, and its wholly-owned subsidiaries, IM Brands, LLC, JR Licensing, LLC, H Licensing, LLC, C Wonder Licensing, LLC, Xcel Design Group, LLC, Judith Ripka Fine Jewelry, LLC, H Heritage Licensing, LLC, Xcel-CT MFG, LLC and Gold Licensing, LLC, as Guarantors (each a “Guarantor” and collectively, the “Guarantors”), entered into a Loan and Security Agreement (the “New Loan Agreement”) with FEAC, as lead arranger and as administrative agent and collateral agent for the lenders party to the New Loan Agreement, and the financial institutions party thereto as lenders (the “Lenders”).

Pursuant to the New Loan Agreement, the Lenders made a term loan in the aggregate amount of $ 29.0 million (the “New Term Loan”).

The proceeds of the New Term Loan were used for the

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2021 and 2020

Thus, the aggregate remaining annual principal payments under the Term Loans at December 31, 2020 were as follows:

purpose of refinancing existing indebtedness (i.e., the April 2021 Term Loans), to pay fees, costs, and expenses incurred in connection with entering into the New Loan Agreement, and for working capital purposes.

The New Loan Agreement also provides that Xcel may request the Lenders make incremental term loans of up to $ 25.0 million (the “Incremental Term Loans”).

The terms and conditions of the Incremental Term Loans will be agreed in an amendment to the New Loan Agreement prior to the funding by the Incremental Term Loans.

Management assessed and determined that the New Loan Agreement resulted in an extinguishment of the April 2021 Term Loan debt, and accordingly recognized a loss of approximately $ 0.74 million (consisting of $ 0.92 million of unamortized deferred finance costs and $( 0.18 ) of net fees owed to BHI less refunds of certain costs related to the April 2021 Term Loan debt) during the Current Year.

Upon entering into the New Loan Agreement, Xcel paid a 1.75 % closing fee to FEAC for the benefit of the Lenders;

the Company also paid approximately $ 0.5 million of various legal and other fees in connection with the execution of the New Loan Agreement.

These fees and costs totaling approximately $ 0.97 million have been deferred on the Company’s balance sheet as of December 31, 2021 as a reduction of the carrying value of the New Term Loan, to be subsequently amortized to interest expense over the term of the New Term Loan using the effective interest method.

The New Term Loan matures on April 14, 2025.

Principal on the New Term Loan is payable in quarterly installments of $ 625,000 on each of March 31, June 30, September 30 and December 31 of each year, commencing on March 31, 2022 and ending on March 31, 2025, with a final payment of $ 20,875,000 on the maturity date of April 14, 2025.

Thus, the aggregate remaining annual principal payments under the New Term Loan at December 31, 2021 were as follows:

($ in thousands)

Year Ending December 31,

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.

The 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 Loan Agreement):

● net worth of at least $90.0 million at the end of each fiscal quarter;

● liquid assets of at least $3.0 million through December 31, 2020, 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

December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021

March 31, 2022, and thereafter

Xcel has the right upon thirty (30) days prior written notice to prepay all or any portion of the New Term Loan or Incremental Term Loans and accrued and unpaid interest thereon;

provided that any prepayment shall be applied first to prepay the New Term Loan in full and second to the Incremental Term Loans.

If the New Term Loan is prepaid in whole or in part on or prior to the second anniversary of the closing date (including as a result of an event of default), Xcel shall pay a prepayment premium as follows:

an amount equal to the principal amount of the New Term Loan prepaid multiplied by:

(i) five percent ( 5.00 %) if such prepayment occurs on or before the first anniversary of the closing date;

(ii) two percent ( 2.00 %) if such prepayment occurs at any time after the first anniversary of the closing date and on or prior to the second anniversary of the closing date;

and (iii) one percent ( 1.00 %) if such prepayment occurs at any time after the second anniversary of the closing date.

Xcel’s obligations under the New Loan Agreement are guaranteed by the Guarantors and secured by all of the assets of Xcel and the Guarantors (as well as any subsidiary formed or acquired that becomes a credit party to the New Loan Agreement) and, subject to certain limitations contained in the New Loan Agreement, equity interests of the Guarantors (as well as any subsidiary formed or acquired that becomes a credit party to the New Loan Agreement).

Xcel also granted the Lenders a right of first offer to finance any acquisition for which the consideration therefore will be paid other than by cash of Xcel or the Guarantors, the issuance of equity interest of Xcel, or the issuance of notes to the applicable seller.

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2021 and 2020

● capital expenditures (excluding any capitalized compensation costs) shall not exceed $1.6 million for the fiscal year ending December 31, 2020, and $0.7 million for any fiscal year beginning after December 31, 2020;

● 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:

The New Loan Agreement contains customary covenants, including reporting requirements, trademark preservation, and the following financial covenants of Xcel (on a consolidated basis with the Guarantors and any subsidiaries subsequently formed or acquired that become a credit party under the Loan Agreement):

● liquid assets of at least (i) $ 2.5 million during the first fiscal month of each fiscal quarter if cash payments from revenue licenses during the immediately succeeding 30 days are expected to be at least $ 4.0 million, and (ii) $ 3.0 million at all other times;

● a fixed charge coverage ratio of not less than 1.00 to 1.00 for the fiscal quarter ending September 30, 2022, and for the twelve fiscal month period ending at the end of each fiscal quarter commencing with the fiscal quarter ending December 31, 2022;

● a loan to value ratio not to exceed 50 % at all times;

● minimum revenues as set forth below

Fiscal Period

Maximum Leverage Ratio

December 31, 2020

March 31, 2021

June 30, 2021

September 30, 2021

December 31, 2021

March 31, 2022 and each Fiscal Quarter end thereafter

Minimum Revenue

April 1, 2021 - December 31, 2021

For the trailing twelve month period ending March 31, 2022

For the trailing twelve month period ending June 30, 2022

For the trailing twelve month periods ending September 30, 2022

and each fiscal quarter end thereafter

● the sum of (i) the eligible inventory plus (ii) eligible cash on hand to the extent not used to satisfy the Minimum Accounts Amount (as defined below) plus (iii) the eligible accounts to the extent not used to satisfy the Minimum Accounts Amount (as defined below) of at least $ 1.25 million at all times (“Minimum Inventory Amount”), and the sum of (i) the eligible accounts plus (ii) eligible cash on hand to the extent not used to satisfy the Minimum Inventory Amount of at least $ 1.5 million at all times (“Minimum Accounts Amount”);

● Adjusted EBITDA of at least $ 2.0 million for the 6 fiscal month period ending June 30, 2022.

The Company was in compliance with all applicable covenants under the Loan Agreement as of and for the fiscal year ended December 31, 2021.

In connection with the February 11, 2019 refinancing transaction and subsequent amendments, the Company incurred fees to or on behalf of BHI of approximately $0.3 million during the Prior Year and $0.03 million during the Current Year.

These fees have been deferred on the consolidated balance sheets as a reduction to the carrying value of the Term Loans, and are being amortized to interest expense over the term of the Term Loans using the effective interest method.

The effective interest rate on the Loan Agreement was approximately 6.6% and 6.7% for the Current Year and Prior Year, respectively.

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 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.

Interest on the New Term Loan accrues at “LIBOR” plus 7.5 % per annum, and is payable on the last business day of each calendar month.

“LIBOR” is defined in the New Loan Agreement as the greater of (a) the rate of interest per annum for deposits in dollars for an interest period equal to three months as published by Bloomberg or a comparable or successor quoting service at approximately 11:00 a.m.

(London time) two business days prior to the last business day of each calendar month and (b) 1.0 % per annum.

For the Current Year and Prior Year, the Company incurred interest expense of approximately $ 1.9 million and $ 1.1 million, respectively, related to term loan debt.

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 which existed as of December 31, 2020.

See Note 13 for additional details.

IM Seller Note

On September 29, 2011, as part of the consideration for the purchase of the Isaac Mizrahi business, the Company issued to IM Ready-Made, LLC a promissory note in the principal amount of $7.4 million (the “IM Seller Note”).

The IM Seller Note was subsequently amended in 2013 and 2016.

On March 31, 2019, the Company paid the final installment of $750,000 under the IM Seller Note, and no amounts remained outstanding under the IM Seller Note as of December 31, 2019.

For the year ended December 31, 2019, the Company incurred interest expense of approximately $4,000 under the IM Seller Note, which consisted solely of amortization of the discount on the IM Seller Note.

The effective interest rate related to term loan debt was approximately 8.7 % and 6.7 % for the Current Year and Prior Year, respectively.

Revolving Loan Debt

Under the terms of the April 2021 Loan Agreement discussed above, the lenders made a revolving loan facility available to Xcel.

On June 24, 2021, Xcel borrowed $ 1.5 million under the aforementioned revolving loan facility, and on September 30, 2021, Xcel borrowed $ 998,000 under the revolving loan facility.

Xcel repaid the outstanding balance in full on December 30, 2021.

The revolving loan facility bore interest at a rate of 4.75 % per annum, and the Company incurred related interest expense of approximately $ 0.1 million for the Current Year.

As of December 31, 2021, the Company no

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2021 and 2020

Ripka Seller Notes

As of January 1, 2019, the Company had a note payable of approximately $0.58 million relating to the acquisition of the Judith Ripka assets (the "Ripka Seller Note").

Separately, the Company held a promissory note receivable due from the sellers of the Judith Ripka assets (the "Ripka Sellers") with a maturity date of March 31, 2019.

On March 31, 2019, the Company agreed to net its note receivable due from the Ripka Sellers of approximately $0.9 million against the Ripka Seller Note of $0.6 million and the remaining Ripka Earn-Out of $0.1 million (see below).

As of December 31, 2019, there were no amounts remaining outstanding under the Ripka Seller Note.

For the year ended December 31, 2019, the Company incurred interest expense of approximately $16,000, which consisted solely of amortization of the discount on the Ripka Seller Note.

longer had access to a revolving loan facility under the terms of the New Loan Agreement entered into on December 30, 2021.

Other Long-term Liabilities

Other long-term liabilities consist of the Company’s obligation to a subtenant for its security deposit under a sublease arrangement, which was $0.2 million as of both December 31, 2020 and 2019.

Other long-term liabilities as of December 31, 2020 consisted of the Company’s obligation to a subtenant for its security deposit under a sublease arrangement in the amount of $ 0.2 million.

As of December 31, 2021, this liability was classified as current and is reflected as part of Accounts payable, accrued expenses and other current liabilities on the Company’s consolidated balance sheet.

Government Assistance

Paycheck Protection Program (PPP)

On April 20, 2020, the Company executed a promissory note (the “Promissory Note”) with Bank of America, N.A., which provided for an unsecured loan in the amount of $1.806 million, pursuant to the PPP under the CARES Act.

The loan has a two-year term and bears interest at a fixed rate of 1.0% per annum.

Monthly principal and interest payments are deferred for six months after the date of disbursement.

The loan may be prepaid at any time prior to maturity with no prepayment penalties.

The Promissory Note contains events of default and other provisions customary for a loan of this type.

On April 20, 2020, the Company executed a promissory note (the “Promissory Note”) with Bank of America, N.A., which provided for an unsecured loan in the amount of $ 1,805,856 , pursuant to the PPP under the CARES Act.

The loan had a two-year term and bore interest at a fixed rate of 1.0 % per annum, and monthly principal and interest payments were deferred for six months after the date of disbursement.

The Promissory Note contained events of default and other provisions customary for a loan of this type.

The loan was funded on April 23, 2020.

The PPP also provides that this loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act, and later amended by the Paycheck Protection Program Flexibility Act (the "Flexibility Act") signed into law on June 5, 2020.

Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities.

While management believes that it is probable that the loan will be forgiven in full, no definite assurance can be provided that forgiveness for any portion of the loan will be obtained.

Management's determination that full forgiveness is probable is based on qualification under the Flexibility Act.

Management evaluated the legal and contractual terms associated with the loan, and concluded that, although the legal form of the loan is debt, it represents in substance a government grant that is expected to be forgiven.

The PPP also provides that such a loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act, and later amended by the Paycheck Protection Program Flexibility Act (the "Flexibility Act") signed into law on June 5, 2020.

Such forgiveness is determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities.

Management evaluated the legal and contractual terms associated with the loan, and concluded that, although the legal form of the loan is debt, it represented in substance a government grant that was expected to be forgiven.

Given the lack of definitive authoritative guidance under GAAP for accounting for government grants, the Company analogized to accounting guidance under International Accounting Standard No.

20, “Accounting for Government Grants and Disclosure of Government Assistance.” Under such guidance, once it is probable that the conditions attached to the assistance will be met, the earnings impact of government grants is recorded on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate.

Accordingly, the Company recognized $1.806 million as a reduction to operating expenses in the Current Year.

No interest expense related to the loan has been recorded in the Company’s consolidated financial statements.

Accordingly, the Company recognized $ 1.8 million as a reduction to operating expenses in the Prior Year.

No interest expense related to the loan was recorded in the Company’s consolidated financial statements.

On September 29, 2021, the U.S.

Small Business Administration, as authorized by the CARES Act, remitted payment of $ 1.8 million to Bank of America, N.A.

for full forgiveness of the Company’s Promissory Note under the PPP.

This event had no impact on the Current Year statement of operations, as the benefit of the PPP had already been fully recognized in the Prior Year, as described in the previous paragraph.

Economic Incentive Disaster Loan (EIDL)

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Small Business Administration.

The EIDL Advance represents a grant that does not

Similar to the PPP loan, the EIDL Advance represented a grant that does not have to be repaid, and as such, the Company recognized $ 10,000 as a reduction to operating expenses in the Prior Year.

In total between the PPP and EIDL, the Company recognized approximately $ 1.8 million as a reduction to operating expenses in the Prior Year.

XCEL BRANDS, INC.

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December 31, 2021 and 2020

have to be repaid, and as such, the Company has recognized $10,000 as a reduction to operating expenses in the Current Year.

In total between the PPP and EIDL, the Company recognized $1,816,000 as a reduction to operating expenses in the Current Year.

Stockholders’ Equity

The Company has authority to issue up to 51,000,000 shares, consisting of 50,000,000 shares of common stock and 1,000,000 shares of preferred stock.

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.

Equity Incentive Plans

The Company’s 2021 Equity Incentive Plan (the “2021 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 4,000,000 shares of common stock are eligible for issuance under the 2021 Plan.

The 2021 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.

stock options (incentive or non-qualified), restricted stock, restricted stock units, performance awards, or cash awards.

The 2021 Plan is administered by the Company’s Board of Directors, or, at the Board’s discretion, a committee of the Board.

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

Stock-based Compensation

Total expense recognized in the Current Year and Prior Year for all forms of stock-based compensation was approximately $ 0.72 million and $ 0.85 million, respectively.

Of the Current Year expense amount, approximately $ 0.55 million related to employees and approximately $ 0.17 million related to directors and consultants.

Of the Prior Year expense amount, approximately $ 0.74 million related to employees and approximately $ 0.11 million related to directors and consultants.

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.

Options granted under the Company’s equity incentive plans 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 option activity for the Current Year is as follows:

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Expired/Forfeited

( 1,961,045 )

Outstanding at December 31, 2021, and expected to vest

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Current Year stock option grants were as follows:

On January 1, 2020, the Company granted options to purchase 5,000 shares of common stock to a board observer.

The exercise price of the options is $4.00 per share, and 50% of the options vest on each of January 1, 2021 and January 1, 2022.

On January 31, 2020, the Company granted options to purchase 75,000 shares of common stock to a consultant.

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.

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December 31, 2021 and 2020

On April 1, 2021, the Company granted options to purchase an aggregate of 125,000 shares of common stock to non-management directors.

The exercise price of the options is $ 1.93 per share, and 50 % of the options vest on each of April 1, 2022 and April 1, 2023.

On July 1, 2021, the Company granted options to purchase an aggregate of 20,000 shares of common stock to a member of management.

The exercise price of the options is $ 2.76 per share, and 50 % of the options vest on each of June 1, 2022 and June 1, 2023.

On August 13, 2021, the Company granted options to purchase an aggregate of 10,000 shares of common stock to an employee.

The exercise price of the options is $ 2.00 per share, and 50 % of the options vest on each of August 13, 2022 and August 13, 2023.

Prior Year stock option grants were as follows:

On January 1, 2020, the Company granted options to purchase 5,000 shares of common stock to a board observer.

The exercise price of the options is $ 4.00 per share.

One -half of the options vested on January 1, 2021, and the remaining half of the options will vest on January 1, 2022.

On January 31, 2020, the Company granted options to purchase 75,000 shares of common stock to a consultant.

The exercise price of the options is $ 1.57 per share, and all options vested immediately on the date of grant.

On February 28, 2020, the Company granted options to purchase 50,000 shares of common stock to an employee.

The exercise price is $1.40 per share, and the vesting of such options is dependent upon the Company achieving certain 12-month sales targets through December 31, 2021.

The exercise price was $ 1.40 per share, and the vesting of such options was dependent upon the Company achieving certain 12-month sales targets through December 31, 2021.

None of these options ultimately vested.

On March 13, 2020, the Company granted options to purchase 50,000 shares of common stock to a certain key employee.

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On March 31, 2020, the Company granted options to purchase 50,000 shares of common stock to an employee.

The exercise price of the options is $0.61 per share, and one-third of the options shall vest on each of March 31, 2021, March 31, 2021, and March 31, 2022.

The exercise price of the options is $ 0.61 per share.

The options were scheduled to vest over a three-year period from the date of grant, but were all forfeited when the employee left the Company.

On April 1, 2020, the Company granted options to purchase an aggregate of 200,000 shares of common stock to non-management directors.

The exercise price of the options is $0.50 per share, and 50% of the options shall vest on each of April 1, 2021 and April 1, 2022.

The exercise price of the options is $ 0.50 per share.

One -half of the options vested on April 1, 2021, and the remaining half of the options shall vest on April 1, 2022.

On April 15, 2020, the Company granted options to purchase 13,500 shares of common stock to a consultant.

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On September 28, 2020, the Company granted options to purchase 15,000 shares of common stock to an employee.

The exercise price of the options is $0.71 per share, and one-third of the options shall vest on each of September 28, 2021, September 28, 2022, and September 28, 2023.

On December 21, 2020, the Company granted options to purchase an aggregate of 50,000 shares of common stock to two employees.

The exercise price of the options is $1.09 per share, and 50% of the options shall vest on each of December 21, 2021 and December 21, 2022.

Prior Year stock option grants were as follows:

On January 1, 2019, the Company granted options to purchase 250,000 shares of common stock to a certain key employee.

The exercise price is $3.00 per share, and the vesting of such options is dependent upon the Company achieving certain 12-month sales targets through December 31, 2021.

As of December 31, 2020, 100,000 of these options have vested.

On February 27, 2019, the Company granted options to purchase 2,578,947 shares of common stock to Robert W.

D’Loren, the Company’s Chief Executive Officer.

The exercise price is $1.70 per share, and the vesting of such options is dependent upon the Company’s common stock achieving certain stock trading prices for a minimum of ten (10) trading days (the "Target Prices").

The vesting of 736,842 shares occur if the Target Prices are equal to or greater than $3.00 per share;

626,316 shares vest if the Target Price is equal to or greater than $5.00 per share;

515,789 shares vest if the Target Price is equal to or greater than $7.00 per share;

405,263 shares vest if the Target Price is equal to or greater than $9.00 per share;

and 294,737 shares vest if the Target Price is equal to or greater than $11.00 per share.

The options are exercisable until February 27, 2029.

As of December 31, 2020, none of the aforementioned Target Price thresholds have been met, and therefore, none of these options have vested.

On February 27, 2019, the Company granted options to purchase 552,632 shares of common stock to James F.

Haran, the Company’s Chief Financial Officer.

The vesting of 157,895 shares occur if the Target Prices are equal to or greater than $3.00 per share;

134,211 shares vest if the Target Price is equal to or greater than $5.00 per share;

110,526 shares vest if the Target Price

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020 and 2019

is equal to or greater than $7.00 per share;

86,842 shares vest if the Target Price is equal to or greater than $9.00 per share;

and 63,158 shares vest if the Target Price is equal to or greater than $11.00 per share.

The options are exercisable until February 27, 2029.

As of December 31, 2020, none of the aforementioned Target Price thresholds have been met, and therefore, none of these options have vested.

On February 27, 2019, the Company granted options to purchase 368,421 shares of common stock to Seth Burroughs, an officer of the Company.

The vesting of 105,263 shares occur if the Target Prices are equal to or greater than $3.00 per share;

89,474 shares vest if the Target Price is equal to or greater than $5.00 per share;

73,684 shares vest if the Target Price is equal to or greater than $7.00 per share;

57,895 shares vest if the Target Price is equal to or greater than $9.00;

and 42,105 shares vest if the Target Price is equal to or greater than $11.00 per share.

The options are exercisable until February 27, 2029.

As of December 31, 2020, none of the aforementioned Target Price thresholds have been met, and therefore, none of these options have vested.

On March 13, 2019, the Company granted options to purchase an aggregate of 154,000 shares of common stock to various employees.

The exercise price of the options is $1.73 per share, and all options vested immediately on the date of grant.

On March 15, 2019, the Company granted options to purchase 50,000 shares of common stock to a certain key employee.

The exercise price of the options is $5.50 per share, and all options vested immediately on the date of grant.

On April 1, 2019, the Company granted options to purchase an aggregate of 150,000 shares of common stock to non-management directors.

The exercise price of the options is $1.70 per share, and 50% of the options vest on each of April 1, 2020 and April 1, 2021.

On April 15, 2019, the Company granted options to purchase an aggregate of 24,000 shares of common stock to certain employees.

The exercise price of the options is $1.40 per share, and 50% of the options vest on each of April 15, 2020 and April 15, 2021.

On May 1, 2019, the Company granted options to purchase 10,000 shares of common stock to an employee.

The exercise price of the options is $1.38 per share, and 50% of the options vest on each of May 1, 2020 and May 1, 2021.

On September 1, 2019, the Company granted options to purchase 15,000 shares of common stock to an employee.

The exercise price of the options is $1.59 per share, and one-third of the options vest on each of September 1, 2020, September 1, 2021, and September 1, 2022.

On October 1, 2019, the Company granted options to purchase 100,000 shares of common stock to an employee.

The exercise price of the options is $1.77 per share, and one-third of the options vest on each of October 1, 2020, October 1, 2021, and October 1, 2022.

On October 31, 2019, the Company granted options to purchase 10,000 shares of common stock to an employee.

The exercise price of the options is $1.72 per share, and one-third of the options vest on each of October 31, 2020, October 31, 2021, and October 31, 2022.

The exercise price of the options was $ 0.71 per share.

The options were scheduled to vest over a three-year period from the date of grant, but were all forfeited when the employee left the Company.

On December 21, 2020, the Company granted options to purchase an aggregate of 25,000 shares of common stock to an employee.

The exercise price of the options is $ 1.09 per share.

One -half of the options vested on December 21, 2021, and the remaining half of the options shall vest on December 21, 2022.

XCEL BRANDS, INC.

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December 31, 2021 and 2020

On December 21, 2020, the Company granted options to purchase an aggregate of 25,000 shares of common stock to another employee.

The exercise price of the options was $ 1.09 per share, and were scheduled to vest over a two-year period from the date of grant, but were all forfeited when the employee left the Company in 2021.

The fair value of the options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:

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Outstanding and exercisable at December 31, 2021

The Company did not grant any warrants to purchase shares of common stock during the Current Year.

On July 18, 2019, the Company granted warrants to purchase an aggregate of 115,000 shares of common stock.

The exercise price of the warrants is $3.17 per share, and one-third of the options vested on each of July 25, 2019, August 24, 2019, and September 23, 2019.

The Company did no t grant any warrants to purchase shares of common stock during the Current Year or Prior Year.

No compensation expense was recorded in the Current Year or Prior Year related to warrants.

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December 31, 2021 and 2020

No compensation expense was recorded in the Current Year related to warrants.

Compensation expense related to warrants was approximately $14,000 in the Prior Year.

A summary of the Company’s restricted stock activity for the Current Year is as follows:

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Outstanding at December 31, 2021

On March 30, 2020, the Company issued 336,700 shares of common stock to a member of senior management as payment for a performance bonus earned in the Prior Year.

On May 7, 2021, the Company issued 181,179 shares of common stock to a member of senior management as payment for a performance bonus earned in the Prior Year.

These shares vested immediately.

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The Company also recognized approximately $ 0.3 million of compensation expense in the Current Year related to similar senior management bonuses payable in common stock in 2022.

On April 1, 2021, the Company issued an aggregate of 50,000 shares of stock to non-management directors, which vest evenly over two years , whereby 50 % shall vest on April 1, 2022, and 50 % shall vest on April 1, 2023.

On April 26, 2021, the Company issued 14,045 shares of stock to a consultant, which vested immediately.

On July 1, 2021, the Company issued 9,399 shares of stock to a consultant, which vested immediately.

On October 1, 2021, the Company issued 16,892 shares of stock to a consultant, which vested immediately.

On October 29, 2021, the Company issued 12,489 shares of stock to an employee pursuant to the terms of a contractual agreement, which vested immediately.

Prior Year stock award grants were as follows:

On May 20, 2020, the Company issued an aggregate of 270,728 shares of common stock to various employees.

These shares vested immediately.

The Company recognized approximately $0.3 million of compensation expense in the Current Year related to this grant.

On December 24, 2020, the Company issued an aggregate of 32,300 shares of common stock to various employees.

These shares vested immediately.

The Company recognized approximately $0.04 million of compensation expense in the Current Year related to this grant.

Prior Year stock award grants were as follows:

On February 27, 2019, the Company entered into a two-year employment agreement with a key employee, which includes a performance stock bonus of up to $90,000 for each of the years ended December 31, 2019 and 2020.

The performance stock bonus is earned upon the Company achieving certain sales targets.

On April 1, 2019, the Company issued an aggregate of 60,000 shares of stock to certain non-management directors, which vest evenly over two years, whereby 50% vested on April 1, 2020, and 50% shall vest on April 1, 2021.

Notwithstanding the foregoing, each grantee may extend the first anniversary of all or a portion of the restricted stock by six months and, thereafter one or more times may further extend such date with respect to all or a portion of the restricted stock until the next following date exactly six months thereafter, by providing written notice of such election to extend such date with respect to all or a portion of the restricted stock prior to such date.

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Fair value of

October 29, 2021 (i)

March 30, 2020 (i)

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December 24, 2020 (i)

September 30, 2019 (i)

October 31, 2019 (i)

November 30, 2019 (i)

December 31, 2019 (i)

(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.

All of the shares of restricted stock in the preceding table were originally granted to employees and directors as restricted stock awards pursuant to the Plan.

Shares Available Under the Company’s 2011 Equity Incentive Plan

At December 31, 2020, there were 1,549,598 shares of common stock available for issuance under the Plan.

(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 or the receipt of stock awards.

The 2011 Plan and 2021 Plan allow for award holders to surrender vested shares to cover withholding tax liabilities.

Shares Available Under the Company’s Equity Incentive Plans

At December 31, 2021, there were 4,000,000 shares of common stock available for award grants under the 2021 Plan.

Shares Reserved for Issuance

At December 31, 2020, there were 9,308,788 shares of common stock reserved for issuance pursuant to unexercised warrants and stock options, or available for issuance under the Plan.

At December 31, 2021, there were 9,747,035 shares of common stock reserved for issuance, including 5,747,035 shares reserved pursuant to unexercised warrants and stock options previously granted under the 2011 Plan, and 4,000,000 shares available for issuance under the 2021 Plan.

The Company has not paid any dividends to date.

Earnings Per Share

Shares used in calculating basic and diluted earnings per share are as follows:

Earnings (Loss) Per Share

Shares used in calculating basic and diluted earnings (loss) per share are as follows:

Effect of exercise of warrants

Effect of exercise of stock options

As a result of the net loss presented for the Current Year and Prior Year, the Company calculated diluted earnings (loss) per share using basic weighted-average shares outstanding for such period, as utilizing diluted shares would be anti-dilutive to loss per share.

XCEL BRANDS, INC.

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December 31, 2021 and 2020

As a result of the net loss presented for the Current Year and Prior Year, 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 basic and diluted earnings per share excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

The computation of basic and diluted earnings (loss) per share excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

Stock options and warrants

Commitments and Contingencies

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 has operating leases for its current office, former office, and a retail store location, as well as certain equipment with a term of 12 months or less.

The Company is currently not a party to any finance leases.

The Company's real estate leases have remaining lease terms between approximately 1 year to 8 years.

The Company's real estate leases have remaining lease terms between approximately 2 months to 7 years .

As of December 31, 2021, the weighted average remaining lease term was 5.8 years and the weighted average discount rate was 6.25 %.

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This lease commenced on March 1, 2016 and expires on October 30, 2027 .

In connection with this lease, the Company obtained an Irrevocable Standby Letter of Credit from BHI for a sum not exceeding $1.1 million.

The Company has deposited this amount with BHI as collateral for the letter of credit and recorded the amount as restricted cash in the consolidated balance sheets as of December 31, 2020 and December 31, 2019.

In connection with this lease, the Company obtained an irrevocable standby letter of credit;

the Company has deposited funds as collateral for the letter of credit and has recorded the amount as restricted cash in the consolidated balance sheets as of December 31, 2021 and December 31, 2020.

The Company also leases office space under an operating lease agreement at another location in New York City, representing the Company’s former corporate offices and operations facility.

This lease shall expire on February 28, 2022 .

This office space is currently subleased to a third-party subtenant through February 27, 2022.

This office space is subleased to a third-party subtenant through February 27, 2022 .

The aforementioned office leases require the Company to pay additional rents related to increases in certain taxes and other costs on the properties.

The Company also leases approximately 1,300 square feet of retail space for a planned future retail store location in Westchester, New York.

The Company also leases approximately 1,300 square feet of retail space for a retail store location in Westchester, New York.

This lease shall expire on January 31, 2029;

however, the Company is currently in the process of negotiating the termination of this lease.

The Company recorded an impairment charge of $ 0.7 million to fully impair the remaining balance of the right-of-use asset for this lease as of December 31, 2021.

For the years ended December 31, 2021 and 2020, total lease expense included in selling, general and administrative expenses on the Company's consolidated statements of operations was approximately $ 1.7 million and $ 1.5 million, respectively.

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Total lease cost

Cash paid for amounts included in the measurement of operating lease liabilities was $ 2.0 million and $ 1.9 million in the Current Year and Prior Year, respectively.

Cash received from subleasing was $ 0.7 million and $ 0.7 million in the Current Year and Prior Year, respectively.

XCEL BRANDS, INC.

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December 31, 2021 and 2020

Cash paid for amounts included in the measurement of operating lease liabilities was $1.9 million and $2.4 million in the Current Year and Prior Year, respectively.

Cash received from subleasing was $0.7 million and $0.3 million in the Current Year and Prior Year, respectively.

As of December 31, 2021, the maturities of lease liabilities were as follows:

($ in thousands)

Thereafter (through 2028)

Total lease payments

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Aggregate potential severance compensation amounted to approximately $ 4.6 million as of December 31, 2021.

Contingent Obligation – HH Seller (Halston Heritage Earn-Out)

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 an aggregate of $6.0 million, based on royalties earned through December 31, 2022 (see Note 3).

The Halston Heritage Earn-Out of $0.9 million is recorded as a long-term liability as of December 31, 2019 in the accompanying 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.

Contingent Obligation – Halston Heritage Earn-Out

In connection with the February 11, 2019 purchase of the Halston Heritage trademarks from the 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 from 2019 through December 31, 2022.

This additional consideration shall be payable in shares of common stock of the Company.

The Halston Heritage Earn-Out of $ 0.9 million is recorded as a long-term liability as of December 31, 2021 and 2020 in the accompanying consolidated balance sheets, based on the difference at the date of acquisition between the fair value of the acquired assets of the Halston Heritage Trademarks and the total consideration paid.

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.

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Contingent Obligation – CW Seller (C Wonder Earn-Out)

In connection with the asset purchase of the C Wonder Brand in 2015, the Company agreed to pay the seller additional consideration, which would be payable, if at all, in cash or shares of common stock of the Company, at the Company’s sole discretion, after June 30, 2019.

Under the applicable accounting guidance, the Company was required to carry such contingent liability balance on its consolidated balance sheet until the measurement period of the earn-out expired and all related contingencies had been resolved.

The seller ultimately did not earn any additional consideration based on the criteria and terms set forth in the asset purchase agreement.

As such, during the year ended December 31, 2019, the Company recorded a $2.85 million gain on the reduction of contingent obligations in the accompanying consolidated statements of operations.

As of December 31, 2019, there were no amounts remaining under the C Wonder Earn-Out.

Contingent Obligation – JR Seller (Ripka Earn-Out)

In connection with the asset purchase of the Ripka Brand in 2014, the Company agreed to pay the sellers of the Ripka Brand certain additional consideration.

As of January 1, 2019, the remaining balance of the Ripka Earn-Out was $0.1 million.

On March 31, 2019, the Company satisfied the remaining Ripka Earn-Out balance of $0.1 million by off-setting the amount against the aforementioned promissory note receivable.

As of December 31, 2019, there were no amounts remaining outstanding under the Ripka Earn-Out.

Contingent Obligation – Lori Goldstein Earn-Out

In connection with the April 1, 2021 purchase of the Lori Goldstein trademarks (see Note 3 for additional information), the Company agreed to pay the seller additional cash consideration of up to $ 12.5 million, based on royalties earned during the six calendar year period commencing in 2021.

The Lori Goldstein Earn-Out of $ 6.6 million is recorded as a long-term liability at December 31, 2021 in the accompanying consolidated balance sheet, based on the difference at the date of acquisition between the fair value of the acquired assets of the Lori Goldstein brand and the total consideration paid.

Legal Proceedings

From time to time, the Company becomes involved in legal claims and litigation in the ordinary course of business.

In the opinion of management, based on consultations with legal counsel, the disposition of litigation currently pending against the Company is unlikely to have, individually or in the aggregate, a materially adverse effect on the Company’s business, financial position, results of operations, or cash flows.

The Company routinely assesses all its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable.

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.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic, which continues to circulate throughout the U.S.

and the world.

COVID-19 has had an unprecedented impact on the U.S.

and global economy as federal, state, and local governments continue to react to and attempt to manage this ongoing public health crisis.

The impacts of the ongoing 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.

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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 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.

Further, the pandemic resulted in a sudden decrease in sales for many of the Company’s products, from which the Company has yet to fully recover.

This has resulted in order cancellations and a decrease in accounts receivable collections, as the Company recorded additional allowances for doubtful accounts of approximately $ 1 million in the Prior Year and approximately $ 0.1 million in the Current Year related to retailers that have filed for bankruptcy.

Due to the ongoing COVID-19 pandemic, there is significant uncertainty surrounding the 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.

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Foreign tax credits

Federal true-ups

Life insurance

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Paycheck Protection Program addback

Change in tax rate

Other permanent differences

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December 31, 2021 and 2020

The significant components of net deferred tax liabilities of the Company consist of the following:

The significant components of net deferred tax assets (liabilities) of the Company consist of the following:

($ in thousands)

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Property and equipment

Interest expense

Total deferred tax assets

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Total deferred tax liabilities

Net deferred tax liabilities

Net deferred tax assets (liabilities)

As of December 31, 2021 and 2020, the Company had approximately $ 23.7 million and $ 10.1 million, respectively, of federal net operating loss carryforwards ("NOLs") available to offset future taxable income.

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The NOL generated during tax years beginning after December 31, 2017 of $ 23.4 million has an indefinite life and does not expire.

On March 27, 2020, the CARES Act was enacted and signed into law.

The CARES Act includes certain provisions impacting businesses’ income taxes related to 2018, 2019, and 2020.

Some of the significant tax law changes are to increase the limitation on deductible business interest expense for 2019 and 2020, allow for the five-year carryback of net operating losses for 2018-2020, suspend the 80% limitation of taxable income for net operating loss carryforwards for 2018-2020, provide for the acceleration of depreciation expense from 2018 and forward on qualified improvement property, and accelerate the ability to claim refunds of AMT credit carryforwards.

The Company is required to recognize the effect of tax law changes on its financial statements in the period in which the law was enacted.

At this time, the Company may avail itself of the ability to carry back net operating losses generated in 2018 and 2019 tax years for five years, which would result in an estimated income statement benefit of $0.1 million and tax refund receivable of $0.2 million.

As of December 31, 2021 and 2020, management does not believe the Company has any material uncertain tax positions that would require it to measure and reflect the potential lack of sustainability of a position on audit in its consolidated financial statements.

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The Company does not believe there will be any material changes in its unrecognized tax positions over the next year.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020 and 2019

Related Party Transactions

Benjamin Malka

Benjamin Malka was a director of the Company from June 2014 through September 2019.

Malka is also a 25% equity holder of HOH, and is the former Chief Executive Officer of HOH.

HOH is the parent company of HIP.

On February 11, 2019, pursuant to the Heritage Asset Purchase Agreement and the acquisition of the Halston Heritage Trademarks (see Note 3), the Company delivered in escrow for HIP or its designees an aggregate of $8.4 million in cash and 777,778 shares of the Company’s common stock valued at $1.1 million, subject to a voting agreement and a lock-up agreement relating to such shares and a consent and waiver agreement each in form satisfactory to Xcel within three months from the date of the Heritage Asset Purchase Agreement.

Such agreements were executed and delivered to Xcel, and the Xcel Shares were issued and delivered to the Sellers.

In addition to the closing considerations, HIP is eligible to earn up to an aggregate of $6.0 million (the “Earn-Out Value”) through December 31, 2022 based on Excess Net Royalties.

The Earn-Out Consideration shall be payable in common stock of Xcel (the “Earn-Out Shares”);

Hilco Trading, LLC

Hilco Trading, LLC ("Hilco") directly and indirectly owns greater than 5 % of the Company's common stock, and its affiliate Hilco Global owns 50 % of the equity of Longaberger Licensing, LLC.

During the year ended December 31, 2020, the Company sold certain apparel products to an affiliate of Hilco, and recognized $0.15 million of revenue from this transaction.

During the year ended December 31, 2020, the Company sold certain apparel products to an affiliate of Hilco, and recognized approximately $ 0.2 million of revenue from this transaction.

Additionally, during the year ended December 31, 2020, the Company sold certain intangible assets of Longaberger Licensing, LLC to a third party;

an affiliate of Hilco earned and was paid a commission of $0.05 million related to the sale of these assets.

an affiliate of Hilco earned and was paid a commission of approximately $ 0.1 million related to the sale of these assets.

Jennifer D’Loren is the wife of Robert W.

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D’Loren has worked on the implementation of the Company’s ERP system.

D’Loren received compensation of $0.14 million and $0.17 million for the years ended December 31, 2020 and 2019, respectively.

D’Loren received compensation of less than $ 0.1 million and approximately $ 0.1 million for the years ended December 31, 2021 and 2020, respectively.

XCEL BRANDS, INC.

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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.

Mizrahi does not make a specified number of appearances on Qurate’s QVC channel.

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.

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● “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.

Mizrahi on Qurate’s QVC channel on Mondays (subject to certain expectations) up to a maximum of 40 such appearances in a calendar year.

Mizrahi is required to devote his full business time and attention to the business and affairs of the Company and its subsidiaries;

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The Company will pay Laugh Club an annual fee of $ 0.72 million for such services.

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 $3.6 million, 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 brand’s Chief Creative Officer and Spokesperson, with a base salary rate of $1.2 million per annum, 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 0.8 million per annum.

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 bonuses having been approved by the Board of Directors on March 18, 2021.

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 FEAC, which resulted in the extinguishment of the term loan debt that existed as of December 31, 2020.

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 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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On October 1, 2021, the Company dismissed CohnReznick LLP (“CR”) as its independent registered public accounting firm.

CR’s reports on the financial statements of the Company as of and for the years ended December 31, 2019 and 2020 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

In connection with the audits of the financial statements of the Company for the years ended December 31, 2019 and 2020 and the subsequent interim period through October 1, 2021, there were no disagreements on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with CR’s opinion to the subject matter of the disagreement.

On September 30, 2021, the Audit Committee of the Board of Directors appointed Marcum LLP (“Marcum”) as the Company’s new independent registered public accounting firm.

Prior to September 30, 2021, the Company did not consult with Marcum regarding (1) the application of accounting principles to a specified transactions, (2) the type of audit opinion that might be rendered on the Company’s financial statements, (3) written or oral advice was provided that would be an important factor considered by the Company in reaching a decision as to an accounting, auditing, or financial reporting issues, or (4) any matter that was the subject of a disagreement between the Company and its predecessor auditor as described in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.

The Company’s Audit Committee of the Board of Directors participated in and approved the decision to change our independent registered public accounting firm.

There were no disagreements with the Company’s auditors which would require disclosure under Item 304(b) of Regulation S-K.

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.

What changed 10-K

Item 8. Financial Statements and Supplementary Data