XCel Brands, Inc. 10-K

Item 8. Financial Statements and Supplementary Data ​ ​ ​ ​ Page ​ ​ ​ Report of Independent Registered Public Accounting Firms (PCAOB ID: 688 and PCAOB ID: 596 ) ​ 51 Consolidated Balance Sheets ​ 56 Consolidated Statements of Operations ​ 57 Consolidated Statements of Stockholders’ Equity ​ 58 Consolidated Statements of Cash Flows ​ 59 Notes to Consolidated Financial Statements ​ 60 ​ ​ 50 Table of Contents 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. ​ 51 Table of Contents 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 Marcum LLP We have served as the Company’s auditor since 2021. New York, NY April 14, 2022 ​ 52 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Board of Directors and Stockholders 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, 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 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 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 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 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 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 ​ The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. ​ Tradename Impairment Testing ​ As disclosed in Note 2 to the consolidated financial statements, indefinite-lived tradenames are tested for impairment annually in the fourth quarter of each year unless an interim test 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 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. 53 Table of Contents ​ Finite-lived tradenames are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The Company uses the income approach using an undiscounted cash flow model to assess the recoverability of the finite-lived tradename, comparing its undiscounted cash flows to its carrying value. If the carrying value exceeds undiscounted cash flows, the Company will use a discounted cash flow model to determine the fair value, and an impairment loss is recognized if the carrying amount of finite-lived intangible asset exceeds fair value. ​ 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, 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. ​ We identified the Company’s tradename impairment testing as a critical audit matter. Auditing the Company’s tradename impairment testing was complex and subjective due to the significant estimation required to determine the forecasted cash flows used in the Company’s testing. 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. ​ 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 analysis. ​ ● 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. In addition, we performed a sensitivity analysis related to the key inputs to forecasted cash flows, including revenue growth rates, margins, and discount rates, to evaluate whether the changes in the assumptions would result in a material change in fair value of the tradenames. ​ ● We evaluated management’s ability to estimate future cash flows by comparing the Company’s historical forecasted sales, operating results, and cash flow forecasts to actual results. We also considered management's ability to estimate license renewals by examining historical renewal rates. ​ ● With the assistance of our firm’s valuation professionals, we evaluated the reasonableness of the Company’s discounted cash flow models, including the terminal value and discount rates assumptions. ​ Going Concern ​ 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. ​ We identified the evaluation of whether the Company has the ability to continue as a going concern due to liquidity impacted by COVID-19 as a critical audit matter. Auditing management’s going concern analysis was complex and highly subjective due to the significant estimation required to forecast future operations and cash flows that are affected by expected future market conditions, including the effects of global pandemic. ​ 54 Table of Contents The primary procedures we performed to address this critical audit matter included the following. ​ ● We obtained an understanding of and tested the company’s process to identify events and circumstances that would raise substantial doubt about the Company’s ability to continue as a going concern and process to estimate future cashflows, including methods, data, and significant assumptions used in developing the future cashflows, as well as the completeness and accuracy of the underlying data used by the Company in its analyses. ​ ● We evaluated the reasonableness of the following significant assumptions made by management, including: ​ o The Company’s forecasted revenues and cash flows by comparing those forecasts to the underlying business strategies and growth plans, including existing license arrangements; ​ o Management’s ability to estimate future cash flows, including forecasted revenues, by comparing the Company’s historical cash flow forecasts to actual results. We also considered management's ability to estimate license renewals by examining historical renewal rates.; and ​ o We performed a sensitivity analysis related to the key inputs to forecasted cash flows, including revenue growth rates and cost saving measures, to evaluate the impact of COVID-19 on the Company’s future cash flows and how the Company’s strategy mitigates the impact. ​ ​ /s/ CohnReznick LLP ​ New York, New York ​ April 14, 2022 55 Table of Contents ​ Xcel Brands, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 December 31, 2020 Assets ​ ​ Current Assets: ​ ​ Cash and cash equivalents ​ $ 4,483 ​ $ 4,957 Accounts receivable, net of allowances of $ 1,090 and $ 1,151 , respectively ​ 7,640 ​ 8,889 Inventory ​ 3,375 ​ 1,216 Prepaid expenses and other current assets ​ 1,681 ​ 1,085 Total current assets ​ 17,179 ​ 16,147 Non-current Assets: ​ ​ ​ ​ ​ ​ Property and equipment, net ​ 2,549 ​ 3,367 Operating lease right-of-use assets ​ ​ 6,314 ​ ​ 8,668 Trademarks and other intangibles, net ​ 98,304 ​ 93,535 Restricted cash ​ 739 ​ 1,109 Deferred tax assets, net ​ ​ 141 ​ ​ — Other assets ​ 555 ​ 228 Total non-current assets ​ 108,602 ​ 106,907 ​ ​ ​ ​ ​ ​ ​ Total Assets ​ $ 125,781 ​ $ 123,054 ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders' Equity ​ ​ Current Liabilities: ​ ​ Accounts payable, accrued expenses and other current liabilities ​ $ 6,233 ​ $ 4,442 Accrued payroll ​ 577 ​ 973 Current portion of operating lease obligations ​ ​ 1,207 ​ ​ 2,101 Current portion of long-term debt ​ 2,500 ​ 2,800 Total current liabilities ​ 10,517 ​ 10,316 Long-Term Liabilities: ​ ​ Long-term portion of operating lease obligations ​ ​ 7,252 ​ ​ 8,469 Long-term debt, net, less current portion ​ 25,531 ​ 13,838 Contingent obligations ​ ​ 7,539 ​ ​ 900 Deferred tax liabilities, net ​ — ​ 3,052 Other long-term liabilities ​ — ​ 224 Total long-term liabilities ​ 40,322 ​ 26,483 Total Liabilities ​ 50,839 ​ 36,799 ​ ​ ​ ​ ​ ​ ​ Commitments and Contingencies ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' Equity: ​ ​ Preferred stock, $ .001 par value, 1,000,000 shares authorized, none issued and outstanding ​ — ​ — Common stock, $ .001 par value, 50,000,000 shares authorized, and 19,571,119 and 19,260,862 shares issued and outstanding at December 31, 2021 and 2020, respectively ​ 20 ​ 19 Paid-in capital ​ 103,039 ​ 102,324 Accumulated deficit ​ ( 28,779 ) ​ ( 16,595 ) Total Xcel Brands, Inc. stockholders' equity ​ 74,280 ​ 85,748 Noncontrolling interest ​ ​ 662 ​ ​ 507 Total Stockholders' Equity ​ 74,942 ​ 86,255 ​ ​ ​ ​ ​ ​ ​ Total Liabilities and Stockholders' Equity ​ $ 125,781 ​ $ 123,054 ​ See accompanying Notes to Consolidated Financial Statements. ​ 56 Table of Contents Xcel Brands, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ December 31, ​ ​ 2021 2020 Revenues ​ ​ ​ Net licensing revenue ​ $ 21,876 ​ $ 20,255 Net sales ​ 16,056 ​ 9,193 Net revenue ​ 37,932 ​ 29,448 Cost of goods sold ​ 10,667 ​ 5,456 Gross profit ​ 27,265 ​ 23,992 ​ ​ ​ ​ ​ ​ ​ Operating costs and expenses ​ ​ Salaries, benefits and employment taxes ​ 16,535 ​ 13,061 Other selling, general and administrative expenses ​ 14,364 ​ 9,743 Stock-based compensation ​ 720 ​ 850 Depreciation and amortization ​ 6,830 ​ 5,497 Government assistance - Paycheck Protection Program and other ​ ​ — ​ ​ ( 1,816 ) Asset impairment charges ​ 1,372 ​ 13,113 Total operating costs and expenses ​ 39,821 ​ 40,448 ​ ​ ​ ​ ​ ​ ​ Other income ​ ​ — ​ ​ 46 ​ ​ ​ ​ ​ ​ ​ Operating loss ​ ( 12,556 ) ​ ( 16,410 ) ​ ​ ​ ​ ​ ​ ​ Interest and finance expense ​ ​ Interest expense - term loan debt ​ 1,916 ​ 1,220 Other interest and finance charges (income), net ​ 147 ​ ( 27 ) Loss on extinguishment of debt ​ ​ 1,516 ​ ​ — Total interest and finance expense ​ 3,579 ​ 1,193 ​ ​ ​ ​ ​ ​ ​ Loss before income taxes ​ ( 16,135 ) ​ ( 17,603 ) ​ ​ ​ ​ ​ ​ ​ Income tax benefit ​ ( 3,106 ) ​ ( 4,518 ) ​ ​ ​ ​ ​ ​ ​ Net loss ​ ​ ( 13,029 ) ​ ​ ( 13,085 ) Less: Net loss attributable to noncontrolling interest ​ ​ ( 845 ) ​ ​ ( 149 ) Net loss attributable to Xcel Brands, Inc. stockholders ​ $ ( 12,184 ) ​ $ ( 12,936 ) ​ ​ ​ ​ ​ ​ ​ Loss per common share attributable to Xcel Brands, Inc. stockholders: ​ ​ Basic and diluted net loss per share ​ $ ( 0.63 ) ​ $ ( 0.68 ) Weighted average number of common shares outstanding: ​ ​ Basic and diluted weighted average common shares outstanding ​ 19,455,987 ​ 19,117,460 ​ See accompanying Notes to Consolidated Financial Statements. ​ 57 Table of Contents Xcel Brands, Inc. and Subsidiaries Consolidated Statements of Stockholders’ Equity (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Xcel Brands, Inc. Stockholders ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Noncontrolling ​ ​ ​ ​ Shares Amount Capital Deficit Interest Total Balance as of January 1, 2020 18,866,417 ​ $ 19 ​ $ 101,736 ​ $ ( 3,659 ) ​ $ 356 ​ $ 98,452 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation expense in connection with stock options and restricted stock ​ — ​ — ​ 257 ​ — ​ — ​ 257 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares issued to executive in connection with stock grants for bonus payments ​ 336,700 ​ — ​ 220 ​ — ​ — ​ 220 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares issued to other employees in connection with stock grants ​ 303,028 ​ — ​ 301 ​ — ​ — ​ 301 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares repurchased from employees in exchange for withholding taxes ​ ( 245,283 ) ​ — ​ ( 190 ) ​ — ​ — ​ ( 190 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional investment in Longaberger Licensing, LLC by non-controlling interest ​ — ​ — ​ — ​ — ​ 300 ​ 300 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss for the year ended December 31, 2020 — ​ — ​ — ​ ( 12,936 ) ​ ( 149 ) ​ ( 13,085 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of December 31, 2020 19,260,862 ​ 19 ​ 102,324 ​ ( 16,595 ) ​ 507 ​ 86,255 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation expense in connection with stock options and restricted stock — ​ — ​ 343 ​ — ​ — ​ 343 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares issued to executive in connection with stock grants for bonus payments ​ 181,179 ​ ​ 1 ​ ​ 282 ​ ​ — ​ ​ — ​ ​ 283 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares issued to directors in connection with restricted stock grants ​ 50,000 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares issued to consultants in connection with restricted stock grants ​ 40,336 ​ ​ — ​ ​ 75 ​ ​ — ​ ​ — ​ ​ 75 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares issued to employee in connection with contractual agreement ​ 21,676 ​ ​ — ​ ​ 31 ​ ​ — ​ ​ — ​ ​ 31 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares issued on exercise of stock options, net of shares surrendered for cashless exercises ​ 26,253 ​ ​ — ​ — ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares repurchased from employees in exchange for withholding taxes ( 9,187 ) ​ — ​ ( 16 ) ​ — ​ — ​ ( 16 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional investment in Longaberger Licensing, LLC by noncontrolling interest — ​ — ​ — ​ — ​ 1,000 ​ 1,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss for the year ended December 31, 2021 — ​ — ​ — ​ ( 12,184 ) ​ ( 845 ) ​ ( 13,029 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance as of December 31, 2021 19,571,119 ​ $ 20 ​ $ 103,039 ​ $ ( 28,779 ) ​ $ 662 ​ $ 74,942 ​ See accompanying Notes to Consolidated Financial Statements. ​ 58 Table of Contents Xcel Brands, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ 2021 2020 Cash flows from operating activities ​ ​ Net loss ​ $ ( 13,029 ) ​ $ ( 13,085 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: ​ ​ ​ Depreciation and amortization expense ​ 6,830 ​ 5,497 Asset impairment charges ​ 1,372 ​ 13,113 Amortization of deferred finance costs included in interest expense ​ 308 ​ 95 Stock-based compensation ​ 720 ​ 850 Provision for doubtful accounts ​ ​ 102 ​ ​ 1,042 Loss on extinguishment of debt ​ ​ 1,516 ​ ​ — Deferred income tax benefit ​ ( 3,192 ) ​ ( 4,382 ) Net gain on sale of assets ​ ​ — ​ ​ ( 46 ) Changes in operating assets and liabilities: ​ ​ ​ ​ Accounts receivable ​ 1,147 ​ 691 Inventory ​ ( 2,159 ) ​ ( 317 ) Prepaid expenses and other current and non-current assets ​ ( 818 ) ​ 597 Accounts payable, accrued expenses and other current liabilities ​ 1,228 ​ ( 496 ) Lease-related assets and liabilities ​ ​ ( 581 ) ​ ​ ( 374 ) Net cash (used in) provided by operating activities ​ ( 6,556 ) ​ 3,185 ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities ​ ​ Cash consideration for acquisition of Lori Goldstein assets ​ ​ ( 3,661 ) ​ ​ — Net proceeds from sale of assets ​ ​ — ​ ​ 46 Purchase of other intangible assets ​ ​ ( 39 ) ​ ​ — Purchase of property and equipment ​ ( 1,095 ) ​ ( 748 ) Net cash used in investing activities ​ ( 4,795 ) ​ ( 702 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities ​ ​ Proceeds from exercise of stock options ​ ​ 5 ​ ​ — Shares repurchased including vested restricted stock in exchange for withholding taxes ​ ( 16 ) ​ ( 190 ) Cash contribution from non-controlling interest ​ ​ 1,000 ​ ​ 300 Proceeds from revolving loan debt ​ ​ 2,498 ​ ​ — Proceeds from long-term debt ​ ​ 54,000 ​ ​ — Payment of deferred finance costs ​ ( 2,173 ) ​ ( 27 ) Payment of revolving loan debt ​ ​ ( 2,498 ) ​ ​ ​ Payment of long-term debt ​ ( 41,750 ) ​ ( 2,250 ) Payment of breakage and other fees associated with extinguishment of long-term debt ​ ​ ( 559 ) ​ ​ — Net cash provided by (used in) financing activities ​ 10,507 ​ ( 2,167 ) ​ ​ ​ ​ ​ ​ ​ Net (decrease) increase in cash, cash equivalents, and restricted cash ​ ( 844 ) ​ 316 ​ ​ ​ ​ ​ ​ ​ Cash, cash equivalents, and restricted cash at beginning of period ​ ​ 6,066 ​ ​ 5,750 ​ ​ ​ ​ ​ ​ ​ Cash, cash equivalents, and restricted cash at end of period ​ $ 5,222 ​ $ 6,066 ​ ​ ​ ​ ​ ​ ​ Reconciliation to amounts on consolidated balance sheets: ​ ​ Cash and cash equivalents ​ $ 4,483 ​ $ 4,957 Restricted cash ​ 739 ​ 1,109 Total cash, cash equivalents, and restricted cash ​ $ 5,222 ​ $ 6,066 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of non-cash activities: ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ $ — ​ $ 797 Operating lease obligations ​ $ — ​ $ 797 Contingent obligation related to acquisition of Lori Goldstein assets at fair value ​ $ 6,639 ​ $ — Liability for equity-based bonuses and other equity-based payments ​ $ ( 13 ) ​ $ 71 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ Cash paid during the year for interest ​ $ 1,799 ​ $ 1,128 Cash paid during the year for income taxes ​ $ 91 ​ $ 58 ​ See accompanying Notes to Consolidated Financial Statements. ​ ​ 59 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 1. Nature of Operations, Background, and Basis of Presentation Xcel Brands, Inc. (“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 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. Liquidity 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. ​ 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Xcel, its wholly owned subsidiaries, and entities in which Xcel has a controlling financial interest as of and for the years ended December 31, 2021 (the "Current Year") and 2020 (the "Prior Year"). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. 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. 60 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation, or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates. The Company deems the following items to require significant estimates from management: ● Allowance for doubtful accounts; ● Useful lives of trademarks; ● 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; ● Inventory reserves; and ● Valuation allowances and effective tax rate for tax purposes. Reclassifications 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 The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Accounts Receivable Accounts receivable are reported net of the allowance for doubtful accounts. The allowance for doubtful accounts is based on the Company’s ongoing discussions with its licensees, wholesale and digital customers, and its evaluation of each customer’s payment history, account aging, and financial position. 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 $ 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. 61 Table of Contents 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 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 direct-to-consumer operations. Apparel and jewelry finished goods inventory is purchased to satisfy orders received from its wholesale operations. The Company periodically reviews the composition of its inventories in order to identify obsolete, slow-moving or otherwise non-saleable items. 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. 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. ​ 62 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ Trademarks and Other Intangible Assets 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. The Income Approach is based on the present value of future earnings expected to be generated by a business or asset. Income projections for a future period are discounted at a rate commensurate with the degree of risk associated with future proceeds. A residual or terminal value is also added to the present value of the income to quantify the value of the business beyond the projection period. As such, recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to its expected future discounted net cash flows. 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 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 The Company’s finite-lived intangible assets, including Trademarks, 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 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 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 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. 63 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ Restricted Cash 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 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. Deferred Finance Costs 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. Such costs are amortized as interest expense using the effective interest method. Contingent Obligations 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. 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 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. Under the applicable accounting guidance, the Company is required to carry such contingent liability balances on its consolidated balance sheet until the measurement period of the earn-out expires and all related contingencies have been resolved. Revenue Recognition The Company applies the guidance in ASC Topic 606, “Revenue from Contracts with Customers” to recognize revenue. Licensing The Company recognizes revenue continuously over time as it satisfies its continuous obligation of granting access to its licensed intellectual properties, which are deemed symbolic intellectual properties under the applicable revenue accounting guidance. 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 64 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES 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 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: (i) Contracts for which, based on experience, royalties are expected to exceed any applicable minimum guaranteed payments, and to which an output-based measure of progress based on the “right to invoice” practical expedient is applied because the royalties due for each period correlate directly with the value to the customer of the Company’s performance in each period (this approach is identified as “View A” by the FASB Revenue Recognition Transition Resource Group, “TRG”); and (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 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 related to licensing contracts were not material as of December 31, 2021 and 2020. 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 ASC 606. 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, 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 The Company generates revenue through the design, sourcing, and sale of branded jewelry and apparel to both domestic and international customers who, in turn, sell the products to the consumer. 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. 65 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ Advertising Costs All costs associated with production for the Company’s advertising, marketing, and promotion are expensed during the periods when the activities take place. All other advertising costs, such as print and online media, are expensed when the advertisement occurs. The Company incurred $ 2.5 million and $ 0.9 million in advertising and marketing costs for the Current Year and Prior Year, respectively. Leases 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. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. For real estate leases of office space, the Company accounts for the lease and non-lease components as a single lease component. Variable lease payments that do not depend on an index or rate (such as real estate taxes and building insurance and lessee’s shares thereof), if any, are excluded from lease payments at lease commencement date for initial measurement. 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 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. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation - Stock Compensation,” by recognizing the fair value of stock-based compensation as an operating expense over the service period of the award or term of the corresponding contract, as applicable. The fair value of stock options and warrants is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, 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 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. 66 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES 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. Income Taxes Current income taxes are based on the respective period’s taxable income for federal and state income tax reporting purposes. Deferred tax liabilities and assets are determined based on the difference between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is required if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company applies the FASB guidance on accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also addresses derecognition, classification, interest, and penalties related to uncertain tax positions. The Company has no unrecognized tax benefits as of December 31, 2021 and 2020. Interest and penalties related to uncertain tax positions, if any, are recorded in income tax expense. Tax years that remain open for assessment for federal and state tax purposes include the years ended December 31, 2018 through December 31, 2021. The income tax effects of changes in tax laws are recognized in the period when enacted. Fair Value ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value and establishes a framework for measuring fair value under U.S. GAAP. 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). Fair Value of Financial Instruments For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, and accounts payable, the carrying amounts approximate fair value due to the short-term maturities of these instruments. The carrying value of term loan debt approximates fair value because the fixed interest rate approximates current market rates and in the instances it does not, the impact is not material. 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 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. 67 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES 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, 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. At times, the Company’s cash, cash equivalents, and restricted cash may exceed federally insured limits. Concentrations of credit risk with respect to accounts receivable are minimal due to the collection history and due to the nature of the Company’s royalty revenues. Generally, the Company does not require collateral or other security to support accounts receivable. 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 June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in November 2018 through ASU No. 2018-19. This ASU will require entities to estimate lifetime expected credit losses for financial instruments, including trade and other receivables, which will result in earlier recognition of credit losses. 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 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 The Company adopted ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” effective January 1, 2020. This ASU adds, modifies, and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” The adoption of this new guidance did not have any impact on the Company’s results of operations, cash flows, and financial condition. The Company adopted ASU No. 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. ​ 68 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ 3. 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) ​ ​ Cash paid at closing ​ $ 1,600 Cash paid subsequent to closing ​ 2,045 Total direct initial consideration ​ 3,645 Direct transaction expenses ​ 16 Contingent obligation (Lori Goldstein Earn-Out) ​ 6,639 Total consideration $ 10,300 ​ 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 69 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ 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. ​ 4. Trademarks and Other Intangibles Trademarks and other intangibles, net consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Average December 31, 2021 ​ Amortization ​ Gross Carrying ​ Accumulated ​ Net Carrying ($ in thousands) ​ Period ​ Amount ​ Amortization ​ Amount Trademarks (indefinite-lived) n/a ​ $ 44,500 ​ $ — ​ $ 44,500 Trademarks (finite-lived) 15 years ​ 68,880 ​ 15,268 ​ 53,612 Non-compete agreement 7 years ​ 562 ​ 562 ​ — Copyrights and other intellectual property 8 years ​ 429 ​ 237 ​ 192 Total ​ ​ ​ $ 114,371 ​ $ 16,067 ​ $ 98,304 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Average December 31, 2020 ​ Amortization Gross Carrying ​ Accumulated ​ Net Carrying ($ in thousands) ​ Period ​ Amount ​ Amortization ​ Amount Trademarks (indefinite-lived) n/a ​ $ 44,500 ​ $ — ​ $ 44,500 Trademarks (finite-lived) 17 years ​ 58,580 ​ 9,832 ​ 48,748 Non-compete agreement 7 years ​ 562 ​ 482 ​ 80 Copyrights and other intellectual property 8 years ​ 390 ​ 183 ​ 207 Total ​ $ 104,032 ​ $ 10,497 ​ $ 93,535 ​ 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. 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. 70 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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: ​ ​ ​ ​ ​ ($ in thousands) ​ Amortization Year Ending December 31, Expense 2022 ​ $ 6,134 2023 ​ 6,134 2024 ​ 6,120 2025 ​ 4,184 2026 ​ 3,514 Thereafter (through 2036) ​ 27,718 Total ​ $ 53,804 ​ ​ 5. Significant Contracts 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 Qurate Agreements include automatic renewal periods as detailed below unless terminated by either party. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current Term ​ Automatic ​ Xcel Commenced ​ QVC Product Agreement Expiry Renewal Brand with QVC Launch IM Qurate Agreement ​ September 30, 2022 ​ one-year period September 2011 2010 LOGO Qurate Agreement ​ November 1, 2022 ​ one-year period ​ April 2021 ​ 2009 Ripka Qurate Agreement ​ March 31, 2022 * one-year period April 2014 1999 H Qurate Agreement ​ December 31, 2022 three-year period January 2015 2015 Longaberger Qurate Agreement ​ October 31, 2023 two-year period November 2019 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 Qurate Agreement, IM Brands has also granted to Qurate and its affiliates, during the 71 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ 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. The December 31, 2021 and 2020 Qurate receivables did not include any earned revenue accrued but not yet billed as of the respective balance sheet dates. ​ 6. Debt and Other Long-term Liabilities Debt The Company’s net carrying amount of debt is comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ($ in thousands) 2021 2020 ​ Term loan debt ​ $ 29,000 ​ $ 16,750 ​ Unamortized deferred finance costs related to term loan debt ​ ( 969 ) ​ ( 112 ) ​ Total ​ 28,031 ​ 16,638 ​ Current portion of debt ​ 2,500 ​ 2,800 ​ Long-term debt ​ $ 25,531 ​ $ 13,838 ​ ​ 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 72 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ loans: (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 73 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ 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: ​ ​ ​ ​ ​ ​ Amount of ($ in thousands) Principal Year Ending December 31, Payment 2022 ​ $ 2,500 2023 ​ 2,500 2024 ​ ​ 2,500 2025 ​ ​ 21,500 Total ​ $ 29,000 ​ 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. 74 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ 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 Minimum Revenue April 1, 2021 - December 31, 2021 ​ $ 16,445,000 For the trailing twelve month period ending March 31, 2022 ​ $ 23,500,000 For the trailing twelve month period ending June 30, 2022 ​ $ 24,491,000 For the trailing twelve month periods ending September 30, 2022 and each fiscal quarter end thereafter ​ $ 25,000,000 ​ ● 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”); and ● 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. ​ 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. 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 75 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ 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 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. ​ 7. 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 $ 1,805,856 , 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 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 $ 1.8 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) Concurrently with the PPP loan, in May 2020 the Company also received a $ 10,000 Economic Incentive Disaster Loan (“EIDL”) Advance through the U.S. Small Business Administration. 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. ​ 76 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ 8. 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. 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 (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 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ Weighted ​ Remaining ​ ​ ​ ​ ​ ​ ​ Average ​ Contractual ​ Aggregate ​ ​ Number of ​ Exercise ​ Life ​ Intrinsic ​ Options Price (in Years) Value Outstanding at January 1, 2021 7,179,375 ​ $ 3.14 4.93 ​ $ — Granted 520,390 ​ 1.91 ​ Canceled ( 8,050 ) ​ 1.86 ​ Exercised ( 99,700 ) ​ 1.77 ​ Expired/Forfeited ( 1,961,045 ) ​ 5.44 ​ Outstanding at December 31, 2021, and expected to vest 5,630,970 ​ $ 2.25 5.46 ​ $ — Exercisable at December 31, 2021 1,757,636 ​ $ 3.28 1.99 ​ $ — ​ Current Year stock option grants were as follows: 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. 77 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 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. The exercise price of the options is $ 5.50 per share, and all options vested immediately on the date of grant. 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. 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. 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. The exercise price of the options is $ 3.00 per share. One -third of the options vested on each of June 30, 2020, September 30, 2020, and December 31, 2020. On August 21, 2020, the Company granted options to purchase 22,750 shares of common stock to a consultant. The exercise price of the options is $ 1.00 per share, and all options vested on December 31, 2020. 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 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. 78 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Expected Volatility 29.49 – 82.99 % 24.26 – 28.79 % Expected Dividend Yield — % — % Expected Life (Term, in years) 2.5 – 3.25 2.5 – 3.5 ​ Risk-Free Interest Rate 0.24 – 0.52 % 0.16 – 1.60 % ​ Compensation expense related to stock options for the Current Year and Prior Year was approximately $ 0.3 million and $ 0.2 million, respectively. Total unrecognized compensation expense related to unvested stock options at December 31, 2021 amounts to approximately $ 0.1 million and is expected to be recognized over a weighted average period of 1.29 years. The following table summarizes the Company’s stock option activity for non-vested options for the Current Year: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ Number of ​ Grant Date ​ Options Fair Value Balance at January 1, 2021 4,116,167 ​ $ 0.08 Granted 520,390 ​ 0.45 Vested ( 663,223 ) ​ ​ 0.42 Forfeited or Canceled ( 100,000 ) ​ 0.08 Balance at December 31, 2021 3,873,334 ​ $ 0.07 ​ Warrants Warrants granted by the Company 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 warrant activity for the Current Year is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ Weighted ​ Remaining ​ ​ ​ ​ ​ ​ Average Contractual ​ Aggregate ​ ​ Number of ​ Exercise Life ​ Intrinsic ​ Warrants Price (in Years) Value Outstanding and exercisable at January 1, 2021 579,815 ​ $ 4.63 1.32 ​ $ — Granted — ​ — ​ ​ Canceled — ​ — ​ ​ Exercised — ​ — ​ ​ Expired/Forfeited ( 463,750 ) ​ 5.00 ​ ​ Outstanding and exercisable at December 31, 2021 116,065 ​ $ 3.15 2.57 ​ $ — ​ 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. 79 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ Stock Awards A summary of the Company’s restricted stock activity for the Current Year is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ Number of ​ Average ​ ​ Restricted ​ Grant Date ​ Shares Fair Value Outstanding at January 1, 2021 780,833 ​ $ 4.09 Granted 284,004 ​ 1.66 Canceled — ​ — Vested ( 249,004 ) ​ 1.61 Expired/Forfeited — ​ — Outstanding at December 31, 2021 815,833 ​ $ 4.00 ​ 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. The Company recognized compensation expense of approximately $ 0.3 million in the Prior Year to accrue for this performance bonus. 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. On December 24, 2020, the Company issued an aggregate of 32,300 shares of common stock to various employees. These shares vested immediately. 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. Total compensation expense related to stock awards for the Current Year and Prior Year (inclusive of the amounts detailed above) was approximately $ 0.4 million and $ 0.6 million, respectively. Total unrecognized compensation expense related to unvested restricted stock grants at December 31, 2021 amounts to $ 0.1 million and is expected to be recognized over a weighted average period of 1.25 years. 80 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ The following table provides information with respect to restricted stock purchased and retired by the Company during the Current Year and Prior Year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchased as ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Part of ​ ​ ​ ​ ​ Total Number ​ Actual ​ Publicly ​ Fair value of ​ ​ of Shares ​ Price Paid ​ Announced ​ Re-Purchased Date Purchased per Share Plan Shares October 29, 2021 (i) 9,187 ​ 1.73 — ​ 16,000 Total 2021 9,187 ​ $ 1.73 — ​ $ 16,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 30, 2020 (i) 155,556 ​ $ 0.65 — ​ $ 102,000 May 20, 2020 (i) 87,249 ​ 0.98 — ​ 85,000 December 24, 2020 (i) 2,478 ​ 1.14 — ​ 3,000 Total 2020 245,283 ​ $ 0.77 — ​ $ 190,000 (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, 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. Dividends The Company has not paid any dividends to date. ​ 9. Earnings (Loss) Per Share Shares used in calculating basic and diluted earnings (loss) per share are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2021 2020 ​ Basic ​ 19,455,987 19,117,460 Effect of exercise of warrants ​ — — Effect of exercise of stock options ​ — ​ — ​ Diluted ​ 19,455,987 19,117,460 ​ 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. ​ 81 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2021 2020 ​ Stock options and warrants ​ 5,747,035 7,759,190 ​ ​ 10. Commitments and Contingencies Leases 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 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 %. The Company leases office space under an operating lease agreement related to the Company’s main headquarters located in New York City. 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; 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 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 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. The Company’s total lease costs for the years ended December 31, 2021 and 2020 were comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ($ in thousands) 2021 2020 Operating lease cost ​ $ 2,047 ​ $ 1,986 Short-term lease cost ​ 68 ​ 81 Variable lease cost ​ 178 ​ 98 Sublease income ​ ( 622 ) ​ ( 618 ) Total lease cost ​ $ 1,671 ​ $ 1,547 ​ 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. 82 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ As of December 31, 2021, the maturities of lease liabilities were as follows: ​ ​ ​ ​ ($ in thousands) ​ ​ 2022 ​ $ 1,700 2023 ​ ​ 1,711 2024 ​ 1,711 2025 ​ 1,711 2026 ​ 1,710 Thereafter (through 2028) ​ 1,610 Total lease payments ​ ​ 10,153 Less: Discount ​ ​ 1,694 Present value of lease liabilities ​ ​ 8,459 Current portion of lease liabilities ​ ​ 1,207 Non-current portion of lease liabilities ​ $ 7,252 ​ Employment Agreements The Company has contracts with certain executives and key employees. The future minimum payments under these contracts are as follows: ​ ​ ​ ​ ​ ​ ​ Employment ($ in thousands) ​ Contract Year Ended December 31, Payments 2022 ​ $ 2,366 Thereafter ​ — Total future minimum employment contract payments ​ $ 2,366 ​ In addition to the employment contract payments stated above, the Company’s employment contracts with certain executives and key employees contain performance-based bonus provisions. These provisions include bonuses based on the Company achieving revenues in excess of established targets and/or on operating results. Certain of the employment agreements contain severance and/or change in control provisions. Aggregate potential severance compensation amounted to approximately $ 4.6 million as of December 31, 2021. 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. ​ 83 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ 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 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. Temporary factory closures and the pace of workers returning to work have impacted contract manufacturers’ ability to source certain raw materials and to produce finished goods in a timely manner. The outbreak is also impacting distribution and logistics providers' ability to operate in the normal course of business. Further, the pandemic 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. ​ 84 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ ​ 11. Income Taxes The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence pursuant to the requirements of ASC Topic 740, including current and historical results of operations, future income projections, and the overall prospects of the Company’s business. The income tax (benefit) provision for federal and state and local income taxes in the consolidated statements of operations consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ($ in thousands) 2021 2020 Current: ​ ​ Federal ​ $ — ​ $ ( 202 ) State and local ​ 86 ​ 66 Total current ​ 86 ​ ( 136 ) ​ ​ ​ ​ ​ ​ ​ Deferred: ​ ​ Federal ​ ( 2,376 ) ​ ( 3,538 ) State and local ​ ( 816 ) ​ ( 844 ) Total deferred ​ ( 3,192 ) ​ ( 4,382 ) Total benefit ​ $ ( 3,106 ) ​ $ ( 4,518 ) ​ The reconciliation of income tax (benefit) provision computed at the federal and state and local statutory rates to the Company’s loss before taxes is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2021 2020 U.S. statutory federal rate 21.00 % 21.00 % State and local rate, net of federal tax 4.64 4.54 ​ Stock compensation ( 5.56 ) ( 1.94 ) ​ Excess compensation deduction ( 0.68 ) ( 0.51 ) ​ Foreign tax credits — 0.11 ​ Federal true-ups ( 0.10 ) — ​ Life insurance ( 0.10 ) ( 0.04 ) ​ Net operating loss carryback — 0.56 ​ Paycheck Protection Program addback — 2.18 ​ Change in tax rate ​ 0.06 ​ — ​ Other permanent differences ( 0.01 ) ( 0.01 ) ​ Income tax benefit 19.25 % 25.89 % ​ 85 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ The significant components of net deferred tax assets (liabilities) of the Company consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ($ in thousands) 2021 2020 Deferred tax assets ​ ​ Stock-based compensation ​ $ 1,274 ​ $ 2,440 Federal, state and local net operating loss carryforwards ​ 6,684 ​ 2,907 Accrued compensation and other accrued expenses ​ 728 ​ 664 Allowance for doubtful accounts ​ 309 ​ 329 Basis difference arising from discounted note payable ​ 11 ​ 11 Foreign tax credit ​ 219 ​ 219 Charitable contribution carryover ​ 77 ​ 63 Property and equipment ​ 488 ​ 321 Interest expense ​ 602 ​ — Total deferred tax assets ​ ​ 10,392 ​ ​ 6,954 ​ ​ ​ ​ ​ ​ ​ Deferred tax liabilities ​ ​ ​ ​ ​ ​ Basis difference arising from intangible assets of acquisition ​ ( 10,251 ) ​ ( 10,006 ) Total deferred tax liabilities ​ ( 10,251 ) ​ ( 10,006 ) ​ ​ ​ ​ ​ ​ ​ Net deferred tax assets (liabilities) ​ $ 141 ​ $ ( 3,052 ) ​ 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. The NOL as of December 31, 2017 of $ 0.3 million has an expiration period through 2037. The NOL generated during tax years beginning after December 31, 2017 of $ 23.4 million has an indefinite life and does not expire. 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. The Company will continue to evaluate its uncertain tax positions in future periods to determine if measurement and recognition in its consolidated financial statements is necessary. The Company does not believe there will be any material changes in its unrecognized tax positions over the next year. ​ 12. Related Party Transactions 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 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 approximately $ 0.1 million related to the sale of these assets. ​ Robert W. D’Loren Jennifer D’Loren is the wife of Robert W. D’Loren, the Company’s Chief Executive Officer and Chairman of the Board, and is employed by the Company. Mrs. D’Loren brings vast experience in project management and implementation of financial IT solutions. During the past two years , Mrs. D’Loren has worked on the implementation of the Company’s ERP system. Mrs. D’Loren received compensation of less than $ 0.1 million and approximately $ 0.1 million for the years ended December 31, 2021 and 2020, respectively. 86 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ Isaac Mizrahi On February 24, 2020, the Company entered into an employment agreement with Isaac Mizrahi, a principal stockholder of the Company, for Mr. Mizrahi to continue to serve as Chief Design Officer of the Isaac Mizrahi Brand. The term of the employment agreement expires on December 31, 2022, subject to earlier termination, and may be extended, at the Company’s option, for two successive one-year terms (each, a “Renewal Period”). Mr. Mizrahi’s base salary shall be $ 1.8 million, $ 2.0 million, and $ 2.1 million per annum during the term of the agreement and $ 2.25 million and $ 2.4 million during 2023 and 2024 if the term is extended, in each case, subject to adjustment in the event Mr. Mizrahi does not make a specified number of appearances on Qurate’s QVC channel. Mr. Mizrahi shall be eligible to receive an annual cash bonus (the “Bonus”) up to an amount equal to $ 2.5 million less base salary for 2020 and $ 3.0 million less base salary for 2021, 2022, and any year during the Renewal Period. The Bonus shall consist of the DRT Revenue, Bonus, the Brick-and-Mortar Bonus, the Endorsement Bonus and the Monday Bonus, if any, as determined in accordance with the below: ● “DRT Bonus” means for any calendar year an amount equal to 10 % of the aggregate net revenue related to sales of Isaac Mizrahi Brand products through direct response television. The DRT Revenue Bonus shall be reduced by the amount of the Monday Bonus. ● “Brick-and-Mortar Bonus” means for any calendar year an amount equal to 10 % of the net revenues from sales of products under the Isaac Mizrahi Brand, excluding DRT revenue and endorsement revenues. ● “Endorsement Bonus” means for any calendar year an amount equal to 40 % of revenues derived from projects undertaken by the Company with one or more third parties solely for Mr. Mizrahi to endorse the third party’s products through the use of Mr. Mizrahi’s name, likeness, and/or image, and neither the Company nor Mr. Mizrahi provides licensing or design. ● “Monday Bonus” means $ 10,000 for each appearance by Mr. Mizrahi on Qurate’s QVC channel on Mondays (subject to certain expectations) up to a maximum of 40 such appearances in a calendar year. Mr. Mizrahi is required to devote his full business time and attention to the business and affairs of the Company and its subsidiaries; however, Mr. Mizrahi is the principal of IM Ready-Made, LLC and Laugh Club, Inc. (“Laugh Club”), and accordingly, he may undertake promotional activities related thereto (including the promotion of his name, image, and likeness) through television, video, and other media (and retain any compensation he receives for such activities) (referred to as “Retained Media Rights”) so long as such activities (i) do not utilize the IM Trademarks, (ii) do not have a mutually negative impact upon or materially conflict with Mr. Mizrahi’s duties under the employment agreement, or (iii) are consented to by the Company. The Company believes that it benefits from Mr. Mizrahi’s independent promotional activities by increased brand awareness of IM Brands and the IM Trademarks. Severance. If Mr. Mizrahi’s employment is terminated by the Company without “cause,” or if Mr. Mizrahi resigns with “good reason,” then Mr. Mizrahi will be entitled to receive his unpaid base salary and cash bonuses through the termination date and an amount equal to his base salary in effect on the termination date for the longer of six months and the remainder of the then-current term, but in no event exceeding 18 months. If Mr. Mizrahi’s employment is terminated by the Company without “cause” or if Mr. Mizrahi resigns with “good reason,” within six months following a change of control (as defined in the employment agreement), Mr. Mizrahi shall be eligible to receive a lump-sum payment equal to two times the sum of (i) his base salary (at an average rate that would have been in effect for such two year period following termination) plus (ii) the bonus paid or due to Mr. Mizrahi in the year prior to the change in control. Non-Competition and Non-Solicitation. During the term of his employment by the Company and for a one-year period after the termination of such employment (unless Mr. Mizrahi’s employment was terminated without “cause” or was terminated by him for “good reason”), Mr. Mizrahi may not permit his name to be used by or to participate in any business or enterprise (other than the mere passive ownership of not more than 3 % of the outstanding stock of any class of a publicly held corporation whose stock is traded on a national securities exchange or in the over-the-counter market) that engages 87 Table of Contents XCEL BRANDS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2021 and 2020 ​ or proposes to engage in the Company’s business anywhere in the world other than the Company and its subsidiaries. Also during his employment and for a one-year period after the termination of such employment, Mr. Mizrahi may not, directly or indirectly, solicit, induce, or attempt to induce any customer, supplier, licensee, or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or any or its subsidiaries; or solicit, induce, or attempt to induce any person who is, or was during the then-most recent 12-month period, a corporate officer, general manager, or other employee of the Company or any of its subsidiaries, to terminate such employee’s employment with the Company or any of its subsidiaries; or hire any such person unless such person’s employment was terminated by the Company or any of its subsidiaries; or in any way interfere with the relationship between any such customer, supplier, licensee, employee, or business relation and the Company or any of its subsidiaries. On February 24, 2020 the Company entered into a services agreement with Laugh Club, an entity wholly-owned by Mr. Mizrahi, pursuant to which Laugh Club shall provide services to Mr. Mizrahi necessary for Mr. Mizrahi to perform his services pursuant to the employment agreement. The Company will pay Laugh Club an annual fee of $ 0.72 million for such services. ​ ​ ​ ​ ​ ​ 88 Table of Contents Item 9. 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. ​