What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-05-20 · 256 added, 162 removed, 339 unchanged (55% of the section changed)

4 unchanged sentences

(in thousands, except share and per share data)

March 31, 2024

June 30, 2024

December 31, 2023

1 unchanged sentence

Cash and cash equivalents

Accounts receivable, net of allowances for credit losses of $ 75 at March 31, 2024 and December 31, 2023

Accounts receivable, net of allowances for credit losses of $ 30 and $ 75 at June 30, 2024 and December 31, 2023, respectively

Prepaid expenses and other current assets

4 unchanged sentences

Trademarks and other intangibles, net

Equity method investment in IM Topco, LLC

Equity method investments

Total non-current assets

19 unchanged sentences

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 23,452,117 and 19,795,053 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Common stock, $ .001 par value, 50,000,000 shares authorized, and 23,492,117 and 19,795,053 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Paid-in capital

11 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Net licensing revenue

4 unchanged sentences

Total direct operating costs and expenses

Operating loss before other operating costs and expenses

Other operating costs and expenses

Operating loss before other operating costs and expenses (income)

Other operating costs and expenses (income)

Depreciation and amortization

1 unchanged sentence

Loss from equity method investments

Operating loss

Interest and finance (income) expense

Interest expense - term loan debt

Other interest and finance charges (income), net

Total interest and finance (income) expense

Loss before income taxes

Income tax benefit

Gain on divestiture of Lori Goldstein Brand

Gain on sale of limited partner ownership interest

Gain on settlement of lease liability

Operating income (loss)

Interest and finance expense (income), net

Income (loss) before income taxes

Income tax provision (benefit)

Net income (loss)

Net loss attributable to noncontrolling interest

Net loss attributable to Xcel Brands, Inc.

Loss per common share attributable to Xcel Brands, Inc.

Net income (loss) attributable to Xcel Brands, Inc.

Earnings (loss) per common share attributable to Xcel Brands, Inc.

stockholders:

Basic and diluted net loss per share

Basic earnings (loss) per share

Diluted earnings (loss) per share

Weighted average number of common shares outstanding:

Basic and diluted weighted average common shares outstanding

Basic weighted average common shares outstanding

Diluted weighted average common shares outstanding

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

9 unchanged sentences

Balance as of March 31, 2023

Compensation expense related to stock options and restricted stock

Shares issued to consultant in connection with stock grant

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

Net income (loss)

Balance as of June 30, 2023

Balance as of December 31, 2023

4 unchanged sentences

Balance as of March 31, 2024

Compensation expense related to stock options and restricted stock

Contra-revenue related to warrants held by licensee

Shares issued to directors in connection with restricted stock grants

Net income (loss)

Balance as of June 30, 2024

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements .

3 unchanged sentences

(in thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Cash flows from operating activities

4 unchanged sentences

Stock-based compensation and cost of licensee warrants

Provision for (recovery of) credit losses

Undistributed proportional share of net loss of equity method investees

Gain on divestiture of Lori Goldstein brand

Gain on sale of limited partner ownership interest

Gain on settlement of lease liability

Changes in operating assets and liabilities:

7 unchanged sentences

Cash flows from investing activities

Net proceeds from sale of assets

Purchase of property and equipment

Net cash used in investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

Proceeds from public offering and private placement transactions, net of transaction costs

Payment of long-term debt

Net cash provided by financing activities

6 unchanged sentences

Total cash, cash equivalents, and restricted cash

Supplemental disclosure of non-cash activities:

Recognition of operating lease right-of-use asset

Recognition of operating lease obligation

Supplemental disclosure of cash flow information:

5 unchanged sentences

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

June 30, 2024

Nature of Operations, Background, and Basis of Presentation

7 unchanged sentences

The Company is a media and consumer products company engaged in the design, licensing, marketing, live streaming, and social commerce sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands.

Currently, the Company’s brand portfolio consists of the Halston brands (the "Halston Brand"), the Judith Ripka brands (the "Ripka Brand"), the C Wonder brands (the "C Wonder Brand"), the LOGO by Lori Goldstein brand (the “Lori Goldstein Brand”), the Longaberger brand (the “Longaberger Brand”), the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the TowerHill by Christie Brinkley brand (the “CB Brand”), and other proprietary brands.

● The Halston Brand, Ripka Brand, C Wonder Brand, and Lori Goldstein Brand are wholly owned by the Company.

Currently, the Company’s brand portfolio consists of the Halston brands (the "Halston Brand"), the Judith Ripka brands (the "Ripka Brand"), the C Wonder brands (the "C Wonder Brand"), the Longaberger brand (the “Longaberger Brand”), the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the TowerHill by Christie Brinkley brand (the “CB Brand”), and other proprietary brands.

● The Halston Brand, Ripka Brand, and C Wonder Brand are wholly owned by the Company.

● The Company manages the Longaberger Brand through its 50 % ownership interest in Longaberger Licensing, LLC;

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the Company accounts for its interest in IM Topco, LLC using the equity method of accounting.

● The CB Brand is a new co-branded collaboration between Xcel and Christie Brinkley, announced in 2023 and planned to launch by the end of May 2024.

● The CB Brand is a new co-branded collaboration between Xcel and Christie Brinkley, announced in 2023 and launched in May 2024.

The Company’s brand portfolio also included the LOGO by Lori Goldstein brand (the “Lori Goldstein Brand”) as a wholly owned brand from April 1, 2021 through June 30, 2024;

the Lori Goldstein Brand was divested on June 30, 2024 (see Note 3 for additional details).

The Company also owns a 30 % interest in ORME Live, Inc.

(“ORME”), a short-form video and social commerce marketplace that is planned to launch in 2024.

The Company primarily generates revenue through the licensing of its brands through contractual arrangements with manufacturers and retailers.

The Company, through its licensees, distributes through an omni-channel and social commerce sales strategy, which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, social commerce, traditional brick-and-mortar retailers, and e-commerce channels, to be everywhere its customers shop.

(“ORME”), a short-form video and social commerce marketplace that launched in April 2024.

XCEL BRANDS, INC.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

June 30, 2024

The Company primarily generates revenue through the licensing of its brands through contractual arrangements with manufacturers and retailers.

Prior to and for a portion of 2023, the Company also engaged in wholesale and direct-to-consumer sales of products under its brands.

The Company’s former wholesale and direct-to-consumer operations were presented as "Net sales" and "Cost of goods sold" in the condensed consolidated statements of operations, separately from the Company’s licensing revenues.

The only net sales and cost of goods sold recognized for the three and six months ended June 30, 2024 were related to the final sale of certain residual jewelry inventories;

as of June 30, 2024, the Company has no remaining jewelry inventory.

The Company’s remaining inventory as of June 30, 2024 all relates to the Longaberger Brand, and the Company plans to sell off this remaining inventory by December 31, 2024.

Liquidity and Management’s Plans

The Company incurred a net loss attributable to Company stockholders of approximately $ 6.3 million during the three months ended March 31, 2024 (which included non-cash expenses of approximately $ 4.6 million), and had an accumulated deficit of approximately $ 60.1 million as of March 31, 2024.

Net cash used in operating activities was approximately $ 2.6 million for the three months ended March 31, 2024.

The Company had working capital (current assets less current liabilities, excluding the current portions of lease obligations, deferred revenue, and any contingent obligations payable in common stock) of approximately $ 2.1 million as of March 31, 2024.

The Company’s unrestricted cash and cash equivalents were approximately $ 1.6 million as of March 31, 2024.

The Company incurred a net loss attributable to Company stockholders of approximately $ 6.1 million during the six months ended June 30, 2024 (which included non-cash expenses of approximately $ 7.7 million), and had an accumulated deficit of approximately $ 59.9 million as of June 30, 2024.

Net cash used in operating activities was approximately $ 2.9 million for the six months ended June 30, 2024.

The Company’s unrestricted cash and cash equivalents were approximately $ 0.9 million as of June 30, 2024.

The aforementioned factors raise uncertainties about the Company’s ability to continue as a going concern.

3 unchanged sentences

Management believes that this evolution of the Company’s operating model will provide the Company with significant cost savings and allow the Company to reduce and better manage its exposure to operating risks.

As of December 31, 2023, the Company had reduced payroll costs by approximately $ 6 million and operating expenses (excluding non-recurring charges related to the restructuring) by approximately $ 9 million, on an annualized basis when compared to the corresponding periods in the prior year.

In addition, during the first six months of 2024, management took actions which further reduced direct operating expenses to a run rate of approximately $ 12.5 million per annum, and going forward beginning in the third quarter of 2024, will reduce operating expenses to a run rate of approximately $ 10 million per annum, due to the elimination of expenses related to the Lori Goldstein Brand and reduction of executive cash compensation.

Also during the year ended December 31, 2023, the Company entered into a new term loan agreement in the amount of $ 5 million, which provided the Company with additional liquidity.

Further, in March 2024, the Company issued new shares of common stock for net proceeds of approximately $ 1.9 million, which provided the Company with additional liquidity.

During the six months ended June 30, 2024, the Company issued new shares of common stock for net proceeds of approximately $ 1.9 million, which provided the Company with additional liquidity.

Additionally, the Company entered into a divestiture transaction which relieved the Company of its contractual obligations to make future cash payments of approximately $ 1.0 million, and also relieved the Company of a potential future contingent obligation to make future cash payments of up to $ 11.3 million.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

Based on the aforementioned events and changes, management expects that existing cash and future 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 Quarterly Report on Form 10-Q;

therefore, such conditions and uncertainties with respect to the Company’s ability to continue as a going concern as of March 31, 2024, have been alleviated.

therefore, such conditions and uncertainties with respect to the Company’s ability to continue as a going concern as of June 30, 2024, have been alleviated.

Investments in Unconsolidated Affiliates and Variable Interest Entities

2 unchanged sentences

Pursuant to this agreement, on May 31, 2022, (i) the Company contributed assets owned by IMB, including the Isaac Mizrahi Brand trademarks and other intellectual property rights relating thereto into IM Topco, and (ii) the Company sold 70 % of the membership interests of IM Topco to WHP.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

The Company accounts for its 30 % interest in the ongoing operations of IM Topco as other operating costs and expenses under the equity method of accounting.

3 unchanged sentences

(iii) thereafter, in proportion to the members’ respective percentage interests.

Based on these distribution provisions, the Company recognized an equity method loss of $ 0.52 million related to its investment in IM Topco for each of the three-month periods ended March 31, 2024 and 2023.

Further, on April 12, 2024, the Company, WHP, and IM Topco entered into an amendment of the business venture agreement, such that on and after January 1, 2026, WHP shall receive 50 % of the net cash flow which would otherwise be payable to Xcel, until WHP has received an aggregate amount of additional net cash flow equal to $ 1,000,000 .

Based on these distribution provisions, the Company recognized an equity method loss related to its investment in IM Topco of $ 0.52 million for each of the three-month periods ended June 30, 2024 and 2023, and $ 1.03 million for each of the six-month periods ended June 30, 2024 and 2023.

For cash flow earnings (i.e., net income before intangible asset amortization expense), management allocated the amounts based on the preferences outlined above.

As such, Xcel recognized no cash-based earnings for both of the periods presented.

As such, Xcel recognized no cash-based earnings for all of the periods presented.

For non-cash amortization expense, management allocated the amounts based on the relative ownership of each member (i.e., 70 % WHP and 30 % Xcel).

The equity method loss for each period presented is equal Xcel’s share of amortization expense.

Summarized financial information for IM Topco for the three months ended March 31, 2024 and 2023 is as follows:

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

Summarized financial information for IM Topco for the three and six months ended June 30, 2024 and 2023 is as follows:

For the three months ended

For the six months ended

($ in thousands)

Loss from continuing operations

Refer to Notes 10, 11, and 12 for other information regarding the Company’s ongoing relationship with IM Topco.

(Loss) income from continuing operations

Net (loss) income

Refer to Note 11 and Note 12 for additional information regarding the Company’s ongoing relationship with IM Topco.

Investment in Orme Live, Inc.

In December 2023, the Company contributed $ 0.15 million of cash to ORME in exchange for a 30 % equity ownership interest in ORME.

The carrying value of this investment is included within other assets in the Company’s condensed consolidated balance sheets.

The carrying value of this investment was $ 0.09 million and $ 0.15 million as of June 30, 2024 and December 31, 2023, respectively, and is included within other assets in the Company’s condensed consolidated balance sheets.

The Company accounts for its 30 % interest in the operations of ORME as a component of other operating costs and expenses under the equity method of accounting.

The Company’s proportional share of the operating results of ORME for the three months ended March 31, 2024 was a loss of approximately $ 0.02 million.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

The Company’s proportional share of the operating results of ORME for the three and six months ended June 30, 2024 was a loss of approximately $ 0.04 million and $ 0.06 million, respectively.

Longaberger Licensing, LLC Variable Interest Entity

4 unchanged sentences

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.

Divestiture Transaction

On June 21, 2024, the Company (through its wholly owned subsidiary, Gold Licensing, LLC) entered into an asset purchase agreement with Lori Goldstein and Lori Goldstein, Ltd (together the “LG Parties”), pursuant to which the Company agreed to sell, and the LG Parties agreed to purchase, substantially all of the assets of the Lori Goldstein Brand, including the “LOGO by Lori Goldstein” trademark and other intellectual property rights relating thereto.

Also in conjunction with this transaction, key license agreements related to the Lori Goldstein Brand were assigned to and assumed by the LG Parties.

This divestiture transaction closed on June 30, 2024.

As consideration for the sale of these assets, the parties agreed to the following:

● The LG Parties waived their rights with respect to certain contingent consideration amounts that had been previously earned by the LG Parties (under the terms of the April 1, 2021 purchase of the assets by Xcel), and terminated their rights to any future earn-out payments.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

● The Company retained the right to all royalties and fee income for net sales from licensees related to the Lori Goldstein Brand through the closing date.

● The Company’s May 2, 2024 termination of the employment agreement and consulting agreement with the LG Parties was withdrawn and stayed until the closing date.

The Company paid Ms.

Goldstein and Lori Goldstein, Ltd a combined total of $ 25,000 as compensation for services rendered under the employment agreement and consulting agreement through June 30, 2024, and also reimbursed Ms.

Goldstein for expenses incurred in the course of fulfilling her duties under the employment agreement through June 30, 2024.

● The Company and the LG Parties entered into a mutual general release and waiver of outstanding legal disputes.

Thus, the total consideration received by the Company for this divestiture transaction was approximately $ 6.08 million, comprised of (i) the waiver of approximately $ 1.03 million of accrued earn-out payments earned by the LG Parties through June 30, 2024, plus (ii) the release of the remaining balance of approximately $ 5.05 million of contingent obligations recorded on the Company’s balance sheet.

The remaining unamortized net book value of the Lori Goldstein intangible assets immediately prior to the sale was approximately $ 1.93 million, and the Company also incurred approximately $ 0.35 million of legal fees in connection with this transaction.

As such, the Company recorded a net non-cash gain on the divestiture of the Lori Goldstein Brand of approximately $ 3.80 million for the three and six months ended June 30, 2024.

Trademarks and Other Intangibles

Trademarks and other intangibles, net consist of the following:

March 31, 2024

June 30, 2024

Gross Carrying

7 unchanged sentences

Copyrights and other intellectual property

Amortization expense for intangible assets was approximately $ 1.53 million for the three-month period ended March 31, 2024 (the "current quarter") and approximately $ 1.54 million for the three-month period ended March 31, 2023 (the "prior year quarter").

Amortization expense for intangible assets was approximately $ 1.52 million for the three-month period ended June 30, 2024 (the "current quarter") and approximately $ 1.54 million for the three-month period ended June 30, 2023 (the "prior year quarter").

Amortization expense for intangible assets was approximately $ 3.06 million for the six-month period ended June 30, 2024 (the "current six months") and approximately $ 3.07 million for the six-month period ended June 30, 2023 (the "prior year six months").

On June 30, 2024, the Company sold certain trademarks with a net book value of approximately $ 1.93 million (gross carrying amount of $ 10.30 million and accumulated amortization of approximately $ 8.37 million) related to the Lori Goldstein Brand (see Note 3 for additional details).

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

Significant Contracts and Concentrations

4 unchanged sentences

Net licensing revenue from the Qurate Agreements totaled $ 1.77 million and $ 1.63 million for the current quarter and prior year quarter, respectively, representing approximately 60 % and 24 % of the Company’s total net revenue for the current quarter and prior year quarter, respectively.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

As of March 31, 2024 and December 31, 2023, the Company had receivables from Qurate of $ 1.3 million and $ 1.5 million, respectively, representing approximately 37 % and 43 % of the Company’s total net accounts receivable, respectively.

Net licensing revenue from the Qurate Agreements totaled $ 3.01 million and $ 3.28 million for the current six months and prior year six months, respectively, representing approximately 59 % and 26 % of the Company’s total net revenue for the current six months and prior year six months, respectively.

As of June 30, 2024 and December 31, 2023, the Company had receivables from Qurate of $ 0.77 million and $ 1.5 million, respectively, representing approximately 25 % and 43 % of the Company’s total net accounts receivable, respectively.

Due to the divestiture of the Lori Goldstein Brand on June 30, 2024 (see Note 3 for details), the Company’s total net revenue, as well as the relative proportional share of total net revenue and total accounts receivable attributable to the Qurate Agreements, will decrease in future periods;

however, due to the Company’s other brands, management expects that Qurate will remain a significant licensee.

Halston Master License

3 unchanged sentences

The Licensor granted G-III a security interest in the Halston trademarks to secure the Licensor’s obligations under the Halston Master License, including to honor the obligations under the purchase option.

As a result of the upfront cash payment and guaranteed minimum royalties discussed above, the Company has recognized $ 4.2 million and $ 4.4 million of deferred revenue contract liabilities on its condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023, respectively.

As of December 31, 2023, $ 0.9 million of the contract liability balance was classified as a current liability and approximately $ 3.5 million was classified as a long-term liability.

As of March 31, 2024, $ 0.9 million of the contract liability balance was classified as a current liability and approximately $ 3.3 million was classified as a long-term liability.

As a result of the upfront cash payment and guaranteed minimum royalties discussed above, the Company has recognized $ 4.0 million and $ 4.4 million of deferred revenue contract liabilities on its condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, respectively.

As of December 31, 2023, approximately $ 0.9 million of the contract liability balance was classified as a current liability and approximately $ 3.5 million was classified as a long-term liability.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

As of June 30, 2024, approximately $ 0.9 million of the contract liability balance was classified as a current liability and approximately $ 3.1 million was classified as a long-term liability.

The balance of the deferred revenue contract liabilities will be recognized ratably as revenue over the next 3.88 years.

Net licensing revenue recognized from the Halston Master License was $ 0.6 million for the current quarter, representing approximately 30 % of the Company’s total net revenue for the current quarter.

Net licensing revenue recognized from the Halston Master License was $ 0.65 million and $ 1.29 million for the current quarter and current six months, respectively, representing approximately 22 % and 25 % of the Company’s total net revenue for the current quarter and current six months, respectively.

The Company is party to operating leases for real estate, and for certain equipment with a term of 12 months or less.

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

Lease expense (net of sublease income) included in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations was approximately $ 0.2 million and $ 0.4 million for the current quarter and prior year quarter, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities was approximately $ 0.4 million in both the current quarter and prior year quarter.

1333 Broadway

Lease expense (net of sublease income of approximately $ 0.2 and $ 0.3 million for the current quarter and current six months, respectively) included in selling, general and administrative expenses on the Company’s unaudited condensed consolidated statements of operations was approximately $ 0.2 million for the current quarter, approximately $ 0.4 million for the prior year quarter, approximately $ 0.4 million for the current six months, and approximately $ 0.8 million for the prior year six months.

Cash paid for amounts included in the measurement of operating lease liabilities was approximately $ 0.4 million in both the current quarter and prior year quarter, and approximately $ 0.8 million in both the current six months and prior year six months.

As of June 30, 2024, the Company’s real estate leases have a weighted-average remaining lease term of approximately 4.97 years, and the lease liabilities are measured using a weighted-average discount rate of 7.71 %.

1333 Broadway Lease

The Company has an operating lease for offices located at 1333 Broadway, 10th floor, New York, New York, which commenced on March 1, 2016 and expires on October 30, 2027 .

The average annual fixed rent over the term of this lease is approximately $ 1.3 million per year, and the lease requires the Company to pay additional rents related to increases in certain taxes and other costs on the property.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

On January 26, 2024, the Company (as sublessor) entered into an agreement for the sublease of the offices located at 1333 Broadway to a third-party subtenant through October 30, 2027.

1 unchanged sentence

As a result of entering into the sublease, the Company recognized a non-cash impairment charge of approximately $ 1.9 million effective February 29, 2024 (which was determined to be the date of a fundamental change to the use of the 1333 Broadway premises) related to the right-of-use asset.

Also in connection with entering into the sublease, the Company recognized a non-cash impairment charge of approximately $ 0.4 million during the current quarter related to leasehold improvement assets at this location.

As of March 31, 2024, the Company’s lease of 1333 Broadway has a remaining lease term of approximately 3.58 years, and the lease liability recorded on the Company’s condensed consolidated balance sheet is measured using a discount rate of 6.25 %.

550 Seventh Avenue

Also in connection with entering into the sublease, the Company recognized a non-cash impairment charge of approximately $ 0.4 million during the first quarter of 2024 related to leasehold improvement assets at this location.

During the current quarter, the Company revised its estimates of future cash flows related to the 1333 Broadway premises (primarily as a result of new information) and accordingly recognized additional impairment charges related to this lease of approximately $ 1.2 million.

A portion of the impairment charges recorded in the current quarter were related to an understatement of the asset impairment charge reported for the first quarter of 2024;

see Note 13 for additional information.

As of June 30, 2024, the Company’s lease of 1333 Broadway has a remaining lease term of approximately 3.33 years.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

550 Seventh Avenue Lease

Effective February 29, 2024, the Company entered into an operating lease for new corporate offices located at 550 Seventh Avenue, 11th floor, New York, New York.

1 unchanged sentence

The average annual lease cost over the term of this lease is approximately $ 0.5 million per year.

As of March 31, 2024, no right-of-use asset or lease liability was recorded in the Company’s condensed consolidated balance sheet related to this lease, as the lease had not yet commenced.

Upon commencement of the lease during the current quarter, the Company recognized a right-of-use asset and corresponding lease liability related to this lease of approximately $ 2.6 million;

the discount rate used for the measurement of this right-of-use asset and lease liability was based on the Company’s incremental borrowing rate of 9.60 %.

As of June 30, 2024, the Company’s lease of 550 Seventh Avenue has a remaining minimum lease term of approximately 7.83 years.

Future Lease Obligations

As of March 31, 2024, the maturities of lease obligations were as follows:

As of June 30, 2024, the maturities of future lease obligations were as follows:

(in thousands)

2024 (April 1 through December 31)

2024 (July 1 through December 31)

Total lease payments

2 unchanged sentences

Non-current portion of lease liabilities

The Company’s net carrying amount of debt was comprised of the following:

The Company’s net carrying amount of debt is comprised of the following:

($ in thousands)

3 unchanged sentences

Long-term debt

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

On October 19, 2023, H Halston IP, LLC (the “Borrower”), a wholly owned indirect subsidiary of Xcel Brands, Inc., entered into a term loan agreement with Israel Discount Bank of New York (“IDB”).

2 unchanged sentences

Such costs incurred in connection with the borrowing included a commitment fee paid to IDB, plus various legal and other fees.

These fees and costs totaling $ 0.3 million have been deferred on the Company’s balance sheet as a reduction of the carrying value of the term loan debt, and are being amortized to interest expense over the term of the debt using the effective interest method.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

debt using the effective interest method.

In connection with this term loan agreement, the Borrower and H Licensing, LLC (“H Licensing”), a wholly owned subsidiary of Xcel, entered into a security agreement (the “Security Agreement”) in favor of IDB, and Xcel entered into a Membership Interest Pledge Agreement (the “Pledge Agreement”) in favor of IDB.

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The Borrower has the right to prepay all or any portion of the term loan at any time without penalty.

As of March 31, 2024, the aggregate remaining principal payments under the term loan were as follows:

As of June 30, 2024, the aggregate remaining principal payments under the term loan were as follows:

($ in thousands)

Year Ending December 31,

2024 (April 1 through December 31)

2024 (July 1 through December 31)

Interest on the term loan accrues at “Term SOFR” (as defined in the loan agreement as the forward-looking term rate based on secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to one month on the day that is two U.S.

3 unchanged sentences

The term and declining notional amount of the swap agreement is aligned with the amortization of the October 2023 term loan principal amount.

The fair value of this swap agreement was immaterial as of March 31, 2024 and December 31, 2023.

For the current quarter, the Company incurred interest expense (including both interest paid in cash and the amortization of deferred finance costs) related to term loan debt of approximately $ 0.15 million, reflecting an effective interest rate of approximately 11.6 %.

The term loan agreement also contains customary covenants, including reporting requirements, trademark preservation, and certain financial covenants including annual guaranteed minimum royalty ratio, annual fixed charge coverage ratio,

The fair value of this swap agreement was immaterial as of June 30, 2024 and December 31, 2023.

For the current quarter and current six months, the Company incurred interest expense (including both interest paid in cash and the amortization of deferred finance costs) related to term loan debt of approximately $ 0.14 million and $ 0.29 million, respectively, reflecting an effective interest rate of approximately 11.6 %.

The Company was in compliance with all applicable covenants under the loan agreement as of and for all periods presented in the financial statements.

XCEL BRANDS, INC.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

and minimum cash balance levels, all as specified and defined in the loan agreement.

The Company was in compliance with all applicable covenants under the loan agreement as of and for all periods presented in the financial statements.

June 30, 2024

Stockholders’ Equity

23 unchanged sentences

Forfeitures are accounted for 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

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

XCEL BRANDS, INC.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

recognized is based upon the Company’s projections and estimates of the relevant performance metric(s) until the time the performance obligation is satisfied.

June 30, 2024

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.

Total expense recognized for all forms of stock-based compensation was approximately $ 0.03 million and $ 0.06 million for the current quarter and prior year quarter, respectively.

For both periods, substantially all of the expense was related to directors and consultants, and was recorded as operating costs within “other selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations.

Total expense recognized for all forms of stock-based compensation in the current six months and prior year six months was approximately $ 0.17 million and $ 0.12 million, respectively.

For all periods presented, substantially all of the expense related to directors and consultants, and was recorded within “other selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations.

Stock Options

A summary of the Company’s stock options activity for the current quarter is as follows:

A summary of the Company’s stock options activity for the current six months is as follows:

Outstanding at January 1, 2024

Expired/Forfeited

Outstanding at March 31, 2024, and expected to vest

Exercisable at March 31, 2024

Outstanding at June 30, 2024, and expected to vest

Exercisable at June 30, 2024

On April 3, 2024, the Company granted options to purchase an aggregate of 100,000 shares of common stock to non-management directors.

The exercise price of the options is $ 0.85 per share, and 50 % of the options vest on each of April 3, 2025 and April 3, 2026.

Compensation expense related to stock options for the current quarter and the prior year quarter was approximately $ 0.02 million and $ 0.02 million, respectively.

Total unrecognized compensation expense related to unvested stock options at March 31, 2024 was approximately $ 0.05 million and is expected to be recognized over a weighted average period of approximately 0.97 years.

A summary of the Company’s non-vested stock options activity for the current quarter is as follows:

Compensation expense related to stock options for the current six months and the prior year six months was approximately $ 0.03 million and $ 0.05 million, respectively.

Total unrecognized compensation expense related to unvested stock options at June 30, 2024 was approximately $ 0.08 million and is expected to be recognized over a weighted average period of approximately 1.28 years.

A summary of the Company’s non-vested stock options activity for the current six months is as follows:

Balance at January 1, 2024

Forfeited or Canceled

Balance at March 31, 2024

Balance at June 30, 2024

XCEL BRANDS, INC.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

A summary of the Company’s restricted stock activity for the current quarter is as follows:

June 30, 2024

A summary of the Company’s restricted stock activity for the current six months is as follows:

Outstanding at January 1, 2024

Expired/Forfeited

Outstanding at March 31, 2024

On January 12, 2024, the Company issued 78,000 shares of common stock to a consultant, which shares vested immediately.

Outstanding at June 30, 2024

On January 12, 2024, the Company issued 78,000 shares of common stock to a consultant, which vested immediately.

On April 3, 2024, the Company issued an aggregate of 40,000 shares of common stock to non-management directors, of which 50 % shall vest on April 3, 2025, and 50 % shall vest on April 3, 2026.

Compensation expense related to stock awards was approximately $ 0.02 million for the current quarter and approximately $ 0.05 million for the prior year quarter.

Total unrecognized compensation expense related to unvested restricted stock grants at March 31, 2024 was approximately $ 0.04 million and is expected to be recognized over a weighted average period of approximately 0.96 years.

Compensation expense related to stock awards was approximately $ 0.13 million for the current six months and approximately $ 0.08 million for the prior year six months.

Total unrecognized compensation expense related to unvested restricted stock grants at June 30, 2024 was approximately $ 0.06 million and is expected to be recognized over a weighted average period of approximately 1.27 years.

Restricted Stock Units

There were no restricted stock units outstanding as of March 31, 2024 and December 31, 2023, and no restricted stock units have been issued since the inception of the 2021 Plan.

There were no restricted stock units outstanding as of June 30, 2024 and December 31, 2023, and no restricted stock units have been issued since the inception of the 2021 Plan.

Shares Available Under the Company’s Equity Incentive Plans

At March 31, 2024, there were 3,025,941 shares of common stock available for future award grants under the 2021 Plan.

At June 30, 2024, there were 2,945,291 shares of common stock available for future award grants under the 2021 Plan.

Shares Reserved for Issuance

As of March 31, 2024, there were 8,031,046 shares of common stock reserved for issuance, including 4,511,755 shares reserved pursuant to unexercised warrants and stock options previously granted under the 2011 Plan, 493,350 shares reserved pursuant to unexercised stock options granted under the 2021 Plan, and 3,025,941 shares available for issuance under the 2021 Plan.

As of June 30, 2024, there were 7,837,116 shares of common stock reserved for issuance under the Company’s Equity Incentive Plans, including 4,357,825 shares reserved pursuant to unexercised warrants and stock options previously granted under the 2011 Plan, 534,000 shares reserved pursuant to unexercised stock options granted under the 2021 Plan, and 2,945,291 shares available for issuance under the 2021 Plan.

As of June 30, 2024, there were also 1,182,952 shares of common stock reserved for issuance that were unrelated to the Company’s Equity Incentive Plans, including 1,000,000 shares reserved pursuant to unexercised warrants related to the Halston Master License (as described below) and 182,952 shares reserved pursuant to unexercised Representative’s Warrants related to the March 19, 2024 Offering (as described above).

XCEL BRANDS, INC.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

A summary of the Company’s warrants activity for the current quarter is as follows:

June 30, 2024

A summary of the Company’s warrants activity for the current six months is as follows:

Outstanding and exercisable at January 1, 2024

Expired/Forfeited

Outstanding at March 31, 2024

Exercisable at March 31, 2024

Warrants issued during the current quarter were related to the March 19, 2024 Offering (see “Public Offering and Private Placement Transactions” above for details).

There was no compensation expense recognized during the current quarter related to these warrants.

Outstanding at June 30, 2024

Exercisable at June 30, 2024

Warrants issued during the current six months were related to the March 19, 2024 Offering (see “Public Offering and Private Placement Transactions” above for details).

There was no compensation expense recognized during the current six months related to these warrants.

In connection with the entrance into the Halston Master License (see Note 5), the Company issued to G-III a ten-year warrant to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $ 1.50 per share, which vests based upon certain annual royalty targets being satisfied under the license agreement.

The fair value of this warrant is being recognized as a reduction of revenue over the term of the related license agreement, with an offsetting increase to stockholders’ equity as additional paid-in capital.

The amount of contra-revenue recorded related to this warrant during the current quarter was approximately $ 0.01 million.

As of March 31, 2024, no portion of this warrant had vested.

Excluding the contra-revenue recognized with respect to the Halston Master License warrant, there was no compensation expense related to warrants recognized in the current quarter or prior year quarter.

The amount of contra-revenue recorded related to this warrant during the current quarter and current six months was approximately $ 0.01 million and $ 0.02 million, respectively.

As of June 30, 2024, no portion of this warrant had vested.

Excluding the contra-revenue recognized with respect to the Halston Master License warrant, there was no compensation expense related to warrants recognized in any of the periods presented.

Earnings (Loss) Per Share

5 unchanged sentences

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

The following table is a reconciliation of the numerator and denominator of the basic and diluted net loss per share computations for the three months ended March 31, 2024 and 2023:

June 30, 2024

The following table is a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share computations for the three and six months ended June 30, 2024 and 2023:

Three Months Ended

Net loss attributable to Xcel Brands, Inc.

Six Months Ended

Net income (loss) attributable to Xcel Brands, Inc.

stockholders (in thousands)

3 unchanged sentences

Diluted weighted average number of shares outstanding

Basic net loss per share

Diluted net loss per share

As a result of the net loss for the current quarter and prior year quarter, the Company calculated diluted EPS using basic weighted average shares outstanding for such periods, as utilizing diluted shares would be anti-dilutive to loss per share for such periods.

Basic net income (loss) per share

Diluted net income (loss) per share

As a result of the net loss for prior year quarter, current six months, and prior year six months, the Company calculated diluted EPS using basic weighted average shares outstanding for such periods, as utilizing diluted shares would be anti-dilutive to loss per share for such periods.

The computation of diluted EPS excludes the following potentially dilutive securities because their inclusion would be anti-dilutive:

Three Months Ended

Six Months Ended

Stock options

The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately 0 % for both periods, resulting in an income tax benefit of $ 0 for both periods.

For both the current quarter and the prior year quarter, the federal statutory rate differed from the effective tax rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

XCEL BRANDS, INC.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

June 30, 2024

The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately 0 %, resulting in an income tax provision (benefit) of $ 0 .

The effective tax rate differed from the federal statutory rate due to the recording of a valuation allowance against the provision (benefit) and any deferred tax assets or liabilities that would have otherwise been recognized, as it was considered not more likely than not that any net operating losses generated during each period will be utilized in future periods.

The estimated annual effective income tax rate for the current six months and the prior year six months was approximately 0 % for both periods, resulting in an income tax benefit of $ 0 for both periods.

The effective tax rate differed from the federal statutory rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

Related Party Transactions

3 unchanged sentences

On May 31, 2022, the Company entered into a services agreement with IM Topco, pursuant to which the Company provides certain design and support services (including assistance with the operations of the interactive television business and related talent support) to IM Topco in exchange for payments of $ 300,000 per year.

For the three and six months ended June 30, 2023, the Company recognized service fee income related to this agreement of $ 75,000 and $ 150,000 , respectively, which is included within net licensing revenue in the condensed consolidated statements of operations.

In November 2023, the services agreement was amended such that the Company agreed to provide IM Topco with a $ 600,000 reduction of future service fees over the next eighteen months, beginning on July 1, 2023.

The Company recognized service fee income related to this agreement of $ 37,500 and $ 75,000 for the current quarter and prior year quarter, respectively.

In April 2024, the services agreement was further amended to set the service fees at $ 150,000 per year beginning with the fiscal year ending December 31, 2024.

In addition under the April 2024 amendment, IM Topco is required to prepay the service fees for the year ending December 31, 2025 at specified dates during 2024.

For the three and six months ended June 30, 2024, the Company recognized service fee income related to this agreement of $ 37,500 and $ 75,000 , respectively, which is included within net licensing revenue in the condensed consolidated statements of operations.

License Agreement

1 unchanged sentence

The initial term of this agreement was set to end on December 31, 2026, and provided guaranteed minimum royalties to IM Topco of $ 400,000 per year.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

Effective December 16, 2022, the license agreement between IM Topco and Xcel was terminated in favor of a new similar license agreement between IM Topco and an unrelated third party.

However, as part of the termination of the May 31, 2022 license agreement, Xcel provided a guarantee to IM Topco for the payment of any difference between (i) the royalties received by IM Topco from the unrelated third party under the new agreement and (ii) the amount of guaranteed royalties that IM Topco would have received from Xcel under the May 31, 2022 agreement.

For the prior year quarter, the estimated amount of such shortfall was approximately $ 60,000 , which the Company recognized as royalty expense in the condensed consolidated statements of operations.

For the three and six months ended June 30, 2023, the estimated amount of such shortfall was approximately $ 60,000 and $ 120,000 , respectively, which the Company recognized as royalty expense in the condensed consolidated statements of operations

In November 2023, the Company, WHP, and IM Topco entered into an amendment of the May 27, 2022 membership purchase agreement, under which Xcel agreed to make additional royalty payments to IM Topco totaling $ 450,000 over the next 11 months.

As a result of this amendment, the Company recognized a $ 450,000 increase to the carrying value basis of its equity method investment in IM Topco and a corresponding increase in current liabilities.

No amounts were paid to IM Topco during the current quarter, and as of March 31, 2024, the remaining payments due totaled $ 375,000 .

During the current quarter and current six months, the Company paid $ 100,000 to IM Topco.

As of June 30, 2024, the remaining payments due totaled $ 275,000 , which is reflected within accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance sheets.

Financing Transactions

3 unchanged sentences

an affiliate of Mark DiSanto, a director of the Company;

and Seth Burroughs, Executive Vice President of Business Development and Treasury of the Company, purchased 146,250 , 146,250 , and

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

32,500 shares, respectively, at $ 0.65 per share, the same price at which the shares were sold to other purchasers in the Offering.

and Seth Burroughs, Executive Vice President of Business Development and Treasury of the Company, purchased 146,250 , 146,250 , and 32,500 shares, respectively, at $ 0.65 per share, the same price at which the shares were sold to other purchasers in the Offering.

In connection with the Offering, on March 14, 2024, the Company entered into subscription agreements with each of Mr.

6 unchanged sentences

Contingent Obligation – Isaac Mizrahi Transaction

In connection with the May 31, 2022 transaction related to the sale of a majority interest in the Isaac Mizrahi Brand, the Company agreed with WHP that, in the event that IM Topco receives less than $ 13.3 million in aggregate royalties for any four consecutive calendar quarters over a three-year period ending on May 31, 2025, WHP would be entitled to receive from Xcel up to $ 16 million, less all amounts of net cash flow distributed to WHP on an accumulated basis, as an adjustment to the purchase price previously paid by WHP.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2024

adjustment to the purchase price previously paid by WHP.

Such amount would be payable by the Company in either cash or equity interests in IM Topco held by the Company.

In November 2023, this agreement was amended such that the purchase price adjustment provision was waived until the measurement period ending March 31, 2024.

The purchase price adjustment provision was subsequently further amended in April 2024 (see Note 12 for details).

In November 2023, this agreement was initially amended such that the purchase price adjustment provision was waived until the measurement period ending March 31, 2024.

On April 12, 2024, this agreement was further amended such that the purchase price adjustment provision within the membership purchase agreement was waived until the measurement period ending September 30, 2025.

This amendment also provided that if IM Topco royalties are less than $ 13.5 million for the twelve-month period ending March 31, 2025 or less than $ 18.0 million for the year ending December 31, 2025, Xcel shall transfer equity interests in IM Topco to WHP equal to 12.5 % of the total outstanding equity interests of IM Topco, such that Xcel’s ownership interest in IM Topco would decrease from 30 % to 17.5 %, and WHP’s ownership interest in IM Topco would increase from 70 % to 82.5 %.

In addition, under the amendment, Xcel shall be obligated to make such transfer to WHP if Xcel fails to make certain payments owed to IM Topco by October 10, 2024 under the amended license agreement (see Note 11).

No amount has been recorded in the accompanying condensed consolidated balance sheets related to this contingent obligation.

Contingent Obligation – Lori Goldstein Earn-Out

In connection with the April 1, 2021 purchase of the Lori Goldstein trademarks, the Company agreed to pay the seller additional cash consideration (the “Lori Goldstein Earn-Out”) of up to $ 12.5 million, based on royalties earned during the six calendar year period commencing in 2021.

In connection with the April 1, 2021 purchase of the Lori Goldstein trademarks, the Company had agreed to pay the seller additional cash consideration (the “Lori Goldstein Earn-Out”) of up to $ 12.5 million, based on royalties earned during the six calendar year period commencing in 2021.

The Lori Goldstein Earn-Out was initially recorded as a liability of $ 6.6 million, based on the difference between the fair value of the acquired assets of the Lori Goldstein Brand and the total consideration paid, in accordance with the guidance in ASC Subtopic 805-50.

As of December 31, 2022, based on the performance of the Lori Goldstein Brand to date, approximately $ 0.2 million of additional consideration was earned by the seller, and this $ 0.2 million of additional consideration was paid to the seller during 2023.

Based on the performance of the Lori Goldstein through December 31, 2023, approximately $ 1.0 million of incremental additional consideration was earned by the seller, which will be paid out in 2024.

During the current quarter, the Company paid approximately $ 0.3 million of the $ 1.0 million earned, and as of March 31, 2024, $ 0.7 million of the remaining balance was recorded as a current liability and $ 5.4 million was recorded as a long-term liability.

Based on the performance of the Lori Goldstein Brand through December 31, 2023, approximately $ 1.0 million of incremental additional consideration was earned by the seller, which would have been paid out in 2024.

During the first quarter of 2024, the Company paid approximately $ 0.3 million of the $ 1.0 million earned.

During the current quarter, as a result of the divestiture of the Lori Goldstein Brand (as described in Note 3), the seller waived their rights with respect to the Lori Goldstein Earn-Out amounts that had been previously earned and had not yet been paid, and terminated their rights to any future payments under the Lori Goldstein Earn-Out.

As a result, the Company de-recognized approximately $ 1.03 million of accrued Lori Goldstein Earn-Out payments and the remaining balance of approximately $ 5.05 million of contingent obligations recorded on the Company’s balance sheet.

As of June 30, 2024, there were no liability amounts remaining on the Company’s balance sheet related to the Lori Goldstein Earn-Out.

Legal Matters

1 unchanged sentence

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.

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.

XCEL BRANDS, INC.

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2024

With the exception of the matter described in detail below, 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.

On February 16, 2024, counsel to Lori Goldstein, a brand spokesperson for the Company, advised the Company that the Company was in material breach of the Asset Purchase Agreement dated March 31, 2021 (the “Asset Purchase Agreement”) by and among Gold Licensing LLC (“Gold” and, together with Xcel, the ”Xcel Parties”), a subsidiary of the Company, and Lori Goldstein and Lori Goldstein, Ltd.

(“LG Ltd” and, together with Lori Goldstein, the “LG Parties”) for failure to pay $ 963,642 earned in 2023 in accordance with the earn-out provisions of the agreement.

The Company does not dispute the amount of the Lori Goldstein Earn-Out that was achieved in 2023, and advised Ms.

Goldstein that due to the alleged breaches described below, the Company was not willing to pay this amount at such time.

The Company subsequently paid approximately $ 241,000 of the earn-out payment.

On May 2, 2024, the Xcel Parties made a written demand for arbitration and commenced an arbitration proceeding against the LG Parties for, among other things, alleged breaches of the Asset Purchase Agreement and alleged breaches of Ms.

Goldstein’s employment agreement with the Company.

The Company is seeking compensatory damages and consequential damages.

Additionally, on May 2, 2024, the Company terminated the employment agreement and the consulting agreement between the Company and LG Ltd.

The parties are negotiating to resolve all outstanding disputes and, if an agreement is reached, it may include, among other things, a disposition of the Lori Goldstein brands and related assets to LG Ltd.

By agreement between the Company and Ms.

Goldstein, while negotiations continue, Ms.

Goldstein is continuing to comply with her material obligations to QVC.

There can be no assurance that these disputes will be resolved in a manner favorable to the Company or at all.

As of the filing date of this Quarterly Report on Form 10-Q, there have been no definitive agreements or terms agreed to by the parties, and it is not certain when or if an agreement will be executed.

June 30, 2024

Correction of an Error

During the review of the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2024, the Company identified an error in the calculation of previously recorded asset impairment charges.

This error resulted in an understatement of the asset impairment charges reported for the three months ended March 31, 2024.

Based on management’s evaluation of SEC Staff Accounting Bulletins Nos.

99 and 108 and interpretations therewith, the Company concluded that the aforementioned error was not material to the Company’s previously filed condensed consolidated financial statements for the three months ended March 31, 2024.

This is further supported by the fact that this error is of a non-cash nature, does not impact the Company’s non-GAAP measures of operating performance (non-GAAP Net Income and Adjusted EBITDA), and would not likely have materially impacted a reasonable investor’s opinion of the Company’s financial condition and results of operations.

Because the correction of this error was not deemed to be material to the results for the three months ended March 31, 2024, and does not represent an out-of-period error for the six-month period ended June 30, 2024, the Company recorded the correction as an out-of-period adjustment in the three-month period ended June 30, 2024.

Refer to the table below for details of the correction:

Condensed Consolidated Statements of Operations:

For the Three Months Ended

June 30, 2024

(in thousands, except per share data)

Before Adjustment

Asset impairment charges

Net income (loss) attributable to Xcel Brands, Inc.

Earnings (loss) per common share attributable to Xcel Brands, Inc.

stockholders - basic and diluted

Subsequent Events

On April 12, 2024, the Company, WHP, and IM Topco entered into amendments of the May 27, 2022 (and as subsequently amended) membership purchase agreement and the related business venture agreement.

Under these amendments, the parties agreed to the following:

● The purchase price adjustment provision within the membership purchase agreement was waived until the measurement period ending September 30, 2025.

● If IM Topco royalties are less than $ 13.5 million for the twelve-month period ending March 31, 2025 or less than $ 18.0 million for the year ending December 31, 2025, Xcel shall transfer equity interests in IM Topco to WHP equal to 12.5 % of the total outstanding equity interests of IM Topco, such that Xcel’s ownership interest in IM Topco would decrease from 30 % to 17.5 % , and WHP’s ownership interest in IM Topco would increase from 70 % to 82.5 % .

In addition, Xcel shall be obligated to make such transfer to WHP if Xcel fails to make certain payments owed to IM Topco by October 10, 2024 under the second amendment (which totaled $ 375,000 as of December 31, 2023 and March 31, 2024).

In April 2024, Xcel paid $ 100,000 of this amount to WHP.

● On and after January 1, 2026, WHP shall receive 50 % of the Net Cash Flow which would otherwise be payable to Xcel, until WHP has received an aggregate amount of additional Net Cash Flow equal to $ 1.0 million.

On July 30, 2024, the Company entered into amendments to the employment agreements dated February 27, 2019 with each of Robert W.

D’Loren, its Chairman of the Board, Chief Executive Officer and President, and Seth Burroughs, its Executive Vice President of Business Development.

Pursuant to each amendment, the Company agreed with the respective executive officer that commencing July 16, 2024 and ending December 31, 2025, the executive officer shall accept and the Company shall pay for each month 40 % of such executive officer’s pro rata portion of Base Salary (as defined in the respective employment agreement) for each such month through the issuance of shares of the Company’s common stock.

The shares of common stock will be issued on the last day of each month, and the number of shares issuable for a month to Mr.

D’Loren and Mr.

Burroughs shall be determined by dividing 40 % of executive officer’s pro-rated Base Salary for such month by the closing sale price of the Company’s common stock on the last trading day of such month.

D’Loren and Mr.

Burroughs are permitted to pay the withholding tax through the exchange of a portion of the shares.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements