XCel Brands, Inc. 10-Q

ITEM 1. LEGAL PROCEEDINGS From time to time, the Company becomes involved in legal claims and litigation in the ordinary course of business. 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. ​ 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 by and among the Company and the LG Parties for failure to pay $963,642 earned in 2023 in accordance with the earn-out provisions of the agreement. The Company did 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. ​ 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 March 31, 2021 asset purchase agreement and alleged breaches of Ms. Goldstein’s employment agreement with the Company. Additionally, on May 2, 2024, the Company terminated the employment agreement and the consulting agreement between the Company and LG Ltd. ​ Subsequently, the Company and the LG Parties entered into a mutual general release and waiver of all outstanding legal disputes as part of the June 30, 2024 sale of the Lori Goldstein Brand. ​