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Item 7. Management’s Discussion and Analysis

2025-05-28 compared with 2024-04-19 · 191 added, 180 removed, 142 unchanged (72% of the section changed)

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This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and liquidity and cash flows for the years ended December 31, 2024 and 2023.

Except for historical information, the matters discussed in this Management’s Discussion

and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning factors that are beyond our control.

Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning factors that are beyond our control.

Xcel Brands 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.

Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as social commerce.

Currently, Xcel’s brand portfolio consists of the LOGO by Lori Goldstein Brand, the Halston Brand, the Ripka Brand, the C Wonder Brand, the Longaberger Brand, the CB Brand, the Isaac Mizrahi Brand, and other proprietary brands, including:

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

● the Longaberger Brand, which we manage through our 50% ownership interest in Longaberger Licensing, LLC, and the CB Brand, which is a co-owned brand between Xcel and Christie Brinkley;

● the Isaac Mizrahi Brand, which we wholly owned and managed through May 31, 2022.

On May 31, 2022, we sold a majority interest in the brand to a third party, but retained a 30% noncontrolling interest in the brand and continue to contribute to the operations of the brand through a service agreement.

We also own a 30% interest in ORME Live Inc.

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

Currently, our brand portfolio consists of the following:

● the Halston Brand, the Ripka Brand, and the C Wonder Brand, which are wholly owned by the Company;

● the TowerHill by Christie Brinkley brand, which is a co-branded collaboration between Xcel and Christie Brinkley that launched in May 2024;

● the LB70 by Lloyd Boston brand, which is a co-branded collaboration between Xcel and Lloyd Boston that launched in August 2024;

● the Longaberger Brand, which we manage through our 50% ownership interest in Longaberger Licensing, LLC;

● the Isaac Mizrahi brands (the “Isaac Mizrahi Brand”), in which we hold a noncontrolling interest through our 17.5% ownership interest in IM Topco, LLC (“IM Topco”) and continue to contribute to the operations of the brand through a service agreement with IM Topco.

Our brand portfolio also included 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.

We also own a 19% interest in ORME, a short-form video and social commerce marketplace that launched in April 2024.

Xcel continues to pioneer a true 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.

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To grow our brands, we are focused on the following primary strategies:

● distribution and/or licensing our brands for sale through interactive television (e.g., QVC, HSN, The Shopping Channel, JTV, etc.);

● distribution and/or licensing our brands for sale through interactive television (e.g., QVC, HSN, JTV, etc.);

● licensing of our brands to retailers that sell to the end consumer;

● direct-to-consumer distribution of our brands through e-commerce and live streaming;

● licensing our brands to manufacturers and retailers for promotion and distribution through e-commerce, social commerce, and traditional brick-and-mortar retail channels;

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Business Model and Operations Restructuring

In the first quarter of 2023, we began to restructure and transition our business operations from a more capital-intensive wholesale/licensing hybrid model to a capital-light “licensing plus” model, by entering into new licensing agreements with best-in-class business partners.

We entered into a new interactive television licensing agreement with America’s Collectibles Network, Inc.

d/b/a JTV (“JTV”) for the Ripka Brand, and a separate license with JTV for the Ripka Brand’s e-commerce business.

For apparel, similar transactions were executed.

In conjunction with the launch of the C Wonder Brand on HSN, we licensed the wholesale production operations related to that brand to One Jeanswear Group, LLC (“OJG”);

this new license with OJG also includes other new celebrity brands that we plan to launch in 2024 and beyond.

In the second quarter of 2023, we entered into a new master license agreement with G-III Apparel Group, an industry-leading wholesale apparel company, for the Halston Brand, covering men’s, women’s, and children’s apparel and accessories, and other product categories, for distribution through department stores, e-commerce, and other retailers.

This master license for the Halston Brand provides for an upfront cash payment and royalties to the Company, including certain guaranteed minimum royalties, includes significant annual minimum net sales requirements, and has a twenty-five-year term (consisting of an initial five-year period, followed by a twenty-year period), subject to the licensee’s right to terminate with at least 120 days’ notice prior to the end of each five-year period during the term.

The transition of these operating businesses was substantially completed by the end of the second quarter of 2023.

In the third quarter of 2023, we entered into various settlements and incurred approximately $1 million of expenses to restructure certain contractual arrangements related to our former wholesale operations.

In the fourth quarter of 2023, we entered into a new term loan agreement, which provided us with approximately $5 million of additional liquidity.

Additionally, Longaberger Licensing, LLC outsourced the operations of the Longaberger Brand through a license agreement with a third party to operate and manage the Longaberger e-commerce website ’s e-commerce business to a third party.

Overall, we believe that this evolution of our operating model will provide significant cost savings and allow us to reduce and better manage our exposure to operating risks.

As of December 31, 2023, the Company has 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.

During 2023, we restructured our business operations by shifting our business from a more capital-intensive wholesale/licensing hybrid model to a capital-light “licensing plus” model.

These efforts included entering into new

structured contractual arrangements with best-in-class business partners (including G-III for the Halston Brand, JTV for the Ripka Brand, and One Jeanswear Group, LLC for wholesale production related to certain of our other brands) in order to more efficiently operate our wholesale and e-commerce businesses and reduce and better manage our exposure to operating risks.

The restructuring initiatives, which were largely completed by June 30, 2023, provided us with approximately $15 million of cost savings on an annualized basis compared to our previous operating model.

During 2024, we took further actions to optimize our cost structure and manage our liquidity, including entering into a divestiture transaction (related to the Lori Goldstein Brand) which eliminated certain operating and compensation expenses, and relieved us of our contractual obligations to make certain future cash payments and as well as potential future contingent obligation to make future cash payments of up to approximately $11 million.

Based on these actions and initiatives taken by management over the past two years, we have reduced the Company’s direct operating costs on an annualized basis from approximately $8 million per quarter under our previous operating model to approximately $2.5 million to $3.0 million per quarter on a going-forward basis.

This represents approximately $21 million of cost savings on an annualized basis compared to our cost structure in 2022.

We believe that our current “licensing plus” operating model provides us with the appropriate level of resources and flexibility to execute our strategy and grow our business in light of the current economic environment and market/industry conditions.

Critical Accounting Policies and Estimates

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Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

While our significant accounting policies and estimates are described in more detail in the notes to our consolidated financial statements, our most critical accounting policies and estimates, discussed below, pertain to revenue recognition, trademarks and other intangible assets, income taxes, and equity method investments.

These include but are not limited to the estimation of the useful lives of our trademarks, the estimation of the future cash flows related to our trademarks, and the estimation of our incremental borrowing rate (for purposes of accounting for leases).

These include but are not limited to:

the estimation of the useful lives of our trademarks, and the estimation of future cash flows related to our trademarks;

the estimation of the fair value of our equity method investments, and judgment as to whether any declines in value are temporary;

and the estimation of our future income projections and the likelihood that we will be able to realize our deferred tax assets.

In applying such policies, we must use some amounts that are based upon our informed judgments and best estimates.

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Wholesale Sales

Prior to the restructuring of our business model and operations in 2023, we generated a portion of our revenue through sale of branded jewelry and apparel to both domestic and international customers who, in turn, sold the products to their consumers.

We recognized revenue from such transactions within net sales in the accompanying consolidated statements of operations when performance obligations identified under the terms of contracts with our customers were satisfied, which occurred upon the transfer of control of the merchandise in accordance with the contractual terms and conditions of the sale.

Prior to the restructuring of our business model and operations, we generated a portion of our revenue through sale of branded jewelry and apparel to both domestic and international customers who, in turn, sold the products to their consumers.

We recognized revenue from such transactions within net sales in our consolidated statements of operations when performance obligations identified under the terms of contracts with our customers were satisfied, which occurred upon the transfer of control of the merchandise in accordance with the contractual terms and conditions of the sale.

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

Direct-to-Consumer Sales

Our revenue associated with our e-commerce jewelry operations and the Longaberger brand (prior to the restructuring of our business model and operations in 2023) was recognized within net sales in the accompanying consolidated statements of operations at the point in time when product is shipped to the customer.

Our revenue associated with our e-commerce jewelry operations and the Longaberger brand (prior to the restructuring of our business model and operations) was recognized within net sales in our consolidated statements of operations at the point in time when product is shipped to the customer.

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

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To test our finite-lived intangible assets for impairment, we group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of undiscounted future cash flows.

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 discounted cash flows analysis or appraisals.

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 discounted cash flows analysis or appraisals.

There were no impairment charges recorded for our intangible assets for the years ended December 31, 2024 and 2023.

Equity Method Investments

We account for our investments in entities over which we have the ability to exercise significant influence, but do not control, under the equity method of accounting, and we recognize our proportionate share of income or losses from the entity within other operating costs and expenses (income) in our consolidated statements of operations.

We initially measure our investment in an equity method investee at cost.

In cases where we retain a noncontrolling interest in an investee which we had previously consolidated, we initially measure such retained interest at fair value.

In estimating fair value in such cases, we seek 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).

Subsequent recognition of an investor’s proportionate share of income or losses of an equity method investee is generally determined based on the investor’s proportional ownership interest.

However, in cases where contractual agreements

specify allocation ratios for profits and losses, specified costs and expenses, and/or distributions of cash from operations, that differ from our ownership interest, we use such specified allocation ratios for purposes of determining our share of income or losses from the investee if the agreement is considered substantive.

In addition, we review our equity method investments whenever there are indicators that their carrying value may not be recoverable;

if a decrease in value of the investment has occurred and such decrease is determined to be other than temporary in nature, we record an impairment charge to reduce the carrying amount of the investment to its fair value.

During the year ended December 31, 2024, we recognized a $5.75 million non-cash charge for the other-than-temporary impairment of our investment in IM Topco, LLC, stemming from a decline in the fair value of the investment as a result of decreases in IM Topco, LLC’s revenues and cash flows.

There were no such comparable impairment charges for the year ended December 31, 2023.

Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.

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Such tax positions are initially and subsequently measured as the largest amount of tax benefit that has a probability of fifty percent or greater of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts.

Tax years that remain open for assessment for federal and state tax purposes include the years ended December 31, 2020 through December 31, 2023.

Equity Method Investments

We initially measure our investment in an equity method investee at cost.

In cases where we retain a noncontrolling interest in an investee which we had previously consolidated, we initially measure such retained interest at fair value.

Subsequent recognition of an investor’s proportionate share of income or losses of an equity method investee is generally determined based on the investor’s proportional ownership interest.

However, in cases where contractual agreements specify allocation ratios for profits and losses, specified costs and expenses, and/or distributions of cash from operations, that differ from our ownership interest, we use such specified allocation ratios for purposes of determining our share of income or losses from the investee if the agreement is considered substantive.

Recently Adopted Accounting Pronouncements

We adopted the provisions of Accounting Standards Update (“ASU”) No.

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

Measurement of Credit Losses on Financial Instruments" (as amended by ASU No.

2018-19 in November 2018, ASU No.

2019-05 in May 2019, ASU No.

2019-10 and 2019-11 in November 2019, ASU No.

2020-02 in February 2020, and ASU No.

2022-02 in March 2022) effective January 1, 2023.

This ASU requires entities to estimate lifetime expected credit losses for financial instruments, including trade and other receivables, which generally results in earlier recognition of credit losses.

The adoption of this new guidance did not have a significant impact on our results of operations, cash flows, or financial condition.

Summary of Operating Results

The consolidated financial statements and related notes included elsewhere in this Form 10-K are as of or for the years ended December 31, 2024 (the “Current Year”), and December 31, 2023 (the “Prior Year”).

Current Year net revenue decreased $8.0 million to $17.8 million from $25.8 million for the Prior Year.

Net licensing revenue decreased by approximately $5.5 million in the Current Year to approximately $9.2 million, compared with approximately $14.7 million in the Prior Year.

This decrease in licensing revenue was primarily attributable to the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand through the sale of a 70% interest in IM Topco, LLC to WHP, partially offset by increased licensing revenue generated by the C Wonder brand through interactive television.

Net sales decreased by approximately $2.5 million in the Current Year to approximately $8.6 million, compared with approximately $11.1 million in the Prior Year.

This decrease in net sales was primarily attributable to the exit from our wholesale apparel and fine jewelry sales operations in the Current Year as part of the restructuring and transformation of our business operating model.

Current Year net revenue decreased approximately $9.5 million to $8.3 million from $17.8 million for the Prior Year.

This decline was primarily attributable to the $8.25 million decrease in net product sales from $8.60 million in the Prior Year to $0.35 million in the Current Year, due to the exit from our wholesale apparel and fine jewelry sales operations and outsourcing of our Longaberger business as part of the restructuring and transformation of our business operating model in 2023.

The only net product sales in the Current Year were related to the final sale of certain residual jewelry inventories and the sale of all remaining inventory related to the Longaberger brand;

as of December 31, 2024, the Company has no remaining inventory.

Net licensing revenues decreased by approximately $1.25 million, from $9.16 million in the Prior Year to $7.91 million in the Current year.

This decline was primarily attributable to the June 30, 2024 divestiture of the Lori Goldstein Brand, partially offset by licensing revenues from the new licensing agreements with best-in-class business partners that we entered into in 2023, most notably the Halston Master License with G-III Apparel Group, as well as increased revenues generated by the C Wonder brand and Judith Ripka brand and the recently launched TowerHill by Christie Brinkley brand.

Cost of Goods Sold and Gross Profit

Current Year cost of goods sold was $0.45 million, compared with $6.92 million for the Prior Year.

Gross profit margin from net product sales (net sales less cost of goods sold, divided by net sales) decreased from approximately 28% in the Prior Year to approximately 20% in the Current Year.

This decrease in gross profit margin percentage was the result of selling our remaining jewelry inventory at an agreed-upon price which was less than historical margins and the sale of our remaining apparel inventory at discounted prices.

Gross profit (net revenue less cost of goods sold) decreased approximately $7.0 million to $10.8 million from $17.8 million in the Prior Year, primarily driven by the aforementioned decrease in net licensing revenue.

This decrease was driven by the aforementioned exit from our wholesale and direct-to-consumer operations as part of the 2023 business model restructuring.

Gross profit margin from net product sales (net sales less cost of goods sold, divided by net sales) decreased from approximately 20% in the Prior Year to approximately negative 28% in the Current Year.

The negative margin results for the Current Year reflect the fact that we sold all of our remaining inventory at cost, and also recognized a reduction to revenue for charge-backs.

Direct Operating Costs and Expenses

Direct operating costs and expenses decreased approximately $10.41 million from $23.17 million in the Prior Year to $12.76 million in the Current Year.

This decrease was primarily attributable to lower salaries, benefits and employment costs, driven by the combination of (i) the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand and the transfer of the employees associated with the Isaac Mizrahi brand to the IM Topco, LLC business venture, and (ii) reductions in staffing levels and other costs during 2023 related to the restructuring and transformation of our business operating model.

These decreases were partially offset by $0.8 million in costs related to the restructuring of certain contractual arrangements in connection with the shift and evolution in the Company’s business operations, and also by a $0.1 million impairment charge related to certain capitalized software assets.

This decrease was primarily attributable to the 2023 restructuring and transformation of our business operating model, which included reductions in staffing levels as well as related reductions in other overhead costs, as well as additional actions taken in 2024 to further optimize our cost structure (including the divestiture of the Lori Goldstein Brand, which eliminated certain operating and compensation expenses).

Other Operating Costs and Expenses (Income)

Depreciation and amortization expense was approximately $7.0 million and $7.3 million in the Current Year and Prior Year, respectively.

In the Prior Year, we recognized a gain on the sale of a majority interest in the Isaac Mizrahi brand of approximately $20.6 million, which was comprised of $46.2 million of cash proceeds plus the recognition of the fair value of our retained interest in the brand of $19.8 million, less $0.9 million of fees and expenses directly related to the transaction and the derecognition of the brand trademarks previously recorded on our balance sheet of $44.5 million.

We account for our interest in the ongoing operations of IM Topco, LLC using the equity method of accounting.

We recognized an equity method loss related to our investment of $2.1 million and $1.2 million for the Current Year and Prior Year, respectively, based on the distribution provisions set forth in the related business venture agreement.

Also during the Current Year, we recognized a gain of $0.36 million related to the sale of a limited partner ownership interest in an unconsolidated affiliate, which was entered into in 2016, and recognized a gain of $0.44 million related to a lease termination settlement with the landlord of our former retail store location.

In the Prior Year, we recognized a $0.9 million gain on the reduction of contingent obligations.

In connection with our 2019 purchase of the Halston Heritage trademarks, we agreed to pay the seller additional consideration if certain royalty targets were met from 2019 through December 31, 2022.

This potential earn-out was initially recorded as a liability of $0.9 million, 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.

The final royalty target year ended on December 31, 2022, and the seller ultimately did not earn any additional consideration based on the formula set forth in the related asset purchase agreement.

Depreciation and amortization expense decreased approximately $2.00 million, from $6.95 million in the Prior Year to $4.95 million in the Current Year.

This decrease was primarily attributable to the June 30, 2024 divestiture of the Lori Goldstein Brand, which included trademarks related to that brand with a net book value of approximately $1.93 million at the time of the divestiture.

Equity method losses related to our equity investments in unconsolidated affiliates (IM Topco, LLC and Orme Live Inc.) were $1.73 million and $2.06 million for the Current Year and Prior Year, respectively, due to the operations of those businesses and the allocation and distribution provisions of the applicable operating agreements.

The equity method losses for both 2024 and 2023 primarily consisted of our proportional share of the amortization expense of the Isaac Mizrahi intellectual property assets held by IM Topco, LLC.

We also recognized $9.96 million of non-cash charges in the Current Year related to our investment in IM Topco, LLC, including (i) a $4.21 million non-cash charge to recognize the estimated value of our contractual obligation to transfer a portion of our equity ownership interests in IM Topco, LLC to WHP in 2025, and (ii) a $5.75 million non-cash charge for the other-than-temporary impairment of our investment in IM Topco, LLC.

The former item was recognized in 2024 to reflect the Company’s economic interest and represents a subsequent reduction of the previously-recognized gain from the 2022 sale of a majority interest in the Isaac Mizrahi Brand, while the latter item is reflective of the decrease in the fair value of our investment due to declines in the revenues and cash flows of IM Topco, LLC.

During the Current Year, we recognized a $3.80 million gain on the divestiture of the Lori Goldstein Brand.

The consideration received from this transaction was non-cash in nature, and consisted of approximately $6.08 million of relief from certain accrued earn-out payments and the release of contingent obligations under contractual agreements with the buyer.

The net book value of the intangible assets sold was approximately $1.93 million, and we also incurred approximately $0.35 million of legal fees in connection with the sale.

Also during the Current Year, we recognized asset impairment charges of approximately $3.48 million related to our exit from and sublease of our offices at 1333 Broadway, of which approximately $3.1 million related to the operating lease right-of-use asset and approximately $0.4 million related to leasehold improvements at that location.

During the Prior Year, we recognized a gain of $0.36 million related to the sale of a limited partner ownership interest in an unconsolidated affiliate, which was entered into in 2016, and a gain of $0.45 million related to a lease termination settlement with the landlord of our former retail store location.

Interest and Finance Expense

Interest and finance expense for the Current Year was $0.93 million, compared with $0.38 million for the Prior Year.

In the Prior Year, we incurred $1.2 million of interest expense related to term loan debt, reflecting an effective interest rate of approximately 9.8% on an average principal balance of $28.7 million from January 1, 2022 through May 31, 2022.

We repaid all of such term loan debt on May 31, 2022 and recognized a loss on early extinguishment of debt of $2.3 million in the Prior Year.

In contrast, during the Current Year we did not have any outstanding debt for most of the year.

In October 2023, we entered into a new term loan agreement for a borrowing of $5.0 million at a floating interest rate, incurring total interest expense of only $0.4 million during the Current Year.

Income Tax Provision (Benefit)

The effective income tax rate for the Current Year was approximately -6%, resulting in a $1.2 million income tax provision.

During the Current Year, the federal statutory rate differed from the effective tax rate primarily 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.

The effective income tax rate for the Prior Year was approximately 10%, resulting in a $0.4 million income tax benefit.

During the Prior Year, the effective tax rate was primarily attributable to the impacts of stock-based compensation, which decreased the effective rate by approximately 6%, and federal tax true-ups, which decreased the effective tax rate by approximately 5%.

The effective tax rate was also impacted by recurring permanent differences;

the largest such recurring permanent differences were state and local tax provisions, which increased the effective rate in 2022 by approximately 6%, and disallowed excess compensation, which decreased the effective rate in 2022 by approximately 5%.

This $0.55 million increase was primarily attributable to the fact that during the Prior Year, we did not have any outstanding debt for most of the year, until we entered into a $5.0 million term loan in October 2023.

That term loan debt remained outstanding for most of the Current Year, until we refinanced our debt and entered into a new $10.0 million term loan agreement in December 2024.

Also in connection with the refinancing in the Current Year, we incurred a loss on the early extinguishment of $0.29 million.

Income Tax Provision

The estimated annual effective income tax rate for the Current Year was approximately -1%, resulting in an income tax provision of $0.22 million.

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

The effective income tax rate for the Prior Year was approximately -6%, resulting in a $1.21 million income tax provision.

During the Prior Year, the federal statutory rate differed from the effective tax rate primarily due to the initial establishment of a valuation allowance against the Company’s cumulative net deferred tax assets, as it was determined that it was not more likely than not that the net operating losses generated by the Company will be utilized in future periods.

Net Loss Attributable to Xcel Brands, Inc.

We had a net loss of approximately $22.4 million for the Current Year, compared with a net loss of approximately $21.1 million for the Prior Year, as a result of the factors discussed above.

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Non-GAAP net income is a non-GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc.

stockholders, exclusive of asset impairments, amortization of trademarks, our proportional share of trademark amortization of equity method investees, stock-based compensation and cost of licensee warrants, loss on extinguishment of debt, certain adjustments to the provision for doubtful accounts related to the bankruptcy of and economic impact on certain retail customers, gains on sales of assets and investments, gain on lease termination , gain on reduction of contingent obligation, and income taxes.

stockholders, exclusive of asset impairment charges, amortization of trademarks, income (loss) from equity method investments, contingent reduction in equity ownership of IM Topco, LLC, stock-based compensation and cost of licensee warrants, loss on extinguishment of debt, gains on sales of assets and investments, gain on lease termination , and income taxes.

Non-GAAP net income and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy.

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Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) attributable to Xcel Brands, Inc.

stockholders before asset impairments, depreciation and amortization, our proportional share of trademark amortization of equity method investees, interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation and cost of licensee warrants, certain adjustments to the provision for doubtful accounts related to the bankruptcy of and economic impact on certain retail customers, gains on sales of assets and investments, gain on lease termination, gain on reduction of contingent obligation, and costs associated with restructuring of operations.

Costs associated with restructuring of operations include the current year operating losses generated by certain of our businesses that have been restructured or discontinued (i.e., wholesale apparel and fine jewelry), as well as non-cash charges associated with the restructuring of certain contractual arrangements.

stockholders before interest and finance expenses (including loss on extinguishment of debt, if any), accretion of lease liability for exited leases, income taxes, other state and local franchise taxes, depreciation and amortization, income (loss) from equity method investments, contingent reduction in equity ownership of IM Topco, LLC, asset impairment charges, stock-based compensation and cost of licensee warrants, gains on sales of assets and investments, gain on lease termination , and costs associated with restructuring of operations.

Costs associated with restructuring of operations include operating losses generated by certain of our businesses that have been restructured or discontinued (i.e., wholesale apparel and fine jewelry), as well as non-cash charges associated with the restructuring of certain contractual arrangements.

Management uses non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the Company’s results of operations.

Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results, and thus these non-GAAP measures provide supplemental information to assist investors in evaluating the Company’s financial results.

Management believes non-GAAP net income, non-GAAP diluted EPS,

and Adjusted EBITDA are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results, and thus these non-GAAP measures provide supplemental information to assist investors in evaluating the Company’s financial results.

Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP.

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Net loss attributable to Xcel Brands, Inc.

Asset impairments

Asset impairment charges

Amortization of trademarks

Proportional share of trademark amortization of equity method investee

Loss from equity method investments

Contingent reduction in equity ownership of IM Topco, LLC

Stock-based compensation and cost of licensee warrants

Loss on early extinguishment of debt

Certain adjustments to provision for doubtful accounts

Loss on extinguishment of debt

Gains on sales of assets and investments

Gain on lease termination

Gain on reduction of contingent obligation

Income tax provision (benefit)

Income tax provision

Non-GAAP net loss

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Year Ended December 31,

Diluted net loss attributable to Xcel Brands, Inc.

Asset impairments

Diluted loss per share attributable to Xcel Brands, Inc.

Asset impairment charges

Amortization of trademarks

Proportional share of trademark amortization of equity method investee

Loss from equity method investments

Contingent reduction in equity ownership of IM Topco, LLC

Stock-based compensation and cost of licensee warrants

Loss on early extinguishment of debt

Certain adjustments to provision for doubtful accounts

Loss on extinguishment of debt

Gains on sales of assets and investments

Gain on lease termination

Gain on reduction of contingent obligation

Income tax provision (benefit)

Income tax provision

Non-GAAP diluted EPS

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Net loss attributable to Xcel Brands, Inc.

Asset impairments

Depreciation and amortization

Proportional share of trademark amortization of equity method investee

Interest and finance expense

Income tax provision (benefit)

Accretion of lease liability for exited lease

Income tax provision

State and local franchise taxes

Depreciation and amortization

Loss from equity method investments

Contingent reduction in equity ownership of IM Topco, LLC

Asset impairment charges

Stock-based compensation and cost of licensee warrants

Certain adjustments to provision for doubtful accounts

Gains on sales of assets and investments

Gain on lease termination

Gain on reduction of contingent obligation

Costs associated with restructuring of operations

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As of December 31, 2024 and 2023, our cash and cash equivalents were $1.3 million and $3.0 million, respectively.

Restricted cash at December 31, 2024 (included within other non-current assets in the consolidated balance sheet) consisted of $0.7 million of cash deposited as collateral for a standby letter of credit associated with a real estate lease;

there was no restricted cash as of December 31, 2023.

Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures.

Notwithstanding certain investments made in 2020 and 2021, our current “licensing plus” operating model is a working capital light business model, and generally does not require material capital expenditures.

Our current “licensing plus” operating model is a working capital light business model, and generally does not require material capital expenditures.

As of December 31, 2024, we have no significant commitments for future capital expenditures.

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Working Capital

Our working capital (current assets less current liabilities, excluding the current portion of lease obligations and any contingent liabilities payable in common stock) was $2.1 million and $8.8 million as of December 31, 2023 and 2022, respectively.

Our working capital (current assets less current liabilities, excluding the current portions of lease obligations, deferred revenue, and any contingent obligations payable in shares) was $0.8 million and $3.0 million as of December 31, 2024 and 2023, respectively.

Commentary on components of our cash flows for the Current Year compared with the Prior Year is set forth below.

Liquidity and Management’s Plans

We incurred net losses of approximately $21.1 million and $5.4 million during the years ended December 31, 2023 and 2022, respectively (which included non-cash expenses of approximately $9.0 million and $8.2 million, respectively), and had an accumulated deficit of approximately $53.8 million and $32.8 million as of December 31, 2023 and 2022, respectively.

Net cash used in operating activities was $6.5 million in 2023 and $14.2 million in 2022.

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

During the year ended December 31, 2023, management implemented a plan to mitigate an expected shortfall of capital and to support future operations by shifting its business from a wholesale/licensing hybrid model into a “licensing plus” model.

In the first quarter of 2023, the Company began to restructure its business operations by entering into new licensing agreements and joint venture arrangements with best-in-class business partners.

The Company entered into a new interactive television licensing agreement with America’s Collectibles Network, Inc.

d/b/a Jewelry Television (“JTV”) for the Ripka Brand, and a separate license with JTV for the Ripka Brand’s e-commerce business.

For apparel, similar

transactions were executed.

In conjunction with the launch of the C Wonder Brand on HSN, the Company licensed the wholesale operations related to the brand to One Jeanswear Group, LLC (“OJG”);

this new license with OJG also includes certain other new celebrity brands that the Company plans to develop and launch in 2024 and beyond.

In the second quarter of 2023, the Company entered into a new master license agreement for the Halston Brand, covering men’s, women’s, and children’s apparel, fashion accessories, and other product categories, with an industry-leading wholesale apparel company for distribution through department stores, e-commerce, and other retailers.

These restructuring initiatives were substantially completed as of June 30, 2023.

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.

Further, in October 2023, the Company entered into a new term loan agreement in the amount of $5 million.

Subsequent to year end, in January 2024, the Company entered into a sublease of its offices at 1333 Broadway in New York, NY, and in March 2024, the Company issued new shares of common stock for net proceeds of approximately $2 million.

Based on these recent 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 Annual Report on Form 10-K;

therefore, such conditions and uncertainties with respect to the Company’s ability to continue as a going concern as of December 31, 2023, have been alleviated.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As of December 31, 2024, we have incurred recurring losses, a history of cash flows used in operating activities, and an accumulated deficit.

While we have undertaken significant restructuring efforts during 2023 and 2024, including divesting an unprofitable brand during 2024, reducing overhead costs, raising capital, and securing debt financing, management has determined that, absent additional funding, there is substantial doubt about the Company’s ability to meet its financial obligations as they become due within twelve months from the date the accompanying financial statements are issued.

Subsequent to year-end, we restructured our outstanding debt and received net proceeds from financing activities.

However, these proceeds may still be insufficient to fully address our liquidity needs.

We are actively pursuing an equity offering to secure additional capital;

however, there can be no assurance that such efforts will be successful or that sufficient funds will be obtained to meet our obligations.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

We intend to continue exploring strategic financing alternatives and operational efficiencies to improve liquidity.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Operating Activities

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The Current Year’s cash used in operating activities was primarily attributable to the combination of the net loss of $(22.6) million, partially offset by non-cash items of approximately $17.3 million and a net change in operating assets and liabilities of approximately $0.6 million.

Non-cash items were primarily comprised of, but not limited to, $7.0 million of depreciation and amortization, the $2.1 million undistributed proportional share of net loss of equity method investee, $1.1 million of deferred taxes, and $0.8 million of bad debt expense, partially offset by a $(0.4) million gain on the sale of a financial asset and a $(0.4) million gain on the settlement of a lease liability.

Non-cash items were primarily comprised of, but not limited to, undistributed losses and other charges related to equity method investees totaling $11.8 million, $4.9 million of depreciation and amortization, $3.5 million of asset impairment charges, and $0.4 million of stock-based compensation and cost of licensee warrants, partially offset by a $(3.8) million gain on the divestiture of the Lori Goldstein Brand.

The net change in operating assets and liabilities was less significant, as the positive cash flow impacts from decreases in accounts receivable ($1.2 million) and inventory ($0.5 million) were largely offset by changes in deferred revenue and other current liabilities, along with changes in lease-related assets and liabilities.

The Prior Year’s cash used in operating activities was primarily attributable to the combination of the net loss of $(22.2) million, partially offset by non-cash items of approximately $9.8 million and a net change in operating assets and liabilities of approximately $5.9 million.

Non-cash items were primarily comprised of, but not limited to, $7.0 million of depreciation and amortization, the $2.1 million undistributed proportional share of net loss of equity method investee, and $1.1 million of deferred taxes, partially offset by a $(0.4) million gain on the sale of a financial asset and a $(0.4) million gain on the settlement of a lease liability.

The net change in operating assets and liabilities was primarily comprised of (i) an increase in deferred revenue of approximately $4.4 million, which was mainly attributable to the upfront payment received for the Halston Master License agreement entered into during the Current Year, (ii) a decrease in inventory of approximately $2.4 million, driven by the sale of all of our C Wonder apparel inventory to HSN and the sale of all of our Judith Ripka fine jewelry inventory to JTV, as part of the restructuring and transformation of our business operating model.

Partially offsetting these net changes in operating assets and liabilities were decreases in various operating liabilities of approximately $(2.9) million.

The Prior Year’s cash used in operating activities was primarily attributable to the combination of the net loss of $(5.4) million plus non-cash items of approximately $(10.2) million, partially offset by a net change in operating assets and liabilities of approximately $1.4 million.

Non-cash items were primarily comprised of, but not limited to, the net gain on sale of assets of $(20.6) million, $7.3 million of depreciation and amortization, a $2.3 million loss on extinguishment of debt, and the $1.2 million undistributed proportional share of net income of equity method investee.

The net change in operating assets and liabilities notably included a decrease in accounts receivable of $2.1 million, a decrease in inventory of $0.5 million, a decrease in prepaid expenses and other assets of $0.6 million, and decreases in various operating liabilities of $(1.4) million.

The decrease in accounts receivable was primarily related to the Prior Year sale of a majority interest in the Isaac Mizrahi brand, resulting in lower licensing revenues and thus lower receivable balances.

The decreases in inventory and other operating assets and liabilities were primarily reflective of the declines in our wholesale business due to retailers pausing or canceling orders during the Prior Year.

Investing Activities

Net cash provided by investing activities for the Current Year was approximately $0.2 million, primarily driven by $0.5 million of proceeds received from the sale of a limited partner ownership interest in an unconsolidated affiliate, partially offset by approximately $0.2 million capital contributions made to a new equity method investee.

Net cash provided by investing activities for the Prior Year was approximately $44.5 million, and was attributable to $45.4 million of net proceeds from the sale of a majority interest in the Isaac Mizrahi brand to WHP, partially offset by $0.6 million of capital contributions to our equity method investee IM Topco and approximately $0.3 million of capital expenditures.

Net cash used in investing activities for the Current Year was comprised of purchases of furniture and fixtures totaling approximately $0.1 million.

Net cash provided by investing activities for the Prior Year was approximately $0.2 million, primarily driven by $0.5 million of proceeds received from the sale of a limited partner ownership interest in an unconsolidated affiliate, partially offset by approximately $0.2 million capital contributions made to our equity investee ORME.

Financing Activities

Net cash provided by financing activities for the Current Year was approximately $4.7 million, which primarily consisted of $5.0 million of proceeds from borrowings incurred under new term loan debt, partially offset by the payment of $0.3 million of debt issuance costs.

Net cash used in financing activities for the Prior Year was approximately $31.0 million, which mainly consisted of $29.0 million of repayments of our term loan debt, and, to a lesser extent, $1.5 million of prepayment and other fees associated with the early extinguishment of debt, as well as $0.4 million of shares repurchased related to withholding taxes on vested restricted stock.

Equity Transactions – Public Offering and Private Placement

Net cash provided by financing activities for the Current Year was approximately $3.8 million.

This was primarily attributable to approximately $2.8 million of net cash proceeds generated from the December 2024 refinancing of our term loan debt ($8.0 million of gross cash proceeds, less $4.25 million repayment of our previous term loan debt and the payment of $0.9 million of debt issuance costs) and $1.9 million of net proceeds generated by equity issuance transactions undertaken during the first quarter of 2024.

Also during the Current Year, we made $0.75 million of scheduled principal payments on term loan debt.

Net cash provided by financing activities for the Prior Year was approximately $4.7 million, which primarily consisted of $5.0 million of proceeds from borrowings incurred under a new term loan debt agreement in October 2023, partially offset by the payment of $0.3 million of debt issuance costs.

Equity Financing Transactions – Public Offering and Private Placement

On March 19, 2024, the Company closed on a public offering of 328,427 shares of common stock at an offering price of $6.50 per share and a private placement of 29,462 shares of common stock at an offering price of $9.80 per share.

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D’Loren, an affiliate of Mark DiSanto, and Seth Burroughs also purchased 13,258, 13,258, and 2,946 shares of common stock, respectively, in the private placement.

The aggregate net proceeds from the equity transactions were approximately $2.0 million.

The aggregate number of shares of common stock issued from the public offering and the private placement was 357,889 shares and the total net proceeds received was approximately $1.9 million.

Debt Transactions – December 2024 Refinancing

On December 12, 2024, the Company and certain of its subsidiaries entered into a new loan and security agreement with FEAC Agent, LLC, as administrative agent and collateral agent, FEF Distributors, LLC, as lead arranger, and Restore Capital, LLC, as agent for certain lenders, pursuant to which the lenders made term loans to the Company and agreed to make additional term loans to the Company upon the satisfaction of a condition precedent described in the loan agreement.

The term loans under the loan agreement are as follows:

(1) a term loan in the amount of $3.95 million (“Term Loan A”) was made on the closing date, (2) a term loan in the amount of $4.0 million (“Term Loan B”) was made on the closing date, and (3) a term loan in the amount of $2.05 million (“Delayed Draw Term Loan”;

Term Loan A, Term Loan B and Delayed Draw Term Loan are referred to as “Term Loans”) which will be made upon the satisfaction of a condition precedent described in the loan agreement.

The proceeds from Term Loan A and Term Loan B were used to repay the remaining balance of the Company’s October 2023 term loan with IDB, as well as to pay fees, costs, and expenses incurred in connection with entering into the new loan agreement, and the balance may be used for working capital purposes.

The proceeds from the Delayed Draw Term Loan will be deposited in a bank account to satisfy a liquidity covenant in the loan agreement.

Principal amounts on Term Loans are payable on a pro rata basis in quarterly installments of $250,000 on each of March 31, June 30, September 30, and December 31 of each year, commencing on March 31, 2026, with the unpaid balance due at the maturity date of December 12, 2028.

Interest on Term Loans accrues at an annual rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to three months, subject to a 2.0% floor, plus (i) 8.5% for Term Loan A and Delayed Draw Term Loan and (ii) 13.5% for Term Loan B.

Interest on amounts outstanding under the Term Loans accrues daily and is payable at the end of each calendar month.

The Term Loans are guaranteed by certain direct and indirect subsidiaries of the Company, and are secured by all of the asset of the Company and such subsidiaries.

The loan agreement contains various customary financial covenants and reporting requirements, as specified and defined in the loan agreement.

Also in connection with the loan agreement, the Company issued warrants to purchase an aggregate of 145,664 shares of the Company’s common stock.

These warrants have an exercise price of $6.32 per share, are immediately exercisable, and expire on December 12, 2034.

Further, IPX Capital, LLC, a company controlled by Mr.

D’Loren, purchased a 12.5% undivided, last-out, subordinated participation interest in Term Loan B for a purchase price of $500,000;

IPX also received 15,333 of the aforementioned warrants, which is the pro rata share of the Term B Lenders’ warrants that were issued by the Company.

Also, in October

2024, IPX made a $250,000 non-interest-bearing advance to one of the Company’s subsidiaries, of which $200,000 was repaid to IPX upon the closing of the December 12, 2024 debt refinancing transaction.

Debt Transactions – April 2025 Refinancing

On April 21, 2025, the Company and certain of its subsidiaries entered into an amendment with each lender party thereto and FEAC Agent, LLC, pursuant to which the December 12, 2024 loan and security agreement, was amended to provide for $1.5 million repayment of the $3.95 million Term Loan A made on December 12, 2024 and an additional Term Loan B in the amount of $5.12 million on April 21, 2025.

The loans outstanding after giving effect to this amendment and the application of the proceeds of the additional Term Loan B are as follows:

(1) Term Loan A in the amount of $2.45 million, (2) Term Loan B in the amount of $9.12 million, and (3) Delayed Draw Term Loan in the amount of $2.05 million.

The proceeds from the additional Term Loan B were used to repay a portion of Term Loan A, as well as to pay fees, costs, and expenses incurred in connection with entering into the April 21, 2025 amendment, and the balance will be used for working capital purposes.

Within 30 days after April 21, 2025, the outstanding principal amount of the Term Loan A shall be repaid, on a pro rata basis in an aggregate amount equal to $500,000.

Principal on the Term Loan A is payable on a pro rata basis in quarterly installments of $250,000 on each of March 31, June 30, September 30, and December 31 of each year, commencing on March 31, 2026, with the unpaid balance due on the maturity date of December 12, 2028.

Principal on the Term Loan B is payable on the maturity date of December 12, 2028.

From and after April 21, 2025, interest on each Term Loan A accrues at an annual rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to three months, subject to a 2.0% floor, plus 8.5%.

From and after April 21, 2025, interest on each Term Loan B accrues at an annual rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to three months, subject to a 2.0% floor, plus 6.5%.

From and after April 21, 2025 through March 31, 2027, interest on the Term Loan B will be paid in-kind by being capitalized and added to the principal amount of the Term Loan B at the end of each calendar month.

The Term Loans are guaranteed by certain direct and indirect subsidiaries of the Company, and are secured by all of the assets of the Company and such subsidiaries.

The April 21, 2025 amendment contains various customary financial covenants and reporting requirements, as specified and defined therein, including that (i) Company is required to maintain a class or series of capital stock that is traded on the New York Stock Exchange or the NASDAQ;

and (iii) Company is required to file a Form S-1 Registration Statement with the SEC.

In connection with this refinancing transaction, UTG Capital, Inc., a Delaware corporation (“UTG”), purchased a 100% undivided, participation interest in Term Loan B for a purchase price of $9.12 million and received warrants entitling it to purchase 1,107,457 warrants shares of the Company.

The Company also issued warrants to purchase 30,000 shares of common stock to Restore Capital (EQ-W), LLC (“Restore”), another of the lenders, and amended warrants to purchase an aggregate of 107,333 shares of common stock held by Restore and warrants previously issued to warrants of FEAC Agent, LLC.

Also in connection with this refinancing transaction, IPX’s participation in Term Loan B was repaid and IPX purchased a $500,000 undivided, last-out, subordinated participation interest in Term Loan A.

Obligations and Commitments

Term Loan Debt

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

Pursuant to the Loan Agreement, IDB made a term loan in the aggregate amount of $5.0 million.

The proceeds of this term loan were used to pay fees, costs, and expenses incurred in connection with entering into the Loan Agreement of approximately $0.1 million (including a commitment fee paid to IDB in the amount of $50,000 and legal fees paid to counsel of IDB in the amount of $82,000), and may be used for working capital purposes.

In connection with the Loan Agreement, the Borrower and H Licensing, LLC (“H Licensing”), another wholly owned subsidiary of Xcel, entered into a security agreement in favor of IDB, and Xcel entered into a membership interest pledge agreement in favor of IDB.

Pursuant to the security agreement, the Borrower and H Licensing granted IDB a security interest in substantially all of their respective assets, other than the trademarks owned by the Borrower and H Licensing, to secure the Borrower’s obligations under the Loan Agreement.

Pursuant to the membership interest pledge agreement, Xcel granted IDB a security interest in its membership interests in H Licensing to secure the Borrower’s obligations under the Loan Agreement.

The term loan matures on October 19, 2028.

Principal on the term loan is payable in quarterly installments of $250,000 on each of January 2, April 1, July 1, and October 1 of each year, commencing on April 1, 2024.

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

Interest on the term loan accrues at Term SOFR (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.

Government Securities Business Days prior to the first day of each calendar month) plus 4.25% per annum.

Interest on the term loan is payable on the first day of each calendar month.

The Loan Agreement contains customary covenants, including reporting requirements, trademark preservation, and certain financial covenants including annual guaranteed minimum royalty ratio, annual fixed charge coverage ratio, and minimum cash balance levels, all as specified and defined in the Loan Agreement.

In addition, on October 19, 2023, the Borrower also entered into a swap agreement with IDB, pursuant to which IDB will pay the Borrower Term SOFR plus 4.25% per annum on the notional amount of the swap in exchange for the Borrower paying IDB 9.46% per annum on such notional amount.

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

Refer to information outlined under ‘Debt Transactions – December 2024 Refinancing’ and ‘Debt Transactions – April 2025 Refinancing’ above.

Contingent Obligation – Lori Goldstein Earn-Out

In connection with the April 1, 2021 purchase of the Lori Goldstein trademarks, we 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.

In connection with the April 1, 2021 purchase of the Lori Goldstein trademarks, we 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 of 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.

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 thus $0.2 million of the balance was recorded as a current liability and $6.4 million was recorded as a long-term liability.

The $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.

As of January 1, 2023, based on the performance of the Lori Goldstein Brand to date, approximately $0.2 million of additional consideration was earned by the seller, and thus $0.2 million of the balance was paid to the seller during 2023.

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.

Accordingly, as of December 31, 2023, $1.0 million of the remaining balance was recorded as a current liability and approximately $5.4 million was recorded as a long-term liability.

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

However, as a result of the June 30, 2024 divestiture of the Lori Goldstein Brand, the seller waived its rights with respect to the Lori Goldstein Earn-Out amounts that had been previously earned and had not yet been paid, and terminated its 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 December 31, 2024, there are no liability amounts remaining on the Company’s balance sheet related to the Lori Goldstein Earn-Out.

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, we agreed with WHP (the buyer) that, in the event that IM Topco, LLC 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 us 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.

Such amount would be payable by us in either cash or equity interests in IM Topco, LLC held by us.

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

No amount has been recorded in the Company’s consolidated balance sheets related to this contingent obligation.

Subsequently, in April 2024, the Company, WHP, and IM Topco, LLC entered into an amendment of this agreement, such that the purchase price adjustment provision within the membership purchase agreement was waived until the measurement period ending September 30, 2025.

Additionally, the parties agreed that if IM Topco, LLC 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, LLC to WHP, such that Xcel’s ownership interest in IM Topco,

LLC would decrease from 30% to 17.5%, and WHP’s ownership interest in IM Topco, LLC would increase from 70% to 82.5%

Contingent Obligation – Halston Heritage Earn-Out

In connection with the February 11, 2019 purchase of the Halston Heritage trademarks, we agreed to pay the seller additional consideration of up to an aggregate of $6.0 million, based on royalties earned from 2019 through December 31, 2022.

The final royalty target year ended on December 31, 2022, and the seller ultimately did not earn any additional consideration based on the formula set forth in the related asset purchase agreement.

As such, during the year ended December 31, 2022, we recorded a $0.9 million gain on the reduction of contingent obligations in the accompanying consolidated statement of operations.

As of December 31, 2022, there were no amounts remaining under the Halston Heritage Earn-Out.

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

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 (i) IM Topco royalties are less than $13.5 million for the twelve-month period ending March 31, 2025 or (ii) IM Topco royalties are less than $18.0 million for the year ending December 31, 2025 or (iii) Xcel fails to make certain payments to IM Topco under the terms of a certain license agreement between Xcel and IM Topco on or before January 30, 2025, then 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%.

Prior to the Current Year, no amount was recorded on the Company’s consolidated balance sheets related to this contingent obligation.

During the Current Year, management concluded that, based on current trends in and projections of IM Topco’s royalty revenues as well as the Company’s decision to not make the remaining royalty payments to IM Topco, it was virtually certain that the Company would be required to make such transfer of equity interests to WHP in 2025.

As such, the Company estimated and recorded a contingent obligation of $4.2 million in the accompanying consolidated balance sheets, and recognized a corresponding non-cash charge in the consolidated statements of operations for the Current Year.

On January 31, 2025, in accordance with the terms of the amended membership purchase agreement between Xcel and WHP, WHP became contractually entitled to receive from Xcel equity interests in IM Topco equal to 12.5% of the total outstanding equity interests of IM Topco.

On April 15, 2025, such equity interests were transferred to WHP.

Real Estate Leases

As described in Item 2 of this Annual Report on Form 10-K, as of December 31, 2023 we had a lease for approximately 29,600 square feet of office space at 1333 Broadway, 10th floor, New York, New York.

Future payments under this lease are expected to be approximately $1.6 million for each of the years ending December 31, 2024 – 2026, and $1.3 million for the year ending December 31, 2027.

Subsequent to December 31, 2023, we entered into a new lease of office space at 550 Seventh Avenue, 11th floor, New York, New York, and a sublease of our office space at 1333 Broadway.

These leasing transactions are further described in Item 8, Note 12 of this Annual Report on Form 10-K.

We are currently party to a lease (as lessee) for approximately 29,600 square feet of office space at 1333 Broadway, 10th floor, New York, New York.

This location represented our former corporate offices and operations facility, and our lease for this location expires on October 30, 2027.

Future payments under this lease are expected to be approximately $1.55 million for the year ending December 31, 2025, $1.55 million for the year ending December 31, 2026, and $1.29 million for the year ending December 31, 2027.

We have subleased this office space to a third-party subtenant through October 30, 2027.

We are also currently party to a lease (as lessee) for approximately 12,000 square feet of office space at 550 Seventh Avenue, 11th floor, New York, New York.

This location represents our current corporate offices and operations facility, and our lease for this location expires in 2032.

Future payments under this lease are expected to be approximately $0.37 million for the year ending December 31, 2025, $0.51 million for the year ending December 31, 2026, $0.55 million for the year ending December 31, 2027, $0.57 million for the year ending December 31, 2028, $0.58 million for the year ending December 31, 2029, and $1.42 million thereafter.

Employment Contracts

We have entered into contracts with certain executives and key employees.

The future minimum payments under these contracts is expected to be approximately $17.7 million, of which, approximately $4.3 million is expected to be paid in 2024, approximately $2.1 million is expected to be paid for each of the years ending December 31, 2025 – 2030, and approximately $0.5 million is expected to be paid in 2031.

The future minimum payments under these contracts is approximately $2.1 million, which is expected to be paid in 2025.

Off-Balance Sheet Arrangements

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We plan to continue to diversify the distribution channels within which licensed products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands.

The Lori Goldstein brand, Halston brand, C Wonder brand, and TowerHill by Christie Brinkley brand have a core business in fashion apparel and accessories.

The Halston brand, C Wonder brand, TowerHill by Christie Brinkley brand, and the LB70 by Lloyd Boston brand have a core business in fashion apparel and accessories.

The Ripka brand is a fine jewelry business, and the Longaberger brand focuses on home good products, which we believe helps diversify our industry focus while at the same time complements our business operations and relationships.

While the 2022 sale of a majority interest in the Isaac Mizrahi brand has resulted in a decrease in our revenues, as that brand represented a significant portion of our historical revenues, we are taking actions to replace those revenues in the long-term with new strategic business initiatives, as we concentrate our resources on growing our brands, launching new brands, and entering into new business partnerships.

We continue to seek new opportunities, including expansion through interactive television, live streaming, and additional domestic and international licensing arrangements, and acquiring and collaborating with additional brands, launching the C Wonder by Christian Siriano business on HSN, and the planned May 2024 launch of the TowerHill by Christie Brinkley brand.

While the 2022 sale of a majority interest in the Isaac Mizrahi brand resulted in a substantial decrease in our licensing revenues, as that brand represented a significant portion of our historical licensing revenues, and the 2024 divestiture of the LOGO by Lori Goldstein brand also resulted in a notable decrease in our licensing revenues, we have taken and continue to take actions to replace those revenues with new strategic business initiatives, as we concentrate our resources on growing our brands, launching new brands, and entering into new business partnerships.

We continue to seek new opportunities, including expansion through interactive television, live streaming, and additional domestic and international licensing arrangements, and acquiring and collaborating with additional brands, including the recently-launched TowerHill by Christie Brinkley brand and LB70 by Lloyd Boston brand.

During 2023, we restructured our business operations by shifting our business from a wholesale/licensing hybrid model into a “licensing plus” business model.

These efforts included entering into new structured contractual arrangements with best-in-class business partners in order to more efficiently operate our wholesale and e-commerce businesses and reduce and better manage our exposure to operating risks.

These restructuring initiatives, on a go-forward basis, are expected to provide us with approximately $15 million of cost savings on an annualized basis compared to our previous operating model.

However, we continue to face a number of headwinds in the current macroeconomic environment.

Poor economic and market conditions, including inflation, rising consumer debt levels, and a potential recession, may negatively impact market sentiment, decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and other consumer products, which would adversely affect our operating income and results of operations.

These restructuring initiatives were originally expected to provide us with approximately $15 million of cost savings on an annualized basis compared to our previous operating model.

on additional actions taken by management during 2024 and the recent divestiture of the Lori Goldstein brand, the Company’s direct operating costs on an annualized basis have been reduced from approximately $8 million per quarter under our previous operating model to approximately $2.5 million to $3.0 million per quarter on a going-forward basis.

This represents approximately $21 million of cost savings on an annualized basis compared to our cost structure in 2022.

Management has continued to implement additional cost cutting measures throughout the first quarter of 2025 to further optimize the Company’s cost structure;

these additional actions have reduced direct operating expenses to a run rate of less than $10 million per annum.

Nonetheless, we continue to face a number of headwinds in the current macroeconomic environment.

Poor economic and market conditions, including the impacts of recent inflation and rising consumer debt levels, may negatively impact market sentiment, decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and other consumer products, which would adversely affect our operating income and results of operations.

If we are unable to take effective measures in a timely manner to mitigate the impact of inflation and/or a potential recession, our business, financial condition, and results of operations could be adversely affected.

Our long-term success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and continue to attract wholesale and direct-to-consumer customers, and contract with and retain key licensees and business partners, as well as our and our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer bases and fulfill the product requirements of the particular retail channels within the global marketplace.

Our long-term success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and attract customers, and contract with and retain key licensees and business partners, as well as our and our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer bases and fulfill the product requirements of the particular retail channels within the global marketplace.

Unanticipated changes in consumer fashion preferences and purchasing patterns, slowdowns in the U.S.

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What changed 10-K

Item 7. Management’s Discussion and Analysis