What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-05-28 compared with 2024-04-19 · 527 added, 471 removed, 597 unchanged (63% of the section changed)

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

and Subsidiaries (collectively, the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

and Subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

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

As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.

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

Management's plans in regard to these matters are also described in Note 1.

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

Basis for Opinion

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

Liquidity and Management’s Plans

Critical Audit Matter Description

As described further in Note 1 to the financial statements, the Company has incurred recurring losses from operations, has used net cash in operating activities, and has an accumulated deficit.

The ability of the Company to continue as a going concern is dependent on executing its business plans and meeting its obligations as they come due within the next twelve months from the filing date of this Annual Report on Form 10-K.

Accordingly, the Company has determined that these factors raise uncertainty as to the Company’s ability to continue as a going concern.

However, management has

implemented plans which are expected to mitigate these conditions or events, and therefore, has concluded that such conditions or events have been alleviated.

How the Critical Audit Matter was Addressed in the Audit

We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available capital and the risk of bias in management’s judgments and assumptions in their determination.

Our audit procedures related to considering whether the results of our audit procedures, when considered in the aggregate, indicate that there could be uncertainty about the Company’s ability to continue as a going concern for a reasonable period of time, obtaining information about management’s plans that are intended to mitigate the effect of such conditions or events, and assessing the likelihood that such plans can be effectively implemented, included the following, among others:

● We reviewed the Company’s assessment and conclusions regarding their ability to generate cashflows for at least twelve months from the filing date of this Annual Report on Form 10-K.

● We inquired of Company management and reviewed Company records to assess whether there are additional factors that contribute to the uncertainties disclosed.

● We assessed whether the Company’s determination that there are factors that raise such uncertainties about its ability to continue as a going concern, were adequately disclosed in the financial statements.

● We reviewed and evaluated management's plans for alleviating such conditions and uncertainties and considered whether it is likely that these conditions and uncertainties would be mitigated for a reasonable period and that such plans can be effectively implemented.

● We performed testing procedures such as reviewing;

prospective financial information for the twelve-month period beginning with the filing date of this Annual Report on Form 10-K, actual operating performance for periods after December 31, 2023, other events and transactions occurring after December 31, 2023, implemented reductions in operating expenses, plans for further reductions to support expected cashflows, and implemented changes in the business.

● We performed sensitivity analysis of management's forecasts and key assumptions used in developing their prospective financial information.

Finite-Lived Trademarks and Other Intangible Assets

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How the Critical Audit Matter was Addressed in the Audit

We determined the Company’s ability to assess if their finite-lived trademarks and other intangible assets are impaired is a critical audit matter due to the estimation and uncertainty regarding the Company’s ability to generate sufficient undiscounted cash flows, to be in excess of the carrying amounts of these assets.

The Company evaluates its finite-lived trademarks and other intangible assets for impairment when events are triggered by economic conditions.

These events require the Company to compare the carrying values to the undiscounted cash flows from the operation and eventual disposition of these assets over their estimated useful lives (“undiscounted cash flows”).

If the carrying value of any of these assets is considered to be impaired, as described above, the amount of the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value.

Auditing the Company’s finite-lived trademarks and other intangible assets for impairment is complex and subjective due to the significant estimation required to determine the forecasted undiscounted cash flows used in the Company’s evaluation.

Specifically, the forecasted undiscounted cash flows are sensitive to significant assumptions such as revenue growth rates, including the terminal growth rates, margins, and expenses over the estimated useful lives of these assets, all of which are affected by expected future market or economic conditions, and other factors.

We determined the Company’s ability to assess if their trademark and other intangible assets are impaired as a critical audit matter due to the estimation and uncertainty regarding the Company’s ability to generate sufficient undiscounted cash flows to be in excess of the carrying value of the reported value of the assets.

The Company evaluates its trademark and other intangible assets for impairment annually or when events are triggered by economic conditions.

These events require the management to compare the carrying values to their estimated fair values as of the evaluation date.

The Company uses the income approach using an undiscounted cash flow model to value the trademark and other intangible assets.

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

Auditing the Company’s trademark and other intangible asset impairment is complex and subjective due to the significant estimation required to determine the forecasted cash flows used in the Company’s evaluation.

Specifically, the forecasted cash flows are sensitive to significant assumptions such as revenue growth rates and expenses over the estimated useful life all of which are affected by expected future market or economic conditions, and other factors.

The primary procedures we performed to address this critical audit matter included the following, among others:

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● We compared undiscounted cash flows to the carrying amounts of the respective assets and determined in all cases that undiscounted cash flows exceeded the carrying amounts.

Investment in IM Topco, LLC

Critical Audit Matter Description

As described further in Note 3 to the financial statements, the Company’s investment in IM Topco, LLC was $10.1 million as of December 31, 2024.

The Company’s investment in IM Topco, LLC is reviewed for impairment 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, the Company shall record an impairment charge to reduce the carrying amount of the investment to its fair value.

During the year ended December 31, 2024, the Company recognized $9.96 million of other non-cash charges related to IM Topco, LLC including (i) a $4.21 million non-cash charge to recognize the estimated value of their contractual obligation to transfer a portion of their 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 their investment in IM Topco, LLC.

How the Critical Audit Matter was Addressed in the Audit

We determined the Company’s ability to assess if their Investment in IM Topco, LLC is impaired as a critical audit matter due to the estimation and uncertainty regarding the Company’s ability to generate sufficient undiscounted cash flows to be in excess of the carrying value of the reported value of the investment.

The Company’s investments in unconsolidated affiliates are reviewed for impairment whenever there are indicators that their carrying value may not be recoverable;

These events require the management to compare the carrying values to their estimated fair values as of the evaluation date.

The Company uses the income approach using a discounted cash flow model to value the investment.

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

Auditing the Company’s Investment in IM Topco, LLC impairment is complex and subjective due to the significant estimation required to determine the forecasted cash flows used in the Company’s evaluation.

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

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

The primary procedures we performed to address this critical audit matter included the following, among others:

● We evaluated the Company’s forecasted revenue

● We evaluated the guideline companies used that operated in similar industries.

● We evaluated whether the Company used the appropriate modified capital asset pricing model and a weighted average cost of capital.

● We performed independent calculations to evaluate the sensitivity of the key assumptions used by management.

/s/ Marcum LLP

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

April 18, 2024

Xcel Brands, Inc.

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Cash and cash equivalents

Accounts receivable, net

Accounts receivable, net of allowances for credit losses of $ 0 and $ 75 at December 31, 2024 and 2023, respectively

Prepaid expenses and other current assets

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Trademarks and other intangibles, net

Equity method investment in IM Topco, LLC

Deferred tax assets, net

Equity method investments, net

Total non-current assets

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Accrued income taxes payable

Accrued payroll

Current portion of operating lease obligations

Current portion of long-term debt

Current portion of contingent obligation

Current portion of contingent obligations

Total current liabilities

Long-Term Liabilities:

Long-term portion of operating lease obligations

Deferred revenue

Long-term portion of operating lease obligations

Long-term debt, net, less current portion

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Total Liabilities and Stockholders' Equity

(1) The values of Common stock and Paid-in capital, as well as the number of shares issued and outstanding, have been retroactively adjusted in order to give effect to the Company’s 1-for-10 reverse stock split.

See Note 2 and Note 12.

See accompanying Notes to Consolidated Financial Statements.

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Total direct operating costs and expenses

Operating loss before other operating costs and expenses (income)

Other operating costs and expenses (income)

Depreciation and amortization

Gain on sale of majority interest in Isaac Mizrahi brand

Loss from equity method investment

Asset impairment charges

Loss from equity method investments

Contingent reduction in equity ownership of IM Topco, LLC

Gain on divestiture of Lori Goldstein Brand

Gain on sale of limited partner ownership interest

Gain on settlement of lease liability

Gain on reduction of contingent obligation

Operating loss

Interest and finance expense

Interest and finance expense (income)

Interest expense

Other interest and finance charges, net

Other interest and finance charges (income), net

Loss on early extinguishment of debt

Total interest and finance expense

Interest and finance expense (income), net

Loss before income taxes

Income tax provision (benefit)

Income tax provision

Net loss attributable to noncontrolling interest

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Basic and diluted weighted average common shares outstanding (1)

(1) Weighted average shares outstanding and per share information have been retroactively adjusted in order to give effect to the Company’s 1-for-10 reverse stock split.

See Note 2 and Note 12.

See accompanying Notes to Consolidated Financial Statements.

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Compensation expense related to stock options and restricted stock

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

Shares repurchased from executive in exchange for withholding taxes

Contra-revenue related to warrants held by licensee

Shares issued to directors in connection with restricted stock grants

Shares issued to consultants in connection with stock grants

Shares issued to consultant in connection with sale transaction (see Note 3 and Note 7)

Shares issued to key employee in connection with stock grant

Shares repurchased from key employee in exchange for withholding taxes related to vesting of restricted shares

Forfeitures of restricted stock grants

Shares issued to consultant in connection with stock grants

Shares issued to employee in connection with stock grant

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

Net loss for the year ended December 31, 2023

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Compensation expense related to stock options and restricted stock

Contra-revenue related to warrants granted to licensee

Contra-revenue related to warrants held by licensee

Shares issued to directors in connection with restricted stock grants

Forfeitures of restricted stock grants

Shares issued to consultant in connection with stock grants

Shares issued to employee in connection with stock grant

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

Shares issued to executives for pro rata portion of base salaries, net of withholding taxes

Shares issued in connection with public offering and private placement transactions, net of transaction costs

Warrants issued in connection with refinancing of term loan debt

Net loss for the year ended December 31, 2024

Balance as of December 31, 2024

See Note 2 and Note 12.

See accompanying Notes to Consolidated Financial Statements.

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Provision for credit losses

Undistributed proportional share of net loss of equity method investee

Loss from equity method investments

Contingent reduction in equity ownership of IM Topco, LLC

Loss on early extinguishment of debt

Deferred income tax provision (benefit)

Gain on sale of majority interest in Isaac Mizrahi brand

Deferred income tax provision

Gain on divestiture of Lori Goldstein brand

Gain on sale of limited partner ownership interest

Gain on settlement of lease liability

Gain on reduction of contingent obligation

Changes in operating assets and liabilities:

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Deferred revenue

Accounts payable, accrued expenses, accrued payroll, accrued income taxes payable, and other current liabilities

Accounts payable, accrued expenses, accrued income taxes payable, and other current liabilities

Lease-related assets and liabilities

Other liabilities

Other long-term liabilities

Net cash used in operating activities

Cash flows from investing activities

Net proceeds from sale of majority interest in Isaac Mizrahi brand

Capital contribution to equity method investees

Capital contribution to equity method investee

Net proceeds from sale of assets

Purchase of property and equipment

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

Proceeds from exercise of stock options

Shares repurchased including vested restricted stock in exchange for withholding taxes

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

Proceeds from long-term debt

Payment of deferred finance costs

Proceeds from exercise of stock options

Shares repurchased including vested restricted stock in exchange for withholding taxes

Payment of long-term debt

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

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Net cash provided by financing activities

Net decrease in cash, cash equivalents, and restricted cash

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

Cash, cash equivalents, and restricted cash at end of year

Reconciliation to amounts on consolidated balance sheets:

Cash and cash equivalents

Restricted cash (reported in other non-current assets)

Total cash, cash equivalents, and restricted cash

Supplemental disclosure of non-cash activities:

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

Recognition of operating lease right-of-use asset

Recognition of operating lease obligation

Issuance of warrants in connection with debt refinancing

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

Cash paid during the period for income taxes

Cash paid during the year for interest

Cash paid during the year for income taxes

See accompanying Notes to Consolidated Financial Statements.

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(“Xcel” and, together with its subsidiaries, 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 LOGO by Lori Goldstein brand (the “Lori Goldstein Brand”), 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 Lori Goldstein Brand, Halston Brand, Ripka Brand, and C Wonder Brand are wholly owned by the Company.

As of December 31, 2024, the Company’s brand portfolio consisted of the Halston brands (the “Halston Brand”), the Judith Ripka brands (the "Ripka Brand"), the C Wonder brands (the “C Wonder Brand”), the TowerHill by Christie Brinkley brand (the “CB Brand”), the LB70 by Lloyd Boston brand (the ‘LB70 Brand”), the Longaberger brand (the “Longaberger Brand”), the Isaac Mizrahi brands (the “Isaac Mizrahi Brand”), and other proprietary brands.

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

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

The LB Brand is a co-branded collaboration between Xcel and Lloyd Boston that launched in August 2024.

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

the Company consolidates Longaberger Licensing, LLC and recognizes noncontrolling interest for the remaining ownership interest held by a third party (see Note 3 for additional details).

● The Company wholly owned and managed the Isaac Mizrahi Brand through May 31, 2022.

On May 31, 2022, the Company sold to a third party a majority interest in a newly-created subsidiary that was formed to hold the Isaac Mizrahi Brand trademarks, but retained a noncontrolling interest in the brand through a 30 % ownership interest in IM Topco, LLC and continues to participate in the operations of the business;

● The Company holds a noncontrolling interest in the Isaac Mizrahi Brand through a 30 % ownership interest in IM Topco, LLC (“IM Topco”);

the Company accounts for its interest in IM Topco, LLC using the equity method of accounting (see Note 3 for additional details).

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

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’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 noncontrolling equity ownership interest in ORME Live Inc.

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

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

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

The Company’s wholesale and direct-to-consumer operations are presented as "Net sales" and "Cost of goods sold" in the Consolidated Statements of Operations, separately from the Company’s licensing revenues.

Liquidity and Management’s Plans

The Company incurred a net loss attributable to Company stockholders of approximately $ 21.1 million and $ 4.0 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.

The Company had working capital (current assets less current liabilities, excluding the current portion of lease obligations) of approximately $ 2.1 million and $ 8.8 million as of December 31, 2023 and 2022, respectively.

The Company’s cash and cash equivalents were approximately $ 3.0 million and $ 4.6 million as of December

The Company’s former wholesale and direct-to-consumer operations are presented as "Net sales" and "Cost of goods sold" in the Consolidated Statements of Operations, separately from the Company’s licensing revenues.

The only net sales and cost of goods sold recognized for the year ended December 31, 2024 were (i) the final sale of certain residual jewelry inventories and (ii) the sale of all remaining inventory related to the Longaberger Brand.

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

XCEL BRANDS, INC.

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December 31, 2024 and 2023

31, 2023 and 2022, respectively.

The aforementioned 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 (see Note 5 for details).

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.

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.

Further, in October 2023, the Company entered into a new term loan agreement in the amount of $ 5 million (see Note 6 for details).

Subsequent to year end, in January 2024, the Company entered into a sublease of its offices at 1333 Broadway in New York, NY (see Note 12 for details), and in March 2024, the Company issued new shares of common stock for net proceeds of approximately $ 2 million (see Note 12 for details).

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

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

While the Company has 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 these financial statements are issued.

Subsequent to year-end, the Company restructured its outstanding debt and received net proceeds from financing activities.

However, these proceeds may still be insufficient to fully address the Company’s liquidity needs.

Management is 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 the Company’s obligations.

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

Management intends to continue exploring strategic financing alternatives and operational efficiencies to improve liquidity.

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

Summary of Significant Accounting Policies

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

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Investments in Unconsolidated Affiliates

The Company holds a noncontrolling equity interest in IM Topco, LLC, which was entered into during the Prior Year, and a noncontrolling equity interest in ORME Live, Inc., which was entered into during the Current Year.

These investments are accounted for in accordance with ASC Topic 323, “Investments – Equity Method and Joint Ventures,” as the Company has the ability to exercise significant influence over their operating and financial policies of these affiliates, but does not control the affiliates.

The Company holds noncontrolling equity interests in IM Topco, LLC and ORME Live, Inc.

These investments are accounted for in accordance with ASC Topic 323, “Investments – Equity Method and Joint Ventures,” as the Company has the ability to exercise significant influence over the operating and financial policies of these affiliates, but does not control the affiliates.

See Note 3 for additional information related to the Company’s investments in unconsolidated affiliates.

The Company recognizes its share of the ongoing operating results of these affiliates within other operating costs and expenses (income) in the accompanying consolidated statements of operations.

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See Note 3 for additional information related to the Company’s investments in unconsolidated affiliates.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Change in Capital Structure

As described more fully in Note 12, effective March 24, 2025, the Company effected a 1-for-10 reverse stock split for all of its issued and outstanding common stock.

All share and per share amounts presented in these consolidated financial statements and accompanying notes, including but not limited to shares issued and outstanding, earnings/(loss) per share, and warrants and options, as well as the dollar amounts of common stock and paid-in capital, have been retroactively adjusted for all periods presented in order to reflect this change in capital structure.

There were no changes to the total number of authorized common shares or par value per common share as a result of this change.

Use of Estimates

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The Company deems the following items to require significant estimates from management:

● Allowances for credit losses;

● Useful lives of trademarks;

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

● Stock-based compensation.

● Accounting for and valuation of equity method investees;

● Valuation allowances and effective tax rate for tax purposes;

● Incremental borrowing rate for lease accounting purposes.

Cash and Cash Equivalents

All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.

Restricted Cash

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.

Accounts Receivable

Accounts receivable are reported net of an allowance for credit losses.

As of December 31, 2023 and 2022, the Company had $ 3.5 million and $ 5.1 million, respectively, of accounts receivable, net of allowances of $ 0.8 million and $ 0 , respectively.

As of December 31, 2024 and 2023, the Company had $ 2.3 million and $ 3.5 million, respectively, of accounts receivable, net of allowances of $ 0.00 million and $ 0.08 million, respectively.

XCEL BRANDS, INC.

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Receivable balances are written-off against the allowance for credit losses when such balances are deemed to be uncollectible.

A rollforward of the allowance for credit losses for the Current Year is as follows:

A rollforward of the allowance for credit losses for the Current Year and Prior Year is as follows:

($ in thousands)

Balance at December 31, 2022

Credit loss expense

Balance at January 1

Credit loss expense (recovery)

Balance at December 31

The Company recognized credit loss expense of $ 0.4 million in the Prior Year, which was related to the bankruptcy of several retail customers due to the 2020 – 2023 coronavirus disease pandemic.

The Company wrote-off approximately $ 1.5 million of such customers’ outstanding receivable balances in the Prior Year.

Additionally, on October 17, 2023, the Company and one of the licensees managed under the Halston Master License (see Note 5) entered into an amendment of their respective licensing agreement.

Under this amendment, the payment terms of the $ 0.76 million outstanding balance due to the Company were changed such that this receivable (and collection thereof) became contractually contingent upon the licensee’s future performance.

The licensee is also required to pay interest to the Company on a monthly basis until the outstanding balance is paid in full.

The Company recorded a non-cash charge of $ 0.76 million within other selling, general and administrative expenses in the Current Year related to the restructuring of this licensing arrangement, in order to write-down the previously-recorded receivable to zero, which is not included in the credit loss expense and allowance for credit losses amounts set forth above.

Under this amendment, the payment terms of a $ 0.76 million outstanding balance due to the Company were changed such that this receivable (and collection thereof) became contractually contingent upon the licensee’s future performance.

This licensee is also required to pay interest to the Company on a monthly basis until the outstanding balance is paid in full.

The Company recorded a non-cash charge of $ 0.76 million within other selling, general and administrative expenses in the Prior Year related to the restructuring of this licensing arrangement, in order to write-down the previously-recorded receivable to zero, which is not included in the credit loss expense and allowance for credit losses amounts set forth above.

There is no earned revenue that has been accrued but not billed as of December 31, 2024 and 2023.

As of December 31, 2023 and 2022, approximately $ 0.04 million and $ 1.7 million, respectively, of the Company's outstanding receivables were assigned to a third-party agent pursuant to a services agreement entered into during the Prior Year, under which the Company assigned, for purposes of collection only, the right to collect certain specified receivables on the Company's behalf and solely for the Company's benefit.

Under such agreement, the Company retains ownership of such assigned receivables, and receives payment from the agent (less certain fees charged by the agent) upon the agent's collection of the receivables from customers.

During both the Current Year and Prior Year, the Company paid less than $ 0.1 million in fees to the agent under the aforementioned services agreement.

All of the Company’s inventory consists of finished goods.

As of December 31, 2022, inventory was composed of jewelry, wholesale apparel, and home goods.

During the Current Year, as a result of the restructuring of its business operating model, the Company sold all of its wholesale apparel inventory and substantially all of its remaining fine jewelry inventory to its new business partners and licensees.

Thus, as of December 31, 2023, inventory was primarily composed of home goods and related items for the Longaberger Brand.

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

The Company periodically reviews the composition of its inventories in order to identify obsolete, slow-moving, or otherwise non-saleable items.

If non-saleable items are observed and there are no alternate uses for the inventories, the Company

All of the Company’s inventory consisted solely of finished goods, and was recorded at the lower of cost or net realizable value, with cost determined on a weighted average basis.

The Company periodically reviewed the composition of its inventory in order to identify obsolete, slow-moving, or otherwise non-saleable items, and recorded write-downs to net realizable value for any non-saleable inventory with no alternative use.

The Company also recorded write-downs for inventory shrinkage, representing the risk of physical loss of inventory, based on historical experience and physical inventory counts.

As of January 1, 2023, inventory was composed of jewelry, wholesale apparel, and home goods.

During the Prior Year, as a result of the restructuring of its business operating model, the Company sold all of its wholesale apparel inventory and substantially all of its remaining fine jewelry inventory to its new business partners and licensees.

Thus, as of December 31, 2023, inventory was composed of home goods and related items for the Longaberger Brand, as well as certain residual jewelry inventories.

During the Current Year, the Company sold all of its remaining inventory items, and as of December 31, 2024, the Company had no remaining inventory.

Property and Equipment

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

Depreciation expense for the years ended December 31, 2024 and 2023 was approximately $ 0.1 million and $ 0.8 million, respectively.

XCEL BRANDS, INC.

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December 31, 2024 and 2023

will record a write-down to net realizable value in the period that the decline in value is first recognized.

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

Property and Equipment

Depreciation expense for the years ended December 31, 2023 and 2022 was approximately $ 0.8 million and $ 1.1 million, respectively.

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

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

The Company recognized impairment charges of $ 0.3 million in the Prior Year related to store fixtures purchased for an apparel program with one of the Company’s retail partners.

Trademarks and Other Intangible Assets

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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 a discounted cash flows analysis or appraisals.

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

No impairment charges were recorded related to intangible assets for the Current Year or Prior Year.

See Note 4 for additional information related to the Company’s trademarks and other intangible assets.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Deferred Finance Costs

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

These costs have been deferred on the consolidated balance sheet as a reduction to the carrying value of the associated borrowings, and are being amortized as interest expense over the term of the related borrowings using the effective interest method.

Costs incurred in connection with borrowings under term loans (primarily professional fees and lender underwriting fees) are deferred on the consolidated balance sheet as a reduction to the carrying value of the associated borrowings, and are amortized as interest expense over the term of the related borrowings using the effective interest method.

Contingent Obligations

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

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

The Company recorded contingent obligations in connection with the purchase of the Halston Heritage trademarks in 2019 and the purchase of the LOGO by Lori Goldstein trademarks in 2021, but no amount has been recorded for the contingent obligation related to the sale of a majority interest in the Isaac Mizrahi Brand in 2022.

See Note 9 for additional information related to the Company’s contingent obligations.

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The Company recognizes revenue continuously over time as it satisfies its continuous obligation of granting access to its licensed intellectual properties, which are deemed symbolic intellectual properties under the applicable revenue accounting guidance.

The Company determines the transaction price based on the terms of the contract.

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

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(i) Contracts for which, based on experience, royalties are expected to exceed any applicable minimum guaranteed payments, and to which an output-based measure of progress based on the “right to invoice” practical expedient is applied because the royalties due for each period correlate directly with the value to the customer of the Company’s performance in each period (this approach is identified as “View A” by the FASB Revenue Recognition Transition Resource Group, “TRG”);

(ii) Contracts for which revenue is recognized based on minimum guaranteed payments using an appropriate measure of progress, in which minimum guaranteed payments are straight-lined over the term of the contract and recognized ratably based on the passage of time, and to which the royalty recognition constraint to the sales-based royalties in excess of minimum guaranteed is applied and such sales-based royalties are recognized to the distinct period only when the minimum guaranteed is exceeded on a cumulative basis (this approach is identified as “View C” by the TRG).

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

The Company does not typically perform by transferring goods or services to customers before the customer pays consideration or before payment is due, thus the amounts of contract assets as defined by ASC 606-10-45-3 related to licensing contracts were not material as of December 31, 2024 and 2023.

The Company does not typically receive consideration in advance of performance and, consequently, amounts of contract liabilities as defined by ASC 606-10-45-2 related to licensing contracts are generally not material;

however, as of December 31, 2024 and 2023, the Company has recognized approximately $ 3.6 million and $ 4.4 million, respectively, of deferred revenue contract liabilities on its consolidated balance sheet related to the Halston Master License agreement (see Note 5 for additional details).

XCEL BRANDS, INC.

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December 31, 2024 and 2023

The Company typically does not receive consideration in advance of performance and, consequently, amounts of contract liabilities as defined by ASC 606-10-45-2 related to licensing contracts were not material as of December 31, 2022;

however, as of December 31, 2023, the Company has recognized approximately $ 4.4 million of deferred revenue contract liabilities on its consolidated balance sheet related to the Halston Master License agreement (see Note 5).

The Company does not disclose the amount attributable to unsatisfied or partially satisfied performance obligations for variable revenue contracts (identified under “View A” above) in accordance with the optional exemption allowed under ASC 606.

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Wholesale Sales

Prior to the restructuring of the Company’s business model and operations in the Current Year, the Company generated a portion of its revenue through the design, sourcing, and sale of branded jewelry and apparel to both domestic and international customers who, in turn, sold the products to the consumer.

Prior to the restructuring of the Company’s business model and operations, the Company generated a portion of its revenue through the design, sourcing, and sale of branded jewelry and apparel to both domestic and international customers who, in turn, sold the products to the consumer.

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

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Direct-to-Consumer Sales

The Company’s revenue associated with its e-commerce jewelry operations and the Longaberger Brand (prior to the restructuring of the Company’s business model and operations in the Current Year) was recognized within net sales in the accompanying consolidated statements of operations at the point in time when product is shipped to the customer.

The Company’s revenue associated with its e-commerce jewelry operations and the Longaberger Brand (prior to the restructuring of the Company’s business model and operations in the Prior Year) was recognized within net sales in the accompanying 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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The Company incurred approximately $ 0.7 million and $ 1.0 million in advertising and marketing costs for the Current Year and Prior Year, respectively, which are included within other selling, general and administrative expenses in the accompanying consolidated statements of operations.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

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Variable lease payments that do not depend on an index or rate (such as real estate taxes and building insurance and lessee’s shares thereof), if any, are excluded from lease payments at lease commencement date for initial measurement.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

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Treasury rate for the expected term at the time of grant, volatility is based on the historical volatility of the Company’s common stock, and the expected dividend assumption is based on the Company’s history and expectation of dividend payouts.

Restricted stock awards are valued using the fair value of the Company’s stock at the date of grant, based on the quoted market price of the Company’s common shares on the NASDAQ Capital Market.

Restricted stock awards and other stock awards are valued using the fair value of the Company’s stock at the date of grant, based on the quoted market price of the Company’s common shares on the NASDAQ Capital Market.

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

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

For stock option awards for which vesting is contingent upon the achievement of certain performance targets, the timing and amount of compensation expense recognized is based upon the Company’s projections and estimates of the relevant

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

performance metric(s) until the time the performance obligation is satisfied.

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

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A valuation allowance is established if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company applies the FASB guidance on accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also addresses derecognition, classification, interest, and penalties related to uncertain tax positions.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

The Company applies the applicable FASB guidance on accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also addresses derecognition, classification, interest, and penalties related to uncertain tax positions.

The Company has no unrecognized tax benefits as of December 31, 2024 and 2023.

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At times, the Company’s cash and cash equivalents may exceed federally insured limits.

Concentrations of credit risk with respect to accounts receivable are not considered

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

significant due to the collection history and due to the nature of the Company’s royalty revenues.

Concentrations of credit risk with respect to accounts receivable are not considered significant due to the collection history and due to the nature of the Company’s royalty revenues.

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

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See Note 8 for additional information related to earnings (loss) per share.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Segment Reporting Information

The Company has a single reportable segment, which generates revenue from the design and licensing of branded apparel, jewelry, and similar consumer products.

The Company derives revenue in North America and manages its business activities on a consolidated basis.

The Company’s chief operating decision maker, as such term is defined under U.S.

GAAP, is its Chief Executive Officer.

The accounting policies of the Company’s single reportable segment are the same as those for the Company as a whole.

The chief operating decision maker assesses performance for the single reportable segment and decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income.

The chief operating decision maker analyzes and reviews business performance based on available sales data from key licensees and quarterly sales and royalty reports provided by its licensees in addition to assessing the overall operating results on a monthly basis.

The measure of segment assets is reported on the balance sheet as total consolidated assets, and, as the Company has a single reportable segment, the Company’s resources are applicable to the business as a whole.

The Company does not have intra-entity sales or transfers.

Recently Adopted Accounting Pronouncements

The Company 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 will generally result in earlier recognition of credit losses.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” during the year ended December 31, 2024.

This ASU requires additional disclosures regarding reportable segments and significant segment expenses, but does not change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.

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

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The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.

Acquisitions and Divestitures, Investments in Unconsolidated Affiliates, and Variable Interest Entities

Sale of Majority Interest in Isaac Mizrahi Brand

On May 27, 2022, Xcel (along with IM Topco, LLC (“IM Topco”) and IM Brands, LLC (“IMB”), both wholly owned subsidiaries of the Company) and IM WHP, LLC (“WHP”), a subsidiary of WHP Global, a private equity-backed brand management and licensing company, entered into a membership purchase agreement.

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.

The purchase price paid by WHP to the Company at the closing of the transaction in exchange for the 70 % membership interest in IM Topco consisted of $ 46.2 million in cash.

The Company incurred approximately $ 0.9 million of expenses directly related to this transaction, including legal fees and agent fees, of which $ 0.1 million of the agent fees were paid through the issuance of 65,275 shares of the Company’s common stock, which were recognized as a reduction to the gain from the transaction.

The Company recognized a net pre-tax gain from the transaction of $ 20.6 million, which is classified

In November 2024, the FASB issued ASU No.

2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.” This ASU requires public business entities to disclose specified information about certain costs and expenses, including but not limited to purchases of inventory, employee compensation, depreciation, and intangible asset amortization, in a tabular format within the notes to their financial statements, as well as provide additional disclosures related to certain other specified expenses.

The ASU may be applied on either a prospective or retrospective basis, and is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027.

The Company is currently evaluating the ASU to determine its impact on the Company's disclosures.

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December 31, 2024 and 2023

as a component of other operating costs and expenses (income) in the consolidated statement of operations for the Prior Year.

Pursuant to the May 27, 2022 purchase agreement, the Company was also entitled to receive an “earn-out” payment in the amount of $ 2.0 million if, during the period from January 1, 2023 through December 31, 2023, (i) IM Topco received Net Royalty Revenue (as defined in the purchase agreement) in an amount equal to or greater than $ 17.5 million and (ii) IM Topco generated EBITDA (as defined in the purchase agreement) in an amount equal to or greater than $ 11.8 million.

These conditions were not met during 2023, and ultimately the Company did not receive any additional “earn-out” payment.

Additionally, the purchase agreement provided that, in the event IM Topco receives less than $ 13.347 million in aggregate royalties for any four consecutive calendar quarters over a three-year period ending on the third anniversary of the closing, WHP would be entitled to receive from the Company up to $ 16 million, less all amounts of net cash flow distributed to WHP for such period, as an adjustment to the purchase price, payable in either cash or equity interests in IM Topco held by the Company.

This provision was subsequently amended in November 2023, as described further below, and was subsequently further amended in April 2024 (see Note 12 for additional information).

In connection with the May 27, 2022 membership purchase agreement, the Company and WHP also entered into an Amended and Restated Limited Liability Company Agreement of IM Topco (the “Business Venture Agreement”) governing the operation of IM Topco as a partnership between the Company and WHP following the closing.

Pursuant to the Business Venture Agreement, IM Topco is managed by a single Manager appointed by the vote of a majority-in-interest of IM Topco’s members, and WHP serves as the sole Manager of IM Topco.

The Business Venture Agreement contains customary provisions for the governance of a partnership, including with respect to decision making, access to information, restrictions on transfer of interests, and covenants.

Pursuant to the Business Venture Agreement, IM Topco’s Net Cash Flow (as defined in the agreement) shall be distributed to the members during each fiscal year no less than once per fiscal quarter, as follows:

Investments in Unconsolidated Affiliates, Variable Interest Entities, and Divestitures

Investment in IM Topco, LLC

On May 31, 2022, Xcel sold 70 % of the membership interests of IM Topco, LLC, a former subsidiary which holds the trademarks and other intellectual property rights relating to the Isaac Mizrahi Brand, to a subsidiary of WHP Global (“WHP”), a private equity-backed brand management and licensing company.

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

Pursuant to the business venture agreement between the Company and WHP governing the operation of IM Topco, IM Topco’s net cash flow (as defined in the agreement) shall be distributed to the members during each fiscal year no less than once per fiscal quarter, as follows:

(i) first, 100 % to WHP, until WHP has received an aggregate amount during such fiscal year equal to $ 8,852,000 (subject to adjustment in certain circumstances as set forth in the agreement);

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

The distribution provisions in the Business Venture Agreement were subsequently amended in April 2024 (see Note 12 for additional information).

The Company also entered into a number of other related agreements on May 31, 2022 in connection with the transaction, including a services agreement with IM Topco and a license agreement with IM Topco (see Note 11 for details), while the Company’s employment agreement with Mr.

Mizrahi and the Company’s services agreement with Laugh Club (see Note 11) were transferred to IM Topco.

Further, the Company’s licensing agreement with Qurate Retail Group related to the Isaac Mizrahi Brand (see Note 5) was assigned to IM Topco as of May 31, 2022.

Management assessed and evaluated the ownership structure and other terms of the May 27, 2022 membership purchase agreement and Business Venture Agreement, as well as considered the Company’s continuing involvement with the Isaac Mizrahi Brand through the aforementioned services agreement and license agreement with IM Topco, and concluded that (i) IM Topco is not a Variable Interest Entity under ASC Topic 810, and (ii) the Company has significant influence over, but does not control, IM Topco.

As such, on May 31, 2022, the Company de-recognized the carrying amount of the Isaac Mizrahi Brand trademarks of $ 44.5 million and recognized the fair value of its retained interest in IM Topco of

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

approximately $ 19.8 million as an equity method investment.

The fair value of the Company’s retained interest was determined by applying the Company’s ownership percentage to the implied enterprise value of IM Topco, which was calculated based on the price paid by WHP for the 70 % controlling interest, as the May 31, 2022 sale transaction was considered an arms-length transaction between knowledgeable market participants and the most relevant and reasonable indication of value to utilize.

The inputs and assumptions for this nonrecurring fair value measurement are classified as Level 3 within the fair value hierarchy defined in ASC Topic 820.

Investment in IM Topco, LLC

The Company accounts for its interest in the ongoing operations of IM Topco as a component of other operating costs and expenses (income) under the equity method of accounting.

Based on the aforementioned distribution provisions set forth in the Business Venture Agreement, the Company recognized an equity method loss of approximately $ 2.1 and $ 1.2 million related to its investment for the years ended December 31, 2023 and 2002, respectively.

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 $ 1.73 million and $ 2.06 million for the years ended December 31, 2024 and 2023, respectively.

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 all of the periods presented.

As such, Xcel recognized no cash-based earnings for all 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 to Xcel’s share of amortization expense.

Summarized financial information for IM Topco is as follows:

For the year ended

Summarized financial information for IM Topco for the year ended December 31, 2023 is as follows.

Comparable information for the year ended December 31, 2024 is not presented below as the Company’s investment in IM Topco was not considered significant to the Company as of and for the year ended December 31, 2024.

($ in thousands)

(Loss) income from continuing operations

Net (loss) income

(1) Represents financial information for the period commencing May 31, 2022 (the date of the sale of a majority interest in IM Topco) through December 31, 2022.

During the Prior Year (subsequent to the May 27, 2022 transaction), the Company made a capital contribution to IM Topco of $ 0.6 million in cash, which did not change the Company’s noncontrolling ownership interest of 30 %.

In November 2023, the Company, WHP, and IM Topco entered into an amendment of the May 27, 2022 membership purchase agreement, under which the parties agreed to waive the purchase price adjustment provision until the measurement period ending March 31, 2024.

In exchange, Xcel agreed to make additional royalty payments to IM Topco totaling $ 0.45 million over the next 11 months.

As a result of this amendment, the Company recognized a $ 0.45 million increase to the carrying value basis of its equity method investment and a corresponding increase in current liabilities.

The provisions of the membership purchase agreement were subsequently further amended in April 2024 (see Note 12 for additional information).

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 consolidated balance sheet.

The Company accounts for its interest in the operations of ORME as a component of other operating costs and expenses (income) under the equity method of accounting;

the Company’s proportional share of the operating results of ORME were not material in the Current Year.

Loss from continuing operations

In November 2023, the Company, WHP, and IM Topco entered into an amendment of the May 2022 membership purchase agreement, under which the parties agreed to waive a certain purchase price adjustment provision until the measurement period ending March 31, 2024 (see Note 9 for additional information).

In exchange, Xcel agreed to make additional royalty payments to IM Topco totaling $ 0.45 million over the subsequent 11 months.

As a result of this amendment, the Company recognized a $ 0.45 million increase to the carrying value basis of its equity method investment.

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December 31, 2024 and 2023

Sale of Investment in Unconsolidated Affiliate

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

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

This investment was included within other assets on the Company’s consolidated balance sheet at December 31, 2022, at a carrying value of $ 0.1 million.

During the Current Year, the Company sold its ownership interest in this entity, and recognized a gain of $ 0.36 million related to the sale within other operating costs and expenses (income) on the consolidated statement of operations.

During the Current Year, the Company recognized $ 9.96 million of other non-cash charges related to IM Topco, comprised of the following:

● a $ 4.21 million non-cash charge to recognize a contingent obligation related to certain contractual provisions contained within the amended membership purchase agreement between Xcel and WHP (see Note 9 for details), which is presented as “Contingent reduction in equity ownership of IM Topco, LLC” within Other operating costs and expenses (income) in the consolidated statements of operations, and

● a $ 5.75 million other-than-temporary impairment of the Company’s investment in IM Topco, stemming from a decline in the fair value of the investment as a result of decreases in IM Topco’s revenues and cash flows (which is presented as part of “Loss from equity method investments” within Other operating costs and expenses (income) in the consolidated statements of operations).

The carrying value of the Company’s investment in IM Topco was $ 10.11 million and $ 17.59 million as of December 31, 2024 and 2023, respectively.

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 Company accounts for its interest in the operations of ORME as a component of other operating costs and expenses (income) under the equity method of accounting.

The Company’s proportional share of the operating results of ORME was a loss of approximately $ 0.15 million in the Current Year and was not material in the Prior Year.

The carrying value of the Company’s investment in ORME was $ 0 and $ 0.15 million as of December 31, 2024 and 2023, respectively.

During the Current Year, the Company’s proportional ownership interest in ORME was reduced from 30 % to 19 % as the result of dilution arising from other parties making investments in ORME;

however, by that point, the carrying value of the Company’s investment in ORME had already been reduced to $ 0 .

Longaberger Licensing, LLC Variable Interest Entity

Since 2019, Xcel has been party to a limited liability company agreement (the “LLC Agreement”) with a subsidiary of Hilco Global related to Longaberger Licensing, LLC (“LL”).

Since 2019, Xcel has been party to a limited liability company agreement with a subsidiary of Hilco Global related to Longaberger Licensing, LLC (“LL”).

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

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

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

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

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

Sale of Investment in Unconsolidated Affiliate

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

This investment was included within other assets on the Company’s consolidated balance sheet at December 31, 2022, at a carrying value of $ 0.1 million.

During the Prior Year, the Company sold its ownership interest in this entity, and recognized a gain of $ 0.36 million related to the sale within other operating costs and expenses (income) on the consolidated statement of operations.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Divestiture of the Lori Goldstein Brand

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.

● 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.

The Company paid the LG Parties 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.

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.

Accordingly, the Company recorded a net non-cash gain on the divestiture of the Lori Goldstein Brand of approximately $ 3.80 million for the year ended December 31, 2024.

Trademarks and Other Intangibles

10 unchanged sentences

Copyrights and other intellectual property

During the Prior Year, the Company sold its $ 44.5 million of indefinite-lived trademarks related to the Isaac Mizrahi Brand (see Note 3 for details).

Amortization expense for intangible assets was approximately $ 6.1 million for both the Current Year and Prior Year.

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2024 and 2023

Amortization expense for intangible assets was approximately $ 4.83 million and $ 6.14 million for the Current Year and Prior Year, respectively.

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

4 unchanged sentences

Qurate Agreements

Through its wholly owned subsidiaries, the Company has entered into direct-to-retail license agreements with Qurate Retail Group (“Qurate”), collectively referred to as the Qurate Agreements (individually, each a “Qurate Agreement”), pursuant to which the Company designs, and Qurate sources and sells, various products under the LOGO by Lori Goldstein brand, the Longaberger brand, and the C Wonder brand.

The Company was also previously party to similar agreements with Qurate related to the IsaacMizrahiLIVE brand and the Judith Ripka brand.

Through its wholly owned subsidiaries, the Company has entered into direct-to-retail license agreements with Qurate Retail Group (“Qurate”), collectively referred to as the Qurate Agreements (individually, each a “Qurate Agreement”), pursuant to which the Company designs, and Qurate sources and sells, various products under the C Wonder Brand, the CB Brand, the LB Brand, and the Longaberger Brand.

The Company was also previously party to similar agreements with Qurate related to the IsaacMizrahiLIVE brand and the Judith Ripka brand, and the LOGO by Lori Goldstein brand.

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

1 unchanged sentence

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

Xcel Commenced

Current Term Expiry

Automatic Renewal

Brand with Qurate

Product Launch

LOGO Qurate Agreement (QVC)

November 1, 2024

one-year period

C Wonder Qurate Agreement (HSN)

December 31, 2026

two-year period

TowerHill by Christie Brinkley Qurate Agreement (HSN)

three-year period

LB70 by Lloyd Boston Qurate Agreement (HSN)

December 31, 2025

two-year period

Longaberger Qurate Agreement (QVC)

2 unchanged sentences

November 2019

C Wonder Qurate Agreement (HSN)

December 31, 2024

two-year period

● On May 31, 2022, in connection with the sale of a majority interest in the Isaac Mizrahi brand to a third party, the Qurate Agreement related to the IsaacMizrahiLIVE brand was assigned to IM Topco, LLC.

See Note 3 for additional details.

● On June 30, 2024, in connection with the divestiture of the Lori Goldstein Brand (see Note 3), the agreement with Qurate related to the LOGO by Lori Goldstein brand was assigned to assumed by the counterparties to the divestiture transaction.

● On August 30, 2022, Qurate and Xcel amended the licensing agreement for the Judith Ripka brand to terminate the license period effective December 31, 2021.

1 unchanged sentence

The sell-off period ended in 2023.

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

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

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2024 and 2023

● On May 31, 2022, in connection with the sale of a majority interest in the Isaac Mizrahi Brand to WHP (see Note 3), the Qurate Agreement related to the IsaacMizrahiLIVE brand was assigned to IM Topco, LLC.

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

The Qurate Agreements generally prohibit the Company from selling products under the specified respective brands to a direct competitor of Qurate without Qurate’s consent.

10 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 $ 4.4 million of deferred revenue contract liabilities on its consolidated balance sheet as of December 31, 2023 related to this contract, of which $ 0.9 million was classified as a current liability and approximately $ 3.5 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 $ 3.56 million and $ 4.44 million of deferred revenue contract liabilities on its consolidated balance sheet as of December 31, 2024 and 2023, respectively.

As of December 31, 2023, approximately $ 0.89 million of the contract liability balance was classified as a current liability and approximately $ 3.55 million was classified as a long-term liability.

As of December 31, 2024, approximately $ 0.89 million of the contract liability balance was classified as a current liability and approximately $ 2.67 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 4.0 years.

Net licensing revenue recognized from the Halston Master License was $ 1.6 million for the Current Year, representing approximately 9 % of the Company’s total net revenue for the Current Year.

Additionally, in connection with the Halston Master License, 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 Year was approximately $ 0.03 million.

As of December 31, 2023, no portion of this warrant had vested.

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2024 and 2023

Net licensing revenue recognized from the Halston Master License was $ 2.54 million and $ 1.60 million for the Current Year and Prior Year, respectively, representing approximately 31 % and 9 % of the Company’s total net revenue, respectively.

JTV / America’s Collectibles Network, Inc.

The Company has a license agreement with America’s Collectibles Network, Inc.

(d/b/a JTV) (“JTV”) that obligates JTV to pay the Company royalties based on product sales of Judith Ripka Brand merchandise.

In addition, the Company has outstanding receivables from prior product sales of fine jewelry made to JTV.

As of December 31, 2024 and 2023, the Company had receivables from JTV of $ 1.06 million and $ 1.37 million, respectively, representing approximately 45 % and 40 % of the Company’s total net accounts receivable, respectively.

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

1 unchanged sentence

Term loan debt

Unamortized deferred finance costs related to term loan debt

Unamortized deferred finance costs and other reductions to carrying value

Current portion of debt

2 unchanged sentences

The effective interest rate related to term loan debt was approximately 11.9 % and 11.6 % for the Current Year and Prior Year, respectively.

Previous Term Loan Debt (through May 31, 2022)

On December 30, 2021, Xcel, as Borrower, and its wholly-owned subsidiaries entered into a loan and security agreement with First Eagle Alternative Credit Agent, LLC (“FEAC”), as lead arranger and as administrative agent and collateral agent, and the financial institutions party thereto as lenders.

Pursuant to this loan agreement, the lenders made a term loan in the aggregate amount of $ 29.0 million.

This term loan bore interest at “LIBOR” plus 7.5 % per annum, with “LIBOR” defined as the greater of (a) the rate of interest per annum for deposits in dollars for an interest period equal to three months as published by Bloomberg or a comparable or successor quoting service at approximately 11:00 a.m.

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

Upon entering into the December 2021 loan agreement, Xcel paid a 1.75 % closing fee to FEAC for the benefit of the lenders;

the Company also paid approximately $ 0.5 million of various legal and other fees in connection with the execution of the loan agreement.

These fees and costs totaling approximately $ 0.97 million were deferred on the Company’s balance sheet as a reduction of the carrying value of the term loan debt, to be subsequently amortized to interest expense over the term of the debt using the effective interest method.

The December 2021 term loan was to mature on April 14, 2025.

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

The December 2021 term loan agreement also contained customary covenants, including reporting requirements, trademark preservation, and certain financial covenants;

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

Extinguishment of Previous Term Loan Debt

On May 31, 2022, the Company used $ 30.1 million of the proceeds received from the transaction related to the Isaac Mizrahi Brand (see Note 3) to repay all amounts outstanding under the December 30, 2021 term loan agreement with FEAC, consisting of $ 28.4 million in principal amount, a $ 1.4 million prepayment fee, and approximately $ 0.3 million in interest and related expenses.

As a result, the Company recognized a loss on early extinguishment of debt of approximately $ 2.3 million during the Prior Year, consisting of approximately $ 1.4 million of debt prepayment premium, the immediate write-off of approximately $ 0.8 million of unamortized deferred finance costs, and approximately $ 0.1 million of other costs.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

New Term Loan Debt

Previous Term Loan Debt (October 19, 2023 through December 11, 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 $ 0.30 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.

These fees and costs totaling $ 0.30 million were deferred on the Company’s balance sheet as a reduction of the carrying value of the term loan debt, and were being amortized to interest expense over the term of the debt using the effective interest method.

In connection with October 2023 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.

1 unchanged sentence

Pursuant to the Pledge Agreement, Xcel granted to IDB a security interest in its membership interests in H Licensing to secure the Borrower’s obligations under the October 2023 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.

As of December 31, 2023, the aggregate remaining principal payments under the October 2023 term loan were as follows:

($ in thousands)

Year Ending December 31,

Interest on the October 2023 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.

The term loan was to mature on October 19, 2028.

Principal on the term loan was 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 had the right to prepay all or any portion of the term loan at any time without penalty.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

Interest on the October 2023 term loan accrued 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.

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 October 2023 term 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.

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

The October 2023 term loan agreement contained 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.

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

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 October 2023 term loan principal amount.

In addition, on October 19, 2023, the Borrower also entered into a swap agreement with IDB, pursuant to which IDB agreed to 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 was aligned with the amortization of the October 2023 term loan principal amount.

New Term Loan Debt

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.

The aggregate future principal payments under the Term Loans are as follows:

($ in thousands)

Year Ending December 31,

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.

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2024 and 2023

In connection with entering into the Terms Loans, the Company incurred loan origination fees, plus various legal and other fees.

These fees and costs totaling $ 0.92 million were deferred on the Company’s balance sheet as a reduction of the carrying value of the term loan debt.

Also in connection with entering into the Terms Loans, the Company issued warrants to the lenders 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.

In accordance with applicable GAAP, the Company allocated the value of the total proceeds of $ 10.0 million between the term loan debt and the warrants, based on the relative fair values of each.

The fair value of the term loan debt was determined using a net present value calculation, while the fair value of the warrants was determined using a Black-Scholes option pricing model.

As a result, the Company recognized a $ 0.48 million increase to stockholders’ equity as additional paid-in capital for the allocated fair value of the warrants, and an offsetting decrease to the net carrying value of the term loan debt.

These reductions to the carrying value of the term loan debt totaling $ 1.40 million are being amortized to interest expense over the term of the debt using the effective interest method.

The loan agreement also requires that the Company pay an exit fee of $ 175,000 for the ratable benefit of the Term Loan A lenders and an exit fee of $ 375,000 for the ratable benefit of the Term Loan B lenders upon the maturity or full payment of the Term Loans.

The Company is accruing the cost of these exit fees over the term of the related debt.

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.

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

As a result of the debt refinancing transaction on December 12, 2024 as described above, the Company recognized a loss on extinguishment of debt of approximately $ 0.3 million (primarily comprised of the write-off of $ 0.2 million of remaining unamortized deferred finance costs related to the October 2023 IDB term loan debt, and $ 0.1 million paid to exit the interest rate swap agreement with IDB) during the Current Year.

The Company subsequently refinanced its term loan debt again in April 2025;

see Note 12 for additional information.

Stockholders’ Equity

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

Public Offering and Private Placement Transactions

On March 15, 2024, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC (the “Representative”), as the representative of the underwriters, relating to a firm commitment underwritten public offering (the “Offering”) of 328,427 shares of the Company’s common stock at a price to the public of $ 6.50 per share.

The closing of the Offering occurred on March 19, 2024.

The net proceeds to the Company from the sale of the shares, after deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company, were approximately $ 1.7 million.

Upon closing of the Offering, the Company issued the Representative certain warrants to purchase up to 18,293 shares of common stock (the “Representative’s Warrants”) as compensation, which amount was offset against the proceeds received.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

The Representative’s Warrants became exercisable on September 15, 2024 (180 days after the closing), and have an exercise price of $ 8.13 .

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

D’Loren, Chairman and Chief Executive Officer of the Company;

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

and Seth Burroughs, Executive Vice President of Business Development and Treasury of the Company to purchase 13,258 , 13,258 , and 2,946 shares, respectively (collectively, the “Private Placement Shares”), at a price of $ 9.80 per Private Placement Share.

The total number of Private Placement Shares purchased was 29,462 .

Net proceeds after payment of agent fees to the Representative were approximately $ 0.3 million.

The purchase of the Private Placement Shares closed concurrently with the Offering.

The aggregate number of shares of common stock issued from the Offering and the Private Placement was 357,889 shares and the total net proceeds received was approximately $ 1.9 million.

Equity Incentive Plans

7 unchanged sentences

Total expense recognized for all forms of stock-based compensation was approximately $ 0.47 million and $ 0.22 million in the Current Year and Prior Year, respectively.

Of the Current Year expense amount, approximately $ 0.02 related to employees and approximately $ 0.20 related to directors and consultants;

Of the Current Year expense amount, approximately $ 0.23 million related to employees and approximately $ 0.24 million related to directors and consultants;

all of this expense was recorded as a direct operating cost in the accompanying statement of operations.

Of the Prior Year expense amount, approximately $ 0.02 million related to employees and approximately $ 0.20 million related to directors and consultants;

approximately $ 0.62 million was recorded as a direct operating cost and approximately $ 0.10 million was recorded within other operating costs and expenses (income).

all of this expense was recorded as a direct operating cost in the accompanying statement of operations.

Stock Options

Options granted under the Company’s equity incentive plans expire at various times – either five , seven , or ten years from the date of grant, depending on the particular grant.

Options granted under the Company’s equity incentive plans expire at various times – generally either five or ten years from the date of grant, depending on the particular grant.

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

3 unchanged sentences

Exercisable at December 31, 2024

XCEL BRANDS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Current Year stock option grants were as follows:

On April 3, 2024, the Company granted options to purchase an aggregate of 10,000 shares of common stock to non-management directors.

The exercise price of the options is $ 8.50 per share, and 50 % of the options vest on each of April 3, 2025 and April 3, 2026.

Prior Year stock option grants were as follows:

In April 2023, the Company granted options to purchase an aggregate of 10,000 shares of common stock to a key individual.

2 unchanged sentences

On August 23, 2023, the Company granted options to purchase an aggregate of 10,000 shares of common stock to non-management directors.

The exercise price of the options is $ 1.51 per share, and 50 % of the options vest on each of April 1, 2024 and April 1, 2025.

Prior Year stock option grants were as follows:

On April 20, 2022, the Company granted options to purchase an aggregate of 380,850 shares of common stock to various employees.

The exercise price of the options is $ 1.62 per share, and all options vested immediately on the date of grant.

On April 20, 2022 the Company granted options to purchase an aggregate of 125,000 shares of common stock to non-management directors.

The exercise price of the options is $ 15.10 per share;

Half of the options vested on April 20, 2023, and the remaining half of the options will vest on April 20, 2024.

On April 26, 2022, the Company granted options to purchase an aggregate of 100,000 shares of common stock to a consultant.

The exercise price of the options is $ 1.58 per share, and all options vested immediately on the date of grant.

50 % of the options vested on April 1, 2024 and the remaining 50 % vests April 1, 2025 .

The fair values of the options granted were estimated at the respective dates of grant using the Black-Scholes option pricing model with the following range of assumptions:

6 unchanged sentences

Total unrecognized compensation expense related to unvested stock options (excluding stock options with performance-based vesting) at December 31, 2024 amounts to approximately $ 0.04 million and is expected to be recognized over a weighted average period of 0.94 years.

Of the total stock options outstanding at December 31, 2023, the vesting of 3,500,000 options is contingent upon the Company’s common stock achieving certain target prices as follows:

Target Prices

Number of Options Vesting

As of December 31, 2023, none of these 3,500,000 performance-based stock options have vested, and no compensation expense has been recorded related to such options.

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2024 and 2023

Of the total stock options outstanding at December 31, 2024, the vesting of 350,000 options is contingent upon the Company’s common stock achieving certain target prices as follows:

Target Prices

Number of Options Vesting

As of December 31, 2024, none of these 350,000 performance-based stock options have vested, and no compensation expense has been recorded related to such options.

The following table summarizes the Company’s stock option activity for non-vested options for the Current Year:

8 unchanged sentences

On January 12, 2024, the Company issued 7,800 shares of common stock to a consultant, which vested immediately.

On April 17, 2023, the Company issued 8,334 shares of common stock to a consultant, which vested immediately.

On May 15, 2023, the Company issued 50,000 shares of common stock to a consultant, which vested immediately.

On July 20, 2023, the Company issued 7,300 shares of common stock to an employee, which vested immediately.

On August 23, 2023, the Company issued an aggregate of 40,000 shares of common stock to non-management directors, of which 50 % shall vest on April 1, 2024, and 50 % shall vest on April 1, 2025.

Prior Year stock award grants were as follows:

On April 20, 2022, the Company issued an aggregate of 50,000 shares of common stock to non-management directors, which vest evenly over two years .

Half of these shares vested on April 20, 2023, and the remaining half shall vest on April 20, 2024.

On April 20, 2022, the Company issued 20,064 shares of common stock to a consultant, which vested immediately.

On May 31, 2022, the Company issued 65,275 shares of common stock to a consultant in connection with the transaction related to the Isaac Mizrahi Brand (see Note 3);

these shares vested immediately.

On May 31, 2022, the Company issued 33,557 shares of common stock to Isaac Mizrahi, which vested immediately (see Note 11 for additional details).

On April 3, 2024, the Company issued an aggregate of 4,000 shares of common stock to non-management directors, of which 50 % vests on each of April 3, 2025 and April 3, 2026.

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.

XCEL BRANDS, INC.

2 unchanged sentences

December 31, 2024 and 2023

Additionally, on April 20, 2022, the Company issued 178,727 shares of common stock to a member of senior management as payment for a performance bonus earned in 2021.

These shares vested immediately.

The Company had previously recognized compensation expense of approximately $ 0.28 million in the 2021 to accrue for this performance bonus.

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

D’Loren and Mr.

Burroughs is 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.

As a result of these amendments, the Company issued an aggregate of 17,502 shares of common stock (net of shares exchanged for withholding taxes) to executives for the Current Year.

On August 2, 2024, the Company issued 1,468 shares of common stock to a member of management, which vested immediately.

Prior Year stock award grants were as follows:

On January 1, 2023, the Company issued 833 shares of common stock to a consultant, which vested immediately.

On April 17, 2023, the Company issued 833 shares of common stock to a consultant, which vested immediately.

On May 15, 2023, the Company issued 5,000 shares of common stock to a consultant, which vested immediately.

On July 20, 2023, the Company issued 730 shares of common stock to an employee, which vested immediately.

On August 23, 2023, the Company issued an aggregate of 4,000 shares of common stock to non-management directors, of which 50 % vests on each of April 1, 2024 and April 1, 2025.

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

1 unchanged sentence

Total unrecognized compensation expense related to unvested restricted stock grants at December 31, 2024 amounts to $ 0.03 million and is expected to be recognized over a weighted average period of 0.95 years.

The following table provides information with respect to restricted stock purchased and retired by the Company during the Current Year and Prior Year:

The following table provides information with respect to restricted stock purchased and retired by the Company during the Current Year:

Fair value of

April 20, 2022 (i)

May 31, 2022 (i)

(i) The shares were exchanged from employees and directors in connection with the income tax withholding obligations on behalf of such employees and directors from the vesting of restricted stock or the receipt of stock awards.

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

Restricted Stock Units

There were no restricted stock units outstanding as of December 31, 2023 and 2022, 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 December 31, 2023, there were 3,103,941 shares of common stock available for award grants under the 2021 Plan.

Shares Reserved for Issuance

At December 31, 2023, there were 8,368,546 shares of common stock reserved for issuance, including 4,771,255 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 3,103,941 shares available for issuance under the 2021 Plan.

July 31, 2024 (i)

August 31, 2024 (i)

September 30, 2024 (i)

October 31, 2024(i)

November 31, 2024 (i)

December 31, 2024 (i)

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December 31, 2024 and 2023

Warrants granted by the Company expire at various times – either five , seven , or ten years from the date of grant, depending on the particular grant.

(i) The shares were exchanged from employees in connection with the income tax withholding obligations on behalf of such employees from the receipt of stock awards.

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

The Company did not repurchase any shares of common stock during the year ended December 31, 2023.

Restricted Stock Units

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

Shares Reserved for Issuance

At December 31, 2024, there were 1,016,306 shares of common stock reserved for issuance, including 423,392 shares reserved pursuant to unexercised stock options previously granted under the 2011 Plan, 49,000 shares reserved pursuant to unexercised stock options granted under the 2021 Plan, and 279,957 shares available for issuance (future award grants) under the 2021 Plan.

Also included in the aforementioned total shares reserved for issuance were 263,957 shares reserved pursuant to unexercised warrants issued through various corporate transactions, as described further below.

Warrants granted by the Company expire at various times – generally either five or ten years from the date of grant, depending on the particular grant.

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

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Exercisable at December 31, 2024

See Note 5 for information regarding the warrant to purchase 1,000,000 shares of common stock granted during the Current Year in connection with the Halston Master License;

the Company recognized contra-revenue of approximately $ 0.03 million in the Current Year with respect to this warrant.

There was no compensation expense related to other warrants recognized in the Current Year or Prior Year.

Warrants issued during the Current Year include (i) warrants to purchase up to 18,293 shares of common stock issued in connection with the March 19, 2024 Offering (see “Public Offering and Private Placement Transactions” above) and (ii) warrants to purchase up to 145,664 shares of common stock issued in connection with the December 12, 2024 debt refinancing transaction (see Note 6).

There was no compensation expense recognized during the Current Year related to these warrants.

In the Prior Year, 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 100,000 shares of the Company’s common stock at an exercise price of $ 15.00 per share, which vests based upon certain annual royalty targets being satisfied under the license agreement.

The amount of contra-revenue recorded related to this warrant during the Current Year and Prior Year was approximately $ 0.04 million and $ 0.03 million, respectively.

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

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Notes to Consolidated Financial Statements

December 31, 2024 and 2023

The Company has not paid any dividends to date.

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Diluted weighted average number of shares outstanding

Basic net loss per share

Diluted net per share

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Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Basic net income (loss) per share

Diluted net income (loss) per share

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

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

Year Ended December 31,

Stock options

Commitments and Contingencies

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

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

The Company's real estate leases have remaining lease terms between approximately 5 to 7 years .

As of December 31, 2023, the weighted average remaining lease term was 3.83 years and the weighted average discount rate was 6.25 %.

As of December 31, 2023, the Company leased approximately 29,600 square feet of office space at 1333 Broadway, 10th floor, New York, New York for its corporate offices and operations facility.

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

This lease requires the Company to pay additional rents related to increases in certain taxes and other costs on the property.

The Company previously leased approximately 1,300 square feet of retail space for its former retail store location in Westchester, New York, which was closed in the Prior Year.

In the Current Year, the Company successfully negotiated a settlement with the lessor resulting in the termination of this lease, and recognized a gain related to the settlement of $ 0.4 million within other operating costs and expenses (income) in the consolidated statement of operations.

The Company had recorded an impairment charge of $ 0.7 million to fully impair the right-of-use asset for this lease in the Prior Year.

The Company also previously leased certain office space in New York, New York, which was subleased to a third-party subtenant through February 27, 2022 , and the Company's lease of this office space expired by its terms on February 28, 2022 .

For the years ended December 31, 2023 and 2022, total lease expense included in selling, general and administrative expenses on the Company's consolidated statements of operations was approximately $ 1.6 million for both periods.

The Company’s total lease costs for the years ended December 31, 2023 and 2022 were comprised of the following:

As of December 31, 2024, the Company’s real estate leases have a weighted-average remaining lease term of approximately 4.68 years, and the lease liabilities are measured using a weighted-average discount rate of 7.85 %.

1333 Broadway Lease

The Company has an operating lease for approximately 29,600 square feet of office space 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

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Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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.

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.

The average annual fixed rent over the term of the sublease is approximately $ 0.8 million per year.

As a result of entering into the sublease, the Company recognized non-cash impairment charges of approximately $ 3.1 million during the Current Year 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 Year related to leasehold improvement assets at this location.

As of December 31, 2024, this lease had a remaining lease term of approximately 2.83 years.

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.

This lease commenced in April 2024 and expires in April 2031.

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

Upon commencement of the lease during the Current Year, 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 December 31, 2024, this lease had a remaining minimum lease term of approximately 7.33 years.

Westchester Lease

The Company previously leased approximately 1,300 square feet of retail space for its former retail store location in Westchester, New York, which was closed in 2022.

In the Prior Year, the Company successfully negotiated a settlement with the lessor resulting in the termination of this lease, and recognized a gain related to the settlement of $ 0.4 million within other operating costs and expenses (income) in the consolidated statement of operations.

Summary Lease Information

For the years ended December 31, 2024 and 2023, total lease expense included in selling, general and administrative expenses on the Company's consolidated statements of operations was approximately $ 0.9 million and $ 1.6 million, respectively, and was comprised of the following:

($ in thousands)

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Total lease cost

Cash paid for amounts included in the measurement of operating lease liabilities was $ 1.6 million in each of the Current Year and Prior Year.

Cash received from subleasing in the Current Year was $ 0.5 million.

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December 31, 2024 and 2023

Cash paid for amounts included in the measurement of operating lease liabilities was $ 1.6 million and $ 1.7 million in the Current Year and Prior Year, respectively.

Cash received from subleasing in the Prior Year was $ 0.1 million.

As of December 31, 2024, the maturities of lease liabilities were as follows:

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Employment Agreements

The Company has employment contracts with certain executives and key employees.

The future minimum payments under these contracts are as follows:

($ in thousands)

Year Ended December 31,

Total future minimum employment contract payments

In addition to the employment contract payments stated above, the Company’s employment contracts with certain executives and key employees contain performance-based bonus provisions.

These provisions include bonuses based on the Company achieving revenues in excess of established targets and/or on operating results.

The Company has employment contracts with certain executives.

The total future minimum payments due under these contracts for the remainder of their current terms is $ 2.14 million, which will be paid during the year ending December 31, 2025.

In addition, the Company’s employment contracts with certain executives contain performance-based bonus provisions, which include bonuses based on the Company achieving revenues in excess of established targets and/or on operating results.

Certain of the employment agreements contain severance and/or change in control provisions.

Aggregate potential severance compensation amounted to approximately $ 2.84 million as of December 31, 2024.

Contingent Obligation – Halston Heritage Earn-Out

In connection with the February 11, 2019 purchase of the Halston Heritage trademarks, the Company agreed to pay the seller additional consideration (the “Halston Heritage Earn-Out”) of up to an aggregate of $ 6.0 million, based on royalties earned from 2019 through December 31, 2022.

The final royalty target year for the Halston Heritage Earn-Out 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 Prior Year, the Company 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.

Contingent Obligation – Lori Goldstein Earn-Out

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 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 year ended December 31, 2024 the Company paid approximately $ 0.3 million of the $ 1.0 million earned.

As a result of the June 30, 2024 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 December 31, 2024, there are no liability amounts remaining on the Company’s consolidated balance sheet related to the Lori Goldstein Earn-Out.

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December 31, 2024 and 2023

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.

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 the Current Year.

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.

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

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 (see Note 3), 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.

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.

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.

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

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

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 the license agreement between Xcel and IM Topco (see Note 11) 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 1 million in the accompanying consolidated balance sheets, and recognized a corresponding non-cash charge in the consolidated statements of operations for the Current Year.

Legal Proceedings

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

In the opinion of management, based on consultations with legal counsel, the disposition of litigation pending against the Company as of December 31, 2023 is unlikely to have, individually or in the aggregate, a materially adverse effect on the Company’s business, financial position, results of operations, or cash flows.

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

See Note 12 for information related to certain legal matters which arose subsequent to December 31, 2023.

In the opinion of management, based on consultations with legal counsel, the disposition of litigation pending against the Company as of December 31, 2024 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.

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December 31, 2024 and 2023

The income tax provision (benefit) for income taxes in the consolidated statements of operations consists of the following:

The provision for income taxes in the consolidated statements of operations consists of the following:

Years Ended December 31,

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Total deferred

Total provision (benefit)

The reconciliation of the federal statutory income tax rate to the Company’s effective tax rate reflected in the income tax provision (benefit) shown in the consolidated statements of operations is as follows:

Total provision

The reconciliation of the federal statutory income tax rate to the Company’s effective tax rate reflected in the income tax provision shown in the consolidated statements of operations is as follows:

Years Ended December 31,

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Change in valuation allowance

Income tax (provision) benefit

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Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Income tax provision

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

1 unchanged sentence

Deferred tax assets

Stock-based compensation

Federal, state and local net operating loss carryforwards

Stock-based compensation

Accrued compensation and other accrued expenses

11 unchanged sentences

Net deferred tax assets

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Notes to Consolidated Financial Statements

December 31, 2024 and 2023

As of December 31, 2024 and 2023, the Company had approximately $ 44.4 million and $ 28.6 million, respectively, of federal net operating loss carryforwards ("NOLs") available to offset future taxable income.

The NOL as of December 31, 2017 of $ 0.3 million has an expiration period through 2037.

The NOL generated during tax years beginning after December 31, 2017 of $ 28.3 million has an indefinite life and does not expire.

The NOLs generated during tax years beginning after December 31, 2017 of $ 44.1 million have an indefinite life and do not expire.

As of December 31, 2024 and 2023, management does not believe the Company has any material uncertain tax positions that would require it to measure and reflect the potential lack of sustainability of a position on audit in its consolidated financial statements.

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

During the Current Year, the Company recognized a valuation allowance in order to reduce deferred tax assets to the amount expected to be realized.

The change in the valuation allowance from December 31, 2022 to December 31, 2023 was approximately $ 6.5 million.

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Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Related Party Transactions

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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.

For the year ended December 31, 2023, the Company recognized service fee income related to this agreement of $ 150,000 .

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;

as of December 31, 2024, IM Topco has prepaid $ 62,500 of such service fees.

The Company recognized service fee income related to this agreement of $ 150,000 for each of the years ended December 31, 2024 and 2023.

License Agreement

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For the year ended December 31, 2023, the estimated amount of such shortfall was approximately $ 325,000 , which the Company recognized as royalty expense in the consolidated statements of operations.

In exchange, Xcel agreed to make additional royalty payments to IM Topco totaling $ 450,000 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.

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December 31, 2024 and 2023

Isaac Mizrahi

Isaac Mizrahi is a principal stockholder and former employee of the Company.

Employment Agreement

On February 24, 2020, the Company entered into an employment agreement with Mr.

Mizrahi for him to continue to serve as Chief Design Officer of the Isaac Mizrahi Brand.

This employment agreement remained in effect through May 31, 2022.

On May 31, 2022, this agreement was transferred to IM Topco as part of the transaction in which the Company sold a majority interest in the Isaac Mizrahi Brand trademarks to a third party (see Note 3 for details).

The employment agreement provided Mr.

Mizrahi with a base salary of $ 1.8 million, $ 2.0 million, and $ 2.1 million per annum for 2020, 2021, and 2022, respectively.

Mizrahi was also eligible to receive an annual cash bonus (the “Bonus”) up to an amount equal to $ 2.5 million less base salary for 2020 and $ 3.0 million less base salary for 2021 and 2022.

The Bonus consisted of the DRT Revenue, Bonus, the Brick-and-Mortar Bonus, the Endorsement Bonus and the Monday Bonus, if any, as determined in accordance with the below:

● “DRT Bonus” means for any calendar year an amount equal to 10 % of the aggregate net revenue related to sales of Isaac Mizrahi Brand products through direct response television.

The DRT Revenue Bonus shall be reduced by the amount of the Monday Bonus.

● “Brick-and-Mortar Bonus” means for any calendar year an amount equal to 10 % of the net revenues from sales of products under the Isaac Mizrahi Brand, excluding DRT revenue and endorsement revenues.

● “Endorsement Bonus” means for any calendar year an amount equal to 40 % of revenues derived from projects undertaken by the Company with one or more third parties solely for Mr.

Mizrahi to endorse the third party’s products through the use of Mr.

Mizrahi’s name, likeness, and/or image, and neither the Company nor Mr.

Mizrahi provides licensing or design.

● “Monday Bonus” means $ 10,000 for each appearance by Mr.

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

In addition, on May 31, 2022, all 522,500 unvested shares of restricted stock of the Company held by Mr.

Mizrahi (for which all stock-based compensation expense had been previously recognized in prior periods) were immediately vested, with 240,000 of such shares being surrendered for cancellation in satisfaction of withholding tax obligations.

Also on May 31, 2022, the Company issued 33,557 additional shares of common stock of the Company (valued at $ 50,000 ) to Mr.

Mizrahi, which vested immediately, and made a $ 100,000 cash payment to Mr.

Laugh Club Services Agreement

On February 24, 2020 the Company entered into a services agreement with Laugh Club, an entity wholly-owned by Mr.

Mizrahi, pursuant to which Laugh Club provided services to Mr.

Mizrahi necessary for Mr.

Mizrahi to perform his services pursuant to the employment agreement.

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

This services agreement remained in effect through May 31, 2022.

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

The Company paid $ 75,000 of the additional royalty payments to IM Topco during the year ended December 31, 2023, and paid $ 237,500 during the year ended December 31, 2024.

As of December 31, 2024, the remaining payments due totaled $ 137,500 , and are reflected with accounts payable, accrued expenses and other current liabilities in the consolidated balance sheet.

As of the date of this Annual Report on Form 10-K, this amount has not been paid to IM Topco.

Public Offering and Private Placement Transactions

In connection with the Offering of 328,427 shares of the Company’s common stock at a price to the public of $ 6.50 per share which was consummated on March 19, 2024 (see Note 7 for additional details), Robert W.

D’Loren, Chairman and Chief Executive Officer of the Company;

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 14,625 , 14,625 , and 3,250 shares, respectively, at $ 6.50 per share, the same price at which the shares were sold to other purchasers in the Offering.

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

DiSanto, and Mr.

Burroughs to purchase 13,258 , 13,258 , and 2,946 shares, respectively (collectively, the “Private Placement Shares”), at a price of $ 9.80 per Private Placement Share.

The total number of Private Placement Shares purchased was 29,462 .

Net proceeds after payment of agent fees to the Representative were approximately $ 0.3 million.

The purchase of the Private Placement Shares closed concurrently with the Offering.

Debt Refinancing

In connection with the December 2024 refinancing of the Company’s term loan debt (see Note 6 for additional details), IPX Capital, LLC (“IPX”), a company controlled by Mr.

D’Loren, made a $ 250,000 advance to one of the Company’s subsidiaries, of which $ 200,000 was repaid to IPX upon the closing of the debt refinancing transaction.

Additionally, IPX purchased a 12.5 % undivided, last-out, subordinated participation interest in a portion of the new term loan debt for a purchase price of $ 500,000 , and received a pro rata share of warrants received by the Term B Lenders to purchase shares of the Company’s common stock.

In October 2024, in connection with a required increase to a standby letter of credit associated with the Company’s real estate lease for offices located at 1333 Broadway (see Note 9), Mr.

D’Loren provided a personal guarantee to the financial institution providing such letter of credit, in order to satisfy a portion of the associated collateral requirements for the letter of credit.

On December 4, 2023, the Company acquired a noncontrolling equity ownership interest in ORME, a short-form video and social commerce marketplace, for a purchase price of $ 150,000 .

ORME licenses the technology utilized by its marketplace from KonnectBio Inc., in which Robert W.

D’Loren, the Company’s Chairman of the Board, Chief Executive Officer, and President, owns an approximate 20 % noncontrolling interest.

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December 31, 2024 and 2023

On December 4, 2023, the Company acquired a 30 % equity ownership interest in ORME, a short-form video and social commerce marketplace that is planned to launch in 2024, for a purchase price of $ 150,000 .

ORME licenses the technology utilized by its marketplace from KonnectBio Inc., in which Robert W.

D’Loren, the Company’s Chairman of the Board, Chief Executive Officer, and President, owns an approximate 20 % noncontrolling interest.

Subsequent Events

Leasing Transactions

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.

This lease commenced in April 2024 and shall expire seven years from the commencement date in 2031.

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

On January 26, 2024, the Company, as lessor, entered into a lease agreement for the sublease of its former corporate offices and operations facility located at 1333 Broadway, 10th floor, New York, New York to a third-party subtenant through October 30, 2027.

The average annual fixed rent over the term of this sublease is approximately $ 0.8 million per year.

As a result of entering into this sublease, the Company recognized an impairment charge of approximately $ 2.1 million related to the right-of-use asset.

The loss recognition will coincide with the departure date.

February 29, 2024 has been determined to be the date of a fundamental change to the use of the 1333 Broadway premises.

Public Offering and Private Placement

On March 15, 2024, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC (the “Representative”), as the representative of the underwriters, relating to a firm commitment underwritten public offering (the “Offering”) of 3,284,421 shares of the Company’s common stock at a price to the public of $ 0.65 per share.

In connection with the Offering, Robert W.

D’Loren, Chairman and Chief Executive Officer of the Company;

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 32,500 shares of common stock, respectively.

The closing of the Offering occurred on March 19, 2024.

Upon closing of the Offering, the Company issued the Representative certain warrants to purchase up to 178,953 shares of common stock (the “Representative’s Warrants”) as compensation.

The Representative’s Warrants will be exercisable at a per share exercise price of $ 0.8125 .

The Representative’s Warrants are exercisable, in whole or in part, during the four and one-half-year period commencing 180 days from the commencement of sales of the shares of common stock in the Offering.

On March 14, 2024, the Company entered into subscription agreements with each of Robert W.

D’Loren, Chairman and Chief Executive Officer of the Company;

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

and Seth Burroughs, Executive Vice President of Business Development and Treasury of the Company to purchase 132,589 , 132,589 , and 29,464 shares, respectively (collectively, the “Private Placement Shares”), at a price of $ 0.98 per Private Placement Share.

The total number of Private Placement Shares purchased was 294,642 .

Net proceeds after payment of agent fees to the Representative were approximately $ 265,000 .

The purchase of the Private Placement Shares closed concurrently with the Offering.

IM Topco Equity Transfer Event

On January 31, 2025, in accordance with the terms of the amended membership purchase agreement between Xcel and WHP (see Note 9 for additional details), 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.

Shares Issued to Executives

On January 31, 2025, the Company issued an aggregate of 4,582 shares of common stock to executives, in accordance with the terms of the amended employment agreements with Mr.

D’Loren and Mr.

Burroughs (see Note 7 for details).

On February 28, 2025, the Company issued an aggregate of 6,854 shares of common stock to executives, in accordance with the terms of the amended employment agreements with Mr.

D’Loren and Mr.

Burroughs (see Note 7 for details).

On March 31, 2025, the Company issued an aggregate of 6,874 shares of common stock to executives, in accordance with the terms of the amended employment agreements with Mr.

D’Loren and Mr.

Burroughs (see Note 7 for details).

On April 30, 2025, the Company issued an aggregate of 8,917 shares of common stock to executives, in accordance with the terms of the amended employment agreements with Mr.

D’Loren and Mr.

Burroughs (see Note 7 for details).

Reverse Stock Split

At a special meeting of the Company’s stockholders on March 12, 2025, the stockholders approved a proposal granting the Company’s Board of Directors the discretion to effect a reverse stock split of the Company’s issued and outstanding common stock at a ratio in the range of 1-for-2 to 1-for-10 , with such ratio to be determined by the Chairman of the Company’s Board of Directors.

Following the special meeting, the Chairman of the Company’s Board of Directors approved a final split ratio of 1-for-10 (the “Reverse Stock Split”).

Subsequently, the Company filed with the Delaware Secretary of State a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation, which became effective at 5:00 p.m.

on March 24, 2025, to effect such Reverse Stock Split.

As a result of the Reverse Stock Split, every ten (10) shares (the “Reverse Stock Split Number”) of issued and outstanding Common Stock was automatically combined into one (1) issued and outstanding share of common stock, without any change in the par value per share.

No fractional shares were issued as a result of the Reverse Stock Split.

Instead, stockholders who otherwise would have been entitled to receive fractional shares were entitled to receive a cash payment (without interest and subject to applicable withholding taxes) in lieu of such fractional shares equal to the fraction of a share of common stock to which such stockholder would otherwise be entitled multiplied by (i) the closing price per share of the common stock on the Nasdaq Capital Market at the close of business on the trading day preceding the date of the Certificate of Amendment, multiplied by (ii) the Reverse Stock Split Number.

The aggregate number of fractional shares resulting from the Reverse Stock Split was 1,120 shares of common stock (or 112 shares on a pre-Reverse Stock Split basis);

the aggregate cash payments made to stockholders in lieu of fractional shares was less than $ 1,000 .

Immediately prior to the Reverse Stock Split there were 23,796,200 shares of common stock outstanding;

immediately following the Reverse Stock Split there were 2,379,508 shares of common stock outstanding.

The shares of common stock underlying the Company’s outstanding stock options and warrants were also proportionately adjusted along with corresponding adjustments to their exercise prices.

XCEL BRANDS, INC.

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December 31, 2024 and 2023

The aggregate number of shares of common stock issued from the Offering and the Private Placement was 3,579,063 shares and the total net proceeds received was approximately $ 2,000,000 .

On April 12, 2024, the Company, WHP, and IM Topco entered into amendments of the May 27, 2022 membership purchase agreement and the 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 under the second amendment (which totaled $ 375,000 as of December 31, 2023).

● 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.

Legal Matters

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 March 31, 2021 asset purchase agreement for failure to pay $ 963,642 earned in 2023 in accordance with the provisions of the Lori Goldstein Earn-Out (as described in Note 9) under the terms 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 Ms.

Goldstein’s failure to make all of the QVC appearances as required by her employment agreement, the Company was not willing to pay the amount due in a lump sum, but instead would make the payment in four quarterly installments.

Failure to amicably resolve this dispute could adversely affect the Company’s cash flows and the availability of Ms.

Goldstein’s services.

amounts of common stock and paid-in capital, have been retroactively adjusted for all periods presented in order to reflect this change in capital structure.

April 2025 Debt Refinancing

On April 21, 2025, the Company and its lenders and FEAC Agent, LLC entered into an amendment of the December 12, 2024 loan and security agreement, which provided for $ 1.5 million repayment of the $ 3.95 million Term Loan A and an additional Term Loan B in the amount of $ 5.12 million.

The term loans outstanding after giving effect to the April 21, 2025 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.

As of the date of this Annual Report on Form 10-K, the Company is in compliance with all applicable covenants.

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.

Such warrants are exercisable for a period of seven years from the date of issuance, at specified exercise prices ranging from $ 6.60 per share to $ 17.50 per share.

Additionally, 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.

Further, on April 21, 2025, each of Robert D’Loren, Chairman and Chief Executive Officer of the Company, Seth Burroughs, Executive Vice President of the Company, and Mark D.

Santo, a director of the Company, entered into a Support Agreement whereby each individual agreed to vote in favor of any proposal to approve the issuance of the shares of common stock issuable upon exercise of the warrants issued to UTG as described above and the other warrants referred to above, in accordance with applicable Nasdaq rules.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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What changed 10-K

Item 8. Financial Statements and Supplementary Data