What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-06-04 compared with 2024-12-20 · 98 added, 214 removed, 92 unchanged (77% of the section changed)

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The statements that are not historical facts contained in this report are forward-looking statements that involve a number of known and unknown risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

These risks are detailed in the Risk Factors section of our Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on April 19, 2024.

These risks are detailed in the Risk Factors section of our Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC on May 28, 2025.

The words “believe,” “anticipate,” “expect,” “continue,” “estimate,” “appear,” “suggest,” “goal,” “potential,” “predicts,” “seek,” “will,” “confident,” “project,” “provide,” “plan,” “likely,” “future,” “ongoing,” “intend,” “may,” “should,” “would,” “could,” “guidance,” and similar expressions identify forward-looking statements.

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(“Xcel,” the “Company,” “we,” “us,” or “our”) is a media and consumer products company engaged in the design, licensing, marketing, live streaming, and social commerce sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands.

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

Currently, the Company’s brand portfolio consists of the following:

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

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

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

● the Isaac Mizrahi Brand, in which we hold a 30% noncontrolling interest and continue to contribute to the operations of the brand through a service agreement.

Our 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.

The Company also currently owns a 30% interest in ORME Live Inc., a short-form video and social commerce marketplace that launched in April 2024.

Xcel continues to pioneer a true omni-channel and social commerce sales strategy which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, social commerce, traditional brick-and-mortar retailers, and e-commerce channels, to be everywhere its customers shop.

Our brands have generated over $5 billion in retail sales via live streaming in interactive television and digital channels alone, and our brands collectively reach over 5 million social media followers through Facebook, Instagram, and TikTok.

All of the followers may not be unique followers, as many followers may follow multiple brands and follow our brands on multiple platforms.

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

Xcel owns the Halston, Judith Ripka, and C Wonder brands, as well as the co-branded collaboration brands TowerHill by Christie Brinkley, LB70 by Lloyd Boston, Trust.

by Cesar Millan, and GemmaMade by Gemma Stafford, and also holds noncontrolling interests or long-term license agreements in the Isaac Mizrahi, Orme Live, and Jenny Martinez Live brands.

Xcel also owns and manages the Longaberger brand through its controlling interest in Longaberger Licensing, LLC.

Xcel is pioneering a true modern consumer products sales strategy sales strategy which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, social commerce, brick-and-mortar retailers, and e-commerce channels to be everywhere its customers shop.

Our brands have generated over $5 billion in retail sales via live streaming in interactive television and digital channels alone and over 20,000 hours of content production time in live-stream and social commerce.

Our portfolio reaches in excess of 40 million social media followers and 200 million households.

Our objective is to build a diversified portfolio of lifestyle consumer products brands through organic growth and the strategic acquisition of new brands.

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

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

● distribution and/or licensing of our brands for sale through interactive television (e.g., QVC, HSN, America’s Collectible Network, Inc.

d/b/a JTV (“JTV”), etc.);

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

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

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

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Summary of Operating Results

Three months ended September 30, 2024 (the “current quarter”) compared with the three months ended September 30, 2023 (the “prior year quarter”)

Three months ended March 31, 2025 (the “current quarter”) compared with the three months ended March 31, 2024 (the “prior year quarter”)

Current quarter net revenue decreased $0.85 million to $1.33 million from $2.18 million for the prior year quarter.

This decrease was primarily attributable to a $0.87 million reduction in net licensing revenue, which declined from $2.38 million in the prior year quarter to $1.51 million in the current quarter, and was mainly driven by the June 30, 2024 divestiture of the Lori Goldstein Brand, partially offset by increased licensing revenues generated by our other brands.

In the current quarter, we recognized $0.41 million of net product sales from the sale of all remaining inventory of the Longaberger Brand to a third party at cost.

As of September 30, 2024, we had no remaining inventory.

Prior year quarter net product sales of $0.26 million represent the direct-to-consumer sales operations related to the Longaberger Brand, prior to our outsourcing of that business in the fourth quarter of 2023.

Cost of Goods Sold

Current quarter cost of goods sold was $0.41 million, as we sold all remaining inventory related to the Longaberger Brand to a third party during the current quarter, at cost.

This decrease was primarily attributable to the June 30, 2024 divestiture of the Lori Goldstein brand and the loss of the licensing revenues associated with that brand, partially offset by increased licensing revenues generated by our other brands, particularly for the C Wonder brand and the TowerHill by Christie Brinkley brand.

Direct Operating Costs and Expenses

Direct operating costs and expenses decreased approximately $1.68 million, from $3.96 million in the prior year quarter to $2.28 million in the current quarter.

This decrease was primarily attributable to the 2023 restructuring and transformation of our business operating model, along with additional cost reduction actions taken by management in the current year, which have significantly reduced the Company’s payroll, operating, and overhead costs.

As of the third quarter of 2024, the Company has reduced its direct operating expenses to a current run rate of approximately $11 million per annum.

This decrease was primarily attributable to the 2023 restructuring and transformation of our business operating model, along with additional cost reduction actions taken by management in 2024, which have significantly reduced the Company’s payroll, operating, and overhead costs.

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

As of the end of the first quarter of 2025, the Company has reduced its direct operating expenses to an expected run rate of less than $10 million per annum.

Other Operating Costs and Expenses (Income)

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

We recognized equity method losses related to our equity investments in unconsolidated affiliates (IM Topco, LLC and Orme Live Inc.) of $0.59 million and $0.52 million for the current quarter and prior year quarter, respectively, due to the operations of those businesses and the distribution provisions applicable to each.

The equity method losses for each quarter related to IM Topco, LLC consisted of $0.52 million of amortization expense of the Isaac Mizrahi intellectual property assets.

We also recognized a $6.25 million non-cash charge in the current quarter to recognize the estimated value of our contingent obligation to transfer a portion of our equity ownership interests in IM Topco, LLC to WHP after March 31, 2025.

This charge essentially represents a subsequent reduction of the previously-recognized gain from the 2022 sale of a majority interest in the Isaac Mizrahi Brand.

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

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

We recognized losses related to our equity investments in unconsolidated affiliates (IM Topco, LLC and ORME Live Inc.) of $0.58 million and $0.53 million for the current quarter and prior year quarter, respectively, due to the operations of those businesses, the distribution provisions applicable to each, and (in the current quarter) changes in estimated fair value.

However, effective January 2025, the Company no longer applies the equity method of accounting to its investment in ORME, and effective April 2025, the Company will no longer apply the equity method of accounting to its investment in IM Topco.

Going forward, the Company’s investments in these unconsolidated affiliates will be valued at adjusted cost basis, less impairment, plus or minus observable price changes of an identical or similar investment of the same issuer.

We also recognized other income of $(0.24) million related to the change in the estimated value of a contractual contingent obligation (related to our investment in IM Topco, LLC) during the current quarter.

During the prior year quarter we recognized asset impairment charges of $2.30 million related to our exit from and sublease of our offices at 1333 Broadway, of which approximately $1.9 million related to the operating lease right-of-use asset and approximately $0.4 million related to leasehold improvements at that location.

There were no similar asset impairment charges recognized during the current quarter.

The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately -1.8% and 0%, respectively, resulting in an income tax provision (benefit) of $0.05 million and $0, respectively.

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

Net Loss Attributable to Xcel Brands, Inc.

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

stockholders, exclusive of amortization of trademarks, income (loss) from equity method investments, changes in ownership interests of equity method investments, stock-based compensation and cost of licensee warrants, gains on sales of assets and investments, gain on lease termination, asset impairment charges, and income taxes (if any).

stockholders, exclusive of amortization of trademarks, income (loss) from equity method investments, change in contingent reduction in equity ownership of IM Topco, LLC, stock-based compensation and cost of licensee warrants, asset impairment charges, and income taxes (if any).

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

We had Adjusted EBITDA of approximately $(0.70) million for the current quarter, compared with approximately $(1.57) million for the prior year quarter.

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

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

Management uses non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends

relating to the Company’s results of operations.

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

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

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

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Three Months Ended

September 30,

($ in thousands)

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Loss from equity method investments

Reduction in equity ownership of IM TopCo, LLC

Change in contingent reduction in equity ownership of IM Topco, LLC

Stock-based compensation and cost of licensee warrants

Asset impairment charges

Income tax provision (benefit)

Non-GAAP net loss

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Three Months Ended

September 30,

Diluted loss per share

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Loss from equity method investments

Reduction in equity ownership of IM TopCo, LLC

Change in contingent reduction in equity ownership of IM Topco, LLC

Stock-based compensation and cost of licensee warrants

Asset impairment charges

Income tax provision (benefit)

Non-GAAP diluted EPS

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Three Months Ended

September 30,

($ in thousands)

Net loss attributable to Xcel Brands, Inc.

Depreciation and amortization

Loss from equity method investments

Reduction in equity ownership of IM TopCo, LLC

Interest and finance expense (income)

Interest and finance expense

Accretion of lease liability for exited lease

Income tax provision (benefit)

State and local franchise taxes

Stock-based compensation and cost of licensee warrants

Costs associated with restructuring of operations

Adjusted EBITDA

Nine months ended September 30, 2024 (the “current nine months”) compared with the nine months ended September 30, 2024 (the “prior year nine months”)

Current nine months net revenue decreased approximately $8.42 million to $7.05 million from $15.47 million for the prior year nine months.

This decline was primarily attributable to the $7.90 million decrease in net product sales from $8.44 million in the prior year nine months to $0.54 million in the current nine months, due to the exit from our wholesale apparel and fine jewelry sales operations and outsourcing of our Longaberger business as part of the restructuring and transformation of our business operating model in 2023.

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

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

Net licensing revenues also decreased, from $7.03 million in the prior year nine months to $6.52 million in the current nine months.

This decline of approximately $0.51 million was primarily attributable to the June 30, 2024 divestiture of the Lori Goldstein Brand, partially offset by licensing revenues from the new licensing agreements with best-in-class business partners that we entered into in 2023, most notably the Halston Master License with G-III Apparel Group, as well as significantly increased revenues generated by the C Wonder by Christian Siriano business on HSN.

Cost of Goods Sold

Current nine months cost of goods sold was $0.45 million, compared with $6.72 million for the prior year nine months.

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

Direct Operating Costs and Expenses

Direct operating costs and expenses decreased approximately $7.86 million from $17.77 million in the prior year nine months to $9.91 million in the current nine months.

This decrease was primarily attributable to the 2023 restructuring and transformation of our business operating model, which included reductions in staffing levels as well as related reductions in other overhead costs.

Other Operating Costs and Expenses (Income)

Depreciation and amortization expense decreased approximately $1.22 million, from $5.26 million in the prior year nine months to $4.04 million in the current nine months.

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

Equity method losses related to our equity investments in unconsolidated affiliates (IM Topco, LLC and Orme Live Inc.) were $1.68 million and $1.55 million for the current nine months and prior year nine months, respectively, due to the operations of those businesses and the distribution provisions applicable to each.

The equity method losses for each nine-month period related to IM Topco, LLC consisted of $1.55 million of amortization expense of the Isaac Mizrahi intellectual property assets.

We also recognized a $6.25 million non-cash charge in the current nine months to recognize the estimated value of our contingent obligation to transfer a portion of our equity ownership interests in IM Topco, LLC to WHP after March 31, 2025.

This charge essentially represents a subsequent reduction of the previously-recognized gain from the 2022 sale of a majority interest in the Isaac Mizrahi Brand.

During the current nine months, we recognized a $3.80 million gain on the divestiture of the Lori Goldstein Brand.

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

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

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

During the prior year nine months, we recognized a gain of $0.35 million related to the sale of a limited partner ownership interest in an unconsolidated affiliate, which was entered into in 2016, and a gain of $0.44 million related to a lease termination settlement with the landlord of our former retail store location.

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

Net Loss Attributable to Xcel Brands, Inc.

We had a net loss of $15.31 million for the current nine months, compared with a net loss of $14.26 million for the prior year nine months, due to the combination of the factors outlined above.

Non-GAAP Net (Loss) Income, Non-GAAP Diluted EPS, and Adjusted EBITDA

We had a non-GAAP net loss of approximately $3.44 million, or $0.15 per diluted share for the current nine months and a non-GAAP net loss of $8.66 million, or $0.44 per diluted share, for the prior year nine months.

We had Adjusted EBITDA of approximately $(2.66) million for the current nine months, compared with approximately $(4.57) million for the prior year nine months.

The following table is a reconciliation of net loss attributable to Xcel Brands, Inc.

stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net loss:

Nine Months Ended

September 30,

($ in thousands)

Net loss attributable to Xcel Brands, Inc.

Amortization of trademarks

Loss from equity method investments

Reduction in equity ownership of IM TopCo, LLC

Stock-based compensation and cost of licensee warrants

Gains on sales of assets and investments

Gain on lease termination

Asset impairment charges

Non-GAAP net loss

The following table is a reconciliation of diluted loss per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:

Nine Months Ended

September 30,

Diluted loss per share

Amortization of trademarks

Loss from equity method investments

Reduction in equity ownership of IM TopCo, LLC

Stock-based compensation and cost of licensee warrants

Gains on sales of assets and investments

Gain on lease termination

Asset impairment charges

Non-GAAP diluted EPS

Non-GAAP weighted average diluted shares

The following table is a reconciliation of net loss attributable to Xcel Brands, Inc.

stockholders (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:

Nine Months Ended

September 30,

($ in thousands)

Net loss attributable to Xcel Brands, Inc.

Asset impairment charges

Depreciation and amortization

Loss from equity method investments

Reduction in equity ownership of IM TopCo, LLC

Interest and finance expense

Accretion of lease liability for exited lease

State and local franchise taxes

Change in contingent reduction in equity ownership of IM Topco, LLC

Asset impairment charges

Stock-based compensation and cost of licensee warrants

Gains on sales of assets and investments

Gain on lease termination

Costs associated with restructuring of operations

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Liquidity and Capital Resources

As of September 30, 2024 and December 31, 2023, our unrestricted cash and cash equivalents were $0.24 million and $3.00 million, respectively.

Restricted cash at September 30, 2024 (included within other assets in the condensed consolidated balance sheet) consisted of $0.7 million of cash deposited with Israel Discount Bank of New York as collateral for a standby letter of credit associated with a real estate lease;

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

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

As of March 31, 2025 and December 31, 2024, our unrestricted cash and cash equivalents were $0.3 million and $1.3 million, respectively.

Restricted cash at March 31, 2025 consisted of $0.7 million of cash deposited as collateral for a standby letter of credit associated with a real estate lease and $1.5 million of cash deposited in a bank account to satisfy a liquidity covenant in the Company’s term loan debt agreement.

Restricted cash at December 31, 2024 consisted of $0.7 million of cash deposited as collateral for a standby letter of credit associated with a real estate lease.

Our principal capital requirements have generally been to fund working capital needs and acquire new brands.

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

As of September 30, 2024, we have no significant commitments for future capital expenditures.

As of March 31, 2025, we have no significant commitments for future capital expenditures.

Working Capital

Our working capital (current assets less current liabilities, excluding the current portion of operating lease obligations, deferred revenue, and any contingent obligations payable in common stock) was approximately negative $0.4 million and positive $2.9 million as of September 30, 2024 and December 31, 2023, respectively.

Post closing of the new term loan debt in December 2024 (as described further below), the Company’s working capital increased by approximately $4.5 million.

Liquidity and Management’s Plans

We incurred a net loss attributable to Company stockholders of approximately $15.3 million during the nine months ended September 30, 2024 (which included non-cash expenses of approximately $15.8 million, and a non-cash gain of approximately $3.8 million on the divestiture of the Lori Goldstein Brand), and had an accumulated deficit of approximately $69.2 million as of September 30, 2024.

Net cash used in operating activities was approximately $3.3 million for the nine months ended September 30, 2024.

These factors, along with our current levels of cash and working capital, 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.

These restructuring initiatives included entering into various new licensing agreements and joint venture arrangements with best-in-class business partners, and reducing the Company’s payroll, overhead, and other operating costs by approximately $15 million on an annualized basis when compared to 2022.

During the first nine months of 2024, management took further actions to optimize its cost structure and manage its liquidity, including entering into a divestiture transaction (see Note 3 for details) which eliminated certain operating and compensation expenses, relieved the Company of its contractual obligations to make future cash payments of approximately $1 million, and relieved the Company of a potential future contingent obligation to make future cash payments of up to approximately $11 million.

As of the third quarter of 2024, the Company has reduced its direct operating expenses to a current run rate of approximately $11 million per annum.

Also during the first nine months of 2024, the Company issued new shares of common stock for net proceeds of approximately $2 million.

Further, in December 2024, the Company entered into a new term loan agreement for the aggregate amount of $10 million.

Based on the aforementioned events and changes, management expects that existing cash and future operating cash flows will be adequate to meet the Company’s operating needs, term debt service obligations, and capital expenditure needs, for at least the twelve months subsequent to the filing date of this Quarterly Report on Form 10-Q;

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

Commentary on the components of our cash flows for the current nine months as compared with the prior year nine months is set forth below.

We had a working capital (current assets less current liabilities, excluding the current portions of lease obligations, deferred revenue, and any contingent obligations payable in shares or via other non-cash means) deficit of approximately $0.6 million as of March 31, 2025.

We had working capital of $0.8 million as of December 31, 2024.

Going Concern

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

As of March 31, 2025, we have incurred recurring losses, a history of cash flows used in operating activities, and an accumulated deficit.

While we have undertaken significant restructuring efforts during 2023 and 2024, and have implemented additional measures during the first quarter of 2025 to further optimize its cost structure, 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 accompanying unaudited condensed consolidated financial statements are issued.

Subsequent to March 31, 2025, we restructured our outstanding debt and received net proceeds from financing activities.

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

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

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

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

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

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

Commentary on the components of our cash flows for the current quarter as compared with the prior year quarter is set forth below.

Operating Activities

Net cash used in operating activities was approximately $3.31 million in the current nine months, compared with approximately $2.81 million in the prior year nine months.

The current nine months net cash used in operating activities was primarily attributable to the combination of the net loss of $(15.40) million plus non-cash items of approximately $11.99 million and the net change in operating assets and liabilities of approximately $0.11 million.

Non-cash items were primarily comprised of approximately $6.25 million for the change in value of contingent obligations, $4.04 million of depreciation and amortization expense, $3.48 million of asset impairment charges, and our $1.68 million undistributed proportional share of net losses from equity method investees, partially offset by a $(3.80) million gain on the divestiture of the Lori Goldstein Brand.

The net change in operating assets and liabilities was primarily comprised of decreases in accounts receivable and inventory of approximately $0.59 million and $0.45 million, respectively, partially offset by a decrease in lease-related assets and liabilities of $(0.71) million.

The prior year nine months cash used in operating activities was primarily attributable to the combination of the net loss of $(15.04) million plus non-cash items of approximately $7.07 million and the net change in operating assets and liabilities of approximately $5.16 million.

Non-cash items were primarily comprised of $5.26 million of depreciation and amortization expense, our $1.55 million undistributed proportional share of net loss of equity method investee, and a $0.76 million charge related to the restructuring of certain contractual arrangements, partially offset by a $(0.35) gain on the sale of a financial asset and a $(0.44) gain on the settlement of a lease liability.

The net change in operating assets and liabilities was primarily comprised of (i) an increase in deferred revenue of approximately $4.68 million, which was mainly attributable to the upfront payment received for the Halston Master License agreement entered into during the prior year nine months, (ii) a decrease in inventory of approximately $1.85 million, driven by the sale of all of our C Wonder apparel inventory to HSN and the sale of all of our Judith Ripka fine jewelry inventory to JTV, as part of the restructuring and transformation of our business operating model.

Partially offsetting these net changes in operating assets and liabilities were decreases in various operating liabilities of approximately $(1.40) million.

Net cash used in operating activities was approximately $1.43 million in the current quarter, compared with approximately $2.61 million in the prior year quarter.

The current quarter net cash used in operating activities was primarily attributable to the combination of the net loss of $(2.80) million plus non-cash items of approximately $1.45 million and the net change in operating assets and liabilities of approximately $(0.08) million.

Non-cash items were comprised of approximately $0.90 million of depreciation and amortization expense, $0.34 million of non-cash expenses related to our equity method investees, $0.11 million of stock-based compensation and cost of licensee warrants, and $0.10 of amortization of deferred finance costs.

The net change in operating assets and liabilities was primarily comprised of a decrease in deferred revenue of $(0.21) million and a decrease in lease-related assets and liabilities of $(0.08) million, partially offset by a decrease in accounts receivable of approximately $0.16 million.

The prior year quarter cash used in operating activities was primarily attributable to the combination of the net loss of $(6.35) million plus non-cash items of approximately $4.59 million and the net change in operating assets and liabilities of approximately $(0.85) million.

Non-cash items were primarily comprised of asset impairment charges of approximately $2.30 million, $1.59 million of depreciation and amortization, and the $0.53 million undistributed proportional share of net loss of equity method investees.

The net change in operating assets and liabilities was primarily comprised of (i) a decrease in deferred revenue of approximately $(0.22) million, mainly related to the Halston Master License agreement, (ii) a decrease in various operating liabilities of $(0.56) million, and (iii) a decrease in lease-related assets and liabilities of $(0.24) million.

Investing Activities

Net cash used in investing activities in the current nine months was comprised of purchases of furniture and fixtures totaling approximately $0.11 million.

Net cash provided by investing activities in the prior year nine months was approximately $0.36 million, primarily driven by $0.45 million of proceeds received from the sale of a limited partner ownership interest in an unconsolidated affiliate, which was entered into in 2016.

Net cash used in investing activities in the current quarter was comprised of purchases of equipment totaling approximately $0.01 million.

There was no net cash used in or provided by investing activities for the prior year quarter.

Financing Activities

Net cash provided by financing activities in the current nine months was primarily attributable to $1.90 million of net proceeds generated by equity issuance transactions undertaken during the first quarter (as described in more detail below), partially offset by $0.50 million of scheduled principal payments made on our term loan debt.

Net cash provided by financing activities in the prior year nine months was entirely attributable to proceeds from the exercise of employee stock options in the amount of approximately $0.03 million

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 3,284,422 shares of the Company’s common stock at a price to the public of $0.65 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 182,952 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.

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 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 $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 3,579,064 shares and the total net proceeds received was approximately $1.9 million.

Contingent Obligation – Isaac Mizrahi Transaction

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

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

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

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

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

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

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

However, during the current quarter, management concluded that, based on current trends in and projections of IM Topco’s royalty revenues, the Company would likely be required to make such transfer of equity interests to WHP after March 31, 2025.

As such, the Company estimated and recorded a contingent obligation of $6.25 million as a reduction to the carrying value of the equity method investment in the accompanying condensed consolidated balance sheet as of September 30, 2024.

Contingent Obligation – Lori Goldstein Earn-Out

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

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.

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

During the current nine months, as a result of the divestiture of the Lori Goldstein Brand, 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 September 30, 2024, there are no liability amounts remaining on the Company’s balance sheet related to the Lori Goldstein Earn-Out.

Debt Refinancing

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

The term loans under the loan agreement are as follows:

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

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

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

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

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

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

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

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

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

In connection with the loan agreement, the Company issued warrants to purchase an aggregate of 1,456,667 shares of the Company’s common stock.

These warrants have an exercise price of $0.6315 per share, are immediately exercisable, and expire on December 12, 2034.

Further, IPX Capital, LLC (“IPX”), a company controlled by Robert W.

D’Loren, Chairman and Chief Executive Officer of the Company , purchased a 12.5% undivided, last-out, subordinated participation interest in Term Loan B for a purchase price of $500,000;

IPX also received 153,333 of the aforementioned warrants.

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

Net cash provided by financing activities in the current quarter was primarily attributable to $2.05 million of proceeds received from the delayed draw portion of the Company’s December 2024 term loan agreement.

Net cash provided by financing activities in the prior year quarter was $1.90 million, attributable to the net proceeds received from the March 2024 public offering and private placement transactions in which the Company issued an aggregate of 357,889 shares of common stock along with warrants exercisable for an additional 18,293 shares of common stock.

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 was repaid, on a pro rata basis in an aggregate amount equal to $500,000.

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.

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;

the Company is currently in compliance with all applicable covenants.

Also 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.

Further, 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.

Other Factors

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

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

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

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

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

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

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

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

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

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

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

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

We continue to seek new opportunities, including expansion through interactive television, live streaming, and additional domestic and international licensing arrangements, and acquiring and collaborating with additional brands, including the TowerHill by Christie Brinkley brand and LB70 by Lloyd Boston brand, both of which launched in 2024.

We recently announced two new co-branded collaborations, which are planned to launch in Spring 2026.

During 2023 and throughout 2024, we have restructured our business operations into a leaner, more focused “licensing plus” business model.

We have entered into structured contractual arrangements with best-in-class business partners in order to more efficiently operate our former wholesale and e-commerce businesses while reducing and better managing our exposure to operating risks, and taken additional actions to generate cost savings.

Based on all of these actions taken to date, plus additional measures implemented during the first quarter of 2025 to further optimize the Company’s cost structure, the Company’s direct operating costs on an annualized basis have been reduced from approximately $8 million per quarter under our previous operating model to less than $2.5 million per quarter on a going-forward basis.

This represents more than $22 million of cost savings on an annualized basis compared to our cost structure in 2022.

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

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

Poor economic and market conditions, including the impacts of inflation and rising consumer debt levels, may negatively impact market

sentiment, decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and other consumer products, which would adversely affect our operating income and results of operations.

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

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Because the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 19, 2024, for a discussion of our critical accounting policies and estimates.

During the three and nine months ended September 30, 2024, there were no material changes to our critical accounting policies or estimates.

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on May 28, 2025, for a discussion of our critical accounting policies and estimates.

During the three months ended March 31, 2025, there were no material changes to our critical accounting policies or estimates.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis