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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2022
OR
Commission File Number: 001-37527
XCEL BRANDS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
76-0307819
(I.R.S. Employer Identification No.)
1333 Broadway, 10th Floor, New York, NY 10018
(Address of Principal Executive Offices)
(347) 727-2474
(Issuer’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value per share
Trading Symbol
XELB
Name of each exchange on which registered
NASDAQ Global Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter was $11,906,000 based upon the closing price of such common stock on June 30, 2022.
The number of shares of the issuer’s common stock issued and outstanding as of April 14, 2023 was 19,624,860 shares.
Documents Incorporated By Reference: None
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PART I
TABLE OF CONTENTS
Page
Business
Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6
Item 7
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Item 9A Controls and Procedures
Item 9B Other Information
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15
Exhibit and Financial Statement Schedules
Signatures
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34
34
34
37
37
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50
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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties. All statements other than statements of historical fact contained in this Annual Report, including
statements regarding future events, our future financial performance, business strategy, and plans and objectives of
management for future operations, are forward-looking statements. We have attempted to identify forward-looking
statements by terminology including “anticipates,” “believes,” “can,” “continue,” “ongoing,” “could,” “estimates,”
“expects,” “intends,” “may,” “appears,” “suggests,” “future,” “likely,” “goal,” “plans,” “potential,” “projects,” “predicts,”
“seeks,” “should,” “would,” “guidance,” “confident,” or “will” or the negative of these terms or other comparable
terminology. These forward-looking statements include, but are not limited to, statements regarding our anticipated
revenue, expenses, profitability, strategic plans, and capital needs. These statements are based on information available to
us on the date hereof and our current expectations, estimates, and projections and are not guarantees of future performance.
Forward-looking statements involve known and unknown risks, uncertainties, assumptions, and other factors, including,
without limitation, the risks outlined under “Risk Factors” or elsewhere in this Annual Report, as well as adverse effects on
us, our licensees, and customers due to natural disasters, pandemic disease, and other unexpected events, which may cause
our or our industry’s actual results, levels of activity, performance, or achievements to differ materially from those
expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly
changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can
we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause
our actual results to differ materially from those contained in any forward-looking statements. You should not place undue
reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no
obligation to update any forward-looking statements, whether as a result of new information, future events, changed
circumstances, or any other reason.
The "LOGO by Lori Goldstein™," "Halston," "Halston Heritage," "H by Halston®," "H Halston™," "Roy Frowick," "Judith
Ripka LTD™," "Judith Ripka Collection™," "Judith Ripka Legacy™," "Judith Ripka®,” "Judith Ripka Sterling™," "C.
Wonder™," and "C. Wonder Limited™" brands and all related logos and other trademarks or service marks of the Company
appearing in this Annual Report are the property of the Company. Brands and all related logos and other trademarks or
service marks of other entities (for example, QVC, HSN, etc.) are the property of those respective entities.
Item 1. Business
Overview
Xcel Brands, Inc. (the “Company,” “Xcel,” or “We”) is a media and consumer products company engaged in the design,
production, marketing, live streaming, wholesale distribution, and direct-to-consumer 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 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"), and
other proprietary brands.
● The Lori Goldstein Brand, Halston Brand, Ripka Brand, and C Wonder Brand are wholly owned by the Company.
● We manage the Longaberger Brand through our 50% ownership interest in Longaberger Licensing, LLC.
● We manage the Q Optix business through our 50% ownership interest in Q Optix, LLC.
● The Company wholly owned and managed the Isaac Mizrahi Brand through May 31, 2022. On May 31, 2022, we
sold a majority interest in the brand to a third party, but retained a 30% noncontrolling interest in the brand
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and continue to participate in the operations of the business.
Xcel is pioneering a true omni-channel sales strategy which includes the promotion and sale of products under its brands
through interactive television, digital live-stream shopping, brick-and-mortar retail, wholesale, and e-commerce channels,
to be everywhere its customers shop. The Company’s brands have generated over $3 billion in retail sales via live
streaming in interactive television and digital channels alone.
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 (i.e., QVC, HSN, The Shopping
Channel, TVSN, CJO, JTV, etc.);
● wholesale distribution through joint ventures or 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 whereby we provide certain design services; and
● acquiring additional consumer brands and integrating them into our operating platform and leveraging our
operating infrastructure and distribution relationships.
We believe that Xcel offers a unique value proposition to our retail and direct-to-consumer customers, and our licensees for
the following reasons:
● our management team, including our officers’ and directors’ experience in, and relationships within the industry;
● our deep knowledge, expertise, and proprietary technology in live streaming;
● our design, production, sales, marketing, and supply chain and integrated technology platform that enables us to
design and distribute trend-right product; and
● our significant media and internet presence and distribution.
Our design, production and supply chain platform was developed to shorten the supply chain cycle by utilizing state-of-the-
art supply chain management technology, trend analytics, and data science to actively monitor fashion trends and read and
react to customer demands.
Recent Highlights and Developments
In April 2021, we acquired the Lori Goldstein brands, including LOGO by Lori Goldstein, a sophisticated lifestyle brand
designed to bring style to the masses and that speaks to everyday women. The acquisition focuses on growing the popular
brand through our omni-channel approach including live streaming, e-commerce, and interactive television, and expanding
the brand into new products and categories.
In May 2022, we sold a majority interest in the Isaac Mizrahi Brand to a third party, but retained a 30% noncontrolling
interest in the brand and continue to participate in the operations of the business. This sale was a transformative moment in
Xcel’s history and represents the first time we have monetized one of our brands since Xcel was founded in 2011. We used
the proceeds from the sale to repay all of our outstanding debt and position us to fund various strategic initiatives as we
concentrate our resources on growing our brands, new brand launches, and investing in live streaming technology and new
business partnerships.
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In the third quarter of 2022, we launched Q Optix, a multi-branded optical business on HSN and QVC. The business is
conducted through a joint venture whereby we leverage inventory and systems of our partner without any material working
capital investments.
In the first quarter of 2023, we began to restructure our business operations by entering into new licensing agreements and
joint venture arrangements with best-in-class business partners. We entered into a new interactive television licensing
agreement with America’s Collectibles Network, Inc. d/b/a JTV (“JTV”) for the Ripka Brand, and a separate license with
JTV for the Ripka Brand’s e-commerce business. For apparel, similar transactions have recently been executed. In
conjunction with the launch of the C Wonder Brand on HSN, we licensed the wholesale production operations related to
the brand to One Jeanswear Group, LLC (“OJG”); this new license with OJG also includes other new celebrity brands that
we plan to launch in 2023 and beyond. For the Halston Brand, we plan on entering into a joint venture related to the
brand’s wholesale apparel business with another leading manufacturer (the “Halston JV”). The Halston JV will develop an
apparel business under the H Halston brand through department stores, e-commerce, and other retailers. We expect the
transition of these operating businesses to be completed by the second quarter of 2023. We believe that this evolution of
our operating model will provide us with significant cost savings and allow us to reduce and better manage our exposure to
operating risks. We expect that our new partnerships will result in excess of $10 million of cost savings on an annualized
basis, with the majority of these savings beginning in the beginning of the second quarter of 2023. Based on these new
operating structures, including cost savings and significantly reducing the Company’s exposure to operating risk, the
Company expects to generate sufficient cash flow to fund its obligations and operating needs.
Company History and Corporate Information
The Company was incorporated on August 31, 1989 in the State of Delaware under the name Houston Operating Company.
On April 19, 2005, we changed our name to NetFabric Holdings, Inc. On September 29, 2011, Xcel Brands, Inc., a
privately-held Delaware corporation (which we refer to as Old Xcel), Netfabric Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of the Company, and certain stockholders of the Company entered into an agreement of
merger and plan of reorganization pursuant to which Netfabric Acquisition Corp. was merged with and into Old Xcel, with
Old Xcel surviving as a wholly owned subsidiary of the Company. On September 29, 2011, we changed our name to Xcel
Brands, Inc.
Our principal office is located at 1333 Broadway, New York, NY 10018. Our telephone number is (347) 727-2474.
Additionally, we maintain websites for our respective brands and an e-commerce site for our Judith Ripka brand at
www.isaacmizrahi.com, www.halston.com, www.cwonder.com, www.longaberger.com, www.lorigoldstein.com, and
www.judithripka.com. Our corporate website is www.xcelbrands.com. None of the content on our websites is incorporated
by reference into this Annual Report on Form 10-K.
Our Brand Portfolio
Currently, our brand portfolio consists of the Lori Goldstein, Halston, Judith Ripka, C Wonder, Longaberger, and Isaac
Mizrahi Brands, and other proprietary brands, including the various labels under these brands.
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Lori Goldstein
Lori Goldstein helped the fashion industry recognize the value and influence of a visionary stylist by telling powerful,
transformative, and authentic stories through the static image. After 35 years behind the camera, Lori ventured in front of it
in 2009 when she launched LOGO by Lori Goldstein, an exclusive collection for QVC. LOGO was born from Lori's
lifelong passion for layering clothes and her "anything goes with everything" approach to fashion, and is a sophisticated
lifestyle brand that embraces Lori's aesthetic and speaks to everyday women. LOGO draws inspiration from the beauty of
women of all ages and sizes and gives them the tools and fashion pieces to be their most fabulous selves. We acquired the
Lori Goldstein brands, including LOGO by Lori Goldstein, in April 2021, and the brand is currently available through the
QVC channel.
Halston
The Halston brand was founded by Roy Halston Frowick in the 1960s, and quickly became one of the most important
American fashion brands in the world, becoming synonymous with glamour, sophistication, and femininity. Halston’s
groundbreaking designs and visionary style still influence designers around the world today. We acquired the H Halston
brands in December 2014, and since our acquisition of the Halston Heritage brands in February 2019, we own all Halston
labels under our brands. The brand is available across various distribution channels including premium and better
department stores, e-commerce, interactive television, and national specialty retailers.
Judith Ripka
Judith Ripka is a luxury jewelry brand founded by Judith Ripka in 1977. This brand has become known worldwide for its
distinctive designs featuring intricate metalwork, vibrant colors, and distinctive use of texture. The Judith Ripka Fine
Jewelry collection consists of pieces in 18 karat gold and sterling silver with precious colored jewels and diamonds, and is
currently available in fine jewelry stores, luxury retailers, and via e-commerce. Ms. Ripka launched an innovative
collection of fine jewelry on QVC under the Judith Ripka Brand in 1996, where the brand offers customers fine jewelry,
watches, and accessories at more accessible price points, including precious and semi-precious stones. We acquired the
Ripka brand in April 2014. In December 2017, we launched our Judith Ripka Fine Jewelry e-commerce operations and in
January 2018, we launched the Judith Ripka Fine Jewelry wholesale operations. In 2021, we opened a retail store for Judith
Ripka Fine Jewelry in Westchester, New York; we subsequently closed the store in 2022.
C Wonder
The C Wonder brand was founded by J. Christopher Burch in 2011 to offer a wide-ranging assortment of beautiful,
versatile, and spirited products that are designed to transport its customers to a place they have never been. C Wonder
offers women’s clothing, footwear, jewelry and accessories, and delightful surprises at every turn. We acquired the C
Wonder Brand in July 2015, and the brand is available at mass merchant retailers, clubs, and certain off-price retailers.
Longaberger
Longaberger is an iconic American heritage home and collectibles brand that began making baskets in 1896 and launched a
direct sales company in 1973 by the Longaberger family. The brand is best known for its distinctive handwoven baskets.
We acquired a 50% ownership interest in this brand through a business venture with Hilco Global in November 2019, and
are actively managing this brand to build on its history and bring it into the future as a digital first live-streaming and social
commerce business. We launched our Longaberger e-commerce and live-streaming operations in February 2020.
Q Optix
Q Optix is a multi-branded optical business on HSN and QVC. The business is conducted through a joint venture, which
was formed in June 2022 and in which we hold a 50% ownership interest, whereby we leverage inventory and systems of
our partner without any material working capital investments. We launched sales of Q Optix products in June 2022.
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Isaac Mizrahi
Isaac Mizrahi is an iconic American brand that stands for timeless, cosmopolitan style. Isaac Mizrahi, the designer,
launched his eponymous label in 1987 to critical acclaim, including four Council of Fashion Designers of America (CFDA)
awards. Since then, this brand has become known and beloved around the world for its colorful and stylish designs. As a
true lifestyle brand, under Xcel’s ownership it has expanded into over 150 different product categories including
sportswear, footwear, handbags, watches, eyewear, tech accessories, home, and other merchandise. Under our omni-
channel retail sales strategy, the brand is available across various distribution channels to reach customers wherever they
shop: better department stores, such as Saks and Hudson’s Bay; interactive television, including QVC and The Shopping
Channel; and national specialty retailers. The brand is also sold in various global locations, including Canada, Italy, the
United Kingdom, and Japan. We acquired the Isaac Mizrahi brand in September 2011, and in May 2022, we sold a majority
interest in the brand to a third party, retaining a 30% noncontrolling interest in the brand.
Growth Strategy
Our vision is intended to reimagine shopping, entertainment, and social media as one thing. To fulfill this vision, we plan to
continue to grow the reach of our brand portfolio by leveraging our technology and live-streaming platforms, design
expertise, our integrated design, production and supply chain technology platforms, marketing expertise, and our
relationships with our retail and direct-to-consumer customers, key licensees, manufacturers, and retailers. We also
continue to market our brands through our innovative true omni-channel retail sales strategy. Our strategy includes
distribution through interactive television, e-commerce, live streaming, and traditional brick-and-mortar retail channels. By
leveraging the reach and consumer engagement of our media partners, and by developing rich online video and social
media content under our brands, our strategy is to drive increased customer engagement and generate sales across our
channels of distribution. Key elements of our strategy include:
● Acquire, Develop or Partner with Brands. We plan to continue to pursue the acquisition and/or development of
additional brands or the rights to brands which we believe are synergistic and complementary to our overall strategy.
Our brand acquisition and development strategy are focused on dynamic brands that we believe are synergistic to our
existing portfolio of brands, strategic to our growth in a channel of distribution, and expected to be accretive to our
earnings.
● Expand and Leverage our Live-Streaming Platform. In 2020, we launched our live-streaming platform through our
Longaberger brand social commerce technology platform with the goal to build the world’s largest digital marketplace
powered by live-streaming and micro-influencers for home and other related products designed to create a better
lifestyle. We plan to leverage this technology across our other brands.
● Continue to Develop our Integrated Technologies Platform. We continue to develop our integrated technologies
including live-streaming and direct sales, e-commerce, customer relationship management, 3D design, trend analytics,
data science, and consumer insight testing as a refinement of our marketing, design, production and supply chain
capabilities in order to market, design, plan, and distribute our products more efficiently and intelligently. Driven by
short-lead marketing, such as live streaming, social media, and new direct-to-consumer business models, consumers
now expect more from brands and retailers, and we believe that the solution is to deliver to the customer what they
want, when they want it, at a price that is fair. Advances in 3D design technologies and software allow us to design
more efficiently, seamlessly communicate technical aspects of designs with our manufacturing partners, and produce
better, more consistent products. Additionally, photo-realistic images generated by the current generation of 3D design
software can be used to perform consumer insight testing on products, to determine demand and plan quantities for
production even before a sample is made. Trend analytics including advanced algorithms focused on internet searches,
social media, and inventory trends provide a forward-looking view of consumer design preferences and allow us to
design into trends early-on, while data analytics will allow us to review performance and respond quickly in our read-
and-react design, production and supply chain model. Live streaming and customer relationship management systems
enable us to better demonstrate our products and foster high engagement with our customers. We will also seek to
utilize machine learning and artificial intelligence to automate at least a portion of these functions.
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We believe that our investment into these technologies position us to provide unique solutions to a rapidly changing
environment. More importantly, we believe that it will help us continue to grow our business across our brands, and
the integrated technologies platform itself should develop more significant value as we continue to build and develop
it.
● Expand Other Retail Partnerships. We have entered into promotional collaborations and/or marketing agreements with
large global companies such as Sesame Street, Crayola, Hewlett Packard, Revlon, Johnson & Johnson, and Kleenex,
and have developed exclusive programs through certain licensees for specialty retailers such as Best Buy and Bed
Bath & Beyond. We plan to continue to develop strategic relationships under our brands that can leverage our media
reach through interactive television and social media to drive traffic and sales for our brands and retail partners and
enhance the visibility of our brands.
● Expand Wholesale License Relationships. We have entered into numerous license agreements for various product
categories under our brands. We have expanded the presence of our brands at department stores and have launched
additional categories in the department store channel, including footwear, handbags, dresses, costume jewelry, and
sunglasses. We continue to seek opportunities to expand the businesses of our licensees, as well as entering into
licenses for new categories under each of our brands where the category is authentic to the brand, for both our existing
brands as well as brands that we may acquire and/or develop in the future.
● Deliver Quality Product Offerings. We employ a professional team to provide best in class design, production and
distribution to ensure that our products adhere to stringent quality standards and design specifications that we have
developed. We intend to continue to invest in our design and marketing capabilities in order to differentiate our
services to our customers and licensees and our brands in the marketplace.
Licensing, Design, Production and Marketing
Interactive TV
Qurate Retail Group (“Qurate”) is an important strategic partner in our interactive television business, and is our largest
licensee for our Lori Goldstein and Isaac Mizrahi brands. Qurate’s business model is to promote and sell products through
its interactive television programs featured on QVC and HSN and related e-commerce and mobile platforms. We employ
and manage on-air spokespersons under each of these brands in order to promote products under our brands on QVC and
HSN. Qurate’s programming currently reaches over 200 million homes worldwide. Our agreements with Qurate allow our
on-air spokespersons to promote our non-Qurate product lines and strategic partnerships under the Mizrahi, Ripka, and
Halston brands through QVC’s and HSN’s programs, subject to certain parameters including the payment of a portion of
our non-Qurate revenues to Qurate. We believe that our ability to continue to leverage Qurate’s media platform, reach, and
attractive customer base to cross-promote products in and drive traffic to our other channels of distribution provides us a
unique advantage.
The licensing business model allows us to focus on our core competencies of design, production, marketing, and brand
management without much of the investment requirements in inventory associated with traditional consumer product
companies. Our brands licensed to Qurate are licensed through our various wholly owned subsidiaries.
Qurate Agreements
Through our wholly owned subsidiaries, we have entered into direct-to-retail license agreements with Qurate, pursuant to
which we design, and Qurate sources and sells, various products under our LOGO by Lori Goldstein brand, the
Longaberger brand, and the Judith Ripka brand. These agreements include, respectively, the Qurate Agreement for the
LOGO by Lori Goldstein Brand (the “LOGO Qurate Agreement”) and the Qurate Agreement for the Longaberger Brand
(the “Longaberger Qurate Agreement”). We were also previously party to similar agreements with Qurate related to the
IsaacMizrahiLIVE brand (the “IM Qurate Agreement”) and the H Halston brand (the “H Qurate Agreement. Qurate owns
the rights to all designs produced under these agreements (collectively, the “Qurate Agreements”), and the agreements
include the sale of products across various categories through Qurate’s television media and related internet sites.
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Pursuant to these agreements, we granted to Qurate and its affiliates the exclusive, worldwide right to promote our branded
products, and the right to use and publish the related trademarks, service marks, copyrights, designs, logos, and other
intellectual property rights owned, used, licensed and/or developed by us, for varying terms as set forth below.
Agreement
LOGO Qurate Agreement
Longaberger Qurate Agreement
IM Qurate Agreement
H Qurate Agreement
Current Term Expiry Automatic Renewal Brand with QVC QVC Product Launch
Xcel Commenced
November 1, 2023
October 31, 2023
*
**
April 2021
one-year period
two-year period November 2019
September 2011
not applicable
January 2015
not applicable
2009
2019
2010
2015
* On May 31, 2022, in connection with the sale of a majority interest in the Isaac Mizrahi brand to a third party, this
agreement was assigned to IM Topco, LLC, in which Xcel retains a noncontrolling interest.
** In the fourth quarter of 2020, the Company transitioned and discontinued licensing of the H Halston brand to Qurate.
The Company began wholesale supply sales of the H Halston products under arrangements with HSN and certain Qurate
global affiliates and other unrelated interactive television networks.
In addition to the foregoing agreements, on August 30, 2022, Qurate and Xcel amended its licensing agreement for the
Judith Ripka brand to terminate the license period effective December 31, 2021. Effective January 1, 2022, the agreement
is effective with respect to a sell-off period, under which Qurate may continue to license the Ripka brand on a non-
exclusive basis for as long as necessary to sell off any of its remaining inventory.
In connection with the foregoing and during the same periods, Qurate and its subsidiaries have the exclusive, worldwide
right to use the names, likenesses, images, voices, and performances of our spokespersons to promote the respective
products.
Under the Qurate Agreements, Qurate is obligated to make payments to us 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.
Notwithstanding our grant of worldwide promotion rights to Qurate, we may, with the permission of Qurate, sell the
respective branded products (i) to better or prestige retailers, but excluding discount divisions of such companies and mass
merchants, (ii) via specifically branded brick-and-mortar retail stores, and (iii) via company websites, in exchange for
making reverse royalty payments to Qurate based on the net retail sales of such products through such channels – with the
exception of the Longaberger Brand, for which no reverse royalty payments are required to be made to Qurate under the
terms of the applicable agreement.
Also, under the Qurate Agreements, except for the Longaberger Qurate Agreement, we are required for a period of time to
pay a royalty participation fee to Qurate on revenue earned from the sale, license, consignment, or any other form of
distribution of any products, bearing, marketed in connection with or otherwise associated with the specified trademarks
and brands. Such royalty participation fees are recorded as a reduction to net licensing revenue.
Under the Qurate Agreements, we are generally restricted from selling products under the specified respective brands or
trademarks (including the trademarks, copyrights, designs, logos, and related intellectual property themselves) to certain
mass merchants. The Qurate Agreements generally prohibit us from selling products under the specified respective brands
or any of our other trademarks and brands to a direct competitor of Qurate (generally defined as any entity other than
Qurate whose primary means of deriving revenue is the transmission of interactive television programs) without Qurate’s
consent. In addition, during the term of the Ripka Qurate Agreement, and for one year thereafter, we may not, without
Qurate’s consent, promote, advertise, endorse, or sell (i) the specified branded products through any means or (ii) any
products through interactive television. During the term of the H Qurate Agreement, and for one year thereafter, we may
not, without Qurate’s consent, promote, advertise, endorse, or sell any products, including the H by Halston brands,
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through interactive television. In addition to the foregoing, certain of the agreements permit us to promote brick-and-mortar
collections on Qurate’s television programs subject to certain terms and restrictions.
For the years ended December 31, 2022 and 2021, net licensing revenue from Qurate collectively accounted for 44% and
50%, respectively, of the total net revenue of the Company.
Other Licensing Agreements
We have entered into numerous other licensing agreements for sales and distribution through e-commerce and traditional
brick-and-mortar retailers. Authorized distribution channels include department stores, mass merchant retailers, clubs, and
national specialty retailers. Under our other licenses, a supplier is granted rights, typically on an exclusive basis, to a single
or small group of related product categories for sale to multiple accounts within an approved channel of distribution and
territory. Our other license agreements typically provide the licensee with the exclusive rights for a certain product
category in a specified territory and/or distribution channel under a specific brand or brands. Our other license agreements
cover various categories, including but not limited to women’s apparel, footwear, and accessories; bath and body; jewelry;
home products; men’s apparel and accessories; children’s and infant apparel, footwear, and accessories; and electronics
cases and accessories. The terms of the agreements generally range from three to six years with renewal options.
We are in discussions with other potential licensees and strategic partners to license and/or co-brand our brand portfolio for
additional categories. In certain cases, we have engaged licensing agents to assist in the procurement of such licenses for
which we or our licensees pay such agents’ fees based upon a percentage of the net sales of licensed products by such
licensees, or a percentage of the royalty payments that we receive from such licensees. While many of the new and
proposed licensing agreements will likely require us to provide seasonal design services, most of our new and prospective
licensing partners have their own design staff, and we therefore expect low incremental overhead costs related to
expanding our licensing business. We will endeavor, where possible, to require licensees to provide guaranteed minimum
royalties under their license agreements.
Our licensees currently sell our branded licensed products through brick-and-mortar retailers, e-commerce, and in certain
cases supply products to interactive television companies for sale through their television programs and/or through their
internet websites. We generally recognize revenues from our other licenses based on a percentage of the sales of products
under our brands, but excluding (i) sales of products to interactive television networks, where we receive a retail royalty
directly from the interactive television licensee, and (ii) sales of products through e-commerce sites operated by us.
Additionally, based upon guaranteed minimum royalty provisions required under many of the license agreements, we are
able to recognize revenue related to certain other licenses based on the greater of the sales-based royalty or the guaranteed
minimum royalty.
Wholesale and e-Commerce
In 2022, we added our Q Optix business to our wholesale operations. Our focus is to continue to grow our direct-to-
consumer and live-streaming businesses into a significant portion of our overall business.
Collaborations
In certain cases, the Company collaborates with and provides promotional services to other brands or companies, which
arrangements may include the use of our brands for the promotion of such company or brands through the internet,
television, or other digital content, print media, or other marketing campaigns featuring in-person appearances by our
celebrity spokespersons, the development of limited collections of products (which may include co-branded products) for
such company, or other services as determined on a case-by-case basis. These have included promotions with Sesame
Street, Crayola, Hewlett Packard, Revlon, Johnson & Johnson, and Kleenex.
We also provide certain technology services to our retail partners and certain of our licensees under our proprietary
integrated technology platform.
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Marketing
Marketing is a critical element to maximize brand value to our licensees and our Company. We employ live streaming,
social media, and other marketing and public relations support for our brands.
Given our true omni-channel retail sales strategy focusing on the sale of branded products through various distribution
channels (including live-streaming, e-commerce, interactive television, and traditional brick-and-mortar sales channels),
our marketing efforts currently focus on leveraging micro and mega-influencers, entertainment tie-ins, PR and editorial,
social media campaigns, personal appearances, and digital content in order to drive retail sales of product and consumer
awareness across our various sales distribution channels. We seek to create the intersection where shopping, entertainment,
and social media meet. As such, our marketing is currently conducted primarily through live-streaming and social media,
videos, images, and other digital content that are all updated regularly and are amplified by micro and mega-influencers
and entertainment tie-ins. Our efforts also include promoting namesakes of our brands and our personalities through
various media including live-streaming, television, design for performances, and other events. We also work with our retail
partners to leverage their marketing resources, including e-commerce platforms and related digital marketing campaigns,
social media platforms, direct mail pieces, and public relations efforts.
We also market the Judith Ripka Fine Jewelry brand through www.judithripka.com, Halston Brand through
www.halston.com,
through
www.lorigoldstein.com, and the Longaberger brand through www.longaberger.com. Through our websites, we are able to
present the products under our brands to customers with branding that reflects each brand’s heritage and unique point of
view.
the Lori Goldstein brand
through www.cwonder.com,
the C Wonder brand
Our e-commerce businesses’ growth is dependent on live-streaming and other marketing to drive traffic to our websites and
converting our visitors into customers.
Competition
Each of our current brands has and any future acquired brand will likely have many competitors within each of its specific
distribution channels that span a broad variety of product categories, including the apparel, footwear, accessories, jewelry,
home furnishings and décor, food products, and sporting goods industries. These competitors have the ability to compete
with the Company and our licensees in terms of fashion, quality, price, products, and/or marketing, and ultimately retail
floor space and consumer spending.
Because many of our competitors have significantly greater cash, revenues, and resources than we do, we must work to
differentiate ourselves from our direct and indirect competitors to successfully compete for market share with the brands
we own and for future acquisitions. We believe that the following factors help differentiate our Company in an increasingly
crowded competitive landscape:
● our management team, including our officers’ and directors’ historical track records and relationships within the
industry;
● our brand management platform, which has a strong focus on design, product, marketing, and technology; and
● our operating strategies of wholesale and direct-to consumer sales and licensing brands with significant media
presence and driving sales through our true omni-channel retail sales strategy across interactive television, brick-
and-mortar, live streaming, and e-commerce distribution channels.
We expect our existing and future licenses to relate to products in the apparel, footwear, accessories, jewelry, home goods,
and other consumer products industries, in which our licensees face intense competition, including from our other brands
and licensees. In general, competitive factors include quality, price, style, name recognition, and service. In addition,
various fashion trends and the limited availability of shelf space could affect competition for our licensees’ products. Many
of our licensees’ competitors have greater financial, distribution, marketing, and other resources than our licensees and
have achieved significant name recognition for their brand names. Our licensees may be unable to successfully compete
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in the markets for their products, and we may not be able to continue to compete successfully with respect to our licensing
arrangements.
Trademarks
The Company, through its wholly owned subsidiaries, owns and exploits the Lori Goldstein brands, which include the
trademarks and brands LOGO by Lori Goldstein, LOGO, LOGO Links, LOGO Lounge, LOGO Layers, and LOGO Luna;
the Halston brands, which include the trademarks and brands Halston, Halston Heritage, Roy Frowick, H by Halston, and
H Halston; the Ripka brands, which include the trademarks and brands Judith Ripka LTD, Judith Ripka Collection, Judith
Ripka Legacy, Judith Ripka, and Judith Ripka Sterling; and the C Wonder brands, which include the trademarks and brands
C Wonder and C Wonder Limited. We manage and have a 50% ownership interest in the brands and trademarks of the
Longaberger brand through our business venture with Hilco Global. We have a 50% ownership interest in the brands and
trademarks of the Q Optix brand through our business venture with Vita Frame LLC. We also have a 30% ownership
interest in the Mizrahi brands, which include the trademarks and brands Isaac Mizrahi, Isaac Mizrahi New York, IMNYC
Isaac Mizrahi, and IsaacMizrahiLIVE, through our business venture with WHP Global.
Where laws limit our ability to record in our name trademarks that we have purchased, we have obtained by way of license
all necessary rights to operate our business. Certain of these trademarks and associated marks are registered or pending
registration with the U.S. Patent and Trademark Office in block letter and/or logo formats, as well as in combination with a
variety of ancillary designs for use in connection with a variety of product categories, such as apparel, footwear and
various other goods and services including, in some cases, home furnishings and decor. The Company intends to renew and
maintain registrations as appropriate prior to expiration and it makes efforts to diligently prosecute all pending applications
consistent with the Company’s business goals. In addition, the Company registers its trademarks in certain other countries
and regions around the world as it deems appropriate.
The Company and its licensees do not presently earn a material amount of revenue from either the licensing of our
trademarks internationally or the sale of products under our trademarks internationally. However, the Company has
registered its trademarks in certain territories where it expects that it may do business in the foreseeable future. If the
Company or a licensee intends to make use of the trademarks in international territories, the Company will seek to register
its trademarks in such international territories as it deems appropriate based upon factors including the revenue potential,
prospective market, and trademark laws in such territory or territories.
Generally, the Company is primarily responsible for monitoring and protecting its trademarks around the world. The
Company seeks to require its licensing partners to advise the Company of any violations of its trademark rights of which its
licensing partners become aware and relies primarily upon a combination of federal, state, and local laws, as well as
contractual restrictions to protect its intellectual property rights both domestically and internationally.
Human Capital
Our employees’ knowledge, social, and personality attributes enable our company to achieve its goals, develop our
business, and remain innovative. As of December 31, 2022, we had 69 full-time employees and 12 part-time employees.
We value our employees and are committed to providing a healthy and safe work environment. For certain key employees,
including our executives, brand ambassadors, and spokespersons, we typically enter into multi-year employment
agreements. Overall, we believe that our relationship with our employees is good. None of our employees are represented
by a labor union.
Government Regulation
We are subject to federal, state, and local laws and regulations affecting our business, including those promulgated under
the Occupational Safety and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber
Product Identification Act, the rules and regulations of the Consumer Product Safety Commission, and various
environmental laws and regulations. We believe that we are in compliance in all material respects with all applicable
governmental regulations.
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Item 1A. Risk Factors
In addition to the other information contained herein or incorporated herein by reference, the risks and uncertainties and
other factors described below could have a material adverse effect on our business, financial condition, results of
operations and share price and could also cause our future business, financial condition and results of operations to differ
materially from the results contemplated by any forward-looking statement we may make herein, in any other document we
file with the Securities and Exchange Commission (“SEC”), or in any press release or other written or oral statement we
may make. Please also see “Forward-Looking Statements” on page 3 for additional information regarding Forward-
Looking Statements.
Summary of Risk Factors
Our business is subject to a number of risks, which include, but are not limited to, risks related to:
● our limited amount of cash;
● our concentration of revenue with a limited number of licensees;
● restrictions related to certain key licensing agreements;
● conducting operations through joint ventures and our dependence on the joint ventures;
● our dependency upon our spokespersons;
● the operational performance and/or strategic initiatives of our licensees and retail partners;
● continued market acceptance of our brands and products;
● the use of social media and influencers to market brands and products;
● changing consumer preferences and shifting industry trends;
● execution of our growth strategy, including the acquisition of new brands;
● our dependency on our Chief Executive Officer and other key executives;
● intense competition in the apparel, fashion, and jewelry industries, and within our licensees’ markets;
● product sourcing, including our arrangements with foreign suppliers, supply and logistics considerations, and our
dependency on independent manufacturers; and
● protection of our trademarks and other intellectual property rights.
An investment in our securities is subject to a number of risks, which include, but are not limited to, risks related to:
● management’s significant control over matters requiring shareholder approval;
● potential difficulty in liquidating an investment in shares of our common stock;
● the potential impact of SEC “penny stock” rules on trading of our shares of our common stock;
● declines of and volatility in the market price of our common stock;
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● the potential issuance of a substantial number of shares of common stock upon exercise of warrants and options;
● the potential impact of Rule 144 restrictions on our shares of common stock as a former shell company;
● our intent to not pay any cash dividends for the foreseeable future; and
● provisions of our corporate charter documents which could delay or prevent change of control.
We are also subject to general risks, which include, but are not limited to, risks related to:
● a pandemic or outbreak of disease or similar public health threat, or fear of such an event;
● supply chain disruptions;
● the Ukrainian-Russian conflict;
● a decline in general economic conditions or consumer spending levels;
● inflation and/or a potential recession;
● extreme or unseasonable weather conditions;
● potential impairment of our trademarks and other intangible assets under accounting guidelines;
● changes in our effective tax rates or adverse outcomes resulting from examination of our tax returns;
● maintenance and security of our information technology systems;
● changes in laws and regulations;
● maintaining an effective system of internal control; and
● limitations on liabilities of our directors and executive officers.
Risks Related to Our Business
We have a limited amount of cash to grow our operations. If we cannot obtain additional sources of cash, our growth
prospects and future profitability may be materially adversely affected, and we may not be able to implement our
business plan. Such additional financing may not be available on satisfactory terms or it may not be available when
needed, or at all.
As of December 31, 2022, we had cash and cash equivalents of approximately $4.6 million, and during the year ended
December 31, 2022, we used $14.2 million of cash in operating activities. Although we believe that our existing cash and
our anticipated cash flow from operations will be sufficient to sustain our operations at our current expense levels for at
least twelve months subsequent to the date of the filing of this Annual Report on Form 10-K, we may require significant
additional cash to satisfy our working capital requirements, expand our operations or acquire and develop additional
brands. Our inability to finance our growth, either internally through our operations or externally, may limit our growth
potential and our ability to execute our business strategy successfully. If we issue securities to raise capital to finance
operations and/or pay down or restructure our debt, our existing stockholders may experience dilution. In addition, the new
securities may have rights senior to those of our common stock.
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A substantial portion of our net licensing revenue is concentrated with a limited number of licensees such that the loss
of any of such licensees could decrease our revenue and impair our cash flows.
A substantial portion of our net licensing revenue has been paid by Qurate, through the respective agreements with Qurate
through QVC and HSN. During the years ended December 31, 2022 and 2021, Qurate accounted for approximately 44%
and 50%, respectively, of our total net revenue. Because we are dependent on these agreements with Qurate for a
significant portion of our revenues, if Qurate were to have financial difficulties, or if Qurate decides not to renew or extend
its existing agreements with us, our revenue and cash flows could be reduced substantially. Our cash flow would also be
significantly impacted if there were significant delays in our collection of receivables from Qurate. Additionally, we have
limited control over the programming that Qurate devotes to our brands or its promotional sales with our brands (such as
“Today’s Special Value” sales). Qurate has reduced the programming time it devotes to jewelry and, accordingly, also to
our Ripka brand, and if Qurate further reduces or modifies its programming or promotional sales related to our brands, our
revenues and cash flows could be reduced substantially. In order to increase sales of a brand through Qurate, we generally
require additional television programming time dedicated to the brand by Qurate. Qurate is not required to devote any
minimum amount of programming time for any of our brands.
While our business with Qurate has grown since we first launched one of our brands on QVC, our Qurate revenues
declined from 2021 to 2022, as a result of the May 31, 2022 sale of a controlling interest of the Isaac Mizrachi brand
through the sale of a 70% interest in IM Topco, LLC. There can be no guarantee that our Qurate revenues will grow in the
future or that they will not decline further. Additionally, there can be no assurance that our other licensees will be able to
generate sales of products under our brands or grow their existing sales of products under our brands, and if they do
generate sales, there is no guarantee that they will not cause a decline in sales of products being sold through Qurate.
Our agreements with Qurate restrict us from selling products under our brands with certain retailers, or branded
products we sell on Qurate to any other retailer except certain interactive television channels in other territories
approved by Qurate, and provides Qurate with a right to terminate the respective agreement if we breach these
provisions.
Although most of our licenses and our Qurate Agreements prohibit the sale of products under our brands to retailers who
are restricted by Qurate, and our license agreements with other interactive television companies prohibit such licensees
from selling products to retailers restricted by Qurate under the brands we sell on Qurate outside of certain approved
territories, one or more of our licensees could sell to a restricted retailer or territory, putting us in breach of our agreements
with Qurate and exposing us to potential termination by Qurate. A breach of any of these agreements could also result in
Qurate seeking monetary damages, seeking an injunction against us and our other licensees, reducing the programming
time allocated to our brands, and/or terminating the respective agreement, which could have a material adverse effect on
our net income and cash flows.
We have recently begun to conduct certain of our operations through a joint venture. Joint ventures could fail to meet
our expectations or cease to deliver anticipated benefits. There could also be disagreements with our joint venture
partners that could adversely affect our interest a joint venture.
In May 2022, we sold a majority interest in Isaac Mizrachi brand through the sale of a 70% interest in IM Topco, LLC. We
may enter into additional joint ventures in the future. Our operating results are, in part, dependent upon the performance of
IM Topco, LLC and, in the future, could also be dependent in part upon the performance of future joint ventures. Joint
ventures involve numerous risks, and could fail to meet our initial or ongoing expectations. We provide certain services to
IM Topco, LLC and may provide services to future joint ventures, but we do not control the day-to-day operations of IM
Topco, LLC and may not control the day-to-day operations of future joint ventures. The anticipated synergies or other
benefits of a joint venture may fail to materialize due to changing business conditions or changes in our business priorities
or those of our joint venture partners. Our joint venture partners, as well as any future partners, may have interests that are
different from our interests that may result in conflicting views as to the conduct of the business or future direction of the
joint venture. In the event that we have a disagreement with a joint venture partner with respect to a particular issue to
come before the joint venture, or as to the management or conduct of the business of the joint venture, we may not be able
to resolve such disagreement in our favor. Any such disagreement could have a material adverse effect on our interest in
the joint venture, the business of the joint venture, or the portion of our growth strategy related to the joint venture.
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We are dependent on our joint ventures to provide timely and accurate information about their sales and operations,
which we rely upon to effectively manage their brands.
IM Topco, LLC is, and we expect future joint ventures will be, contractually obligated to provide timely and accurate
information regarding their sales and operations. We rely on this information to prepare our consolidated financial
statements. Any delay in reporting reduces our visibility into the results of operations for IM Topco, LLC and any future
joint ventures, and our inability to collect timely and accurate information may affect our ability to timely complete our
financial statements and timely file reports and other information with the SEC and may adversely affect our business and
results of operations.
We are dependent upon the promotional services of Lori Goldstein and our other spokespersons as they relate to our
respective brands.
If we lose the services of Lori Goldstein, we may not be able to fully comply with the terms of our agreement with Qurate,
and it may result in significant reductions in the value of the LOGO by Lori Goldstein brand and our prospects, revenues,
and cash flows. Lori Goldstein is a key individual in our continued promotion of the LOGO by Lori Goldstein brand and
the principal salesperson of the LOGO by Lori Goldstein brand on Qurate. Failure of Lori Goldstein to provide services to
Qurate could result in a termination of related agreements with Qurate, which could trigger an event of default under our
credit facility. Although we have entered into an employment agreement with Ms. Goldstein, there is no guarantee that we
will not lose her services. To the extent that any of Ms. Goldstein’s services become unavailable to us, we will likely need
to find a replacement for Ms. Goldstein to promote the LOGO by Lori Goldstein brand. Competition for skilled designers
and high-profile brand promoters is intense, and compensation levels may be high, and there is no guarantee that we would
be able to identify and attract a qualified replacement, or if Ms. Goldstein’s services are not available to us, that we would
be able to promote the LOGO by Lori Goldstein brand as well as we are able to with Ms. Goldstein. This could
significantly affect the value of the LOGO by Lori Goldstein brand and our ability to market the brand, and could impede
our ability to fully implement our business plan and future growth strategy, which would harm our business and prospects.
Additionally, while we acquired all trademarks, image, and likeness of Lori Goldstein, pursuant to the acquisition of the
LOGO by Lori Goldstein assets and her employment agreement, Ms. Goldstein has retained certain rights to participate in
outside business activities, including hosting and appearing in television shows, movies and theater productions, and
writing and publishing books and other publications. Ms. Goldstein’s participation in these personal business ventures
could limit her availability to us and affect her ability to perform under this employment agreement. Finally, there is no
guarantee that Ms. Goldstein will not take an action that consumers view as negative, which may harm the LOGO by Lori
Goldstein brand as well as our business and prospects.
We will also be dependent upon the services of our other spokespersons and our joint venture partner’s spokesperson to
promote our other brands and the brands of our joint venture. The loss of a spokesperson or a joint ventures’ spokesperson
could significantly affect the value of the related brand or our related joint venture interest and our or our related joint
venture’s ability to market the brand which would harm our business and prospects.
The failure of our licensees to adequately produce, market, source, and sell quality products bearing our brand names
in their license categories or to pay their obligations under their license agreements could result in a decline in our
results of operations.
Our revenues are dependent on payments made to us under our licensing agreements. Although the licensing agreements
for our brands typically require the advance payment to us of a portion of the licensing fees and in many cases provide for
guaranteed minimum royalty payments to us, the failure of our licensees to satisfy their obligations under these agreements
or their inability to operate successfully or at all, could result in their breach and/or the early termination of such
agreements, the non-renewal of such agreements, or our decision to amend such agreements to reduce the guaranteed
minimums or sales royalties due thereunder, thereby eliminating some or all of that stream of revenue. Moreover, during
the terms of the license agreements, we are substantially dependent upon the efforts and abilities of our licensees to
maintain the quality and marketability of the products bearing our trademarks, as their failure to do so could materially
tarnish our brands, thereby harming our future growth and prospects. In addition, the failure of our licensees to meet their
production, manufacturing, sourcing, and distribution requirements or actively market the branded licensed products could
cause a decline in their sales and potentially decrease the amount of royalty payments (over and above the guaranteed
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minimums) due to us. A weak economy or softness in the apparel and retail sectors could exacerbate this risk. This, in turn,
could decrease our potential revenues. The concurrent failure by several of our material licensees to meet their financial
obligations to us could adversely affect our business, results of operations, and cash flows.
We are subject to the risks associated with our Judith Ripka brand’s wholesale and direct-to-consumer model.
We commenced e-commerce sales and wholesale distribution of our Judith Ripka brand in 2017 and 2018, respectively. In
2019, we completed the transition of our non-interactive television operations of our Judith Ripka brand from a licensing
model to a wholesale and direct-to-consumer model. We opened a brick-and-mortar retail store for the Judith Ripka brand
in 2021, which we subsequently closed in 2022. As a result, we do not have a well-established history of conducting these
operations.
We produce product for our Judith Ripka brands to hold as inventory for sales through our website and wholesale accounts.
If we misjudge the market for our Judith Ripka products, we may be faced with significant excess inventory for some
products and missed opportunities for other products. In addition, weak sales and mark downs by our retailers or our need
to liquidate excess inventory could adversely affect our results of operations. If we are not successful in managing our
inventory balances, our cash flows and operating results may be adversely affected.
If our retail customers change their buying patterns, request additional allowances, develop their own private label
brands or enter into agreements with national brand manufacturers to sell their products on an exclusive basis, our
sales to these customers could be materially adversely affected.
Our retail customers’ buying patterns, as well as the need to provide additional allowances to customers, could have a
material adverse effect on our business, results of operations and financial condition. Customers’ strategic initiatives,
including developing their own private labels brands, selling national brands on an exclusive basis, reducing the number of
vendors they purchase from, or reducing the floor space dedicated to our brands could also impact our sales to these
customers. There is a trend among major retailers to concentrate purchasing among a narrowing group of vendors. To the
extent that any key customer reduces the number of its vendors or allocates less floor space for our products and, as a
result, reduces or eliminates purchases from us, there could be a material adverse effect on us.
Our business is dependent on continued market acceptance of our brands, our joint venture brands, and any future
brands we may acquire directly or through a joint venture, and the products of our licensees.
Although certain of our licensees guarantee minimum net sales and minimum royalties to us, some of our licensees are not
yet selling licensed products or currently have limited distribution of licensed products, and a failure of our brands or of
our joint venture brands or of products bearing our brands or our joint venture brands to achieve or maintain broad market
acceptance could cause a reduction of our licensing revenues, diminish the value of and generally affect the operating
results of our joint ventures, and could further cause existing licensees not to renew their agreements. Such failure could
also cause the devaluation of our trademarks, which are our primary assets and the primary assets of our joint ventures,
making it more difficult for us or our joint ventures to renew our current licenses upon their expiration or enter into new or
additional licenses for such trademarks. In addition, if such devaluation of our trademarks were to occur, a material
impairment in the carrying value of one or more of our trademarks, which had an aggregate carrying value of $47.7 million
as of December 31, 2022, could also occur and be charged as an expense to our operating results. Continued market
acceptance of our brands, our joint ventures’ brands, and our licensees’ products, as well as market acceptance of any
future products bearing any future brands we may acquire, is subject to a high degree of uncertainty and constantly
changing consumer tastes, preferences, and purchasing patterns. Creating and maintaining market acceptance of our
licensees’ products and creating market acceptance of new products and categories of products bearing our marks may
require substantial marketing efforts, which may, from time to time, also include our expenditure of significant additional
funds to keep pace with changing consumer demands, which funds may or may not be available on a timely basis, on
acceptable terms or at all. Additional marketing efforts and expenditures may not, however, result in either increased
market acceptance of, or additional licenses for, our trademarks or increased market acceptance, or sales, of our licensees’
products. Furthermore, we do not actually design or manufacture all of the products bearing our marks, and therefore, have
less control over such products’ quality and design than a traditional product manufacturer might have. The failure of our
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licensees and joint ventures to maintain the quality of their products could harm the reputation and marketability of our
brands and our joint ventures’ brands, which would adversely impact our business and the business of our joint ventures.
Negative claims or publicity regarding Xcel, IM Topco, LLC, any future joint ventures, our or their brands, or products
could adversely affect our reputation and sales regardless of whether such claims are accurate. Social media, which
accelerates the dissemination of information, can increase the challenges of responding to negative claims. In the past,
many apparel companies have experienced periods of rapid growth in sales and earnings followed by periods of declining
sales and losses. Our businesses may be similarly affected in the future.
Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other
penalties.
We use and our joint ventures may use third-party social media platforms as, among other things, marketing tools. We also
maintain, and our joint ventures may maintain, relationships with many social media influencers and engage in sponsorship
initiatives. As existing e-commerce and social media platforms continue to rapidly evolve and new platforms develop, we
and our joint ventures must continue to maintain a presence on these platforms and establish presences on new or emerging
popular social media platforms. If we or our joint ventures are unable to cost-effectively use social media platforms as
marketing tools or if the social media platforms we or our joint ventures use change their policies or algorithms, we or our
joint ventures may not be able to fully optimize such platforms, and our and their ability to maintain and acquire customers
and our financial condition may suffer.
Furthermore, as laws and regulations and public opinion rapidly evolve to govern the use of these platforms and devices,
the failure by us, our employees, our network of social media influencers, our sponsors or third parties acting at our
direction to abide by applicable laws and regulations in the use of these platforms and devices or otherwise could subject us
to regulatory investigations, class action lawsuits, liability, fines or other penalties and have a material adverse effect on our
business, financial condition and operating results.
In addition, an increase in the use of social media for product promotion and marketing may cause an increase in the
burden on us and our joint ventures to monitor compliance of such materials, and increase the risk that such materials could
contain problematic product or marketing claims in violation of applicable regulations. For example, in some cases, the
Federal Trade Commission has sought enforcement action where an endorsement has failed to clearly and conspicuously
disclose a financial relationship or material connection between an influencer and an advertiser.
We do not prescribe what our influencers post, and if we were held responsible for the content of their posts or their
actions, we could be fined or forced to alter our practices, which could have an adverse impact on our business.
Negative commentary regarding us, our joint ventures or our or their products or influencers and other third parties who are
affiliated with us or our joint ventures may also be posted on social media platforms and may be adverse to our or our joint
ventures’ reputation or business. Influencers with whom we or our joint ventures maintain relationships could engage in
behavior or use their platforms to communicate directly with our customers in a manner that reflects poorly on our or our
joint ventures’ brand and may be attributed to us or our joint ventures or otherwise adversely affect us or our joint ventures.
It is not possible to prevent such behavior, and the precautions we and our joint ventures take to detect this activity may not
be effective in all cases. Our and our joint ventures’ target consumers often value readily available information and often
act on such information without further investigation and without regard to its accuracy. The harm may be immediate,
without affording us and our joint ventures an opportunity for redress or correction.
If we are unable to anticipate and respond to changing customer preferences and shifts in fashion and industry trends
in a timely manner, our business, financial condition, and operating results could be harmed.
Our success largely depends on our ability to consistently gauge tastes and trends and provide a diverse and balanced
assortment of merchandise that satisfies customer demands in a timely manner. Our ability to accurately forecast demand
for our products could be affected by many factors, including an increase or decrease in demand for our products or for
products of our competitors, our failure to accurately forecast acceptance of new products, product introductions by
competitors, unanticipated changes in general market conditions, and weakening of economic conditions or consumer
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confidence in future economic conditions. We typically enter into agreements to manufacture and purchase our
merchandise in advance of the applicable selling season and our failure to anticipate, identify or react appropriately, or in a
timely manner to changes in customer preferences, tastes and trends or economic conditions could lead to, among other
things, missed opportunities, excess inventory or inventory shortages, markdowns and write-offs, all of which could
negatively impact our profitability and have a material adverse effect on our business, financial condition, and operating
results. Failure to respond to changing customer preferences and fashion trends could also negatively impact the image of
our brands with our customers and result in diminished brand loyalty.
If major department, mass merchant, and specialty store chains consolidate, continue to close stores, or cease to do
business, our business could be negatively affected.
We sell our products through major department, mass merchant, and specialty store chains. Continued consolidation in the
retail industry, as well as store closing or retailers ceasing to do business, could negatively impact our business. Various
customers of ours have encountered reductions in operations including Macy’s and Kohl’s, as well as other store chains
that have reduced the number of stores they operated, Lord & Taylor, which closed all of its stores, and JC Penney and
Christopher & Banks, each of which filed for bankruptcy. Store closings could adversely affect our business and results of
operations. Consolidation could reduce the number of our customers and potential customers. With increased consolidation
in the retail industry, we are increasingly dependent on retailers whose bargaining strength may increase and whose share
of our business may grow. As a result, we may face greater pressure from these customers to provide more favorable terms,
including increased support of their retail margins. As purchasing decisions become more centralized, the risks from
consolidation increase. A store group could decide to close stores, decrease the amount of product purchased from us,
modify the amount of floor space allocated to apparel in general or to our products specifically, or focus on promoting
private label products or national brand products for which it has exclusive rights rather than promoting our products.
Customers are also concentrating purchases among a narrowing group of vendors. These types of decisions by our key
customers could adversely affect our business.
We expect to achieve growth based upon our plans to expand our business under our existing brands. If we fail to
manage our expected future growth, our business and operating results could be materially harmed.
We expect to achieve growth in our existing brands through expansion of our wholesale business and e-commerce
platforms. Revenue growth is expected to come from new wholesale accounts and increased traffic to our e-commerce
sites. We continue to seek new opportunities and international expansion through interactive television and licensing
arrangements. The success of our company, however, will still remain largely dependent on our ability to build and
maintain broad market acceptance of our brands, to contract with and retain key licensees and on our licensees’ ability to
accurately predict upcoming fashion and design trends within customer bases and fulfill the product requirements of retail
channels within the global marketplace.
Our ability to compete effectively and to manage future growth, if any, will depend on the sufficiency and adequacy of our
current resources and infrastructure and our ability to continue to identify, attract and retain personnel to manage our
brands and integrate any brands we may acquire into our operations. There can be no assurance that our personnel,
systems, procedures and controls will be adequate to support our operations and properly oversee our brands. The failure to
support our operations effectively and properly oversee our brands could cause harm to our brands and have a material
adverse effect on the value of such brands and on our reputation, business, financial condition and results of operations. In
addition, we may be unable to leverage our core competencies in managing apparel and jewelry brands to managing brands
in new product categories.
Also, there can be no assurance that we will be able to achieve and sustain meaningful growth. Our growth may be limited
by a number of factors including increased competition among branded products at brick-and-mortar, internet and
interactive retailers, decreased airtime on QVC, competition for retail licenses and brand acquisitions, and insufficient
capitalization for future transactions.
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We are dependent upon our Chief Executive Officer and other key executives. If we lose the services of these
individuals, we may not be able to fully implement our business plan and future growth strategy, which would harm our
business and prospects.
Our success is largely dependent upon the efforts of Robert W. D’Loren, our Chief Executive Officer and Chairman of our
board of directors. Our continued success is largely dependent upon his continued efforts and those of our other key
executives. Although we entered into an employment agreement with Mr. D’Loren, as well as employment agreements
with other executives and key employees, such persons can terminate their employment with us at their option, and there is
no guarantee that we will not lose the services of our executive officers or key employees. To the extent that any of their
services become unavailable to us, we will be required to hire other qualified executives, and we may not be successful in
finding or hiring adequate replacements. This could impede our ability to fully implement our business plan and future
growth strategy, which would harm our business and prospects.
If we are unable to identify and successfully acquire additional trademarks, our growth may be limited and, even if
additional trademarks are acquired, we may not realize anticipated benefits due to integration or licensing difficulties.
While we are focused on growing our existing brands, we intend to selectively seek to acquire additional intellectual
property, either directly or through the formation of joint ventures. However, as our competitors continue to pursue a brand
management model, acquisitions may become more expensive and suitable acquisition candidates could become more
difficult to find. In addition, even if we successfully acquire additional intellectual property or the rights to use additional
intellectual property, we may not be able to achieve or maintain profitability levels that justify our investment in, or realize
planned benefits with respect to, those additional brands.
Although we will seek to temper our acquisition risks by following acquisition guidelines relating to purchase price and
valuation, projected returns, existing strength of the brand, its diversification benefits to us, its potential licensing scale and
creditworthiness of licensee base, acquisitions, whether they be of additional intellectual property assets or of the
companies that own them, entail numerous risks, any of which could detrimentally affect our reputation, our results of
operations, and/or the value of our common stock. These risks include, among others:
● unanticipated costs associated with the target acquisition or its integration with our company;
● our ability to identify or consummate additional quality business opportunities, including potential licenses and
new product lines and markets;
● negative effects on reported results of operations from acquisition related charges and costs, and amortization of
acquired intangibles;
● diversion of management’s attention from other business concerns;
● the challenges of maintaining focus on, and continuing to execute, core strategies and business plans as our brand
and license portfolio grows and becomes more diversified;
● adverse effects on existing licensing and other relationships;
● potential difficulties associated with the retention of key employees, and difficulties, delays and unanticipated
costs associated with the assimilation of personnel, operations, systems and cultures, which may be retained by us
in connection with or as a result of our acquisitions;
● risks of entering new domestic and international markets (whether it be with respect to new licensed product
categories or new licensed product distribution channels) or markets in which we have limited prior experience;
and
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● increased concentration in our revenues with one or more customers in the event that the brand has distribution
channels in which we currently distribute products under one or more of our brands.
When we acquire intellectual property assets or the companies that own them, our due diligence reviews are subject to
inherent uncertainties and may not reveal all potential risks. We may therefore fail to discover or inaccurately assess
undisclosed or contingent liabilities, including liabilities for which we may have responsibility as a successor to the seller
or the target company. As a successor, we may be responsible for any past or continuing violations of law by the seller or
the target company. Although we will generally attempt to seek contractual protections through representations, warranties
and indemnities, we cannot be sure that we will obtain such provisions in our acquisitions or that such provisions will fully
protect us from all unknown, contingent or other liabilities or costs. Finally, claims against us relating to any acquisition
may necessitate our seeking claims against the seller for which the seller may not, or may not be able to, indemnify us or
that may exceed the scope, duration or amount of the seller’s indemnification obligations.
Acquiring additional intellectual property could also have a significant effect on our financial position and could cause
substantial fluctuations in our quarterly and yearly operating results. Acquisitions could result in the recording of
significant goodwill and intangible assets on our financial statements, the amortization or impairment of which would
reduce our reported earnings in subsequent years. No assurance can be given with respect to the timing, likelihood or
financial or business effect of any possible transaction. Moreover, our ability to grow through the acquisition of additional
intellectual property will also depend on the availability of capital to complete the necessary acquisition arrangements. In
the event that we are unable to obtain debt financing on acceptable terms for a particular acquisition, we may elect to
pursue the acquisition through the issuance by us of shares of our common stock (and, in certain cases, convertible
securities) as equity consideration, which could dilute our common stock and reduce our earnings per share, and any such
dilution could reduce the market price of our common stock unless and until we were able to achieve revenue growth or
cost savings and other business economies sufficient to offset the effect of such an issuance. Acquisitions of additional
brands may also involve challenges related to integration into our existing operations, merging diverse cultures, and
retaining key employees. Any failure to integrate additional brands successfully in the future may adversely impact our
reputation and business.
As a result, there is no guarantee that our stockholders will achieve greater returns as a result of any future acquisitions we
complete.
Intense competition in the apparel, fashion, and jewelry industries could reduce our sales and profitability.
As a fashion company, we face intense competition from other domestic and foreign apparel, footwear, accessories, and
jewelry manufacturers and retailers. Competition has and may continue to result in pricing pressures, reduced profit
margins, lost market share, or failure to grow our market share, any of which could substantially harm our business and
results of operations. Competition is based on many factors including, without limitation, the following:
● establishing and maintaining favorable brand recognition;
● developing products that appeal to consumers;
● pricing products appropriately;
● determining and maintaining product quality;
● obtaining access to sufficient floor space in retail locations;
● providing appropriate services and support to retailers;
● maintaining and growing market share;
● developing and maintaining a competitive e-commerce site;
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● hiring and retaining key employees; and
● protecting intellectual property.
Competition in the apparel, fashion and jewelry industries is intense and is dominated by a number of very large brands,
many of which have longer operating histories, larger customer bases, more established relationships with a broader set of
suppliers, greater brand recognition, and greater financial, research and development, marketing, distribution, and other
resources than we do. These capabilities of our competitors may allow them to better withstand downturns in the economy
or apparel, fashion and jewelry industries. Any increased competition, or our failure to adequately address any of these
competitive factors which we have seen from time to time, could result in reduced sales, which could adversely affect our
business, financial condition, and operating results.
Competition, along with such other factors as consolidation within the retail industry and changes in consumer spending
patterns, could also result in significant pricing pressure and cause the sales environment to be more promotional, as it has
been in recent years, impacting our financial results. If promotional pressure remains intense, either through actions of our
competitors or through customer expectations, this may cause a further reduction in our sales and gross margins and could
have a material adverse effect on our business, financial condition, and operating results.
Because of the intense competition within our existing and potential wholesale licensees’ markets and the strength of
some of their competitors, we and our licensees may not be able to continue to compete successfully.
We expect our existing and future licenses to relate to products in the apparel, footwear, accessories, jewelry, home goods,
and other consumer industries, in which our licensees face intense competition, including from our other brands and
licensees. In general, competitive factors include quality, price, style, name recognition, and service. In addition, various
fashion trends and the limited availability of shelf space could affect competition for our licensees’ products. Many of our
licensees’ competitors have greater financial, distribution, marketing, and other resources than our licensees and have
achieved significant name recognition for their brand names. Our licensees may be unable to successfully compete in the
markets for their products, and we may not be able to continue to compete successfully with respect to our contractual
arrangements.
If our competition for licenses increases, or any of our current licensees elect not to renew their licenses or renew on
terms less favorable than today, our growth plans could be slowed and our business, financial condition and results of
operations would be adversely affected.
To the extent we seek to acquire additional brands, we will face competition to retain licenses and to complete such
acquisitions. The ownership, licensing, and management of brands is becoming a more widely utilized method of
managing consumer brands as production continues to become commoditized and manufacturing capacity increases
worldwide. We face competition from numerous direct competitors, both publicly and privately-held, including traditional
apparel and consumer brand companies, other brand management companies and private equity groups. Companies that
traditionally focused on wholesale manufacturing and sourcing models are now exploring licensing as a way of growing
their businesses through strategic licensing partners and direct-to-retail contractual arrangements. Furthermore, our current
or potential licensees may decide to develop or purchase brands rather than renew or enter into contractual agreements with
us. In addition, this increased competition could result in lower sales of products offered by our licensees under our brands.
If our competition for licenses increases, it may take us longer to procure additional licenses, which could slow our growth
rate.
The extent of our foreign sourcing may adversely affect our business.
We and our licensees work with several manufacturers overseas, primarily located in China and Thailand. A manufacturing
contractor’s failure to ship products to us in a timely manner or to meet the required quality standards could cause us to
miss the delivery date requirements of our customers for those items. The failure to make timely deliveries may cause
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customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could have a material
adverse effect on us. As a result of the magnitude of our foreign sourcing, our business is subject to the following risks:
● political and economic instability in countries or regions, especially Asia, including heightened terrorism and
other security concerns, which could subject imported or exported goods to additional or more frequent
inspections, leading to delays win deliveries or impoundment of goods;
● imposition of regulations, quotas and other trade restrictions relating to imports, including quotas imposed by
bilateral textile agreements between the U.S. and foreign countries;
● currency exchange rates;
● imposition of increased duties, taxes and other charges on imports;
● pandemics and disease outbreaks such as COVID-19;
● labor union strikes at ports through which our products enter the U.S.;
● labor shortages in countries where contractors and suppliers are located;
● restrictions on the transfer of funds to or from foreign countries;
● disease epidemics and health-related concerns, which could result in closed factories, reduced workforces,
scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;
● the migration and development of manufacturing contractors, which could affect where our products are or are
planned to be produced;
● increases in the costs of fuel, travel and transportation;
● reduced manufacturing flexibility because of geographic distance between our foreign manufacturers and us,
increasing the risk that we may have to mark down unsold inventory as a result of misjudging the market for a
foreign-made product; and
● violations by foreign contractors of labor and wage standards and resulting adverse publicity.
If these risks limit or prevent us from manufacturing products in any significant international market, prevent us from
acquiring products from foreign suppliers, or significantly increase the cost of our products, our operations could be
seriously disrupted until alternative suppliers are found or alternative markets are developed, which could negatively
impact our business.
Fluctuations in the price, availability and quality of raw materials could cause delays and increase costs and cause our
operating results and financial condition to suffer.
Fluctuations in the price, availability and quality of the fabrics or other raw materials, particularly cotton, silk, leather and
synthetics used in our manufactured apparel, and gold, silver and other precious and semi-precious metals and gem stones
used in our jewelry, could have a material adverse effect on cost of sales or our ability to meet customer demands. The
prices of fabrics, precious and semi-precious metals and gemstones depend largely on the market prices of the raw
materials used to produce them. The price and availability of the raw materials and, in turn, the fabrics, precious and semi-
precious metals and gem stones used in our apparel and jewelry may fluctuate significantly, depending on many factors,
including crop yields, weather patterns, labor costs and changes in oil prices. We may not be able to create suitable design
solutions that utilize raw materials with attractive prices or, alternatively, to pass higher raw materials prices and related
transportation costs on to our customers. We are not always successful in our efforts to protect our business from the
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volatility of the market price of raw materials, and our business can be materially affected by dramatic movements in prices
of raw materials. The ultimate effect of this change on our earnings cannot be quantified, as the effect of movements in raw
materials prices on industry selling prices are uncertain, but any significant increase in these prices could have a material
adverse effect on our business, financial condition, and operating results.
Our reliance on independent manufacturers could cause delays or quality issues which could damage customer
relationships.
We use approximately eight independent manufacturers to assemble or produce all of our products. We are dependent on
the ability of these independent manufacturers to adequately finance the production of goods ordered and maintain
sufficient manufacturing capacity. The use of independent manufacturers to produce finished goods and the resulting lack
of direct control could subject us to difficulty in obtaining timely delivery of products of acceptable quality. We generally
do not have long-term written agreements with any independent manufacturers. As a result, any single manufacturing
contractor could unilaterally terminate its relationship with us at any time. Supply disruptions from these manufacturers (or
any of our other manufacturers) could have a material adverse effect on our ability to meet customer demands, if we are
unable to source suitable replacement materials at acceptable prices or at all. Moreover, alternative manufacturers, if
available, may not be able to provide us with products or services of a comparable quality, at an acceptable price or on a
timely basis. We may also, from time to time, make a decision to enter into a relationship with a new manufacturer.
Identifying a suitable supplier is an involved process that requires us to become satisfied with their quality control,
responsiveness and service, financial stability and labor and other ethical practices. There can be no assurance that there
will not be a disruption in the supply of our products from independent manufacturers or that any new manufacturer will be
successful in producing our products in a manner we expected. The failure of any independent manufacturer to perform or
the loss of any independent manufacturer could have a material adverse effect on our business, results of operations, and
financial condition.
If our independent manufacturers fail to use ethical business practices and comply with applicable laws and
regulations, our brand image could be harmed due to negative publicity.
We have established and currently maintain operating guidelines which promote ethical business practices such as fair
wage practices, compliance with child labor laws and other local laws. While we monitor compliance with those
guidelines, we do not control our independent manufacturers or their business practices. Accordingly, we cannot guarantee
their compliance with our guidelines. A lack of demonstrated compliance could lead us to seek alternative suppliers, which
could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our
operations.
Violation of labor or other laws by our independent manufacturers or the divergence of an independent manufacturer’s
labor or other practices from those generally accepted as ethical in the U.S. or other markets in which we do business could
also attract negative publicity for us and our brand. From time to time, our audit results have revealed a lack of compliance
in certain respects, including with respect to local labor, safety and environmental laws. Other fashion companies have
faced criticism after highly-publicized incidents or compliance issues have occurred or been exposed at factories producing
their products. To the extent our manufacturers do not bring their operations into compliance with such laws or resolve
material issues identified in any of our audit results, we may face similar criticism and negative publicity. This could
diminish the value of our brand image and reduce demand for our merchandise. In addition, other fashion companies have
encountered organized boycotts of their products in such situations. If we, or other companies in our industry, encounter
similar problems in the future, it could harm our brand image, stock price and results of operations.
Monitoring compliance by independent manufacturers is complicated by the fact that expectations of ethical business
practices continually evolve, may be substantially more demanding than applicable legal requirements and are driven in
part by legal developments and by diverse groups active in publicizing and organizing public responses to perceived ethical
shortcomings. Accordingly, we cannot predict how such expectations might develop in the future and cannot be certain that
our guidelines would satisfy all parties who are active in monitoring and publicizing perceived shortcomings in labor and
other business practices worldwide.
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Our failure to protect our proprietary rights could compromise our competitive position and decrease the value of our
brands.
We own, through our wholly owned subsidiaries, various U.S. federal trademark registrations and foreign trademark
registrations for our brands, together with pending applications for registration, which are vital to the success and further
growth of our business and which we believe have significant value. We rely primarily upon a combination of trademarks,
copyrights, and contractual restrictions to protect and enforce our intellectual property rights domestically and
internationally. We believe that such measures afford only limited protection and, accordingly, there can be no assurance
that the actions taken by us to establish, protect, and enforce our trademarks and other proprietary rights will prevent
infringement of our intellectual property rights by others, or prevent the loss of licensing revenue or other damages caused
therefrom.
For instance, despite our efforts to protect and enforce our intellectual property rights, unauthorized parties may attempt to
copy aspects of our intellectual property, which could harm the reputation of our brands, decrease their value, and/or cause
a decline in our licensees’ sales and thus our revenues. Further, we and our licensees may not be able to detect infringement
of our intellectual property rights quickly or at all, and at times, we or our licensees may not be successful in combating
counterfeit, infringing, or knockoff products, thereby damaging our competitive position. In addition, we depend upon the
laws of the countries where our licensees’ products are sold to protect our intellectual property. Intellectual property rights
may be unavailable or limited in some countries because standards of registration and ownership vary internationally.
Consequently, in certain foreign jurisdictions, we have elected or may elect not to apply for trademark registrations.
While we generally apply for trademarks in most countries where we license or intend to license our trademarks, we may
not accurately predict all of the countries where trademark protection will ultimately be desirable. If we fail to timely file a
trademark application in any such country, we may be precluded from obtaining a trademark registration in such country at
a later date. Failure to adequately pursue and enforce our trademark rights could damage our brands, enable others to
compete with our brands and impair our ability to compete effectively.
In addition, in the future, we may be required to assert infringement claims against third parties or more third parties may
assert infringement claims against us. Any resulting litigation or proceeding could result in significant expense to us and
divert the efforts of our management personnel, whether or not such litigation or proceeding is determined in our favor. To
the extent that any of our trademarks were ever deemed to violate the proprietary rights of others in any litigation or
proceeding or as a result of any claim, we may be prevented from using them, which could cause a termination of our
contractual arrangements, and thus our revenue stream, with respect to those trademarks. Litigation could also result in a
judgment or monetary damages being levied against us.
Risks Related to an Investment in Our Securities
Management exercises significant control over matters requiring shareholder approval, which may result in the delay or
prevention of a change in our control.
Pursuant to voting agreements, certain shareholders agreed to appoint a person designated by our board of directors as their
collective irrevocable proxy and attorney-in-fact with respect to the shares of the common stock received by them. The
proxy holder will vote in favor of matters recommended or approved by the board of directors. The board of directors has
designated Robert W. D’Loren as proxy. Also, pursuant to separate voting agreements, certain other stockholders have
agreed to appoint Mr. D’Loren as their respective irrevocable proxy and attorney-in-fact with respect to the shares of the
common stock issued to them by us. The proxy holder shall vote in favor of matters recommended or approved by the
board of directors.
The combined voting power of the common stock ownership of our directors and executive officers is approximately 54%
of our voting securities as of April 14, 2023. As a result, our management through such stock ownership will exercise
significant influence over all matters requiring shareholder approval, including the election of our directors and approval of
significant corporate transactions. This concentration of ownership in management may also have the effect of delaying or
preventing a change in control of us that may be otherwise viewed as beneficial by stockholders other than management.
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There is also a risk that our existing management and a limited number of stockholders may have interests which are
different from certain stockholders and that they will pursue an agenda which is beneficial to themselves at the expense of
other stockholders.
Our failure to meet the continued listing requirements of the Nasdaq Global Market could result in a delisting of our
common stock, which could negatively impact the market price and liquidity of our common stock and our ability to
access the capital markets.
On November 22, 2022, we received a letter from the Listing Qualifications Department of The Nasdaq Stock Market
(“Nasdaq”) notifying us that the minimum bid price per share for our common stock fell below $1.00 for a period of 30
consecutive business days. Therefore, the Company did not meet the minimum bid price requirement set forth in the
Nasdaq Listing Rules.
The letter also states that pursuant to Nasdaq Listing Rules 5810(c)(3)(A), we will be provided 180 calendar days to regain
compliance with the minimum bid price requirement, or until May 22, 2023.
We can regain compliance if, at any time during the Tolling Period or such 180-day period, the closing bid price of our
common stock is at least $1.00 for a minimum period of 10 consecutive business days. If by May 22, 2023, we do not
regain compliance with the Nasdaq Listing Rules, we may be eligible for additional time to regain compliance pursuant to
Nasdaq Listing Rule 5810(c)(3)(A)(ii). To qualify, we would need to submit a transfer application and a $5,000 application
fee. We would also need to provide written notice to Nasdaq of our intention to cure the minimum bid price deficiency
during the second compliance period by effecting a reverse stock split, if necessary. As part of its review process, the
Nasdaq staff will make a determination of whether it believes we will be able to cure this deficiency. Should the Nasdaq
staff conclude that we will not be able to cure the deficiency, or should we determine not to submit a transfer application or
make the required representation, Nasdaq will provide notice that our shares of common stock will be subject to delisting.
If we do not regain compliance within the allotted compliance period, including any extensions that may be granted by
Nasdaq, Nasdaq will provide notice that our shares of common stock will be subject to delisting from the Nasdaq Global
Market. At such time, we may appeal the delisting determination to a hearings panel.
We intend to monitor our common stock closing bid price between now and May 22, 2023 and will consider available
options to resolve the Company’s noncompliance with the minimum bid price requirement, as may be necessary. There can
be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or will
otherwise be in compliance with other Nasdaq listing criteria.
Our common stock may be subject to the penny stock rules adopted by the SEC that require brokers to provide extensive
disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a
reduction in the trading activity of our common stock, which could make it more difficult for our stockholders to sell
their securities.
Rule 3a51-1 of the Exchange Act establishes the definition of a “penny stock,” for purposes relevant to us, as any equity
security that has a minimum bid price of less than $5.00 per share, subject to a limited number of exceptions, including for
having securities registered on certain national securities exchanges. If our common stock were delisted from the
NASDAQ, market liquidity for our common stock could be severely and adversely affected.
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a
person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to
the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s
account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience
and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that
person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC
relating to the penny stock market, which, in highlight form, sets forth:
● the basis on which the broker or dealer made the suitability determination; and
● that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary
trading and commission payable to both the broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.
Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and
disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the
ability of selling stockholders or other holders to sell their shares in any secondary market and have the effect of reducing
the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could
impede the sale of our common stock even if and when our common stock becomes listed on the NASDAQ Global Market.
In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common
stock.
No assurance can be given that our stock will not be subject to these “penny stock” rules in the future.
Investors should be aware that, according to Commission Release No. 34-29093, the market for “penny stocks” has
suffered in recent years from patterns of fraud and abuse. Such patterns include: (1) control of the market for the security
by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed
bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by
promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase
the future volatility of our share price.
Our common stock has historically been thinly traded, and you may be unable to sell at or near ask prices or at all if
you need to sell or liquidate a substantial number of shares at one time.
Although our common stock is listed on the NASDAQ Global Market, our common stock has historically been traded at
relatively low volumes. As a result, the number of persons interested in purchasing our common stock at or near bid prices
at any given time may be relatively small. This situation is attributable to a number of factors, including that we are
currently a small company which is still relatively unknown to securities analysts, stock brokers, institutional investors and
others in the investment community that generate or influence sales volume, and that even if we came to the attention of
such persons, they tend to be risk-averse and reluctant to follow an unproven company such as ours or purchase or
recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence, there
may be periods of several days or more when trading activity in our shares is minimal, as compared to a seasoned issuer
which has a large and steady volume of trading activity that will generally support continuous sales without an adverse
effect on share price. We cannot provide any assurance that a broader or more active public trading market for our common
stock will develop or be sustained, or that trading levels will be sustained.
The market price of our common stock has declined over the past several years and may be volatile, which could reduce
the market price of our common stock.
Currently the publicly traded shares of our common stock are not widely held, and do not have significant trading volume,
and, therefore, may experience significant price and volume fluctuations. Although our common stock is quoted on the
NASDAQ Global Market, this does not assure that a meaningful, consistent trading market will develop or that the
volatility will decline. This market volatility could reduce the market price of the common stock, regardless of our
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operating performance. In addition, the trading price of the common stock has been volatile over the past several years and
could change significantly over short periods of time in response to actual or anticipated variations in our quarterly
operating results, announcements by us, our licensees or our respective competitors, factors affecting our licensees’
markets generally and/or changes in national or regional economic conditions, making it more difficult for shares of the
common stock to be sold at a favorable price or at all. The market price of the common stock could also be reduced by
general market price declines or market volatility in the future or future declines or volatility in the prices of stocks for
companies in the trademark licensing business or companies in the industries in which our licensees compete.
We may issue a substantial number of shares of common stock upon exercise of outstanding warrants and options.
As of December 31, 2022, we had outstanding warrants and options to purchase 5,730,375 shares of our common stock
with a weighted average exercise price of $2.14. The holders of warrants and options will likely exercise such securities at
a time when the market price of our common stock exceeds the exercise price. Therefore, exercises of warrants and options
will result in a decrease in the net tangible book value per share of our common stock and such decrease could be material.
issuance of shares upon exercise of outstanding warrants and options will dilute our
The
then-existing
stockholders’ percentage ownership of our company, and such dilution could be substantial. In addition, our growth
strategy includes the acquisition of additional brands, and we may issue shares of our common stock as consideration for
acquisitions. Sales or the potential for sale of a substantial number of such shares could adversely affect the market price of
our common stock, particularly if our common stock remains thinly traded at such time.
As of December 31, 2022, we had an aggregate of 3,291,909 shares of common stock available for grants under our 2021
Equity Incentive Plan (the "2021 Plan") to our directors, executive officers, employees, and consultants. Issuances of
common stock pursuant to the exercise of stock options or other stock grants or awards which may be granted under our
2021 Plan will dilute your interest in us.
Holders of our common stock may be subject to restrictions on the use of Rule 144 by shell companies or former shell
companies.
Historically, the SEC has taken the position that Rule 144 under the Securities Act of 1933, as amended, or the Securities
Act, is not available for the resale of securities initially issued by companies that are, or previously were, shell companies
(we were considered a shell company on and prior to September 29, 2011), to their promoters or affiliates despite technical
compliance with the requirements of Rule 144. The SEC prohibits the use of Rule 144 for resale of securities issued by
shell companies (other than business transaction related shell companies) or issuers that have been at any time previously a
shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are
met: the issuer of the securities that was formerly a shell company has ceased to be a shell company; the issuer of the
securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; the issuer of the securities
has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such
shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and at least
one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status
as an entity that is not a shell company. As such, due to the fact that we had been a shell company prior to September 2011,
holders of “restricted securities” within the meaning of Rule 144, when reselling their shares pursuant to Rule 144, shall be
subject to the conditions set forth herein.
We do not anticipate paying cash dividends on our common stock.
You should not rely on an investment in our common stock to provide dividend income, as we have not paid dividends on
our common stock, and we do not plan to pay any dividends in the foreseeable future. Instead, we plan to retain any
earnings to maintain and expand our existing licensing operations, further develop our trademarks, and finance the
acquisition of additional trademarks. Accordingly, investors must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize any return on their investment. In addition, our credit
facility limits the amount of cash dividends we may pay while amounts under the credit facility are outstanding.
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Provisions of our corporate charter documents could delay or prevent change of control.
Our certificate of incorporation authorizes our board of directors to issue up to 1,000,000 shares of preferred stock without
stockholder approval, in one or more series, and to fix the dividend rights, terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges, and restrictions
applicable to each new series of preferred stock. The designation of preferred stock in the future could make it difficult for
third parties to gain control of our company, prevent or substantially delay a change in control, discourage bids for the
common stock at a premium, or otherwise adversely affect the market price of the common stock.
General Risks
A pandemic outbreak of disease or similar public health threat, or fear of such an event, could have a material adverse
impact on the Company's business, operating results and financial condition.
A pandemic or outbreak of disease or similar public health threat, such as the COVID-19 pandemic, or fear of such an
event, could have a material adverse impact on our business, operating results, and financial condition. The current
COVID-19 pandemic has caused a disruption to our business, beginning in March 2020.
The impacts of the ongoing COVID-19 pandemic (including actions taken by national, state, and local governments in
response to COVID-19) have negatively impacted the U.S. and global economy, disrupted consumer spending and global
supply chains, and created significant volatility and disruption of financial markets. More specifically, COVID-19 has had,
and continues to have, a significant negative impact on our business. The initial onset of the pandemic in 2020 resulted in a
sudden decrease in sales for many of the Company’s products, from which we have yet to fully recover. The global
pandemic has affected the financial health of certain of our customers, and the bankruptcy of certain other customers; as a
result, we may be required to make additional adjustments for doubtful accounts which would increase our operating
expenses in future periods and negatively impact our operating results. Due to the ongoing COVID-19 pandemic, there is
significant uncertainty surrounding the Company’s future results of operations and cash flows. Continued impacts of the
pandemic could materially adversely affect our near-term and long-term revenues, earnings, liquidity, and cash flows.
Supply chain disruptions have adversely affected, and could continue to adversely affect, our ability to import our
products in a timely manner and our freight costs.
The effects of the COVID-19 pandemic on the shipping industry have negatively impacted our ability to import our
products in a manner that allows for timely delivery to our customers. Congestion at ports of loading and ports of entry
have caused significant delays in deliveries and changes to the itineraries of our steamship carriers. Use of alternate routes
or delivery methods would require additional trucking for us and our customers. Truck driver shortages, shortages of truck
equipment and the inability of ports to provide reliable pick up times, have also negatively impacted our ability to timely
receive goods. If we are unable to mitigate these supply chain disruptions, our ability to meet customer expectations,
manage inventory and complete sales could be materially adversely affected.
Contractual shipping rates have increased as a result of increased demand for container space and the logistical delays
experienced by the shipping industry. Our costs have increased as a result of higher contractual shipping rates and the need
to purchase additional container space on the secondary market at higher spot rates. Terminals are also now imposing
additional fees on importers not picking up containers on time, even when equipment and labor shortages negatively affect
the ability of importers to pick up in a timely manner.
If we are unable to secure container space on a vessel due to limited availability, we may experience delays in shipping
product from our overseas suppliers and ultimately to our customers. Furthermore, even when we are able to secure space,
ports around the world are experiencing congestion, slowing transit times of product through ports of entry which
negatively affects our ability to timely receive and deliver product to our retail partners and customers.
If we are unable to mitigate these supply chain disruptions, our ability to meet customer expectations, manage inventory
and complete sales could be materially adversely affected. In addition, if we are unable to offset higher freight and other
costs through product price increases or other measures, our results of operations may be adversely affected.
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The Ukrainian-Russian conflict could have a material adverse impact on our business.
The Ukrainian-Russian conflict, the responses thereto, such as sanctions imposed by the United States and other western
democracies, and any expansion thereof is likely to have unpredictable and wide-ranging effects on the domestic and
global economy and financial markets, which could have an adverse effect on our business and results of operations.
Already the conflict has caused market volatility, a sharp increase in certain commodity prices, such as wheat and oil, and
an increasing number and frequency of cybersecurity threats. So far, we have not experienced any direct impact from the
conflict and, as our business is conducted exclusively in the United States, we are probably less vulnerable than companies
with international operations. Nevertheless, we will continue to monitor the situation carefully and, if necessary, take action
to protect our business, operations, and financial condition.
A decline in general economic conditions resulting in a decrease in consumer spending levels and an inability to access
capital may adversely affect our business.
The success of our operations depends on consumer spending. Consumer spending is impacted by a number of factors
which are beyond our control, including actual and perceived economic conditions affecting disposable consumer income
(such as unemployment, wages, energy costs and consumer debt levels), customer traffic within shopping and selling
environments, business conditions, interest rates and availability of credit and tax rates in the general economy and in the
international, regional and local markets in which our products are sold and the impact of natural disasters and pandemics
and disease outbreaks such as the COVID-19 pandemic. Global economic conditions historically included significant
recessionary pressures and declines in employment levels, disposable income and actual and/or perceived wealth and
further declines in consumer confidence and economic growth. A depressed economic environment is often characterized
by a decline in consumer discretionary spending and has disproportionately affected retailers and sellers of consumer
goods, particularly those whose goods are viewed as discretionary or luxury purchases, including fashion apparel and
accessories such as ours. Such factors as well as another shift towards recessionary conditions have in the past, and could
in the future, devalue our brands, which could result in an impairment in its carrying value, which could be material, create
downward pricing pressure on the products carrying our brands, and adversely impact our sales volumes and overall
profitability. Further, economic and political volatility and declines in the value of foreign currencies could negatively
impact the global economy as a whole and have a material adverse effect on the profitability and liquidity of our
operations, as well as hinder our ability to grow through expansion in the international markets. In addition, domestic and
international political situations also affect consumer confidence, including the threat, outbreak or escalation of terrorism,
military conflicts or other hostilities around the world. Furthermore, changes in the credit and capital markets, including
market disruptions, limited liquidity, and interest rate fluctuations, may increase the cost of financing or restrict our access
to potential sources of capital for future acquisitions.
The risks associated with our business are more acute during periods of economic slowdown or recession. Accordingly,
any prolonged economic slowdown or a lengthy or severe recession with respect to either the U.S. or the global economy is
likely to have a material adverse effect on our results of operations, financial condition, and business prospects.
Inflation and/or a potential recession could adversely impact our business and results of operations.
Many of the components of our cost of goods sold are subject to price increases that are attributable to factors beyond our
control, including but not limited to, global economic conditions, trade barriers or restrictions, supply chain disruptions,
changes in crop size, product scarcity, demand dynamics, currency rates, water supply, weather conditions, import and
export requirements, and other factors. The cost of raw materials, labor, manufacturing, energy, fuel, shipping and logistics,
and other inputs related to the production and distribution of our products have increased and may continue to increase
unexpectedly.
Beginning in the first quarter of 2022, input costs increased significantly. We expect the pressures of input cost inflation to
continue for at least some portion of 2023. We may not be able to mitigate the impact of inflation and cost increases or pass
these costs along to our customers.
In addition, poor economic and market conditions, including a potential recession, may negatively impact market
sentiment, decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and other consumer
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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 the inflation as well as a potential recession, our business, financial
condition, and results of operations could be adversely affected.
Extreme or unseasonable weather conditions could adversely affect our business.
Extreme weather events and changes in weather patterns can influence customer trends and shopping habits. Extended
periods of unseasonably warm temperatures during the fall and winter seasons, or cool weather during the summer season,
may diminish demand for our seasonal merchandise. Heavy snowfall, hurricanes or other severe weather events in the
areas in which our retail stores and the retail stores of our wholesale customers are located may decrease customer traffic in
those stores and reduce our sales and profitability. If severe weather events were to force closure of or disrupt operations at
the distribution centers we use for our merchandise, we could incur higher costs and experience longer lead times to
distribute our products to our retail stores, wholesale customers or digital channel customers. If prolonged, such extreme or
unseasonable weather conditions could adversely affect our business, financial condition, and results of operations.
Our trademarks and other intangible assets are subject to impairment charges under accounting guidelines.
Our intangible assets including our trademarks had a net carrying value of $47.7 million as of December 31, 2022 and
represent a substantial portion of our assets. Under accounting principles generally accepted in the United States of
America (“GAAP”), finite-lived intangible assets are amortized over their estimated useful lives, and reviewed for
impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Non-
renewal of license agreements or other factors affecting our market segments or brands could result in significantly reduced
revenue for a brand, which could result in a devaluation of the affected trademark. If such devaluations of our trademarks
were to occur, a material impairment in the carrying value of one or more of our trademarks could also occur and be
charged as a non-cash expense to our operating results, which could be material. Any write-down of intangible assets
resulting from future periodic evaluations would, as applicable, either decrease our net income or increase our net loss and
those decreases or increases could be material.
Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could
adversely affect our results.
Our future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets and
liabilities, or by changes in tax laws or by a change in allocation of state and local jurisdictions, or interpretations thereof.
The Company currently files U.S. federal tax returns and various state tax returns. Tax years that remain open for
assessment for federal and state purposes include years ended December 31, 2019 through December 31, 2022. We
regularly assess the likelihood of recovering the amount of deferred tax assets recorded on the balance sheet and the
likelihood of adverse outcomes resulting from examinations by various taxing authorities in order to determine the
adequacy of our provision for income taxes. Although under the 2017 Tax Cuts and Jobs Act Federal tax rates are lower,
certain expenses will be either reduced or eliminated, causing the Company to have increased taxable income, which may
have an adverse effect on our future income tax obligations. We cannot guarantee that the outcomes of these evaluations
and continuous examinations will not harm our reported operating results and financial condition.
We must successfully maintain and/or upgrade our information technology systems.
We rely on various information technology systems to manage our operations, which subject us to inherent costs and risks
associated with maintaining, upgrading, replacing, and changing these systems, including impairment of our information
technology, potential disruption of our internal control systems, substantial capital expenditures, demands on management
time, cyber security breaches and other risks of delays or difficulties in upgrading, transitioning to new systems, or of
integrating new systems into our current systems.
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System security risk issues as well as other major system failures could disrupt our internal operations or information
technology services, and any such disruption could negatively impact our net sales, increase our expenses and harm our
reputation.
Experienced computer programmers and hackers, and even internal users, may be able to penetrate our network security
and misappropriate our confidential information or that of third parties, including our customers, enter into or facilitate
fraudulent transactions, create system disruptions or cause shutdowns. In addition, employee error, malfeasance or other
errors in the storage, use or transmission of any such information could result in a disclosure to third parties outside of our
network. As a result, we could incur significant expenses addressing problems created by any such inadvertent disclosure
or any security breaches of our network. In addition, we rely on third parties for the operation of our websites, and for the
various social media tools and websites we use as part of our marketing strategy.
Consumers are increasingly concerned over the security of personal information transmitted over the internet, consumer
identity theft and user privacy, and any compromise of customer information could subject us to customer or government
litigation and harm our reputation, which could adversely affect our business and growth. Moreover, we could incur
significant expenses or disruptions of our operations in connection with system failures or breaches. In addition,
sophisticated hardware and operating system software and applications that we procure from third parties may contain
defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation
of our systems. The costs to us to eliminate or alleviate security problems, viruses and bugs, or any problems associated
with our newly transitioned systems or outsourced services could be significant, and the efforts to address these problems
could result in interruptions, delays or cessation of service that may impede our sales, distribution or other critical
functions. In addition to taking the necessary precautions ourselves, we require that third-party service providers
implement reasonable security measures to protect our customers’ identity and privacy as well as credit card information.
We do not, however, control these third-party service providers and cannot guarantee that no electronic or physical
computer break-ins and security breaches will occur in the future. We could also incur significant costs in complying with
the multitude of state, federal and foreign laws regarding the use and unauthorized disclosure of personal information, to
the extent they are applicable. In the case of a disaster affecting our information technology systems, we may experience
delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance,
failures to adequately support our operations and other breakdowns in normal communication and operating procedures
that could materially and adversely affect our financial condition and results of operations.
Changes in laws could make conducting our business more expensive or otherwise change the way we do business.
We are subject to numerous domestic and international regulations, including labor and employment, customs, truth-in-
advertising, consumer protection, data protection, and zoning and occupancy laws and ordinances that regulate retailers
generally or govern the importation, promotion and sale of merchandise and the operation of stores and warehouse
facilities. If these regulations were to change or were violated by our management, employees, vendors, independent
manufacturers or partners, the costs of certain goods could increase, or we could experience delays in shipments of our
products, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our merchandise and
hurt our business and results of operations.
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of business
more expensive or require us to change the way we do business. Laws related to employee benefits and treatment of
employees, including laws related to limitations on employee hours, supervisory status, leaves of absence, mandated health
benefits, overtime pay, unemployment tax rates and citizenship requirements, could negatively impact us, by increasing
compensation and benefits costs, which would in turn reduce our profitability.
Moreover, changes in product safety or other consumer protection laws could lead to increased costs to us for certain
merchandise, or additional labor costs associated with readying merchandise for sale. It is often difficult for us to plan and
prepare for potential changes to applicable laws and future actions or payments related to such changes could be material to
us.
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If we fail to maintain an effective system of internal control, we may not be able to report our financial results
accurately or in a timely fashion, and we may not be able to prevent fraud. In such case, our stockholders could lose
confidence in our financial reporting, which would harm our business and could negatively impact the price of our
stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our Annual Report on Form 10-K
our assessment of the effectiveness of our internal control over financial reporting. We have dedicated a significant amount
of time and resources to ensure compliance with this legislation for the years ended December 31, 2022 and 2021, and will
continue to do so for future fiscal periods. We cannot be certain that future material changes to our internal control over
financial reporting will be effective. If we cannot adequately maintain the effectiveness of our internal control over
financial reporting, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such
action could adversely affect our financial results and the market price of our common stock. Moreover, if we discover a
material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our
financial statements and harm our stock price.
Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control
over financial reporting until we are no longer a “smaller reporting company.” At such time that an attestation is required,
our independent registered public accounting firm may issue a report that is adverse or qualified in the event that they are
not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not
enable us to avoid a material weakness or significant deficiency in the future.
There are limitations on the liabilities of our directors and executive officers. Under certain circumstances, we are
obligated to indemnify our directors and executive officers against liability and expenses incurred by them in their
service to us.
Pursuant to our amended and restated certificate of incorporation and under Delaware law, our directors are not liable to us
or our stockholders for monetary damages for breach of fiduciary duty, except for liability for breach of a director’s duty of
loyalty, acts or omissions by a director not in good faith or which involve intentional misconduct or a knowing violation of
law, dividend payments or stock repurchases that are unlawful under Delaware law or any transaction in which a director
has derived an improper personal benefit. In addition, we have entered into indemnification agreements with each of our
directors and executive officers. These agreements, among other things, require us to indemnify each director and
executive officer for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts, incurred by any
such person in any action or proceeding, including any action by us or in our right, arising out of the person’s services as
one of our directors or executive officers. The costs associated with providing indemnification under these agreements
could be harmful to our business and have an adverse effect on results of operations.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
We currently lease and maintain our corporate offices and operations facility located at 1333 Broadway, 10th floor, New
York, New York. We entered into a lease agreement on July 8, 2015 for such offices of approximately 29,600 square feet of
office space. This lease commenced on March 1, 2016 and shall expire on October 30, 2027.
We previously leased approximately 18,500 square feet of office space at 475 Tenth Avenue, 4th Floor, New York, New
York; this location represented our former corporate offices and operations facility. We subleased the office space at 475
Tenth Avenue to a third-party subtenant through February 27, 2022, and our lease of this office space expired by its terms
on February 28, 2022.
We also lease approximately 1,300 square feet of retail space for a former retail store location in Westchester, New York,
which was closed in the first quarter of 2022. This lease shall expire on January 31, 2029; however, we are currently in the
process of negotiating the termination of this lease.
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Item 3. Legal Proceedings
In the ordinary course of business, from time to time we become involved in legal claims and litigation. In the opinion of
management, based on consultations with legal counsel, the disposition of litigation currently pending against us is unlikely
to have, individually or in the aggregate, a materially adverse effect on our business, financial position, results of
operations, or cash flows.
Item 4. Mine Safety Disclosures
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is listed on the NASDAQ Global Market, under the trading symbol “XELB.”
The table below sets forth the range of quarterly high and low sales prices for our common stock in 2022 and 2021:
December 31, 2022
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
December 31, 2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
High
Low
$
$
$
$
$
$
$
$
1.64
1.66
1.29
1.03
2.47
2.99
2.77
1.98
$
$
$
$
$
$
$
$
1.01
1.06
0.95
0.68
1.19
1.56
1.49
1.06
As of December 31, 2022, the number of our stockholders of record was 561 (excluding beneficial owners and any shares
held in street name or by nominees).
Dividends
We have never declared or paid any cash dividends on our common stock. We expect to retain future earnings to finance
our operations and expansion. The payment of cash dividends in the future will be at the discretion of our board of
directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants, and other factors
the board of directors considers relevant.
Securities authorized for issuance under equity compensation plans
2021 Equity Incentive Plan
Our 2021 Equity Incentive Plan, which we refer to as the 2021 Plan, is designed and utilized to enable the Company to
offer its employees, officers, directors, consultants, and others whose past, present, and/or potential contributions to the
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Company have been, are, or will be important to the success of the Company, an opportunity to acquire a proprietary
interest in the Company. The following is a description of the 2021 Plan.
● The 2021 Plan provides for the grant of stock options, restricted stock, restricted stock units, performance awards,
or cash awards (any grant under the 2021 Plan, an “Award”). The stock options may be incentive stock options or
non-qualified stock options.
● A total of 4,000,000 shares of common stock are eligible for issuance under the 2021 Plan.
● The 2021 Plan may be administered by the Board of Directors (the “Board”) or a committee consisting of two or
more members of the Board of Directors appointed by the Board (for purposes of this description, any such
committee, a “Committee”).
● Officers and other employees of our Company or any parent or subsidiary of our Company who are at the time of
the grant of an Award employed by us or any parent or subsidiary of our Company are eligible to be granted
options or other Awards under the 2021 Plan. In addition, non-qualified stock options and other Awards may be
granted under the 2021 Plan to any person, including, but not limited to, directors, independent agents,
consultants, and attorneys who the Board or the Committee, as the case may be, believes has contributed or will
contribute to our success.
● With respect to incentive stock options granted to an eligible employee owning stock possessing more than 10%
of the total combined voting power of all classes of our stock or the stock of a parent or subsidiary of our
Company immediately before the grant (each, a “10% Stockholder”), such incentive stock option shall not be
exercisable more than 5 years from the date of grant.
● The exercise price of a stock option will not be less than the fair market value of the shares underlying the option
on the date the option is granted, provided, however, that the exercise price of a stock option granted to a 10%
Stockholder may not be less than 110% of such fair market value.
● Restricted stock awards give the recipient the right to receive a specified number of shares of common stock,
subject to such terms, conditions and restrictions as the Board or the Committee, as the case may be, deems
appropriate. Restrictions may include limitations on the right to transfer the stock until the expiration of a
specified period of time and forfeiture of the stock upon the occurrence of certain events such as the termination
of employment prior to expiration of a specified period of time.
● Restricted stock unit awards will be settled in cash or shares of common stock, in an amount based on the fair
market value of our common stock on the settlement date. The RSUs will be subject to forfeiture and restrictions
on transferability as set forth in the 2021 Plan and the applicable award agreement and as may be otherwise
determined by the Board or the Committee. There were no RSUs outstanding as of December 31, 2022.
● Certain Awards made under the Plan may be granted so that they qualify as “performance-based compensation”
(as this term is used in Internal Revenue Code Section 162(m) and the regulations thereunder) and are exempt
from the deduction limitation imposed by Code Section 162(m) (these Awards are referred to as “Performance-
Based Awards”). Under Internal Revenue Code Section 162(m), our tax deduction may be limited to the extent
total compensation paid to the chief executive officer, or any of the four most highly compensated executive
officers (other than the chief executive officer) exceeds $1 million in any one tax year. In accordance with the
2017 Tax Cuts and Jobs Act, the tax deductibility for each of these executives will be limited to $1,000,000 of
compensation annually, including any performance-based compensation. Among other criteria, Awards only
qualify as performance-based awards if at the time of grant the compensation committee is comprised solely of
two or more “outside directors” (as this term is used in Internal Revenue Code Section 162(m) and the regulations
thereunder). In addition, we must obtain stockholder approval of material terms of performance goals for such
“performance-based compensation.”
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● All stock options and certain stock awards, performance awards, and stock units granted under the Plan, and the
compensation attributable to such Awards, are intended to (i) qualify as performance-based awards or (ii) be
otherwise exempt from the deduction limitation imposed by Internal Revenue Code Section 162(m).
● Cash awards may be issued under the 2021 Plan either alone or in addition to or in tandem with other Awards
granted under the 2021 Plan or other payments made to a participant not under the 2021 Plan. The Board or
Committee shall determine the eligible persons to whom, and the time or times at which, cash awards will be
made, the amount that is subject to the cash award, the circumstances and conditions under which such amount
shall be paid, in whole or in part, the time of payment, and all other terms and conditions of the Awards. Each
cash award shall be confirmed by, and shall be subject to the terms of, an agreement executed
● No Awards may be granted on or after the tenth anniversary of the effective date of the 2021 Plan.
2011 Equity Incentive Plan
The key terms and provisions of our Amended and Restated 2011 Equity Incentive Plan, which we refer to as the 2011
Plan, were substantially similar to the 2021 Plan described above, with the major difference being the number of shares of
common stock reserved for issuance under the 2011 Plan. Stock-based awards (including options, warrants, and restricted
stock) previously granted under the 2011 Plan remain outstanding, and shares of common stock may be issued to satisfy
options or warrants previously granted under the 2011 Plan, although no new awards may be granted under the 2011 Plan.
Issuances
From time to time, the Company issues stock-based compensation to its officers, directors, employees, and consultants
through its equity compensation plans. The maximum term of options granted is generally five years and generally options
vest over a period of six months to two years. However, the Board may approve other vesting schedules. Options may be
exercised in whole or in part. The exercise price of stock options granted is generally the fair market value of the
Company’s common stock on the date of grant.
The fair value of each stock option award is estimated using the Black-Scholes option pricing model based on certain
assumptions. The assumption for expected term is based on evaluations of expected future employee exercise behavior.
Because of a lack of historical information related to exercise activity, we use the simplified method to determine the
expected term. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates
approximately equal to the expected term at the grant date. The historical volatility of our common stock is used as the
basis for the volatility assumption. The Company has never paid cash dividends, and does not currently intend to pay cash
dividends, and thus assumes a 0% dividend yield.
The following table sets forth information as of December 31, 2022 regarding compensation plans under which our equity
securities are authorized for issuance:
Plan Category
Equity compensation Plans (1)
Number of Securities
to be Issued Upon
Exercise of
Weighted Average
Exercise Price of
Outstanding Options, Outstanding Options,
Warrants and Rights Warrants and Rights
(a)
5,730,375
$
(b)
2.14
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
3,291,909
(1) Pursuant to our 2011 and 2021 Equity Incentive Plans.
Recent Sales of Unregistered Securities
There were no sales of unregistered or registered securities during the years ended December 2022 and 2021.
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Purchases of equity securities by the issuer and affiliated purchasers
We did not repurchase any shares of common stock during the fourth fiscal quarter ended December 31, 2022.
Item 6.
[Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read together with our consolidated financial statements and the notes
thereto, included in Item 8 of this Annual Report on Form 10-K. This discussion summarizes the significant factors
affecting our consolidated operating results, financial condition and liquidity and cash flows for the years ended
December 31, 2022 and 2021. Except for historical information, the matters discussed in this Management’s Discussion
and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and
uncertainties and are based upon judgments concerning factors that are beyond our control.
Overview
Xcel Brands is a media and consumer products company engaged in the design, production, marketing, live streaming,
wholesale distribution, and direct-to-consumer sales of branded apparel, footwear, accessories, fine jewelry, home goods
and other consumer products, and the acquisition of dynamic consumer lifestyle brands. The Company’s brands have
generated over $3 billion in retail sales via live streaming in interactive television and digital channels alone.
Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as one thing. Currently,
Xcel’s brand portfolio consists of the LOGO by Lori Goldstein Brand, the Halston Brand, the Ripka Brand, the C Wonder
Brand, the Longaberger Brand, the Isaac Mizrahi Brand, and other proprietary brands.
● The Lori Goldstein Brand, Halston Brand, Ripka Brand, and C Wonder Brand are wholly owned by the Company.
● We manage the Longaberger Brand through our 50% ownership interest in Longaberger Licensing, LLC.
● We manage the Q Optix business through our 50% ownership interest in Q Optix, LLC.
● The Company wholly owned and managed the Isaac Mizrahi Brand through May 31, 2022. On May 31, 2022, we
sold a majority interest in the brand to a third party, but retained a 30% noncontrolling interest in the brand and
continue to participate in the operations of the business.
Xcel is pioneering a true omni-channel sales strategy which includes the promotion and sale of products under its brands
through interactive television, digital live-stream shopping, brick-and-mortar retail, wholesale, and e-commerce channels.
To grow our brands, we are focused on the following primary strategies:
● Distribution and/or licensing of our brands for sale through interactive television (i.e., QVC, HSN, The Shopping
Channel, TVSN, CJO, JTV, etc.);
● wholesale distribution through joint ventures or 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 whereby we provide certain design services; and
● acquiring additional consumer brands and integrating them into our operating platform and leveraging our
operating infrastructure and distribution relationships.
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We believe that we offer a unique value proposition to our retail and direct-to-consumer customers, and our licensees for
the following reasons:
● our management team, including our officers’ and directors’ experience in, and relationships within the industry;
● our deep knowledge, expertise, and proprietary technology in live streaming;
● our design, production, sales, marketing, and supply chain and integrated technology platform that enables us to
design and distribute trend-right product; and
● our significant media and internet presence and distribution.
Our vision is intended to reimagine shopping, entertainment, and social media as one thing. By leveraging live streaming,
digital, and social media content across all distribution channels, we seek to drive consumer engagement and generate retail
sales across our brands. Our strong relationships with leading retailers, interactive television companies, and streaming
networks enable us to reach consumers in over 200 million homes worldwide and hundreds of millions of social media
followers.
We believe our design, production, and joint venture supply chain platform provides significant competitive advantages
compared with traditional wholesale consumer products companies that design, manufacture, and distribute products. We
focus on our core competencies of live streaming, marketing, design, integrated technologies, production and joint venture
supply chain platform, and brand development. We believe that we offer a 360-degree solution to our retail partners that
addresses many of the challenges facing the retail industry today. We believe our platform is highly scalable. Additionally,
we believe we can acquire additional brands into our platform in order to leverage our operating infrastructure, marketing
capabilities, and distribution network.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Critical accounting policies are those that are the most important to the portrayal of our financial condition and
results of operations, and that require our most difficult, subjective, and complex judgments as a result of the need to make
estimates about the effect of matters that are inherently uncertain. Critical accounting estimates are those that involve a
significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial
condition or results of operations. While our significant accounting policies and estimates are described in more detail in
the notes to our consolidated financial statements, our most critical accounting policies and estimates, discussed below,
pertain to revenue recognition, trademarks and other intangible assets, income taxes, and equity method investments. These
include but are not limited to the estimation of the useful lives of our trademarks, the estimation of the future cash flows
related to our trademarks, and the estimation of our incremental borrowing rate (for purposes of accounting for leases). In
applying such policies, we must use some amounts that are based upon our informed judgments and best estimates.
Estimates, by their nature, are based upon judgments and available information. The estimates that we make are based
upon historical factors, current circumstances, and the experience and judgment of management. We evaluate our
assumptions and estimates on an ongoing basis.
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Revenue Recognition
Licensing
In connection with our licensing model, we follow Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 606-10-55-65, by which we recognize net licensing revenue at the later of when (1) the subsequent
sale or usage occurs or (2) the performance obligation to which some or all of the sales- or usage-based royalty has been
allocated is satisfied (in whole or in part). More specifically, we separately identify:
(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 our performance
in each period (this approach is identified as “View A” by the FASB Revenue Recognition Transition Resource
Group, “TRG”); and
(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).
Wholesale Sales
We generate revenue through sale of branded jewelry and apparel to both domestic and international customers who, in
turn, sell the products to their consumers. We recognize revenue within net sales in the accompanying consolidated
statements of operations when performance obligations identified under the terms of contracts with our customers are
satisfied, which occurs upon the transfer of control of the merchandise in accordance with the contractual terms and
conditions of the sale. Shipping to customers is accounted for as a fulfillment activity and is recorded within other selling,
general and administrative expenses.
Direct to Consumer Sales
Our revenue associated with our e-commerce jewelry operations and the Longaberger brand is 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 is accounted for as a fulfillment activity and is recorded within other selling, general and
administrative expenses. Revenue associated with our fine jewelry brick-and-mortar retail store is recognized within net
sales in the accompanying consolidated statements of operations at the point of sale.
Trademarks and Other Intangible Assets
We follow ASC Topic 350, “Intangibles - Goodwill and Other.” Under this standard, goodwill and indefinite-lived
intangible assets are not amortized, but are required to be assessed for impairment at least annually. Our finite-lived
intangible assets are amortized over their estimated useful lives. We estimate the useful lives of our intangible assets based
principally on our expected use and strategic plans for each asset, our own historical experience with similar assets, and our
expectations related to demand, competition, and other economic factors.
Indefinite-Lived Intangible Asset
We tested our indefinite-lived intangible asset for recovery in accordance with ASC 820-10-55-3F, which states that the
income approach (“Income Approach”) converts future amounts (for example, cash flows) into a single current (that is,
discounted) amount. When the Income Approach is used, fair value measurement reflects current market expectations
about those future amounts. The Income Approach is based on the present value of future earnings expected to be
generated by a business or asset. Income projections for a future period are discounted at a rate commensurate with the
degree of
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risk associated with future proceeds. A residual or terminal value is also added to the present value of the income to
quantify the value of the business beyond the projection period. As such, recoverability of such assets is measured by a
comparison of the carrying amount of the asset to its expected future discounted net cash flows. If the carrying amount of
such assets is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying
amount of the assets exceeds the recoverability of the assets.
We also re-evaluated on an annual basis whether events and circumstances continue to support an indefinite useful life.
We performed the annual impairment testing as described above for the year ended December 31, 2021, and concluded that
there was no impairment of our indefinite-lived intangible asset. We subsequently sold our indefinite-lived intangible asset
in May 2022 for a gain.
Finite-Lived Intangibles
Our finite-lived intangible assets, including Trademarks, are reviewed for impairment whenever events or changes in
circumstances indicate that their carrying value may not be recoverable. An impairment loss is recognized if the carrying
amount of a finite-lived intangible asset is not recoverable and its carrying amount exceeds its fair value.
With reference to our finite-lived intangible assets’ impairment process, we group assets and liabilities at the lowest level
for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the
asset group against the sum of undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying
amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the
asset group exceeds its fair value based on discounted cash flows analysis or appraisals.
There were no impairment charges recorded for finite-lived intangible assets for the years ended December 31, 2022 and
2021.
Income Taxes
Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.
Deferred income taxes are determined based on the temporary difference between the financial reporting and tax bases of
assets and liabilities using enacted rates in effect during the year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We consider
forecasted earnings, future taxable income, and prudent and feasible tax planning strategies in determined the need for
these valuation allowances.
With respect to any uncertainties in income taxes recognized in our financial statements, tax positions are initially
recognized in the financial statements when it is more likely than not that the position will be sustained upon examination
by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that
has a probability of fifty percent or greater of being realized upon ultimate settlement with the tax authority, assuming full
knowledge of the position and all relevant facts. Tax years that remain open for assessment for federal and state tax
purposes include the years ended December 31, 2019 through December 31, 2022.
Equity Method Investments
We account for our investments in entities over which we have the ability to exercise significant influence, but do not
control the entity, under the equity method of accounting, and we recognize our proportionate share of income or losses
from the entity within other income (expense) in the consolidated statement of operations.
We initially measure our investment in an equity method investee at cost. In cases where we retain a noncontrolling interest
in an investee which we had previously consolidated, we initially measure such retained interest at fair value. In estimating
fair value in such cases, we seek to maximize the use of observable inputs (market data obtained from independent sources)
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and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and
liabilities).
Subsequent recognition of an investor’s proportionate share of income or losses of an equity method investee is generally
determined based on the investor’s proportional ownership interest. However, in cases where contractual agreements
specify allocation ratios for profits and losses, specified costs and expenses, and/or distributions of cash from operations,
that differ from our ownership interest, we use such specified allocation ratios for purposes of determining our share of
income or losses from the investee if the agreement is considered substantive.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, "Financial Instruments – Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in
November 2018 through ASU No. 2018-19. This ASU will require entities to estimate lifetime expected credit losses for
financial instruments, including trade and other receivables, which will result in earlier recognition of credit losses.
Subsequently, the FASB issued additional guidance in 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. Among other things, the
additional guidance deferred the application of the new guidance on credit losses for smaller reporting companies to fiscal
years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating
the new guidance to determine the impact the adoption of this guidance will have on our results of operations, cash flows,
and financial condition when it is adopted during the first quarter of 2023.
Recently Adopted Accounting Pronouncements
We adopted ASU No. 2021-10, “Government Assistance (Topic 823): Disclosures by Business Entities about Government
Assistance” effective January 1, 2022. This ASU requires certain financial statement disclosures about transactions with a
government that are accounted for by applying a grant or contribution accounting model by analogy. As this ASU only
affects financial statement disclosures, the adoption of this guidance did not have any impact on our results of operations,
cash flows, or financial condition.
We adopted ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” effective
January 1, 2021. This ASU removes certain exceptions to the general principles in Topic 740, including, but not limited to,
intraperiod tax allocations and interim period tax calculations. The ASU also provides additional clarification and guidance
related to recognition of franchise taxes and changes in tax laws. The adoption of this new guidance did not have any
impact on our results of operations, cash flows, or financial condition.
Summary of Operating Results
The consolidated financial statements and related notes included elsewhere in this Form 10-K are as of or for the years
ended December 31, 2022 (the “Current Year”), and December 31, 2021 (the “Prior Year”).
Revenues
Current Year net revenue decreased approximately $12.1 million to $25.8 million from $37.9 million for the Prior Year.
Net licensing revenue decreased by $7.1 million in the Current Year to approximately $14.7 million, compared with
approximately $21.8 million in the Prior Year. This decrease in licensing revenue was primarily attributable to the May 31,
2022 sale of a majority interest in the Isaac Mizrahi brand through the sale of a 70% interest in IM Topco, LLC to WHP,
partially offset by increased licensing revenue generated by the Lori Goldstein brand, which we acquired on April 1, 2021.
Net sales decreased by $5.0 million in the Current Year to approximately $11.1 million, compared with approximately
$16.1 million in the Prior Year. This decrease in net sales was primarily attributable to declines in apparel wholesale
revenue and, to a lesser extent, in wholesale jewelry sales, mainly driven by a combination of retailers pausing on
purchases
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triggered by excess inventory levels, and the temporary closing of overseas factories due to COVID-19, causing delays in
product delivery resulting in cancelled orders.
Cost of Goods Sold and Gross Profit
Current Year cost of goods sold was $8.0 million, compared with $10.7 million for the Prior Year, due to the lower volumes
of product sales in the Current Year. Gross profit (net revenue less cost of goods sold) decreased approximately $9.5
million to $17.8 million from $27.3 million in the Prior Year, primarily driven by the aforementioned decrease in net
licensing revenue.
Gross profit margin from product sales (net sales less cost of goods sold, divided by net sales) declined from approximately
34% in the Prior Year to approximately 28% in the Current Year, primarily due to the selling-off of seasoned apparel
inventory during the earlier portion of 2022, and inventory write-downs related to cancelled sales orders for the reasons
outlined above in the discussion of revenues.
Operating Costs and Expenses
Operating costs and expenses increased approximately $0.5 million, or approximately 1%, from $39.8 million in the Prior
Year to $40.3 million in the Current Year. This slight increase was primarily driven by the combination of (i) higher
shipping and logistics costs, as well as cost increases from other service providers and vendors due to the current
inflationary economic environment, and (ii) increased trademark amortization expense, related to the acquisition of the
Lori Goldstein brand on April 1, 2021, largely offset by (iii) lower asset impairment charges in the Current Year, and (iv)
the elimination of salary and other expenses associated with the Isaac Mizrahi brand after the sale of a majority interest in
that brand on May 31, 2022.
Other Income (Expense)
We recognized a gain on the sale of a majority interest in the Isaac Mizrahi brand in the Current Year of approximately
$20.6 million, which was comprised of $46.2 million of cash proceeds plus the recognition of the fair value of our retained
interest in the brand of $19.8 million, less $0.9 million of fees and expenses directly related to the transaction and the
derecognition of the brand trademarks previously recorded on our balance sheet of $44.5 million.
We account for our interest in the ongoing operations of IM Topco, LLC using the equity method of accounting. We
recognized an equity method loss of approximately $1.2 million related to our investment for Current Year, based on the
distribution provisions and preferences set forth in the related business venture agreement.
Other income (expense) for the Current Year also includes a $0.9 million gain on the reduction of contingent obligations. In
connection with our 2019 purchase of the Halston Heritage trademarks, we agreed to pay the seller additional consideration
of up to an aggregate of $6.0 million, based on royalties earned from 2019 through December 31, 2022. This potential
earn-out was initially recorded as a liability of $0.9 million, based on the difference at the date of acquisition between the
fair value of the acquired assets of the Halston Heritage trademarks and the total consideration paid. The final royalty target
year ended on December 31, 2022, and the seller ultimately did not earn any additional consideration based on the formula
set forth in the related asset purchase agreement.
Interest and Finance Expense
Interest and finance expense for the Current Year was $3.5 million, compared with $3.6 million for the Prior Year.
This slight decrease was primarily attributable to the fact that we had no interest expense from June 1, 2022 through
December 31, 2022, as all of our outstanding term loan was repaid on May 31, 2022 and we have not incurred any new
debt. The decrease was partially offset by the higher loss on early extinguishment of debt as a result of the aforementioned
May 31, 2022 repayment in the Current Year, compared with losses on extinguishment in the Prior Year.
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Income Tax Benefit
The effective income tax benefit rate for the Current Year was approximately 10.0% resulting in a $0.4 million income tax
benefit. During the Current Year, the effective tax rate was primarily attributable to the impacts of stock-based
compensation, which decreased the effective rate by approximately 6.1%, and federal tax true-ups, which decreased the
effective tax rate by approximately 5.1%. The effective tax rate was also impacted by recurring permanent differences; the
largest such recurring permanent differences were state and local tax provisions, which increased the effective rate in 2022
by approximately 6.1%, and disallowed excess compensation, which decreased the effective rate in 2022 by approximately
5.3%.
The effective income tax benefit rate for the Prior Year was approximately 19.3% resulting in a $3.1 million income tax
benefit. During the Prior Year, the effective tax rate was impacted by the impact of stock-based compensation, which
decreased the effective rate by approximately 5.6%. The effective tax rate was also impacted by recurring permanent
differences; the largest such recurring permanent differences were state and local tax provisions, which increased the
effective rate in 2021 by approximately 4.6%, and disallowed excess compensation, which decreased the effective rate in
2021 by approximately 0.7%.
Net Loss
We had a net loss of approximately $5.4 million for the Current Year, compared with a net loss of approximately $13.0
million for the Prior Year, as a result of the factors discussed above.
Non-GAAP Net Income, Non-GAAP Diluted EPS, and Adjusted EBITDA
We had a non-GAAP net loss of $15.0 million or $(0.77) per share (“non-GAAP diluted EPS”) based on 19,624,669
weighted average shares outstanding for the Current Year, compared with a non-GAAP net loss of $6.2 million, or $(0.32)
per share based on 19,455,987 weighted average shares outstanding for the Prior Year. Non-GAAP net income is a non-
GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders, exclusive of
asset impairments, amortization of trademarks, our proportional share of trademark amortization of equity method
investees, stock-based compensation, loss on early extinguishment of debt, certain adjustments to the provision for
doubtful accounts related to the bankruptcy of and economic impact on certain retail customers due to the COVID-19
pandemic, gain on sale of assets, gain on reduction of contingent obligations, and income taxes. Non-GAAP net income
and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature
of these items and the Company’s tax strategy.
We had Adjusted EBITDA of approximately $(12.5) million for the Current Year, compared with Adjusted EBITDA of
approximately $(2.5) million for the Prior Year. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as
net income (loss) attributable to Xcel Brands, Inc. stockholders before asset impairments, depreciation and amortization,
our proportional share of trademark amortization of equity method investees, interest and finance expenses (including loss
on early extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation,
certain adjustments to the provision for doubtful accounts related to the bankruptcy of and economic impact on certain
retail customers due to the COVID-19 pandemic, gain on sale of assets, and gain on reduction of contingent obligation.
Management uses non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating
performance to assist in comparing performance from period to period on a consistent basis and to identify business trends
relating to the Company’s results of operations. Management believes non-GAAP net income, non-GAAP diluted EPS, and
Adjusted EBITDA are also useful because these measures adjust for certain costs and other events that management
believes are not representative of our core business operating results, and thus these non-GAAP measures provide
supplemental information to assist investors in evaluating the Company’s financial results.
Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as
alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in
accordance with GAAP. Given that non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are financial
measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net
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income, non-GAAP diluted EPS, and Adjusted EBITDA may not be comparable to similarly titled measures of other
companies, including companies in our industry, because other companies may calculate these measures in a different
manner than we do.
In evaluating non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA, you should be aware that in the
future we may or may not incur expenses similar to some of the adjustments in this report. Our presentation of non-GAAP
net income, non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by
these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP
net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our
net income and other GAAP results, and not rely on any single financial measure.
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:
($ in thousands)
Net loss attributable to Xcel Brands, Inc. stockholders
Asset impairments
Amortization of trademarks
Proportional share of trademark amortization of equity method investee
Stock-based compensation
Loss on early extinguishment of debt
Certain adjustments to provision for doubtful accounts
Gain on sale of assets
Gain on reduction of contingent obligation
Income tax benefit
Non-GAAP net loss
Year Ended December 31,
2022
(4,018)
274
6,079
1,202
620
2,324
413
(20,586)
(900)
(431)
(15,023)
$
$
2021
(12,184)
1,372
5,435
—
720
1,516
132
—
—
(3,192)
(6,201)
$
$
The following table is a reconciliation of diluted loss per share to non-GAAP diluted EPS:
Diluted loss per share attributable to Xcel Brands, Inc. stockholders
Asset impairments
Amortization of trademarks
Proportional share of trademark amortization of equity method investee
Stock-based compensation
Loss on early extinguishment of debt
Certain adjustments to provision for doubtful accounts
Gain on sale of assets
Gain on reduction of contingent obligation
Income tax benefit
Non-GAAP diluted EPS
Diluted weighted average shares outstanding
$
$
Year Ended December 31,
2022
(0.20)
0.01
0.31
0.06
0.03
0.12
0.02
(1.05)
(0.05)
(0.02)
(0.77)
19,624,669
$
$
2021
(0.63)
0.07
0.28
—
0.04
0.08
0.01
—
—
(0.17)
(0.32)
19,455,987
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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:
($ in thousands)
Net loss attributable to Xcel Brands, Inc. stockholders
Asset impairments
Depreciation and amortization
Proportional share of trademark amortization of equity method investee
Interest and finance expense
Income tax benefit
State and local franchise taxes
Stock-based compensation
Certain adjustments to provision for doubtful accounts
Gain on sale of assets
Gain on reduction of contingent obligation
Adjusted EBITDA
Year Ended December 31,
2022
2021
$
$
(4,018)
274
7,263
1,202
3,527
(431)
102
620
413
(20,586)
(900)
(12,534)
$
$
(12,184)
1,372
6,830
—
3,579
(3,106)
142
720
132
—
—
(2,515)
Liquidity and Capital Resources
General
As of December 31, 2022 and 2021, our cash and cash equivalents were $4.6 million and $4.5 million, respectively.
Restricted cash at December 31, 2021 consisted of $0.7 million of cash deposited as collateral for an irrevocable standby
letter of credit associated with the lease of our current corporate office and operating facility. There was no restricted cash
at December 31, 2022, as the aforementioned letter of credit had expired and was not renewed.
Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent,
capital expenditures. Notwithstanding our recent investments in our ERP system and our brick-and-mortal retail store in
2020 and 2021, respectively, our business operating model generally does not require material capital expenditures, and as
of December 31, 2022, we have no significant commitments for future capital expenditures. Material cash requirements
from known contractual and other obligations are discussed under “Obligations and Commitments” below.
Working Capital
Our working capital (current assets less current liabilities, excluding the current portion of lease obligations and any
contingent liabilities payable in common stock) was $8.8 million and $7.9 million as of December 31, 2022 and 2021,
respectively. Commentary on components of our cash flows for the Current Year compared with the Prior Year is set forth
below.
Liquidity and Management’s Plans
The Company incurred net losses of approximately $5.4 million ($25.9 million excluding the gain on sale of a majority
interest in the Isaac Mizrahi brand) and $13.0 million during the years ended December 31, 2022 and 2021, respectively,
and had an accumulated deficit of approximately $32.8 million and $28.8 million as of December 31, 2022 and 2021,
respectively. Included in the net losses were non-cash expenses of approximately $8.2 million and $7.5 million for the
years ended December 31, 2022 and 2021, respectively. Net cash used in operating activities was $14.2 million in 2022 and
$6.6 million in 2021. These factors raise uncertainties about the Company’s ability to continue as a going concern.
Management plans to mitigate an expected shortfall of capital and to support future operations by shifting the business
from a wholesale/licensing hybrid model into a licensing plus business model and to divest or restructure the Longaberger
brand. In the first quarter of 2023, we began to restructure our business operations by entering into new licensing
agreements and joint venture arrangements with best-in-class business partners. We entered into a new interactive
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television licensing agreement with America’s Collectibles Network, Inc. d/b/a JTV (“JTV”) for the Ripka Brand, and a
separate license with JTV for the Ripka Brand’s e-commerce business. For apparel, similar transactions have recently been
executed. In conjunction with the launch of the C Wonder Brand on HSN, we licensed the wholesale production operations
related to the brand to One Jeanswear Group, LLC (“OJG”); this new license with OJG also includes other new celebrity
brands that we plan to launch in 2023 and beyond. For the Halston Brand, we plan on entering into a joint venture related
to the brand’s wholesale apparel business with another leading manufacturer (the “Halston JV”). The Halston JV will
develop an apparel business under the H Halston brand through department stores, e-commerce, and other retailers. The
Halston JV will include a wholesale license to Xcel. We expect the transition of these operating businesses to be completed
by the second quarter of 2023. We believe that this evolution of our operating model will provide us with significant cost
savings and allow us to reduce and better manage our exposure to operating risks. As of March 31, 2023, steps have been
taken to reduce payroll by $6 million and operating cost by approximately $7 million over the next twelve months. Further,
the Company intends to obtain a line of credit to provide additional capital resources. However, there is no assurance that
this line of credit or any other external financing will be obtained.
Based on these recent changes in our business model, management expects to generate adequate cash flows to meet the
Company’s operating and capital expenditure needs, for at least the twelve months subsequent to the filing date of this
Annual Report on Form 10-K, and therefore, such conditions and uncertainties with respect to the Company’s ability to
continue as a going concern as of December 31, 2022, have subsequently been alleviated.
Operating Activities
Net cash (used in) provided by operating activities was approximately $(14.2) million and $(6.6) million in the
Current Year and Prior Year, respectively.
The Current Year’s cash used in operating activities was primarily attributable to the combination of the net loss of $(5.4)
million plus non-cash items of approximately $(10.2) million, partially offset by a net change in operating assets and
liabilities of approximately $1.4 million. Non-cash items were primarily comprised of, but not limited to, the net gain on
sale of assets of $(20.6) million, $7.3 million of depreciation and amortization, a $2.3 million loss on extinguishment of
debt, and the $1.2 million undistributed proportional share of net income of equity method investee. The net change in
operating assets and liabilities notably included a decrease in accounts receivable of $2.1 million, a decrease in inventory
of $0.5 million, a decrease in prepaid expenses and other assets of $0.6 million, and decreases in various operating
liabilities of $(1.4) million. The decrease in accounts receivable was primarily related to the Current Year sale of a majority
interest in the Isaac Mizrahi brand, resulting in lower licensing revenues and thus lower receivable balances. The decreases
in inventory and other operating assets and liabilities were primarily reflective of the declines in our wholesale business
due to retailers pausing or canceling orders during the Current Year.
The Prior Year’s cash used in operating activities was primarily attributable to the combination of the net loss of $(13.0)
million plus non-cash expenses of approximately $7.7 million, and a net change in operating assets and liabilities of
approximately $(1.2) million. Non-cash net expenses were primarily comprised of $6.8 million of depreciation and
amortization, $1.4 million of asset impairment charges, $0.3 million of amortization of deferred finance costs, a $1.5
million loss on extinguishment of debt, $0.7 million of stock-based compensation, and $(3.2) million of deferred income
tax benefit. The net change in operating assets and liabilities notably included a decrease in accounts receivable of $1.1
million, an increase in inventory of $(2.2) million, an increase in prepaid expenses and other assets of $(0.8) million, and
an increase in accounts payable, accrued expenses and other current liabilities of $1.2 million. The changes in accounts
receivable and payable were primarily related to the timing of collections and payments, while the change in inventory is
primarily related to expected increases in wholesales, including our drop-ship programs, and an increase in our direct-to-
consumer businesses.
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Investing Activities
Net cash provided by investing activities for the Current Year was approximately $44.5 million, and was attributable to
$45.4 million of net proceeds from the sale of a majority interest in the Isaac Mizrahi brand to WHP, partially offset by
$0.6 million of capital contributions to our equity method investee and approximately $0.3 million of capital expenditures.
Net cash used in investing activities for the Prior Year was approximately $4.8 million, which was primarily attributable to
the acquisition of the Lori Goldstein brand on April 1, 2021, and, to a lesser extent, to capital expenditures relating to the
fit-out and furnishing of our Judith Ripka fine jewelry retail store (which opened in the second quarter of 2021 and was
subsequently closed in the first quarter of 2022).
Financing Activities
Net cash used in financing activities for the Current Year was approximately $31.0 million, which mainly consisted of
$29.0 million of repayments of our term loan debt, and, to a lesser extent, $1.5 million of prepayment and other fees
associated with the early extinguishment of debt, as well as $0.4 million of shares repurchased related to withholding taxes
on vested restricted stock.
Net cash provided by financing activities for the Prior Year was approximately $10.5 million, and was primarily
attributable to a net increase in debt obligations of $13.5 million, due to debt refinancing transactions entered into on April
14, 2021 and December 30, 2021, as well as cash contributions received from the noncontrolling interest holder in
Longaberger Licensing, LLC of $1.0 million. These sources of cash were partially offset by deferred finance costs and
other fees paid in connection with the aforementioned debt refinancing transactions of $(2.7) million, and principal
payments made on term loan debt of $(1.3) million during the year.
Obligations and Commitments
Contingent Obligation – Lori Goldstein Earn-Out
In connection with the April 1, 2021 purchase of the Lori Goldstein trademarks (see Note 3 of the consolidated financial
statements for additional information), 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 of $6.6
million is recorded as a liability in the accompanying consolidated balance sheets, based on the difference at the date of
acquisition between the fair value of the acquired assets of the Lori Goldstein brand and the total consideration paid. Based
on the performance of the Lori Goldstein brand through December 31, 2022, approximately $0.2 million of additional
consideration has been earned and is payable to the Seller in 2023. At December 31, 2022, $0.2 million of the balance is
recorded as a current liability and $6.4 million is recorded as a long-term liability; at December 31, 2021, the entire balance
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, 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 will 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. Based on IM Topco’s earnings from May 31, 2022 through December 31, 2022 and
the applicable distribution provisions, WHP earned $4.32 million in cash flow, which reduces the potential purchase price
adjustment to $11.68 million. No amount has been recorded in the accompanying consolidated balance sheets related to
this contingent obligation, and management believes the likelihood of any such payment is remote.
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Contingent Obligation – Halston Heritage Earn-Out
In connection with the February 11, 2019 purchase of the Halston Heritage trademarks from the H Company IP, LLC
(“HIP”), we agreed to pay HIP 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. This additional consideration would have been
payable in shares of our common stock. The Halston Heritage Earn-Out of $0.9 million was recorded as a long-term
liability on February 11, 2019 and as of December 31, 2021, based on the difference at the date of acquisition between the
fair value of the acquired assets of the Halston Heritage Trademarks and the total consideration paid.
The final royalty target year ended on December 31, 2022, and HIP ultimately did not earn any additional consideration
based on the formula set forth in the related asset purchase agreement. As such, during the year ended December 31, 2022,
we recorded a $0.9 million gain on the reduction of contingent obligations in the accompanying consolidated statement of
operations. As of December 31, 2022, there were no amounts remaining under the Halston Heritage Earn-Out.
Real Estate Leases
As described in Item 2 of this Annual Report on Form 10-K, as of December 31, 2022 we had real estate leases for our
current office and a retail store location, with remaining lease terms between approximately five to seven years. We
recorded an impairment charge related to the right-of-use asset for the retail store as of December 31, 2021, subsequently
closed the retail store in 2022, and are currently in the process of negotiating the termination of the retail store lease;
however, the lease liability for the retail store remains on our consolidated balance sheet as a liability and is included in the
future payment obligations set forth below.
Future payments under our real estate leases are expected to be approximately $1.7 million for each of the years ending
December 31, 2023 – 2026, $1.5 million for the year ending December 31, 2027, and $0.2 million thereafter.
Employment Contracts
We have entered into contracts with certain executives and key employees. The future minimum payments under these
contracts is expected to be approximately $19.9 million, of which, approximately $4.3 million is expected to be paid in
2023, approximately $2.1 million is expected to be paid for each of the years ending December 31, 2024 – 2030, and
approximately $0.5 million is expected to be paid in 2031.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material
effect on our financial condition, results of operations or liquidity.
Other Factors
We continue to seek to expand and diversify the types of licensed products being produced under our brands. We plan to
continue to diversify the distribution channels within which licensed products are sold, in an effort to reduce dependence
on any particular retailer, consumer, or market sector within each of our brands. The Lori Goldstein brand, Halston brand,
and C Wonder 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 recent sale of a majority interest in the Isaac Mizrahi brand is expected to result in a short-term decrease in our
revenues, as that brand represented a significant portion of our historical revenues, we will seek to replace those revenues
in the long-term with new strategic business initiatives. The proceeds from the sale, as well as future cash flows from our
retained interest in the Isaac Mizrahi brand, are expected to position us to fund various strategic initiatives as we
concentrate our resources on growing our brands, new brand launches, and investing in live streaming technology and new
business partnerships.
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We continue to work towards expanding and developing more efficient ways to operate our wholesale and e-commerce
businesses, and complement these operations with our licensing business. In addition, we continue to seek new
opportunities, including expansion through interactive television, live streaming, our design, production and supply chain
platform, additional domestic and international licensing arrangements, and acquiring additional brands, including recent
launches of our Victor Glemaud and C Wonder by Christian Sirano businesses on HSN.
However, the impacts of the ongoing COVID-19 pandemic (including actions taken by national, state, and local
governments in response to COVID-19) has negatively impacted the U.S. and global economy, disrupted consumer
spending and global supply chains, and created significant volatility and disruption of financial markets. More specifically,
COVID-19 has had, and continues to have, a significant negative impact on our business. The initial onset of the pandemic
in 2020 resulted in a sudden decrease in sales for many of the Company’s products, from which we have yet to fully
recover. The global pandemic has affected the financial health of certain of our customers, and the bankruptcy of certain
other customers; as a result, we recognized bad debt expense of approximately $0.4 million and $0.1 million in the Current
Year and Prior Year, respectively, and may be required to make additional adjustments for doubtful accounts which would
increase our operating expenses in future periods and negatively impact our operating results. Due to the ongoing COVID-
19 pandemic, there is significant uncertainty surrounding the Company’s future results of operations and cash flows.
Continued impacts of the pandemic could materially adversely affect the Company’s near-term and long-term revenues,
earnings, liquidity, and cash flows.
In addition, the global shipping industry is currently experiencing challenges related to port delays and tight availability for
carriers and containers. This situation has negatively impacted our supply chain partners, including third party
manufacturers, logistics providers, and other vendors, as well as the supply chains of our licensees, and has resulted in
increased cost of supply and freight costs for us and our licensees. Such higher costs are currently expected to continue for
at least some portion of 2023.
Further, the cost of raw materials, labor, manufacturing, energy, fuel, shipping and logistics, and other inputs related to the
production and distribution of our products have increased and may continue to increase unexpectedly. Beginning in the
first quarter of 2022, input costs increased significantly. We expect the pressures of input cost inflation to continue for at
least some portion of 2023. We may not be able to mitigate the impact of inflation and cost increases or pass these costs
along to our customers.
Also, poor economic and market conditions, including a potential recession, may negatively impact market sentiment,
decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and other consumer products, which
would adversely affect our operating income and results of operations. If we are unable to take effective measures in a
timely manner to mitigate the impact of the inflation as well as a potential recession, our business, financial condition, and
results of operations could be adversely affected.
Our long-term success, however, will still remain largely dependent on our ability to build and maintain our brands’
awareness and continue to attract wholesale and direct-to-consumer customers, and contract with and retain key licensees
and potential business partners, as well as our and our licensees’ ability to accurately predict upcoming fashion and design
trends within their respective customer bases and fulfill the product requirements of the particular retail channels within the
global marketplace. Unanticipated changes in consumer fashion preferences and purchasing patterns, slowdowns in the
U.S. economy, changes in the prices of supplies, consolidation of retail establishments, and other factors noted in Item 1A
of this Annual Report on Form 10-K could adversely affect our licensees’ ability to meet and/or exceed their contractual
commitments to us and thereby adversely affect our future operating results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm (PCAOB ID: 688)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
50
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51
53
54
55
56
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Xcel Brands, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Xcel Brands, Inc. and Subsidiaries (the “Company”) as
of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for
each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. 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 matter below, providing separate opinions on the
critical audit matter or on the accounts or disclosures to which it relates.
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 an accumulated deficit and insufficient revenues to cover its operating costs. 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 substantial doubt and uncertainty as to the Company’s ability to continue as a
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going concern. However, management has implemented plans which are expected to mitigate these conditions or
events, and therefore, such conditions or events of substantial doubt 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 substantial doubt 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, was 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 of time 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 subsequent to December 31, 2022, implemented reductions in operating expenses, and plans for
further reductions to support expected cashflows.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2021.
New York, NY
April 17, 2023
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Xcel Brands, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31, 2022 December 31, 2021
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $63 and $1,090, respectively
Inventory
Prepaid expenses and other current assets
Total current assets
Non-current Assets:
Property and equipment, net
Operating lease right-of-use assets
Trademarks and other intangibles, net
Equity method investment
Restricted cash
Deferred tax assets, net
Other assets
Total non-current assets
Total Assets
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities
Accrued income taxes payable
Accrued payroll
Current portion of operating lease obligations
Current portion of long-term debt
Current portion of contingent obligations
Total current liabilities
Long-Term Liabilities:
Long-term portion of operating lease obligations
Long-term debt, net, less current portion
Long-term portion of contingent obligations
Total long-term liabilities
Total Liabilities
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding
Common stock, $.001 par value, 50,000,000 shares authorized, and 19,624,860 and 19,571,119 shares
issued and outstanding at December 31, 2022 and December 31, 2021, respectively
Paid-in capital
Accumulated deficit
Total Xcel Brands, Inc. stockholders' equity
Noncontrolling interest
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
$
$
$
$
4,608
5,110
2,845
1,457
14,020
1,418
5,420
47,665
19,195
—
1,107
110
74,915
88,935
$
$
3,958
568
416
1,376
—
243
6,561
5,839
—
6,396
12,235
18,796
—
20
103,592
(32,797)
70,815
(676)
70,139
4,483
7,640
3,375
1,681
17,179
2,549
6,314
98,304
—
739
141
555
108,602
125,781
6,169
64
577
1,207
2,500
—
10,517
7,252
25,531
7,539
40,322
50,839
—
20
103,039
(28,779)
74,280
662
74,942
$
88,935
$
125,781
See accompanying Notes to Consolidated Financial Statements.
53
Xcel Brands, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)
Table of Contents
Revenues
Net licensing revenue
Net sales
Net revenue
Cost of goods sold
Gross profit
Operating costs and expenses
Salaries, benefits and employment taxes
Other selling, general and administrative expenses
Stock-based compensation
Depreciation and amortization
Asset impairment charges
Total operating costs and expenses
Other income (expense)
Gain on sale of majority interest in Isaac Mizrahi brand
Loss from equity method investment
Gain on reduction of contingent obligation
Total other income (expense)
Operating loss
Interest and finance expense
Interest expense - term loan debt
Other interest and finance charges, net
Loss on early extinguishment of debt
Total interest and finance expense
Loss before income taxes
Income tax benefit
Net loss
Net loss attributable to noncontrolling interest
Net loss attributable to Xcel Brands, Inc. stockholders
Loss per common share attributable to Xcel Brands, Inc. stockholders:
Basic and diluted net loss per share
Weighted average number of common shares outstanding:
For the Year Ended
December 31,
2022
2021
14,737
11,044
25,781
7,980
17,801
16,802
15,386
620
7,263
274
40,345
20,586
(1,202)
900
20,284
(2,260)
1,187
16
2,324
3,527
(5,787)
(431)
(5,356)
(1,338)
(4,018)
(0.20)
$
$
$
21,876
16,056
37,932
10,667
27,265
16,535
14,364
720
6,830
1,372
39,821
—
—
—
—
(12,556)
1,916
147
1,516
3,579
(16,135)
(3,106)
(13,029)
(845)
(12,184)
(0.63)
$
$
$
Basic and diluted weighted average common shares outstanding
19,624,669
19,455,987
See accompanying Notes to Consolidated Financial Statements.
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Xcel Brands, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Xcel Brands, Inc. Stockholders
Balance as of January 1, 2021
Compensation expense in connection with stock options and
restricted stock
Shares issued to executive in connection with stock grants for
bonus payments
Shares issued to directors in connection with restricted stock
grants
Shares issued to consultants in connection with restricted stock
grants
Shares issued to employee in connection with contractual
agreement
Shares issued on exercise of stock options, net of shares
surrendered for cashless exercises
Shares repurchased from employees in exchange for
withholding taxes
Additional investment in Longaberger Licensing, LLC by
noncontrolling interest
Common Stock
Shares
19,260,862
Paid-in
Amount Capital
102,324
19
Accumulated Noncontrolling
Deficit
(16,595)
Interest
Total
507
$ 86,255
—
—
343
—
—
343
181,179
50,000
40,336
21,676
1
—
—
—
282
—
75
31
—
—
—
—
—
283
—
—
—
—
75
31
—
26,253
—
—
—
—
(9,187)
—
(16)
—
—
(16)
—
—
—
—
1,000
1,000
Net loss for the year ended December 31, 2021
—
—
—
(12,184)
(845)
(13,029)
Balance as of December 31, 2021
19,571,119
20
103,039
(28,779)
662
74,942
Compensation expense in connection with 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
Shares issued to directors in connection with restricted stock
grants
Shares issued to consultants in connection with restricted 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
—
—
534
—
—
534
178,727
(53,882)
50,000
20,064
65,275
33,557
—
—
—
—
—
—
281
(85)
—
33
97
50
—
—
—
—
—
—
—
—
—
—
—
—
281
(85)
—
33
97
50
(240,000)
—
(357)
—
—
(357)
Net loss for the year ended December 31, 2022
—
—
—
(4,018)
(1,338)
(5,356)
Balance as of December 31, 2022
19,624,860
$
20
$ 103,592
$
(32,797)
$
(676)
$ 70,139
See accompanying Notes to Consolidated Financial Statements.
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Xcel Brands, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
Asset impairment charges
Amortization of deferred finance costs included in interest expense
Stock-based compensation
Provision for doubtful accounts
Undistributed proportional share of net income of equity method investee
Loss on early extinguishment of debt
Deferred income tax benefit
Gain on sale of majority interest in Isaac Mizrahi brand
Gain on reduction of contingent obligation
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other current and non-current assets
Accounts payable, accrued expenses, accrued payroll, accrued income taxes payable, and other current liabilities
Lease-related assets and liabilities
Other 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 investee
Cash consideration for acquisition of Lori Goldstein assets
Purchase of other intangible assets
Purchase of property and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from exercise of stock options
Shares repurchased including vested restricted stock in exchange for withholding taxes
Cash contribution from noncontrolling interest
Proceeds from revolving loan debt
Proceeds from long-term debt
Payment of deferred finance costs
Payment of revolving loan debt
Payment of long-term debt
Payment of prepayment, breakage and other fees associated with early extinguishment of long-term debt
Net cash (used in) provided by financing activities
Net decrease in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Reconciliation to amounts on consolidated balance sheets:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents, and restricted cash
Supplemental disclosure of non-cash activities:
Contingent obligation related to acquisition of Lori Goldstein assets at fair value
Liability for equity-based bonuses and other equity-based payments
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for income taxes
For the Year Ended December 31,
2022
2021
$
(5,356)
$
(13,029)
7,263
274
156
620
413
1,202
2,324
(965)
(20,586)
(900)
2,117
530
566
(1,372)
(244)
(224)
(14,182)
45,386
(600)
—
—
(265)
44,521
—
(442)
—
—
—
—
—
(29,000)
(1,511)
(30,953)
(614)
5,222
4,608
$
4,608
$
—
$
4,608
— $
$
(283)
1,032
$
— $
$
$
$
$
$
$
$
6,830
1,372
308
720
102
—
1,516
(3,192)
—
—
1,147
(2,159)
(818)
1,228
(581)
—
(6,556)
—
—
(3,661)
(39)
(1,095)
(4,795)
5
(16)
1,000
2,498
54,000
(2,173)
(2,498)
(41,750)
(559)
10,507
(844)
6,066
5,222
4,483
739
5,222
6,639
(13)
1,799
91
See accompanying Notes to Consolidated Financial Statements.
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
1. Nature of Operations, Background, and Basis of Presentation
Xcel Brands, Inc. (“Xcel” and, together with its subsidiaries, the “Company”) is a media and consumer products company
engaged in the design, production, marketing, live streaming, wholesale distribution, and direct-to-consumer 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”), and
other proprietary brands.
● The Lori Goldstein Brand, Halston Brand, Ripka Brand, and C Wonder Brand are wholly owned by the Company.
● The Company manages the Longaberger Brand through its 50% ownership interest in Longaberger Licensing,
LLC; 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 manages the Q Optix business through its 50% ownership interest in Q Optix, LLC.
● 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 accounts for its
interest in IM Topco, LLC using the equity method of accounting (see Note 3 for additional details).
The Company designs, produces, markets, and distributes products, licenses its brands to third parties, and generates
licensing revenues through contractual arrangements with manufacturers and retailers. The Company and its licensees
distribute through an omni-channel retail sales strategy, which includes distribution through interactive television, digital
live-stream shopping, brick-and-mortar retail, wholesale, and e-commerce channels to be everywhere its customers shop.
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 net losses of approximately $5.4 million ($25.9 million excluding the gain on sale of a majority
interest in the Isaac Mizrahi brand) and $13.0 million during the years ended December 31, 2022 and 2021, respectively,
and had an accumulated deficit of approximately $32.8 million and $28.8 million as of December 31, 2022 and 2021,
respectively. Included in the net losses were non-cash expenses of approximately $8.2 million and $7.5 million for the
years ended December 31, 2022 and 2021, respectively. Net cash used in operating activities was $14.2 million in 2022 and
$6.6 million in 2021. The Company had working capital (current assets less current liabilities, excluding the current portion
of lease obligations) of approximately $8.8 million and $7.9 million as of December 31, 2022 and 2021, respectively. The
Company’s cash and cash equivalents were approximately $4.6 million as of December 31, 2022. The aforementioned
factors raise uncertainties about the Company’s ability to continue as a going concern.
Management plans to mitigate an expected shortfall of capital and to support future operations by shifting the business
from a wholesale/licensing hybrid model into a licensing plus business model and to divest or restructure the Longaberger
brand. 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
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
interactive television licensing agreement with America’s Collectibles Network, Inc. d/b/a JTV (“JTV”) for the Ripka
Brand, and a separate license with JTV for the Ripka Brand’s e-commerce business. For apparel, similar transactions have
recently been executed. In conjunction with the launch of the C Wonder Brand on HSN, the Company licensed the
wholesale production operations related to the brand to One Jeanswear Group, LLC (“OJG”); this new license with OJG
also includes other new celebrity brands that the Company plans to launch in 2023 and beyond. For the Halston Brand,
management plans on entering into a joint venture related to the brand’s wholesale apparel business with another leading
apparel manufacturer (the “Halston JV”). The Halston JV will develop an apparel business under the H Halston brand
through department stores, e-commerce, and other retailers. The Halston JV will include a wholesale license to Xcel.
Management expects the transition of these operating businesses to be completed by second quarter of 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 March 31, 2023, steps have been
taken to reduce payroll costs by $6 million and operating expenses by $7 million over the next twelve months. Further, the
Company intends to obtain a line of credit to provide additional capital resources. However, there is no assurance that this
line of credit or any other external financing will be obtained.
Based on these recent changes in the Company’s business model, management expects to generate adequate cash flows to
meet the Company’s operating and capital expenditure needs, for at least the twelve months subsequent to the filing date of
this Annual Report on Form 10-K, and therefore, such conditions and uncertainties with respect to the Company’s ability to
continue as a going concern as of December 31, 2022, have subsequently been alleviated.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Xcel, its wholly owned subsidiaries, and entities in which
Xcel has a controlling financial interest as of and for the years ended December 31, 2022 (the "Current Year") and 2021
(the "Prior Year"). The consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the accounting rules under
Regulation S-X, as promulgated by the Securities and Exchange Commission (“SEC”). 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.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate
of the effect of a condition, situation, or set of circumstances that existed at the date of the consolidated financial
statements, which management considered in formulating its estimate, could change in the near term due to one or more
future confirming events. Accordingly, the actual results could differ significantly from estimates.
The Company deems the following items to require significant estimates from management:
● Allowance for doubtful accounts;
● Useful lives of trademarks;
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
● Assumptions used in the valuation of intangible assets, including cash flow estimates for initial determinations of
fair value and/or impairment analysis; and
● Stock-based compensation.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.
Accounts Receivable
Accounts receivable are reported net of the allowance for doubtful accounts. The allowance for doubtful accounts is based
on the Company’s ongoing discussions with its licensees, wholesale and digital customers, and its evaluation of each
customer’s payment history, account aging, and financial position.
As of December 31, 2022 and 2021, the Company had $5.1 million and $7.6 million, respectively, of accounts receivable,
net of allowances for doubtful accounts of $0.1 million and $1.1 million, respectively. The Company recognized bad debt
expense of $0.4 million and $0.1 million for the Current Year and Prior Year, respectively, which was related to the
bankruptcy of several retail customers due to the novel coronavirus disease pandemic. The Company wrote-off
approximately $1.5 million of such customers’ outstanding receivable balances in the Current Year.
There is no earned revenue that has been accrued but not billed as of December 31, 2022 and 2021.
As of December 31, 2022, approximately $1.7 million of the Company's outstanding receivables were assigned to a third-
party agent pursuant to a services agreement entered into during the Current 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 the Current Year, the Company paid approximately $0.05 million in fees to the agent under the
aforementioned services agreement.
Inventory
Inventory is recorded at the lower of cost or net realizable value, with cost determined on a weighted average basis. The
Company holds finished goods inventory for its direct-to-consumer operations. Apparel and jewelry finished goods
inventory is purchased to satisfy orders received from its wholesale operations. 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 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
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, 2022 and 2021 was approximately $1.1 million and $1.3 million, respectively.
Leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of the leases.
Betterments and improvements are capitalized, while repairs and maintenance are expensed as incurred.
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Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Costs to develop or acquire software for internal use incurred during the preliminary project stage and the post
implementation stage are expensed, while internal and external costs to acquire or develop software for internal use
incurred during the application development stage – including design, configuration, coding, testing, and installation – are
generally capitalized.
The Company’s long-lived property and equipment assets are reviewed for impairment whenever events or changes in
circumstances indicate that their carrying value may not be recoverable. An impairment loss is recognized if the carrying
amount of an asset is not recoverable and its carrying amount exceeds its fair value. With reference to such impairment
testing, the Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities and evaluates the asset group against the sum of undiscounted
future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an
impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based
on undiscounted cash flows analysis or appraisals. 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.”
As a result of management’s decision to close its brick-and-mortar fine jewelry retail store, the Company recognized a $0.7
million impairment charge in the Prior Year related to furniture and fixtures, equipment, and leasehold improvement assets
of the store, and a $0.7 million impairment charge in the Prior Year related to the operating lease right-of-use asset for the
store. Separately, the Company recognized impairment charges of $0.3 million in the Current Year related to store fixtures
purchased for an apparel program with one of the Company’s retail partners.
Trademarks and Other Intangible Assets
The Company follows FASB ASC Topic 350, “Intangibles - Goodwill and Other.” Under this standard, goodwill and
indefinite-lived intangible assets are not amortized, but are required to be assessed for impairment at least annually (the
Company utilizes December 31 as its testing date) and when events occur or circumstances change that would more likely
than not reduce the fair value of the asset below its carrying amount.
Indefinite-Lived Intangible Asset
The Company tests its indefinite-lived intangible asset for recovery in accordance with ASC-820-10-55-3F, which states
that the income approach (“Income Approach”) converts future amounts (for example cash flows) to a single current (that
is, discounted) amount. When the Income Approach is used, fair value measurement reflects current market expectations
about those future amounts. The Income Approach is based on the present value of future earnings expected to be
generated by a business or asset. Income projections for a future period are discounted at a rate commensurate with the
degree of risk associated with future proceeds. A residual or terminal value is also added to the present value of the income
to quantify the value of the business beyond the projection period. As such, recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to its expected future discounted net cash flows. If the
carrying amount of such assets is considered to be impaired, the impairment to be recognized is measured as the amount by
which the carrying amount of the assets exceeds the recoverable amount of the assets.
The Company performed its annual impairment testing as described above for the year ended December 31, 2021, and
concluded that there was no impairment of its indefinite-lived intangible asset. The Company subsequently sold its
indefinite-lived intangible asset during the Current Year for a gain (see Note 3 for additional details).
Finite-Lived Intangible Assets
The Company’s finite-lived intangible assets, including Trademarks, are reviewed for impairment whenever events or
changes in circumstances indicate that their carrying value may not be recoverable. An impairment loss is recognized if the
carrying amount of a finite-lived intangible asset is not recoverable and its carrying amount exceeds its fair value.
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Notes to Consolidated Financial Statements
December 31, 2022 and 2021
With reference to finite-lived intangible assets impairment testing, the Company groups assets and liabilities at the lowest
level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluates
the asset group against the sum of undiscounted future cash flows. If the undiscounted cash flows do not indicate the
carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount
of the asset group exceeds its fair value based on discounted cash flows analysis or appraisals. 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, “Fair Value Measurement.”
No impairment charges were recorded related to finite-lived intangible assets for the Current Year or Prior Year.
The Company’s finite-lived intangible assets are amortized over their estimated useful lives of three (3) to eighteen
(18) years. The Company re-evaluates the remaining useful life of its finite-lived intangible assets on an annual basis,
based on consideration of current events and circumstances, the expected use of the asset, and the effects of demand,
competition, and other economic factors. No changes were made to the estimated useful lives of intangible assets in the
Current Year or Prior Year.
Restricted Cash
Restricted cash was $0.7 million as of December 31, 2021. This balance consisted of cash deposited as collateral for an
irrevocable standby letter of credit associated with the lease of the Company’s current corporate office and operating
facility at 1333 Broadway, New York City. There was no restricted cash at December 31, 2022, as the aforementioned letter
of credit expired and was not renewed.
Investments in Unconsolidated Affiliates
The Company holds a noncontrolling equity interest in IM Topco, LLC, which was entered into during the Current Year
(see Note 3 for additional details). This investment is 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 operating and
financial policies but does not control the affiliate. As of December 31, 2022, the carrying value of this investment on the
Company’s consolidated balance sheet was $19.2 million. The Company recognizes its share of the ongoing operating
results of IM Topco LLC (based on the distribution provisions set forth in the related business venture agreement) as other
income (expense) in the accompanying consolidated statement of operations for the Current Year.
The Company also holds a limited partner ownership interest in an unconsolidated affiliate, which was entered into in
2016. This investment is accounted for in accordance with ASC Topic 321, “Investments – Equity Securities,” and is
included within other assets on the Company’s consolidated balance sheets at December 31, 2022 and 2021. As of
December 31, 2022 and 2021, the carrying value of this investment was $0.1 million. This investment does not have a
readily determinable fair value and in accordance with ASC 820-10-35-59, the investment is valued at cost, less
impairment, plus or minus observable price changes of an identical or similar investment of the same issuer.
Deferred Finance Costs
The Company previously incurred costs (primarily professional fees and lender underwriting fees) in connection with
borrowings under senior secured term loans. Such costs were deferred on the consolidated balance sheet as a reduction to
the carrying value of the associated borrowing, and were amortized as interest expense using the effective interest method.
Contingent Obligations
When accounting for asset acquisitions, if any contingent obligations exist and the fair value of the assets acquired is
greater than the consideration paid, any contingent obligations are recognized and recorded as the positive difference
between the fair value of the assets acquired and the consideration paid for the acquired assets.
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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.
The Company recorded contingent obligations in connection with the acquisitions of the Halston Heritage trademarks in
2019 and the LOGO by Lori Goldstein trademarks in 2021. See Note 3 and Note 9 for additional information related to
contingent obligations.
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.
Revenue Recognition
The Company applies the guidance in ASC Topic 606, “Revenue from Contracts with Customers” to recognize revenue.
Licensing
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. 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. The timing of performance obligations is
typically consistent with the timing of payments, though there may be differences if contracts provide for advances or
significant escalations of contractually guaranteed minimum payments. There were no such differences that would have a
material impact on the Company’s consolidated balance sheets at December 31, 2022 and 2021. In accordance with ASC
606-10-55-65, the Company recognizes net licensing revenue at the later of when (1) the subsequent sale or usage occurs
or (2) the performance obligation to which some or all of the sales- or usage-based royalty has been allocated is satisfied
(in whole or in part). More specifically, the Company separately identifies:
(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”); and
(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 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, 2022 and 2021. 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 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 and 2021.
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Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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. The Company did not have any revenue recognized in the reporting period from performance obligations
satisfied, or partially satisfied, in previous periods. Remaining minimum guaranteed payments for active contracts as of
December 31, 2022 are expected to be recognized ratably in accordance with View C over the remaining term of each
contract based on the passage of time and through December 2024, subject to renewal or extension upon termination.
Wholesale Sales
The Company generates revenue through the design, sourcing, and sale of branded jewelry and apparel to both domestic
and international customers who, in turn, sell the products to the consumer. The Company recognizes revenue within net
sales in the accompanying consolidated statements of operations when performance obligations identified under the terms
of contracts with its customers are satisfied, which occurs upon the transfer of control of the merchandise in accordance
with the contractual terms and conditions of the sale. Shipping to customers is accounted for as a fulfillment activity and is
recorded within other selling, general and administrative expenses.
Direct to Consumer Sales
The Company’s revenue associated with its e-commerce businesses is 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
is accounted for as a fulfillment activity and is recorded within other selling, general and administrative expenses. The
Company’s revenue related to its brick-and-mortar retail store is recognized within net sales in the accompanying
consolidated statements of operations at the point of sale to the customer.
Advertising Costs
All costs associated with production for the Company’s advertising, marketing, and promotion are expensed during the
periods when the activities take place. All other advertising costs, such as print and online media, are expensed when the
advertisement occurs. The Company incurred approximately $2.6 million and $2.5 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.
Leases
The Company determines if an arrangement is a lease (as defined in ASC Topic 842, “Leases”) at the inception of the
arrangement. The Company generally recognizes a right-of-use (“ROU”) asset, representing its right to use the underlying
leased asset for the lease term, and a liability for its obligation to make future lease payments (the lease liability) at
commencement date (the date on which the lessor makes the underlying asset available for use) based on the present value
of lease payments over the lease term. The Company does not recognize ROU assets and lease liabilities for lease terms of
12 months or less, but recognizes such lease payments in operations on a straight-line basis over the lease terms.
As the Company’s leases typically do not provide an implicit rate, the Company generally uses its incremental borrowing
rate based on the information available at commencement date in determining the present value of lease payments. Lease
terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that
option.
For real estate leases of office space, the Company accounts for the lease and non-lease components as a single lease
component. 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.
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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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Lease expense for operating lease payments is generally recognized on a straight-line basis over the lease term. The
Company recognizes income from subleases (in which the Company is the sublessor) on a straight-line basis over the term
of the sublease, as a reduction to lease expense.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation - Stock
Compensation,” by recognizing the fair value of stock-based compensation as an operating expense over the service period
of the award or term of the corresponding contract, as applicable.
The fair value of stock options and warrants is estimated on the date of grant using the Black-Scholes option pricing model.
The valuation determined by the Black-Scholes option pricing model is affected by the Company’s stock price as well as
assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited
to, the expected life of the awards and the expected stock price volatility over the terms of the awards. The expected life is
based on the estimated average life of options and warrants using the simplified method; the Company utilizes the
simplified method to determine the expected life of the options and warrants due to insufficient exercise activity during
recent years as a basis from which to estimate future exercise patterns. The risk-free rate is based on the U.S. 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 Global 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
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.
Income Taxes
Current income taxes are based on the respective period’s taxable income for federal and state income tax reporting
purposes. Deferred tax liabilities and assets are determined based on the difference between the financial statement and
income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected
to reverse. A valuation allowance is required 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. The Company has no unrecognized tax benefits as of December 31, 2022 and 2021. Interest and
penalties related to uncertain tax positions, if any, are recorded in income tax expense. Tax years that remain open for
assessment for federal and state tax purposes include the years ended December 31, 2019 through December 31, 2022.
The income tax effects of changes in tax laws are recognized in the period when enacted.
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Fair Value
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
ASC Topic 820, “Fair Value Measurement,” defines fair value and establishes a framework for measuring fair value under
U.S. GAAP. The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that
the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the
liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the
fair value of the Company’s assets and liabilities, the Company seeks to maximize the use of observable inputs (market
data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how
market participants would price assets and liabilities).
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts
receivable, and accounts payable, the carrying amounts approximate fair value due to the short-term maturities of these
instruments. The carrying value of term loan debt approximates fair value because the fixed interest rate approximates
current market rates and in the instances it does not, the impact is not material. When debt interest rates are below market
rates, the Company considers the discounted value of the difference of actual interest rates and its internal borrowing
against the scheduled debt payments.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and
cash equivalents, restricted cash, and accounts receivable. The Company limits its credit risk with respect to cash by
maintaining cash, cash equivalents, and restricted cash balances with high quality financial institutions. At times, the
Company’s cash, cash equivalents, and restricted cash may exceed federally insured limits. Concentrations of credit risk
with respect to accounts receivable are minimal 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.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive
securities. Diluted earnings (loss) per share reflect, in periods in which they have a dilutive effect, the effect of common
shares issuable upon the exercise of stock options and warrants using the treasury stock method. The difference between
basic and diluted weighted-average common shares results from the assumption that all dilutive stock options and warrants
outstanding were exercised into common stock if the effect is not anti-dilutive.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, "Financial Instruments – Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in
November 2018 through ASU No. 2018-19. This ASU will require entities to estimate lifetime expected credit losses for
financial instruments, including trade and other receivables, which will result in earlier recognition of credit losses.
Subsequently, the FASB issued additional guidance in 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. Among other things, the
additional guidance deferred the application of the new guidance on credit losses for smaller reporting companies to fiscal
years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently
evaluating the new guidance to determine the impact the adoption of this guidance will have on the Company’s results of
operations, cash flows, and financial condition when it is adopted during the first quarter of 2023.
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Recently Adopted Accounting Pronouncements
The Company adopted ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
effective January 1, 2021. This ASU removes certain exceptions to the general principles in Topic 740, including, but not
limited to, intraperiod tax allocations and interim period tax calculations. The ASU also provides additional clarification
and guidance related to recognition of franchise taxes and changes in tax laws. The adoption of this new guidance did not
have any impact on the Company’s results of operations, cash flows, and financial condition.
The Company adopted ASU No. 2021-10, “Government Assistance (Topic 823): Disclosures by Business Entities about
Government Assistance.” This ASU requires certain financial statement disclosures about transactions with a government
that are accounted for by applying a grant or contribution accounting model by analogy. As this ASU only affects financial
statement disclosures, the adoption of this guidance did not have any impact on the Company’s results of operations, cash
flows, or financial condition.
3. Acquisitions, Divestitures and Variable Interest Entities
Acquisition of LOGO by Lori Goldstein Brand
On March 30, 2021, the Company and its wholly owned subsidiary, Gold Licensing, LLC, entered into an asset purchase
agreement (the “Asset Purchase Agreement”) with Lori Goldstein, Ltd. (the “Seller”) and Lori Goldstein (“Shareholder”),
pursuant to which the Company agreed to acquire, and the Seller and Shareholder agreed to sell, certain assets of the Seller,
including the “LOGO by Lori Goldstein” trademark and other intellectual property rights relating thereto. On April 1, 2021
(the “Closing Date”), the Company completed the acquisition of the assets specified in the Asset Purchase Agreement.
Pursuant to the Asset Purchase Agreement, on the Closing Date, the Company delivered $1.6 million in cash consideration
to the Seller. In addition, the Company was required to deliver $2.0 million in cash consideration to the Seller on the earlier
of (i) the Company’s receipt of the first royalty payment from QVC, Inc. in respect of the acquired assets, or (ii) July 29,
2021. This payment was made in July 2021.
In addition to the consideration described above, the Seller is eligible to earn additional consideration of up to $12.5
million (the “Lori Goldstein Earn-Out”), which would be payable, in cash, within 45 days after the end of each applicable
calendar year during the six calendar year period commencing 2021 in an amount equal to 75% percent of the Royalty
Contribution (as defined in the Asset Purchase Agreement) for such calendar year. The Company recorded a contingent
obligation of $6.6 million related to the Lori Goldstein Earn-Out, based on the difference between the fair value of the
acquired assets of the LOGO by Lori Goldstein brand and the total consideration paid, in accordance with the guidance in
ASC Subtopic 805-50. Based on the performance of the Lori Goldstein brand through December 31, 2022, approximately
$0.2 million of additional consideration has been earned and is payable to the Seller in 2023.
The LOGO by Lori Goldstein brand acquisition was accounted for as an asset purchase. The following represents the
aggregate purchase price of $10.3 million:
($ in thousands)
Cash paid at closing
Cash paid subsequent to closing
Total direct initial consideration
Direct transaction expenses
Contingent obligation (Lori Goldstein Earn-Out)
Total consideration
$
$
1,600
2,045
3,645
16
6,639
10,300
The aggregate purchase price was allocated entirely to the trademarks of the brand. Such trademarks have been determined
by management to have a finite useful life, and accordingly, amortization is recorded in the Company’s consolidated
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
statements of operations. The Lori Goldstein trademarks are being amortized on a straight-line basis over their expected
useful life of four years.
Upon the consummation of the acquisition of the LOGO by Lori Goldstein brand as described above, the Company
incurred cash bonuses totaling $175,000 to certain members of the Company’s senior management, such success-related
bonuses having been approved by the Board of Directors on March 18, 2021. These bonuses were expensed on the Closing
Date and were subsequently paid in May 2021.
Additionally, concurrent with the acquisition, the Company also entered into a 10-year employment agreement with the
Shareholder to serve as the LOGO by Lori Goldstein brand’s Chief Creative Officer and Spokesperson, with a base salary
of $0.9 million per annum through December 31, 2021 and $1.2 million per annum thereafter, and the opportunity to earn
additional incentives based on the future net royalties related to the brand. Further, the Company concurrently entered into
a consulting agreement with the Seller to provide creative advice and consultation, for a fee of $0.6 million per annum
through December 31, 2021 and $0.8 million per annum thereafter. The Company therefore recognized $1.2 million and
$0.9 million of salary expense within salaries, benefits and employment taxes in the accompanying consolidated statements
of operations, and $0.8 million and $0.6 million of consulting expense within other selling, general and administrative
expenses in the accompanying consolidated statements of operations, in the Current Year and Prior Year, respectively,
related to such agreements.
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. Pursuant to the purchase agreement, the Company will also be
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 receives Net Royalty Revenue (as defined in the purchase agreement) in an amount equal
to or greater than $17.5 million and (ii) IM Topco generates EBITDA (as defined in the purchase agreement) in an amount
equal to or greater than $11.8 million. Additionally, in the event that 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 will 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. Based on IM Topco’s earnings from May 31, 2022 through December 31, 2022 and the
applicable distribution provisions, WHP earned $4.32 million in cash flow, which reduces the potential purchase price
adjustment to $11.68 million.
In connection with the aforementioned membership purchase agreement, on May 31, 2022, the Company and WHP 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.
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Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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:
(i)
first, 100% to WHP, until WHP has received an aggregate amount during such fiscal year equal to $8,852,000;
(ii) second, 100% to Xcel, until Xcel has received an aggregate amount during such fiscal year equal to $1,316,200;
and
(iii) thereafter, in proportion to the members’ respective ownership interests.
The amounts described in (i) and (ii) above are subject to adjustment in certain circumstances as set forth in the Business
Venture Agreement.
The Company also entered into a number of other related agreements on May 31, 2022 in connection with the transaction,
as described below:
● The Company entered into a services agreement with IM Topco, pursuant to which the Company will provide
certain design and support services (including assistance with the operations of the interactive television business
and related talent support) to IM Topco in exchange for payments of $0.3 million per fiscal year.
● The Company entered into a license agreement with IM Topco, pursuant to which IM Topco granted the
Company a license to use certain Isaac Mizrahi trademarks on and in connection with the design, manufacture,
distribution, sale, and promotion of women’s sportswear products in the United States and Canada during the
term of the agreement, in exchange for the payment of royalties in connection therewith. The initial term of this
agreement ends December 31, 2026, and provides guaranteed royalties of $0.4 million per year to IM Topco.
● 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.
● 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. In addition, 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. In addition, 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. Mizrahi.
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 licensing agreement, 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 approximately $19.8
million as an equity method investment on the accompanying consolidated balance sheet. 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.
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Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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 as other income in the consolidated statement of
operations for the Current Year.
In addition to the amounts described above, the Company’s Board of Directors awarded cash bonuses totaling
approximately $1.0 million to certain members of the Company’s senior management. These bonuses are included in
Salaries, benefits and employment taxes in the accompanying consolidated statement of operations for Current Year.
During the Current 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%.
The Company accounts for its interest in the ongoing operations of IM Topco as other income (expense) under the equity
method of accounting. The Company recognized an equity method loss of approximately $1.2 million related to its
investment for the year ended December 31, 2022, based on the aforementioned distribution provisions and preferences set
forth in the Business Venture Agreement.
Summarized financial information for IM Topco for the period commencing May 31, 2022 (the date of the sale of a
majority interest in IM Topco) through December 31, 2022 is as follows:
($ in thousands)
Revenues
Gross profit
Income from continuing operations
Net income
Longaberger Licensing, LLC Variable Interest Entity
$
7,791
7,791
317
317
Xcel is party to a limited liability company agreement (the “LLC 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,” and collectively, the “Members”). 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. 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.
During the Prior Year, the Members made capital contributions to LL of $1.0 million each in order to fund LL’s working
capital requirements. This resulted in increases to the carrying value of Hilco Global’s noncontrolling interest in LL for the
Prior year of $1.0 million. The impacts of Xcel’s capital contributions were eliminated in consolidation.
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
4. Trademarks and Other Intangibles
Trademarks and other intangibles, net consist of the following:
Weighted
Average
December 31, 2022
($ in thousands)
Trademarks (finite-lived)
Copyrights and other intellectual property
Total
($ in thousands)
Trademarks (indefinite-lived)
Trademarks (finite-lived)
Non-compete agreement
Copyrights and other intellectual property
Total
Amortization Gross Carrying Accumulated
Amortization
Amount
21,346
298
21,644
Period
15 years
8 years
68,880
429
69,309
$
$
Weighted
Average
December 31, 2021
Amortization Gross Carrying Accumulated
Amortization
Amount
$
$
— $
Net Carrying
Amount
47,534
131
47,665
$
Net Carrying
Amount
44,500
68,880
562
429
114,371
$
15,268
562
237
16,067
$
$
44,500
53,612
—
192
98,304
Period
n/a
15 years
7 years
8 years
During the Current Year, the Company sold its $44.5 million of indefinite-lived trademarks related to the Isaac Mizrahi
Brand (see Note 3 for details). Also during the Current Year, the Company retired its intangible asset for a non-compete
agreement related to the Halston Brand, as such intangible asset had reached the end of its estimated useful life and had
become fully amortized.
Amortization expense for intangible assets for the Current Year and Prior Year was approximately $6.1 million and $5.6
million, respectively.
Estimated future amortization expense related to finite-lived intangible assets over the remaining useful lives is as follows:
($ in thousands)
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter (through 2036)
Total
5. Significant Contracts
Qurate Agreements
Amortization
Expense
$
$
6,140
6,120
4,177
3,533
3,507
24,188
47,665
Through its wholly owned subsidiaries, the Company has direct-to-retail license agreements with Qurate Retail Group
(“Qurate”), 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 Judith Ripka brand. These agreements include, respectively, the
LOGO Qurate Agreement, Longaberger Qurate Agreement, and the Ripka Qurate Agreement. The Company was also
previously a party to similar agreements with Qurate related to the Isaac Mizrahi brand (the IM Qurate Agreement) and the
H by Halston brand (the H Qurate Agreement). Qurate owns the rights to all designs produced under the aforementioned
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Notes to Consolidated Financial Statements
December 31, 2022 and 2021
agreements (collectively, the “Qurate Agreements”), and the Qurate Agreements include the sale of products across various
categories through Qurate’s television media (including QVC and HSN) and related internet sites.
Pursuant to the agreements, the Company granted to Qurate and its affiliates the exclusive, worldwide right to promote the
Company’s branded products, and the right to use and publish the related trademarks, service marks, copyrights, designs,
logos, and other intellectual property rights owned, used, licensed, and/or developed by the Company, for varying terms as
set forth below.
Agreement
LOGO Qurate Agreement
Longaberger Qurate Agreement
Ripka Qurate Agreement
IM Qurate Agreement
H Qurate Agreement
Current Term
Expiry
November 1, 2023
October 31, 2023
*
**
***
Xcel Commenced
Brand with QVC
April 2021
Automatic
Renewal
one-year period
two-year period November 2019
not applicable
not applicable
not applicable
April 2014
September 2011
January 2015
QVC Product
Launch
2009
2019
1999
2010
2015
* On August 30, 2022, Qurate and the Company amended the Ripka Qurate Agreement such that the license period was
terminated effective December 31, 2021. Effective January 1, 2022, the agreement entered a sell-off period, under which
Qurate may continue to license the Ripka brand on a non-exclusive basis for as long as necessary to sell off any of its
remaining inventory.
** On May 31, 2022, in connection with the sale of a majority interest in the Isaac Mizrahi brand to WHP, this agreement
was assigned to IM Topco, LLC. See Note 3 for additional details.
*** In the fourth quarter of 2020, the Company transitioned and discontinued licensing of the H Halston brand to Qurate.
The Company began wholesale supply sales of the H Halston products under arrangements with HSN and certain Qurate
global affiliates and other unrelated interactive television networks.
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.
Under the Qurate Agreements, Qurate is obligated to make payments to the Company on a quarterly basis, based primarily
upon a percentage of 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.
Also, under the Qurate Agreements, except for the Longaberger Qurate Agreement, the Company will pay for a period of
time a royalty participation fee to Qurate on revenue earned from the sale, license, consignment, or any other form of
distribution of any products, bearing, marketed in connection with, or otherwise associated with the specified trademarks
and brands. Such royalty participation fees are recorded as a reduction to net licensing revenue.
Net licensing revenue from Qurate totaled $11.4 million and $18.8 million for the Current Year and Prior Year,
respectively, representing approximately 44% and 50% of the Company’s total net revenue, respectively. As of
December 31, 2022 and 2021, the Company had receivables from Qurate of $0.9 million and $3.5 million, representing
approximately 17% and 46% of the Company’s accounts receivable, respectively. The December 31, 2022 and 2021 Qurate
receivables did not include any earned revenue accrued but not yet billed as of the respective balance sheet dates.
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6. Debt
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
The Company’s net carrying amount of debt was comprised of the following:
($ in thousands)
Term loan debt
Unamortized deferred finance costs related to term loan debt
Total
Current portion of debt
Long-term debt
December 31,
2022
December 31,
2021
$
$
— $
—
—
—
— $
29,000
(969)
28,031
2,500
25,531
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 First
Eagle Alternative Credit Agent, LLC (“FEAC”) described below, 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 Current 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.
Term Loan Debt (through May 31, 2022)
Previous Term Loan Debt
On February 11, 2019, the Company entered into an amended loan agreement with Bank Hapoalim B.M. (“BHI”), which
amended and restated a prior term loan with BHI. Under that amended loan agreement, the aggregate amount of all the
term loans extended by BHI to Xcel was $22.0 million, which amount was divided into two term loans: (1) a term loan in
the amount of $7.3 million and (2) a term loan in the amount of $14.7 million. These two term loans bore interest at a fixed
rate of 5.1% and 6.25% per annum, respectively. Such loan agreement was subsequently amended on April 13, 2020 and
again on August 18, 2020; such amendments changed the timing and amount of quarterly installment payments, but did not
change the total principal balance, interest rate, or maturity date.
April 2021 Term Loan Debt
On April 14, 2021, Xcel, as Borrower, and its wholly-owned subsidiaries entered into a new loan and security agreement
with BHI as administrative agent and collateral agent, FEAC as co-collateral agent, and the financial institutions party
thereto as lenders. Pursuant to this loan agreement, the lenders made two term loans: (1) a term loan in the amount of $10.0
million and (2) a term loan in the amount of $15.0 million. These two term loans bore interest at “LIBOR” plus 4.0% per
annum, and “LIBOR” plus 8.0% per annum, respectively, with “LIBOR” defined as the greater of (a) the rate of interest
per annum for deposits in dollars for an interest period equal to one month as published by ICE Benchmark Administration
Limited or a comparable or successor quoting service at approximately 11:00 a.m. (London time) on such date of
determination or (b) 1.0% per annum. This loan agreement also provided that the lenders make available to Xcel a
revolving loan facility in an amount up to $4.0 million on a discretionary basis, but not to exceed 85% of the amount of
eligible accounts receivable, as defined.
Management assessed and determined that the April 2021 loan agreement resulted in an extinguishment of the previous
term loan debt, and accordingly recognized a loss of approximately $0.8 million (consisting of $0.1 million of unamortized
deferred finance costs and $0.7 million of breakage fees owed to the old lender under the terms of the previous debt
agreement) during the Prior Year.
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Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Upon entering into the April 2021 loan agreement, Xcel paid a 2.5% closing fee in the amount of $0.6 million to the
administrative agent for the benefit of each lender having a term loan commitment; the Company also paid approximately
$0.6 million of various legal and other fees in connection with the execution of the loan agreement. These fees and costs
totaling approximately $1.2 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.
Under the April 2021 loan agreement, the debt was to mature on April 14, 2025, with principal payable in 16 quarterly
installments of $625,000 on each of March 31, June 30, September 30, and December 31 of each year, commencing on
June 30, 2021 and ending on March 31, 2025, with a final payment of $15.0 million on the maturity date of April 14, 2025.
The Company made the required principal payments on June 30, 2021 and September 30, 2021 (totaling $1.25 million) as
scheduled.
The Company, BHI, FEAC, and the lenders subsequently amended the April 2021 loan agreement multiple times during
2021 – on August 12, 2021, September 29, 2021, and November 12, 2021. While these amendments modified financial
covenants and/or adjusted the maximum amount available under the revolving loan facility, there were no changes made to
the total principal balance, interest rate, maturity date, or any other terms of the loan agreement.
December 2021 Term Loan Debt
On December 30, 2021, Xcel, as Borrower, and its wholly-owned subsidiaries entered into a new loan and security
agreement with 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. The December 2021 loan agreement also provides that Xcel
may request the lenders make incremental term loans of up to $25.0 million, with the terms and conditions of any such
incremental term loans to be agreed in an amendment to the agreement prior to funding.
Management assessed and determined that the December 2021 loan agreement resulted in an extinguishment of the April
2021 term loan debt, and accordingly recognized a loss of approximately $0.74 million (consisting of $0.92 million of
unamortized deferred finance costs and $(0.18) of net fees owed to BHI less refunds of certain costs related to the April
2021 term loan debt) during the Prior Year.
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 of December 31, 2021 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.
Under the December 2021 loan agreement, Xcel had the right upon thirty (30) days prior written notice to prepay all or any
portion of the term loan debt and accrued and unpaid interest thereon. Based on the terms of the loan agreement, when the
term loan was repaid in full on May 31, 2022, Xcel was required to pay a prepayment premium of five percent (5.00%),
which amounted to approximately $1.4 million.
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Xcel also granted the lenders a right of first offer to finance any acquisition for which the consideration therefore will be
paid other than by cash, the issuance of equity interests of Xcel, or the issuance of notes to the applicable seller.
The various term loan agreements described above also contained customary covenants, including reporting requirements,
trademark preservation, and certain financial covenants (on a consolidated basis with Xcel and its wholly-owned
subsidiaries); the Company was in compliance with all applicable covenants under the respective loan agreements as of and
for all periods presented in the financial statements.
For the Current Year and Prior Year, the Company incurred interest expense of approximately $1.2 million and $1.9
million, respectively, related to term loan debt. The effective interest rate related to term loan debt was approximately 9.8%
and 8.7% for the Current Year and Prior Year, respectively.
Revolving Loan Debt
Under the terms of the April 2021 loan agreement discussed above, the lenders made a revolving loan facility available to
Xcel. On June 24, 2021, Xcel borrowed $1.5 million under the aforementioned revolving loan facility, and on September
30, 2021, Xcel borrowed $998,000 under the revolving loan facility. Xcel repaid the outstanding balance in full on
December 30, 2021. The revolving loan facility bore interest at a rate of 4.75% per annum, and the Company incurred
related interest expense of approximately $0.1 million for the Prior Year. As of December 31, 2021, the Company no
longer had access to a revolving loan facility under the terms of the new loan agreement entered into on December 30,
2021.
7. 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.
Equity Incentive Plans
The Company’s 2021 Equity Incentive Plan (the “2021 Plan”) is designed and utilized to enable the Company to provide
its employees, officers, directors, consultants, and others whose past, present, and/or potential contributions to the
Company have been, are, or will be important to the success of the Company, an opportunity to acquire a proprietary
interest in the Company. A total of 4,000,000 shares of common stock are eligible for issuance under the 2021 Plan. The
2021 Plan provides for the grant of any or all of the following types of awards: stock options (incentive or non-qualified),
restricted stock, restricted stock units, performance awards, or cash awards. The 2021 Plan is administered by the
Company’s Board of Directors, or, at the Board’s discretion, a committee of the Board.
In addition, stock-based awards (including options, warrants, and restricted stock) previously granted under the Company’s
2011 Equity Incentive Plan (the “2011 Plan”) remain outstanding and shares of common stock may be issued to satisfy
options or warrants previously granted under the 2011 Plan, although no new awards may be granted under the 2011 Plan.
Stock-Based Compensation
Total expense recognized for all forms of stock-based compensation was approximately $0.72 million in both the
Current Year and Prior Year. Of the Current Year expense amount, approximately $0.41 million related to employees and
approximately $0.31 million related to directors and consultants; approximately $0.62 million was recorded as an operating
cost and approximately $0.10 million was recorded as a reduction to other income. Of the Prior Year expense amount,
approximately $0.55 million related to employees and approximately $0.17 million related to directors and consultants; all
of the Prior Year expense amount was recorded as an operating cost.
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Stock Options
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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.
A summary of the Company’s stock option activity for the Current Year is as follows:
Outstanding at January 1, 2022
Granted
Canceled
Exercised
Expired/Forfeited
Outstanding at December 31, 2022, and expected to vest
Exercisable at December 31, 2022
Current Year stock option grants were as follows:
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
(in Years) Value
Weighted
Average
Exercise
Price
2.25
1.61
—
—
2.81
2.12
2.89
5.46
$
—
4.76
1.75
$
$
—
—
Number of
Options
5,630,970
605,850
$
—
—
(622,510)
5,614,310
1,916,810
$
$
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 $1.62 per share, and 50% of the options vest on each of April
20, 2023 and 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.
Prior Year stock option grants were as follows:
On March 15, 2021, the Company granted options to purchase an aggregate of 365,390 shares of common stock to various
employees. The exercise price of the options is $1.86 per share, and all options vested immediately on the date of grant.
On April 1, 2021, 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 $1.93 per share. One-half of the options vested on April 1, 2022,
and the remaining half of the options will vest on April 1, 2023.
On July 1, 2021, the Company granted options to purchase an aggregate of 20,000 shares of common stock to a member of
management. The exercise price of the options is $2.76 per share. One-half of the options vested on June 1, 2022, and the
remaining half of the options will vest on June 1, 2023.
On August 13, 2021, the Company granted options to purchase an aggregate of 10,000 shares of common stock to an
employee. The exercise price of the options is $2.00 per share. One-half of the options were to vest on August 13, 2022,
with the remaining half of the options to vest on August 13, 2023, but all of these options were forfeited when the
employee left the Company in the Current Year.
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
The fair value of the options granted was estimated at the date of grant using the Black-Scholes option pricing model with
the following assumptions:
Expected Volatility
Expected Dividend Yield
Expected Life (Term, in years)
Risk-Free Interest Rate
Year Ended December 31,
2021
2022
57.14 – 92.65 % 29.49 – 82.99 %
— %
— %
0.67 – 3.25
1.60 – 2.80 %
2.5 – 3.25
0.24 – 0.52 %
Compensation expense related to stock options for the Current Year and Prior Year was approximately $0.5 million and
$0.3 million, respectively. Total unrecognized compensation expense related to unvested stock options (excluding stock
options with performance-based vesting) at December 31, 2022 amounts to approximately $0.1 million and is expected to
be recognized over a weighted average period of 1.12 years.
Of the total stock options outstanding at December 31, 2022, the vesting of 3,500,000 options is contingent upon the
Company’s common stock achieving certain target prices as follows:
Target Prices
$3.00
$5.00
$7.00
$9.00
$11.00
Number of Options Vesting
1,000,000
850,000
700,000
550,000
400,000
As of December 31, 2022, none of these 3,500,000 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:
Balance at January 1, 2022
Granted
Vested
Forfeited or Canceled
Balance at December 31, 2022
76
Weighted
Average
Grant Date
Fair Value
$
$
0.07
0.79
0.72
1.09
0.05
Number of
Options
3,873,334
605,850
(771,684)
(10,000)
3,697,500
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Warrants
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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.
A summary of the Company’s warrant activity for the Current Year is as follows:
Outstanding and exercisable at January 1, 2022
Granted
Canceled
Exercised
Expired/Forfeited
Outstanding and exercisable at December 31, 2022
Weighted
Average
Weighted
Remaining
Average Contractual
Exercise
Life
Aggregate
Intrinsic
Value
$
—
(in Years)
2.57
Number of
Warrants
116,065
$
—
—
—
—
$
Price
3.15
—
—
—
—
3.15
116,065
1.57
$
—
No compensation expense was recorded in the Current Year or Prior Year related to warrants.
Stock Awards
A summary of the Company’s restricted stock activity for the Current Year is as follows:
Outstanding at January 1, 2022
Granted
Canceled
Vested
Expired/Forfeited
Outstanding at December 31, 2022
Current Year stock award grants were as follows:
Number of
Restricted
Shares
815,833
347,623
$
—
(830,123)
—
$
333,333
Weighted
Average
Grant Date
Fair Value
4.00
1.58
—
3.11
—
3.71
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, of which 50% shall vest on April 20, 2023, and 50% 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 3 for additional details).
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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 Prior Year to accrue for this performance bonus.
Prior Year stock award grants were as follows:
On April 1, 2021, the Company issued an aggregate of 50,000 shares of stock to non-management directors, which vest
evenly over two years. One-half of the shares vested on April 1, 2022, and the remaining half shall vest on April 1, 2023.
On April 26, 2021, the Company issued 14,045 shares of stock to a consultant, which vested immediately.
On July 1, 2021, the Company issued 9,399 shares of stock to a consultant, which vested immediately.
On October 1, 2021, the Company issued 16,892 shares of stock to a consultant, which vested immediately.
On October 29, 2021, the Company issued 12,489 shares of stock to an employee pursuant to the terms of a contractual
agreement, which vested immediately.
Additionally, on May 7, 2021, the Company issued 181,179 shares of common stock to a member of senior management as
payment for a performance bonus earned 2020. These shares vested immediately. The Company recognized compensation
expense of approximately $0.3 million in 2020 to accrue for this performance bonus.
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.
Total compensation expense related to stock awards for the Current Year and Prior Year (inclusive of the amounts detailed
above) was approximately $0.3 million and $0.4 million, respectively. Total unrecognized compensation expense related to
unvested restricted stock grants at December 31, 2022 amounts to $0.1 million and is expected to be recognized over a
weighted average period of 1.10 years.
The following table provides information with respect to restricted stock purchased and retired by the Company during the
Current Year and Prior Year:
Date
April 20, 2022 (i)
May 31, 2022 (i)
Total 2022
October 29, 2021 (i)
Total 2021
Total Number
of Shares
Actual
Price Paid
Purchased per Share
53,882
240,000
293,882
9,187
9,187
$
$
1.57
1.49
1.50
1.73
1.73
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plan
Fair value of
Re-Purchased
Shares
84,000
—
—
358,000
— $ 442,000
—
— $
16,000
16,000
(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.
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Shares Available Under the Company’s Equity Incentive Plans
At December 31, 2022, there were 3,291,909 shares of common stock available for award grants under the 2021 Plan.
Shares Reserved for Issuance
At December 31, 2022, there were 9,022,284 shares of common stock reserved for issuance, including 5,316,025 shares
reserved pursuant to unexercised warrants and stock options previously granted under the 2011 Plan, 414,350 shares
reserved pursuant to unexercised stock options granted under the 2021 Plan, and 3,291,909 shares available for issuance
under the 2021 Plan.
Dividends
The Company has not paid any dividends to date.
8. Earnings (Loss) Per Share
The following table is a reconciliation of the numerator and denominator of the basic and diluted net loss per share
computations for the years ended December 31, 2022 and 2021:
Numerator:
Net loss attributable to Xcel Brands, Inc. stockholders (in thousands)
$
(4,018)
$
(12,184)
Year Ended
December 31,
2022
2021
Denominator:
Basic weighted average number of shares outstanding
Add: Effect of warrants
Add: Effect of stock options
Diluted weighted average number of shares outstanding
Basic net loss per share
Diluted net loss per share
19,624,669
—
—
19,624,669
19,455,987
—
—
19,455,987
$
$
(0.20)
(0.20)
$
$
(0.63)
(0.63)
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:
Stock options
Warrants
Total
Year Ended
December 31,
2022
5,614,310
116,065
5,730,375
2021
5,630,970
116,065
5,747,035
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
9. Commitments and Contingencies
Leases
The Company has an operating lease for its corporate offices and operations facility, as well as certain equipment 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,
2022, the weighted average remaining lease term was 5.0 years and the weighted average discount rate was 6.25%.
The Company leases office space under an operating lease agreement related to the Company’s main headquarters located
in New York City. 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 also has an operating lease for its former retail store location in Westchester, New York, which was closed in
the Current Year. This lease shall expire on January 31, 2029; however, the Company is currently in the process of
negotiating the termination of this lease. The Company recorded an impairment charge of $0.7 million to fully impair the
remaining balance of the right-of-use asset for this lease in the Prior Year.
The Company had an operating lease for its former corporate offices and operations facility, 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, 2022 and 2021, total lease expense included in selling, general and administrative
expenses on the Company's consolidated statements of operations was approximately $1.6 million and $1.7 million,
respectively. The Company’s total lease costs for the years ended December 31, 2022 and 2021 were comprised of the
following:
($ in thousands)
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
2022
$ 1,474
55
217
(104)
$ 1,642
2021
$ 2,047
68
178
(622)
$ 1,671
Cash paid for amounts included in the measurement of operating lease liabilities was $1.7 million and $2.0 million in the
Current Year and Prior Year, respectively. Cash received from subleasing was $0.1 million and $0.7 million in the Current
Year and Prior Year, respectively.
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
As of December 31, 2022, the maturities of lease liabilities were as follows:
($ in thousands)
2023
2024
2025
2026
2027
Thereafter (through 2028)
Total lease payments
Less: Discount
Present value of lease liabilities
Current portion of lease liabilities
Non-current portion of lease liabilities
$
$
1,678
1,711
1,711
1,711
1,452
158
8,421
1,206
7,215
1,376
5,839
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,
2023
2024
2025
2026
2027
Thereafter
Total future minimum employment contract payments
Employment
Contract
Payments
4,313
2,150
2,150
2,150
2,150
6,988
19,901
$
$
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.
Certain of the employment agreements contain severance and/or change in control provisions. Aggregate potential
severance compensation amounted to approximately $3.6 million as of December 31, 2022.
Contingent Obligation – Halston Heritage Earn-Out
In connection with the February 11, 2019 purchase of the Halston Heritage trademarks from the H Company IP, LLC
(“HIP”), the Company agreed to pay HIP 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. This additional consideration would
have been payable in shares of common stock of the Company. The Halston Heritage Earn-Out of $0.9 million was
recorded as a long-term liability on February 11, 2019 and as of December 31, 2021, based on the difference at the date of
acquisition between the fair value of the acquired assets of the Halston Heritage Trademarks and the total consideration
paid.
The final royalty target year ended on December 31, 2022, and HIP ultimately did not earn any additional consideration
based on the formula set forth in the related asset purchase agreement. As such, during the year ended December 31, 2022,
the Company recorded a $0.9 million gain on the reduction of contingent obligations in the accompanying consolidated
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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 (see Note 3 for additional information), the
Company 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 of $6.6 million is recorded as a liability in the
accompanying consolidated balance sheets, 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. Based on the
performance of the Lori Goldstein brand through December 31, 2022, approximately $0.2 million of additional
consideration has been earned and is payable to the Seller in 2023. At December 31, 2022, $0.2 million of the balance is
recorded as a current liability and $6.4 million is recorded as a long-term liability; at December 31, 2021, the entire balance
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 for additional information), the Company has 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 will be entitled to receive from the Company 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. No amount has been recorded
in the accompanying consolidated balance sheets related to this contingent obligation, and management believes the
likelihood of any such payment is remote. Based on IM Topco’s earnings from May 31, 2022 through December 31, 2022
and the applicable distribution provisions, WHP earned $4.32 million in cash flow, which reduces the potential purchase
price adjustment to $11.68 million.
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 currently pending against
the Company is unlikely to have, individually or in the aggregate, a materially adverse effect on the Company’s business,
financial position, results of operations, or cash flows. 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.
Other Matters
On November 22, 2022, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock
Market (“Nasdaq”) notifying the Company that the minimum bid price per share for its common stock fell below $1.00 for
a period of 30 consecutive business days. Therefore, the Company did not meet the minimum bid price requirement set
forth in the Nasdaq Listing Rules.
The letters also state that pursuant to Nasdaq Listing Rules 5810(c)(3)(A), the Company will be provided 180 calendar
days to regain compliance with the minimum bid price requirement, or until May 22, 2022.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company can regain compliance if, at any time during the
Tolling Period or such 180-day period, the closing bid price of the Company’s common stock is at least $1.00 for a
minimum period of 10 consecutive business days. If by May 22, 2023, the Company does not regain compliance with the
Nasdaq Listing Rules, the Company may be eligible for additional time to regain compliance pursuant to Nasdaq Listing
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Rule 5810(c)(3)(A)(ii). To qualify, the Company would need to submit a transfer application and a $5,000 application fee.
The Company would also need to provide written notice to Nasdaq of its intention to cure the minimum bid price
deficiency during the second compliance period by effecting a reverse stock split, if necessary. As part of its review
process, the Nasdaq staff will make a determination of whether it believes the Company will be able to cure this deficiency.
Should the Nasdaq staff conclude that the Company will not be able to cure the deficiency, or should the Company
determine not to submit a transfer application or make the required representation, Nasdaq will provide notice that the
Company’s shares of common stock will be subject to delisting.
If the Company does not regain compliance within the allotted compliance period, including any extensions that may be
granted by Nasdaq, Nasdaq will provide notice that the Company’s shares of common stock will be subject to delisting
from the Nasdaq Global Market. At such time, the Company may appeal the delisting determination to a hearings panel.
The Company intends to monitor its closing bid price and the market value of its publicly held common stock between now
and May 22, 2023, and will consider available options to resolve the Company’s noncompliance with the minimum bid
price requirement, as may be necessary. There can be no assurance that the Company will be able to regain compliance
with the minimum bid price requirement or will otherwise be in compliance with other Nasdaq listing criteria.
Coronavirus Pandemic
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a
pandemic, which continues to circulate throughout the U.S. and the world. The COVID-19 pandemic (including actions
taken by national, state, and local governments in response to COVID-19) has negatively impacted the U.S. and global
economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of
financial markets.
COVID-19 has had, and continues to have, a significant negative impact on the Company’s business. The initial onset of
the pandemic in 2020 resulted in a sudden decrease in sales for many of the Company’s products, from which the Company
has yet to fully recover. Additionally, COVID-19 has also impacted, and continues to impact, the Company’s supply chain
partners, including third party manufacturers, logistics providers, and other vendors, as well as the supply chains of its
licensees. These supply chains have experienced, and may continue to experience in the future, disruptions as a result of
closed factories, factories operating with a reduced workforce, or other logistics constraints, including vessel, container and
other transportation shortages, labor shortages, and port congestion.
Due to the ongoing COVID-19 pandemic, there is significant uncertainty surrounding the Company’s future results of
operations and cash flows. Continued impacts of the pandemic could materially adversely affect the Company’s near-term
and long-term revenues, earnings, liquidity, and cash flows.
10. Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation
allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining
the need for a valuation allowance, management reviews both positive and negative evidence pursuant to the requirements
of ASC Topic 740, including current and historical results of operations, future income projections, and the overall
prospects of the Company’s business.
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
The income tax provision (benefit) for federal and state and local income taxes in the consolidated statements of operations
consists of the following:
($ in thousands)
Current:
Federal
State and local
Total current
Deferred:
Federal
State and local
Total deferred
Total benefit
Years Ended December 31,
2022
2021
$
$
300
234
534
(509)
(456)
(965)
(431)
$
$
—
86
86
(2,376)
(816)
(3,192)
(3,106)
The reconciliation of income tax benefit computed at the federal and state and local statutory rates to the Company’s loss
before taxes is as follows:
U.S. statutory federal rate
State and local rate, net of federal tax benefit
Stock compensation
Excess compensation deduction
Federal true-ups
Life insurance
Change in tax rate
Other permanent differences
Income tax benefit
Years Ended December 31,
2022
2021
21.00 %
6.10
(6.14)
(5.32)
(5.09)
(0.52)
—
—
10.03 %
21.00 %
4.64
(5.56)
(0.68)
(0.10)
(0.10)
0.06
(0.01)
19.25 %
The significant components of net deferred tax assets (liabilities) of the Company consist of the following:
($ in thousands)
Deferred tax assets
Stock-based compensation
Federal, state and local net operating loss carryforwards
Accrued compensation and other accrued expenses
Allowance for doubtful accounts
Basis difference arising from discounted note payable
Foreign tax credit
Charitable contribution carryover
Property and equipment
Interest expense
Total deferred tax assets
Deferred tax liabilities
Basis difference arising from intangible assets of acquisition
Total deferred tax liabilities
Net deferred tax assets
84
$
December 31,
2022
2021
$
712
3,175
748
—
11
—
—
497
—
5,143
1,274
6,684
728
309
11
219
77
488
602
10,392
(4,036)
(4,036)
(10,251)
(10,251)
$
1,107
$
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
As of December 31, 2022 and 2021, the Company had approximately $10.9 million and $20.8 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 $10.9 million has an indefinite life and does not expire.
As of December 31, 2022 and 2021, 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. The Company will continue to evaluate its uncertain tax positions in future periods to determine if
measurement and recognition in its consolidated financial statements is necessary. The Company does not believe there
will be any material changes in its unrecognized tax positions over the next year.
11. Related Party Transactions
Isaac Mizrahi
On February 24, 2020, the Company entered into an employment agreement with Isaac Mizrahi, a principal stockholder of
the Company, for Mr. Mizrahi 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. Mr. 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.
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. 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).
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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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. Mizrahi.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On October 1, 2021, the Company dismissed CohnReznick LLP (“CR”) as its independent registered public accounting
firm. CR’s report on the financial statements of the Company as of and for the year ended December 31, 2020 did not
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the audit of the financial statements of the Company for the year ended
December 31, 2020 and the subsequent interim period through October 1, 2021, there were no disagreements on any matter
of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which disagreements
if not resolved to their satisfaction would have caused them to make reference in connection with CR’s opinion to the
subject matter of the disagreement.
On September 30, 2021, the Audit Committee of the Board of Directors appointed Marcum LLP (“Marcum”) as the
Company’s new independent registered public accounting firm. Prior to September 30, 2021, the Company did not consult
with Marcum regarding (1) the application of accounting principles to a specified transactions, (2) the type of audit opinion
that might be rendered on the Company’s financial statements, (3) written or oral advice was provided that would be an
important factor considered by the Company in reaching a decision as to an accounting, auditing, or financial reporting
issues, or (4) any matter that was the subject of a disagreement between the Company and its predecessor auditor as
described in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-
K.
The Company’s Audit Committee of the Board of Directors participated in and approved the decision to change our
independent registered public accounting firm.
There were no disagreements with the Company’s auditors which would require disclosure under Item 304(b) of
Regulation S-K.
Item 9A. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be
disclosed in its Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in
the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management,
including the Company’s Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Such controls and procedures, by their nature, can provide only reasonable assurance
regarding management’s control objectives.
Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and
procedures as defined in Rule 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as of December 31, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of December 31, 2022, to ensure that all
information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time specified in SEC rules and forms and is accumulated and communicated to our
management, including our principal executive and principal accounting officers to allow timely decisions regarding
required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is a process designed by, or under the supervision of, the chief executive officer and
principal financial officer and effected by our board of directors, management, and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the design and effectiveness of our internal control over financial
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reporting based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the framework
described above, our management has concluded that our internal control over financial reporting was effective as of
December 31, 2022.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the
Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission
that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) during our most recent completed fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The following table sets forth the names, ages, and positions of our executive officers and directors as of the date hereof.
Executive officers are appointed by our board of directors. Each executive officer holds office until resignation, is removed
by the Board, or a successor is elected and qualified. Each director holds office until a successor is elected and qualified or
earlier resignation or removal.
NAME
Robert W. D’Loren
James F. Haran
Seth Burroughs
Mark DiSanto
James Fielding
Michael R. Francis
Howard Liebman
Deborah Weinswig
AGE
POSITION
65 Chairman of the Board of Directors and Chief Executive Officer and President
62 Chief Financial Officer and Assistant Secretary, and Principal Financial and
Accounting Officer
43 Executive Vice President of Business Development and Treasury and Secretary
61 Director
58 Director
60 Director
80 Director
52 Director
Below are the biographies of each of our officers and directors as of December 31, 2022.
Robert W. D’Loren has been the Chairman of our Board and our Chief Executive Officer and President since
September 2011. Mr. D’Loren has been an entrepreneur, innovator, and pioneer of the consumer branded products industry
for over 35 years. Mr. D’Loren has spearheaded the Company’s omni-channel platform, connecting the channels of digital,
brick-and-mortar, social media, and direct-response television to create a single customer view and brand experience for
Xcel’s brands. He served as Chairman and CEO of IPX Capital, LLC and its subsidiaries, a consumer products investment
company, from 2009 to 2011. He continues to serve as IPX Capital LLC’s Chairman.
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Prior to founding the Company, from June 2006 to July 2008, Mr. D’Loren was a director, President and CEO of NexCen
Brands, Inc., a global brand acquisition and management company with holdings that included The Athlete’s Foot, Waverly
Home, Bill Blass, MaggieMoo’s, Marble Slab Creamery, Pretzel Time, Pretzelmaker, Great American Cookies, and The
Shoe Box.
From 2002 to 2006, Mr. D’Loren’s work among consumer brands continued as President and CEO of UCC Capital
Corporation, an intellectual property investment company where he invested in the consumer branded products, media, and
entertainment sectors. From 1997 to 2002, Mr. D’Loren founded and acted as President and Chief Operating Officer of
CAK Universal Credit Corporation, an intellectual property finance company. Mr. D’Loren’s total career debt and equity
investments in over 30 entertainment and consumer branded products companies have exceeded $1.0 billion. In 1985, he
founded and served as President and CEO of the D’Loren Organization, an investment and restructuring firm responsible
for over $2 billion of transactions. Mr. D’Loren has also served as an asset manager for Fosterlane Management, as well as
a manager with Deloitte.
Mr. D’Loren has served on the Board of Directors for Iconix Brand Group, Longaberger Company, Business Loan Center,
and as a board advisor to The Athletes Foot and Bill Blass, Ltd. He also serves on the board of directors for the Achilles
Track Club International. Mr. D’Loren is a Certified Public Accountant and holds an M.S. degree from Columbia
University and a B.S. degree from New York University.
James F. Haran has been our Chief Financial Officer since September 2011. Mr. Haran served as CFO of IPX Capital,
LLC and its related subsidiaries, from June 2008 to September 2011. Mr. Haran was the Executive Vice President, Capital
Markets for NexCen Brands, Inc. from 2006 to May 2008 and Chief Financial Officer and Chief Credit Officer for UCC
Capital Corporation, and its predecessor company, CAK Universal Credit Corp., from 1998 to 2006. Prior to joining UCC,
Mr. Haran was a partner at Sidney Yoskowitz and Company P.C., a registered diversified certified public accounting firm.
During his tenure, which began in 1987, his focus was on real estate and financial services companies. Mr. Haran is a
Certified Public Accountant and holds a B.S. degree from State University of New York at Plattsburgh.
Seth Burroughs has been our Executive Vice President of Business Development and Treasury since September 2011.
From June 2006 to October 2010, Mr. Burroughs served as Vice President of NexCen Brands, Inc. Prior to his role at
NexCen, from 2003 to 2006, Mr. Burroughs served as Director of M&A Advisory and Investor Relations at UCC Capital
Corporation, an intellectual property investment company, where he worked on $500 million in acquisitions and $300
million in specialty financing as an advisor to consumer branded products companies in the franchising and apparel
industries. From 2001 to 2003, Mr. Burroughs worked as a Senior Financial Analyst at The Pullman Group where he was
involved with structuring the first securitizations of music royalties, including the Bowie Bonds, and as a Financial Analyst
at Merrill Lynch’s private client group. Mr. Burroughs received a B.S. degree in economics from The Wharton School of
Business at the University of Pennsylvania.
Mark DiSanto has served as a member of our Board since October 2011. Since 1988, Mr. DiSanto has served as the Chief
Executive Officer of Triple Crown Corporation, a regional real estate development and investment company with
commercial and residential development projects exceeding 1.5 million square feet. Mr. DiSanto received a degree in
business administration from Villanova University’s College of Commerce and Finance, a J.D. degree from the University
of Toledo College of Law, and an M.S. degree in real estate development from Columbia University.
James Fielding was appointed as a member of our Board in July 2018. He is a 25-year veteran in the consumer retail
space, and previously served as the Global Head of Consumer Products for Dreamworks Animation and Awesomeness TV.
Prior to that, Mr. Fielding served as the CEO of Claire’s Stores Inc., where he oversaw strategic growth and international
development for the retail chain’s 3,000-plus stores worldwide. From May 2008 to 2012 Mr. Fielding served as the
President of Disney Stores Worldwide.
Michael R. Francis has served as a member of our Board since June 2015. Mr. Francis is founder and CEO of Fairview
Associates, LLC, a retail and branding consultancy. From February 2012 to December 2015, Mr. Francis served as the
Chief Global Brand Officer of DreamWorks Animation SKG, which creates world-class entertainment, including animated
feature films, television specials and series, and live-entertainment properties for audiences around the world. During this
tenure with DreamWorks, Mr. Francis was responsible for global consumer products, retail, brand strategy, creative
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design, location-based entertainment, digital, publishing, and franchise development. From November 2010 to June 2011,
Mr. Francis served as the President of J.C. Penney Company, Inc., one of the largest department store operators in the
United States. Prior to November 2010, Mr. Francis spent more than 26 years with Target Corporation, an American
retailing company and the second-largest discount retailer in the United States, in various roles including Executive Vice
President and Global Chief Marketing Officer. Mr. Francis has a B.A. degree in international studies from the University of
Michigan.
Howard Liebman has served as a member of our Board since October 2011. He was President, Chief Operating Officer
and a director of Hobart West Group, a provider of national court reporting and litigation support services, from 2007 until
the sale of the business in 2008. Mr. Liebman served as a consultant to Hobart from 2006 to 2007. Mr. Liebman was
President, Chief Financial Officer, and a director of Shorewood Packaging Corporation, a multinational manufacturer of
high-end value-added paper and paperboard packaging for the entertainment, tobacco, cosmetics and other consumer
products markets. Mr. Liebman joined Shorewood in 1994 as Executive Vice President and Chief Financial Officer, and
served as its President from 1999 until Shorewood was acquired by International Paper in 2000. Mr. Liebman continued as
Executive Vice President of Shorewood until his retirement in 2005. Mr. Liebman is a Certified Public Accountant and was
an audit partner with Deloitte and Touche, LLP (and its predecessors) from 1974 to 1994.
Deborah Weinswig was appointed as a member of our Board in January 2018. She is a Managing Director of Funding
Global Retail & Technology (“FGRT”), the think tank for the Hong Kong-based Fung Group, since April 2014 where she
is responsible for building the team’s research capabilities and providing insights into the disruptive technologies that are
reshaping today’s global retail landscape. Prior to leading FGRT, Weinswig served as Chief Customer Officer for
Profitect Inc., a predictive analytics and big data software provider. From March 2002 to October 2013, Ms. Weinswig was
employed by Citigroup, Inc., most recently where she was Managing Director and Head of the Global Staples & Consumer
Discretionary team at Citi Research. Ms. Weinswig also serves as an e-commerce expert for the International Council of
Shopping Centers’ Research Task Force and was a founding member of the Oracle Retail Industry Strategy Council. Lastly,
she is a member of the Board of Directors of Kiabi (affiliated with the Auchan Group). Ms. Weinswig is a Certified Public
Accountant and holds an MBA from the University of Chicago.
Directors’ Qualifications
In furtherance of our corporate governance principles, each of our directors brings unique qualities and qualifications to our
Board. We believe that all of our directors have a reputation for honesty, integrity, and adherence to high ethical standards.
They each have demonstrated business acumen, leadership, and an ability to exercise sound judgment, as well as a
commitment to serve the Company and our Board. The following descriptions demonstrate the qualifications of each
director:
Robert W. D’Loren has extensive experience in and knowledge of the licensing and commercial business industries and
financial markets. This knowledge and experience, including his experience as director, president, and chief executive
officer of a global brand management company, provide us with valuable insight to formulate and create our acquisition
strategy and how to manage and license acquired brands.
Mark DiSanto has considerable experience in building and running businesses and brings his strong business acumen to
the Board.
James Fielding brings extensive senior level experience in the consumer retail space, as well as strong relationships in the
media and retail industries.
Michael R. Francis brings extensive senior level experience in the media and retail industries, as well as relationships in
the media and retail industries.
Howard Liebman brings comprehensive knowledge of accounting, the capital markets, mergers and acquisitions, financial
reporting, and financial strategies from his extensive public accounting experience and prior service as Chief Financial
Officer of a public company.
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Deborah Weinswig brings thought leadership in the retail and licensing industries, particularly in the areas of sourcing and
logistics.
Key Employees
Lori Goldstein is Chief Creative Officer and Spokeswoman for the Lori Goldstein Brands. As Chief Creative Officer, she
is responsible for providing design input and guidance to Xcel Brands for all brands under her name. Ms. Goldstein’s work
has covered a vast range, from her collaborations with photographers Annie Leibovitz at Vanity Fair to Steven Meisel at
Vogue Italia, to her styling for designers Donatella Versace and Vera Wang. Ms. Goldstein stepped in front of the camera in
2009 when she launched LOGO by Lori Goldstein, her exclusive collection for QVC. She is the author of “Style Is
Instinct,” which was published in 2013. In 2014, Ms. Goldstein’s brand was awarded “Apparel Product Concept of the
Year” and she was named QVC Ambassador.
Employment Agreements with Executives
Robert W. D’Loren
On February 28, 2019, and effective as of January 1, 2019, the Company entered into a three-year employment agreement
with Robert W. D’Loren for him to continue to serve as Chief Executive Officer of the Company, referred to as the
D’Loren Employment Agreement. Following the initial three-year term, the agreement automatically renewed for a one-
year term in 2022 and again in 2023, and will be automatically renewed for one-year terms thereafter unless either party
gives written notice of intent to terminate at least 90 days prior to the termination of the then current term. Pursuant to the
D’Loren Employment Agreement, Mr. D’Loren’s annual base salary is $0.89 million. The Company’s board of directors or
the compensation committee may approve increases (but not decreases) from time to time. Following the initial three-year
term, Mr. D’Loren’s base salary will be reviewed at least annually. Mr. D’Loren receives an allowance for an automobile
appropriate for his level of position and the Company pays (in addition to monthly lease or other payments) all of the
related expenses for gasoline, insurance, maintenance, repairs, or any other costs with Mr. D’Loren’s automobile.
Bonus
Mr. D’Loren will be eligible to receive an annual cash bonus in an amount equal to (i) 2.5% of all income generated from
the sales of the Company’s products and by the trademarks and other intellectual property owned, operated or managed by
us (“IP Income”), in excess of $8.0 million earned and received by us in such fiscal year: provided that any IP income
generated through net sales shall be multiplied by (x) 7% in the case of net sales from wholesale sales, and private label
sales and (y) 3% in the case of net sales from e-commerce sales through the Company’s web sites and (ii) 5% of the
Company’s adjusted EBITDA (as defined in the D’Loren Employment Agreement) for such fiscal year. Mr. D’Loren shall
have the right to elect to receive the cash bonus through the issuance of shares of the Company’s common stock.
Pursuant to the D’Loren Agreement, Mr. D’Loren was granted an option to purchase up to 2,578,947 shares of the
Company’s common stock at an exercise price of $1.72 per share. The option is exercisable until February 28, 2029 and
shall vest, subject to Mr. D’Loren remaining employed by the Company and based upon the Company’s common stock
achieving the following target prices:
Target Prices
$3.00
$5.00
$7.00
$9.00
$11.00
Number of Option Shares Vesting
736,842
626,316
515,789
405,263
294,737
Severance
If Mr. D’Loren’s employment is terminated by the Company without cause, or if Mr. D’Loren resigns with good reason, or
if the Company fails to renew the term, then Mr. D’Loren will be entitled to receive his unpaid base salary and cash
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bonuses through the termination date and a lump sum payment equal to the base salary in effect on the termination date for
the longer of two years from the termination date or the remainder of the then-current term. Additionally, Mr. D’Loren
would be entitled to two hundred times the average annual cash bonuses paid in the preceding 12 months. Mr. D’Loren
would also be entitled to continue to participate in the Company’s group medical plan or receive reimbursement for
premiums paid for other medical insurance in an amount not to exceed the cost to participate in the Company’s plan,
subject to certain conditions, for a period of 36 months from the termination date.
Change of Control
In the event Mr. D’Loren’s employment is terminated within 12 months following a change of control by the Company
without cause or by Mr. D’Loren with good reason, he would be entitled to a lump sum payment equal to two times (i) his
base salary in effect on the termination date for the longer of two years from the termination date or the remainder of the
then-current term and (ii) two times the average annual cash bonuses paid in the preceding 12 months, minus $100.
“Change of control,” as defined in Mr. D’Loren’s employment agreement, means a merger or consolidation to which we
are a party, a sale, lease or other transfer, exclusive license or other disposition of all or substantially all of our assets, a sale
or transfer by our stockholders of voting control, in a single transaction or a series of transactions or, if during any twelve
consecutive month period, the individuals who at the beginning of such period, constitute the board of directors of the
Company (the “Incumbent Directors”) cease (other than due to death) to constitute a majority of the members of the board
at the end of such period; provided that directors elected by or on the recommendation of a majority of the directors who so
qualify as Incumbent Directors shall be deemed to be Incumbent Directors. Upon a change of control, notwithstanding the
vesting and exercisability schedule in any stock option or other grant agreement between Mr. D’Loren and the Company,
all unvested stock options, shares of restricted stock and other equity awards granted by the Company to Mr. D’Loren
pursuant to any such agreement shall immediately vest, and all such stock options shall become exercisable and remain
exercisable for the lesser of 180 days after the date the change of control occurs or the remaining term of the applicable
option.
Non-Competition and Non-Solicitation
During the term of his employment by the Company and for a one-year period after the termination of such employment
(unless Mr. D’Loren’s employment was terminated without cause or was terminated by him for good reason, in which case
only for his term of employment and a six-month period after the termination of such employment), Mr. D’Loren may not
permit his name to be used by or participate in any business or enterprise (other than the mere passive ownership of not
more than 5% of the outstanding stock of any class of a publicly held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market) that engages or proposes to engage in our business in the United
States, its territories and possessions and any foreign country in which we do business as of the date of termination of his
employment. Also, during his employment and for a one-year period after the termination of such employment,
Mr. D’Loren may not, directly or indirectly, solicit, induce or attempt to induce any customer, supplier, licensee, or other
business relation of the Company or any of its subsidiaries to cease doing business with the Company or any of its
subsidiaries; or solicit, induce or attempt to induce any person who is, or was during the then-most recent 12-month period,
a corporate officer, general manager, or other employee of the Company or any of its subsidiaries, to terminate such
employee’s employment with the Company or any of its subsidiaries; or hire any such person unless such person’s
employment was terminated by the Company or any of its subsidiaries; or in any way interfere with the relationship
between any such customer, supplier, licensee, employee, or business relation and the Company or any of its subsidiaries.
James Haran
On February 28, 2019, and effective as of January 1, 2019, the Company entered into a two-year employment agreement
with James Haran for him to continue to serve as the Company’s Chief Financial Officer, referred to as the Haran
Employment Agreement. Following the initial two-year term, the agreement automatically renewed for successive one-
year terms in 2021, 2022, and 2023, and will be automatically renewed for one-year terms thereafter unless either party
gives written notice of intent to terminate at least 30 days prior to the expiration of the then current term. Pursuant to the
Haran Employment Agreement, Mr. Haran’s annual base salary is $0.37 million per annum. The board of directors or the
compensation committee may approve increases (but not decreases) from time to time. Following the initial two-year term,
the base salary shall be reviewed at least annually. In addition, Mr. Haran receives a car allowance of $1,500 per month.
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Bonus
Mr. Haran will be eligible to receive a performance cash bonus in an amount equal to (i) 0.23% of all IP Income in excess
of $12.0 million earned and received by us in such fiscal year; provided that any IP income generated through net sales
shall be multiplied by (x) 7% in the case of net sales from wholesale sales, and private label sales and (y) 3% in the case of
net sales from e-commerce sales through the Company’s web sites plus (ii) 0.375% of the Company’s adjusted EBITDA
(as defined in the Haran Employment Agreement) for such fiscal year. Notwithstanding the foregoing, for (i) 2019, $0.04
million of Mr. Haran’s bonus was guaranteed, of which $0.01 million was paid to Mr. Haran upon execution of the Haran
Employment Agreement and $0.03 million was paid prior to June 30, 2019, and (ii) for 2020, $0.03 million of Mr. Haran’s
bonus was guaranteed and paid prior to June 30, 2020, in each case.
Pursuant to the Haran Employment Agreement, Mr. Haran was granted an option to purchase up to 552,632 shares of the
Company’s common stock at an exercise price of $1.72 per share. The option is exercisable until February 28, 2029 and
shall vest, subject to Mr. Haran remaining employed with the Company and based upon the Company’s common stock
achieving target prices as follows:
Target Prices
$3.00
$5.00
$7.00
$9.00
$11.00
Number of Option Shares Vesting
157,895
134,211
110,526
86,842
63,158
Severance
If Mr. Haran’s employment is terminated by the Company without cause, or if Mr. Haran resigns with good reason, or if the
Company fails to renew the term, then Mr. Haran will be entitled to receive his unpaid base salary and cash bonuses
through the termination date and a lump sum payment equal to his base salary in effect on the termination date for
12 months. Mr. Haran would also be entitled to continue to participate in our group medical plan, subject to certain
conditions, for a period of 12 months from the termination date.
Change of Control
In the event Mr. Haran’s employment is terminated within 12 months following a change of control by the Company
without cause or by Mr. Haran with good reason, Mr. Haran would be entitled to a lump sum payment equal to his base
salary in effect on the termination date for 12 months following such termination. “Change of control,” as defined in
Mr. Haran’s employment agreement, means a merger or consolidation to which we are a party, a sale, lease or other
transfer, exclusive license or other disposition of all or substantially all of our assets, or a sale or transfer by our
stockholders of voting control, in a single transaction or a series of transactions. Upon a change of control, notwithstanding
the vesting and exercisability schedule in any stock option or other grant agreement between Mr. Haran and us, all
unvested stock options, shares of restricted stock and other equity awards granted by us to Mr. Haran pursuant to any such
agreement shall immediately vest, and all such stock options shall become exercisable and remain exercisable for the lesser
of 180 days after the date the change of control occurs or the remaining term of the applicable option.
Non-Competition and Non-Solicitation
During the term of his employment by the Company and for a one-year period after the termination of such employment,
Mr. Haran may not permit his name to be used by or participate in any business or enterprise (other than the mere passive
ownership of not more than 5% of the outstanding stock of any class of a publicly held corporation whose stock is traded
on a national securities exchange or in the over-the-counter market) that engages or proposes to engage in our business in
the United States, its territories and possessions and any foreign country in which we do business as of the date of
termination of such employment. Also, during his employment and for a one-year period after the termination of his
employment, Mr. Haran may not, directly or indirectly, solicit, induce or attempt to induce any customer, supplier, licensee,
or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or
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any of its subsidiaries; or solicit, induce or attempt to induce any person who is, or was during the then-most recent 12-
month period, a corporate officer, general manager or other employee of the Company or any of its subsidiaries, to
terminate such employee’s employment with the Company or any of its subsidiaries; or hire any such person unless such
person’s employment was terminated by the Company or any of its subsidiaries; or in any way interfere with the
relationship between any such customer, supplier, licensee, employee or business relation and the Company or any of its
subsidiaries.
Seth Burroughs
On February 28, 2019, and effective as of January 1, 2019, the Company entered into a two-year employment agreement
with Seth Burroughs for him to continue to serve as the Company’s Executive Vice President – Business Development and
Treasury, referred to as the Burroughs Employment Agreement. Following the initial two-year term, the agreement
automatically renewed for successive one-year terms in 2021, 2022, and 2023, and will be automatically renewed for one-
year terms thereafter unless either party gives written notice of intent to terminate at least 30 days prior to the expiration of
the then current term. Pursuant to the Burroughs Employment Agreement, Mr. Burroughs’ annual base salary is $0.34
million per annum. The board of directors or the compensation committee may approve increases (but not decreases) from
time to time. Following the initial two-year term, the base salary shall be reviewed at least annually.
Bonus
Mr. Burroughs will be eligible to receive a performance cash bonus in an amount equal to (i) 0.23% of all IP Income in
excess of $12.0 million earned and received by us in such fiscal year; provided that any IP income generated through net
sales shall be multiplied by (x) 7% in the case of net sales from wholesale sales, and private label sales and (y) 3% in the
case of net sales from e-commerce sales through the Company’s web sites plus (ii) 0.375% of the Company’s adjusted
EBITDA (as defined in the Haran Employment Agreement) for such fiscal year.
Pursuant to the Burroughs Employment Agreement, Mr. Burroughs was granted an option to purchase up to 368,421 shares
of the Company’s common stock at an exercise price of $1.72 per share. The option is exercisable until February 28, 2029
and shall vest, subject to Mr. Burroughs remaining employed with the Company and based upon the Company’s common
stock achieving target prices as follows:
Target Prices
$3.00
$5.00
$7.00
$9.00
$11.00
Number of Option Shares Vesting
105,263
89,474
73,684
57,895
42,105
Severance
If Mr. Burrough’s employment is terminated by the Company without cause, or if Mr. Burroughs resigns with good reason,
or if the Company fails to renew the term, then Mr. Burroughs will be entitled to receive his unpaid base salary and cash
bonuses through the termination date and a lump sum payment equal to his base salary in effect on the termination date for
12 months. Mr. Burroughs would also be entitled to continue to participate in our group medical plan, subject to certain
conditions, for a period of 12 months from the termination date.
Change of Control
In the event Mr. Burroughs’ employment is terminated within 12 months following a change of control by the Company
without cause or by Mr. Burroughs with good reason, Mr. Burroughs would be entitled to a lump sum payment equal to his
base salary in effect on the termination date for 12 months following such termination. “Change of control,” as defined in
Mr. Burroughs’ employment agreement, means a merger or consolidation to which we are a party, a sale, lease or other
transfer, exclusive license or other disposition of all or substantially all of our assets, or a sale or transfer by our
stockholders of voting control, in a single transaction or a series of transactions. Upon a change of control, notwithstanding
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the vesting and exercisability schedule in any stock option or other grant agreement between Mr. Burroughs and us, all
unvested stock options, shares of restricted stock and other equity awards granted by us to Mr. Burroughs pursuant to any
such agreement shall immediately vest, and all such stock options shall become exercisable and remain exercisable for the
lesser of 180 days after the date the change of control occurs or the remaining term of the applicable option.
Non-Competition and Non-Solicitation
During the term of his employment by the Company and for a one-year period after the termination of such employment,
Mr. Burroughs may not permit his name to be used by or participate in any business or enterprise (other than the mere
passive ownership of not more than 5% of the outstanding stock of any class of a publicly held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market) that engages or proposes to engage in our
business in the United States, its territories and possessions and any foreign country in which we do business as of the date
of termination of such employment. Also, during his employment and for a one-year period after the termination of his
employment, Mr. Burroughs may not, directly or indirectly, solicit, induce or attempt to induce any customer, supplier,
licensee, or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or
any of its subsidiaries; or solicit, induce or attempt to induce any person who is, or was during the then-most recent 12-
month period, a corporate officer, general manager or other employee of the Company or any of its subsidiaries, to
terminate such employee’s employment with the Company or any of its subsidiaries; or hire any such person unless such
person’s employment was terminated by the Company or any of its subsidiaries; or in any way interfere with the
relationship between any such customer, supplier, licensee, employee or business relation and the Company or any of its
subsidiaries.
Family Relationships
There are no family relationships among our directors or officers.
Independence of the Board of Directors
The board has determined that Messrs. Howard Liebman, Mark DiSanto, James Fielding, Michael R. Francis, and
Ms. Deborah Weinswig meet the director independence requirements under the applicable listing rule of the NASDAQ
Stock Market LLC (“NASDAQ”). Each current member of the Audit Committee, Compensation Committee, and
Nominating Committee is independent and meets the applicable rules and regulations regarding independence for such
committee, including those set forth in the applicable NASDAQ rules, and each member is free of any relationship that
would interfere with his individual exercise of independent judgment.
Section 16(a) Beneficial Ownership Reporting Compliance
To our knowledge, based solely on a review of Forms 3 and 4 and any amendments thereto furnished to our Company
pursuant to Rule 16a-3(e) under the Securities Exchange Act of 1934, or representations that no Forms 5 were required, all
Section 16(a) filing requirements applicable to our officers, directors, and beneficial owners of more than 10% of our
equity securities were timely filed.
Code of Ethics
On September 29, 2011, we adopted a code of ethics that applies to our officers, employees, and directors, including our
Chief Executive Officer, Chief Financial Officer and senior executives. Our Code of Ethics can be accessed on our website,
www.xcelbrands.com.
Audit Committee and Audit Committee Financial Expert
Our board of directors has appointed an Audit Committee which consists of Mr. Liebman, Mr. DiSanto, and Ms. Weinswig.
Each of such persons has been determined to be an “independent director” under the applicable NASDAQ and SEC rules,
which is the independence standard that was adopted by our board of directors. The board of directors has determined that
Mr. Liebman meets the requirements to serve as the Audit Committee Financial Expert by our board of directors. The
Audit Committee operates under a written charter adopted by our board of directors. The Audit Committee
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assists the board of directors by providing oversight of our accounting and financial reporting processes, appoints the
independent registered public accounting firm, reviews with the registered independent registered public accounting firm
the scope and results of the audit engagement, approves professional services provided by the independent registered
public accounting firm, reviews the independence of the independent registered public accounting firm, considers the range
of audit and non-audit fees and reviews the adequacy of internal accounting controls.
Compensation Committee
Our board of directors has appointed a Compensation Committee consisting of Messrs. DiSanto and Fielding. Each of such
persons has been determined to be an “independent director” under the applicable NASDAQ rules. Our board of directors
has adopted a written Compensation Committee Charter that sets forth the committee’s responsibilities. The committee is
responsible for determining all forms of compensation for our executive officers, and establishing and maintaining
executive compensation practices designed to enhance long-term stockholder value.
Nominating Committee
Our board of directors has appointed a Nominating Committee consisting of Messrs. DiSanto and Liebman. Each of such
persons has been determined to be an “independent director” under the applicable NASDAQ rules. Our board of directors
has adopted a written Nominating Committee Charter that sets forth the committee’s responsibilities.
Item 11. Executive Compensation
The following table sets forth information regarding all cash and non-cash compensation earned, during the years ended
December 31, 2022 and 2021, by our principal executive officer and our two other most highly compensated executive
officers, which we refer to collectively as the named executive officers, for services in all capacities to the Company:
Summary Compensation Table
Name
Robert W. D’Loren
Title
Year
Salary
(1)
CEO and Chairman 2022 $ 888,500
2021 $ 888,500
Bonus
(2)
$ 863,534
$ 382,640
Awards
(3)
$ 280,601
$ 282,640
All Other
Compensation
10,698
$
$
Total
$ 2,043,333
— $ 1,553,780
James F. Haran
CFO
Seth Burroughs
EVP - Business
Development
and Treasury
2022 $ 366,000
2021 $ 366,000
$ 139,672
$ 39,310
2022 $ 340,600
2021 $ 340,600
$ 154,672
$ 63,310
$
$
$
$
— $
— $
— $
— $
3,332
$
— $
509,004
405,310
— $
— $
495,272
403,910
(1) Robert W. D’Loren’s salary amount for 2022 includes a voluntary temporary deferral of salary of $178,265, which was
paid to Mr. D’Loren in 2023.
(2) Bonuses in 2021 include amounts paid in accordance with the executives’ respective employment agreements (see
“Employment Agreements with Executives” in Item 10). Bonuses in 2022 include (i) amounts paid in accordance with
the executives’ respective employment agreements and (ii) amounts awarded by the board of directors as transaction
bonuses related to the May 2022 sale of a majority interest in the Isaac Mizrahi brand.
(3) The amounts shown represent the grant date fair value of fully-vested common stock awards issued as payment for
performance bonuses earned in the prior year.
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Outstanding Equity Awards as of December 31, 2022
Options and Warrant Awards
Stock Awards
Number of
Number of
Securities
Securities
Underlying Underlying
Unexercised Unexercised
Options &
Options &
Warrants,
Warrants,
Exercisable Unexercisable
2,578,947 (1)$
Option or
Warrant
Exercise Expiration
Price
1.72
Date
2/28/2029
Number of
Shares of
Stock that
Have Not
Vested
Market
Value of
Shares of
Stock that
Have Not
Vested
552,632 (1)$
1.72
2/28/2029
368,421 (1)$
1.72
2/28/2029
— $
— $
— $
—
—
—
Name
Robert W. D’Loren
Title
CEO, Chairman
James F. Haran
CFO
Seth Burroughs
EVP - Bus. Development
& Treasury
—
—
—
(1) These options shall become exercisable based upon the Company’s common stock achieving specified target prices as
outlined in the executive’s employment agreement, and expire on February 28, 2029. See “Employment Agreements
with Executives” in Item 10.
Director Compensation
We pay our non-employee directors $3,000 for each board of directors and committee meeting attended, up to a maximum
of $12,000 per year for board of directors’ meetings and up to a maximum of $12,000 per year for committee meetings,
except that the chairman of each committee receives $4,000 for each such committee meeting attended, up to a maximum
of $16,000 per year.
The following table sets forth information with respect to each non-employee director’s compensation for the year ended
December 31, 2022. The dollar amounts shown for Stock Awards represent the grant date fair value of the restricted stock
awards or stock options granted during the fiscal year calculated in accordance with ASC Topic 718.
Name
Mark DiSanto (1) (2)
Michael R. Francis (1) (2)
Howard Liebman (1) (2)
Deborah Weinswig (1) (2)
James Fielding (1) (2)
Fees Earned
or Paid
in Cash
21,000
9,000
28,000
21,000
12,000
$
$
$
$
$
Stock
Awards
16,200
16,200
16,200
16,200
16,200
$
$
$
$
$
Option
Awards
23,536
23,536
23,536
23,536
23,536
$
$
$
$
$
Total
60,736
48,736
67,736
60,736
51,736
$
$
$
$
$
(1) On April 20, 2022, each non-employee directory was granted 10,000 shares of restricted stock pursuant to the terms
and conditions of the 2021 Equity Incentive Plan. Such shares of restricted stock will vest evenly over two years,
whereby 50% shall vest on April 20, 2023 and 50% shall vest on April 20, 2024. Notwithstanding the foregoing, each
grantee may extent the vesting date of all or a portion of the restricted shares by six months and, thereafter one or more
times may further extend such date with respect to all or a portion of the restricted shares until the next following
October 20 or April 20, as the case may be. The grant date fair value of the shares was $1.62 per share.
(2) On April 20, 2022, each non-employee director was granted options to purchase 25,000 shares of stock pursuant to the
terms and conditions of the 2021 Equity Incentive Plan. Such options will vest evenly over two years, whereby 50%
shall vest on April 20, 2023 and 50% shall vest on April 20, 2024. The exercise price of the options is $1.62 per share.
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2021 Equity Incentive Plan
Our 2021 Equity Incentive Plan, which we refer to as the 2021 Plan, is designed and utilized to enable the Company to
offer its employees, officers, directors, consultants, and others whose past, present, and/or potential contributions to the
Company have been, are, or will be important to the success of the Company, an opportunity to acquire a proprietary
interest in the Company.
The 2021 Plan provides for the grant of stock options, restricted stock, restricted stock units, performance awards, or cash
awards. The stock options may be incentive stock options or non-qualified stock options. A total of 4,000,000 shares of
common stock are eligible for issuance under the 2021 Plan. The 2021 Plan may be administered by the board of directors
or a committee consisting of two or more members of the board of directors appointed by the board of directors.
Officers and other employees of Xcel or any parent or subsidiary of Xcel who are at the time of the grant of an award
employed by us or any parent or subsidiary of Xcel are eligible to be granted options or other awards under the 2021 Plan.
In addition, non-qualified stock options and other awards may be granted under the 2021 Plan to any person, including, but
not limited to, directors, independent agents, consultants, and attorneys who the board of directors or the committee, as the
case may be, believes has contributed or will contribute to our success.
Cash awards may be issued under the 2021 Plan either alone or in addition to or in tandem with other awards granted under
the 2021 Plan or other payments made to a participant not under the 2021 Plan. The board or committee, as the case may
be, shall determine the eligible persons to whom, and the time or times at which, cash awards will be made, the amount that
is subject to the cash award, the circumstances and conditions under which such amount shall be paid, in whole or in part,
the time of payment, and all other terms and conditions of the awards.
With respect to incentive stock options granted to an eligible employee owning stock possessing more than 10% of the total
combined voting power of all classes of our stock or the stock of a parent or subsidiary of our Company immediately
before the grant, such incentive stock option shall not be exercisable more than 5 years from the date of grant. The exercise
price of an incentive stock option will not be less than the fair market value of the shares underlying the option on the date
the option is granted, provided, however, that the exercise price of an incentive stock option granted to a 10% stockholder
may not be less than 110% of such fair market value. The exercise price of a non-qualified stock option may not be less
than fair market value of the shares of common stock underlying the option on the date the option is granted.
Restricted stock awards give the recipient the right to receive a specified number of shares of common stock, subject to
such terms, conditions and restrictions as the board or the committee, as the case may be, deems appropriate. Restrictions
may include limitations on the right to transfer the stock until the expiration of a specified period of time and forfeiture of
the stock upon the occurrence of certain events such as the termination of employment prior to expiration of a specified
period of time. Restricted stock unit (“RSU”) awards will be settled in cash or shares of common stock, in an amount based
on the fair market value of our common stock on the settlement date. The RSUs will be subject to forfeiture and restrictions
on transferability as set forth in the 2021 Plan and the applicable award agreement and as may be otherwise determined by
the board or the committee. There were no RSUs outstanding as of December 31, 2022.
Certain awards made under the 2021 Plan may be granted so that they qualify as “performance-based compensation” (as
this term is used in Internal Revenue Code Section 162(m) and the regulations thereunder) and are exempt from the
deduction limitation imposed by Code Section 162(m). Under Internal Revenue Code Section 162(m), our tax deduction
may be limited to the extent total compensation paid to the chief executive officer, or any of the four most highly
compensated executive officers (other than the chief executive officer) exceeds $1 million in any one tax year. Among
other criteria, awards only qualify as performance-based awards if at the time of grant the compensation committee is
comprised solely of two or more “outside directors” (as this term is used in Internal Revenue Code Section 162(m) and the
regulations thereunder). In addition, we must obtain stockholder approval of material terms of performance goals for such
performance-based compensation.
All stock options and certain stock awards, performance awards, and stock units granted under the 2021 Plan, and the
compensation attributable to such awards, are intended to (i) qualify as performance-based awards or (ii) be otherwise
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exempt from the deduction limitation imposed by Internal Revenue Code Section 162(m). No awards may be granted on or
after the fifth anniversary of the effective date of the 2021 Plan.
The 2021 Equity Incentive Plan became effective April 19, 2022. Prior to the effectiveness of the 2021 Plan, the Company
made awards under our Amended and Restated 2011 Equity Incentive Plan (the “2011 Plan”), the key terms and provisions
of which were substantially similar to the 2021 Plan described above, with the major difference being the number of shares
of common stock eligible for issuance. Stock-based awards (including options, warrants, and restricted stock) previously
granted under our 2011 Plan remain outstanding, and shares of common stock may be issued to satisfy options or warrants
previously granted under the 2011 Plan, although no new awards may be granted under the 2011 Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table lists, as of April 14, 2023, the number of shares of common stock beneficially owned by (i) each
person or entity known to the Company to be the beneficial owner of more than 5% of the outstanding common stock;
(ii) each named executive officer and director of the Company, and (iii) all officers and directors as a group. Information
relating to beneficial ownership of common stock by our principal stockholders and management is based upon
information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange
Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting
power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power
to dispose of or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange
Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may
be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest.
Except as noted below, each person has sole voting and investment power. Unless otherwise indicated, the address for such
person is c/o Xcel Brands, Inc., 1333 Broadway, 10th Floor, New York, New York 10018.
The percentages below are calculated based on 19,624,860 shares of common stock issued and outstanding as of April 14,
2023:
Name and Address
Named executive officers and directors:
Robert W. D’Loren (1)
James F. Haran (2)
Seth Burroughs (3)
Howard Liebman (4)
Mark DiSanto (5)
Michael R. Francis (6)
Deborah Weinswig (7)
James Fielding (8)
Number of
Shares
of Common
Stock
Beneficially
Owned
8,124,560
204,018
310,549
188,665
1,559,176
231,500
140,500
107,500
Percent
Beneficially
Owned
41.40 %
1.04
1.58
*
7.90
1.17
*
*
All directors and executive officers as a group (8 persons) (9)
10,866,468
54.03
5% Shareholders:
Isaac Mizrahi (10)
Hilco Trading, LLC (11)
5 Revere Drive, Suite 206, Northbrook, IL 60062
Burch Acquisition LLC (12)
840 First Avenue, Suite 200, King of Prussia, PA 19406
* Less than 1%.
99
2,416,882
1,667,767
12.26
8.52
1,000,000
5.11
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(1) Consists of (i) 1,738,990 shares held by Mr. D’Loren, (ii) 607,317 shares owned by Irrevocable Trust of Rose
Dempsey (or the Irrevocable Trust) of which Mr. D’Loren and Mr. DiSanto are the trustees and as to which
Mr. D’Loren has sole voting and dispositive power, (iii) 1,988,390 shares of common stock held in the name of Isaac
Mizrahi, (iv) 1,666,667 shares of common stock held in the name of Hilco Trading, LLC, and (v) 2,123,196 shares of
common stock as to which holders thereof granted to Mr. D’Loren irrevocable proxy and attorney-in-fact with respect
to the shares. Certain holders or grantees have entered into certain agreements, pursuant to which appoint a person
designated by our board of directors as their irrevocable proxy and attorney-in-fact with respect to the shares set forth
in clauses (iii), (iv), and (v). Mr. D’Loren does not have any pecuniary interest in these shares described in clauses
(iii), (iv), and (v) and disclaims beneficial ownership thereof. Does not include 326,671 shares held by the D’Loren
Family Trust (or the Family Trust) of which Mark DiSanto is a trustee and has sole voting and dispositive power.
Does not include 2,578,947 options that are not yet exercisable.
(2) Consists of (i) 204,018 shares of common stock. Does not include 552,632 options that are not yet exercisable.
(3) Consists of (i) 310,549 shares of common stock. Does not include 368,421 options that are not yet exercisable.
(4) Consists of (i) 36,165 shares of common stock, (ii) 50,000 restricted shares, and (iii) immediately exercisable options
to purchase 102,500 shares.
(5) Consists of (i) 326,671 shares held by the D’Loren Family Trust, of which Mark DiSanto is trustee and has sole
voting and dispositive power over the shares held by the D’Loren Family Trust, (ii) 1,027,613 shares held by Mark X.
DiSanto Investment Trust, of which Mark DiSanto is trustee and has sole voting and dispositive power over the
shares held by the Trust, (iii) 20,000 restricted shares, (iv) 102,500 shares issuable upon exercise of warrants and
options that have vested, and (v) 82,392 shares held by other trusts, of which Mark DiSanto is trustee and has sole
voting and dispositive power over the shares held by the trusts.
(6) Consists of (i) 109,000 shares of common stock, (ii) 20,000 restricted shares, and (iii) immediately exercisable
options to purchase 102,500 shares.
(7) Consists of (i) 38,000 restricted shares and (ii) immediately exercisable options to purchase 102,500 shares.
(8) Consists of (i) 10,000 shares of common stock, (ii) 20,000 restricted shares, and (iii) immediately exercisable options
to purchase 77,500 shares.
(9)
Includes (i) 4,452,715 shares of common stock, (ii) 148,000 restricted shares, (iii) 487,500 shares issuable upon
exercise of options that are currently exercisable, and (iv) 5,778,253 other shares of common stock as to which
holders thereof granted to Mr. D’Loren irrevocable proxy and attorney-in-fact with respect to the shares.
(10) Consists of (i) 2,266,882 shares of common stock and (ii) immediately exercisable options to purchase 150,000
shares.
(11) The H Company IP, LLC, or HIP, directly owns 1,000,000 shares of common stock, which we refer to as the H
Company Shares. House of Halston, LLC, or HOH, is the parent company of HIP and may be deemed to share
beneficial ownership of the H Company Shares by virtue of its ability to direct the business and investment decisions
of HIP. The H Investment Company, LLC, or H Investment, in its capacity as the controlling member of HOH, has
the ability to direct the investment decisions of HOH, including the power to direct the decisions of HOH regarding
the disposition of the H Company Shares; therefore, H Investment may be deemed to beneficially own the H
Company Shares. Hilco Brands, LLC, or Hilco Brands, in its capacity as a member of the Board of Managers of H
Investment, has the ability to direct the management of H Investment’s business, including the power to direct the
decisions of H Investment regarding the voting and disposition of the H Company Shares; therefore, Hilco Brands
may be deemed to have indirect beneficial ownership of the H Company Shares. Hilco Trading, LLC, or Hilco
Trading, is the parent company of Hilco Brands and may be deemed to share beneficial ownership of the H Company
Shares by virtue of its ability to direct the business and investment decisions of Hilco Brands. Hilco Trading also
directly owns 667,767 shares of our outstanding common stock, which we refer to as the Hilco Shares. By virtue of
the relationship described above and its direct ownership of the Hilco Shares, Hilco Trading beneficially owns
1,667,767 shares of our common stock. Jeffrey Bruce Hecktman is the majority owner of Hilco Trading and may be
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deemed to share beneficial ownership of the H Company Shares and the Hilco Shares by virtue of his ability to direct
the business and investment decisions of Hilco Trading. By virtue of this relationship, Mr. Hecktman may be deemed
to have indirect beneficial ownership of 1,667,767 shares of our common stock.
(12) Consists of 1,000,000 shares of common stock.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Isaac Mizrahi
On February 24, 2020, the Company entered into an employment agreement with Isaac Mizrahi, a principal stockholder of
the Company, for Mr. Mizrahi 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.
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. Mr. 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.
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. 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.
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. Mizrahi.
101
Table of Contents
Item 14. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed for professional services rendered by our prior Independent Registered Public Accounting Firm,
CohnReznick LLP, for the review of our consolidated financial statements included in our quarterly reports for the first two
fiscal quarters of 2021, and other fees that are normally provided by the accounting firm in connection with statutory and
regulatory filings or engagements for the year ended December 31, 2021 (up through the date of their dismissal on October
1, 2021) were approximately $105,000.
The aggregate fees billed or to be billed for professional services rendered by our current Independent Registered Public
Accounting Firm, Marcum LLP, for the audit of our annual consolidated financial statements, review of our consolidated
financial statements included in our quarterly report for the third fiscal quarter of 2021, and other fees that are normally
provided by the accounting firm in connection with statutory and regulatory filings or engagements for the year ended
December 31, 2021 were approximately $277,000.
The aggregate fees billed or to be billed for professional services rendered by our current Independent Registered Public
Accounting Firm, Marcum LLP, for the audit of our annual consolidated financial statements, review of our consolidated
financial statements included in our quarterly reports, and other fees that are normally provided by the accounting firm in
connection with statutory and regulatory filings or engagements for the year ended December 31, 2022 were approximately
$353,000.
Audit-Related Fees
There were no fees billed by our Independent Registered Public Accounting Firm for audit-related services for the
fiscal years ended December 31, 2022 and 2021.
Tax Fees
There were no fees billed for professional services rendered by our Independent Registered Public Accounting Firm for tax
compliance, tax advice, and tax planning for the fiscal years ended December 31, 2022 and 2021.
All Other Fees
There were no fees billed for non-audit services by our Independent Registered Public Accounting Firm for the fiscal years
ended December 31, 2022 and 2021.
Audit Committee Determination
The Audit Committee considered and determined that the services performed are compatible with maintaining the
independence of the independent registered public accounting firm.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
The Audit Committee is responsible for pre-approving all audit and permitted non-audit services to be performed for us by
our Independent Registered Public Accounting Firm as outlined in its Audit Committee charter. Prior to engagement of the
Independent Registered Public Accounting Firm for each year’s audit, management or the Independent Registered Public
Accounting Firm submits to the Audit Committee for approval an aggregate request of services expected to be rendered
during the year, which the Audit Committee pre-approves. During the year, circumstances may arise when it may become
necessary to engage the Independent Registered Public Accounting Firm for additional services not contemplated in the
original pre-approval. In those circumstances, the Audit Committee requires specific pre-approval before engaging the
Independent Registered Public Accounting Firm. The engagements of our Independent Registered Public Accounting Firm
were approved by the Company’s Audit Committee.
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Table of Contents
Item 15. Exhibit and Financial Statement Schedules
PART IV
Exhibit
Number
INDEX TO EXHIBITS
Description
3.1
3.2
4.1
4.2
4.3
9.1
9.2
9.3
9.4
10.1
10.2
10.3
10.4
10.5
10.6
21.1
23.1
Amended and Restated Certificate of Incorporation of Xcel Brands, Inc. (7)
Third Restated and Amended Bylaws of Xcel Brands, Inc. (8)
Third Amended and Restated Equity Incentive Plan and Forms of Award Agreements (9)
2021 Equity Incentive Plan (11)
Description of Registrant’s Securities (10)
Amended and Restated Voting Agreement between Xcel Brands, Inc. and IM Ready-Made, LLC, dated as
of December 24, 2013 (2)
Voting Agreement between Xcel Brands, Inc. and Judith Ripka Berk, dated as of April 3, 2014 (4)
Voting Agreement dated as of December 22, 2014 by and between Xcel Brands, Inc. and H Company IP,
LLC (5)
Form of Voting Agreement dated as of February 11, 2019 (1)
Employment Agreement between the Company and Robert D’Loren dated February 27, 2019 (10)
Employment Agreement between the Company and James Haran dated February 27, 2019 (10)
Employment Agreement between the Company and Seth Burroughs dated February 27, 2019 (12)
Amended and Restated Fifth Amendment, entered into as of March 14, 2014 and effective as of
December 24, 2013, to the Asset Purchase Agreement filed as Exhibit 10.1 (3)
Sublease Agreement, dated as of July 8, 2015, by and between Xcel Brands, Inc. and GBG USA Inc. (6)
Membership Interest Purchase Agreement (13)
Subsidiaries of the Registrant (14)
Independent Registered Public Accounting Firm’s Consent (14)
31(i).1
31(i).2
32(i).1
32(i).2
Rule 13a-14(a)/15d-14(a) Certification (CEO) (14)
Rule 13a-14(a)/15d-14(a) Certification (CFO) (14)
Section 1350 Certification (CEO) (14)
Section 1350 Certification (CFO) (14)
103
Table of Contents
99.1
IM Topco, LLC Financial Statements as of December 31, 2022 and for the Period from May 11, 2022
(inception) through December 31, 2022 and Independent Auditor’s Report (14)
101.INS
Inline XBRL Instance Document (14)
101.SCH
Inline XBRL Taxonomy Schema (14)
101.CAL
Inline XBRL Taxonomy Calculation Linkbase (14)
101.DEF
Inline XBRL Taxonomy Definition Linkbase (14)
101.LAB
Inline XBRL Taxonomy Label Linkbase (14)
101.PRE
Inline XBRL Taxonomy Presentation Linkbase (14)
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) (14)
(1) This Exhibit is incorporated by reference to the appropriate exhibit to the Current Report on Form 8-K, which was
filed with the SEC on February 15, 2019.
(2) This Exhibit is incorporated by reference to the appropriate Exhibit to the Current Report on Form 8-K, which was
filed with the SEC on December 24, 2013.
(3) This Exhibit is incorporated by reference to the appropriate Exhibit to the Current Report on Form 8-K, which was
filed with the SEC on March 20, 2014.
(4) This Exhibit is incorporated by reference to the appropriate Exhibit to the Current Report on Form 8-K, which was
filed with the SEC on April 9, 2014.
(5) This Exhibit is incorporated by reference to the appropriate Exhibit to the Current Report on Form 8-K, which was
filed with the SEC on December 24, 2014.
(6) This Exhibit is incorporated by reference to the appropriate Exhibit to the Current Report on Form 8-K, which was
filed with the SEC on July 14, 2015.
(7) This Exhibit is incorporated by reference to the appropriate Exhibit to the Current Report on Form 8-K, which was
filed with the SEC on October 24, 2017.
(8) This Exhibit is incorporated by reference to the appropriate Exhibit to the Current Report on Form 8-K, which was
filed with the SEC on December 8, 2017.
(9) This Exhibit is incorporated by reference to the appropriate Exhibit to the Current Report on Form 8-K, which was
filed with the SEC on March 1, 2019.
(10) This Exhibit is incorporated by reference to the appropriate Exhibit to the Annual Report on Form 10-K for the year
ended December 31, 2020, which was filed with the SEC on April 23, 2021.
(11) This Exhibit is incorporated by reference to the appropriate Exhibit to the revised Definitive Proxy Statement on Form
DEF 14-A, which was filed with the SEC on October 20, 2021.
(12) This Exhibit is incorporated by reference to the appropriate Exhibit to the Annual Report on Form 10-K for the year
ended December 31, 2021, which was filed with the SEC on April 15, 2022.
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Table of Contents
(13) This Exhibit is incorporated by reference to the appropriate Exhibit to the Current Report on Form 8-K, which was
filed with the SEC on June 3, 2022.
(14) Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 17, 2023
/s/ Robert W. D’Loren
Robert W. D’Loren, Chairman, President,
Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Name
/s/ Robert W. D’Loren
Robert W. D’Loren
/s/ James F. Haran
James F. Haran
Michael R. Francis
/s/ Mark DiSanto
Mark DiSanto
/s/ James Fielding
James Fielding
/s/ Howard Liebman
Howard Liebman
/s/ Deborah Weinswig
Deborah Weinswig
Chief Executive Officer and Chairman
April 17, 2023
Title
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Director
Director
Director
Director
Director
105
April 17, 2023
April 17, 2023
April 17, 2023
April 17, 2023
April 17, 2023
Subsidiaries of Xcel Brands, Inc.
Exhibit 21.1
Name and Jurisdiction of Incorporation
· IM Brands, LLC, a Delaware limited liability company
· JR Licensing, LLC, a Delaware limited liability company
· Judith Ripka Fine Jewelry, LLC, a Delaware limited liability company
· Judith Ripka Fine Jewelry Digital, LLC, a Delaware limited liability company
· H Licensing, LLC, a Delaware limited liability company
· H Heritage Licensing, LLC, a Delaware limited liability company
· C Wonder Licensing, LLC, a Delaware limited liability company
· Longaberger Licensing, LLC, a Delaware limited liability company
· Gold Licensing, LLC, a Delaware limited liability company
· Xcel Design Group, LLC, a Delaware limited liability company
· XCEL-CT MFG, LLC, a Delaware limited liability company
· AHX Beauty, LLC, a Delaware limited liability company
· The Beauty Solution, LLC, a Delaware limited liability company
· Tribe Cosmetics, LLC, a Delaware limited liability company
· Xcel Acquisition Co., LLC, a Delaware limited liability company
· Q Optix, LLC, a Delaware limited liability company
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statements of Xcel Brands, Inc. and Subsidiaries on Form S-8 File No.
333-188985; File No. 333-201252; File No. 333-214150; and File No. 333-264382 of our report dated April 17, 2023, with respect to our
audits of the consolidated financial statements of Xcel Brands, Inc. and Subsidiaries as of December 31, 2022 and 2021 and for the years
then ended, which report is included in this Annual Report on Form 10-K of Xcel Brands, Inc. for the year ended December 31, 2022.
Exhibit 23.1
/s/ Marcum LLP
Marcum LLP
New York, New York
April 17, 2023
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Form S-3 (333-216009) and in Form S-8 (File
Nos. 333-188985, 333-201252, and 333-214150) of Xcel Brands, Inc. and Subsidiaries of our
report dated April 22, 2021 on our audit of the consolidated financial statements of Xcel Brands,
Inc. and Subsidiaries as of and for the year ended December 31, 2020, included in this Annual
Report on Form 10-K of Xcel Brands, Inc. and Subsidiaries for the year ended December 31, 2021.
We also consent to the reference to our firm under the caption “Experts” in Form S-3 (333-
216009).
/s/ CohnReznick LLP
New York, New York
April 14, 2022
EXHIBIT 31(i).1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Robert W. D’Loren certify that:
1. I have reviewed this annual report on Form 10-K of Xcel Brands, Inc. (the "registrant") for the year ended December 31, 2022.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer, and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer, and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
April 17, 2023
/s/ Robert W. D’Loren
Name: Robert W. D’Loren
Title: Chairman, President, Chief Executive Officer and Director
(Principal Executive Officer)
EXHIBIT 31(i).2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, James F. Haran certify that:
1. I have reviewed this annual report on Form 10-K of Xcel Brands, Inc. (the "registrant") for the year ended December 31, 2022.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer, and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer, and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
April 17, 2023
/s/ James F. Haran
Name: James F. Haran
Title: Chief Financial Officer (Principal Financial and Accounting
Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32(i).1
Robert W. D’Loren, the Chairman, President, Chief Executive Officer, and Director of Xcel Brands, Inc. (the “Registrant”), certifies,
under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to his knowledge, the Annual Report on Form 10-K of the Registrant for the year ended December 31, 2022 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form
10-K fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
April 17, 2023
/s/ Robert W. D’Loren
Name: Robert W. D’Loren
Title: Chairman, President, Chief Executive Officer and Director
(Principal Executive Officer)
A signed original of this written statement required by Section 906 has been provided to Xcel Brands, Inc. and will be retained by Xcel
Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32(i).2
James F. Haran, Chief Financial Officer of Xcel Brands, Inc (the “Registrant”), certifies, under the standards set forth and solely for the
purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, the Annual
Report on Form 10-K of the Registrant for the year ended December 31, 2022 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-K fairly presents, in all material respects, the
financial condition and results of operations of the Registrant.
April 17, 2023
/s/ James F. Haran
Name: James F. Haran
Title: Chief Financial Officer (Principal Financial and Accounting
Officer)
A signed original of this written statement required by Section 906 has been provided to Xcel Brands, Inc. and will be retained by Xcel
Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.1
IM TOPCO, LLC
(A Limited Liability Company)
Financial Statements as of December 31, 2022 and for the Period from May 11, 2022 (inception)
through December 31, 2022 and Independent Auditor’s Report
IM TOPCO, LLC
(A Limited Liability Company)
Index
Independent Auditor’s Report
Balance Sheet as of December 31, 2022
Statement of Income for the Period May 11, 2022 (inception) through December 31, 2022
Statement of Members’ Equity for the Period May 11, 2022 (inception) through December 31, 2022
Statement of Cash Flows for the Period May 11, 2022 (inception) through December 31, 2022
Notes to Financial Statements
Page(s)
1-2
3
4
5
6
7-12
INDEPENDENT AUDITOR’S REPORT
To the Members and Managers
of IM Topco, LLC
Opinion
We have audited the accompanying financial statements of IM Topco, LLC (a Delaware corporation), which
comprise the balance sheet as of December 31, 2022, and the related statements of income, member’s
equity, and cash flows for the period from May 11, 2022 (inception) to December 31, 2022, and the related
notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of IM Topco, LLC as of December 31, 2022, and the results of its operations and its cash flows for
the initial period then ended in accordance with accounting principles generally accepted in the United
States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Statements section of our report. We are required to be independent of IM
Topco, LLC and to meet our other ethical responsibilities in accordance with the relevant ethical
requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with accounting principles generally accepted in the United States of America, and for the
design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt about IM Topco, LLC’s ability to continue
as a going concern within one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and
therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing
standards will always detect a material misstatement when it exists. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are
considered material if there is a substantial likelihood that, individually or in the aggregate, they would
influence the judgment made by a reasonable user based on the financial statements.
1
In performing an audit in accordance with generally accepted auditing standards, we:
● Exercise professional judgment and maintain professional skepticism throughout the audit.
● Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, and design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements.
● Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of IM Topco, LLC’s internal control. Accordingly, no such opinion is expressed.
● Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
financial statements.
● Conclude whether, in our judgment, there are conditions or events, considered in the aggregate,
that raise substantial doubt about IM Topco, LLC’s ability to continue as a going concern for a
reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit, significant audit findings, and certain internal control related
matters that we identified during the audit.
/s/ Adeptus Partners, LLC
Ocean, NJ
March 29, 2023
2
IM TOPCO, LLC
(A Limited Liability Company)
Balance Sheet as of December 31, 2022
($ thousands)
See accompanying notes to financial statements.
3
IM TOPCO, LLC
(A Limited Liability Company)
Statement of Income
For the Period May 11, 2022 (inception) through December 31, 2022
($ thousands)
See accompanying notes to financial statements.
4
IM TOPCO, LLC
(A Limited Liability Company)
Statement of Members’ Equity
For the Period May 11, 2022 (inception) through December 31, 2022
($ thousands)
See accompanying notes to financial statements.
5
IM TOPCO, LLC
(A Limited Liability Company)
Statement of Cash Flows
For the Period May 11, 2022 (inception) through December 31, 2022
($ thousands)
See accompanying notes to financial statements.
6
IM Topco, LLC
(A Limited Liability Company)
Notes to Financial Statements
December 31, 2022
Note 1 – Organization and Nature of Operations
IM Topco, LLC (the “Company”) engages in the design, licensing, and marketing of the Isaac Mizrahi family of brands
(the “Isaac Mizrahi Brands”) with a focus on a variety of product categories featuring the Isaac Mizrahi Brands. The
Company operates in a “working capital light” business model, licensing the Isaac Mizrahi Brand to generate royalties and
other revenues through licensing and other agreements with sourcing and design companies, wholesale manufacturers, and
retailers, including direct response television retailers. IM Topco, LLC, a Delaware limited liability company, was formed
on May 11, 2022 and acquired the Isaac Mizrahi trademarks and other intellectual property rights relating thereto through
the Membership Interest Purchase Agreement (“MIPA”) dated May 27, 2022 on May 31, 2022.
Note 2 - Summary of Significant Accounting Policies
Basis of Accounting
The financial statements are prepared on an accrual basis in accordance with accounting principles generally accepted in
the United States (“GAAP”) and are presented in U.S. dollars.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Making estimates requires management to exercise significant judgment. It is possible that the estimate of the effect of a
condition, situation, or set of circumstances that existed at the date of the financial statements, which management
considered in formulating its estimate, could change in the near term due to one or more future confirming events.
Accordingly, actual results could differ significantly from estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits and investments with an original maturity of three months or less at the
time of initial deposit. The objectives of the Company's cash management policy are to safeguard and preserve funds, to
maintain liquidity sufficient to meet the Company's cash flow requirements, and to attain a market rate of return. The
Company places its cash and cash equivalents in institutions and funds of high credit quality.
Accounts Receivable
Accounts receivable are recorded net of allowances for doubtful accounts, based on the Company’s ongoing discussions
with its licensees and other customers and its evaluation of their creditworthiness, payment history, and account aging.
Accounts receivable balances deemed to be uncollectible are charged to the allowance for doubtful accounts after all means
of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts
was zero for December 31, 2022.
Intangible Assets
Intangible assets represent trademarks and license agreements relating to the Isaac Mizrahi brand. The trademarks, which
have been determined to be indefinite-lived intangible assets are not amortized, but instead are subject to impairment
evaluation. The license agreements, which have been determined to have a finite life, are evaluated for the possibility of
impairment when certain indicators are present and are otherwise amortized on a straight-line basis over their estimated
useful life. Testing for impairment occurs annually on October 1. The Company accounts for intangible assets and goodwill
as required by FASB ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”). No impairment charges were
recorded during the period from May 11 (inception) through December 31, 2022. The Company capitalizes costs for its
7
IM Topco, LLC
(A Limited Liability Company)
Notes to Financial Statements
December 31, 2022
successful defense of proprietary trademarks.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. ASC 606
requires a five-step approach to determine the appropriate method of revenue recognition for each contractual arrangement:
Step 1: Identify the Contract(s) with a Customer
Step 2: Identify the Performance Obligation(s) in the Contract
Step 3: Determine the Transaction Price
Step 4: Allocate the Transaction Price to the Performance Obligation(s) in the Contract
Step 5: Recognize Revenue when (or as) the Entity Satisfies a Performance Obligation
The Company has entered into various license agreements for its owned trademarks. Under ASC 606, the Company’s
agreements are generally considered symbolic licenses, which contain the characteristics of a right-to-access license since
the customer is simultaneously receiving the intellectual property (“IP”) and benefiting from it throughout the license
period. The Company assesses each license agreement at inception and determines the performance obligation(s) and
appropriate revenue recognition method. As part of this process, the Company applies judgments based on historical
trends when estimating future revenues and the period over which to recognize revenue.
The Company generally recognizes revenue for license agreements under the following methods:
1.
2.
Licenses with guaranteed minimum royalties (“GMRs”): Generally, GMR payments comprising the
transaction price are recognized on a straight-line basis over the term of the contract, as defined in each
license agreement.
Licenses with both GMRs (fixed revenue) and earned royalties (variable revenue): Earned royalties in excess
of GMRs are only recognized when the Company is reasonably certain that the guaranteed minimum
payments for the period, as defined in each license agreement, will be exceeded. Additionally, the Company
has categorized certain contracts as variable when there is a history and future expectation of exceeding
GMRs. The Company recognizes income for these contracts during the period corresponding to the
licensee’s sales.
3.
Licenses that are sales-based only or earned royalties: Earned royalties (variable revenue) are recognized as
income during the period corresponding to the licensee’s sales.
Payments received as consideration for the grant of a license or advanced royalty payments are recorded as deferred
revenue at the time payment is received and recognized into revenue under the methods described above.
Contract assets represent unbilled receivables and are presented within accounts receivable, net in the balance sheet.
Contract liabilities represent unearned revenues and are presented within the current portion of deferred revenue in the
balance sheet.
Advertising Costs
All costs associated with production for the Company’s advertising, marketing, and promotion are expensed during the
periods when the activities take place. All other advertising costs, such as print and online media, are expensed when the
advertisement occurs. The Company incurred approximately $62,000 in advertising and marketing costs for the period
ended December 31, 2022.
8
IM Topco, LLC
(A Limited Liability Company)
Notes to Financial Statements
December 31, 2022
Income Taxes
The Company is not a taxable entity for federal income tax purposes, and as such, does not directly pay federal income tax.
The Company’s taxable income or loss, which may vary substantially from the net income or loss reported in the Statement
of Operations, is included in the federal income tax returns of each member.
The Company follows required accounting guidance for uncertainty in income taxes. The Company evaluates its tax
positions on an ongoing basis and if considered necessary establishes liabilities for uncertain tax positions that may be
challenged by tax authorities. Management evaluated the Company’s tax positions and concluded that the Company had no
uncertain tax positions as of December 31, 2022.
Fair Value
ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value and establishes a framework for measuring
fair value under U.S. GAAP. The fair value of the Company’s financial assets and liabilities reflects management’s estimate
of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the
transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with
measuring the fair value of the Company’s assets and liabilities, the Company seeks to maximize the use of observable
inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal
assumptions about how market participants would price assets and liabilities).
Fair Value of Financial Instruments
For the Company’s financial instruments, including cash, accounts receivable, and accounts payable, the carrying amounts
approximate fair value due to the short-term maturities of these instruments.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and
accounts receivable.
● The Company limits its credit risk with respect to cash by maintaining cash balances with high quality financial
institutions. At times, the Company’s cash balances may exceed federally insured limits of $250,000.
● Concentrations of credit risk with respect to accounts receivable are minimal due to the collection history and the
outstanding amounts are immaterial compared with total current assets and revenue amounts. Generally, the
Company does not require collateral or other security to support accounts receivable.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, "Financial Instruments – Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in
November 2018 through ASU No. 2018-19. This ASU will require entities to estimate lifetime expected credit losses for
financial instruments, including trade and other receivables, which will result in earlier recognition of credit losses. In
November 2019, the FASB issued ASU No. 2019-10, which, among other things, deferred the application of the new
guidance on credit losses for smaller reporting companies to fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years. The Company is currently evaluating the new guidance to determine the impact
the adoption of this guidance will have on the Company’s results of operations, cash flows, and financial condition.
9
IM Topco, LLC
(A Limited Liability Company)
Notes to Financial Statements
December 31, 2022
Note 3 - Purchase of the Isaac Mizrahi Intangible Assets
On May 31, 2022, the Company acquired the Isaac Mizrahi trademarks and other intellectual property rights from Xcel
Brands, Inc. (“Xcel”) and IM Brands, LLC, a wholly owned subsidiary of Xcel, for a purchase price of $66.0 million
through the MIPA dated May 27, 2022. Pursuant to the terms of the transaction, Xcel received $46.2 million in cash from
IMWHP, LLC (“WHP”) and retained a 30% membership interest in the Company. WHP received a 70% membership
interest in the Company.
The Company determined that the set of assets and activities acquired met the definition of a “business”; therefore, the
transaction was accounted as a business combination. As a result, the assets and liabilities of IM Topco, LLC were
recorded at fair market value as of the date of the transaction, May 31, 2022 in the balance sheet of the Company.
The total valuation of $66.0 million was allocated to trademarks and license agreements. Trademarks were determined to
have an indefinite life and initial value of $29.4 million. License Agreements have been determined by management to
have a useful life of five years and four months and initial value of $36.6 million. WHP contributed cash contributions of
$1.4 million and Xcel contributed $0.6 million. We recorded $4.0 million of amortization expense related to the license
agreements for the period from May 11, 2022 (inception) through December 31, 2022.
In connection with the Mizrahi Acquisition, the Company signed a long-term licensing agreement for the Isaac Mizrahi
brand, which became effective upon closing. WHP also entered into a management services agreement to facilitate the day-
to-day operation of IM Topco, LLC by WHP’s management. A cash distribution was made of $2.7 million to WHP from
IM Topco, LLC in December 2022. Pursuant to the purchase agreement, the Company has an obligation to pay Xcel
Brands, Inc. an earnout payment of $2.0 million (the “IM Earnout) in 2024 if, during the 2023 fiscal year, IM Topco
generates royalty revenue and EBITDA over a specific threshold (the “Thresholds”).
Total revenue from the Isaac Mizrahi Brands included in the statement of operations for the year ended December 31,
2022, is $7.8 million.
Note 4 - Intangible Assets
Intangible assets, net consist of the following:
($ in thousands)
Trademarks (indefinite-lived)
License Agreements (finite-lived)
Total
Weighted
Average
December 31, 2022
Period
NA
Amortization Gross Carrying Accumulated
Amortization
Amount
-
$
4,006
4,006
29,381
36,623
66,004
5.33 years
$
$
$
Net Carrying
Amount
$
$
29,381
32,617
61,998
Amortization expense for the finite-lived intangible assets for the period May 11, 2022 (inception) through December 31,
2022 was approximately $4.0 million.
10
IM Topco, LLC
(A Limited Liability Company)
Notes to Financial Statements
December 31, 2022
Estimated future amortization expense related to finite-lived intangible assets over the remaining useful lives is as follows:
($ in thousands)
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
Note 5 - Concentration
Amortization
Expense
$
$
6,867
6,867
6,867
6,866
5,150
-
32,617
The Company has a direct-to-retail license agreement with QVC, Inc (“QVC”), pursuant to which the Company designs,
and QVC sources and sells, various products under the Isaac Mizrahi brand (the “QVC Agreement”). QVC owns the rights
to all designs produced under the aforementioned agreement and the QVC Agreement includes the sale of products across
various categories through QVC’s television media (including QVC and HSN) and related internet sites. Pursuant to the
agreement, the Company granted to QVC and its affiliates the exclusive, worldwide right to promote the Company’s
branded products, and the right to use and publish the related trademarks, service marks, copyrights, designs, logos, and
other intellectual property rights owned, used, licensed, and/or developed by the Company.
Net licensing revenue from QVC represented a substantial portion of the Company's revenue recorded from the period May
11, 2022 (inception) through December 31, 2022. As of December 31, 2022, the Company had receivables from QVC that
represented approximately 90% of the Company’s accounts receivable.
Note 6 - Capital
The Company is owned by two members: WHP and Xcel. The Company has 1,000 Units authorized, issued, and
outstanding; 700 Units are held by WHP and 300 Units are held by Xcel. In accordance with the terms of the governing
Limited Liability Company Agreement, each Member shall vote in proportion to its percentage interest of Units held.
Capital Contributions
On May 31, 2022, WHP and Xcel made capital contributions to the Company of $47.6 million and $20.4 million,
respectively. WHP’s capital contribution consisted of $1.4 million in cash and $46.2 million in intellectual property. Xcel’s
capital contribution consisted of $0.6 million in cash and $19.8 million in intellectual property.
Distributions
During the period May 11, 2022 (inception) through December 31, 2022, the Company made cash distributions to WHP in
the amount of $2.7 million. There were no distributions made to Xcel.
11
IM Topco, LLC
(A Limited Liability Company)
Notes to Financial Statements
December 31, 2022
Note 7 - Commitments and Contingencies
Legal Proceedings
From time to time, the Company is involved in legal matters arising in the ordinary course of business. While the Company
believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of
business for which the Company is, or could be, involved in litigation will not have a material adverse effect on its
business, financial condition, results of operations, or cash flows. Contingent liabilities arising from potential litigation are
assessed by management based on the individual analysis of these proceedings and on the opinion of the Company’s
lawyers and legal consultants. There have been no provisions recorded for the period ended December 31, 2022.
Loss Contingencies
The Company recognizes contingent losses that are both probable and estimable. In this context, probable means
circumstances under which events are likely to occur. The Company records legal costs pertaining to contingencies as
incurred. There were no contingent losses recognized as of December 31, 2022.
Note 8 - Related Party Transactions
WHP
On May 31, 2022, the Company entered into a services agreement with WHP pursuant to which WHP provides certain
services to the Company. During the period May 11, 2022 (inception) through December 31, 2022, the Company paid
WHP a fee of $0.4 million for such services.
Xcel
On May 31, 2022, the Company entered into a services agreement with Xcel pursuant to which Xcel provides certain
services to the Company. During the period May 11, 2022 (inception) through December 31, 2022, the Company paid Xcel
a fee of $0.2 million for such services.
On May 31, 2022, the Company entered into a license agreement with XL CT MFG, LLC (“XL CT”), a wholly-owned
subsidiary of Xcel, pursuant to which the Company granted XL CT a license to use certain Isaac Mizrahi trademarks on
and in connection with the design, manufacture, distribution, sale, and promotion of women’s sportswear products in the
United States and Canada during the term of the agreement, in exchange for the payment of royalties in connection
therewith. The initial term of this agreement ends December 31, 2026, and provides for guaranteed royalties of $0.4 million
per year from XL CT. The agreement was terminated in December and replaced by an agreement with Jump Design Group,
Inc (“Jump”). Xcel is responsible for any differential payments made between Jump and the guaranteed royalties of the
Xcel license agreement. During the period May 11, 2022 (inception) through December 31, 2022, Xcel paid the Company
royalties of approximately $0.2 million.
Note 9 - Subsequent Events
The Company has evaluated subsequent events through March 29, 2023, which is the date the financial statements were
available to be issued and has concluded that other than the event disclosed above, no such events or transactions took
place with would require disclosure herein.
12