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What changed in XCel Brands, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of XCel Brands, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+334 added−360 removedSource: 10-K (2024-04-19) vs 10-K (2023-04-17)

Top changes in XCel Brands, Inc.'s 2023 10-K

334 paragraphs added · 360 removed · 224 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

41 edited+28 added−47 removed34 unchanged
Biggest changeQurate 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. 8 Table of Contents 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Xcel Commenced ​ ​ Agreement Current Term Expiry Automatic Renewal Brand with QVC QVC Product Launch LOGO Qurate Agreement ​ November 1, 2023 ​ one-year period ​ April 2021 ​ 2009 Longaberger Qurate Agreement ​ October 31, 2023 two-year period November 2019 2019 IM Qurate Agreement ​ * ​ not applicable ​ September 2011 ​ 2010 H Qurate Agreement ​ ** not applicable January 2015 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.
Biggest changeIn 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 our spokespersons to promote the respective products. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Xcel Commenced ​ Qurate Agreement Current Term Expiry Automatic Renewal Brand with Qurate Product Launch LOGO Qurate Agreement (QVC) ​ November 1, 2024 ​ one-year period ​ April 2021 ​ 2009 Longaberger Qurate Agreement (QVC) ​ October 31, 2025 two-year period November 2019 2019 C Wonder Qurate Agreement (HSN) ​ December 31, 2024 ​ two-year period ​ March 2023 ​ 2023 ​ ● On May 31, 2022, in connection with our sale of a majority interest in the Isaac Mizrahi brand to a third party, the agreement with Qurate related to the IsaacMizrahiLIVE brand was assigned to IM Topco, LLC. ● On August 30, 2022, Qurate and Xcel amended the licensing agreement for the Judith Ripka brand to terminate the license period effective December 31, 2021.
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.
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 5 Table of Contents Lori Goldstein brands, including LOGO by Lori Goldstein, in April 2021, and the brand is currently available through the QVC channel.
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. 10 Table of Contents Marketing Marketing is a critical element to maximize brand value to our licensees and our Company.
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. Marketing Marketing is a critical element to maximize brand value to our licensees and our Company.
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.
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 11 Table of Contents registered its trademarks in certain territories where it expects that it may do business in the foreseeable future.
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.
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 9 Table of Contents our licensing business.
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 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 licensing brands with significant media presence and driving sales through our true omni-channel retail sales strategy across interactive television, live streaming, and e-commerce distribution channels.
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.
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, 2023, we had 34 full-time employees and 2 part-time employees. We value our employees and are committed to providing a healthy and safe work environment.
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.
Also, under certain of the Qurate Agreements, we may be 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.
Our licensees may be unable to successfully compete 11 Table of Contents in the markets for their products, and we may not be able to continue to compete successfully with respect to our licensing arrangements.
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 licensing arrangements.
Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as one thing.
Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as social commerce.
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.
Qurate Agreements Qurate Retail Group (“Qurate”) is an important strategic partner in our interactive television business, and is the largest licensee for the Lori Goldstein, C Wonder, 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.
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.
Our agreements with Qurate allow our on-air spokespersons to promote our non-Qurate product lines and certain strategic partnerships through QVC’s and HSN’s programs, subject to certain parameters including, in certain cases, the payment of a portion of our non-Qurate revenues to Qurate.
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.
The brand is available across various distribution channels to reach customers wherever they shop: better department stores, such as Saks and 6 Table of Contents 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.
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.
Item 1. Business Overview Xcel Brands, Inc. (the “Company,” “Xcel,” “We,” “Us,” or “Our”) is a media and consumer products company engaged in the design, licensing, marketing, live streaming, and social commerce sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands.
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.
Effective January 1, 2022, the agreement entered a sell-off period, under which Qurate was allowed to continue to license the Ripka brand on a non-exclusive basis for as long as necessary to sell off any of its remaining inventory. The sell-off period ended in 2023.
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.
On September 29, 2011, we changed our name to Xcel Brands, Inc. Our principal office is currently located at 550 Seventh Avenue, 11th Floor, New York, NY 10018. Our telephone number is (347) 727-2474. Our corporate website is www.xcelbrands.com. Additionally, we maintain websites for our respective brands at www.lorigoldstein.com, www.halston.com, www.judithripka.com, www.cwonder.com, www.longaberger.com, and www.isaacmizrahi.com.
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 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.
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.
Currently, our brand portfolio consists of the LOGO by Lori Goldstein brand (the “Lori Goldstein Brand”), the Halston brands (the "Halston Brand"), the Judith Ripka brands (the "Ripka Brand"), the C Wonder brands (the "C Wonder Brand"), the Longaberger brand (the “Longaberger Brand”), the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the TowerHill by Christie Brinkley brand (the “CB Brand”), and other proprietary brands, including: ● the Lori Goldstein Brand, Halston Brand, Ripka Brand, and C Wonder Brand, which are wholly owned by the Company; ● the Longaberger Brand, which we manage through our 50% ownership interest in Longaberger Licensing, LLC, and the CB Brand, which is a co-owned brand between Xcel and Christie Brinkley; and ● the Isaac Mizrahi Brand, which we wholly owned and managed through May 31, 2022.
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.
Through our wholly owned subsidiaries, we have entered into direct-to-retail license agreements with Qurate, collectively referred to as the Qurate Agreements (individually, each a “Qurate Agreement”), pursuant to which we design, and Qurate sources and sells, various products under our LOGO by Lori Goldstein brand, the Longaberger brand, and the C Wonder brand.
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.
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.
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.
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. ​ 10 Table of Contents 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.
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.
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 also have a 30% ownership interest in IM Topco, which owns the Mizrahi brands, including the trademarks and brands Isaac Mizrahi, Isaac Mizrahi New York, IMNYC Isaac Mizrahi, and IsaacMizrahiLIVE.
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.
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.
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.
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.
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 3 Table of Contents and continue to participate in the operations of the business.
On May 31, 2022, we sold a majority interest in the brand to a third party, but retained a 30% noncontrolling interest in the brand and continue to contribute to the operations of the brand through a service agreement. We also own a 30% interest in ORME Live Inc.
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.
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.
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.
We acquired the Ripka brand in April 2014. In 2017 and 2018, we launched our Judith Ripka Fine Jewelry e-commerce operations and wholesale operations; these businesses were subsequently licensed to JTV in the first quarter of 2023. In 2021, we opened a retail store for Judith Ripka Fine Jewelry in Westchester, New York, which was subsequently closed in 2022.
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 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.
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.
(“ORME”), a short-form video and social commerce marketplace that launched in the first quarter of 2024. Xcel continues to pioneer a true omni-channel and social commerce sales strategy which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, social commerce, traditional brick-and-mortar retailers, and e-commerce channels, to be everywhere its customers shop.
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.
To grow our brands, we are focused on the following primary strategies: ● distribution and/or licensing our brands for sale through interactive television (e.g., QVC, HSN, The Shopping Channel, JTV, etc.); ● 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; and ● acquiring additional consumer brands and integrating them into our operating platform, and leveraging our operating infrastructure and distribution relationships. 4 Table of Contents 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 and social commerce; ● our design, sales, marketing, and technology platform that enables us to design trend-right product; and ● our significant media and digital presence.
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 currently available through HSN. 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 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.
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 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.
The Qurate Agreements generally prohibit us from selling products under the specified respective brands to a direct competitor of Qurate without Qurate’s consent.
We also market the Judith Ripka Fine Jewelry brand through www.judithripka.com, Halston Brand through www.halston.com, the C Wonder brand through www.cwonder.com, the Lori Goldstein brand 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.
We also market the Lori Goldstein brand through www.lorigoldstein.com, the Halston Brand through www.halston.com, the Judith Ripka brand through www.judithripka.com, the C Wonder brand through www.cwonder.com, and the Longaberger brand through www.longaberger.com.
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.
For the years ended December 31, 2023 and 2022, net licensing revenue from Qurate collectively accounted for approximately 34% and 44%, respectively, of the total net revenue of the Company.
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.
However, we are generally restricted from selling products under the specified respective brands or trademarks to certain mass merchants.
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. 5 Table of Contents 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.
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, CB, and Isaac Mizrahi Brands, and other proprietary brands, including the various labels under these brands.
We launched sales of Q Optix products in June 2022. 6 Table of Contents 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.
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.
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.
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.
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.
ORME licenses the technology utilized by its marketplace from KonnectBio Inc., of which Robert D’Loren, our Chairman of the Board, Chief Executive Officer, and President, owns an approximate 20% noncontrolling interest. 7 Table of Contents Licensing Our working-capital-light “licensing plus” business model allows us to focus on our core competencies of design, marketing, and brand management without the investment requirements in inventory associated with traditional consumer product companies.
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.
Under certain of the Qurate Agreements, we may, with the permission of 8 Table of Contents Qurate, sell the respective branded products via certain specified sales channels in exchange for making reverse royalty payments to Qurate based on the net retail sales of such products through such channels.
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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.
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Our brands have generated over $5 billion in retail sales via live streaming in interactive television and digital channels alone, and our brands collectively reach over 5 million social media followers through Facebook, Instagram, and TikTok. All of the followers may not be unique followers, as many followers may follow multiple brands and follow our brands on multiple platforms.
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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.
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Recent Developments Prior to 2023, the Company engaged in certain wholesale and direct-to-consumer sales of products under its brands.
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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.
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In 2023, we signed master license agreements for our Halston Brand and Judith Ripka Brand, and license agreements for the supply of products under certain on our brands to HSN, that enabled us to outsource a majority of our wholesale and direct-to-consumer operations and revert to a working capital light business model.
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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.
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In addition to licensing out the brands described above, we outsourced the operations of Longaberger through a license agreement with a third party to operate and manage the Longaberger e-commerce website in the fourth quarter of 2023, and have recently launched Longaberger on ORME in early 2024.
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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.
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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.
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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. 4 Table of Contents In the third quarter of 2022, we launched Q Optix, a multi-branded optical business on HSN and QVC.
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The brand is available across various distribution channels – including premium and better department stores, e-commerce, interactive television, and national specialty retailers – through our long-term master license agreement with G-III Apparel Group. Judith Ripka Judith Ripka is a luxury jewelry brand founded by Judith Ripka in 1977.
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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.
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C Wonder The C Wonder brand was founded by J. Christopher Burch in 2011. This brand is built upon a foundation of bold, vibrant colors and exceptional, eye-catching prints that celebrate the art of everyday dressing. 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.
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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.
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In the fourth quarter of 2023, we outsourced the operations and management of the brand’s e-commerce business to a third party. TowerHill by Christie Brinkley TowerHill by Christie Brinkley is a new brand announced December 2023 as a co-branded collaboration between Xcel Brands, Inc. and Christie Lee Brinkley, an iconic American supermodel with over one million followers on social media.
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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.
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The brand is scheduled to launch in May 2024 on HSN, with plans to license and launch products outside of HSN starting in 2025. Isaac Mizrahi Isaac Mizrahi is an iconic American brand that stands for timeless, cosmopolitan style.
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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.
Added
Growth Strategy We plan to continue to grow our brands and business through three primary strategies: ● organic growth in our existing brands; ● developing new brands that are well positioned in social commerce; and ● the acquisition of brands and businesses that fit our long-term strategy.
Removed
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.
Added
With respect to organic growth in our existing brands, we have recently entered into master license agreements for our Halston Brand and Judith Ripka Brand.
Removed
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.
Added
The Halston master license agreement is with G-III Apparel Group (“G-III”), which is a publicly traded company and one of the largest designers and suppliers of wholesale apparel and accessories in the world, with annual revenues of over $3 billion.
Removed
On April 19, 2005, we changed our name to NetFabric Holdings, Inc.
Added
While the license provides for guaranteed minimum royalties to us during the term (which extends for 25 years, including an initial term of five years plus renewal options), G-III is expected to launch the brand through its existing distribution channels in Fall 2024, and we expect that the business and corresponding royalty revenues to Xcel will ramp up beginning with the launch.
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None of the content on our websites is incorporated by reference into this Annual Report on Form 10-K.
Added
Additionally, we entered into an interactive television license and an e-commerce license in 2023 with America’s Collectible Network, Inc., d/b/a JTV, for our Judith Ripka Brand, which officially launched on JTV’s television channel in October 2023 and which we expect to continue to ramp up in 2024 and beyond, as JTV has expressed plans to make Judith Ripka one of the core brands on its network.
Removed
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.
Added
Finally, the C Wonder Brand launched on HSN in mid-2023, and performed extremely well in its launch year. HSN has advised us that it has planned increases in the business in 2024, which we expect will result in increased revenues from the brand in 2024 and beyond.
Removed
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.
Added
We are also working on licensing other categories under the C Wonder Brand for distribution both on HSN and outside of the network. TowerHill by Christie Brinkley is a brand that we are scheduled to launch in May 2024 on HSN, and with plans to license and launch products outside of HSN starting in 2025.
Removed
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.
Added
While this is a new brand for Xcel, it is an example of a brand that we developed with low up-front costs and that we were able to leverage our unique experience, relationships, and social commerce knowledge to launch.
Removed
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.
Added
We are excited about launching this brand with Christie Brinkley, and expect to launch at least one other similarly-developed brand later in 2024. We have a proven track record of acquiring brands and/or businesses that are strategically important to and synergistic with our business, and are consistently reviewing potential acquisition targets.
Removed
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.
Added
Potential acquisitions may include established or newer brands that do or would perform well in live streaming or social commerce, direct-to-consumer brands or platforms with significant consumer following, or established media companies which could benefit from our expertise in direct-response television, live streaming, and social commerce.
Removed
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOn 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.
Biggest changeThere 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. 24 Table of Contents Our failure to meet the continued listing requirements of the Nasdaq Capital 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 April 16, 2024, 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.
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; 13 Table of Contents ● 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.
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; ● the potential issuance of a substantial number of shares of common stock upon exercise of warrants and options; 13 Table of Contents ● 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.
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; 21 Table of Contents ● hiring and retaining key employees; and ● protecting intellectual property.
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; 21 Table of Contents ● maintaining and growing market share; ● developing and maintaining a competitive e-commerce site; ● hiring and retaining key employees; and ● protecting intellectual property.
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.
Although we believe that our current levels of 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.
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.
The success of our company, however, will 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.
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 20 Table of Contents ● 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.
These risks include, among others: ● unanticipated costs associated with the target acquisition, joint venture, or collaboration, 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; 20 Table of Contents ● 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 ● 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.
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.
The global pandemic 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.
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.
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 additional securities to raise capital to finance operations and/or pay down or restructure our debt, our existing stockholders may experience dilution.
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.
In the event that we are unable to obtain debt financing on acceptable terms for a particular transaction, we may elect to pursue the transaction 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.
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.
Our operating results are, in part, dependent upon the performance of IM Topco, LLC and ORME, 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.
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.
Contractual shipping rates have increased as a result of increased demand for container space and the logistical delays experienced by the shipping industry. 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.
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.
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 or collaborations. However, as our competitors continue to pursue a brand management model, acquisitions, joint ventures, and collaborations may become more expensive and suitable candidates could become more difficult to find.
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.
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 and joint ventures 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.
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.
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 Capital Market, this does not assure that a meaningful, consistent trading market will develop or that the volatility will decline.
In addition, the new securities may have rights senior to those of our common stock. 14 Table of Contents 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.
In addition, the new securities may have rights senior to those of our common stock. 14 Table of Contents A substantial portion of our 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 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.
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 COVID-19 pandemic caused a disruption to our business, beginning in March 2020.
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.
Although our common stock is listed on the NASDAQ Capital 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.
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 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, 32 Table of Contents 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.
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.
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 Capital Market. In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common stock.
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.
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 17 Table of Contents 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.
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.
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 potential licensees, greater brand recognition, and greater financial, research and development, marketing, distribution, and other resources than we do.
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.
In the case of a disaster affecting our information technology systems, we may experience 30 Table of Contents 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.
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.
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 23 Table of Contents infringement of our intellectual property rights by others, or prevent the loss of licensing revenue or other damages caused therefrom.
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 30 Table of Contents products, which would adversely affect our operating income and results of operations.
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 products, which would adversely affect our operating income and results of operations.
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 16 Table of Contents minimums) due to us.
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 minimums) due to us.
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 18 Table of Contents confidence in future economic conditions.
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 confidence in future economic conditions.
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.
Although we will seek to temper our acquisition, joint venture, and collaboration risks by following 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, joint ventures, and collaborations, 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.
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.
The harm may be immediate, without affording us and our joint ventures an opportunity for redress or correction. 18 Table of Contents 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.
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.
Although we will generally attempt to seek contractual protections through representations, warranties and indemnities, we cannot be sure that we will obtain such provisions or that such provisions will fully protect us from all unknown, contingent or other liabilities or costs.
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.
A store group could decide to close stores, decrease the amount of our branded product purchased from our licensees, modify the amount of floor space allocated to apparel in general or to our brands specifically, or focus on promoting private label products or national brand products for which it has exclusive rights rather than promoting our brands.
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. 19 Table of Contents We are dependent upon our Chief Executive Officer and other key executives.
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, HSN, and JTV, competition for retail licenses and brand acquisitions, joint ventures and collaborations, and insufficient capitalization for future transactions. 19 Table of Contents We are dependent upon our Chief Executive Officer and other key executives.
In addition, our credit facility limits the amount of cash dividends we may pay while amounts under the credit facility are outstanding. 28 Table of Contents Provisions of our corporate charter documents could delay or prevent change of control.
In addition, our credit facility limits the amount of cash dividends we may pay while amounts under the credit facility are outstanding. Provisions of our corporate charter documents could delay or prevent change of control.
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.
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, joint ventures and collaborations will also depend on the availability of capital to complete the necessary acquisition arrangements.
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.
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; and ● protection of our trademarks and other intellectual property rights.
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.
Supply chain disruptions have adversely affected, and could continue to adversely affect, our licensees’ ability to import our products in a timely manner. The effects of the COVID-19 pandemic on the shipping industry negatively impacted our and our licensees’ ability to import our branded products in a manner that allows for timely delivery to customers.
The failure of our 17 Table of Contents 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.
The failure of our 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.
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.
Congestion at ports of loading and ports of entry caused significant delays in deliveries and changes to the itineraries of steamship carriers. Use of alternate routes or delivery methods would require additional trucking for our licensees and their customers.
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.
IM Topco, LLC and ORME are, and we expect any 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.
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.
A substantial portion of our revenue has been paid by Qurate, through the respective agreements with Qurate through QVC and HSN. During the years ended December 31, 2023 and 2022, Qurate accounted for approximately 34% and 44%, respectively, of our total net revenue.
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.
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 conduct certain of our operations through joint ventures.
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.
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 $41.5 million as of December 31, 2023, could also occur and be charged as an expense to our operating results.
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.
As a result of the magnitude of our licensees’ 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 brands are or are planned to be produced; ● increases in the costs of fuel, travel and transportation; and ● violations by foreign contractors of labor and wage standards and resulting adverse publicity.
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.
Truck driver shortages, shortages of truck equipment and the inability of ports to provide reliable pick up times, also negatively impacted our and our licensees’ ability to timely receive goods in the past. If our licensees are unable to mitigate supply chain disruptions, their ability to meet customer expectations, manage inventory and complete sales could be materially adversely affected.
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.
While we provide certain services to IM Topco, LLC and may provide services to future joint ventures, we do not control the day-to-day operations of IM Topco, LLC or ORME, and may not control the day-to-day operations of future joint ventures.
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.
As of December 31, 2023, we had an aggregate of 3,103,941 shares of common stock available for grants under our 2021 Equity Incentive Plan (the "2021 Plan") to our directors, executive officers, employees, and consultants.
This market volatility could reduce the market price of the common stock, regardless of our 27 Table of Contents operating performance.
This market volatility could reduce the market price of the common stock, regardless of our operating performance.
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.
If our competition for licenses increases, it may take us longer to procure additional licenses, which could slow our growth rate. 22 Table of Contents Difficulties with foreign sourcing may adversely affect our business. Our licensees work with several manufacturers overseas, primarily located overseas, including in China and Thailand.
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.
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, 2023, we had cash and cash equivalents of approximately $3.0 million, and during the year ended December 31, 2023, we used $6.5 million of cash in operating activities.
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.
If our licensees are unable to secure container space on a vessel for our branded product due to limited availability, they may experience delays in shipping product from overseas suppliers and ultimately to their customers.
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.
If these risks limit or prevent our licensees from manufacturing products in any significant international market, prevent us from acquiring products from foreign suppliers, the production and sale of our brands be seriously disrupted until alternative suppliers are found or alternative markets are developed, which could negatively impact our business.
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.
Furthermore, even if they are able to secure space, ports around the world are experiencing congestion from time to time, slowing transit times of product through ports of entry which negatively affects their ability to timely receive and deliver product to their retail partners and customers.
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.
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 45% of our voting securities as of March 31, 2024.
The failure to make timely deliveries may cause 22 Table of Contents customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could have a material adverse effect on us.
The failure to make timely deliveries may cause their customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could reduce our licensing royalties, which could have a material adverse effect on us.
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.
If we are unable to identify and successfully acquire additional trademarks or enter into joint ventures or collaborations for brands, our growth may be limited and, even if additional trademarks are acquired or joint ventures and collaborations are formed, we may not realize anticipated benefits due to integration or licensing difficulties.
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.
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.
Tax years that remain open for assessment for federal and state purposes include years ended December 31, 2019 through December 31, 2022.
Tax years that remain open for assessment for federal and state purposes include the years ended December 31, 2020 through December 31, 2023.
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 impacts of the ongoing COVID-19 pandemic (including actions taken by national, state, and local governments in response to COVID-19) negatively impacted the U.S. and global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets.
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.
A manufacturing contractor’s failure to ship products to our licensees in a timely manner or to meet the required quality standards could cause the licensee to miss the delivery date requirements of its customers for those items or not have seasonal product available for a selling season.
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. 31 Table of Contents 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.
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.
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.
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.
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.
We have dedicated a significant amount of time and resources to comply with this legislation for the years ended December 31, 2023 and 2022, and will continue to do so for future fiscal periods. However, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2023 due to the material weakness.
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.
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 Capital Market.
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.
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 October 14, 2024 and will consider available options to resolve the Company’s noncompliance with the minimum bid price requirement, as may be necessary.
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.
Certain of our licensees sell our branded products through major department, mass merchant, and specialty store chains. Continued consolidation in the retail industry, as well as store closures or retailers ceasing to do business, could negatively impact our business. Consolidation could also reduce the number of our customers and potential customers who can access our branded products.
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.
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. 26 Table of Contents We may issue a substantial number of shares of common stock upon exercise of outstanding warrants and options.
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.
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.
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.
If by October 14, 2024, 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).
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.
Customers are also concentrating purchases among a narrowing group of vendors. These types of decisions could adversely affect our business. We expect to achieve growth based upon our plans to expand our business under our existing brands and brands we may develop independently or through collaborations or acquire.
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.
Nevertheless, we will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations, and financial condition. 28 Table of Contents 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.
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.
If prolonged, such extreme or unseasonable weather conditions could adversely affect our business, financial condition, and results of operations. 29 Table of Contents Our trademarks and other intangible assets are subject to impairment charges under accounting guidelines.
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.
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.
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.
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.
As a successor, we may be responsible for any past or continuing violations of law by the seller or the target company.
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.
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.
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.
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.
We cannot be certain that our internal controls will become effective or that future material changes to our internal control over financial reporting will be effective. If we cannot adequately obtain and 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.
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.
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 October 14, 2024. ​ 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.
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. 32 Table of Contents 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.
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.
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.
If our licensees are unable to mitigate these supply chain disruptions, their ability to meet customer expectations, manage inventory and complete sales could be materially adversely affected, which could adversely affect our results of operations. The Ukrainian-Russian conflict could have a material adverse impact on our business.
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. 26 Table of Contents 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.
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.
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.
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. 25 Table of Contents 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe 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.
Biggest changeThis lease commenced in April 2024 and shall expire seven years from the commencement date, in 2031. We also currently lease approximately 29,600 square feet of office space at 1333 Broadway, 10th floor, New York, New York; this location represented our former corporate offices and operations facility and shall expire on October 30, 2027.
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.
Item 2. Properties We currently lease and maintain our corporate offices and operations facility located at 550 Seventh Avenue, 11th floor, New York, New York. We entered into a lease agreement effective February 29, 2024 for such offices of approximately 12,000 square feet of office space.
Removed
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.
Added
We have subleased this office space to a third-party subtenant through October 30, 2027. ​ 33 Table of Contents
Removed
This lease shall expire on January 31, 2029; however, we are currently in the process of negotiating the termination of this lease. ​ 33 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMarket 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ High Low December 31, 2022 ​ ​ ​ ​ ​ ​ First Quarter ​ $ 1.64 ​ $ 1.01 Second Quarter ​ $ 1.66 ​ $ 1.06 Third Quarter ​ $ 1.29 ​ $ 0.95 Fourth Quarter ​ $ 1.03 ​ $ 0.68 ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ First Quarter ​ $ 2.47 ​ $ 1.19 Second Quarter ​ $ 2.99 ​ $ 1.56 Third Quarter ​ $ 2.77 ​ $ 1.49 Fourth Quarter ​ $ 1.98 ​ $ 1.06 ​ Holders 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).
Biggest changeMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the NASDAQ Capital Market, under the trading symbol “XELB.” Holders As of December 31, 2023, the number of our stockholders of record was 556 (excluding beneficial owners and any shares held in street name or by nominees).
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”).
There were no RSUs outstanding as of December 31, 2023. ● 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”).
In addition, we must obtain stockholder approval of material terms of performance goals for such “performance-based compensation.” 35 Table of Contents ● 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.
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 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 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.
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 34 Table of Contents options or other Awards under the 2021 Plan.
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.
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. 35 Table of Contents 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.
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 34 Table of Contents Company have been, are, or will be important to the success of the Company, an opportunity to acquire a proprietary interest in the Company.
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 Company have been, are, or will be important to the success of the Company, an opportunity to acquire a proprietary interest in the Company.
Recent Sales of Unregistered Securities There were no sales of unregistered or registered securities during the years ended December 2022 and 2021. 36 Table of Contents 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. ​
Recent Sales of Unregistered Securities There were no sales of unregistered or registered securities during the years ended December 31, 2023 and 2022. 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, 2023. ​
The following table sets forth information as of December 31, 2022 regarding compensation plans under which our equity securities are authorized for issuance: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Securities ​ ​ Number of Securities ​ ​ ​ ​ Remaining Available for ​ ​ to be Issued Upon ​ Weighted Average ​ Future Issuance Under ​ ​ Exercise of ​ Exercise Price of ​ Equity Compensation Plans ​ ​ Outstanding Options, ​ Outstanding Options, ​ (Excluding Securities ​ ​ Warrants and Rights ​ Warrants and Rights ​ Reflected in Column (a)) Plan Category (a) (b) (c) Equity compensation Plans (1) ​ 5,730,375 ​ $ 2.14 ​ 3,291,909 (1) Pursuant to our 2011 and 2021 Equity Incentive Plans.
The following table sets forth information as of December 31, 2023 regarding compensation plans under which our equity securities are authorized for issuance: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Securities ​ ​ Number of Securities ​ ​ ​ ​ Remaining Available for ​ ​ to be Issued Upon ​ Weighted Average ​ Future Issuance Under ​ ​ Exercise of ​ Exercise Price of ​ Equity Compensation Plans ​ ​ Outstanding Options, ​ Outstanding Options, ​ (Excluding Securities ​ ​ Warrants and Rights ​ Warrants and Rights ​ Reflected in Column (a)) Plan Category (a) (b) (c) Equity compensation Plans (1) ​ 5,264,605 ​ $ 2.05 ​ 3,103,941 (1) Pursuant to our 2011 and 2021 Equity Incentive Plans.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ($ in thousands) 2022 2021 Net loss attributable to Xcel Brands, Inc. stockholders ​ $ (4,018) ​ $ (12,184) Asset impairments ​ ​ 274 ​ ​ 1,372 Amortization of trademarks ​ 6,079 ​ 5,435 Proportional share of trademark amortization of equity method investee ​ ​ 1,202 ​ ​ — Stock-based compensation ​ 620 ​ 720 Loss on early extinguishment of debt ​ ​ 2,324 ​ ​ 1,516 Certain adjustments to provision for doubtful accounts ​ ​ 413 ​ ​ 132 Gain on sale of assets ​ ​ (20,586) ​ ​ — Gain on reduction of contingent obligation ​ ​ (900) ​ ​ — Income tax benefit ​ (431) ​ (3,192) Non-GAAP net loss ​ $ (15,023) ​ $ (6,201) ​ The following table is a reconciliation of diluted loss per share to non-GAAP diluted EPS: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 Diluted loss per share attributable to Xcel Brands, Inc. stockholders ​ $ (0.20) ​ $ (0.63) Asset impairments ​ ​ 0.01 ​ ​ 0.07 Amortization of trademarks ​ 0.31 ​ 0.28 Proportional share of trademark amortization of equity method investee ​ ​ 0.06 ​ ​ — Stock-based compensation ​ 0.03 ​ 0.04 Loss on early extinguishment of debt ​ ​ 0.12 ​ ​ 0.08 Certain adjustments to provision for doubtful accounts ​ ​ 0.02 ​ ​ 0.01 Gain on sale of assets ​ ​ (1.05) ​ ​ — Gain on reduction of contingent obligation ​ ​ (0.05) ​ ​ — Income tax benefit ​ (0.02) ​ (0.17) Non-GAAP diluted EPS ​ $ (0.77) ​ $ (0.32) Diluted weighted average shares outstanding ​ 19,624,669 ​ 19,455,987 ​ ​ 44 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ($ in thousands) 2022 2021 ​ Net loss attributable to Xcel Brands, Inc. stockholders ​ $ (4,018) ​ $ (12,184) ​ Asset impairments ​ 274 ​ 1,372 ​ Depreciation and amortization ​ 7,263 ​ 6,830 ​ Proportional share of trademark amortization of equity method investee ​ ​ 1,202 ​ ​ — ​ Interest and finance expense ​ 3,527 ​ 3,579 ​ Income tax benefit ​ (431) ​ (3,106) ​ State and local franchise taxes ​ 102 ​ 142 ​ Stock-based compensation ​ 620 ​ 720 ​ Certain adjustments to provision for doubtful accounts ​ ​ 413 ​ ​ 132 ​ Gain on sale of assets ​ ​ (20,586) ​ ​ — ​ Gain on reduction of contingent obligation ​ (900) ​ — ​ Adjusted EBITDA ​ $ (12,534) ​ $ (2,515) ​ ​ Liquidity and Capital Resources General As of December 31, 2022 and 2021, our cash and cash equivalents were $4.6 million and $4.5 million, respectively.
Biggest changeWhen evaluating our performance, you should consider non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results, and not rely on any single financial measure. ​ 43 Table of Contents The following table is a reconciliation of net loss attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net loss: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ($ in thousands) 2023 2022 Net loss attributable to Xcel Brands, Inc. stockholders ​ $ (21,052) ​ $ (4,018) Asset impairments ​ ​ 100 ​ ​ 274 Amortization of trademarks ​ 6,085 ​ 6,079 Proportional share of trademark amortization of equity method investee ​ ​ 2,060 ​ ​ 1,202 Stock-based compensation and cost of licensee warrants ​ 242 ​ 620 Loss on early extinguishment of debt ​ ​ — ​ ​ 2,324 Certain adjustments to provision for doubtful accounts ​ ​ — ​ ​ 413 Gains on sales of assets and investments ​ ​ (359) ​ ​ (20,586) Gain on lease termination ​ ​ (445) ​ ​ — Gain on reduction of contingent obligation ​ ​ — ​ ​ (900) Income tax provision (benefit) ​ 1,212 ​ (431) Non-GAAP net loss ​ $ (12,157) ​ $ (15,023) ​ The following table is a reconciliation of diluted loss per share to non-GAAP diluted EPS: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Diluted net loss attributable to Xcel Brands, Inc. stockholders ​ $ (1.07) ​ $ (0.20) Asset impairments ​ ​ 0.01 ​ ​ 0.01 Amortization of trademarks ​ 0.31 ​ 0.31 Proportional share of trademark amortization of equity method investee ​ ​ 0.10 ​ ​ 0.06 Stock-based compensation and cost of licensee warrants ​ 0.01 ​ 0.03 Loss on early extinguishment of debt ​ ​ — ​ ​ 0.12 Certain adjustments to provision for doubtful accounts ​ ​ — ​ ​ 0.02 Gains on sales of assets and investments ​ ​ (0.02) ​ ​ (1.05) Gain on lease termination ​ ​ (0.02) ​ ​ — Gain on reduction of contingent obligation ​ ​ — ​ ​ (0.05) Income tax provision (benefit) ​ 0.06 ​ (0.02) Non-GAAP diluted EPS ​ $ (0.62) ​ $ (0.77) Diluted weighted average shares outstanding ​ 19,711,637 ​ 19,624,669 ​ ​ 44 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ($ in thousands) 2023 2022 ​ Net loss attributable to Xcel Brands, Inc. stockholders ​ $ (21,052) ​ $ (4,018) ​ Asset impairments ​ 100 ​ 274 ​ Depreciation and amortization ​ 6,954 ​ 7,263 ​ Proportional share of trademark amortization of equity method investee ​ ​ 2,060 ​ ​ 1,202 ​ Interest and finance expense ​ 381 ​ 3,527 ​ Income tax provision (benefit) ​ 1,212 ​ (431) ​ State and local franchise taxes ​ 76 ​ 102 ​ Stock-based compensation and cost of licensee warrants ​ 242 ​ 620 ​ Certain adjustments to provision for doubtful accounts ​ ​ — ​ ​ 413 ​ Gains on sales of assets and investments ​ ​ (359) ​ ​ (20,586) ​ Gain on lease termination ​ ​ (445) ​ ​ — ​ Gain on reduction of contingent obligation ​ — ​ (900) ​ Costs associated with restructuring of operations ​ ​ 5,106 ​ ​ — ​ Adjusted EBITDA ​ $ (5,725) ​ $ (12,534) ​ ​ Liquidity and Capital Resources General As of December 31, 2023 and 2022, our cash and cash equivalents were $3.0 million and $4.6 million, respectively.
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.
Our long-term success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and continue to attract wholesale and direct-to-consumer customers, and contract with and retain key licensees and business partners, as well as our and our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer bases and fulfill the product requirements of the particular retail channels within the global marketplace.
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.
Contingent Obligation – Isaac Mizrahi Transaction In connection with the May 31, 2022 transaction related to the sale of a majority interest in the Isaac Mizrahi brand, we agreed with WHP (the buyer) that, in the event that IM Topco, LLC receives less than $13.3 million in aggregate royalties for any four consecutive calendar quarters over a three-year period ending on May 31, 2025, WHP would be entitled to receive from us up to $16 million, less all amounts of net cash flow distributed to WHP on an accumulated basis, as an adjustment to the purchase price previously paid by WHP.
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.
The final royalty target year ended on December 31, 2022, and the seller ultimately did not earn any additional consideration based on the formula set forth in the related asset purchase agreement. As such, during the year ended December 31, 2022, we recorded a $0.9 million gain on the reduction of contingent obligations in the accompanying consolidated statement of operations.
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.
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 $(5.7) million for the Current Year, compared with Adjusted EBITDA of approximately $(12.5) million for the Prior Year.
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.
In conjunction with the launch of the C Wonder Brand on HSN, we licensed the wholesale production operations related to that brand to One Jeanswear Group, LLC (“OJG”); this new license with OJG also includes other new celebrity brands that we plan to launch in 2024 and beyond.
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.
The Prior Year’s cash used in operating activities was primarily attributable to the combination of the net loss of $(5.4) million plus non-cash items of approximately $(10.2) million, partially offset by a net change in operating assets and liabilities of approximately $1.4 million.
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 tax rate was also impacted by recurring permanent differences; the largest such recurring permanent differences were state and local tax provisions, which increased the effective rate in 2022 by approximately 6%, and disallowed excess compensation, which decreased the effective rate in 2022 by approximately 5%.
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 43 Table of Contents 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.
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 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.
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.
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. ​ 49 Table of Contents Other Factors We continue to seek to expand and diversify the types of licensed products being produced under our brands.
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.
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 $0.4 million, compared with $3.5 million for the Prior Year.
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 decrease in accounts receivable was primarily related to the Prior Year sale of a majority interest in the Isaac Mizrahi brand, resulting in lower licensing revenues and thus lower receivable balances.
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.
This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and liquidity and cash flows for the years ended December 31, 2023 and 2022.
Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning factors that are beyond our control.
Except for historical information, the matters discussed in this Management’s Discussion 36 Table of Contents 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.
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.
We plan to continue to diversify the distribution channels within which licensed products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands. The Lori Goldstein brand, Halston brand, C Wonder brand, and TowerHill by Christie Brinkley brand have a core business in fashion apparel and accessories.
In estimating fair value in such cases, we seek to maximize the use of observable inputs (market data obtained from independent sources) 40 Table of Contents and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
In estimating fair value in such cases, we seek to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flows analysis or appraisals.
If the undiscounted cash flows 39 Table of Contents do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flows analysis or appraisals.
If 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.
If we are unable to take effective measures in a timely manner to mitigate the impact of inflation and/or a potential recession, our business, financial condition, and results of operations could be adversely affected.
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.
Equity Method Investments We account for our investments in entities over which we have the ability to exercise significant influence, but do not control, under the equity method of accounting, and we recognize our proportionate share of income or losses from the entity within other operating costs and expenses (income) in the consolidated statement of operations.
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.
Poor economic and market conditions, including inflation, rising consumer debt levels, and a potential recession, may negatively impact market sentiment, decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and other consumer products, which would adversely affect our operating income and results of operations.
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.
Working Capital Our working capital (current assets less current liabilities, excluding the current portion of lease obligations and any contingent liabilities payable in common stock) was $2.1 million and $8.8 million as of December 31, 2023 and 2022, respectively. Commentary on components of our cash flows for the Current Year compared with the Prior Year is set forth below.
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.
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.
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.
To test our finite-lived intangible assets for impairment, we group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of undiscounted future cash flows.
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.
Operating Activities Net cash used in operating activities was approximately $6.5 million and $14.2 million in the Current Year and Prior Year, respectively.
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.
There were no impairment charges recorded for our intangible assets for the years ended December 31, 2023 and 2022. Income Taxes Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.
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.
The future minimum payments under these contracts is expected to be approximately $17.7 million, of which, approximately $4.3 million is expected to be paid in 2024, approximately $2.1 million is expected to be paid for each of the years ending December 31, 2025 – 2030, and approximately $0.5 million is expected to be paid in 2031.
The 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”).
The adoption of this new guidance did not have a significant impact on our results of operations, cash flows, or financial condition. ​ 40 Table of Contents 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, 2023 (the “Current Year”), and December 31, 2022 (the “Prior Year”).
We entered into a new interactive 45 Table of Contents 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.
The Company entered into a new interactive television licensing agreement with America’s Collectibles Network, Inc. d/b/a Jewelry Television (“JTV”) for the Ripka Brand, and a separate license with JTV for the Ripka Brand’s e-commerce business. For apparel, similar 45 Table of Contents transactions were executed.
Tax years that remain open for assessment for federal and state tax purposes include the years ended December 31, 2019 through December 31, 2022.
Tax years that remain open for assessment for federal and state tax purposes include the years ended December 31, 2020 through December 31, 2023.
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.
Overview Xcel Brands is a media and consumer products company engaged in the design, licensing, marketing, live streaming, and social commerce sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands.
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 (net revenue less cost of goods sold) decreased approximately $7.0 million to $10.8 million from $17.8 million in the Prior Year, primarily driven by the aforementioned decrease in net licensing revenue.
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.
Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders before asset impairments, depreciation and amortization, our proportional share of trademark amortization of equity method investees, interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation and cost of licensee warrants, certain adjustments to the provision for doubtful accounts related to the bankruptcy of and economic impact on certain retail customers, gains on sales of assets and investments, gain on lease termination, gain on reduction of contingent obligation, and costs associated with restructuring of operations.
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.
We recognized revenue from such transactions within net sales in the accompanying consolidated statements of operations when performance obligations identified under the terms of contracts with our customers were satisfied, which occurred upon the transfer of control of the merchandise in accordance with the contractual terms and conditions of the sale.
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.
This ASU requires entities to estimate lifetime expected credit losses for financial instruments, including trade and other receivables, which generally results in earlier recognition of credit losses.
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 is a non-GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders, exclusive of asset impairments, amortization of trademarks, our proportional share of trademark amortization of equity method investees, stock-based compensation and cost of licensee warrants, loss on extinguishment of debt, certain adjustments to the provision for doubtful accounts related to the bankruptcy of and economic impact on certain retail customers, gains on sales of assets and investments, gain on lease termination , gain on reduction of contingent obligation, and income taxes.
We evaluate our assumptions and estimates on an ongoing basis. ​ 38 Table of Contents 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).
Revenue Recognition Licensing In connection with our “licensing plus” business model, we follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606-10-55-65, by which we recognize 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).
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. ​
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 the section captioned “Risk Factors” could adversely affect our licensees’ ability to meet and/or exceed their contractual commitments to us and thereby adversely affect our future operating results. ​
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.
Currently, Xcel’s brand portfolio consists of the LOGO by Lori Goldstein Brand, the Halston Brand, the Ripka Brand, the C Wonder Brand, the Longaberger Brand, the CB Brand, the Isaac Mizrahi Brand, and other proprietary brands, including: ● the Lori Goldstein Brand, Halston Brand, Ripka Brand, and C Wonder Brand, which are wholly owned by the Company; ● the Longaberger Brand, which we manage through our 50% ownership interest in Longaberger Licensing, LLC, and the CB Brand, which is a co-owned brand between Xcel and Christie Brinkley; and ● the Isaac Mizrahi Brand, which we wholly owned and managed through May 31, 2022.
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.
Revenues Current Year net revenue decreased $8.0 million to $17.8 million from $25.8 million for the Prior Year. Net licensing revenue decreased by approximately $5.5 million in the Current Year to approximately $9.2 million, compared with approximately $14.7 million in the Prior Year.
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.
Based on these recent events and changes, management expects that existing cash and future operating cash flows will be adequate to meet the Company’s operating needs, term debt service obligations, and capital expenditure needs, for at least the twelve months subsequent to the filing date of this Annual Report on Form 10-K; therefore, such conditions and uncertainties with respect to the Company’s ability to continue as a going concern as of December 31, 2023, have been alleviated.
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.
In the Prior Year, we recognized a gain on the sale of a majority interest in the Isaac Mizrahi brand of approximately $20.6 million, which was comprised of $46.2 million of cash proceeds plus the recognition of the fair value of our retained interest in the brand of $19.8 million, less $0.9 million of fees and expenses directly related to the transaction and the derecognition of the brand trademarks previously recorded on our balance sheet of $44.5 million. 41 Table of Contents We account for our interest in the ongoing operations of IM Topco, LLC using the equity method of accounting.
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.
This decrease in licensing revenue was primarily attributable to the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand through the sale of a 70% interest in IM Topco, LLC to WHP, partially offset by increased licensing revenue generated by the C Wonder brand through interactive television.
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.
The Lori Goldstein Earn-Out of was initially recorded as a liability of $6.6 million, based on the difference between the fair value of the acquired assets of the Lori Goldstein brand and the total consideration paid.
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.
We recognized an equity method loss related to our investment of $2.1 million and $1.2 million for the Current Year and Prior Year, respectively, based on the distribution provisions set forth in the related business venture agreement.
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.
On May 31, 2022, we sold a majority interest in the brand to a third party, but retained a 30% noncontrolling interest in the brand and continue to contribute to the operations of the brand through a service agreement. We also own a 30% interest in ORME Live Inc.
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.
Net Loss We had a net loss of approximately $21.1 million for the Current Year, compared with a net loss of approximately $4.0 million for the Prior Year, as a result of the factors discussed above. ​ 42 Table of Contents Non-GAAP Net Income, Non-GAAP Diluted EPS, and Adjusted EBITDA We had a non-GAAP net loss of $12.2 million or $(0.62) per share (“non-GAAP diluted EPS”) based on 19,711,637 weighted average shares outstanding for the Current Year, compared with a non-GAAP net loss of $15.0 million or $(0.77) per share based on 19,624,669 weighted average shares outstanding for the Prior Year.
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.
Trademarks and Other Intangible Assets Our finite-lived intangible assets (primarily trademarks, along with other intangible assets) are amortized over their estimated useful lives, which are estimated 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.
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 income tax rate for the Prior Year was approximately 10%, resulting in a $0.4 million income tax benefit. During the Prior Year, the effective tax rate was primarily attributable to the impacts of stock-based compensation, which decreased the effective rate by approximately 6%, and federal tax true-ups, which decreased the effective tax rate by approximately 5%.
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 used in financing activities for the Prior Year was approximately $31.0 million, which mainly consisted of $29.0 million of repayments of our term loan debt, and, to a lesser extent, $1.5 million of prepayment and other fees associated with the early extinguishment of debt, as well as $0.4 million of shares repurchased related to withholding taxes on vested restricted stock. ​ Equity Transactions – Public Offering and Private Placement ​ On March 19, 2024, the Company closed on a public offering of 3,284,421 shares of common stock at an offering price of $0.65 per share and a private placement of 294,642 shares of common stock at an offering price of $0.98 per share.
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 term and declining notional amount of the swap agreement is aligned with the amortization of the term loan principal amount. ​ Contingent Obligation – Lori Goldstein Earn-Out In connection with the April 1, 2021 purchase of the Lori Goldstein trademarks, we agreed to pay the seller additional cash consideration of up to $12.5 million, based on royalties earned during the six calendar year period commencing in 2021.
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.
Wholesale Sales Prior to the restructuring of our business model and operations in 2023, we generated a portion of our revenue through sale of branded jewelry and apparel to both domestic and international customers who, in turn, sold the products to their consumers.
We 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.
Overall, we believe that this evolution of our operating model will provide significant cost savings and allow us to reduce and better manage our exposure to operating risks.
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.
Net cash used in operating activities was $6.5 million in 2023 and $14.2 million in 2022. These factors raise uncertainties about the Company’s ability to continue as a going concern.
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.
In applying such policies, we must use some amounts that are based upon our informed judgments and best estimates. 38 Table of Contents 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.
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.
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).
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.
Direct-to-Consumer Sales Our revenue associated with our e-commerce jewelry operations and the Longaberger brand (prior to the restructuring of our business model and operations in 2023) was recognized within net sales in the accompanying consolidated statements of operations at the point in time when product is shipped to the customer.
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.
The Current Year’s cash used in operating activities was primarily attributable to the combination of the net loss of $(22.2) million, partially offset by non-cash items of approximately $10.5 million and a net change in operating assets and liabilities of approximately $5.2 million.
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.
In the Prior Year, we recognized a $0.9 million gain on the reduction of contingent obligations. In connection with our 2019 purchase of the Halston Heritage trademarks, we agreed to pay the seller additional consideration if certain royalty targets were met from 2019 through December 31, 2022.
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.
Direct Operating Costs and Expenses Direct operating costs and expenses decreased approximately $9.8 million from $33.1 million in the Prior Year to $23.3 million in the Current Year.
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.
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, 2023 we had a lease for approximately 29,600 square feet of office space at 1333 Broadway, 10th floor, New York, New York.
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.
Our finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.
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.
While the 2022 sale of a majority interest in the Isaac Mizrahi brand has resulted in a decrease in our revenues, as that brand represented a significant portion of our historical revenues, we are taking actions to replace those revenues in the long-term with new strategic business initiatives, as we concentrate our resources on growing our brands, launching new brands, and entering into new business partnerships.
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.
Accordingly, as of December 31, 2023, $1.0 million of the remaining balance was recorded as a current liability and approximately $5.4 million was recorded as a long-term liability.
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. ​ 46 Table of Contents 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 provided by investing activities for the Prior Year was approximately $44.5 million, and was attributable to $45.4 million of net proceeds from the sale of a majority interest in the Isaac Mizrahi brand to WHP, partially offset by $0.6 million of capital contributions to our equity method investee IM Topco and approximately $0.3 million of capital expenditures.
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.
Cost of Goods Sold and Gross Profit Current Year cost of goods sold was $6.9 million, compared with $8.0 million for the Prior Year. Gross profit margin from net product sales (net sales less cost of goods sold, divided by net sales) decreased from approximately 28% in the Prior Year to approximately 20% in the Current Year.
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.
During the year ended December 31, 2023, management implemented a plan to mitigate an expected shortfall of capital and to support future operations by shifting its business from a wholesale/licensing hybrid model into a “licensing plus” model.
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.
As of December 31, 2023, 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.
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.
(“ORME”), a short-form video and social commerce marketplace that launched in the first quarter of 2024. Xcel continues to pioneer a true omni-channel and social commerce sales strategy which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, social commerce, traditional brick-and-mortar retailers, and e-commerce channels, to be everywhere its customers shop.
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 $0.2 million of additional consideration was paid to the seller during 2023. Based on the performance of the Lori Goldstein through December 31, 2023, approximately 1.0 million of incremental additional consideration was earned by the seller, which will be paid out in 2024.
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.
Liquidity and Management’s Plans We incurred net losses of approximately $21.1 million and $5.4 million during the years ended December 31, 2023 and 2022, respectively (which included non-cash expenses of approximately $9.0 million and $8.2 million, respectively), and had an accumulated deficit of approximately $53.8 million and $32.8 million as of December 31, 2023 and 2022, respectively.
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. 37 Table of Contents 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.
To grow our brands, we are focused on the following primary strategies: ● distribution and/or licensing our brands for sale through interactive television (e.g., QVC, HSN, The Shopping Channel, JTV, etc.); ● 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; and ● acquiring additional consumer brands and integrating them into our operating platform, and leveraging our operating infrastructure and distribution relationships.
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.
We continue to seek new opportunities, including expansion through interactive television, live streaming, and additional domestic and international licensing arrangements, and acquiring and collaborating with additional brands, launching the C Wonder by Christian Siriano business on HSN, and the planned May 2024 launch of the TowerHill by Christie Brinkley brand.
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.
Recently Adopted Accounting Pronouncements We adopted the provisions of Accounting Standards Update (“ASU”) No. 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (as amended by ASU No. 2018-19 in November 2018, ASU No. 2019-05 in May 2019, ASU No. 2019-10 and 2019-11 in November 2019, ASU No. 2020-02 in February 2020, and ASU No. 2022-02 in March 2022) effective January 1, 2023.
Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures.
Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures. Notwithstanding certain investments made in 2020 and 2021, our current “licensing plus” operating model is a working capital light business model, and generally does not require material capital expenditures.
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.
Future payments under this lease are expected to be approximately $1.6 million for each of the years ending December 31, 2024 – 2026, and $1.3 million for the year ending December 31, 2027.
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.
Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as social commerce.
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 decreases in inventory and other operating assets and liabilities were primarily reflective of the declines in our wholesale business due to retailers pausing or canceling orders during the Prior Year. 46 Table of Contents Investing Activities Net cash provided by investing activities for the Current Year was approximately $0.2 million, primarily driven by $0.5 million of proceeds received from the sale of a limited partner ownership interest in an unconsolidated affiliate, partially offset by approximately $0.2 million capital contributions made to a new equity method investee.
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.
Shipping to customers was accounted for as a fulfillment activity and was recorded within other selling, general and administrative expenses.
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. 47 Table of Contents 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.
Additionally, the parties agreed that if IM Topco, LLC royalties are less than $13.5 million for the twelve-month period ending March 31, 2025 or less than $18.0 million for the year ending December 31, 2025, Xcel shall transfer equity interests in IM Topco, LLC to WHP, such that Xcel’s ownership interest in IM Topco, 48 Table of Contents LLC would decrease from 30% to 17.5%, and WHP’s ownership interest in IM Topco, LLC would increase from 70% to 82.5% Contingent Obligation – Halston Heritage Earn-Out In connection with the February 11, 2019 purchase of the Halston Heritage trademarks, we agreed to pay the seller additional consideration of up to an aggregate of $6.0 million, based on royalties earned from 2019 through December 31, 2022.
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.
Net sales decreased by approximately $2.5 million in the Current Year to approximately $8.6 million, compared with approximately $11.1 million in the Prior Year. This decrease in net sales was primarily attributable to the exit from our wholesale apparel and fine jewelry sales operations in the Current Year as part of the restructuring and transformation of our business operating model.

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