UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 20152016

Commission File Number: 0-31553001-37527

OR

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

XCEL BRANDS, INC.

(Exact name of Registrant as specified in its charter)

(347) 727-2474

(Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

Securities registered pursuant to Section 12(g) of the Exchange Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨      No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨      No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨   No x

State theThe aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently computed second fiscal quarter. $51,114,000quarter was $52,172,148 based upon the average bid and askedclosing price of such Common Stockcommon stock on June 30, 2015.2016.

The number of shares of the issuer’s Common Stockcommon stock issued and outstanding as of March 10, 20162017 was 18,466,13418,694,982 shares.

Documents Incorporated By Reference: None

TABLE OF CONTENTS

PART I

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. All statements other than statements of historical fact contained in this Annual Report, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “ongoing,” “could,” “estimates,” “expects,” “intends,” “may,” “appears,” “suggests,” “future,” “likely,” “goal,” “plans,” “potential,” “projects,” “predicts,” “seeks,” “should,” “would,” “guidance,” “confident” or “will” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding our anticipated revenue, expenses, profitability, strategic plans and capital needs. These statements are based on information available to us on the date hereof and our current expectations, estimates and projections and are not guarantees of future performance. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including, without limitation, the risks outlined under “Risk Factors” or elsewhere in this Annual Report, which may cause our or our industry’s actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. You should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

The “Isaac Mizrahi New York^®,” “Isaac Mizrahi^®,” “IsaacMizrahiLIVE^®,” “Isaac Mizrahi Jeans^TM,” “Isaac Mizrahi CRAFT^TM,” “Judith Ripka LTD^TM,” “Judith Ripka Collection^TM,” “Judith Ripka Legacy^TM,” “Judith Ripka^®,” “Judith Ripka Sterling^TM,” “C. Wonder ^TM,” and “C. Wonder Limited^TM,” and “Highline Collective^TM” brands and all related logos and other trademarks or service marks of the Company appearing in this Annual Report are the property of the Company. The “H by Halston^®,” and “H Halston^TM” brands were acquired by the Company December 22, 2014, however certain U.S. applications for registration that are based upon intent-to-use currently remain in the name of The H Company IP, LLC, from whom we purchased the marks, until such time as the marks are put into use and assigned to us. All other brand names or trademarks appearing in this Annual Report, including “Liz Claiborne New York^®,” “Halston^®” and “Halston Heritage^®,” are the property of their respective owners.

Overview of the Business

Xcel Brands, Inc. (“Xcel,” the “Company,” “we,” “us” or “our”) is a media and brand development and mediamanagement company engaged in the design, production, licensing, marketing, and direct to consumer sales of branded apparel, footwear, accessories, jewelry, home goods, and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Presently,Currently, our brand portfolio consists of the Isaac Mizrahi, Judith Ripka, H Halston, C Wonder, and the Highline Collective brands. We also managemanaged and designdesigned the Liz Claiborne New York brand (“LCNY Brand”) through July 31, 2016. Going forward, ourwe intend to focus shall be on our wholly owned brands.

Our objective is to build a diversified portfolio of lifestyle consumer brands through organic growth and the strategic acquisition of new brands. To achieve growth under our brands, we are focused on two primary licensing and design activities:

We believe that Xcel offers a unique value proposition to its licensorslicensees and customers for the following reasons:

We license our brands to third parties, provide certain design, production, and marketing services, and generate royaltylicensing, design, and service fee revenues through licensing and other agreementscontractual arrangements with manufacturers and retailers. This includes licensing our own brands for promotion and distribution through an omni-channela ubiquitous-channel retail sales strategy, which includes distribution through direct-responseinteractive television, the internet, and traditional brick-and-mortar retail channels. We believe that this strategy distinguishes us from other brand management companies that rely primarily on their licensees for design, production and distribution, and enables us to leverage the media reach of our direct-responseinteractive television partners, including through television, digital and social media, to drive sales of products under our brands across distribution channels.

Our vision is intended to reimagine shopping, entertainment, and social as one. By leveraging digital and social media content across all distribution channels, we seek to drive customer (follower) engagement and generate retail sales across our brands. Our strong relationships with leading retailers and direct-responseinteractive television companies such as QVC and The Shopping Channel, enable us to reach consumers in over 350360 million homes worldwide.

We believe our “virtual vertical” business modelproduction platform provides significant competitive advantages compared with traditional wholesale apparel companies that design, manufacture, and distribute products. We remain focused on our core competencies of licensing, production, design, marketing and brand development, while outsourcing manufacturing and the related inventory ownership to best-in-class partners. We believe that we offer 360 degrees of service for a comprehensive solution for our retail partners that addresses many of the challenges facing the retail industry today. We believe our platform is highly scalable due to our business model’s low overhead and working capital requirements, coupled with minimum guaranteed income levels through our multi-year licensing contracts. Additionally, we believe we can quickly integrate additional brands into our platform in order to leverage our design, production oversight, and marketing capabilities and retail and licensee relationships.

Company History and Corporate Information

The Company was incorporated on August 31, 1989 in the State of Delaware under the name Houston Operating Company. On April 19, 2005, we changed our name to NetFabric Holdings, Inc. On September 29, 2011, Xcel Brands, Inc., a privately-held Delaware corporation (which we refer to as Old Xcel), Netfabric Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Company, and certain stockholders of the Company entered into an agreement of merger and plan of reorganization pursuant to which Netfabric Acquisition Corp. was merged with and into Old Xcel, with Old Xcel surviving as a wholly owned subsidiary of the Company. On September 29, 2011, we changed our name to Xcel Brands, Inc.

Our principal office is located at 475 Tenth Avenue,1333 Broadway, New York, NY 10018. Our telephone number is (347) 727-2474. Additionally, we maintain websites for our respective brands atwww.isaacmizrahi.com,www.judithripka.com, andwww.cwonder.com. Our corporate website iswww.xcelbrands.com.

Our Brand Portfolio

Currently, our brand portfolio includes the Isaac Mizrahi brands, the Judith Ripka brands, the H Halston brands, the C Wonder brand,brands, and the Highline Collective brand, and certain rights to the Liz Claiborne New York (LCNY) brand through July 31, 2016.brand.

Isaac Mizrahi

Isaac Mizrahi is an iconic American brand that stands for timeless, cosmopolitan style. Isaac Mizrahi, the designer, launched his eponymous label in 1987 to critical acclaim, including four Council of Fashion Designers of America (CFDA) awards. Since then, this brand has become known and beloved around the world for its colorful and stylish designs. As a true lifestyle brand, under Xcel’s ownership it has expanded into over 150 different product categories including sportswear, footwear, handbags, watches, eyewear, fragrance, tech accessories, intimates, bridal gowns and accessories, pet products, home, and other merchandise. Under our omni-channelubiquitous-channel retail sales strategy, the brand is available across various distribution channels to reach customers wherever they shop: better department stores, direct-responsesuch as Lord & Taylor and Hudson’s Bay; interactive television, including QVC and The Shopping Channel, our e-commerce site atwww.isaacmizrahi.com,Channel; and national specialty retailers such as Michaels and Best Buy.retailers. The brand is also sold in various global locations, including Canada, Mexico, the United Kingdom, the Philippines, and the Middle East. When we refer to the Mizrahi brands, we include Isaac Mizrahi New York, IsaacMizrahiLIVE, Isaac Mizrahi Jeans, Isaac Mizrahi CRAFTIMNYC (exclusive to Lord & Taylor, Hudson’s Bay, and Dillard’s), IsaacMizrahiLIVE!, and Isaac Mizrahi. We acquired the Mizrahi brands in September 2011.

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 feel. The Judith Ripka LTD 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 luxury retailers. The collection is available through our e-commerce site at www.judithripka.com.via e-commerce. A line of luxury watches was introduced in 2015. In December 2016, we announced Christina Caruso as the Creative Director for the Judith Ripka brand. As Chief Designer, Ms. Ripka also launched an innovative collection of fine jewelry on QVC under the Judith Ripka brand in 1996, where she offers customers fine jewelry, watches, and accessories at more accessible price points, including precious and semi-precious stones and multi-faceted diamonique stones made exclusively for the brand. We expanded the Ripka brand to The Shopping Channel in Canada in 2014, with additional global expansion planned. The Ripka brands are distributed in various countries including the United States, Canada, the United Kingdom, Russia, the Ukraine, and elsewhere in Europe and the Middle East. When we refer to the Ripka brands, we include Judith Ripka LTD, Judith Ripka, and all related brands and collections. We acquired the Ripka brands in April 2014.

H Halston

The H Halston brands are sub-brands of the Halston fashion brands, which include Halston and Halston Heritage. The Halston brand was founded by Roy Halston Frowick in the 1960s, and quickly became one of the most important American fashion brands in the world, becoming synonymous with glamour, sophistication, and femininity. Halston’s groundbreaking designs and visionary style still influence designers around the world today. When we refer to the H Halston brands, we include H Halston and H by Halston. We launched the H by Halston brand on QVC in September 2015, which is available exclusively through direct-responseinteractive television channels. We planchannels, launched the H Halston brand lifestyle collection at Lord & Taylor and Hudson’s Bay in April 2016, and expect to launch the H Halston brand through a lifestyle collection at Dillard’s in 2016.2017. We acquired the H Halston brands in December 2014.

C Wonder

The C Wonder brand was founded by J. Christopher Burch in 2011 to offer a wide-ranging assortment of beautiful, versatile, and spirited products that are designed to transport its customers to a place they have never been. C Wonder offers women’s clothing, footwear, jewelry and accessories; housewares and home decor, great gifts,accessories, and delightful surprises at every turn. In July 2015 weWe acquired C Wonder and entered into a license agreement with QVC pursuant to which various products under the C Wonder brand name will be marketed, promoted, distributed,in July 2015, and sold bylaunched the brand on QVC which we launched onin March 3, 2016.

Highline Collective

Highline Collective is a brand that we created in 2015 to deliver on-trend products to certain of our retail partners.apparel and accessories. Highline Collective is an accessible, trend-right fashion brand that delivers fresh apparel weekly – featuring the season’s most desired styles, colors, and patterns at exactly the right time. We plan to launchlaunched the Highline Collective brand at Lord & Taylor and TheHudson’s Bay in April 2016.

Liz Claiborne New York

Liz Claiborne New York is the accessible luxury brand for Liz Claiborne. Liz Claiborne was founded by Anne Elisabeth “Liz” Claiborne in 1976 to address the void she saw in the market to provide stylish clothes for working women. Sold exclusively on QVC, the Liz Claiborne New York line includes women’s apparel, footwear, outerwear and accessories, and is currently distributed in the United States and the United Kingdom. The Liz Claiborne New York brand, or the LCNY brand, reflects the heritage, style and versatile fashion for which the Liz Claiborne brand has become known. Our rights to the LCNY brand expire July 31, 2016.

Growth Strategy

Our vision is intended to reimagine shopping, entertainment, and social as one. To fulfill this vision, we plan to continue to grow the reach of our brand portfolio by leveraging our own internal design, production, and marketing expertise and our relationships with key licensees and retailers, and to market our brands through our innovative omni-channelubiquitous-channel retail sales strategy. Our omni-channel strategy includes distribution through direct-responseinteractive television, the internet, and traditional brick-and-mortar retail channels. By leveraging the reach and media presence of our direct-responseinteractive television partners, such as QVC, and by developing rich online video and social media content under our brands, our strategy is to drive increased customer engagement and generate sales across our channels of distribution. Key elements of our strategy include:

From time to time we enter into letters of intent or offer letters with respect to the acquisitions of additional brands. There can be no assurance that we will complete any brand acquisition under a letter of intent on favorable terms or at all.

Industry Overview

Licensors are typically brand owners who invest and manage their intellectual property, but leave much of the expense and operational heavy lifting, such as sourcing and distribution, to third party licensees. Licensors maintain control over their brand image while extracting a percentage royalty from licensees in exchange for the use of the trademark in strategically segmented categories and channels. This strategy minimizes operational risk while generating healthy margins and free cash flow relative to traditional wholesale apparel companies.

Brand management and licensing is a large and rapidly-growinggrowing global industry that in 20142015 generated over $241$250 billion in retail sales and $13.4approximately $14 billion in royalty revenues worldwide, according to the 20152016 Annual Global Licensing Industry Survey by the International Licensing Industry Merchandisers’ Association (“LIMA”). LIMA indicated that fashion was one of the top three largest intellectual property categories in licensing in 2015, representing approximately $30 billion in estimated retail sales (12% of the worldwide total) and approximately $2 billion in royalties (13% of the worldwide total). The United States and Canada, which is where the Company primarily operates, was reported by LIMA to be the most dominant region in the brand management and licensing industry, with more than $144$145 billion in retail sales, nearly 60%representing 58% of the worldwide total.total market. LIMA indicatedreported that the fashion was one of the top three largest categories or sectors in licensing, representing $29intellectual property category represented approximately $18 billion in estimated retail sales or 12%(12% of the worldwide total in 2014,regional total) and $16.9approximately $1 billion in estimated retail sales or 12%royalties (14% of the United States and Canada.regional total).

Design, Production, Marketing, and Licensing Business

We license our brands to third parties, provide certain design, production and marketing services, in certain cases provide production advisory services and oversight, and generate royaltylicensing, design, and service fee revenues through licensing and other agreementscontractual arrangements with wholesale manufacturers, sourcing and design companies, and retailers. This includes licensing our own brands for promotion and distribution through an omni-channela ubiquitous-channel retail sales strategy, which includes distribution through direct-responseinteractive television, the internet, and traditional brick-and-mortar retail channels. We believe that this strategy distinguishes us from other brand management companies that rely primarily on their licensees for design, production, and distribution, and enables us to leverage the media reach of our direct-responseinteractive television partners, including through television and social media, to drive sales of products under our brands across distribution channels.

QVC is an important strategic partner in our design, marketing and licensing business, and is our largest licensee for each of our Mizrahi, Ripka, H Halston, and C Wonder and LCNY brands. QVC’s business model is to promote and sell products through its direct-responseinteractive television programs and related internet and mobile platforms. We leverage both our brand celebrity hosts as well as alternate brand hosts to promote products under our brands on QVC. According to QVC, QVC had global revenues of approximately $8.7 billion in 2015.2016, of which e-commerce sales represented approximately $4.0 billion, and QVC’s majority stockholder acquired the e-commerce platform Zulilly in 2015, which generated $1.2 billion of retail sales in 2014 according to QVC. Additionally, according to QVC, QVC’s customer engagement and reach increased toprogramming currently reaches approximately 350360 million homes worldwide in 2015, which helpedworldwide. QVC grow its e-commerce sales to $3.1 billion (approximately half of which QVC shows come from mobile, causing it to bewas ranked as the number three mobile multi-category retailer in the U.S. according to the 2017 Internet Retailer Mobile 500, (August 2014)). Alsoand as number four among multi-category retailers in North America, according to QVC, QVC was tied for second in the ForeSee Experience Index and QVC/Liberty Interactive was ranked sixth in the 20142016 Internet Retailer eCommerce Top 500. Additionally, ourOur agreements with QVC allow our brand celebrity hosts and spokespersons to promote our non-QVC product lines and strategic partnerships under the Mizrahi, Ripka, H Halston, and C Wonder brands through QVC’s programs, subject to certain parameters including the payment of a portion of our non-QVC revenues to QVC. We believe that our ability to continue to leverage QVC’s media platform, reach, and attractive customer base to cross-promote products in and drive traffic to our other channels of distribution provides us a unique advantage.

In our licensing agreements, our licensing partners are responsible for manufacturing, selling, and distributing our licensed products, subject to our oversight and marketing support. Our business model allows us to focus on our core competencies of designing, sourcing, marketing, and managing brands without much of the risk and investment requirements associated with traditional apparel companies. The Mizrahi brands and the LCNY brand are licensed through our wholly owned subsidiary, IM Brands, LLC or IM Brands, the Ripka brands are licensed through our wholly owned subsidiary, JR Licensing, LLC or JR Licensing, the H Halston brands are licensed through our wholly owned subsidiary, H Licensing, LLC or H Licensing, and the C Wonder brands are licensed through our wholly owned subsidiary, C Wonder Licensing, LLC or CW Licensing.

In connection with the aforementioned licensing activities, we provide design support and in certain cases production oversight support to third party licensees for our brands where required and coordinate merchandising and sales efforts for those parties in each case where appropriate. We also conduct marketing, advertising, public relations, and social media marketing campaigns for our brands, and coordinate such activities with our licensees.

In 2013, we began offering the Mizrahi brandsIsaacMizrahiLIVE brand through direct-responseinteractive television on The Shopping Channel (TSC) in Canada. In 2014, we launched the Ripka brands on TSC in Canada, and launched the IsaacMizrahiLIVE brand on QVC in the United Kingdom. In 2015, we commenced sales through QVC of our IsaacMizrahiLIVE brand in Italy, France, and Germany; the Ripka brands in Germany and Japan; and the H by Halston brand in the United Kingdom. In 2016, we are scheduled to launchlaunched the C Wonder brand on QVC both domestically as well as internationally in the United Kingdom, Italy, and France, and expandexpanded the H by Halston QVC sales to Italy, Germany, and Germany.France. In 2017, we plan to commence sales through QVC of the H by Halston in Japan. We plan to continue to expand our brands internationally through QVC, and through other direct-responseinteractive television networks where QVC grants us the right to do so. We also plan to license to certain international licensing partners the right to distribute products under our brands through department stores and other retailers and/or the right to open and operate retail stores under our brands in such international markets.

QVC Agreements

Through our wholly owned subsidiaries, we have entered into direct-to-retail license agreements with QVC, pursuant to which we design, and QVC sources and sells, various products under our IsaacMizrahiLIVE brand, the Judith Ripka brands, the H by Halston brand, and the C Wonder brand. These agreements include, respectively, the IM QVC Agreement, the Ripka QVC Agreement, the H QVC Agreement, and the C Wonder QVC Agreement (collectively, the “QVC Agreements”). QVC owns the rights to all designs produced under the QVC Agreements, and the QVC Agreements include the sale of products across various categories through QVC’s television media and related internet sites.

Pursuant to thethese agreements, we have granted to QVC 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. The Agreements include automatic renewal periods as detailed below unless terminated by either party.

In connection with the forgoing and during the same periods, QVC and its subsidiaries have the exclusive, worldwide right to use the names, likenesses, images, voices, and performances of our spokespersons to promote the respective products. Under the IM QVC Agreement, IM Brands has also granted to QVC and its affiliates, during the same period, exclusive, worldwide rights to promote third party vendor co-branded products that, in addition to bearing and being marketed in connection with the trademarks and logos of such third party vendors, also bear or are marketed in connection with the IsaacMizrahiLIVE trademark and related logo.

Under the QVC Agreements, QVC is obligated to make royalty payments to us on a quarterly basis, based upon the net retail sales of the specified respective branded products. Net retail sales are defined as the aggregate amount of all revenue generated through the sale of the specified respective branded products by QVC and its subsidiaries under the QVC Agreements, excluding freight, shipping and handling charges, customer returns, and sales, use, or other taxes.

Notwithstanding our grant of worldwide promotion rights to QVC, we may, with the permission of QVC, 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 QVC based on the net retail sales of such products through such channels. We do not currently sell any of our specified respective branded products that are subject to the QVC Agreements through any of these distribution channels.

Also under the QVC Agreements, we will pay a royalty participation fee to QVC 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 respective trademarks and brands.

Under the QVC Agreements, we are restricted from selling products under the specified respective brands or trademarks (including the trademarks, copyrights, designs, logos, and related intellectual property themselves) to mass merchants. The QVC 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 QVC (generally defined as any entity other than QVC whose primary means of deriving revenue is the transmission of direct-responseinteractive television programs). In addition, during the terms of the IM QVC Agreement, the Ripka QVC Agreement, and the C Wonder QVC Agreement, and for one year thereafter, the respective subsidiary may not, without QVC’s consent, promote, advertise, endorse or sell (i) the specified branded products through any means or (ii) any products through direct-responseinteractive television. During the term of the H QVC Agreement, and for one year thereafter, H Licensing may not, without QVC’s consent, promote, advertise, endorse or sell any products, including the H by Halston brands, through direct-responseinteractive television.

In addition to the forgoing, certain of the QVC Agreements permit us to promote brick-and-mortar collections on QVC’s television program subject to certain terms and restrictions.

While sales under the QVC Agreements have been generated primarily in the United States, we have begun to expandare in the process of expanding internationally. We commenced sales of our IsaacMizrahiLIVE brand through QVC in the United Kingdom in May 2014 and launched the brand through QVC in Italy in August 2015, France in September 2015, and Germany in November 2015. We began selling the Ripka brands through QVC in Japan in May 2015 and in Germany in November 2015. The H by Halston brand was launched on QVC in the United Kingdom in November 2015.2015, Italy in August 2016, France in September 2016, and Germany in October 2016. We launched our C Wonder brand through QVC in the United Kingdom and Italy in March 2016, and in France in April 2016. We plan to continue to expand our brands internationally through QVC where QVC has or develops an international presence.presence, including the planned expansion of H by Halston in Japan in 2017.

In addition, QVC pays the company designCompany also received fees from QVC related to the management and design of the LCNY brand. Pursuantbrand pursuant to an agreement with Kate Spade Company (“KSC”), formerly Fifth & Pacific Companies, Inc. and formerly Liz Claiborne, Inc. (the “LCNY Agreement”), we provide certain design services related to the. The LCNY brand, which is sold exclusively through QVC.Agreement expired July 31, 2016.

For the years ended December 31, 20152016 and 2014,2015, the QVC Agreements collectively accounted for 80%85% and 79%84%, respectively, of the total revenues of the Company.

TSC Agreement

We have an agreement with The Shopping Channel, which we refer to as TSC, related to our IsaacMizrahiLIVE brand. The agreement grants TSC the exclusive right to sell products under the IsaacMizrahiLIVE brand through its direct-responseinteractive television programs and related e-commerce and mobile sites for distribution only in Canada, and provides to TSC the right to source products under the brand produced under license by QVC in exchange for paying to QVC a sourcing fee for certain of such products, and the rights granted to TSC remain subject to the restrictions under the IM QVC Agreement. Under the agreement with TSC, we receive a percentage of TSC’s net sales of products under the IsaacMizrahiLIVE brand.

H Halston Licensing Agreement

Pursuant to a trademark license agreement, or the H Halston License Agreement, entered into on December 22, 2014 by and between H Licensing and The H Company IP, LLC, or HIP, H Licensing granted to HIP a non-assignable exclusive sublicense to use the H Halston trademark in association with the manufacture, distribution, promotion, advertising, and sale of products bearing the H Halston trademark and any related services thereto in all channels of distribution, excluding direct-responseinteractive television and its related e-commerce and digital distribution, and excluding certain mass retailers. HIP shallwas required to pay royalties to H Licensing during the term, with a minimum guaranteed royalty of $600,000 per year during the initial term for 2016 through 2024 and $1,200,000 for any year thereafter. Benjamin Malka, a director of our Company, is the chief executive officer and a 25% equity holder of House of Halston, LLC, the parent company of HIP.

On September 1, 2015 we entered into a license agreement with Lord and Taylor, LLC (the “L&T License”) and simultaneously amended the H Halston License Agreement eliminating HIP’s minimum guaranteed royalty obligations, provided the L&T License is in effect. In addition, we entered into a sublicense agreement with HIP obligating us to pay HIP on an annual basis the greater of (i) 50% of royalties received under the L&T License from H Halston products or (ii) guaranteed minimum royalties. GuaranteedProvided that Lord & Taylor is paying us at least $1,000,000 per quarter under the L&T License, the remaining contractually guaranteed minimum royalties are equal to $0.25 million for the seventeen months ending January 31, 2017, and $0.75 million, $0.75 million, $1.5 million and $1.75 million for the twelve months ending January 31, 2018, 2019, 2020, and 2021, respectively. Royalties paid to HIP by us or on our behalf for the seventeen months ended January 31, 2017 were $0.19 million.

The initial term of the H Halston License Agreement expires on December 31, 2019 unless sooner terminated or renewed. After the initial term, HIP shall be entitled to renew the H Halston License Agreement on three occasions, each for five (5) year terms, as long as HIP is in compliance with all terms and conditions of the agreement. HIP may terminate the agreement prior to the expiration of the initial term without penalties, fees or payment of future royalties upon 90 days’ notice prior to the second anniversary of the closing. In the event HIP exercises its early termination right, H Licensing shall pay to HIP a participation fee for each of the three following years in an amount not to exceed $4,000,000 ($5,000,000 if H Licensing distributes, or otherwise enters into any agreements for the distribution of products bearing the H Halston trademark in China). The participation fee, if any, may be paid in cash or shares of Xcel’s common stock based on the greater of $8.00 and the value weighted average price of the common stock for the five business days preceding payment.

QTR Licensing Agreements

In 2015, we developed a quick-time response (QTR) production platform designed to deliver short lead-time production capabilities of between four to eight weeks to our licensed retail partners, which currently include Lord & Taylor, Hudson’s Bay, and Dillard’s. Under the licensing agreements in place with our department store retail partners, we provide design, marketing, production oversight, and sourcing advice, and in certain cases manage the supply chain on our partners’ behalf (although the licensees are responsible for purchasing products directly from the factories) in exchange for a combination of sales-based fees and guaranteed minimum fees.

The L&T License provides Lord & Taylor the right to use our IMNYC, H Halston, C Wonder Limited, and Highline Collective trademarks to sell our respective branded products in any retail stores operated by Lord & Taylor located in the United States of America, Canada, Luxembourg, Belgium, and Germany. The L&T License provides Lord & Taylor exclusive rights (subject to the rights of Dillard’s, Inc.) for certain categories under each brand, provided it must maintain minimum annual sales for each designated category. The initial term of the L&T License expires January 31, 2021, subject to certain rights of Lord and Taylor to terminate the L&T License sooner.

On December 2, 2016, we entered into a license agreement with Dillard’s, Inc. (the “Dillard’s License”) to provide Dillard’s, Inc. with the right to use our IMNYC, H Halston, C Wonder Limited, and Highline Collective trademarks to sell our branded products in any retail stores operated by Dillard’s, Inc. located in the United States of America. The Dillard’s License provides Dillard’s exclusive rights (subject to the rights of Lord & Taylor and Hudson’s Bay) for certain categories under each brand, as well as non-exclusive rights for certain other categories. The initial term of the Dillard’s License expires January 29, 2022.

Other Licensing Agreements

We have entered into numerous other licensing agreements for sales and distribution through the internet and traditional brick-and-mortar retailers. Authorized distribution channels include department stores such as Lord & Taylor, Macy’s, Neiman Marcus, Nordstrom’s, and Saks Fifth Avenue, off-price retailers such as Neiman’s Last Call, Nordstrom Rack, Saks Off Fifth, and TJX (including TJ Maxx, Marshall’s and Home Goods), and national specialty retailers such as 1-800-FLOWERS, Best Buy and Michaels.Bed Bath & Beyond. Under our other licenses, a supplier is granted rights, typically on an exclusive basis, to a single or small group of related product categories for sale to multiple accounts within an approved channel of distribution and territory. Our other license agreements typically provide the licensee with the exclusive rights for a certain product category in a specified territory and/or distribution channel. Our other license agreements cover various categories, including but not limited to women’s apparel, footwear, accessories, and bridal gowns; fragrance,accessories; bath and body; jewelry; home products; men’s apparel and accessories; children’s and infant apparel, footwear, and accessories; and electronics cases and accessories. The terms of the agreements generally range from three to six years with renewal options.

The L&T License provides Lord and Taylor LLC the right to use certain of our Isaac Mizrahi, H Halston, and C Wonder trademarks to sell our respective brands’ products in any retail stores operated by Lord and Taylor, LLC located in the US, Canada, Luxembourg, Belgium and Germany. The L&T License provides Lord and Taylor an exclusive right for certain categories under each brand, provided they must maintain minimum annual sales for each designated category. The initial term of the L&T License expires January 31, 2021, subject to certain rights of Lord and Taylor to terminate the L&T License sooner.

We are in discussions with other potential licensees and strategic partners to license and/or co-brand the Mizrahi brands, Ripka brands, H Halston brands, and C Wonder brands for additional categories. In certain cases, we have engaged licensing agents to assist in the procurement of such licenses for which IM Brands, JR Licensing, H Licensing, CW Licensing, or our licensees pay such agents’ fees based upon a percentage of the net sales of licensed products by such licensees, or a percentage of the royalty payments that we receive from such licensees. While many of the new and proposed licensing agreements will likely require us to provide seasonal design guidance, most of our new and prospective licensing partners have their own design staff, and we therefore expect low incremental overhead costs related to expanding our licensing business. We will endeavor, where possible, to require licensees to provide guaranteed minimum royalties under their license agreements.

Our licensees currently plan to sell our branded licensed products through brick-and-mortar retailers, internet websites, for certain categories, through our e-commerce site, and in certain cases supply products to QVC, The Shopping Channel, and/or other direct-responseinteractive television companies for sale through their television programs and/or through their internet websites. We generally recognize revenues from our other licenses based on a percentage of the sales of products under our brands, but excluding (i) sales of products to direct-responseinteractive television networks, where we receive a retail royalty directly from the direct-responseinteractive television licensee, and (ii) sales of products to e-commerce sites operated by us. Additionally, based upon guaranteed minimum royalty provisions required under many of the license agreements, we are able to recognize revenue related to certain other licenses based on the greater of the sales-based royalty or the guaranteed minimum royalty.

Revenue from these other licensing agreements discussed above represented approximately 14% and 12% of our total revenues for the years ended December 31, 2015 and 2014, respectively.

Design and Promotional Services

We provide design and other services to certain of our licensees and, in some cases, to select brands owned by third parties. In particular, we provide all design services to QVC for products sold under the IM QVC Agreement, Ripka QVC Agreement, H QVC Agreement, C Wonder QVC Agreement, the LCNY Agreement (through July 31, 2016), and design services to Lord and Taylor under the L&T License. This includes seasonal design guidance, product development and merchandising, product design and sample review and approvals through our in-house design organization. Additionally, the Company provides limited design services under the wholesale licenses which may include seasonal design guidance (such as style guides) and/or print and pattern development, for which certain of our licensees pay us fixed fees for such services as determined in their agreements. In general, the design of products under our wholesale licenses is expected to be completed by the licensees at our direction.

In certain cases, the Company provides promotional services to other brands or companies, which may include the use of our brands for the promotion of such company or brands through the internet, television, or other digital content, print media or other marketing campaigns featuring, in-person appearances by our celebrity spokespersons, the development of limited collections of products (which may include co-branded products) for such company, or other services as determined on a case-by-case basis. These include promotions with General Motors,Hewlett Packard, Revlon, Johnson & Johnson, and Kleenex.

The Company employs design and production oversight teams to provide the aforementioned services. The Company may consider appropriate opportunities to leverage its resources to provide design services, production oversight or other resources to selected brands that are not owned by the Company in the future.

Discontinued Operations

We hadopened a full-price store and an outlet store under the Mizrahi brands during 2014.in 2013 and 2014, respectively. In December 2014, we decided to close our retail stores. Accordingly, our retail operation was treatedoperations have been reclassified as discontinued operations. We have continued ouroperations for all periods presented. Our e-commerce operations, which were previously reported as a component of retail operations, are reported as a component of our licensing business. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Discontinued Operations.”

Marketing

Marketing is a critical element to maximize brand value to our licensees and our Company. Therefore, we provide social media marketing and other marketing and public relations support for our brands.

Given our omni-channelubiquitous-channel retail sales strategy focusing on the sale of branded products through various distribution channels (including internet, direct-responseinteractive television, and traditional brick-and-mortar sales channels), our marketing efforts currently focus on PR and fashion editorial, social media campaigns, personal appearances, and digital content in order to drive retail sales of product and consumer awareness across our various sales distribution channels. We seek to create the intersection where shopping, entertainment, and social meet. As such, our marketing is currently conducted primarily through (i) Twitter campaigns,Facebook, (ii) Facebook campaigns,Instagram, (iii) Instagram,Twitter, (iv) Pinterest, (v) Snapchat, and (v)(vi) blogs, videos, images, and other internet content that are all updated regularly. Our efforts also include promoting namesakes of our brands and our personalities through various media including television (such asProject Runway All-Stars andLive with Kelly and Michael), design for performances, and other events. We also work with QVC and the Hudson’s Bay Company to leverage QVC’s internettheir marketing resources, including discussion boards, Facebooke-commerce platforms and Twitterrelated digital marketing campaigns, social media platforms, direct mail pieces, and QVC’s website.public relations efforts.

Our agreements with QVC allow our brand celebrities and spokespersons to promote our non-QVC product lines and strategic partnerships under our brands through QVC’s programs, subject to certain parameters including the payment of a portion of our non-QVC revenues to QVC. We believe that this provides us with the ability to leverage QVC’s media platform (including television, internet, and social media reach to over 2 million Facebook fans and 2.8 million monthly forum posts)media) and QVC’s customer base of approximately 350360 million households worldwide to cross-promote products in and drive traffic to our other channels of distribution. Many of our licensees make advertising and marketing contributions to the Company under their license agreements which are used to fund marketing-related expenses and further promote our brands as we deem appropriate. Certain of the wholesale licenses contain requirements to provide advertising or marketing for the Mizrahiour brands Ripka brands, H Halston brands, and C Wonder brand under their respective license agreements with IM Brands, JR Licensing, H Licensing, and C Wonder Licensing.agreements.

We also market the Mizrahi brands through www.isaacmizrahi.com, the Ripka brands through www.judithripka.com and C Wonder brands through www.cwonder.com. Through our websites, we are able to present and promote a collection ofthe products under our brands to customers with branding and signage that reflects each brand’s heritage and unique point-of-view. Additionally, we plan to conduct online marketing campaigns for the brands, which may include search engine optimization, referral sites, online promotions and content, and other efforts.

Competition

Each of our current brands has and any future acquired brand will likely have many competitors within each of its specific distribution channels that span a broad variety of product categories, including the apparel, footwear, accessories, jewelry, home furnishings and décor, food products, and sporting goods industries. These competitors have the ability to compete with the Company and our licensees in terms of fashion, quality, price, products, and/or marketing.marketing, and ultimately retail floor space and consumer spending.

Because many of our competitors have significantly moregreater cash, revenues, and resources than we do, we must work to differentiate ourselves from our direct and indirect competitors to successfully compete for market share with the brands we own and for future acquisitions. We believe that the following factors help differentiate our Company in an increasingly crowded competitive landscape:

We expect our existing and future licenses to relate to products in the apparel, fashionfootwear, accessories, jewelry, footwear, beauty and fragrance, home products and décor, pet products, fabrics and yarnsgoods, and other consumer products industries, in which our licensees face intense competition, including from our other brands and licensees. In general, competitive factors include quality, price, style, name recognition, and service. In addition, various fadsfashion trends and the limited availability of shelf space could affect competition for our licensees’ products. Many of our licensees’ competitors have greater financial, distribution, marketing, and other resources than our licensees and have achieved significant name recognition for their brand names. Our licensees may be unable to successfully compete in the markets for their products, and we may not be able to continue to compete successfully with respect to our licensing arrangements.

Trademarks

The Company, through its subsidiaries, owns and exploits the Mizrahi brands, which include the trademarks and brands Isaac Mizrahi, Isaac Mizrahi New York, and IsaacMizrahiLIVE; the Ripka brands, which include the trademarks and brands Judith Ripka LTD, Judith Ripka Collection, Judith Ripka Legacy, Judith Ripka, and Judith Ripka Sterling; two Halston-formative brands and trademarks, namely, H by Halston and H Halston; and the C Wonder brands, which include the trademarks and brands C Wonder and C Wonder Limited.Limited; and the Highline Collective brand.

The H by Halston and H Halston brands were acquired on December 22, 2014, howeverbut certain U.S. applications for registration that are based upon intent-to-use currently sit in the name of HIP from(from whom we purchased the marks,marks) until such time as the marks are put into use and assigned to us. In certain jurisdictions, certain H by Halston and H Halston trademark registrations or applications that we purchased (including but not limited to those based upon “intent to use”) may not yet be recorded in our name, due to laws governing the timing and nature of certain trademark assignments.

Where laws limit our ability to record in our name trademarks that we have purchased, we have obtained by way of license all necessary rights to operate our business. Certain of these trademarks and associated marks are registered or pending registration with the U.S. Patent and Trademark Office in block letter and/or logo formats, as well as in combination with a variety of ancillary designs for use in connection with a variety of product categories, such as apparel, footwear and various other goods and services including, in some cases, home furnishings and decor. The Company intends to renew and maintain registrations as appropriate prior to expiration and it makes efforts to diligently prosecute all pending applications consistent with the Company’s business goals. In addition, the Company registers its trademarks in certain other countries and regions around the world as it deems appropriate.

The Company and its licensees do not presently earn a material amount of revenue from either the licensing of our trademarks internationally or the sale of products under our trademarks internationally. However, the Company has registered its trademarks in certain territories where it expects that it may do business in the foreseeable future. If the Company or a licensee intends to make use of the trademarks in international territories, the Company will seek to register its trademarks in such international territories as it deems appropriate based upon factors including the revenue potential, prospective market and trademark laws in such territory or territories.

Generally, the Company is primarily responsible for monitoring and protecting its trademarks around the world. The Company seeks to require its licensing partners to advise the Company of any violations of its trademark rights of which its licensing partners become aware and relies primarily upon a combination of federal, state, and local laws, as well as contractual restrictions to protect its intellectual property rights both domestically and internationally.

Employees

As of December 31, 2015,2016, we had 7786 full-time employees and 8 part-time employees. None of our employees are represented by a labor union.

Government Regulation

We are subject to federal, state and local laws and regulations affecting our business, including those promulgated under the Occupational Safety and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and regulations of the Consumer Product Safety Commission, and various environmental laws and regulations. We believe that we are in compliance in all material respects with all applicable governmental regulations.

From time to time, the Company issues stock-based compensation to its officers, directors, employees, and consultants. The maximum term of options granted is generally 10 years and generally options vest over a period of six months to four years. However, the Board of Directors of the Company may approve other vesting schedules. Options may be exercised in whole or in part. The exercise price of stock options granted is generally the fair market value of the Company's Common Stockcommon stock as determined by the Board of Directors on the date of grant, considering factors such as the sale of stock, results of operations, and consideration of the fair value of comparable private companies in the industry.

The fair value of each stock option award is estimated using the Black-Scholes option pricing model based on certain assumptions. The assumption for expected term is based on evaluations of expected future employee exercise behavior. Because of a lack of historical information, we use the simplified method to determine the expected term. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected term at the grant date. The historical volatility of comparable companies' stock is used as the basis for the volatility assumption. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus assumedassumes a 0% dividend yield.

The following table sets forth information as of December 31, 20152016 regarding compensation plans under which our equity securities are authorized for issuance.

(1) Pursuant to our 2011 Equity Incentive Plan.

Recent Sales of Unregistered Securities

On January 31, 2017, we issued an aggregate of 78,334 shares of common stock, of which 39,167 shares vested immediately and 39,167 shares will vest on January 31, 2018, to Jones Texas, Inc., a company wholly-owned by Edward Jones, III, who is a director of our Company, as partial consideration under a consulting agreement. This issuance was not registered under the Securities Act and qualified for an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, since the issuance of securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved, size of the offering, manner of the offering, and number of securities offered.

Purchases of equity securities by the issuer and affiliated purchasers

The following table provides information with respect to Common Stockcommon stock repurchased by us during the years ended December 31, 20152016 and 2014.2015.

Smaller reporting companies are not required to provide the information required by this Item 6.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with our consolidated financial statements and the notes thereto, included elsewhere in Item 8 of this Annual Report on Form 10-K. This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and liquidity and cash flows for the year ended December 31, 2015.2016. Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments concerning factors that are beyond our control.

Overview

We are a brand developmentmanagement and media company engaged in the design, production, licensing, marketing, and direct to consumer sales of branded apparel, footwear, accessories, jewelry, home goods, and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Presently, our brand portfolio consists of the Isaac Mizrahi, and Judith Ripka, brands, as well as the recently acquired H by Halston, H Halston, and C Wonder, brands, and the recently created Highline Collective brand.brands. We also managemanaged and designdesigned the Liz Claiborne New York brand through July 31, 2016. Our in-house designers and marketing executives work with our licensees to help design, promote, and elevate each brand within their respective distribution channels. We market and promote our brands by employing a highly-differentiated omni-channelubiquitous-channel sales strategy, which includes promotion through direct-responseinteractive television, internet, and traditional brick-and-mortar retail distribution channels, delivering a unique brand experience that fosters increased consumer engagement.

Our proprietary platform is strategically positioned to monetize the convergence of shopping, entertainment, and social media. By leveraging the reach and media presence of our direct-responseinteractive television partners such as QVC, and by developing rich online video and social media content under our brands, we drive increased customer engagement and generate sales across our channels of distribution. Our strong relationships with leading retailers, such as Lord & Taylor, Hudson’s Bay, and direct-responseDillard’s, and interactive television companies, such as QVC and The Shopping Channel, enable us to reach consumers in over 350360 million homes worldwide.

Discontinued Operations

We opened a full-price store and an outlet store under the Mizrahi brands in 2013 and 2014, respectively. In December 2014, we decided to close our retail stores. Accordingly, our retail operations have been reclassified as discontinued operations for all periods presented. We will continue ourOur e-commerce operations, which were previously reported as a component of retail operations, are reported as a component of our licensing business. E-commerce operations are in the process of being phased out.

Summary of Critical Accounting Policies

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that are the most important to the portrayal of our financial condition and results of operations, and that require our most difficult, subjective, and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are described in more detail in the notes to our financial statements, our most critical accounting policies, discussed below, pertain to revenue recognition, trademarks, goodwill and other intangible assets, stock-based compensation, fair value of contingent obligations and income taxes. In applying such policies, we must use some amounts that are based upon our informed judgments and best estimates. Estimates, by their nature, are based upon judgments and available information. The estimates that we make are based upon historical factors, current circumstances, and the experience and judgment of management. We evaluate our assumptions and estimates on an ongoing basis.

Revenue Recognition

In connection with our licensing model, revenue is generated from licenses and is based on reported sales of licensed products bearing our trademarks, at royalty or other fee-based rates specified in the license agreements. These agreements are also subject to contractual minimum levels. Design and service fees are recorded and recognized in accordance with the terms and conditions of each service contract, including the meeting our obligations and providing the relevant services under each contract. Guaranteed minimum royalty payments are recognized on a straight-line basis over the term of each contract year, as defined in each license agreement. Royalties exceeding the guaranteed minimum royalty payments are recognized as income during the period corresponding to the licensee’s sales. AdvancedAdvance royalty payments are recorded as deferred revenue at the time payment is received and recognized as revenue as earned. Prior to the closing of our retail stores, we recognized revenue from our retail storestores upon the sale of our products to retail consumers, net of estimated returns.

Trademarks, Goodwill and Other Intangible Assets

We follow Financial Accounting Standards Board, or FASB, Accounting Standard Codification, or ASC, ASC Topic 350, “Intangibles - Goodwill and Other.” Under this standard, goodwill and indefinite lived intangible assets are not amortized, but are required to be assessed for impairment at least annually. Under this standard, we annually have the option to first assess qualitatively whether it is more likely than not that there is an impairment, or perform a quantitative analysis. Our definite lived intangible assets are amortized over their estimated useful lives. The Company performed its annual qualitativequantitative analysis of goodwill and performed a qualitative analysis of intangible assets at December 31, 2015,2016, and determined that these assets were not impaired.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC Topic 718, “Compensation - Stock Compensation,” by recognizing the fair value of stock-based compensation as an operating expense over the service period of the award or term of the corresponding contract, as applicable. Stock option awards are valued using a Black-Scholes option pricing model, which requires the input of subjective assumptions including expected stock price volatility and the estimated life of each award. Restricted stock awards are valued using the fair value of our common stock at the date the common stock is granted. For stock option awards for which vesting is contingent upon the achievement of certain performance targets, the timing and amount of compensation expense recognized is based upon the Company’s projections and estimates of the relevant performance metric(s). 

Fair Value of Contingent Obligations

Management continues to analyze and quantify contingent obligations (expected earn-out payments) over the applicable pay-out period. Management will assess no less frequently than each reporting period the fair value of contingent obligations. Any change in the expected obligation will result in an expense or income recognized in the period in which it is determined the fair market value of the obligation has changed.

In addition to the Company’s contingent obligations measured at fair value on a recurring basis under ASC 820-10, we alsoWe recognized a contingent obligation in connection with the acquisition of Judith Ripka Trademarks in the Prior Year.2014. ASC 805-50-30 requires that, when accounting for asset acquisitions, when the fair value of the assets acquired is greater than the consideration paid, any contingent obligations shall be recognized and recorded as the positive difference between the fair value of the assets acquired and the consideration paid for the acquired assets. In addition, we

We also recognized a contingent obligation in 2015 in connection with our acquisition of the C Wonder Trademarks. ASC 805-50-30 requires that when the fair value of the assets acquired are equal to the consideration paid, any contingent obligations shall be recognized based upon the Company'sCompany’s best estimate of the amount that will be paid to settle the liability.

Income Taxes

Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Deferred income taxes are determined based on the temporary difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. ASC Topic 740, “Accounting for Income Taxes” clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. Tax positions shall initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a probability of fifty percent or greater of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, and supersedes the current revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The core principle of ASU 2014-09 is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, will require greater use of judgment and estimates than under the current guidance. In August 2015, theThe FASB delayed the effective date of this standard by one year, such that thesubsequently issued amendments providing additional guidance, is now effective for fiscal years beginning after December 15, 2017clarification, and interim periods therein. Early adoption is permittedpractical expedients as of the original effective date, December 15, 2016. follows:

We are currently evaluating the method and the impact that the adoption of ASU 2014-09these ASUs will have on our consolidated financial statements and disclosures.

In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest” (ASU 2015-03). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring Based upon our preliminary assessment and initial evaluation, we do not currently expect that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts or premiums. The Company early adopted the provisions of ASU 2015-03 during the fourth quarter of 2015 on a retrospective basis, and the adoption did notof these ASUs will have a material impact on the Company’s consolidated financial statements. As a resultmeasurement or timing of the adoption of ASU 2015-03, $624,000 of deferred finance costs were reclassified within the December 31, 2014 consolidated balance sheet.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (ASU 2015-17). ASU 2015-17 removes the reporting requirement to classify deferred income taxes between current and non-current on the balance sheet. Instead, the new accounting guidance in ASU 2015-17 will require that all deferred income taxes are reported and classified as non-current. The Company early adopted the provisions of ASU 2015-07 during the fourth quarter of 2015 on a retrospective basis, and the adoption did not have a material impact on the Company’s consolidated financial statements. As a result of the adoption of ASU 2015-17, $633,000 of deferred tax assets were reclassified within the December 31, 2014 consolidated balance sheet.our revenue recognition.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (ASU 2016-02). The core principle of ASU 2016-02 is that an entity should recognize on its balance sheet assets and liabilities arising from a lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying leased asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as a finance or operating lease. This new accounting guidance is effective for public companies for fiscal years beginning after December 15, 2018 (i.e., calendar years beginning on January 1, 2019), including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and disclosures.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance and clarification regarding the presentation and classification on the statement of cash flows for eight specific cash flow issues, including:

This new accounting guidance is effective for public companies for fiscal years beginning after December 15, 2017 (i.e., calendar years beginning on January 1, 2018), including interim periods within those fiscal years. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. Early adoption is permitted, provided all amendments are adopted in the same period. We do not anticipate that the adoption of ASU 2016-15 will have a material impact on our consolidated financial statements when this guidance is adopted in 2018.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation based on the fair value of individual assets and liabilities of a reporting unit in order to measure the amount of a goodwill impairment. Instead, after the adoption of ASU 2017-04, goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This new accounting guidance shall be applied prospectively, and is effective for public companies for fiscal years beginning after December 15, 2019 (i.e. calendar years beginning on January 1, 2020). Early adoption is permitted for any goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate that the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements,standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

Summary of Operating Results

The consolidated financial statements and related notes included elsewhere in this Form 10-K are as of, or for the year ended December 31, 20152016 (the “Current Year”), and the year ended December 31, 20142015 (the “Prior Year”).

Total Revenues

Current Year total revenues increased approximately $7.01$5.03 million to $27.72$32.75 million from $20.71$27.72 million for the Prior Year. This increase was primarily driven byattributable to increases in net licensing revenues of approximately $6.82$5.20 million, as a result of the acquisitions of the H Halston Brands and the C Wonder Brandpartially offset by declines in late December 2014 and in July 2015, respectively, the recognition of a full year of royalty revenue relative to the Ripka Brand, which was acquired in April 2014, as well as the continuing growth of the Isaac Mizrahi Brand. Also contributing to the increase in total revenues from Prior Year were increasednet e-commerce sales of $0.19$0.17 million.

The increase in net licensing revenues for the Current Year as compared with the Prior Year was primarily due to (i) higher revenues from our interactive television business of approximately $5.86 million, driven by acquisitions made in late 2014 and 2015, and (ii) increased revenues recognized from new strategic license agreements entered into in 2015 and 2016 of approximately $0.63 million. These increases were partially offset by a decrease in revenue of approximately $1.29 million associated with the management and design of the LCNY brand, for which our contract ended in July 2016.

The decline in net e-commerce sales from the Prior Year is the result of management’s decision to phase out of e-commerce.

Gross Profit

Gross profit for the Current Year was $27.45$32.56 million, compared with $20.63$27.45 million for the Prior Year. The increase in gross profit was primarily attributable to the increase in net licensing revenues described above. Cost of goods sold, which is solely associated with our e-commerce business, increased by $0.19 million from Prior Year, although this increase in cost of goods sold was offset by increased e-commerce sales.

Operating Expenses

Operating expenses totaled $24.28$31.10 million for the Current Year, compared with $19.80$24.28 million for the Prior Year. The increase of approximately $4.48$6.82 million was primarily driven byrelated to an increase in compensation expensecompensation-related expenses (including stock-based compensation) of $2.72approximately $3.93 million, an increase in other design and marketing costs of $1.29approximately $0.80 million, and an increase in other selling, general and administrative expenses of $0.54approximately $1.24 million. These increases in expenses were the result of increased staffing and scaling of our operations and infrastructure in order to support (i) the C Wonder Brand, which we acquired in July 2015 and which began selling on QVC in March 2016, (ii) the development and operation of our quick-time-response or short lead-time “virtual vertical” production platform, and (iii) launch and related ramp-up of the IMNYC Isaac Mizrahi, H Halston, and Highline Collective brands at Lord & Taylor and Hudson’s Bay department stores in April 2016.

Current Year operating expenses also included non-recurring charges of $0.67 million and anincurred in connection with the exit from our former leased office facilities.

The increase in depreciation and amortization expense of $0.44approximately $0.18 million partially offset by a decrease in stock-based compensation of $0.51 million. The increase in compensation expense and other design and marketing costs was a result of increased staffing levels for the Ripka Brand acquired in April 2014, the H Halston Brands acquired in December 2014, and the C Wonder Brand acquired in July 2015. Depreciation and amortization expense also increased by $0.44 million dueprimarily related to the amortization of the C Wonder trademarks acquired in July 2015, partially offset by certain other intangible assets associated with the recently acquired brands.becoming fully amortized in 2015 (see Note 3 to Notes to Consolidated Financial Statements).

Other (Income) Expenses (Income)

Other income for the Current Year consisted of a $3.41 million gain on the reduction of contingent obligations. This gain was attributable to an agreement entered into with the sellers of the Ripka brand on December 21, 2016, which amended the terms of the Ripka Earn-Out. Under this agreement, the maximum amount of earn-out consideration was reduced to $0.38 million, of which $0.18 million was payable in cash upon the execution of the amendment, and the remaining $0.20 million payable based upon the Ripka brands achieving at least $6 million of net royalty income from QVC during each of the 12-month periods ending on March 31, 2018 and 2019. The reduction of the Ripka Earn-Out liability from its previous carrying value of $3.78 million to $0.38 million resulted in a gain on reduction of contingent obligations in the Current Year of approximately $3.41 million.

Other income for the Prior Year consisted of a $3.0 million gain on the reduction of contingent obligations, partially offset by a $1.37 million loss on extinguishment of debt.

The gain on the reduction of contingent obligations in the CurrentPrior Year was a result of the reduction in the fair value of our contingent obligation to the seller of the Isaac Mizrahi Brand. This reduction in the Earn-Out Obligation for the CurrentPrior Year was based on a shortfall of achieving minimum net royalty income related to the Isaac Mizrahi business for the twelve months ended September 30, 2015.

The loss on extinguishment of debt in the CurrentPrior Year was due to our satisfaction of $5.40 million principal amount of Ripka Seller Notes by issuing 600,001 shares of our common stock in March and April 2015. The maturity date of the Ripka Seller Notes was originally March 31, 2019. The carrying value, net of the discount, of the Ripka Seller Notes at the redemption date was $4.03 million, resulting in a loss of $1.37 million.

Interest and Finance Expense

Interest and finance expense for the Current Year increased by approximately $0.32$0.05 million to $1.80$1.85 million, compared with $1.49$1.80 million in the Prior Year. This increase was primarily attributabledue to the higher interest rate on our term debt following the February 2016 refinancing (as the term debt interest rate was converted from a variable rate of approximately 4.1% to a fixed rate of 5.1%) and fees associated with the refinancing, largely offset by lower interest expense following the satisfaction of $5.40 million principal balance resulting from financing a portionamount of the H Halston Brands acquisitionRipka Seller Notes in December 2014.the Prior Year.

Provision for Income Taxes

The effective income tax rate for the Current Year was approximately 5.2%,10% resulting in a $0.16$0.32 million income tax provision. During the Current Year, the Company recorded a $3.41 million gain on the reduction of contingent obligations related to the acquisition of the Ripka Brand, partially offset by recurring permanent differences.This gain was not subject to tax and was therefore treated as a discrete item. Based on the amount of income from continuing operations before income taxes compared to the permanent differences, the effective rate decreased by 24%.

The effective income tax rate for the Prior Year was (183.52%)approximately 5%, which resulted in a $0.10$0.16 million income tax benefit. Duringprovision. For the CurrentPrior Year, wethe Company recorded a $3.0$3.00 million gain on the reduction of contingent obligations related to the acquisition of the Isaac Mizrahi business.Brand, partially offset by recurring permanent differences. This gain iswas not subject to tax and was therefore treated as a discrete item. During the Prior Year, we recorded a $0.6 million gainBased on the reductionamount of contingent obligations relatedincome from continuing operations before income taxes compared to the acquisition ofpermanent differences, the Isaac Mizrahi business. This gain is not subject to tax and was treated as a discrete item. Additionally, there was an increase in the state income taxeffective rate which was recorded to deferred income tax expense and treated as a discrete item during the Prior Year.decreased by 29%.

Discontinued Operations

The lossincome from discontinued operations, net, is attributable to the net loss related to our retail operations, as a result of our decision to discontinue our retail stores. The loss from discontinued operations, net decreased from $1.08 million in the Prior Year to $0.27$0.03 million in the Current Year as we substantially completedwas primarily attributable to the wind down activitiesreversal of an unutilized reserve associated with the closure of our retail stores. operations, partially offset by an income tax provision of $0.02 million.

The Current Year and the Prior Year loss from discontinued operations, net, of $0.27 million in the Prior Year was related to our retail operations and $1.08 million includeswas primarily attributable to compensation expense, other general and administrative expenses, and wind down costs associated with the closing of our retail stores, partially offset by an income tax benefit of $0.20 millionmillion. These wind down and $0.70 million, respectivelyclosure activities were essentially completed by the end of 2015.

Net Income (Loss)

We had net income of $2.57$2.74 million for the Current Year, compared with a net lossincome of $1.03$2.57 million for the Prior Year.Year, attributable to the factors stated above.

Non-GAAP Net Income, Non-GAAP Diluted EPS and Adjusted EBITDA

We had non-GAAP net income of $6.27$4.94 million, or $0.36$0.26 per share (“non-GAAP diluted EPS”) based on 19,044,749 weighted average shares outstanding for the Current Year, compared with non-GAAP net income of $5.18$6.27 million, or non-GAAP diluted EPS of $0.40,$0.36 per sharebased on 17,223,240 weighted average shares outstanding for the Prior Year.Non-GAAP net income is a non-GAAP unaudited term, which we define as net income, exclusive of stock-based compensation, non-cash interest expense from discounted debt related to acquired assets, gain on the reduction of contingent obligations, loss on extinguishment of debt, other non-cash adjustments,non-recurring facility exit charges, and net income or loss from discontinued operations, net.operations. Non-GAAP net income and non-GAAP diluted EPS measures do not include the tax effect of the reconciling items.aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy.

We had Adjusted EBITDA of approximately $9.30$8.52 million for the Current Year, compared with Adjusted EBITDA of approximately $7.01$9.30 million for the Prior Year. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income before stock-based compensation, interest expense and other financing costs, (including gain (loss)loss on extinguishment of debt),debt, gain on the reduction of contingent obligations, income taxes, other state and local franchise taxes, depreciation and amortization, gain on the reduction of contingent obligations, other non-cash adjustmentsnon-recurring facility exit charges, and net income or loss onfrom discontinued operations of our retail business.operations.

Management uses non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to ourthe Company's results of operations. Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because theythese measures adjust for certain costs and other events that management believes are not representative of our core business operating results, and thus these non-GAAP measures provide supplemental information to assist investors in evaluating ourthe Company’s financial results.

Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Given that non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net 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 non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA in a different manner than we calculate these measures.

In evaluating non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this presentation.report. Our presentation of non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income (loss) and other GAAP results, and not rely on any single financial measure.

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

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

We report net income (loss) for each period presented and in accordance with GAAP, diluted weighted average shares outstanding were 17,223,240 and 12,816,674 for the years ended December 31, 2015 and 2014, respectively.

The following table is a reconciliation of basic weighted average shares outstanding (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted weighted average shares outstanding:

The following table is a reconciliation of net income (loss) (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:

Selected Quarterly Financial Data

Liquidity and Capital Resources

Liquidity

Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures. At December 31, 2016 and 2015, and 2014, our unrestricted cash and cash equivalents were $16.86$14.13 million and $8.53$16.86 million, respectively. During the CurrentPrior Year, we closed onconsummated a public offering of our common stock that resulted in approximately $16.11 million in net cash proceeds after underwriting discounts, and commissions, and other expenses of the equity offering (See Note 9, Stockholders’ Equity in the7 to Notes to Consolidated Financial Statements).

Restricted cash at December 31, 2016 and December 31, 2015 included $1.11 of cash deposited with Bank Hapoalim B.M. (“BHI”) as collateral for an irrevocable standby letter of credit associated with the lease of our current corporate office and operating facilities at 1333 Broadway, New York City. Restricted cash at December 31, 2016 also included $0.40 million of cash held as a security deposit for the sublease of our former corporate offices at 475 Tenth Avenue, New York City by us to a third party subtenant.

We expect that existing cash and operating cash flows will be adequate to meet our operating needs, debt service obligations (including debt service under the Loan Agreement), and capital expenditure needs, including the debt service under our term loan facilities for at least the twelve months subsequent to December 31, 2015.the filing date of this Annual Report on Form 10-K. We are dependent on our licensees for mostsubstantially all of our revenues, and there is no assurance that the licensees will perform as projected.

We doOur business operating model does not require significant capital expenditures.

Our contingent obligationsobligation related to the acquisition of the C Wonder Brand (see Note 8, DebtNotes 3 and 6 to theNotes to Consolidated Financial Statements) areis payable in stock and/or cash, at our discretion. Payment of these obligationsthis obligation in stock would not affect our liquidity.

The scheduled January 31, 2016 payment of $750,000 under the IM Seller Note (see Note 8, Debt, to the Consolidated Financial Statements) was paid in cash in January 2016.

On July 8, 2015, we entered into a Sublease Agreement (the “Sublease”) with GBG USA Inc., a Delaware corporation (the “Sublandlord”), pursuant to which the Company has subleased approximately 29,600 rentable square feet of office space (the “Premises”). In connection with the Sublease, the Company has obtained, with the consent of the landlord of the Premises to the Sublease, an Irrevocable Standby Letter of Credit (the “Letter of Credit”) from Bank Hapoalim B.M. (“BHI”) in favor of the Sublandlord, for a sum of $1.1 million. We deposited this amount with Bank Hapoalim B.M. as collateral for the Letter of Credit, and have reflected this amount as restricted cash in the consolidated balance sheet.

Changes in Working Capital

AtOur working capital (current assets less current liabilities) was $11.53 million and $11.97 million as of December 31, 2016 and 2015, and 2014, the adjusted working capital ratio (current assets to current liabilities, excluding current contingent obligations and seller notes payable in stock (see Note 8, Debt, to the Consolidated Financial Statements)) was 2.80 to 1.00 and 1.40 to 1.00, respectively. For the purpose of computing the working capital ratio, $4.17 million of IM Seller Notes was excluded from the December 31, 2015 current liabilities and $2.4 million of Ripka Seller Notes and $5.77 million of contingent obligations were excluded from the December 31, 2014 current liabilities. Commentary on components of our cash flows from continuing operations for the Current Year compared with the Prior Year is set forth below:below. Working capital as of December 31, 2016 included $6.97 million of accounts receivable; substantially all of this balance was collected subsequent to year-end.

Operating Activities

Net cash provided by operating activities from continuing operations was approximately $3.19$7.92 million and $6.61$3.19 million in the Current Year and Prior Year, respectively.

The Current Year’s cash provided by operating activities was primarily due to net income of $2.74 million plus non-cash expenses of $4.14 million and net change in operating assets and liabilities of approximately $1.07 million, partially offset by net income from discontinued operations of approximately $0.03 million. Non-cash expenses mainly consisted of $4.73 million of stock-based compensation, $1.56 million of depreciation and amortization, a non-cash property exit charge of $0.65 million, $0.17 million of deferred taxes, and non-cash interest and other finance costs of $0.45 million, partially offset by a $(3.41) million gain on the reduction of contingent obligations. The net change in operating assets and liabilities was primarily driven by changes in other liabilities associated with leases.

The Prior Year’s cash provided by operating activities was primarily due to net income of $2.57 million plus non-cash expenses of $4.22 million and the net loss from discontinued operations of $0.27 million, partially offset by the net change in operating assets and liabilities of $(3.87) million. Non-cash expenses mainly consisted of $4.64 million of stock-based compensation, $1.38 million of depreciation and amortization, non-cash interest and other finance costs of $0.54 million, and loss on extinguishment of debt of $1.37 million, partially offset by $(0.71) million of tax benefits and a $(3.00) million gain on the reduction of contingent obligations. The net change in operating assets and liabilities was primarily driven by changes in accounts receivable.

The Prior Year’s cash provided by operating activities was primarily due to a net loss of $1.03 million, offset by a net loss from discontinued operations of $1.08 million, the net change in operating assets and liabilities of $1.95 million and non-cash expenses of $4.61 million. Non-cash expenses mainly consisted of $5.15 million of stock-based compensation, $0.94 million of depreciation and amortization, non-cash interest and other finance costs of $0.66 million, $(1.54) million of tax benefits and a $(0.60) million gain on the reduction of contingent obligations. The net change in operating assets and liabilities was primarily driven by changes in accounts payable and accrued expenses.

Investing Activities

Net cash used in investing activities from continuing operations for the Current Year was approximately $5.24$2.76 million, compared with $31.12approximately $4.13 million in the Prior Year. The

Current Year net cash used in investing activities was primarily attributable to $2.16 million of capital expenditures associated with leasehold improvements, furniture and fixtures, and equipment for our new corporate offices and operations facility; a $0.88 million disbursement for a loan made in exchange for a promissory note receivable; and $0.10 million of investment in a third-party unconsolidated affiliate. These outflows were partially offset by $0.40 million of cash received as a security deposit for the sublease of our former corporate offices to a third party subtenant.

In the Prior Year, net cash used in investing activities was primarily attributable to cash consideration paid for the acquisition of the C Wonder Brand of $3.59 million the deposit of $1.11 million as collateral for the aforementioned Letter of Credit, and capital expenditures of $0.53 million. In the Prior Year, net cash used in investing activities was attributable to cash consideration paid for the acquisition of the Ripka Brand of $12.37 million, cash consideration paid for the acquisition of the H Halston Brands of $18.51 million and capital expenditures of $0.25 million.

Financing Activities

Net cash used in financing activities for the Current Year was approximately $7.49 million, compared with net cash provided by financing activities of $10.27 million in the Prior Year.

Net cash used in financing activities for the Current Year was primarily attributable to payments on our term debt obligations of $4.00 million, payments on our IM Seller Note obligation of $1.50 million, and shares repurchased including vested restricted stock in exchange for withholding taxes of $1.43 million. Also contributing to the net cash used in financing activities for the Current year were the final payment of the QVC Earn-Out obligation of $0.25 million, a payment of $0.18 million made on the Ripka Earn-Out obligation, and payment of deferred finance costs of $0.15 million.

Net cash provided by financing activities for the CurrentPrior Year was approximately $10.27 million, which was primarily attributable to the $16.11 million of net proceeds from our public offering in July 2015, as well as tax benefits from vested stock grants and exercised options of $0.31 million. These cash inflows were partially offset by (i) $3.26 million of repayments on long-term debt, (ii) $2.19 million of payments on installment obligations related to the acquisition of the Ripka Brand, and (iii) $0.75 million of repurchased shares of restricted stock that had vested.

Net cash provided by financing activities for the Prior Year was approximately $26.76 million, primarily attributable to (i) $10.00 million of proceeds from the term debt related to the H Halston Brands, (ii) $9.00 million of proceeds from the term debt related to the Ripka Brand, (iii) $0.51 million tax benefit from vested stock grants and exercise of stock options, and (iv) $9.29 million of net proceeds (after expenses) from the issuance of 1,086,667 shares of our common stock in the December 22, 2014 private stock offering. These cash inflows were partially offset by (i) $0.98 million of repurchased shares of restricted stock that had vested, (ii) $0.51 million of deferred financing costs related to the H Halston Brands and Ripka Brand debt financing, (iii) $0.31 million of contingent obligation payments, and (iv) $0.25 of repayments on the IM Term Loan.

Obligations and Commitments

Term Loan Debt

On August 1, 2013, IM Brands, LLC (“IM Brands”) entered into a $13 million five year term loan with BHI (as amended, the “IM Term Loan”). The IM Term Loan iswas secured by all of the assets of IM Brands and the Company’s membership interest in IM Brands and bearsbore interest at an annual fixed rate of 4.44%, payable quarterly in arrears each calendar quarter.

On April 3, 2014, JR Licensing, LLC (“JR Licensing”) entered into a $9 million five year term loan with BHI (as amended, the “JR Term Loan”). The JR Term Loan iswas secured by all of the assets of JR Licensing and a guarantee from the Company secured by a pledge of the Company’s membership interest in JR Licensing and by a guarantee from IM Brands, secured by a pledge of all of IM Brands’ assets. The JR Term Loan bearsbore interest at an annual variable rate of either LIBOR plus 3.5% or Prime plus 0.50%, at JR Licensing’s option, payable, if the JR Term Loan is bearing interest based on LIBOR, on the last business day of the applicable interest period and, if the JR Term Loan is bearing interest based on Prime,or quarterly in arrears on the first day of each calendar quarter.quarter, respectively.

On December 22, 2014, H Licensing, LLC (“H Licensing”) entered into a $10 million, five year term loan with BHI (“H Term Loan”). The H Term Loan iswas secured by (i) all of the assets of H Licensing, (ii) a guarantee by the Company, secured by a pledge of the Company’s membership interest in H Licensing, (iii) a guarantee from IM Brands, secured by a pledge of all of the assets of IM Brands, and (iv) a guarantee from JR Licensing, secured by a pledge of all of the assets of JR Licensing. The H Term Loan bearsbore interest at an annual variable rate, as elected by H Licensing, of LIBOR plus 3.50% or Prime rate plus 0.50%. Interest on the H Term Loan accruing at a rate based on LIBOR is, payable on the last business day of the applicable interest period and interest on the H Term Loan accruing at a rate based on the Prime rate is payableor quarterly in arrears on the first day of each calendar quarter.

Under these loans, we were required to maintain minimum fixed charge ratio and liquidity covenants and other non-monetary covenants, including reporting requirements and trademark preservation, in accordance with the terms and conditions of the IM Term Loan, the JR Term Loan, and the H Term Loan. As of December 31, 2015, we were in full compliance with all such covenants.

Scheduled principal payments of $625,000, $375,000, and $375,000 under the IM Term Loan, JR Term Loan, and H Term Loan, respectively, were paid in January 2016.quarter, respectively.

On February 26, 2016, Xcel and its wholly-ownedwholly owned subsidiaries, IM Brands, LLC, JR Licensing, LLC, H Licensing, LLC, C Wonder Licensing, LLC, Xcel Design Group, LLC, IMNY Retail Management, LLC, and IMNY E-Store, USA, LLC (each a “Guarantor” and collectively, the “Guarantors”), as Guarantors, entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with BHI as agent (the “Agent”), and the financial institutions party thereto as lenders (the “Lenders”).lenders. The Loan Agreement amended and restated the IM Term Loan, the JR Term Loan, and the H Term Loan. Pursuant to the Loan Agreement, Xcel assumed the obligations of each of IM Brands, LLC, JR Licensing, LLC, and H Licensing, LLC under the applicable Existing Line Lettersrespective term loans with BHI in the aggregate principal amount of $27,875,000 (the loan under the Loan Agreement is referred to as the “Xcel Term Loan”).

On February 24, 2017, Xcel and BHI amended the terms of the Loan Agreement to increase principal payments for the year ending December 31, 2017 by a total of $1 million, decrease principal payments for the year ending December 31, 2021 by $1 million, and eliminate the minimum EBITDA covenant requirement for the year ended December 31, 2016. There were no changes to the total principal balance, interest rate, maturity date, or other terms of the Loan Agreement.

The Xcel Term Loan matures on January 1, 2021. Principal on the Xcel Term Loan shall beis payable in quarterly installments on each of January 1, April 1, July 1 and October 11. The aggregate remaining annual principal payments under the Xcel Term Loan, as follows, starting on April 1, 2016:amended, are as follows:

Under the Loan Agreement, we have the right to prepay the Xcel Term Loan, provided that any prepayment of less than all of the outstanding balance shall be applied to the remaining amounts due in inverse order of maturity.

If the Xcel Term Loan is prepaid on or prior to the third anniversary of the closing date (including as a result of an event of default), we shall pay early termination fees of 2.00% in the first year, 1.00% in the second year, and zero thereafter.

Commencing with the fiscal year ending December 31, 2017, we are required to repay a portion of the Xcel Term Loan in an amount equal to 10% of the excess cash flow for the fiscal year; provided that no early termination fee shall be payable with respect to any such payment. Excess cash flow means, for any period, cash flow from operations (before certain permitted distributions) less (i) capital expenditures not made through the incurrence of indebtedness, (ii) all cash interest and principal and taxes paid or payable during such period, and (iii) all dividends declared and paid during such period to equity holders of any credit party treated as a disregarded entity for tax purposes.

Our obligations under the Loan Agreement are guaranteed by the Guarantors and secured by all of the assets of Xcel and the Guarantors (as well as any subsidiary formed or acquired that becomes a credit party to the Loan Agreement) and, subject to certain limitations contained in the Loan Agreement, equity interests of the Guarantors (as well as any subsidiary formed or acquired that becomes a credit party to the Loan Agreement).

Interest on the Xcel Term Loan accrues at a fixed rate of 5.1% per annum and is payable on each day on which the scheduled principal payments are required to be made.

The Loan Agreement, as amended, contains customary covenants, including reporting requirements, trademark preservation, and the following financial covenants of the Company (on a consolidated basis with the Guarantors and any subsidiaries subsequently formed or acquired that become a credit party under the Loan Agreement):

We wereThe Company was in full compliance with all of these covenants under the Loan Agreement, as amended, as of and for the fiscal year ended December 31, 2015.2016.

The IM Seller Note

We issued the IM Seller Note in the principal amount of $7.38 million to IM Ready as partial consideration for the acquisition of the Mizrahi business.business in 2011. The IM Seller Note was amended on December 24, 2013, which included a partial repayment of $1.5 million of principal.principal, and further amended on September 19, 2016. The stated interest rate of the IM Seller Note is 0.25%, which was prepaidcurrently bears interest at 2.236% per annum, and matures on September 29, 2011.March 31, 2019. The following table presents thenote requires semi-annual principal and interest installment payments of $750,000.

The aggregate remaining annual principal payments under the IM Seller Note:  Note are as follows:

Ripka Seller Notes

On April 3, 2014,We issued the Ripka Seller Notes in the principal amount of $6.0 million as part of the consideration for the purchase of the Ripka brands JR Licensing issued to Ripka $6.0 million principal amount notes, or the Ripka Seller Notes.in 2014. The Ripka Seller Notes have a term of five years from the date of issuance, are payable in cash or shares of our common stock valued at the time of payment, at our option, with a floor price of $7.00 per share if paid in stock, and with Ripka having certain rights to extend the maturity of the Ripka Seller Notes in the event our stock is trading at a price of less than $7.00 per share.

Management determined that its expected borrowing rate is estimated to be 7.33% and has, therefore, discounted the Ripka Seller Notes by $1,835,000 using a 7.33% imputed annual interest rate, resulting in an initial value of $4,165,000. The imputed interest amount is being amortized over the term of the Ripka Seller Notes and recorded as other interest and finance expense.

OnIn February 20, 2015, we agreed to cancel Ripka Seller Notes in the principal amount of $3.0 million and execute in their place: (i) a $2.4 million principal amount promissory note and (ii) a $0.6 million principal amount promissory note, each issued in the name of Ms. Ripka (the “$2,400,000 Seller Note”) and (ii) a $600,000 principal amount promissory note issued in the name of Ms. Ripka (the “$600,000 Seller Note”), each pursuant to substantially the same terms as the Ripka Seller Notes; provided, however, thatNotes. The $2.4 million principal promissory note was ultimately cancelled in exchange for the Company and Ms. Ripka have agreed that, upon Ms. Ripka’s assignmentissuance of the $600,000 Seller Note to a permitted assignee, the principal payments under the $600,000 Seller Note shall accelerate to be payable in eight equal quarterly installments of $75,000 with the first payment due on March 31, 2015 and with the final principal payment payable on December 31, 2016. As of the date of the filing of this Annual Report, the $600,000 Seller Note has not been assigned. The $2,400,000 Seller Note was assigned by Ms. Ripka to Judith Ripka Creations, Inc. and further assigned by Judith Ripka Creations, Inc. to Thai Jewelry Manufacturer Co. LTD. (“Thai Jewelry”).

On February 20, 2015, we entered into a release letter (the “Release Letter”) with Thai Jewelry, pursuant to which we agreed to issue to Thai Jewelry an aggregate of 266,667 shares of our Common Stock in exchange for the cancellation of the $2,400,000 Seller Note and Thai Jewelry released the Company and its affiliates from any and all claims which exist or may have existed between the Company and Thai Jewelry, as well as Judith Ripka, Judith Ripka Creations, Inc. or any of their affiliates or successors.common stock. The $0.6 million principal amount promissory note remains outstanding.

OnIn April 21, 2015, we satisfied an additional $3$3.0 million principal amount of the Ripka Seller Notes by issuing 333,334 shares of the Company’sour common stock. The carrying value, net of the discount at the time of the redemption of the $3 million Ripka Seller Notes was $2.24 million and, as a result, the Company recorded a loss on the early extinguishment of debt of $0.76 million during 2015.

The remaining carrying value of the Rikpa Seller Notes, net of the discount recorded at the time of purchase of the Ripka Brands which is being amortized as imputed interest over the term of the Notes, at December 31, 20152016 was $0.47$0.50 million.

QVC Earn-Out

The QVC Earn-Out payment requires us to pay IM Ready approximately $2.76In December 2016, the Company made a $1.0 million payable in cash or Common Stock, at our option, contingent upon the Mizrahi business receiving aggregate net royalty income of at least $2.5 million from QVC in the 12-month period ended September 30, 2015 with the number of shares of such stock based upon the greater of (x) $4.50 per share, and (y) the average stock price for the last twenty business days priorloan to the timeseller of such issuance. The $2.5 millionthe Ripka brands, which was collateralized by certain assets in net royalty income from QVC for the twelve-month period ended September 30, 2015 was met and, therefore,which the Company issued IM Ready 290,473 shares of Common Stock, valued at $2.51has been granted a security interest. The remaining $0.6 million as of September 30, 2015 and remitted $0.25 million in cash in February 2016.principal amount promissory note is one such asset collateralizing that loan.

Ripka Earn-Out

In connection with the purchase of the Ripka brands, we agreed to pay Ripka additional consideration of up to $5 million in aggregate, payable in cash or shares of our common stock based on the fair market value of our common stock at the time of payment, and with a floor of $7.00 per share, based on the Ripka brands achieving in excess of $1 million of net royalty income (excluding revenues generated by interactive television sales) during each of the 12-month periods beginning on October 1, 2015 and ending on October 1, 2018, less the sum of all earn out payments for any prior earn-out period. Net

On December 21, 2016, we entered into an agreement with the sellers of the Ripka brands which amended the terms of the Ripka Earn-Out, such that the maximum amount of earn-out consideration was reduced to $0.38 million, of which $0.18 million was payable in cash upon execution of the amendment, and $0.10 million is payable in cash on each of May 15, 2018 and 2019. The payment of the remaining $0.20 million of earn-out consideration is contingent upon the Ripka brands achieving at least $6 million of net royalty income shall not include any revenues generated by direct-response television sales or any revenue accelerated as a resultfrom QVC during each of terminationthe 12-month periods ending on March 31, 2018 and 2019.

The remaining expected value (which approximates fair value) of any license agreements. Thethe Ripka Earn-Out of $3.78$0.20 million is recorded as long-term debt at December 31, 20152016 on the consolidated balance sheets based on the difference between the fair value of the assets of the Ripka brands acquired and the total consideration paid.sheets.

C Wonder Earn-Out

In connection with the purchase of the C Wonder brand, we agreed to pay the Sellerseller additional consideration, which would be payable, if at all, in cash or shares of our common stock, at the Company’sour sole discretion, after June 30, 2019, with a value based on the royalties related directly to the assets acquired. The value of the earn-out shall be calculated as the positive amount, if any, of (i) two times (A) the maximum net royalties as calculated for any single twelve month period commencing on July 1 and ending on June 30 between the closing date and June 30, 2019 (each, a “Royalty Target Year”) less (B) $4,000,000, plus (ii) two times the maximum royalty determined based on a percentage of retail and wholesale sales of C Wonder branded products by the Company as calculated for any single Royalty Target Year.

The C Wonder Earn-Out of $2.85 million is recorded as long-term debt at December 31, 20152016 on the consolidated balance sheets based on the probability of the C Wonder Brandbrand achieving certain net royalty income targets within the earn-out periods and then calculating the present value of the weighted average payment amount.

Other

We believe that cash from future operations as well as currently available cash will be sufficient to satisfy our anticipated working capital requirements for the foreseeable future, including the debt service on our term debt, the Earn-Outs related to our acquisition of the Ripka and C Wonder brands, and making necessary investments in our infrastructure and technology.

The following is a summary of contractual cash obligations including interest for the periods indicated that existed as of December 31, 2015:2016 for the future periods indicated:

Other Factors

We continue to seek to expand and diversify the types of licensed products being produced under the Mizrahi, Ripka, H Halston and C Wonderour brands. We plan to continue to diversify the distribution channels within which licensed products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands. The Mizrahi brands, thebrand, H Halston brandsbrand, and C Wonder brand have a core business in fashion apparel and accessories. The Ripka brand historically has been focused on fine jewelry, which we believe helps diversify our industry focus while at the same time complements, expands on, and grows our overall business relationship with QVC. Going forwardIn April 2016, we brought the IMNYC Isaac Mizrahi, H Halston, and Highline Collective brands to Lord & Taylor and Hudson’s Bay department stores through our focus shall be onquick-time-response direct-to-retail “virtual vertical” production platform, and plan to do the same with the C Wonder Limited brand in 2017. We signed a similar agreement with Dillard’s in December 2016, and plan to launch certain products under our wholly owned brands.WeH Halston, C Wonder, and Highline Collective brands at retail stores operated by Dillard’s in the U.S. in 2017. We also intend to seek new opportunities, including expansion through direct-responseinteractive television, andour “virtual vertical” QTR production platform, additional domestic and international licensing arrangements, and acquiring additional brands. Our success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and contract with and retain key licensees, and onas well as our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer bases and fulfill the product requirements of their particular retail channels within the global marketplace. Unanticipated changes in consumer fashion preferences and purchasing patterns, slowdowns in the U.S. economy, changes in the prices of supplies, consolidation of retail establishments, and other factors noted in “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.

Effects of Inflation

We do not believe that the relatively moderate rates of inflation experienced over the past two years in the United States, where we primarily compete, have had a significant effect on revenues or profitability. If there were an adverse change in the rate of inflation by less than 10%, the expected effect on net income and cash flows would be immaterial.

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.

Not applicable.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and 

Stockholders of Xcel Brands, Inc.

We have audited the accompanying consolidated balance sheets of Xcel Brands, Inc. and Subsidiaries as of December 31, 20152016 and 2014,2015, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. Xcel Brands, Inc. and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Xcel Brands, Inc. and Subsidiaries as of December 31, 20152016 and 2014,2015, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ CohnReznick LLP

New York, New York

March 17, 2016

23, 2017

Xcel Brands, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share data)

See Notes to Consolidated Financial Statements.

Xcel Brands, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except share and per share data)

See Notes to Consolidated Financial Statements.

Xcel Brands, Inc. and Subsidiaries

Consolidated Statement of Stockholders' Equity

(in thousands, except share data)