PART 1.I. FINANCIAL INFORMATION

~~ITEM 1.~~

~~FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

September 30, 2017 December 31, 2016
(Unaudited) (Note 1)
Assets
Current Assets:
Cash and cash equivalents $ 8,273 $ 14,127
Accounts receivable, net 9,517 6,969
Prepaid expenses and other current assets 594 807
Total current assets 18,384 21,903
Property and equipment, net 2,441 2,600
Trademarks and other intangibles, net 110,396 111,220
Goodwill 12,371 12,371
Restricted cash 1,509 1,509
Other assets 1,501 1,517
Total non-current assets 128,218 129,217

Total Assets $ 146,602 $ 151,120

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities $ 839 $ 1,523
Accrued payroll 1,781 2,185
Deferred revenue 73 234
Current portion of long-term debt 4,459 6,427
Current portion of long-term debt, contingent obligations 100 -
Total current liabilities 7,252 10,369
Long-Term Liabilities:
Long-term debt, less current portion 20,337 25,495
Deferred tax liabilities, net 8,605 6,901
Other long-term liabilities 2,637 2,181
Total long-term liabilities 31,579 34,577
Total Liabilities 38,831 44,946

Commitments and Contingencies

Stockholders' Equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding - -
Common stock, $.001 par value, 35,000,000 shares authorized at September 30, 2017 and December 31, 2016, and 18,468,801 and 18,644,982 issued and outstanding at September 30, 2017 and December 31, 2016, respectively 18 19
Paid-in capital 98,886 97,354
Retained earnings 8,867 8,801
Total Stockholders' Equity 107,771 106,174

Total Liabilities and Stockholders' Equity $ 146,602 $ 151,120


	September 30, 2023		December 31, 2022
	(Unaudited)		(Note 1)
Assets
Current Assets:
Cash and cash equivalents	$	2,189	$	4,608
Accounts receivable, net		4,749		5,110
Inventory		997		2,845
Prepaid expenses and other current assets		447		1,457
Total current assets		8,382		14,020
Non-current Assets:
Property and equipment, net		779		1,418
Operating lease right-of-use assets		4,702		5,420
Trademarks and other intangibles, net		43,055		47,665
Equity method investment		17,650		19,195
Deferred tax assets, net		1,107		1,107
Other assets		75		110
Total non-current assets		67,368		74,915

Total Assets	$	75,750	$	88,935

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities	$	3,621	$	4,438
Deferred revenue		889		88
Accrued payroll		80		416
Current portion of operating lease obligations		1,219		1,376
Current portion of contingent obligations		847		243
Total current liabilities		6,656		6,561
Long-Term Liabilities:
Long-term portion of operating lease obligations		4,362		5,839
Deferred revenue		3,875		—
Long-term portion of contingent obligations		5,548		6,396
Total long-term liabilities		13,785		12,235
Total Liabilities		20,441		18,796

Commitments and Contingencies

Stockholders' Equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding		—		—
Common stock, $.001 par value, 50,000,000 shares authorized, and 19,800,053 and 19,624,860 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		20		20
Paid-in capital		103,804		103,592
Accumulated deficit		(47,052)		(32,797)
Total Xcel Brands, Inc. stockholders' equity		56,772		70,815
Noncontrolling interest		(1,463)		(676)
Total Stockholders' Equity		55,309		70,139

Total Liabilities and Stockholders' Equity	$	75,750	$	88,935

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016

Net revenues $ 7,890 $ 8,320 $ 24,690 $ 25,793

Operating costs and expenses
Salaries, benefits and employment taxes 4,079 4,054 12,806 12,481
Other design and marketing costs 287 779 1,803 2,439
Other selling, general and administrative expenses 1,188 1,175 3,602 4,540
Stock-based compensation 690 1,089 2,496 3,754
Depreciation and amortization 389 387 1,173 1,172
Total operating costs and expenses 6,633 7,484 21,880 24,386

Operating income 1,257 836 2,810 1,407

Interest and finance expense
Interest expense - term debt 273 340 905 1,003
Other interest and finance charges 41 122 135 424
Total interest and finance expense 314 462 1,040 1,427

Income (loss) before income taxes 943 374 1,770 (20 )

Income tax provision (benefit) 691 256 1,704 (3 )

Net income (loss) $ 252 $ 118 $ 66 $ (17 )

Basic net income (loss) per share $ 0.01 $ 0.01 $ 0.00 $ (0.00 )

Diluted net income (loss) per share $ 0.01 $ 0.01 $ 0.00 $ (0.00 )

Basic weighted average common shares outstanding 18,470,977 18,692,775 18,530,963 18,608,034
Diluted weighted average common shares outstanding 18,872,753 19,068,011 18,896,418 18,608,034


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Revenues
Net licensing revenue	$	2,381	$	2,166	$	7,031	$	13,302
Net sales		256		2,335		8,437		8,413
Net revenue		2,637		4,501		15,468		21,715
Cost of goods sold		225		1,465		6,718		5,715
Gross profit		2,412		3,036		8,750		16,000

Direct operating costs and expenses
Salaries, benefits and employment taxes		2,141		3,301		7,847		13,390
Other selling, general and administrative expenses		3,482		3,618		9,918		11,330
Total direct operating costs and expenses		5,623		6,919		17,765		24,720

Operating loss before other operating costs and expenses (income)		(3,211)		(3,883)		(9,015)		(8,720)

Other operating costs and expenses (income)
Depreciation and amortization		1,677		1,815		5,260		5,447
Gain on sale of majority interest in Isaac Mizrahi brand		—		—		—		(20,608)
Loss from equity method investment		515		277		1,545		277
Gain on sale of limited partner ownership interest		—		—		(351)		—
Gain on settlement of lease liability		—		—		(445)		—

Operating (loss) income		(5,403)		(5,975)		(15,024)		6,164

Interest and finance (income) expense
Interest expense - term loan debt		—		—		—		1,187
Other interest and finance charges (income), net		—		(6)		18		(6)
Loss on early extinguishment of debt		—		—		—		2,324
Total interest and finance (income) expense		—		(6)		18		3,505

(Loss) income before income taxes		(5,403)		(5,969)		(15,042)		2,659

Income tax (benefit) provision		—		(1,539)		—		1,639

Net (loss) income		(5,403)		(4,430)		(15,042)		1,020
Net loss attributable to noncontrolling interest		(259)		(388)		(787)		(941)
Net (loss) income attributable to Xcel Brands, Inc. stockholders	$	(5,144)	$	(4,042)	$	(14,255)	$	1,961

(Loss) earnings per common share attributable to Xcel Brands, Inc. stockholders:
Basic net (loss) income per share	$	(0.26)	$	(0.21)	$	(0.72)	$	0.10
Diluted net (loss) income per share	$	(0.26)	$	(0.21)	$	(0.72)	$	0.10
Weighted average number of common shares outstanding:
Basic weighted average common shares outstanding		19,749,317		19,624,860		19,683,525		19,624,604
Diluted weighted average common shares outstanding		19,749,317		19,624,860		19,683,525		19,752,339

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)


	Xcel Brands, Inc. Stockholders
	Common Stock
	Number of			Paid-In		Accumulated		Noncontrolling
	Shares	Amount		Capital		Deficit		Interest		Total
Balance as of December 31, 2021	19,571,119	$	20	$	103,039	$	(28,779)	$	662	$	74,942

Compensation expense related to stock options and restricted stock	—		—		30		—		—		30

Net loss	—		—		—		(3,487)		(252)		(3,739)

Balance as of March 31, 2022	19,571,119		20		103,069		(32,266)		410		71,233

Compensation expense related to stock options and restricted stock	—		—		402		—		—		402

Shares issued to executive related to stock grants for bonus payments	178,727		—		281		—		—		281

Shares repurchased from executive in exchange for withholding taxes	(53,882)		—		(85)		—		—		(85)

Shares issued to consultant in connection with stock grant	20,064		—		33		—		—		33

Shares issued to directors in connection with restricted stock grants	50,000		—		—		—		—		—

Shares issued to consultant in connection with Isaac Mizrahi sale transaction	65,275		—		97		—		—		97

Shares issued to key employee in connection with stock grant	33,557		—		50		—		—		50

Shares repurchased from key employee in exchange for withholding taxes related to vesting of restricted shares	(240,000)		—		(357)		—		—		(357)

Net income (loss)	—		—		—		9,490		(301)		9,189

Balance as of June 30, 2022	19,624,860		20		103,490		(22,776)		109		80,843

Compensation expense related to stock options and restricted stock	—		—		51		—		—		51

Net loss	—		—		—		(4,042)		(388)		(4,430)

Balance as of September 30, 2022	19,624,860	$	20	$	103,541	$	(26,818)	$	(279)	$	76,464

Balance as of December 31, 2022	19,624,860	$	20	$	103,592	$	(32,797)	$	(676)	$	70,139
		��
Compensation expense related to stock options and restricted stock	—		—		51		—		—		51

Shares issued to consultant in connection with stock grant	8,334		—		6		—		—		6

Net loss	—		—		—		(5,643)		(295)		(5,938)

Balance as of March 31, 2023	19,633,194		20		103,649		(38,440)		(971)		64,258

Compensation expense related to stock options and restricted stock	—		—		27		—		—		27

Shares issued to consultant in connection with stock grant	58,334		—		39		—		—		39

Shares issued on exercise of stock options, net of shares surrendered for cashless exercises	9,128		—		—		—		—		—

Net loss	—		—		—		(3,468)		(233)		(3,701)

Balance as of June 30, 2023	19,700,656		20		103,715		(41,908)		(1,204)		60,623

Compensation expense related to stock options and restricted stock	—		—		36		—		—		36

Contra-revenue related to warrants granted to licensee	—		—		16		—		—		16

Shares issued to directors in connection with restricted stock grants	40,000		—		—		—		—		—

Shares issued to employee in connection with stock grant	7,300		—		10		—		—		10

Shares issued on exercise of stock options, net of shares surrendered for cashless exercises	52,097		—		27		—		—		27

Net loss	—		—		—		(5,144)		(259)		(5,403)

Balance as of September 30, 2023	19,800,053	$	20	$	103,804	$	(47,052)	$	(1,463)	$	55,309

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

For the Nine Months Ended September 30,
2017 2016

Cash flows from operating activities
Net income (loss) $ 66 $ (17 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense 1,173 1,172
Amortization of deferred finance costs 146 140
Stock-based compensation 2,496 3,754
Amortization of note discount 28 236
Deferred income tax 1,704 (3 )
Non-cash property exit charge - 648
Changes in operating assets and liabilities:
Accounts receivable (2,548 ) (1,210 )
Prepaid expenses and other assets 211 199
Accounts payable, accrued expenses and other current liabilities (1,237 ) 1,306
Deferred revenue (161 ) (585 )
Other liabilities 456 1,129
Net cash provided by operating activities 2,334 6,769

Cash flows from investing activities
Cost to acquire intangible assets (23 ) (26 )
Purchase of property and equipment (167 ) (1,911 )
Net cash used in investing activities (190 ) (1,937 )

Cash flows from financing activities
Proceeds from exercise of stock options - 20
Shares repurchased including vested restricted stock in exchange for withholding taxes (814 ) (1,210 )
Payment of deferred finance costs (7 ) (69 )
Payment of long-term debt (7,177 ) (4,625 )
Payment of QVC earnout obligation - (250 )
Net cash used in financing activities (7,998 ) (6,134 )

Net decrease in cash, cash equivalent and restricted cash (5,854 ) (1,302 )

Cash, cash equivalents, and restricted cash at beginning of period 15,636 17,969

Cash, cash equivalents, and restricted cash at end of period $ 9,782 $ 16,667

Reconciliation to amounts on consolidated balance sheets:
Cash and cash equivalents $ 8,273 $ 15,158
Restricted cash 1,509 1,509
Total cash, cash equivalents, and restricted cash $ 9,782 $ 16,667

Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 151 $ 168
Cash paid during the period for interest $ 1,175 $ 909


	For the Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net (loss) income	$	(15,042)	$	1,020
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization expense		5,260		5,447
Asset impairment charges		100		—
Amortization of deferred finance costs included in interest expense		—		156
Stock-based compensation and cost of licensee warrants		184		568
Provision for doubtful accounts		20		173
Restructuring of certain contractual arrangements		756		—
Undistributed proportional share of net loss of equity method investee		1,545		277
Loss on early extinguishment of debt		—		2,324
Deferred income tax provision		—		363
Gain on sale of majority interest in Isaac Mizrahi brand		—		(20,608)
Gain on sale of limited partner ownership interest		(351)		—
Gain on settlement of lease liability		(445)		—
Changes in operating assets and liabilities:
Accounts receivable		(415)		747
Inventory		1,848		(509)
Prepaid expenses and other current and non-current assets		920		235
Deferred revenue		4,676		199
Accounts payable, accrued expenses, accrued payroll, accrued income taxes payable, and other current liabilities		(1,395)		(995)
Lease-related assets and liabilities		(471)		(202)
Other liabilities		—		(224)
Net cash used in operating activities		(2,810)		(11,029)

Cash flows from investing activities
Net proceeds from sale of majority interest in Isaac Mizrahi brand		—		45,408
Net proceeds from sale of assets		451		—
Purchase of property and equipment		(87)		(241)
Net cash provided by investing activities		364		45,167

Cash flows from financing activities
Proceeds from exercise of stock options		27		—
Shares repurchased including vested restricted stock in exchange for withholding taxes		—		(442)
Payment of long-term debt		—		(29,000)
Payment of prepayment, breakage and other fees associated with early extinguishment of long-term debt		—		(1,511)
Net cash provided by (used in) financing activities		27		(30,953)

Net (decrease) increase in cash and cash equivalents		(2,419)		3,185

Cash and cash equivalents at beginning of period		4,608		5,222

Cash and cash equivalents at end of period	$	2,189	$	8,407

Supplemental disclosure of non-cash activities:
Liability for equity-based bonuses and other equity-based payments	$	—	$	(283)

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	—	$	1,032
Cash paid during the period for income taxes	$	16	$	—

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

1. Nature of Operations, Background, and Basis of Presentation

~~Nature of Operations, Background, and Basis of Presentation~~

The accompanying condensed consolidated balance sheet as of December 31, ~~2016~~2022 (which has been derived from audited financial statements) and the unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and ~~Rule 10-01~~Article 8 of Regulation S-X promulgated by the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements were prepared following the same policies and procedures used in the preparation of the audited consolidated financial statements and reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the results of operations, financial position, and cash flows of Xcel Brands, Inc. ~~(“Xcel”)~~ and its subsidiaries (the “Company” or "Xcel"). The results of operations for the interim periods presented herein are not necessarily indicative of the results for the entire fiscal year or for any future interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, as filed with the SEC on ~~March 24, 2017.~~

April 17, 2023.

The Company is a media and consumer products company engaged in the design, production, ~~licensing,~~ marketing, live streaming, wholesale distribution, and ~~direct to consumer~~direct-to-consumer sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands.

Currently, the Company’s brand portfolio consists of the LOGO by Lori Goldstein brand (the “Lori Goldstein Brand”), the Halston brands (the "Halston Brand"), the Judith Ripka brands (the "Ripka Brand"), the C Wonder brands (the "C Wonder Brand"), the Longaberger brand (the “Longaberger Brand”), the Isaac Mizrahi ~~brand~~brands (the "Isaac Mizrahi Brand"), ~~the Judith Ripka brand (the “Ripka Brand”), the H by Halston~~ and ~~H Halston brands (collectively, the “H Halston Brands”), the C Wonder brand (the “C Wonder Brand”), and the Highline Collective brand.~~other proprietary brands.

●

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

●

The Company manages the Longaberger Brand through its 50% ownership interest in Longaberger Licensing, LLC; the Company consolidates Longaberger Licensing, LLC and recognizes noncontrolling interest for the remaining ownership interest held by a third party.

●

The Company wholly owned and managed the Isaac Mizrahi Brand through May 31, 2022. On May 31, 2022, the Company sold to a third party a majority interest in a newly-created subsidiary that was formed to hold the Isaac Mizrahi Brand trademarks, but retained a noncontrolling interest in the brand through a 30% ownership interest in IM Topco, LLC, and continues to contribute to the operations of the brand through a service agreement (see Note 11 for additional details). The Company accounts for its interest in IM Topco, LLC using the equity method of accounting.

The Company designs, produces, markets, and distributes products, licenses its brands to third parties, ~~provides certain design, production, and marketing services,~~ and generates licensing ~~design, and service fee~~ revenues through contractual arrangements ~~and other agreements~~ with manufacturers and retailers. ~~These activities include licensing~~The Company and its ~~own brands for promotion and distribution~~licensees distribute through ~~a ubiquitous~~an omni-channel retail sales strategy, which ~~encompasses~~includes distribution through interactive television, ~~the internet,~~digital live-stream shopping, wholesale, and ~~traditional brick-and-mortar retail channels.~~e-commerce channels to be everywhere its customers shop.

~~Certain reclassifications have been made to the prior period unaudited condensed consolidated financial statements to conform to the current period presentation, including:~~

Presentation of e-commerce gross margin within total net revenues on the condensed consolidated statements of operations. Of the $41,000 of costs previously presented as cost of goods sold for the three months ended September 30, 2016, $10,000 has been reclassified to net revenues, and $31,000 has been reclassified to other selling, general and administrative expenses. Of the $147,000 of costs previously presented as cost of goods sold for the nine months ended September 30, 2016, $46,000 has been reclassified to net revenues, and $101,000 has been reclassified to other selling, general and administrative expenses.

Presentation of restricted cash on the condensed consolidated statements of cash flows for the nine months ended September 30, 2017, as a result of the early adoption of Accounting Standards Update No. 2016-18 in the fourth quarter of 2016.

~~For further information, refer to the consolidated financial statements~~The Company’s wholesale and ~~footnotes thereto included~~direct-to-consumer operations are presented as "Net sales" and "Cost of goods sold" in the ~~Company’s Annual Report on Form 10-K for the year ended December 31, 2016.~~

~~Recent Accounting Pronouncements~~

~~In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2017-09,~~~~Stock Compensation (Topic 718): Scope~~Condensed Consolidated Statements of ~~Modification Accounting~~ (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the following conditions are met: (i) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. 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. Early adoption is permitted in any interim or annual period. The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. The adoption of ASU 2017-09 is not expected to have a significant impact onOperations, separately from the Company’s ~~consolidated financial statements.~~net licensing revenue.

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

Liquidity and Management’s Plans

The Company incurred a net loss attributable to Company stockholders of approximately $5.1 million and $14.3 million during the three and nine months ended September 30, 2023, respectively (which included net non-cash expenses of approximately $2.3 million and $7.1 million, respectively), and had an accumulated deficit of approximately $47.1 million as of September 30, 2023. Net cash used in operating activities was approximately $2.8 million for the nine months ended September 30, 2023. The Company had working capital (current assets less current liabilities, excluding the current portion of lease obligations and any contingent obligations payable in common stock) of approximately $2.9 million as of September 30, 2023. The Company’s cash and cash equivalents were approximately $2.2 million as of September 30, 2023. The aforementioned factors raise uncertainties about the Company’s ability to continue as a going concern.

Management has implemented a plan to mitigate an expected shortfall of capital and to support future operations by shifting the business from a wholesale/licensing hybrid model into a “licensing-plus” business model. In ~~May 2014, FASB issued ASU No. 2014-09,~~~~Revenue from Contracts~~the first quarter of 2023, the Company began to restructure its business operations by entering into new licensing agreements and joint venture arrangements with ~~Customers(“ASU 2014-09”~~best-in-class business partners. The Company entered into a new interactive television licensing agreement with America’s Collectibles Network, Inc. d/b/a Jewelry Television (“JTV”)~~, requiring revenue~~ for the Ripka Brand, and a separate license with JTV for the Ripka Brand’s e-commerce business. For apparel, similar transactions have been executed. In conjunction with the launch of the C Wonder Brand on HSN, the Company licensed the wholesale operations related to ~~be recognized~~the brand to One Jeanswear Group, LLC (“OJG”); this new license with OJG also includes certain other new celebrity brands that the Company plans to develop and launch in 2023 and beyond. In the second quarter of 2023, the Company entered into a new master license agreement for the Halston Brand, covering men’s, women’s, and children’s apparel, fashion accessories, and other product categories, with an ~~amount that reflects the consideration expected to be received in exchange~~industry-leading wholesale apparel company for ~~goods~~distribution through department stores, e-commerce, and ~~services.~~other retailers (see Note 4). This new ~~revenue standard may~~master license for the Halston Brand provides for an upfront cash payment and royalties, including certain guaranteed minimum royalties to the Company, includes significant annual minimum net sales requirements, and has a twenty-five-year term (consisting of an initial five-year period, followed by a twenty-year period), subject to the licensee’s right to terminate with at least 120 days’ notice prior to the end of each five-year period during the term.

The transition of these operating businesses was substantially completed by the end of the second quarter of 2023.

Management believes that this evolution of the Company’s operating model will provide the Company with significant cost savings and allow the Company to reduce and better manage its exposure to operating risks. As of September 30, 2023, the Company has reduced its payroll costs by approximately $6 million and operating expenses by approximately $7 million, on an annualized basis when compared to the corresponding periods in the prior year.

While there is some level of potential risk with respect to the Company’s contingent obligation related to IM Topco, LLC, which could negatively impact the Company’s future cash flows and liquidity, management has taken steps to address such risk (see Note 12 and Note 13 for additional details).

Further, in October 2023, the Company entered into a new term loan agreement in the amount of $5 million, which provides the Company with approximately $5 million of additional liquidity (see Note 13 for additional details). Also in October 2023, Longaberger Licensing, LLC outsourced the operations and management of the Longaberger Brand’s e-commerce business to a third party (see Note 13 for additional details).

Based on these recent events and changes, management expects that existing cash and future operating cash flows will be ~~applied retrospectively~~adequate to ~~each prior period presented, or retrospectively~~meet the Company’s operating needs, term debt service obligations, and capital expenditure needs, for at least the twelve months subsequent to the filing date of this Quarterly Report on Form 10-Q; therefore, such conditions and uncertainties with respect to the ~~cumulative effect recognized~~Company’s ability to continue as a going concern as of ~~the date~~September 30, 2023, have been alleviated.

Table of adoption. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date (“ASU 2015-14”), which defers implementation of ASU 2014-09 by one year. Under such deferral, the adoption of ASU 2014-09 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted, but not before our original effective date of January 1, 2017. Our evaluation of the impact of the adoption of ASU 2014-09 on our consolidated financial statements is ongoing and our implementation efforts have included the identification of revenue within the scope of the guidance and the evaluation of applicable revenue contracts. Currently, based on our preliminary analyses, we do not expect the adoption of ASU 2014-09 to result in material differences from the Company’s current revenue recognition policies; however, our analyses are not final. The Company recognizes revenue continuously over time as it satisfies its continuous obligation of granting access to its licensed intellectual properties. Revenue, depending on the contract, is recognized ratably over each contract year as the performance occurs based on the greater of the guaranteed minimum payments, sales-based payments, or performance based payments, with each contract year treated as separate from the other years.

~~Trademarks, Goodwill and Other Intangibles~~

~~Trademarks and other intangibles, net consist of the following:~~

Weighted-
Average September 30, 2017
($ in thousands) Amortization
Period
Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Trademarks (indefinite-lived) n/a $ 96,700 $ - $ 96,700
Trademarks (definite-lived) 15 years 15,463 2,231 13,232
Licensing agreements 4 years 2,000 2,000 -
Non-compete agreement 7 years 562 221 341
Copyrights and other intellectual property 10 years 190 67 123
Total $ 114,915 $ 4,519 $ 110,396

Weighted-
Average December 31, 2016
($ in thousands) Amortization
Period
Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Trademarks (indefinite-lived) n/a $ 96,676 $ - $ 96,676
Trademarks (definite-lived) 15 years 15,463 1,459 14,004
Licensing agreements 4 years 2,000 2,000 -
Non-compete agreement 7 years 562 160 402
Copyrights and other intellectual property 10 years 190 52 138
Total $ 114,891 $ 3,671 $ 111,220

Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

~~Amortization expense~~Recently Adopted Accounting Pronouncements

The Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (as amended by ASU No. 2018-19 in November 2018, ASU No. 2019-05 in May 2019, ASU No. 2019-10 and 2019-11 in November 2019, ASU No. 2020-02 in February 2020, and ASU No. 2022-02 in March 2022) effective January 1, 2023. This ASU requires entities to estimate lifetime expected credit losses for ~~intangible assets was approximately $283,000~~financial instruments, including trade and ~~$282,000 for~~other receivables, which will result in earlier recognition of credit losses. The adoption of this new guidance did not have a significant impact on the ~~quarters ended September 30, 2017 (the “Current Quarter”~~Company’s results of operations, cash flows, or financial condition.

2. Equity Method Investment

IM Topco, LLC

On May 27, 2022, Xcel (along with IM Topco, LLC (“IM Topco”) and ~~September 30, 2016 (the “Prior Year Quarter”~~IM Brands, LLC (“IMB”), ~~respectively. Amortization~~both wholly owned subsidiaries of the Company) and IM WHP, LLC (“WHP”), a subsidiary of WHP Global, a private equity-backed brand management and licensing company, entered into a membership purchase agreement. Pursuant to this agreement, on May 31, 2022, (i) the Company contributed assets owned by IMB, including the Isaac Mizrahi Brand trademarks and other intellectual property rights relating thereto into IM Topco, and (ii) the Company sold 70% of the membership interests of IM Topco to WHP.

The purchase price paid by WHP to the Company at the closing of the transaction consisted of $46.2 million in cash. The Company incurred approximately $0.9 million of expenses directly related to this transaction, including legal fees and agent fees, of which $0.1 million of the agent fees were paid through the issuance of 65,275 shares of the Company’s common stock, which were recognized as a reduction to the gain from the transaction. The Company recognized a net pre-tax gain from the transaction of $20.6 million, which is classified within “other operating costs and expense ~~for intangible assets~~(income)” in the condensed consolidated statements of operations for the nine months ended September 30, ~~2017 (“Current Nine Months”)~~2022.

The Company accounts for its 30% interest in the ongoing operations of IM Topco as other expense (income) under the equity method of accounting. Pursuant to the business venture agreement between the Company and WHP governing the operation of IM Topco, IM Topco’s net cash flow (as defined in the agreement) shall be distributed to the members during each fiscal year no less than once per fiscal quarter, as follows:

(i)

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

(ii)

second, 100% to Xcel, until Xcel has received an aggregate amount during such fiscal year equal to $1,316,200 (subject to adjustment in certain circumstances as set forth in the agreement); and

(iii)

thereafter, in proportion to the members’ respective percentage interests.

Based on these distribution provisions, the Company recognized an equity method loss of $0.52 million and $1.55 million related to its investment for the three and nine months ended September 30, ~~2016 (the “Prior Year Nine Months”) was approximately $848,000 and $847,000,~~2023, respectively.

The ~~trademarks~~Company recognized an equity method loss of $0.28 million related to its investment for both the ~~Isaac Mizrahi Brand,~~three and nine months ended September 30, 2022. For cash flow earnings (i.e., net income before intangible asset amortization expense), management allocated the ~~Ripka Brand, and~~2023 amounts based on the ~~H Halston Brands have been determined to have indefinite useful lives and, accordingly,~~preferences outlined above. As such, Xcel recognized no ~~amortization has been recorded~~cash-based earnings for ~~these assets.~~

~~The Company has $12.371 million of goodwill related to the 2011 acquisition~~all of the ~~Isaac Mizrahi business. There was no change in goodwill during~~periods presented. For non-cash amortization expense, management allocated the ~~Current Nine Months.~~

~~Significant Contracts~~

~~QVC Agreements~~

~~Under~~amounts based on the ~~Company’s agreements with QVC, QVC is required to pay the Company fees based primarily on a percentage~~relative ownership

Table of its net sales of Isaac Mizrahi, Ripka, H Halston, and C Wonder branded merchandise. QVC royalty revenue represents a significant portion of the Company’s total revenues. Net revenues from QVC totaled $6.32 million and $6.87 million for the Current Quarter and Prior Year Quarter, respectively, representing approximately 80% and 83% of the Company’s net revenues, respectively. Net revenues from QVC totaled $20.33 million and $21.82 million for the Current Nine Months and the Prior Year Nine Months, respectively, representing approximately 82% and 85% of the Company’s net revenues, respectively. As of September 30, 2017 and December 31, 2016, the Company had receivables from QVC of $6.45 million and $5.89 million, respectively, representing approximately 68% and 85% of the Company’s total receivables, respectively.

On April 28, 2017, the Company and QVC entered into an amendment to terminate the C Wonder QVC Agreement effective May 1, 2017 and commence a sell-off period. During the sell-off period, QVC remains obligated to pay royalties to the Company through January 31, 2018, and QVC retains exclusive rights with respect to C Wonder branded products for interactive television, excluding certain permitted international entities, through May 1, 2018.

~~Debt~~

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

($ in thousands) September 30,
2017 December 31,
2016
Xcel Term Loan $ 19,500 $ 25,250
Unamortized deferred finance costs related to term loan (387 ) (509 )
IM Seller Note 2,201 3,627
Ripka Seller Notes 532 504
Contingent obligation - JR Seller 200 200
Contingent obligation - CW Seller 2,850 2,850
Total 24,896 31,922
Current portion (i) 4,559 6,427
Long-term debt $ 20,337 $ 25,495

~~(i)~~

The current portion of long-term debt as of September 30, 2017 consists of (a) $3.0 million related to the Xcel Term Loan, (b) $1.46 million related to the IM Seller Note, and (c) $100,000 related to the Ripka Earn-Out.

Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

of each member (i.e., 70% WHP and 30% Xcel). The equity method loss for each period presented is equal Xcel’s share of amortization expense.

~~Xcel Term Loan~~Summarized financial information for IM Topco for the three and nine months ended September 30, 2023 and 2022 is as follows:


	For the three months ended				For the nine months ended
	September 30,				September 30,
($ in thousands)	2023		2022		2023		2022⁽¹⁾
Revenues	$	3,219	$	4,185	$	9,819	$	5,479
Gross profit		3,219		4,185		9,819		5,479
(Loss) income from continuing operations		(91)		928		(348)		1,118
Net (loss) income		(91)		928		(348)		1,118

(1) Represents financial information for the period commencing May 31, 2022 (the date of the sale of a majority interest in IM Topco) through September 30, 2022.

~~On February 26, 2016, Xcel~~

Refer to Note 11 for other information regarding the Company’s ongoing relationship with IM Topco.

3. Trademarks and ~~its wholly owned subsidiaries, IM Brands, LLC, JR Licensing, LLC, H Licensing, LLC, C Wonder Licensing, LLC, Xcel Design Group, LLC, IMNY Retail Management, LLC,~~Other Intangibles

Trademarks and ~~IMNY E-Store, USA, LLC (each a “Guarantor” and collectively,~~other intangibles, net consist of the ~~“Guarantors”), as Guarantors, entered into an Amended and Restated Loan and Security Agreement~~following:


	Weighted
	Average	September 30, 2023
	Amortization	Gross Carrying		Accumulated		Net Carrying
($ in thousands)	Period	Amount		Amortization		Amount
Trademarks (finite-lived)	15 years		68,880		25,911		42,969
Copyrights and other intellectual property	8 years		429		343		86
Total		$	69,309	$	26,254	$	43,055


	Weighted
	Average	December 31, 2022
	Amortization	Gross Carrying		Accumulated		Net Carrying
($ in thousands)	Period	Amount		Amortization		Amount
Trademarks (finite-lived)	15 years		68,880		21,346		47,534
Copyrights and other intellectual property	8 years		429		298		131
Total		$	69,309	$	21,644	$	47,665

Amortization expense for intangible assets was approximately $1.53 million for both the three-month period ended September 30, 2023 (the ~~“Loan Agreement”~~"current quarter") ~~with Bank Hapoalim B.M. (“BHI”), as agent (the “Agent”),~~ and the ~~financial institutions party thereto as lenders~~three-month period ended September 30, 2022 (the ~~“Lenders”~~"prior year quarter"). ~~The Loan Agreement amended and restated~~

Amortization expense for intangible assets was approximately $4.60 million for both the ~~IM Term Loan, the JR Term Loan,~~nine-month period ended September 30, 2023 (the "current nine months") 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 respective 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”). Management assessed and determined that this amendment represented a debt modification and, accordingly, no gain or loss was recorded.

On February 24, 2017, Xcel and BHI amended the terms of the Loan Agreement (the “Amended Loan Agreement”). Under this amendment, principal payments for the year ending December 31, 2017 were increased by a total of $1,000,000, principal payments for the year ending December 31, 2021 were decreased by $1,000,000, and the minimum EBITDA (as defined in the Amended Loan Agreement) requirement for the yearnine-month period ended December 31, 2016 was eliminated. There were no changes to the total principal balance, interest rate, maturity date, or other terms of the Loan Agreement. Management assessed and determined that this amendment represented a debt modification and, accordingly, no gain or loss was recorded.

On June 15, 2017, Xcel and BHI entered into a second amendment to the Amended Loan Agreement. Under this amendment, principal payments for the year ending December 31, 2017 were increased by a total of $750,000, principal payments for the year ending December 31, 2021 were decreased by $750,000, the minimum EBITDA (as defined in the Second Amendment to the Amended Loan Agreement) requirement for the year ending December 31, 2017 was changed from $9,000,000 to $7,000,000, and the minimum EBITDA requirements for the years ending December 31, 2018 and 2019 were changed from $9,000,000 to $8,000,000. There were no changes to the total principal balance, interest rate, maturity date, or other terms of the Loan Agreement. Management assessed and determined that this amendment represented a debt modification and, accordingly, no gain or loss was recorded. The current effective interest rate on the Amended Loan Agreement is equal to approximately 6.05%.

~~The Xcel Term Loan matures on January 1, 2021. Principal on the Xcel Term Loan is payable in quarterly installments on each of January 1, April 1, July 1 and October 1. As of~~ September 30, ~~2017, the aggregate remaining scheduled annual principal payments under the Second Amendment to the Loan Agreement were as follows:~~2022 (the "prior year nine months").

($ in thousands)

Year Ending December 31,
Amount of
Principal
Payment
2017 (October 1 through December 31) $ -
2018 4,000
2019 4,000
2020 4,000
2021 7,500
Total $ 19,500

Commencing with the fiscal year ending December 31, 2017, the Company is 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 (the “Excess Cash Flow Principal 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. As of September 30, 2017, the estimated Excess Cash Flow Principal Payment provision of the Xcel Term Loan is not expected to result in any additional repayment during the year ending December 31, 2017.

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

4. Significant Contracts and Concentrations

~~Under~~Halston Master License

On May 15, 2023, the ~~Amendment~~Company, through its subsidiaries, H Halston, LLC and H Heritage Licensing, LLC (collectively, the “Licensor”), entered into a master license agreement relating to the ~~Loan Agreement,~~Halston Brand (the “Halston Master License”) with an industry-leading wholesale apparel company, for men’s and women’s apparel, men’s and women’s fashion accessories, children’s apparel and accessories, home, airline amenity and amenity kits, and such other product categories as mutually agreed upon. The Halston Master License provides for an upfront cash payment and royalties payable to the Company, including certain guaranteed minimum royalties, includes significant annual minimum net sales requirements, and has a twenty-five-year term (consisting of an initial five-year period, followed by a twenty-year period), subject to the licensee’s right to terminate with at least 120 days’ notice prior to the end of each five-year period during the term. The licensee has an option to purchase the Halston Brand for $5.0 million at the end of the twenty-five-year term, which right may be accelerated under certain conditions associated with an uncured material breach of the Halston Master License in accordance with the terms of the Halston Master License. The Licensor granted to the licensee a security interest in the Halston trademarks to secure the Licensor’s obligations under the Halston Master License, including to honor the obligations under the purchase option.

As a result of the upfront cash payment and guaranteed minimum royalties discussed above, the Company has ~~the right to prepay the Xcel Term Loan, provided that any prepayment~~recognized $4.67 million of ~~less than all of the outstanding~~deferred revenue contract liabilities on its condensed consolidated 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), the Company shall pay an early termination fee equal to the principal amount outstanding under the Xcel Term Loan on the date of prepayment, multiplied by: (i) two percent (2.00%) if the Xcel Term Loan is prepaid on or after the closing date and on or before the second anniversary of the closing date; or (ii) one percent (1.00%) if the Xcel Term Loan is prepaid after the second anniversary of the closing date and on or before the third anniversary of the closing date.

Xcel’s obligations under the Amended 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 Amended Loan Agreement) and, subject to certain limitations contained in the Amended Loan Agreement, equity interests of the Guarantors (as well as any subsidiary formed or acquired that becomes a credit party to the Amended Loan Agreement).

The Amended Loan Agreement 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 Amended Loan Agreement):

~~net worth (as defined in the Amended Loan Agreement) of at least $90,000,000 at the end of each fiscal quarter ending on June 30 and December 31 of each fiscal year;~~

liquid assets of at least $5,000,000, until such time as the ratio of indebtedness to EBITDA (as defined in the Amended Loan Agreement) is less than 1.00 to 1.00 and, in which event, liquid assets must be at least $3,000,000;

~~a fixed charge ratio of at least 1.20 to 1.00 for each fiscal quarter ended June 30 and December 31 for the twelve fiscal month period ending on such date;~~

~~capital expenditures shall not exceed (i) $2,650,000 for the year ended December 31, 2016 and (ii) $700,000 for any fiscal year thereafter; and~~

EBITDA (as defined in the Amended Loan Agreement) of not less than $7,000,000 for the fiscal year ending December 31, 2017, not less than $8,000,000 for the fiscal years ending December 31, 2018 and 2019, and not less of $9,000,000 for the following fiscal years.

~~The Company was in compliance with all applicable covenants~~sheet as of September 30, ~~2017.~~

~~Interest on~~2023 related to this contract, of which $0.89 million was classified as a current liability and $3.78 million was classified as a long-term liability. The balance of the ~~Xcel Term Loan accrues at a fixed rate~~deferred revenue contract liabilities will be recognized ratably as revenue over the next 5.25 years. Net licensing revenue recognized from the Halston Master License was $0.65 million and $0.98 million for the current quarter and current nine months, respectively representing approximately 25% and 6% of ~~5.1% per annum~~the Company’s total net revenue for the current quarter and is payable on each day on which the scheduled principal payments are required to be made. For the Current Quarter and Prior Year Quarter, the Company incurred interest expense on its senior term loan debt with BHI of approximately $257,000 and $340,000, respectively. For the Current Nine Months and Prior Year Nine Months, the Company incurred interest expense on its senior term loan debt with BHI of approximately $852,000 and $1,003,000,current nine months, respectively.

~~IM Seller Note~~

~~On September 29, 2011, as part of~~Additionally, in connection with the ~~consideration for the purchase of the Isaac Mizrahi Business,~~Halston Master License, the Company issued to ~~IM Ready-Made, LLC (“IM Ready”)~~the licensee a ~~promissory note in the principal amount of $7,377,000 (as amended, the “IM Seller Note”). The stated interest rate~~ten-year warrant to purchase up to 1,000,000 shares of the ~~IM Seller Note was 0.25%~~Company’s common stock at an exercise price of $1.50 per ~~annum. Management determined that this rate was below~~share, which vests based upon certain annual royalty targets being satisfiedunder the Company’s expected borrowing rate, which was then estimated at 9.25% per annum. Therefore, the Company discounted the IM Seller Note by $1,740,000 using a 9.0% imputed annual interest rate, resulting in an initiallicense agreement. The fair value of ~~$5,637,000. In addition, on September 29, 2011, the Company prepaid $123,000~~this warrant will be recognized as a reduction of ~~interest on the IM Seller Note. The imputed interest amount was amortized~~revenue over the term of the ~~IM Seller Note~~related license agreement, with an offsetting increase to stockholders’ equity as additional paid-in capital. The amount of contra-revenue recorded related to this warrant during the current quarter and ~~recorded as other interest and finance expense on~~current nine months was approximately $0.02 million. As of September 30, 2023, no portion of this warrant had vested.

Qurate Agreements

Under the Company’s ~~condensed consolidated statements~~agreements with Qurate Retail Group (“Qurate”), collectively referred to as the Qurate Agreements, Qurate is obligated to make payments to the Company on a quarterly basis, based primarily upon a percentage of ~~operations.~~net retail sales of certain specified branded merchandise. Net retail sales are defined as the aggregate amount of all revenue generated through the sale of the specified branded products by Qurate and its subsidiaries under the Qurate Agreements, net of customer returns, and excluding freight, shipping and handling charges, and sales, use, or other taxes. Net licensing revenue from the Qurate Agreements represents a significant portion of the Company’s total net revenue.

10●

Net licensing revenue from the Qurate Agreements totaled $1.61 million and $1.40 million for the current quarter and prior year quarter, respectively, representing approximately 61% and 31% of the Company’s total net revenue for the current quarter and prior year quarter, respectively.

●

Net licensing revenue from the Qurate Agreements totaled $4.90 million and $10.47 million for the current nine months and prior year nine months, respectively, representing approximately 32% and 48% of the Company’s

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

total net revenue for the current nine months and prior year nine months, respectively. The prior year nine months included revenues from Qurate Agreement related to the Isaac Mizrahi Brand; such agreement was assigned to IM Topco on May 31, 2022.

●

As of September 30, 2023 and December 31, 2022, the Company had receivables from Qurate of $1.6 million and $0.9 million, respectively, representing approximately 34% and 17% of the Company’s total net accounts receivable, respectively.

5. Accounts Receivable

On December 24, 2013, the IM Seller Note was amended to (1) revise the maturity date to September 30, 2016, (2) revise the date to which the maturity date may be extended to September 30, 2018, (3) provide the Company with a prepayment right with its common stock, subject to remitting in cash certain required cash payments and a minimum common stock price of $4.50 per share, and (4) require interim scheduled payments.

On September 19, 2016, the IM Seller Note was further amended and restated to (1) revise the maturity date to March 31, 2019, (2) require six semi-annual principal and interest installment payments of $750,000, commencingAccounts receivable are presented on ~~September 30, 2016 and ending on March 31, 2019, (3) revise the stated interest rate to 2.236% per annum, (4) allow for optional prepayments at any time at~~ the Company’s ~~discretion without premium or penalty,~~condensed consolidated balance sheets net of allowances for credit losses. Such allowances were approximately $0.02 million and (5) require that all payments of principal and interest be made in cash. Management assessed and determined that this amendment represented a debt modification and, accordingly, no gain or loss was recorded.

As$0.00 as of September 30, ~~2017,~~2023 and December 31, 2022, respectively.

A rollforward of the ~~aggregate remaining annual principal payments under~~allowance for credit losses for the ~~IM Seller Note were~~nine months ended September 30, 2023 is as follows:


($ in thousands)
Balance at December 31, 2022	$	—
Credit loss expense ⁽¹⁾		120
Write-offs		(100)
Recoveries		—
Balance at September 30, 2023	$	20

($ in thousands)

Year Ending December 31,

Amount of
Principal
Payment

2017 (October 1 through December 31) $ -
2018 1,459
2019 742
Total $ 2,201

~~For~~(1) Credit loss expense was $0.12 million for both the ~~Current Quarter,~~current quarter and current nine months, and is recorded within “other selling, general and administrative expenses” in the ~~Company incurred interest~~accompanying condensed consolidated statement of operations.

Credit loss expense recognized in the prior year quarter and prior year nine months was $0.08 million and $0.17 million, respectively.

The allowance for credit losses is determined based upon a variety of ~~approximately $16,000 under~~judgments and factors. Factors considered in determining the ~~IM Seller Note. For~~allowance include historical collection, write-off experience, and management's assessment of collectibility from customers, including current conditions, reasonable forecasts, and expectations of future collectibility and collection efforts. Management continuously assesses the ~~Prior Year Quarter,~~collectibility of receivables and adjusts estimates based on actual experience and future expectations based on economic indicators. Management also monitors the ~~Company incurred interest expense~~aging analysis of ~~approximately $70,000, which consisted solely~~receivables to determine if there are changes in the collections of ~~amortization of~~accounts receivable. Receivable balances are written-off against the discount on the IM Seller Note. For the Current Nine Months, the Company incurred interest expense of approximately $53,000 under the IM Seller Note. For the Prior Year Nine Months, the Company incurred interest expense of approximately $210,000 under the IM Seller Note, which consisted solely of amortization of the discount on the IM Seller Note.allowance for credit losses when such balances are deemed to be uncollectible.

~~Ripka Seller Notes~~

AsAlso, as of September 30, ~~2017,~~2023 and December 31, 2022, approximately $0.33 million and $1.65 million, respectively, of the ~~remaining discounted balance, non-interest bearing note relating~~Company's outstanding receivables were assigned to a third-party agent pursuant to a services agreement entered into during the third quarter of 2022, under which the Company assigned, for purposes of collection only, the right to collect certain specified receivables on the Company's behalf and solely for the Company's benefit. Under such agreement, the Company retains ownership of such assigned receivables, and receives payment from the agent (less certain fees charged by the agent) upon the agent's collection of the receivables from customers. During the current quarter and current nine months, the Company paid approximately $0.02 million and $0.09 million in fees to the ~~acquisition of the Ripka Brand (the “Ripka Seller Notes”) was approximately $532,000. An aggregate $600,000 principal amount of the Ripka Seller Notes is due at maturity (March 31, 2019).~~

~~For the Current Quarter and Prior Year Quarter, the Company incurred interest expense of approximately $10,000 and $9,000, respectively,~~agent under the Ripka Seller Notes, which consisted solely of amortization of the discount on the Ripka Seller Notes. For the Current Nine Months and the Prior Year Nine Months, the Company incurred interest expense ofaforementioned services agreement; such agent fees were approximately ~~$28,000 and $26,000, respectively, under the Ripka Seller Notes, which consists solely of amortization of the discount on the Ripka Seller Notes.~~

~~Contingent Obligation – JR Seller (Ripka Earn-Out)~~

~~In connection with the purchase of the Ripka Brand, the Company agreed to pay the sellers of the Ripka Brand additional consideration of up to $5~~$0.04 million in ~~aggregate (the “Ripka Earn-Out”), payable in cash or shares~~the prior year quarter and prior year nine months.

Table of the Company’s common stock based on the fair market value of the Company’s common stock at the time of payment, and with a floor of $7.00 per share, based on the Ripka Brand achieving in excess of $1 million of net royalty income during each of the 12-month periods ending on October 1, 2016, 2017 and 2018, less the sum of all earn-out payments for any prior earn-out period. Net royalty income does not include any revenues generated by interactive television sales or any revenue accelerated as a result of a termination of any license agreement. The Ripka Earn-Out of $3.78 million was recorded based on the difference between the fair value of the acquired assets of the Ripka Brand at the acquisition date and the total consideration paid.

Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

6. Leases

~~On December 21, 2016,~~The Company has an operating lease for its corporate offices and operations facility, as well as certain equipment with a term of 12 months or less. As of September 30, 2023, the Company’s real estate lease has a remaining lease term of approximately 4.08 years, and the lease liability is measured using a discount rate of 6.25%.

Lease expense included in selling, general and administrative expenses on the Company’s unaudited condensed consolidated statements of operations was approximately $0.4 million for both the current quarter and prior year quarter, and approximately $1.2 million for both the current nine months and prior year nine months.

Cash paid for amounts included in the measurement of operating lease liabilities was approximately $0.4 million in both the current quarter and prior year quarter, approximately $1.2 million in the current nine months, and approximately $1.3 million in the prior year nine months.

The Company is currently in discussions with the lessor of the operating lease for the Company’s corporate offices and operations facility, regarding a potential amendment to restructure such lease. In addition, this could include a requirement for the Company ~~entered into~~to fund a security deposit to the lessor of up to $0.73 million.

Also, the Company was previously a party to an ~~agreement~~operating lease for its former retail store location, which was closed in 2022. During the nine months ended September 30, 2023, the Company successfully negotiated a settlement with the ~~sellers~~lessor resulting in the termination of this lease. Under the ~~Ripka Brand which amended~~settlement agreement, the ~~terms~~Company paid $0.18 million to the lessor during the nine months ended September 30, 2023. The Company has recognized a liability of the Ripka Earn-Out, such that the maximum amount of earn-out consideration was reduced to $375,000, of which $175,000 was payable in cash upon execution of the amendment, and $100,000 is payable in cash on each of May 15, 2018 and 2019. The payment of$0.11 million for the remaining ~~future payments of $200,000 under~~settlement payment (due to be paid to the earn-out is contingent upon the Ripka Brand achieving at least $6,000,000 of net royalty income from QVC during each of the 12-month periods ending on March 31, 2018 and 2019. The remaining expected value (which approximates fair value) of the Ripka Earn-Out of $0.20 million is recorded as long-term debtlessor in the ~~accompanying~~fourth quarter of 2023) as part of “accounts payable, accrued expenses and other current liabilities” on the condensed consolidated balance ~~sheets~~sheet as of September 30, ~~2017,~~2023. The Company recognized a gain of $0.44 million from this settlement transaction, which ~~$0.10 million~~ is ~~presented~~classified within “other operating costs and expenses (income)” in the ~~current portion of long-term debt. As of December 31, 2016, the expected value of the Ripka Earn-Out was $0.20 million, recorded as long-term debt.~~

~~Contingent Obligations – CW Seller (C Wonder Earn-Out)~~

In connection with the purchase of the C Wonder Brand, the Company agreed to pay the seller additional consideration (the “C Wonder Earn-Out”), which would be payable, if at all, in cash or shares of common stock of the Company, at the Company’s sole discretion, after June 30, 2019, with a value based on the royalties related directly to the assets the Company acquired pursuant to the purchase agreement. 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 in the accompanying condensed consolidated ~~balance sheets based on~~statements of operations for the probability of the C Wonder Brand achieving certain net royalty income targets within the earn-out periods and then calculating the present value of the weighted average payment amount. In accordance with Accounting Standards Codification Topic 480, the C Wonder Earn-Out obligation is classified as a liability in the accompanying condensed consolidated balance sheets because of the variable number of shares payable under the agreement.

nine months ended September 30, 2023.

As of September 30, ~~2017 and~~2023, the maturities of lease obligations were as follows:


	Amount
Year	(in thousands)
2023 (October 1 through December 31)	$	388
2024		1,552
2025		1,552
2026		1,552
2027		1,294
Total lease payments		6,338
Less: Discount		757
Present value of lease liabilities		5,581
Current portion of lease liabilities		1,219
Non-current portion of lease liabilities	$	4,362

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2023

(Unaudited)

7. Debt

The Company did not have any debt obligations as of September 30, 2023 or December 31, ~~2016, total contingent obligations were $3.05 million.~~2022. See Note 13 for information regarding new debt agreements entered into subsequent to September 30, 2023.

~~Stockholders’ Equity~~

From December 30, 2021 through May 31, 2022, the Company had term loan debt outstanding pursuant to an agreement with First Eagle Alternative Credit Agent, LLC (“FEAC”); this debt was repaid in full and extinguished on May 31, 2022. As a result of this extinguishment, the Company recognized a loss on early extinguishment of debt of approximately $2.3 million during the prior year quarter and prior year nine months, consisting of approximately $1.4 million of debt prepayment premium, the immediate write-off of approximately $0.8 million of unamortized deferred finance costs, and approximately $0.1 million of other costs.

For the prior year nine months, the Company incurred interest expense (including both interest paid in cash and the amortization of deferred finance costs) related to term loan debt of approximately $1.19 million, and the effective interest rate related to term loan debt was approximately 9.8%.

~~2011~~ 8. Stockholders’ Equity

Equity Incentive ~~Plan~~Plans

The Company’s 2011 Equity Incentive Plan, as amended and restated (the “Plan”), is designed and utilized to enable the Company to provide its employees, officers, directors, consultants, and others whose past, present, and/or potential contributions to the Company have been, are, or will be important to the success of the Company, an opportunity to acquire a proprietary interest in the Company. A total of ~~13,000,000~~4,000,000 shares of common stock are eligible for issuance under the ~~Plan.~~Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of any or all of the following types of awards: stock options (incentive or non-qualified), restricted stock, ~~deferred~~restricted stock ~~stock appreciation rights, and other stock-based~~units, performance awards, or cash awards. The 2021 Plan is administered by the Company’s Board of Directors, or, at the Board’s discretion, a committee of the Board.

In addition, stock-based awards (including options, warrants, and restricted stock) previously granted under the Company’s 2011 Equity Incentive Plan (the “2011 Plan”) remain outstanding and shares of common stock may be issued to satisfy options or warrants previously granted under the 2011 Plan, although no new awards may be granted under the 2011 Plan.

Stock-based Compensation

The ~~fair value of options and warrants is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined~~Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation - Stock Compensation,” by the Black-Scholes option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The risk-free rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based on the average long-term implied volatilities of peer companies, and expected life is based on the estimated average of the life of options and warrants using the simplified method. The Company utilizes the simplified method to determine the expected life of the options and warrants due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.

~~Restricted stock awards are valued using~~recognizing the fair value of stock-based compensation as an operating expense over the ~~Company’s stock at~~service period of the ~~date~~award or term of ~~grant.~~

the corresponding contract, as applicable. Forfeitures are accounted for as a reduction of compensation cost in the period when such forfeitures occur. For stock option awards for which vesting is contingent upon the achievement of certain performance targets, the timing and amount of compensation expense recognized is based upon the Company’s projections and estimates of the relevant performance metric(s). until the time the performance obligation is satisfied. Expense for such awards is recognized only to the extent that the achievement of the specified performance target(s) has been met or is considered probable.

~~Forfeitures are accounted~~Total expense recognized for all forms of stock-based compensation was approximately $0.05 million for both the current quarter and prior year quarter. For both periods, the majority of the expense was related to directors and consultants, and was recorded as ~~a reduction of compensation cost~~operating costs within “other selling, general and administrative expenses” in the ~~period when~~accompanying condensed consolidated statements of operations.

Total expense recognized in the current nine months and prior year nine months for all forms of stock-based compensation was approximately $0.17 million and $0.67 million, respectively. Of the current nine months expense amount, approximately $0.15 million related to directors and consultants, and approximately $0.02 million related to employees; all such ~~forfeitures occur.~~stock-based compensation expense was recorded within “other selling, general and administrative expenses” in

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

the accompanying condensed consolidated statements of operations. Of the prior year nine months expense amount, approximately $0.41 million related to employees and approximately $0.26 million related to directors and consultants. Approximately $0.57 million of the prior year nine months expense was recorded as operating costs, and approximately $0.10 million was recorded as part of other operating costs and expenses (income).

Stock Options

A summary of the Company’s stock options activity for the current nine months is as follows:

~~Options granted under the Plan expire at various times – either five, seven, or ten years from the date of grant, depending on the particular grant.~~


				Weighted
				Average
		Weighted		Remaining
		Average		Contractual	Aggregate
	Number of	Exercise		Life	Intrinsic
	Options	Price		(in Years)	Value
Outstanding at January 1, 2023	5,614,310	$	2.12	4.76	$	—
Granted	100,000		1.51
Exercised	(87,750)		0.80
Expired/Forfeited	(482,390)		3.17
Outstanding at September 30, 2023, and expected to vest	5,144,170	$	2.04	4.37	$	—
Exercisable at September 30, 2023	1,481,670	$	2.83	1.92	$	—

On ~~January 1, 2017,~~August 23, 2023 the Company granted options to purchase an aggregate of 150,000 shares of common stock to a certain key employee. The exercise price of the options is $5.50 per share, and one-third of the options will vest on each of January 1, 2018, January 1, 2019, and January 1, 2020.

On January 24, 2017, the Company granted options to purchase an aggregate of 500,000 shares of common stock to a certain executive. The exercise price of the options is $5.00 per share, and one-fifth of the options will vest on each of January 1, 2018, January 1, 2019, January 1, 2020, January 1, 2021, and January 1, 2022.

~~On March 31, 2017, the Company granted options to purchase an aggregate of 150,000~~100,000 shares of common stock to non-management directors. The exercise price of the options is ~~$2.70~~$1.51 per share, and 50% of the options ~~will~~ vest on each of April 1, ~~2018~~2024 and ~~March 31, 2019.~~

On May 31, 2017, the Company granted options to purchase an aggregate of 15,000 shares of common stock to a certain key employee. The exercise price of the options is $2.60 per share, and one-third of the options will vest on each of May 31, 2018, May 31, 2019, and May 31, 2020.

On August 30, 2017, the Company granted options to purchase an aggregate of 20,000 shares of common stock to a certain key employee. The exercise price of the options is $3.55 per share, and one-half of the options will vest on each of August 30, 2018, and August 30, 2019.

~~The fair values of the options granted during the Current Nine Months were estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:~~

~~Expected Volatility~~	~~33.69 – 35.20~~	%
~~Expected Dividend Yield~~	0	%
~~Expected Life (Term)~~	~~3.25 – 5.42~~	~~years~~
~~Risk-Free Interest Rate~~	~~1.48 – 2.02~~	%

~~A summary of the Company’s stock options activity for the Current Nine Months is as follows:~~

Number of
Options Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Life
(in Years) Aggregate
Intrinsic
Value
Outstanding at January 1, 2017 2,436,000 $ 5.98 4.38 $ -
Granted 835,000 4.60
Canceled - -
Exercised - -
Expired/Forfeited (135,666 ) 5.03
Outstanding at September 30, 2017, and expected to vest 3,135,334 $ 5.66 4.31 $ -
Exercisable at September 30, 2017 785,503 $ 6.22 3.38 $ -

April 1, 2025.

Compensation expense related to stock options for the ~~Current Quarter~~current quarter and the ~~Prior Year Quarter~~prior year quarter was approximately ~~$313,000~~$0.02 million and ~~$296,000,~~$0.03 million, respectively. Compensation expense related to stock options for the ~~Current Nine Months~~current nine months and the ~~Prior Year Nine Months~~prior year nine months was approximately ~~$887,000~~$0.07 million and ~~$644,000,~~$0.43 million, respectively. Total unrecognized compensation expense related to unvested stock options at September 30, ~~2017 amounts to~~2023 was approximately ~~$2,210,000~~$0.11 million and is expected to be recognized over a weighted average period of ~~2.30~~approximately 1.23 years.

A summary of the Company’s non-vested stock options activity for the current nine months is as follows:


		Weighted
		Average
	Number of	Grant Date
	Options	Fair Value
Balance at January 1, 2023	3,697,500	$	0.05
Granted	100,000		0.86
Vested	(135,000)		0.68
Forfeited or Canceled	—		—
Balance at September 30, 2023	3,662,500	$	0.04

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

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

Number of
Options Weighted
Average
Grant Date
Fair Value
Balance at January 1, 2017 2,294,667 $ 1.39
Granted 835,000 1.08
Vested (682,837 ) 1.49
Forfeited or Canceled (96,999 ) 1.40
Balance at September 30, 2017 2,349,831 $ 1.32

~~Warrants~~

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

A summary of the Company’s warrants activity for the ~~Current Nine Months~~current nine months is as follows:


				Weighted
				Average
		Weighted		Remaining
		Average		Contractual	Aggregate
	Number of	Exercise		Life	Intrinsic
	Warrants	Price		(in Years)	Value
Outstanding and exercisable at January 1, 2023	116,065	$	3.15	1.57	$	—
Granted	1,000,000		1.50
Exercised	—		—
Expired/Forfeited	—		—
Outstanding at September 30, 2023	1,116,065	$	1.67	8.71	$	—
Exercisable at September 30, 2023	116,065	$	3.15	0.82	$	—

Number of
Warrants Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Life
(in Years) Aggregate
Intrinsic
Value
Outstanding and exercisable at January 1, 2017 1,966,743 $ 6.76 2.81 $ -
Granted - -
Canceled - -
Exercised - -
Expired/Forfeited (75,000 ) (5.50 )
Outstanding and exercisable at September 30, 2017 1,891,743 $ 6.81 2.17 $ -

NoSee Note 4 for information regarding the warrant to purchase 1,000,000 shares of common stock granted during the current nine months in connection with the Halston Master License. Excluding the contra-revenue recognized with respect to the Halston Master License warrant, there was no compensation expense related to warrants ~~was~~ recognized in the ~~Current Nine Months~~current quarter, prior year quarter, current nine months, or ~~Prior Year Nine Months.~~prior year nine months.

Stock Awards

~~Restricted Stock~~A summary of the Company’s restricted stock activity for the current nine months is as follows:


		Weighted
	Number of	Average
	Restricted	Grant Date
	Shares	Fair Value
Outstanding at January 1, 2023	333,333	$	3.71
Granted	113,968		1.01
Vested	(103,968)		1.04
Expired/Forfeited	—		—
Outstanding at September 30, 2023	343,333	$	3.63

On January ~~31, 2017,~~1, 2023, the Company issued 8,334 shares of common stock to a consultant, which vested immediately.

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

On May 15, 2023, the Company issued 50,000 shares of ~~restricted~~common stock to a ~~consulting firm whose controlling shareholder is a director of~~consultant, which vested immediately.

On July 20, 2023, the ~~Company. Of the 50,000~~Company issued 7,300 shares of ~~restricted~~common stock ~~granted, 25,000 shares~~to an employee, which vested ~~immediately and 25,000 shares shall vest on January 31, 2018.~~ immediately.

On ~~June 18, 2017,~~August 23, 2023, the Company issued an ~~additional 28,334~~aggregate of 40,000 shares of ~~restricted~~common stock to the same consulting firm, of which 14,167 shares vested immediately on the same day and 14,167 shares shall vest on January 31, 2018. See Note 8, Related Party Transactions, for additional information.

~~On March 31, 2017, the Company issued~~ to non-management directors, ~~an aggregate~~ of ~~48,000 shares of restricted stock. The shares of restricted stock will vest evenly over two years, whereby~~which 50% shall vest on ~~March 31, 2018~~April 1, 2024, and 50% shall vest on ~~March 31, 2019.~~April 1, 2025.

Compensation expense related to stock awards was approximately $0.03 million for the current quarter and approximately $0.02 million for the prior year quarter. Compensation expense related to stock awards was approximately $0.10 million for the current nine months and approximately $0.24 million for the prior year nine months. Total unrecognized compensation expense related to unvested restricted stock grants at September 30, 2023 was approximately $0.08 million

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

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

~~A summary of the Company’s restricted stock activity for the Current Nine Months is as follows:~~

Number of
Restricted
Shares Weighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2017 3,171,685 $ 5.12
Granted 126,334 3.18
Canceled - -
Vested (831,931 ) 4.28
Expired/Forfeited (1,000 ) 9.00
Outstanding at September 30, 2017 2,465,088 $ 5.30

Compensation expense related to restricted stock for the Current Quarter and Prior Year Quarter was approximately $377,000 and $793,000, respectively. Compensation expense related to restricted stock for the Current Nine Months and Prior Year Nine Months was approximately $1,609,000 and $3,110,000, respectively. Total unrecognized compensation expense related to unvested restricted stock grants at September 30, 2017 amounts to approximately $964,000 and is expected to be recognized over a weighted average period of ~~1.46~~approximately 1.23 years.

Restricted Stock Units

There were no restricted stock units outstanding as of September 30, 2023 and December 31, 2022, and no restricted stock units have been issued since the inception of the 2021 Plan.

Shares Available Under the Company’s ~~2011~~ Equity Incentive ~~Plan~~Plans

AtAs of September 30, ~~2017,~~2023, there were ~~5,604,688~~3,170,191 shares of common stock available for ~~issuance~~future award grants under the 2021 Plan.

Shares Reserved for Issuance

AtAs of September 30, ~~2017,~~2023, there were ~~10,631,765~~8,430,426 shares of common stock reserved for issuance, including 4,838,135 shares reserved pursuant to unexercised warrants and stock options orpreviously granted under the 2011 Plan, 422,100 shares reserved pursuant to unexercised stock options granted under the 2021 Plan, and 3,170,191 shares available for issuance under the 2021 Plan.

~~Dividends~~9. Earnings (Loss) Per Share

~~The Company has not paid any dividends to date.~~

~~Earnings Per Share~~

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period, including stock options and warrants, using the treasury stock method. Diluted EPS excludes all potentially dilutive shares of common stock if their effect is anti-dilutive.

The following table is a reconciliation of the numerator and denominator of the basic and diluted net (loss) income per share computations for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended					Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Numerator:
Net (loss) income attributable to Xcel Brands, Inc. stockholders (in thousands)	$	(5,144)	$	(4,042)	$	(14,255)	$	1,961

Denominator:
Basic weighted average number of shares outstanding		19,749,317		19,624,860		19,683,525		19,624,604
Add: Effect of warrants		—		—		—		620
Add: Effect of stock options		—		—		—		127,115
Diluted weighted average number of shares outstanding		19,749,317		19,624,860		19,683,525		19,752,339

Basic net (loss) income per share	$	(0.26)	$	(0.21)	$	(0.72)	$	0.10
Diluted net (loss) income per share	$	(0.26)	$	(0.21)	$	(0.72)	$	0.10

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
Basic 18,470,977 18,692,775 18,530,963 18,608,034
Effect of exercise of warrants 364,340 369,288 364,247 -
Effect of exercise of stock options 37,436 5,948 1,208 -
Diluted 18,872,753 19,068,011 18,896,418 18,608,034

As a result of the net loss ~~presented~~ for the ~~Prior Year Nine Months,~~current quarter, prior quarter, and current nine months, the Company calculated diluted ~~earnings per share~~EPS using basic ~~weighted-average~~weighted average shares outstanding for ~~that period,~~such periods, as utilizing diluted shares would be anti-dilutive to loss per ~~share.~~share for such periods.

The computation of diluted EPS excludes ~~the common stock equivalents of~~ the following potentially dilutive securities because their inclusion would be anti-dilutive:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
Stock options and warrants 4,465,584 3,338,000 4,485,584 4,743,743


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2023	2022	2023	2022
Stock options	5,144,170	5,761,890	5,144,170	5,514,140
Warrants	1,116,065	116,065	1,116,065	115,000
Total	6,260,235	5,877,955	6,260,235	5,629,140

~~Income Tax~~

10. Income Taxes

The estimated annual effective income tax rate for the ~~Current Quarter~~current quarter and the ~~Prior Year Quarter~~prior year quarter was approximately ~~73%~~0% and ~~68%~~26%, respectively, resulting in an income tax (benefit) provision of ~~$691,000~~$0 and ~~$256,000,~~$(1.54) million, respectively.

The estimated annual effective income tax rate for the ~~Current Nine Months~~current nine months and the ~~Prior Year Nine Months~~prior year nine months was approximately ~~96%~~0% and ~~15%~~62%, respectively, resulting in an income tax (benefit) provision ~~(benefit)~~ of ~~$1,704,000~~$0 and ~~$(3,000),~~$1.64 million, respectively.

InFor the ~~Current Quarter and Current Nine Months,~~current quarter, the federal statutory rate differed from the effective tax rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during the period will be utilized in future periods. For the prior year quarter, the federal statutory rate differed from the effective tax rate primarily ~~attributable~~due to recurring permanent ~~differences. Based on~~differences and state taxes, which increased the ~~amount~~effective tax rate by approximately 5%.

For the current nine months, the federal statutory rate differed from the effective tax rate due to the recording of ~~income before income taxes compared~~a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during the period will be utilized in future periods. For the prior year nine months, the federal statutory rate differed from the effective tax rate primarily due to ~~the~~ recurring permanent differences, state taxes, and the ~~effective rate~~discrete treatment of stock compensation shortfall, which increased ~~by approximately 34% for~~ the ~~Current Quarter and by approximately 33% for the Current Nine Months. The~~ effective tax rate ~~was also impacted~~ by ~~the tax impact from the vesting of restricted shares of common stock. The excess tax deficiencies were treated as a discrete item for tax as required by ASU 2016-09,~~~~Improvements to Employee Share-Based Payment Accounting~~approximately 41%. ~~This item increased the effective rate by 5% for the Current Quarter and 30% for the Current Nine Months, respectively.~~

During the Prior Year Quarter and the Prior Year Nine Months, the respective effective tax rates were attributable to recurring permanent differences. Based on the amount of income/(loss) before income taxes compared to the permanent differences, the effective rate increased by 27% and decreased by 26% for the Prior Year Quarter and the Prior Year Nine Months, respectively.

~~Related Party Transactions~~

~~Benjamin Malka~~11. Related Party Transactions

IM Topco, LLC

~~Concurrent with~~The Company holds a noncontrolling interest in IM Topco, which is accounted for under the ~~acquisition~~equity method of ~~the H Halston Brand on December 22, 2014,~~accounting.

On May 31, 2022, the Company ~~and The H Company IP, LLC (“HIP”)~~ entered into a ~~license~~services agreement ~~(the “HIP License Agreement”),~~with IM Topco, pursuant to which ~~was subsequently amended September 1, 2015. Benjamin Malka, a director~~the Company provides certain design and support services (including assistance with the operations of the ~~Company, is a 25% equity holder~~interactive television business and related talent support) to IM Topco in exchange for payments of ~~HIP’s parent company, House of Halston LLC (“HOH”),~~$300,000 per year. For the three and ~~Chief Executive Officer of HOH. The HIP license agreement provides for royalty payments including guaranteed minimum royalties to be paid to~~nine months ended September 30, 2023, the Company ~~during the initial term that expires on December 31, 2019.~~

recognized service fee income related to this agreement of $0 and $150,000, respectively. See Note 13 for discussion related to a reduction of future service fees, effective as of July 1, 2023.

On ~~September 1, 2015,~~May 31, 2022, the Company entered into a license agreement with Lord and Taylor, LLC (the “L&T License”) and simultaneously amended the HIP License Agreement eliminating HIP’s minimum guaranteed royalty obligations, provided the L&T License is in effect. In addition,IM Topco, pursuant to which IM Topco granted the Company ~~entered into~~ a ~~sublicense~~license to use certain Isaac Mizrahi trademarks on and in connection with the design, manufacture, distribution, sale, and promotion of women’s sportswear products in the United States and Canada during the term of the agreement, ~~with HIP (the “HIP Sublicense Agreement”), obligating~~in exchange for the ~~Company to pay HIP a fee on an annual basis the greater of (i) 50%~~payment of royalties received under the L&T License from H Halston products or (ii) guaranteed minimum royalties. Provided that Lord & Taylor, LLC is paying the Company at least $1,000,000 per quarter under the L&T License, the remaining contractually required guaranteed minimum royalties are equalin connection therewith. The initial term of this agreement was set to ~~$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.~~end on

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

~~Cumulative fees paid~~December 31, 2026, and provided guaranteed minimum royalties to ~~HIP~~IM Topco of $400,000 per year. Effective December 16, 2022, the license agreement between IM Topco and Xcel was terminated in favor of a new similar license agreement between IM Topco and an unrelated third party. However, as part of the termination of the May 31, 2022 license agreement, Xcel provided a guarantee to IM Topco for the payment of any difference between (i) the royalties received by IM Topco from the unrelated third party under the new agreement and (ii) the amount of guaranteed royalties that IM Topco would have received from Xcel under the May 31, 2022 agreement. For the three and nine months ended September 30, 2023, the estimated amount of such shortfall was approximately $105,000 and $225,000, respectively, which the Company ~~or on the Company’s behalf through September 30, 2017 were $0.19 million.~~

The Company recorded $0 and $28,000 of HIP fees (as a reduction to net revenue) for the Current Quarter and the Prior Year Quarter, respectively. The Company recorded approximately $9,000 and $91,000 of HIP fees (as a reduction to net revenue) for the Current Nine Months and the Prior Year Nine Months, respectively. In September 2017, the Company had a prepaid balance of $0.2 million to HIP to be applied against future fees due to HIP, which is recordedrecognized as ~~a prepaid in current assets as of September 30, 2017.~~

HOH has also entered into an arrangement with another licensee of the Company to supply Halston-branded apparel for the subsequent sale of such product to end customers. Under the Company’s separate pre-existing licensing agreements in place with the aforementioned other licensee and with HIP as described above, the Company earns royalties on the sales of such Halston-branded products.

~~Edward Jones, III~~

During the Current Nine Months and Prior Year Nine Months, Edward Jones, III, a director of the Company, performed consulting services for and received compensation from a certain licensee of the Company. Under the terms of the Company’s agreement with this certain licensee, the licensee may supply the Company’s branded products to the Company’s other licensees. Under the terms of the Company’s separate pre-existing agreements with other licensees, the Company would earn royalties on the sales of such branded products sold to end customers.

On January 31, 2017, the Company entered into a two-year consulting agreement (the “JTI Consulting Agreement”) with Jones Texas, Inc. (“JTI”), whose controlling shareholder is Edward Jones, III, a director of the Company, pursuant to which JTI shall cause Mr. Jones to provide consulting services in connection with the Company’s fast-to-market production platform fashion program and other projects. Pursuant to the JTI Consulting Agreement, the Company issued an aggregate of 50,000 shares of common stock to JTI, of which 25,000 shares vested immediately, and 25,000 shares shall vest on January 31, 2018; however, up to 25,000 shares of common stock are subject to forfeiture if the Company’s business with suppliers of women’s apparel is materially diminished, as definedroyalty expense in the JTI Consulting Agreement. On June 18, 2017, based upon meeting certain performance targets relating to the Company’s fast-to-market production platform business as provided in the January 31, 2017 JTI Consulting Agreement, the Company issued an additional 28,334 sharescondensed consolidated statements of ~~common stock to JTI, of which 14,167 shares vested immediately, resulting in the recognition of compensation expense of $79,000,~~operations.

12. Commitments and the remaining 14,167 shares shall vest on January 31, 2018. The Company also paid JTI a cash consulting fee of $75,000 on January 30, 2017 and an additional cash consulting fee of $75,000 on April 28, 2017 relating to other projects. As of September 30, 2017, there was no additional compensation owed to JTI.Contingencies

~~Facility Exit Costs~~

Contingent Obligation – Lori Goldstein Earn-Out

~~In June 2016, the Company relocated its corporate offices and operations from 475 Tenth Avenue in New York City to 1333 Broadway in New York City.~~ In connection with the ~~exit from its former office location,~~April 1, 2021 purchase of the Lori Goldstein trademarks, the Company ~~recognized~~agreed to pay the seller additional cash consideration (the “Lori Goldstein Earn-Out”) of up to $12.5 million, based on royalties earned during the six calendar year period commencing in 2021. The Lori Goldstein Earn-Out was initially recorded as a liability ~~at the exit and cease-use date for the remaining lease obligation associated with 475 Tenth Avenue,~~of $6.6 million, based on the ~~remaining contractual lease payments less estimated sublease rentals, discounted to present~~difference between the fair value ~~using a credit-adjusted risk-free rate. The Company recorded a net non-cash charge~~ of ~~approximately $648,000 associated~~the acquired assets of the Lori Goldstein brand and the total consideration paid, in accordance with the ~~recognition~~guidance in ASC Subtopic 805-50. Based on the performance of the Lori Goldstein brand through December 31, 2022, approximately $0.2 million of additional consideration has been earned by the seller to date, and this amount was paid to the seller during the current nine months. At December 31, 2022, $0.2 million of the balance was recorded as a current liability inand $6.4 million was recorded as a long-term liability. At September 30, 2023, $0.8 million of the ~~second quarter of 2016.~~

~~The~~ remaining balance ofwas recorded as a current liability and approximately $5.6 million was recorded as a long-term liability.

Contingent Obligation – Isaac Mizrahi Transaction

In connection with the ~~exit cost liability~~May 31, 2022 transaction related to the ~~former office space was approximately $633,000~~sale of a majority interest in the Isaac Mizrahi Brand (see Note 2), the Company agreed with WHP that, in the event that IM Topco receives less than $13.3 million in aggregate royalties for any four consecutive calendar quarters over a three-year period ending on May 31, 2025, WHP will be entitled to receive from the Company up to $16 million, less all amounts of net cash flow distributed to WHP on an accumulated basis, as ofan adjustment to the purchase price previously paid by WHP. Such amount would be payable by the Company in either cash or equity interests in IM Topco held by the Company. Based on IM Topco’s earnings from May 31, 2022 through September 30, ~~2017,~~2023 and the applicable distribution provisions, WHP earned $9.1 million in cash flow, which reduces the maximum potential purchase price adjustment to $6.9 million.

Although IM Topco’s aggregate royalties fell below the aforementioned threshold for the four consecutive quarter period ending September 30, 2023, WHP provided a waiver to Xcel relative to such requirement for the period. The waiver also includes the measurement period ending December 31, 2023. The next measurement period shall be the trailing four calendar quarters ending March 31, 2024. IM Topco’s aggregate royalties through September 30, 2023 were lower than expected as a result of ~~which $92,000 was~~soft sales in its interactive television business, primarily driven by talent scheduling conflicts as QVC transitions from remote shows to 100% in-studio shows. Management believes this softness in sales is temporary, and steps are underway to restore airtime back to levels that will result in meeting planned sales levels. Accordingly, no amount has been recorded ~~in other current liabilities and $541,000 was recorded in other long-term liabilities~~ in the accompanying ~~unaudited~~ condensed consolidated balance ~~sheets. The balance~~sheets related to this contingent obligation.

Table of ~~this liability will be paid out over a period of approximately 4.5 years, through February 2022.~~

Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2023

(Unaudited)

Legal Proceedings

~~A summary~~From time to time, the Company becomes involved in legal claims and litigation in the ordinary course of business. In the opinion of management, based on consultations with legal counsel, the disposition of litigation currently pending against the Company is unlikely to have, individually or in the aggregate, a materially adverse effect on the Company’s business, financial position, results of operations, or cash flows. The Company routinely assesses all its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ~~activity~~ultimate loss in situations where it assesses the likelihood of loss as probable.

13. Subsequent Events

Restructuring of Certain Contractual Arrangements

On October 17, 2023, the Company and one of the licensees managed under the Halston Master License entered into an amendment of their respective licensing agreement. Under this amendment, the payment terms of the $0.76 million outstanding balance due to the Company were changed such that the receivable (and collection thereof) became contractually contingent upon the licensee’s future performance. The licensee is also required to pay interest to the Company on a monthly basis until the outstanding balance is paid in full.

The Company recorded a non-cash charge of $0.76 million within other selling, general and administrative expenses in the current quarter and current nine months related to the ~~exit cost liability for~~restructuring of this licensing arrangement, in order to write-down the ~~Current Nine Months is as follows:~~previously-recorded receivable to zero.

($ in thousands)
Balance as of January 1, 2017 $ 783
Cash payments, net (140 )
Adjustment to liability (revision to estimated cash flows) (25 )
Accretion 15
Balance as of September 30, 2017 $ 633

~~10.~~

~~Subsequent Events~~

IDB Term Loan and Interest Rate Swap

On October ~~23, 2017,~~19, 2023, H Halston IP, LLC (the “Borrower”), a wholly owned indirect subsidiary of Xcel Brands, Inc., entered into a Term Loan Agreement (the “Loan Agreement”) with Israel Discount Bank of New York (“IDB”). Pursuant to the Loan Agreement, IDB made a term loan in the aggregate amount of $5.0 million (the “Term Loan”). The proceeds of the Term Loan were used to pay fees, costs, and expenses incurred in connection with entering into the Loan Agreement of approximately $0.1 million (including a commitment fee paid to IDB in the amount of $50,000 and legal fees paid to counsel of IDB in the amount of $82,000), and may be used for working capital purposes.

In connection with the Loan Agreement, the Borrower and H Licensing, LLC (“H Licensing”), a wholly owned subsidiary of Xcel, entered into a Security Agreement (the “Security Agreement”) in favor of IDB, and Xcel entered into a Membership Interest Pledge Agreement (the “Pledge Agreement”) in favor of IDB. Pursuant to the Security Agreement, the Borrower and H Licensing granted to IDB a security interest in substantially all of their respective assets, other than the trademarks owned by the Borrower and H Licensing, to secure the Borrower’s obligations under the Loan Agreement. Pursuant to the Pledge Agreement, Xcel granted to IDB a security interest in its membership interests in H Licensing to secure the Borrower’s obligations under the Loan Agreement.

The Term Loan matures on October 19, 2028. Principal on the Term Loan shall be payable in quarterly installments of $250,000 on each of January 2, April 1, July 1, and October 1of each year, commencing on April 1, 2024. The Borrower has the right to prepay all or any portion of the Term Loan at any time without penalty.

Interest on the Term Loan accrues at Term SOFR (as defined in the Loan Agreement as the forward-looking term rate based on secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to one month on the day that is two U.S. Government Securities Business Days prior to the first day of each calendar month) plus 4.25% per annum. Interest on the Term Loan is payable on the first day of each calendar month.

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2023

(Unaudited)

The Loan Agreement contains customary covenants, including reporting requirements, trademark preservation, and certain financial covenants including annual guaranteed minimum royalty ratio, annual fixed charge coverage ratio, and minimum cash balance levels, all as specified and defined in the Loan Agreement.

In addition, on October 19, 2023, the Borrower also entered into a swap agreement with IDB, pursuant to which IDB will pay the Borrower Term SOFR plus 4.25% per annum on the notional amount of the swap in exchange for the Borrower paying IDB 9.46% per annum on such notional amount. The term and declining notional amount of the swap agreement is aligned with the amortization of the Term Loan principal amount.

Longaberger Brand E-Commerce Agreement

On October 29, 2023, Longaberger Licensing, LLC (“LL”) entered into a master services agreement with a third party, under which LL granted to the counterparty a license to operate and manage the e-commerce operations of LL. This agreement has an initial term ending December 31, 2026, with an option for the counterparty to renew for an additional three years, provided that certain sales thresholds are met. In exchange, the counterparty agreed to pay LL a percentage royalty based on net sales, as well as a percentage share of the “modified contribution margin” (as defined in the agreement) of the e-commerce business operations.

Amendments Related to IM Topco

In November 2023, the Company, ~~further amended its Amended~~WHP, and ~~Restated Certificate~~IM Topco entered into amendments of ~~Incorporation~~the May 27, 2022 membership purchase agreement (see Note 2) and the May 31, 2022 services agreement (see Note 11). Under these amendments, the parties agreed to ~~increase~~waive the ~~number~~purchase price adjustment provision until the measurement period ending March 31, 2024. In exchange, Xcel shall provide IM Topco with a $0.6 million reduction of ~~shares~~future service fees over the next eighteen months, beginning on July 1, 2023.

Table of common stock which the Company has authority to increase from 35,000,000 to 50,000,000 and, consequently, to increase the total number of shares of all classes of capital stock which the Company has authority to increase from 36,000,000 to 51,00,000.Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.The statements that are not historical facts contained in this report are forward-looking statements that involve a number of known and unknown risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks are detailed in the Risk ~~Section~~Factors section of our Form 10-K for the fiscal year ended December 31, ~~2016.~~2022, as filed with the SEC on April 17, 2023. The words “believe,” “anticipate,” “expect,” “continue,” “estimate,” “appear,” “suggest,” “goal,” “potential,” “predicts,” “seek,” “will,” “confident,” “project,” “provide,” “plan,” “likely,” “future,” “ongoing,” “intend,” “may,” “should,” “would,” “could,” “guidance,” and similar expressions identify forward-looking statements.

Overview

Xcel Brands, Inc. (“Xcel,” the “Company,” “we,” “us,” or “our”) is a media and consumer products company engaged in the design, production, ~~licensing,~~ marketing, live streaming, wholesale distribution, and ~~direct to consumer~~direct-to-consumer sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as one thing. Currently, ~~our~~the Company’s brand portfolio consists of the LOGO by Lori Goldstein brand (the “Lori Goldstein Brand”), the Halston brands (the "Halston Brand"), the Judith Ripka brands (the "Ripka Brand"), the C Wonder brands (the "C Wonder Brand"), the Longaberger brand (the “Longaberger Brand”), the Isaac Mizrahi ~~Judith Ripka, H Halston, C Wonder,~~brands (the "Isaac Mizrahi Brand"), and ~~Highline Collective~~other proprietary brands. ~~We also~~

●

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

●

We manage the Longaberger Brand through our 50% ownership interest in Longaberger Licensing, LLC.

●

The Company wholly owned and managed the Isaac Mizrahi Brand through May 31, 2022. On May 31, 2022, we sold a majority interest in the brand to a third party, but retained a 30% noncontrolling interest in the brand and continue to contribute to the operations of the brand through a service agreement.

Xcel continues to pioneer a true omni-channel sales strategy which includes the promotion and ~~designed the Liz Claiborne New York brand (“LCNY brand”)~~sale of products under its brands through ~~July 31, 2016.~~

interactive television, digital live-stream shopping, wholesale, and e-commerce channels to be everywhere its customers shop. Our brands have generated over $3 billion in retail sales via live streaming in interactive television and digital channels alone

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

·●

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

·●

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

●

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

●

licensing our brands to manufacturers and retailers for promotion and distribution through e-commerce, social commerce, and traditional brick-and-mortar retail channels ~~(wholesale~~whereby we provide certain design services; and ~~department store business). Our wholesale and department store business includes our fast-to-market production platform, which is our proprietary production oversight solution for our retail partners.~~

●

acquiring additional consumer brands and integrating them into our operating platform and leveraging our operating infrastructure and distribution relationships.

Table of Contents

We believe that Xcel offers a unique value proposition to ~~its~~our retail and direct-to-consumer customers and our licensees ~~and customers~~ for the following reasons:

·●

our management team, including our officers’ and directors’ ~~historical track records~~experience in, and relationships within the industry;

~~our brand management platform, which has a strong focus on design, production oversight, marketing, and social media;~~

·●

our ~~operating strategy of licensing brands with significant media presence~~deep knowledge, expertise, and ~~driving sales through our ubiquitous-channel retail sales strategy across interactive television, internet, and traditional retail channels; and~~proprietary technology in live streaming;

·●

our ~~ability~~design, production, sales, marketing, and supply chain and integrated technology platform that enables us to ~~provide certain retail licensees with vertical production capabilities.~~design and distribute trend-right product; and

●

our significant media and internet presence.

We ~~license our brands~~utilize state-of-the-art supply chain management technology, trend analytics, and data science to ~~third parties, provide certain design, production,~~actively monitor fashion trends and ~~marketing services,~~read and generate licensing, design, and service fee revenues through contractual arrangements with manufacturers and retailers. This includes licensing our own brands for promotion and distribution through a ubiquitous-channel retail sales strategy, which includes distribution through interactive 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 usreact to ~~leverage the media reach of our interactive 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 interactive television companies enable us to reach consumers in over 360 million homes worldwide.

We believe our “virtual vertical” production 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 leveraging our design, production oversight, and marketing capabilities and retail and licensee relationships.

demands.

Summary of Operating Results

~~The three~~Three months ended September 30, ~~2017~~2023 (the ~~“Current Quarter”~~“current quarter”) compared with the three months ended September 30, ~~2016~~2022 (the ~~“Prior Year Quarter”~~“prior year quarter”)

~~Net~~ Revenues

Current ~~Quarter~~quarter net ~~revenues~~revenue decreased approximately ~~$0.43~~$1.9 million to ~~$7.89~~$2.6 million from ~~$8.32~~$4.5 million for the prior year quarter.

Net licensing revenue increased approximately $0.2 million to $2.4 million from $2.2 million in the ~~Prior Year Quarter.~~prior year quarter, primarily driven by increases in sales through interactive television, mainly attributable to our C Wonder brand.

Net product sales decreased by approximately $2.1 million in the current quarter to approximately $0.3 million, compared with $2.3 million in the prior year quarter. This decrease was primarily attributable to the ~~combination of (i) lower revenues~~exit from our ~~interactive television agreements~~wholesale apparel and fine jewelry sales operations earlier in 2023 as part of the restructuring and transformation of our business operating model, which was substantially completed as of June 30, 2023.

Cost of Goods Sold

Current quarter cost of goods sold was $0.2 million, compared with $1.5 million for the prior year quarter.

Gross profit margin from net product sales (net sales less cost of goods sold, divided by net sales) decreased from approximately ~~$0.36~~37% in the prior year quarter to approximately 12% in the current quarter. The decrease in gross profit margin percentage was the result of reduced wholesale apparel sales attributable to excess chargebacks.

Gross profit (net revenue less cost of goods sold) decreased approximately $0.6 million to $2.4 million from $3.0 million in the prior year quarter, primarily driven by the ~~termination and transition of~~aforementioned decrease in net product sales due to the C Wonder Brand from QVC, (ii) lower revenues of approximately $0.19 million associated with the management and design of the LCNY brand (for which our contract ended in July 2016) and (iii) lower revenues of approximately $0.17 million from wholesale net revenues associated with our jewelry business. These decreases were offset by higher net revenuesexit from our wholesale ~~department store business~~apparel and fine jewelry sales operations earlier in 2023.

Table of approximately $0.29 million, primarily driven by an increase in the number of retail stores our brands are sold in, including the launch at Dillard’s this year, and expanding into more product categories for our fast-to-market production platform in our department store business.Contents

Direct Operating Costs and Expenses

~~Operating~~Direct operating costs and expenses decreased ~~$0.85~~approximately $1.3 million ~~to $6.63 million for the Current Quarter~~ from ~~$7.48~~$6.9 million in the ~~Prior Year Quarter.~~prior year quarter to $5.6 million in the current quarter. This decrease was primarily attributable to ~~(i) a decrease~~lower salaries, benefits and employment costs, driven by reductions in staffing levels in 2023 related to the restructuring and transformation of our business operating model, as well as related reductions in other ~~design~~overhead costs. These decreases were partially offset by $0.8 million in costs related to the restructuring of certain contractual arrangements in connection with the shift and ~~marketing costs of approximately $0.49 million primarily attributable to start-up expenses~~evolution in the ~~Prior Year Quarter for our fast-to-market production platform in our department store~~Company’s business operations, and ~~(ii)~~also by a ~~net decrease in total compensation, including stock-based compensation, of~~$0.1 million impairment charge related to certain capitalized software assets.

Other Operating Costs and Expenses (Income)

Depreciation and amortization expense was approximately ~~$0.37~~$1.8 million ~~as the Company shifted from awards of restricted stock to stock options.~~

~~Interest~~ and ~~Finance Expense~~

~~Interest and finance expense for the Current Quarter decreased by approximately $0.15 million to $0.31 million, compared with $0.46~~$1.7 million in the ~~Prior Year Quarter. This decrease was attributable to: (i) lower~~current quarter and prior year quarter, respectively.

We account for our interest ~~expense~~in the ongoing operations of ~~$0.08~~IM Topco, LLC using the equity method of accounting. We recognized an equity method loss related to our investment of $0.52 million ~~on our term debt due to a lower principal balance,~~ and ~~(ii) lower interest recognized~~$0.28 million for the current quarter and prior year quarter, respectively, based on the ~~IM Seller Note of $0.07 million (attributable to a reduced imputed rate from 9.0%~~distribution provisions set forth in the ~~Prior Year Quarter to an interest rate of 2.2%) resulting from the amendment of the IM Seller Note in September 2016.~~related business venture agreement.

Income ~~Tax Provision (Benefit)~~

Taxes

The estimated annual effective income tax rate for the ~~Current Quarter~~current quarter and the prior year quarter was approximately ~~73%~~0% and 26%, respectively, resulting in ~~a $0.69 million~~an income tax ~~provision. During~~(benefit) provision of $0 and $1.54 million, respectively.

For the ~~Current Quarter,~~current quarter, the federal statutory rate differed from the effective tax rate ~~was primarily attributable to recurring permanent differences. Based on the amount of income before income taxes compared~~due to the ~~recurring permanent differences,~~recording of a valuation allowance against the ~~effective~~benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

For the prior year quarter, the federal statutory rate ~~increased by approximately 34%. The effective tax rate was also attributable to the tax impact~~differed from ~~the vesting of restricted shares of common stock, which was treated as a discrete item for tax purposes. This item increased the effective rate by 5%.~~

~~The effective income tax rate for the Prior Year Quarter was approximately 68% which resulted in a $0.26 million income tax provision. During the Prior Year Quarter,~~ the effective tax rate ~~was attributable~~primarily due to recurring permanent ~~differences. Based on the amount of income before income~~differences and state taxes, ~~compared to the permanent differences,~~which increased the effective tax rate ~~increased~~ by ~~27%.~~approximately 5%

Net ~~Income~~Loss Attributable to Xcel Brands, Inc. Stockholders

We had a net ~~income~~loss of ~~$0.25~~$5.1 million for the ~~Current Quarter,~~current quarter, compared towith a net ~~income~~loss of ~~$0.12~~$4.0 million for the ~~Prior Year Quarter.~~prior year quarter, due to the combination of the factors outlined above.

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

We had a non-GAAP net ~~income~~loss of ~~$1.64~~approximately $3.0 million, or ~~$0.09~~$0.15 per diluted share (“non-GAAP diluted EPS”), for the ~~Current Quarter, compared with~~current quarter and a non-GAAP net ~~income~~loss of ~~$1.54~~$3.3 million, or ~~non-GAAP~~$0.17 per diluted ~~EPS of $0.08~~share, for the ~~Prior Year Quarter.~~prior year quarter. Non-GAAP net (loss) income is a non-GAAP unaudited term, which we define as net (loss) income ~~(loss),~~attributable to Xcel Brands, Inc. stockholders, exclusive of amortization of trademarks, our proportional share of trademark amortization of equity method investees, stock-based compensation ~~non-cash interest expense from discounted debt related to acquired assets,~~and cost of licensee warrants, loss on extinguishment of debt, gains on sales of assets and investments, gain on ~~the reduction of contingent obligations, non-recurring facility exit charges, certain discrete tax items related to vesting or exercise of stock-based awards,~~lease termination, asset impairments, and ~~net~~ income ~~or loss from discontinued operations.~~taxes. Non-GAAP net income and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy.

We had Adjusted EBITDA of ~~$2.36~~approximately $(1.4) million for the ~~Current Quarter,~~current quarter, compared with ~~Adjusted EBITDA of $2.34~~approximately $(2.9) million for the ~~Prior Year Quarter.~~prior year quarter. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net (loss) income ~~(loss)~~attributable to Xcel Brands, Inc. stockholders before ~~stock-based compensation,~~depreciation and amortization, our proportional share of trademark amortization of equity method investees, interest ~~expense~~ and ~~other financing costs,~~finance expenses (including loss on extinguishment of debt, ~~gain on the reduction of contingent obligations,~~if any), income taxes, other state and local franchise taxes, ~~depreciation~~stock-based compensation and ~~amortization, non-recurring facility exit~~cost of licensee warrants, gains on sales of assets and investments, gain on lease termination, asset impairments, and costs associated with restructuring of operations.

Table of Contents

Costs associated with restructuring of operations include the current year operating losses generated by certain of our businesses that have been restructured or discontinued (i.e., wholesale apparel and fine jewelry), as well as non-cash charges ~~and net income or loss from discontinued operations.~~

associated with the restructuring of certain contractual arrangements.

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

Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Given that non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net 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 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 other 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 attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net (loss) income:


	Three Months Ended
	September 30,
($ in thousands)	2023		2022
Net loss attributable to Xcel Brands, Inc. stockholders	$	(5,144)	$	(4,042)
Amortization of trademarks		1,520		1,520
Proportional share of trademark amortization of equity method investee		515		742
Stock-based compensation and cost of licensee warrants		62		51
Income tax benefit		—		(1,539)
Non-GAAP net loss	$	(3,047)	$	(3,268)

Three Months Ended September 30,
($ in thousands) 2017 2016
Net income $ 252 $ 118
Non-cash interest and finance expense 9 78
Stock-based compensation 690 1,089
Deferred income tax provision 691 256
Non-GAAP net income $ 1,642 $ 1,541

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

	Three Months Ended September 30,
	2017		2016
Diluted earnings per share	$	0.01	$	0.01
Non-cash interest and finance expense		0.00		0.00

					Three Months Ended
					September 30,
					2023		2022
Diluted loss per share					$	(0.26)	$	(0.21)
Amortization of trademarks						0.08		0.08
Proportional share of trademark amortization of equity method investee						0.03		0.04
Stock-based compensation		0.04		0.06		0.00		0.00
Deferred income tax provision		0.04		0.01
Income tax benefit						—		(0.08)
Non-GAAP diluted EPS	$	0.09	$	0.08	$	(0.15)	$	(0.17)
Non-GAAP weighted average diluted shares		18,872,753		19,068,011		19,749,317		19,624,860

~~The following table is a reconciliation~~

Table of ~~basic weighted average shares outstanding (presented in accordance with GAAP) to non-GAAP weighted average diluted shares:~~Contents

Three Months Ended September 30,
2017 2016
Basic weighted average shares 18,470,977 18,692,775
Effect of exercising warrants 364,340 369,288
Effect of exercising stock options 37,436 5,948
Non-GAAP weighted average diluted shares 18,872,753 19,068,011

	Three Months Ended September 30,

					Three Months Ended
					September 30,
($ in thousands)	2017		2016		2023		2022
Net income	$	252	$	118
Net loss attributable to Xcel Brands, Inc. stockholders					$	(5,144)	$	(4,042)
Depreciation and amortization		389		387		1,677		1,815
Interest and finance expense		314		462
Income tax provision		691		256
Proportional share of trademark amortization of equity method investee						515		742
Interest and finance (income) expense						—		(6)
Income tax benefit						—		(1,539)
State and local franchise taxes		25		26		9		85
Stock-based compensation		690		1,089
Stock-based compensation and cost of licensee warrants						62		51
Costs associated with restructuring of operations						1,471		—
Adjusted EBITDA	$	2,361	$	2,338	$	(1,410)	$	(2,894)

~~The nine~~Nine months ended September 30, ~~2017~~2023 (the ~~“Current Nine Months”~~“current nine months”) compared with the nine months ended September 30, ~~2016~~2022 (the ~~“Prior Year Nine Months”~~“prior year nine months”)

~~Net~~ Revenues

Current ~~Nine Months~~nine months net ~~revenues~~revenue decreased approximately ~~$1.10~~$6.2 million to ~~$24.69~~$15.5 million from ~~$25.79~~$21.7 million for the prior year nine months.

Net licensing revenue decreased by approximately $6.3 million in the ~~Prior Year Nine Months.~~current nine months to $7.0 million, compared with $13.3 million in the prior year nine months. This decrease in licensing revenue was primarily attributable to the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand through the sale of a 70% interest in IM Topco, LLC to WHP. Since the closing of such sale, we no longer record Isaac Mizrahi brand licensing revenue as part of our revenues.

Net product sales were essentially flat at $8.4 million for both the current nine months and the prior year nine months. This was primarily attributable to sale of all of our C Wonder apparel inventory to HSN and the sale of all of our Judith Ripka fine jewelry inventory to JTV, as part of the restructuring and transformation of our business operating model during the first half of 2023, partially offset by the lack of such sales during the third quarter of 2023 due to our exit from wholesale apparel and fine jewelry sales operations.

Cost of Goods Sold

Current nine months cost of goods sold was $6.7 million, compared with $5.7 million for the prior year nine months.

Gross profit margin from net product sales (net sales less cost of goods sold, divided by net sales) decreased from approximately 32% in the prior year nine months to approximately 20% in the current nine months. The decrease in gross profit margin percentage was the result of selling all remaining jewelry at an agreed-upon price which was less than historical margins and the sale of the remaining apparel inventory at discounted sales amounts.

Gross profit (net revenue less cost of goods sold) decreased approximately $7.2 million to $8.8 million from $16.0 million in the prior year nine months, primarily driven by the aforementioned decrease in net licensing revenue.

Direct Operating Costs and Expenses

Direct operating costs and expenses decreased approximately $6.9 million from $24.7 million in the prior year nine months to $17.8 million in the current nine months. This decrease was primarily ~~due~~attributable to lower salaries, benefits and employment costs, driven by the combination of (i) ~~lower revenues~~the May 31, 2022 sale of ~~approximately $1.23 million~~a majority interest in the Isaac Mizrahi brand and the transfer of the employees associated with the ~~termination and transition of~~Isaac Mizrahi brand to the ~~C Wonder Brand from QVC~~IM Topco, LLC business venture, and (ii) ~~lower revenues~~reductions in staffing levels and other costs during 2023 related to the restructuring and transformation of ~~approximately $1.10 million associated with the management and design~~our business

Table of ~~the LCNY brand (for which our contract ended in July 2016).~~Contents

operating model. These decreases were partially offset by ~~(i) higher net revenues from our ongoing interactive television business of $0.85 and (ii) higher net revenues from our wholesale department store business of approximately $0.42 million. The increase~~$0.8 million in our wholesale department store business was primarily driven by an increase in the number of retail stores our brands are sold in, including the launch at Dillard’s this year, and expanding into more product categories for our fast-to-market production platform in our department store business.

~~Operating Costs and Expenses~~

~~Operating~~ costs ~~and expenses were $21.88 million for the Current Nine Months, compared with $24.39 million for the Prior Year Nine Months. The decrease of approximately $2.51 million was primarily~~ related to ~~i) a decrease in other selling, general and administrative expenses~~the restructuring of ~~approximately $0.94 million, primarily driven by lower rent and rent-related expenses, which in the Prior Year Nine Months were also affected by non-recurring charges incurred~~certain contractual arrangements in connection with the ~~exit from~~shift and evolution in the Company’s business operations, and also by a $0.1 million impairment charge related to certain capitalized software assets.

Other Operating Costs and Expenses (Income)

Depreciation and amortization expense was approximately $5.4 million and $5.3 million in the current nine months and prior year nine months, respectively.

In the prior year nine months, we recognized a gain on the sale of a majority interest in the Isaac Mizrahi brand of approximately $20.6 million, which was comprised of $46.2 million of cash proceeds plus the recognition of the fair value of our retained interest in the brand of $19.8 million, less $0.9 million of fees and expenses directly related to the transaction and the derecognition of the brand trademarks previously recorded on our balance sheet of $44.5 million.

We account for our interest in the ongoing operations of IM Topco, LLC using the equity method of accounting. We recognized an equity method loss related to our investment of $1.55 million and $0.28 million for the current nine months and prior year nine months, respectively, based on the distribution provisions set forth in the related business venture agreement.

Also during the current nine months, we recognized a gain of $0.35 million related to the sale of a limited partner ownership interest in an unconsolidated affiliate, which was entered into in 2016, and recognized a gain of $0.44 million related to a lease termination settlement with the landlord of our former leased office facilities, (ii) a $0.93 million net decrease in total compensation, including stock-based compensation, and (iii) a decrease in other design and marketing costs of approximately $0.64 million primarily attributable to start-up expenses in the Prior Year Nine Months for our fast-to-market production platform in our departmentretail store ~~business.~~location.

Interest and Finance Expense

Interest and finance expense for the ~~Current Nine Months decreased by approximately $0.39 million to $1.04~~current nine months was $0.0 million, compared with ~~$1.43~~$3.5 million infor the ~~Prior Year Nine Months.~~prior year nine months. This decrease was attributable ~~primarily to: (i) lower interest recognized~~to the May 31, 2022 repayment of all of our outstanding term loan debt, which resulted in a $2.3 million loss on ~~the IM Seller Note~~early extinguishment of ~~$0.21 million (attributable to a reduced imputed rate from 9.0%~~debt in the Prior Year Nine Months to an interest rate of 2.2%) resulting from the amendment of the IM Seller Note in September 2016, (ii) lower interest expense of $0.15 million on our term debt due to a lower principal balance, and (iii) lower loan modification fees of $0.05 million compared to the Prior Year Nine Months in connection with the amendments to our term debt.prior year nine months.

Income ~~Tax Provision (Benefit)~~

Taxes

The estimated annual effective income tax rate for the ~~Current Nine Months~~current nine months and the prior year nine months was approximately ~~96%~~0% and 62%, respectively, resulting in ~~a $1.70 million~~an income tax ~~provision. During~~(benefit) provision of $0 and $1.64 million, respectively.

For the ~~Current Nine Months,~~current nine months, the federal statutory rate differed from the effective tax rate ~~was primarily attributable to recurring permanent differences. Based on the amount of income before income taxes compared~~due to the ~~recurring permanent differences,~~recording of a valuation allowance against the ~~effective~~benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

For the prior year nine months, the federal statutory rate ~~increased by approximately 33%. The effective tax rate was also attributable to the tax impact~~differed from ~~the vesting of restricted shares of common stock, which was treated as a discrete item for tax purposes. This item increased the effective rate by 30%.~~

~~The effective income tax rate for the Prior Year Nine Months was approximately 15% resulting in a $0.003 million income tax benefit. During the Prior Year Nine Months,~~ the effective tax rate ~~was attributable~~primarily due to recurring permanent ~~differences. Based on~~differences, state taxes, and the ~~amount~~discrete treatment of ~~loss before income taxes compared to the permanent differences,~~stock compensation shortfall, which increased the effective tax rate ~~decreased~~ by ~~26%~~approximately 41%%.

Net (Loss) Income Attributable to Xcel Brands, Inc. Stockholders

~~Net Income (Loss)~~

~~The Company~~We had a net loss of $14.3 million for the current nine months, compared with net income of ~~$0.07~~$2.0 million for the ~~Current Nine Months, compared with net loss~~prior year nine months, due to the combination of ~~$0.02 million for~~ the ~~Prior Year Nine Months.~~factors outlined above.

Table of Contents

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

We had a non-GAAP net ~~income~~loss of ~~$4.29~~approximately $8.7 million, or ~~$0.22~~$0.44 per diluted share for the ~~Current Nine Months, compared with~~current nine months and a non-GAAP net ~~income~~loss of ~~$4.64~~$8.8 million, or ~~non-GAAP~~$0.45 per diluted ~~EPS of $0.24~~share, for the ~~Prior Year Nine Months.~~ prior year nine months.

We had Adjusted EBITDA of ~~$6.56~~approximately $(4.6) million for the ~~Current Nine Months,~~current nine months, compared with ~~Adjusted EBITDA of $7.08~~approximately $(6.6) million for the ~~Prior Year Nine Months.~~

prior year nine months.

The following table is a reconciliation of net (loss) income ~~(loss)~~attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net ~~income:~~loss:

Nine Months Ended September 30,
($ in thousands) 2017 2016
Net income (loss) $ 66 $ (17 )
Non-cash interest and finance expense 28 236
Stock-based compensation 2,496 3,754
Non-recurring facility exit charges - 670
Deferred income tax provision (benefit) 1,704 (3 )
Non-GAAP net income $ 4,294 $ 4,640


	Nine Months Ended
	September 30,
($ in thousands)	2023		2022
Net (loss) income attributable to Xcel Brands, Inc. stockholders	$	(14,255)	$	1,961
Amortization of trademarks		4,565		4,559
Proportional share of trademark amortization of equity method investee		1,545		742
Stock-based compensation and cost of licensee warrants		184		568
Loss on extinguishment of debt		—		2,324
Gains on sales of assets and investments		(351)		(20,608)
Gain on lease termination		(445)		—
Asset impairment		100		—
Income tax provision		—		1,639
Non-GAAP net loss	$	(8,657)	$	(8,815)

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

Nine Months Ended September 30,
2017 2016
Diluted earnings (loss) per share $ 0.00 $ (0.00 )
Non-cash interest and finance expense 0.00 0.01
Stock-based compensation 0.13 0.20
Non-recurring facility exit charges - 0.03
Deferred income tax provision (benefit) 0.09 (0.00 )
Non-GAAP diluted EPS $ 0.22 $ 0.24
Non-GAAP weighted average diluted shares 18,896,418 19,071,332


	Nine Months Ended
	September 30,
	2023		2022
Diluted (loss) earnings per share	$	(0.72)	$	0.10
Amortization of trademarks		0.23		0.23
Proportional share of trademark amortization of equity method investee		0.08		0.04
Stock-based compensation and cost of licensee warrants		0.01		0.03
Loss on extinguishment of debt		—		0.12
Gains on sales of assets and investments		(0.02)		(1.05)
Gain on lease termination		(0.02)		—
Asset impairment		0.00		—
Income tax provision		—		0.08
Non-GAAP diluted EPS	$	(0.44)	$	(0.45)
Non-GAAP weighted average diluted shares		19,683,525		19,624,604

~~The following table is a reconciliation~~

Table of ~~basic weighted average shares outstanding (presented in accordance with GAAP) to non-GAAP weighted average diluted shares:~~Contents

Nine Months Ended September 30,
2017 2016
Basic weighted average shares 18,530,963 18,608,034
Effect of exercising warrants 364,247 435,298
Effect of exercising stock options 1,208 28,000
Non-GAAP weighted average diluted shares 18,896,418 19,071,332

	Nine Months Ended September 30,

						Nine Months Ended
						September 30,
($ in thousands)	2017		2016			2023		2022
Net income (loss)	$	66	$	(17	)
Net (loss) income attributable to Xcel Brands, Inc. stockholders						$	(14,255)	$	1,961
Depreciation and amortization		1,173		1,172			5,260		5,447
Proportional share of trademark amortization of equity method investee							1,545		742
Interest and finance expense		1,040		1,427			18		3,505
Income tax provision (benefit)		1,704		(3	)
Income tax provision							—		1,639
State and local franchise taxes		81		75			53		121
Stock-based compensation		2,496		3,754
Non-recurring facility exit charges		-		670
Stock-based compensation and cost of licensee warrants							184		568
Gains on sales of assets and investments							(351)		(20,608)
Gain on lease termination							(445)		—
Asset impairment							100		—
Costs associated with restructuring of operations							3,319		—
Adjusted EBITDA	$	6,560	$	7,078		$	(4,572)	$	(6,625)

Liquidity and Capital Resources

General

~~Liquidity~~

As of September 30, 2023 and December 31, 2022, our cash and cash equivalents were $2.2 million and $4.6 million, respectively.

Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures. AtNotwithstanding our 2020 and 2021 investments in our ERP system and our brick-and-mortal retail store, respectively, our business operating model generally does not require material capital expenditures, and as of September 30, ~~2017~~2023, we have no significant commitments for future capital expenditures.

Working Capital

Our working capital (current assets less current liabilities, excluding the current portion of operating lease obligations and any contingent obligations payable in common stock) was $2.9 million and $8.8 million as of September 30, 2023 and December 31, ~~2016,~~2022, respectively.

Liquidity and Management’s Plans

We incurred a net loss attributable to Company stockholders of approximately $5.1 million and $14.3 million during the three and nine months ended September 30, 2023, respectively (which included net non-cash expenses of approximately $2.3 million and $7.1 million, respectively), and had an accumulated deficit of approximately $47.1 million as of September 30, 2023. Net cash used in operating activities was approximately $2.8 million for the nine months ended September 30, 2023. These factors, along with our current levels of cash and working capital, raise uncertainties about the Company’s ability to continue as a going concern.

Management has implemented a plan to mitigate an expected shortfall of capital and to support future operations by shifting the business from a wholesale/licensing hybrid model into a “licensing-plus” business model. In the first quarter of 2023, we began to restructure our business operations by entering into new licensing agreements and joint venture arrangements with best-in-class business partners. We entered into a new interactive television licensing agreement with America’s Collectibles Network, Inc. d/b/a Jewelry Television (“JTV”) for the Ripka Brand, and a separate license with JTV for the Ripka Brand’s e-commerce business. For apparel, similar transactions were executed. In conjunction with the launch of the C Wonder Brand on HSN, we licensed the wholesale operations related to the brand to One Jeanswear Group, LLC (“OJG”); this new license with OJG also includes other new celebrity brands that we plan to develop and launch in 2023

Table of Contents

and beyond. In the second quarter of 2023, we entered into a new master license agreement for the Halston Brand, covering men’s, women’s, and children’s apparel, fashion accessories, and other product categories, with an industry-leading wholesale apparel company for distribution through department stores, e-commerce, and other retailers. This new master license for the Halston Brand provides for an upfront cash ~~equivalents were $8.27~~payment and royalties to the Company, including certain guaranteed minimum royalties, includes significant annual minimum net sales requirements, and has a twenty-five-year term (consisting of an initial five-year period, followed by a twenty-year period), subject to the licensee’s right to terminate with at least 120 days’ notice prior to the end of each five-year period during the term.

The transition of these operating businesses was substantially completed by the end of the second quarter of 2023. Additionally, during the third quarter of 2023, the Company entered into various settlements and incurred approximately $1.0 million of expenses to restructure certain contractual arrangements related to its former wholesale operations.

We believe that this evolution of our operating model will provide significant cost savings and allow us to reduce and better manage our exposure to operating risks. As of September 30, 2023, the Company has reduced payroll costs by approximately $6 million and ~~$14.13~~operating expenses by approximately $7 million, ~~respectively.~~on an annualized basis when compared to the corresponding periods in the prior year.

~~Restricted~~While there is some level of potential risk with respect to the Company’s contingent obligation related to IM Topco, LLC, which could negatively impact our future cash ~~at September 30, 2017~~flows and ~~December 31, 2016 consisted~~liquidity, management has taken steps to address such risk.

Further, in October 2023, we entered into a new term loan agreement in the amount of ~~(i) $1.11~~$5 million, which provides us with approximately $5 million of ~~cash deposited with Bank Hapoalim B.M. (“BHI”) as collateral for an irrevocable standby letter~~additional liquidity. Also in October 2023, Longaberger Licensing, LLC outsourced the operations and management of ~~credit associated with~~ the lease of our current corporate office and operating facilities at 1333 Broadway, New York City, and (ii) $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 usLongaberger Brand’s e-commerce business to a ~~third-party subtenant.~~ third party.

~~We expect that existing cash~~Based on these recent events and ~~operating~~changes in our business model, management expects to generate adequate cash flows ~~will be adequate~~ to meet ~~our~~the Company’s operating ~~needs, debt service obligations (including debt service under the Amendment to the Loan Agreement),~~ and capital expenditure needs, for at least the twelve months subsequent to the filing date of this Quarterly Report on Form ~~10-Q. We front-loaded our 2017 Term Loan principal payments whereby we paid down $5.75 million in the Current Nine Months,~~10-Q, and therefore, such conditions and uncertainties with ~~no other payments due during the remainder of this year.~~

We are dependent on our licensees for substantially all of our revenues, and there is no assurance that the licensees will perform as projected. Our business operating model does not require significant capital expenditures.

~~Our contingent obligation related~~respect to the ~~C Wonder Brand (see Note 4, Debt in the Unaudited Condensed Consolidated Financial Statements) is payable in stock or cash, at the~~ Company’s ~~discretion. Payment of this obligation in stock would not affect our liquidity.~~

~~Changes in Working Capital~~

~~Our working capital (current assets less current liabilities) was $11.13 million and $11.53 million~~ability to continue as a going concern as of September 30, ~~2017, and December 31, 2016, respectively.~~ 2023, have been alleviated.

Commentary on the components of our cash flows for the ~~Current Nine Months~~current nine months as compared with the ~~Prior Year Nine Months~~prior year nine months is set forth below.

Operating Activities

Net cash ~~provided by~~used in operating activities was approximately ~~$2.33~~$2.81 million in the ~~Current Nine Months,~~current nine months, compared with ~~net cash provided by operating activities of~~ approximately ~~$6.77~~$11.03 million in the ~~Prior Year Nine Months.~~

prior year nine months.

The ~~Current Nine Months~~current nine months cash ~~provided by~~used in operating activities was primarily attributable to the combination of ~~net income of $0.07 million and non-cash expenses of approximately $5.54 million, partially offset by~~ the net change in operating assets and liabilities of approximately $(3.28) million. Non-cash expenses mainly consisted of $2.50 million of stock-based compensation, $1.70 million of deferred income tax provision, $1.17 million of depreciation and amortization, and $0.17 million of amortization of debt discount and deferred finance costs. The net change in operating assets and liabilities includes a net increase in accounts receivable of $2.55 million, a decrease in accounts payable, accrued expenses and other current liabilities of $1.24 million, primarily attributable to bonus payouts and overall timing of payments, and an increase in other liabilities of $0.46 million primarily due to deferred rent related to the lease of our corporate office and operations facility.

~~The Prior Year Nine Months’ cash provided by operating activities was due to the combination of a~~ net loss of ~~$(0.02)~~$(15.04) million plus non-cash ~~expenses~~items of ~~$5.95~~approximately $7.07 million and the net change in operating assets and liabilities of ~~$0.84~~approximately $5.16 million. Non-cash ~~expenses mainly consisted~~items were primarily comprised of ~~$3.75 million of stock-based compensation, $1.17~~$5.26 million of depreciation and amortization, ~~$0.38~~the $1.55 million undistributed proportional share of ~~amortization~~net loss of ~~debt discount and deferred finance costs,~~equity method investee, and a ~~non-cash~~$0.76 million charge ~~of $0.65 million~~ related to the ~~exit from our former leased office facilities.~~restructuring of certain contractual arrangements, partially offset by a $(0.35) gain on the sale of a financial asset and a $(0.44) gain on the settlement of a lease liability. The net change in operating assets and liabilities ~~included~~was primarily comprised of (i) an increase in ~~accounts payable, accrued expenses~~deferred revenue of approximately $4.68 million, which was mainly attributable to the upfront payment received for the Halston Master License agreement entered into during the current nine months, (ii) a decrease in inventory of approximately $1.85 million, driven by the sale of all of our C Wonder apparel inventory to HSN and ~~other current~~the sale of all of our Judith Ripka fine jewelry inventory to JTV, as part of the restructuring and transformation of our business operating model. Partially offsetting these net changes in operating assets and liabilities were decreases in various operating liabilities of ~~$1.31~~approximately $(1.40) million.

The prior year nine months cash used in operating activities as primarily attributable to the combination of the net income of $1.02 million ~~largely due to withholding taxes payable related to shares surrendered for taxes~~plus non-cash items of approximately $(11.30) million and the net change in operating assets and liabilities of approximately $(0.75) million. Non-cash items were primarily comprised of a $(20.61) million net gain on ~~vested stock awards;~~the sale of the assets of the Isaac Mizrahi brand, $5.45 million of depreciation and amortization, $0.57 million of stock-based

Table of Contents

compensation, a $2.32 million loss on extinguishment of debt, and $0.36 million of deferred taxes. The net change in operating assets and liabilities was primarily comprised of an increase in ~~other~~inventory of $(0.51) million, decreases in various operating liabilities of ~~$1.13~~$(0.80) million, ~~related to the lease~~and changes in lease-related assets and liabilities of ~~our new corporate offices and operations facility, and the sublease of our former offices;~~$(0.20) million, partially offset by ~~an increase~~a decrease in accounts receivable of ~~$1.21 million, primarily attributable to the increase in revenues.~~$0.75 million..

Investing Activities

Net cash ~~used in~~provided by investing activities for the ~~Current Nine Months~~current nine months was approximately ~~$0.19~~$0.36 million, ~~compared with approximately $1.94~~primarily driven by $0.45 million of proceeds received from the sale of a limited partner ownership interest in ~~the Prior Year Nine months. Cash used~~an unconsolidated affiliate, which was entered into in 2016.

Net cash provided by investing activities for ~~both~~ the ~~Current Nine Months~~prior year nine months was approximately $45.17 million, and ~~Prior Year Nine Months~~ was ~~primarily~~predominantly attributable to ~~capital expenditures, which were higher~~$45.41 million of net proceeds from the sale of a majority interest in the ~~Prior Year Nine Months due~~Isaac Mizrahi brand to ~~the build-out~~WHP, partially offset by approximately $0.24 million of ~~our current corporate offices and operations facility (which we relocated to in June 2016).~~capital expenditures

Financing Activities

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

Net cash used in financing activities for the ~~Current Nine Months~~prior year nine months was approximately ~~$8.00~~$30.95 million, ~~primarily attributable~~which mainly consisted of $29.00 million of repayments of term loan debt, and, to ~~payments on our senior term~~a lesser extent, $1.51 million of prepayment and other fees associated with the extinguishment of debt, ~~obligation~~as well as $0.44 million of ~~$5.75 million, payment on our IM Seller Note obligation of $1.43 million, and~~ shares repurchased related to withholding taxes on vested restricted ~~stock~~stock.

Contingent Obligation – Isaac Mizrahi Transaction

In connection with the May 31, 2022 transaction related to the sale of a majority interest in ~~exchange~~the Isaac Mizrahi brand, the Company agreed with WHP that, in the event that IM Topco, LLC (“IM Topco”) receives less than $13.3 million in aggregate royalties for ~~withholding taxes~~any four consecutive calendar quarters over a three-year period ending on May 31, 2025, WHP will be entitled to receive from us up to $16 million, less all amounts of ~~$0.81~~net cash flow distributed to WHP on an accumulated basis, as an adjustment to the purchase price previously paid by WHP. Such amount would be payable by us in either cash or equity interests in IM Topco held by us. Based on IM Topco’s earnings from May 31, 2022 through September 30, 2023 and the applicable distribution provisions, WHP earned $9.1 million in cash flow, which reduces the maximum potential purchase price adjustment to $6.9 million.

~~Net cash used in financing activities~~Although IM Topco’s aggregate royalties fell below the aforementioned threshold for the ~~Prior Year Nine Months was approximately $6.13 million,~~four consecutive quarter period ending September 30, 2023, WHP provided a waiver to us relative to such requirement for the period. The waiver also includes the measurement period ending December 31, 2023. The next measurement period will be the trailing four calendar quarters ending March 31, 2024. IM Topco’s aggregate royalties through September 30, 2023 were lower than expected as a result of soft sales in its interactive television business, primarily ~~attributable~~driven by talent scheduling conflicts as QVC transitions from remote shows to ~~payments on our senior term debt obligations of $3.13 million, payment on our IM Seller Note obligation of $1.50 million, shares repurchased~~100% in-studio shows. Management believes this softness in sales is temporary, and steps are underway to restore airtime back to levels that will result in meeting planned sales levels. Accordingly, no amount has been recorded in the accompanying condensed consolidated balance sheets related to ~~vested restricted stock in exchange for withholding taxes of $1.21 million, payment~~this contingent obligation.

In November 2023, the Company, WHP, and IM Topco entered into amendments of the ~~QVC Earn-Out obligation~~May 27, 2022 membership purchase agreement and the May 31, 2022 services agreement. Under these amendments, the parties agreed to waive the purchase price adjustment provision until the measurement period ending March 31, 2024. In exchange, we will provide IM Topco with a $0.6 million reduction of ~~$0.25 million, and payment~~future service fees over the next eighteen months, beginning on July 1, 2023.

Table of ~~deferred finance costs of $0.07 million.~~Contents

Other Factors

We continue to seek to expand and diversify the types of licensed products being produced under our brands. We plan to continue to diversify the distribution channels within which licensed products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands. The ~~Mizrahi~~Lori Goldstein brand, H Halston brand, and C Wonder brand have a core business in fashion apparel and accessories. The Ripka brand ~~historically has been focused on~~is a fine jewelry business which we believe helps diversify our industry focus while at the same time complements ~~expands~~our business operations and relationships.

While the 2022 sale of a majority interest in the Isaac Mizrahi brand has resulted in a decrease in our revenues, as that brand represented a significant portion of our historical revenues, we are taking actions to replace those revenues in the long-term with new strategic business initiatives, as we concentrate our resources on growing our brands, launching new brands, and ~~grows our overall business relationship with QVC.~~

In May 2017, we entered into a mutual agreement with QVC to terminate our interactive television license agreement for the C Wonder brand, under which QVC will remain obligated to pay royalties to us through January 2018, and QVC will retain exclusive rights with respect to C Wonder branded products for interactive television, excluding certain permitted international entities, through May 2018. We are pursuing new distribution channels and licensing partners, and intend to enterentering into new ~~contractual agreements for the C Wonder brand.~~

In 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 fast-to-market production platform, “virtual vertical”.business partnerships. We launched the H Halston brand at Dillard’s department stores through our fast-to-market production platform in March 2017, and plan to launch certain products under our IMNYC Isaac brand at Dillard’s retail stores in September. We also intendcontinue to seek new opportunities, including expansion through interactive television, ~~our “virtual vertical” production platform,~~live streaming, additional domestic and international licensing arrangements, and acquiring additional ~~brands.~~brands, including recent launches of our Victor Glemaud and C Wonder by Christian Siriano businesses on HSN.

~~During this year,~~In the first quarter of 2023, we ~~have made great progress~~began to restructure our business operations by shifting our business from a wholesale/licensing hybrid model into a “licensing-plus” business model. These efforts included entering into new structured contractual arrangements with best-in-class business partners in ~~planning~~order to more efficiently operate our wholesale and ~~implementing~~e-commerce businesses and reduce and better manage our ~~integrated technology platform which will position~~exposure to operating risks. These restructuring initiatives were substantially completed as of June 30, 2023, and going forward are expected to provide us with approximately $13 million of cost savings on an annualized basis compared to our previous operating model.

However, we continue to face a number of headwinds in the ~~most advanced technology-based design~~current macroeconomic environment. Poor economic and ~~production platform that completely digitizes design, merchandising,~~market conditions, including a potential recession, may negatively impact market sentiment, decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and ~~production supply lines. These advancements strategically position us~~other consumer products, which would adversely affect our operating income and results of operations. If we are unable to take ~~advantage~~effective measures in a timely manner to mitigate the impact of ~~solid growth opportunities ahead as an industry leader supplying solutions for many~~inflation and/or a potential recession, our business, financial condition, and results of ~~today's retail challenges.~~

operations could be adversely affected.

Our long-term success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and continue to attract wholesale and direct-to-consumer customers, and contract with and retain key licensees and business partners, as well as our and our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer bases and fulfill the product requirements of ~~their~~the particular retail channels within the global marketplace. Unanticipated changes in consumer fashion preferences and purchasing patterns, slowdowns in the U.S. economy, changes in the prices of supplies, consolidation of retail establishments, and other factors noted in ~~“Risk Factors” in~~Item 1A of our most recent Annual Report on Form 10-K ~~for the year ended December 31, 2016 as filed with the SEC~~ 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.

Critical Accounting Policies

and Estimates

The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires management to exercise judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates and judgments on a variety of factors, including our historical experience, knowledge of our business and industry, and current and expected economic conditions that are believed to be reasonable under the circumstances, the results of which form the basis for

Table of Contents

making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Because the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

Please refer to our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, filed with the SEC on ~~March 24, 2017,~~April 17, 2023, for a discussion of our critical accounting ~~policies.~~policies and estimates.

Effective January 1, 2023, we adopted the provisions of Accounting Standards Update No. 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (as amended). Although the adoption of this new guidance did not have a significant impact on the Company’s results of operations, cash flows, or financial condition, it represented a change in our accounting policy with respect to the estimation of allowance for uncollectible accounts. Refer to Part I, Item 1, Note 5 of this Quarterly Report on Form 10-Q for additional information. During the ~~Nine~~three and nine months ended September 30, ~~2017,~~2023, there were no other material changes to ~~these~~our accounting policies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

~~CONTROLS AND PROCEDURES~~

A. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, ~~2017,~~2023, the end of the period covered by this report. Based on, and as of the date of such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, ~~2017~~2023 such that the information required to be disclosed in our SEC reports is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

B. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:

There have not been any ~~significant~~ changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, ~~2017~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~LEGAL PROCEEDINGS~~

In the ordinary course of business, from time to time we become involved in legal claims and litigation. In the opinion of management, based on consultations with legal counsel, the disposition of litigation currently pending against us is unlikely to have, individually or in the aggregate, a materially adverse effect on our business, financial position, or results of operations.

Table of Contents

~~ITEM 1A.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

We operate in a highly competitive industry that involves numerous known and unknown risks and uncertainties that could impact our operations. The risks described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our financial condition and/or operating results.

We have identified the following risk as a material change from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

We have recently begun to conduct certain of our operations through a joint venture. Joint ventures could fail to meet our expectations or cease to deliver anticipated benefits. There could also be disagreements with our joint venture partners that could adversely affect our interest in a joint venture.

In May 2022, we sold a majority interest in the Isaac Mizrahi brand through the sale of a 70% interest in IM Topco, LLC to IM WHP, LLC (“WHP”), a subsidiary of WHP Global. We may enter into additional joint ventures in the future. Our operating results are, in part, dependent upon the performance of IM Topco, LLC and, in the future, could also be dependent in part upon the performance of future joint ventures. Joint ventures involve numerous risks, and could fail to meet our initial or ongoing expectations. We provide certain services to IM Topco, LLC and may provide services to future joint ventures, but we do not control the day-to-day operations of IM Topco, LLC and may not control the day-to-day operations of future joint ventures. The anticipated synergies or other benefits of a joint venture may fail to materialize due to changing business conditions or changes in our business priorities or those of our joint venture partners. Our joint venture partners, as well as any future partners, may have interests that are different from our interests, which may result in conflicting views as to the conduct of the business or future direction of the joint venture. In the event that we have a disagreement with a joint venture partner with respect to a particular issue to come before the joint venture, or as to the management or conduct of the business of the joint venture, we may not be able to resolve such disagreement in our favor. Any such disagreement could have a material adverse effect on our interest in the joint venture, the business of the joint venture, or the portion of our growth strategy related to the joint venture.

In connection with the May 2022 Isaac Mizrahi transaction, the Company agreed with WHP that, in the event that IM Topco, LLC receives less than $13.3 million in aggregate royalties for any four consecutive calendar quarters over a three-year period ending on May 31, 2025, WHP will be entitled to receive from us up to $16 million, less all amounts of net cash flow distributed to WHP on an accumulated basis, as an adjustment to the purchase price previously paid by WHP. Such amount would be payable by us in either cash or equity interests in IM Topco, LLC held by us. Based on IM Topco, LLC’s earnings from May 31, 2022 through September 30, 2023 and the applicable distribution provisions, WHP earned $9.1 million in cash flow, which reduces the maximum potential purchase price adjustment to $6.9 million. Although IM Topco, LLC’s aggregate royalties were below the aforementioned threshold for the four consecutive quarter period ending September 30, 2023, WHP provided a waiver to us relative to such requirement for the period. In exchange for the waiver, we agreed to provide IM Topco, LLC with a $0.6 million reduction in future service fee payments over the next eighteen months. There can be no assurance that IM Topco, LLC’s royalties will meet the required threshold level during any future measurement period. If such aggregate royalties are below the threshold and the Company does not receive a waiver, WHP will be entitled to a price adjustment which will result in either a cash payment by us or a reduction in our equity interest in WHP.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES, ~~AND~~ USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

There were no sales of unregistered or registered securities during the ~~nine~~three months ended September 30, ~~2017.~~2023.

~~During~~On August 22, 2023, in connection with an individual’s cashless exercise of 40,000 stock options, 12,903 shares of common stock were exchanged from that individual in connection with the exercise cost. The 12,903 shares of stock were considered repurchased and retired by the Company during the three months ended ~~March 31, 2017, pursuant to a consulting agreement, we issued 50,000~~September 30, 2023; the price paid for the shares ~~of common stock to Jones Texas, Inc., of which Edward Jones, III, a director of our Company, is~~was $1.55, and the controlling shareholder. On June 18, 2017, we issued an additional 28,334 shares of common stock to Jones Texas, Inc., pursuant to the same consulting agreement. The issuances were not considered a “public offering” as defined in Section 4(a)(2)fair value of the ~~Securities Act due to the insubstantial number~~shares repurchased was $20,000.

Table of persons involved, size of the offering, manner of the offering, and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, Jones Texas, Inc. had the necessary investment intent as required by Section 4(a)(2) because it agreed to receive share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, the issuances of these shares met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act for these transactions.Contents

~~The following table provides information with respect to shares of common stock we repurchased during the quarter ended September 30, 2017:~~

Period Total Number of
Shares
Purchased Average
Price per
Share Total Number of Shares
Purchased as
Part of a Publicly Announced
Plan or Program
September 1, 2017 to September 30, 2017 (i) 2,200 $ 3.70 -

~~(i)~~

~~The shares were exchanged from employees and directors in connection with the income tax withholding obligations on behalf of such employees and directors from the vesting of restricted stock.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

~~DEFAULTS UPON SENIOR SECURITIES~~

None.

ITEM 4. MINE SAFETY DISCLOSURES

~~MINE SAFETY DISCLOSURES~~

Not applicable.

ITEM 5. OTHER INFORMATION

~~OTHER INFORMATION~~

None.

ITEM 6. EXHIBITS

~~EXHIBITS~~

The following exhibits are filed herewith:


31.1	Rule 13a-14(a)/15d-14(a) Certification (CEO)

31.2

Rule 13a-14(a)/15d-14(a) Certification (CFO)

32.1

Section 1350 Certification (CEO) *

	32.2	Section 1350 Certification (CFO) *
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

~~101.INS XBRL Instance Document~~

~~101.SCH XBRL Taxonomy Extension Schema Document~~* Furnished herewith.

~~101.CAL XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF XBRL Taxonomy Extension Definitions Linkbase Document~~

~~101.LAB XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE XBRL Taxonomy Extension Presentation Linkbase Document~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November ~~13, 2017~~20, 2023	By:	/s/ Robert W. D’Loren
		Name: Robert W. D’Loren
		Title: Chairman and Chief Executive Officer

	By:	/s/ James Haran
		Name: James Haran
		Title: Chief Financial Officer and Vice President

Delaware		76-0307819
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value per share	XELB	NASDAQ Global Market


Large accelerated filer ¨☐	Accelerated filer ¨☐
Non-accelerated filer ¨☒	Smaller reporting company x☒
	Emerging growth company x☐

	a	~~Page~~
		Page

PART I–I - FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Unaudited Condensed Consolidated Balance Sheets	3

	Unaudited Condensed Consolidated Statements of Operations	4

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity	5

	Unaudited Condensed Consolidated Statements of Cash Flows	5 6

	Notes to Unaudited Condensed Consolidated Financial Statements	6 7

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	18 22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26 33

Item 4.	Controls and Procedures	26 33

PART ~~II–~~II - OTHER INFORMATION		28 33

Item 1.	Legal Proceedings	28 33

Item 1A.	Risk Factors	28 34

Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	28 34

Item 3.	Defaults Upon Senior Securities	28 35

Item 4.	Mine Safety Disclosures	29 35

Item 5.	Other Information	29 35

Item 6.	Exhibits	29 35

	Signatures	29 35

	1333 Broadway, 10th Floor, New York, NY 10018
	(Address of Principal Executive Offices)

	September 30, 2017		December 31, 2016
	(Unaudited)		(Note 1)
Assets
Current Assets:
Cash and cash equivalents	$	8,273	$	14,127
Accounts receivable, net		9,517		6,969
Prepaid expenses and other current assets		594		807
Total current assets		18,384		21,903
Property and equipment, net		2,441		2,600
Trademarks and other intangibles, net		110,396		111,220
Goodwill		12,371		12,371
Restricted cash		1,509		1,509
Other assets		1,501		1,517
Total non-current assets		128,218		129,217

Total Assets	$	146,602	$	151,120

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities	$	839	$	1,523
Accrued payroll		1,781		2,185
Deferred revenue		73		234
Current portion of long-term debt		4,459		6,427
Current portion of long-term debt, contingent obligations		100		-
Total current liabilities		7,252		10,369
Long-Term Liabilities:
Long-term debt, less current portion		20,337		25,495
Deferred tax liabilities, net		8,605		6,901
Other long-term liabilities		2,637		2,181
Total long-term liabilities		31,579		34,577
Total Liabilities		38,831		44,946

Commitments and Contingencies

Stockholders' Equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding		-		-
Common stock, $.001 par value, 35,000,000 shares authorized at September 30, 2017 and December 31, 2016, and 18,468,801 and 18,644,982 issued and outstanding at September 30, 2017 and December 31, 2016, respectively		18		19
Paid-in capital		98,886		97,354
Retained earnings		8,867		8,801
Total Stockholders' Equity		107,771		106,174

Total Liabilities and Stockholders' Equity	$	146,602	$	151,120

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2017		2016		2017		2016

Net revenues	$	7,890	$	8,320	$	24,690	$	25,793

Operating costs and expenses
Salaries, benefits and employment taxes		4,079		4,054		12,806		12,481
Other design and marketing costs		287		779		1,803		2,439
Other selling, general and administrative expenses		1,188		1,175		3,602		4,540
Stock-based compensation		690		1,089		2,496		3,754
Depreciation and amortization		389		387		1,173		1,172
Total operating costs and expenses		6,633		7,484		21,880		24,386

Operating income		1,257		836		2,810		1,407

Interest and finance expense
Interest expense - term debt		273		340		905		1,003
Other interest and finance charges		41		122		135		424
Total interest and finance expense		314		462		1,040		1,427

Income (loss) before income taxes		943		374		1,770		(20	)

Income tax provision (benefit)		691		256		1,704		(3	)

Net income (loss)	$	252	$	118	$	66	$	(17	)

Basic net income (loss) per share	$	0.01	$	0.01	$	0.00	$	(0.00	)

Diluted net income (loss) per share	$	0.01	$	0.01	$	0.00	$	(0.00	)

Basic weighted average common shares outstanding		18,470,977		18,692,775		18,530,963		18,608,034
Diluted weighted average common shares outstanding		18,872,753		19,068,011		18,896,418		18,608,034

	For the Nine Months Ended September 30,
	2017			2016

Cash flows from operating activities
Net income (loss)	$	66		$	(17	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense		1,173			1,172
Amortization of deferred finance costs		146			140
Stock-based compensation		2,496			3,754
Amortization of note discount		28			236
Deferred income tax		1,704			(3	)
Non-cash property exit charge		-			648
Changes in operating assets and liabilities:
Accounts receivable		(2,548	)		(1,210	)
Prepaid expenses and other assets		211			199
Accounts payable, accrued expenses and other current liabilities		(1,237	)		1,306
Deferred revenue		(161	)		(585	)
Other liabilities		456			1,129
Net cash provided by operating activities		2,334			6,769

Cash flows from investing activities
Cost to acquire intangible assets		(23	)		(26	)
Purchase of property and equipment		(167	)		(1,911	)
Net cash used in investing activities		(190	)		(1,937	)

Cash flows from financing activities
Proceeds from exercise of stock options		-			20
Shares repurchased including vested restricted stock in exchange for withholding taxes		(814	)		(1,210	)
Payment of deferred finance costs		(7	)		(69	)
Payment of long-term debt		(7,177	)		(4,625	)
Payment of QVC earnout obligation		-			(250	)
Net cash used in financing activities		(7,998	)		(6,134	)

Net decrease in cash, cash equivalent and restricted cash		(5,854	)		(1,302	)

Cash, cash equivalents, and restricted cash at beginning of period		15,636			17,969

Cash, cash equivalents, and restricted cash at end of period	$	9,782		$	16,667

Reconciliation to amounts on consolidated balance sheets:
Cash and cash equivalents	$	8,273		$	15,158
Restricted cash		1,509			1,509
Total cash, cash equivalents, and restricted cash	$	9,782		$	16,667

Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes	$	151		$	168
Cash paid during the period for interest	$	1,175		$	909

	Weighted- Average	September 30, 2017
($ in thousands)	Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trademarks (indefinite-lived)	n/a	$	96,700	$	-	$	96,700
Trademarks (definite-lived)	15 years		15,463		2,231		13,232
Licensing agreements	4 years		2,000		2,000		-
Non-compete agreement	7 years		562		221		341
Copyrights and other intellectual property	10 years		190		67		123
Total		$	114,915	$	4,519	$	110,396

($ in thousands)	September 30, 2017			December 31, 2016
Xcel Term Loan	$	19,500		$	25,250
Unamortized deferred finance costs related to term loan		(387	)		(509	)
IM Seller Note		2,201			3,627
Ripka Seller Notes		532			504
Contingent obligation - JR Seller		200			200
Contingent obligation - CW Seller		2,850			2,850
Total		24,896			31,922
Current portion (i)		4,559			6,427
Long-term debt	$	20,337		$	25,495

($ in thousands) Year Ending December 31,	Amount of Principal Payment
2017 (October 1 through December 31)	$	-
2018		4,000
2019		4,000
2020		4,000
2021		7,500
Total	$	19,500

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2017		2,436,000		$	5.98		4.38	$	-
Granted		835,000			4.60
Canceled		-			-
Exercised		-			-
Expired/Forfeited		(135,666	)		5.03
Outstanding at September 30, 2017, and expected to vest		3,135,334		$	5.66		4.31	$	-
Exercisable at September 30, 2017		785,503		$	6.22		3.38	$	-

	Number of Options			Weighted Average Grant Date Fair Value
Balance at January 1, 2017		2,294,667		$	1.39
Granted		835,000			1.08
Vested		(682,837	)		1.49
Forfeited or Canceled		(96,999	)		1.40
Balance at September 30, 2017		2,349,831		$	1.32

	Number of Warrants			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding and exercisable at January 1, 2017		1,966,743		$	6.76			2.81	$	-
Granted		-			-
Canceled		-			-
Exercised		-			-
Expired/Forfeited		(75,000	)		(5.50	)
Outstanding and exercisable at September 30, 2017		1,891,743		$	6.81			2.17	$	-

	Number of Restricted Shares			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017		3,171,685		$	5.12
Granted		126,334			3.18
Canceled		-			-
Vested		(831,931	)		4.28
Expired/Forfeited		(1,000	)		9.00
Outstanding at September 30, 2017		2,465,088		$	5.30

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Basic		18,470,977		18,692,775		18,530,963		18,608,034
Effect of exercise of warrants		364,340		369,288		364,247		-
Effect of exercise of stock options		37,436		5,948		1,208		-
Diluted		18,872,753		19,068,011		18,896,418		18,608,034

($ in thousands)
Balance as of January 1, 2017	$	783
Cash payments, net		(140	)
Adjustment to liability (revision to estimated cash flows)		(25	)
Accretion		15
Balance as of September 30, 2017	$	633

Period		Total Number of Shares Purchased				Average Price per Share				Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program
September 1, 2017 to September 30, 2017 (i)			2,200			$	3.70				-