Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File Number: 001-37527
XCEL BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
76-0307819
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
 
1333 Broadway, 10th Floor, New York, NY 10018
 
 
(Address of Principal Executive Offices)
 
(347) 727-2474
(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    ý     No    ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   ý   No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
Smaller reporting company   x
 
Emerging growth company   ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    ¨    No    ý
As of November 8, 2019, there were 18,958,247 shares of common stock, $.001 par value per share, of the issuer outstanding.
 


Table of Contents

XCEL BRANDS, INC.
INDEX
 
 
Page  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

PART 1. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

3

Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)

 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Note 1)
Assets
 

 
 

Current Assets:
 

 
 

Cash and cash equivalents
$
5,890

 
$
8,837

Accounts receivable, net
9,972

 
11,010

Inventory
2,075

 
1,988

Prepaid expenses and other current assets
1,293

 
2,040

Total current assets
19,230

 
23,875

Property and equipment, net
3,613

 
3,202

Operating lease right-of-use assets
9,583

 

Trademarks and other intangibles, net
117,347

 
108,989

Restricted cash
1,109

 
1,482

Other assets
571

 
511

Total non-current assets
132,223

 
114,184

Total Assets
$
151,453

 
$
138,059

 
 
 
 
Liabilities and Stockholders' Equity
 

 
 

Current Liabilities:
 

 
 

Accounts payable, accrued expenses and other current liabilities
$
4,527

 
$
5,140

Accrued payroll
1,232

 
2,011

Current portion of accrued rent liability

 
690

Current portion of operating lease obligation
1,732

 

Current portion of long-term debt
4,750

 
5,325

Current portion of long-term debt, contingent obligations

 
2,950

Total current liabilities
12,241

 
16,116

Long-Term Liabilities:
 
 
 
Long-term portion of accrued rent liability

 
2,202

Long-term portion of operating lease obligation
10,221

 

Long-term debt, less current portion
15,939

 
11,300

Deferred tax liabilities, net
9,419

 
8,139

Other long-term liabilities
224

 
420

Total long-term liabilities
35,803

 
22,061

Total Liabilities
48,044

 
38,177

 
 
 
 
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 at September 30, 2019 and December 31, 2018, respectively, and 18,958,247 and 18,138,616 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
19

 
18

Paid-in capital
101,739

 
100,097

Retained earnings (accumulated deficit)
1,651

 
(233
)
Total Stockholders' Equity
103,409

 
99,882

Total Liabilities and Stockholders' Equity
$
151,453

 
$
138,059

See Notes to Unaudited Condensed Consolidated Financial Statements.

3

Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)

 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
Net licensing revenue
$
6,428

 
$
7,823

 
$
21,094

 
$
24,445

Net sales
4,504

 
444

 
9,277

 
1,075

Net revenue
10,932

 
8,267

 
30,371

 
25,520

Cost of goods sold (sales)
2,950

 
231

 
6,549

 
640

Gross profit
7,982

 
8,036

 
23,822

 
24,880

 
 
 
 
 
 
 
 
Operating costs and expenses
 

 
 

 
 

 
 

Salaries, benefits and employment taxes
4,045

 
3,815

 
12,038

 
12,361

Other design and marketing costs
797

 
639

 
2,352

 
2,194

Other selling, general and administrative expenses
1,356

 
1,281

 
4,014

 
3,691

Costs in connection with potential acquisition
126

 

 
231

 

Stock-based compensation
295

 
447

 
777

 
1,415

Depreciation and amortization
991

 
456

 
2,939

 
1,323

Total operating costs and expenses
7,610

 
6,638

 
22,351

 
20,984

 
 
 
 
 
 
 
 
Other Income
 
 
 
 
 
 
 
Gain on reduction of contingent obligation




2,850



Total other income




2,850



 
 
 
 
 
 
 
 
Operating income
372

 
1,398

 
4,321

 
3,896

 
 
 
 
 
 
 
 
Interest and finance expense
 

 
 

 
 

 
 

Interest expense - term debt
317

 
224

 
907

 
706

Other interest and finance charges
13

 
34

 
61

 
104

Loss on extinguishment of debt




189



Total interest and finance expense
330

 
258

 
1,157

 
810

 
 
 
 
 
 
 
 
Income before income taxes
42

 
1,140

 
3,164

 
3,086

 
 
 
 
 
 
 
 
Income tax provision
137

 
158

 
1,280

 
1,717

 
 
 
 
 
 
 
 
Net (loss) income
$
(95
)
 
$
982

 
$
1,884

 
$
1,369

 
 
 
 
 
 
 
 
Basic net (loss) income per share:
$
(0.01
)
 
$
0.05

 
$
0.10

 
$
0.07

 
 
 
 
 
 
 
 
Diluted net (loss) income per share:
$
(0.01
)
 
$
0.05

 
$
0.10

 
$
0.07

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
18,975,265

 
18,266,202

 
18,839,424

 
18,304,608

Diluted weighted average common shares outstanding
18,975,265

 
18,267,043

 
18,840,149

 
18,310,654

See Notes to Unaudited Condensed Consolidated Financial Statements.

4



Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Stockholders' Equity
For the Three and Nine Months Ended September 30, 2019 and 2018
(in thousands, except share data)

 
Common Stock
 
 
 
 
 
 
 
Number of Shares
 
Amount
 
Paid-In Capital
 
Retained Earnings (Accumulated Deficit)
 
Total Stockholders' Equity
Balance as of December 31, 2017
18,318,961

 
$
18

 
$
98,997

 
$
(1,321
)
 
$
97,694

 
 
 
 
 
 
 
 
 
 
Compensation expense in connection with stock options and restricted stock

 

 
507

 

 
507

 
 
 
 
 
 
 
 
 
 
Issuance of shares for accrued stock liability
91,826

 

 
281

 

 
281

 
 
 
 
 
 
 
 
 
 
Shares repurchased including vested restricted stock in exchange for withholding taxes
(43,638
)
 

 
(90
)
 

 
(90
)
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
500

 
500

 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2018
18,367,149

 
18

 
99,695

 
(821
)
 
98,892

 
 
 
 
 
 
 
 
 
 
Compensation expense in connection with stock options and restricted stock

 

 
461

 

 
461

 
 
 
 
 
 
 
 
 
 
Issuance of shares for accrued stock liability
13,594

 

 
64

 

 
64

 
 
 
 
 
 
 
 
 
 
Shares issued to employees in connection with restricted stock grants, net of forfeitures
67,052

 

 

 

 

 
 
 
 
 
 
 
 
 
 
Shares repurchased including vested restricted stock in exchange for withholding taxes
(181,593
)
 

 
(612
)
 

 
(612
)
 
 
 
 
 
 
 
 
 
 
Net loss

 

 

 
(113
)
 
(113
)
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2018
18,266,202

 
18

 
99,608

 
(934
)
 
98,692

 
 
 
 
 
 
 
 
 
 
Compensation expense in connection with stock options and restricted stock

 

 
447

 

 
447

 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
982

 
982

 
 
 
 
 
 
 
 
 
 
Balance as of September 30, 2018
18,266,202

 
$
18

 
$
100,055

 
$
48

 
$
100,121

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

5



 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
18,138,616

 
$
18

 
$
100,097

 
$
(233
)
 
$
99,882

 
 
 
 
 
 
 
 
 
 
Issuance of common stock in connection with the acquisition of Halston Heritage
777,778

 
1

 
1,057

 

 
1,058

 
 
 
 
 
 
 
 
 
 
Compensation expense in connection with stock options and restricted stock

 

 
347

 

 
347

 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
127

 
127

 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2019
18,916,394

 
19

 
101,501

 
(106
)
 
101,414

 
 
 
 
 
 
 
 
 
 
Compensation expense in connection with stock options and restricted stock

 

 
135

 

 
135

 
 
 
 
 
 
 
 
 
 
Shares issued to employees in connection with restricted stock grants
60,000

 

 

 

 

 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
1,852

 
1,852

 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2019
18,976,394

 
19

 
101,636

 
1,746

 
103,401

 
 
 
 
 
 
 
 
 
 
Compensation expense in connection with stock options and restricted stock

 

 
127

 

 
127

 
 
 
 
 
 
 
 
 
 
Shares repurchased including vested restricted stock in exchange for withholding taxes
(18,147
)
 

 
(24
)
 

 
(24
)
 
 
 
 
 
 
 
 
 
 
Net loss

 

 

 
(95
)
 
(95
)
 
 
 
 
 
 
 
 
 
 
Balance as of September 30, 2019
18,958,247

 
$
19

 
$
101,739

 
$
1,651

 
$
103,409


See Notes to Unaudited Condensed Consolidated Financial Statements.

6

Table of Contents

Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 
For the Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities
 

 
 

Net income
$
1,884

 
$
1,369

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
2,939

 
1,323

Amortization of deferred finance costs
114

 
129

Stock-based compensation
777

 
1,415

Amortization of note discount
16

 
31

Allowance for doubtful accounts
(144
)
 

Loss on extinguishment of debt
189

 

Deferred income tax provision
1,280

 
1,717

   Gain on reduction of contingent obligation
(2,850
)
 

 
 
 
 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
1,182

 
(1,112
)
Inventory
(87
)
 
(924
)
Prepaid expenses and other assets
(14
)
 
(51
)
Accounts payable, accrued expenses and other current liabilities
(1,744
)
 
964

Cash paid in excess of rent expense
(337
)
 

Other liabilities
(196
)
 
(148
)
Net cash provided by operating activities
3,009

 
4,713

 
 
 
 
Cash flows from investing activities
 
 
 
Cash consideration for acquisition of Halston Heritage assets
(8,830
)
 

Purchase of property and equipment
(918
)
 
(1,099
)
Net cash used in investing activities
(9,748
)
 
(1,099
)
 
 
 
 
Cash flows from financing activities
 
 
 
Shares repurchased including vested restricted stock in exchange for
 
 
 
withholding taxes
(24
)
 
(702
)
Payment of deferred finance costs
(315
)
 

Proceeds from long-term debt
7,500

 

Payment of long-term debt
(3,742
)
 
(4,459
)
Net cash provided by (used in) financing activities
3,419

 
(5,161
)
 
 
 
 
Net decrease in cash, cash equivalents, and restricted cash
(3,320
)
 
(1,547
)
 
 
 
 
Cash, cash equivalents, and restricted cash at beginning of period
10,319

 
11,694

 
 
 
 
Cash, cash equivalents, and restricted cash at end of period
$
6,999

 
$
10,147

 
 
 
 
Reconciliation to amounts on consolidated balance sheets:
 
 
 
Cash and cash equivalents
$
5,890

 
$
8,638

Restricted cash
1,109

 
1,509

Total cash, cash equivalents, and restricted cash
$
6,999

 
$
10,147

 
 
 
 
Supplemental disclosure of non-cash activities:
 
 
 
Operating lease right-of-use asset
$
10,409

 
$

Operating lease obligation
$
13,210

 
$

Accrued rent offset to operating lease right-of-use assets
$
2,801

 
$

Settlement of seller note through offset to receivable
$
600

 
$

Settlement of contingent obligation through offset to note receivable
$
100

 
$
100

Issuance of common stock in connection with Halston Heritage assets acquisition
$
1,058

 
$


7

Table of Contents

Contingent obligation related to acquisition of Halston Heritage assets at fair value
$
900

 
$

Liability for equity-based bonuses
$
168

 
$
(345
)
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
91

 
$
258

Cash paid during the period for interest
$
1,108

 
$
754

See Notes to Unaudited Condensed Consolidated Financial Statements.


8

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
1.
Nature of Operations, Background, and Basis of Presentation
The accompanying condensed consolidated balance sheet as of December 31, 2018 (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 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. 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, 2018, as filed with the SEC on April 1, 2019. 
The Company is a media and consumer products company engaged in the design, production, marketing, wholesale, and direct-to-consumer sales of branded apparel, footwear, accessories, jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Xcel was founded by Robert W. D'Loren in 2011 with a vision to reimagine shopping, entertainment, and social as one. The Company owns and manages the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the Judith Ripka brands (the "Ripka Brand"), the Halston brands ("Halston Brand"), the C Wonder brands (the "C Wonder Brand"), and other proprietary brands, pioneering a ubiquitous sales strategy which includes the promotion and sales of products under its brands through interactive television, internet, brick-and-mortar retail, and e-commerce channels. Headquartered in New York City, Xcel is led by an executive team with significant production, merchandising, design, marketing, retailing and licensing experience, and a proven track record of success in elevating branded consumer product companies. With an experienced team of professionals focused on design, production, and digital marketing, Xcel maintains control of product quality and promotion across all of its product categories and distribution channels.
Reclassifications

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income, stockholders’ equity, or cash flows as previously reported.
Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update ("ASU") 2016-02 effective January 1, 2019, by applying the new guidance under the additional and alternative transition method allowed by ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. The standard had a material impact on the Company’s unaudited condensed consolidated balance sheet but did not have an impact on the Company’s unaudited condensed consolidated statement of operations. As of January 1, 2019, the adoption resulted in the recognition of operating lease right-of-use ("ROU") assets of approximately $10.4 million, lease liabilities of approximately $13.2 million, and a decrease of approximately $2.8 million in accrued rent.

The Company elected the available practical expedients under Accounting Standards Codification ("ASC") 842-10-15-37 (thereby not separating lease components from non-lease components and instead accounting for all components as a single lease component) and ASC 842-10-65-1 (thereby, among other things, not reassessing lease classification), and implemented changes to its processes and methodologies related to leases to enable the preparation of financial information on adoption and to allow for the correct identification, classification, and measurement of leases in accordance with the new guidance going forward.

9

Table of Contents
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)


The adoption of the standard related to leases had no impact on cash from or used in operating, financing, or investing activities in the Company's unaudited condensed consolidated statements of cash flows.

The Company determines if an arrangement is a lease at inception. Operating leases are included in ROU assets and operating lease liabilities (current and non-current) in the Company’s unaudited condensed consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of the remaining lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company may use the implicit rate when readily determinable. Operating lease ROU assets also include scheduled lease payments made and initial direct costs, and exclude lease incentives and accrued rent. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

For real estate leases of office space, the Company accounts for the lease and non-lease components as a single lease component.

Variable lease payments that do not depend on an index or rate (such as real estate taxes and building insurance and lessee’s shares thereof), if any, are excluded from lease payments at lease commencement date for initial measurement. Subsequent to initial measurement, these variable payments are recognized when the event determining the amount of variable consideration to be paid occurs.

For leases with a term of 12 months or less, the Company does not recognize lease liabilities and ROU assets, but recognizes the lease payments in net income on a straight-line basis over the respective lease terms.

The Company recognizes income from subleases (in which the Company is the sublessor) on a straight-line basis over the term of the sublease, as a reduction to lease expense.


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Table of Contents
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

2.
Trademarks and Other Intangibles
Trademarks and other intangibles, net consist of the following:
 ($ in thousands)
 
Weighted
Average
Amortization
Period
 
September 30, 2019
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Trademarks (indefinite-lived)
 
n/a
 
$
69,100

 
$

 
$
69,100

Trademarks (finite-lived)
 
15 years
 
15,463

 
4,294

 
11,169

Trademarks (finite-lived)
 
18 years
 
37,994

 
1,536

 
36,458

Other intellectual property
 
7 years
 
762

 
400

 
362

Copyrights and other intellectual property
 
10 years
 
190

 
105

 
85

Customer list
 
5 years
 
200

 
27

 
173

Total
 
 
 
$
123,709

 
$
6,362

 
$
117,347

($ in thousands)
 
Weighted
Average
Amortization
Period
 
December 31, 2018
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Trademarks (indefinite-lived)
 
n/a
 
$
96,707

 
$

 
$
96,707

Trademarks (finite-lived)
 
15 years
 
15,463

 
3,521

 
11,942

Other intellectual property
 
7 years
 
561

 
321

 
240

Copyrights and other intellectual property
 
10 years
 
190

 
90

 
100

Total
 
 
 
$
112,921

 
$
3,932

 
$
108,989

Amortization expense for intangible assets was approximately $0.83 million for the three-month period ended September 30, 2019 (the "current quarter") and was approximately $0.28 million for the three-month period ended September 30, 2018 (the "prior year quarter"). Amortization expense for intangible assets was approximately $2.43 million for the nine-month period ended September 30, 2019 (the "current nine months") and was approximately $0.85 million for the nine-month period ended September 30, 2018 (the "prior year nine months").
The trademarks related to the Isaac Mizrahi Brand and the Ripka Brand have been determined to have indefinite useful lives and, accordingly, no amortization has been recorded for these assets.
Effective January 1, 2019, and in consideration of the acquisition of the Halston and Halston Heritage trademarks in February 2019, the Company has determined that the Halston brand, inclusive of all of its trademarks, including H Halston, and H by Halston, has a finite life of 18 years, and is amortized on a straight-line basis accordingly. Prior to January 1, 2019, the H Halston and H by Halston assets were considered indefinite-lived assets.
3. Acquisition of Halston Heritage Trademarks

On February 11, 2019 (the "Closing Date"), the Company and its wholly owned subsidiary, H Heritage Licensing, LLC, entered into an asset purchase agreement (the "Heritage Asset Purchase Agreement") with the H Company IP, LLC (the "Seller" or "HIP") and its parent, House of Halston LLC ("HOH"), pursuant to which the Company acquired certain assets of HIP, including the "Halston", "Halston Heritage", and "Roy Frowick" trademarks (collectively, the "Halston Heritage Trademarks") and other intellectual property rights relating thereto. Benjamin Malka, who was a director of the Company, is a 25% equity holder of HOH and former Chief Executive Officer of HOH.

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Table of Contents
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)


Pursuant to the Heritage Asset Purchase Agreement, at closing, the Company delivered in escrow for HIP or its designees (collectively, the “Sellers”) an aggregate of $8.4 million in cash and 777,778 shares of the Company’s common stock valued at $1.1 million (the “Xcel Shares”), subject to a voting agreement and a lock-up agreement relating to the Xcel Shares and a consent and waiver agreement each in form satisfactory to Xcel within three months from the date of the Heritage Asset Purchase Agreement. Such agreements were executed and delivered to Xcel, and the Xcel Shares were issued and delivered to the Sellers.

In addition to the closing consideration, HIP is eligible to earn up to an aggregate of $6.0 million (the “Earn-Out Value”) through December 31, 2022 based on Excess Net Royalties. “Excess Net Royalties” during any calendar year for 2019 through 2022 (each, a “Royalty Target Year”) is equal to (a) the positive amount, if any, of the Net Royalties as calculated for such Royalty Target Year, less the greater of (i) One Million Five Hundred Thousand Dollars ($1.5 million), or (ii) the maximum Net Royalties for any previous Royalty Target Year. “Applicable Percentage” means (a) 50% of the first $10.0 million of Excess Net Royalties during the Earn-Out Period, (b) 20% of aggregate Excess Net Royalties during the Earn-Out Period greater than $10.0 million and up to $15.0 million, and (c) 0% of aggregate Excess Net Royalties during the Earn-Out Period in excess of $15.0 million. The Earn-Out Consideration shall be payable in common stock of Xcel (the “Earn-Out Shares”); provided, however, that if the number of Earn-Out Shares, when combined with the number of Xcel Shares issued at the closing, will exceed 4.99% of the aggregate number of shares of Xcel common stock outstanding as of the Closing Date (calculated in accordance with Nasdaq Rule 5635(a)) (the “Xcel Share Limit”), then Xcel may, in its sole and unfettered discretion, elect to (x) pay cash for the Earn-Out Value attributable to the Earn-Out Shares that would exceed the Xcel Share Limit; (y) solicit stockholder approval for the issuance of Earn-Out Shares in excess of the Xcel Share Limit in accordance with Nasdaq Rule 5635(a)(2) and, if such stockholder approval is obtained, issue such Earn-Out Shares to HIP; or (z) solicit stockholder approval for the issuance of shares in excess of the Xcel Share Limit in accordance with Nasdaq Rule 5635(a)(2) and, if such stockholder approval is obtained, pay the applicable Earn-Out Consideration with a combination of cash and Earn-Out Shares.

The Halston Heritage Trademark acquisition was accounted for as an asset purchase. The aggregate purchase price has been allocated to the following assets based on the fair value of the assets on the date of acquisition:

($ in thousands)
 
Allocated to:
 
Trademarks
$
10,388

Halston archives
200

Customer lists
200

Total acquisition price
$
10,788

 
The Halston Heritage Trademarks have been determined by management to have a finite useful life, and accordingly, amortization is recorded in the Company’s condensed consolidated statements of operations. The Halston Heritage Trademarks, archives, and customer lists are amortized on a straight-line basis over their expected useful lives of eighteen, seven, and five years, respectively.
 
The following represents the aggregate purchase price of $10.8 million:
 
($ in thousands, except share amounts)
 
Cash
$
8,350

Fair value of Common Stock issued (777,778 shares)
1,058

Total direct initial consideration
9,408

Direct transaction expenses
480

Contingent obligation
900

Total consideration
$
10,788



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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

As more fully described in Note 6, concurrent with the acquisition of the Halston Heritage Trademarks, the Company entered into an amended loan agreement with BHI (the “Second Amended and Restated Loan and Security Agreement” or the "Xcel Term Loan"). The Xcel Term Loan amended and restated the existing Bank Hapoalim B.M. ("BHI") term loan (the "Amended Loan Agreement" or the "Prior Term Loan"). Immediately prior to the Closing Date, the aggregate principal amount of the Prior Term Loan was $14.5 million. Pursuant to the Xcel Term Loan, the Lenders extended to Xcel an additional term loan in the amount of $7.5 million, such that, as of the Closing Date, the aggregate outstanding balance of all the Xcel Term Loan was $22.0 million, which amount has been divided into two term loans: (1) a term loan in the amount of $7.3 million, Term Loan A, and (2) a term loan in the amount of $14.7 million, Term Loan B. The proceeds of the additional term loan extended on the Closing Date were used to finance a portion of the Halston Heritage Trademark acquisition described above.
4.
Significant Contracts
QVC Agreements
Under the Company’s agreements with QVC, QVC is required to pay the Company fees based primarily on a percentage of its net sales of Isaac Mizrahi, Ripka, and H Halston branded merchandise. QVC royalty revenue represents a significant portion of the Company’s total revenues.

Total revenues from QVC totaled $5.16 million and $6.42 million for the current and prior year quarter, respectively, representing approximately 47% and 78% of the Company’s total net revenues for the current and prior year quarter, respectively.
Total revenues from QVC totaled $17.96 million and $19.90 million for the current and prior year nine months, respectively, representing approximately 59% and 78% of the Company’s total net revenues for the current and prior year nine months, respectively.
As of September 30, 2019, and December 31, 2018, the Company had receivables from QVC of $5.30 million and $5.68 million, respectively, representing approximately 53% and 52% of the Company’s total receivables, respectively.

5. Leases

The Company has operating leases for its current office, former office, and certain equipment with a term of 12 months or less. The Company's office leases have remaining lease terms of 2 years to 8 years. The Company does not recognize lease liabilities and ROU assets for lease terms of 12 months or less, but recognizes such lease payments in net income on a straight-line basis over the lease terms. The Company determines if an arrangement is a lease at inception. Operating leases are recorded in operating lease ROU assets, current portion of operating lease liabilities, and long-term operating lease liabilities on the Company's condensed consolidated balance sheet.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company may use the implicit rate when readily determinable. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

For the current and prior year quarter, lease expense included in selling, general and administrative expenses on the Company's unaudited condensed consolidated statements of operations was $0.4 million. For the current and prior year nine months, lease expense included in selling, general and administrative expenses on the Company's unaudited condensed consolidated statements of operations was $1.2 million and $1.1 million, respectively.

As of September 30, 2019, the weighted average remaining operating lease term was 7.0 years and the weighted average discount rate for operating leases was 6.3%.

Cash paid for amounts included in the measurement of operating lease liabilities in the current quarter and current nine months ended September 30, 2019 was $0.6 million and $1.8 million, respectively.

As of September 30, 2019, the maturities of lease liabilities were as follows:

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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

($ in thousands)
 
Remainder of 2019
$
612

2020
2,423

2021
2,577

2022
1,732

2023
1,553

After 2023
5,950

Total lease payments
14,847

Less: Discount
2,894

Present value of lease liabilities
11,953

Current portion of lease liabilities
1,732

Non-current portion of lease liabilities
$
10,221

6.
Debt and Contingent Obligations
The Company’s net carrying amount of debt was comprised of the following:
($ in thousands)
 
September 30,
2019
 
December 31,
2018
Xcel Term Loan
 
$
20,000

 
$
15,500

Unamortized deferred finance costs related to term loan
 
(211
)
 
(200
)
IM Seller Note
 

 
742

Ripka Seller Note
 

 
583

Contingent obligation - HH Seller
 
900

 

Contingent obligation - JR Seller
 

 
100

Contingent obligation - CW Seller
 

 
2,850

Total
 
20,689

 
19,575

Current portion of long-term debt (i), (ii)
 
4,750

 
8,275

Long-term debt
 
$
15,939

 
$
11,300

(i)
The current portion of long-term debt as of September 30, 2019 consisted of $4.75 million related to the Xcel Term Loan.
(ii)
The current portion of long-term debt presented on the Condensed Consolidated Balance Sheet at December 31, 2018 includes (a) $4.0 million related to the Prior Term Loan, (b) $0.74 million related to the IM Seller Note, (c) $2.95 million related to contingent obligations, and (d) $0.58 million related to the Ripka Seller Note.
Xcel Term Loan
On February 11, 2019, the Company entered into the Xcel Term Loan. Immediately prior to February 11, 2019, the aggregate principal amount of the Prior Term Loan was $14.5 million. Pursuant to the Xcel Term Loan, the Lenders have extended to Xcel additional term loan proceeds in the amount of $7.5 million, such that, as of February 11, 2019, the aggregate outstanding balance of all the term loans extended by BHI to Xcel under the Xcel Term Loan was $22.0 million, which amount has been divided under the Xcel Term Loan into two term loans: (1) a term loan in the amount of $7.3 million (“Term Loan A”) and (2) a term loan in the amount of $14.7 million (“Term Loan B” and, together with Term Loan A, the “Term Loans”). The proceeds of the additional term loan were used to finance the Halston Heritage Brands acquisition described in Note 3.

The terms and conditions of the Xcel Term Loan resulted in significantly different debt service payment requirements, compared with the prior term debt with BHI, which included an increase of $7.5 million in the principal balance, and related changes to the timing and amount of principal payments, as well as changes in the interest rate. Management assessed and determined that this

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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

amendment resulted in a loss on extinguishment of debt and recognized a loss of $0.2 million (consisting of unamortized deferred finance costs) during the nine-month period ended September 30, 2019. Upon entering into Xcel Term Loan, Xcel paid an upfront fee in the amount of $0.09 million to BHI.

The Xcel Term Loan also allows that BHI and any other lender party to the Xcel Term Loan (collectively, the “Lenders”) can provide to Xcel a revolving loan facility and a letter of credit facility, the terms of each of which shall be agreed to by Xcel and the Lenders. Amounts advanced under the revolving loan facility (the “Revolving Loans”) will be used for the purpose of consummating acquisitions by Xcel or its subsidiaries that are or become parties to the Xcel Term Loan. Xcel will have the right to convert Revolving Loans to incremental term loans (the “Incremental Term Loans”) in minimum amounts of $5.0 million. The Company has not drawn down any funds under either the revolving loan facility or letter of credit facility.

The Term Loans mature on December 31, 2023; Incremental Term Loans shall mature on the date set forth in the applicable term note; and Revolving Loans and the letter of credit facility shall mature on such date as agreed upon by Xcel and the Lenders. Any letter of credit issued under Xcel Term Loan shall terminate no later than one year following the date of issuance thereof.

Principal on Term Loan A is payable in quarterly installments on each of March 31, June 30, September 30, and December 31 as follows:
($ in thousands)
 
Period
Amount
June 30, 2019 – September 30, 2020
$
1,000

 
 
December 31, 2020
$
1,250


Principal on Term Loan B is payable in quarterly installments on each of March 31, June 30, September 30, and December 31 as follows:
($ in thousands)
 
Period
Amount
March 31, 2020 – September 30, 2020
$
250

 
 
March 31, 2021 – December 30, 2022
$
1,125

 
 
March 31, 2023 – December 31, 2023
$
1,250


Xcel has the right to prepay the Term Loans, Incremental Term Loans, Revolving Loans, and obligations with respect to letters of credit and accrued and unpaid interest thereon and to terminate the Lenders’ obligations to make Revolving Loans and issue letters of credit; provided that any prepayment of less than all of the outstanding balances of the Term Loans and Incremental Term Loans shall be applied to the remaining amounts due in inverse order of maturity.
If any Term Loan or any Incremental Term Loan is prepaid on or prior to the third anniversary of the Closing Date (including as a result of an event of default), Xcel shall pay an early termination fee as follows: an amount equal to the principal amount of the Term Loan or Incremental Term Loan, as applicable, being prepaid, multiplied by: (i) two percent (2.00%) if any of Term Loan B or any Incremental Term Loan is prepaid on or before the second anniversary of the later of the Closing Date or the date such Incremental Term Loan was made, as applicable; (ii) one percent (1.00%) if any of Term Loan A is prepaid on or before the second anniversary of the Closing Date; (iii) one percent (1.00%) if any of Term Loan B or any Incremental Term Loan is prepaid after the second anniversary of the later of the Closing Date or such Incremental Term Loan was made, as applicable, but on or before the third anniversary of such date; (iv) one half of one percent (0.50%) if any of Term Loan A is prepaid after the second anniversary of the Closing Date, but on or before the third anniversary of such date; or (v) zero percent (0.00%), if any Term Loan or any

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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

Incremental Term Loan is prepaid after the third anniversary of the later of the Closing Date or the date such Incremental Term Loan was made, as applicable.
Xcel 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. 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 principal paid or payable during such period, and (iii) all dividends declared and paid (or which could have been declared and paid) during such period to equity holders of any credit party treated as a disregarded entity for tax purposes.
 Xcel’s obligations under the Xcel Term Loan are guaranteed by and secured by all of the assets of Xcel and its wholly owned subsidiaries, as well as any subsidiary formed or acquired that becomes a credit party to the Xcel Term Loan agreement (the “Guarantors”) and, subject to certain limitations contained in Xcel Term Loan, equity interests of the Guarantors.
 Xcel also granted the Lenders a right of first offer to finance any acquisition for which the consideration will be paid other than by cash of Xcel or by the issuance of equity interest of Xcel.
Interest on Term Loan A accrues at a fixed rate of 5.1% per annum and is payable on each day on which the scheduled principal payments on Term Loans are required to be made. Interest on Term Loan B accrues at a fixed rate of 6.25% per annum and is payable on each day on which the scheduled principal payments on Term Loans are required to be made. Interest on the Revolving Loans will accrue at either the Base Rate or LIBOR, as elected by Xcel, plus a margin to be agreed to by Xcel and the Lenders and will be payable on the first day of each month. Base Rate is defined in the Xcel Term Loan agreement as the greater of (a) BHI’s stated prime rate or (b) 2.00% per annum plus the overnight federal funds rate published by the Federal Reserve Bank of New York. Interest on the Incremental Term Loans will accrue at rates to be agreed to by Xcel and the Lenders and will be payable on each day on which the scheduled principal payments under the applicable note are required to be made.
The Xcel Term Loan contains customary covenants, including reporting requirements, trademark preservation, and the following financial covenants of Xcel (on a consolidated basis with Xcel and the Guarantors under the Second Amended and Restated Loan and Security Agreement):
net worth of at least $90.0 million at the end of each fiscal quarter;
liquid assets of at least $4.0 million through April 30, 2020, and at least $5.0 million thereafter;
the fixed charge coverage ratio for the twelve-fiscal month period ending at the end of each fiscal quarter shall not be less than the ratio set forth below for such fiscal period:
Fiscal Quarter End
Fixed Charge Coverage Ratio
December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020
1.05 to 1.00
December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and thereafter
1.10 to 1.00
capital expenditures (excluding any capitalized compensation costs) shall not exceed $1.7 million for fiscal year December 31, 2018;
capital expenditures (excluding any capitalized compensation costs) shall not exceed $0.9 million for fiscal year December 31, 2019;
capital expenditures (excluding any capitalized compensation costs) shall not exceed $0.7 million for any fiscal year beginning after December 31, 2019; and
the leverage ratio for the twelve-fiscal month period ending at the end of each fiscal period set forth below shall not exceed the ratio below:
Fiscal Period
Maximum Leverage Ratio
December 31, 2018
2.90 to 1.00
December 31, 2019, March 31, 2020, June 30, 2020, and September 30, 2020
2.40 to 1.00
December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021
1.70 to 1.00
December 31, 2021 and each Fiscal Quarter end thereafter
1.50 to 1.00

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Table of Contents
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

The Company was in compliance with all applicable covenants as of September 30, 2019.
For the current and prior year quarter, the Company incurred aggregate interest expense on its Prior Term Debt and Xcel Term Loan of approximately $317,000 and $215,000, respectively. For the current nine months and prior year nine months, the Company incurred aggregate interest expense on its Prior Term Debt and Xcel Term Loan of approximately $903,000 and $677,000, respectively.

IM Seller Note

On September 19, 2016, the Company’s note payable to the sellers of the Isaac Mizrahi business (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, commencing on September 30, 2017 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, 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.

On March 31, 2019, the Company paid the final installment of $750,000 under the IM Seller Note.

For the current and prior year quarter, the Company incurred interest expense of approximately $0 and $8,000, respectively, under the IM Seller Note. For the current nine months and prior year nine months, the Company incurred interest expense of approximately $4,000 and $29,000, respectively, under the IM Seller Note.

Ripka Seller Note

As of December 31, 2018, the Company had a note payable of approximately $0.58 million relating to the acquisition of the Judith Ripka assets (the "Ripka Seller Note"). Separately, the Company held a promissory note receivable due from the sellers of the Judith Ripka assets (the "Ripka Sellers") with a maturity date of March 31, 2019. On March 31, 2019, the Company agreed to net its note receivable due from the Ripka Sellers of approximately $0.9 million against the Ripka Seller Note of $0.6 million and the remaining Ripka Earn-Out of $0.1 million (see below). As of September 30, 2019, the balance of the Ripka Seller Note was $0.

For the current and prior year quarter, the Company incurred interest expense of approximately $0 and $10,000, respectively, under the Ripka Seller Note, which consisted solely of amortization of the discount on the Ripka Seller Note. For the current nine months and prior year nine months, the Company incurred interest expense of approximately $10,000 and $31,000, respectively.

Contingent Obligation - JR Seller (Ripka Earn-Out)

The Ripka Earn-Out was 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, and was payable in equal cash payments on each of May 15, 2018 and 2019. The Ripka Brand achieved the above-indicated threshold of net royalty income from QVC during the 12-month period ended March 31, 2018, and on May 15, 2018, the Company settled the $100,000 earnout due by reducing the principal amount owed by Judith Ripka to the Company under a promissory note. As of December 31, 2018, the balance of the Ripka Earn-Out was $0.1 million. On March 31, 2019, the Company satisfied the remaining Ripka Earn-Out balance of $0.1 million by off-setting the amount against the promissory note receivable. As of September 30, 2019, the balance of the Ripka Earn-Out was $0.

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 was calculated as the positive amount, if any, of (i) two times (A) the maximum net royalties as calculated for any single 12-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

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Table of Contents
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

Target Year. The C Wonder Earn-Out of $2.85 million was recorded in the current portion of long-term debt in the accompanying condensed consolidated balance sheet as of December 31, 2018.

Under the applicable accounting guidance, the Company was required to carry such contingent liability balance on its consolidated balance sheet until the measurement period of the earn-out expired and all related contingencies had been resolved. The final Royalty Target Year ended on June 30, 2019, and the seller ultimately did not earn any additional consideration based on the formula set forth above. As such, during the current nine months, the Company recorded a $2.85 million gain on the reduction of contingent obligations in the accompanying condensed consolidated statements of operations. As of September 30, 2019, the balance of the C Wonder Earn-Out was $0.

Contingent Obligations - HH Seller (Halston Heritage Earn-Out)

In connection with the February 11, 2019 purchase of the Halston Heritage Trademarks from HIP, the Company agreed to pay HIP additional consideration (the “Halston Heritage Earn-Out”) (see Note 3). The Halston Heritage Earn-Out of $0.9 million is recorded as long-term debt at September 30, 2019 in the accompanying condensed consolidated balance sheet, based on the difference between the fair value of the acquired assets of the Halston Heritage Trademarks and the total consideration paid. In accordance with ASC Topic 480, the Halston Heritage Earn-Out obligation is treated as a liability in the accompanying condensed consolidated balance sheets because of the variable number of shares payable under the agreement.
7.
Stockholders’ Equity
2011 Equity Incentive Plan
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 shares of common stock are eligible for issuance under the Plan. The Plan provides for the grant of any or all of the following types of awards: stock options, restricted stock, deferred stock, stock appreciation rights, and other stock-based awards. The Plan is administered by the Company’s Board of Directors, or, at the Board’s discretion, a committee of the Board.
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation - Stock Compensation,” by recognizing the fair value of stock-based compensation as an operating expense over the service period of the award or term of the corresponding contract, as applicable.
The fair value of options and warrants is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, 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 the fair value of the Company’s stock at the date of grant.
The Company accounts for non-employee awards in accordance with ASU 2018-07, “Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting”. Such awards are measured at the grant-date fair value of the equity instruments to be issued, and the compensation expense for such awards is recognized in the same period as if cash had been paid for the related goods or services rendered.

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Table of Contents
XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

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).
Forfeitures are accounted for as a reduction of compensation cost in the period when such forfeitures occur.
Stock Options
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.
On January 1, 2019, the Company granted options to purchase 250,000 shares of common stock to a certain key employee. The exercise price is $3.00 per share, and the vesting of such options is dependent upon the Company achieving certain 12-month sales targets through December 31, 2021.
On February 27, 2019, the Company granted options to purchase 2,578,947 shares of common stock to Robert D’Loren, the Company’s Chief Executive Officer. The exercise price is $1.70 per share, and the vesting of such options is dependent upon the Company’s common stock achieving certain stock trading prices for a minimum of ten (10) trading days (the "Target Prices"). The vesting of 736,842 shares occur if the Target Prices are equal to or greater than $3.00 per share; 626,316 shares vest if the Target Price is equal to or greater than $5.00 per share; 515,789 shares vest if the Target Price is equal to or greater than $7.00 per share; 405,263 shares vest if the Target Price is equal to or greater than $9.00 per share; and 294,737 shares vest if the Target Price is equal to or greater than $11.00 per share. The options are exercisable until February 27, 2029. As of September 30, 2019, none of the aforementioned Target Price thresholds have been met, and therefore, none of these options have vested.
On February 27, 2019, the Company granted options to purchase 552,632 shares of common stock to James Haran, the Company’s Chief Financial Officer. The exercise price is $1.70 per share, and the vesting of such options is dependent upon the Company’s common stock achieving certain stock trading prices for a minimum of ten (10) trading days (the "Target Prices"). The vesting of 157,895 shares occur if the Target Prices are equal to or greater than $3.00 per share; 134,211 shares vest if the Target Price is equal to or greater than $5.00 per share; 110,526 shares vest if the Target Price is equal to or greater than $7.00 per share; 86,842 shares vest if the Target Price is equal to or greater than $9.00 per share; and 63,158 shares vest if the Target Price is equal to or greater than $11.00 per share. The options are exercisable until February 27, 2029. As of September 30, 2019, none of the aforementioned Target Price thresholds have been met, and therefore, none of these options have vested.
On February 27, 2019, the Company granted options to purchase 368,421 shares of common stock to Seth Burroughs, an officer of the Company. The exercise price is $1.70 per share, and the vesting of such options is dependent upon the Company’s common stock achieving certain stock trading prices for a minimum of ten (10) trading days (the "Target Prices"). The vesting of 105,263 shares occur if the Target Prices are equal to or greater than $3.00 per share; 89,474 shares vest if the Target Price is equal to or greater than $5.00 per share; 73,684 shares vest if the Target Price is equal to or greater than $7.00 per share; 57,895 shares vest if the Target Price is equal to or greater than $9.00; and 42,105 shares vest if the Target Price is equal to or greater than $11.00 per share. The options are exercisable until February 27, 2029. As of September 30, 2019, none of the aforementioned Target Price thresholds have been met, and therefore, none of these options have vested.
On March 13, 2019, the Company granted options to purchase an aggregate of 154,000 shares of common stock to various employees. The exercise price of the options is $1.73 per share, and all options vested immediately on the date of grant.
On March 15, 2019, the Company granted options to purchase 50,000 shares of common stock to a certain key employee. The exercise price of the options is $5.50 per share, and all options vested immediately on the date of grant.
On April 1, 2019, the Company granted options to purchase an aggregate of 150,000 shares of common stock to non-management directors. The exercise price of the options is $1.70 per share, and 50% of the options vest on each of April 1, 2020 and April 1, 2021.
On April 15, 2019, the Company granted options to purchase an aggregate of 24,000 shares of common stock to certain employees. The exercise price of the options is $1.40 per share, and 50% of the options vest on each of April 15, 2020 and April 15, 2021.

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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

On May 1, 2019, the Company granted options to purchase 10,000 shares of common stock to an employee. The exercise price of the options is $1.38 per share, and 50% of the options vest on each of May 1, 2020 and May 1, 2021.
On September 1, 2019, the Company granted options to purchase 15,000 shares of common stock to an employee. The exercise price of the options is $1.59 per share, and one-third of the options will vest on each of September 1, 2020, September 1, 2021, and September 1, 2022.
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, 2019
3,257,875

 
$
5.44

 
3.19
 
$

Granted
4,153,000

 
1.84

 
 
 
 
Canceled

 

 
 
 
 
Exercised

 

 
 
 
 
Expired/Forfeited
(271,250
)
 
5.28

 
 
 
 
Outstanding at September 30, 2019, and expected to vest
7,139,625

 
$
3.35

 
6.08
 
$

Exercisable at September 30, 2019
2,598,125

 
$
5.16

 
2.15
 
$

Compensation expense related to stock options for the current quarter and the prior year quarter was approximately $66,000 and $319,000, respectively. Compensation expense related to stock options for the current nine months and prior year nine months was approximately $382,000 and $867,000, respectively. Total unrecognized compensation expense related to unvested stock options at September 30, 2019 amounts to approximately $387,000 and is expected to be recognized over a weighted average period of approximately 1.98 years.
A summary of the Company’s non-vested stock options activity for the current nine months is as follows:
 
Number of
Options
 
Weighted
Average
Grant Date
Fair Value
Balance at January 1, 2019
1,481,079

 
$
1.23

Granted
4,153,000

 
0.03

Vested
(1,024,914
)
 
1.03

Forfeited or Canceled
(67,665
)
 
0.99

Balance at September 30, 2019
4,541,500

 
$
0.18

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.
On July 18, 2019, the Company granted warrants to purchase an aggregate of 115,000 shares of common stock. The exercise price of the warrants is $3.17 per share, and one-third of the options vested on each of July 25, 2019, August 24, 2019, and September 23, 2019.
A summary of the Company’s warrants activity for the current nine months is as follows:

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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

 
Number of
Warrants
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(in Years)
 
Aggregate
Intrinsic
Value
Outstanding and exercisable at January 1, 2019
1,214,815

 
$
9.32

 
1.66
 
$

Granted
115,000

 
3.17

 
 
 
 
Canceled

 

 
 
 
 
Exercised

 

 
 
 
 
Expired/Forfeited

 

 
 
 
 
Outstanding and exercisable at September 30, 2019
1,329,815

 
$
8.79

 
1.25
 
$

Compensation expense related to warrants was approximately $14,000 for both the current quarter and current nine months.
No compensation expense was recognized in the prior year quarter or prior year nine months related to warrants. 
Stock Awards
On February 27, 2019, the Company entered into a two-year employment agreement with a key employee which includes a performance stock bonus of up to $90,000 for each of the years ended December 31, 2019 and 2020. The performance stock bonus is earned upon the Company achieving certain sales targets.
On April 1, 2019, the Company issued an aggregate of 60,000 shares of stock to certain non-management directors, which will vest evenly over two years, whereby 50% shall vest on April 1, 2020, and 50% shall vest on April 1, 2021.
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, 2019
1,460,210

 
$
4.82

Granted
60,000

 
1.70

Canceled

 

Vested
(121,000
)
 
5.24

Expired/Forfeited

 

Outstanding at September 30, 2019
1,399,210

 
$
4.65

Compensation expense related to restricted stock grants for the current and prior year quarter was approximately $47,000 and $128,000, respectively. Compensation expense related to restricted stock grants for the current nine months and prior year nine months was approximately $213,000 and $548,000, respectively. Total unrecognized compensation expense related to unvested restricted stock grants at September 30, 2019 amounts to approximately $144,000 and is expected to be recognized over a weighted average period of approximately 1.03 years.
The Company also recognized approximately $168,000 of compensation expense for the current quarter and current nine months, related to certain senior management bonuses payable in stock.
Shares Available Under the Company’s 2011 Equity Incentive Plan
At September 30, 2019, there were 1,890,346 shares of common stock available for issuance under the Plan.

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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

Shares Reserved for Issuance
At September 30, 2019, there were 10,359,786 shares of common stock reserved for issuance pursuant to unexercised warrants and stock options, or available for issuance under the Plan.
Dividends
The Company has not paid any dividends to date.
8.
Earnings Per Share
Basic earnings 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.
 
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Basic
 
18,975,265

 
18,266,202

 
18,839,424

 
18,304,608

Effect of exercise of warrants
 

 
841

 
725

 
866

Effect of exercise of stock options
 

 

 

 
5,180

Diluted
 
18,975,265

 
18,267,043

 
18,840,149

 
18,310,654

As a result of the net loss presented for the current quarter, the Company calculated diluted earnings per share using basic weighted average shares outstanding for such period, as utilizing diluted shares would be anti-dilutive to loss per share.
The computation of diluted EPS excludes the following potentially dilutive securities because their inclusion would be anti-dilutive:
 
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Stock options and warrants
 
8,469,440

 
4,491,024

 
8,419,375

 
4,491,024

9.
Income Tax

The effective income tax rate for the current quarter and the prior year quarter was approximately 333% and 14%, respectively, resulting in an income tax provision of $0.14 million and $0.16 million, respectively.

The effective income tax rate for the current nine months and the prior year nine months was approximately 40% and 56%, respectively, resulting in an income tax provision of $1.28 million and $1.72 million, respectively.

For the current quarter, the effective tax rate was primarily attributable to the tax impact 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 approximately 291%. The federal statutory rate also differed from the effective tax rate due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 8.41% and 11.84%, respectively.

For the prior year quarter, the federal statutory rate differed from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased (decreased) the effective tax rate by approximately 3.64% and (11.15)%, respectively.

For the current nine months, the federal statutory rate differed from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 9.43% and 9.49%, respectively. The effective tax

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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

rate was also partly attributable to the tax impact 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 approximately 3.80%.

For the prior year nine months, the effective tax rate was primarily attributable to the tax impact 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 approximately 20.37%. The federal statutory rate also differed from the effective tax rate due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 9.49% and 4.75%, respectively.

The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. The income tax effects of changes in tax laws are recognized in the period when enacted. The Act provides for numerous significant tax law changes and modifications with varying effective dates, which include reducing the U.S. federal corporate income tax rate from a maximum of 35% to 21%, creating a territorial tax system (with a one-time mandatory repatriation tax on previously deferred foreign earnings), broadening the tax base, and allowing for immediate capital expensing of certain qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023.

In response to the enactment of the Act in late 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), that permits filers to record provisional amounts during a measurement period ending no later than one year from the date of the Act’s enactment. As of December 31, 2018, the Company finalized its accounting for the income tax effects of the Act and had no change to its original estimates.
10.
Related Party Transactions
Benjamin Malka
Concurrent with the acquisition of the H Halston Brand on December 22, 2014, the Company and HIP entered into a license agreement (the “HIP License Agreement”), which was subsequently amended September 1, 2015. Benjamin Malka, who was a director of the Company, is a 25% equity holder of HIP’s parent company, HOH, and is the former Chief Executive Officer of HOH. Mr. Malka did not stand for re-election to the Board of Directors at the Company's annual meeting of stockholders held on September 12, 2019.
Through October 26, 2018, the Company was negotiating proposed new arrangements and operated under those terms as an at-will license as set forth below:
The HIP Trademark Usage and Royalty Participation Agreement had an initial term that expired on December 31, 2020 unless sooner terminated or renewed, and Xcel shall pay to HIP: (i) 50% of the excess H Halston Royalty paid to Xcel under the DRT Licenses and any other third party licenses that Xcel may enter into; (ii) 25% of the excess developed brand royalty paid to Xcel for the Highline Collective Brand under the DRT Licenses, and 20% of the excess developed brand royalty paid to Xcel for any subsequent developed brand under the DRT Licenses, and (iii) 10% of the excess private label brand royalty paid to Xcel under the DRT Licenses and during the first term only of the DRT Licenses. Additionally, Xcel has the right, but not the obligation, at any time after January 31, 2023, to terminate the obligations under points (ii) and (iii) above by paying to HIP an amount equal to four times the sum of the developed brand credits and private label credits for the contract year ending on January 31, 2023 (the "Buy Out Payment''). The Buy-Out Payment was payable by Xcel and at Xcel's sole discretion either (a) in cash, or (b) in a number of common shares of Xcel calculated based on the amount of the Buy-Out Payment divided by the average closing price for common shares of Xcel on a national exchange for the preceding five trading days, subject to a minimum price for common shares of Xcel of $7.00 per common share.
A license and supply agreement with the Halston Operating Company, LLC (“HOC”), a subsidiary of HOH, with an initial term ending on January 31, 2022, subject to renewal. Under the HOC at-will license and supply agreement, HOC shall provide licensed products for sale to pre-approved retailers, including HBC and Dillard’s, and was also responsible for overseeing the visual merchandising and in-store retail environments for such approved retailers, as well as for training and oversight of any retail staff responsible for selling the licensed products within HBC and Dillard’s, as reasonably agreed upon between HOC and HBC and Dillard’s. The HOC at-will license and supply agreement provides for, among other things, design fees of $1.2 million for the period from July 1, 2017 through December 31, 2018, subsequent design

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XCEL BRANDS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

fees of $2.4 million for the contractual yearly periods ending on January 31, 2019, and on December 31, 2020, 2021, and 2022, respectively, and sales-based royalties on the categories of products licensed under the agreement and the contractual year of payment.
Effective October 26, 2018, the Company and HOH terminated the HIP License Agreement including all amendments, and the HIP Sublicense Agreement. In addition, the at-will license was terminated and no longer in effect as of October 26, 2018.
Under the at-will license, the Company recorded approximately $0 and $0.59 million of revenue from HOC for the current quarter and the prior year quarter, respectively. The Company recorded approximately $0 and $1.81 million of revenue from HOC for the current nine months and prior year nine months, respectively. The Company had a receivable balance of $0 and $1.5 million due from HOC as of September 30, 2019 and December 31, 2018, respectively.

On the Closing Date, the Company and its wholly owned subsidiary, H Heritage Licensing, LLC, completed the acquisition of the Halston Heritage Trademarks. See Note 3, "Acquisition of Halston Heritage Trademarks".
11.
Subsequent Event
On November 12, 2019, Longaberger Licensing, LLC, a recently formed 50/50 joint venture between Xcel and Hilco Baskets, LLC, completed the acquisition of certain intellectual property assets of the Longaberger brand. The total purchase price for such assets, including trademarks, designs, and other intellectual property rights, was $750,000. Per the terms of the joint venture arrangement between Xcel and Hilco Baskets, LLC, the Company initially contributed $375,000 of cash to the joint venture, and will also be responsible for contributing an estimated $50,000 to the joint venture to fund nominal working capital needs. Products under the Longaberger brand are scheduled to commence selling on QVC in November 2019.


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ITEM 2.
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 of our Form 10-K for the fiscal year ended December 31, 2018. 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, marketing, wholesale, and direct-to-consumer sales of branded apparel, footwear, accessories, jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Xcel was founded by Robert W. D'Loren in 2011 with a vision to reimagine shopping, entertainment, and social as one. The Company owns and manages the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the Judith Ripka brands (the "Ripka Brand"), the Halston brands ("Halston Brand"), the C Wonder brands (the "C Wonder Brand"), and other proprietary brands, pioneering a ubiquitous sales strategy which includes the promotion and sales of products under its brands through interactive television, internet, brick-and-mortar retail, and e-commerce channels. Headquartered in New York City, Xcel is led by an executive team with significant production, merchandising, design, marketing, retailing, and licensing experience, and a proven track record of success in elevating branded consumer product companies. With an experienced team of professionals focused on design, production, and digital marketing, Xcel maintains control of product quality and promotion across all of its product categories and distribution channels.
We continue to expand our wholesale and direct-to-consumer businesses. Our objective is to build a diversified portfolio of lifestyle consumer brands through organic growth and the strategic acquisition of new brands. To grow our brands, we are focused on following primary strategies:
distribution of our brands to retailers that sell to the end consumer (wholesale);
distribution of our brands through our e-commerce site directly to the end consumer;
licensing our brands for distribution through interactive television (i.e. QVC, The Shopping Channel) whereby we design, manage production, merchandise the shows, and manage the on-air talent;
licensing our brands to manufacturers and retailers for promotion and distribution through e-commerce, social commerce, and traditional brick-and-mortar retail channels whereby we provide certain design services and, in certain cases, manage supply and merchandising; and
quickly integrate additional brands into our platform and leverage our design, production and marketing capabilities, and distribution relationships.

We believe that we offer a unique value proposition to our retail and direct-to-consumer customers, and our licensees for the following reasons:

our management team, including our officers’ and directors’ experience in, and relationships within the industry;
our fast-to-market supply chain and integrated technology platform enables us to design and distribute trend-right product; and
our operating strategy, significant media and internet presence, and distribution network.

We believe that our strategy distinguishes us from other consumer product wholesale companies and brand management companies that rely primarily on their licensees for design, production, and distribution, and enables us 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 multiple 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 consumer engagement and generate retail sales across our brands. Our strong

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relationships with leading retailers and interactive television companies and cable networks enable us to reach consumers in over 400 million homes worldwide and hundreds of millions of social media followers.

We believe our ubiquitous sales strategy provides significant competitive advantages compared with traditional wholesale apparel companies that design, manufacture, and distribute products. We focus on our core competencies of design, integrated technologies, fast-to-market production, marketing, and brand development. We believe that we offer a 360-degree solution to our retail partners that addresses many of the challenges facing the retail industry today. We believe our platform is highly scalable. Additionally, we believe we can quickly integrate additional brands into our platform in order to leverage our design, production, marketing capabilities, and distribution network.
Summary of Operating Results
Three months ended September 30, 2019 (the “current quarter”) compared with the three months ended September 30, 2018 (the “prior year quarter”)
Revenues
Current quarter net revenue increased approximately $2.6 million to $10.9 million from $8.3 million for the prior year quarter.

Our jewelry wholesale and e-commerce sales and apparel wholesale sales contributed approximately $4.5 million to net revenue in the current quarter, compared with $0.4 million in the prior year quarter. This increase in sales was primarily attributable to the launch of our apparel wholesale business in November 2018, as well as growth in our Judith Ripka Fine Jewelry e-commerce business.

Net licensing revenue decreased by approximately $1.4 million in the current quarter to $6.4 million, compared with $7.8 million in the prior year quarter. This decline was primarily driven by (i) revenues from one of our existing licensing arrangements changing from guaranteed minimum amounts to sales-based royalties effective April 1, 2019, and (ii) a decrease in design and service fees in our department store business attributable to the transition from a licensing model to a wholesale model. Partially offsetting these declines were revenues recognized in the current quarter related to the recently acquired Halston Heritage trademarks.

Cost of Goods Sold
Current quarter cost of goods sold was $3.0 million, compared with $0.2 million for the prior year quarter due to higher volume of wholesale and e-commerce sales in the current quarter.

Gross profit (which includes cost of goods sold) was approximately $8.0 million in both the current quarter and prior year quarter, as the decrease in net licensing revenue was almost completely offset by an increase in net margin from product sales.

Operating Costs and Expenses
Operating costs and expenses increased approximately $1.0 million, from $6.6 million in the prior year quarter to $7.6 million in the current quarter. This increase was primarily attributable to an increase in amortization expense of approximately $0.5 million related to our intangible assets, resulting from the change in the previously owned Halston trademarks from indefinite-lived assets to a finite-lived assets, and the acquisition of the Halston and Halston Heritage trademarks, also determined to be finite-lived assets. Also contributing to the overall increase in operating costs were increased salary expenses, information technology costs, and shipping and packaging costs, all related to the transition and scaling of portions of our business from a licensing model to a wholesale model.

Interest and Finance Expense
Interest and finance expense for the current quarter was $0.33 million, compared with $0.26 million for the prior year quarter. This increase is attributable to the February 11, 2019 term loan amendment, which resulted in a higher outstanding principal balance as compared with the prior year quarter, as well as a higher interest rate than under the previous term loan.

Income Tax Provision
The effective income tax rate for the current quarter and the prior year quarter was approximately 333% and 14%, respectively, resulting in an income tax provision of $0.14 million and $0.16 million, respectively.
For the current quarter, the effective tax rate was primarily attributable to the tax impact 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 approximately 291%. The federal statutory rate also differed from the effective tax rate due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 8.41% and 11.84%, respectively.

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For the prior year quarter, the federal statutory rate differed from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased (decreased) the effective tax rate by approximately 3.64% and (11.15%), respectively.
Net (Loss) Income
We had a net loss of $(0.10) million for the current quarter, compared with net income of $0.98 million for the prior year quarter.
Non-GAAP Net Income, Non-GAAP Diluted EPS, and Adjusted EBITDA

We had non-GAAP net income of approximately $1.2 million, or $0.07 per diluted share (“non-GAAP diluted EPS”), for the current quarter and $1.9 million, or $0.10 per diluted share, for the prior year quarter. Non-GAAP net income is a non-GAAP unaudited term, which we define as net income (loss), exclusive of amortization of trademarks, stock-based compensation, non-cash interest and finance expense from discounted debt related to acquired assets, loss on extinguishment of debt, gain on reduction of contingent obligations, costs in connection with potential acquisitions, and deferred income taxes. Non-GAAP net income and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy. Prior to 2019, the Company did not adjust non-GAAP net income and non-GAAP EPS for the amortization of trademarks or costs in connection with potential acquisitions.
We had Adjusted EBITDA of $1.8 million for the current quarter, compared with Adjusted EBITDA of $2.3 million for the prior year quarter. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) before stock-based compensation, costs in connection with potential acquisitions, interest and finance expense, loss on extinguishment of debt, gain on reduction of contingent obligation, income taxes, other state and local franchise taxes, and depreciation and amortization. Prior to 2019, the Company did not adjust Adjusted EBITDA for costs in connection with potential acquisitions.
Management uses non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the Company's results of operations. Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results, and thus these non-GAAP measures provide supplemental information to assist investors in evaluating the Company’s financial results.
Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Given that non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net 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 unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results, and not rely on any single financial measure.
The following table is a reconciliation of net (loss) income (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:
($ in thousands)
 
Three Months Ended
September 30,
 
2019
 
2018
Net (loss) income
 
$
(95
)
 
$
982

Amortization of trademarks
 
786

 
257

Non-cash interest and finance expense
 

 
11

Stock-based compensation
 
295

 
447

Costs in connection with potential acquisition
 
126

 

Deferred income tax provision
 
137

 
158

Non-GAAP net income
 
$
1,249

 
$
1,855


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The following table is a reconciliation of diluted (loss) earnings per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:
 
Three Months Ended
September 30,
2019
 
2018
Diluted (loss) earnings per share
$
(0.01
)
 
$
0.05

Amortization of trademarks
0.04

 
0.01
Non-cash interest and finance expense

 

Stock-based compensation
0.01

 
0.03

Costs in connection with potential acquisition
0.01

 

Deferred income tax provision
0.01

 
0.01

Non-GAAP diluted EPS
$
0.06

 
$
0.10

Non-GAAP weighted average diluted shares
19,559,816

 
18,267,043

The following table is a reconciliation of net (loss) income (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:
($ in thousands)
 
Three Months Ended
September 30,
 
2019
 
2018
Net (loss) income
 
$
(95
)
 
$
982

Depreciation and amortization
 
991

 
456

Interest and finance expense
 
330

 
258

Income tax provision
 
137

 
158

State and local franchise taxes
 
38

 
33

Costs in connection with potential acquisition
 
126

 

Stock-based compensation
 
295

 
447

Adjusted EBITDA
 
$
1,822

 
$
2,334



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Nine months ended September 30, 2019 (the “current nine months”) compared with the nine months ended September 30, 2018 (the “prior year nine months”)
Revenues
Current nine months net revenue increased approximately $4.9 million to $30.4 million from $25.5 million for the prior year nine months.

Our jewelry wholesale and e-commerce sales and apparel wholesale sales contributed approximately $9.3 million to net revenue in the current nine months, compared with $1.1 million in the prior year nine months. This increase in sales was primarily attributable to the launch of our apparel wholesale business in November 2018, as well as growth in our Judith Ripka Fine Jewelry e-commerce business.

Net licensing revenue decreased by approximately $3.3 million in the current nine months to $21.1 million, compared with $24.4 million in the prior year nine months. This decline was primarily driven by (i) revenues from one of our existing licensing arrangements changing from guaranteed minimum amounts to sales-based royalties effective April 1, 2019, and (ii) a decrease in design and service fees in our department store business attributable to the transition from a licensing model to a wholesale model. These declines were partially offset by growth in both other existing and new licensing arrangements, as well as revenues recognized in the current nine months related to the recently acquired Halston Heritage trademarks.

Cost of Goods Sold
Current nine months cost of goods sold was $6.5 million, compared with $0.6 million for the prior year nine months due to higher volume of wholesale and e-commerce sales in the current nine months.

Current nine months gross profit (which includes cost of goods sold) decreased approximately $(1.1) million to $23.8 million from $24.9 million for the prior year nine months. This decrease was primarily attributable to the decrease in net licensing revenue, partially offset by an increase in net margin from product sales.

Operating Costs and Expenses
Operating costs and expenses increased approximately $1.4 million to $22.4 million for the current nine months from approximately $21.0 million in the prior year nine months. This increase was primarily attributable to an increase in amortization expense of our intangible assets, due to the change in the previously owned Halston trademarks from indefinite lived-assets to a finite lived-assets, and the acquisition of the Halston and Halston Heritage trademarks, also determined to be finite-lived assets. Also contributing to the overall increase in operating costs were higher information technology costs and shipping and packaging costs, related to the transition and scaling of portions of our business from a licensing model to a wholesale model. These increases were partially offset by reductions in stock-based compensation.

Other Income
During the current nine months, we recognized a $2.85 million gain on the reduction of contingent obligations related to the 2015 acquisition of the C Wonder Brand. As part of that acquisition, the seller was eligible to earn additional consideration based on future royalties related to the C Wonder Brand exceeding certain thresholds, and we recorded a liability for the potential future payment of such consideration. The final earn-out period ended on June 30, 2019, and the seller ultimately did not earn any additional consideration under the terms of the purchase agreement.
Interest and Finance Expense
Interest and finance expense for the current nine months was $1.16 million, compared with $0.81 million for the prior year nine months. This increase is attributable to the February 11, 2019 term loan amendment, which resulted in (i) a $0.19 million loss on extinguishment of debt (consisting of unamortized deferred finance costs), (ii) a higher outstanding principal balance as compared with the prior year period, and (iii) a higher interest rate than under the previous term loan.

Income Tax Provision
The effective income tax rate for the current nine months and the prior year nine months was approximately 40% and 56%, respectively, resulting in an income tax provision of $1.28 million and $1.72 million, respectively.
For the current nine months, the federal statutory rate differed from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 9.43% and 9.49%, respectively. The effective tax rate was also partly attributable to the tax impact 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 approximately 3.80%.


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For the prior year nine months, the effective tax rate was primarily attributable to the tax impact 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 approximately 20.37%. The federal statutory rate also differed from the effective tax rate due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 9.49% and 4.75%, respectively.
Net Income
We had net income of $1.88 million for the current nine months, compared with $1.37 million for the prior year nine months.
Non-GAAP Net Income, Non-GAAP Diluted EPS, and Adjusted EBITDA

We had non-GAAP net income of approximately $3.8 million, or $0.20 per diluted share, for the current nine months and $5.3 million, or $0.29 per diluted share, for the prior year nine months. We had Adjusted EBITDA of $5.6 million for the current nine months, compared with Adjusted EBITDA of $6.7 million for the prior year nine months.
The following table is a reconciliation of net income (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:
($ in thousands)
 
Nine Months Ended
September 30,
 
2019
 
2018
Net income
 
$
1,884

 
$
1,369

Amortization of trademarks
 
2,309

 
772

Non-cash interest and finance expense
 
16

 
31

Stock-based compensation
 
777

 
1,415

Loss on extinguishment of debt
 
189

 

Gain on reduction of contingent obligation
 
(2,850
)
 

Costs in connection with potential acquisition
 
231

 

Deferred income tax provision
 
1,280

 
1,717

Non-GAAP net income
 
$
3,836

 
$
5,304

The following table is a reconciliation of diluted earnings per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:
 
Nine Months Ended
September 30,
2019
 
2018
Diluted earnings per share
$
0.10

 
$
0.07

Amortization of trademarks
0.12

 
0.04

Non-cash interest and finance expense

 

Stock-based compensation
0.04

 
0.08

Loss on extinguishment of debt
0.01

 

Gain on reduction of contingent obligation
(0.15
)
 

Costs in connection with potential acquisition
0.01

 

Deferred income tax provision
0.07

 
0.10

Non-GAAP diluted EPS
$
0.20

 
$
0.29

Non-GAAP weighted average diluted shares
18,840,149

 
18,310,654

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

30

Table of Contents

($ in thousands)
 
Nine Months Ended
September 30,
 
2019
 
2018
Net income
 
$
1,884

 
$
1,369

Depreciation and amortization
 
2,939

 
1,323

Interest and finance expense
 
968

 
810

Income tax provision
 
1,280

 
1,717

State and local franchise taxes
 
159

 
80

Costs in connection with potential acquisition
 
231

 

Stock-based compensation
 
777

 
1,415

Loss on extinguishment of debt
 
189

 

Gain on reduction of contingent obligation
 
(2,850
)
 

Adjusted EBITDA
 
$
5,577

 
$
6,714



Liquidity and Capital Resources
Liquidity

Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures. At September 30, 2019 and December 31, 2018, our cash and cash equivalents were $5.9 million and $8.8 million, respectively.

Restricted cash at September 30, 2019 consisted of $1.11 million of cash deposited with Bank Hapoalim B.M. (“BHI”) as collateral for an irrevocable standby letter of credit associated with the lease of our current corporate office and operating facilities. Restricted cash at December 31, 2018 consisted of (i) $1.11 million of cash deposited with BHI as collateral for an irrevocable standby letter of credit associated with the lease of our current corporate office and operating facilities, and (ii) $0.40 million of cash held as a security deposit for the sublease of our former corporate offices by us to a third-party subtenant. 
We expect that existing cash and operating cash flows will be adequate to meet our 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.
Our contingent obligation related to the Halston Heritage Brand (see Note 3 and Note 6 in the Unaudited Condensed Consolidated Financial Statements) is generally required to be paid in shares, subject to certain limitations. Payment of this obligation in stock would not affect our liquidity.
Changes in 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 $8.7 million and $10.7 million as of September 30, 2019 and December 31, 2018, respectively. Working capital decreased by approximately $(2.0) million during the first nine months of 2019 primarily due to cash used in the acquisition of the Halston Heritage trademarks (see Note 3 in the Unaudited Condensed Consolidated Financial Statements).
Commentary on the components of our cash flows for the current nine months as compared with the prior year nine months is set forth below.
Operating Activities
Net cash provided by operating activities was approximately $3.01 million in the current nine months, compared with net cash provided by operating activities of approximately $4.71 million in the prior year nine months.
The current nine months cash provided by operating activities was primarily attributable to the combination of net income of $1.88 million plus non-cash expenses of approximately $2.32 million, partially offset by a net change in operating assets and liabilities of approximately $(1.20) million. Non-cash net expenses were primarily comprised of $0.78 million of stock-based compensation,

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$2.94 million of depreciation and amortization, loss on extinguishment of debt of $0.19 million, deferred income tax provision of $1.28 million, and gain on reduction of contingent obligations of $(2.85) million. The net change from operating assets and liabilities includes a decrease in accounts receivable of $1.18 million, an increase in inventory of approximately $(0.09) million, an increase in prepaid expenses and other assets of $(0.01) million, a decrease in accounts payable, accrued expenses and other current liabilities of $(1.74) million, and a decrease in other liabilities of $(0.20) million, all of which are primarily due to timing of collections and payments, and cash paid in excess of rent expense of $(0.34) million.

The prior year nine months cash provided by operating activities was primarily attributable to the combination of net income of $1.37 million plus non-cash expenses of approximately $4.62 million and a net change in operating assets and liabilities of approximately $(1.27) million. Non-cash net expenses mainly consisted of $1.72 million of deferred income tax provision, $1.42 million of stock-based compensation, $1.32 million of depreciation and amortization, and non-cash interest and other finance costs of $0.16 million. The net change in operating assets and liabilities included a net increase in accounts receivable of $(1.11) million, an increase in accounts payable, accrued expenses and other current liabilities of $0.97 million, all primarily due to timing of collections and payments, an increase in inventory attributable to our jewelry wholesale and e-commerce operations of approximately $(0.92) million, and a decrease in other liabilities of $(0.15) million attributable to accrued rent.
Investing Activities
Net cash used in investing activities for the current nine months was approximately $(9.7) million, compared with approximately $(1.1) million in the prior year nine months. Cash used in investing activities for the current nine months was primarily related to cash consideration paid to acquire the Halston Heritage Brands. Cash used in investing activities for in the prior year nine months was primarily attributable to capital expenditures.
Financing Activities
Net cash provided by (used in) financing activities for the current nine months was approximately $3.4 million, and was primarily attributable to proceeds received from long-term debt of $7.5 million, partially offset by payments made on long-term debt of $(3.0) million, the final payment on the IM Seller Note obligation of $(0.74) million, and payment of $(0.32) million of deferred finance costs.
Net cash (used in) financing activities for the prior year nine months was approximately $(5.16) million, primarily attributable to payments on our senior term debt obligation of $(3.0) million, payment on our IM Seller Note obligation of approximately $(1.5) million, and shares repurchased related to vested restricted stock in exchange for withholding taxes of $(0.70) million.
Other Factors
We continue to seek to expand and diversify the types of products being produced under our brands. We plan to continue to diversify the distribution channels within which products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands.
We continue to expand our Judith Ripka Fine Jewelry wholesale and e-commerce business, and in November 2018, we transitioned our department store business from a licensing model to a wholesale model. Our strategy is to manage our working capital needs by utilizing back-to-back sales and purchase orders and minimizing inventory risk. This change should increase our total and net revenues as compared to the licensing model.
In addition, we continue to seek new opportunities, including expansion through interactive television, our “virtual vertical” production platform, additional domestic and international licensing arrangements, and acquiring additional brands. In November 2019, we acquired an ownership interest in the Longaberger brand through a 50/50 joint venture. The Longaberger brand launched on QVC November 13, 2019. We are actively pursuing the potential acquisition of other brands and business operations which we believe are synergistic to our existing portfolio of brands and our operating platform, and are complementary to our overall strategy.
Our success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and contract with and retain key licensees and retail relationships, as well as both our and our licensees’ ability to accurately predict upcoming fashion and design trends within our respective customer bases and fulfill the product requirements of their particular retail channels within the global marketplace. Unanticipated changes in consumer fashion preferences and purchasing patterns, slowdowns in the U.S. economy, changes in the prices of supplies, consolidation of retail establishments, and other factors noted in “Risk Factors” could adversely affect our licensees’ ability to meet and/or exceed their contractual commitments to us and thereby adversely affect our future operating results.

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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
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 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, 2018, filed with the SEC on April 1, 2019, for a discussion of our critical accounting policies. Additionally, as described more fully in Note 1 and Note 5 of the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q, we adopted a new accounting standard on January 1, 2019 related to leases, which included the election of certain accounting policies and practical expedients under this new standard. During the three and nine months ended September 30, 2019, there were no other material changes to our accounting policies.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4.
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, 2019, 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, 2019 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, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

33

Table of Contents

PART II. OTHER INFORMATION
ITEM 1.
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.
ITEM 1A.
RISK FACTORS
In addition to the Risk Factors set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018, set forth below are certain factors which could affect our financial condition and operating results. 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, 2018 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.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered or registered securities during the three and nine months ended September 30, 2019.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
None.

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Table of Contents

ITEM 6.
EXHIBITS
The following exhibits are filed herewith:
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
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

35

Table of Contents

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 14, 2019
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


36
Exhibit


EXHIBIT 31.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Robert W. D’Loren, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of Xcel Brands, Inc. (the “Company”).
 
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
November 14, 2019
By:
/s/ Robert W. D’Loren
 
 
Name: Robert W. D’Loren
 
 
Title: Chairman and Chief Executive Officer



Exhibit


EXHIBIT 31.2
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, James Haran, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 of Xcel Brands, Inc. (the “Company”).
 
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
November 14, 2019
By:
/s/ James Haran
 
 
Name: James Haran
 
 
Title: Chief Financial Officer and Vice President



Exhibit


EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Xcel Brands, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert W. D’Loren, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
November 14, 2019
By:
/s/ Robert W. D’Loren
 
 
Name: Robert W. D’Loren
 
 
Title: Chairman and Chief Executive Officer



Exhibit


EXHIBIT 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Xcel Brands, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Haran, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
November 14, 2019
By:
/s/ James Haran
 
 
Name: James Haran
 
 
Title: Chief Financial Officer and Vice President



v3.19.3
Stockholders' Equity - Additional Information (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 01, 2019
May 01, 2019
Apr. 15, 2019
Apr. 01, 2019
Mar. 15, 2019
Mar. 13, 2019
Feb. 27, 2019
Jan. 01, 2019
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Jul. 18, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Shares issuable under warrants (in shares)                         115,000
Warrants outstanding, exercise price (in dollars per share)                         $ 3.17
Aggregate shares of common stock options granted (in shares)                     4,153,000    
Exercise price of options (in dollars per share)                     $ 1.84    
Five year expiration                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Expiration period                     5 years    
Seven year expiration                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Expiration period                     7 years    
Ten year expiration                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Expiration period                     10 years    
2011 Equity Incentive Plan                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Shares of common stock eligible for issuance (in shares)                 13,000,000   13,000,000    
Shares of common stock available for issuance (in shares)                 1,890,346   1,890,346    
Shares of common stock reserved for issuance (in shares)                 10,359,786   10,359,786    
Employee Stock Option                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Unrecognized compensation expense related to unvested stock options                 $ 387,000   $ 387,000    
Weighted average period of recognition                     1 year 11 months 22 days    
Employee Stock Option | Key Employees                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Aggregate shares of common stock options granted (in shares) 15,000 10,000 24,000 150,000 50,000 154,000   250,000          
Exercise price of options (in dollars per share) $ 1.59 $ 1.38 $ 1.40 $ 1.70 $ 5.50 $ 1.73   $ 3.00          
Vesting rights (percentage per year)   50.00% 50.00% 50.00%             33.33%    
Employee Stock Option | Chief Executive Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Aggregate shares of common stock options granted (in shares)             2,578,947            
Exercise price of options (in dollars per share)             $ 1.70            
Vested (in shares)                     0    
Employee Stock Option | Chief Financial Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Aggregate shares of common stock options granted (in shares)             552,632            
Exercise price of options (in dollars per share)             $ 1.70            
Vested (in shares)                     0    
Employee Stock Option | Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Aggregate shares of common stock options granted (in shares)             368,421            
Exercise price of options (in dollars per share)             $ 1.70            
Vested (in shares)                     0    
Performance Shares | Key Employees                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Term of employment             2 years            
Performance stock bonus                     $ 90,000    
Warrant                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Vesting rights (percentage per year)                     33.00%    
Compensation expense                 14,000        
Restricted Stock                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Unrecognized compensation expense related to unvested stock options                 144,000   $ 144,000    
Weighted average period of recognition                     1 year 11 days    
Compensation expense related to restricted stock grants                 47,000 $ 128,000 $ 213,000 $ 548,000  
Restricted Stock | Non Management Directors                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Vesting rights (percentage per year)       50.00%                  
Shares issued to employees in connection with restricted stock grants, net of forfeitures (in shares)       60,000                  
Award vesting period (in years)       2 years                  
Managemnet Stock Bonus                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Compensation expense                 168,000   168,000    
$3.00 | Employee Stock Option | Chief Executive Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             736,842            
Lower range target price limit (in dollars per share)             $ 3.00            
$3.00 | Employee Stock Option | Chief Financial Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             157,895            
Lower range target price limit (in dollars per share)             $ 3.00            
$3.00 | Employee Stock Option | Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             105,263            
Lower range target price limit (in dollars per share)             $ 3.00            
$5.00 | Employee Stock Option | Chief Executive Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             626,316            
Lower range target price limit (in dollars per share)             $ 5.00            
$5.00 | Employee Stock Option | Chief Financial Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             134,211            
Lower range target price limit (in dollars per share)             $ 5.00            
$5.00 | Employee Stock Option | Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             89,474            
Lower range target price limit (in dollars per share)             $ 5.00            
$7.00 | Employee Stock Option | Chief Executive Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             515,789            
Lower range target price limit (in dollars per share)             $ 7.00            
$7.00 | Employee Stock Option | Chief Financial Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             110,526            
Lower range target price limit (in dollars per share)             $ 7.00            
$7.00 | Employee Stock Option | Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             73,684            
Lower range target price limit (in dollars per share)             $ 7.00            
$9.00 | Employee Stock Option | Chief Executive Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             405,263            
Lower range target price limit (in dollars per share)             $ 9.00            
$9.00 | Employee Stock Option | Chief Financial Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             86,842            
Lower range target price limit (in dollars per share)             $ 9.00            
$9.00 | Employee Stock Option | Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             57,895            
Lower range target price limit (in dollars per share)             $ 9.00            
$11.00 | Employee Stock Option | Chief Executive Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             294,737            
Lower range target price limit (in dollars per share)             $ 11.00            
$11.00 | Employee Stock Option | Chief Financial Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             63,158            
Lower range target price limit (in dollars per share)             $ 11.00            
$11.00 | Employee Stock Option | Officer                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Number of exercisable options (in shares)             42,105            
Lower range target price limit (in dollars per share)             $ 11.00            
Equity Option                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Compensation expense related to stock options                 $ 66,000 $ 319,000 $ 382,000 $ 867,000  
Warrant | Five year expiration                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Expiration period                     5 years    
Warrant | Seven year expiration                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Expiration period                     7 years    
Warrant | Ten year expiration                          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                          
Expiration period                     10 years    
v3.19.3
Significant Contracts (Details) - Royalty Agreement With QVC - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Business Acquisition [Line Items]          
Net revenue from QVC $ 5,160 $ 6,420 $ 17,960 $ 19,900  
Percentage of revenue from QVC 47.00% 78.00% 59.00% 78.00%  
Receivables from QVC $ 5,300   $ 5,300   $ 5,680
Percentage of total receivables from QVC 53.00%   53.00%   52.00%
v3.19.3
Leases - Maturities of Lease Liabilities (Details) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Leases [Abstract]    
Remainder of 2019 $ 612  
2020 2,423  
2021 2,577  
2022 1,732  
2023 1,553  
After 2023 5,950  
Total lease payments 14,847  
Less: Discount 2,894  
Present value of lease liabilities 11,953  
Current portion of operating lease obligation 1,732 $ 0
Long-term portion of operating lease obligation $ 10,221 $ 0
v3.19.3
Related Party Transactions
9 Months Ended
Sep. 30, 2019
Related Party Transactions [Abstract]  
Related Party Transactions
Related Party Transactions
Benjamin Malka
Concurrent with the acquisition of the H Halston Brand on December 22, 2014, the Company and HIP entered into a license agreement (the “HIP License Agreement”), which was subsequently amended September 1, 2015. Benjamin Malka, who was a director of the Company, is a 25% equity holder of HIP’s parent company, HOH, and is the former Chief Executive Officer of HOH. Mr. Malka did not stand for re-election to the Board of Directors at the Company's annual meeting of stockholders held on September 12, 2019.
Through October 26, 2018, the Company was negotiating proposed new arrangements and operated under those terms as an at-will license as set forth below:
The HIP Trademark Usage and Royalty Participation Agreement had an initial term that expired on December 31, 2020 unless sooner terminated or renewed, and Xcel shall pay to HIP: (i) 50% of the excess H Halston Royalty paid to Xcel under the DRT Licenses and any other third party licenses that Xcel may enter into; (ii) 25% of the excess developed brand royalty paid to Xcel for the Highline Collective Brand under the DRT Licenses, and 20% of the excess developed brand royalty paid to Xcel for any subsequent developed brand under the DRT Licenses, and (iii) 10% of the excess private label brand royalty paid to Xcel under the DRT Licenses and during the first term only of the DRT Licenses. Additionally, Xcel has the right, but not the obligation, at any time after January 31, 2023, to terminate the obligations under points (ii) and (iii) above by paying to HIP an amount equal to four times the sum of the developed brand credits and private label credits for the contract year ending on January 31, 2023 (the "Buy Out Payment''). The Buy-Out Payment was payable by Xcel and at Xcel's sole discretion either (a) in cash, or (b) in a number of common shares of Xcel calculated based on the amount of the Buy-Out Payment divided by the average closing price for common shares of Xcel on a national exchange for the preceding five trading days, subject to a minimum price for common shares of Xcel of $7.00 per common share.
A license and supply agreement with the Halston Operating Company, LLC (“HOC”), a subsidiary of HOH, with an initial term ending on January 31, 2022, subject to renewal. Under the HOC at-will license and supply agreement, HOC shall provide licensed products for sale to pre-approved retailers, including HBC and Dillard’s, and was also responsible for overseeing the visual merchandising and in-store retail environments for such approved retailers, as well as for training and oversight of any retail staff responsible for selling the licensed products within HBC and Dillard’s, as reasonably agreed upon between HOC and HBC and Dillard’s. The HOC at-will license and supply agreement provides for, among other things, design fees of $1.2 million for the period from July 1, 2017 through December 31, 2018, subsequent design fees of $2.4 million for the contractual yearly periods ending on January 31, 2019, and on December 31, 2020, 2021, and 2022, respectively, and sales-based royalties on the categories of products licensed under the agreement and the contractual year of payment.
Effective October 26, 2018, the Company and HOH terminated the HIP License Agreement including all amendments, and the HIP Sublicense Agreement. In addition, the at-will license was terminated and no longer in effect as of October 26, 2018.
Under the at-will license, the Company recorded approximately $0 and $0.59 million of revenue from HOC for the current quarter and the prior year quarter, respectively. The Company recorded approximately $0 and $1.81 million of revenue from HOC for the current nine months and prior year nine months, respectively. The Company had a receivable balance of $0 and $1.5 million due from HOC as of September 30, 2019 and December 31, 2018, respectively.

On the Closing Date, the Company and its wholly owned subsidiary, H Heritage Licensing, LLC, completed the acquisition of the Halston Heritage Trademarks. See Note 3, "Acquisition of Halston Heritage Trademarks".
v3.19.3
Leases
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases
Leases

The Company has operating leases for its current office, former office, and certain equipment with a term of 12 months or less. The Company's office leases have remaining lease terms of 2 years to 8 years. The Company does not recognize lease liabilities and ROU assets for lease terms of 12 months or less, but recognizes such lease payments in net income on a straight-line basis over the lease terms. The Company determines if an arrangement is a lease at inception. Operating leases are recorded in operating lease ROU assets, current portion of operating lease liabilities, and long-term operating lease liabilities on the Company's condensed consolidated balance sheet.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company may use the implicit rate when readily determinable. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

For the current and prior year quarter, lease expense included in selling, general and administrative expenses on the Company's unaudited condensed consolidated statements of operations was $0.4 million. For the current and prior year nine months, lease expense included in selling, general and administrative expenses on the Company's unaudited condensed consolidated statements of operations was $1.2 million and $1.1 million, respectively.

As of September 30, 2019, the weighted average remaining operating lease term was 7.0 years and the weighted average discount rate for operating leases was 6.3%.

Cash paid for amounts included in the measurement of operating lease liabilities in the current quarter and current nine months ended September 30, 2019 was $0.6 million and $1.8 million, respectively.

As of September 30, 2019, the maturities of lease liabilities were as follows:
($ in thousands)
 
Remainder of 2019
$
612

2020
2,423

2021
2,577

2022
1,732

2023
1,553

After 2023
5,950

Total lease payments
14,847

Less: Discount
2,894

Present value of lease liabilities
11,953

Current portion of lease liabilities
1,732

Non-current portion of lease liabilities
$
10,221

v3.19.3
Earnings Per Share (Tables)
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
Computation of Diluted Earnings Per Share
Diluted EPS excludes all potentially dilutive shares of common stock if their effect is anti-dilutive.
 
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Basic
 
18,975,265

 
18,266,202

 
18,839,424

 
18,304,608

Effect of exercise of warrants
 

 
841

 
725

 
866

Effect of exercise of stock options
 

 

 

 
5,180

Diluted
 
18,975,265

 
18,267,043

 
18,840,149

 
18,310,654

Anti-dilutive Securities Excluded from Computation of Earnings Per Share
The computation of diluted EPS excludes the following potentially dilutive securities because their inclusion would be anti-dilutive:
 
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Stock options and warrants
 
8,469,440

 
4,491,024

 
8,419,375

 
4,491,024

v3.19.3
Acquisition of Halston Heritage Trademarks (Tables)
9 Months Ended
Sep. 30, 2019
Asset Acquisitions [Abstract]  
Details of Aggregate Purchase Price
The Halston Heritage Trademark acquisition was accounted for as an asset purchase. The aggregate purchase price has been allocated to the following assets based on the fair value of the assets on the date of acquisition:

($ in thousands)
 
Allocated to:
 
Trademarks
$
10,388

Halston archives
200

Customer lists
200

Total acquisition price
$
10,788

The following represents the aggregate purchase price of $10.8 million:
 
($ in thousands, except share amounts)
 
Cash
$
8,350

Fair value of Common Stock issued (777,778 shares)
1,058

Total direct initial consideration
9,408

Direct transaction expenses
480

Contingent obligation
900

Total consideration
$
10,788

v3.19.3
Acquisition of Halston Heritage Trademarks - Additional Information (Details) - USD ($)
9 Months Ended
Feb. 11, 2019
Sep. 30, 2019
Feb. 10, 2019
Halston Heritage      
Schedule of Asset Acquisition [Line Items]      
Cash included in aggregate purchase price $ 8,350,000    
Common stock included in aggregate purchase price (in shares) 777,778    
Issuance of common stock in connection with Halston Heritage assets acquisition $ 1,058,000    
Aggregate contingent consideration 6,000,000    
Minimum deduction from net royalties $ 1,500,000.0    
Percentage of Aggregate Shares Outstanding 4.99%    
Total acquisition price $ 10,788,000    
Halston Heritage | Royalty Target One      
Schedule of Asset Acquisition [Line Items]      
Applicable percentage 50.00%    
Halston Heritage | Royalty Target Two      
Schedule of Asset Acquisition [Line Items]      
Applicable percentage 20.00%    
Halston Heritage | Royalty Target Three      
Schedule of Asset Acquisition [Line Items]      
Applicable percentage 0.00%    
Maximum | Halston Heritage | Royalty Target One      
Schedule of Asset Acquisition [Line Items]      
Excess net royalties $ 10,000,000.0    
Maximum | Halston Heritage | Royalty Target Two      
Schedule of Asset Acquisition [Line Items]      
Excess net royalties 15,000,000.0    
Minimum | Halston Heritage | Royalty Target Two      
Schedule of Asset Acquisition [Line Items]      
Excess net royalties 10,000,000.0    
Minimum | Halston Heritage | Royalty Target Three      
Schedule of Asset Acquisition [Line Items]      
Excess net royalties 15,000,000.0    
Existing Loan Agreement | Secured Debt      
Schedule of Asset Acquisition [Line Items]      
Face amount of loan     $ 14,500,000.0
Additional Term Loan | Secured Debt      
Schedule of Asset Acquisition [Line Items]      
Face amount of loan 7,500,000.0    
Second Amended And Restated Loan And Security Agreement | Secured Debt      
Schedule of Asset Acquisition [Line Items]      
Face amount of loan 22,000,000.0   $ 14,500,000
Term Loan A | Secured Debt      
Schedule of Asset Acquisition [Line Items]      
Face amount of loan 7,300,000    
Term Loan B | Secured Debt      
Schedule of Asset Acquisition [Line Items]      
Face amount of loan $ 14,700,000    
Trademarks | Halston Heritage      
Schedule of Asset Acquisition [Line Items]      
Weighted average useful life of finite-lived intangible assets acquired   18 years  
Halston archives | Halston Heritage      
Schedule of Asset Acquisition [Line Items]      
Weighted average useful life of finite-lived intangible assets acquired   7 years  
Customer list | Halston Heritage      
Schedule of Asset Acquisition [Line Items]      
Weighted average useful life of finite-lived intangible assets acquired   5 years  
House Of Halston LLC | Director      
Schedule of Asset Acquisition [Line Items]      
Ownership Percentage in HOH   25.00%  
v3.19.3
Acquisition of Halston Heritage Trademarks
9 Months Ended
Sep. 30, 2019
Asset Acquisitions [Abstract]  
Acquisition of Halston Heritage Trademarks
Acquisition of Halston Heritage Trademarks

On February 11, 2019 (the "Closing Date"), the Company and its wholly owned subsidiary, H Heritage Licensing, LLC, entered into an asset purchase agreement (the "Heritage Asset Purchase Agreement") with the H Company IP, LLC (the "Seller" or "HIP") and its parent, House of Halston LLC ("HOH"), pursuant to which the Company acquired certain assets of HIP, including the "Halston", "Halston Heritage", and "Roy Frowick" trademarks (collectively, the "Halston Heritage Trademarks") and other intellectual property rights relating thereto. Benjamin Malka, who was a director of the Company, is a 25% equity holder of HOH and former Chief Executive Officer of HOH.

Pursuant to the Heritage Asset Purchase Agreement, at closing, the Company delivered in escrow for HIP or its designees (collectively, the “Sellers”) an aggregate of $8.4 million in cash and 777,778 shares of the Company’s common stock valued at $1.1 million (the “Xcel Shares”), subject to a voting agreement and a lock-up agreement relating to the Xcel Shares and a consent and waiver agreement each in form satisfactory to Xcel within three months from the date of the Heritage Asset Purchase Agreement. Such agreements were executed and delivered to Xcel, and the Xcel Shares were issued and delivered to the Sellers.

In addition to the closing consideration, HIP is eligible to earn up to an aggregate of $6.0 million (the “Earn-Out Value”) through December 31, 2022 based on Excess Net Royalties. “Excess Net Royalties” during any calendar year for 2019 through 2022 (each, a “Royalty Target Year”) is equal to (a) the positive amount, if any, of the Net Royalties as calculated for such Royalty Target Year, less the greater of (i) One Million Five Hundred Thousand Dollars ($1.5 million), or (ii) the maximum Net Royalties for any previous Royalty Target Year. “Applicable Percentage” means (a) 50% of the first $10.0 million of Excess Net Royalties during the Earn-Out Period, (b) 20% of aggregate Excess Net Royalties during the Earn-Out Period greater than $10.0 million and up to $15.0 million, and (c) 0% of aggregate Excess Net Royalties during the Earn-Out Period in excess of $15.0 million. The Earn-Out Consideration shall be payable in common stock of Xcel (the “Earn-Out Shares”); provided, however, that if the number of Earn-Out Shares, when combined with the number of Xcel Shares issued at the closing, will exceed 4.99% of the aggregate number of shares of Xcel common stock outstanding as of the Closing Date (calculated in accordance with Nasdaq Rule 5635(a)) (the “Xcel Share Limit”), then Xcel may, in its sole and unfettered discretion, elect to (x) pay cash for the Earn-Out Value attributable to the Earn-Out Shares that would exceed the Xcel Share Limit; (y) solicit stockholder approval for the issuance of Earn-Out Shares in excess of the Xcel Share Limit in accordance with Nasdaq Rule 5635(a)(2) and, if such stockholder approval is obtained, issue such Earn-Out Shares to HIP; or (z) solicit stockholder approval for the issuance of shares in excess of the Xcel Share Limit in accordance with Nasdaq Rule 5635(a)(2) and, if such stockholder approval is obtained, pay the applicable Earn-Out Consideration with a combination of cash and Earn-Out Shares.

The Halston Heritage Trademark acquisition was accounted for as an asset purchase. The aggregate purchase price has been allocated to the following assets based on the fair value of the assets on the date of acquisition:

($ in thousands)
 
Allocated to:
 
Trademarks
$
10,388

Halston archives
200

Customer lists
200

Total acquisition price
$
10,788


 
The Halston Heritage Trademarks have been determined by management to have a finite useful life, and accordingly, amortization is recorded in the Company’s condensed consolidated statements of operations. The Halston Heritage Trademarks, archives, and customer lists are amortized on a straight-line basis over their expected useful lives of eighteen, seven, and five years, respectively.
 
The following represents the aggregate purchase price of $10.8 million:
 
($ in thousands, except share amounts)
 
Cash
$
8,350

Fair value of Common Stock issued (777,778 shares)
1,058

Total direct initial consideration
9,408

Direct transaction expenses
480

Contingent obligation
900

Total consideration
$
10,788



As more fully described in Note 6, concurrent with the acquisition of the Halston Heritage Trademarks, the Company entered into an amended loan agreement with BHI (the “Second Amended and Restated Loan and Security Agreement” or the "Xcel Term Loan"). The Xcel Term Loan amended and restated the existing Bank Hapoalim B.M. ("BHI") term loan (the "Amended Loan Agreement" or the "Prior Term Loan"). Immediately prior to the Closing Date, the aggregate principal amount of the Prior Term Loan was $14.5 million. Pursuant to the Xcel Term Loan, the Lenders extended to Xcel an additional term loan in the amount of $7.5 million, such that, as of the Closing Date, the aggregate outstanding balance of all the Xcel Term Loan was $22.0 million, which amount has been divided into two term loans: (1) a term loan in the amount of $7.3 million, Term Loan A, and (2) a term loan in the amount of $14.7 million, Term Loan B. The proceeds of the additional term loan extended on the Closing Date were used to finance a portion of the Halston Heritage Trademark acquisition described above.
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Nov. 08, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Entity Registrant Name XCel Brands, Inc.  
Entity Central Index Key 0001083220  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Common Stock, Shares Outstanding   18,958,247
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Small Business true  
v3.19.3
Unaudited Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock
Paid-In Capital
Retained Earnings (Accumulated Deficit)
Halston Heritage
Common Stock
Halston Heritage
Paid-In Capital
Beginning Balance (in shares) at Dec. 31, 2017   18,318,961        
Beginning Balance at Dec. 31, 2017 $ 97,694 $ 18 $ 98,997 $ (1,321)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Compensation expense in connection with stock options and restricted stock 507   507      
Issuance of shares for accrued stock liability (in shares)   91,826        
Issuance of shares for accrued stock liability 281   281      
Shares repurchased including vested restricted stock in exchange for withholding taxes (in shares)   (43,638)        
Shares repurchased including vested restricted stock in exchange for withholding taxes (90)   (90)      
Net income (loss) 500     500    
Ending Balance (in shares) at Mar. 31, 2018   18,367,149        
Ending Balance at Mar. 31, 2018 98,892 $ 18 99,695 (821)    
Beginning Balance (in shares) at Dec. 31, 2017   18,318,961        
Beginning Balance at Dec. 31, 2017 97,694 $ 18 98,997 (1,321)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income (loss) 1,369          
Ending Balance (in shares) at Sep. 30, 2018   18,266,202        
Ending Balance at Sep. 30, 2018 100,121 $ 18 100,055 48    
Beginning Balance (in shares) at Mar. 31, 2018   18,367,149        
Beginning Balance at Mar. 31, 2018 98,892 $ 18 99,695 (821)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Compensation expense in connection with stock options and restricted stock 461   461      
Issuance of shares for accrued stock liability (in shares)   13,594        
Issuance of shares for accrued stock liability 64   64      
Shares issued to employees in connection with restricted stock grants, net of forfeitures (in shares)   67,052        
Shares issued to employees in connection with restricted stock grants, net of forfeitures 0          
Shares repurchased including vested restricted stock in exchange for withholding taxes (in shares)   (181,593)        
Shares repurchased including vested restricted stock in exchange for withholding taxes (612)   (612)      
Net income (loss) (113)     (113)    
Ending Balance (in shares) at Jun. 30, 2018   18,266,202        
Ending Balance at Jun. 30, 2018 98,692 $ 18 99,608 (934)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Compensation expense in connection with stock options and restricted stock 447   447      
Net income (loss) 982     982    
Ending Balance (in shares) at Sep. 30, 2018   18,266,202        
Ending Balance at Sep. 30, 2018 100,121 $ 18 100,055 48    
Beginning Balance (in shares) at Dec. 31, 2018   18,138,616        
Beginning Balance at Dec. 31, 2018 99,882 $ 18 100,097 (233)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Issuance of common stock in connection with the acquisition of Halston Heritage (in shares)         777,778  
Issuance of common stock in connection with the acquisition of Halston Heritage 1,058       $ 1 $ 1,057
Compensation expense in connection with stock options and restricted stock 347   347      
Net income (loss) 127     127    
Ending Balance (in shares) at Mar. 31, 2019   18,916,394        
Ending Balance at Mar. 31, 2019 101,414 $ 19 101,501 (106)    
Beginning Balance (in shares) at Dec. 31, 2018   18,138,616        
Beginning Balance at Dec. 31, 2018 99,882 $ 18 100,097 (233)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income (loss) 1,884          
Ending Balance (in shares) at Sep. 30, 2019   18,958,247        
Ending Balance at Sep. 30, 2019 103,409 $ 19 101,739 1,651    
Beginning Balance (in shares) at Mar. 31, 2019   18,916,394        
Beginning Balance at Mar. 31, 2019 101,414 $ 19 101,501 (106)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Compensation expense in connection with stock options and restricted stock 135   135      
Shares issued to employees in connection with restricted stock grants, net of forfeitures 0          
Net income (loss) 1,852     1,852    
Shares issued to employees in connection with restricted stock grants (in shares)   60,000        
Ending Balance (in shares) at Jun. 30, 2019   18,976,394        
Ending Balance at Jun. 30, 2019 103,401 $ 19 101,636 1,746    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Compensation expense in connection with stock options and restricted stock 127   127      
Shares repurchased including vested restricted stock in exchange for withholding taxes (in shares)   (18,147)        
Shares repurchased including vested restricted stock in exchange for withholding taxes (24)   (24)      
Net income (loss) (95)     (95)    
Ending Balance (in shares) at Sep. 30, 2019   18,958,247        
Ending Balance at Sep. 30, 2019 $ 103,409 $ 19 $ 101,739 $ 1,651    
v3.19.3
Stockholders' Equity - Summary of Stock Option Activity for Non-Vested Options (Details)
9 Months Ended
Sep. 30, 2019
$ / shares
shares
Number of Options  
Granted (in shares) 4,153,000
Employee Stock Option  
Number of Options  
Beginning Balance (in shares) 1,481,079
Granted (in shares) 4,153,000
Vested (in shares) (1,024,914)
Forfeited or Canceled (in shares) (67,665)
Ending Balance (in shares) 4,541,500
Weighted Average Grant Date Fair Value  
Beginning Balance (in dollars per share) | $ / shares $ 1.23
Granted (in dollars per share) | $ / shares 0.03
Vested (in dollars per share) | $ / shares 1.03
Forfeited or Canceled (in dollars per share) | $ / shares 0.99
Ending Balance (in dollars per share) | $ / shares $ 0.18
v3.19.3
Earnings Per Share - Anti-dilutive Securities Excluded (Details) - shares
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Employee Stock Option | Warrant        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Stock options and warrants (in shares) 8,469,440 4,491,024 8,419,375 4,491,024
v3.19.3
Acquisition of Halston Heritage Trademarks - Allocation of Aggregate Purchase Price (Details) - Halston Heritage
$ in Thousands
Feb. 11, 2019
USD ($)
Schedule of Asset Acquisition [Line Items]  
Total acquisition price $ 10,788
Trademarks  
Schedule of Asset Acquisition [Line Items]  
Finite-lived intangible assets 10,388
Halston archives  
Schedule of Asset Acquisition [Line Items]  
Finite-lived intangible assets 200
Customer list  
Schedule of Asset Acquisition [Line Items]  
Finite-lived intangible assets $ 200
v3.19.3
Nature of Operations, Background, and Basis of Presentation (Details) - USD ($)
$ in Thousands
Sep. 30, 2019
Jan. 01, 2019
Dec. 31, 2018
Sep. 30, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]        
Operating lease right of use assets $ 9,583   $ 0  
Operating lease obligation 11,953      
Accrued rent offset to operating lease right-of-use assets $ (2,801)     $ 0
Accounting Standards Update 2016-02        
New Accounting Pronouncements or Change in Accounting Principle [Line Items]        
Operating lease right of use assets   $ 10,400    
Operating lease obligation   13,200    
Accrued rent offset to operating lease right-of-use assets   $ 2,800    
v3.19.3
Debt and Contingent Obligations (Tables)
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Net Carrying Amount of Debt
The Company’s net carrying amount of debt was comprised of the following:
($ in thousands)
 
September 30,
2019
 
December 31,
2018
Xcel Term Loan
 
$
20,000

 
$
15,500

Unamortized deferred finance costs related to term loan
 
(211
)
 
(200
)
IM Seller Note
 

 
742

Ripka Seller Note
 

 
583

Contingent obligation - HH Seller
 
900

 

Contingent obligation - JR Seller
 

 
100

Contingent obligation - CW Seller
 

 
2,850

Total
 
20,689

 
19,575

Current portion of long-term debt (i), (ii)
 
4,750

 
8,275

Long-term debt
 
$
15,939

 
$
11,300

(i)
The current portion of long-term debt as of September 30, 2019 consisted of $4.75 million related to the Xcel Term Loan.
(ii)
The current portion of long-term debt presented on the Condensed Consolidated Balance Sheet at December 31, 2018 includes (a) $4.0 million related to the Prior Term Loan, (b) $0.74 million related to the IM Seller Note, (c) $2.95 million related to contingent obligations, and (d) $0.58 million related to the Ripka Seller Note.
Maturities of Long-term Debt
Principal on Term Loan A is payable in quarterly installments on each of March 31, June 30, September 30, and December 31 as follows:
($ in thousands)
 
Period
Amount
June 30, 2019 – September 30, 2020
$
1,000

 
 
December 31, 2020
$
1,250


Principal on Term Loan B is payable in quarterly installments on each of March 31, June 30, September 30, and December 31 as follows:
($ in thousands)
 
Period
Amount
March 31, 2020 – September 30, 2020
$
250

 
 
March 31, 2021 – December 30, 2022
$
1,125

 
 
March 31, 2023 – December 31, 2023
$
1,250

Schedule of Fixed Charge Coverage Ratios and Leverage Ratios
The Xcel Term Loan contains customary covenants, including reporting requirements, trademark preservation, and the following financial covenants of Xcel (on a consolidated basis with Xcel and the Guarantors under the Second Amended and Restated Loan and Security Agreement):
net worth of at least $90.0 million at the end of each fiscal quarter;
liquid assets of at least $4.0 million through April 30, 2020, and at least $5.0 million thereafter;
the fixed charge coverage ratio for the twelve-fiscal month period ending at the end of each fiscal quarter shall not be less than the ratio set forth below for such fiscal period:
Fiscal Quarter End
Fixed Charge Coverage Ratio
December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020
1.05 to 1.00
December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and thereafter
1.10 to 1.00
capital expenditures (excluding any capitalized compensation costs) shall not exceed $1.7 million for fiscal year December 31, 2018;
capital expenditures (excluding any capitalized compensation costs) shall not exceed $0.9 million for fiscal year December 31, 2019;
capital expenditures (excluding any capitalized compensation costs) shall not exceed $0.7 million for any fiscal year beginning after December 31, 2019; and
the leverage ratio for the twelve-fiscal month period ending at the end of each fiscal period set forth below shall not exceed the ratio below:
Fiscal Period
Maximum Leverage Ratio
December 31, 2018
2.90 to 1.00
December 31, 2019, March 31, 2020, June 30, 2020, and September 30, 2020
2.40 to 1.00
December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021
1.70 to 1.00
December 31, 2021 and each Fiscal Quarter end thereafter
1.50 to 1.00
v3.19.3
Unaudited Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Revenues        
Net revenue $ 10,932 $ 8,267 $ 30,371 $ 25,520
Cost of goods sold (sales) 2,950 231 6,549 640
Gross profit 7,982 8,036 23,822 24,880
Operating costs and expenses        
Salaries, benefits and employment taxes 4,045 3,815 12,038 12,361
Other design and marketing costs 797 639 2,352 2,194
Other selling, general and administrative expenses 1,356 1,281 4,014 3,691
Costs in connection with potential acquisition 126 0 231 0
Stock-based compensation 295 447 777 1,415
Depreciation and amortization 991 456 2,939 1,323
Total operating costs and expenses 7,610 6,638 22,351 20,984
Other Income        
Gain on reduction of contingent obligation 0 0 2,850 0
Total other income 0 0 2,850 0
Operating income 372 1,398 4,321 3,896
Interest and finance expense        
Interest expense - term debt 317 224 907 706
Other interest and finance charges 13 34 61 104
Loss on extinguishment of debt 0 0 189 0
Total interest and finance expense 330 258 1,157 810
Income before income taxes 42 1,140 3,164 3,086
Income tax provision 137 158 1,280 1,717
Net (loss) income $ (95) $ 982 $ 1,884 $ 1,369
Basic net income (loss) per share (in dollars per share): $ (0.01) $ 0.05 $ 0.10 $ 0.07
Diluted net income (loss) per share (in dollars per share): $ (0.01) $ 0.05 $ 0.10 $ 0.07
Basic weighted average common shares outstanding (in shares) 18,975,265 18,266,202 18,839,424 18,304,608
Diluted weighted average common shares outstanding (in shares) 18,975,265 18,267,043 18,840,149 18,310,654
Net licensing revenue        
Revenues        
Net revenue $ 6,428 $ 7,823 $ 21,094 $ 24,445
Net sales        
Revenues        
Net revenue $ 4,504 $ 444 $ 9,277 $ 1,075
v3.19.3
Trademarks and Other Intangibles
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Trademarks and Other Intangibles
Trademarks and Other Intangibles
Trademarks and other intangibles, net consist of the following:
 ($ in thousands)
 
Weighted
Average
Amortization
Period
 
September 30, 2019
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Trademarks (indefinite-lived)
 
n/a
 
$
69,100

 
$

 
$
69,100

Trademarks (finite-lived)
 
15 years
 
15,463

 
4,294

 
11,169

Trademarks (finite-lived)
 
18 years
 
37,994

 
1,536

 
36,458

Other intellectual property
 
7 years
 
762

 
400

 
362

Copyrights and other intellectual property
 
10 years
 
190

 
105

 
85

Customer list
 
5 years
 
200

 
27

 
173

Total
 
 
 
$
123,709

 
$
6,362

 
$
117,347

($ in thousands)
 
Weighted
Average
Amortization
Period
 
December 31, 2018
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Trademarks (indefinite-lived)
 
n/a
 
$
96,707

 
$

 
$
96,707

Trademarks (finite-lived)
 
15 years
 
15,463

 
3,521

 
11,942

Other intellectual property
 
7 years
 
561

 
321

 
240

Copyrights and other intellectual property
 
10 years
 
190

 
90

 
100

Total
 
 
 
$
112,921

 
$
3,932

 
$
108,989


Amortization expense for intangible assets was approximately $0.83 million for the three-month period ended September 30, 2019 (the "current quarter") and was approximately $0.28 million for the three-month period ended September 30, 2018 (the "prior year quarter"). Amortization expense for intangible assets was approximately $2.43 million for the nine-month period ended September 30, 2019 (the "current nine months") and was approximately $0.85 million for the nine-month period ended September 30, 2018 (the "prior year nine months").
The trademarks related to the Isaac Mizrahi Brand and the Ripka Brand have been determined to have indefinite useful lives and, accordingly, no amortization has been recorded for these assets.
Effective January 1, 2019, and in consideration of the acquisition of the Halston and Halston Heritage trademarks in February 2019, the Company has determined that the Halston brand, inclusive of all of its trademarks, including H Halston, and H by Halston, has a finite life of 18 years, and is amortized on a straight-line basis accordingly. Prior to January 1, 2019, the H Halston and H by Halston assets were considered indefinite-lived assets.
v3.19.3
Stockholders' Equity - Summary of Stock Options Activity (Details) - USD ($)
9 Months Ended 12 Months Ended
Sep. 01, 2019
May 01, 2019
Apr. 15, 2019
Apr. 01, 2019
Mar. 15, 2019
Mar. 13, 2019
Jan. 01, 2019
Sep. 30, 2019
Dec. 31, 2018
Number of Options                  
Outstanding, beginning balance (in shares)             3,257,875 3,257,875  
Granted (in shares)               4,153,000  
Canceled (in shares)               0  
Exercised (in shares)               0  
Expired/Forfeited (in shares)               (271,250)  
Outstanding, ending balance (in shares)               7,139,625 3,257,875
Exercisable (in shares)               2,598,125  
Weighted Average Exercise Price                  
Outstanding, beginning balance (in dollars per share)             $ 5.44 $ 5.44  
Granted (in dollars per share)               1.84  
Canceled (in dollars per share)               0.00  
Exercised (in dollars per share)               0.00  
Expired/Forfeited (in dollars per share)               5.28  
Outstanding, ending balance (in dollars per share)               3.35 $ 5.44
Exercisable (in dollars per share)               $ 5.16  
Outstanding Weighted Average Remaining Contractual Life (in Years)               6 years 29 days 3 years 2 months 9 days
Exercisable Weighted Average Remaining Contractual Life (in Years)               2 years 1 month 25 days  
Aggregate Intrinsic Value, Outstanding               $ 0 $ 0
Aggregate Intrinsic Value, Exercisable               $ 0  
Employee Stock Option | Key Employees                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Vesting rights (percentage per year)   50.00% 50.00% 50.00%       33.33%  
Number of Options                  
Granted (in shares) 15,000 10,000 24,000 150,000 50,000 154,000 250,000    
Weighted Average Exercise Price                  
Granted (in dollars per share) $ 1.59 $ 1.38 $ 1.40 $ 1.70 $ 5.50 $ 1.73 $ 3.00    
v3.19.3
Earnings Per Share - Dilutive Earnings Per Share (Details) - shares
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Earnings Per Share Basic And Diluted [Line Items]        
Basic (in shares) 18,975,265 18,266,202 18,839,424 18,304,608
Diluted (in shares) 18,975,265 18,267,043 18,840,149 18,310,654
Employee Stock Option        
Earnings Per Share Basic And Diluted [Line Items]        
Effect of exercise of options and Warrants (in shares) 0 0 0 5,180
Warrant        
Earnings Per Share Basic And Diluted [Line Items]        
Effect of exercise of options and Warrants (in shares) 0 841 725 866
v3.19.3
Subsequent Event (Details) - Longaberger Licensing, LLC - Subsequent Event
$ in Thousands
Nov. 12, 2019
USD ($)
Subsequent Event [Line Items]  
Payments to acquire interest in joint venture $ 750
Ownership percentage 50.00%
Joint venture, additional contribution required $ 50
Hilco Baskets, LLC  
Subsequent Event [Line Items]  
Payments to acquire interest in joint venture $ 375
Ownership percentage 50.00%
Xcel Brands  
Subsequent Event [Line Items]  
Payments to acquire interest in joint venture $ 375
v3.19.3
Acquisition of Halston Heritage Trademarks - Total Consideration for Asset Acquisition (Details) - USD ($)
$ in Thousands
9 Months Ended
Feb. 11, 2019
Sep. 30, 2019
Sep. 30, 2018
Schedule of Asset Acquisition [Line Items]      
Contingent obligation   $ 900 $ 0
Halston Heritage      
Schedule of Asset Acquisition [Line Items]      
Cash $ 8,350    
Fair value of Common Stock issued (777,778 shares) $ 1,058    
Common stock included in aggregate purchase price (in shares) 777,778    
Total direct initial consideration $ 9,408    
Direct transaction expenses 480    
Contingent obligation 900    
Total consideration $ 10,788    
v3.19.3
Debt and Contingent Obligations - Xcel Term Loan Narrative (Details) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Feb. 11, 2019
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
May 01, 2020
Apr. 30, 2020
Feb. 10, 2019
Xcel Term Loan                      
Debt Instrument [Line Items]                      
Aggregate interest expense on Prior Term Debt and Xcel Term Loan   $ 317,000 $ 215,000 $ 903,000 $ 677,000            
Secured Debt                      
Debt Instrument [Line Items]                      
Percentage of excess cash flow 10.00%                    
Secured Debt | Second Amended And Restated Loan And Security Agreement                      
Debt Instrument [Line Items]                      
Face amount of loan $ 22,000,000.0                   $ 14,500,000
Upfront fee for debt issuance 90,000                    
Minimum net worth required to meet loan covenant 90,000,000.0                    
Maximum capital expenditures required to meet loan covenants               $ 1,700,000.0      
Secured Debt | Term Loan A                      
Debt Instrument [Line Items]                      
Face amount of loan $ 7,300,000                    
Stated interest rate (as percentage) 5.10%                    
Secured Debt | Additional Term Loan                      
Debt Instrument [Line Items]                      
Face amount of loan $ 7,500,000.0                    
Loss on extinguishment of debt       $ 200,000              
Secured Debt | Term Loan B                      
Debt Instrument [Line Items]                      
Face amount of loan $ 14,700,000                    
Stated interest rate (as percentage) 6.25%                    
Revolving Credit Facility | Second Amended And Restated Loan And Security Agreement                      
Debt Instrument [Line Items]                      
Capacity available to convert to incremental term loans $ 5,000,000.0                    
Revolving Credit Facility | Second Amended And Restated Loan And Security Agreement | Base Rate                      
Debt Instrument [Line Items]                      
Basis spread on variable rate 2.00%                    
Debt Termination Period, On Or Before Second Anniversary | Secured Debt | Term Loan A                      
Debt Instrument [Line Items]                      
Termination fee percentage 1.00%                    
Debt Termination Period, On Or Before Second Anniversary | Secured Debt | Term Loan B                      
Debt Instrument [Line Items]                      
Termination fee percentage 2.00%                    
Debt Termination Period, After Second Anniversary But Before Third Anniversary | Secured Debt | Term Loan A                      
Debt Instrument [Line Items]                      
Termination fee percentage 0.50%                    
Debt Termination Period, After Second Anniversary But Before Third Anniversary | Secured Debt | Term Loan B                      
Debt Instrument [Line Items]                      
Termination fee percentage 1.00%                    
Debt Termination Period, After Third Anniversary | Secured Debt                      
Debt Instrument [Line Items]                      
Termination fee percentage 0.00%                    
Forecast | Secured Debt | Second Amended And Restated Loan And Security Agreement                      
Debt Instrument [Line Items]                      
Minimum liquid assets to meet loan covenants                 $ 5,000,000.0 $ 4,000,000.0  
Maximum capital expenditures required to meet loan covenants           $ 700,000.0 $ 900,000.0        
v3.19.3
Debt and Contingent Obligations - Additional Information (Details) - USD ($)
3 Months Ended 9 Months Ended
Mar. 31, 2019
May 15, 2018
Sep. 19, 2016
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Debt Instrument [Line Items]                
Interest expense - term debt       $ 317,000 $ 224,000 $ 907,000 $ 706,000  
Current portion of long-term debt, contingent obligations       0   0   $ 2,950,000
Gain on reduction of contingent obligation       0 0 2,850,000 0  
IM Term Loan                
Debt Instrument [Line Items]                
Revised stated interest rate     2.236%          
Ripka Seller Note                
Debt Instrument [Line Items]                
Interest expense - term debt       0 10,000 10,000 31,000  
Balance of note payable $ 600,000     0   0   580,000
Note receivable due 900,000              
Settlement of contingent obligation through offset to note receivable   $ 100,000            
CW Term Loan                
Debt Instrument [Line Items]                
Current portion of long-term debt, contingent obligations       0   0   2,850,000
Gain on reduction of contingent obligation       2,850,000        
Contingent obligation       0   0   2,850,000
Halston Heritage                
Debt Instrument [Line Items]                
Contingent obligation       900,000   900,000   0
IM Seller Notes                
Debt Instrument [Line Items]                
Interest expense - term debt       0 $ 8,000 4,000 $ 29,000  
Ripka Earn-Out                
Debt Instrument [Line Items]                
Threshold of royalty income       6,000,000   6,000,000    
Earn-out balance after settlement       $ 0   0    
Second Amendment | IM Term Loan                
Debt Instrument [Line Items]                
Semi-annual principal and interest installment payments     $ 750,000          
Principal payment 750,000              
Long-term Debt | Ripka Earn-Out                
Debt Instrument [Line Items]                
Earn-out balance before settlement $ 100,000             $ 100,000
C Wonder Earn Out                
Debt Instrument [Line Items]                
Fixed threshold to be used in computation of earn-out           $ 4,000,000    
Maximum royalty multiple       200.00%   200.00%    
v3.19.3
Subsequent Event
9 Months Ended
Sep. 30, 2019
Subsequent Events [Abstract]  
Subsequent Events
On November 12, 2019, Longaberger Licensing, LLC, a recently formed 50/50 joint venture between Xcel and Hilco Baskets, LLC, completed the acquisition of certain intellectual property assets of the Longaberger brand. The total purchase price for such assets, including trademarks, designs, and other intellectual property rights, was $750,000. Per the terms of the joint venture arrangement between Xcel and Hilco Baskets, LLC, the Company initially contributed $375,000 of cash to the joint venture, and will also be responsible for contributing an estimated $50,000 to the joint venture to fund nominal working capital needs. Products under the Longaberger brand are scheduled to commence selling on QVC in November 2019.
v3.19.3
Stockholders' Equity
9 Months Ended
Sep. 30, 2019
Stockholders' Equity Note [Abstract]  
Stockholders' Equity
Stockholders’ Equity
2011 Equity Incentive Plan
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 shares of common stock are eligible for issuance under the Plan. The Plan provides for the grant of any or all of the following types of awards: stock options, restricted stock, deferred stock, stock appreciation rights, and other stock-based awards. The Plan is administered by the Company’s Board of Directors, or, at the Board’s discretion, a committee of the Board.
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation - Stock Compensation,” by recognizing the fair value of stock-based compensation as an operating expense over the service period of the award or term of the corresponding contract, as applicable.
The fair value of options and warrants is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, 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 the fair value of the Company’s stock at the date of grant.
The Company accounts for non-employee awards in accordance with ASU 2018-07, “Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting”. Such awards are measured at the grant-date fair value of the equity instruments to be issued, and the compensation expense for such awards is recognized in the same period as if cash had been paid for the related goods or services rendered.
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).
Forfeitures are accounted for as a reduction of compensation cost in the period when such forfeitures occur.
Stock Options
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.
On January 1, 2019, the Company granted options to purchase 250,000 shares of common stock to a certain key employee. The exercise price is $3.00 per share, and the vesting of such options is dependent upon the Company achieving certain 12-month sales targets through December 31, 2021.
On February 27, 2019, the Company granted options to purchase 2,578,947 shares of common stock to Robert D’Loren, the Company’s Chief Executive Officer. The exercise price is $1.70 per share, and the vesting of such options is dependent upon the Company’s common stock achieving certain stock trading prices for a minimum of ten (10) trading days (the "Target Prices"). The vesting of 736,842 shares occur if the Target Prices are equal to or greater than $3.00 per share; 626,316 shares vest if the Target Price is equal to or greater than $5.00 per share; 515,789 shares vest if the Target Price is equal to or greater than $7.00 per share; 405,263 shares vest if the Target Price is equal to or greater than $9.00 per share; and 294,737 shares vest if the Target Price is equal to or greater than $11.00 per share. The options are exercisable until February 27, 2029. As of September 30, 2019, none of the aforementioned Target Price thresholds have been met, and therefore, none of these options have vested.
On February 27, 2019, the Company granted options to purchase 552,632 shares of common stock to James Haran, the Company’s Chief Financial Officer. The exercise price is $1.70 per share, and the vesting of such options is dependent upon the Company’s common stock achieving certain stock trading prices for a minimum of ten (10) trading days (the "Target Prices"). The vesting of 157,895 shares occur if the Target Prices are equal to or greater than $3.00 per share; 134,211 shares vest if the Target Price is equal to or greater than $5.00 per share; 110,526 shares vest if the Target Price is equal to or greater than $7.00 per share; 86,842 shares vest if the Target Price is equal to or greater than $9.00 per share; and 63,158 shares vest if the Target Price is equal to or greater than $11.00 per share. The options are exercisable until February 27, 2029. As of September 30, 2019, none of the aforementioned Target Price thresholds have been met, and therefore, none of these options have vested.
On February 27, 2019, the Company granted options to purchase 368,421 shares of common stock to Seth Burroughs, an officer of the Company. The exercise price is $1.70 per share, and the vesting of such options is dependent upon the Company’s common stock achieving certain stock trading prices for a minimum of ten (10) trading days (the "Target Prices"). The vesting of 105,263 shares occur if the Target Prices are equal to or greater than $3.00 per share; 89,474 shares vest if the Target Price is equal to or greater than $5.00 per share; 73,684 shares vest if the Target Price is equal to or greater than $7.00 per share; 57,895 shares vest if the Target Price is equal to or greater than $9.00; and 42,105 shares vest if the Target Price is equal to or greater than $11.00 per share. The options are exercisable until February 27, 2029. As of September 30, 2019, none of the aforementioned Target Price thresholds have been met, and therefore, none of these options have vested.
On March 13, 2019, the Company granted options to purchase an aggregate of 154,000 shares of common stock to various employees. The exercise price of the options is $1.73 per share, and all options vested immediately on the date of grant.
On March 15, 2019, the Company granted options to purchase 50,000 shares of common stock to a certain key employee. The exercise price of the options is $5.50 per share, and all options vested immediately on the date of grant.
On April 1, 2019, the Company granted options to purchase an aggregate of 150,000 shares of common stock to non-management directors. The exercise price of the options is $1.70 per share, and 50% of the options vest on each of April 1, 2020 and April 1, 2021.
On April 15, 2019, the Company granted options to purchase an aggregate of 24,000 shares of common stock to certain employees. The exercise price of the options is $1.40 per share, and 50% of the options vest on each of April 15, 2020 and April 15, 2021.
On May 1, 2019, the Company granted options to purchase 10,000 shares of common stock to an employee. The exercise price of the options is $1.38 per share, and 50% of the options vest on each of May 1, 2020 and May 1, 2021.
On September 1, 2019, the Company granted options to purchase 15,000 shares of common stock to an employee. The exercise price of the options is $1.59 per share, and one-third of the options will vest on each of September 1, 2020, September 1, 2021, and September 1, 2022.
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, 2019
3,257,875

 
$
5.44

 
3.19
 
$

Granted
4,153,000

 
1.84

 
 
 
 
Canceled

 

 
 
 
 
Exercised

 

 
 
 
 
Expired/Forfeited
(271,250
)
 
5.28

 
 
 
 
Outstanding at September 30, 2019, and expected to vest
7,139,625

 
$
3.35

 
6.08
 
$

Exercisable at September 30, 2019
2,598,125

 
$
5.16

 
2.15
 
$


Compensation expense related to stock options for the current quarter and the prior year quarter was approximately $66,000 and $319,000, respectively. Compensation expense related to stock options for the current nine months and prior year nine months was approximately $382,000 and $867,000, respectively. Total unrecognized compensation expense related to unvested stock options at September 30, 2019 amounts to approximately $387,000 and is expected to be recognized over a weighted average period of approximately 1.98 years.
A summary of the Company’s non-vested stock options activity for the current nine months is as follows:
 
Number of
Options
 
Weighted
Average
Grant Date
Fair Value
Balance at January 1, 2019
1,481,079

 
$
1.23

Granted
4,153,000

 
0.03

Vested
(1,024,914
)
 
1.03

Forfeited or Canceled
(67,665
)
 
0.99

Balance at September 30, 2019
4,541,500

 
$
0.18


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.
On July 18, 2019, the Company granted warrants to purchase an aggregate of 115,000 shares of common stock. The exercise price of the warrants is $3.17 per share, and one-third of the options vested on each of July 25, 2019, August 24, 2019, and September 23, 2019.
A summary of the Company’s warrants activity for the current nine months is as follows:
 
Number of
Warrants
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(in Years)
 
Aggregate
Intrinsic
Value
Outstanding and exercisable at January 1, 2019
1,214,815

 
$
9.32

 
1.66
 
$

Granted
115,000

 
3.17

 
 
 
 
Canceled

 

 
 
 
 
Exercised

 

 
 
 
 
Expired/Forfeited

 

 
 
 
 
Outstanding and exercisable at September 30, 2019
1,329,815

 
$
8.79

 
1.25
 
$


Compensation expense related to warrants was approximately $14,000 for both the current quarter and current nine months.
No compensation expense was recognized in the prior year quarter or prior year nine months related to warrants. 
Stock Awards
On February 27, 2019, the Company entered into a two-year employment agreement with a key employee which includes a performance stock bonus of up to $90,000 for each of the years ended December 31, 2019 and 2020. The performance stock bonus is earned upon the Company achieving certain sales targets.
On April 1, 2019, the Company issued an aggregate of 60,000 shares of stock to certain non-management directors, which will vest evenly over two years, whereby 50% shall vest on April 1, 2020, and 50% shall vest on April 1, 2021.
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, 2019
1,460,210

 
$
4.82

Granted
60,000

 
1.70

Canceled

 

Vested
(121,000
)
 
5.24

Expired/Forfeited

 

Outstanding at September 30, 2019
1,399,210

 
$
4.65


Compensation expense related to restricted stock grants for the current and prior year quarter was approximately $47,000 and $128,000, respectively. Compensation expense related to restricted stock grants for the current nine months and prior year nine months was approximately $213,000 and $548,000, respectively. Total unrecognized compensation expense related to unvested restricted stock grants at September 30, 2019 amounts to approximately $144,000 and is expected to be recognized over a weighted average period of approximately 1.03 years.
The Company also recognized approximately $168,000 of compensation expense for the current quarter and current nine months, related to certain senior management bonuses payable in stock.
Shares Available Under the Company’s 2011 Equity Incentive Plan
At September 30, 2019, there were 1,890,346 shares of common stock available for issuance under the Plan.
Shares Reserved for Issuance
At September 30, 2019, there were 10,359,786 shares of common stock reserved for issuance pursuant to unexercised warrants and stock options, or available for issuance under the Plan.
Dividends
The Company has not paid any dividends to date.
v3.19.3
Trademarks and Other Intangibles - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Goodwill and Intangible Assets [Line Items]          
Amortization expense for intangible assets $ 830 $ 280 $ 2,430 $ 850  
Trademarks          
Goodwill and Intangible Assets [Line Items]          
Finite useful life     15 years   15 years
Halston Heritage | Trademarks          
Goodwill and Intangible Assets [Line Items]          
Finite useful life     18 years    
v3.19.3
Stockholders' Equity (Tables)
9 Months Ended
Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Summary of Stock Option Activity for Non-Vested Options
A summary of the Company’s non-vested stock options activity for the current nine months is as follows:
 
Number of
Options
 
Weighted
Average
Grant Date
Fair Value
Balance at January 1, 2019
1,481,079

 
$
1.23

Granted
4,153,000

 
0.03

Vested
(1,024,914
)
 
1.03

Forfeited or Canceled
(67,665
)
 
0.99

Balance at September 30, 2019
4,541,500

 
$
0.18

Summary of Stock Option Activity
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, 2019
3,257,875

 
$
5.44

 
3.19
 
$

Granted
4,153,000

 
1.84

 
 
 
 
Canceled

 

 
 
 
 
Exercised

 

 
 
 
 
Expired/Forfeited
(271,250
)
 
5.28

 
 
 
 
Outstanding at September 30, 2019, and expected to vest
7,139,625

 
$
3.35

 
6.08
 
$

Exercisable at September 30, 2019
2,598,125

 
$
5.16

 
2.15
 
$

Summary of Restricted Stock Activity
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, 2019
1,460,210

 
$
4.82

Granted
60,000

 
1.70

Canceled

 

Vested
(121,000
)
 
5.24

Expired/Forfeited

 

Outstanding at September 30, 2019
1,399,210

 
$
4.65

Warrant  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Summary of Stock Option Activity
A summary of the Company’s warrants activity for the current nine months is as follows:
 
Number of
Warrants
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(in Years)
 
Aggregate
Intrinsic
Value
Outstanding and exercisable at January 1, 2019
1,214,815

 
$
9.32

 
1.66
 
$

Granted
115,000

 
3.17

 
 
 
 
Canceled

 

 
 
 
 
Exercised

 

 
 
 
 
Expired/Forfeited

 

 
 
 
 
Outstanding and exercisable at September 30, 2019
1,329,815

 
$
8.79

 
1.25
 
$

v3.19.3
Stockholders' Equity - Summary of Warrants Activity (Details) - Warrant - USD ($)
$ / shares in Units, $ in Thousands
9 Months Ended 12 Months Ended
Sep. 30, 2019
Dec. 31, 2018
Number of Warrants    
Outstanding and exercisable, beginning balance (in shares) 1,214,815  
Granted (in shares) 115,000  
Canceled (in shares) 0  
Exercised (in shares) 0  
Expired/Forfeited (in shares) 0  
Outstanding and exercisable, ending balance (in shares) 1,329,815 1,214,815
Weighted Average Exercise Price    
Outstanding and exercisablem beginning balance (in dollars per share) $ 9.32  
Granted (in dollars per share) 3.17  
Canceled (in dollars per share) 0.00  
Exercised (in dollars per share) 0.00  
Expired/Forfeited (in dollars per share) 0.00  
Outstanding and exercisable, ending balance (in dollars per share) $ 8.79 $ 9.32
Weighted Average Remaining Contractual Life (in Years), Outstanding and exercisable 1 year 3 months 1 year 7 months 28 days
Aggregate Intrinsic Value, Outstanding and exercisable $ 0 $ 0
v3.19.3
Income Tax (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Tax Disclosure [Abstract]        
Effective income tax rate 333.00% 14.00% 40.00% 56.00%
Income tax expense (benefit) $ 137 $ 158 $ 1,280 $ 1,717
State tax rate impacts 8.41% 3.64% 9.43% 9.49%
Vesting of restricted shares of common stock 291.00%   3.80% 20.37%
Permanent differences, tax benefits   (11.15%)    
Permanent differences, tax expenses 11.84%   9.49% 4.75%
v3.19.3
Unaudited Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Current Assets:    
Cash and cash equivalents $ 5,890 $ 8,837
Accounts receivable, net 9,972 11,010
Inventory 2,075 1,988
Prepaid expenses and other current assets 1,293 2,040
Total current assets 19,230 23,875
Property and equipment, net 3,613 3,202
Operating lease right-of-use assets 9,583 0
Trademarks and other intangibles, net 117,347 108,989
Restricted cash 1,109 1,482
Other assets 571 511
Total non-current assets 132,223 114,184
Total Assets 151,453 138,059
Current Liabilities:    
Accounts payable, accrued expenses and other current liabilities 4,527 5,140
Accrued payroll 1,232 2,011
Current portion of accrued rent liability 0 690
Current portion of operating lease obligation 1,732 0
Current portion of long-term debt 4,750 5,325
Current portion of long-term debt, contingent obligations 0 2,950
Total current liabilities 12,241 16,116
Long-Term Liabilities:    
Long-term portion of accrued rent liability 0 2,202
Long-term portion of operating lease obligation 10,221 0
Long-term debt, less current portion 15,939 11,300
Deferred tax liabilities, net 9,419 8,139
Other long-term liabilities 224 420
Total long-term liabilities 35,803 22,061
Total Liabilities 48,044 38,177
Commitments and Contingencies
Stockholders' Equity:    
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding 0 0
Common stock, $.001 par value, 50,000,000 shares authorized at September 30, 2019 and December 31, 2018, respectively, and 18,958,247 and 18,138,616 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively 19 18
Paid-in capital 101,739 100,097
Retained earnings (accumulated deficit) 1,651 (233)
Total Stockholders' Equity 103,409 99,882
Total Liabilities and Stockholders' Equity $ 151,453 $ 138,059
v3.19.3
Unaudited Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash flows from operating activities    
Net loss $ 1,884 $ 1,369
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization expense 2,939 1,323
Amortization of deferred finance costs 114 129
Stock-based compensation 777 1,415
Amortization of note discount 16 31
Allowance for doubtful accounts (144) 0
Loss on extinguishment of debt 189 0
Deferred income tax provision 1,280 1,717
Gain on reduction of contingent obligation (2,850) 0
Changes in operating assets and liabilities:    
Accounts receivable 1,182 (1,112)
Inventory (87) (924)
Prepaid expenses and other assets (14) (51)
Accounts payable, accrued expenses and other current liabilities (1,744) 964
Cash paid in excess of rent expense (337) 0
Other liabilities (196) (148)
Net cash provided by operating activities 3,009 4,713
Cash flows from investing activities    
Cash consideration for acquisition of Halston Heritage assets (8,830) 0
Purchase of property and equipment (918) (1,099)
Net cash used in investing activities (9,748) (1,099)
Cash flows from financing activities    
Shares repurchased including vested restricted stock in exchange for withholding taxes (24) (702)
Payment of deferred finance costs (315) 0
Proceeds from long-term debt 7,500 0
Payment of long-term debt (3,742) (4,459)
Net cash provided by (used in) financing activities 3,419 (5,161)
Net decrease in cash, cash equivalents, and restricted cash (3,320) (1,547)
Cash, cash equivalents, and restricted cash at beginning of period 10,319 11,694
Cash, cash equivalents, and restricted cash at end of period 6,999 10,147
Reconciliation to amounts on consolidated balance sheets:    
Cash and cash equivalents 5,890 8,638
Restricted cash 1,109 1,509
Total cash, cash equivalents, and restricted cash 10,319 11,694
Supplemental disclosure of non-cash activities:    
Operating lease right-of-use asset 10,409 0
Operating lease obligation 13,210 0
Settlement of seller note through offset to receivable 600 0
Settlement of contingent obligation through offset to note receivable 100 100
Issuance of common stock in connection with Halston Heritage assets acquisition 1,058 0
Contingent obligation 900 0
Liability for equity-based bonuses 168 (345)
Supplemental disclosure of cash flow information:    
Cash paid during the period for income taxes 91 258
Cash paid during the period for interest $ 1,108 $ 754
v3.19.3
Income Tax
9 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
Income Tax
Income Tax

The effective income tax rate for the current quarter and the prior year quarter was approximately 333% and 14%, respectively, resulting in an income tax provision of $0.14 million and $0.16 million, respectively.

The effective income tax rate for the current nine months and the prior year nine months was approximately 40% and 56%, respectively, resulting in an income tax provision of $1.28 million and $1.72 million, respectively.

For the current quarter, the effective tax rate was primarily attributable to the tax impact 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 approximately 291%. The federal statutory rate also differed from the effective tax rate due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 8.41% and 11.84%, respectively.

For the prior year quarter, the federal statutory rate differed from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased (decreased) the effective tax rate by approximately 3.64% and (11.15)%, respectively.

For the current nine months, the federal statutory rate differed from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 9.43% and 9.49%, respectively. The effective tax rate was also partly attributable to the tax impact 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 approximately 3.80%.

For the prior year nine months, the effective tax rate was primarily attributable to the tax impact 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 approximately 20.37%. The federal statutory rate also differed from the effective tax rate due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 9.49% and 4.75%, respectively.

The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. The income tax effects of changes in tax laws are recognized in the period when enacted. The Act provides for numerous significant tax law changes and modifications with varying effective dates, which include reducing the U.S. federal corporate income tax rate from a maximum of 35% to 21%, creating a territorial tax system (with a one-time mandatory repatriation tax on previously deferred foreign earnings), broadening the tax base, and allowing for immediate capital expensing of certain qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023.

In response to the enactment of the Act in late 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), that permits filers to record provisional amounts during a measurement period ending no later than one year from the date of the Act’s enactment. As of December 31, 2018, the Company finalized its accounting for the income tax effects of the Act and had no change to its original estimates.
v3.19.3
Debt and Contingent Obligations
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Debt and Contingent Obligations
Debt and Contingent Obligations
The Company’s net carrying amount of debt was comprised of the following:
($ in thousands)
 
September 30,
2019
 
December 31,
2018
Xcel Term Loan
 
$
20,000

 
$
15,500

Unamortized deferred finance costs related to term loan
 
(211
)
 
(200
)
IM Seller Note
 

 
742

Ripka Seller Note
 

 
583

Contingent obligation - HH Seller
 
900

 

Contingent obligation - JR Seller
 

 
100

Contingent obligation - CW Seller
 

 
2,850

Total
 
20,689

 
19,575

Current portion of long-term debt (i), (ii)
 
4,750

 
8,275

Long-term debt
 
$
15,939

 
$
11,300

(i)
The current portion of long-term debt as of September 30, 2019 consisted of $4.75 million related to the Xcel Term Loan.
(ii)
The current portion of long-term debt presented on the Condensed Consolidated Balance Sheet at December 31, 2018 includes (a) $4.0 million related to the Prior Term Loan, (b) $0.74 million related to the IM Seller Note, (c) $2.95 million related to contingent obligations, and (d) $0.58 million related to the Ripka Seller Note.
Xcel Term Loan
On February 11, 2019, the Company entered into the Xcel Term Loan. Immediately prior to February 11, 2019, the aggregate principal amount of the Prior Term Loan was $14.5 million. Pursuant to the Xcel Term Loan, the Lenders have extended to Xcel additional term loan proceeds in the amount of $7.5 million, such that, as of February 11, 2019, the aggregate outstanding balance of all the term loans extended by BHI to Xcel under the Xcel Term Loan was $22.0 million, which amount has been divided under the Xcel Term Loan into two term loans: (1) a term loan in the amount of $7.3 million (“Term Loan A”) and (2) a term loan in the amount of $14.7 million (“Term Loan B” and, together with Term Loan A, the “Term Loans”). The proceeds of the additional term loan were used to finance the Halston Heritage Brands acquisition described in Note 3.

The terms and conditions of the Xcel Term Loan resulted in significantly different debt service payment requirements, compared with the prior term debt with BHI, which included an increase of $7.5 million in the principal balance, and related changes to the timing and amount of principal payments, as well as changes in the interest rate. Management assessed and determined that this amendment resulted in a loss on extinguishment of debt and recognized a loss of $0.2 million (consisting of unamortized deferred finance costs) during the nine-month period ended September 30, 2019. Upon entering into Xcel Term Loan, Xcel paid an upfront fee in the amount of $0.09 million to BHI.

The Xcel Term Loan also allows that BHI and any other lender party to the Xcel Term Loan (collectively, the “Lenders”) can provide to Xcel a revolving loan facility and a letter of credit facility, the terms of each of which shall be agreed to by Xcel and the Lenders. Amounts advanced under the revolving loan facility (the “Revolving Loans”) will be used for the purpose of consummating acquisitions by Xcel or its subsidiaries that are or become parties to the Xcel Term Loan. Xcel will have the right to convert Revolving Loans to incremental term loans (the “Incremental Term Loans”) in minimum amounts of $5.0 million. The Company has not drawn down any funds under either the revolving loan facility or letter of credit facility.

The Term Loans mature on December 31, 2023; Incremental Term Loans shall mature on the date set forth in the applicable term note; and Revolving Loans and the letter of credit facility shall mature on such date as agreed upon by Xcel and the Lenders. Any letter of credit issued under Xcel Term Loan shall terminate no later than one year following the date of issuance thereof.

Principal on Term Loan A is payable in quarterly installments on each of March 31, June 30, September 30, and December 31 as follows:
($ in thousands)
 
Period
Amount
June 30, 2019 – September 30, 2020
$
1,000

 
 
December 31, 2020
$
1,250


Principal on Term Loan B is payable in quarterly installments on each of March 31, June 30, September 30, and December 31 as follows:
($ in thousands)
 
Period
Amount
March 31, 2020 – September 30, 2020
$
250

 
 
March 31, 2021 – December 30, 2022
$
1,125

 
 
March 31, 2023 – December 31, 2023
$
1,250



Xcel has the right to prepay the Term Loans, Incremental Term Loans, Revolving Loans, and obligations with respect to letters of credit and accrued and unpaid interest thereon and to terminate the Lenders’ obligations to make Revolving Loans and issue letters of credit; provided that any prepayment of less than all of the outstanding balances of the Term Loans and Incremental Term Loans shall be applied to the remaining amounts due in inverse order of maturity.
If any Term Loan or any Incremental Term Loan is prepaid on or prior to the third anniversary of the Closing Date (including as a result of an event of default), Xcel shall pay an early termination fee as follows: an amount equal to the principal amount of the Term Loan or Incremental Term Loan, as applicable, being prepaid, multiplied by: (i) two percent (2.00%) if any of Term Loan B or any Incremental Term Loan is prepaid on or before the second anniversary of the later of the Closing Date or the date such Incremental Term Loan was made, as applicable; (ii) one percent (1.00%) if any of Term Loan A is prepaid on or before the second anniversary of the Closing Date; (iii) one percent (1.00%) if any of Term Loan B or any Incremental Term Loan is prepaid after the second anniversary of the later of the Closing Date or such Incremental Term Loan was made, as applicable, but on or before the third anniversary of such date; (iv) one half of one percent (0.50%) if any of Term Loan A is prepaid after the second anniversary of the Closing Date, but on or before the third anniversary of such date; or (v) zero percent (0.00%), if any Term Loan or any Incremental Term Loan is prepaid after the third anniversary of the later of the Closing Date or the date such Incremental Term Loan was made, as applicable.
Xcel 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. 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 principal paid or payable during such period, and (iii) all dividends declared and paid (or which could have been declared and paid) during such period to equity holders of any credit party treated as a disregarded entity for tax purposes.
 Xcel’s obligations under the Xcel Term Loan are guaranteed by and secured by all of the assets of Xcel and its wholly owned subsidiaries, as well as any subsidiary formed or acquired that becomes a credit party to the Xcel Term Loan agreement (the “Guarantors”) and, subject to certain limitations contained in Xcel Term Loan, equity interests of the Guarantors.
 Xcel also granted the Lenders a right of first offer to finance any acquisition for which the consideration will be paid other than by cash of Xcel or by the issuance of equity interest of Xcel.
Interest on Term Loan A accrues at a fixed rate of 5.1% per annum and is payable on each day on which the scheduled principal payments on Term Loans are required to be made. Interest on Term Loan B accrues at a fixed rate of 6.25% per annum and is payable on each day on which the scheduled principal payments on Term Loans are required to be made. Interest on the Revolving Loans will accrue at either the Base Rate or LIBOR, as elected by Xcel, plus a margin to be agreed to by Xcel and the Lenders and will be payable on the first day of each month. Base Rate is defined in the Xcel Term Loan agreement as the greater of (a) BHI’s stated prime rate or (b) 2.00% per annum plus the overnight federal funds rate published by the Federal Reserve Bank of New York. Interest on the Incremental Term Loans will accrue at rates to be agreed to by Xcel and the Lenders and will be payable on each day on which the scheduled principal payments under the applicable note are required to be made.
The Xcel Term Loan contains customary covenants, including reporting requirements, trademark preservation, and the following financial covenants of Xcel (on a consolidated basis with Xcel and the Guarantors under the Second Amended and Restated Loan and Security Agreement):
net worth of at least $90.0 million at the end of each fiscal quarter;
liquid assets of at least $4.0 million through April 30, 2020, and at least $5.0 million thereafter;
the fixed charge coverage ratio for the twelve-fiscal month period ending at the end of each fiscal quarter shall not be less than the ratio set forth below for such fiscal period:
Fiscal Quarter End
Fixed Charge Coverage Ratio
December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020
1.05 to 1.00
December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and thereafter
1.10 to 1.00
capital expenditures (excluding any capitalized compensation costs) shall not exceed $1.7 million for fiscal year December 31, 2018;
capital expenditures (excluding any capitalized compensation costs) shall not exceed $0.9 million for fiscal year December 31, 2019;
capital expenditures (excluding any capitalized compensation costs) shall not exceed $0.7 million for any fiscal year beginning after December 31, 2019; and
the leverage ratio for the twelve-fiscal month period ending at the end of each fiscal period set forth below shall not exceed the ratio below:
Fiscal Period
Maximum Leverage Ratio
December 31, 2018
2.90 to 1.00
December 31, 2019, March 31, 2020, June 30, 2020, and September 30, 2020
2.40 to 1.00
December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021
1.70 to 1.00
December 31, 2021 and each Fiscal Quarter end thereafter
1.50 to 1.00

The Company was in compliance with all applicable covenants as of September 30, 2019.
For the current and prior year quarter, the Company incurred aggregate interest expense on its Prior Term Debt and Xcel Term Loan of approximately $317,000 and $215,000, respectively. For the current nine months and prior year nine months, the Company incurred aggregate interest expense on its Prior Term Debt and Xcel Term Loan of approximately $903,000 and $677,000, respectively.

IM Seller Note

On September 19, 2016, the Company’s note payable to the sellers of the Isaac Mizrahi business (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, commencing on September 30, 2017 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, 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.

On March 31, 2019, the Company paid the final installment of $750,000 under the IM Seller Note.

For the current and prior year quarter, the Company incurred interest expense of approximately $0 and $8,000, respectively, under the IM Seller Note. For the current nine months and prior year nine months, the Company incurred interest expense of approximately $4,000 and $29,000, respectively, under the IM Seller Note.

Ripka Seller Note

As of December 31, 2018, the Company had a note payable of approximately $0.58 million relating to the acquisition of the Judith Ripka assets (the "Ripka Seller Note"). Separately, the Company held a promissory note receivable due from the sellers of the Judith Ripka assets (the "Ripka Sellers") with a maturity date of March 31, 2019. On March 31, 2019, the Company agreed to net its note receivable due from the Ripka Sellers of approximately $0.9 million against the Ripka Seller Note of $0.6 million and the remaining Ripka Earn-Out of $0.1 million (see below). As of September 30, 2019, the balance of the Ripka Seller Note was $0.

For the current and prior year quarter, the Company incurred interest expense of approximately $0 and $10,000, respectively, under the Ripka Seller Note, which consisted solely of amortization of the discount on the Ripka Seller Note. For the current nine months and prior year nine months, the Company incurred interest expense of approximately $10,000 and $31,000, respectively.

Contingent Obligation - JR Seller (Ripka Earn-Out)

The Ripka Earn-Out was 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, and was payable in equal cash payments on each of May 15, 2018 and 2019. The Ripka Brand achieved the above-indicated threshold of net royalty income from QVC during the 12-month period ended March 31, 2018, and on May 15, 2018, the Company settled the $100,000 earnout due by reducing the principal amount owed by Judith Ripka to the Company under a promissory note. As of December 31, 2018, the balance of the Ripka Earn-Out was $0.1 million. On March 31, 2019, the Company satisfied the remaining Ripka Earn-Out balance of $0.1 million by off-setting the amount against the promissory note receivable. As of September 30, 2019, the balance of the Ripka Earn-Out was $0.

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 was calculated as the positive amount, if any, of (i) two times (A) the maximum net royalties as calculated for any single 12-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 was recorded in the current portion of long-term debt in the accompanying condensed consolidated balance sheet as of December 31, 2018.

Under the applicable accounting guidance, the Company was required to carry such contingent liability balance on its consolidated balance sheet until the measurement period of the earn-out expired and all related contingencies had been resolved. The final Royalty Target Year ended on June 30, 2019, and the seller ultimately did not earn any additional consideration based on the formula set forth above. As such, during the current nine months, the Company recorded a $2.85 million gain on the reduction of contingent obligations in the accompanying condensed consolidated statements of operations. As of September 30, 2019, the balance of the C Wonder Earn-Out was $0.

Contingent Obligations - HH Seller (Halston Heritage Earn-Out)

In connection with the February 11, 2019 purchase of the Halston Heritage Trademarks from HIP, the Company agreed to pay HIP additional consideration (the “Halston Heritage Earn-Out”) (see Note 3). The Halston Heritage Earn-Out of $0.9 million is recorded as long-term debt at September 30, 2019 in the accompanying condensed consolidated balance sheet, based on the difference between the fair value of the acquired assets of the Halston Heritage Trademarks and the total consideration paid. In accordance with ASC Topic 480, the Halston Heritage Earn-Out obligation is treated as a liability in the accompanying condensed consolidated balance sheets because of the variable number of shares payable under the agreement.
v3.19.3
Trademarks and Other Intangibles (Tables)
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Trademarks and Other Intangibles
Trademarks and other intangibles, net consist of the following:
 ($ in thousands)
 
Weighted
Average
Amortization
Period
 
September 30, 2019
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Trademarks (indefinite-lived)
 
n/a
 
$
69,100

 
$

 
$
69,100

Trademarks (finite-lived)
 
15 years
 
15,463

 
4,294

 
11,169

Trademarks (finite-lived)
 
18 years
 
37,994

 
1,536

 
36,458

Other intellectual property
 
7 years
 
762

 
400

 
362

Copyrights and other intellectual property
 
10 years
 
190

 
105

 
85

Customer list
 
5 years
 
200

 
27

 
173

Total
 
 
 
$
123,709

 
$
6,362

 
$
117,347

($ in thousands)
 
Weighted
Average
Amortization
Period
 
December 31, 2018
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Trademarks (indefinite-lived)
 
n/a
 
$
96,707

 
$

 
$
96,707

Trademarks (finite-lived)
 
15 years
 
15,463

 
3,521

 
11,942

Other intellectual property
 
7 years
 
561

 
321

 
240

Copyrights and other intellectual property
 
10 years
 
190

 
90

 
100

Total
 
 
 
$
112,921

 
$
3,932

 
$
108,989

v3.19.3
Debt and Contingent Obligations - Net Carrying Amount of Debt (Details) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Debt Instrument [Line Items]    
Unamortized deferred finance costs related to term loan $ (211) $ (200)
Total 20,689 19,575
Current portion of long-term debt 4,750 8,275
Long-term debt 15,939 11,300
Xcel Term Loan    
Debt Instrument [Line Items]    
Term Loan 20,000 15,500
Current portion of long-term debt 4,750 4,000
IM Seller Note    
Debt Instrument [Line Items]    
Seller Note 0 742
Current portion of long-term debt   740
Ripka Seller Note    
Debt Instrument [Line Items]    
Seller Note 0 583
Current portion of long-term debt   580
Halston Heritage    
Debt Instrument [Line Items]    
Contingent obligation 900 0
JR Seller    
Debt Instrument [Line Items]    
Contingent obligation 0 100
CW Seller    
Debt Instrument [Line Items]    
Contingent obligation $ 0 2,850
Contingent Obligations    
Debt Instrument [Line Items]    
Current portion of long-term debt   $ 2,950
v3.19.3
Debt and Contingent Obligations - Maturity of Long Term Debt (Details) - Secured Debt
$ in Thousands
Sep. 30, 2019
USD ($)
June 30, 2019 – September 30, 2020 | Term Loan A  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans $ 1,000
December 31, 2020 | Term Loan A  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans 1,250
March 31, 2020 – September 30, 2020 | Term Loan B  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans 250
March 31, 2021 – December 30, 2022 | Term Loan B  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans 1,125
March 31, 2023 – December 31, 2023 | Term Loan B  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans $ 1,250
v3.19.3
Nature of Operations, Background, and Basis of Presentation (Policies)
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Reclassifications
Reclassifications

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income, stockholders’ equity, or cash flows as previously reported.
Recently Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update ("ASU") 2016-02 effective January 1, 2019, by applying the new guidance under the additional and alternative transition method allowed by ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. The standard had a material impact on the Company’s unaudited condensed consolidated balance sheet but did not have an impact on the Company’s unaudited condensed consolidated statement of operations. As of January 1, 2019, the adoption resulted in the recognition of operating lease right-of-use ("ROU") assets of approximately $10.4 million, lease liabilities of approximately $13.2 million, and a decrease of approximately $2.8 million in accrued rent.

The Company elected the available practical expedients under Accounting Standards Codification ("ASC") 842-10-15-37 (thereby not separating lease components from non-lease components and instead accounting for all components as a single lease component) and ASC 842-10-65-1 (thereby, among other things, not reassessing lease classification), and implemented changes to its processes and methodologies related to leases to enable the preparation of financial information on adoption and to allow for the correct identification, classification, and measurement of leases in accordance with the new guidance going forward.

The adoption of the standard related to leases had no impact on cash from or used in operating, financing, or investing activities in the Company's unaudited condensed consolidated statements of cash flows.

The Company determines if an arrangement is a lease at inception. Operating leases are included in ROU assets and operating lease liabilities (current and non-current) in the Company’s unaudited condensed consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of the remaining lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company may use the implicit rate when readily determinable. Operating lease ROU assets also include scheduled lease payments made and initial direct costs, and exclude lease incentives and accrued rent. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

For real estate leases of office space, the Company accounts for the lease and non-lease components as a single lease component.

Variable lease payments that do not depend on an index or rate (such as real estate taxes and building insurance and lessee’s shares thereof), if any, are excluded from lease payments at lease commencement date for initial measurement. Subsequent to initial measurement, these variable payments are recognized when the event determining the amount of variable consideration to be paid occurs.

For leases with a term of 12 months or less, the Company does not recognize lease liabilities and ROU assets, but recognizes the lease payments in net income on a straight-line basis over the respective lease terms.

The Company recognizes income from subleases (in which the Company is the sublessor) on a straight-line basis over the term of the sublease, as a reduction to lease expense.
v3.19.3
Earnings Per Share
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
Earnings Per Share
Earnings Per Share
Basic earnings 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.
 
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Basic
 
18,975,265

 
18,266,202

 
18,839,424

 
18,304,608

Effect of exercise of warrants
 

 
841

 
725

 
866

Effect of exercise of stock options
 

 

 

 
5,180

Diluted
 
18,975,265

 
18,267,043

 
18,840,149

 
18,310,654


As a result of the net loss presented for the current quarter, the Company calculated diluted earnings per share using basic weighted average shares outstanding for such period, as utilizing diluted shares would be anti-dilutive to loss per share.
The computation of diluted EPS excludes the following potentially dilutive securities because their inclusion would be anti-dilutive:
 
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Stock options and warrants
 
8,469,440

 
4,491,024

 
8,419,375

 
4,491,024

v3.19.3
Significant Contracts
9 Months Ended
Sep. 30, 2019
Significant Contracts [Abstract]  
Significant Contracts
Significant Contracts
QVC Agreements
Under the Company’s agreements with QVC, QVC is required to pay the Company fees based primarily on a percentage of its net sales of Isaac Mizrahi, Ripka, and H Halston branded merchandise. QVC royalty revenue represents a significant portion of the Company’s total revenues.

Total revenues from QVC totaled $5.16 million and $6.42 million for the current and prior year quarter, respectively, representing approximately 47% and 78% of the Company’s total net revenues for the current and prior year quarter, respectively.
Total revenues from QVC totaled $17.96 million and $19.90 million for the current and prior year nine months, respectively, representing approximately 59% and 78% of the Company’s total net revenues for the current and prior year nine months, respectively.
As of September 30, 2019, and December 31, 2018, the Company had receivables from QVC of $5.30 million and $5.68 million, respectively, representing approximately 53% and 52% of the Company’s total receivables, respectively.
v3.19.3
Leases - Additional Information (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2019
Sep. 30, 2018
Lessee, Lease, Description [Line Items]      
Lease expense included in selling, general and administrative expenses $ 0.4 $ 1.2 $ 1.1
Weighted average remaining lease term for operating leases 6 years 11 months 20 days 6 years 11 months 20 days  
Weighted average discount rate for operating lease (as percent) 6.30% 6.30%  
Cash payments for operating lease expense $ 0.6 $ 1.8  
Minimum      
Lessee, Lease, Description [Line Items]      
Remaining lease term   2 years  
Maximum      
Lessee, Lease, Description [Line Items]      
Remaining lease term   8 years  
v3.19.3
Debt and Contingent Obligations - Schedule of Fixed Charge Coverage Ratios and Leverage Ratios (Details) - Secured Debt - Second Amended And Restated Loan And Security Agreement
Sep. 30, 2019
December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020  
Debt Instrument [Line Items]  
Fixed charge coverage ratio required to meet loan covenant 1.05
December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and thereafter  
Debt Instrument [Line Items]  
Fixed charge coverage ratio required to meet loan covenant 1.10
December 31, 2018  
Debt Instrument [Line Items]  
Leverage ratio required for loan covenant 2.90
December 31, 2019, March 31, 2020, June 30, 2020, and September 30, 2020  
Debt Instrument [Line Items]  
Leverage ratio required for loan covenant 2.40
December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021  
Debt Instrument [Line Items]  
Leverage ratio required for loan covenant 1.70
December 31, 2021 and each Fiscal Quarter end thereafter  
Debt Instrument [Line Items]  
Leverage ratio required for loan covenant 1.50
v3.19.3
Trademarks and Other Intangibles - Schedule of Assets (Details) - USD ($)
$ in Thousands
9 Months Ended 12 Months Ended
Sep. 30, 2019
Dec. 31, 2018
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount, Total $ 123,709 $ 112,921
Accumulated Amortization 6,362 3,932
Net Carrying Amount, Total $ 117,347 $ 108,989
Trademarks    
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Weighted Average Amortization Period 15 years 15 years
Gross Carrying Amount (definite-lived) $ 15,463 $ 15,463
Accumulated Amortization 4,294 3,521
Net Carrying Amount $ 11,169 $ 11,942
Other intellectual property    
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Weighted Average Amortization Period 7 years 7 years
Gross Carrying Amount (definite-lived) $ 762 $ 561
Accumulated Amortization 400 321
Net Carrying Amount $ 362 $ 240
Copyrights and other intellectual property    
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Weighted Average Amortization Period 10 years 10 years
Gross Carrying Amount (definite-lived) $ 190 $ 190
Accumulated Amortization 105 90
Net Carrying Amount $ 85 100
Customer list    
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Weighted Average Amortization Period 5 years  
Gross Carrying Amount (definite-lived) $ 200  
Accumulated Amortization 27  
Net Carrying Amount 173  
Trademarks    
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount (indefinite-lived) $ 69,100 $ 96,707
Halston Heritage | Trademarks    
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Weighted Average Amortization Period 18 years  
Gross Carrying Amount (definite-lived) $ 37,994  
Accumulated Amortization 1,536  
Net Carrying Amount $ 36,458  
v3.19.3
Leases (Tables)
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Maturities of Lease Liabilities
As of September 30, 2019, the maturities of lease liabilities were as follows:
($ in thousands)
 
Remainder of 2019
$
612

2020
2,423

2021
2,577

2022
1,732

2023
1,553

After 2023
5,950

Total lease payments
14,847

Less: Discount
2,894

Present value of lease liabilities
11,953

Current portion of lease liabilities
1,732

Non-current portion of lease liabilities
$
10,221

v3.19.3
Stockholders' Equity - Summary of Restricted Stock Activity (Details) - Restricted Stock
9 Months Ended
Sep. 30, 2019
$ / shares
shares
Number of Restricted Shares  
Outstanding, beginning balance (in shares) | shares 1,460,210
Granted (in shares) | shares 60,000
Canceled (in shares) | shares 0
Vested (in shares) | shares (121,000)
Expired/Forfeited (in shares) | shares 0
Outstanding, ending balance (in shares) | shares 1,399,210
Weighted Average Grant Date Fair Value  
Outstanding, beginning balance (in dollars per share) | $ / shares $ 4.82
Granted (in dollars per share) | $ / shares 1.70
Canceled (in dollars per share) | $ / shares 0.00
Vested (in dollars per share) | $ / shares 5.24
Expired/Forfeited (in dollars per share) | $ / shares 0.00
Outstanding, ending balance (in dollars per share) | $ / shares $ 4.65
v3.19.3
Related Party Transactions (Details) - USD ($)
3 Months Ended 9 Months Ended 18 Months Ended
Oct. 26, 2018
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Related Party Transaction [Line Items]            
Price for common shares of Xcel (in dollars per share)       $ 0.00    
Revenue recorded from at-will-license   $ 10,932,000 $ 8,267,000 $ 30,371,000 $ 25,520,000  
Benjamin Malka            
Related Party Transaction [Line Items]            
Price for common shares of Xcel (in dollars per share) $ 7.00          
Design fees due in the second year       2,400,000    
Design fees due in the third year       2,400,000    
Design fees due in the fourth year       2,400,000    
Halston Operating Company, LLC            
Related Party Transaction [Line Items]            
Revenue recorded from at-will-license   $ 0 $ 590,000 $ 0 $ 1,810,000  
H Halston | Benjamin Malka            
Related Party Transaction [Line Items]            
Percentage of royalties 50.00%          
Multiplying factor   400.00%   400.00%    
Highline Collective | Benjamin Malka            
Related Party Transaction [Line Items]            
Percentage of royalties 25.00%          
Subsequent Developed Brand | Benjamin Malka            
Related Party Transaction [Line Items]            
Percentage of royalties 20.00%          
Private Label Brand | Benjamin Malka            
Related Party Transaction [Line Items]            
Percentage of royalties 10.00%          
Halston Operating Company | Benjamin Malka            
Related Party Transaction [Line Items]            
Design fees           $ 1,200,000
Design fees due in the first year       $ 2,400,000    
Receivable from related party   $ 0   $ 0   $ 1,500,000
House Of Halston LLC | Director            
Related Party Transaction [Line Items]            
Ownership Percentage in HOH   25.00%   25.00%    
v3.19.3
Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized (in shares) 1,000,000 1,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares) 50,000,000 50,000,000
Common stock, shares issued (in shares) 18,958,247 18,138,616
Common stock, shares outstanding (in shares) 18,958,247 18,138,616
v3.19.3
Nature of Operations, Background, and Basis of Presentation
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
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, 2018 (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 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. 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, 2018, as filed with the SEC on April 1, 2019. 
The Company is a media and consumer products company engaged in the design, production, marketing, wholesale, and direct-to-consumer sales of branded apparel, footwear, accessories, jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Xcel was founded by Robert W. D'Loren in 2011 with a vision to reimagine shopping, entertainment, and social as one. The Company owns and manages the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the Judith Ripka brands (the "Ripka Brand"), the Halston brands ("Halston Brand"), the C Wonder brands (the "C Wonder Brand"), and other proprietary brands, pioneering a ubiquitous sales strategy which includes the promotion and sales of products under its brands through interactive television, internet, brick-and-mortar retail, and e-commerce channels. Headquartered in New York City, Xcel is led by an executive team with significant production, merchandising, design, marketing, retailing and licensing experience, and a proven track record of success in elevating branded consumer product companies. With an experienced team of professionals focused on design, production, and digital marketing, Xcel maintains control of product quality and promotion across all of its product categories and distribution channels.
Reclassifications

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income, stockholders’ equity, or cash flows as previously reported.
Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update ("ASU") 2016-02 effective January 1, 2019, by applying the new guidance under the additional and alternative transition method allowed by ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. The standard had a material impact on the Company’s unaudited condensed consolidated balance sheet but did not have an impact on the Company’s unaudited condensed consolidated statement of operations. As of January 1, 2019, the adoption resulted in the recognition of operating lease right-of-use ("ROU") assets of approximately $10.4 million, lease liabilities of approximately $13.2 million, and a decrease of approximately $2.8 million in accrued rent.

The Company elected the available practical expedients under Accounting Standards Codification ("ASC") 842-10-15-37 (thereby not separating lease components from non-lease components and instead accounting for all components as a single lease component) and ASC 842-10-65-1 (thereby, among other things, not reassessing lease classification), and implemented changes to its processes and methodologies related to leases to enable the preparation of financial information on adoption and to allow for the correct identification, classification, and measurement of leases in accordance with the new guidance going forward.

The adoption of the standard related to leases had no impact on cash from or used in operating, financing, or investing activities in the Company's unaudited condensed consolidated statements of cash flows.

The Company determines if an arrangement is a lease at inception. Operating leases are included in ROU assets and operating lease liabilities (current and non-current) in the Company’s unaudited condensed consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of the remaining lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company may use the implicit rate when readily determinable. Operating lease ROU assets also include scheduled lease payments made and initial direct costs, and exclude lease incentives and accrued rent. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

For real estate leases of office space, the Company accounts for the lease and non-lease components as a single lease component.

Variable lease payments that do not depend on an index or rate (such as real estate taxes and building insurance and lessee’s shares thereof), if any, are excluded from lease payments at lease commencement date for initial measurement. Subsequent to initial measurement, these variable payments are recognized when the event determining the amount of variable consideration to be paid occurs.

For leases with a term of 12 months or less, the Company does not recognize lease liabilities and ROU assets, but recognizes the lease payments in net income on a straight-line basis over the respective lease terms.

The Company recognizes income from subleases (in which the Company is the sublessor) on a straight-line basis over the term of the sublease, as a reduction to lease expense.