Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2020

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)

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

 

 

 

 

 

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

XELB

 

NASDAQ Global Market

 

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         No   

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No   

 

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

 

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company   

 

Emerging growth company   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

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

 

As of May 7, 2020, there were 19,047,561 shares of common stock, $.001 par value per share, of the issuer outstanding.

 

 

 

 

Table of Contents

XCEL BRANDS, INC.

INDEX

 

a

 

 

 

Page

 

 

 

PART I - FINANCIAL INFORMATION 

3

 

 

 

Item 1. 

Financial Statements

3

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

5

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows

6

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4. 

Controls and Procedures

27

 

 

 

PART II - OTHER INFORMATION 

27

 

 

 

Item 1. 

Legal Proceedings

27

 

 

 

Item 1A. 

Risk Factors

27

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

Item 3. 

Defaults Upon Senior Securities

28

 

 

 

Item 4. 

Mine Safety Disclosures

28

 

 

 

Item 5. 

Other Information

28

 

 

 

Item 6. 

Exhibits

29

 

 

 

 

Signatures

30

 

2

Table of Contents

PART 1. FINANCIAL INFORMATION

 

ITEM 1.    FINANCIAL STATEMENTS

 

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

 

 

(Unaudited)

 

(Note 1)

Assets

 

 

  

 

 

  

Current Assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

4,246

 

$

4,641

Accounts receivable, net

 

 

8,843

 

 

10,622

Inventory

 

 

788

 

 

899

Prepaid expenses and other current assets

 

 

1,433

 

 

1,404

Total current assets

 

 

15,310

 

 

17,566

Property and equipment, net

 

 

4,107

 

 

3,666

Operating lease right-of-use assets

 

 

8,913

 

 

9,250

Trademarks and other intangibles, net

 

 

109,955

 

 

111,095

Restricted cash

 

 

1,109

 

 

1,109

Other assets

 

 

490

 

 

505

Total non-current assets

 

 

124,574

 

 

125,625

 

 

 

 

 

 

 

Total Assets

 

$

139,884

 

$

143,191

 

 

 

 

 

 

 

Liabilities and Equity

 

 

  

 

 

  

Current Liabilities:

 

 

  

 

 

  

Accounts payable, accrued expenses and other current liabilities

 

$

3,747

 

$

4,391

Accrued payroll

 

 

365

 

 

1,444

Current portion of operating lease obligation

 

 

1,800

 

 

1,752

Current portion of long-term debt

 

 

3,375

 

 

2,250

Total current liabilities

 

 

9,287

 

 

9,837

Long-Term Liabilities:

 

 

  

 

 

  

Long-term portion of operating lease obligation

 

 

9,297

 

 

9,773

Long-term debt, less current portion

 

 

15,471

 

 

16,571

Contingent obligation

 

 

900

 

 

900

Deferred tax liabilities, net

 

 

6,882

 

 

7,434

Other long-term liabilities

 

 

224

 

 

224

Total long-term liabilities

 

 

32,774

 

 

34,902

Total Liabilities

 

 

42,061

 

 

44,739

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

  

 

 

  

 

 

 

 

 

 

 

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 March 31, 2020 and December 31, 2019, respectively, and 19,047,561 and 18,866,417 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

19

 

 

19

Paid-in capital

 

 

101,945

 

 

101,736

Accumulated deficit

 

 

(4,464)

 

 

(3,659)

Total Xcel Brands, Inc. stockholders' equity

 

 

97,500

 

 

98,096

Noncontrolling interest

 

 

323

 

 

356

Total Equity

 

 

97,823

 

 

98,452

 

 

 

 

 

 

 

Total Liabilities and Equity

 

$

139,884

 

$

143,191

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

3

Table of Contents

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

Revenues

 

 

  

 

 

  

 

Net licensing revenue

 

$

5,641

 

$

7,863

 

Net sales

 

 

3,886

 

 

2,438

 

Net revenue

 

 

9,527

 

 

10,301

 

Cost of goods sold (sales)

 

 

2,400

 

 

1,832

 

Gross profit

 

 

7,127

 

 

8,469

 

 

 

 

 

 

 

 

 

Operating costs and expenses

 

 

  

 

 

  

 

Salaries, benefits and employment taxes

 

 

3,948

 

 

4,145

 

Other design and marketing costs

 

 

992

 

 

758

 

Other selling, general and administrative expenses

 

 

1,737

 

 

1,590

 

Stock-based compensation

 

 

243

 

 

347

 

Depreciation and amortization

 

 

1,303

 

 

948

 

Total operating costs and expenses

 

 

8,223

 

 

7,788

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(1,096)

 

 

681

 

 

 

 

 

 

 

 

 

Interest and finance expense

 

 

  

 

 

  

 

Interest expense - term debt

 

 

288

 

 

264

 

Other interest and finance charges

 

 

 6

 

 

26

 

Loss on extinguishment of debt

 

 

 —

 

 

189

 

Total interest and finance expense

 

 

294

 

 

479

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

 

(1,390)

 

 

202

 

 

 

 

 

 

 

 

 

Income tax (benefit) provision

 

 

(552)

 

 

75

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

(838)

 

 

127

 

Less: Net loss attributable to noncontrolling interest

 

 

(33)

 

 

 —

 

Net (loss) income attributable to Xcel Brands, Inc. stockholders

 

$

(805)

 

$

127

 

 

 

 

 

 

 

 

 

(Loss) earnings per share attributable to Xcel Brands, Inc. common stockholders:

 

 

  

 

 

  

 

Basic net (loss) income per share:

 

$

(0.04)

 

$

0.01

 

Diluted net (loss) income per share:

 

$

(0.04)

 

$

0.01

 

Weighted average number of common shares outstanding:

 

 

  

 

 

  

 

Basic weighted average common shares outstanding

 

 

18,870,398

 

 

18,562,073

 

Diluted weighted average common shares outstanding

 

 

18,870,398

 

 

18,562,763

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

4

Table of Contents

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2020 and 2019

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Xcel Brands, Inc. stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

Paid-In

 

Accumulated

 

Noncontrolling

 

Total

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Interest

 

Equity

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

18,866,417

 

$

19

 

$

101,736

 

$

(3,659)

 

$

356

 

$

98,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to employees in connection with stock grants for bonus payments

 

336,700

 

 

 —

 

 

220

 

 

 —

 

 

 —

 

 

220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased from employees in exchange for withholding taxes

 

(155,556)

 

 

 —

 

 

(102)

 

 

 —

 

 

 —

 

 

(102)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense in connection with stock options and restricted stock

 

 —

 

 

 —

 

 

91

 

 

 —

 

 

 —

 

 

91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(805)

 

 

(33)

 

 

(838)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2020

 

19,047,561

 

$

19

 

$

101,945

 

$

(4,464)

 

$

323

 

$

97,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

5

Table of Contents

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 

 

    

2020

    

2019

Cash flows from operating activities

 

 

  

 

 

  

Net (loss) income

 

$

(838)

 

$

127

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

  

Depreciation and amortization expense

 

 

1,303

 

 

948

Amortization of deferred finance costs

 

 

25

 

 

34

Stock-based compensation

 

 

243

 

 

347

Amortization of note discount

 

 

 —

 

 

16

Allowance for doubtful accounts

 

 

211

 

 

 —

Loss on extinguishment of debt

 

 

 —

 

 

189

Deferred income tax (benefit) provision

 

 

(552)

 

 

75

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

1,568

 

 

1,035

Inventory

 

 

111

 

 

571

Prepaid expenses and other assets

 

 

(13)

 

 

(492)

Accounts payable, accrued expenses and other current liabilities

 

 

(1,656)

 

 

(1,331)

Cash paid in excess of rent expense

 

 

(91)

 

 

(91)

Other liabilities

 

 

 —

 

 

(196)

Net cash provided by operating activities

 

 

311

 

 

1,232

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

  

 

 

  

Cash consideration for acquisition of Halston Heritage assets

 

 

 —

 

 

(8,830)

Purchase of property and equipment

 

 

(604)

 

 

(282)

Net cash used in investing activities

 

 

(604)

 

 

(9,112)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

  

 

 

  

Shares repurchased including vested restricted stock in exchange for withholding taxes

 

 

(102)

 

 

 —

Payment of deferred finance costs

 

 

 —

 

 

(286)

Proceeds from long-term debt

 

 

 —

 

 

7,500

Payment of long-term debt

 

 

 —

 

 

(1,742)

Net cash (used in) provided by financing activities

 

 

(102)

 

 

5,472

 

 

 

 

 

 

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(395)

 

 

(2,408)

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

5,750

 

 

10,319

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash at end of period

 

$

5,355

 

$

7,911

 

 

 

 

 

 

 

Reconciliation to amounts on consolidated balance sheets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

4,246

 

$

6,802

Restricted cash

 

 

1,109

 

 

1,109

Total cash, cash equivalents, and restricted cash

 

$

5,355

 

$

7,911

 

 

 

 

 

 

 

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

Issuance of common stock in connection with Halston Heritage assets acquisition

 

$

 —

 

$

1,058

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

 

$

 —

 

$

900

Liability for equity-based bonuses

 

$

(68)

 

$

 —

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

  

 

 

  

Cash paid during the period for income taxes

 

$

17

 

$

10

Cash paid during the period for interest

 

$

290

 

$

458

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

6

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

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

The accompanying condensed consolidated balance sheet as of December 31, 2019 (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, 2019, as filed with the SEC on April 14, 2020.

The Company is a media and consumer products company engaged in the design, production, marketing, wholesale distribution, 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. The Company has developed a design, production, and supply chain capability driven by its proprietary integrated technology platform. Currently, the Company’s brand portfolio consists of the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the Judith Ripka brands (the "Ripka Brand"), the Halston brands (the "Halston Brands"), the C Wonder brands (the "C Wonder Brand"), and other proprietary brands. The Company also manages the Longaberger brand (“the Longaberger Brand”) through its 50% ownership interest in Longaberger Licensing, LLC. The Company designs, produces, markets, and distributes products, and in certain cases, licenses its brands to third parties, and generates licensing fees. The Company and its licensees distribute through a ubiquitous-channel retail sales strategy, which includes distribution through interactive television, the internet, and traditional brick-and-mortar retail channels.

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update ("ASU") No. 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” effective January 1, 2020. This ASU adds, modifies, and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” The adoption of this new guidance did not have any impact on the Company’s results of operations, cash flows, and financial condition.

 

7

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

2. Trademarks and Other Intangibles

Trademarks and other intangibles, net consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

 

 

Average

 

March 31, 2020

 

 

Amortization

 

Gross Carrying

 

Accumulated

 

Net Carrying

($ in thousands)

 

Period

 

Amount

 

Amortization

 

Amount

Trademarks (indefinite-lived)

 

n/a

 

$

44,500

 

$

 —

 

$

44,500

Trademarks (finite-lived)

 

15 years

 

 

34,613

 

 

5,137

 

 

29,476

Trademarks (finite-lived)

 

18 years

 

 

38,194

 

 

2,598

 

 

35,596

Other intellectual property

 

7 years

 

 

762

 

 

455

 

 

307

Copyrights and other intellectual property

 

10 years

 

 

190

 

 

114

 

 

76

Total

 

 

 

$

118,259

 

$

8,304

 

$

109,955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

 

 

Average

 

December 31, 2019

 

 

Amortization

 

Gross Carrying

 

Accumulated

 

Net Carrying

($ in thousands)

 

Period

 

Amount

 

Amortization

 

Amount

Trademarks (indefinite-lived)

 

n/a

 

$

62,900

 

$

 —

 

$

62,900

Trademarks (finite-lived)

 

15 years

 

 

16,213

 

 

4,560

 

 

11,653

Trademarks (finite-lived)

 

18 years

 

 

38,194

 

 

2,067

 

 

36,127

Other intellectual property

 

7 years

 

 

762

 

 

428

 

 

334

Copyrights and other intellectual property

 

10 years

 

 

190

 

 

109

 

 

81

Total

 

  

 

$

118,259

 

$

7,164

 

$

111,095

 

Amortization expense for intangible assets was approximately $1.14 million for the three-month period ended March 31, 2020 (the "current quarter") and was approximately $0.77 million for the three-month period ended March 31, 2019 (the "prior year quarter").

Effective January 1, 2020, the Company determined that the Ripka Brand, inclusive of all its trademarks, has a finite life of 15 years, and is amortized on a straight-line basis accordingly. Prior to January 1, 2020, the Ripka Brand trademarks were considered indefinite-lived assets.

The trademarks related to the Isaac Mizrahi Brand have been determined to have indefinite useful lives and, accordingly, no amortization has been recorded for these assets.

3. 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 $4.69 million and $6.86 million for the current and prior year quarter, respectively, representing approximately 49% and 82% of the Company’s total net revenues for the current and prior year quarter, respectively.

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

·

As of March 31, 2020 and December 31, 2019, the Company had receivables from QVC of $4.59 million and $4.33 million, respectively, representing approximately 52% and 41% of the Company’s total receivables, respectively.

 

4. 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 approximately 2 years to 8 years.  

Under GAAP, a lessee is generally required to recognize a liability for its obligation to make future lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying leased asset for the lease term.  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 sheets. 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.

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 generally uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. 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.

As of March 31, 2020, the weighted average remaining operating lease term was 6.6 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 both the current and prior year quarter was $0.6 million.

As of March 31, 2020, the maturities of lease liabilities were as follows:

 

 

 

 

 

($ in thousands)

    

 

 

Remainder of 2020

 

$

1,817

2021

 

 

2,577

2022

 

 

1,732

2023

 

 

1,552

2024

 

 

1,552

After 2024

 

 

4,398

Total lease payments

 

 

13,628

Less: Discount

 

 

2,531

Present value of lease liabilities

 

 

11,097

Current portion of lease liabilities

 

 

1,800

Non-current portion of lease liabilities

 

$

9,297

 

 

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

5. Debt and Contingent Obligation

Debt

 

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

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

($ in thousands)

    

2020

    

2019

 

Xcel Term Loan

 

$

19,000

 

$

19,000

 

Unamortized deferred finance costs related to term loan

 

 

(154)

 

 

(179)

 

Total

 

 

18,846

 

 

18,821

 

Current portion of long-term debt

 

 

3,375

 

 

2,250

 

Long-term debt

 

$

15,471

 

$

16,571

 

 

On February 11, 2019, the Company entered into an amended loan agreement with Bank Hapoalim B.M. (“BHI”), which amended and restated the prior Xcel Term Loan. Immediately prior to February 11, 2019, the aggregate principal amount of the prior Xcel Term Loan was $14.5 million. Pursuant to the Xcel Term Loan agreement, the Lenders extended to Xcel an additional term loan 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 was $22.0 million, which amount has been divided under the Xcel Term Loan agreement 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 terms and conditions of the Xcel Term Loan resulted in significantly different debt service payment requirements compared with the prior term debt with BHI. 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 prior year quarter. Upon entering into the 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.

On April 13, 2020, the Company further amended its Second Amended and Restated Loan and Security Agreement with BHI. Under this amendment, the quarterly installment payment due March 31, 2020 was deferred, and the amounts of the quarterly installment payments due throughout the remainder of 2020 were reduced, while the amount of principal to be repaid through variable payments based on excess cash flow was increased. In addition, there were multiple changes and waivers to the various financial covenants. Further, this amendment permits Xcel to incur unsecured debt through the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and excludes any associated PPP debt and debt service from the covenant calculations. There were no changes to the total principal balance, interest rate, or maturity date.

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.

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

Principal on the Xcel Term Loan, as amended, is payable in fixed installments as follows:

 

 

 

 

 

($ in thousands)

Installment Payment Dates

    

Amount

June 30, 2020, September 30, 2020, and December 31, 2020

 

$

750

 

 

 

 

March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021

 

$

1,125

 

 

 

 

April 30, 2021

 

$

750

 

 

 

 

March 31, 2022, June 30, 2022, September 30, 2022, and December 31, 2022

 

$

1,125

 

 

 

 

March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023

 

$

1,250

 

In addition to the fixed installments outlined above, commencing with the fiscal quarter ended March 31, 2021, the Company is required to repay a portion of the Xcel Term Loan in an amount equal to 50% of the excess cash flow for the fiscal quarter, 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. To the extent that the cumulative amount of such variable repayments made is less than $2.00 million as of March 31, 2022, any such shortfall must be repaid at that date.

Thus, the aggregate remaining annual principal payments under the Xcel Term Loan are as follows:

 

 

 

 

 

 

 

Amount of

($ in thousands)

 

Principal

Year Ending December 31, 

    

Payment

2020

 

$

2,250

2021

 

 

5,250

2022

 

 

6,500

2023

 

 

5,000

Total

 

$

19,000

 

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

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

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.

Notwithstanding the above, Xcel may make a voluntary prepayment of up to $0.75 million without any early termination fees. Any such prepayment would be applied against the April 30, 2021 fixed installment payment and would be excluded from the computation of excess cash flows.

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 $3.25 million through the earlier of December 31, 2020 or such time as any PPP loan proceeds are received by the Company, at least $4.0 million through December 31, 2020 provided that PPP loan proceeds have been received by the Company, and at least $5.0 million thereafter;

·

EBITDA shall not be less than $5.0 million for the twelve fiscal month period ended March 31, 2020, and $4.8 million for the twelve fiscal month period ending June 30, 2020;

·

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:

 

 

 

 

Fiscal Quarter End

    

Fixed Charge Coverage Ratio

September 30, 2020

 

1.00 to 1.00

December 31, 2020, and thereafter

 

1.10 to 1.00

 

·

capital expenditures (excluding any capitalized compensation costs) shall not exceed $1.6 million for the fiscal year ending December 31, 2020, and $0.7 million for any fiscal year beginning after December 31, 2020; and

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

·

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, 2019

 

2.90 to 1.00

June 30, 2020

 

4.25 to 1.00

September 30, 2020

 

3.50 to 1.00

December 31, 2020

 

2.75 to 1.00

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 March 31, 2020.

For the current and prior year quarter, the Company incurred aggregate interest expense related to term loan debt of approximately $288,000 and $260,000, respectively.

Contingent Obligation 

In connection with the February 11, 2019 purchase of the Halston Heritage Trademarks from the H Company IP, LLC (“HIP”), the Company agreed to pay HIP additional consideration (the “Halston Heritage Earn-Out”) of up to an aggregate of $6.0 million, based on royalties earned through December 31, 2022. The Halston Heritage Earn-Out of $0.9 million is recorded as a  long-term liability at March 31, 2020 and December 31, 2019 in the accompanying condensed consolidated balance sheets, 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 Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity,” 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.

 

6.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

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

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 Company recognizes compensation cost for grants to non-employees on a straight-line basis over the period of the grant.

For stock option awards for which vesting is contingent upon the achievement of certain performance targets, the timing and amount of compensation expense recognized is based upon the Company’s projections and estimates of the relevant performance metric(s) until the time the performance obligation is satisfied.

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.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted

 

Remaining

 

 

 

 

 

 

 

Average

 

Contractual

 

Aggregate

 

 

Number of

 

Exercise

 

Life

 

Intrinsic

 

    

Options

    

Price

    

(in Years)

    

Value

Outstanding at January 1, 2020

 

7,222,625

 

$

3.33

 

5.82

 

$

 —

Granted

 

230,000

 

 

2.23

 

  

 

 

  

Canceled

 

 —

 

 

 —

 

  

 

 

  

Exercised

 

 —

 

 

 —

 

  

 

 

  

Expired/Forfeited

 

(121,000)

 

 

1.81

 

  

 

 

  

Outstanding at March 31, 2020, and expected to vest

 

7,331,625

 

$

3.32

 

5.57

 

$

 —

Exercisable at March 31, 2020

 

2,940,125

 

$

5.04

 

1.87

 

$

 —

 

On January 1, 2020, the Company granted options to purchase 5,000 shares of stock to a board observer. The exercise price of the options is $4.00 per share, and 50% of the options vest on each of January 1, 2021 and January 1, 2022.

On January 31, 2020, the Company granted options to purchase 75,000 shares of stock to a consultant. The exercise price of the options is $1.57 per share, and all options vested immediately on the date of grant.

On February 28, 2020, the Company granted options to purchase 50,000 shares of common stock to an employee. The exercise price is $1.40 per share, and the vesting of such options is dependent upon the Company achieving certain 12-month sales targets through December 31, 2021.

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

On March 13, 2020, 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 March 31, 2020, the Company granted options to purchase 50,000 shares of common stock to an employee. The exercise price of the options is $0.61 per share, and one-third of the options shall vest on each of March 31, 2021, March 31, 2021, and March 31, 2022.

Compensation expense related to stock options for the current quarter and the prior year quarter was approximately $68,000 and $243,000, respectively. Total unrecognized compensation expense related to unvested stock options at March 31, 2020 amounts to approximately $276,000 and is expected to be recognized over a weighted average period of approximately 1.71 years.

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

 

 

 

 

 

 

 

 

    

 

    

Weighted

 

 

 

 

 Average 

 

 

Number of

 

Grant Date 

 

    

Options

    

Fair Value

Balance at January 1, 2020

 

4,551,500

 

$

0.18

Granted

 

230,000

 

 

0.17

Vested

 

(275,000)

 

 

0.70

Forfeited or Canceled

 

(115,000)

 

 

0.34

Balance at March 31, 2020

 

4,391,500

 

$

0.15

 

Warrants

Warrants expire at various times - either five or ten years from the date of grant, depending on the particular grant.

A summary of the Company’s warrants activity for the current quarter is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted

 

Remaining

 

 

 

 

 

 

 

Average

 

Contractual

 

Aggregate

 

 

Number of

 

Exercise

 

Life

 

Intrinsic

 

    

Warrants

    

Price

    

(in Years)

    

Value

Outstanding and exercisable at January 1, 2020

 

579,815

 

$

4.63

 

2.32

 

$

 —

Granted

 

 —

 

 

 —

 

 

 

 

  

Canceled

 

 —

 

 

 —

 

 

 

 

  

Exercised

 

 —

 

 

 —

 

 

 

 

  

Expired/Forfeited

 

 —

 

 

 —

 

 

 

 

  

Outstanding and exercisable at March 31, 2020

 

579,815

 

$

4.63

 

2.07

 

$

 —

 

No compensation expense was recognized in the current quarter or prior year quarter related to warrants.

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

Stock Awards

A summary of the Company’s restricted stock activity for the current quarter is as follows:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Number of

 

Average

 

 

Restricted

 

Grant Date

 

    

Shares

    

Fair Value

Outstanding at January 1, 2020

 

1,230,623

 

$

4.33

Granted

 

336,700

 

 

0.65

Canceled

 

 —

 

 

 —

Vested

 

(657,298)

 

 

2.45

Expired/Forfeited

 

 —

 

 

 —

Outstanding at March 31, 2020

 

910,025

 

$

4.33

 

On March 30, 2020, the Company issued 336,700 shares of stock to a member of senior management as payment for a performance bonus earned in 2019. These shares vested immediately.

Compensation expense related to restricted stock grants for the current and prior year quarter was approximately $23,000 and $104,000, respectively. Total unrecognized compensation expense related to unvested restricted stock grants at March 31, 2020 amounts to approximately $43,000 and is expected to be recognized over a weighted average period of approximately 1.00 year.

The Company also recognized approximately $152,000 of compensation expense in the current quarter related to certain senior management bonuses payable in stock in 2021.

Shares Available Under the Company’s 2011 Equity Incentive Plan

As of March 31, 2020, there were 1,610,649 shares of common stock available for issuance under the Plan.

Shares Reserved for Issuance

As of March 31, 2020, there were 9,812,233 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.

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

 

7.    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

 

 

 

March 31, 

 

 

    

2020

    

2019

 

Basic

 

18,870,398

 

18,562,073

 

Effect of exercise of warrants

 

 —

 

690

 

Diluted

 

18,870,398

 

18,562,763

 

 

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

 

 

 

March 31, 

 

 

    

2020

    

2019

 

Stock options and warrants

 

7,911,440

 

4,862,525

 

 

 

8.    Income Tax

The effective income tax rate for the current quarter and the prior year quarter was approximately 40% and 37%, respectively, resulting in an income tax (benefit) provision of $(0.55) million and $0.08 million, respectively.

For the current quarter, the federal statutory rate differs from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 8% and 4%, respectively. The effective tax rate was also attributable to the tax impact of a potential federal net operating loss carryback due to the CARES Act.  This item increased the effective rate by 7%.

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 the effective tax rate by approximately 10% and 7%, respectively.

On March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act includes certain provisions impacting businesses’ income taxes related to 2018, 2019, and 2020. Some of the significant tax law changes are to increase the limitation on deductible business interest expense for 2019 and 2020, allow for the five-year carryback of net operating losses for 2018-2020, suspend the 80% limitation of taxable income for net operating loss carryforwards for 2018-2020, provide for the acceleration of depreciation expense from 2018 and forward on qualified improvement property, and accelerate the ability to claim refunds of AMT credit carryforwards. The Company is required to recognize the effect of tax law changes on its financial statements in the period in which the law was enacted. At this time, the Company may avail itself of the ability to carry back net operating losses generated in 2018 and 2019 tax years for five years, resulting in an estimated income statement benefit of $98,000 and tax refund receivable of $203,000.

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

9.    Related Party Transactions

Benjamin Malka

Benjamin Malka was a director of the Company from June 2014 through September 2019. Mr. Malka is also a  25% equity holder of HIP’s parent company, House of Halston LLC (“HOH”), and is the former Chief Executive Officer of HOH.

On February 11, 2019, the Company and its wholly owned subsidiary, H Heritage Licensing, LLC, entered into an asset purchase agreement (the "Heritage Asset Purchase Agreement") with HIP and 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.

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 considerations, 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 Date, 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.

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

10.    Commitments and Contingencies

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic, which continues to spread throughout the U.S. COVID-19 is having an unprecedented impact on the U.S. economy as federal, state, and local governments react to this public health crisis.

The impacts of the current COVID-19 pandemic are broad reaching and are having an impact on the Company’s licensing and wholesale businesses. The COVID-19 pandemic is impacting the Company’s supply chain as most of the Company’s products are manufactured in China, Thailand, and other places around the world affected by this event. Temporary factory closures and the pace of workers returning to work have impacted contract manufacturers’ ability to source certain raw materials and to produce finished goods in a timely manner. The outbreak is also impacting distribution and logistics providers' ability to operate in the normal course of business. Further, the pandemic has resulted in a sudden decrease in sales for many of the Company’s products, resulting in order cancelations.

Due to the COVID-19 outbreak, there is significant uncertainty surrounding the potential impact on the Company’s future results of operations and cash flows. Continued impacts of the pandemic could materially adversely affect the Company’s near-term and long-term revenues, earnings, liquidity, and cash flows as the Company’s customers and/or licensees may request temporary relief, delay, or not make scheduled payments.

11.    Subsequent Events

On April 13, 2020, the Company further amended its Second Amended and Restated Loan and Security Agreement with BHI. Under this amendment, the quarterly installment payment due March 31, 2020 was deferred, and the amounts of the quarterly installment payments due throughout the remainder of 2020 were reduced, while the amount of principal to be repaid through variable payments based on excess cash flow was increased. In addition, there were multiple changes and waivers to the various financial covenants. Further, this amendment permits Xcel to incur unsecured debt through the PPP under the CARES Act, and excludes any associated PPP debt and debt service from the covenant calculations. There were no changes to the total principal balance, interest rate, or maturity date. See Note 5, “Debt and Contingent Obligation,” for additional information.

On April 20, 2020, the Company executed a promissory note (the “Promissory Note”) with Bank of America, N.A., which provides for an unsecured loan in the amount of $1.8 million (the “PPP Loan”), pursuant to the PPP under the CARES Act. The PPP Loan has a two-year term and bears interest at a fixed rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. The PPP also provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The Company may apply for forgiveness of the PPP Loan upon application by the Company beginning 60 days but not later than 90 days after the PPP Loan is funded.  However, no assurance is provided that forgiveness for any portion of the PPP Loan will be obtained. The PPP Loan was funded on April 23, 2020.

 

 

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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, 2019. 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 distribution, 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"), and the C Wonder brands (the "C Wonder Brand”). The Company also owns and manages the Longaberger brand (the “Longaberger Brand”) through its controlling interest in Longaberger Licensing, LLC. The Company and its licensees distribute through a ubiquitous channel retail sales strategy which includes distribution through interactive television, the Internet and e-commerce, and traditional brick-and-mortar retail 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.

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 and/or licensing of our brands for sale 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;

·

wholesale distribution of our brands to retailers that sell to the end consumer;

·

distribution of our brands through our e-commerce sites directly to the end consumer; and

·

quickly integrate additional consumer brands into our operating platform and leverage our design, production, and marketing capabilities, and distribution relationships.

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

·

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

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·

our design, production, sales, marketing, and supply chain and integrated technology platform that enables us to design and distribute trend-right product; and

·

our significant media and internet presence and distribution.

We believe that our strategy distinguishes us from other brand management companies that rely primarily on their licensees for design, production, and distribution, and enables us to leverage the media reach of our interactive television partners, including through television, digital, and social media, to drive sales of products under our brands across multiple distribution channels. 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 relationships with leading retailers and interactive television companies and cable networks enable us to reach consumers in over 380 million homes worldwide and hundreds of millions of social media followers.

We believe our design, production and supply chain platform 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, design, production and supply chain platform, 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, and marketing capabilities, and distribution network.

Summary of Operating Results

Three months ended March 31, 2020 (the “current quarter”) compared with the three months ended March 31, 2019 (the “prior year quarter”)

Revenues

Current quarter net revenue decreased approximately $0.8 million to $9.5 million from $10.3 million for the prior year quarter.

Net licensing revenue decreased by approximately $2.3 million in the current quarter to $5.6 million, compared with $7.9 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 reduction in guaranteed minimum revenues from another of our existing licensing arrangements upon renewal effective January 1, 2020.

The decline in net licensing revenue was partially offset by growth in product sales, including our jewelry wholesale and e-commerce sales and apparel wholesale sales, which in total contributed approximately $3.9 million to net revenue in the current quarter, compared with $2.4 million in the prior year quarter. This increase in sales was primarily attributable to volume growth in our apparel wholesale business.

Cost of Goods Sold

Current quarter cost of goods sold was $2.4 million, compared with $1.8 million for the prior year quarter due to higher volume of wholesale and e-commerce sales in the current quarter. Gross profit (net revenue less cost of goods sold) decreased approximately $1.4 million to $7.1 million from $8.5 million in the prior year quarter,  primarily driven by the aforementioned decline in net licensing revenue.

Total gross profit margin decreased from 82% in the prior year quarter to 75% in the current quarter, reflecting the completed transition of portions of our business from a licensing model to a wholesale model. Gross profit margin from product sales increased from 25% in the prior year quarter to 38% in the current quarter as a result of achieving greater efficiencies and economies of scale.

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Operating Costs and Expenses

Operating costs and expenses increased approximately $0.4 million from $7.8 million in the prior year quarter to $8.2 million in the current quarter. Current quarter operating costs and expenses included higher depreciation and amortization expense, primarily due to the change in estimated life for the Judith Ripka trademarks, as well as $0.2 million of bad debt expense, and $0.08 million of costs incurred with a potential acquisition which was not consummated. These increases were partially offset by decreases in compensation costs (including stock-based compensation) as compared with the prior year quarter.

Interest and Finance Expense

Interest and finance expense for the current quarter was $0.29 million, compared with $0.48 million for the prior year quarter. The decrease from the prior year quarter is attributable to the fact that the prior year quarter includes a $0.19 million loss on extinguishment of debt as a result of the February 11, 2019 term loan amendment, with no such comparable extinguishment loss in the current quarter.

Income Tax (Benefit) Provision

The effective income tax rate for the current quarter and the prior year quarter was approximately 40% and 37%, respectively, resulting in an income tax (benefit) provision of $(0.55) million and $0.08 million, respectively.

For the current quarter, the federal statutory rate differs from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 8% and 4%, respectively. The effective tax rate was also attributable to the tax impact of a potential federal net operating loss carryback due to the CARES Act.  This item increased the effective rate by 7%.

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 the effective tax rate by approximately 10% and 7%, respectively.

Net (Loss) Income

We had a net loss of $(0.84) million for the current quarter, compared with net income of $0.13 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 $0.1 million, or $0.00 per diluted share (“non-GAAP diluted EPS”), for the current quarter and $1.5 million, or $0.08 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, 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 $0.6 million for the current quarter, compared with Adjusted EBITDA of $2.0 million for the prior year quarter. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) before depreciation and amortization, interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation, and 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

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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:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

($ in thousands)

    

2020

    

2019

Net (loss) income attributable to Xcel Brands, Inc. stockholders

 

$

(805)

 

$

127

Amortization of trademarks

 

 

1,108

 

 

737

Stock-based compensation

 

 

243

 

 

347

Non-cash interest and finance expense

 

 

 —

 

 

16

Loss on extinguishment of debt

 

 

 —

 

 

189

Costs in connection with potential acquisition

 

 

80

 

 

 —

Deferred income tax (benefit) provision

 

 

(552)

 

 

75

Non-GAAP net income

 

$

74

 

$

1,491

 

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

 

 

March 31, 

 

    

2020

    

2019

Diluted (loss) earnings per share

 

$

(0.04)

 

$

0.01

Amortization of trademarks

 

 

0.06

 

 

0.04

Stock-based compensation

 

 

0.01

 

 

0.02

Non-cash interest and finance expense

 

 

 —

 

 

 —

Loss on extinguishment of debt

 

 

 —

 

 

0.01

Costs in connection with potential acquisition

 

 

0.00

 

 

 —

Deferred income tax (benefit) provision

 

 

(0.03)

 

 

 —

Non-GAAP diluted EPS

 

$

0.00

 

$

0.08

Non-GAAP weighted average diluted shares

 

 

18,871,020

 

 

18,562,763

 

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

($ in thousands)

    

2020

    

2019

Net (loss) income attributable to Xcel Brands, Inc. stockholders

 

$

(805)

 

$

127

Depreciation and amortization

 

 

1,303

 

 

948

Interest and finance expense

 

 

294

 

 

479

Income tax (benefit) provision

 

 

(552)

 

 

75

State and local franchise taxes

 

 

38

 

 

38

Stock-based compensation

 

 

243

 

 

347

Costs in connection with potential acquisition

 

 

80

 

 

 —

Adjusted EBITDA

 

$

601

 

$

2,014

 

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 March 31, 2020 and December 31, 2019, our cash and cash equivalents were $4.2 million and $4.6 million, respectively.

Restricted cash at March 31, 2020 and at December 31, 2019 consisted of $1.1 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 facility.

On April 23, 2020, we received $1.8 million from Bank of America through the PPP. If we meet certain criteria, the loan will be forgiven, and the proceeds used to reduce expenses.

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.

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 $7.8 million and $9.5 million as of March 31, 2020 and December 31, 2019, respectively. Working capital decreased by approximately $1.7 million during the first three months of 2020 primarily due to the increase in the current portion of long-term debt.

Commentary on the components of our cash flows for the current quarter as compared with the prior year quarter is set forth below.

Operating Activities

Net cash provided by operating activities was approximately $0.31 million in the current quarter, compared with approximately $1.23 million in the prior year quarter.

The current quarter cash provided by operating activities was primarily attributable to the combination of the net loss of $(0.84) million plus non-cash expenses of approximately $1.23 million, partially offset by a net change in operating assets and liabilities of approximately $(0.08) million. Non-cash net expenses were primarily comprised of $1.30 million of depreciation and amortization, $0.24 million of stock-based compensation, $0.21 million of bad debt expense, and deferred income tax benefit of $(0.55) million. The net change from operating assets and liabilities includes a decrease in accounts

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receivable of $1.57 million, a decrease in inventory of approximately $0.11 million, and a decrease in accounts payable, accrued expenses and other current liabilities of $(1.67) million, all of which were primarily due to timing of collections and payments, and cash paid in excess of rent expense of $(0.09) million.

The prior year quarter cash provided by operating activities was primarily attributable to the combination of net income of $0.13 million plus non-cash expenses of approximately $1.61 million and net change in operating assets and liabilities of approximately $(0.5) million. Non-cash net expenses primarily consisted of $0.1 million of deferred income tax provision, $0.3 million of stock-based compensation, $0.9 million of depreciation and amortization, and loss on extinguishment of debt of $0.19 million. The net change from operating assets and liabilities includes a decrease in accounts receivable of $1.0 million, a decrease in inventory of approximately $0.6 million, an increase in prepaid expenses and other assets of ($0.5) million, a decrease in accounts payable, accrued expenses and other current liabilities of $(1.3) million, and a decrease in other liabilities of $(0.20) million, all primarily due to timing of collections and payments, and cash paid in excess of rent expense of $(0.1) million.

Investing Activities

Net cash used in investing activities for the current quarter was approximately $0.6 million, compared with approximately $9.1 million in the prior year quarter.  Cash used in investing activities for in the current quarter was primarily attributable to capital expenditures, a substantial portion of which relates to the implementation of our ERP system, while cash used in investing activities for the prior year quarter was primarily related to cash consideration paid to acquire the Halston Heritage Brands.

Financing Activities

Net cash used in financing activities for the current quarter was approximately $0.1 million, and was attributable to shares repurchased related to vested restricted stock in exchange for withholding taxes.

Net cash provided by financing activities for the prior year quarter was approximately $5.5 million, primarily attributable to proceeds received from long-term debt of $7.5 million, partially offset by payments made on long-term debt obligations of $(1.75) million, and payment of $(0.29) million of deferred finance costs.

Other Factors

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

We continue to expand our Judith Ripka Fine Jewelry wholesale and e-commerce business, and we have 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. We expect to develop a core licensing business for the Longaberger brand, in addition to a direct-to-consumer business.

In addition, we continue to seek new opportunities, including expansion through interactive television, our design, production and supply chain platform, additional domestic and international licensing arrangements, and acquiring additional brands.

However, the impacts of the current COVID-19 pandemic are broad reaching and are having an impact on our licensing and wholesale businesses. The COVID-19 pandemic is impacting our supply chain as most of our products are manufactured in China, Thailand, and other places around the world affected by this event. Temporary factory closures and the pace of workers returning to work have impacted our contract manufacturers’ ability to source certain raw materials

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and to produce finished goods in a timely manner. The outbreak is also impacting distribution and logistics providers' ability to operate in the normal course of business. Further, the pandemic has resulted in a sudden decrease in sales for many of our products, resulting in order cancelations. Financial impacts associated with the COVID-19 pandemic include, but are not limited to, lower net sales, the delay of inventory production and fulfillment, potentially further impacting net sales, and potential incremental costs associated with mitigating the effects of the pandemic, including increased freight and logistics costs and other expenses. We expect that the impact the COVID-19 pandemic may have on our operating results could result in our inability to comply with certain debt covenants and require BHI to waive compliance with, or agree to amend, any such covenant to avoid a default. The COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the pandemic, and actions that would be taken by governmental authorities to contain the pandemic or to treat its impact, makes it difficult to forecast any effects on our 2020 results. However, as of the date of this filing, we expect our results for 2020 to be significantly affected.

Our success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and continue to attract wholesale and direct-to-consumer customers, and contract with and retain key licensees, as well as our and our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer bases and fulfill the product requirements of the particular retail channels within the global marketplace. Unanticipated changes in consumer fashion preferences and purchasing patterns, slowdowns in the U.S. economy, changes in the prices of supplies, consolidation of retail establishments, and other factors noted in “Risk Factors” could adversely affect our licensees’ ability to meet and/or exceed their contractual commitments to us and thereby adversely affect our future operating results.

Effects of Inflation

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, or liquidity.

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, 2019, filed with the SEC on April 14, 2020, for a discussion of our critical accounting policies. During the three months ended March 31, 2020, there were no material changes to our accounting policies.

 

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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 March 31, 2020, 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 March 31, 2020 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 March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

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, 2019, 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, 2019 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.

 

Our failure to meet the continued listing requirements of the Nasdaq Global Market could result in a delisting of our common stock, which could negatively impact the market price and liquidity of our common stock and our ability to access the capital markets.

If by December 28, 2020, we do not regain compliance with the minimum bid requirement of the Nasdaq Stock Market (“Nasdaq”), we may be eligible for additional time to regain compliance. To qualify, we would need to submit a transfer application and a $5,000 application fee. In addition, we would be required to meet the continued listing requirement for the minimum market value of our publicly held shares (“MVPHS”) and all other initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price requirement and provide written notice to Nasdaq of our intention to cure the minimum bid price deficiency during the second compliance period by effecting a reverse stock split, if necessary. As part of its review process, the Nasdaq staff will make a determination of whether it believes we will be

27

Table of Contents

able to cure this deficiency. Should the Nasdaq staff conclude that we will not be able to cure the deficiency, or should we determine not to submit a transfer application or make the required representation, Nasdaq will provide notice that our shares of common stock will be subject to delisting.

With respect to the minimum MVPHS requirement, we can regain compliance if, at any time during the extended compliance period, the minimum MVPHS of our common stock is at least $5,000,000 for a minimum period of 10 consecutive business days. In the event we do not regain compliance prior to the expiration of the extended compliance period, we will receive written notification that our shares of common stock are subject to delisting. Alternatively, the Company may consider applying to transfer the Company’s shares of common stock to the Nasdaq Capital Market. In order to transfer, we must submit a transfer application, pay the $5,000 application fee, and meet the Nasdaq Capital Market’s continued listing requirements.

If we do not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that our shares of common stock will be subject to delisting from the Nasdaq Global Select Market and our shares will be delisted. At such time, we may appeal the delisting determination to a hearings panel.

We intend to monitor the closing bid price and the market value of our publicly held common stock between now and December 28, 2020, and will consider available options to resolve noncompliance with the applicable listing requirements, as may be necessary. There can be no assurance that we will be able to regain compliance with the applicable listing requirements or will otherwise be in compliance with other Nasdaq listing criteria.

 

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of unregistered or registered securities during the three months ended March 31, 2020.

 

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5.    OTHER INFORMATION

None.

 

28

Table of Contents

ITEM 6.    EXHIBITS

The following exhibits are filed herewith:

 

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

31.2 Rule 13a‑14(a)/15d‑14(a) Certification (CFO) 

32.1 Section 1350 Certification (CEO) 

32.2 Section 1350 Certification (CFO) 

101.INS 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

 

 

29

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: May  19, 2020

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

 

30

xelb_Ex31_1

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 March 31, 2020 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.

 

 

 

 

 

May 19, 2020

By:

/s/ Robert W. D’Loren

 

 

Name: Robert W. D’Loren

 

 

Title: Chairman and Chief Executive Officer

 

xelb_Ex31_2

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 March 31, 2020 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.

 

 

May 19, 2020

By:

/s/ James Haran

 

 

Name: James Haran

 

 

Title: Chief Financial Officer and Vice

 

 

President

 

xelb_Ex32_1

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 March 31, 2020 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.

 

 

May

 

 

May 19, 2020

By:

/s/ Robert W. D’Loren

 

 

Name: Robert W. D’Loren

 

 

Title: Chairman and Chief Executive Officer

 

xelb_Ex32_2

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 March 31, 2020 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.

 

May 19, 2020

By:

/s/ James Haran

 

 

Name: James Haran

 

 

Title: Chief Financial Officer and Vice President

 

v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

10.    Commitments and Contingencies

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic, which continues to spread throughout the U.S. COVID-19 is having an unprecedented impact on the U.S. economy as federal, state, and local governments react to this public health crisis.

The impacts of the current COVID-19 pandemic are broad reaching and are having an impact on the Company’s licensing and wholesale businesses. The COVID-19 pandemic is impacting the Company’s supply chain as most of the Company’s products are manufactured in China, Thailand, and other places around the world affected by this event. Temporary factory closures and the pace of workers returning to work have impacted contract manufacturers’ ability to source certain raw materials and to produce finished goods in a timely manner. The outbreak is also impacting distribution and logistics providers' ability to operate in the normal course of business. Further, the pandemic has resulted in a sudden decrease in sales for many of the Company’s products, resulting in order cancelations.

Due to the COVID-19 outbreak, there is significant uncertainty surrounding the potential impact on the Company’s future results of operations and cash flows. Continued impacts of the pandemic could materially adversely affect the Company’s near-term and long-term revenues, earnings, liquidity, and cash flows as the Company’s customers and/or licensees may request temporary relief, delay, or not make scheduled payments.

v3.20.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2020
Stockholders' Equity Note [Abstract]  
Stockholders' Equity

6.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 Company recognizes compensation cost for grants to non-employees on a straight-line basis over the period of the grant.

For stock option awards for which vesting is contingent upon the achievement of certain performance targets, the timing and amount of compensation expense recognized is based upon the Company’s projections and estimates of the relevant performance metric(s) until the time the performance obligation is satisfied.

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.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted

 

Remaining

 

 

 

 

 

 

 

Average

 

Contractual

 

Aggregate

 

 

Number of

 

Exercise

 

Life

 

Intrinsic

 

    

Options

    

Price

    

(in Years)

    

Value

Outstanding at January 1, 2020

 

7,222,625

 

$

3.33

 

5.82

 

$

 —

Granted

 

230,000

 

 

2.23

 

  

 

 

  

Canceled

 

 —

 

 

 —

 

  

 

 

  

Exercised

 

 —

 

 

 —

 

  

 

 

  

Expired/Forfeited

 

(121,000)

 

 

1.81

 

  

 

 

  

Outstanding at March 31, 2020, and expected to vest

 

7,331,625

 

$

3.32

 

5.57

 

$

 —

Exercisable at March 31, 2020

 

2,940,125

 

$

5.04

 

1.87

 

$

 —

 

On January 1, 2020, the Company granted options to purchase 5,000 shares of stock to a board observer. The exercise price of the options is $4.00 per share, and 50% of the options vest on each of January 1, 2021 and January 1, 2022.

On January 31, 2020, the Company granted options to purchase 75,000 shares of stock to a consultant. The exercise price of the options is $1.57 per share, and all options vested immediately on the date of grant.

On February 28, 2020, the Company granted options to purchase 50,000 shares of common stock to an employee. The exercise price is $1.40 per share, and the vesting of such options is dependent upon the Company achieving certain 12-month sales targets through December 31, 2021.

On March 13, 2020, 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 March 31, 2020, the Company granted options to purchase 50,000 shares of common stock to an employee. The exercise price of the options is $0.61 per share, and one-third of the options shall vest on each of March 31, 2021, March 31, 2021, and March 31, 2022.

Compensation expense related to stock options for the current quarter and the prior year quarter was approximately $68,000 and $243,000, respectively. Total unrecognized compensation expense related to unvested stock options at March 31, 2020 amounts to approximately $276,000 and is expected to be recognized over a weighted average period of approximately 1.71 years.

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

 

 

 

 

 

 

 

 

    

 

    

Weighted

 

 

 

 

 Average 

 

 

Number of

 

Grant Date 

 

    

Options

    

Fair Value

Balance at January 1, 2020

 

4,551,500

 

$

0.18

Granted

 

230,000

 

 

0.17

Vested

 

(275,000)

 

 

0.70

Forfeited or Canceled

 

(115,000)

 

 

0.34

Balance at March 31, 2020

 

4,391,500

 

$

0.15

 

Warrants

Warrants expire at various times - either five or ten years from the date of grant, depending on the particular grant.

A summary of the Company’s warrants activity for the current quarter is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted

 

Remaining

 

 

 

 

 

 

 

Average

 

Contractual

 

Aggregate

 

 

Number of

 

Exercise

 

Life

 

Intrinsic

 

    

Warrants

    

Price

    

(in Years)

    

Value

Outstanding and exercisable at January 1, 2020

 

579,815

 

$

4.63

 

2.32

 

$

 —

Granted

 

 —

 

 

 —

 

 

 

 

  

Canceled

 

 —

 

 

 —

 

 

 

 

  

Exercised

 

 —

 

 

 —

 

 

 

 

  

Expired/Forfeited

 

 —

 

 

 —

 

 

 

 

  

Outstanding and exercisable at March 31, 2020

 

579,815

 

$

4.63

 

2.07

 

$

 —

 

No compensation expense was recognized in the current quarter or prior year quarter related to warrants.

Stock Awards

A summary of the Company’s restricted stock activity for the current quarter is as follows:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Number of

 

Average

 

 

Restricted

 

Grant Date

 

    

Shares

    

Fair Value

Outstanding at January 1, 2020

 

1,230,623

 

$

4.33

Granted

 

336,700

 

 

0.65

Canceled

 

 —

 

 

 —

Vested

 

(657,298)

 

 

2.45

Expired/Forfeited

 

 —

 

 

 —

Outstanding at March 31, 2020

 

910,025

 

$

4.33

 

On March 30, 2020, the Company issued 336,700 shares of stock to a member of senior management as payment for a performance bonus earned in 2019. These shares vested immediately.

Compensation expense related to restricted stock grants for the current and prior year quarter was approximately $23,000 and $104,000, respectively. Total unrecognized compensation expense related to unvested restricted stock grants at March 31, 2020 amounts to approximately $43,000 and is expected to be recognized over a weighted average period of approximately 1.00 year.

The Company also recognized approximately $152,000 of compensation expense in the current quarter related to certain senior management bonuses payable in stock in 2021.

Shares Available Under the Company’s 2011 Equity Incentive Plan

As of March 31, 2020, there were 1,610,649 shares of common stock available for issuance under the Plan.

Shares Reserved for Issuance

As of March 31, 2020, there were 9,812,233 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.

 

v3.20.1
Debt and Contingent Obligation - Xcel Term Loan Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Feb. 11, 2019
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2021
Dec. 31, 2020
Dec. 30, 2020
Jun. 30, 2020
Feb. 10, 2019
Debt Instrument [Line Items]                
Loan To Be Repaid As Percentage Of Excess Cash Flow Percent   50.00%            
Variable Repayments Total   $ 2,000            
Xcel Term Loan                
Debt Instrument [Line Items]                
Aggregate interest expense on Prior Term Debt and Xcel Term Loan   288 $ 260          
Secured Debt | Second Amended And Restated Loan And Security Agreement                
Debt Instrument [Line Items]                
Minimum net worth required to meet loan covenant $ 90,000              
Secured Debt | Term Loan A                
Debt Instrument [Line Items]                
Stated interest rate (as percentage) 5.10%              
Secured Debt | Term Loan B                
Debt Instrument [Line Items]                
Stated interest rate (as percentage) 6.25%              
Secured Debt | Xcel Term Loan                
Debt Instrument [Line Items]                
Loss on extinguishment of debt     $ 200          
Upfront fee for debt issuance $ 90              
Term LoanB | Secured Debt | Xcel Term Loan                
Debt Instrument [Line Items]                
Face amount of loan 14,700              
Second Amendment | Additional Term Loan                
Debt Instrument [Line Items]                
Face amount of loan 7,500              
Second Amendment | Xcel Term Loan                
Debt Instrument [Line Items]                
Face amount of loan 22,000              
Second Amendment | Secured Debt                
Debt Instrument [Line Items]                
Minimum EBITDA to meet loan covenants   $ 5,000            
Second Amendment | Term LoanA | Xcel Term Loan                
Debt Instrument [Line Items]                
Face amount of loan $ 7,300              
First Amendment | Xcel Term Loan                
Debt Instrument [Line Items]                
Face amount of loan               $ 14,500
Revolving Credit Facility | Xcel Term Loan | Base Rate                
Debt Instrument [Line Items]                
Basis spread on variable rate 2.00%              
Revolving Credit Facility | Second Amendment | Xcel Term Loan                
Debt Instrument [Line Items]                
Capacity available to convert to incremental term loans $ 5,000              
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 | Second Amendment | Secured Debt                
Debt Instrument [Line Items]                
Minimum EBITDA to meet loan covenants             $ 4,800  
Maximum capital expenditures required to meet loan covenants       $ 700 $ 1,600      
Forecast | Second Amendment | Secured Debt | Xcel Term Loan                
Debt Instrument [Line Items]                
Minimum liquid assets to meet loan covenants       $ 5,000 $ 4,000 $ 3,250    
v3.20.1
Debt and Contingent Obligation - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended
Feb. 11, 2019
Mar. 31, 2020
Dec. 31, 2019
Halston Heritage      
Debt Instrument [Line Items]      
Contingent obligation   $ 900 $ 900
Secured Debt      
Debt Instrument [Line Items]      
Maximum Prepayment Of Debt Amount $ 750    
Halston Heritage | Ripka Earn-Out | Maximum      
Debt Instrument [Line Items]      
Asset Acquisitions, Contingent Consideration, Amount $ 6,000    
Second Amendment | IM Seller Notes      
Debt Instrument [Line Items]      
Principal payment   $ 0  
v3.20.1
Stockholders' Equity - Summary of Warrants Activity (Details) - Warrant - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Number of Other than Options    
Outstanding and exercisable, beginning balance (in shares) 579,815  
Granted (in shares) 0  
Canceled (in shares) 0  
Exercised (in dollars per share) 0  
Expired/Forfeited (in shares) 0  
Outstanding and exercisable, ending balance (in shares) 579,815 579,815
Weighted Average Exercise Price    
Outstanding, beginning balance (in dollars per share) $ 4.63  
Granted (in dollars per share) 0.00  
Canceled (in dollars per share) 0.00  
Exercised (in dollars per share) 0.00  
Expired/Forfeited (in dollars per share) 0.00  
Outstanding, ending balance (in dollars per share) $ 4.63 $ 4.63
Aggregate Intrinsic Value    
Outstanding, beginning balance, Aggregate Intrinsic Value $ 0  
Outstanding, ending balance, Aggregate Intrinsic Value $ 0 $ 0
Weighted Average Remaining Contractual Life (in Years), Outstanding and exercisable 2 years 26 days 2 years 3 months 26 days
Aggregate Intrinsic Value, Outstanding and exercisable $ 0 $ 0
v3.20.1
Earnings Per Share - Dilutive Earnings Per Share (Details) - shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Earnings Per Share Basic And Diluted [Line Items]    
Basic (in shares) 18,870,398 18,562,073
Diluted (in shares) 18,870,398 18,562,763
Warrant    
Earnings Per Share Basic And Diluted [Line Items]    
Effect of exercise of options and Warrants (in shares) 0 690
v3.20.1
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Common Stock [Member]
Paid-In Capital [Member]
Accumulated Deficit [Member]
Noncontrolling Interest [Member]
Total
Balances at Dec. 31, 2018 $ 18 $ 100,097 $ (233)   $ 99,882
Balances (in shares) at Dec. 31, 2018 18,138,616        
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 1,057     1,058
Compensation expense in connection with stock options and restricted stock   347     347
Net (loss) income     127   127
Balances at Mar. 31, 2019 $ 19 101,501 (106)   101,414
Balances (in shares) at Mar. 31, 2019 18,916,394        
Balances at Dec. 31, 2019 $ 19 101,736 (3,659) $ 356 98,452
Balances (in shares) at Dec. 31, 2019 18,866,417        
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Compensation expense in connection with stock options and restricted stock   91     91
Shares issued to employees in connection with stock grants for bonus payments   220     220
Shares issued to employees in connection with stock grants for bonus payments (in shares) 336,700        
Shares repurchased from employees in exchange for withholding taxes (in shares) (155,556)        
Shares repurchased from employees in exchange for withholding taxes   (102)     (102)
Net (loss) income     (805) (33) (838)
Balances at Mar. 31, 2020 $ 19 $ 101,945 $ (4,464) $ 323 $ 97,823
Balances (in shares) at Mar. 31, 2020 19,047,561        
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 07, 2020
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
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   19,047,561
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Small Business true  
v3.20.1
Subsequent Events (Details) - COVID19 [Member] - Promissory Note - Subsequent Event - Unsecured Debt [Member]
$ in Millions
Apr. 20, 2020
USD ($)
Subsequent Event [Line Items]  
Face amount of loan $ 1.8
Term of loan 2 years
Stated interest rate (as percentage) 1.00%
Debt Instrument, Period Until First Required Monthly Payment 6 months
v3.20.1
Significant Contracts
3 Months Ended
Mar. 31, 2020
Significant Contracts [Abstract]  
Significant Contracts

3. 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 $4.69 million and $6.86 million for the current and prior year quarter, respectively, representing approximately 49% and 82% of the Company’s total net revenues for the current and prior year quarter, respectively.

·

As of March 31, 2020 and December 31, 2019, the Company had receivables from QVC of $4.59 million and $4.33 million, respectively, representing approximately 52% and 41% of the Company’s total receivables, respectively.

v3.20.1
Leases - Additional Information (Details) - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Lessee, Lease, Description [Line Items]      
Lease expense included in selling, general and administrative expenses $ 0.4 $ 0.4  
Weighted average remaining lease term for operating leases 6 years 7 months 6 days    
Weighted average discount rate for operating lease (as percent) 6.30%    
Cash payments for operating lease expense $ 0.6   $ 0.6
Minimum      
Lessee, Lease, Description [Line Items]      
Remaining lease term 2 years    
Maximum      
Lessee, Lease, Description [Line Items]      
Remaining lease term 8 years    
v3.20.1
Nature of Operations, Background, and Basis of Presentation (Details)
3 Months Ended
Mar. 31, 2020
Longaberger Licensing, LLC | Variable Interest Entity, Primary Beneficiary [Member]  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Variable Interest Entity, Qualitative or Quantitative Information, Ownership Percentage 50.00%
v3.20.1
Leases (Tables)
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Maturities of Lease Liabilities

 

 

 

 

($ in thousands)

    

 

 

Remainder of 2020

 

$

1,817

2021

 

 

2,577

2022

 

 

1,732

2023

 

 

1,552

2024

 

 

1,552

After 2024

 

 

4,398

Total lease payments

 

 

13,628

Less: Discount

 

 

2,531

Present value of lease liabilities

 

 

11,097

Current portion of lease liabilities

 

 

1,800

Non-current portion of lease liabilities

 

$

9,297

 

v3.20.1
Trademarks and Other Intangibles
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Trademarks and Other Intangibles

2. Trademarks and Other Intangibles

Trademarks and other intangibles, net consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

 

 

Average

 

March 31, 2020

 

 

Amortization

 

Gross Carrying

 

Accumulated

 

Net Carrying

($ in thousands)

 

Period

 

Amount

 

Amortization

 

Amount

Trademarks (indefinite-lived)

 

n/a

 

$

44,500

 

$

 —

 

$

44,500

Trademarks (finite-lived)

 

15 years

 

 

34,613

 

 

5,137

 

 

29,476

Trademarks (finite-lived)

 

18 years

 

 

38,194

 

 

2,598

 

 

35,596

Other intellectual property

 

7 years

 

 

762

 

 

455

 

 

307

Copyrights and other intellectual property

 

10 years

 

 

190

 

 

114

 

 

76

Total

 

 

 

$

118,259

 

$

8,304

 

$

109,955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

 

 

Average

 

December 31, 2019

 

 

Amortization

 

Gross Carrying

 

Accumulated

 

Net Carrying

($ in thousands)

 

Period

 

Amount

 

Amortization

 

Amount

Trademarks (indefinite-lived)

 

n/a

 

$

62,900

 

$

 —

 

$

62,900

Trademarks (finite-lived)

 

15 years

 

 

16,213

 

 

4,560

 

 

11,653

Trademarks (finite-lived)

 

18 years

 

 

38,194

 

 

2,067

 

 

36,127

Other intellectual property

 

7 years

 

 

762

 

 

428

 

 

334

Copyrights and other intellectual property

 

10 years

 

 

190

 

 

109

 

 

81

Total

 

  

 

$

118,259

 

$

7,164

 

$

111,095

 

Amortization expense for intangible assets was approximately $1.14 million for the three-month period ended March 31, 2020 (the "current quarter") and was approximately $0.77 million for the three-month period ended March 31, 2019 (the "prior year quarter").

Effective January 1, 2020, the Company determined that the Ripka Brand, inclusive of all its trademarks, has a finite life of 15 years, and is amortized on a straight-line basis accordingly. Prior to January 1, 2020, the Ripka Brand trademarks were considered indefinite-lived assets.

The trademarks related to the Isaac Mizrahi Brand have been determined to have indefinite useful lives and, accordingly, no amortization has been recorded for these assets.

v3.20.1
Stockholders' Equity - Summary of Restricted Stock Activity (Details) - Restricted Stock - $ / shares
3 Months Ended
Mar. 30, 2020
Mar. 31, 2020
Number of Other than Options    
Outstanding and exercisable, beginning balance (in shares)   1,230,623
Granted (in shares)   336,700
Canceled (in shares)   0
Vested (in shares)   657,298
Expired/Forfeited (in shares)   0
Outstanding and exercisable, ending balance (in shares)   910,025
Weighted Average Exercise Price    
Outstanding, beginning balance (in dollars per share)   $ 4.33
Granted (in dollars per share)   0.65
Canceled (in dollars per share)   0.00
Vested (in dollars per share)   2.45
Expired/Forfeited (in dollars per share)   0.00
Outstanding, ending balance (in dollars per share)   $ 4.33
Senior Management    
Number of Other than Options    
Granted (in shares) 336,700  
v3.20.1
Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues    
Net revenue $ 9,527 $ 10,301
Cost of goods sold (sales) 2,400 1,832
Gross profit 7,127 8,469
Operating costs and expenses    
Salaries, benefits and employment taxes 3,948 4,145
Other design and marketing costs 992 758
Other selling, general and administrative expenses 1,737 1,590
Stock-based compensation 243 347
Depreciation and amortization 1,303 948
Total operating costs and expenses 8,223 7,788
Operating (loss) income (1,096) 681
Interest and finance expense    
Interest expense - term debt 288 264
Other interest and finance charges 6 26
Loss on extinguishment of debt 0 189
Total interest and finance expense 294 479
(Loss) income before income taxes (1,390) 202
Income tax (benefit) provision (552) 75
Net (loss) income (838) 127
Less: Net loss attributable to noncontrolling interest (33)  
Net (loss) income attributable to Xcel Brands, Inc. stockholders $ (805) $ 127
(Loss) earnings per share attributable to Xcel Brands, Inc. common stockholders:    
Basic net (loss) income per share: $ (0.04) $ 0.01
Diluted net (loss) income per share: $ (0.04) $ 0.01
Weighted average number of common shares outstanding:    
Basic weighted average common shares outstanding 18,870,398 18,562,073
Diluted weighted average common shares outstanding 18,870,398 18,562,763
Net licensing revenue [Member]    
Revenues    
Net revenue $ 5,641 $ 7,863
Net sales revenue [Member]    
Revenues    
Net revenue $ 3,886 $ 2,438
v3.20.1
Related Party Transactions (Details) - USD ($)
$ in Millions
Feb. 11, 2019
Mar. 31, 2020
Halston Heritage    
Schedule of Asset Acquisition [Line Items]    
Cash included in aggregate purchase price $ 8.4  
Common stock included in aggregate purchase price (in shares) 777,778  
Issuance of common stock in connection with Halston Heritage assets acquisition $ 1.1  
Aggregate contingent consideration 6.0  
Minimum deduction from net royalties $ 1.5  
Percentage of Aggregate Shares Outstanding 4.99%  
Halston Heritage | 50% of the first $10,000,000 of Excess Net Royalties    
Schedule of Asset Acquisition [Line Items]    
Applicable percentage 50.00%  
Halston Heritage | 20% of aggregate Excess Net Royalties greater than $10,000,000 and up to $15,000,000    
Schedule of Asset Acquisition [Line Items]    
Applicable percentage 20.00%  
Halston Heritage | 0% of aggregate Excess Net Royalties in excess of $15,000,000    
Schedule of Asset Acquisition [Line Items]    
Applicable percentage 0.00%  
Maximum | Halston Heritage | 50% of the first $10,000,000 of Excess Net Royalties    
Schedule of Asset Acquisition [Line Items]    
Excess net royalties $ 10.0  
Maximum | Halston Heritage | 20% of aggregate Excess Net Royalties greater than $10,000,000 and up to $15,000,000    
Schedule of Asset Acquisition [Line Items]    
Excess net royalties 15.0  
Minimum | Halston Heritage | 20% of aggregate Excess Net Royalties greater than $10,000,000 and up to $15,000,000    
Schedule of Asset Acquisition [Line Items]    
Excess net royalties 10.0  
Minimum | Halston Heritage | 0% of aggregate Excess Net Royalties in excess of $15,000,000    
Schedule of Asset Acquisition [Line Items]    
Excess net royalties $ 15.0  
House Of Halston LLC | Former Director [Member]    
Schedule of Asset Acquisition [Line Items]    
Ownership Percentage in HOH   25.00%
v3.20.1
Trademarks and Other Intangibles - Schedule of Assets (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount, Total $ 118,259 $ 118,259
Accumulated Amortization 8,304 7,164
Net Carrying Amount, Total $ 109,955 $ 111,095
Trademarks    
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Weighted Average Amortization Period 15 years 15 years
Gross Carrying Amount (definite-lived) $ 34,613 $ 16,213
Accumulated Amortization 5,137 4,560
Net Carrying Amount $ 29,476 $ 11,653
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 $ 762
Accumulated Amortization 455 428
Net Carrying Amount $ 307 $ 334
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 114 109
Net Carrying Amount 76 81
Trademarks    
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount (indefinite-lived) $ 44,500 62,900
Net Carrying Amount   $ 62,900
Halston Heritage | Trademarks    
Finite and Indefinite-Lived Intangible Assets [Line Items]    
Weighted Average Amortization Period 18 years 18 years
Gross Carrying Amount (definite-lived) $ 38,194 $ 38,194
Accumulated Amortization 2,598 2,067
Net Carrying Amount $ 35,596 $ 36,127
v3.20.1
Debt and Contingent Obligation (Tables)
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Net Carrying Amount of Debt

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

($ in thousands)

    

2020

    

2019

 

Xcel Term Loan

 

$

19,000

 

$

19,000

 

Unamortized deferred finance costs related to term loan

 

 

(154)

 

 

(179)

 

Total

 

 

18,846

 

 

18,821

 

Current portion of long-term debt

 

 

3,375

 

 

2,250

 

Long-term debt

 

$

15,471

 

$

16,571

 

 

Maturities of Long-term Debt

 

Principal on the Xcel Term Loan, as amended, is payable in fixed installments as follows:

 

 

 

 

 

($ in thousands)

Installment Payment Dates

    

Amount

June 30, 2020, September 30, 2020, and December 31, 2020

 

$

750

 

 

 

 

March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021

 

$

1,125

 

 

 

 

April 30, 2021

 

$

750

 

 

 

 

March 31, 2022, June 30, 2022, September 30, 2022, and December 31, 2022

 

$

1,125

 

 

 

 

March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023

 

$

1,250

 

In addition to the fixed installments outlined above, commencing with the fiscal quarter ended March 31, 2021, the Company is required to repay a portion of the Xcel Term Loan in an amount equal to 50% of the excess cash flow for the fiscal quarter, 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. To the extent that the cumulative amount of such variable repayments made is less than $2.00 million as of March 31, 2022, any such shortfall must be repaid at that date.

Thus, the aggregate remaining annual principal payments under the Xcel Term Loan are as follows:

 

 

 

 

 

 

 

Amount of

($ in thousands)

 

Principal

Year Ending December 31, 

    

Payment

2020

 

$

2,250

2021

 

 

5,250

2022

 

 

6,500

2023

 

 

5,000

Total

 

$

19,000

 

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 $3.25 million through the earlier of December 31, 2020 or such time as any PPP loan proceeds are received by the Company, at least $4.0 million through December 31, 2020 provided that PPP loan proceeds have been received by the Company, and at least $5.0 million thereafter;

·

EBITDA shall not be less than $5.0 million for the twelve fiscal month period ended March 31, 2020, and $4.8 million for the twelve fiscal month period ending June 30, 2020;

·

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:

 

 

 

 

Fiscal Quarter End

    

Fixed Charge Coverage Ratio

September 30, 2020

 

1.00 to 1.00

December 31, 2020, and thereafter

 

1.10 to 1.00

 

·

capital expenditures (excluding any capitalized compensation costs) shall not exceed $1.6 million for the fiscal year ending December 31, 2020, and $0.7 million for any fiscal year beginning after December 31, 2020; 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, 2019

 

2.90 to 1.00

June 30, 2020

 

4.25 to 1.00

September 30, 2020

 

3.50 to 1.00

December 31, 2020

 

2.75 to 1.00

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

 

v3.20.1
Leases - Maturities of Lease Liabilities (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Leases [Abstract]    
Remainder of 2020 $ 1,817  
2021 2,577  
2022 1,732  
2023 1,552  
2024 1,552  
After 2024 4,398  
Total lease payments 13,628  
Less: Discount 2,531  
Present value of lease liabilities 11,097  
Current portion of operating lease obligation 1,800 $ 1,752
Long-term portion of operating lease obligation $ 9,297 $ 9,773
v3.20.1
Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events

11.    Subsequent Events

On April 13, 2020, the Company further amended its Second Amended and Restated Loan and Security Agreement with BHI. Under this amendment, the quarterly installment payment due March 31, 2020 was deferred, and the amounts of the quarterly installment payments due throughout the remainder of 2020 were reduced, while the amount of principal to be repaid through variable payments based on excess cash flow was increased. In addition, there were multiple changes and waivers to the various financial covenants. Further, this amendment permits Xcel to incur unsecured debt through the PPP under the CARES Act, and excludes any associated PPP debt and debt service from the covenant calculations. There were no changes to the total principal balance, interest rate, or maturity date. See Note 5, “Debt and Contingent Obligation,” for additional information.

On April 20, 2020, the Company executed a promissory note (the “Promissory Note”) with Bank of America, N.A., which provides for an unsecured loan in the amount of $1.8 million (the “PPP Loan”), pursuant to the PPP under the CARES Act. The PPP Loan has a two-year term and bears interest at a fixed rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. The PPP also provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The Company may apply for forgiveness of the PPP Loan upon application by the Company beginning 60 days but not later than 90 days after the PPP Loan is funded.  However, no assurance is provided that forgiveness for any portion of the PPP Loan will be obtained. The PPP Loan was funded on April 23, 2020.

v3.20.1
Earnings Per Share
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Earnings Per Share

7.    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

 

 

 

March 31, 

 

 

    

2020

    

2019

 

Basic

 

18,870,398

 

18,562,073

 

Effect of exercise of warrants

 

 —

 

690

 

Diluted

 

18,870,398

 

18,562,763

 

 

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

 

 

 

March 31, 

 

 

    

2020

    

2019

 

Stock options and warrants

 

7,911,440

 

4,862,525

 

 

v3.20.1
Stockholders' Equity - Summary of Stock Option Activity for Non-Vested Options (Details)
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Number of Options  
Granted (in shares) 230,000
Employee Stock Option  
Number of Options  
Beginning Balance (in shares) 4,551,500
Granted (in shares) 230,000
Vested (in shares) (275,000)
Forfeited or Canceled (in shares) (115,000)
Ending Balance (in shares) 4,391,500
Weighted Average Grant Date Fair Value  
Beginning Balance (in dollars per share) | $ / shares $ 0.18
Granted (in dollars per share) | $ / shares 0.17
Vested (in dollars per share) | $ / shares 0.70
Forfeited or Canceled (in dollars per share) | $ / shares 0.34
Ending Balance (in dollars per share) | $ / shares $ 0.15
v3.20.1
Debt and Contingent Obligation - Net Carrying Amount of Debt (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Term Loan $ 19,000  
Unamortized deferred finance costs related to term loan (154) $ (179)
Total 18,846 18,821
Current portion of long-term debt 3,375 2,250
Long-term debt 15,471 16,571
Xcel Term Loan    
Debt Instrument [Line Items]    
Term Loan 19,000 19,000
Halston Heritage    
Debt Instrument [Line Items]    
Contingent obligation $ 900 $ 900
v3.20.1
Debt and Contingent Obligation - Schedule of Fixed Charge Coverage Ratios and Leverage Ratios (Details) - Secured Debt - Xcel Term Loan
Mar. 31, 2020
September 30, 2020 | Second Amendment  
Debt Instrument [Line Items]  
Fixed charge coverage ratio required to meet loan covenant 1.00
Leverage ratio required for loan covenant 3.50
December 31, 2020, and thereafter | Second Amendment  
Debt Instrument [Line Items]  
Fixed charge coverage ratio required to meet loan covenant 1.10
December 31, 2019  
Debt Instrument [Line Items]  
Leverage ratio required for loan covenant 2.90
June 30, 2020 | Second Amendment  
Debt Instrument [Line Items]  
Leverage ratio required for loan covenant 4.25
December 31, 2020 | Second Amendment  
Debt Instrument [Line Items]  
Leverage ratio required for loan covenant 2.75
March 31, 2021, June 30, 2021 and September 30, 2021 | Second Amendment  
Debt Instrument [Line Items]  
Leverage ratio required for loan covenant 1.70
December 31, 2021 and each Fiscal Quarter end thereafter | Second Amendment  
Debt Instrument [Line Items]  
Leverage ratio required for loan covenant 1.50
v3.20.1
Earnings Per Share - Anti-dilutive Securities Excluded (Details) - shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Earnings Per Share [Abstract]    
Stock options and warrants (in shares) 7,911,440 4,862,525
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities    
Net (loss) income $ (838) $ 127
Adjustments to reconcile net (loss) income to net cash provided by operating activities:    
Depreciation and amortization expense 1,303 948
Amortization of deferred finance costs 25 34
Stock-based compensation 243 347
Amortization of note discount   16
Allowance for doubtful accounts 211 0
Loss on extinguishment of debt 0 189
Deferred income tax (benefit) provision (552) 75
Changes in operating assets and liabilities:    
Accounts receivable 1,568 1,035
Inventory 111 571
Prepaid expenses and other assets (13) (492)
Accounts payable, accrued expenses and other current liabilities (1,656) (1,331)
Cash paid in excess of rent expense (91) (91)
Other liabilities   (196)
Net cash provided by operating activities 311 1,232
Cash flows from investing activities    
Cash consideration for acquisition of Halston Heritage assets 0 (8,830)
Purchase of property and equipment (604) (282)
Net cash used in investing activities (604) (9,112)
Cash flows from financing activities    
Shares repurchased including vested restricted stock in exchange for withholding taxes (102)  
Payment of deferred finance costs 0 (286)
Proceeds from long-term debt 0 7,500
Payment of long-term debt   (1,742)
Net cash (used in) provided by financing activities (102) 5,472
Net decrease in cash, cash equivalents, and restricted cash (395) (2,408)
Cash, cash equivalents, and restricted cash at beginning of period 5,750 10,319
Cash, cash equivalents, and restricted cash at end of period 5,355 7,911
Reconciliation to amounts on consolidated balance sheets:    
Cash and cash equivalents 4,246 6,802
Restricted cash 1,109 1,109
Total cash, cash equivalents, and restricted cash 5,355 7,911
Supplemental disclosure of non-cash activities:    
Operating lease right-of-use asset 0 10,409
Operating lease obligation 0 13,210
Accrued rent offset to operating lease right-of-use assets 0 2,801
Settlement of seller note through offset to receivable   600
Settlement of contingent obligation through offset to note receivable   100
Issuance of common stock in connection with Halston Heritage assets acquisition 0 1,058
Contingent obligation related to acquisition of Halston Heritage assets at fair value 0 900
Liability for equity-based bonuses (68)  
Supplemental disclosure of cash flow information:    
Cash paid during the period for income taxes 17 10
Cash paid during the period for interest $ 290 $ 458
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current Assets:    
Cash and cash equivalents $ 4,246 $ 4,641
Accounts receivable, net 8,843 10,622
Inventory 788 899
Prepaid expenses and other current assets 1,433 1,404
Total current assets 15,310 17,566
Property and equipment, net 4,107 3,666
Operating lease right-of-use assets 8,913 9,250
Trademarks and other intangibles, net 109,955 111,095
Restricted cash 1,109 1,109
Other assets 490 505
Total non-current assets 124,574 125,625
Total Assets 139,884 143,191
Current Liabilities:    
Accounts payable, accrued expenses and other current liabilities 3,747 4,391
Accrued payroll 365 1,444
Current portion of operating lease obligation 1,800 1,752
Current portion of long-term debt 3,375 2,250
Total current liabilities 9,287 9,837
Long-Term Liabilities:    
Long-term portion of operating lease obligation 9,297 9,773
Long-term debt, less current portion 15,471 16,571
Contingent obligation 900 900
Deferred tax liabilities, net 6,882 7,434
Other long-term liabilities 224 224
Total long-term liabilities 32,774 34,902
Total Liabilities 42,061 44,739
Commitments and Contingencies
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 March 31, 2020 and December 31, 2019, respectively, and 19,047,561 and 18,866,417 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively 19 19
Paid-in capital 101,945 101,736
Accumulated deficit (4,464) (3,659)
Total Xcel Brands, Inc. stockholders' equity 97,500 98,096
Noncontrolling interest 323 356
Total Equity 97,823 98,452
Total Liabilities and Equity $ 139,884 $ 143,191
v3.20.1
Significant Contracts (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Product Information [Line Items]      
Net revenue $ 9,527 $ 10,301  
Accounts receivable, net 8,843   $ 10,622
Customer Concentration Risk [Member] | QVC, Inc. [Member]      
Product Information [Line Items]      
Net revenue 4,690 $ 6,860  
Accounts receivable, net $ 4,590   $ 4,330
Customer Concentration Risk [Member] | QVC, Inc. [Member] | Accounts Receivable [Member]      
Product Information [Line Items]      
Concentration Risk, Percentage 52.00%   41.00%
Customer Concentration Risk [Member] | QVC, Inc. [Member] | Sales [Member]      
Product Information [Line Items]      
Concentration Risk, Percentage 49.00% 82.00%  
v3.20.1
Earnings Per Share (Tables)
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Computation of Diluted Earnings Per Share

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

Basic

 

18,870,398

 

18,562,073

 

Effect of exercise of warrants

 

 —

 

690

 

Diluted

 

18,870,398

 

18,562,763

 

 

Anti-dilutive Securities Excluded from Computation of Earnings Per Share

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

Stock options and warrants

 

7,911,440

 

4,862,525

 

 

v3.20.1
Debt and Contingent Obligation - Maturity of Long Term Debt (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2020
USD ($)
Debt Instrument [Line Items]  
Repayment of loan as a percentage of Excess cash flow 50.00%
June 30, 2020, September 30, 2020, and December 31, 2020  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans $ 750
March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans 1,125
April 30, 2021  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans 750
March 31, 2022, June 30, 2022, September 30, 2022, and December 31, 2022  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans 1,125
March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023  
Debt Instrument [Line Items]  
Quarterly installment payments on term loans $ 1,250
v3.20.1
Stockholders' Equity - Additional Information (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2022
Jan. 01, 2022
Mar. 31, 2021
Jan. 01, 2021
Mar. 31, 2020
Mar. 13, 2020
Feb. 28, 2020
Jan. 31, 2020
Jan. 01, 2020
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Aggregate shares of common stock options granted (in shares)                   230,000    
Exercise price of options (in dollars per share)                   $ 2.23    
2011 Equity Incentive Plan                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized         13,000,000         13,000,000    
Shares of common stock available for issuance (in shares)         1,610,649         1,610,649    
Employee Stock Option                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Aggregate shares of common stock options granted (in shares)         50,000              
Exercise price of options (in dollars per share)         $ 0.61              
Vesting rights (percentage per year) 33.33%   33.33%                  
Unrecognized compensation expense related to unvested stock options         $ 276,000         $ 276,000    
Weighted average period of recognition                   1 year 8 months 16 days    
Employee Stock Option | Five year expiration                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Expiration period                   5 years    
Employee Stock Option | Seven year expiration                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Expiration period                   7 years    
Employee Stock Option | Ten year expiration                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Expiration period                   10 years    
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)           50,000            
Exercise price of options (in dollars per share)           $ 5.50            
Employee Stock Option | Consultant                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Aggregate shares of common stock options granted (in shares)               75,000        
Exercise price of options (in dollars per share)               $ 1.57        
Employee Stock Option | Board Observer                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Aggregate shares of common stock options granted (in shares)                 5,000      
Exercise price of options (in dollars per share)                 $ 4.00      
Vesting rights (percentage per year)   50.00%   50.00%                
Employee Stock Option | Employee [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Aggregate shares of common stock options granted (in shares)             50,000          
Exercise price of options (in dollars per share)             $ 1.40          
Restricted Stock                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Unrecognized compensation expense related to unvested stock options         $ 43,000         $ 43,000    
Weighted average period of recognition                   1 year    
Compensation expense related to restricted stock grants                   $ 23,000 $ 104,000  
Management Stock Bonus                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Compensation expense                   152,000    
Equity Option                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Compensation expense related to stock options                   68,000 $ 243,000  
Warrant                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Compensation expense                   $ 0   $ 0
Warrant | Five year expiration                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Expiration period                   5 years    
Warrant | Ten year expiration                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Expiration period                   10 years    
Warrant | 2011 Equity Incentive Plan                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Shares of common stock reserved for issuance (in shares)         9,812,233         9,812,233    
v3.20.1
Trademarks and Other Intangibles (Tables)
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Trademarks and Other Intangibles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

 

 

Average

 

March 31, 2020

 

 

Amortization

 

Gross Carrying

 

Accumulated

 

Net Carrying

($ in thousands)

 

Period

 

Amount

 

Amortization

 

Amount

Trademarks (indefinite-lived)

 

n/a

 

$

44,500

 

$

 —

 

$

44,500

Trademarks (finite-lived)

 

15 years

 

 

34,613

 

 

5,137

 

 

29,476

Trademarks (finite-lived)

 

18 years

 

 

38,194

 

 

2,598

 

 

35,596

Other intellectual property

 

7 years

 

 

762

 

 

455

 

 

307

Copyrights and other intellectual property

 

10 years

 

 

190

 

 

114

 

 

76

Total

 

 

 

$

118,259

 

$

8,304

 

$

109,955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

 

 

Average

 

December 31, 2019

 

 

Amortization

 

Gross Carrying

 

Accumulated

 

Net Carrying

($ in thousands)

 

Period

 

Amount

 

Amortization

 

Amount

Trademarks (indefinite-lived)

 

n/a

 

$

62,900

 

$

 —

 

$

62,900

Trademarks (finite-lived)

 

15 years

 

 

16,213

 

 

4,560

 

 

11,653

Trademarks (finite-lived)

 

18 years

 

 

38,194

 

 

2,067

 

 

36,127

Other intellectual property

 

7 years

 

 

762

 

 

428

 

 

334

Copyrights and other intellectual property

 

10 years

 

 

190

 

 

109

 

 

81

Total

 

  

 

$

118,259

 

$

7,164

 

$

111,095

 

v3.20.1
Related Party Transactions
3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

9.    Related Party Transactions

Benjamin Malka

Benjamin Malka was a director of the Company from June 2014 through September 2019. Mr. Malka is also a  25% equity holder of HIP’s parent company, House of Halston LLC (“HOH”), and is the former Chief Executive Officer of HOH.

On February 11, 2019, the Company and its wholly owned subsidiary, H Heritage Licensing, LLC, entered into an asset purchase agreement (the "Heritage Asset Purchase Agreement") with HIP and 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.

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 considerations, 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 Date, 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.

v3.20.1
Debt and Contingent Obligation
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt and Contingent Obligations

5. Debt and Contingent Obligation

Debt

 

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

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

($ in thousands)

    

2020

    

2019

 

Xcel Term Loan

 

$

19,000

 

$

19,000

 

Unamortized deferred finance costs related to term loan

 

 

(154)

 

 

(179)

 

Total

 

 

18,846

 

 

18,821

 

Current portion of long-term debt

 

 

3,375

 

 

2,250

 

Long-term debt

 

$

15,471

 

$

16,571

 

 

On February 11, 2019, the Company entered into an amended loan agreement with Bank Hapoalim B.M. (“BHI”), which amended and restated the prior Xcel Term Loan. Immediately prior to February 11, 2019, the aggregate principal amount of the prior Xcel Term Loan was $14.5 million. Pursuant to the Xcel Term Loan agreement, the Lenders extended to Xcel an additional term loan 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 was $22.0 million, which amount has been divided under the Xcel Term Loan agreement 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 terms and conditions of the Xcel Term Loan resulted in significantly different debt service payment requirements compared with the prior term debt with BHI. 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 prior year quarter. Upon entering into the 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.

On April 13, 2020, the Company further amended its Second Amended and Restated Loan and Security Agreement with BHI. Under this amendment, the quarterly installment payment due March 31, 2020 was deferred, and the amounts of the quarterly installment payments due throughout the remainder of 2020 were reduced, while the amount of principal to be repaid through variable payments based on excess cash flow was increased. In addition, there were multiple changes and waivers to the various financial covenants. Further, this amendment permits Xcel to incur unsecured debt through the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and excludes any associated PPP debt and debt service from the covenant calculations. There were no changes to the total principal balance, interest rate, or maturity date.

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 the Xcel Term Loan, as amended, is payable in fixed installments as follows:

 

 

 

 

 

($ in thousands)

Installment Payment Dates

    

Amount

June 30, 2020, September 30, 2020, and December 31, 2020

 

$

750

 

 

 

 

March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021

 

$

1,125

 

 

 

 

April 30, 2021

 

$

750

 

 

 

 

March 31, 2022, June 30, 2022, September 30, 2022, and December 31, 2022

 

$

1,125

 

 

 

 

March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023

 

$

1,250

 

In addition to the fixed installments outlined above, commencing with the fiscal quarter ended March 31, 2021, the Company is required to repay a portion of the Xcel Term Loan in an amount equal to 50% of the excess cash flow for the fiscal quarter, 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. To the extent that the cumulative amount of such variable repayments made is less than $2.00 million as of March 31, 2022, any such shortfall must be repaid at that date.

Thus, the aggregate remaining annual principal payments under the Xcel Term Loan are as follows:

 

 

 

 

 

 

 

Amount of

($ in thousands)

 

Principal

Year Ending December 31, 

    

Payment

2020

 

$

2,250

2021

 

 

5,250

2022

 

 

6,500

2023

 

 

5,000

Total

 

$

19,000

 

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.

Notwithstanding the above, Xcel may make a voluntary prepayment of up to $0.75 million without any early termination fees. Any such prepayment would be applied against the April 30, 2021 fixed installment payment and would be excluded from the computation of excess cash flows.

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 $3.25 million through the earlier of December 31, 2020 or such time as any PPP loan proceeds are received by the Company, at least $4.0 million through December 31, 2020 provided that PPP loan proceeds have been received by the Company, and at least $5.0 million thereafter;

·

EBITDA shall not be less than $5.0 million for the twelve fiscal month period ended March 31, 2020, and $4.8 million for the twelve fiscal month period ending June 30, 2020;

·

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:

 

 

 

 

Fiscal Quarter End

    

Fixed Charge Coverage Ratio

September 30, 2020

 

1.00 to 1.00

December 31, 2020, and thereafter

 

1.10 to 1.00

 

·

capital expenditures (excluding any capitalized compensation costs) shall not exceed $1.6 million for the fiscal year ending December 31, 2020, and $0.7 million for any fiscal year beginning after December 31, 2020; 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, 2019

 

2.90 to 1.00

June 30, 2020

 

4.25 to 1.00

September 30, 2020

 

3.50 to 1.00

December 31, 2020

 

2.75 to 1.00

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 March 31, 2020.

For the current and prior year quarter, the Company incurred aggregate interest expense related to term loan debt of approximately $288,000 and $260,000, respectively.

Contingent Obligation 

In connection with the February 11, 2019 purchase of the Halston Heritage Trademarks from the H Company IP, LLC (“HIP”), the Company agreed to pay HIP additional consideration (the “Halston Heritage Earn-Out”) of up to an aggregate of $6.0 million, based on royalties earned through December 31, 2022. The Halston Heritage Earn-Out of $0.9 million is recorded as a  long-term liability at March 31, 2020 and December 31, 2019 in the accompanying condensed consolidated balance sheets, 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 Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity,” 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.

v3.20.1
Debt and Contingent Obligation - Remaining Principal Payments on Term Loan (Details)
$ in Thousands
Mar. 31, 2020
USD ($)
Debt Disclosure [Abstract]  
2020 $ 2,250
2021 5,250
2022 6,500
2023 5,000
Total $ 19,000
v3.20.1
Stockholders' Equity - Summary of Stock Options Activity (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2022
Mar. 31, 2021
Mar. 31, 2020
Mar. 13, 2020
Mar. 31, 2020
Dec. 31, 2019
Number of Options            
Outstanding, beginning balance (in shares)         7,222,625  
Granted (in shares)         230,000  
Canceled (in shares)         0  
Exercised (in shares)         0  
Expired/Forfeited (in shares)         (121,000)  
Outstanding, ending balance (in shares)     7,331,625   7,331,625 7,222,625
Exercisable (in shares)     2,940,125   2,940,125  
Weighted Average Exercise Price            
Outstanding, beginning balance (in dollars per share)         $ 3.33  
Granted (in dollars per share)         2.23  
Canceled (in dollars per share)         0.00  
Exercised (in dollars per share)         0.00  
Expired/Forfeited (in dollars per share)         1.81  
Outstanding, ending balance (in dollars per share)     $ 3.32   3.32 $ 3.33
Exercisable (in dollars per share)     $ 5.04   $ 5.04  
Outstanding Weighted Average Remaining Contractual Life (in Years)         5 years 6 months 26 days 5 years 9 months 26 days
Exercisable Weighted Average Remaining Contractual Life (in Years)         1 year 10 months 13 days  
Aggregate Intrinsic Value, Outstanding     $ 0   $ 0 $ 0
Aggregate Intrinsic Value, Exercisable     $ 0   $ 0  
Employee Stock Option            
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]            
Vesting rights (percentage per year) 33.33% 33.33%        
Number of Options            
Granted (in shares)     50,000      
Weighted Average Exercise Price            
Granted (in dollars per share)     $ 0.61      
Employee Stock Option | Key Employees            
Number of Options            
Granted (in shares)       50,000    
Weighted Average Exercise Price            
Granted (in dollars per share)       $ 5.50    
Employee Stock Option            
Number of Options            
Granted (in shares)         230,000  
v3.20.1
Income Tax
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Tax

8.    Income Tax

The effective income tax rate for the current quarter and the prior year quarter was approximately 40% and 37%, respectively, resulting in an income tax (benefit) provision of $(0.55) million and $0.08 million, respectively.

For the current quarter, the federal statutory rate differs from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 8% and 4%, respectively. The effective tax rate was also attributable to the tax impact of a potential federal net operating loss carryback due to the CARES Act.  This item increased the effective rate by 7%.

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 the effective tax rate by approximately 10% and 7%, respectively.

On March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act includes certain provisions impacting businesses’ income taxes related to 2018, 2019, and 2020. Some of the significant tax law changes are to increase the limitation on deductible business interest expense for 2019 and 2020, allow for the five-year carryback of net operating losses for 2018-2020, suspend the 80% limitation of taxable income for net operating loss carryforwards for 2018-2020, provide for the acceleration of depreciation expense from 2018 and forward on qualified improvement property, and accelerate the ability to claim refunds of AMT credit carryforwards. The Company is required to recognize the effect of tax law changes on its financial statements in the period in which the law was enacted. At this time, the Company may avail itself of the ability to carry back net operating losses generated in 2018 and 2019 tax years for five years, resulting in an estimated income statement benefit of $98,000 and tax refund receivable of $203,000.

v3.20.1
Leases
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Leases

4. 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 approximately 2 years to 8 years.  

Under GAAP, a lessee is generally required to recognize a liability for its obligation to make future lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying leased asset for the lease term.  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 sheets. 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.

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 generally uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. 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.

As of March 31, 2020, the weighted average remaining operating lease term was 6.6 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 both the current and prior year quarter was $0.6 million.

As of March 31, 2020, the maturities of lease liabilities were as follows:

 

 

 

 

 

($ in thousands)

    

 

 

Remainder of 2020

 

$

1,817

2021

 

 

2,577

2022

 

 

1,732

2023

 

 

1,552

2024

 

 

1,552

After 2024

 

 

4,398

Total lease payments

 

 

13,628

Less: Discount

 

 

2,531

Present value of lease liabilities

 

 

11,097

Current portion of lease liabilities

 

 

1,800

Non-current portion of lease liabilities

 

$

9,297

 

v3.20.1
Nature of Operations, Background, and Basis of Presentation (Policies)
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update ("ASU") No. 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” effective January 1, 2020. This ASU adds, modifies, and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” The adoption of this new guidance did not have any impact on the Company’s results of operations, cash flows, and financial condition.

v3.20.1
Income Tax (Details) - USD ($)
3 Months Ended
Mar. 27, 2020
Mar. 31, 2020
Mar. 31, 2019
Effective income tax rate   40.00% 37.00%
Income tax expense (benefit)   $ (552,000) $ 75,000
State tax rate impacts   8.00% 10.00%
Permanent differences, tax expenses   4.00% 7.00%
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Percent   7.00%  
Operating Loss Carryback, Expiration Period 5 years    
COVID19 [Member]      
Income tax expense (benefit)   $ 98,000  
Income Taxes Receivable   $ 203,000  
v3.20.1
Nature of Operations, Background, and Basis of Presentation
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations, Background, and Basis of Presentation

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

The accompanying condensed consolidated balance sheet as of December 31, 2019 (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, 2019, as filed with the SEC on April 14, 2020.

The Company is a media and consumer products company engaged in the design, production, marketing, wholesale distribution, 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. The Company has developed a design, production, and supply chain capability driven by its proprietary integrated technology platform. Currently, the Company’s brand portfolio consists of the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the Judith Ripka brands (the "Ripka Brand"), the Halston brands (the "Halston Brands"), the C Wonder brands (the "C Wonder Brand"), and other proprietary brands. The Company also manages the Longaberger brand (“the Longaberger Brand”) through its 50% ownership interest in Longaberger Licensing, LLC. The Company designs, produces, markets, and distributes products, and in certain cases, licenses its brands to third parties, and generates licensing fees. The Company and its licensees distribute through a ubiquitous-channel retail sales strategy, which includes distribution through interactive television, the internet, and traditional brick-and-mortar retail channels.

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update ("ASU") No. 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” effective January 1, 2020. This ASU adds, modifies, and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” The adoption of this new guidance did not have any impact on the Company’s results of operations, cash flows, and financial condition.

v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
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) 19,047,561 18,866,417
Common stock, shares outstanding (in shares) 19,047,561 18,866,417
v3.20.1
Trademarks and Other Intangibles - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Goodwill and Intangible Assets [Line Items]      
Amortization expense for intangible assets $ 1,140 $ 770  
Trademarks      
Goodwill and Intangible Assets [Line Items]      
Finite useful life 15 years   15 years
Ripka Brands      
Goodwill and Intangible Assets [Line Items]      
Finite useful life 15 years    
v3.20.1
Stockholders' Equity (Tables)
3 Months Ended
Mar. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Summary of Stock Option Activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted

 

Remaining

 

 

 

 

 

 

 

Average

 

Contractual

 

Aggregate

 

 

Number of

 

Exercise

 

Life

 

Intrinsic

 

    

Options

    

Price

    

(in Years)

    

Value

Outstanding at January 1, 2020

 

7,222,625

 

$

3.33

 

5.82

 

$

 —

Granted

 

230,000

 

 

2.23

 

  

 

 

  

Canceled

 

 —

 

 

 —

 

  

 

 

  

Exercised

 

 —

 

 

 —

 

  

 

 

  

Expired/Forfeited

 

(121,000)

 

 

1.81

 

  

 

 

  

Outstanding at March 31, 2020, and expected to vest

 

7,331,625

 

$

3.32

 

5.57

 

$

 —

Exercisable at March 31, 2020

 

2,940,125

 

$

5.04

 

1.87

 

$

 —

 

Summary of Stock Option Activity for Non-Vested Options

 

 

 

 

 

 

 

    

 

    

Weighted

 

 

 

 

 Average 

 

 

Number of

 

Grant Date 

 

    

Options

    

Fair Value

Balance at January 1, 2020

 

4,551,500

 

$

0.18

Granted

 

230,000

 

 

0.17

Vested

 

(275,000)

 

 

0.70

Forfeited or Canceled

 

(115,000)

 

 

0.34

Balance at March 31, 2020

 

4,391,500

 

$

0.15

 

Summary of Restricted Stock Activity

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Number of

 

Average

 

 

Restricted

 

Grant Date

 

    

Shares

    

Fair Value

Outstanding at January 1, 2020

 

1,230,623

 

$

4.33

Granted

 

336,700

 

 

0.65

Canceled

 

 —

 

 

 —

Vested

 

(657,298)

 

 

2.45

Expired/Forfeited

 

 —

 

 

 —

Outstanding at March 31, 2020

 

910,025

 

$

4.33

 

Warrant  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Summary of Stock Option Activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted

 

Remaining

 

 

 

 

 

 

 

Average

 

Contractual

 

Aggregate

 

 

Number of

 

Exercise

 

Life

 

Intrinsic

 

    

Warrants

    

Price

    

(in Years)

    

Value

Outstanding and exercisable at January 1, 2020

 

579,815

 

$

4.63

 

2.32

 

$

 —

Granted

 

 —

 

 

 —

 

 

 

 

  

Canceled

 

 —

 

 

 —

 

 

 

 

  

Exercised

 

 —

 

 

 —

 

 

 

 

  

Expired/Forfeited

 

 —

 

 

 —

 

 

 

 

  

Outstanding and exercisable at March 31, 2020

 

579,815

 

$

4.63

 

2.07

 

$

 —