10-Q 1 xelb-20210331x10q.htm 10-Q

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, 2021

☐ 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 13, 2021, there were 19,326,574 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	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	28

PART II - OTHER INFORMATION		29

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	29

	Signatures	30

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, 2021		December 31, 2020
	(Unaudited)		(Note 1)
Assets
Current Assets:
Cash and cash equivalents	$	2,969	$	4,957
Accounts receivable, net of allowances of $1,284 and $1,151, respectively		8,647		8,889
Inventory		2,785		1,216
Prepaid expenses and other current assets		1,797		1,085
Total current assets		16,198		16,147
Property and equipment, net		3,360		3,367
Operating lease right-of-use assets		8,296		8,668
Trademarks and other intangibles, net		92,627		93,535
Restricted cash		1,109		1,109
Other assets		225		228
Total non-current assets		105,617		106,907

Total Assets	$	121,815	$	123,054

Liabilities and Equity
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities	$	5,938	$	4,442
Accrued payroll		1,283		973
Current portion of operating lease obligation		1,927		2,101
Current portion of long-term debt		2,500		2,800
Total current liabilities		11,648		10,316
Long-Term Liabilities:
Long-term portion of operating lease obligation		8,171		8,469
Long-term debt, less current portion		14,158		13,838
Contingent obligation		900		900
Deferred tax liabilities, net		2,918		3,052
Other long-term liabilities		224		224
Total long-term liabilities		26,371		26,483
Total Liabilities		38,019		36,799

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, and 19,262,529 and 19,260,862 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		19		19
Paid-in capital		102,493		102,324
Accumulated deficit		(19,142)		(16,595)
Total Xcel Brands, Inc. stockholders' equity		83,370		85,748
Noncontrolling interest		426		507
Total Equity		83,796		86,255

Total Liabilities and Equity	$	121,815	$	123,054

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)


	For the Three Months Ended
	March 31,
	2021		2020
Revenues
Net licensing revenue	$	4,307	$	5,641
Net sales		3,502		3,886
Net revenue		7,809		9,527
Cost of goods sold (sales)		1,835		2,400
Gross profit		5,974		7,127

Operating costs and expenses
Salaries, benefits and employment taxes		4,052		3,948
Other selling, general and administrative expenses		3,038		2,649
Costs in connection with potential acquisitions		—		80
Stock-based compensation		160		243
Depreciation and amortization		1,210		1,303
Total operating costs and expenses		8,460		8,223

Operating loss		(2,486)		(1,096)

Interest expense and other finance charges		280		294

Loss before income taxes		(2,766)		(1,390)

Income tax benefit		(138)		(552)

Net loss		(2,628)		(838)
Less: Net loss attributable to noncontrolling interest		(81)		(33)
Net loss attributable to Xcel Brands, Inc. stockholders	$	(2,547)	$	(805)

Loss per share attributable to Xcel Brands, Inc. common stockholders:
Basic net loss per share:	$	(0.13)	$	(0.04)
Diluted net loss per share:	$	(0.13)	$	(0.04)
Weighted average number of common shares outstanding:
Basic weighted average common shares outstanding		19,261,436		18,870,398
Diluted weighted average common shares outstanding		19,261,436		18,870,398

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)


	Xcel Brands, Inc. Stockholders

	Common Stock
	Number of			Paid-In		Accumulated		Noncontrolling		Total
	Shares	Amount		Capital		Deficit		Interest		Equity
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

Balance as of December 31, 2020	19,260,862	$	19	$	102,324	$	(16,595)	$	507	$	86,255

Compensation expense in connection with stock options and restricted stock	—		—		169		—		—		169

Shares issued on exercise of stock options, net	1,667		—		—		—		—		—

Net loss	—		—		—		(2,547)		(81)		(2,628)

Balance as of March 31, 2021	19,262,529	$	19	$	102,493	$	(19,142)	$	426	$	83,796

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	For the Three Months Ended March 31,
	2021		2020
Cash flows from operating activities
Net loss	$	(2,628)	$	(838)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization expense		1,210		1,303
Amortization of deferred finance costs		20		25
Stock-based compensation		160		243
Allowance for doubtful accounts		132		211
Deferred income tax benefit		(138)		(552)
Changes in operating assets and liabilities:
Accounts receivable		(377)		1,568
Inventory		(1,569)		111
Prepaid expenses and other assets		(222)		(13)
Accounts payable, accrued expenses and other current liabilities		1,819		(1,656)
Cash paid in excess of rent expense		(100)		(91)
Other liabilities		—		—
Net cash (used in) provided by operating activities		(1,693)		311

Cash flows from investing activities
Purchase of property and equipment		(295)		(604)
Net cash used in investing activities		(295)		(604)

Cash flows from financing activities
Shares repurchased including vested restricted stock in exchange for withholding taxes		—		(102)
Net cash used in financing activities		—		(102)

Net decrease in cash, cash equivalents, and restricted cash		(1,988)		(395)

Cash, cash equivalents, and restricted cash at beginning of period		6,066		5,750

Cash, cash equivalents, and restricted cash at end of period	$	4,078	$	5,355

Reconciliation to amounts on consolidated balance sheets:
Cash and cash equivalents	$	2,969	$	4,246
Restricted cash		1,109		1,109
Total cash, cash equivalents, and restricted cash	$	4,078	$	5,355

Supplemental disclosure of non-cash activities:
Liability for equity-based bonuses	$	(9)	$	(68)

Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes	$	15	$	17
Cash paid during the period for interest	$	236	$	290

See Notes to Unaudited Condensed Consolidated Financial Statements.

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XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

(Unaudited)

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

The accompanying condensed consolidated balance sheet as of December 31, 2020 (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, 2020, as filed with the SEC on April 23, 2021.

The Company is a media and consumer products company engaged in the design, production, marketing, live streaming, wholesale distribution, and direct-to-consumer sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands. 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 acquired the LOGO by Lori Goldstein brand, and the various labels under the brand, on April 1, 2021 (see Note 12).

The Company designs, produces, markets, and distributes products, licenses its brands to third parties, and generates licensing revenues. The Company and its licensees distribute through an omni-channel retail sales strategy, which includes distribution through interactive television, digital live-stream shopping, brick-and-mortar retail, wholesale, and e-commerce channels to be everywhere its customers shop.

Recently Adopted Accounting Pronouncements

On January 1, 2021, the Company adopted Accounting Standards Update ("ASU") No. 2019‑12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU removes certain exceptions to the general principles in Topic 740, including, but not limited to, intraperiod tax allocations and interim period tax calculations. The ASU also provides additional clarification and guidance related to recognition of franchise taxes and changes in tax laws. The adoption of this new guidance did not have any impact on the Company’s results of operations, cash flows, and financial condition.

Table of Contents

XCEL BRANDS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

(Unaudited)

2. Trademarks and Other Intangibles

Trademarks and other intangibles, net consist of the following:


	Weighted
	Average	March 31, 2021
	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		20,386		5,985		14,401
Trademarks (finite-lived)	18 years		38,194		4,723		33,471
Other intellectual property	7 years		762		564		198
Copyrights and other intellectual property	10 years		190		133		57
Total		$	104,032	$	11,405	$	92,627


	Weighted
	Average	December 31, 2020
	Amortization	Gross Carrying	Accumulated	Net Carrying
($ in thousands)	Period	Amount	Amortization

SEC Form 10-Q filed by Xcel Brands, Inc