XELB 10-K & 10-Q changes, risk factors and insider trading

We incurred net losses of approximately $22.6 million and $22.2 million during the years ended December 31, 2024 and 2023, respectively (which included non-cash expenses of approximately $20.3 million and $9.0 million, respectively), and had an accumulated deficit of approximately $76.2 million and $53.8 million as of December 31, 2024 and 2023, respectively. Net cash used in operating activities was $4.7 million in 2024 and $6.5 million in 2023. Our audited financial statements for the fiscal year ended December 31, 20242025 werehave been prepared under the assumption that we will continue as a going concern; however, we have incurred significant losses over the past several years and have used a significant amount of cash in operating activities. These factors raise significant uncertainties regarding our ability to meet our financial obligations and financing requirements. As such, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on executing our business plans and meeting our obligations as they come due within the next twelve months from the filing date of this Annual Report on Form 10-K. Accordingly, the accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and calculations of liabilities that might be necessary should bethe Company be unable to continue as a going concern.

Our auditor also included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 20242025 with respect to this uncertainty. Our auditor determined our ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding our available capital and the risk of bias in management’s judgments and assumptions in their determination. Although we intend to continue exploring strategic financing alternatives and operational efficiencies to improve liquidity, there can be no assurance that funding will be available on acceptable terms on a timely basis, or at all, or otherwise improve our liquidity. The various ways that we could raise capital carry potential risks. Any additional sources of financing will likely involve the issuance of our equity securities, which will have a dilutive effect on our stockholders. Any debt financing, if available, may involve restrictive covenants that may impact our ability to conduct our business. As such, we cannot conclude that such plans will be effectively implemented within one year after the date that the financial statements included in this Annual Report are filed with the SEC and there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern.

In the event that we fail in the future to makesatisfy anyother required paymentobligations under the agreements governing our indebtednessindebtedness, orincluding if we fail to comply with thesatisfying financial and operating covenants contained in those agreements,covenants, we would be in default with respect to that indebtedness and the lenders could declare such indebtedness to be immediately due and payable. ThereWe cancannot beassure no assuranceyou that the lenders will amend or grant waivers to the loan agreementagreements to adjust or eliminate covenants or waive our future non-compliance or breach of a financial or other covenant in the future. Failure to maintain our listing on Nasdaq would also result in a default under our term loan debt agreements, as amended.agreements. A debt default could significantly diminish the market value and marketability of our common stock and could result in the acceleration of the payment obligations under all or a portion of our indebtedness, or a renegotiation of our loan agreement with more onerous terms and/or additional equity dilution. Since our debt obligations are secured by substantially all our assets, upon a default, our lenders may be able to foreclose on our assets. Further, upon an event of default under the Senior Notes, the holders of the Senior Notes (other than IPX) have the right to convert the notes into shares of our common stock (i) initially at a fixed conversion price equal to $1.165 per share and (ii) after May 17, 2026, at a price equal to the lesser of (a) 85% multiplied by the lowest volume weighted average price of the common stock during the 10-trading day period prior to conversion and (b) $1.165. The issuance of shares upon any such conversion will significantly dilute our then-existing stockholders’ percentage ownership of the Company and would likely adversely impact the market price of our common stock.

Because we are dependent on these agreements for a significant portion of our revenues, if Qurate or G-III were to have financial difficulties, and/or if Qurate and/or G-III decide not to renew or extend their existing agreements with us, our revenue and cash flows could be reduced substantially. Our cash flow would also be significantly impacted if there were significant delays in our collection of receivables from these licensees. Additionally, we have limited control over the programming that Qurate devotes to our brands or its promotional sales with our brands (such as “Today’s Special Value” sales).brands. If Qurate reduces or modifies its programming or promotional sales related to our brands, our revenues and cash flows could be reduced substantially. In order to increase sales of a brand through Qurate, we generally require additional television programming time dedicated to the brand by Qurate. Qurate is not required to devote any minimum amount of programming time for any of our brands.

Our revenues are dependent on payments made to us under our licensing agreements. Although the licensing agreements for our brands typicallyoften require the advance payment to us of a portion of the licensing fees and in many cases provide for guaranteed minimum royalty payments to us, the failure of our licensees to satisfy their obligations under these agreements or their inability to operate successfully or at all, could result in their breach and/or the early termination of such agreements, the non-renewal of such agreements, or our decision to amend such agreements to reduce the guaranteed minimums or sales royalties due thereunder, thereby eliminating some or all of that stream of revenue. Moreover, during the terms of the license agreements, we are substantially dependent upon the efforts and abilities of our licensees to maintain the quality and marketability of the products bearing our trademarks, as their failure to do so could materially tarnish our brands, thereby harming our future growth and prospects. In addition, the failure of our licensees to meet their production, manufacturing, sourcing, and distribution requirements or actively market the branded licensed products could cause a decline in their sales and potentially decrease the amount of royalty payments (over and above the guaranteed minimums) due to us. A weak economy or softness in the apparel and retail sectors could exacerbate this risk. This, in turn, could decrease our potential revenues. The concurrent failure by several of our material licensees to meet their financial obligations to us could adversely affect our business, results of operations, and cash flows.

Our business is dependent on continued market acceptance of our brands, our joint venture brands,brands and any future brands we may acquire directly or through a joint venture,acquire, and the products of our licensees.

Although certain of our licensees guarantee minimum net sales and minimum royalties to us, some of our licensees are not yet selling licensed products or currently have limited distribution of licensed products, and a failure of our brands or of our joint venture brands or of products bearing our brands or our joint venture brands to achieve or maintain broad market acceptance could cause a reduction of our licensing revenues, diminish the value of and generally affect the operating results of our joint ventures, and could further cause existing licensees not to renew their agreements. Such failure could also cause the devaluation of our trademarks, which are our primary assets and the primary assets of our joint ventures,assets, making it more difficult for us or our joint ventures to renew our current licenses upon their expiration or enter into new or additional licenses for such trademarks. In addition, if such devaluation of our trademarks were to occur, a material impairment in the carrying value of one or more of our trademarks, which had an aggregate carrying value of $34.8$31.2 million as of December 31, 2024,2025, could also occur and be charged as an expense to our operating results. Continued market acceptance of our brands, our joint ventures’ brands,brands and our licensees’ products, as well as market acceptance of any future products bearing any future brands we may acquire, is subject to a high degree of uncertainty and constantly changing consumer tastes, preferences, and purchasing patterns. Creating and maintaining market acceptance of our licensees’ products and creating market acceptance of new products and categories of products bearing our marks may require substantial marketing efforts, which may, from time to time, also include our expenditure of significant additional funds to keep pace with changing consumer demands, which funds may or may not be available on a timely basis, on acceptable terms or at all. Additional marketing efforts and expenditures may not, however, result in either increased market acceptance of, or additional licenses for, our trademarks or increased market acceptance, or sales, of our licensees’ products. Furthermore, we do not actually design or manufacture all of the products bearing our marks, and therefore, have less control over such products’ quality and design than a traditional product manufacturer might have. The failure of our licensees and joint ventures to maintain the quality of their products could harm the reputation and marketability of our brands and our joint ventures’ brands, which would adversely impact our business and the business of our joint ventures.business.

Negative claims or publicity regarding Xcel, IM Topco, LLC, our brand co-developers, any future joint ventures, our or their brands, or our products could adversely affect our reputation and sales regardless of whether such claims are accurate. Social media, which accelerates the dissemination of information, can increase the challenges of responding to negative claims. In the past, many apparel companies have experienced periods of rapid growth in sales and earnings followed by periods of declining sales and losses. Our businesses may be similarly affected in the future.

We use and our joint ventures may use third-party social media platforms as, among other things, marketing tools. We also maintain, and our joint ventures may maintain,maintain relationships with many social media influencers and engage in sponsorship initiatives. As existing e-commerce and social media platforms continue to rapidly evolve and new platforms develop, we and our joint ventures must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media platforms. If we or our joint ventures are unable to cost-effectively use social media platforms as marketing tools or if the social media platforms we or our joint ventures use change their policies or algorithms, we or our joint ventures may not be able to fully optimize such platforms, and our and their ability to maintain and acquire customers and our financial condition may suffer.

Furthermore, as laws and regulations and public opinion rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, our network of social media influencers, our sponsorssponsors, or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices or otherwise could subject us to regulatory investigations, class action lawsuits, liability, finesfines, or other penalties and have a material adverse effect on our business, financial conditioncondition, and operating results.

In addition, an increase in the use of social media for product promotion and marketing may cause an increase in the burden on us and our joint ventures to monitor compliance of such materials, and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations. For example, in some cases, the Federal Trade Commission has sought enforcement action where an endorsement has failed to clearly and conspicuously disclose a financial relationship or material connection between an influencer and an advertiser.

Negative commentary regarding us, our joint venturesus or our or their products or influencers and other third parties who are affiliated with us or our joint ventures may also be posted on social media platforms and may be adverse to our or our joint ventures’ reputation or business. Influencers with whom we or our joint ventures maintain relationships could engage in behavior or use their platforms to communicate directly with our customers in a manner that reflects poorly on our or our joint ventures’ brandbrands and may be attributed to us or our joint ventures or otherwise adversely affect us or our joint ventures.us. It is not possible to prevent such behavior, and the precautions we and our joint ventures take to detect this activity may not be effective in all cases. Our and our joint ventures’ target consumers often value readily available information and often act on such information without further investigation and without regard to its accuracy. The harm may be immediate, without affording us and our joint ventures an opportunity for redress or correction.

We expect to achieve growth in our existing brands and brands we may develop independently or through collaborations or acquire through expansion of our licensing activities and social media e-commerce platforms, including ORME.platforms. We continue to seek new opportunities and international expansion through interactive television and licensing arrangements, as well as joint ventures and collaborations. The success of our company, however, will remain largely dependent on our ability to build and maintain broad market acceptance of our brands, co-developed brands,brands and joint ventureco-developed brands to contract with and retain key licensees and on our licensees’ and join venture partners’ ability to accurately predict upcoming fashion and design trends within customer bases and fulfill the product requirements of retail channels within the global marketplace.

Our ability to compete effectively and to manage future growth, if any, will depend on the sufficiency and adequacy of our current resources and infrastructure and our ability to continue to identify, attractattract, and retain personnel to manage our brands and integrate any brands we may acquire into our operations. There can be no assurance that our personnel, systems, proceduresprocedures, and controls will be adequate to support our operations and properly oversee our brands. The failure to support our operations effectively and properly oversee our brands could cause harm to our brands and have a material adverse effect on the value of such brands and on our reputation, business, financial conditioncondition, and results of operations. In addition, we may be unable to leverage our core competencies in managing apparel and jewelry brands to managing brands in new product categories.

Also, there can be no assurance that we will be able to achieve and sustain meaningful growth. Our growth may be limited by a number of factors including increased competition among branded products at brick-and-mortar, internetinternet, and interactive retailers, decreased airtime on QVC, HSN, and JTV, competition for retail licenses andlicenses, brand acquisitions, joint ventures and collaborations, and insufficient capitalization for future transactions.

Our success is largely dependent upon the efforts of Robert W. D’Loren, our Chief Executive Officer and Chairman of our board of directors. Our continued success is largely dependent upon his continued efforts and those of our other key executives. Although we have entered into an employment agreement with Mr. D’Loren, as well as employment agreements with other executives and key employees, such persons can terminate their employment with us at their option, and there is no guarantee that we will not lose the services of our executive officers or key employees. To the extent that any of their services become unavailable to us, we will be required to hire other qualified executives, and we may not be successful in finding or hiring adequate replacements. This could impede our ability to fully implement our business plan and future growth strategy, which would harm our business and prospects.

If we are unable to identify and successfully acquire additional trademarks or enter into joint ventures or collaborations for brands, our growth may be limited and, even if additional trademarks are acquired or joint ventures and collaborations are formed, we may not realize anticipated benefits due to integration or licensing difficulties.

While we are focused on growing our existing brands, we intend to selectively seek to acquire additional intellectual property, either directly or through the formation of joint ventures or collaborations. However, as our competitors continue to pursue a brand management model, acquisitions, joint ventures,acquisitions and collaborations may become more expensive and suitable candidates could become more difficult to find. In addition, even if we successfully acquire additional intellectual property or the rights to use additional intellectual property, we may not be able to achieve or maintain profitability levels that justify our investment in, or realize planned benefits with respect to, those additional brands.

Although we will seek to temper our acquisition, joint venture,acquisition and collaboration risks by following guidelines relating to purchase price and valuation, projected returns, existing strength of the brand, its diversification benefits to us, its potential licensing scale and creditworthiness of licensee base, acquisitions, joint ventures,acquisitions and collaborations, whether they be of additional intellectual property assets or of the companies that own them, entail numerous risks, any of which could detrimentally affect our reputation, our results of operations, and/or the value of our common stock. These risks include, among others:

When we acquire intellectual property assets or the companies that own them, or enter into joint ventures or collaborations, our due diligence reviews are subject to inherent uncertainties and may not reveal all potential risks. We may therefore fail to discover or inaccurately assess undisclosed or contingent liabilities, including liabilities for which we may have responsibility as a successor to the seller or the target company. As a successor, we may be responsible for any past or continuing violations of law by the seller or the target company. Although we will generally attempt to seek contractual protections through representations, warrantieswarranties, and indemnities, we cannot be sure that we will obtain such provisions or that such provisions will fully protect us from all unknown, contingentcontingent, or other liabilities or costs. Finally, claims against us relating to any acquisition may necessitate our seeking claims against the seller for which the seller may not, or may not be able to, indemnify us or that may exceed the scope, durationduration, or amount of the seller’s indemnification obligations.

Acquiring additional intellectual property could also have a significant effect on our financial position and could cause substantial fluctuations in our quarterly and yearly operating results. Acquisitions and joint ventures could result in the recording of significant goodwill and intangible assets on our financial statements, the amortization or impairment of which would reduce our reported earnings in subsequent years. No assurance can be given with respect to the timing, likelihoodlikelihood, or financial or business effect of any possible transaction. Moreover, our ability to grow through the acquisition of additional intellectual property, joint ventures and collaborationsproperty will also depend on the availability of capital to complete the necessary acquisition arrangements. In the event that we are unable to obtain debt financing on acceptable terms for a particular transaction, we may elect to pursue the transaction through the issuance by us of shares of our common stock (and, in certain cases, convertible securities) as equity consideration, which could dilute our common stock and reduce our earnings per share, and any such dilution could reduce the market price of our common stock unless and until we were able to achieve revenue growth or cost savings and other business economies sufficient to offset the effect of such an issuance. Acquisitions of additional brands may also involve challenges related to integration into our existing operations, merging diverse cultures, and retaining key employees. Any failure to integrate additional brands successfully in the future may adversely impact our reputation and business.

Because of the intense competition within our existing and potential wholesale licensees’ markets and the strength of some of their competitors, we and our licensees may not be able to continue to compete successfully.

To the extent we seek to acquire additional brands, we will face competition to retain licenses and to complete such acquisitions. The ownership, licensing, and management of brands is becoming a more widely utilized method of managing consumer brands as production continues to become commoditized and manufacturing capacity increases worldwide. We face competition from numerous direct competitors, both publicly and privately-held, including traditional apparel and consumer brand companies, other brand management companiescompanies, and private equity groups. Companies that traditionally focused on wholesale manufacturing and sourcing models are now exploring licensing as a way of growing their businesses through strategic licensing partners and direct-to-retail contractual arrangements. Furthermore, our current or potential licensees may decide to develop or purchase brands rather than renew or enter into contractual agreements with us. In addition, this increased competition could result in lower sales of products offered by our licensees under our brands. If our competition for licenses increases, it may take us longer to procure additional licenses, which could slow our growth rate.

For instance, despite our efforts to protect and enforce our intellectual property rights, unauthorized parties may attempt to copy aspects of our intellectual property, which could harm the reputation of our brands, decrease their value, and/or cause a decline in our licensees’ sales and thus our revenues. Further, we and our licensees may not be able to detect infringement of our intellectual property rights quickly or at all, and at times, we or our licensees may not be successful in combating counterfeit, infringing, or knockoff products, thereby damaging our competitive position. In addition, we depend upon the laws of the countries where our licensees’ products are sold to protect our intellectual property. Intellectual property rights may be unavailable or limited in some countries because standards of registration and ownership vary internationally. Consequently, in certain foreign jurisdictions, we have elected or may elect not to apply for trademark registrations.

The combined voting power of the common stock ownership of our directors and executive officers was approximately 40%30% of our voting securities as of AprilMarch 5,3, 2025.2026. As a result, our management through such stock ownership will exercise significant influence over all matters requiring shareholder approval, including the election of our directors and approval of significant corporate transactions. This concentration of ownership in management may also have the effect of delaying or preventing a change in control of us that may be otherwise viewed as beneficial by stockholders other than management. There is also a risk that our existing management and a limited number of stockholders may have interests which are different from certain stockholders and that they will pursue an agenda which is beneficial to themselves at the expense of other stockholders.

In order to assist in bringing us in compliance with the minimum bid price requirement, we effected a one-for-ten (1:10) reverse stock split of our outstanding shares of common stock effective March 24, 2025. On April 8, 2025, we received a letter from the Listing Qualifications Department of Nasdaq confirming that we had regained compliance with the applicable listing rules, and this matter was closed. AsHowever, ofthere Maycan 2,be 2025,no assurance that the closingminimum bid price offor our common stock waswill $2.79.continue to stay above $1.00 per share in the future.

Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practicepractices and disclosure requirements could impede the sale of our common stock even if and when our common stock becomes listed on the NASDAQ Capital Market. In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common stock.

A pandemic or outbreak of disease or similar public health threat, such as the COVID-19 pandemic, or fear of such an event, could have a material adverse impact on our business, operating results, and financial condition. The COVID-19 pandemic caused a disruption to our business, beginning in March 2020.

In addition, the effects of the COVID-19 pandemic on the shipping industry negatively impacted our licensees’ ability to import products in a manner that allowed for timely delivery to customers. Congestion at ports of loading and ports of entry caused significant delays in deliveries and changes to the itineraries of steamship carriers. Truck driver shortages, shortages of truck equipmentequipment, and the inability of ports to provide reliable pick up times, also negatively impacted our and our licensees’ ability to timely receive goods in the past. If our licensees are unable to mitigate any potential future supply chain disruptions, their ability to meet customer expectations, manage inventory and complete sales could be materially adversely affected, which could adversely affect our results of operations.

The success of our operations depends on consumer spending. Consumer spending is impacted by a number of factors which are beyond our control, including actual and perceived economic conditions affecting disposable consumer income (such as unemployment, wages, energy costscosts, and consumer debt levels), customer traffic within shopping and selling environments, business conditions, interest ratesrates, tax rates, and the availability of credit and tax rates in the general economy and in the international, regionalregional, and local markets in which our products are sold and the impact of natural disasters and pandemics and disease outbreaks.sold. Global economic conditions historically included significant recessionary pressures and declines in employment levels, disposable income and actual and/or perceived wealthwealth, and further declines in consumer confidence and economic growth. A depressed economic environment is often characterized by a decline in consumer discretionary spending and has disproportionately affected retailers and sellers of consumer goods, particularly those whose goods are viewed as discretionary or luxury purchases, including fashion apparel and accessories such as ours. Such factors as well as another shift towards recessionary conditions havehave, in the past, and could in the future, devalue our brands, which could result in an impairment in its carrying value, which could be material, create downward pricing pressure on the products carrying our brands, and adversely impact our sales volumesrevenues and overall profitability. Further, economic and political volatility and declines in the value of foreign currencies could negatively impact the global economy as a whole and have a material adverse effect on the profitability and liquidity of our operations, as well as hinder our ability to grow through expansion in the international markets. In addition, domestic and international political situations also affect consumer confidence, including the threat, outbreak or escalation of terrorism, military conflicts or other hostilities around the world. Furthermore, changes in the credit and capital markets, including market disruptions, limited liquidity, and interest rate fluctuations, may increase the cost of financing or restrict our access to potential sources of capital for future acquisitions.

Our business is also subject to risks associated with U.S. and foreign legislation, regulations and trade agreements (including those resulting from the transition to new political administrations) relating to the products and materials our licensees import, including quotas, duties, tariffs or taxes, and other charges or restrictions on imports on our branded and co-branded products. For example, the United States has recently enacted and proposed to enact significant new tariffs, including a 25% tariff on imports from Mexico and Canada into the United States. While these tariffs are currently suspended while negotiations take place for a long-term agreement, thereThere continues to exist significant uncertainty about the future relationship between the U.S. and other countries (including China) with respect to trade policies, treaties and tariffs. These developments, or the perception that they could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted countries.

We rely significantly on our information technology systems to effectively manage and maintain our operations, and internal reports. Any failure, inadequacy, or interruption of that infrastructure or security lapse (whether intentional or inadvertent) of that technology, including cybersecurity incidents or attacks, could harm our ability to operate our business effectively. Our investment in ORME also leverages certain artificial intelligence (AI) technologies, which ORME’s technology partner licenses from several third parties including but not limited to Amazon and ChatGPT, and which technologies are nascent and rapidly evolving.

As part of our business, we collect, store, and transmit large amounts of confidential information, proprietary data, intellectual property, and personal data. The information and data processed and stored in our technology systems, and those of our licensees, joint ventures,licensees and other third parties on whom we depend to operate our business, may be vulnerable to loss, damage, denial-of-service, unauthorized access, or misappropriation. Data security incidents may be the result of unauthorized or unintended activity (or lack of activity) by our employees, contractors, or others with authorized access to our network or malware, hacking, business email compromise, phishing, ransomware, or other cyberattacks directed by third parties. While we have implemented measures to protect our information and data stored in our technology systems and those of the third parties that we rely on, our efforts may not be successful. In addition, employee error, malfeasance, or other errors in the storage, use, or transmission of any such information could result in a disclosure to third parties outside of our network. As a result, we could incur significant expenses addressing problems created by any such inadvertent disclosure or any security breaches of our network.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our Annual Report on Form 10-K our assessment of the effectiveness of our internal control over financial reporting. We have dedicated a significant amount of time and resources to comply with this legislation for the years ended December 31, 20242025 and 2023,2024, and will continue to do so for future fiscal periods. However, our management haspreviously concluded that our internal control over financial reporting was not effective as of December 31, 2024 and 2023 due to a material weaknesses.weakness associated with financial information related to an investment in an unconsolidated affiliate. We have remediated this material weakness during 2025. However, we cannot be certain that our internal controls in place and operating as of December 31, 2025 will becomecontinue to be effective or that future material changes to our internal control over financial reporting will be effective. If we cannot adequately obtain and maintain the effectiveness of our internal control over financial reporting, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our common stock. Moreover, if we discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price.

Xcel continuesis to pioneerpioneering a true omni-channel and social commerce sales strategy which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, social commerce, traditional brick-and-mortar retailers, and e-commerce channels, to be everywhere its customers shop. Our brands have generated over $5 billion in retail sales via live streaming in interactive television and digital channels alone, and our brands collectively reach over 5 million social media followers through Facebook, Instagram, and TikTok. All of the followers may not be unique followers, as many followers may follow multiple brands and follow our brands on multiple platforms.channels.

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

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that are the most important to the portrayal of our financial condition and results of operations, and that require our most difficult, subjective, and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. While our significant accounting policies and estimates are described in more detail in the notes to our consolidated financial statements, our most critical accounting policies and estimates, discussed below, pertain to revenue recognition, trademarks and other intangible assets, equityinvestments methodin investments,unconsolidated affiliates, and income taxes. These include but are not limited to: the estimation of the useful lives of our trademarks, and the estimation of future cash flows related to our trademarks; the estimationvaluation ofand theaccounting fair value offor our equityinvestments methodin investments,unconsolidated affiliates, and judgment as to whether any declines in value are temporary; and the estimation of our future income projections and the likelihood that we will be able to realize our deferred tax assets. In applying such policies, we must use some amounts that are based upon our informed judgments and best estimates. Estimates, by their nature, are based upon judgments and available information. The estimates that we make are based upon historical factors, current circumstances, and the experience and judgment of management. We evaluate our assumptions and estimates on an ongoing basis.

In connection with our “licensing plus” business model, weWe follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606-10-55-65, by which we recognize licensing revenue at the later of when (1) the subsequent sale or usage occurs or (2) the performance obligation to which some or all of the sales- or usage-based royalty has been allocated is satisfied (in whole or in part). More specifically, we separately identify:

Our finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. To test our finite-lived intangible assets for impairment, we group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of undiscounted future cash flows.flows which are based on revenue growth estimates. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flows analysis or appraisals.

SubsequentWe recognitionaccount for our investments in entities over which we have the ability to exercise significant influence, but do not control, under the equity method of anaccounting, investor’sand recognize our proportionate share of income or losses from the entity within other operating costs and expenses (income) in our consolidated statements of operations. The proportionate share of income or losses of an equity method investee is generally determined based on the investor’s proportional ownership interest. However, in cases where contractual agreements specify allocation ratios for profits and losses, specified costs and expenses, and/or distributions of cash from operations, that differ from our ownership interest, we use such specified allocation ratios for purposes of determining our share of income or losses from the investee if the agreement is considered substantive. As of December 31, 2025, we no longer have any investments accounted for under the equity method.

In addition, we review our equityinvestments methodin investmentsunconsolidated affiliates that are not accounted for at fair value whenever there are indicators that their carrying value may not be recoverable; if a decrease in value of the investment has occurred and such decrease is determined to be other than temporary in nature, we record an impairment charge to reduce the carrying amount of the investment to its fair value. During the year ended December 31, 2024, we recognized a $5.75 million non-cash charge for the other-than-temporary impairment of our investment in IM Topco, LLC, stemming from a decline in the fair value of the investment as a result of decreases in IM Topco, LLC’s revenues and cash flows. There were no such comparable impairment charges for the year ended December 31, 2023.

Current Year netNet revenue decreased approximately $9.5$3.32 million to $8.3$4.94 million for the Current Year, from $17.8$8.26 million for the Prior Year.

Cost of Goods Sold and Gross Profit

Direct operating costs and expenses decreased approximately $10.41$4.19 millionmillion, from $23.17$12.76 million in the Prior Year to $12.76$8.57 million in the Current Year. This decrease was primarily attributable to (i) the 2023 restructuring and transformation of our business operating model, which included reductions in staffing levels as well as related reductions in other overhead costs, as well as(ii) additional actions taken in 2024 to further optimize our cost structure (including the divestiture of the Lori Goldstein Brand, which eliminated certain operating and compensation expenses)., and (iii) the impact of the employee retention tax credit recognized in the Current Year.

Also duringDuring the CurrentPrior Year, we recognized asset impairment charges of approximately $3.48 million related to our exit from and sublease of our officesoffice space at 1333 Broadway, of which approximately $3.1 million related to the operating lease right-of-use asset and approximately $0.4 million related to leasehold improvements at that location. There were no comparable asset impairment charges recognized during the Current Year.

The estimated annual effective income tax rate for the Current Year was approximatelyless than -1%, resulting in an income tax provision of $0.22$0.08 million. During the Current Year, the effective tax rate differed from the federal statutory rate primarily due to the recording of a valuation allowance against the benefit that would have otherwise been recognized for the year, as it was considered not more likely than not that the net operating losses generated during the year will be utilized in future periods.

The estimated annual effective income tax rate for the Prior Year was approximately -6%,-1%, resulting in a $1.21 millionan income tax provision.provision of $0.22 million. During the Prior Year, the federaleffective statutorytax rate differed from the effectivefederal taxstatutory rate primarily due to the initial establishmentrecording of a valuation allowance against the Company’sbenefit cumulativethat netwould deferredhave taxotherwise assets,been recognized for the year, as it was determined that it wasconsidered not more likely than not that the net operating losses generated byduring the Companyyear will be utilized in future periods.

We had a non-GAAP net loss of $5.2 million or $(1.52) per share (“non-GAAP diluted EPS”) based on 3,435,816 weighted average shares outstanding for the Current Year, compared with a non-GAAP net loss of $5.1 million or $(2.23) per share based on 2,275,332 weighted average shares outstanding for the Prior Year. Non-GAAP net income (loss) is a non-GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders, exclusive of asset impairment charges (if any), amortization of trademarks, income (loss) from equity investments, stock-based compensation and cost of licensee warrants, loss on early extinguishment of debt (if any), gains on sales of assets and investments (if any), and income taxes. Non-GAAP net income (loss) and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy We had Adjusted EBITDA of approximately $(3.52.3) million for the Current Year, compared with Adjusted EBITDA of approximately $(5.73.5) million for the Prior Year. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders before interest and finance expenses (including loss on extinguishment of debt, if any), accretion of lease liability for exited leases, income taxes, other state and local franchise taxes, depreciation and amortization, income (loss) from equity method investments, contingent reduction in equity ownership of IM Topco, LLC, asset impairment charges,charges (if any), stock-based compensation and cost of licensee warrants, gains on sales of assets and investments,investments gain(if on lease termination,any), and costs associated with restructuring of operations. Costs associated with restructuring of operations include(including operating losses generated by certain of our businesses that have been restructured or discontinued (i.e., wholesale apparel and fine jewelry),discontinued, as well as non-cash charges associated with the restructuring of certain contractual arrangements.arrangements, and severance payments).

As of December 31, 20242025 and 2023,2024, our unrestricted cash and cash equivalents were $1.3approximately $1.2 million and $3.0$1.3 million, respectively.

Our principal capital requirements have generally been to fund working capital needs,needs and acquire new brands, and to a lesser extent, capital expenditures.brands. Our current “licensing plus” operating model is a working capital light business model, and generally does not require material capital expenditures. As of December 31, 2024,2025, we have no significant commitments for future capital expenditures. Material cash requirements from known contractual and other obligations are discussed under “Obligations and Commitments” below.

Our working capital (which we calculate in a non-GAAP manner as current assets less current liabilities, excluding the current portions of lease obligations, deferred revenue, and any contingent obligations payable in shares) surplus/(deficit) was $0.8$(0.8) million and $3.0$0.8 million as of December 31, 20242025 and 2023,2024, respectively. Commentary on components of our cash flows for the Current Year compared with the Prior Year is set forth below.

We operate in a highly competitive industry that involves numerous known and unknown risks and uncertainties that could impact our operations. The risks described below and in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025 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.

Xcel Brands, Inc. (“Xcel,” the “Company,” “we,” “us,” or “our”) is a media and consumer products company engaged in the design, licensing, marketing, live streaming, and social commerce sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the development of influencer led brands and the acquisition of dynamic consumer lifestyle brands. Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as social commerce.

Also, as of March 31, 2026, ourOur brand portfolio also previously included the Judith Ripka brand, which was wholly owned by Xcel; this brand was sold to a third party as of(through April 27, 2026.2026) Additionally, through October 1, 2025, we heldand a noncontrolling ownership interest in the Isaac Mizrahi brand.brand (through October 1, 2025).

Three months ended MarchJune 31,30, 2026 (the “current quarter”) compared with the three months ended MarchJune 31,30, 2025 (the “prior year quarter”)

Current quarter net revenue decreased by $0.19$0.20 million to $1.14$1.12 million from $1.33$1.32 million for the prior year quarter. This decrease was primarily driven by Qurate’sthe transitionloss toof licensing revenue as a newresult apparel supplier forof the Csale Wonderof the Judith Ripka brand in DecemberApril 2025, which negatively impacted Qurate sales for this brand and our associated licensing revenues during the current quarter.2026.

DirectOur total direct operating costs and expenses decreaseddeclined approximately $0.212% million,to from$1.86 $2.28million in the current quarter compared to $1.90 million in the prior year quarterquarter, toas $2.07 millionreductions in the currentCompany’s quarter.payroll Thisand benefits costs were partially offset by a net increase in other selling, general and administrative expenses. The decrease in payroll and benefits costs was primarily attributabledue to cost reduction actions taken by management in 2025, which reducedwhile the Company’syear-over-year payrollincrease andin benefits costs. Otherother selling, general,general and administrative expenses forwas primarily attributable to the currentone-time quarterimpact wereof essentiallythe flatemployee comparedretention tocredit recognized in the prior year quarter.

Depreciation and amortization expense wasdecreased reasonablyto consistent with the prior year, approximating $0.89$0.81 million in the current quarter andfrom $0.90 million in the prior year quarter.quarter; this decline was primarily attributable to the sale of the Judith Ripka brand trademarks in April 2026.

For the threeprior monthsyear ended March 31, 2025,quarter, we recognized a $0.34$0.18 million loss related to our investment in IM Topco, comprised of (i) a $0.18 million equity method loss, (ii) a $0.40 million charge to adjust the carrying value of the investment in IM TopcoTopco. to its estimated fair valueHowever, as of March 31, 2025, and (iii) a $(0.24) million adjustment to the carrying value of a contingent contractual obligation related to IM Topco. As all remaining IM Topco equity interestsinterest werewas transferred to WHP on October 1, 2025, there were no earnings or losses from equity investments for the threecurrent months ended March 31, 2026.quarter.

Interest and finance expense was approximately $0.59$0.87 million for the current quarter, compared with approximately $0.56$2.34 million for the prior year quarter. This increasedecrease was primarily attributable to the higher$1.85 principalmillion balanceloss on outstandingearly extinguishment of debt recognized in the prior year quarter related to the April 2025 refinancing of our term loan debtdebt, compared with a much smaller comparable loss of $0.15 million recognized in the current quarter as comparedrelated to the priorApril year2026 quarter,debt refinancing. This decrease was partially offset by lowerhigher interest ratesexpense onand other finance charges, primarily driven by higher overall outstanding termdebt loan debtbalances in the current quarter as compared to the prior year quarter.

The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately -0.5%-0.8% and -1.8%0.0%, respectively, resulting in an income tax provision (benefit) of $0.01$0.02 million and $0.05 million,$0, respectively. TheFor both periods, the federal statutory rate differed from the effective tax rate primarily due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.periods

We had a non-GAAP net loss of approximately $1.39$1.29 million, or $(0.240.21) per diluted share (“non-GAAP diluted EPS”), for the current quarter and a non-GAAP net loss of $1.37$0.90 million, or $(0.580.37) per diluted share, for the prior year quarter. Non-GAAP net income (loss) is a non-GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders, exclusive of amortization of trademarks, income (loss) from equity investments, stock-based compensation and cost of licensee warrants, loss on early extinguishment of debt (if any), gainscharges onrelated salesto the sale of assetsthe andJudith investmentsRipka (if any), asset impairment charges (if any),brand, and income taxes (if any). Non-GAAP net income (loss) and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy.

We had Adjusted EBITDA of approximately $(0.700.48) million for the current quarter, compared with approximately $(0.700.30) million for the prior year quarter. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders before interest and finance expense (including loss on extinguishment of debt, if any), accretion of lease liability for exited leases, income taxes, other state and local franchise taxes, depreciation and amortization, income (loss) from equity investments, asset impairment charges (ifrelated any),to the sale of the Judith Ripka brand, stock-based compensation and cost of licensee warrants, gains on sales of assets and investments (if any), and costs associated with restructuring of operations.

As of MarchJune 31,30, 2026 and December 31, 2025, our unrestricted cash and cash equivalents were approximately $0.18$0.40 million and $1.15 million, respectively.

Restricted cash at MarchJune 31,30, 2026 consisted of $1.08$0.62 million of cash deposited as collateral for a standby letter of credit associated with a real estate lease. Restricted cash at December 31, 2025 consisted of $0.74 million of cash deposited as collateral for a standby letter of credit associated with a real estate lease and $1.00 million of cash deposited in a bank account to satisfy a liquidity covenant in the Company’s term loan debt agreement.

Our principal capital requirements have generally been to fund working capital needs and acquire new brands. Our current “licensing plus” operating model is a working capital light business model, and generally does not require material capital expenditures. As of MarchJune 31,30, 2026, we havehad no significant commitments for future capital expenditures.

Our working capital (which we calculate in a non-GAAP manner as current assets less current liabilities, excluding the current portions of lease obligations, deferred revenue, and any contingent obligations payable in shares or via other non-cash means) surplus/(deficit) was approximately $(0.171.28) million and $(0.80) million as of MarchJune 31,30, 2026 and December 31, 2025, respectively. TheseOur working capital deficit amounts notably included the current portion of Term Loan A debt ($2.75 million as of MarchJune 31,30, 2026 andnotably $3.25includes $1.87 million as of Decemberliabilities 31,for 2025),our Senior Secured Notes, which waswere subsequentlyrecently refinancedissued in April 2026 and have a maturity date of in April 2027 (see below for additional details related to this refinancing transaction).

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of MarchJune 31,30, 2026 we have incurred recurring losses, a history of cash flows used in operating activities, and an accumulated deficit. While we have undertaken significant restructuring and cost reduction efforts, obtained additional funding through a combination of equity issuances and debt financing, and continue to explore strategic financing alternatives and operational efficiencies to improve liquidity, management has determined that there is nonetheless substantial doubt about the Company’s ability to meet its financial obligations as they become due within twelve months from the date these financial statements are issued.

Net cash used in operating activities was approximately $0.88$2.73 million in the current quarter,six months, compared with approximately $1.43$3.80 million in the prior year quarter.six months.

The current quartersix months net cash used in operating activities was primarily attributable to the combination of the net loss of $(2.494.97) million plus non-cash items of approximately $1.51$3.14 million and the net change in operating assets and liabilities of approximately $0.10$(0.90) million. Non-cash items were primarily comprised of $0.89$1.71 million of depreciation and amortization expense, and $0.45$1.01 million of aggregate non-cash interest expenses. The net change in operating assets and liabilities was primarily driven by approximately $0.85 million of net increases in accounts payable, accrued expenses, accrued income taxes payable, and other current liabilities, and a decrease in accounts receivable of approximately $0.30 million, partially offset by an increase in prepaid expenses and other current and non-current assets of $(0.60) million, a decreasechanges in deferred revenue of $(0.23) million and a decrease in lease-related assets and liabilitiesbalances of $(0.210.80) million.

The prior year quartersix months net cash used in operating activities was primarily attributable to the combination of the net loss of $(2.806.79) million plus non-cash items of approximately $1.45$4.77 million and the net change in operating assets and liabilities of approximately $(0.081.78) million. Non-cash items were primarily comprised of approximately $0.90 million of depreciation and amortization expense, $0.34$0.52 million of losses related to our equity method investments, $0.11$1.85 million from the loss on early extinguishment of debt, $1.80 million of stock-based compensationdepreciation and costamortization of licensee warrants,expense, and $0.10$0.37 million of amortizationvarious ofnon-cash deferredinterest finance costs.expenses. The net change in operating assets and liabilities was primarily comprised of (i) approximately $(1.56) million of payments of accounts payable, accrued expenses, accrued income taxes payable, and other current liabilities, plus (ii) a decrease in deferred revenue of $(0.210.50) million and a decrease in lease-related assets and liabilities of $(0.08) million, partially offset by a decrease in accounts receivable of approximately $0.16 million.

There was no net cash used in investing activities in the current quarter. Net cash used in investing activities in the prior year quartersix months was comprised of purchases of equipment totaling approximately $0.01 million.

Net cash provided by financing activities in the prior year quartersix months was primarily attributable to $2.05 million of proceeds received from the delayed draw portion of the Company’s December 2024 term loan agreement.agreement, and $3.62 million of proceeds received from the Company’s April 2025 refinancing of its term loan debt. This was partially offset by $(0.53) million of deferred finance costs paid in connection with the April 2025 refinancing, and $(0.50) million of principal payments made on the Company’s term loan debt.

The aggregate number of shares that the Company can sell White Lion under this agreement is limited to and may not exceed 1,178,173 shares (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split, or other similar transaction), which is equal to 19.99% of the total shares of the Company’s common stock outstanding immediately prior to the execution of the agreement, unless (i.i) the Company obtains stockholder approval to issue additional shares in excess of this amount, or (ii.ii) the average price paid for all shares of Common Stock issued under the agreement equals or exceeds certain levels as specified in the agreement. Through July 31, 2026, we issued 382,500 shares under the equity line.

In consideration for White Lion’s execution and entry into such arrangement, the Company agreed to issue White Lion $37,500 worth of common stock, with the number of shares issued determined based on the closing price of the Company’s stock on the business day immediately preceding the day on which the related registration statement is declared effective by the SEC; on May 6, 2026,accordingly, the Company issued 16,094 shares of common stock to White Lion inon fullMay satisfaction6, of this condition.2026. Additionally, pursuant to the terms of an advisory agreement between the Company and Maxim Group LLC, the Company agreed to pay Maxim Group LLC a cash fee equal to 4.0% of the gross proceeds received from any sales of securities to White Lion under this arrangement.

At any time after the occurrence of an event of default under the Secured Notes and for so long as such event of default is continuing, the Secured Notes are convertible into shares of common stock of the Company (i) initially at a fixed conversion price equal to $1.165 per share in the case of SFT and Quick or $1.435 per share in the case of IPX and (ii) after May 17, 2026, at a price equal to the lesser of (a) 85% multiplied by the lowest volume weighted average price of the common stock during the 10-trading day period prior to conversion and (b) $1.165.$1.165 in the case of SFT and Quick or $1.435 per share in the case of IPX. In addition, to the extent that Company is listed on the Nasdaq Capital Market, the aggregate number of shares of common stock issuable to the Purchasers and any subsequent holder of the Secured Note shall not exceed 19.9% of the total number of shares of common stock outstanding or of the voting power of the common stock as of April 13, 2026 less the shares issued pursuant to the securities purchase agreement unless the Company has obtained stockholder approval in compliance with Nasdaq Listing Rule 5635(d) to authorize the issuance of shares of common stock in connection with the conversion or exchange of all Secured Notes.

The net proceeds received from the April 13, 2026 issuance of the Secured Notes and shares as described above were used to repay $2.25 million of the Term Loan A debt, and an additional $0.50 million of the Term Loan A debt was paid with the Company’s restricted cash. As such, immediately following the funding and completion of the transactions described above, the Company’s debt obligations will bewere as follows: (1) Senior Secured Notes in the principal amount of $2.6 million, with payments commencing October 13, 2026 and a maturity date of April 13, 2027, (2) Term Loan A in the principal amount of $0.5$0.50 million, payable on the maturity date of September 20, 2027, and (3) Term Loan B in the amount of $9.9 million, payable on the maturity date of December 12, 2028.

While the 2022 sale of a majority interest in the Isaac Mizrahi brand and the 2024 divestiture of the LOGO by Lori Goldstein brand (and, to a lesser extent, the April 2026 sale of the Judith Ripka brand) resulted in significant decreases in our licensing revenues, we have taken and continue to take actions to replace those revenues with new strategic business initiatives, as we concentrate our resources on growing our brands, launching new brands, and entering into new business partnerships. We continue to seek new opportunities, including expansion through interactive television, live streaming, and additional domestic and international licensing arrangements, and acquiring and collaborating with additional brands. The successful launch of the TowerHill by Christie Brinkley brand in 2024 is an example of this. We recently launched two new cobranded collaborations in April 2026, and plan to launch two more before the end of the year.

Nonetheless, we continue to face a number of headwinds in the current macroeconomic environment. Poor economic and market conditions, including the cumulative impacts of inflation and rising consumer debt levels, along with the impact of tariffs on goods imported into the U.S., may negatively impact consumer sentiment, decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and other consumer products, which would adversely affect our operating income and results of operations. If we are unable to take effective measures in a timely manner to mitigate the impact of these conditions and/or a potential recession, our business, financial condition, and results of operations could be adversely affected.

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on April 15, 2026, for a discussion of our critical accounting policies and estimates. During the three months ended MarchJune 31,30, 2026, there were no material changes to our critical accounting policies or estimates.