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Subsequent Events

12 Months Ended

Dec. 31, 2023

Subsequent Event

Subsequent Events

12.Subsequent Events

Leasing Transactions

Effective February 29, 2024, the Company entered into an operating lease for new corporate offices located at 550 Seventh Avenue, 11th floor, New York, New York. This lease commenced in April 2024 and shall expire seven years from the commencement date in 2031. The average annual lease cost over the term of this lease is approximately $0.5 million per year.

On January 26, 2024, the Company, as lessor, entered into a lease agreement for the sublease of its former corporate offices and operations facility located at 1333 Broadway, 10th floor, New York, New York to a third-party subtenant through October 30, 2027. The average annual fixed rent over the term of this sublease is approximately $0.8 million per year. As a result of entering into this sublease, the Company recognized an impairment charge of approximately $2.1 million related to the right-of-use asset. The loss recognition will coincide with the departure date. February 29, 2024 has been determined to be the date of a fundamental change to the use of the 1333 Broadway premises.

Public Offering and Private Placement

On March 15, 2024, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC (the “Representative”), as the representative of the underwriters, relating to a firm commitment underwritten public offering (the “Offering”) of 3,284,421 shares of the Company’s common stock at a price to the public of $0.65 per share. In connection with the Offering, Robert W. D’Loren, Chairman and Chief Executive Officer of the Company; an affiliate of Mark DiSanto, a director of the Company; and Seth Burroughs, Executive Vice President of Business Development and Treasury of the Company, purchased 146,250, 146,250, and 32,500 shares of common stock, respectively.

The closing of the Offering occurred on March 19, 2024. The net proceeds to the Company from the sale of the shares, after deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company, were approximately $1,735,000.

Upon closing of the Offering, the Company issued the Representative certain warrants to purchase up to 178,953 shares of common stock (the “Representative’s Warrants”) as compensation. The Representative’s Warrants will be exercisable at a per share exercise price of $0.8125. The Representative’s Warrants are exercisable, in whole or in part, during the four and one-half-year period commencing 180 days from the commencement of sales of the shares of common stock in the Offering.

On March 14, 2024, the Company entered into subscription agreements with each of Robert W. D’Loren, Chairman and Chief Executive Officer of the Company; an affiliate of Mark DiSanto, a director of the Company; and Seth Burroughs, Executive Vice President of Business Development and Treasury of the Company to purchase 132,589, 132,589, and 29,464 shares, respectively (collectively, the “Private Placement Shares”), at a price of $0.98 per Private Placement Share. The total number of Private Placement Shares purchased was 294,642. Net proceeds after payment of agent fees to the Representative were approximately $265,000. The purchase of the Private Placement Shares closed concurrently with the Offering.

The aggregate number of shares of common stock issued from the Offering and the Private Placement was 3,579,063 shares and the total net proceeds received was approximately $2,000,000.

IM Topco

On April 12, 2024, the Company, WHP, and IM Topco entered into amendments of the May 27, 2022 membership purchase agreement and the Business Venture Agreement. Under these amendments, the parties agreed to the following:

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The purchase price adjustment provision within the membership purchase agreement was waived until the measurement period ending September 30, 2025.

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If IM Topco royalties are less than $13.5 million for the twelve-month period ending March 31, 2025 or less than $18.0 million for the year ending December 31, 2025, Xcel shall transfer equity interests in IM Topco to WHP equal to 12.5% of the total outstanding equity interests of IM Topco, such that Xcel’s ownership interest in IM Topco would decrease from 30% to 17.5%, and WHP’s ownership interest in IM Topco would increase from 70% to 82.5%. In addition, Xcel shall be obligated to make such transfer to WHP if Xcel fails to make certain payments owed to IM Topco under the second amendment (which totaled $375,000 as of December 31, 2023).

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On and after January 1, 2026, WHP shall receive 50% of the Net Cash Flow which would otherwise be payable to Xcel, until WHP has received an aggregate amount of additional Net Cash Flow equal to $1.0 million.

Legal Matters

On February 16, 2024, counsel to Lori Goldstein, a brand spokesperson for the Company, advised the Company that the Company was in material breach of the March 31, 2021 asset purchase agreement for failure to pay $963,642 earned in 2023 in accordance with the provisions of the Lori Goldstein Earn-Out (as described in Note 9) under the terms of the agreement. The Company does not dispute the amount of the Lori Goldstein Earn-Out that was achieved in 2023, and advised Ms. Goldstein that due to Ms. Goldstein’s failure to make all of the QVC appearances as required by her employment agreement, the Company was not willing to pay the amount due in a lump sum, but instead would make the payment in four quarterly installments. Failure to amicably resolve this dispute could adversely affect the Company’s cash flows and the availability of Ms. Goldstein’s services.