What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-13 compared with 2021-05-17 · 142 added, 61 removed, 105 unchanged (66% of the section changed)

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Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as one thing.

The Company owns and manages the Isaac Mizrahi brand (the "Isaac Mizrahi Brand"), the Halston brand (the "Halston Brand"), the Judith Ripka brand (the "Ripka Brand"), the C Wonder brand (the "C Wonder Brand"), the LOGO by Lori Goldstein brand (the "Logo Lori Goldstein Brand"), and the Longaberger brand (the “Longaberger Brand”), pioneering a true omni-channel sales strategy which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, brick-and-mortar retail, wholesale and e-commerce channels to be everywhere its customers shop.

The Company owns and manages the Isaac Mizrahi brand (the "Isaac Mizrahi Brand"), the Halston brand (the "Halston Brand"), the Judith Ripka brand (the "Ripka Brand"), the C Wonder brand (the "C Wonder Brand"), the LOGO by Lori Goldstein brand (the "Lori Goldstein Brand"), and the Longaberger brand (the “Longaberger Brand”), pioneering a true omni-channel sales strategy which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, brick-and-mortar retail, wholesale and e-commerce channels to be everywhere its customers shop.

Our objective is to build a diversified portfolio of lifestyle consumer brands through organic growth and the strategic acquisition of new brands.

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

● wholesale sales and/or licensing of our brands for sale through interactive television (i.e.

QVC, HSN, The Shopping Channel, TVSN, etc.);

● wholesale sales and/or licensing of our brands for sale through interactive television (i.e., QVC, HSN, The Shopping Channel, TVSN, etc.);

● 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;

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Summary of Operating Results

Three months ended March 31, 2021 (the “current quarter”) compared with the three months ended March 31, 2020 (the “prior year quarter”)

Current quarter net revenue decreased approximately $1.7 million to $7.8 million from $9.5 million for the prior year quarter.

Net licensing revenue decreased by approximately $1.3 million in the current quarter to $4.3 million, compared with $5.6 million in the prior year quarter.

Approximately $1.1 million of this decline was attributable to the discontinuation of the licensing of the H Halston brand through QVC during the fourth quarter of 2020, and the Company’s transitioning of that brand to a wholesale supply model under arrangements with HSN and certain Qurate global affiliates, and other unrelated interactive television networks.

The remainder of the decline in net licensing revenue was primarily driven by lower sales by our licensees as a result of the economic impacts related to the ongoing COVID-19 pandemic.

Net product sales decreased by approximately $0.4 million in the current quarter to $3.5 million, compared with $3.9 million in the prior year quarter.

Declines in wholesale apparel sales, primarily as the result of the economic impacts of the ongoing COVID-19 pandemic, were partially offset by significant growth in wholesale and e-commerce sales of fine jewelry as well as significant growth in e-commerce sales of Longaberger branded products.

Three months ended June 30, 2021 (the “current quarter”) compared with the three months ended June 30, 2020 (the “prior year quarter”)

Current quarter net revenue increased approximately $5.7 million to $10.8 million from $5.1 million for the prior year quarter.

Net licensing revenue increased by approximately $1.7 million in the current quarter to $6.2 million, compared with $4.5 million in the prior year quarter.

This increase in licensing revenue was primarily attributable to the Lori Goldstein brand, which we acquired on April 1, 2021, as well as continued strong performance by the Isaac Mizrahi brand, partially offset by a decline in licensing revenue related to the transitioning of the H Halston brand to a wholesale supply model.

Net product sales increased by approximately $4.0 million in the current quarter to $4.5 million, compared with $0.5 million in the prior year quarter.

The increase in net sales was primarily attributable to higher wholesale apparel sales, as retail sales were severely negatively impacted in the prior year quarter during the initial outbreak of the COVID-19 pandemic.

Jewelry wholesale sales also contributed significantly to the increase in sales, and e-commerce sales of Longaberger branded products and Judith Ripka brand jewelry also grew substantially from the prior year quarter.

Cost of Goods Sold

Current quarter cost of goods sold was $1.8 million, compared with $2.4 million for the prior year quarter due to lower volume of wholesale and e-commerce sales in the current quarter.

Gross profit (net revenue less cost of goods sold) decreased approximately $1.1 million to $6.0 million from $7.1 million in the prior year quarter, primarily driven by the aforementioned decline in net licensing revenue.

Total gross profit margin increased by approximately 1%, from 75% in the prior year quarter to 76% in the current quarter.

Gross profit margin from product sales increased from 38% in the prior year quarter to 48% in the current quarter as a result of achieving greater efficiencies.

Current quarter cost of goods sold was $3.1 million, compared with $0.3 million for the prior year quarter due to significantly higher volume of wholesale and e-commerce sales in the current quarter.

Gross profit (net revenue less cost of goods sold) increased approximately $2.9 million to $7.7 million from $4.8 million in the prior year quarter, primarily driven by the aforementioned increase in net licensing revenue.

Operating Costs and Expenses

Operating costs and expenses increased approximately $4.0 million from $5.4 million in the prior year quarter to $9.4 million in the current quarter.

This increase was mainly driven by higher salaries and benefits costs, and higher marketing expenses, partially offset by lower depreciation and amortization expense, resulting from the impairment and write-down of our Judith Ripka intangible assets in the fourth quarter of 2020, and the fact that the prior year quarter included expenses related a potential acquisition which ultimately was not consummated.

This increase was mainly driven by normalized post-COVID adjusted salary costs and marketing expenses, and expenses related to the Lori Goldstein brand trademarks acquired on April 1, 2021.

Additionally, the prior year quarter notably included the benefit of government assistance received through the Paycheck Protection Program under the CARES Act, for which the Company recognized $1.6 million as a reduction to prior year quarter expenses.

Interest and Finance Expense

Interest and finance expense for the current quarter was $1.4 million, compared with $0.3 million for the prior year quarter.

This increase of approximately $1.1 million was primarily attributable to a $0.8 million loss on the extinguishment of debt recognized in the current quarter as a result of the new term loan financing agreement entered into on April 14, 2021.

increase in interest and finance expense was also partially attributable to the fact that the new term loan agreement entered into during the current quarter resulted in a higher outstanding principal balance at a higher interest rate as compared with the previous term loan agreement.

Income Tax Benefit

The effective income tax rate for the current quarter and the prior year quarter was approximately 5% and 40%, respectively, resulting in an income tax benefit of $0.1 million and $0.6 million, respectively.

For the current quarter, the federal statutory rate differed from the effective tax rate primarily due to recurring permanent differences, which decreased the effective tax rate by approximately 17%, partially offset by state taxes, which increased the effective tax rate by approximately 1%.

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 8% and 4%, respectively.

The effective income tax rate for the current quarter and the prior year quarter was approximately 43% and -49%, respectively, resulting in an income tax (benefit) provision of $(1.35) million and $0.43 million, respectively.

For the current quarter, the federal statutory rate differed from the effective tax rate primarily due to recurring permanent differences and state taxes, which increased the effective tax rate by approximately 15% and 7%, respectively.

For the prior year quarter, the federal statutory rate differed from the effective tax rate primarily due to the tax impact from the vesting of restricted shares of common stock, which was treated as a discrete item for tax purposes and decreased the effective rate by approximately 41%.

The effective tax rate was also attributable to state taxes and recurring permanent differences, which decreased the effective tax rate by approximately 2% and 27%, 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%.

this item increased the effective rate by approximately 3%.

Net Loss Attributable to Xcel Brands, Inc.

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Non-GAAP net income is a non-GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc.

stockholders, exclusive of amortization of trademarks, stock-based compensation, non-cash interest and finance expense from discounted debt related to acquired assets, loss on extinguishment of debt, gain on sales of assets, gain on reduction of contingent obligations, costs (recoveries) in connection with potential acquisitions, certain adjustments to allowances for doubtful accounts related to the bankruptcy of and economic impact on certain retail customers due to the COVID-19 pandemic, asset impairments, and deferred income taxes.

stockholders, exclusive of amortization of trademarks, stock-based compensation, loss on extinguishment of debt, gain on sales of assets, gain on reduction of contingent obligations, costs (recoveries) in connection with potential acquisitions, certain adjustments to allowances for doubtful accounts related to the bankruptcy of and economic impact on certain retail customers due to the COVID-19 pandemic, asset impairments, 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.

We had Adjusted EBITDA of negative $0.9 million for the current quarter, compared with Adjusted EBITDA of positive $0.7 million for the prior year quarter.

We had Adjusted EBITDA of $0.9 million for the current quarter, compared with Adjusted EBITDA of $1.7 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.

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Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results, and thus, these non-GAAP measures provide supplemental information to assist investors in evaluating the Company’s financial results.

Adjusted EBITDA is the measure used to calculate compliance with the EBITDA covenant under the Xcel Term Loan.

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.

The Company incurred certain costs in the prior year which it could have eliminated but elected not to do so in light of government assistance received through the Paycheck Protection Program under the CARES Act (the “PPP Benefit”), which represents a cash benefit directly related to the Company’s operating expenses incurred.

Accordingly, the PPP Benefit is not considered a reconciling item for purposes of the computation of non-GAAP net income and Adjusted EBITDA for the prior year

Adjusted EBITDA is the measure used to calculate compliance with the EBITDA covenant under the Company’s term loan agreement.

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.

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The following table is a reconciliation of net loss attributable to Xcel Brands, Inc.

stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:

stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net (loss) income:

Three Months Ended

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Stock-based compensation

Costs in connection with potential acquisition

Loss on extinguishment of debt

(Recovery of) costs in connection with potential acquisition

Certain adjustments to allowances for doubtful accounts

Deferred income tax benefit

Property and equipment impairment

Deferred income tax (benefit) provision

Non-GAAP net (loss) income

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Stock-based compensation

Costs in connection with potential acquisition

Loss on extinguishment of debt

(Recovery of) costs in connection with potential acquisition

Certain adjustments to allowances for doubtful accounts

Deferred income tax benefit

Property and equipment impairment

Deferred income tax (benefit) provision

Non-GAAP diluted EPS

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Interest and finance expense

Income tax (benefit) provision

State and local franchise taxes

Stock-based compensation

(Recovery of) costs in connection with potential acquisition

Certain adjustments to allowances for doubtful accounts

Property and equipment impairment

Adjusted EBITDA

Six months ended June 30, 2021 (the “current six months”) compared with the six months ended June 30, 2020 (the “prior year six months”)

Current six months net revenue increased approximately $4.0 million to $18.6 million from $14.6 million for the prior year six months.

Net licensing revenue increased by approximately $0.4 million in the current six months to $10.5 million, compared with $10.1 million in the prior year six months.

Net product sales increased by approximately $3.6 million in the current six months to $8.0 million, compared with $4.4 million in the prior year six months.

The increase in net sales was primarily attributable to the combination of higher jewelry wholesale sales, and higher sales of Longaberger branded products through e-commerce, social commerce, and livestreaming.

Wholesale apparel sales also contributed significantly to the year-over-year increase in net product sales, as retail sales were severely negatively impacted in the prior year period during the initial outbreak of the COVID-19 pandemic.

Cost of Goods Sold

Current six months cost of goods sold was $4.9 million, compared with $2.7 million for the prior year six months due to significantly higher volume of wholesale and e-commerce sales in the current six months.

Gross profit (net revenue less cost of goods sold) increased approximately $1.8 million to $13.7 million from $11.9 million in the prior year six months, primarily driven by the aforementioned increase in net product sales.

Gross profit margin from product sales remained constant at 40% for both the current and prior year six months.

Operating Costs and Expenses

Operating costs and expenses increased approximately $4.3 million from $13.6 million in the prior year six months to $17.9 million in the current six months.

This increase was mainly driven by a combination of post-COVID normalized salary costs, marketing expenses, shipping and warehousing costs, and consulting fees, partially offset by lower bad debt expense.

The increase in operating expenses was also partially attributable to increased non-cash amortization expense related to the Lori Goldstein brand trademarks acquired on April 1, 2021.

Additionally, the prior year six months notably

included the benefit of government assistance received through the Paycheck Protection Program under the CARES Act, for which the Company recognized $1.6 million as a reduction to prior year six months expenses.

Interest and Finance Expense

Interest and finance expense for the current six months was $1.7 million, compared with $0.6 million for the prior year quarter.

This increase of approximately $1.1 million was primarily attributable to a $0.8 million loss on the extinguishment of debt recognized in the current six months as a result of the new term loan financing agreement entered into on April 14, 2021.

The increase in interest and finance expense was also partially attributable to the fact that the new term loan agreement entered into during the current six months resulted in a higher outstanding principal balance at a higher interest rate as compared with the previous term loan agreement.

Income Tax Benefit

The effective income tax rate for the current six months and prior year six months was approximately 25% and 5%, respectively, resulting in an income tax (benefit) provision of $(1.48) million and $(0.12) million, respectively.

For the current six months, the federal statutory rate differed from the effective tax rate primarily due to state taxes, which increased the effective tax rate by approximately 7%, partially offset by the impact of recurring permanent differences, which decreased the effective tax rate by approximately 3%.

For the prior year six months, the federal statutory rate differed from the effective tax rate primarily due to the tax impact from the vesting of restricted shares of common stock, which was treated as a discrete item for tax purposes and decreased the effect rate by approximately 16%.

The effective rate was also attributable to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 5% and decreased the effective tax rate by approximately 8%, respectively.

The effective tax rate was also affected by the tax impact of a potential federal net operating loss carryback due to the CARES Act;

this item increased the effective rate by approximately 4%.

Net Loss Attributable to Xcel Brands, Inc.

We had a net loss of $4.1 million for the current six months, compared with a net loss of $2.1 million for the prior year six months, due to the combination of the factors outlined above.

Non-GAAP Net Income, Non-GAAP Diluted EPS, and Adjusted EBITDA

We had a non-GAAP net loss of approximately $1.6 million, or $(0.09) per diluted share, for the current six months and non-GAAP net income of $1.4 million, or $0.07 per diluted share, for the prior year six months.

We had Adjusted EBITDA of approximately $(0.0) million for the current six months, compared with Adjusted EBITDA of $2.5 million for the prior year six months.

The following table is a reconciliation of net loss attributable to Xcel Brands, Inc.

stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:

Six Months Ended

($ in thousands)

Net loss attributable to Xcel Brands, Inc.

Amortization of trademarks

Stock-based compensation

Loss on extinguishment of debt

(Recovery of) costs in connection with potential acquisition

Certain adjustments to allowances for doubtful accounts

Property and equipment impairment

Deferred income tax benefit

Non-GAAP net (loss) income

The following table is a reconciliation of diluted loss per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:

Six Months Ended

Diluted loss per share

Amortization of trademarks

Stock-based compensation

Loss on extinguishment of debt

(Recovery of) costs in connection with potential acquisition

Certain adjustments to allowances for doubtful accounts

Property and equipment impairment

Deferred income tax benefit

Non-GAAP diluted EPS

Non-GAAP weighted average diluted shares

The following table is a reconciliation of net loss attributable to Xcel Brands, Inc.

stockholders (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:

Six Months Ended

($ in thousands)

Net loss attributable to Xcel Brands, Inc.

Depreciation and amortization

Interest and finance expense

Income tax (benefit) provision

State and local franchise taxes

Stock-based compensation

Costs in connection with potential acquisition

(Recovery of) costs in connection with potential acquisition

Certain adjustments to allowances for doubtful accounts

Property and equipment impairment

Adjusted EBITDA

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Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures.

As of March 31, 2021 and December 31, 2020, our cash and cash equivalents were approximately $3.0 million and $5.0 million, respectively.

Restricted cash at March 31, 2021 and at December 31, 2020 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 14, 2021, we entered into a new loan and security agreement, which resulted in the extinguishment of the $16.8 million term loan debt which existed as of March 31, 2021, and increased our term loan debt obligations to $25.0 million.

As of June 30, 2021 and December 31, 2020, our cash and cash equivalents were approximately $4.8 million and $5.0 million, respectively.

Restricted cash at June 30, 2021 and at December 31, 2020 consisted of $0.7 million and $1.1 million, respectively, 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 14, 2021, we entered into a new loan and security agreement, which resulted in the extinguishment of the $16.8 million term loan debt which existed as of December 31, 2020, and increased our term loan debt obligations to $25.0 million.

Under this agreement, our term loan debt obligation is payable in 16 equal quarterly installments of $625,000, commencing June 30, 2021 and ending on March 31, 2025, with a final payment of $15.0 million payable on the maturity date of April 14, 2025.

The new term loan debt bears interest at a weighted average rate of LIBOR plus 6.2% per annum.

In addition, the facility provides for up to $25.0 million of future acquisition financing, subject to lender approval on a deal-by-deal basis.

In addition, the agreement provides for up to $25.0 million of future acquisition financing, subject to lender approval on a deal-by-deal basis, and a revolving loan facility of up to $1.5 million (increasing to a maximum of $4.0 million after we demonstrate compliance with certain financial covenants for the applicable periods ending December 31, 2021) on a discretionary basis.

On June 24, 2021, we borrowed $1.5 million under the revolving loan facility.

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 12 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 $6.5 million and $7.9 million as of March 31, 2021 and December 31, 2020, respectively.

This working capital decrease was primarily attributable to cash used in operating activities during the first three months of 2021.

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

Our working capital (current assets less current liabilities, excluding the current portion of operating lease obligations and any contingent obligations payable in common stock) was $8.7 million and $7.9 million as of June 30, 2021 and December 31, 2020, respectively.

This working capital increase was primarily attributable to cash provided by the new term loan entered into during the current quarter, partially offset by cash used to repay amounts outstanding under the previous term loan and to acquire the Lori Goldstein brand trademarks during the current quarter.

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

Operating Activities

Net cash used in operating activities was approximately $(1.69) million in the current quarter, compared with net cash provided by operating activities of approximately $0.31 million in the prior year quarter.

The current quarter cash used in operating activities was primarily attributable to the combination of the net loss of $(2.63) million plus non-cash expenses of approximately $1.38 million and the net change in operating assets and liabilities of approximately $(0.45) million.

Non-cash net expenses were primarily comprised of $1.21 million of depreciation and amortization, $0.16 million of stock-based compensation, $0.13 million of bad debt expense, and a deferred income tax benefit of $(0.14) million.

The net change in operating assets and liabilities includes an increase in inventory of $(1.57) million, an increase in accounts receivable of $(0.38) million, an increase in accounts payable, accrued expenses and other current liabilities of $1.82 million, an increase in prepaid expenses and other assets of $(0.22) million, and cash paid in excess of rent expense of $(0.10) million.

The changes in inventory and accounts payable, which largely offset each other, are related and are mainly due to the timing of certain inventory purchases.

The change in accounts receivable is primarily related to the timing of sales and collections.

The prior year 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.

Net cash used in operating activities was approximately $(5.74) million in the current six months, compared with net cash provided by operating activities of approximately $2.38 million in the prior year six months.

The current six months cash used in operating activities was primarily attributable to the combination of the net loss of $(4.44) million plus non-cash expenses of approximately $2.86 million and the net change in operating assets and liabilities of approximately $(4.16) million.

Non-cash net expenses were primarily comprised of $3.06 million of depreciation and amortization, $0.59 million of stock-based compensation, $0.13 million of bad debt expense, $0.11 million of amortization of deferred finance costs, a $0.45 non-cash loss on extinguishment of debt, and a deferred income tax benefit of $(1.48) million.

The net change in operating assets and liabilities was primarily comprised of an increase in inventory of $(1.93) million, an increase in accounts receivable of $(2.39) million, an increase in other liabilities of $0.37 million, and cash paid in excess of rent expense of $(0.23) million.

The change in accounts receivable was primarily related to the timing of sales and collections, while the change in inventory is primarily related to expected increases in wholesales, including our drop-ship programs, and an increase in our direct-to-consumer businesses.

The prior year six months cash provided by operating activities was primarily attributable to the combination of the net loss of $(2.17) million plus non-cash expenses of approximately $4.05 million and the net change in operating assets and liabilities of approximately $0.50 million.

The net loss of $(2.17) million includes $1.64 million of government assistance received through the PPP under the CARES Act, which was recognized as a reduction to prior year six months expenses for which the program was intended to compensate.

Non-cash net expenses were primarily comprised of $2.63 million of depreciation and amortization, $0.73 million of stock-based compensation, $0.68 million of bad debt expense, and deferred income tax benefit of $(0.12) million.

The net change from operating assets and liabilities includes a decrease in accounts 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 net change in operating assets and liabilities included a decrease in accounts receivable of $3.40 million and a decrease in accounts payable, accrued expenses and other current liabilities of $(2.71) million, and cash paid in excess of rent expense of $(0.18) million.

The net change in accounts receivable was attributable to a combination of the timing of collections, and lower revenues recognized as a result of the COVID-19 pandemic.

The net change in accounts payable, accrued expenses and other current liabilities was due to timing of payments, as well as actions taken by management during the prior year six months in response to the COVID-19 pandemic to conserve cash.

Investing Activities

Net cash used in investing activities for the current quarter was approximately $0.3 million, primarily attributable to capital expenditures relating to the fit-out and furnishing of our planned Judith Ripka fine jewelry retail store.

Net cash used in investing activities for the prior year quarter was approximately $0.6 million and was attributable to capital expenditures, a substantial portion of which related to the implementation of our ERP system.

Net cash used in investing activities for the current six months was approximately $2.40 million, which was primarily attributable to the acquisition of the Lori Goldstein brand on April 1, 2021, and, to a lesser extent, to capital expenditures relating to the fit-out and furnishing of our new Judith Ripka fine jewelry retail store, which opened in June 2021.

Net cash used in investing activities for the prior year six months was approximately $0.63 million, primarily attributable to capital expenditures, a substantial portion of which related to the implementation of our ERP system.

Financing Activities

There was no cash provided by or used in financing activities for the current quarter.

Net cash used in financing activities for the prior year 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 current six months was approximately $7.63 million, and was primarily attributable to $25.0 million of proceeds from our new term loan debt entered into on April 14, 2021, as well as $1.5 million of proceeds drawn from our new revolving loan facility.

Partially offsetting these proceeds were $(16.75) million paid on the balance of our previous term loan, $(0.37) million of fees paid to the previous debtholders in connection with the extinguishment of the previous term loan, $(1.13) million of deferred finance costs paid in connection with our new term loan, and $(0.63) million of scheduled principal payments made under our new term loan.

Net cash used in financing activities for the prior year six months was approximately $(0.93) million, and was primarily attributable to payments made on long-term debt obligations of $(0.75) million, and $(0.19) million of shares repurchased related to vested restricted stock in exchange for withholding taxes.

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.

We continue to seek to expand and diversify the types of products being produced and licensed under our brands.

We plan to continue to diversify the distribution channels within which products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands.

The Mizrahi brand, Halston brand, Lori Goldstein 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 work towards expanding our wholesale and e-commerce businesses, and complement these operations with our licensing business, including interactive television, and leveraging our wholesale customers with our brick-and-mortar licensees.

Our current strategy is to manage our working capital needs by minimizing inventory risk.

We continue to work towards expanding our wholesale and direct-to-consumer e-commerce businesses, and complement these operations with our licensing 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.

In November 2019, we acquired an ownership interest in the Longaberger brand through a joint venture, and launched the brand on QVC that same month.

In April 2021, we acquired the Lori Goldstein brand trademarks, which are currently available and sold to consumers through QVC.

In April 2021, we acquired the Lori Goldstein brand, which is currently available and sold to consumers through QVC.

However, the impacts of the current COVID-19 pandemic are broad reaching and are having an impact on our licensing and wholesale businesses.

This global pandemic is impacting our supply chain, and temporary factory closures and the pace of workers returning to work have impacted our contract manufacturers’ ability to source certain raw materials and to produce finished goods in a timely manner.

This global pandemic is impacting our supply chain, and temporary factory closures and the

pace of workers returning to work have impacted our contract manufacturers’ ability to source certain raw materials and to produce finished goods in a timely manner.

The pandemic is also impacting distribution and logistics providers' ability to operate in the normal course of business.

In addition, COVID-19 has resulted in a sudden and continuing decrease in sales for many of our products, resulting in order cancellations.

Further, the global pandemic has affected the financial health of certain of our customers, and the bankruptcy of certain other customers, from which we had an aggregate of approximately $1.5 million of accounts receivable due at March 31, 2021.

As a result, we have recognized an allowance for doubtful accounts of approximately $1.1 million as of March 31, 2021, and may be required to make additional adjustments for doubtful accounts which would increase our operating expenses in future periods and negatively impact our operating results, and could result in our failure to meet financial covenants under our credit facility.

As a result, we have recognized an allowance for doubtful accounts of approximately $1.1 million as of June 30, 2021, and may be required to make additional adjustments for doubtful accounts which would increase our operating expenses in future periods and negatively impact our operating results, and could result in our failure to meet financial covenants under our credit facility.

Financial impacts associated with the COVID-19 pandemic include, but are not limited to, lower net sales, adjustments to allowances for doubtful accounts due to customer bankruptcy or other inability to pay their amounts due to vendors, 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.

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Please refer to our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on April 23, 2021, for a discussion of our critical accounting policies.

During the three months ended March 31, 2021, there were no material changes to our accounting policies.

During the three and six months ended June 30, 2021, there were no material changes to our accounting policies.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis