Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this report are forward-looking statements that involve a number of known and unknown risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks are detailed in the Risk Factors section of our Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on April 23, 2021. The words “believe,” “anticipate,” “expect,” “continue,” “estimate,” “appear,” “suggest,” “goal,” “potential,” “predicts,” “seek,” “will,” “confident,” “project,” “provide,” “plan,” “likely,” “future,” “ongoing,” “intend,” “may,” “should,” “would,” “could,” “guidance,” and similar expressions identify forward-looking statements.
Overview
Xcel Brands, Inc. (“Xcel,” the “Company,” “we,” “us,” or “our”) is a media and consumer products company engaged in the design, production, marketing, wholesale distribution, and direct-to-consumer sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands. 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 "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. To grow our brands, we are focused on the following primary strategies:
● expanding and leveraging our live-streaming platform. We recently launched our live-streaming platform through our Longaberger brand technology platform with the goal to build the world’s largest digital marketplace powered by live-streaming and micro-influencers for home and other related products, designed to create a better lifestyle. We plan to leverage this technology across our other brands.
● 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.);
● 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;
● distribution of our brands through e-commerce directly to the end consumer; and
● acquiring additional consumer brands and integrating them into our operating platform while leveraging our operating infrastructure and distribution relationships.
We believe that Xcel offers a unique value proposition to our retail and direct-to-consumer customers and our licensees for the following reasons:
● our management team, including our officers’ and directors’ experience in, and relationships within the industry;
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● our deep knowledge and expertise in live streaming;
● our design, production, sales, marketing, and supply chain and integrated technology platform that enables us to design and distribute trend-right product; and
● our operating strategy, significant media and internet presence, and distribution network.
Our design, production and supply chain platform was developed to shorten the supply chain cycle by utilizing state-of-the-art supply chain management technology, trend analytics, and data science to actively monitor fashion trends and read and react to customer demands.
Summary of Operating Results
Three months ended September 30, 2021 (the “current quarter”) compared with the three months ended September 30, 2020 (the “prior year quarter”)
Revenues
Current quarter net revenue increased approximately $3.9 million to $11.3 million from $7.4 million for the prior year quarter.
Net licensing revenue increased by approximately $1.7 million in the current quarter to $6.9 million, compared with $5.2 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 and growth 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 $2.2 million in the current quarter to $4.4 million, compared with $2.2 million in the prior year quarter. The increase in net sales was primarily attributable to growth in wholesales for both apparel and jewelry, as sales in the prior year quarter were negatively impacted by an overall slowdown in economic activity related to the initial outbreak of the COVID-19 pandemic. Sales of Longaberger branded products through e-commerce, social commerce, and livestreaming also continued to grow year-over-year.
Cost of Goods Sold
Current quarter cost of goods sold was $2.9 million, compared with $1.3 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 $2.3 million to $8.4 million from $6.1 million in the prior year quarter, primarily driven by the aforementioned increase in net licensing revenue.
Gross profit margin from product sales declined slightly from approximately 41% in the prior year quarter to approximately 35% in the current quarter, primarily due to increased freight costs and other supply costs to source products.
Operating Costs and Expenses
Operating costs and expenses increased approximately $3.2 million from $6.5 million in the prior year quarter to $9.7 million in the current quarter. This increase was mainly driven by (i) a $1.2 million increase in salaries, benefits and employment taxes, which was primarily attributable to post-COVID normalized salary costs, and (ii) a $1.1 million increase in selling, general and administrative expenses, which was primarily attributable to combination of increased marketing expenses and higher logistics costs. Also significantly contributing the increase in operating costs and expenses was a $0.4 million increase in depreciation and amortization expense, primarily related to the Lori Goldstein brand trademarks acquired on April 1, 2021. The remainder of the increase in operating costs and expenses from the prior year quarter was largely due to $0.4 million of certain benefits and recoveries – including recovery of costs in connection with
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potential acquisitions, and government assistance received through the Paycheck Protection Program – that were recognized in the prior year and did not recur in the current quarter.
Interest and Finance Expense
Interest and finance expense for the current quarter was $0.6 million, compared with $0.3 million for the prior year quarter. This increase was primarily attributable to the fact that a new term loan agreement entered into during the second quarter of 2021 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 benefit rate for the current quarter and the prior year quarter was approximately 28% and 25%, respectively, resulting in an income tax benefit of $0.54 million and $0.15 million, respectively.
For the current quarter, the federal statutory rate differed from the effective tax rate primarily due to state taxes, which increased the effective tax rate by approximately 7%.
For the prior year quarter, the federal statutory rate differed from the effective tax rate primarily due to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 12% and 18%, respectively, partially offset by 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 26%. 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 3%.
Net Loss Attributable to Xcel Brands, Inc. Stockholders
We had a net loss of $1.1 million for the current quarter, compared with a net loss of $0.4 million for the prior year quarter, due to the combination of the factors outlined above.
Non-GAAP Net Income, Non-GAAP Diluted EPS, and Adjusted EBITDA
We had non-GAAP net income of approximately $0.01 million, or $0.00 per diluted share (“non-GAAP diluted EPS”), for the current quarter and non-GAAP net income of $0.8 million, or $0.04 per diluted share, for the prior year quarter. Non-GAAP net income is a non-GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc. 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 the provision 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 $1.0 million for the current quarter, compared with Adjusted EBITDA of $1.4 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 depreciation and amortization, interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation, gain on reduction of contingent obligations, gain on sale of assets, costs (recoveries) in connection with potential acquisitions, asset impairments, and certain adjustments to the provision for doubtful accounts related to the bankruptcy of and economic impact on certain retail customers due to the COVID-19 pandemic.
Management uses non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the Company’s results of operations. Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because these measures adjust for certain costs and other events that management
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believes are not representative of our core business operating results, and thus, these non-GAAP measures provide supplemental information to assist investors in evaluating the Company’s financial results. 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 periods. Adjusted EBITDA is the measure used to calculate compliance with the EBITDA covenant under the Company’s term loan agreement.
Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Given that non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA in a different manner than we calculate these measures.
In evaluating non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this report. Our presentation of non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any other unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results, and not rely on any single financial measure.
The following table is a reconciliation of net loss attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:
Three Months Ended
September 30,
($ in thousands)
2021
2020
Net loss attributable to Xcel Brands, Inc. stockholders
$
(1,136)
$
(434)
Amortization of trademarks
1,519
1,107
Stock-based compensation
163
49
(Recovery of) costs in connection with potential acquisition
—
(189)
Certain adjustments to provision for doubtful accounts
—
385
Property and equipment impairment
—
31
Gain on sale of assets
—
(46)
Deferred income tax benefit
(535)
(145)
Non-GAAP net income
$
11
$
758
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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:
Three Months Ended
September 30,
2021
2020
Diluted loss per share
$
(0.06)
$
(0.02)
Amortization of trademarks
0.08
0.06
Stock-based compensation
0.01
—
(Recovery of) costs in connection with potential acquisition
—
(0.01)
Certain adjustments to provision for doubtful accounts
—
0.02
Property and equipment impairment
—
—
Gain on sale of assets
—
—
Deferred income tax benefit
(0.03)
(0.01)
Non-GAAP diluted EPS
$
0.00
$
0.04
Non-GAAP weighted average diluted shares
20,323,358
19,291,275
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:
Three Months Ended
September 30,
($ in thousands)
2021
2020
Net loss attributable to Xcel Brands, Inc. stockholders
$
(1,136)
$
(434)
Depreciation and amortization
1,891
1,437
Interest and finance expense
588
304
Income tax benefit
(535)
(145)
State and local franchise taxes
33
41
Stock-based compensation
163
49
(Recovery of) costs in connection with potential acquisition
—
(189)
Certain adjustments to provision for doubtful accounts
—
385
Property and equipment impairment
—
31
Gain on sale of assets
—
(46)
Adjusted EBITDA
$
1,004
$
1,433
Nine months ended September 30, 2021 (the “current nine months”) compared with the nine months ended September 30, 2020 (the “prior year nine months”)
Revenues
Current nine months net revenue increased approximately $7.8 million to $29.8 million from $22.0 million for the prior year nine months.
Net licensing revenue increased by approximately $2.0 million in the current nine months to $17.4 million, compared with $15.4 million in the prior year nine months. This increase in licensing revenue was primarily attributable to the Lori Goldstein brand, which we acquired on April 1, 2021, as well as continued revenue growth 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 $5.8 million in the current nine months to $12.4 million, compared with $6.6 million in the prior year nine months. The increase in net sales was primarily attributable to higher jewelry wholesale sales. In addition, wholesale apparel sales 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
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pandemic. Sales of Longaberger branded products through e-commerce, social commerce, and livestreaming also continued to grow year-over-year.
Cost of Goods Sold
Current nine months cost of goods sold was $7.8 million, compared with $3.9 million for the prior year nine months due to the higher volumes of wholesale and e-commerce sales in the current nine months. Gross profit (net revenue less cost of goods sold) increased approximately $4.1 million to $22.1 million from $18.0 million in the prior year nine months, driven by the combination of the aforementioned increases in both net licensing revenue and net product sales.
Gross profit margin from product sales declined slightly from approximately 41% in the prior year period to approximately 38% in the current nine months, primarily due to increased freight costs and other supply costs to source products.
Operating Costs and Expenses
Operating costs and expenses increased approximately $7.5 million from $20.1 million in the prior year nine months to $27.6 million in the current nine months. This increase was mainly driven by (i) a $2.5 million increase in salaries, benefits and employment taxes, which was primarily attributable to post-COVID normalized salary costs, (ii) a $2.2 million increase in selling, general and administrative expenses, which was primarily attributable to combination of increased marketing expenses, consulting fees, and logistics costs, partially offset by lower bad debt expense, and (iii) the prior year benefit of government assistance received through the Paycheck Protection Program in the prior year, for which the Company recognized $1.8 million as a reduction to prior year nine months’ expenses. Also significantly contributing the increase in operating costs and expenses was a $0.9 million increase in depreciation and amortization expense, primarily related to the Lori Goldstein brand trademarks acquired on April 1, 2021.
Interest and Finance Expense
Interest and finance expense for the current nine months was $2.3 million, compared with $0.9 million for the prior nine months. This increase of approximately $1.4 million was primarily attributable to a $0.8 million loss on the extinguishment of debt recognized in the current nine 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 nine 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 benefit rate for the current nine months and prior year nine months was approximately 26% and 10%, respectively, resulting in an income tax benefit of $2.02 million and $0.27 million, respectively.
For the current nine 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 2%.
For the prior year nine 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 5%. The effective rate was also attributable to state taxes and recurring permanent differences, which increased the effective tax rate by approximately 6% and decreased the effective tax rate by approximately 3%, respectively.
Net Loss Attributable to Xcel Brands, Inc. Stockholders
We had a net loss of $5.2 million for the current nine months, compared with a net loss of $2.5 million for the prior year nine months, due to the combination of the factors outlined above.
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Non-GAAP Net Income, Non-GAAP Diluted EPS, and Adjusted EBITDA
We had a non-GAAP net loss of approximately $1.6 million, or $(0.08) per diluted share, for the current nine months and non-GAAP net income of approximately $2.1 million, or $0.11 per diluted share, for the prior year nine months. We had Adjusted EBITDA of approximately $1.0 million for the current nine months, compared with Adjusted EBITDA of $3.9 million for the prior year nine months.
The following table is a reconciliation of net loss attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:
Nine Months Ended
September 30,
($ in thousands)
2021
2020
Net loss attributable to Xcel Brands, Inc. stockholders
$
(5,241)
$
(2,539)
Amortization of trademarks
3,915
3,323
Stock-based compensation
754
780
Loss on extinguishment of debt
821
—
(Recovery of) costs in connection with potential acquisition
—
(210)
Certain adjustments to provision for doubtful accounts
132
971
Property and equipment impairment
—
113
Gain on sale of assets
—
(46)
Deferred income tax benefit
(2,019)
(269)
Non-GAAP net (loss) income
$
(1,638)
$
2,123
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:
Nine Months Ended
September 30,
2021
2020
Diluted loss per share
$
(0.27)
$
(0.13)
Amortization of trademarks
0.20
0.17
Stock-based compensation
0.04
0.04
Loss on extinguishment of debt
0.04
—
(Recovery of) costs in connection with potential acquisition
—
(0.01)
Certain adjustments to provision for doubtful accounts
0.01
0.05
Property and equipment impairment
—
0.01
Gain on sale of assets
—
—
Deferred income tax benefit
(0.10)
(0.02)
Non-GAAP diluted EPS
$
(0.08)
$
0.11
Non-GAAP weighted average diluted shares
19,418,469
19,092,828
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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 Adjusted EBITDA:
Nine Months Ended
September 30,
($ in thousands)
2021
2020
Net loss attributable to Xcel Brands, Inc. stockholders
$
(5,241)
$
(2,539)
Depreciation and amortization
4,949
4,069
Interest and finance expense
2,311
897
Income tax benefit
(2,019)
(269)
State and local franchise taxes
105
124
Stock-based compensation
754
780
(Recovery of) costs in connection with potential acquisition
—
(210)
Certain adjustments to provision for doubtful accounts
132
971
Property and equipment impairment
—
113
Gain on sale of assets
—
(46)
Adjusted EBITDA
$
991
$
3,890
Liquidity and Capital Resources
Liquidity
Our principal capital requirements have been to fund working capital needs, acquire new brands, and to a lesser extent, capital expenditures. As of September 30, 2021 and December 31, 2020, our cash and cash equivalents were approximately $4.0 million and $5.0 million, respectively.
Restricted cash at September 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 agreement also 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 a revolving loan facility of up to $2.5 million until November 15, 2021 and a maximum of $1.5 million thereafter, 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, and on September 30, 2021, we borrowed an additional $1.0 million under the revolving credit 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 $8.9 million and $7.9 million as of September 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 year period, partially offset by cash used to repay amounts outstanding under the previous term loan and to acquire the Lori Goldstein brand trademarks.
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Commentary on the components of our cash flows for the current nine months as compared with the prior year nine months is set forth below.
Operating Activities
Net cash used in operating activities was approximately $(5.53) million in the current nine months, compared with net cash provided by operating activities of approximately $2.20 million in the prior year nine months.
The current nine months cash used in operating activities was primarily attributable to the combination of the net loss of $(5.80) million plus non-cash expenses of approximately $4.48 million and the net change in operating assets and liabilities of approximately $(4.21) million. Non-cash net expenses were primarily comprised of $4.95 million of depreciation and amortization, $0.75 million of stock-based compensation, $0.13 million of bad debt expense, $0.21 million of amortization of deferred finance costs, a $0.45 million non-cash loss on extinguishment of debt, and a deferred income tax benefit of $(2.02) million. The net change in operating assets and liabilities was primarily comprised of an increase in inventory of $(2.21) million and an increase in accounts receivable of $(2.06) million. The change in accounts receivable was primarily related to the timing and volume 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 nine months cash provided by operating activities was primarily attributable to the combination of the net loss of $(2.63) million plus non-cash expenses of approximately $5.77 million and the net change in operating assets and liabilities of approximately $(0.94) million. The net loss of $(2.63) million includes $1.81 million of government assistance received through the PPP under the CARES Act, which was recognized as a reduction to prior year nine months expenses for which the program was intended to compensate. Non-cash net expenses were primarily comprised of $4.07 million of depreciation and amortization, $0.78 million of stock-based compensation, $1.05 million of bad debt expense, and a deferred income tax benefit of $(0.27) million. The net change in operating assets and liabilities includes a decrease in accounts receivable of $1.38 million, a decrease in accounts payable, accrued expenses and other current liabilities of $(2.40) million, a decrease in inventory of $0.18 million, a decrease in prepaid expenses and other assets of $0.19 million, and cash paid in excess of rent expense of $(0.28) million. The net change in accounts receivable was attributable to a combination of the timing of collections, increased allowance for doubtful accounts, 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 nine months in response to the COVID-19 pandemic to conserve cash.
Investing Activities
Net cash used in investing activities for the current nine months was approximately $4.75 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 nine months was approximately $0.65 million, primarily attributable to capital expenditures, a substantial portion of which related to the implementation of our ERP system.
Financing Activities
Net cash provided by financing activities for the current nine months was approximately $8.93 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 $2.5 million of proceeds drawn from our new revolving loan facility. Also contributing to cash inflows from financing activities was a $1.0 million capital contribution in Longaberger Licensing, LLC by the non-controlling interest holder. 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, $(1.20) million of deferred finance costs paid in connection with our new term loan, and $(1.25) million of scheduled principal payments made under our new term loan.
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Net cash (used in) financing activities for the prior year nine months was approximately $(1.41) million, and was primarily attributable to payments made on long-term debt obligations of $(1.50) million, cash contributions received from the non-controlling interest holder in Longaberger Licensing, LLC of $0.30 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 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 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 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. 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 September 30, 2021. As a result, we have recognized an allowance for doubtful accounts of approximately $1.1 million as of September 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. The impact of the COVID-19 pandemic is expected to continue to have an adverse effect on our operating results, which could result in our inability to comply with certain debt covenants and require BHI to waive compliance with, or agree to amend, any such covenant to avoid a default. The COVID-19 global pandemic is ongoing, and its dynamic nature, including uncertainties relating to the severity and duration of the pandemic, as well as actions that would be taken by governmental authorities to contain the pandemic or to treat its impact, makes it difficult to forecast any effects on our 2021 results. However, as of the date of this filing, we expect our results for some portion of 2021 to be significantly affected.
In addition, the global shipping industry is currently experiencing challenges related to port delays and tight availability for carriers and containers. This situation has negatively impacted our supply chain partners, including third party manufacturers, logistics providers, and other vendors, as well as the supply chains of our licensees, and has resulted in increased cost of supply and freight costs. Such higher costs are currently expected to continue for the remainder of 2021 and at least some portion of 2022.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, or liquidity.
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Critical Accounting Policies
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires management to exercise judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates and judgments on a variety of factors, including our historical experience, knowledge of our business and industry, and current and expected economic conditions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Because the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
Please refer to our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on April 23, 2021, for a discussion of our critical accounting policies. During the three and nine months ended September 30, 2021, there were no material changes to our accounting policies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.