What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-23 · 142 added, 68 removed, 92 unchanged (70% 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 LOGO by Lori Goldstein brand (the "Lori Goldstein Brand"), the Halston brand (the "Halston Brand"), the Judith Ripka brand (the "Ripka Brand"), the C Wonder brand (the "C Wonder 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.

Currently, the Company’s brand portfolio – including wholly owned brands – the LOGO by Lori Goldstein brand (the “Lori Goldstein Brand”), the Halston brands (the "Halston Brand"), the Judith Ripka brands (the "Ripka Brand"), the C Wonder brands (the "C Wonder Brand"), and other proprietary brands – and brands partially-owned through business ventures with third parties – the Longaberger brand (the “Longaberger Brand”) and the Isaac Mizrahi brands (the "Isaac Mizrahi Brand").

Xcel continues to pioneer 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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Summary of Operating Results

Three months ended March 31, 2022 (the “current quarter”) compared with the three months ended March 31, 2021 (the “prior year quarter”)

Current quarter net revenue increased approximately $0.9 million to $8.7 million from $7.8 million for the prior year quarter.

Net licensing revenue increased by approximately $1.7 million in the current quarter to $6.0 million, compared with $4.3 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.

Three months ended June 30, 2022 (the “current quarter”) compared with the three months ended June 30, 2021 (the “prior year quarter”)

Current quarter net revenue decreased approximately $2.3 million to $8.5 million from $10.8 million for the prior year quarter.

Net licensing revenue decreased by approximately $1.0 million in the current quarter to $5.2 million, compared with $6.2 million in the prior year quarter.

This decrease in licensing revenue was primarily attributable to the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand through the sale of a 70% interest in IM Topco, LLC to WHP.

Since the closing of such sale, we no longer record Isaac Mizrahi brand licensing revenue as part of our revenues.

Net sales decreased by approximately $1.2 million in the current quarter to $3.3 million, compared with $4.5 million in the prior year quarter.

This decrease in net sales was primarily attributable to declines in apparel wholesale revenue, mainly driven by a change in our C Wonder brand distribution.

This decrease in net sales was primarily attributable to declines in apparel wholesale revenue, mainly driven by the temporary closing of overseas factories, causing delays in product delivery resulting in cancelled orders.

Cost of Goods Sold

Current quarter cost of goods sold was $2.6 million, compared with $3.1 million for the prior year quarter.

Gross profit margin from net product sales (net sales less cost of goods sold, divided by net sales) declined from approximately 48% in the prior year quarter to approximately 40% in the current quarter, primarily due to the selling-off of seasoned apparel inventory during the current quarter, a portion of which was reserved for in previous periods.

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

Gross profit margin from net product sales (net sales less cost of goods sold, divided by net sales) declined from approximately 33% in the prior year quarter to approximately 22% in the current quarter, primarily due to the selling-off of seasoned apparel inventory and write-downs for certain inventory related to canceled sales orders.

Gross profit (net revenue less cost of goods sold) decreased approximately $1.8 million to $5.9 million from $7.7 million in the prior year quarter, driven by the combination of the aforementioned decrease in net licensing revenue and decline in gross profit margin from net product sales.

Operating Costs and Expenses

Operating costs and expenses increased approximately $1.9 million from $9.4 million in the prior year quarter to $11.3 million in the current quarter.

This increase was mainly driven by costs associated with the Lori Goldstein brand acquired on April 1, 2021 and, to a lesser extent, cost increases from service providers and vendors due to the current inflationary economic environment.

Costs associated with the Lori Goldstein brand included a $0.6 million increase in salaries, benefits and employment taxes and $0.6 million of increased trademark amortization expense.

The remainder of the increase in operating costs is largely attributable to higher shipping and logistics costs.

This increase was primarily driven by the combination of (i) $1.0 million of bonuses awarded to senior management related to the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand, (ii) higher shipping and logistics costs, and (iii) various other cost increases from service providers and vendors due to the current inflationary economic environment.

We recognized a gain on the sale of a majority interest in the Isaac Mizrahi brand in the current quarter of approximately $20.6 million, which was comprised of $46.2 million of cash proceeds plus the recognition of the fair value of our retained

interest in the brand of $19.8 million, less $0.9 million of fees and expenses directly related to the transaction and the derecognition of the brand trademarks previously recorded on our balance sheet of $44.5 million.

Interest and Finance Expense

Interest and finance expense for the current quarter was $2.8 million, compared with $1.4 million for the prior year quarter.

This increase was attributable to the fact that the new term loan agreement entered into on December 30, 2021 resulted in a higher outstanding principal balance at a higher effective interest rate as compared with the previous term loan agreement.

Income Tax Benefit

The estimated annual effective income tax benefit rate for the current quarter and the prior year quarter was approximately 0% and 5%, respectively, resulting in an income tax benefit of $0 and $0.14 million, respectively.

For the current quarter, the federal statutory rate differed from the effective tax rate primarily due to the recording of a valuation allowance against the current period loss.

Since it is not more likely than not that the current period loss will be utilized, the Company recorded the valuation allowance.

For the prior year 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%.

Net Loss Attributable to Xcel Brands, Inc.

We had a net loss of $3.5 million for the current quarter, compared with a net loss of $2.5 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

This increase was primarily attributable to a higher loss on early extinguishment of debt as a result of the May 31, 2022 repayment of all of our outstanding term loan debt in the current quarter compared with a smaller loss on early extinguishment of debt incurred in the prior year quarter as a result of the April 14, 2021 term loan debt refinancing.

Income Tax Provision (Benefit)

The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately 25% and 43%, respectively, resulting in an income tax provision (benefit) of $3.18 million and $(1.35) million, respectively.

For the current quarter, the federal statutory rate differed from the effective tax rate primarily due to recurring permanent differences, state taxes, and the discrete treatment of stock compensation shortfall, which increased the effective tax rate by approximately 10%, partially offset by the reversal of a valuation allowance that was previously recorded in the first quarter of 2022, which decreased the effective tax rate by approximately 6%.

For the prior year 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.

Net Income (Loss) Attributable to Xcel Brands, Inc.

We had net income of $9.5 million for the current quarter, compared with a net loss of $1.6 million for the prior year quarter, due to the combination of the factors outlined above.

Non-GAAP Net (Loss) Income, Non-GAAP Diluted EPS, and Adjusted EBITDA

We had a non-GAAP net loss of approximately $3.6 million, or $0.18 per diluted share (“non-GAAP diluted EPS”), for the current quarter and a non-GAAP net loss of $0.1 million, or $0.01 per diluted share, for the prior year quarter.

Non-GAAP net (loss) 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 approximately $(0.9) million for both the current quarter and the prior year quarter.

We had Adjusted EBITDA of approximately $(2.8) million for the current quarter, compared with approximately $0.9 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.

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, gain on sales of assets, 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 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 our 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.

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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.

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

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

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($ in thousands)

Net loss attributable to Xcel Brands, Inc.

Net income (loss) attributable to Xcel Brands, Inc.

Amortization of trademarks

Stock-based compensation

Certain adjustments to provision for doubtful accounts

Deferred income tax benefit

Loss on extinguishment of debt

Gain on sale of assets

Income tax provision (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:

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

Three Months Ended

Diluted loss per share

Diluted earnings (loss) per share

Amortization of trademarks

Stock-based compensation

Certain adjustments to provision for doubtful accounts

Deferred income tax benefit

Loss on extinguishment of debt

Gain on sale of assets

Income tax provision (benefit)

Non-GAAP diluted EPS

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($ in thousands)

Net loss attributable to Xcel Brands, Inc.

Net income (loss) attributable to Xcel Brands, Inc.

Depreciation and amortization

Interest and finance expense

Income tax benefit

Income tax provision (benefit)

State and local franchise taxes

Stock-based compensation

Gain on sale of assets

Adjusted EBITDA

Six months ended June 30, 2022 (the “current six months”) compared with the six months ended June 30, 2021 (the “prior year six months”)

Current six months net revenue decreased approximately $1.4 million to $17.2 million from $18.6 million for the prior year six months.

Net licensing revenue increased by approximately $0.6 million in the current six months to $11.1 million, compared with $10.5 million in the prior year six months.

This increase in licensing revenue was primarily attributable to the Lori Goldstein brand, which we acquired on April 1, 2021, partially offset by the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand through the sale of a 70% interest in IM Topco, LLC to WHP.

Net sales decreased by approximately $1.9 million in the current six months to $6.1 million, compared with $8.0 million in the prior year six months.

This decrease in net sales was primarily attributable to declines in apparel wholesale revenue, mainly driven by the previously mentioned delays in product deliveries and canceled sales orders.

Cost of Goods Sold

Current six months cost of goods sold was $4.3 million, compared with $4.9 million for the prior year six months.

Gross profit margin from net product sales (net sales less cost of goods sold, divided by net sales) declined from approximately 39% in the prior year six months to approximately 30% in the current six months, primarily due to selling-off of seasoned apparel inventory and inventory write-downs related to cancelled sales orders.

Gross profit (net revenue less cost of goods sold) decreased approximately $0.7 million to $13.0 million from $13.7 million in the prior year six months, primarily driven by the decrease in gross profit margin described above, partially offset by an increase in licensing revenue.

The increase in licensing revenue was mainly driven by the April 2021 acquisition of the Lori Goldstein brand.

Operating Costs and Expenses

Operating costs and expenses increased approximately $3.5 million from $17.9 million in the prior year six months to $21.4 million in the current six months.

This increase was primarily driven by the combination of (i) costs associated with the Lori Goldstein brand acquired on April 1, 2021 (including a $0.6 million increase in salaries, benefits and employment taxes and $0.6 million of increased trademark amortization expense), (ii) $1.0 million of bonuses awarded to senior management related to the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand, and (iii) higher shipping

and logistics costs, as well as cost increases from other service providers and vendors due to the current inflationary economic environment.

We recognized a gain on the sale of a majority interest in the Isaac Mizrahi brand in the current six months of approximately $20.6 million, which was comprised of $46.2 million of cash proceeds plus the recognition of the fair value of our retained interest in the brand of $19.8 million, less $0.9 million of fees and expenses directly related to the transaction and the derecognition of the brand trademarks previously recorded on our balance sheet of $44.5 million.

Interest and Finance Expense

Interest and finance expense for the current six months was $3.5 million, compared with $1.7 million for the prior year quarter.

This increase was primarily attributable to a higher loss on early extinguishment of debt as a result of the May 31, 2022 repayment of all of our outstanding term loan debt in the current six months compared with a smaller loss on early extinguishment of debt incurred in the prior year six months as a result of the April 14, 2021 term loan debt refinancing.

Income Tax Provision (Benefit)

The estimated annual effective income tax rate for the current six months and the prior year six months was approximately 35% and 25%, respectively, resulting in an income tax provision (benefit) of $3.18 million and $(1.48) million, respectively.

For the current six months, the federal statutory rate differed from the effective tax rate primarily due to recurring permanent differences, state taxes, and the discrete treatment of stock compensation shortfall, which increased the effective tax rate by approximately 14%.

For the prior year six months, the federal statutory rate differed from the effective tax rate primarily due to state taxes, which increase 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%.

Net Income (Loss) Attributable to Xcel Brands, Inc.

We had net income of $6.0 million for the current six months, compared with a net loss of $4.1 million for the prior year six months, due to the combination of the factors outlined above.

Non-GAAP Net (Loss) Income, Non-GAAP Diluted EPS, and Adjusted EBITDA

We had a non-GAAP net loss of approximately $5.5 million, or $0.28 per diluted share, for the current six months and a non-GAAP net loss of $1.6 million, or $0.09 per diluted share, for the prior year six months.

We had Adjusted EBITDA of approximately $(3.7) million for the current six months, compared with approximately $(0.0) million for the prior year six months.

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

Amortization of trademarks

Stock-based compensation

Loss on extinguishment of debt

Certain adjustments to provision for doubtful accounts

Gain on sale of assets

Income tax provision (benefit)

Non-GAAP net (loss) income

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

Six Months Ended

Diluted earnings (loss) per share

Amortization of trademarks

Stock-based compensation

Loss on extinguishment of debt

Certain adjustments to provision for doubtful accounts

Gain on sale of assets

Income tax provision (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 income (loss) attributable to Xcel Brands, Inc.

Depreciation and amortization

Interest and finance expense

Income tax provision (benefit)

State and local franchise taxes

Stock-based compensation

Certain adjustments to provision for doubtful accounts

Gain on sale of assets

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, 2022 and December 31, 2021, our cash and cash equivalents were approximately $3.1 million and $4.5 million, respectively.

Restricted cash at March 31, 2022 and December 31, 2021 was approximately $0.6 million and $0.7 million, respectively, and consisted of cash deposited as collateral for an irrevocable standby letter of credit associated with the lease of our corporate office and operating 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.

As of June 30, 2022 and December 31, 2021, our cash and cash equivalents were approximately $10.9 million and $4.5 million, respectively.

Restricted cash at December 31, 2021 was approximately $0.7 million, and consisted of cash deposited as collateral for an irrevocable standby letter of credit associated with the lease of our corporate office and operating facility.

There was no restricted cash at June 30, 2022, as the aforementioned letter of credit had expired and was not renewed.

We expect that existing cash and operating cash flows will be adequate to meet our operating 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 $5.2 million and $7.9 million as of March 31, 2022 and December 31, 2021, respectively.

This decrease in working capital was primarily attributable to the use of cash in operations, as well as scheduled debt interest payments, and the timing of payments to vendors and service providers.

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 $16.9 million and $7.9 million as of June 30, 2022 and December 31, 2021, respectively.

This increase in working capital was primarily attributable to the net proceeds received from the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand to WHP, partially offset by the full repayment of all of our term loan debt.

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 $0.89 million in the current quarter, compared with approximately $1.69 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 $(3.74) million plus non-cash expenses of approximately $1.94 million and the net change in operating assets and liabilities of approximately $0.91 million.

Non-cash net expenses were primarily comprised of $1.82 million of depreciation and amortization and $0.09 million of amortization of deferred finance costs.

The net change in operating assets and liabilities was primarily comprised of an increase in accounts payable, accrued expenses, and other liabilities of $2.62 million, partially offset by an increase in accounts receivable of $(1.04) million and an increase in inventory of $(0.57) million.

The changes in these operating assets and liabilities were primarily related to the timing and volume of sales and collections, and the timing of payments to vendors and service providers.

The prior year 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 changes in lease-related assets and liabilities 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.

Net cash used in operating activities was approximately $8.72 million in the current six months, compared with approximately $5.74 million in the prior year quarter.

The current six months cash used in operating activities was primarily attributable to the combination of the net income of $5.45 million plus non-cash items of approximately $(12.51) million and the net change in operating assets and liabilities of approximately $(1.66) million.

Non-cash items were primarily comprised of a $(20.61) million net gain on the sale of the assets of the Isaac Mizrahi brand, $3.63 million of depreciation and amortization, $0.52 million of stock-based compensation, a $2.32 million loss on extinguishment of debt, and $1.38 million of deferred taxes.

The net change in operating assets and liabilities was primarily comprised of an increase in accounts receivable of $(1.74) million, an increase in accounts payable, accrued expenses, and other liabilities of $0.55 million, a decrease in other liabilities of $(0.22) million, and changes in lease-related assets and liabilities of $(0.16) million.

The prior year six months cash used in operating activities was primarily attributable to the combination of the net loss of $(4.44) million plus non-cash items of approximately $3.23 million and the net change in operating assets and liabilities of approximately $(4.53) million.

Non-cash items 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, a $0.82 million 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, and changes in lease-related assets and liabilities of $(0.23) million.

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

Investing Activities

Net cash used in investing activities for the current quarter was approximately $0.04 million, related to minor capital expenditures.

Net cash used in investing activities for the prior year quarter was approximately $0.30 million, primarily attributable to capital expenditures relating to the fit-out and furnishing of our planned Judith Ripka fine jewelry retail store (which opened in the second quarter of 2021 and was subsequently closed in the first quarter of 2022).

Net cash provided by investing activities for the current six months was approximately $45.32 million, and was almost entirely attributable to $45.41 million of net proceeds from the sale of a majority interest in the Isaac Mizrahi brand to WHP.

Net cash used in investing activities for the prior year 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, capital expenditures relating to the fit-out and furnishing of our Judith Ripka fine jewelry retail store (which opened in the second quarter of 2021 and was subsequently closed in the first quarter of 2022).

Financing Activities

Net cash used in financing activities for the current quarter consisted of $0.63 million of scheduled payments on our term loan debt.

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

Net cash used in financing activities for the current six months was approximately $30.95 million, which mainly consisted of $29.00 million of repayments of our term loan debt, and, to a lesser extent, $1.51 million of prepayment and other fees associated with the extinguishment of debt, as well as $0.44 million of shares repurchased related to withholding taxes on vested restricted stock.

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

Partially offsetting these proceeds were $(17.38) million paid on the balance of term loan debt, and $(1.50) million of various fees and finance costs paid in connection with the April 2021 refinancing of term loan debt.

Other Factors

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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 Lori Goldstein brand, Halston brand, C Wonder brand, and Isaac Mizrahi 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.

While the recent sale of a majority interest in the Isaac Mizrahi brand is expected to result in a short-term decrease in our revenues, as that brand represented a significant portion of our historical revenues, we will seek to replace those revenues in the long-term with new strategic business initiatives.

The proceeds from the sale, as well as the continuing cash flows from our retained interest in the Isaac Mizrahi brand, are expected to help fuel various strategic initiatives as we concentrate our resources on growing our brands, new brand launches, and investing in livestreaming technology platforms and partnerships.

We continue to work towards expanding our wholesale and 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 Qurate’s QVC channel.

However, the impacts of the ongoing 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, including Lord & Taylor and Le Tote, Stein Mart, and Century 21, from which we had an aggregate of approximately $1.4 million of accounts receivable due at March 31, 2022.

As a result, we continue to recognize an allowance for doubtful accounts of approximately $1.1 million as of March 31, 2022, 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.

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

This global pandemic has impacted our supply chain as most of the Company’s products are manufactured in China, Thailand, and other places around the world affected by this event.

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

The pandemic has also impacted and, from time to time, could continue to impact, distribution and logistics providers' ability to operate in the normal course of business.

Further, the initial onset of the pandemic in 2020 resulted in a sudden decrease in sales for many of the Company’s products, from which the Company has yet to fully recover.

The initial onset of the pandemic resulted in order cancellations and a decrease in accounts receivable collections.

Also, the global pandemic has affected the financial health of certain of our customers,

and the bankruptcy of certain other customers, including Lord & Taylor and Le Tote, Stein Mart, and Century 21, from which we had an aggregate of approximately $1.5 million of accounts receivable due at June 30, 2022.

As a result, we continue to recognize an allowance for doubtful accounts of approximately $1.1 million as of June 30, 2022, 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.

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 our lenders 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 2022 results.

However, as of the date of this filing, we expect our results for some portion of 2022 to be affected.

However, as of the date of this filing, we expect our results for a significant portion of 2022 to be affected.

In addition, the global shipping industry continues to face 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 for us and our licensees.

Such higher costs are currently expected to continue for at least some portion of 2022.

Such higher costs are currently expected to continue for a significant portion of 2022.

Further, the cost of raw materials, labor, manufacturing, energy, fuel, shipping and logistics, and other inputs related to the production and distribution of our products have increased and may continue to increase unexpectedly.

Beginning in the first quarter of 2022, input costs increased significantly.

We expect the pressures of input cost inflation to continue for the remainder of 2022, if not through 2023.

We may not be able to mitigate the impact of inflation and cost increases or pass these costs along to our customers.

Also, poor economic and market conditions, including a potential recession, may negatively impact market 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 the inflation as well as a potential recession, our business, financial condition, and results of operations could be adversely affected.

Our long-term success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and continue to attract wholesale and direct-to-consumer customers, and contract with and retain key licensees, as well as our and our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer bases and fulfill the product requirements of the particular retail channels within the global marketplace.

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Please refer to our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 15, 2022, for a discussion of our critical accounting policies and estimates.

During the three months ended March 31, 2022, there were no material changes to our accounting policies.

During the three and six months ended June 30, 2022, 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