What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-18 · 147 added, 50 removed, 131 unchanged (60% of the section changed)

13 unchanged sentences

On May 31, 2022, we sold a majority interest in the brand to a third party, but retained a 30% noncontrolling interest in the brand and continue to contribute to the operations of the brand through a service agreement.

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.

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, wholesale, and e-commerce channels to be everywhere its customers shop.

Our brands have generated over $3 billion in retail sales via live streaming in interactive television and digital channels alone

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

● wholesale distribution through joint ventures or licensing of our brands to retailers that sell to the end consumer;

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

● direct-to-consumer distribution of our brands through e-commerce and live streaming;

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Summary of Operating Results

Three months ended March 31, 2023 (the “current quarter”) compared with the three months ended March 31, 2022 (the “prior year quarter”)

Three months ended June 30, 2023 (the “current quarter”) compared with the three months ended June 30, 2022 (the “prior year quarter”)

Current quarter net revenue decreased approximately $1.7 million to $6.8 million from $8.5 million for the prior year quarter.

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Net sales increased by approximately $1.1 million in the current quarter to $4.4 million, compared with $3.3 million in the prior year quarter.

This increase was primarily attributable to sale of all of our C Wonder apparel inventory to HSN as part of the restructuring and transformation of our business operating model, which we began in the current quarter and expect to complete by the end of the second quarter of 2023.

This increase was primarily attributable to the sale of all of our Judith Ripka fine jewelry inventory to JTV as part of the restructuring and transformation of our business operating model, which has been substantially completed as of June 30, 2023.

Cost of Goods Sold

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Gross profit margin from net product sales (net sales less cost of goods sold, divided by net sales) decreased from approximately 22% in the prior year quarter to approximately 13% in the current quarter.

The decrease in gross profit margin percentage was the result of selling all remaining jewelry at an agreed-upon price which was less than historical margins and the sale of the remaining apparel inventory at discounted sales amounts.

Gross profit (net revenue less cost of goods sold) decreased approximately $2.9 million to $3.0 million from $5.9 million in the prior year quarter, primarily driven by the aforementioned decrease in net licensing revenue.

Operating Costs and Expenses

Operating costs and expenses decreased approximately $1.3 million from $8.3 million in the prior year quarter to $7.0 million in the current quarter.

Direct Operating Costs and Expenses

Direct operating costs and expenses decreased approximately $4.3 million from $9.5 million in the prior year quarter to $5.2 million in the current quarter.

This decrease was primarily attributable to lower salaries, benefits and employment costs, driven by the combination of (i) the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand and the transfer of the employees associated with the Isaac Mizrahi brand to the IM Topco, LLC business venture, and (ii) reductions in staffing levels during the current quarter related to the restructuring and transformation of our business operating model.

Other Expense (Income), Including Non-cash Expenses

These decreases were partially offset by a $0.1 million impairment charge related to certain capitalized software assets.

Other Operating Costs and Expenses (Income)

In the prior year quarter, we recognized a gain on the sale of a majority interest in the Isaac Mizrahi brand 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.

We account for our interest in the ongoing operations of IM Topco, LLC using the equity method of accounting.

We recognized an equity method loss of $0.52 million related to our investment for the current quarter, based on the distribution provisions set forth in the related business venture agreement.

Also during the current quarter, we recognized a gain of $0.35 million related to the sale of a limited partner ownership interest in an unconsolidated affiliate, which was entered into in 2016, and a gain of $0.44 million related to a lease termination settlement with the landlord of our former retail store location.

Depreciation and amortization was approximately $1.8 million in both the current quarter and prior year quarter.

Interest and Finance Expense

Interest and finance expense for the current quarter was approximately $0.0 million, compared with $0.7 million for the prior year quarter.

This decrease was attributable to the May 31, 2022 repayment of all of our outstanding term loan debt.

Income Tax Benefit

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

For both the current quarter and the prior year quarter, the federal statutory rate differed from the effective tax rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

Interest and finance expense for the current quarter was $0.0 million, compared with $2.8 million for the prior year quarter.

This decrease was attributable to the May 31, 2022 repayment of all of our outstanding term loan debt, which resulted in a $2.3 million loss on early extinguishment of debt in the prior year quarter.

The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately 0% and 25%, respectively, resulting in an income tax (benefit) provision of $0 and $3.18 million, respectively.

For the current quarter, the federal statutory rate differed from the effective tax rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

For the prior year 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%.

Net Loss Attributable to Xcel Brands, Inc.

We had a net loss of $5.6 million for the current quarter, compared with a net loss of $3.5 million for the prior year quarter, due to the combination of the factors outlined above.

We had a net loss of $3.5 million for the current quarter, compared with net income of $9.5 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

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

stockholders, exclusive of amortization of trademarks, our proportional share of trademark amortization of equity method investees, 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 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.

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

stockholders before depreciation and amortization, our proportional share of trademark amortization of equity method investees, interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation, gains on reduction of contingent obligations, gains 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, our proportional share of trademark amortization of equity method investees, 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 sale of assets, gain on lease termination, asset impairments, and operating losses stemming from certain of our businesses that have been restructured or discontinued.

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.

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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 (loss) income attributable to Xcel Brands, Inc.

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

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($ in thousands)

Net loss attributable to Xcel Brands, Inc.

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

Amortization of trademarks

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Stock-based compensation

Non-GAAP net (loss) income

Loss on extinguishment of debt

Gain on sale of assets

Gain on lease termination

Asset impairment

Income tax provision

Non-GAAP net loss

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

Diluted loss per share

Diluted (loss) earnings per share

Amortization of trademarks

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Stock-based compensation

Loss on extinguishment of debt

Gain on sale of assets

Gain on lease termination

Asset impairment

Income tax provision

Non-GAAP diluted EPS

Non-GAAP weighted average diluted shares

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

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

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

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($ in thousands)

Net loss attributable to Xcel Brands, Inc.

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

Depreciation and amortization

Proportional share of trademark amortization of equity method investee

Interest and finance (income) expense

Income tax provision

State and local franchise taxes

Stock-based compensation

Gain on sale of assets

Gain on lease termination

Asset impairment

Losses from discontinued businesses

Adjusted EBITDA

Six months ended June 30, 2023 (the “current six months”) compared with the six months ended June 30, 2022 (the “prior year six months”)

Current six months net revenue decreased approximately $4.4 million to $12.8 million from $17.2 million for the prior year six months.

Net licensing revenue decreased by approximately $6.4 million in the current six months to $4.7 million, compared with $11.1 million in the prior year six months.

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 increased by approximately $2.1 million in the current six months to $8.2 million, compared with $6.1 million in the prior year six months.

This increase was primarily attributable to sale of all of our C Wonder apparel inventory to HSN and the sale of all of our Judith Ripka fine jewelry inventory to JTV, as part of the restructuring and transformation of our business operating model, which has been substantially completed as of June 30, 2023.

Cost of Goods Sold

Current six months cost of goods sold was $6.5 million, compared with $4.3 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) decreased from approximately 30% in the prior year six months to approximately 21% in the current six months.

Gross profit (net revenue less cost of goods sold) decreased approximately $6.6 million to $6.3 million from $12.9 million in the prior year six months, primarily driven by the aforementioned decrease in net licensing revenue.

Direct Operating Costs and Expenses

Direct operating costs and expenses decreased approximately $5.7 million from $17.8 million in the prior year six months to $12.1 million in the current six months.

This decrease was primarily attributable to lower salaries, benefits and employment costs, driven by the combination of (i) the May 31, 2022 sale of a majority interest in the Isaac Mizrahi brand and the transfer of the employees associated with the Isaac Mizrahi brand to the IM Topco, LLC business venture, and (ii) reductions in staffing levels and other costs during the current six months related to the restructuring and transformation of our business operating model.

These decreases were partially offset by a $0.1 million impairment charge related to certain capitalized software assets.

Other Operating Costs and Expenses (Income)

In the prior year six months, we recognized a gain on the sale of a majority interest in the Isaac Mizrahi brand 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.

We account for our interest in the ongoing operations of IM Topco, LLC using the equity method of accounting.

We recognized an equity method loss of $1.03 million related to our investment for the current six months, based on the distribution provisions set forth in the related business venture agreement.

Also during the current six months, we recognized a gain of $0.35 million related to the sale of a limited partner ownership interest in an unconsolidated affiliate, which was entered into in 2016, and a gain of $0.44 million related to a lease termination settlement with the landlord of our former retail store location.

Depreciation and amortization was approximately $3.6 million in both the current six months and prior year six months.

Interest and Finance Expense

Interest and finance expense for the current six months was $0.0 million, compared with $3.5 million for the prior year six months.

This decrease was attributable to the May 31, 2022 repayment of all of our outstanding term loan debt, which resulted in a $2.3 million loss on early extinguishment of debt in the prior year six months.

The estimated annual effective income tax rate for the current six months and the prior year six months was approximately 0% and 35%, respectively, resulting in an income tax (benefit) provision of $0 and $3.18 million, respectively.

For the current six months, the federal statutory rate differed from the effective tax rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

For the prior year 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%.

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

We had a net loss of $9.1 million for the current six months, compared with net income of $6.0 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 $5.3 million, or $0.27 per diluted share for the current six months and a non-GAAP net loss of $5.5 million, or $0.28 per diluted share, for the prior year six months.

We had Adjusted EBITDA of approximately $(2.9) million for the current six months, compared with approximately $(3.7) million for the prior year six months.

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

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

Six Months Ended

($ in thousands)

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

Amortization of trademarks

Proportional share of trademark amortization of equity method investee

Stock-based compensation

Loss on extinguishment of debt

(Recovery of) costs in connection with potential acquisition

Gain on sale of assets

Gain on lease termination

Asset impairment

Income tax provision

Non-GAAP net loss

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) earnings per share

Amortization of trademarks

Proportional share of trademark amortization of equity method investee

Stock-based compensation

Loss on extinguishment of debt

Gain on sale of assets

Gain on lease termination

Asset impairment

Income tax provision

Non-GAAP diluted EPS

Non-GAAP weighted average diluted shares

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

Depreciation and amortization

Proportional share of trademark amortization of equity method investee

Interest and finance expense

Income tax provision

State and local franchise taxes

Stock-based compensation

Gain on sale of assets

Gain on lease termination

Asset impairment

Losses from discontinued businesses

Adjusted EBITDA

Liquidity and Capital Resources

As of March 31, 2023 and December 31, 2022, our cash and cash equivalents were $1.6 million and $4.6 million, respectively.

As of June 30, 2023 and December 31, 2022, our cash and cash equivalents were $3.5 million and $4.6 million, respectively.

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

Notwithstanding our recent investments in our ERP system and our brick-and-mortal retail store in 2020 and 2021, respectively, our business operating model generally does not require material capital expenditures, and as of March 31, 2023, we have no significant commitments for future capital expenditures.

Notwithstanding our recent investments in our ERP system and our brick-and-mortal retail store in 2020 and 2021, respectively, our business operating model generally does not require material capital expenditures, and as of June 30, 2023, we have no significant commitments for future capital expenditures.

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 $5.1 million and $8.8 million as of March 31, 2023 and December 31, 2022, respectively.

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 $6.0 million and $8.8 million as of June 30, 2023 and December 31, 2022, respectively.

Liquidity and Management’s Plans

We incurred a net loss of approximately $5.6 million during the three months ended March 31, 2023 (which included non-cash expenses of approximately $2.4 million), and had an accumulated deficit of approximately $38.4 million as of March 31, 2023.

Net cash used in operating activities was approximately $2.9 million for the three months ended March 31, 2023.

We incurred a net loss attributable to Company stockholders of approximately $3.5 million and $9.1 million during the three and six months ended June 30, 2023, respectively (which included net non-cash expenses of approximately $1.7 million and $4.0 million, respectively), and had an accumulated deficit of approximately $41.9 million as of June 30, 2023.

Net cash used in operating activities was approximately $1.5 million for the six months ended June 30, 2023.

These factors, along with our current levels of cash and working capital, raise uncertainties about the Company’s ability to continue as a going concern.

Management plans to mitigate an expected shortfall of capital and to support future operations by shifting the business from a wholesale/licensing hybrid model into a “licensing-plus” business model.

Management implemented a plan to mitigate an expected shortfall of capital and to support future operations by shifting the business from a wholesale/licensing hybrid model into a “licensing-plus” business model.

In the first quarter of 2023, we began to restructure our business operations by entering into new licensing agreements and joint venture arrangements with best-in-class business partners.

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In conjunction with the launch of the C Wonder Brand on HSN, we licensed the wholesale operations related to the brand to One Jeanswear Group, LLC (“OJG”);

this new license with OJG also includes other new celebrity brands that we plan to launch in 2023 and beyond.

this new license with OJG also includes other new celebrity brands that we plan to develop and launch in 2023 and beyond.

For the Halston Brand, on May 15, 2023, we entered into a new master license agreement for men’s, women’s, and children’s apparel, fashion accessories, and other product categories with an industry-leading wholesale apparel company for distribution through department stores, e-commerce, and other retailers.

year period, followed by a twenty-year period), subject to the licensee’s right to terminate with at least 120 days’ notice prior to the end of each five-year period during the term.

Management expects the transition of these operating businesses to be completed by the end of the second quarter of 2023.

This new master license for the Halston Brand provides for an upfront cash payment and royalties to the Company, including certain guaranteed minimum royalties, includes significant annual minimum net sales requirements, and has a twenty-five-year term (consisting of an initial five-year period, followed by a twenty-year period), subject to the licensee’s right to terminate with at least 120 days’ notice prior to the end of each five-year period during the term.

The transition of these operating businesses was substantially completed as of June 30, 2023.

We believe that this evolution of our operating model will provide significant cost savings and allow us to reduce and better manage our exposure to operating risks.

As of March 31, 2023, the Company has taken steps that will reduce payroll costs by $6 million and operating expenses by $7 million over the next twelve months.

Based on these recent events and changes in our business model, management expects to generate adequate cash flows to meet the Company’s operating and capital expenditure needs, for at least the twelve months subsequent to the filing date of this Quarterly Report on Form 10-Q, and therefore, such conditions and uncertainties with respect to the Company’s ability to continue as a going concern as of March 31, 2023, have subsequently been alleviated.

As of June 30, 2023, the Company has reduced payroll costs by approximately $6 million and operating expenses by approximately $7 million, on an annualized basis when compared to the corresponding periods in the prior year.

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

Operating Activities

Net cash used in operating activities was approximately $2.92 million in the current quarter, compared with approximately $0.89 million in the prior year nine months.

The current quarter cash used in operating activities was primarily attributable to the combination of the net loss of $(5.94) million plus non-cash items of approximately $2.37 million and the net change in operating assets and liabilities of approximately $0.65 million.

Non-cash items were primarily comprised of $1.80 million of depreciation and amortization and the $0.52 million undistributed proportional share of net loss of equity method investee.

The net change in operating assets and liabilities was primarily comprised of increases in various operating liabilities of approximately $1.40 million, partially offset by an increase in accounts receivable of $(0.86) million.

The prior year 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 various operating 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.

Net cash used in operating activities was approximately $1.47 million in the current six months, compared with approximately $8.72 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 $(9.64) million plus non-cash items of approximately $4.04 million and the net change in operating assets and liabilities of approximately $4.13 million.

Non-cash items were primarily comprised of $3.58 million of depreciation and amortization and the $1.03 million undistributed proportional share of net loss of equity method investee, partially offset by a $(0.35) gain on the sale of a financial asset and a $(0.44) gain on the settlement of a lease liability.

The net change in operating assets and liabilities was primarily comprised of (i) an increase in deferred revenue of approximately $5.04 million, which was mainly attributable to the upfront payment received for the Halston Master License agreement entered into during the current six months, (ii) a decrease in inventory of approximately $2.05 million, driven by the sale of all of our C Wonder apparel inventory to HSN and the sale of all of our Judith Ripka fine jewelry inventory to JTV, as part of the restructuring and transformation of our business operating model.

Partially offsetting these net changes in operating

assets and liabilities were increases in accounts receivable of approximately $(1.77) million and deceases in various operating liabilities of approximately $(1.64) million.

The prior year 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.

Investing Activities

Net cash used in investing activities for the current quarter consisted of approximately $0.08 million of capital expenditures, primarily related to software.

Net cash used in the investing activities for the prior year quarter consisted of approximately $0.04 million of capital expenditures.

Net cash provided by investing activities for the current six months was approximately $0.37 million, primarily driven by $0.45 million of proceeds received from the sale of a limited partner ownership interest in an unconsolidated affiliate, which was entered into in 2016.

Net cash provided by investing activities for the prior year 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.

Financing Activities

Net cash used in financing activities for the prior year quarter consisted of approximately $(0.63) million of scheduled principal payments on term loan debt.

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

Net cash used in financing activities for the prior year 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.

There was no cash used in or provided by financing activities in the current six months.

Other Factors

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In the first quarter of 2023, we began to restructure our business operations by shifting our business from a wholesale/licensing hybrid model into a “licensing-plus” business model.

These efforts include entering into new structured contractual arrangements with best-in-class business partners in order to more efficiently operate our wholesale and e-commerce businesses and reduce and better manage our exposure to operating risks.

At the same time, we continue to face a number of headwinds in the current macroeconomic environment.

These efforts included entering into new structured contractual arrangements with best-in-class business partners in order to more efficiently operate our wholesale and e-commerce businesses and reduce and better manage our exposure to operating risks.

These restructuring initiatives have been substantially completed as of June 30, 2023.

However, we continue to face a number of headwinds in the current macroeconomic environment.

The global shipping industry has experienced and continues to experience challenges related to port delays and reduced 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 2023.

Such higher costs are currently expected to continue for at least the majority of 2023.

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.

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(as amended).

Although the adoption of this new guidance did not have a significant impact on the Company’s results of operations, cash flows, or financial condition, it represented a change in our accounting policy with respect to the estimation of allowance for uncollectible accounts.

the adoption of this new guidance did not have a significant impact on the Company’s results of operations, cash flows, or financial condition, it represented a change in our accounting policy with respect to the estimation of allowance for uncollectible accounts.

Refer to Part I, Item 1, Note 5 of this Quarterly Report on Form 10-Q for additional information.

During the three months ended March 31, 2023, there were no other material changes to our accounting policies.

During the three and six months ended June 30, 2023, there were no other 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