We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Share Name | Share Symbol | Market | Type |
---|---|---|---|
Sequential Brands Group Inc | NASDAQ:SQBG | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 6.24 | 6.10 | 6.15 | 0 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2014
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________________ to ______________________.
Commission file number 0-16075
SEQUENTIAL BRANDS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 86-0449546 | |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) | |
organization) |
1065 Avenue of Americas, 30
th
Floor
New York, NY 10018
(Address of principal executive offices) (Zip Code)
(646) 564-2577
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 8, 2014, the registrant had 25,700,624 shares of common stock, par value $.001 per share, outstanding.
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page | ||
PART I FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | 4 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 25 |
Item 4. | Controls and Procedures | 26 |
PART II OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 26 |
Item 1A. | Risk Factors | 26 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 26 |
Item 3. | Defaults Upon Senior Securities | 26 |
Item 4. | Mine Safety Disclosures | 26 |
Item 5. | Other Information | 26 |
Item 6. | Exhibits | 27 |
2 |
Forward-Looking Statements
In addition to historical information, this quarterly report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements may appear throughout this Quarterly Report, including without limitation, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. We use words such as “believe,” “intend,” “expect,” “anticipate,” “plan,” “may,” “will,” “should,” “estimate,” “potential,” “project” and similar expressions to identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to the risks identified in our Annual Report on the Form 10-K for the year ended December 31, 2013.
Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond our ability to control or predict. Our forward-looking statements speak only as of the date of this Quarterly Report. Other than as required by law, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
Where You Can Find Other Information
Our website is www.sequentialbrandsgroup.com . Information contained on our website is not part of this Quarterly Report. Information that we furnish or file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. Our SEC filings, including exhibits filed therewith, are also available at the SEC’s website at www.sec.gov . You may obtain and copy any document we furnish or file with the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
3 |
PART I - FINANCIAL INFORMATION
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(Unaudited) | (Note 2) | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash | $ | 22,906 | $ | 25,125 | ||||
Accounts receivable, net | 5,204 | 5,286 | ||||||
Prepaid expenses and other current assets | 1,650 | 1,645 | ||||||
Current assets held for disposition from discontinued operations of wholesale business | 190 | 213 | ||||||
Total current assets | 29,950 | 32,269 | ||||||
Property and equipment, net | 1,431 | 986 | ||||||
Intangible assets, net | 115,754 | 115,728 | ||||||
Goodwill | 1,225 | 1,225 | ||||||
Other assets | 3,319 | 3,397 | ||||||
Total assets | $ | 151,679 | $ | 153,605 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 3,522 | $ | 4,963 | ||||
Deferred license revenue | 1,660 | 1,348 | ||||||
Long-term debt, current portion | 8,000 | 8,000 | ||||||
Current liabilities held for disposition from discontinued operations of wholesale business | 629 | 1,105 | ||||||
Total current liabilities | 13,811 | 15,416 | ||||||
Long-Term Liabilities: | ||||||||
Long-term debt | 47,998 | 49,931 | ||||||
Deferred tax liability | 4,736 | 4,339 | ||||||
Other long-term liabilities | 1,837 | 1,866 | ||||||
Long-term liabilities held for disposition from discontinued operations of wholesale business | 814 | 884 | ||||||
Total long-term liabilities | 55,385 | 57,020 | ||||||
Total liabilities | 69,196 | 72,436 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Preferred stock Series A, $0.001 par value, 19,400 shares authorized; none issued and outstanding at March 31, 2014 and December 31, 2013 | 0 | 0 | ||||||
Common stock, $0.001 par value, 150,000,000 shares authorized; 25,506,404 and 25,284,737 shares issued at March 31, 2014 and December 31, 2013, respectively, and 25,085,905 and 25,057,988 shares outstanding at March 31, 2014 and December 31, 2013, respectively | 25 | 25 | ||||||
Additional paid-in capital | 114,947 | 114,411 | ||||||
Accumulated other comprehensive loss | (69 | ) | 0 | |||||
Accumulated deficit | (34,148 | ) | (34,890 | ) | ||||
Treasury stock, at cost; 122,229 shares at March 31, 2014 and December 31, 2013 | (690 | ) | (690 | ) | ||||
Total Sequential Brands Group, Inc. and Subsidiaries stockholders’ equity | 80,065 | 78,856 | ||||||
Noncontrolling interest | 2,418 | 2,313 | ||||||
Total equity | 82,483 | 81,169 | ||||||
Total liabilities and stockholders’ equity | $ | 151,679 | $ | 153,605 |
See Notes to Condensed Consolidated Financial Statements.
4 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Net revenue | $ | 6,262 | $ | 1,629 | ||||
Operating expenses | 3,750 | 5,365 | ||||||
Income (loss) from operations | 2,512 | (3,736 | ) | |||||
Other income | 2 | 0 | ||||||
Interest expense | 1,270 | 11,617 | ||||||
Income (loss) before income taxes | 1,244 | (15,353 | ) | |||||
Provision for income taxes | 397 | 2,264 | ||||||
Income (loss) from continuing operations | 847 | (17,617 | ) | |||||
Loss from discontinued operations: | ||||||||
Loss from discontinued operations of wholesale business, net of tax | 0 | (3,864 | ) | |||||
Loss from discontinued operations, net of tax | 0 | (3,864 | ) | |||||
Consolidated net income (loss) | 847 | (21,481 | ) | |||||
Net income attributable to noncontrolling interest | (105 | ) | (26 | ) | ||||
Net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries | $ | 742 | $ | (21,507 | ) | |||
Basic earnings (loss) per share: | ||||||||
Continuing operations | $ | 0.03 | $ | (2.43 | ) | |||
Discontinued operations | - | (0.53 | ) | |||||
Attributable to Sequential Brands Group, Inc. and Subsidiaries | $ | 0.03 | $ | (2.96 | ) | |||
Basic weighted average common shares outstanding | 24,700,717 | 7,268,359 | ||||||
Diluted earnings (loss) per share: | ||||||||
Continuing operations | $ | 0.03 | $ | (2.43 | ) | |||
Discontinued operations | - | (0.53 | ) | |||||
Attributable to Sequential Brands Group, Inc. and Subsidiaries | $ | 0.03 | $ | (2.96 | ) | |||
Diluted weighted average common shares outstanding | 26,227,439 | 7,268,359 |
See Notes to Condensed Consolidated Financial Statements.
5 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Consolidated net income (loss) | $ | 847 | $ | (21,481 | ) | |||
Other comprehensive loss, net of tax: | ||||||||
Unrealized loss on interest rate hedging transactions | (69 | ) | 0 | |||||
Other comprehensive loss, net of tax | (69 | ) | 0 | |||||
Comprehensive income (loss) | 778 | (21,481 | ) | |||||
Comprehensive income attributable to noncontrolling interests | (105 | ) | (26 | ) | ||||
Comprehensive income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries | $ | 673 | $ | (21,507 | ) |
See Notes to Condensed Consolidated Financial Statements.
6 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Common Stock | Preferred Stock |
Additional Paid-
in |
Accumulated
Other Comprehensive |
Accumulated | Treasury Stock |
Total Sequential
Brands Group, Inc. and Subsidiaries Stockholders' |
Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Shares | Amount | Equity | Interest | Equity | |||||||||||||||||||||||||||||||||||||
Balance at January 1, 2014 | 25,057,988 | $ | 25 | - | $ | 0 | $ | 114,411 | $ | 0 | $ | (34,890 | ) | 122,229 | $ | (690 | ) | $ | 78,856 | $ | 2,313 | $ | 81,169 | |||||||||||||||||||||||||
Issuance of common stock in connection with stock option exercises | 21,667 | 0 | - | 0 | 72 | 0 | 0 | - | 0 | 72 | 0 | 72 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | 6,250 | 0 | - | 0 | 464 | 0 | 0 | - | 0 | 464 | 0 | 464 | ||||||||||||||||||||||||||||||||||||
Unrealized loss on interest rate hedging transactions | - | 0 | - | 0 | 0 | (69 | ) | 0 | - | 0 | (69 | ) | 0 | (69 | ) | |||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interest | - | 0 | - | 0 | 0 | 0 | 0 | - | 0 | 0 | 105 | 105 | ||||||||||||||||||||||||||||||||||||
Net income attributable to common stockholders | - | 0 | - | 0 | 0 | 0 | 742 | - | 0 | 742 | 0 | 742 | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2014 | 25,085,905 | $ | 25 | - | $ | 0 | $ | 114,947 | $ | (69 | ) | $ | (34,148 | ) | 122,229 | $ | (690 | ) | $ | 80,065 | $ | 2,418 | $ | 82,483 |
See Notes to Condensed Consolidated Financial Statements.
7 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Consolidated net income (loss) | $ | 847 | $ | (21,481 | ) | |||
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Loss from discontinued operations | 0 | 3,864 | ||||||
Provision for bad debts | 0 | 250 | ||||||
Depreciation and amortization | 205 | 75 | ||||||
Stock based compensation | 464 | 171 | ||||||
Amortization of valuation discount and deferred financing costs | 167 | 11,614 | ||||||
Fair value of warrants issued for services rendered | 0 | 90 | ||||||
Gain on bargain purchase of business | 0 | (227 | ) | |||||
Deferred income taxes | 397 | 2,239 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables | 82 | (670 | ) | |||||
Prepaid expenses and other assets | (5 | ) | 198 | |||||
Accounts payable and accrued expenses | (1,441 | ) | 1,988 | |||||
Deferred license revenue | 312 | (3 | ) | |||||
Other liabilities | (98 | ) | 0 | |||||
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES FROM CONTINUING OPERATIONS | 930 | (1,892 | ) | |||||
CASH USED IN OPERATING ACTIVITIES FROM DISCONTINUED OPERATIONS | (522 | ) | (1,389 | ) | ||||
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 408 | (3,281 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Cash paid for acquisitions, net of cash acquired | 0 | (67,221 | ) | |||||
Acquisition of intangible assets | (191 | ) | 0 | |||||
Acquisition of property and equipment | (485 | ) | (24 | ) | ||||
CASH USED IN INVESTING ACTIVITIES | (676 | ) | (67,245 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from notes payable | 0 | 65,000 | ||||||
Proceeds from the sale of common stock | 0 | 22,350 | ||||||
Proceeds from options exercised | 72 | 28 | ||||||
Repayment of note payable | (2,000 | ) | 0 | |||||
Deferred financing costs | (23 | ) | (1,973 | ) | ||||
Offering costs | 0 | (1,138 | ) | |||||
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (1,951 | ) | 84,267 | |||||
NET (DECREASE) INCREASE IN CASH | (2,219 | ) | 13,741 | |||||
CASH — Beginning of period | 25,125 | 2,624 | ||||||
CASH — End of period | $ | 22,906 | $ | 16,365 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Cash paid during the periods for: | ||||||||
Interest | $ | 1,073 | $ | 0 | ||||
Taxes | $ | 41 | $ | 0 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITES: | ||||||||
Conversion of senior secured convertible debentures to common stock | $ | 0 | $ | 14,500 | ||||
Common stock issued in connection with acquisition | $ | 0 | $ | 19,835 | ||||
Fair value of warrants issued in connection with acquisition | $ | 0 | $ | 393 | ||||
Fair value of warrants issued in financing transaction | $ | 0 | $ | 1,269 |
See Notes to Condensed Consolidated Financial Statements.
8 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
1. | Organization and Nature of Operations |
Overview
Sequential Brands Group, Inc. (the “Company”), through its wholly-owned and majority-owned subsidiaries, owns a portfolio of consumer brands, including Ellen Tracy , William Rast , Revo, Caribbean Joe , Heelys , DVS , The Franklin Mint and People’s Liberation . The Company promotes, markets, and licenses these brands and intends to pursue acquisitions of additional brands or rights to brands. The Company has licensed and intends to license its brands in a variety of categories to retailers, wholesalers and distributors in the United States and in certain international territories. In its licensing arrangements, the Company’s licensing partners are responsible for designing, manufacturing and distributing the Company’s licensed products. The Company currently has more than fifty licensees, almost all of which are wholesale licensees. In a wholesale license, a wholesale supplier is granted rights (typically on an exclusive basis) to a single or small group of related product categories for sale to multiple accounts within an approved channel of distribution and territory. Also, as part of the Company’s business strategy, the Company has previously entered into (and expects in the future to enter into) direct-to-retail licenses. In a direct-to-retail license, a single retailer is granted the right (typically on an exclusive basis) to sell branded products in a broad range of product categories through its brick and mortar stores and e-commerce sites.
2. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is the Company’s opinion, however, that the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on March 31, 2014, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the years ended December 31, 2013 and 2012. The financial information as of December 31, 2013 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The interim results for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any future interim periods.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
9 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited interim condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.
Discontinued Operations
The Company accounted for the decisions to close down its wholesale and retail operations as discontinued operations in accordance with the guidance provided in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, Accounting for Impairment or Disposal of Long-Lived Assets , which requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items in the statements of operations. Assets and liabilities are also reclassified into separate line items on the related balance sheets for the periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of discontinued operations as separate line items.
Reportable Segment
An operating segment, in part, is a component of an enterprise whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. Operating segments may be aggregated only to a limited extent. Our chief operating decision maker, the Chief Executive Officer, reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues for purposes of making operating decisions and assessing financial performance. Accordingly, we only have a single operating and reportable segment. In addition, we have no foreign operations or any assets in foreign locations. All of our domestic operations consist of a single revenue stream which is the licensing of our trademark portfolio.
Revenue Recognition
The Company has entered into various trade name license agreements that provide revenues based on minimum royalties and advertising/marketing fees and additional revenues based on a percentage of defined sales. Minimum royalty and advertising/marketing revenue is recognized on a straight-line basis over the term of each contract year, as defined, in each license agreement. Royalties exceeding the defined minimum amounts are recognized as income during the period corresponding to the licensee's sales. Payments received as consideration of the grant of a license or advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized ratably as revenue over the term of the license agreement. Revenue is not recognized unless collectability is reasonably assured.
If licensing arrangements are terminated prior to the original licensing period, the Company will recognize revenue for any contractual termination fees, unless such amounts are deemed non-recoverable.
Accounts Receivable
Accounts receivable are recorded net of allowances for doubtful accounts, based on the Company’s ongoing discussions with its licensees, and its evaluation of each licensee’s credit worthiness, payment history and account aging. Account balances deemed to be uncollectible are charged to the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was $135 at both March 31, 2014 and December 31, 2013.
Income Taxes
Current income taxes are based on the respective periods’ taxable income for federal and state income tax reporting purposes. Deferred tax liabilities and assets are determined based on the difference between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is required if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
10 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
The Company applies the FASB guidance on accounting for uncertainty in income taxes. The guidance clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with other authoritative GAAP, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also addresses derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. At March 31, 2014 and December 31, 2013, the Company had $643 of certain unrecognized tax benefits, included as a component of long-term liabilities held for disposition from discontinued operations of wholesale business, and does not expect a material change in the next twelve months. Interest and penalties related to uncertain tax positions, if any, are recorded in income tax expense. Tax years that remain open for assessment for federal and state tax purposes include the years ended December 31, 2010 through 2013.
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period, including stock options and warrants, using the treasury stock method, and convertible debt, using the if-converted method. Diluted EPS excludes all potentially dilutive shares of common stock if their effect is anti-dilutive. The shares used to calculate basic and diluted earnings (loss) per common share consists of the following:
Three Months Ended | ||||||||
March 31, | ||||||||
2014 | 2013 | |||||||
Basic weighted average common shares outstanding | 24,700,717 | 7,268,359 | ||||||
Warrants | 742,899 | 0 | ||||||
Unvested restricted stock | 620,819 | 0 | ||||||
Stock options | 163,004 | 0 | ||||||
Diluted weighted average common shares outstanding | 26,227,439 | 7,268,359 |
The computation of basic and diluted EPS for the three months ended March 31, 2014 and 2013 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
Three Months Ended | ||||||||
March 31, | ||||||||
2014 | 2013 | |||||||
Warrants | 125,000 | 2,686 | ||||||
Unvested restricted stock | 0 | 357 | ||||||
Stock options | 79,666 | 328 | ||||||
204,666 | 3,371 |
Concentration of Credit Risk
Financial instruments which potentially expose the Company to credit risk consist primarily of cash. Cash is held for use for working capital needs and/or future acquisitions. Substantially all of the Company’s cash is deposited with high quality financial institutions. At times, however, such cash may be in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit. The Company has not experienced any losses in such accounts as of March 31, 2014.
11 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
Customer Concentrations
The Company recorded net revenues of $6,262 and $1,629 during the three months ended March 31, 2014 and 2013, respectively. During the three months ended March 31, 2014, two licensees represented at least 10% of net revenue, accounting for 20% and 17% of the Company’s net revenue. During the three months ended March 31, 2013 two licensees accounted for 55% and 14% of the Company’s net revenue.
Concentrations of credit risk with respect to accounts receivable are minimal due to the limited amount of outstanding receivables and the nature of the Company’s royalty revenues.
Accounts Receivable
The Company’s accounts receivable amounted to approximately $5,204 and $5,286 as of March 31, 2014 and December 31, 2013, respectively. Three licensees accounted for approximately 73% (31%, 26%, and 16%) of the Company’s total consolidated accounts receivable balance as of March 31, 2014 and three licensees accounted for approximately 60% (35%, 14% and 11%) of the Company’s total consolidated accounts receivable balance as of December 31, 2013. The Company does not believe the accounts receivable balance from these licensees represents a significant collection risk based on past collection experience.
Loss Contingencies
We recognize contingent losses that are both probable and estimable. In this context, we define probability as circumstances under which events are likely to occur. The Company records such legal costs as incurred.
Noncontrolling Interest
Noncontrolling interest from continuing operations recorded for the three months ended March 31, 2014 and 2013 represents income allocations to Elan Polo International, Inc., a member of DVS Footwear International, LLC (“DVS LLC”).
3. | Fair Value Measurement of Financial Instruments |
ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), defines fair value, establishes a framework for measuring fair value in GAAP and provides for expanded disclosure about fair value measurements. ASC 820-10 applies to all other accounting pronouncements that require or permit fair value measurements.
The Company determines or calculates the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments while estimating for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads and estimates of future cash flow.
Assets and liabilities typically recorded at fair value on a non-recurring basis to which ASC 820-10 applies include:
• | Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination, and | |
• | Long-lived assets measured at fair value due to an impairment assessment under ASC 360-15, Impairment or Disposal of Long-Lived Assets . |
This topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820-10 requires that assets and liabilities recorded at fair value be classified and disclosed in one of the following three categories:
• | Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. | |
• | Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals. |
12 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
• | Level 3 inputs are unobservable and are typically based on the Company’s own assumptions, including situations where there is little, if any, market activity. Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 classification. As a result, the unrealized gains and losses for assets within the Level 3 classification may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company classifies such financial assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
As of March 31, 2014 and December 31, 2013, there are no assets or liabilities that are required to be measured at fair value on a recurring basis, except for the Company’s interest rate swap (See Note 7). The following table sets forth the carrying value and the fair value of the Company’s financial assets and liabilities required to be disclosed at March 31, 2014 and December 31, 2013:
Carrying Value | Fair Value | |||||||||||||||||||
Financial Instrument | Level | 3/31/2014 | 12/31/2013 | 3/31/2014 | 12/31/2013 | |||||||||||||||
Cash | 1 | $ | 22,906 | $ | 25,125 | $ | 22,906 | $ | 25,125 | |||||||||||
Accounts receivable | 2 | $ | 5,204 | $ | 5,286 | $ | 5,204 | $ | 5,286 | |||||||||||
Accounts payable | 2 | $ | 1,182 | $ | 1,597 | $ | 1,182 | $ | 1,597 | |||||||||||
Interest rate swap | 2 | $ | 69 | $ | 0 | $ | 69 | $ | 0 | |||||||||||
Term loans | 3 | $ | 55,998 | $ | 57,931 | $ | 52,066 | $ | 53,640 |
The carrying amounts of the Company’s cash, accounts receivable and accounts payable approximate fair value due to their short-term maturities. The remaining financial assets and liabilities are comprised of Term Loans (as defined below).
The Company records its interest rate swap on the condensed consolidated balance sheet at fair value (Level 2). As of March 31, 2014, the fair value of the Company’s interest rate swap is immaterial. The valuation technique used to determine the fair value of the interest rate swap approximates the net present value of future cash flows which is the estimated amount that a bank would receive or pay to terminate the swap agreement at the reporting date, taking into account current interest rates.
For purposes of this fair value disclosure, the Company based its fair value estimate for the Term Loans on its internal valuation whereby the Company applied the discounted cash flow method to its expected cash flow payments due under the Loan Agreements (as defined below) based on market interest rate quotes as of March 31, 2014 and December 31, 2013 for debt with similar risk characteristics and maturities.
4. | Discontinued Operations of Wholesale Business |
Discontinued operations as of March 31, 2014 and 2013 mainly represent the wind down costs related to the Heelys, Inc. (“Heelys”) legacy operating business, as a result of the Company’s decision to discontinue its wholesale business related to the Heelys brand. As of March 31, 2013, costs attributable to the Heelys legacy operations mainly represent severance expense, lease termination costs and professional and other fees. The Company did not record any costs during the three months ended March 31, 2014.
A summary of the Company’s results of discontinued operations of its wholesale business for the three months ended March 31, 2014 and 2013 and the Company’s assets and liabilities from discontinued operations of its wholesale business as of March 31, 2014 and December 31, 2013 is as follows:
13 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
Results of discontinued operations:
Three Months Ended
March 31, |
||||||||
2014 | 2013 | |||||||
Net revenue | $ | 0 | $ | 0 | ||||
Net loss | $ | 0 | $ | (3,864 | ) | |||
Noncontrolling interest | 0 | 0 | ||||||
Loss from discontinued operations of wholesale business, net of tax | $ | 0 | $ | (3,864 | ) | |||
Loss per share from discontinued operations, basic | $ | - | $ | (0.53 | ) | |||
Loss per share from discontinued operations, diluted | $ | - | $ | (0.53 | ) | |||
Weighted average shares outstanding, basic | 24,700,717 | 7,268,359 | ||||||
Weighted average shares outstanding, diluted | 26,227,439 | 7,268,359 |
Assets and liabilities of discontinued operations:
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
Prepaid expenses and other current assets | $ | 190 | $ | 213 | ||||
Accounts payable and accrued expenses | $ | 629 | $ | 1,105 | ||||
Long-term liabilities | $ | 814 | $ | 884 |
5. | Goodwill |
Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (December 31 for the Company) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company considers its market capitalization and the carrying value of its assets and liabilities, including goodwill, when performing its goodwill impairment test. When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, the Company then applies a two-step impairment test. The two-step impairment test first compares the fair value of the Company's reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the reporting unit exceeds its fair value, the Company determines the implied fair value of the reporting unit's goodwill and if the carrying value of the reporting unit's goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded in the consolidated statements of operations. No events or circumstances indicate an impairment has been identified subsequent to the Company’s December 31, 2013 impairment testing.
14 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
6. | Intangible Assets |
Intangible assets are summarized as follows:
March 31, 2014 |
Useful
Lives (Years) |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
||||||||||||
Finite lived intangible assets: | ||||||||||||||||
Trademarks | 15 | $ | 4,729 | $ | (663 | ) | $ | 4,066 | ||||||||
Customer agreements | 4 | 1,120 | (263 | ) | 857 | |||||||||||
Patents | 10 | 665 | (48 | ) | 617 | |||||||||||
$ | 6,514 | $ | (974 | ) | 5,540 | |||||||||||
Indefinite lived intangible assets: | ||||||||||||||||
Trademarks | 110,214 | |||||||||||||||
Intangible assets, net | $ | 115,754 |
Future annual estimated amortization expense is summarized as follows:
Years ending December 31, | ||||
2014 (nine months) | $ | 496 | ||
2015 | 662 | |||
2016 | 662 | |||
2017 | 469 | |||
2018 | 382 | |||
Thereafter | 2,869 | |||
$ | 5,540 |
Amortization expense amounted to $165 and $75 for the three months ended March 31, 2014 and 2013, respectively.
Intangible assets represent trademarks, customer agreements and patents related to the Company’s brands. Finite lived assets are amortized on a straight-line basis over the estimated useful lives of the assets. Indefinite lived intangible assets are not amortized, but instead are subject to impairment evaluation. The carrying value of intangible assets and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite lived intangible assets are tested for impairment on an annual basis (December 31 for the Company) and between annual tests if an event occurs or circumstances change that indicate that the carrying amount of the indefinite lived intangible asset may not be recoverable. When conducting its annual indefinite lived intangible asset impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that the asset is impaired. If it is determined by a qualitative evaluation that it is more likely than not that the asset is impaired, the Company then tests the asset for recoverability. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No events or circumstances indicate an impairment has been identified subsequent to the Company’s December 31, 2013 impairment testing.
15 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
7. | Long-Term Debt |
The components of long-term debt are as follows:
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
Term Loans | $ | 57,000 | $ | 59,000 | ||||
Unamortized discounts | (1,002 | ) | (1,069 | ) | ||||
Total long-term debt, net of unamortized discounts | 55,998 | 57,931 | ||||||
Less: current portion of long-term debt | 8,000 | 8,000 | ||||||
Long-term debt | $ | 47,998 | $ | 49,931 |
Term Loans
In connection with the Company’s acquisition from ETPH Acquisition, LLC (“ETPH”) of all of the outstanding equity interest of B®and Matter, LLC (“Brand Matter”) (the “Ellen Tracy and Caribbean Joe Acquisition”), on March 28, 2013, the Company entered into a (i) first lien loan agreement (the “First Lien Loan Agreement”), which provides for term loans of up to $45,000 (the “First Lien Term Loan”) and (ii) a second lien loan agreement (the “Second Lien Loan Agreement” and, together with the First Lien Loan Agreement, the “Loan Agreements”), which provide for term loans of up to $20,000 (the “Second Lien Term Loan” and, together with the First Lien Term Loan, the “Term Loans”). The proceeds from the Term Loans were used to fund the Ellen Tracy and Caribbean Joe Acquisition, repay existing debt, pay fees and expenses in connection with the foregoing, finance capital expenditures and for general corporate purposes. The Term Loans are secured by substantially all of the assets of the Company and are further guaranteed and secured by each of the domestic subsidiaries of the Company, other than DVS LLC, SBG Revo Holdings, LLC and SBG FM, LLC, subject to certain exceptions set forth in the Loan Agreements. In connection with the Second Lien Loan Agreement, the Company issued 5-year warrants to purchase up to an aggregate of 285,160 shares of the Company’s common stock at an exercise price of $4.50 per share. In December 2013, the Company obtained the written consent of each of the lenders to the Loan Agreements and in connection therewith, SBG Revo Holdings, LLC agreed to become a Loan Party (as defined in the Loan Agreements) under each of the Loan Agreements, which transaction became effective February 2014.
The Term Loans were drawn in full on March 28, 2013. The Loan Agreements terminate, and all loans then outstanding under each Loan Agreement, must be repaid on March 28, 2018. The Company is required to make quarterly scheduled amortization payments of the Term Loans prior to the maturity of the Loan Agreements in an amount equal to (x) in the case of the First Lien Loan Agreement, $1,500 and (y) in the case of the Second Lien Loan Agreement, $500. The First Lien Term Loan bears interest, at the Company’s option, at either (a) 4.00% per annum plus the adjusted London Interbank Offered Rate (“LIBOR”) or (b) 3.00% per annum plus the Base Rate, as defined in the applicable Loan Agreement (4.25% at March 31, 2014). The Second Lien Term Loan bears interest at 12.75% per annum plus adjusted LIBOR (12.99% at March 31, 2014).
The fair value of the warrants was determined to be approximately $1,269 using the Black-Scholes option-pricing model. The fair value of the warrants was recorded as a discount to the Term Loans and a corresponding increase to additional paid-in capital. This amount is being accreted to non-cash interest expense over the contractual term of the Term Loans, which is five years. The assumptions utilized to value the warrants under the Black-Scholes option-pricing model included a dividend yield of zero, a risk-free interest rate of 0.77%, expected term of five years and an expected volatility of 64%.
During the three months ended March 31, 2014 and 2013, accretion of the discount amounted to $66 which was recorded as a component of interest expense in the accompanying unaudited condensed consolidated statements of operations. Contractual interest expense on the Term Loans amounted to $1,270 for the three months ended March 31, 2014 which was recorded as a component of interest expense in the accompanying unaudited condensed consolidated statements of operations. There was no contractual interest expense or accretion of the discount recorded for the three months ended March 31, 2013.
During 2013, the Company incurred legal and other fees associated with the closing of the Term Loans of approximately $1,929. These amounts have been recorded as deferred financing costs and included in other assets in the accompanying condensed consolidated balance sheets, and are being amortized as non-cash interest expense over the contractual term of the Term Loans. During the three months ended March 31, 2014, amortization of these fees amounted to $101 which was recorded as a component of interest expense in the accompanying unaudited condensed consolidated statements of operations. There was no amortization of deferred financing costs recorded for the three months ended March 31, 2013.
16 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
The Loan Agreements include customary representations and warranties and include representations relating to the intellectual property owned by the Company and its subsidiaries and the status of the Company’s material license agreements. In addition, the Loan Agreements include covenants and events of default including requirements that the Company satisfy a minimum positive net income test, maintain a minimum loan to value ratio (as calculated pursuant to the First Lien Loan Agreement or the Second Lien Loan Agreement, as applicable) and, in the case of the Second Lien Loan Agreement, maintain a minimum cash balance of $3,525 through December 31, 2013 and $3,000 after January 1, 2014 in accounts subject to control agreements, as well as limitations on liens on the assets of the Company and its subsidiaries, indebtedness, consummation of acquisitions (subject to certain exceptions and consent rights as set forth in the Loan Agreements) and fundamental changes (including mergers and consolidations of the Company and its subsidiaries), dispositions of assets of the Company and its subsidiaries, investments, loans, advances and guarantees by the Company and its subsidiaries, and restrictions on issuing dividends and other restricted payments, prepayments and amendments of certain indebtedness and material licenses, affiliate transactions and issuance of equity interests. The Company is in compliance with its covenants as of March 31, 2014.
Interest Rate Swap
The Company currently has exposure to variability in cash flows due to the impact of changes in interest rates for the Company’s Term Loans. During 2014, the Company entered into an interest rate swap agreement related to $57,000 notional value of the Term Loans (the “Swap Agreement”).
The objective of the interest rate swap agreement is to eliminate the variability in cash flows for the interest payments associated with the Term Loans, which vary by a variable-rate: 1-month LIBOR. The Company has formally documented the Swap Agreement as a cash flow hedge of the Company’s exposure to 1-month LIBOR. Because the critical terms of the Swap Agreement and the hedged item coincide (notional amount, interest rate reset dates, interest rate payment dates, maturity/expiration date, and underlying index), the hedge is expected to completely offset changes in expected cash flows due to fluctuations in the 1-month LIBOR rate over the term of the hedge. The effectiveness of the hedge relationship will be periodically assessed during the life of the hedge by comparing the current terms of the Swap Agreement and the debt to assure they continue to coincide and through an evaluation of the continued ability of the counterparty to the Swap Agreement to honor its obligations under the Swap Agreement. Should the critical terms no longer match exactly, hedge effectiveness (both prospective and retrospective) will be assessed by evaluating the cumulative dollar offset for the actual hedging instrument relative to a hypothetical derivative whose terms exactly match the terms of the hedged item.
The components of the Company’s Swap Agreement as of March 31, 2014, are as follows:
Notional
Value |
Derivative Asset | Derivative Liability | ||||||||||
Term Loan | $ | 57,000 | $ | 0 | $ | (69 | ) |
Variable Rate Senior Secured Convertible Debentures
On February 2, 2012, the Company entered into a securities purchase agreement (the “Tengram Securities Purchase Agreement”) with TCP WR Acquisition, LLC (“TCP WR”), pursuant to which the Company issued variable rate senior secured convertible debentures due January 31, 2015 (the “Debentures”) in the amount of $14,500, warrants to purchase up to 1,104,762 shares of common stock (the “TCP Warrants”) and 14,500 shares of Series A Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”). The Debentures had a three year term, with all principal and interest being due and payable at the maturity date of January 31, 2015, and had an interest rate of LIBOR.
The Debentures were convertible at the option of TCP WR into 5,523,810 shares of the Company’s common stock at an initial conversion price of $2.625 per share, as adjusted for the reverse stock split (“Conversion Price”). The Warrants, which had a fair value of $4,215, are exercisable for five years at an exercise price of $2.625 per share, as adjusted for the reverse stock split. The fair value of the TCP Warrants was recorded as a discount to the Debentures and was being accreted to interest expense over the contractual term of the Debentures. Additionally, the Debentures were deemed to have a beneficial conversion feature at the time of issuance. Accordingly, the beneficial conversion feature, which had a value of $7,347, was recorded as a discount to the Debentures and was being accreted to interest expense over the contractual term of the Debentures.
Legal and other fees associated with the transaction of $844 were recorded as deferred financing costs and were being amortized to interest expense over the contractual term of the Debentures.
17 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
On March 28, 2013, in connection with the Ellen Tracy and Caribbean Joe Acquisition, TCP WR elected to convert the aggregate principal amount outstanding under the Debentures into shares of the Company’s common stock at the Conversion Price (the “TCP Conversion”). At the time of the TCP Conversion, the aggregate principal amount outstanding under the Debentures was $14,500, plus accrued and unpaid interest. The Company issued 5,523,810 shares of its common stock in the TCP Conversion. In connection with the TCP Conversion, the Company also redeemed all of the 14,500 issued and outstanding shares of Series A Preferred Stock held by TCP WR for a nominal fee of $14.50 (unrounded) pursuant to the Designation of Rights, Preferences and Limitations for the Series A Preferred Stock. As a result of the TCP Conversion, the remaining unamortized discount of $11,028 recorded in connection with the beneficial conversion feature and the TCP Warrants issued with the Debentures to TCP WR, as well as the remaining unamortized balance of deferred financing costs of $586, were recognized as non-cash interest expense.
Termination of Material Agreements
The proceeds received from the financing were used in part to repay the following indebtedness of the Company and its subsidiaries: (a) all indebtedness owed by William Rast Sourcing, LLC (“Rast Sourcing”) under its factoring facility with Rosenthal & Rosenthal; (b) all indebtedness owed by William Rast Licensing, LLC (“Rast Licensing”) to Mobility Specialty Situations I, LLC pursuant to a promissory note in the aggregate principal amount of $750; and (c) all indebtedness owed by Rast Licensing to Monto Holdings (Pty) Ltd. pursuant to a promissory note in the aggregate principal amount of $1,000. In connection with the repayments, all security agreements, assignment agreements, and guarantee agreements were terminated.
8. | Commitments and Contingencies |
General Legal Matters
From time to time, the Company is involved in legal matters arising in the ordinary course of business. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations. Contingent liabilities arising from potential litigation are assessed by management based on the individual analysis of these proceedings and on the opinion of the Company’s lawyers and legal consultants.
9. | Stock-based Compensation |
Stock Options
The following table summarizes the Company’s stock option activity for the three months ended March 31, 2014:
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Number of | Average Exercise | Contractual Life | Aggregate | |||||||||||||
Options | Price | (in Years) | Intrinsic Value | |||||||||||||
Outstanding - December 31, 2013 | 423,667 | $ | 4.45 | 2.7 | $ | 812 | ||||||||||
Granted | 17,500 | 6.61 | ||||||||||||||
Exercised | (21,667 | ) | (3.31 | ) | ||||||||||||
Forfeited or Canceled | - | - | ||||||||||||||
Outstanding - March 31, 2014 | 419,500 | $ | 4.60 | 2.3 | $ | 765 | ||||||||||
Exercisable - March 31, 2014 | 342,500 | $ | 4.28 | 1.6 | $ | 765 |
18 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
A summary of the changes in the Company’s unvested stock options is as follows:
Weighted | ||||||||
Number of | Average Grant | |||||||
Options | Date Fair Value | |||||||
Unvested - December 31, 2013 | 62,000 | $ | 3.21 | |||||
Granted | 17,500 | 6.61 | ||||||
Vested | (2,500 | ) | (2.84 | ) | ||||
Forfeited or Canceled | - | - | ||||||
Unvested - March 31, 2014 | 77,000 | $ | 2.93 |
During the three months ended March 31, 2014, the Company granted 17,500 stock options to employees for future services. The options are exercisable at an exercise price of $5.75 (2,500 options) and $6.75 (15,000 options) per share over a five-year term and vest over one to three years. These options had a fair value of $33 using the Black-Scholes option-pricing model with the following assumptions:
Risk-free interest rate | 1.15 | % | ||
Expected dividend yield | 0.00 | % | ||
Expected volatility | 37.67 | % | ||
Expected life | 3.5 years |
The Company recorded $1 during the three months ended March 31, 2014 as compensation expense pertaining to these grants.
The Company did not grant any stock options during the three months ended March 31, 2013.
Total compensation expense related to stock options for the three months ended March 31, 2014 and 2013 was approximately $20 and $4, respectively. Total unrecognized compensation expense related to unvested stock option awards at March 31, 2014 amounted to $45 and is expected to be recognized over a weighted average period of approximately one year.
Warrants
The following table summarizes the Company’s outstanding warrants:
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Number of | Average Exercise | Contractual Life | Aggregate | |||||||||||||
Warrants | Price | (in Years) | Intrinsic Value | |||||||||||||
Outstanding - December 31, 2013 | 1,744,922 | $ | 3.88 | 3.5 | $ | 3,323 | ||||||||||
Granted | - | - | ||||||||||||||
Exercised | - | - | ||||||||||||||
Forfeited or Canceled | - | - | ||||||||||||||
Outstanding - March 31, 2014 | 1,744,922 | $ | 3.88 | 3.3 | $ | 3,323 | ||||||||||
Exercisable - March 31, 2014 | 1,704,922 | $ | 3.83 | 3.5 | $ | 3,323 |
19 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
A summary of the changes in the Company’s unvested warrants is as follows:
Weighted | ||||||||
Number of | Average Grant | |||||||
Warrants | Date Fair Value | |||||||
Unvested - December 31, 2013 | 40,000 | $ | 3.00 | |||||
Granted | - | - | ||||||
Vested | - | - | ||||||
Forfeited or Canceled | - | - | ||||||
Unvested - March 31, 2014 | 40,000 | $ | 3.00 |
During the three months ended March 31, 2013, in connection with the Heelys acquisition, the Company issued five-year warrants to purchase up to an aggregate of 28,000 shares of the Company’s common stock at an exercise price of $6.01 per share.
During the three months ended March 31, 2013, in connection with the Second Lien Loan Agreement, the Company issued five-year warrants to purchase up to an aggregate of 285,160 shares of the Company’s common stock at an exercise price of $4.50 per share.
During the three months ended March 31, 2013, in connection with the Ellen Tracy and Caribbean Joe Acquisition, the Company issued five-year warrants to purchase up to an aggregate of 125,000 shares of the Company’s common stock at an exercise price of $10.00 per share.
Total compensation expense related to warrants for the three months ended March 31, 2014 was approximately $8. The Company did not record any compensation expense related to warrants for the three months ended March 31, 2013.
Restricted Stock
During the three months ended March 31, 2014, the Company issued 200,000 shares of restricted stock to a consultant and employee for future services. Total compensation related to the restricted stock grants amounted to approximately $1,120, of which $88 was recorded in operating expenses in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2014.
A summary of the restricted stock activity for the three months ended March 31, 2014 is as follows:
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Number of | Average Grant | Contractual Life | Aggregate | |||||||||||||
Shares | Date Fair Value | (in Years) | Intrinsic Value | |||||||||||||
Unvested - December 31, 2013 | 464,847 | $ | 5.71 | 2.9 | $ | 20 | ||||||||||
Granted | 200,000 | 5.60 | ||||||||||||||
Vested | - | - | ||||||||||||||
Unvested - March 31, 2014 | 664,847 | $ | 5.68 | 2.4 | $ | 25 |
Total compensation expense related to the restricted stock grants for the three months ended March 31, 2014 and 2013 was approximately $436 and $167, respectively.
10. | Related Party Transactions |
Consulting Services Agreement with Tengram Capital Management, L.P.
Pursuant to an agreement with Tengram Capital Management, L.P. (“TCM”), an affiliate of Tengram, the Company, effective as of January 1, 2013, has engaged TCM to provide services to the Company pertaining to (i) mergers and acquisitions, (ii) debt and equity financing, and (iii) such other related areas as the Company may reasonably request from time to time. TCM is entitled to receive compensation, including fees and reimbursement of out-of-pocket expenses in connection with performing its services under such agreement. The agreement remains in effect for a period continuing through the earlier of five years or the date on which TCM and its affiliates cease to own in excess of 5% of the outstanding shares of common stock in the Company. The Company paid TCM $0 and $250 for services under this agreement for the three months ended March 31, 2014 and 2013, respectively. At March 31, 2014 and 2013, there were no amounts owed to TCM.
20 |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(UNAUDITED)
(dollars are in thousands unless otherwise noted, except share and per share data)
Transactions with Tennman WR-T, Inc.
In connection with the royalty agreement between Tennman WR-T, Inc. (“Tennman WR-T”), Rast Sourcing and Rast Licensing, royalties paid by Rast Sourcing to Tennman WR-T, a minority interest holder of Rast Sourcing, amounted to $257 and $628 for the three months ended March 31, 2014 and 2013, respectively. At March 31, 2014 and December 31, 2013, amounts owed to Tennman WR-T of $427 and $388, respectively, are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets. During the three months ended March 31, 2014 and 2013, the Company recorded approximately $296 and $123, respectively, in royalty expense, of which approximately $296 and $123, respectively, are included in operating expenses from continuing operations.
21 |
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Information
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and related notes. See the cautionary statement regarding forward-looking statements on page 3 of this Quarterly Report for a description of important factors that could cause actual results to differ from expected results.
Overview
We own a portfolio of consumer brands, including Ellen Tracy, William Rast , Revo, Caribbean Joe, Heelys, DVS , Heelys , The Franklin Mint and People’s Liberation . We promote, market, and license these brands and intend to pursue acquisitions of additional brands or rights to brands. We have licensed and intend to license our brands in a variety of categories to retailers, wholesalers and distributors in the United States and in certain international territories. We currently have more than fifty licensees, almost all of which are wholesale licensees. In a wholesale license, a wholesale supplier is granted rights (typically on an exclusive basis) to a single or small group of related product categories for sale to multiple accounts within an approved channel of distribution and territory. Also, as part of our business strategy, we have previously entered into (and expect in the future to enter into) direct-to-retail licenses. In a direct-to-retail license, a single retailer is granted the right (typically on an exclusive basis) to sell branded products in a broad range of product categories through its brick and mortar stores and e-commerce sites.
Our objective is to build a diversified portfolio of lifestyle consumer brands by growing our existing portfolio and by acquiring new brands. To achieve this objective, we intend to:
· | Increase licensing of existing brands by adding additional product categories, expanding the brands’ distribution and retail presence and optimizing sales through innovative marketing that increases consumer awareness and loyalty; |
· | Develop international expansion through additional licenses, partnerships, joint ventures and other arrangements with leading retailers and wholesalers outside the United States; and |
· | Acquire consumer brands or the rights to such brands with high consumer awareness, broad appeal, applicability to a range of product categories and an ability to diversify our portfolio. In assessing potential acquisitions or investments, we will primarily evaluate the strength of the targeted brand as well as the expected viability and sustainability of future royalty streams. |
Our license agreements typically require the licensee to pay royalties based upon net sales with guaranteed minimum royalties in the event that net sales do not reach certain specified targets. Our license agreements also typically require the licensees to pay certain minimum amounts for the marketing and advertising of the respective licensed brands.
We believe our new business model allows us to use our brand management expertise to continue to grow our portfolio of brands and to generate new revenue streams without significantly changing our infrastructure. The benefits of this business model provide, among other things:
· | Financial upside without the typical risks associated with traditional operating companies; |
· | Diversification by appealing to a broad demographic and distribution through a range of distribution channels; |
· | Growth potential by expanding our existing brands into new categories and geographic areas and through accretive acquisitions; and |
· | Limited or no operational risks as inventory and other typical wholesale operating risks are the responsibilities of our licensee partners. |
Fiscal Year
Our fiscal year ends on December 31. Each quarter of each fiscal year ends on March 31, June 30, September 30 and December 31.
22 |
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to exercise its 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 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. Since 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, 2013, filed with the SEC on March 31, 2014, for a discussion of our critical accounting policies. During the three months ended March 31, 2014, there were no material changes to these policies.
Results of Operations
Comparison of the Three Months Ended March 31, 2014 to the Three Months Ended March 31, 2013
The following table sets forth, for the periods indicated, results of operation information from our unaudited condensed consolidated financial statements:
Three Months Ended March 31, | Change | Change | ||||||||||||||
2014 | 2013 | (Dollars) | (Percentage) | |||||||||||||
Net revenue | $ | 6,262 | $ | 1,629 | $ | 4,633 | 284.5 | % | ||||||||
Operating expenses | 3,750 | 5,365 | (1,615 | ) | -30.1 | % | ||||||||||
Income (loss) from operations | 2,512 | (3,736 | ) | 6,248 | NM | |||||||||||
Other income | 2 | 0 | 2 | 100.0 | % | |||||||||||
Interest expense | 1,270 | 11,617 | (10,347 | ) | -89.1 | % | ||||||||||
Income (loss) before income taxes | 1,244 | (15,353 | ) | 16,597 | NM | |||||||||||
Provision for income taxes | 397 | 2,264 | (1,867 | ) | -82.5 | % | ||||||||||
Income (loss) from continuing operations | 847 | (17,617 | ) | 18,464 | NM | |||||||||||
Loss from discontinued operations, net of tax | 0 | (3,864 | ) | 3,864 | -100.0 | % | ||||||||||
Consolidated net income (loss) | 847 | (21,481 | ) | 22,328 | NM | |||||||||||
Net income attributable to noncontrolling interest | (105 | ) | (26 | ) | (79 | ) | 310.3 | % | ||||||||
Net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries | $ | 742 | $ | (21,507 | ) | $ | 22,249 | NM |
______________________________________
NM: Not Meaningful
The increase in net revenue for the three months ended March 31, 2014, compared to the three months ended March 31, 2013 is primarily attributable to the acquisition of several new brands after the first quarter of 2013 and a significant increase in the number of our licensees as a result of these acquisitions. Net revenue for the three months ended March 31, 2014 consists of license revenue earned from our license agreements related to the Ellen Tracy , William Rast , Revo , Caribbean Joe , Heelys , DVS , The Franklin Mint and People’s Liberation brands. Net revenue for the three months ended March 31, 2013 consists of license revenue earned only from our license agreements related to our William Rast , DVS, Heelys and People’s Liberation brands, as we did not either own or license any of the other brands during that period. Net Revenue for the three months ended March 31, 2013 includes only two months of revenue related to the Heelys brand, which was acquired on January 24, 2013.
Of the total operating expenses of $3,750 for the three months ended March 31, 2014, approximately $3,696 is related to the day-to-day activities of our Company. Recurring operating expenses of $3,696 primarily consist of compensation of $921, professional fees of $760, advertising expenses of $464, stock-based compensation expense of $464, royalty expenses paid under our agreement with Tennman WR-T of $296, depreciation and amortization expense of $205 and travel and other travel-related expenses of $174 and approximately $54 are related to acquisition costs.
Of the total operating expenses of $5,365 for the three months ended March 31, 2013, approximately $2,357 is related to acquisition costs and approximately $3,008 is related to the day-to-day activities of our Company. Recurring operating expenses of $3,008 primarily consist of compensation of $346, professional fees of $1,030, advertising expenses of $501, stock-based compensation expense of $171, royalty expenses paid under our agreement with Tennman WR-T of $123, depreciation and amortization expense of $76 and travel and other travel-related expenses of $99.
23 |
Interest expense during the three months ended March 31, 2014 includes interest incurred on our Term Loans and interest rate swap of approximately $1,073, as well as non-cash interest related to the accretion of the discount recorded associated with the warrants issued with the Term Loans of approximately $66, and non-cash interest related to the amortization of deferred financing costs and annual fees of approximately $131 associated with the Term Loans. Interest expense during the three months ended March 31, 2013 resulted primarily from the TCP Conversion, as more fully described in Note 7 to our unaudited condensed consolidated financial statements. As a result of the TCP Conversion, the remaining unamortized discount of $11,028 recorded in connection with the beneficial conversion feature and TCP Warrants issued in connection with the Debentures, as well as the remaining unamortized balance of deferred financing costs of $589, were recognized as non-cash interest expense.
The provision for income taxes as of March 31, 2014 represents the non-cash deferred tax expense created by the amortization of the acquired trademarks related to our Ellen Tracy , Caribbean Joe , Revo and The Franklin Mint brands. The provision for income taxes as of March 31, 2013 represents the non-cash deferred tax expense created by the amortization of the acquired trademarks related to our Ellen Tracy and Caribbean Joe brands.
The loss from discontinued operations for the three months ended March 31, 2013 is primarily attributable to the wind down costs associated with the Heelys legacy operating business, as a result of our decision to discontinue our wholesale business related to the Heelys brand. These costs mainly represent severance expense, lease termination costs and professional and other fees.
Noncontrolling interest from continuing operations for the three months ended March 31, 2014 and 2013 represents net income allocations to Elan Polo International, Inc., a member of DVS LLC.
Liquidity and Capital Resources
As of March 31, 2014, our continuing operations had cash of approximately $22,906, a working capital balance of approximately $16,578 and outstanding debt obligations under our Term Loans of $55,998. As of December 31, 2013, our continuing operations had cash of approximately $25,125, a working capital balance of approximately $17,745 and outstanding debt obligations under our Term Loans of approximately $57,931. Working capital is defined as current assets minus current liabilities, excluding restricted cash and discontinued operations. We believe that cash from future operations and our currently available cash will be sufficient to satisfy our anticipated working capital requirements for the foreseeable future. We intend to continue financing future brand acquisitions through a combination of cash from operations, bank financing and the issuance of additional equity and/or debt securities.
Cash Flows from Continuing Operations
Cash flows from continuing operations for operating, financing and investing activities for the three months ended March 31, 2014 and 2013 are summarized in the following table:
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Operating activities | $ | 930 | $ | (1,892 | ) | |||
Investing activities | (676 | ) | (67,245 | ) | ||||
Financing activities | (1,951 | ) | 84,267 | |||||
Net (decrease) increase in cash from continuing operations | $ | (1,697 | ) | $ | 15,130 |
Operating Activities
Net cash provided by operating activities from continuing operations was $930 for the three months ended March 31, 2014, compared to net cash used in operating activities of $1,892 for the three months ended March 31, 2013. Consolidated net income for the three months ended March 31, 2014 of $847 includes net non-cash expenses of $167 related to the amortization of debt discount and deferred financing costs, $397 related to deferred income taxes and $464 related to stock-based compensation expense. Changes in operating assets and liabilities used $1,150 in cash during the three months ended March 31, 2014. Net loss for the three months ended March 31, 2013 of $21,481 includes net non-cash expenses of $11,614 of amortization of debt discount and deferred financing costs and $2,239 of deferred income taxes. Net loss for the three months ended March 31, 2013 also includes $3,864 of loss from discontinued operations. Changes in operating assets and liabilities provided $1,513 in cash during the three months ended March 31, 2013.
24 |
Investing Activities
Net cash used in investing activities from continuing operations was $676 for the three months ended March 31, 2014, primarily consisting of the acquisition of intangible assets and property and equipment. Net cash used in investing activities from continuing operations was $67,245 for the three months ended March 31, 2013, primarily consisting of $67,221 of net cash paid for the acquisitions of our Heelys, Ellen Tracy and Caribbean Joe brands.
Financing Activities
Net cash used in financing activities from continuing operations for the three months ended March 31, 2014 amounted to $1,951, compared to net cash provided by financing activities of $84,267 for the three months ended March 31, 2013. We made $2,000 of repayments under the Term Loans during the three months ended March 31, 2014. In January 2013, we received proceeds of $22,350 in connection with the 2012 PIPE Transaction. A portion of the proceeds was used to fund the acquisition of Heelys . In March 2013, we received $65,000 of proceeds under the Term Loans, which were mainly used in the Ellen Tracy and Caribbean Joe Acquisition, to pay fees and expenses in connection with the foregoing, to finance capital expenditures and for general corporate purposes. Cash paid for fees and other costs incurred in connection with the private placement transaction consummated in January 2013 and the Term Loans amounted to $3,111.
Future Capital Requirements
We believe cash on hand and cash from operations will be sufficient to meet our capital requirements for the next twelve months, as they relate to our current operations. We intend to continue financing future brand acquisitions through a combination of cash from operations, bank financing and the issuance of additional equity and/or debt securities. The extent of our future capital requirements will depend on many factors, including our results of operations and growth through the acquisition of additional brands, and we cannot be certain that we will be able to obtain additional financing in sufficient amounts and/or on acceptable terms in the near future, if at all.
Off-Balance Sheet Arrangements
At March 31, 2014 and December 31, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not required.
25 |
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2014, the end of the period covered by this report. Based on, and as of the date of such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2014 such that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have not been any significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
OTHER INFORMATION
Item 1. | Legal Proceedings |
We are subject to certain legal proceedings and claims arising in connection with the normal course of our business. In the opinion of management, other than described in Note 8 of the accompanying unaudited condensed consolidated financial statements, which description is incorporated herein by reference, there are currently no claims that could have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 1A. | Risk Factors |
Cautionary Statements and Risk Factors
This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Our actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors, including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 31, 2014. There have been no material changes to such risk factors during the three months ended March 31, 2014.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None.
26 |
The following exhibits are filed as part of this report:
Exhibit Number |
Exhibit Title |
|
10.1 | Joinder Agreement, dated February 21, 2014, by and between SBG Revo Holdings, LLC and Bank of America, N.A. (incorporated by reference to Exhibit 10.50 to the Company’s Annual Report on Form 10-K filed March 31, 2014). | |
10.2 | Joinder Agreement, dated February 21, 2014, by and between SBG Revo Holdings, LLC and Pathlight Capital, LLC (incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K filed March 31, 2014). | |
10.3 | Acknowledgment by SBG Revo Holdings, LLC (incorporated by reference to Exhibit 10.52 to our Annual Report on Form 10-K filed March 31, 2014). | |
31.1* | Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1** | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
*Filed herewith.
**Furnished herewith.
27 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SEQUENTIAL BRANDS GROUP, INC. | |
Date: May 13, 2014 | /s/ Gary Klein |
By: Gary Klein | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
28 |
1 Year Sequential Brands Chart |
1 Month Sequential Brands Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions