Attached files
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8-K/A - 8-K/A - SEQUENTIAL BRANDS GROUP, INC. | v413828_8ka.htm |
EX-99.1 - EXHIBIT 99.1 - SEQUENTIAL BRANDS GROUP, INC. | v413828_ex99-1.htm |
EX-23.1 - EXHIBIT 23.1 - SEQUENTIAL BRANDS GROUP, INC. | v413828_ex23-1.htm |
Exhibit 99.2
INDEX TO COMBINED FINANCIAL STATEMENTS
Page | ||
Independent Auditor’s Report | F-2 | |
Combined Balance Sheets | F-3 | |
Combined Statements of Operations | F-4 | |
Combined Statements of Changes in Shareholder’s Equity | F-5 | |
Combined Statements of Cash Flows | F-6 | |
Notes to Combined Financial Statements | F-7 |
INDEPENDENT AUDITOR’S REPORT
To the Shareholder
With You, Inc. and Corny Dog, Inc.
We have audited the accompanying combined financial statements of With You, Inc. and Corny Dog, Inc. (collectively the “Company”), which comprise the combined balance sheets as of December 31, 2014, 2013 and 2012 and the related combined statements of operations, changes in shareholder’s equity and cash flows for the years then ended, and the related notes to the combined financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America as established by the Auditing Standards Board (United States) and in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of With You, Inc. and Corny Dog, Inc. as of December 31, 2014, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ CohnReznick LLP
New York, New York
June 24, 2015
F-2 |
WITH YOU, INC. AND CORNY DOG, INC.
COMBINED BALANCE SHEETS
March 31, | December 31, | |||||||||||||||
2015 | 2014 | 2013 | 2012 | |||||||||||||
(Unaudited) | ||||||||||||||||
Assets | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash | $ | 775,879 | $ | 2,406,854 | $ | 1,502,167 | $ | 2,281,643 | ||||||||
Accounts Receivable | 2,479,838 | 124,868 | 3,400,646 | 3,162,258 | ||||||||||||
Prepaid Commissions | - | 575,109 | - | - | ||||||||||||
Prepaid Expenses and Other Current Assets | 43,677 | 134,306 | 55,886 | 31,140 | ||||||||||||
Loans Receivable from Officer | 3,029,447 | 2,562,368 | 1,710,061 | - | ||||||||||||
Total Assets | $ | 6,328,841 | $ | 5,803,505 | $ | 6,668,760 | $ | 5,475,041 | ||||||||
Liabilities and Shareholder's Equity | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Accrued Expenses | $ | 150,718 | $ | 221,869 | $ | 335,988 | $ | 203,753 | ||||||||
Deferred Revenue | - | 1,437,773 | - | - | ||||||||||||
Accrued Commissions | 861,858 | - | 1,193,033 | 1,145,649 | ||||||||||||
Loan Payable to Officer | - | - | - | 34,223 | ||||||||||||
Total Liabilities | 1,012,576 | 1,659,642 | 1,529,021 | 1,383,625 | ||||||||||||
Commitments and Contingencies | ||||||||||||||||
Shareholder's Equity | ||||||||||||||||
Common Stock, $1.00 par value; 2,000 shares authorized; 2,000 shares issued and outstanding | 2,000 | 2,000 | 2,000 | 2,000 | ||||||||||||
Retained Earnings | 5,314,265 | 4,141,863 | 5,137,739 | 4,089,416 | ||||||||||||
Total Shareholder's Equity | 5,316,265 | 4,143,863 | 5,139,739 | 4,091,416 | ||||||||||||
Total Liabilities and Shareholder's Equity | $ | 6,328,841 | $ | 5,803,505 | $ | 6,668,760 | $ | 5,475,041 |
See Notes to Combined Financial Statements.
F-3 |
WITH YOU, INC. AND CORNY DOG, INC.
COMBINED STATEMENTS OF OPERATIONS
Three Months Ended March 31, | Years Ended December 31, | |||||||||||||||||||
2015 | 2014 | 2014 | 2013 | 2012 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Revenues | ||||||||||||||||||||
Royalties | $ | 3,917,611 | $ | 3,704,141 | $ | 13,680,776 | $ | 12,830,869 | $ | 12,956,314 | ||||||||||
Endorsements | - | 1,500,000 | 2,350,000 | 1,000,000 | 1,000,000 | |||||||||||||||
Reimbursed Expenses | 39,347 | 101,964 | 381,208 | 365,336 | 306,997 | |||||||||||||||
Media and Other Appearances | 12,325 | 7,623 | 813,735 | 953,404 | 2,242,765 | |||||||||||||||
Total Revenues | 3,969,283 | 5,313,728 | 17,225,719 | 15,149,609 | 16,506,076 | |||||||||||||||
Operating Expenses | ||||||||||||||||||||
General and Administrative | 608,633 | 645,839 | 3,481,938 | 2,490,981 | 2,323,588 | |||||||||||||||
Commissions | 1,436,968 | 1,733,231 | 5,676,637 | 5,191,716 | 5,358,650 | |||||||||||||||
Payroll and Related Costs | 751,280 | 1,951,403 | 9,063,020 | 6,418,589 | 7,509,229 | |||||||||||||||
Total Operating Expenses | 2,796,881 | 4,330,473 | 18,221,595 | 14,101,286 | 15,191,467 | |||||||||||||||
Net Income (Loss) | $ | 1,172,402 | $ | 983,255 | $ | (995,876 | ) | $ | 1,048,323 | $ | 1,314,609 |
See Notes to Combined Financial Statements.
F-4 |
WITH YOU, INC. AND CORNY DOG, INC.
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
Common Stock, $1.00 par value | Retained Earnings | Total Shareholder's Equity | ||||||||||
Balance, January 1, 2012 | $ | 2,000 | $ | 3,524,807 | $ | 3,526,807 | ||||||
Distribution to Shareholder | - | (750,000 | ) | (750,000 | ) | |||||||
Net Income | - | 1,314,609 | 1,314,609 | |||||||||
Balance, December 31, 2012 | 2,000 | 4,089,416 | 4,091,416 | |||||||||
Net Income | - | 1,048,323 | 1,048,323 | |||||||||
Balance, December 31, 2013 | 2,000 | 5,137,739 | 5,139,739 | |||||||||
Net Loss | - | (995,876 | ) | (995,876 | ) | |||||||
Balance, December 31, 2014 | 2,000 | 4,141,863 | 4,143,863 | |||||||||
Net Income (unaudited) | - | 1,172,402 | 1,172,402 | |||||||||
Balance, March 31, 2015 (unaudited) | $ | 2,000 | $ | 5,314,265 | $ | 5,316,265 |
See Notes to Combined Financial Statements.
F-5 |
WITH YOU, INC. AND CORNY DOG, INC.
COMBINED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, | Years Ended December 31, | |||||||||||||||||||
2015 | 2014 | 2014 | 2013 | 2012 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net income (loss) | $ | 1,172,402 | $ | 983,255 | $ | (995,876 | ) | $ | 1,048,323 | $ | 1,314,609 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
Accounts receivable | (2,354,970 | ) | (303,495 | ) | 3,275,778 | (238,389 | ) | 281,183 | ||||||||||||
Prepaid commissions | 575,109 | - | (575,109 | ) | - | - | ||||||||||||||
Prepaid expenses and other current assets | 90,629 | 13,395 | (78,420 | ) | (24,746 | ) | (23,875 | ) | ||||||||||||
Accrued expenses | (71,152 | ) | (152,300 | ) | (114,119 | ) | 132,236 | (132,172 | ) | |||||||||||
Deferred revenue | (1,437,773 | ) | - | 1,437,773 | - | - | ||||||||||||||
Accrued commissions | 861,858 | 230,061 | (1,193,033 | ) | 47,384 | (163,896 | ) | |||||||||||||
Net cash (used in) provided by operating activities | (1,163,897 | ) | 770,916 | 1,756,994 | 964,808 | 1,275,849 | ||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
(Loans to) repayments by Officer | (467,078 | ) | 271,964 | (852,307 | ) | (1,744,284 | ) | 101,986 | ||||||||||||
Net cash (used in) provided by investing activities | (467,078 | ) | 271,964 | (852,307 | ) | (1,744,284 | ) | 101,986 | ||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Distribution to shareholder | - | - | - | - | (750,000 | ) | ||||||||||||||
Net cash used in financing activities | - | - | - | - | (750,000 | ) | ||||||||||||||
Net Change in Cash | (1,630,975 | ) | 1,042,880 | 904,687 | (779,476 | ) | 627,835 | |||||||||||||
Cash - Beginning of period | 2,406,854 | 1,502,167 | 1,502,167 | 2,281,643 | 1,653,808 | |||||||||||||||
Cash - End of period | $ | 775,879 | $ | 2,545,047 | $ | 2,406,854 | $ | 1,502,167 | $ | 2,281,643 | ||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||||||
Cash paid during the period for: | ||||||||||||||||||||
Income taxes | $ | 15,242 | $ | 12,570 | $ | 7,957 | $ | 20,915 | $ | 21,784 |
See Notes to Combined Financial Statements.
F-6 |
WITH YOU, INC. AND CORNY DOG, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012
(Information as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Overview
With You, Inc. (“With You”) and Corny Dog, Inc. (“Corny Dog” and, together with With You, the “Company”), both California corporations, own all assets related to (i) the worldwide business of creating, designing, developing, manufacturing, marketing, selling and licensing all consumer related lifestyle products, including, but not limited to, all categories within the fashion, home, beauty, personal care, baby, crafts, pets, holiday, seasonal, bridal, celebrations, travel, floral and food industry segments, with certain exclusions, of the Jessica Simpson® brand, (ii) the exploitation of intellectual property and related rights associated with the celebrity and personality rights, subject to certain exceptions, of Jessica Simpson and (iii) all lines of business reasonably related or ancillary thereto.
The Company owns the Jessica Simpson Collection (the “Jessica Simpson Brand”), a signature lifestyle concept inspired by and designed in collaboration with Jessica Simpson. The Jessica Simpson Brand offers 31 product categories including footwear, apparel, fragrance, fashion accessories, maternity apparel, girls clothing and home goods. The Jessica Simpson Brand is supported by a master license which has nearly 20 sub-licensees and has strong department store distribution through Dillard’s, Macy’s, Belk, Lord & Taylor and Nordstrom.
With You and Corny Dog are under common control, whereby Jessica Simpson is the sole shareholder of With You and Corny Dog.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the combined accounts of With You and Corny Dog. All significant intercompany balances and transactions have been eliminated in the combination.
Basis of Presentation – Interim
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim information. These statements are unaudited but, in the opinion of management, reflect all adjustments, which are of a normal, recurring nature, necessary for a fair presentation of the Company’s financial position, results of operations, cash flows and changes in shareholder’s equity as of and for the three months ended March 31, 2015 and 2014. Operating results for the three months ended March 31, 2015 and 2014 are not necessarily indicative of results that may be expected for the fiscal year as a whole.
Use of Estimates
The preparation of combined 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 combined financial statements and the reported amounts of revenues and expenses during the reporting period.
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 combined 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.
Cash and Cash Equivalents
The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. The Company did not have any cash equivalents at March 31, 2015, December 31, 2014, 2013 and 2012.
F-7 |
WITH YOU, INC. AND CORNY DOG, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012
(Information as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)
Accounts Receivable
Accounts receivable represent revenue recognized in advance of invoicing the licensee. The Company’s policy is to reserve for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company has deemed it unnecessary to establish an allowance for doubtful accounts as of March 31, 2015, December 31, 2014, 2013 and 2012.
Revenue Recognition
The Company primarily generates revenue from licensing arrangements, endorsements, commercials, magazine and other photo opportunities and television appearances. The Company also receives reimbursements for out-of-pocket expenses.
Royalties: With You has a license agreement that provides revenues based on a percentage of defined sales. Royalty payments are recognized as income during the period corresponding to the licensee’s sales. Advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized as revenue as earned. Revenue is not recognized unless collectability is reasonably assured.
Endorsements and Media and Other Appearances: Revenue related to endorsements and media and other appearances is recognized as income when all services have been performed.
Reimbursed expenses: In accordance with Accounting Standards Codification (“ASC”) 605-45-45-23, reimbursements received for out-of-pocket expenses incurred are characterized as revenue in the accompanying combined statements of operations.
Income Taxes
The Company is taxed as an S corporation for Federal and state income tax purposes, whereby the Company's income is reported by the shareholder. Accordingly, no provision other than required minimums has been made for Federal or state income taxes.
The Company's Federal and state income tax returns prior to fiscal year 2012 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company has no unrecognized tax benefits at March 31, 2015, December 31, 2014, 2013 and 2012.
If applicable, the Company recognizes interest and penalties associated with uncertain tax positions as part of the income tax provision and includes accrued interest and penalties with the related tax liability in the combined balance sheets.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, accounts receivable and loans receivable from officer. The Company maintains its cash accounts in financial institutions which, at times may exceed the Federal depository insurance coverage of $250,000. At March 31, 2015, December 31, 2014, 2013 and 2012, the Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. Concentration of credit risk with respect to accounts receivable is minimal due to the collection history and the nature of the Company’s royalty revenues. Concentration of credit risk with respect to loans receivable from officer is minimal due to the collection history and financial stability of the officer.
Customer Concentrations
During the year ended December 31, 2014, one licensee and one customer accounted for 79.4% and 13.6%, respectively, of the Company’s revenues. During the years ended December 31, 2013 and 2012, one licensee accounted for 84.7% and 78.5%, respectively, of the Company’s revenues. During the three months ended March 31, 2015, one licensee accounted for 98.7% of the Company’s revenues. During the three months ended March 31, 2014, one licensee and one customer accounted for 69.7% and 28.2%, respectively, of the Company’s revenues. At December 31, 2014, 2013 and 2012 and at March 31, 2015, one licensee accounted for 100% of the Company’s accounts receivable.
F-8 |
WITH YOU, INC. AND CORNY DOG, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012
(Information as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)
NOTE 3 – SHAREHOLDER’S EQUITY
During the year ended December 31, 2012, the Company made a distribution to its shareholder in the amount of $750,000.
NOTE 4 – PROFIT SHARING PLAN
The Company has established a 401(k) profit-sharing plan for the benefit of eligible employees. The Company may make contributions to the plan as determined by the Company. The Company recorded matching contribution expenses of $0, $0, $127,030, $134,750 and $118,349 for the three months ended March 31, 2015 and 2014 and the years ended December 31, 2014, 2013 and 2012, respectively.
NOTE 5 – RELATED PARTY TRANSACTIONS
Loans Receivable from Officer
From time to time, the Company will advance funds to the shareholder or pay certain personal expenses on her behalf. The loans are non-interest bearing, unsecured and due on demand. As of March 31, 2015, December 31, 2014 and 2013, loans receivable from the shareholder amounted to $3,029,447, $2,562,368 and $1,710,061. As of December 31, 2012, loans payable to the shareholder amounted to $34,223.
Commission Arrangement
On January 5, 2009, With You entered a commission agreement with Tina Simpson, the mother of Jessica Simpson, whereby Tina Simpson performs services related to the design and development of licensed and sub-licensed products for the licensing program consisting of a master licensing agreement, as amended, and other commercial agreements (the “Simpson Licensing Program”). In exchange for her services, Tina Simpson is to receive 40% of all income received by With You (excluding reimbursed expenses) from (a) the Simpson Licensing Program; (b) a sale of stock, shares or assets of With You; and/or (c) a sale or other transfer of rights of the Jessica Simpson® brand. For the three months ended March 31, 2015 and 2014 and the years ended December 31, 2014, 2013 and 2012, Tina Simpson earned commissions of $1,436,968, $1,423,094, $5,216,500, $4,947,707 and $4,890,684, respectively.
Corny Dog entered into a verbal commission agreement with Joseph Simpson, the father of Jessica Simpson, whereby a company owned by Joseph Simpson receives a commission equal to 20% of certain revenues earned by Corny Dog in exchange for managerial services provided by Joseph Simpson. For the three months ended March 31, 2015 and 2014 and the years ended December 31, 2014, 2013 and 2012, Joseph Simpson earned commissions of $0, $310,137, $460,137, $244,009 and $467,966, respectively.
NOTE 6 – COMMITMENTS
Prior to January 1, 2012, the Company entered into a verbal agreement with a consultant pursuant to which the consultant receives a fee of 5% of all revenues earned by the Company (excluding reimbursed expenses) in exchange for accounting and business management services. For the years ended December 31, 2014, 2013 and 2012, consultant expenses amounted to $842,954, $737,060 and $807,829, respectively. For the three months ended March 31, 2015 and 2014, consultant expenses amounted to $196,546 and $262,889, respectively. Such expenses are included in general and administrative expenses in the accompanying combined statements of operations.
Prior to January 1, 2012, Corny Dog entered into a verbal agreement with its legal counsel pursuant to which its legal counsel receives a fee based on revenues earned by Corny Dog (excluding reimbursed expenses) in exchange for legal services. For the years ended December 31, 2014, 2013 and 2012, legal expenses amounted to $230,250, $106,750 and $168,195, respectively. For the three months ended March 31, 2015 and 2014, legal expenses amounted to $109,582 and $194,946, respectively. Such expenses are included in general and administrative expenses in the accompanying combined statements of operations.
NOTE 7 – SUBSEQUENT EVENTS
The Company evaluates subsequent events and transactions that occur after the balance sheet date up through June 24, 2015, the date that the combined financial statements were issued, for potential recognition or disclosure. Any material events that occur between the balance sheet date and the date that the combined financial statements were issued are disclosed as subsequent events, while the combined financial statements are adjusted to reflect any conditions that existed at the balance sheet date. Based upon this review, except as discussed below, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the combined financial statements.
F-9 |
WITH YOU, INC. AND CORNY DOG, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012
(Information as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited)
On April 1, 2015, Sequential Brands Group, Inc. (“Sequential Brands”) entered into a purchase agreement (the “JS Purchase Agreement”) with the Company, With You LLC, a Delaware limited liability company (“NewCo”), and Jessica Simpson, in her capacity as the sole shareholder of the Company. NewCo owns all assets related to (i) the worldwide business of creating, designing, developing, manufacturing, marketing, selling and licensing all consumer related lifestyle products, including, but not limited to, all categories within the fashion, home, beauty, personal care, baby, crafts, pets, holiday, seasonal, bridal, celebrations, travel, floral and food industry segments, with certain exclusions, of the Jessica Simpson® brand, (ii) the exploitation of intellectual property and related rights associated with the celebrity and personality rights, subject to certain exceptions, of Jessica Simpson and (iii) all lines of business reasonably related or ancillary thereto (including the establishment and operation of retail stores).
Pursuant to the terms of the JS Purchase Agreement, Sequential Brands purchased membership interests in NewCo for an aggregate purchase price consisting of (a) $117.5 million in cash and (b) 97,087 shares of Sequential Brand’s common stock. After giving effect to the transactions contemplated by the JS Purchase Agreement, Sequential Brands owns 62.5% of the outstanding membership interests in NewCo and With You owns 37.5% of the outstanding membership interests in NewCo. In connection with the JS Purchase Agreement, Sequential Brands and With You entered into an operating agreement for NewCo, pursuant to which Sequential Brands and With You agreed to certain rights and obligations with respect to the governance of NewCo.
F-10 |