Sequential Brands Group, Inc. Annual Report 2014

FY2014 Annual Report · Sequential Brands Group, Inc.
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ANNUAL REPORT

We build brands by partnering 
with best-in-class manufacturers 
and retailers, to drive incremental 
growth and maximize brand equity

2014 SQBG Annual Report

LETTER FROM THE CEO

My fellow shareholders,

I’m pleased to report to you that 2014 was another transformational year for Sequential Brands Group.

We delivered strong ﬁnancial results driven by executing our playbook of achieving both organic and
acquisition growth, and we ended the year with a strong portfolio of consumer brands generating
approximately $2 billion in global retail equivalent sales from over 75 licensees.

For the full year 2014, revenue increased 85% to $41.8 million dollars, adjusted EBITDA for the full year
period nearly doubled to approximately $24.0 million dollars, and our portfolio grew to include three distinct
consumer verticals inclusive of: fashion, lifestyle and active brands.

The strong performance of our brands was mainly attributed to increased distribution and broadened
assortments for many of our brands. As we make our way into 2015, we are continuing to pull on the organic
growth levers of our business, including category & retail expansion, international penetration and digital &
e-commerce distribution. With many initiatives already underway, we believe we will generate another year of
high single-digit year-over-year organic growth.

Moving to the acquisition chapter of our playbook, last year we completed the acquisition of Galaxy, a
portfolio of brands which includes the basketball brand AND1 and the women’s active brand Avia. This
acquisition was a signiﬁcant win for us in many ways. It doubled the size of our business, increased our
category diversiﬁcation of our portfolio to the active category, and expanded our distribution to key new
accounts,
the transaction added new best-in-class stakeholders in The Carlyle
Group & GSO Blackstone, who joined our legacy partners, Tengram Capital Partners & Bank of America.

including Walmart. Lastly,

We began Fiscal 2015 with aspirations for continued acquisition growth, and as such, we were excited to
recently announce the acquisition of a majority interest in the Jessica Simpson fashion brand.

Our continued focus for the future is to acquire brands with global awareness and lifestyle appeal that we
believe we can add value to through our unique platform. We believe we are well positioned to execute on
our acquisition pipeline with our strong balance sheet, and strong ﬁnancing partners.

As we combine our organic growth goals with our acquisition goals, we believe we are fully on track and
potentially ahead of schedule to achieve our previously stated three year goal of reaching $3.5 billion in
annual retail sales, equating to approximately $100 million in royalty revenue and adjusted EBITDA of $70
million.

It has been nearly three years since the company transitioned its legacy wholesale platform into the licensing
model that it is today. We are proud to report that Sequential has become one of the largest pure-play
licensing and brand management organizations in the world, and with our platform in place, we feel conﬁdent
that we can achieve our long term goal of being the best in the industry.

On behalf of our management team and all the employees of Sequential, I want to personally thank you for
your continued support and conﬁdence.

Sincerely,

Yehuda Shmidman
Chief Executive Officer

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
(cid:2)

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the ﬁscal year ended December 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
(State or other jurisdiction of
incorporation or organization)

86-0449546
(I.R.S. Employer
Identiﬁcation No.)

5 Bryant Park, 30th Floor
New York, New York 10018
(Address of principal executive offices)(Zip code)

(646) 564-2577
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.001 per share
(Title of each class)

The NASDAQ Stock Market LLC
(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities Act. Yes (cid:4) No (cid:2)
Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:4) No (cid:2)
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 (cid:2) No (cid:4)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 (cid:2) No (cid:4)

Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in deﬁnitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. (cid:2)

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 □
Non-accelerated ﬁler □ (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as deﬁned in Rule 12b-2 of the Act). Yes (cid:4) No (cid:2)
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2014, the last business day of the

Accelerated ﬁler (cid:2)
Smaller reporting company □

registrant’s most recently completed second ﬁscal quarter was $177,158,809 (based on the closing sales price of the registrant’s common stock on that date).

At March 11, 2015, the registrant had 39,348,345 shares of common stock, $0.001 par value, outstanding.

Portions of the registrant’s proxy statement for its annual meeting of stockholders to be held on May 27, 2015 are incorporated by reference in

Items 10 through 14 of Part III of this Annual Report on Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE

SEQUENTIAL BRANDS GROUP, INC.

INDEX TO FORM 10-K

PART I

Item 1.

Business

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Item 3.

Item 4.

PART II

Item 5.

Item 6.

Item 7.

Properties

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . .

Item 8.

Item 9.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A.

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . .

Item 11.

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions, and Director Independence . . . . . . . . .

Item 14.

Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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PART IV

Item 15.

Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Unless the context

references in this Annual Report on Form 10-K to the
‘‘Company,’’ ‘‘our Company,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our’’ or similar pronouns refer to Sequential Brands Group, Inc.
and its subsidiaries.

requires otherwise,

PART I

competitive

expectations,

environment,

This Annual Report on Form 10-K,

including the sections entitled ‘‘Risk Factors,’’ ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations’’ and ‘‘Business,’’ contains
‘‘forward-looking statements’’ that include information relating to future events, future ﬁnancial performance,
strategies,
resources. These
forward-looking statements include, without limitation, statements regarding: proposed new business strategies,
regulatory developments or other matters; statements concerning projections, predictions, expectations,
estimates or forecasts for our business, ﬁnancial and operating results and future economic performance;
statements of management’s goals and objectives; and other similar expressions concerning matters that are
not historical facts. Words such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘would,’’ ‘‘predicts,’’ ‘‘potential,’’
‘‘continue,’’
‘‘aims,’’
‘‘targets,’’ ‘‘believes’’ and ‘‘estimates,’’ and similar expressions, as well as statements in future tense, identify
forward-looking statements.

‘‘anticipates,’’

‘‘forecasts,’’

‘‘projects,’’

availability

‘‘expects,’’

‘‘intends,’’

regulation

‘‘future,’’

‘‘plans,’’

and

of

Forward-looking statements should not be read as a guarantee of future performance or results, and will
not necessarily be accurate indications of the times at, or by which, that performance or those results will be
achieved. Forward-looking statements are based on information available at the time they are made and/or
management’s good faith belief as of that time with respect to future events, and are subject to risks and
uncertainties that could cause actual performance or results to differ materially from those expressed in or
suggested by the forward-looking statements. Important factors that could cause these differences include, but
are not limited to:

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our failure to achieve our business plan within the time period we originally planned;

our ability to locate licensees who can design, manufacture and distribute consumer branded
products;

our ability to maintain strong relationships with our licensees;

the demand for our licensed products in the United States and internationally;

our ability to enter into license agreements both in the United States and internationally;

the ability of our licensees to meet their contractual obligations;

our ability to acquire new brands on commercially reasonable terms and to integrate these brands
into our ongoing business;

a decrease in the availability of ﬁnancial resources at favorable terms;

our substantial amount of indebtedness and our ability to comply with restrictive covenants under
our loan agreements;

our competitive position or changes in competitive actions by other companies;

our retention of key personnel;

general economic, market or business conditions; and

other factors discussed under the headings ‘‘Risk Factors,’’ ‘‘Management’s Discussion and Analysis
of Financial Condition and Results of Operations’’ and ‘‘Business.’’

Forward-looking statements speak only as of the date they are made. You should not put undue reliance
on any forward-looking statements. We assume no obligation to update forward-looking statements to reﬂect
actual results, changes in assumptions or changes in other factors affecting forward-looking information,
except to the extent required by applicable securities laws. If we do update one or more forward-looking
statements, no inference should be drawn that we will make additional updates with respect to those or other
forward-looking statements.

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Item 1.

Business

Corporate Overview

We own a portfolio of consumer brands in the fashion, active and lifestyle categories. 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.

In the second half of 2011, we transitioned our business model

to focus on licensing and brand
management. Prior to this, we designed, marketed and provided, on a wholesale basis, branded apparel and
apparel accessories, as well as operated retail stores to sell our branded products. In the second half of 2011,
we discontinued our wholesale distribution of branded apparel and apparel accessories, liquidated our existing
inventory and closed our remaining retail stores. To reﬂect our business transition, in March 2012, we changed
our corporate name from People’s Liberation, Inc. to Sequential Brands Group, Inc.

Our principal offices are located at 5 Bryant Park, 30th Floor, New York, NY 10018 and our telephone

number is (646) 564-2577. We were incorporated under the laws of the State of Delaware in 1982.

Licensing and Brand Management Business

Overview

Our objective is to build a diversiﬁed portfolio of consumer brands in various categories by growing our
existing portfolio and by acquiring new brands. We build brands by partnering with leading manufacturers and
retailers to drive incremental value and maximize brand equity. To achieve this objective, we intend to:

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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 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 primarily evaluate the strength of the targeted brand as well
as the expected viability and sustainability of future royalty streams.

Licensing Relationships

Our business strategy is designed to maximize the value of our brands through the entry into license
agreements with partners that are responsible for designing, manufacturing and distributing our licensed
products. We license our brands with respect to a broad range of products, including apparel, footwear,
eyewear and fashion accessories. We seek to partner with licensees with the ability to produce and sell quality
products in their respective licensed categories and with the demonstrated ability to meet and exceed the
minimum sales thresholds and guaranteed minimum royalty payments that we generally require.

As of December 31, 2014, we had more than 75 licensees, almost all of which were 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.

Each of our licensees has a stipulated territory or territories as well as distribution channels in which
licensed products may be sold. Currently, the majority of our revenues are from license agreements with
stipulated distribution territories in the United States, but we intend to increase the monetization of our
trademarks internationally through additional license agreements, partnerships and other arrangements.

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Our license agreements typically require the licensee to pay royalties based upon net sales with
guaranteed minimum royalty payments 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. As of January 2015, we have contractual rights to receive from
all of our licensees approximately $188.9 million in aggregate minimum royalty revenue through the balance
of the current terms of such licenses, excluding any renewals.

We believe our business model enables 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:

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Financial upside without the typical risks associated with traditional wholesale 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 licensees.

Advertising and Public Relations

Our advertising and public relations expenditures for our brands are dedicated largely to creating and
developing creative advertising concepts, hiring brand spokespersons, advertising in magazines,
trade
publications, outdoor locations and on the internet, securing product placements and reaching appropriate
arrangements with our licensees and key retail partners,
including in-store ﬁxturing, signage and co-op
advertising programs. Further, we believe that social media is a key element of brand advertising and we
actively promote our brands through Instagram(cid:5), Facebook(cid:5), Twitter(cid:5), Tumblr(cid:5) and other social media
portals. In addition, we further promote our brands online through e-mail blasts, banner advertisements,
contests, sweepstakes and other interactive activities.

Some of our license agreements require the payment of an annual advertising fee by the licensee or that
the licensee spend a minimum required amount each year on adverting activities and, in many cases, our
licensees supplement the marketing of our brands by performing additional advertising services, subject to our
oversight and approval.

Description of Our Key Brands

Avia

We acquired the Avia brand in August 2014 as part of the Galaxy Acquisition (as deﬁned below).
Founded in 1979, Avia is best known for running and activewear products that unite performance and function
for athletes of every level. Licensees for the Avia brand include E.S. Originals, Inc. (‘‘ESO’’) for footwear and
Delta Galil U.S.A. Inc. for apparel. In addition, the Avia brand is licensed for various accessories categories.
The Avia brand is primarily offered through Wal-Mart stores in the United States, with additional distribution
through specialty retailers and related e-commerce sites, as well as globally in over 30 countries. During 2014,
the Avia brand expanded its product offerings into the hosiery and sports bag categories and broadened
distribution to athletic specialty retailers, such as Dick’s Sporting Goods and Modell’s Sporting Goods.

AND1

We acquired the AND1 brand in August 2014 as part of the Galaxy Acquisition. Founded in 1993,
AND1 prides itself on being the original basketball brand focusing on the everyday player. Licensees for the
AND1 brand include ESO for footwear and High Life, LLC for apparel. In addition, the AND1 brand is
licensed for various accessories categories. The AND1 brand is offered through Wal-Mart stores, sporting
goods retailers and related e-commerce sites in the United States and has a strong distribution network
reaching over 20 countries. During 2014, the AND1 brand successfully expanded its product offerings by
introducing products across the hosiery, underwear and off-court/casual footwear categories.

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Ellen Tracy

We acquired the Ellen Tracy brand in March 2013 as part of the Brand Matter Acquisition (as deﬁned in
Note 6 to our consolidated ﬁnancial statements). Founded in 1949, Ellen Tracy has grown into a leading
fashion lifestyle brand focusing on sophisticated style for modern women. The Ellen Tracy brand is known for
quality tailoring, timeless silhouettes and classic signature prints. Product offerings currently include apparel,
footwear, outerwear, handbags, hosiery, belts, eyewear, fragrance, fashion accessories, bath and body, jewelry,
luggage and home. Licensees for the Ellen Tracy brand include Global Brands Group, Inc. for sportswear,
handbags and swimwear and G-III Apparel Group Ltd. for outerwear, suits and dresses. In addition, the Ellen
Tracy brand has been licensed for intimate apparel, sleepwear and shapewear, as well as other fashion
categories, including accessories. The Ellen Tracy brand is offered in premium and regional department and
specialty stores throughout the United States as well as globally in over 10 countries.

William Rast

The William Rast brand, one of our legacy brands, was conceptualized and founded by Justin Timberlake
and Trace Ayala in 2005. Grounded in the iconography of biker culture, William Rast’s designs combine the
origins of America Denim with contemporary ﬁts, fabric, wash features and techniques. The William Rast
brand has always been known for trendy, premium denim and leathers and is recognized worldwide as a
lifestyle fashion brand. Product offerings include denim, sportswear, tailored apparel, fashion accessories,
outerwear and small leather goods. Licensees for the William Rast brand include French Dressing Inc. for
men’s and women’s apparel and outerwear, PVH Corp. for dress shirts and ties and Sherson Group, Inc. for
footwear. The William Rast brand is offered through Lord & Taylor and specialty retailers in the United States
the William Rast brand successfully completed a
and The Hudson’s Bay Company in Canada. In 2014,
re-launch at Lord & Taylor for both men’s and women’s apparel and accessories and announced plans to enter
into the footwear category with an expected launch in the Fall of 2015.

Revo

We acquired the Revo brand in August 2013. Founded in 1985, Revo is a performance eyewear brand
designed for the active consumer and known as the leader in polarized lens technology. Revo sunglasses were
ﬁrst created by utilizing lens technology developed by NASA as solar protection for satellites. The Revo brand
has continued to build on its tradition of technology and innovation by offering the clearest and most
advanced high-contrast polarized sunglasses available. The Revo brand is licensed on a worldwide basis to
B. Robinson Optical, Inc. for sunglasses and related categories and is distributed through Sunglass Hut
Trading LLC’s stores in the United States as well as other premium retail locations globally. During 2014, the
Revo brand launched its ﬁrst e-commerce platform and expanded its product assortment with key retailers.

Caribbean Joe

We acquired the Caribbean Joe brand in March 2013 as part of the Brand Matter Acquisition. Founded
in 1999, the Caribbean Joe brand is a casual, island inspired, lifestyle brand. Originally rooted in apparel,
Caribbean Joe’s product offerings have expanded to include luggage, home textiles, swimwear and
accessories. Licensees for the Caribbean Joe brand include the Moret Group for women’s apparel and
Mainstream for women’s sportswear. The Caribbean Joe brand is distributed in the United States through
mid-tier department stores, specialty stores, e-commerce sites, clubs and off-price retailers as well as
internationally in Canada, Mexico, Japan, China, Indonesia and Australia through specialty retailers and
distributors. During 2014, the Caribbean Joe brand expanded into China, launched women’s apparel in Asia
and expanded its product offerings into more than 30 different categories.

Heelys

We acquired the Heelys brand in January 2013. Founded in 1999, the Heelys brand has been a breakout
success in the world of action sports among children and teens with its innovative, patented dual-purpose
wheeled footwear, featuring a stealth removable wheel in the heel. Today, Heelys is rapidly growing into the
ultimate kids’ active lifestyle brand. Product offerings have expanded into bags, backpacks and back-to-school
the Heelys brand is BBC International LLC for wheeled and
accessories. The primary licensee for
non-wheeled footwear and related accessories. The Heelys brand is offered through department stores, sporting
goods retailers, related e-commerce sites, as well as Heelys’ own e-commerce site in the United States and

4

over 75 additional countries. During 2014, the Heelys brand expanded into co-branded products, including
Marvel and Barbie(cid:5), launched the derivative brand Sidewalk Sports online at Target and Wal-Mart stores,
entered a new higher tier of distribution, including Nordstrom and Macy’s, and expanded into new countries,
including Spain, Portugal, South Africa and Chile.

DVS

We acquired a 65% interest in the DVS brand in June 2012 through a joint venture with Elan Polo
International, Inc. (‘‘Elan Polo’’), a global organization which designs, sources and delivers men’s, women’s
and children’s shoes to retailers around the world. The DVS brand is a leading global footwear brand
dedicated to inspiring youth to have fun and always push forward and is best known for its great style,
technical features and input of some of the best action sports athletes in the world. Product offerings for the
brand currently include footwear, backpacks, accessories and equipment. The primary licensee for the DVS
brand is Elan Polo for footwear, with distribution through specialty street skating and other specialty stores in
the United States and internationally. In 2014, the DVS brand expanded its product offerings and broadened
distribution to new retail partners worldwide.

The Franklin Mint

We acquired The Franklin Mint brand in November 2013. Founded in 1964, The Franklin Mint
is
acknowledged as the ‘‘Gold Standard’’ in the collectible and gift giving arena. The Franklin Mint brand has
been licensed in multiple categories,
toys and games, wine, coins and seasonal and
co-branded products. In 2014, The Franklin Mint brand was launched on franklinmint.com website via a
multi-year partnership with Delivery Agent, Inc. Most recently, a new long-term partnership was signed with
Home Shopping Network with the debut show airing in January 2015.

including jewelry,

Competition

Our brands are subject to extensive competition from various domestic and foreign brands. Each brand
has a number of competitors within each of its speciﬁc product categories and distribution channels who have
the ability to compete with us and our licensees in terms of design, style, quality, price, name recognition,
service and/or advertising.

In addition, we face competition for new licenses and brand acquisitions. Companies owning established
brands may decide to enter into licensing arrangements with wholesalers or retailers similar to the ones we
currently have in place, thus creating direct competition. Similarly, the retailers that currently sell our licensed
products may decide to develop or acquire brands directly, rather than purchase products on a wholesale basis
from our licensees, which could make it more difficult for our licensees to achieve their sales targets.

We also compete with traditional apparel and consumer brand companies and with other brand

management companies for acquisitions.

Trademarks

Our trademarks and associated marks are registered or pending registration with the U.S. Patent and
Trademark Office in block letter and/or logo formats, as well as in combination with a variety of ancillary
marks for use with respect to a broad range of product categories, including footwear, eyewear, apparel,
fragrance, handbags, backpacks, watches and various other goods. We intend to renew these registrations as
appropriate prior to their expiration. In addition, we register our trademarks in other countries and regions
around the world. We also have domestic, foreign and international intellectual property coverage for the
technology and designs incorporated into Heelys wheeled footwear and own the rights to more than 83 issued
patents, pending patents applications and industrial designs in more than 25 countries.

We monitor on an ongoing basis unauthorized use and ﬁlings of our trademarks and patents and rely
primarily upon a combination of federal, state, and local laws, as well as contractual restrictions, to protect
our intellectual property rights, both domestically and internationally.

5

Seasonality

Our business is affected by seasonality in the businesses of many of our licensees. Historically, this has
resulted in higher revenues during our third and fourth quarters, which includes the holiday retail season in
the United States. We recognized 24% and 27% of our annual revenues during the third quarter of 2014 and
2013, respectively. We recognized 44% and 47% of our annual revenues during the fourth quarter of 2014 and
2013, respectively.

Employees

As of March 11, 2015, we had a total of 32 employees and area-speciﬁc consultants working to support
our continuing operations. None of our employees are represented by a labor union. We consider our
relationship with our employees to be satisfactory.

Available Information

Our corporate website address is www.sequentialbrandsgroup.com. The information contained on our website
is not part of this report. We ﬁle our annual, quarterly and current reports and other information with the
Securities and Exchange Commission (the ‘‘SEC’’). These reports, and any amendments to these reports, are made
available on our website as soon as reasonably practicable after such reports are ﬁled with or furnished to the
SEC. The public may read and copy any materials ﬁled with the SEC at the SEC’s Public Reference Room at 100
F Street, NE, Washington, D.C. 20549. The public may also obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site that
contains annual, quarterly and current reports, proxy and information statements and other information regarding
issuers like us, that ﬁle electronically with the SEC, which is available at www.sec.gov.

6

Item 1A. Risk Factors

We operate in a changing environment

involves numerous known and unknown risks and
uncertainties that could impact our operations. In addition to other information contained in this report, the
following risk factors highlight some of the factors that have affected, and could affect in the future, our
business, ﬁnancial condition and results of operations:

that

The failure of our licensees to adequately produce, market and sell products bearing our brand names in
their license categories or to otherwise fulﬁll their contractual obligations under their license agreements
with us could result in a decline in our results of operations.

Our revenues are almost entirely dependent on royalty payments made to us under our license agreements.
Although the license agreements for our brands often require the advance payment to us of a portion of the
licensing fees and, in most cases, provide for guaranteed minimum royalty payments to us, the failure of our
licensees to satisfy their obligations under these agreements or their inability to operate successfully or at all,
could result in their breach and/or the early termination of such agreements, their non-renewal of such agreements
or our decision to amend such agreements to reduce the guaranteed minimum royalty payments or sales royalties
due thereunder, thereby eliminating some or all of that stream of revenue. Moreover, during the terms of the
license agreements, we are substantially dependent upon the abilities of our licensees to maintain the quality and
marketability of the products bearing our trademarks, as their failure to do so could materially tarnish our brands,
thereby harming our future growth and prospects. Our failure to monitor our licensees’ compliance with the
license agreements or take appropriate corrective action when necessary may subject our intellectual property
assets to cancellation, loss of rights or diminution in value. In addition, the failure of our licensees to meet their
production, manufacturing and distribution requirements could cause a decline in their sales and potentially
decrease the amount of royalty payments (over and above the guaranteed minimum royalty payments) due to us.
A weak economy or softness in the apparel and retail sectors could exacerbate this risk or cause our licensees to
default on their obligations to make guaranteed minimum royalty payments to us. This, in turn, could decrease our
potential revenues and harm our stock price.

Our business is dependent on continued market acceptance of our brands and the products of our licensees
bearing these brands.

Although most of our licensees guarantee minimum net sales and minimum royalty payments to us, a
failure of our brands or of products bearing our brands to achieve or maintain market acceptance could cause
a reduction of our licensing revenues. Moreover, such failure could also cause the devaluation of our
license
trademarks, which are our primary assets, making it more difficult for us to renew our current
agreements upon their expiration or enter into new or additional license agreements for our trademarks. In
addition, if a devaluation of our trademarks were to occur, a material impairment in the carrying value of one
or more of our trademarks could also occur and be charged as an expense to our operating results. Continued
market acceptance of our brands and our licensees’ products, as well as market acceptance of any future
products bearing our brands, is subject to a high degree of uncertainty, exacerbated by constantly changing
consumer tastes and preferences. Maintaining market acceptance of our licensees’ products and creating
market acceptance of new products and categories of products bearing our marks will require our continuing
marketing efforts, which may, from time to time, also include our expenditure of signiﬁcant additional funds
to keep pace with changing consumer demands. Additional marketing efforts and expenditures may not,
however, result
licenses for, our trademarks or
increased market acceptance or sales of our licensees’ products. Furthermore, while we believe that we
currently maintain sufficient control over the products our licensees’ produce through the provision of trend
and design direction and our contractual rights to preview and approve products, including their presentation
and packaging, we do not actually design or manufacture products bearing our marks and therefore have more
limited control over the quality and design of such products.

in either increased market acceptance of, or additional

7

If we are unable to identify and successfully acquire additional brands, our rate of growth may be reduced
and, even if additional trademarks are acquired, we may not realize anticipated beneﬁts due to integration
or licensing difficulties.

A key component of our growth strategy is the acquisition of additional brands. We recently acquired
Avia, AND1, Nevados and Linens ‘N Things in August 2014 and FUL in November 2014 and are continually
exploring new acquisition opportunities. However, we face extensive competition for new brand acquisitions,
both from other brand management companies as well as traditional consumer brand companies, retailers and
private equity groups, which could increase the price of the acquisitions and make it more difficult for us to
ﬁnd suitable acquisition targets. In addition, even if we successfully acquire additional brands or the rights to
use additional brands, we may not be able to achieve or maintain proﬁtability levels that
justify our
investment in, or realize planned beneﬁts with respect to, those additional brands.

Although we seek to temper our acquisition risks, all acquisitions, whether they are of additional
intellectual property assets or of the companies that own them, entail numerous risks, any of which could
detrimentally affect our results of operations and/or the value of our equity. These risks include, among others:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

unanticipated costs associated with the target acquisition;

negative effects on reported results of operations from acquisition related charges and amortization
of acquired intangibles;

diversion of management’s attention from other business concerns;

the challenges of maintaining focus on, and continuing to execute, core strategies and business plans
as our brand and license portfolio grows and becomes more diversiﬁed;

inability to ﬁnd suitable licensees for our newly acquired brands;

adverse effects on our existing licensing relationships, including our existing licensees terminating
their license agreements with us;

potential difficulties associated with the retention of key employees and the assimilation of any other
employees, who may be retained by us in connection with or as a result of our acquisitions; and

risks of entering new domestic and international markets (whether it be with respect to new licensed
product categories or new licensed product distribution channels) or markets in which we have
limited prior experience.

In the event we acquire intellectual property assets or the companies that own them, our due diligence
reviews are subject to inherent uncertainties and may not reveal all potential risks. We may therefore fail to
discover or inaccurately assess undisclosed or contingent liabilities, including liabilities for which we may have
responsibility as a successor to the seller or the target company. In addition, as a successor, we may be responsible
for any past or continuing violations of law by the seller or the target company. Although we generally attempt to
seek contractual protections through representations, warranties and indemnities, we cannot be sure that we will
obtain such provisions in our acquisitions or that such provisions will fully protect us from all unknown,
contingent or other liabilities or costs. Finally, claims against us relating to any acquisition may necessitate our
seeking claims against the seller for which the seller may not, or may not be able to, indemnify us or that may
exceed the scope, duration or amount of the seller’s indemniﬁcation obligations.

Acquiring additional brands could also have a signiﬁcant effect on our ﬁnancial position and could cause
substantial ﬂuctuations in our quarterly and yearly operating results. Acquisitions could result in the recording
of signiﬁcant goodwill and intangible assets on our ﬁnancial statements, the amortization or impairment of
which would reduce our reported earnings in subsequent years. No assurance can be given with respect to the
timing, likelihood or ﬁnancial or business effect of any possible transaction. Moreover, our ability to grow
through the acquisition of additional brands will also depend on the availability of capital to complete the
necessary acquisition arrangements. In the event that we are unable to obtain debt ﬁnancing on acceptable
terms for a particular acquisition, we may elect to pursue the acquisition through the issuance of shares of our
common stock (and, in certain cases, convertible securities) as equity consideration, which could dilute our
common stock because it could reduce our earnings per share, and any such dilution could reduce the market

8

price of our common stock. As a result, there is no guarantee that our stockholders will achieve greater returns
as a result of any future acquisitions we complete.

In connection with the Galaxy Acquisition, we incurred a substantial amount of indebtedness, which could
adversely affect our results of operations and ﬁnancial condition.

In connection with the Galaxy Acquisition (as deﬁned below), we entered into (i) an amended and
restated ﬁrst lien credit agreement, dated as of August 15, 2014 (as so amended and restated the ‘‘First Lien
Credit Agreement’’), with the guarantors party thereto and Bank of America, N.A., as administrative agent and
collateral agent thereunder, which provides for a term loan of up to $75.0 million, a revolving credit facility
of up to $25.0 million, $15.0 million of which has been drawn as of December 31, 2014, and a swing line
sub-facility of up to $10.0 million, none of which has been drawn as of December 31, 2014, and (ii) a second
lien credit agreement with GSO Capital Partners LP, dated as of August 15, 2014 (the ‘‘Second Lien Credit
Agreement’’ and together with the First Lien Credit Agreement, the ‘‘Loan Agreements’’), with guarantors
party thereto and Wilmington Trust, National Association, as administrative agent and collateral agent
thereunder, which provides for a term loan of up to $90.0 million.

Our higher level of indebtedness increases the possibility that we may be unable to generate cash
sufficient to pay when due the principal of, interest on or other amounts due in respect of such indebtedness.
In addition, we may incur additional debt from time to time to ﬁnance strategic acquisitions, investments, joint
ventures or for other purposes, subject to the restrictions contained in the documents that will be governing
our indebtedness. If we incur additional debt, the risks associated with our leverage, including our ability to
service debt, would increase.

Our higher level of indebtedness could have other important consequences, which include, but are not

limited to, the following:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

a substantial portion of our cash ﬂow from operations could be required to pay principal and interest
on our debt;

our interest expense could increase if interest rates increase because the borrowings under the Loan
Agreements generally bear interest at ﬂoating rates;

our
leverage could increase our vulnerability to general economic downturns and adverse
competitive and industry conditions, placing us at a disadvantage compared to those of our
competitors that are less leveraged;

our debt service obligations could limit our ﬂexibility in planning for, or reacting to, changes in our
business and in the brand licensing industry;

our failure to comply with the ﬁnancial and other restrictive covenants in the documents governing
our indebtedness could result
if not cured or waived, results in
foreclosure on substantially all of our assets; and

in an event of default

that,

our level of debt may restrict us from raising additional ﬁnancing on satisfactory terms to fund
strategic acquisitions, investments, joint ventures and other general corporate requirements.

We cannot be certain that our earnings will be sufficient to allow us to pay principal and interest on our
debt and meet our other obligations. If we do not have sufficient earnings, we may be required to seek to
reﬁnance all or part of our then existing debt, sell assets, borrow more money or sell more securities, none of
which we can guarantee that we will be able to do and which, if accomplished, may adversely affect us.

We are subject to a number of restrictive covenants under the Loan Agreements, including customary
operating restrictions and customary ﬁnancial covenants. Our business, results of operations and ﬁnancial
condition may be adversely affected if we are unable to maintain compliance with such covenants.

To ﬁnance the Galaxy Acquisition, we entered into the Loan Agreements. The Loan Agreements are
guaranteed jointly and severally by each of our domestic subsidiaries. Our and our subsidiaries’ obligations
under the Loan Agreements and the associated guarantees are secured, in each case, by ﬁrst priority liens
(subject, in the case of the Second Lien Credit Agreement, to the liens under the First Lien Credit Agreement)

9

on, and security interests in, substantially all of the present and after acquired assets of us and each of our
subsidiaries, subject to certain customary exceptions. The Loan Agreements contain a number of restrictive
covenants, representations and warranties, including representations relating to the intellectual property owned
by us and our subsidiaries and the status of our material license agreements. In addition, the Loan Agreements
include covenants and events of default,
the First Lien Credit Agreement,
requirements that we satisfy a minimum positive net income test and maintain a minimum loan to value ratio
(as calculated pursuant to the First Lien Credit Agreement), and, in the case of the Second Lien Credit
Agreement, maintain a total leverage ratio and maintain a minimum loan to value ratio (as calculated pursuant
to the Second Lien Credit Agreement).

in the case of

including,

If our business, results of operations or ﬁnancial condition are adversely affected by one or more of the
risk factors described in this Annual Report on Form 10-K or elsewhere in our ﬁlings with the SEC, we may
be unable to maintain compliance with these ﬁnancial covenants. If we fail to comply with such covenants,
our lenders under the Loan Agreements could demand immediate payment of amounts outstanding under each
Loan Agreement. Under such circumstances, we would need to seek alternative ﬁnancing sources to fund our
ongoing operations and to repay amounts outstanding and satisfy our other obligations under our existing
borrowing and ﬁnancing arrangements. Such ﬁnancing may not be available on favorable terms, if at all.
Consequently, we may be restricted in how we fund ongoing operations and strategic initiatives and deploy
capital and in our ability to make acquisitions. As a result, our business, results of operations and ﬁnancial
condition may be further adversely affected if we are unable to maintain compliance with the covenants under
the Loan Agreements.

We may require additional capital to ﬁnance the acquisition of additional brands and our inability to raise
such capital on beneﬁcial terms or at all could restrict our growth.

We may, in the future, require additional capital to help fund all or part of potential acquisitions. If, at
the time required, we do not have sufficient cash to ﬁnance those additional capital needs, we will need to
raise additional funds through equity and/or debt ﬁnancing. We cannot guarantee that, if and when needed,
additional ﬁnancing will be available to us on acceptable terms or at all. If additional capital is needed and is
either unavailable or cost prohibitive, our growth may be limited as we may need to change our business
strategy to slow the rate of, or eliminate, our expansion plans. In addition, any additional ﬁnancing we
undertake could impose additional covenants upon us that restrict our operating ﬂexibility, and, if we issue
equity securities to raise capital, our existing stockholders may experience dilution or the new securities may
have rights senior to those of our common stock.

We have experienced rapid growth in recent years. If we fail to manage this or any future growth, our
business and operating results could be harmed.

Our business has grown dramatically since the beginning of 2012. For example, our revenue increased from
$5.3 million for the ﬁscal year 2012 to $22.7 million for the ﬁscal year 2013 and to $41.8 million for the ﬁscal
year 2014. Our growth has largely resulted from our acquisition of new brands of various sizes. During this
period, we acquired several brands (or the rights to use those brands and trademarks) and increased our total
number of licensees approximately six-fold. Furthermore, we continue to evaluate and pursue appropriate
acquisition opportunities to the extent we believe that such opportunities would be in the best interests of our
company and our stockholders. This signiﬁcant growth has placed considerable demands on our management and
other resources and continued growth could place additional demands on such resources. Our ability to compete
effectively and to manage future growth, if any, will depend on the sufficiency and adequacy of our current
resources and infrastructure and our ability to continue to identify, attract and retain personnel to manage our
brands and the businesses we may acquire. There can be no assurance that our personnel, systems, procedures and
controls will be adequate to support our operations and properly oversee our brands. The failure to support our
operations effectively and properly oversee our brands could cause harm to our brands and have a material
adverse effect on our brands’ fair values and our business, ﬁnancial condition and results of operations. In
addition, we may be unable to leverage our core competencies in managing apparel brands to managing brands in
new product categories or other businesses we may acquire.

10

Because of the intense competition within our licensees’ markets and the strength of some of their
competitors, we and our licensees may not be able to continue to compete successfully.

Our trademark licenses are for products primarily in the apparel, footwear, eyewear and fashion
accessories markets, in which our licensees face intense competition. In general, competitive factors include
design, quality, price, style, name recognition, service and/or advertising. In addition, changing customer
preferences and the limited availability of shelf space could affect competition for our licensees’ products.
Many of our licensees’ competitors have greater ﬁnancial, distribution, marketing and other resources than our
licensees and have achieved signiﬁcant name recognition for their brands. Our licensees may be unable to
successfully compete in the markets for their products, and we may not be able to continue to compete
successfully with respect to our licensing arrangements.

Our licensees are subject
to risks and uncertainties relating to foreign manufacturing and the price,
availability and quality of raw materials, which could result in interruptions to their operations or increase
their operating costs, thereby affecting their ability to deliver goods to the market, reduce or delay their
sales and decrease our potential royalty revenues.

A signiﬁcant portion of the products sold by our licensees are manufactured overseas. There are
substantial risks associated with foreign manufacturing, including changes in laws relating to quotas, and the
payment of tariffs and duties, ﬂuctuations in foreign currency exchange rates, shipping delays and international
political, regulatory and economic developments. Further, our licensees may experience ﬂuctuations in the
price, availability and quality of fabrics and raw materials used by them in their manufactured apparel or
purchased ﬁnished goods. Any of these risks could increase our licensees’ operating costs. Our licensees also
import ﬁnished products and assume all risk of loss and damage with respect to these goods once they are
shipped by their suppliers. If these goods are destroyed or damaged during shipment, the revenues of our
licensees, and thus our royalty revenues over and above the guaranteed minimum royalty payments, could be
reduced as a result of our licensees’ inability to deliver or their delay in delivering their products.

A substantial portion of our licensing revenue is concentrated with a limited number of licensees and retail
partners, such that the loss of any of such licensees or retail partners could decrease our revenue and
impair our cash ﬂows.

Our two largest licensees accounted for approximately 14% and 12%, respectively, of our total revenue
for the ﬁscal year 2014. In particular, a substantial majority of the licensed products for brands we acquired in
2014 are anticipated to be sold by licensees to Wal-Mart stores. Because we are dependent on these licensees
and retail partners for a signiﬁcant portion of our licensing revenue, if any of them (i) were to have ﬁnancial
difficulties affecting their ability to make payments, (ii) decided not to renew or extend any existing license
agreements or arrangements with us or (iii) signiﬁcantly reduced their sales of these licensed products under
any of these license agreements or arrangements, and we were not able to replace the revenue generated by
such licensees, then our revenue and cash ﬂows could be reduced substantially.

We may not be able to adequately protect our intellectual property rights, which could compromise our
competitive position and decrease the value of our brands.

We own, through our wholly-owned and majority-owned subsidiaries, U.S. federal trademark registrations
and foreign trademark registrations for our brands that are vital to the success and further growth of our business.
In addition, we own domestic, foreign and international intellectual property registrations for the technology and
designs incorporated into Heelys wheeled footwear and Revo eyewear. The loss of or inability to enforce our
proprietary rights could adversely affect our business. For instance, if any third party independently develops
similar products to those marketed and distributed by our licensees or manufactures knock-offs of such products, it
may harm the reputation of our brands, decrease their value and/or cause a decline in our licensees’ sales and thus
our revenues. Additionally,
the laws of foreign countries may provide inadequate protection for intellectual
property rights, making it difficult to enforce such rights in those countries.

We may need to bring legal claims to enforce or protect our intellectual property rights. Any litigation,
whether successful or unsuccessful, could result in substantial costs and diversions of resources and negatively
impact our business operations. In addition, notwithstanding the rights we have secured in our intellectual

11

property, third parties may bring claims against us or our licensees alleging that we or our licensees have
infringed on their intellectual property rights or that our or our licensees’ intellectual property rights are not
valid. Any claims against us or our licensees, with or without merit, could be time consuming and costly to
defend or litigate and therefore could have an adverse effect on our business. In addition, to the extent that
any of our intellectual property assets is deemed to violate the proprietary rights of third parties in any
litigation or proceeding or as a result of any claim, then we and our licensees may be prevented from using it,
which could cause a breach or termination of certain license agreements. If our licensees are prevented from
using our intellectual property, this could adversely impact the revenues of our licensees with respect to those
intellectual property assets, and thus the royalty payments over and above the guaranteed minimum royalty
payments could be reduced as a result of the licensees’ inability to continue using our intellectual property.
Litigation could also result in a judgment or monetary damages being levied against us and our licensees.

We are dependent upon the services of our Chief Executive Officer, Mr. Yehuda Shmidman, and our Chief
Financial Officer, Mr. Gary Klein. If we lose the services of Mr. Shmidman or Mr. Klein, we may not be
able to fully implement our business plan and future growth strategy, which would harm our business and
prospects.

Our success is largely dependent upon the expertise and knowledge of our Chief Executive Officer,
Mr. Yehuda Shmidman, and our Chief Financial Officer, Mr. Gary Klein, whom we rely upon to formulate our
business strategies. Mr. Shmidman’s and Mr. Klein’s leadership and experience in the licensing industry is
important to the successful implementation of our business and marketing strategy. We do not carry key person
life insurance covering any of our executives. The loss of the services of Mr. Shmidman or Mr. Klein could have
a material adverse effect on our business prospects, ﬁnancial condition, results of operations and liquidity.

Our operating results may ﬂuctuate signiﬁcantly.

Management expects that we will experience substantial variations in our revenue and operating results
from quarter to quarter. We believe that the factors which inﬂuence this variability of quarterly results include:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

the timing of the introduction of new licensed products by our licensees;

the level of consumer acceptance of our brands and licensed products;

general economic and industry conditions that affect consumer spending and retailer purchasing;

the availability of viable licensees that meet our brand criteria; and

the timing of marketing expenditures.

As a result of ﬂuctuations in our revenue and operating expenses that may occur, management believes
that period-to-period comparisons of our results of operations are not necessarily a good indication of our
future performance. It is possible that in some future quarter or quarters, our operating results will be below
the expectations of securities analysts or investors. In that case, our stock price could ﬂuctuate signiﬁcantly.

Our business may be negatively impacted by general economic conditions and weakness in the global economy.

Our performance is subject to worldwide economic conditions and their impact on levels of consumer
spending that affect not only the ultimate consumer, but also retailers and distributors, who license our brands.
Consumer spending has ﬂuctuated signiﬁcantly and may become depressed or be subject to deterioration in
the near future. The worldwide apparel and consumer products industries are heavily inﬂuenced by general
economic cycles. Purchases of apparel, footwear, eyewear and accessories tend to decline in periods of
recession or uncertainty regarding future economic prospects, as disposable income declines. Many factors
affect the level of consumer spending in the apparel industry, including, among others, prevailing economic
conditions, levels of employment, salaries and wage rates, the availability of consumer credit, taxation and
consumer conﬁdence in future economic conditions. In addition,
the continued threat of terrorism and
heightened security and military action in response to this threat, or any future acts of terrorism, may cause
disruptions to the economies of the United States and other countries worldwide and create uncertainties that
could depress consumer spending, resulting in a material adverse effect on our business, operating results and
ﬁnancial condition. During periods of recession or economic uncertainty, our licensees may not be able to

12

maintain or increase sales of our branded products to existing customers, make sales to new customers, open
or operate new retail stores or maintain sales levels at existing stores. As a result, our operating results may be
adversely and materially affected by downward trends in the United States or global economy.

Our common stock may not meet the continued listing requirements for NASDAQ, in which case our
common stock could be delisted.

Our common stock began trading on the NASDAQ Stock Market LLC (‘‘NASDAQ’’) on September 24,
2013. NASDAQ requires us to continue to meet certain listing standards, including standards related to our
equity and stock price. There can be no assurance that we will continue to satisfy the requirements for
continued listing on NASDAQ, in which case our common stock could be delisted by NASDAQ. A delisting
of our common stock on NASDAQ would reduce the liquidity and market price of our common stock and the
number of investors willing to hold or acquire our common stock, which could negatively impact our ability
to access the public capital markets.

The market price of our common stock has been, and may continue to be, volatile, which could reduce the
market price of our common stock.

The publicly traded shares of our common stock have experienced, and may continue to experience,
signiﬁcant price and volume ﬂuctuations. This market volatility could reduce the market price of our common
stock, regardless of our operating performance. The trading price of our common stock could also change
signiﬁcantly over short periods of time in response to actual or anticipated variations in our quarterly
operating results, announcements by us, our licensees or our respective competitors, factors affecting our
licensees’ markets generally and/or changes in national or regional economic conditions, making it more
difficult for shares of our common stock to be sold at a favorable price or at all. The market price of our
common stock could also be reduced by general market price declines or market volatility in the future or
future declines or volatility in the prices of stocks for companies in the trademark licensing business or
companies in the industries in which our licensees compete.

Future sales of our common stock may cause the prevailing market price of our shares to decrease. In
addition, the future issuance of common stock may dilute the holdings of our then existing stockholders.

We have issued a substantial number of shares of common stock that are eligible for resale under
Rule 144 (‘‘Rule 144’’) promulgated under the Securities Act of 1933, as amended (the ‘‘Securities Act’’), and
that may become freely tradable. In January 2013 and July 2013, we sold an aggregate of approximately
13.0 million shares of restricted stock in two private placement transactions. Furthermore, (i) in March 2013,
we issued approximately 2.8 million shares of restricted stock in a private placement transaction in connection
with the Brand Matter Acquisition (as deﬁned in Note 6 to our consolidated ﬁnancial statements), (ii) in
May 2014, we issued approximately 0.6 million shares of restricted stock in a private placement transaction in
connection with our acquisition of the remaining 18% interest
in William Rast Sourcing, LLC (‘‘Rast
Sourcing’’) and William Rast Licensing, LLC (‘‘Rast Licensing’’) and (iii) in August 2014, we issued
approximately 13.8 million shares of restricted stock in a private placement transaction in connection with the
Galaxy Acquisition. We subsequently ﬁled a resale shelf registration statement that was declared effective by
the SEC, pursuant to which certain of these shares may be resold in the public market. We have also issued
warrants and options to purchase our common stock. If the holders of our warrants and options choose to
exercise their purchase rights and sell the underlying shares of common stock in the public market or if
the Brand Matter
holders of the shares issued in connection with the private placement
Acquisition or the Galaxy Acquisition decide to sell their shares in the public market, or if the other holders
of the currently restricted shares of our common stock choose to sell such shares in the public market under
Rule 144 or pursuant to an effective registration statement, the prevailing market price for our common stock
may decline. In addition, we may issue additional shares of common stock in connection with acquisitions or
for other business purposes, which could dilute the holdings of our then existing stockholders.

transactions,

13

As a former shell company, resales of shares of our restricted common stock in reliance on Rule 144 are
subject to additional requirements and Rule 144 may not be available at all if we fail to comply with our
reporting obligations.

From time to time we have issued shares of our common stock in transactions exempt from registration
requirements, and such shares are ‘‘restricted securities’’ within the meaning of Rule 144. Rule 144 generally
permits the resale, subject to various terms and conditions, of restricted securities after they have been held
for six months. However, because of our status as a former shell company, Rule 144 is unavailable for the
resale of our restricted common stock unless (i) we have satisﬁed certain reporting requirements under the
Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), for the twelve months preceding the
time of sale, and (ii) at least one year has elapsed since we ﬁled ‘‘Form 10 information’’ with the SEC. We
ﬁled Form 10 information with the SEC in 2005 and, since that date, have satisﬁed our reporting requirements
under the Exchange Act. However, there can be no assurance that future reports or other materials will be
ﬁled as necessary to maintain the availability of the exemption under Rule 144. If we fail to comply with our
reporting obligations under the Exchange Act, Rule 144 will not be available to holders of our restricted
common stock, which may limit the holders’ ability to sell such shares. In addition, because of the on-going
reporting requirements under Rule 144, restrictive legends on certiﬁcates for shares of our common stock
cannot be removed except
to an effective registration
in connection with an actual sale that
statement under, or an applicable exemption from the registration requirements of, the Securities Act.

is subject

We do not foresee paying dividends in the foreseeable future.

We have not paid dividends on our common stock and do not anticipate paying dividends in the
foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing licensing
operations, further develop our brands and ﬁnance the acquisition of additional brands.

We have a signiﬁcant amount of goodwill and other intangible assets, including our trademarks, recorded
on our balance sheet. As a result of changes in market conditions and declines in the estimated fair value
of these assets, we may, in the future, be required to write-down a portion of this goodwill and other
intangible assets and such write-down would, as applicable, either decrease our net income or increase our
net loss.

As of December 31, 2014, goodwill represented approximately $169.8 million, or approximately 32% of
our total consolidated assets, and intangible assets represented approximately $303.0 million, or approximately
58% of our
total consolidated assets. Under current accounting principles generally accepted in the
United States (‘‘GAAP’’), goodwill and indeﬁnite-lived intangible assets are not amortized, but instead are
subject to impairment evaluation based on related estimated fair values, with such testing to be done at least
annually. Our trademarks are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Any write-down of goodwill or intangible assets resulting
from future periodic evaluations would, as applicable, either decrease our net income or increase our net loss
and those decreases or increases could be material.

Our use of certain tax attributes may be limited.

We have signiﬁcant net operating losses (‘‘NOLs’’). A valuation allowance has been provided as of
December 31, 2014 for the entire amount of our deferred income tax assets, which is mainly related to NOL
carryforwards and deﬁnite-lived intangible assets. As of December 31, 2014, we have federal and state NOLs
available to carryforward to future periods of approximately $32.7 million and $64.8 million, respectively. As
more fully described in Note 10 to our consolidated ﬁnancial statements, we issued our variable rate senior
secured convertible debentures due January 31, 2015 (the ‘‘Debentures’’), warrants to purchase our common
stock (the ‘‘TCP Warrants’’) and shares of Series A Preferred Stock to TCP WR Acquisition, LLC (‘‘TCP
WR’’) in February 2012. As a result of TCP WR’s investment,
in February 2012, we experienced an
‘‘ownership change’’ under Section 382 of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’),
limiting our utilization of any NOLs generated through to February 2012 based upon a formula provided
under the Code that
the time of the
ownership change. We experienced a second ownership change in July 2013 as a result of additional
ownership changes. In addition, $5.1 million of these federal NOLs were acquired through the stock

is based on our fair market value and prevailing interest rates at

14

acquisition of Heelys, Inc. and are also subject to a separate limitation under the Code. In August 2014, in
connection with the Galaxy Acquisition, we acquired $6.6 million of NOLs relating to the Galaxy Acquisition
that are also subject to a separate limitation under the Code. An ‘‘ownership change’’ is generally a 50%
increase in ownership over a three-year period by stockholders who directly or indirectly own at
least
ﬁve percent of a company’s stock. The limitations on the use of NOLs could affect our ability to offset future
taxable income.

Certain provisions of our corporate documents could delay or prevent a change of control, even if that
change would be beneﬁcial to stockholders, or could have a material negative impact on our business.

Certain provisions in our amended and restated certiﬁcate of incorporation may have the effect of
deterring transactions involving a change in control of us, including transactions in which stockholders might
receive a premium for their shares. Our amended and restated certiﬁcate of incorporation currently authorizes
150 million shares of common stock to be issued. Based on our outstanding capitalization as of December 31,
2014, and assuming the exercise of all outstanding options and warrants, there is still a substantial number of
shares of common stock available for issuance by the board of directors (the ‘‘Board’’) without stockholder
approval, including shares held in treasury. Our amended and restated certiﬁcate of incorporation also provides
for the issuance of up to 10 million shares of preferred stock, in one or more series, with such designations,
rights and preferences as may be determined from time to time by our Board. The authorization of preferred
shares empowers the Board, without further stockholder approval, to issue preferred shares with dividend,
liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of
the holders of the common stock. If issued, the preferred stock could also dilute the holders of our common
stock and could be used to discourage, delay or prevent a change of control of us.

Our largest stockholders control a signiﬁcant percentage of our common stock and have appointed two
members to our board of directors, which may enable such stockholders, alone or together with our other
signiﬁcant stockholders, to exert inﬂuence over corporate transactions and other matters affecting the rights
of our stockholders.

Tengram Capital Partners Gen2 Fund, L.P. (‘‘Tengram’’) beneﬁcially owns approximately 20.5% and
Carlyle Galaxy Holdings, L.P. (‘‘Carlyle’’) beneﬁcially owns approximately 14.7% of our outstanding shares
of common stock as of March 11, 2015. In addition, the chairman of our Board, Mr. William Sweedler, is a
principal of Tengram, and one member of our Board, Mr. Rodney Cohen, is an appointee of Carlyle. As a
result, Tengram and Carlyle are able to exercise substantial inﬂuence over our Board and matters requiring
stockholder approval, including the election of directors and approval of signiﬁcant corporate actions, such as
mergers and other business combination transactions.

Circumstances may occur in which the interests of these stockholders could be in conﬂict with the
interests of our other stockholders. The voting power of these stockholders could also discourage others from
seeking to acquire control of us, which may affect the market price of our common stock.

Our lenders have rights that are senior to those of our common stockholders.

Payments of the principal and interest under the Loan Agreements entered in connection with the Galaxy
Acquisition are secured by ﬁrst and second priority liens on, and security interests in, substantially all of our
assets. We must make payments under the Loan Agreements before any dividends can be paid on our common
stock and, in the event of our bankruptcy, dissolution or liquidation, the claims of our lenders must be
satisﬁed before any distributions can be made on our common stock. As a result, our common stockholders
would receive distributions only after priority distributions to our lenders are satisﬁed and may receive nothing
in the event of our bankruptcy, dissolution or liquidation.

15

Our business, ﬁnancial condition and results of operations could suffer in the event of security breaches,
cyber-attacks or unauthorized disclosures of personal information.

In conducting their business, including their e-commerce business, our licensees and retail partners obtain
and transmit conﬁdential information about their customers, including credit card information, through their
websites and their information technology systems. While, to the best of our knowledge, our licensees and
retail partners have not experienced any material misappropriation, loss or other unauthorized disclosure of
conﬁdential or personally identiﬁable information as a result of a security breach or cyber-attack, such a
security breach or cyber-attack could adversely affect their business and operations, including damaging their
reputation and their relationships with their customers, exposing them to risks of litigation and liability, all of
which could have a material adverse effect on their ability to meet their minimum net sales requirements and
to make guaranteed minimum royalty payments to us in accordance with the terms of their respective license
agreements. We cannot assure that our licensees and retail partners will not experience any future security
breaches, cyber-attacks or unauthorized disclosures. In addition, as a result of recent security breaches at a
number of prominent retailers, the media and public scrutiny of information security and privacy has become
more intense and the regulatory environment has become more uncertain. As a result, our licensees and retail
partners may incur signiﬁcant costs to comply with laws regarding the protection and unauthorized disclosure
of personal information, which could also negatively impact their ability to meet their minimum net sales
requirements and to make guaranteed minimum royalty payments to us, resulting in a material adverse effect
on our business, ﬁnancial condition and results of operations.

16

Item 1B. Unresolved Staff Comments

None.

Item 2.

Properties

We lease approximately 7,500 square feet of office and corporate space, as well as office equipment, in
New York, New York for our corporate headquarters under a lease agreement that expires on December 31,
2016. We also lease approximately 10,900 square feet of office and showroom space, as well as office
equipment,
that expires on October 31, 2024 and
approximately 320,990 square feet of warehouse facility in Fontana, California under a lease agreement that
expires on November 30, 2016 assumed in connection with the Galaxy Acquisition.

in New York, New York under a lease agreement

We believe that the facilities we utilize are well maintained, in good operating condition and adequate to

meet our current and foreseeable needs.

Item 3.

Legal Proceedings

From time to time, we are involved in legal matters arising in the ordinary course of business. While we
believe that such matters are currently not material, there can be no assurance that matters arising in the
ordinary course of business for which we are, or could be, involved in litigation, will not have a material
adverse effect on our 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 our Company’s lawyers and legal consultants. See also Note 12 to our consolidated ﬁnancial
statements for further discussion of legal proceedings to which we are party.

Item 4.

Mine Safety Disclosures

Not applicable.

17

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities

Common Stock

Effective September 24, 2013, we commenced trading our shares of common stock on NASDAQ under the
trading symbol ‘‘SQBG.’’ Prior to that, our common stock was quoted on the OTCQB over-the-counter market
under the symbol ‘‘SQBG.’’ The following table sets forth, for the periods indicated, the high and low sales prices
for the common stock, as determined from quotations on NASDAQ from September 24, 2013 and the high and
low bid information for the common stock from the OTCQB over-the-counter market through September 23,
2013. The following quotations reﬂect inter-dealer prices, without retail mark-up, mark-down or commission and,
for the bid quotes from the OTCQB over-the-counter market, may not represent actual transactions.

Year Ended December 31, 2014

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter
Second Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31, 2013

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter
Second Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

High

Low

$ 8.69
$13.81
$14.46
$13.11

$ 7.75
$ 6.80
$ 6.03
$ 6.00

$ 5.35
$ 7.85
$12.03
$11.49

$ 4.75
$ 5.45
$ 5.40
$ 5.00

On March 11, 2015, the closing sales price of our common stock as reported on NASDAQ was $9.66 per

share. As of March 11, 2015, there were approximately 371 holders of record of our common stock.

Dividends

Since January 1, 2006, we have not paid or declared cash distributions or dividends on our common
stock. We do not intend to pay cash dividends on our common stock in the near future. We currently intend to
retain all earnings, if and when generated, to ﬁnance our operations. The declaration of cash dividends in the
future will be determined by the Board based upon our earnings, ﬁnancial condition, capital requirements,
contractual obligations which may prohibit the payment of dividends, including our current or any future
indebtedness, and other relevant factors. Our ability to pay dividends on our common stock and repurchase
our common stock is restricted by certain of our current indebtedness and may be restricted or prohibited
under future indebtedness.

18

Equity Compensation Plan

The table below sets

forth the information regarding our equity compensation plans as of

December 31, 2014:

Plan category
Equity compensation plans approved by security
. . . . . . . . . . . . . . . . . . . . . . . . .

holders(1)

Equity compensation plans not approved by

security holders(2)

. . . . . . . . . . . . . . . . . . .

Equity compensation plans not approved by

security holders(3)

. . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Number of securities
to be issued upon
exercise of
outstanding
options, warrants
and rights
(a)

Weighted-average
exercise price
of outstanding
options, warrants
and rights
(b)

Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reﬂected in column (a))
(c)

88,667

226,500

698,160
1,013,327

$8.19

$6.51

$5.01

N/A

1,300,685

N/A
1,300,685

(1) Consists of options to purchase our common stock issued under our 2005 Stock Incentive Plan (the
‘‘2005 Stock Incentive Plan’’). The 2005 Stock Incentive Plan was replaced by the Sequential Brands
Group, Inc. 2013 Stock Incentive Compensation Plan (the ‘‘2013 Stock Incentive Plan’’). No new grants
were granted under the 2005 Stock Incentive Plan since August 2013, when the 2013 Stock Incentive
Plan came into effect.

(2) Consists of options and warrants to purchase our common stock issued under our 2013 Stock Incentive Plan,
pursuant to which an aggregate of 2,500,000 shares have been reserved for issuance. Because we issued
971,815 shares of restricted stock, the number of securities available for future issuance has been reduced.
For a description of our 2013 Stock Incentive Plan, see Note 15 to our consolidated ﬁnancial statements.

(3) Consists of options and warrants to purchase our common stock issued outside of

the equity

compensation plans in connection with certain completed ﬁnancings and acquisitions.

Recent Sales of Unregistered Securities

There were no sales of unregistered securities during the period covered by this Annual Report on
Form 10-K that were not previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on
Form 8-K.

Common Stock Repurchase Programs

We repurchased 75,555 shares of our common stock from employees for tax withholding purposes related
to the vesting of restricted stock. We do not currently have in place a repurchase program with respect to our
common stock.

(a)
Total Number
of Shares
(or Units)
Purchased(1)
3,846
65,187
6,522
75,555

(b)
Average Price
Paid per
Share
(or Unit)
$12.54
$12.59
$13.07

(c)
Total Number
of Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
N/A
N/A
N/A
—

(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet
Be Purchased
Under the
Plans or Programs
N/A
N/A
N/A
—

Period
October 1 − 31 . . . . . . . . . . . . . . . . .
November 1 − 30 . . . . . . . . . . . . . . . .
December 1 − 31 . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .

(1) During the fourth quarter of 2014, 75,555 shares were purchased from employees for tax withholding

purposes related to the vesting of restricted stock.

19

Stock Performance Graph

The following graph compares the yearly percentage change in the cumulative total stockholder return on
our common stock during the period beginning on December 31, 2009 and ending on December 31, 2014
with the cumulative total return on the Standard & Poor’s 500 Composite Index (‘‘S&P 500’’) and a Custom
Peer Group, which includes Carter’s Inc., Cherokee, Inc., Columbia Sportswear Company, Perry Ellis
International, Inc., Guess ? Inc., Hanesbrands, Inc., Iconix Brand Group, Inc., Kate Spade & Co., PVH Corp.
and Xcel Brands Inc. The comparison assumes that $100 was invested on December 31, 2009 in our common
stock, S&P 500 and the Custom Peer Group. The stock performance shown on the graph should not be
considered indicative of future performance.

Comparison of Cumulative Five Year Total Return
Among Sequential Brands Group, Inc., the S&P 500 index,
and a Custom Peer Group 

$500

$400

$300

$200

$100

$0

2009

2010

2011

2012

2013

2014

Sequential Brands Group, Inc.

S&P 500 Index

Peer Group

20

Item 6.

Selected Financial Data

The following table presents our selected historical ﬁnancial data for the periods indicated. The selected
historical ﬁnancial data has been derived from our audited consolidated ﬁnancial statements referred to under
Item 8 of this Annual Report on Form 10-K. The following selected historical ﬁnancial data should be read in
conjunction with the consolidated ﬁnancial statements and notes thereto that appear elsewhere in this Annual
Report on Form 10-K and in ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ set forth in Item 7 of this Annual Report on Form 10-K.

Consolidated Income Statement Data:
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations. . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations . . . . . . . . . . . . . . . . . . . . .

Loss from discontinued operations:

Loss from discontinued operations of wholesale business,

Years Ended December 31,
2014
2013
(in thousands, except share and per share data)

2012

$

$

41,837
29,806
12,031
(646)

22,653
16,845
5,808
(11,142)

$

5,274
11,812
(6,538)
(7,394)

net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

(6,244)

(985)

Loss from discontinued operations of retail subsidiary,

net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . . . . .
Consolidated net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interest . . . . .
Net loss attributable to Sequential Brands Group, Inc. and

Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic and diluted loss per share:

Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .
Attributable to Sequential Brands Group, Inc. and

—
—
(646)
(422)

—
(6,244)
(17,386)
(588)

(1,068)

$

(17,974)

$

(0.04)
—

(0.66)
(0.35)

$

$

Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(0.04)

$

(1.01)

(795)
(1,780)
(9,174)
49

(9,125)

(3.04)
(0.74)

(3.78)

$

$

$

Basic and diluted weighted average common shares

outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,964,604

17,713,140

2,413,199

Consolidated Balance Sheet Data:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital (deﬁciency) from continuing operations . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, including current portion . . . . . . . . . . . . .
Total equity (deﬁcit) . . . . . . . . . . . . . . . . . . . . . . . . . . .

2014

$ 22,521
23,584
303,039
526,363
175,500
264,900

December 31,
2013
(in thousands)

$ 25,125
17,745
115,728
153,605
57,931
81,169

2012

$2,624
(524)
4,293
8,977
3,502
(48)

21

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with our consolidated ﬁnancial statements
and the notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion summarizes the
signiﬁcant factors affecting our consolidated operating results, ﬁnancial condition and liquidity and cash ﬂows
for the ﬁscal year ended December 31, 2014. Except for historical information, the matters discussed in this
Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking
statements that involve risks and uncertainties and are based upon judgments concerning various factors that
are beyond our control.

Licensing and Brand Management Business

We own a portfolio of consumer brands in the fashion, active and lifestyle categories. 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. Currently, the majority of our revenues
are from license agreements with stipulated distribution territories in the United States, but we intend to
increase the monetization of our trademarks internationally through additional licenses, partnerships, and other
arrangements. In our licensing agreements, our licensing partners are primarily responsible for designing,
manufacturing and distributing our licensed products, subject
to our continued oversight and marketing
support. Our business model allows us to focus on our core competencies of marketing and managing brands
without many of the risks and investment requirements associated with a traditional operating company.

Our license agreements with leading retail and wholesale licensees provide us with a predictable stream
of guaranteed minimum royalty payments. As of January 2015, we have contractual rights to receive from all
of our licensees approximately $188.9 million in aggregate minimum royalty revenue through the balance of
the current terms of such licenses, excluding any renewals.

As of December 31, 2014, we had more than 75 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.

Overview of 2014 Events

Acquisition of Galaxy Brand Holdings, Inc.

On August 15, 2014, we consummated transactions pursuant to the agreement and plan of merger, dated
as of June 24, 2014 (the ‘‘Galaxy Merger Agreement’’) with SBG Universe Brands LLC, a Delaware limited
liability company and our direct wholly-owned subsidiary (‘‘LLC Sub’’), Universe Galaxy Merger Sub, Inc., a
Delaware corporation and direct wholly-owned subsidiary of LLC Sub, Galaxy and Carlyle (such transactions,
In connection with the Galaxy Acquisition, we acquired four
collectively the ‘‘Galaxy Acquisition’’).
consumer brands including the ﬁtness brand Avia, basketball brand AND1, outdoor brand Nevados and home
goods brand Linens ‘N Things for an aggregate purchase price consisting of (i) $100.0 million of cash, subject
to adjustment as set forth in the Galaxy Merger Agreement (which resulted in additional payments of
approximately $4.7 million of cash), (ii) 13,750,000 shares of our common stock and (iii) warrants to
purchase an aggregate of up to 3,000,000 additional shares of our common stock, subject to the terms and
conditions set forth in the Galaxy Merger Agreement.

The warrants are exercisable for an aggregate of up to an additional 3,000,000 shares (the ‘‘Warrant
Shares’’) of our common stock, with an exercise price of $11.20 per share based upon the performance of the
Linens ‘N Things brand following the closing. Speciﬁcally, (i) if the Linens ‘N Things brand generates net
royalties equal to or in excess of $10.0 million in calendar year 2016, 500,000 Warrant Shares will vest, (ii) if
the Linens ‘N Things brand generates net royalties equal to or in excess of $15.0 million in calendar year
2016, an additional 1,000,000 Warrant Shares will vest, (iii) if the Linens ‘N Things brand generates net
royalties equal to or in excess of $10.0 million in calendar year 2017, 500,000 Warrant Shares will vest, and

22

(iv) if the Linens ‘N Things brand generates net royalties equal to or in excess of $15.0 million in calendar
year 2017, an additional 1,000,000 Warrant Shares will vest. There can be no assurance that any or all of the
Warrant Shares will vest, as we do not currently derive any royalties from the Linens ‘N Things brand. On the
closing date of the Galaxy Acquisition, no value was assigned to the Warrant Shares based on the remote
probability that the Linens ‘N Things brand will achieve these performance measurements. We continue to
evaluate these performance measurements for each reporting period and determine their fair value if/when the
achievement of such performance measurements becomes probable.

In connection with the Galaxy Acquisition, we and the stockholder representative, on behalf of the former
Galaxy stockholders and optionholders, entered into a registration rights agreement, dated as of August 15,
2014 (the ‘‘Galaxy Registration Rights Agreement’’), which grants the stockholder representative, on behalf of
former Galaxy stockholders and optionholders, customary registration rights with respect to certain shares of
our common stock and the warrants (including the shares of common stock underlying such warrants) issued
pursuant to the Galaxy Merger Agreement, including ‘‘demand’’ registration rights for up to three offerings of
greater than $10.0 million and ‘‘piggyback’’ registration rights with respect to such securities. The registration
rights granted pursuant to the Galaxy Registration Rights Agreement are in addition to our obligation to ﬁle a
registration statement with respect to such securities as promptly as practicable after the closing date of the
Galaxy Acquisition. Pursuant to the Galaxy Registration Rights Agreement, we ﬁled a resale registration
statement on Form S-3 relating to the resale of up to (i) 14,331,341 shares of our common stock, (ii) warrants
to purchase up to 3,000,000 additional shares of our common stock, subject to adjustment for stock splits,
stock dividends or similar transactions, at an exercise price of $11.20 per share, and (iii) 3,000,000 Warrant
Shares, subject
issuable upon the
exercise of the warrants. The resale registration statement on Form S-3 was declared effective by the SEC on
September 16, 2014. In addition, pursuant to the Galaxy Merger Agreement, Mr. Matthew Eby tendered his
resignation as our Class II director and Mr. Rodney Cohen was appointed to serve as our Class II director to
ﬁll the vacancy created by the resignation.

to adjustment for stock splits, stock dividends or similar transactions,

In connection with the Galaxy Acquisition, we entered into the First Lien Credit Agreement, which
provides for a term loan of up to $75.0 million, a revolving credit facility of up to $25.0 million and a swing
line sub-facility of up to $10.0 million, and the Second Lien Credit Agreement, which provides for a term
loan of up to $90.0 million. In addition, the First Lien Credit Agreement provides for incremental borrowings
of up to $60.0 million, to be allocated pro rata between the term loan and the revolving credit facility, and the
Second Lien Credit Agreement provides for incremental borrowings of up to $70.0 million for the purpose of
consummating permitted acquisitions, in each case subject to certain customary conditions. On August 15,
2014, $75.0 million was drawn as a term loan under the First Lien Credit Agreement and $90.0 million was
drawn as a term loan under the Second Lien Credit Agreement (together, the ‘‘New Term Loans’’) and
$15.0 million was drawn as a revolving loan under the First Lien Credit Agreement (the ‘‘Revolving Loan’’).
The proceeds from the New Term Loans and the Revolving Loan were primarily used to ﬁnance the Galaxy
Acquisition pursuant
to repay our existing indebtedness,
including the Legacy Term Loans (as deﬁned in Note 10 to our consolidated ﬁnancial statements), and to pay
fees and expenses in connection with the foregoing. We expect to use the proceeds from any additional
borrowings under the revolving credit facility of the First Lien Credit Agreement for working capital, capital
expenditures and other general corporate purposes, and the proceeds from any borrowings under any
incremental facilities for working capital purposes and/or for permitted acquisitions.

to the terms of the Galaxy Merger Agreement,

Term loan borrowings under the First Lien Credit Agreement are subject to amortization of principal
(x) on September 30, 2014, in an amount equal to $1.5 million and (y) thereafter, quarterly, in equal amounts
of $3.0 million and will mature on August 15, 2019. Borrowings under the First Lien Credit Agreement bear
interest at London Interbank Offered Rate (‘‘LIBOR’’) or a base rate, plus, in each case, an applicable margin
that ﬂuctuates from 3.50% to 3.75% for LIBOR loans and from 1.50% to 1.75% for base rate loans, in each
case based on our loan to value ratio, as described in the First Lien Credit Agreement.

The Second Lien Credit Agreement is not subject to amortization and will mature on August 15, 2020.
Borrowings under the Second Lien Credit Agreement will bear interest at LIBOR plus 8.00% and will be
subject to a LIBOR ﬂoor of 1.00%.

23

Loans under the First Lien Credit Agreement are voluntarily prepayable from time to time in whole or in
part and loans under the Second Lien Credit Agreement are voluntarily prepayable after August 15, 2015, in
whole or in part, subject in certain cases to the payment of customary ‘‘breakage’’ costs with respect to
LIBOR-based borrowings and prepayment premiums as provided in the respective Loan Agreements.
Mandatory prepayments of the loans under the Loan Agreements are required (x) in the case of any
dispositions of intellectual property, 50% of the orderly liquidation value thereof, (y) in the case of any other
dispositions, 100% of the net proceeds thereof and (z) at each ﬁscal year end, in the amount of 30% of our
and our subsidiaries’ Consolidated Excess Cash Flow (as deﬁned in the Loan Agreements), in each case
subject to certain exceptions set forth in the Loan Agreements.

Our obligations under the Loan Agreements are guaranteed jointly and severally by each of our domestic
subsidiaries (each a ‘‘Guarantor’’ and, collectively, the ‘‘Guarantors’’), other than Immaterial Subsidiaries (as
deﬁned in the Loan Agreements) and certain other excluded subsidiaries and subject
to certain other
exceptions set forth in the Loan Agreements and the related guarantees (such guarantees provided by the
Guarantors, the ‘‘Guarantees’’). Our and the Guarantors’ obligations under the Loan Agreements and the
Guarantees are, in each case, secured by ﬁrst priority liens (subject, in the case of the Second Lien Credit
Agreement, to the liens under the First Lien Credit Agreement) on, and security interests in, substantially all
of our and each Guarantor’s present and after acquired assets subject to certain customary exceptions.

In connection with the First Lien Credit Agreement and the Second Lien Credit Agreement, Bank of
America, N.A., as the administrative agent, under the First Lien Credit Agreement, and Wilmington Trust,
National Association, as the administrative agent under the Second Lien Credit Agreement, entered into the
intercreditor agreement, dated as of August 15, 2014 (the ‘‘Intercreditor Agreement’’), which was
acknowledged by us and the Guarantors. The Intercreditor Agreement establishes various inter-lender terms,
limited to, priority of liens, permitted actions by each party, application of proceeds,
including, but not
exercise of remedies in the case of a default, incurrence of additional indebtedness releases of collateral and
limitations on the amendment of respective Loan Agreements without consent of the other party.

Acquisition of Remaining Ownership Interest in Rast Sourcing and Rast Licensing

On May 5, 2014, we entered into a merger agreement (the ‘‘Tennman Merger Agreement’’) with
Tennman WR-T, Inc., a Delaware corporation (‘‘Tennman WR-T’’), pursuant
to which we acquired the
remaining 18% interest in Rast Sourcing and Rast Licensing for an aggregate purchase price consisting of
(i) approximately $3.1 million of cash and (ii) 581,341 shares of our common stock, valued at approximately
$5.0 million. Shares of our common stock issued as part of the consideration pursuant to the Tennman Merger
Agreement were issued in a private placement
to Section 4(a)(2) of the
Securities Act.

transaction conducted pursuant

Acquisition of FUL

On November 17, 2014, we made a strategic investment

in FUL IP Holdings, LLC (‘‘FUL IP’’).
FUL IP is a collaborative investment between us and JALP, LLC (‘‘JALP’’). FUL IP was formed for the
purpose of licensing the FUL trademark to third parties in connection with the manufacturing, distribution,
marketing and sale of FUL branded bags, backpacks, duffels,
luggage and apparel accessories. JALP
contributed the FUL trademark with a fair value of approximately $8.9 million. In exchange for a 50.5%
economic interest in FUL IP we paid JALP $4.5 million in cash. One of our directors, Mr. Al Gossett, has a
partial ownership interest in JALP. JALP’s minority member interest is controlled by Justin Timberlake. In
connection with the formation of FUL IP, we and JALP entered into a limited liability company operating
agreement of FUL IP on November 17, 2014 (the ‘‘FUL IP Operating Agreement’’). Subject
to certain
exceptions, the FUL IP Operating Agreement provides that we have the right to manage, control and conduct
the business affairs of FUL IP. The FUL IP Operating Agreement provides that we will receive 50.5% of the
distributions and allocation of net proﬁts and losses and distributable assets upon dissolution of FUL IP.
JALP’s minority member interest in FUL IP has been reﬂected as noncontrolling interest on our consolidated
balance sheet at December 31, 2014.

The FUL brand offers bags, backpacks and travel gear with a promise to create quality bags with a
fashion edge. Licensees for the FUL brand include Concept One Accessories for bags, backpacks and travel
gear. The FUL brand is offered through Target, Costco and other retailers in the United States.

24

Conversion of the Warrants

On December 8, 2014, TCP WR exercised the TCP Warrants to acquire 1,104,762 shares of our common
stock (the ‘‘TCP Warrant Exercise’’) at an exercise price of $2.63 per share for an aggregate exercise price of
$2.9 million.

Recently Issued Accounting Standards

the

revenue

recognition requirements

in Topic 605, Revenue Recognition,

In May 2014, the Financial Standards Accounting Board (the ‘‘FASB’’) issued Accounting Standards
Update (‘‘ASU’’) No. 2014-09, Revenue from Contracts with Customers (‘‘ASU 2014-09’’). ASU 2014-09
provides guidance for revenue recognition and affects any entity that either enters into contracts with
customers to transfer goods or services or enters into contracts for the transfer of nonﬁnancial assets and
and most
supersedes
industry-speciﬁc guidance. The core principle of ASU 2014-09 is the recognition of revenue when a company
transfers promised goods or services to customers in an amount that reﬂects the consideration to which the
company expects to be entitled in exchange for those goods or services. ASU 2014-09 deﬁnes a ﬁve-step
process to achieve this core principle and, in doing so, companies will need to use more judgment and make
more estimates than under the current guidance. These may include identifying performance obligations in the
contract, estimating the amount of variable consideration to include in the transaction price and allocating the
transaction price to each separate performance obligation. ASU 2014-09 is effective for ﬁscal years beginning
after December 15, 2016 and interim periods therein, using either of the following transition methods: (i) a
full retrospective approach reﬂecting the application of the standard in each prior reporting period with the
option to elect certain practical expedients or (ii) a retrospective approach with the cumulative effect of
initially adopting ASU 2014-09 recognized at
the date of adoption (which includes additional footnote
disclosures). Early adoption is not permitted. We are currently evaluating the method and impact the adoption
of ASU 2014-09 will have on our consolidated ﬁnancial statements and disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Compensation — Stock Compensation (Topic 718):
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could
be Achieved after the Requisite Service Period (‘‘ASU 2014-12’’). ASU 2014-12 affects entities that grant
their employees stock-based payments in which terms of the award provide that a performance target that
affects vesting could be achieved after the requisite service period. The amendments in ASU 2014-12 require
that a performance target that affects vesting and that could be achieved after the requisite service period is
treated as a performance condition. ASU 2014-12 is effective for ﬁscal years beginning after December 15,
the adoption of
2015. Early adoption is permitted. We are currently evaluating the method and impact
ASU 2014-12 will have on our consolidated ﬁnancial statements and disclosures.

Critical Accounting Policies, Judgments and Estimates

The preparation of our 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. On an on-going basis, we evaluate our estimates and judgments. 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.

A description of signiﬁcant accounting policies that require us to make estimates and assumptions in the

preparation of our consolidated ﬁnancial statements is as follows:

Revenue Recognition. We have entered into various license agreements that provide revenues based on
guaranteed minimum royalty payments and advertising/marketing fees and additional revenues based on

25

a percentage of deﬁned sales. Guaranteed minimum royalty payments and advertising/marketing revenue are
recognized on a straight-line basis over the term of each contract year, as deﬁned, in each license agreement.
Royalty payments exceeding the guaranteed minimum royalty payments are recognized as income during the
period corresponding to the licensee’s sales. Payments received as consideration of the grant of a license are
recorded as deferred revenue at the time payment is received and recognized ratably as revenue over the term
of the license agreement. 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. If license agreements are terminated prior to the original licensing period, we will recognize revenue
for any contractual termination fees, unless such amounts are deemed non-recoverable.

tests if an event occurs or circumstances change that

Impairment of Long-Lived Assets and Intangibles. Long-lived assets, representing trademarks, customer
agreements, a favorable lease and patents related to our brands, 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) and between
annual
the carrying amount of the
indeﬁnite-lived
indeﬁnite-lived intangible asset may not be recoverable. When conducting our annual
intangible asset impairment assessment, we initially perform 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
the asset for recoverability.
Recoverability of indeﬁnite-lived intangible assets to be held and used is measured by a comparison of the
carrying amount of such asset to future discounted 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.

the indeﬁnite-lived intangible asset

is impaired, we then test

indicate that

that

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) 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. We consider our market capitalization and the carrying value of our assets and liabilities,
including goodwill, when performing our goodwill impairment test. When conducting our annual goodwill
impairment assessment, we initially perform 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, we then apply a two-step impairment test. The two-step impairment test ﬁrst compares
the fair value of our 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 we are not required to perform further testing. If the carrying
value of the reporting unit exceeds its fair value, we determine 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 statement of operations.

Income Taxes. We are required to determine the aggregate amount of income tax expense or loss based
upon tax statutes in jurisdictions in which we conduct business. In making these estimates, we adjust our
results determined in accordance with generally accepted accounting principles for items that are treated
differently by the applicable taxing authorities. Deferred tax assets and liabilities, as a result of these
differences, are reﬂected on our consolidated balance sheet for temporary differences in loss and credit
carryforwards that will reverse in subsequent years. We also establish a valuation allowance against deferred
tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized.
Valuation allowances are based, in part, on predictions that management must make as to our results in future
periods. The outcome of events could differ over time which would require that we make changes in our
valuation allowance.

We applied the guidance under Accounting Standards Codiﬁcation (‘‘ASC’’) Topic 740, Income Taxes, as
it relates to uncertain tax positions. The implementation of this guidance did not have a signiﬁcant effect on
our accounting and disclosures for income taxes. At December 31, 2014 and 2013, we have certain
unrecognized tax beneﬁts,
long-term liabilities held for disposition from
discontinued operations of wholesale operations subsidiary, and do not expect a material change in the
twelve months following December 31, 2014. Interest and penalties related to uncertain tax positions, if any,

included as a component of

26

are reported in income tax expense. Tax years that remain open for assessment for federal and state tax
purposes include years ended December 31, 2011 through 2014.

Stock-Based Compensation. We account

stock-based compensation under ASC Topic 718,
Compensation — Stock Compensation, which requires companies to measure and recognize compensation
expense for all stock-based payments at fair value.

for

We are also required to apply accounting principles with respect to accounting for complex ﬁnancing
transactions that we have consummated in order to ﬁnance the growth of our business. These transactions,
which generally consist of convertible debt and equity instruments, including warrants, require us to use
signiﬁcant judgment in order to assess the fair values of these instruments at their dates of issuance, which is
critical to making a reasonable presentation of our ﬁnancing costs and how we ﬁnance our business.

Contingent Consideration. We recognize the acquisition-date fair value of contingent consideration as
part of the consideration transferred in exchange for the acquiree or assets of the acquiree in a business
combination. The contingent consideration is classiﬁed as either a liability or equity in accordance with
ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. If classiﬁed as a liability, the liability is remeasured to fair value at each subsequent reporting date
until the contingency is resolved. Increases in fair value are recorded as losses, while decreases are recorded
as gains. If classiﬁed as equity, contingent consideration is not remeasured and subsequent settlement is
accounted for within equity.

Results of Operations

Comparison of the Years Ended December 31, 2014 and 2013

The following table sets forth,

for

the periods indicated, consolidated statements of operations

information:

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . .
Consolidated net loss . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest . . . . .
Net loss attributable to Sequential Brands Group, Inc.

Years Ended
December 31,

2014

2013

Change
(Dollars)

Change
(Percentage)

(in thousands, except percentages)

$41,837
29,806
12,031
5
9,746
2,290
2,936
(646)
—
(646)
(422)

$ 22,653
16,845
5,808
488
15,589
(9,293)
1,849
(11,142)
(6,244)
(17,386)
(588)

$19,184
12,961
6,223
(483)
(5,843)
11,583
1,087
10,496
6,244
16,740
166

84.7%
76.9%
107.1%
-98.9%
-37.5%
-124.6%
58.8%
-94.2%
100.0%
96.3%
-28.2%

and Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . .

$ (1,068)

$(17,974)

$16,906

94.1%

The increase in net revenue for the year ended December 31, 2014 as compared to the year ended
December 31, 2013 is primarily attributable to the acquisition of the Avia and AND1 brands on August 15,
2014 and the acquisition of several new brands during 2013 that did not
the full year ended
December 31, 2013 and a signiﬁcant increase in the number of our licensees as a result of these acquisitions.
Net revenue for the year ended December 31, 2014 consists primarily of licensing revenue earned from our
license agreements relating to the Ellen Tracy, William Rast, Revo, Caribbean Joe, Heelys, DVS, The Franklin
Mint and People’s Liberation brands, four and a half months of revenue related to the Avia, AND1 and
Nevados brands, which were acquired on August 15, 2014, and one and a half months of revenue related to
the FUL brand, which was acquired on November 17, 2014. Net revenue for the year ended December 31,
2013 consists of license revenue earned only from our license agreements related to our Ellen Tracy, William

impact

27

Rast, Caribbean Joe, DVS, Heelys, Revo, The Franklin Mint 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 year ended December 31,
2013 includes only eleven months of revenue related to the Heelys brand, which was acquired on January 24,
2013, nine months of revenue related to the Ellen Tracy and Caribbean Joe brands which were acquired on
March 28, 2013, ﬁve months of revenue related to the Revo brand which was acquired on August 2, 2013 and
two months of revenue from The Franklin Mint brand, which was acquired on November 1, 2013.

Operating expenses increased approximately $13.0 million for the year ended December 31, 2014 as
compared to the year ended December 31, 2013. The primary drivers for this increase included deal costs,
stock-based compensation expense, advertising expenses and professional
fees. During the year ended
December 31, 2014, we incurred deal costs of approximately $7.7 million primarily in connection with the
Galaxy Acquisition, as compared to approximately $4.9 million of deal costs recognized in the comparable
period of 2013 primarily in connection with the acquisitions of Ellen Tracy, Caribbean Joe, Heelys, Revo and
The Franklin Mint brands. We also incurred approximately $0.6 million of settlement and legal costs related
to a pre-acquisition litigation matter in which B(cid:5)and Matter, LLC was named as a party during the year ended
December 31, 2014. In addition, we incurred a $0.9 million write-off of JC Penney ﬁxturing for the William
Rast business that terminated and relaunched exclusively with Lord & Taylor. Stock-based compensation
expense increased approximately $1.1 million due to stock grants that were issued during 2014, recording a
full year of expense for stock grants issued in 2013 that did not have a full year of expense in the prior year
together with additional expenses incurred to mark-to-market stock granted to consultants. With the acquisition
of new brands and our
increased marketing presence, advertising expense increased approximately
$4.0 million over the prior period. Our headcount has also increased over the comparable period, which led to
an increase in payroll expense of approximately $1.5 million. Professional fees increased approximately
$1.0 million over the prior year primarily due to additional legal and consulting fees.

Other income for the year ended December 31, 2013 mainly represents a settlement of outstanding

accounts receivable deemed uncollectible at the time we acquired the DVS brand in June 2012.

Interest expense during the year ended December 31, 2014 includes interest incurred on our Legacy Term
Loans which were repaid on August 15, 2014, interest incurred under our Loan Agreements entered into on
August 15, 2014 and interest rate swap of approximately $7.2 million. Also included in interest expense is
non-cash interest related to the accretion of the recorded discount associated with the warrants issued in
connection with the Legacy Term Loans of approximately $1.1 million, of which approximately $0.9 million
was written off due to the Legacy Term Loans being repaid on August 15, 2014, and non-cash interest related
to the amortization of deferred ﬁnancing costs and annual fees of approximately $1.5 million associated with
the Loan Agreements and the Legacy Term Loans, of which approximately $0.7 million was written off due to
the Second Lien Loan Agreement being repaid.

Interest expense during the year ended December 31, 2013 resulted primarily from the election by TCP WR,
in connection with the Brand Matter Acquisition, to convert the aggregate principal amount outstanding under the
Debentures into shares of our common stock at a conversion price of $2.63 per share, as adjusted for the reverse
stock split (the ‘‘TCP Conversion’’), as more fully described in Note 10 to our consolidated ﬁnancial statements.
As a result of the TCP Conversion, the remaining unamortized discount of approximately $11.0 million recorded
in connection with the beneﬁcial conversion feature and the TCP Warrants issued in connection with the
Debentures, as well as the remaining unamortized balance of deferred ﬁnancing costs of approximately
$0.6 million, were recognized as non-cash interest expense. Additionally, interest expense during the year ended
December 31, 2013 includes interest inc urred on our Legacy Term Loans of approximately $3.4 million, as well
as non-cash interest related to the accretion of the discount recorded associated with the warrants issued with the
Legacy Term Loans of approximately $0.2 million, and non-cash interest related to the amortization of deferred
ﬁnancing costs of approximately $0.3 million associated with the Legacy Term Loans, as more fully described in
Note 10 to our consolidated ﬁnancial statements.

The provision for income taxes for the year ended December 31, 2014 and 2013 represents the non-cash
deferred tax expense created by the amortization of certain acquired trademarks for tax but not book purposes.

The loss from discontinued operations for the year ended December 31, 2013 is primarily attributable to
the wind down costs associated with the Heelys, Inc. legacy operating business, as a result of our decision to

28

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 year ended December 31, 2014 and 2013

represents net income allocations to Elan Polo, a member of DVS Footwear International, LLC.

Comparison of the Years Ended December 31, 2013 and 2012

The following table sets forth,

for

the periods indicated, consolidated statements of operations

information:

Net revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations. . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . .
Consolidated net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interest . .
Net loss attributable to Sequential Brands Group, Inc.

Years Ended
December 31,

2013

2012

Change
(Dollars)

Change
(Percentage)

(in thousands, except percentages)

$ 22,653
16,845
5,808
488
15,589
(9,293)
1,849
(11,142)
(6,244)
(17,386)
(588)

$ 5,274
11,812
(6,538)
—
829
(7,367)
27
(7,394)
(1,780)
(9,174)
49

$17,379
5,033
12,346
488
14,760
(1,926)
1,822
(3,748)
(4,464)
(8,212)
(637)

329.5%
42.6%
-188.8%
N/A
1780.5%
26.1%
6748.1%
50.7%
250.8%
89.5%
-1300.0%

and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(17,974)

$ (9,125)

$ (8,849)

97.0%

The increase in net revenue for the year ended December 31, 2013, compared to the year ended
December 31, 2012 is primarily attributable to the acquisition of several new brands during 2013 and a
signiﬁcant increase in the number of our licensees as a result of these acquisitions. Net revenue for the year
ended December 31, 2013 consists primarily 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 year ended December 31, 2013 includes eleven months of revenues related to our
Heelys brand, as this brand was acquired on January 24, 2013, nine months of license revenue from our Ellen
Tracy and Caribbean Joe brands, as these brands were acquired on March 28, 2013, ﬁve months of license
revenue from our Revo brand, as this brand was acquired on August 2, 2013, and two months of revenue from
The Franklin Mint brand, as this brand was acquired on November 1, 2013. Net revenue for the year ended
December 31, 2012 includes license revenue earned only from our license agreements related to our William
Rast, DVS 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 year ended December 31, 2012 only include six months of revenues related to
our DVS brand, as this brand was acquired on June 28, 2012.

Our expense structure for the years ended December 31, 2013 and 2012 is not representative of what we
expect our normalized brand management and licensing business to be in the future as it includes a large
amount of acquisition costs. Of the total operating expenses of approximately $16.9 million for the year ended
December 31, 2013, approximately $4.9 million are related to acquisition costs and approximately
$12.0 million are related to the day-to-day activities of our Company. Recurring operating expenses of
$12.0 million primarily consist of cash-based compensation of approximately $3.3 million, professional fees of
approximately $2.2 million, advertising expenses of approximately $1.6 million, stock-based compensation
expense of approximately $1.1 million, royalty expenses incurred under our agreement with Tennman WR-T
of approximately $0.9 million, travel and other travel-related expenses of approximately $0.6 million and
depreciation and amortization of approximately $0.6 million.

Of the total operating expenses of approximately $11.8 million for year ended December 31, 2012,
approximately $2.9 million is related to one-time termination beneﬁts, ﬁxed asset impairment charges and

29

lease termination costs in connection with transitioning our licensing operations from Los Angeles, California
to New York, New York, approximately $2.7 million is related to acquisition costs, approximately $0.7 million
is related to restricted stock compensation granted in connection with the commencement of employment of
our new executive team, and approximately $5.6 million is related to the day-to-day activities of our
Company. Recurring operating expenses of approximately $5.6 million primarily consist of compensation of
approximately $1.6 million, professional fees of approximately $1.2 million, royalty expenses incurred under
our agreement with Tennman WR-T of approximately $0.9 million, advertising expenses of approximately
$0.6 million and depreciation and amortization of approximately $0.3 million.

The increase in compensation and professional fees from 2012 to 2013 reﬂects the investment in our
headcount and professional support needed to implement our business model and support our acquired brands,
as well as public company related costs. Advertising expense mainly increased as a result of the brands
acquired during 2013. The increase resulted from higher costs incurred to partner with our licensees to
promote our new and existing brands and brand related products. The increase in depreciation and
amortization is mainly attributable to the amortization of deﬁnite-lived intangible assets acquired during 2013.

Other income for the year ended December 31, 2013 mainly represents a settlement of outstanding

accounts receivable deemed uncollectible at the time we acquired the DVS brand in June 2012.

Interest expense during the year ended December 31, 2013 resulted primarily from the TCP Conversion,
as more fully described in Note 10 to our consolidated ﬁnancial statements. As a result of
the
TCP Conversion, the remaining unamortized discount of approximately $11.0 million 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 approximately $0.6 million, were recognized
as non-cash interest expense. Additionally, interest expense during the year ended December 31, 2013 includes
interest incurred on our Legacy Term Loans of approximately $3.4 million, as well as non-cash interest related
to the accretion of the discount recorded associated with the warrants issued with the Legacy Term Loans of
approximately $0.2 million, and non-cash interest related to the amortization of deferred ﬁnancing costs of
approximately $0.3 million associated with the Legacy Term Loans, as more fully described in Note 10 to our
consolidated ﬁnancial statements.

Interest expense for the year ended December 31, 2012 resulted primarily from interest due on our
promissory notes payable in the aggregate principal amount of approximately $1.8 million through the date of
their repayment on February 3, 2012, interest at a rate of LIBOR on the Debentures and non-cash interest
related to the accretion of the valuation discount and amortization of deferred ﬁnancing costs associated with
the Debentures.

The provision for income taxes as of December 31, 2013 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 for the year ended December 31, 2012 mainly
represents the minimum tax payments due for state and local purposes, including gross receipts tax on sales
generated by our limited liability companies, and estimated federal and state taxes due at statutory effected tax
rates, if any.

The loss from discontinued operations for the year ended December 31, 2013 is primarily attributable to
the wind down costs associated with the Heelys, Inc. legacy operating business, as a result of our decision to
discontinue our wholesale business related to the Heelys brand. As of December 31, 2013, these costs mainly
fees. The loss from
represent severance expense,
discontinued operations for the year ended December 31, 2012 is primarily attributable to the wind-down of
the wholesale business related to our People’s Liberation and William Rast branded products and our retail
operations.

lease termination costs and professional and other

Noncontrolling interest from continuing operations for the years ended December 31, 2013 and 2012

represents net (income) loss allocations to Elan Polo, a member of DVS Footwear International, LLC.

30

Liquidity and Capital Resources

Liquidity

As of December 31, 2014, our continuing operations had cash of approximately $22.5 million, a working
capital balance of approximately $23.6 million and outstanding debt obligations under the Loan Agreements of
$175.5 million. As of December 31, 2013, our continuing operations had cash of approximately $25.1 million,
a working capital balance of approximately $17.7 million and outstanding debt obligations under the Legacy
Term Loans of approximately $57.9 million. Working capital
is deﬁned as current assets minus current
liabilities, excluding restricted cash and discontinued operations. We believe that cash from 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. See Notes 10, 19
and 20 to our consolidated ﬁnancial statements for a description of certain prior ﬁnancings consummated
by us.

Cash Flows from Continuing Operations

Cash ﬂows from continuing operations for operating, ﬁnancing and investing activities for the years

ended December 31, 2014, 2013 and 2012 are summarized in the following table:

Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net (decrease) increase in cash from continuing

2014

Years Ended December 31,
2013
(in thousands)
$

2012

$ (2,154)
(113,259)
113,810

880
(92,038)
118,097

$ (4,503)
(4,972)
14,030

operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (1,603)

$ 26,939

$ 4,555

Operating Activities

Net cash used in operating activities from continuing operations was approximately $2.2 million for the
year ended December 31, 2014 as compared to net cash provided by operating activities of approximately
$0.9 million for the year ended December 31, 2013. Net non-cash expenses of approximately $9.2 million
loss of approximately $0.7 million and changes in operating assets and
offset by our consolidated net
liabilities that used approximately $10.7 million in cash for the year ended December 31, 2014 were the main
factors contributing to the net cash used in operating activities in 2014. Net non-cash expenses for the year
ended December 31, 2014 include net non-cash expenses of approximately $1.1 million related to depreciation
and amortization, approximately $2.4 million related to the amortization and write-off of debt discount and
deferred ﬁnancing costs, approximately $2.5 million related to deferred income taxes, $0.9 million related to
the write-off of JC Penney ﬁxturing for the William Rast business that terminated and relaunched exclusively
with Lord & Taylor and approximately $2.2 million related to stock-based compensation expense. Net
non-cash expenses for the year ended December 31, 2013 of approximately $22.3 million offsetting our
consolidated net loss of approximately $17.4 million for the year ended December 31, 2013 were the main
factors contributing to the net cash provided by operating activities in 2013. Non-cash expenses for the year
ended December 31, 2013 primarily consisted of approximately $12.1 million related to the amortization of
debt discount and deferred ﬁnancing costs, approximately $1.8 million related to deferred income taxes and
approximately $1.1 million related to stock-based compensation expense. Consolidated net loss for the year
ended December 31, 2013 also includes approximately $6.2 million of loss from discontinued operations.
Changes in operating assets and liabilities used approximately $4.1 million of cash.

Investing Activities

Net cash used in investing activities from continuing operations was approximately $113.3 million for the
year ended December 31, 2014, primarily consisting of cash paid for the acquisition of our Avia, AND1,
Nevados, Linens ‘N Things and FUL brands and the remaining 18% interest in Rast Sourcing and Rast
Licensing, as further discussed in Note 6 to our consolidated ﬁnancial statements, and the acquisition of
intangible assets and property and equipment. Net cash used in investing activities from continuing operations

31

was approximately $92.0 million for
the year ended December 31, 2013, primarily consisting of
approximately $90.8 million net cash paid for the acquisitions of our Heelys, Ellen Tracy, Caribbean Joe,
Revo and The Franklin Mint brands, as further discussed in Note 6 to our consolidated ﬁnancial statements.

Financing Activities

Net cash provided by ﬁnancing activities from continuing operations for the year ended December 31,
2014 amounted to approximately $113.8 million as compared to approximately $118.1 million for the year
ended December 31, 2013. We received $180.0 million of proceeds under the Loan Agreements, which were
primarily used to ﬁnance the Galaxy Acquisition pursuant to the terms of the Galaxy Merger Agreement, to
repay our existing indebtedness, including the Legacy Term Loans, and to pay approximately $4.7 million of
fees and expenses in connection with the foregoing, and for general corporate purposes. We received
$2.9 million from the TCP Warrant Exercise, as further discussed in Notes 10 and 17 to our consolidated
ﬁnancial statements. We made $59.0 million of repayments under the Legacy Term Loans and $4.5 million
under the Loan Agreements for the year ended December 31, 2014. In January 2013, we received proceeds of
approximately $22.4 million in connection with the 2012 PIPE Transaction, as deﬁned in Note 17 and as
further discussed in Note 19 to our consolidated ﬁnancial statements. A portion of the proceeds was used to
fund the acquisition of the Heelys brand. In March 2013, we received $65.0 million of proceeds under the
Legacy Term Loans, which were mainly used for the Brand Matter Acquisition, to pay fees and expenses in
connection therewith,
to ﬁnance capital expenditures and for general corporate purposes. We made
$6.0 million of repayments under the Legacy Term Loans during the year ended December 31, 2013. In
July 2013, we received an additional $44.0 million of proceeds in connection with the 2013 PIPE Transaction,
as deﬁned in Note 17 and as further discussed in Note 20 to our consolidated ﬁnancial statements. A portion
of the proceeds was used to fund the acquisition of the Revo and The Franklin Mint brands. Cash paid for
fees and other costs incurred in connection with the 2012 PIPE Transaction and the 2013 PIPE Transaction
and the Legacy Term Loans amounted to approximately $6.3 million.

Contractual Obligations

Our material contractual obligations as of December 31, 2014 are summarized as follows:

Payments Due by Period

Contractual Obligations

Total

Less than
1 Year

Operating leases . . . . . . . . . . . . . . . . . . . .

$ 11,385

$ 2,893

Long-term debt obligations:

2 − 3 Years
(in thousands)
$ 3,550

4 − 5 Years

After
5 Years

$ 1,380

$ 3,562

New Term Loans . . . . . . . . . . . . . . . . .
Revolving Loan . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . .

160,500
15,000
$186,885

13,253
—
$16,146

24,000
—
$27,550

33,247
15,000
$49,627

90,000
—
$93,562

Future Capital Requirements

We believe cash on hand and cash from operations will be sufficient to meet our capital requirements for
the twelve months following December 31, 2014, 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 December 31, 2014 and 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
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.

the purpose of

32

Recent Accounting Pronouncements

See Note 2 to our consolidated ﬁnancial statements for a full description of

recent accounting
pronouncements including the respective expected dates of adoption and effects on results of operations and
ﬁnancial condition.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We limit exposure to foreign currency ﬂuctuations by requiring the majority of our licenses to be
denominated in U.S. dollars. One of our licenses is denominated in Canadian dollars. If there were an adverse
change in the exchange rate from Canadian to U.S. dollars of less than 10%, the expected effect on net
income would be immaterial.

Our earnings may also be affected by changes in LIBOR interest rates as a result of our Loan
Agreements. An increase in interest rates affecting the Loan Agreements would not have had a material effect
on our results of operations during the years ended December 31, 2014 and 2013. As further discussed in
Note 10 to our consolidated ﬁnancial statements, we have entered into an interest rate swap to mitigate the
effects of a change in LIBOR interest rates.

Item 8.

Financial Statements and Supplementary Data

The ﬁnancial statements and supplementary data required to be submitted in response to this Item 8 are

set forth after Part IV, Item 15 of this Annual Report on Form 10-K.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

As previously disclosed in our Current Report on Form 8-K ﬁled on December 23, 2013, the audit
committee of the Board approved the engagement of CohnReznick LLP as our independent registered public
accounting ﬁrm effective December 22, 2013. There were no disagreements or reportable events related to the
change in accountants requiring disclosure under Item 304(b) of Regulation S-K during the years ended
December 31, 2014 and 2013.

Item 9A. 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 Exchange Act) as of December 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 December 31, 2014.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over ﬁnancial
reporting (as deﬁned in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our management, under the
supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of our internal control over ﬁnancial reporting as of the end of the period covered by this
report. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework, as issued in
2013. Based on our management’s assessment, our management concluded that our internal control over
ﬁnancial reporting was effective as of December 31, 2014, based on those criteria.

reporting and the preparation of our ﬁnancial statements for external

Our internal control over ﬁnancial reporting is a process designed under the supervision of our Chief
Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of
ﬁnancial
reporting purposes in
accordance with GAAP. Internal control over ﬁnancial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂect the transactions
and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of ﬁnancial statements in accordance with GAAP, and that receipts and expenditures are

33

being made only in accordance with authorizations of our management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with
policies or procedures may deteriorate. The effectiveness of our internal controls over ﬁnancial reporting as of
December 31, 2014 has been audited by CohnReznick LLP, an independent registered public accounting ﬁrm,
as stated in their report, which is included in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There have not been any signiﬁcant changes in our internal control over ﬁnancial reporting during the
ﬁscal quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially
affect, our internal control over ﬁnancial reporting.

34

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Sequential Brands Group, Inc. and Subsidiaries

We have audited Sequential Brands Group, Inc. and Subsidiaries’ internal control over ﬁnancial reporting
as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Sequential Brands Group, Inc.’s management is responsible for maintaining effective internal control over
ﬁnancial reporting and for its assessment of the effectiveness of internal control over ﬁnancial reporting
included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the company’s internal control over ﬁnancial reporting based on
our audit.

We conducted our audit in accordance with the 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 effective internal control over ﬁnancial reporting was maintained in all material
respects. Our audit of internal control over ﬁnancial reporting included obtaining an understanding of internal
control over ﬁnancial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable
assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
ﬁnancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
the transactions and dispositions of the assets of the
in reasonable detail, accurately and fairly reﬂect
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
ﬁnancial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, Sequential Brands Group, Inc. and Subsidiaries maintained, in all material respects,

effective internal control over ﬁnancial reporting as of December 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Sequential Brands Group, Inc. and Subsidiaries as of
December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss,
changes in equity, and cash ﬂows for each of the years then ended, and the related ﬁnancial statement
schedule of Sequential Brands Group, Inc. and our report dated March 16, 2015 expressed an unqualiﬁed
opinion thereon.

/s/ CohnReznick LLP

New York, NY
March 16, 2015

35

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item will be contained under the captions ‘‘Directors and Executive
Officers’’ and ‘‘Corporate Governance’’ in the proxy statement for the annual meeting of stockholders to be
held on May 27, 2015 (the ‘‘Proxy Statement’’) to be ﬁled with the SEC within 120 days after December 31,
2014, which is incorporated herein by reference in response to this item.

Code of Ethics

We have adopted a Code of Ethics applicable to all members of our Board and to all of our employees
and executive officers, including our Chief Executive Officer and Chief Financial Officer. The Code of Ethics
constitutes a ‘‘code of ethics’’ as deﬁned by applicable SEC rules and a ‘‘code of conduct’’ as deﬁned by
applicable NASDAQ rules. The Code of Ethics has been publicly ﬁled with the SEC and is incorporated by
reference as an exhibit to this Annual Report on Form 10-K. Our code of ethics is posted on our website
located
‘‘Investor Relations — Corporate
the
Governance.’’ You may also request a copy of the Code of Ethics by writing or calling us at:

at www.sequentialbrandsgroup.com in

section

titled

SEQUENTIAL BRANDS GROUP, INC.

Attn: Investor Relations
5 Bryant Park, 30th Floor
New York, New York 10018
Tel.: (646) 564-2577

Any amendment or waiver of the Code of Ethics pertaining to a member of our Board or one of our

executive officers will be disclosed on our website within four business days.

Item 11.

Executive Compensation

The information required by this item will be contained under the caption ‘‘Executive Compensation’’ in

the Proxy Statement, which is incorporated herein by reference in response to this item.

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder
Matters

The information required by this item will be contained under the caption ‘‘Security Ownership of
Certain Beneﬁcial Owners and Management’’ in the Proxy Statement, which is incorporated herein by
reference in response to this item.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be contained under the captions ‘‘Certain Relationships and
Related Transactions’’ and ‘‘Corporate Governance’’ in the Proxy Statement, which is incorporated herein by
reference in response to this item.

Item 14.

Principal Accounting Fees and Services

The information required by this item will be contained under the caption ‘‘Principal Accounting Fees

and Services’’ in the Proxy Statement, which is incorporated herein by reference in response to this item.

36

PART IV

Item 15.

Exhibits, Financial Statement Schedules

(a) Documents ﬁled as part of this report

1.

Financial Statements.

See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The ﬁnancial
statements listed in the accompanying Index to Consolidated Financial Statements are ﬁled herewith in
response to this Item.

2.

Financial Statement Schedules.

Schedule II — Valuation and Qualifying Accounts is required to be ﬁled by Item 8 of the Annual
Report on Form 10-K.

All other schedules are omitted because the information is inapplicable or presented in the Notes to
the Consolidated Financial Statements.

3.

Exhibits. See Item 15(b) below.

(b) Exhibits. We have ﬁled, or incorporated by reference into this Annual Report on Form 10-K,

the
exhibits listed on the accompanying Index to Exhibits immediately following the signature page of this
Annual Report on Form 10-K.

(c) Financial Statement Schedule. See Item 15(a) above.

37

[This page intentionally left blank.] 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Financial Statements:

Reports of Independent Registered Public Accounting Firms

. . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets at December 31, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012 . .

Page

F-2

F-4

F-5

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2014, 2013

and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-6

Consolidated Statements of Changes in Equity (Deﬁcit) for the Years Ended December 31, 2014,

2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012. .

F-7

F-9

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Sequential Brands Group, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Sequential Brands Group, Inc. and
Subsidiaries as of December 31, 2014 and 2013 and the related consolidated statements of operations,
comprehensive loss, changes in equity, and cash ﬂows for each of the years then ended. Our audits of the
consolidated ﬁnancial statements included the ﬁnancial statement schedule listed in the index appearing under
Item 15. Sequential Brands Group, Inc. and Subsidiaries management is responsible for these consolidated
ﬁnancial statements and ﬁnancial statement schedule. Our responsibility is to express an opinion on these
consolidated ﬁnancial statements and ﬁnancial statement schedule based on our audits.

We conducted our audits in accordance with the 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 ﬁnancial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the ﬁnancial statements, assessing the accounting
principles used and signiﬁcant estimates made by management, as well as evaluating the overall ﬁnancial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material
respects, the ﬁnancial position of Sequential Brands Group, Inc. and Subsidiaries as of December 31, 2014
and 2013, and the results of their operations and their cash ﬂows for each of the years then ended, in
in our
conformity with accounting principles generally accepted in the United States of America. Also,
opinion, the related ﬁnancial statement schedule, when considered in relation to the basic ﬁnancial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Sequential Brands Group Inc. and Subsidiaries’ internal control over ﬁnancial reporting
as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report
dated March 16, 2015 expressed an unqualiﬁed opinion thereon.

/s/ CohnReznick LLP

New York, New York
March 16, 2015

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders:
Sequential Brands Group, Inc., formerly People’s Liberation, Inc., and Subsidiaries

We have audited the accompanying consolidated balance sheet of Sequential Brands Group, Inc., formerly
People’s Liberation, Inc., and Subsidiaries (the ‘‘Company’’) as of December 31, 2012 (not presented herein) and
the related consolidated statements of operations, changes in stockholders’ equity (deﬁcit) and cash ﬂows for the
year then ended. These consolidated ﬁnancial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated ﬁnancial statements based on our audit.

We conducted our audit in accordance with the 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 consolidated ﬁnancial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over ﬁnancial
reporting. Our audit included consideration of internal control over ﬁnancial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over ﬁnancial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated ﬁnancial statements. An audit also includes assessing the accounting principles used and
signiﬁcant estimates made by management, as well as evaluating the overall consolidated ﬁnancial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material
respects, the ﬁnancial position of Sequential Brands Group, Inc. and Subsidiaries as of December 31, 2012,
and the results of their operations and their cash ﬂows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Los Angeles, CA
April 1, 2013

F-3

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

December 31,
2014

December 31,
2013

Current Assets:

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets held for disposition from discontinued operations of wholesale

$ 22,521
15,720
5,681

business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets

162
44,084

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,255
303,039
169,786
7,199
$526,363

$ 25,125
5,286
1,645

213
32,269

986
115,728
1,225
3,397
$153,605

Current Liabilities:

Liabilities and Equity

Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred license revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities held for disposition from discontinued operations of wholesale
business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Long-Term Liabilities:

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities
Long-term liabilities held for disposition from discontinued operations of

wholesale business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

6,691
394
13,253

$

4,963
1,348
8,000

236
20,574

162,247
77,056
886

700
240,889
261,463

1,105
15,416

49,931
4,339
1,866

884
57,020
72,436

Commitments and Contingencies

Equity:

Preferred stock Series A, $0.001 par value, 19,400 shares authorized; none

issued and outstanding at December 31, 2014 and 2013 . . . . . . . . . . . . . . .

—

—

Common stock, $0.001 par value, 150,000,000 shares authorized; 39,694,117
and 25,284,737 shares issued at December 31, 2014 and 2013, respectively,
and 39,300,580 and 25,057,988 shares outstanding at December 31, 2014 and
2013, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost; 197,784 and 122,229 shares at December 31, 2014 and

39
295,719
(36)
(35,959)

Noncontrolling interest

2013, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sequential Brands Group, Inc. and Subsidiaries stockholders’ equity . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,643)
258,120
6,780
264,900
$526,363

25
114,411
0
(34,890)

(690)
78,856
2,313
81,169
$153,605

See Notes to Consolidated Financial Statements.

F-4

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

$

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Loss from continuing operations

Loss from discontinued operations:

Loss from discontinued operations of wholesale business,

Years Ended December 31,
2013

2012

2014

$

41,837
29,806
12,031
5
9,746
2,290
2,936
(646)

22,653
16,845
5,808
488
15,589
(9,293)
1,849
(11,142)

$

5,274
11,812
(6,538)
—
829
(7,367)
27
(7,394)

net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

(6,244)

(985)

Loss from discontinued operations of retail subsidiary, net

of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . . . .
Consolidated net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interest . . . . .
Net loss attributable to Sequential Brands Group, Inc.

and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic and diluted loss per share:

Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations
. . . . . . . . . . . . . . . . . . . . . . . .
Attributable to Sequential Brands Group, Inc. and

—
—
(646)
(422)

$

$

(1,068)

(0.04)
—

$

$

—
(6,244)
(17,386)
(588)

(17,974)

(0.66)
(0.35)

Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(0.04)

$

(1.01)

(795)
(1,780)
(9,174)
49

(9,125)

(3.04)
(0.74)

(3.78)

$

$

$

Basic and diluted weighted average common shares

outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,964,604

17,713,140

2,413,199

See Notes to Consolidated Financial Statements.

F-5

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)

Consolidated net loss

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive loss, net of tax:
Unrealized loss on interest rate hedging transactions
. . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (income) loss attributable to noncontrolling interests . .

Years Ended December 31,
2013
$(17,386)

2014
$ (646)

2012
$(9,174)

(36)
(36)
(682)
(422)

—
—
(17,386)
(588)

—
—
(9,174)
49

Comprehensive loss attributable to Sequential Brands Group, Inc. and
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(1,104)

$(17,974)

$(9,125)

See Notes to Consolidated Financial Statements.

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S

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

. . . . . . . . . . . . . . . . . . . . . . . . .

.
.
Consolidated net loss
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
.
.
.
.
.
.
.
.

. . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations .
.
. . . . . . . . . . . . . . . . . . . . . . . . .
.
Provision for bad debts .
.
. . . . . . . . . . . . . . . . . . . . . . . . . .
.
Depreciation and amortization .
. . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
Stock-based compensation .
Amortization of debt discount and deferred ﬁnancing costs . . . . . . . . . . . . . . . . . .
Fair value of warrants issued for services rendered . . . . . . . . . . . . . . . . . . . . . .
Fair value of warrants issued in connection with acquisition . . . . . . . . . . . . . . . . .
.
Gain on bargain purchase of business
. . . . . . . . . . . . . . . . . . . . . . . . .
.
. . . . . . . . . . . . . . . . . . . . . . . . . .
Disposal of assets not placed into use .
. . . . . . . . . . . . . . . . . . . . . . . . . .
.
Loss on disposal of ﬁxed assets
. . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
Deferred income taxes

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.

.
.

.

.

.

.

.

.
.

.
.
Changes in operating assets and liabilities:
.
.
Receivables
.
.
.
Prepaid expenses and other assets
.
.
Accounts payable and accrued expenses .
.
Deferred license revenue .
.
.
Other liabilities

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.

.

.

.

.

.

.

.

.

.
.
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES FROM

.
.

.

.

.

.

.

.
.
.
.
.

. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
.
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
.

Years Ended December 31,
2013

2014

2012

$

(646)

$ (17,386)

$ (9,174)

—
75
1,107
2,184
2,444
—
—
—
900
—
2,468

(7,062)
(415)
(1,106)
(1,087)
(1,016)

6,244
250
598
1,118
12,104
436
26
(227)
—
—
1,786

(4,896)
(477)
(1,055)
789
1,570

1,780
—
296
674
792
183
—
—
—
184
—

414
(454)
2,161
(1,359)
—

CONTINUING OPERATIONS .

.

.

. . . . . . . . . . . . . . . . . . . . . . . . . .

(2,154)

880

(4,503)

CASH USED IN OPERATING ACTIVITIES FROM DISCONTINUED
.

. . . . . . . . . . . . . . . . . . . . . . . . . .
CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . .

OPERATIONS .

.

.

.

.

.

.

.

.

.

.

CASH FLOWS FROM INVESTING ACTIVITIES

acquisition .

Cash paid for acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of non-core assets derived from DVS
.
.

.
.
.
.
Acquisition of intangible assets .
Acquisition of property and equipment
.
.
.
Restricted cash .

. . . . . . . . . . . . . . . . . . . . . . . . .
.
. . . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . .

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.

.
.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

CASH FLOWS FROM FINANCING ACTIVITIES

.

.
.

.
.

.
.

.
.
.
.

.
.
.
.

.
Proceeds from term loan and revolver
Proceeds from the sale of common stock .
.
Proceeds from options exercised .
Proceeds from warrants exercised .
.
Proceeds from senior secured convertible debentures
Investment by noncontrolling member interest
.
.
.
Repayment of note payable .
.
.
.
.
Deferred ﬁnancing costs .
.
.
Offering costs
.
.
.
.
.
Repurchase of common stock .
.
Noncontrolling interest distributions
.
Repayment of note payable to related parties .

. . . . . . . . . . . . . . . . . . . . . . . . .
.
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
.
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
.
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . .
NET (DECREASE) INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
.

CASH − Beginning of year .
.
CASH − End of year

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.

.
.
.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.

.

.

.

.

.

.

(1,001)
(3,155)

(4,438)
(3,558)

(2,174)
(6,677)

(111,579)

(90,846)

(8,550)

—
(545)
(1,135)
—
(113,259)

180,000
—
417
2,900
—
—
$ (63,500)
(4,688)
—
(953)
(366)
—
113,810
(2,604)
25,125
$ 22,521

—
(277)
(950)
35
(92,038)

65,000
66,350
104
—
—
—
$ (6,000)
(1,929)
(4,388)
(690)
(350)
—
118,097
22,501
2,624
$ 25,125

3,590
—
(12)
—
(4,972)

—
—
—
—
14,500
2,124
$ (1,000)
(844)
—
—
—
(750)
14,030
2,381
243
$ 2,624

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the periods for:
.
.
.
.

Interest .
.
Taxes .

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

6,684
484

$ 3,428
$

$
— $

82
42

NON-CASH INVESTING AND FINANCING ACTIVITES:

Conversion of senior secured convertible debentures to common stock . . . . . . . . . . . . .
Common stock issued in connection with acquisitions . . . . . . . . . . . . . . . . . . . . . .
Fair value of warrants issued in connection with acquisition . . . . . . . . . . . . . . . . . .
Fair value of warrants issued in ﬁnancing transaction . . . . . . . . . . . . . . . . . . . . . .
Cashless exercise of warrants .
. . . . . . . . . . . . . . . . . . . . . . . . . .
.
Debt discount − beneﬁcial conversion feature on senior secured convertible debentures . . . .

.

.

.

.

.

.

.

$
$ 183,975
$
$
$
$

$ —
— $ 14,500
$ —
$ 19,835
$ —
— $
393
$ 4,215
— $ 1,269
1
— $
$ —
— $ 7,347
— $

See Notes to Consolidated Financial Statements.

F-9

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 1 — ORGANIZATION AND NATURE OF OPERATIONS

Overview

Inc.

(the ‘‘Company’’),

Sequential Brands Group,

through its wholly-owned and majority-owned
subsidiaries, owns a portfolio of consumer brands in the fashion, active and lifestyle categories. 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 license
agreements, the Company’s licensing partners are responsible for designing, manufacturing and distributing the
Company’s licensed products. As of December 31, 2014, the Company had more than 75 licensees, almost all
of which were 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.

In the second half of 2011, the Company changed its business model to focus on licensing and brand
management. Prior to this, the Company designed, marketed and provided, on a wholesale basis, branded
apparel and apparel accessories, as well as operated retail stores to sell its branded products. In the second
half of 2011, the Company discontinued its wholesale distribution of branded apparel and apparel accessories,
liquidated its existing inventory and closed its remaining retail stores. To reﬂect the Company’s business
transition, in March 2012, the Company’s corporate name was changed from People’s Liberation, Inc. to
Sequential Brands Group, Inc.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying 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 the consolidation.

Use of Estimates

The preparation of consolidated ﬁnancial statements in conformity with accounting principles generally
accepted in the United States (‘‘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
consolidated 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
consolidated ﬁnancial statements, which management considered in formulating its estimate, could change in
the actual results could differ
the near term due to one or more future conﬁrming events. Accordingly,
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 (the ‘‘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

F-10

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

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.

In April 2014, the FASB issued Accounting Standard Update (‘‘ASU’’) No. 2014-08, ‘‘Reporting of
Discontinued Operations and Disclosures of Disposals of Components of an Entity,’’ which provides a
narrower deﬁnition of discontinued operations than under existing GAAP. ASU 2014-08 requires that only a
disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift
that has, or will have, a major effect on the reporting entity’s operations and ﬁnancial results should be
reported in the ﬁnancial statements as discontinued operations. ASU 2014-08 also provides guidance on the
ﬁnancial statement presentations and disclosures of discontinued operations. The amendments in ASU 2014-08
are effective for all disposals of components of an entity that occur within annual periods beginning on or
after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015,
with early application permitted.

Revenue Recognition

The Company has entered into various license agreements that provide revenues based on guaranteed
minimum royalty payments and advertising/marketing fees and additional revenues based on a percentage of
deﬁned sales. Guaranteed minimum royalty payments and advertising/marketing revenue are recognized on a
straight-line basis over the term of each contract year, as deﬁned, in each license agreement. Royalty payments
exceeding the guaranteed minimum royalty payments are recognized as income during the period corresponding to
the licensee’s sales. Payments received as consideration of the grant of a license are recorded as deferred revenue
at the time payment is received and recognized ratably as revenue over the term of the license agreement.
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.

If license agreements 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 creditworthiness, payment history
and account aging. Accounts receivable 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 approximately $0.2 million and approximately
$0.1 million at December 31, 2014 and 2013, respectively.

The Company’s accounts receivable amounted to approximately $15.7 million and approximately
$5.3 million as of December 31, 2014 and 2013, respectively. Three licensees accounted for approximately
the Company’s total consolidated accounts receivable balance as of
54% (23%, 21% and 10%) of
December 31, 2014 and four licensees accounted for approximately 71% (35%, 14%, 11% 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.

F-11

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Maintenance
and repairs are charged to expense as incurred. Upon retirement or other disposition of property and
equipment, applicable cost and accumulated depreciation and amortization are removed from the accounts and
any gains or losses are included in results of operations.

Depreciation and amortization of property and equipment is computed using the straight-line method

based on estimated useful lives of the assets as follows:

Furniture and ﬁxtures
Office equipment
Machinery and equipment
Leasehold improvements

Computer software
Websites

Deferred Financing Costs

5 years
5 to 7 years
5 to 7 years
Term of the lease or the estimated life of the related
improvements, whichever is shorter.
5 years
3 years

Direct costs incurred in connection with issuing debt securities or obtaining debt or other credit
arrangements are recorded as deferred ﬁnancing costs and are amortized as interest expense, using the
effective interest method, over the term of the related debt.

Convertible Instruments

The Company reviews all of its convertible instruments for the existence of an embedded conversion
feature which may require bifurcation if certain criteria are met. The criteria, if met, require companies to
bifurcate conversion options from their host instruments and account for them as freestanding derivative
ﬁnancial instruments. These three criteria include circumstances in which:

(a)

(b)

(c)

the economic characteristics and risks of the embedded derivative instrument are not clearly and
closely related to the economic characteristics and risks of the host contract;

the hybrid instrument that embodies both the embedded derivative instrument and the host contract
is not remeasured at fair value under otherwise applicable GAAP with changes in fair value reported
in earnings as they occur; and

a separate instrument with the same terms as the embedded derivative instrument would be
considered a derivative instrument subject
to certain requirements (except for when the host
instrument is deemed to be conventional).

The Company reviews all of its convertible instruments for the existence of a beneﬁcial conversion
feature. Upon the determination that a beneﬁcial conversion feature exists, the beneﬁcial conversion feature
would be recorded as a discount from the face amount of the respective debt instrument based upon the
differences between the fair value of the underlying common stock at the commitment date of the note
transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized to interest expense over the term of the related debt. If the instrument is converted prior to the
original maturity of the debt, the remaining unamortized discount is charged to expense at the conversion date.

Treasury Stock

Treasury stock is recorded at cost as a reduction of equity in the accompanying consolidated balance sheets.

F-12

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

Preferred Stock

Preferred stock subject to mandatory redemption (if any) is classiﬁed as a liability instrument and is
measured at fair value. The Company classiﬁes conditionally redeemable preferred stock (if any), which
includes preferred stock that features redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as
temporary equity. At all other times, the Company classiﬁes preferred stock as a component of equity.

The Company’s preferred stock does not feature any redemption rights within the holders’ control or
conditional redemption features not solely within its control as of December 31, 2014 and 2013. Accordingly,
all issuances of preferred stock are presented as a component of equity. The Company did not have any
preferred stock outstanding as of December 31, 2014 and 2013.

Common Stock Purchase Warrants and Derivative Financial Instruments

The Company classiﬁes as equity any contracts that (i) require physical settlement or net-share settlement
or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement
or net-share settlement). The Company classiﬁes as assets or liabilities any contracts that (i) require net-cash
settlement (including a requirement to net cash settle the contract if an event occurs and if that event is
outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in
shares (physical settlement or net-share settlement). The Company assesses classiﬁcation of its common stock
purchase warrants and other freestanding derivatives, if any, at each reporting date to determine whether a
change in classiﬁcation between assets and liabilities is required. The Company determined that
its
outstanding common stock purchase warrants satisﬁed the criteria for classiﬁcation as equity instruments at
December 31, 2014 and 2013.

Advertising

Advertising costs related to media ads are charged to expense as of the ﬁrst date the advertisements take
place. Advertising costs related to campaign ads, such as production and talent, are expensed over the term of the
related advertising campaign. Advertising expenses included in operating expenses approximated $5.6 million,
$1.6 million and $0.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Stock-Based Compensation

Compensation cost for restricted stock is measured using the quoted market price of the Company’s
common stock at the date the common stock is granted. For restricted stock, for which restrictions lapse with
the passage of time (‘‘time-based restricted stock’’), compensation cost is recognized on a straight-line basis,
reduced for estimated forfeitures, over the period between the issue date and the date that restrictions lapse.
Time-based restricted stock is included in total common shares outstanding upon the lapse of any restrictions.
For restricted stock, for which restrictions are based on performance measures (‘‘performance-based restricted
stock’’), restrictions lapse when those performance measures have been deemed achieved. Compensation cost
for performance-based restricted stock is recognized on a straight-line basis, reduced for estimated forfeitures,
over the date when the likelihood of the shares being earned is deemed probable and the end of the ﬁscal year
on or on the date that awards are approved by the Compensation Committee on a discretionary basis.
Performance-based restricted stock is included in total common shares outstanding upon the lapse of any
restrictions. Performance-based restricted stock is included in total diluted shares outstanding when the
performance measures have been deemed achieved but not issued.

Compensation cost for stock options and warrants,

in accordance with accounting for share-based
payment under GAAP, is calculated using the Black-Scholes valuation model based on awards ultimately
expected to vest, reduced for estimated forfeitures, and expensed on a straight-line basis over the requisite
service period of the grant. Forfeitures are estimated at the time of grant based on the Company’s historical
forfeiture experience and are revised in subsequent periods if actual forfeitures differ from those estimates.

F-13

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

Compensation costs for restricted stock granted to consultants are marked-to-market to the Company’s

stock price for each reporting period.

Income Taxes

Current income taxes are based on the respective periods’ taxable income for federal, foreign 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.

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 December 31, 2014 and 2013, the Company has certain unrecognized
tax beneﬁts, included as a component of long-term liabilities held for disposition from discontinued operations
of wholesale operations subsidiary, and does not expect a material change in the twelve months following
December 31, 2014. 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, 2011 through 2014.

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 reporting period,
excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all potentially dilutive
including stock options and warrants, using the
common shares outstanding during the reporting period,
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 EPS consist of the following:

Years Ended December 31,
2013
17,713,140
—
—
—
—
17,713,140

2014
29,964,604
—
—
—
—
29,964,604

2012
2,413,199
—
—
—
—
2,413,199

Basic weighted average common shares outstanding . . . .
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested restricted stock . . . . . . . . . . . . . . . . . . . . . .
Acquisition hold back shares . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted average common shares outstanding . . .

F-14

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

The computation of diluted EPS for the years ended December 31, 2014, 2013 and 2012 excludes the
common stock equivalents of the following potentially dilutive securities because their inclusion would be
anti-dilutive:

Senior secured convertible debentures . . . . . . . . . . . . . .
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition hold back shares . . . . . . . . . . . . . . . . . . . .
Unvested restricted stock . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,
2013

2014

2012

—
1,421,578
523,630
247,937
156,126
2,349,271

— 5,523,810
2,250,762
—
357,147
404,800
8,536,519

1,744,922
—
464,847
413,667
2,623,436

Concentration of Credit Risk

Financial instruments which potentially expose the Company to credit risk consist primarily of cash and
accounts receivable. 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 December 31, 2014.

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.

Customer Concentrations

The Company recorded net revenues of approximately $41.8 million, $22.7 million and $5.3 million
during the years ended December 31, 2014, 2013 and 2012, respectively. During the year ended December 31,
2014, two licensees represented at least 10% of net revenue, accounting for 14% and 12% of the Company’s
net revenue. During the year ended December 31, 2013, three licensees accounted for 18%, 11% and 10% of
the Company’s net revenue. During the year ended December 31, 2012, three licensees accounted for 63%,
14% and 10% of the Company’s net revenue.

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 legal costs
pertaining to contingencies as incurred.

Contingent Consideration

We recognize the acquisition-date fair value of contingent consideration as part of the consideration
transferred in exchange for the acquiree or assets of the acquiree in a business combination. The contingent
consideration is classiﬁed as either a liability or equity in accordance with ASC 480-10, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and Equity. If classiﬁed as a liability,
the liability is remeasured to fair value at each subsequent reporting date until the contingency is resolved.
Increases in fair value are recorded as losses, while decreases are recorded as gains. If classiﬁed as equity,
contingent consideration is not remeasured and subsequent settlement is accounted for within equity.

F-15

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

Noncontrolling Interest

Noncontrolling interest from continuing operations recorded for the years ended December 31, 2014,
2013 and 2012 represents income and loss allocations to Elan Polo International, Inc., a member of
DVS Footwear International, LLC, net of member distributions. In connection with the strategic investment in
FUL IP Holdings, LLC (‘‘FUL IP’’) in November 2014, the Company recorded a noncontrolling interest of
$4.4 million in the consolidated statement of equity at December 31, 2014.

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.

Recently Issued Accounting Standards

In May 2014,

the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers
(‘‘ASU 2014-09’’). ASU 2014-09 provides guidance for revenue recognition and affects any entity that either
enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of
nonﬁnancial assets and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition,
and most industry-speciﬁc guidance. The core principle of ASU 2014-09 is the recognition of revenue when a
company transfers promised goods or services to customers in an amount that reﬂects the consideration to
which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 deﬁnes a
ﬁve-step process to achieve this core principle and, in doing so, companies will need to use more judgment
and make more estimates than under the current guidance. These may include identifying performance
obligations in the contract, estimating the amount of variable consideration to include in the transaction price
and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for
ﬁscal years beginning after December 15, 2016 and interim periods therein, using either of the following
transition methods: (i) a full retrospective approach reﬂecting the application of the standard in each prior
reporting period with the option to elect certain practical expedients or (ii) a retrospective approach with the
cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes
additional footnote disclosures). Early adoption is not permitted. The Company is currently evaluating the
method and impact
the adoption of ASU 2014-09 will have on the Company’s consolidated ﬁnancial
statements and disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Compensation — Stock Compensation (Topic 718):
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could
be Achieved after the Requisite Service Period (‘‘ASU 2014-12’’). ASU 2014-12 affects entities that grant
their employees stock-based payments in which terms of the award provide that a performance target that
affects vesting could be achieved after the requisite service period. The amendments in ASU 2014-12 require
that a performance target that affects vesting and that could be achieved after the requisite service period is
treated as a performance condition. ASU 2014-12 is effective for ﬁscal years beginning after December 15,
2015. Early adoption is permitted. The Company is currently evaluating the method and impact the adoption
of ASU 2014-12 will have on the Company’s consolidated ﬁnancial statements and disclosures.

F-16

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 3 — FAIR VALUE 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:

(cid:129)

(cid:129)

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 360-10-15,
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:

(cid:129)

(cid:129)

(cid:129)

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.

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.

F-17

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 3 — FAIR VALUE OF FINANCIAL INSTRUMENTS − (continued)

As of December 31, 2014 and 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 10) and the contingent
earn outs relating to the Linens ‘N Things brand and FUL IP (see Note 6). 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
December 31, 2014 and 2013:

Financial Instrument

Level

12/31/14

12/31/13

12/31/14

12/31/13

Carrying Value

Fair Value

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . .
New Term Loans . . . . . . . . . . . . . . . . . . . .
Legacy Term Loans. . . . . . . . . . . . . . . . . . .
Revolving Loan . . . . . . . . . . . . . . . . . . . . .
Contingent earn outs . . . . . . . . . . . . . . . . . .

1
2
2
2
3
3
3
3

(in thousands)

$ 22,521
$ 15,720
$ 1,434
$
36
$160,500
$
—
$ 15,000
—
$

$25,125
$ 5,286
$ 1,597
$ —
$ —
$57,931
$ —
$ —

$ 22,521
$ 15,720
1,434
$
$
36
$148,571
$
—
$ 11,059
—
$

$25,125
$ 5,286
$ 1,597
$ —
$ —
$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 Company records its interest rate swap on the consolidated balance sheet at fair value (Level 2). As
of December 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 (as deﬁned below) 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 New Term
Loans, Legacy Term Loans and Revolving Loan (each, as deﬁned in Note 10) 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 in Note 10) based on market interest rate quotes as of December 31, 2014
and 2013 for debt with similar risk characteristics and maturities.

On the date of acquisitions, no value was assigned to the contingent earn outs based on the remote
probability that the Linens ‘N Things brand and FUL IP will achieve the performance measurements (see
Note 6). The Company continues to evaluate these performance measurements at each reporting period and
determines their fair values if/when the achievement of the performance measurements become probable. At
December 31, 2014, the contingent earn outs have no value.

NOTE 4 — DISCONTINUED OPERATIONS OF WHOLESALE BUSINESS

The Company did not record any additional costs relating to discontinued operations of wholesale
business during the year ended December 31, 2014. Discontinued operations as of December 31, 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 December 31,
2014 and 2013, costs attributable to the Heelys legacy operations mainly represent severance expense, lease
termination costs and professional and other fees. Discontinued operations as of December 31, 2012 represent
the Company’s decision to discontinue its wholesale business related to its People’s Liberation and William
Rast branded products.

F-18

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 4 — DISCONTINUED OPERATIONS OF WHOLESALE BUSINESS − (continued)

A summary of the Company’s results of discontinued operations of its wholesale business for the years
ended December 31, 2014, 2013 and 2012 and the Company’s assets and liabilities from discontinued
operations of its wholesale business as of December 31, 2014 and 2013 is as follows:

Results of discontinued wholesale operations:

2014

Years Ended December 31,
2013
(in thousands)

2012

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

— $

— $

943

Loss from discontinued operations of wholesale business,

net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

— $

(6,244) $

(985)

Loss per share from discontinued operations, basic

and diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

— $

(0.35) $

(0.41)

Weighted average shares outstanding, basic and diluted . .

29,964,604

17,713,140

2,413,199

Assets and liabilities of discontinued wholesale operations:

December 31,

2014

2013

(in thousands)

Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$162
$236
$701

$ 213
$1,105
$ 884

NOTE 5 — DISCONTINUED OPERATIONS OF RETAIL SUBSIDIARY

Discontinued operations as of December 31, 2012 represent the Company’s decision to discontinue its
retail operations included in its subsidiary, William Rast Retail, LLC (‘‘Rast Retail’’). The Company
discontinued its retail operations included in Rast Retail and closed the retail stores in 2012.

A summary of the Company’s results of discontinued operations of Rast Retail for the years ended

December 31, 2014, 2013 and 2012 is as follows:

Results of discontinued retail operations:

2014

Years Ended December 31,
2013
(in thousands)

2012

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

— $

— $

707

Loss from discontinued operations of wholesale business,

net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

— $

— $

(795)

Loss per share from discontinued operations, basic

and diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

— $

— $

(0.33)

Weighted average shares outstanding, basic and diluted . .

29,964,604

17,713,140

2,413,199

The Company did not have any assets or liabilities recorded relating to the discontinued operations of its

retail subsidiary during the years ended December 31, 2014 and 2013.

F-19

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 6 — ACQUISITIONS

Acquisition of Heelys, Inc.

On January 24, 2013, the Company completed its acquisition of Heelys pursuant to the agreement and
plan of merger (the ‘‘Heelys Merger Agreement’’), dated as of December 7, 2012, by and among Heelys, the
Company and Wheels Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the
Company. In accordance with the Heelys Merger Agreement, the Company acquired all of the outstanding
shares of common stock of Heelys at a purchase price of $2.25 per share in cash, for an aggregate
consideration of approximately $63.0 million. The purchase price was funded with cash and investments from
Heelys of approximately $55.5 million and with cash from the Company of approximately $7.5 million. Cash
and investments provided by Heelys for the acquisition were not acquired by the Company upon acquisition,
but instead were distributed directly to the Heelys’ stockholders at the closing. The acquisition of Heelys was
effected in order to develop and build the Company’s diversiﬁed portfolio of consumer brands.

In connection with the acquisition of Heelys, the Company entered into a multi-country exclusive license
agreement (the ‘‘Heelys License Agreement’’) with BBC International LLC (‘‘BBC’’) to license the trademark
‘‘Heelys’’ and all existing derivative brands, including (i) Heelys, (ii) Sidewalk Sports, (iii) Nano, and (iv) Soap
(collectively, the ‘‘Marks’’). The Heelys License Agreement grants an exclusive, nontransferable, non-assignable
license, without the right to sub-license, to use the Marks and certain proprietary rights, including patents, in
connection with the manufacturing, distribution, advertising and sale of wheeled footwear and footwear without
wheels, subject to the terms and conditions stated in the Heelys License Agreement. The initial term of the Heelys
License Agreement expires on June 30, 2019, subject to BBC’s right to renew the Heelys License Agreement for
two additional ﬁve year periods based on its achievement of certain royalty thresholds.

The acquisition of Heelys was accounted for under the acquisition method of accounting. Accordingly,
the acquired assets and assumed liabilities were recorded at their estimated fair values, and operating results
for Heelys are included in the consolidated ﬁnancial statements from the effective date of acquisition of
January 24, 2013. Accounting standards require that when the fair value of the net assets acquired exceeds the
purchase price, resulting in a bargain purchase of a business, the acquirer must reassess the reasonableness of
the values assigned to all of the net assets acquired, liabilities assumed and consideration transferred. The
Company performed such a reassessment and concluded that the values assigned for the Heelys acquisition are
reasonable. Consequently,
the Company recognized a gain on bargain purchase in the amount of
approximately $0.2 million arising from the acquisition of Heelys, which has been recorded as a component of
operating expenses in the accompanying consolidated statement of operations during the year ended
December 31, 2013. There was no goodwill as a result of the acquisition.

F-20

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 6 — ACQUISITIONS − (continued)

The allocation of the purchase price is summarized as follows:

Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allocated to:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on bargain purchase of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$ 7,523

$ 2,447
4,733
1,610
311
12
(4,528)
(2,553)
(760)
1,272
6,383
95
(227)
$ 7,523

Trademarks have been determined by management to have an indeﬁnite useful life and, accordingly, no
amortization is recorded in the Company’s consolidated statements of operations. Trademarks are subject to a
test for impairment on an annual basis or sooner, if an event occurs or circumstances change that indicate that
the carrying amount of the trademarks may not be recoverable. Patents are amortized on a straight-line basis
over their expected useful lives of ten years. In connection with the acquisition, the Company granted a
consultant 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. The warrants had a fair value of approximately $0.1 million
using the Black-Scholes option-pricing model utilizing the following assumptions: dividend yield of zero, a
risk-free interest rate of 0.87%, expected term of ﬁve years and an expected volatility of 64%. The Company
incurred legal and other costs related to the transaction of approximately $1.6 million, of which approximately
$0.7 million was recognized during the year ended December 31, 2012 and approximately $0.9 million was
recognized during the year ended December 31, 2013.

Because this acquisition was a stock purchase for tax purposes, the Company did not obtain a stepped-up
tax basis in Heelys’ assets. A deferred tax liability of approximately $2.6 million was established as part of the
acquisition accounting to reﬂect the difference between the fair value of the acquired intangibles on the date
of acquisition and the carryover tax basis of the intangibles.

Upon acquisition,

the Company discontinued Heelys wholesale legacy operations as it

transitioned the
business to a licensing and brand management model. Accordingly, Heelys assets and liabilities at December 31,
2014 and 2013, as well as its results of operations from the date of acquisition through December 31, 2013,
related to the wholesale business have been reclassiﬁed to discontinued operations (see Note 4).

Total revenues and income from continuing operations since the date of acquisition, included in the
consolidated statement of operations for the year ended December 31, 2013, were approximately $1.7 million
and $1.6 million, respectively.

Acquisition of Ellen Tracy and Caribbean Joe Brands

On March 28, 2013, the Company entered into a purchase agreement (the ‘‘BM Purchase Agreement’’),
by and among the Company, ETPH Acquisition, LLC, (‘‘ETPH’’) and B(cid:5)and Matter, LLC (‘‘Brand Matter’’),

F-21

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 6 — ACQUISITIONS − (continued)

pursuant to which the Company acquired from ETPH all of the outstanding equity interests of Brand Matter
(i) approximately
(the ‘‘Brand Matter Acquisition’’)
$62.3 million of cash, subject to adjustment as set forth in the BM Purchase Agreement, (ii) 2,833,590 shares
of the Company’s common stock, and (iii) ﬁve-year warrants to purchase up to an aggregate of 125,000 shares
of the Company’s common stock at an exercise price equal to $10.00 per share.

for an aggregate purchase price consisting of

In connection with the Brand Matter Acquisition, on March 28, 2013, the Company entered into (i) a ﬁrst
lien loan agreement (the ‘‘First Lien Loan Agreement’’), which provided for term loans of up to $45.0 million
(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 ‘‘Prior Loan Agreements’’), which provides for term loans
of up to $20.0 million (the ‘‘Second Lien Term Loan’’ and, together with the First Lien Term Loan, the
‘‘Legacy Term Loans’’) (see Note 10). The Company repaid the Prior Loan Agreements on August 15, 2014.
The proceeds from these Legacy Term Loans were used to fund the Brand Matter Acquisition, to repay
existing debt, to pay fees and expenses in connection with the foregoing, ﬁnance capital expenditures and for
general corporate purposes. The Brand Matter Acquisition was effected to complete the Company’s base
platform through acquiring two strong brands, Ellen Tracy and Caribbean Joe, with a proven team.

The Brand Matter Acquisition was accounted for under

the acquisition method of accounting.
Accordingly, the acquired assets and assumed liabilities were recorded at their estimated fair values, and
operating results for Brand Matter are included in the consolidated ﬁnancial statements from the effective date
of acquisition of March 28, 2013.

The allocation of the purchase price is summarized as follows:

Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of common stock issued (2,833,590 shares) . . . . . . . . . . . . . . . . . . . . .
Fair value of warrants issued (125,000 warrants) . . . . . . . . . . . . . . . . . . . . . . . . .
Total consideration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allocated to:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$62,285
19,835
393
$82,513

$

140
316
101
146
(1,172)
(469)
81,349
1,000
633
$82,513

The fair value of the common stock issued was determined using the closing market price of the
Company’s common stock on March 28, 2013. The fair value of the warrants issued was determined using the
Black-Scholes option-pricing model utilizing the following assumptions: dividend yield of zero, a risk-free
interest rate of 0.77%, expected term of ﬁve years and an expected volatility of 64%.

Goodwill arising from the Brand Matter Acquisition mainly consists of the synergies of an ongoing
licensing and brand management business and an experienced, assembled team. The Company’s goodwill is
deductible for tax purposes and will be amortized for tax purposes over a period of ﬁfteen years. Trademarks

F-22

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 6 — ACQUISITIONS − (continued)

have been determined by management to have an indeﬁnite useful life and, accordingly, no amortization is
recorded in the Company’s consolidated statements of operations. Goodwill and trademarks are subject to a
test for impairment on an annual basis or sooner, if an event occurs or circumstances change that indicate that
the carrying amount of the goodwill and/or trademarks may not be recoverable. Customer agreements are
amortized on a straight-line basis over their expected useful lives of four years. The Company incurred legal
and other costs related to the Brand Matter Acquisition of approximately $2.6 million, of which approximately
$0.9 million was recognized during the year ended December 31, 2012 and approximately $1.7 million was
recognized in operating expenses in the accompanying consolidated statement of operations during the year
ended December 31, 2013.

Total revenues and income from continuing operations since the date of the Brand Matter Acquisition,
included in the consolidated statement of operations for
the year ended December 31, 2013, were
approximately $11.8 million and $7.6 million, respectively. Loss from continuing operations for the year
ended December 31, 2013 includes the non-cash deferred tax expense related to the acquired trademarks of
approximately $1.8 million.

Acquisition of the Revo Brand

On August 2, 2013,

the Company entered into an asset purchase agreement (the ‘‘Revo Purchase
Agreement’’), by and among the Company, SBG Revo Holdings, LLC, a Delaware limited liability company
and wholly-owned subsidiary of the Company (‘‘SBG Revo’’), and Oakley, Inc., a Washington corporation
(‘‘Oakley’’), pursuant to which SBG Revo acquired certain assets (other than certain speciﬁed excluded assets)
of Oakley and certain of its affiliates (the ‘‘Purchased Assets’’). Under the terms of the Revo Purchase
Agreement, SBG Revo paid Oakley and certain of its affiliates an aggregate purchase price of $20.1 million in
cash and acquired the Purchased Assets. The Purchased Assets consisted of the Revo brand, including related
intellectual property and certain other assets, including certain inventory, which was simultaneously sold to the
Company’s licensee. The purchase price was partially funded with proceeds from the 2013 PIPE Transaction
(as deﬁned in Note 17 and further described in Note 20). The Company acquired the Revo brand in order to
build and strengthen its brand portfolio.

The acquisition was accounted for under the acquisition method of accounting. Accordingly, the acquired
assets and assumed liabilities were recorded at
their estimated fair values, and operating results for the
Revo brand are included in the consolidated ﬁnancial statements from the effective date of acquisition of
August 2, 2013.

The allocation of the purchase price is summarized as follows:

Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allocated to:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$20,125

$ 2,099
17,293
570
163
$20,125

F-23

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 6 — ACQUISITIONS − (continued)

Goodwill arising from the acquisition of the Revo brand mainly consists of the synergies of an ongoing
licensing and brand management business. The Company’s goodwill is deductible for tax purposes and will be
amortized for tax purposes over a period of ﬁfteen years. Trademarks have been determined by management
to have an indeﬁnite useful life and, accordingly, no amortization is recorded in the Company’s consolidated
statements of operations. Goodwill and trademarks are subject to a test for impairment on an annual basis or
sooner, if an event occurs or circumstances change that indicate that the carrying amount of the goodwill
and/or trademarks may not be recoverable. Patents are amortized on a straight-line basis over their expected
useful lives of ten years. In connection with the acquisition, the Company granted a consultant ﬁve-year
warrants to purchase up to an aggregate of 122,000 shares of the Company’s common stock at an exercise
price of $5.80 per share. The warrants had a fair value of approximately $0.3 million using the Black-Scholes
option-pricing model utilizing the following assumptions: dividend yield of zero, a risk-free interest rate of
1.72%, expected term of ﬁve years and an expected volatility of 55.67%. The Company incurred legal and
other costs related to the transaction of approximately $1.5 million, which has been recognized in operating
expenses in the accompanying consolidated statement of operations during the year ended December 31, 2013.

Total

revenues and income from continuing operations since the date of

the
Revo brand, included in the consolidated statement of operations for the year ended December 31, 2013, were
approximately $2.2 million and $0.7 million, respectively.

the acquisition of

Acquisition of The Franklin Mint Brand

On November 1, 2013, SBG FM, LLC, a Delaware limited liability company and wholly-owned
subsidiary of the Company, entered into an asset purchase agreement with The Franklin Mint, LLC, pursuant
to which the Company acquired The Franklin Mint brand, including all of the related intellectual property and
certain other assets. The Franklin Mint brand is well-known in the collectible and gift giving arena with its
mission of delivering quality, integrity and creativity. The Company acquired The Franklin Mint brand in
order to build and strengthen its brand portfolio.

Acquisition of Remaining Ownership Interest
Licensing, LLC

in William Rast Sourcing, LLC and William Rast

On May 5, 2014, the Company entered into a merger agreement (the ‘‘Tennman Merger Agreement’’),
with Tennman WR-T, Inc. (‘‘Tennman WR-T’’), a Delaware corporation, pursuant to which the Company
acquired the remaining 18% interest in William Rast Sourcing, LLC (‘‘Rast Sourcing’’) and William Rast
Licensing, LLC (‘‘Rast Licensing’’)
(i) approximately
$3.1 million of cash and (ii) 581,341 shares of the Company’s common stock, valued at approximately
$5.0 million. Shares of the Company’s common stock issued as part of the consideration pursuant to the
Tennman Merger Agreement were issued in a private placement
to
Section 4(a)(2) of the Securities Act of 1933, as amended.

for an aggregate purchase price consisting of

transaction conducted pursuant

The Company accounted for the acquisition under ASC 810-10-45-23, Consolidation, which indicates that
increases in a parent’s ownership interest while the parent retains its controlling ﬁnancial
in its
subsidiary shall be accounted for as equity transactions (investments by owners and distributions to owners
acting in their capacity as owners). Therefore, no gain has been recognized in the consolidated statements of
comprehensive income.

interest

As part of the Tennman Merger Agreement, the Company is obligated to pay royalties to Tennman

Brands, LLC, subject to the William Rast brand achieving certain performance thresholds.

The Company incurred legal costs related to the transaction of approximately $0.1 million. The aggregate
purchase price, inclusive of the legal costs, was recognized in common stock and additional paid-in capital in
the accompanying consolidated balance sheets.

F-24

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 6 — ACQUISITIONS − (continued)

Acquisition of Galaxy Brand Holdings, Inc.

On August 15, 2014, the Company consummated transactions pursuant to the agreement and plan of
merger, dated as of June 24, 2014 (the ‘‘Galaxy Merger Agreement’’) with SBG Universe Brands, LLC, a
Delaware limited liability company and direct wholly-owned subsidiary of the Company (‘‘LLC Sub’’),
Universe Galaxy Merger Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of LLC Sub,
Galaxy Brand Holdings, Inc., a Delaware corporation (‘‘Galaxy’’), Carlyle Equity Opportunity GP, L.P., a
Delaware limited partnership, solely in its capacity as the representative of the Galaxy stockholders and
optionholders, and, for limited purposes described therein, Carlyle Galaxy Holdings, L.P., a Delaware limited
partnership (‘‘Carlyle’’). Pursuant to the Galaxy Merger Agreement, the Company acquired four consumer
brands that included the ﬁtness brand Avia, basketball brand AND1, outdoor brand Nevados and home goods
brand Linens ‘N Things for an aggregate purchase price consisting of (i) $100.0 million of cash, subject to
adjustment as set
(which resulted in additional payments of
approximately $4.7 million of cash), (ii) 13,750,000 shares of the Company’s common stock and (iii) warrants
to purchase an aggregate of up to 3,000,000 additional shares of the Company’s common stock subject to the
terms and conditions set forth in the Galaxy Merger Agreement (the ‘‘Galaxy Acquisition’’). Included in the
consideration,
the Company has held back ten percent of the shares (1,375,000) as an indemnity for
18 months. These shares are unvested but have been included in the Company’s diluted EPS calculation.

forth in the Galaxy Merger Agreement

The warrants are exercisable for an aggregate of up to an additional 3,000,000 shares (the ‘‘Warrant
Shares’’) of the Company’s common stock, with an exercise price of $11.20 per share based upon the
performance of the Linens ‘N Things brand following the closing. Speciﬁcally, (i) if the Linens ‘N Things
brand generates net royalties equal to or in excess of $10.0 million in calendar year 2016, 500,000 Warrant
Shares will vest, (ii) if the Linens ‘N Things brand generates net royalties equal
to or in excess of
$15.0 million in calendar year 2016, an additional 1,000,000 Warrant Shares will vest, (iii) if the Linens
‘N Things brand generates net royalties equal to or in excess of $10.0 million in calendar year 2017, 500,000
Warrant Shares will vest, and (iv) if the Linens ‘N Things brand generates net royalties equal to or in excess
of $15.0 million in calendar year 2017, an additional 1,000,000 Warrant Shares will vest. There can be no
assurances that any or all of the Warrant Shares will vest, as the Company currently does not derive any
royalties from the Linens ‘N Things brand. On the closing date of the Galaxy Acquisition, no value was
assigned to the Warrant Shares based on the remote probability that the Linens ‘N Things brand will achieve
these performance measurements. The Company will continue to evaluate these performance measurements
for each reporting period and determine their fair value if/when the achievement of the performance
measurements becomes probable.

In connection with the Galaxy Acquisition, the Company and the stockholder representative, on behalf of
the former Galaxy stockholders and optionholders, entered into a registration rights agreement, dated as of
August 15, 2014 (the ‘‘Galaxy Registration Rights Agreement’’), which grants the stockholder representative,
on behalf of former Galaxy stockholders and optionholders, customary registration rights with respect to
certain shares of the Company’s common stock and the warrants (including the shares of common stock
underlying such warrants) issued pursuant to the Galaxy Merger Agreement, including ‘‘demand’’ registration
rights for up to three offerings of greater than $10.0 million and ‘‘piggyback’’ registration rights with respect
to such securities. The registration rights granted pursuant to the Galaxy Registration Rights Agreement are in
addition to the Company’s obligation to ﬁle a registration statement with respect to such securities as promptly
as practicable after the closing date of the Galaxy Acquisition. Pursuant to the Galaxy Registration Rights
Agreement, the Company ﬁled a resale registration statement on Form S-3 relating to the resale of up to
(i) 14,331,341 shares of the Company’s common stock, (ii) warrants to purchase up to 3,000,000 additional
shares of the Company’s common stock, subject to adjustment for stock splits, stock dividends or similar
transactions, at an exercise price of $11.20 per share, and (iii) 3,000,000 Warrant Shares, subject to adjustment
for stock splits, stock dividends or similar transactions, issuable upon the exercise of the warrants. The resale

F-25

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 6 — ACQUISITIONS − (continued)

registration statement on Form S-3 was declared effective by the Securities and Exchange Commission on
September 16, 2014. In addition pursuant to the Galaxy Merger Agreement, Mr. Matthew Eby tendered his
resignation as a Class II director of the Company and Mr. Rodney Cohen was appointed to serve as a Class II
director of the Company to ﬁll the vacancy created by the resignation.

The acquisition was accounted for under the acquisition method of accounting. Accordingly, the acquired
assets and assumed liabilities were recorded at their estimated fair values, and operating results for the Avia,
AND1, Nevados and Linens ‘N Things brands are included in the consolidated ﬁnancial statements from the
effective date of acquisition of August 15, 2014.

The allocation of the purchase price is summarized as follows:

Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of common stock issued (13,750,000 shares) . . . . . . . . . . . . . . . . . . . .
Total consideration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allocated to:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Favorable lease agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred license revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$104,656
179,025
$283,681

$

782
3,447
853
3,255
1,344
168,561
177,637
479
537
(2,834)
(70,247)
(133)
$283,681

Goodwill arising from the acquisition mainly consists of the synergies of an ongoing licensing and brand
management business. The Company’s goodwill is deductible for tax purposes and will be amortized over a
period of 15 years. Trademarks have been determined by management to have an indeﬁnite useful life and,
accordingly, no amortization is recorded in the Company’s consolidated statement of operations. Goodwill and
trademarks are subject to a test for impairment on an annual basis or sooner, if an event occurs or circumstances
change that indicate that the carrying amount of the goodwill and/or trademarks may not be recoverable. License
agreements are amortized on a straight-line basis over their expected useful lives of four years. The Company
incurred legal and other costs related to the transaction of approximately $7.0 million, which have been
recognized in operating expenses in the accompanying consolidated statement of operations during the year ended
December 31, 2014. The deferred tax liability was established to provide deferred taxes on the difference between
GAAP and tax basis for the intangible assets acquired in the Galaxy Acquisition.

Total revenues and income from continuing operations since the date of the acquisition of the Avia,
AND1, Nevados and Linens ‘N Things brands, included in the consolidated statement of operations for the
year ended December 31, 2014, are approximately $14.3 million and $12.1 million, respectively.

F-26

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 6 — ACQUISITIONS − (continued)

Acquisition of FUL

On November 17, 2014, the Company made a strategic investment in FUL IP. FUL IP is a collaborative
investment between the Company and JALP, LLC (‘‘JALP’’). FUL IP was formed for the purpose of licensing
the FUL trademark to third parties in connection with the manufacturing, distribution, marketing and sale of
FUL branded bags, backpacks, duffels, luggage and apparel accessories. JALP contributed the FUL trademark
with a fair value of approximately $8.9 million. In exchange for a 50.5% economic interest in FUL IP the
Company paid JALP $4.5 million. JALP’s minority member interest
in FUL IP has been reﬂected as
noncontrolling interest on the Company’s consolidated balance sheet. One of the Company’s directors, Mr. Al
Gossett, has a partial ownership interest in JALP.

In connection with the formation of FUL IP, the Company and JALP entered into a limited liability
company operating agreement of FUL IP on November 17, 2014 (the ‘‘FUL IP Operating Agreement’’).
Subject to certain exceptions, the FUL IP Operating Agreement provides that the Company has the right to
manage, control and conduct the business affairs of FUL IP. The FUL IP Operating Agreement also provides
that
the Company will receive 50.5% of the distributions and allocation of net proﬁts and losses and
distributable asset upon dissolution of FUL IP.

In connection with the strategic investment in FUL IP, the Company entered into an exclusive license
agreement with Concept One Accessories (‘‘Concept One’’), pursuant to which Concept One was granted
worldwide rights, subject to certain exceptions, to use the FUL trademarks in connection with the design,
manufacture, distribution, marketing and sale of bags, backpacks, duffels, luggage, belts, wallets, headwear
and cold weather knit hats, gloves and scarves. The initial term of the license agreement continues through
December 31, 2020, and may be extended by Concept One for seven additional years, subject to Concept One
achieving certain net sales requirements.

The acquisition of the FUL brand was accounted for under the acquisition method of accounting.
Accordingly, the assets were recorded at their estimated fair values, and operating results for the FUL brand
are included in the consolidated ﬁnancial statements from the effective date of acquisition of November 17,
2014. There was no goodwill as a result of the acquisition.

The allocation of the purchase price is summarized as follows:

Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest member contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allocated to:

Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$4,500
4,411
$8,911

8,911
$8,911

The FUL trademarks have been determined by management to have an indeﬁnite useful life and, accordingly,
no amortization is recorded in the Company’s consolidated statement of operations. Trademarks are subject to a
test for impairment on an annual basis or sooner, if an event occurs or circumstances change that indicate that the
carrying amount of the trademarks may not be recoverable. The Company incurred legal and other costs related to
the transaction of approximately $0.2 million, which have been recognized in operating expenses in the
accompanying consolidated statement of operations during the year ended December 31, 2014.

Total revenues and income from continuing operations since the date of acquisition, included in the
consolidated statement of operations for the year ended December 31, 2014, were both approximately
$0.4 million.

F-27

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 6 — ACQUISITIONS − (continued)

Pro Forma Information (Unaudited)

The following unaudited consolidated pro forma information gives effect

to the acquisition of the
FUL brand and the Galaxy Acquisition as if these transactions had occurred on January 1, 2013. The
following pro forma information is presented for illustration purposes only and is not necessarily indicative of
the results that would have been attained had the acquisition of these businesses been completed on January 1,
2013, nor are they indicative of results that may occur in any future periods.

Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Sequential Brands Group, Inc.

and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earnings (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted average shares outstanding:

Years Ended December 31,

2014

2013

(in thousands, except share and
per share data)

$
$

$

$
$

61,794
28,973

4,525

0.12
0.11

$
$

$

$
$

49,119
20,438

(8,150)

(0.26)
(0.26)

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39,001,937
40,827,578

31,463,140
31,463,140

The supplemental pro forma information for the years ended December 31, 2014 and 2013 has been

adjusted for the following non-recurring expenses:

Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired customer lists and favorable lease . . . . . . .
Interest expense on Loan Agreements and amortization of deferred

Years Ended December 31,

2014

2013

(in thousands)
$

$ 7,274
(171)

0
(304)

ﬁnancing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) to pro forma net income (loss) . . . . . . . . . . .

(4,357)
$ 2,746

(8,947)
$(9,251)

NOTE 7 — PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows:

December 31,

2014

2013

(in thousands)

Furniture and ﬁxtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Websites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . .
Net property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid ﬁxtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 652
169
151
936
527
195
2,630
(375)
2,255
0
$2,255

$288
38
10
138
178
0
652
(66)
586
400
$986

F-28

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 7 — PROPERTY AND EQUIPMENT − (continued)

In September 2014, in connection with the relaunch of the William Rast business with Lord & Taylor, the
Company wrote off $0.9 million of JC Penney prepaid ﬁxtures. In December 2012, in connection with the
relocation of the Company’s corporate headquarters, the Company wrote off approximately $0.2 million of
ﬁxed assets. These impairments of property and equipment are included in operating expenses in the
consolidated statements of operations for the years ended December 31, 2014 and 2012, respectively. There
were no impairments of property and equipment recorded in the consolidated statement of operations for the
year ended December 31, 2013. Depreciation and amortization expense amounted to approximately
$0.3 million, $0.1 million and $0.1 million for the years ended December 31, 2014, 2013 and 2012,
respectively.

NOTE 8 — INTANGIBLE ASSETS

Intangible assets are summarized as follows:

December 31, 2014

Finite lived intangible assets:

Useful
Lives
(Years)

Gross
Carrying
Amount
(in thousands, except years data)

Accumulated
Amortization

Net
Carrying
Amount

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer agreements . . . . . . . . . . . . . . . . . . . . . . . .
Favorable lease . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15
4
2
10

$4,812
1,599
537
665
$7,613

$ (903)
(517)
(88)
(98)
$(1,606)

Indeﬁnite lived intangible assets:

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2013

Amortized intangible assets:

Useful
Lives
(Years)

Gross
Carrying
Amount
(in thousands, except years data)

Accumulated
Amortization

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer agreements . . . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15
4
10

$4,699
1,120
665
$6,484

$(585)
(192)
(31)
$(808)

Indeﬁnite lived intangible assets:

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,909
1,082
449
567
6,007

$297,032
$303,039

Net
Carrying
Amount

$

4,114
928
634
5,676

110,052
$115,728

F-29

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 8 — INTANGIBLE ASSETS − (continued)

Future annual estimated amortization expense is summarized as follows:

Years ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$1,021
1,002
595
462
387
2,540
$6,007

Amortization expense amounted to approximately $0.8 million, $0.5 million and $0.2 million for

the years ended December 31, 2014, 2013 and 2012, respectively.

instead are subject

Indeﬁnite-lived intangible assets are not amortized, but

Intangible assets represent trademarks, customer agreements, a favorable lease and patents related to the
Company’s brands. Long-lived assets are amortized on a straight-line basis over the estimated useful lives of
the assets.
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) 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. There was no impairment of deﬁnite-lived intangibles during the years ended
impairment evaluation of its
December 31, 2014, 2013 and 2012. The Company performed its annual
indeﬁnite-lived intangible assets as of December 31, 2014. There was no impairment of indeﬁnite-lived
intangibles during the years ended December 31, 2014, 2013 and 2012.

NOTE 9 — GOODWILL

Goodwill is summarized as follows:

2014

2013

(in thousands)

Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of Ellen Tracy and Caribbean Joe . . . . . . . . . . . . . . . . . . .
Acquisition of Revo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of Galaxy Brand Holdings, Inc.. . . . . . . . . . . . . . . . . . . . .
Balance at December 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,225
—
—
168,561
$169,786

$ 429
633
163
—
$1,225

Goodwill from the Galaxy Acquisition represents the excess over the purchase price paid. 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) 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

F-30

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 9 — GOODWILL − (continued)

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. Through December 31, 2014, no impairment of goodwill has been identiﬁed.

NOTE 10 — LONG-TERM DEBT

The components of long-term debt are as follows:

December 31,

2014

2013

(in thousands)

New Term Loans and Legacy Term Loans . . . . . . . . . . . . . . . . . . . .
Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized discounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt, net of unamortized discounts . . . . . . . . . . . . . .
Less: current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$160,500
15,000
—
175,500
13,253
$162,247

$59,000
—
(1,069)
57,931
8,000
$49,931

New Term Loans and Revolving Loan

On August 15, 2014,

in connection with the Galaxy Acquisition,

the Company entered into (i) an
Amended and Restated First Lien Credit Agreement, among the Company, its subsidiaries party thereto and
Bank of America, N.A., as administrative agent and collateral agent thereunder (as so amended and restated,
the ‘‘First Lien Credit Agreement’’), which provides for a term loan of up to $75.0 million, a revolving credit
facility of up to $25.0 million and a swing line sub-facility of up to $10.0 million and (ii) a Second Lien
Credit Agreement with GSO Capital Partner LP, among the Company, its subsidiaries party thereto, and
Wilmington Trust, National Association, as administrative agent and collateral agent thereunder (the ‘‘Second
Lien Credit Agreement’’ and, together with the First Lien Credit Agreement, the ‘‘Loan Agreements’’), which
provides for a term loan of up to $90.0 million. In addition, the First Lien Credit Agreement provides for
incremental borrowings of up to $60.0 million, to be allocated pro rata between the term loan and the
revolving credit facility, and the Second Lien Credit Agreement provides for incremental borrowings of up to
$70.0 million for the purpose of consummating permitted acquisitions,
to certain
customary conditions.

in each case, subject

On August 15, 2014, $75.0 million was drawn as a term loan under the First Lien Credit Agreement and
$90.0 million was drawn as a term loan under the Second Lien Credit Agreement (together, the ‘‘New Term
Loans’’) and $15.0 million was drawn as a revolving loan under the First Lien Credit Agreement (the
‘‘Revolving Loan’’). The proceeds from the New Term Loans and the Revolving Loan were primarily used to
ﬁnance the Galaxy Acquisition pursuant
to repay the
Company’s existing indebtedness,
including the Legacy Term Loans, and to pay fees and expenses in
connection with the foregoing. The Company expects to use the proceeds from any additional borrowings
under the revolving credit facility for working capital, capital expenditures and other general corporate
purposes, and the proceeds from any borrowings under any incremental facilities for working capital purposes
and/or for permitted acquisitions.

to the terms of the Galaxy Merger Agreement,

F-31

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 10 — LONG-TERM DEBT − (continued)

Term loan borrowings under the First Lien Credit Agreement are subject to amortization of principal
(x) on September 30, 2014 in an amount equal to $1.5 million and (y) thereafter, quarterly, in equal amounts
of $3.0 million and will mature on August 15, 2019. Borrowings under the First Lien Credit Agreement bear
interest at London Interbank Offered Rate (‘‘LIBOR’’) or a base rate, plus, in each case, an applicable margin
that ﬂuctuates from 3.50% to 3.75% for LIBOR loans and from 1.50% to 1.75% for base rate loans, in each
case based on the Company’s loan to value ratio, as described in the First Lien Credit Agreement (3.94% at
December 31, 2014).

The Second Lien Credit Agreement is not subject to amortization and will mature on August 15, 2020.
Borrowings under the Second Lien Credit Agreement will bear interest at LIBOR plus 8.00% and will be
subject to a LIBOR ﬂoor of 1.00% (9.00% at December 31, 2014).

Loans under the First Lien Credit Agreement are voluntarily prepayable from time to time in whole or in
part, and loans under the Second Lien Credit Agreement are voluntarily prepayable after August 15, 2015, in
whole or in part, subject in certain cases to the payment of customary ‘‘breakage’’ costs with respect to
LIBOR-based borrowings and prepayment premiums as provided in the respective Loan Agreements.
Mandatory prepayments of the loans under the Loan Agreements are required (x) in the case of any
dispositions of intellectual property, 50% of the orderly liquidation value thereof, (y) in the case of any other
dispositions, 100% of the net proceeds thereof and (z) at each ﬁscal year end, in the amount of 30% of the
Consolidated Excess Cash Flow (as deﬁned in the Loan Agreements) of the Company and its subsidiaries, in
each case subject to certain exceptions set forth in the Loan Agreements. Based upon the calculation of the
the Company will make a required mandatory
Consolidated Excess Cash Flow at December 31, 2014,
prepayment of approximately $1.3 million and reclassiﬁed this amount from long-term to short-term on the
consolidated balance sheet.

The Company’s obligations under the Loan Agreements are guaranteed jointly and severally by each
domestic subsidiary of the Company (each a ‘‘Guarantor’’ and, collectively, the ‘‘Guarantors’’), other than
Immaterial Subsidiaries (as deﬁned in the Loan Agreements) and certain other excluded subsidiaries and
subject to certain other exceptions set forth in the Loan Agreements and the related loan documents (such
guarantees provided by the Guarantors, the ‘‘Guarantees’’). The Company’s and the Guarantors’ obligations
under the Loan Agreements and the Guarantees are, in each case, secured by ﬁrst priority liens (subject, in the
case of the Second Lien Credit Agreement, to the liens under the First Lien Credit Agreement) on, and
security interests in, substantially all of the present and after-acquired assets of the Company and each
Guarantor, subject to certain customary exceptions.

In connection with the First Lien Credit Agreement and the Second Lien Credit Agreement, Bank of
America, N.A., as the administrative agent under the First Lien Credit Agreement, and Wilmington Trust,
National Association, as the administrative agent under the Second Lien Credit Agreement, entered into an
intercreditor agreement, dated as of August 15, 2014 (the ‘‘Intercreditor Agreement’’), which was
acknowledged by the Company and the Guarantors. The Intercreditor Agreement establishes various
inter-lender terms, including, but not limited to, priority of liens, permitted actions by each party, application
of proceeds, exercise of remedies in the case of a default, incurrence of additional indebtedness releases of
collateral and limitations on the amendment of respective Loan Agreements without consent of the other party.

In addition, the Loan Agreements include covenants and events of default, including, in the case of the
First Lien Credit Agreement, requirements that we satisfy a minimum positive net income test and maintain a
minimum loan to value ratio (as calculated pursuant to the First Lien Credit Agreement), and, in the case of
the Second Lien Credit Agreement, maintain a total leverage ratio and maintain a minimum loan to value ratio
(as calculated pursuant to the Second Lien Credit Agreement).

F-32

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 10 — LONG-TERM DEBT − (continued)

In accordance with the provisions of ASC 470-50-40-10, Debt, the Company determined that the New
Term Loans transaction resulted in a modiﬁcation of the First Lien Term Loan. As such, the remaining
unamortized First Lien Term Loan deferred ﬁnancing fees of approximately $0.8 million will be amortized
over the term of the New Term Loans.

Debt Maturities

As of December 31, 2014, the Company’s debt maturities on a calendar year basis are as follows:

Total

2015

2016

New Term Loans. . .
Revolving Loan . . .
Total . . . . . . . . . . . . .

$160,500
15,000
$175,500

$13,253
—
$13,253

$12,000
—
$12,000

2017
(in thousands)
$12,000
—
$12,000

2018

2019

Thereafter

$12,000
—
$12,000

$21,247
15,000
$36,247

$90,000
—
$90,000

Legacy Term Loans

Prior to the Company’s entry into the Loan Agreements, in connection with the Brand Matter Acquisition,
on March 28, 2013, the Company entered into (i) the First Lien Loan Agreement, which provided for term
loans of up to $45.0 million and (ii) the Second Lien Loan Agreement, which provided for term loans of up to
$20.0 million. The proceeds from the Legacy Term Loans were used to fund the Brand Matter Acquisition, to
repay existing debt, to pay fees and expenses in connection with the foregoing, to ﬁnance capital expenditures
and for general corporate purposes. The Legacy Term Loans were secured by substantially all of the assets of
the Company and were further guaranteed and secured by each of the domestic subsidiaries of the Company,
other than DVS Footwear International LLC, SBG Revo and SBG FM, LLC, subject to certain exceptions set
forth in the Prior Loan Agreements. 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. In December 2013, the Company obtained the written consent of each
of the lenders to the Prior Loan Agreements and in connection therewith, SBG Revo agreed to become a Loan
Party (as deﬁned in the Prior Loan Agreements) under each of the Prior Loan Agreements, which transaction
became effective in February 2014.

The Legacy Term Loans were drawn in full on March 28, 2013 and were scheduled to mature on
March 28, 2018. The Prior Loan Agreements were repaid in full on August 15, 2014. The Company was in
compliance with its covenants throughout the existence of the Legacy Term Loans.

The fair value of the warrants was determined to be approximately $1.3 million using the Black-Scholes
option-pricing model. The fair value of the warrants was recorded as a discount to the Legacy Term Loans
and a corresponding increase to additional paid-in capital. This amount was accreted to non-cash interest
expense over the contractual term of the Legacy Term Loans, which was 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%.

Interest Expense

During the years ended December 31, 2014 and 2013, accretion of

the discount amounted to
approximately $1.1 million and $0.2 million, respectively, which was recorded as a component of interest
expense in the accompanying consolidated statements of operations. The accretion of the discount included
approximately $0.9 million which the Company wrote off due to the Second Lien Loan Agreement being
repaid on August 15, 2014. Contractual interest expense on the New Term Loans, Revolving Loan and the
Legacy Term Loans amounted to approximately $7.3 million and $3.5 million for
the years ended
December 31, 2014 and 2013, respectively, which was recorded as a component of interest expense in the
accompanying consolidated statements of operations.

F-33

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 10 — LONG-TERM DEBT − (continued)

During the year ended December 31, 2014, the Company incurred legal and other fees associated with the
closing of the Loan Agreements of approximately $4.7 million, $50,000 of which was included in operating
expenses on the accompanying consolidated statement of operations as it was related to the modiﬁcation of the
First Lien Loan Agreement. During the year ended December 31, 2013, the Company incurred legal and other
fees associated with the closing of the Prior Loan Agreements of approximately $1.9 million. During the year
ended December 31, 2014, the Company expensed the portion of the legal and other fees related to the Second
Lien Loan Agreement under the Prior Loan Agreements in an approximate amount of $0.7 million when the
Second Lien Loan Agreement was repaid on August 15, 2014. Amounts under the Loan Agreements have been
recorded as deferred ﬁnancing costs and included in other assets in the accompanying consolidated balance sheets,
and are being amortized as non-cash interest expense, using the effective interest method, over the term of the
New Term Loans. During the years ended December 31, 2014 and 2013, amortization of these fees amounted to
approximately $1.4 million and $0.3 million, respectively, which was recorded as a component of interest expense
in the accompanying consolidated statements of operations.

The Company recorded interest expense for the year ended December 31, 2012 of approximately
$0.8 million which resulted primarily from interest due on the promissory notes payable in the aggregate
principal amount of approximately $1.8 million through the date of their repayment on February 3, 2012,
interest at a rate of LIBOR on the Debentures (as deﬁned below) and non-cash interest related to the accretion
of the valuation discount and amortization of deferred ﬁnancing costs associated with the Debentures.

Interest Rate Swap

The Company currently has exposure to variability in cash ﬂows due to the impact of changes in interest
rates for the New Term Loans. During 2014, the Company entered into an interest rate swap agreement
related to $51.0 million notional value of the New Term Loans (the ‘‘Swap Agreement’’).

The objective of the Swap Agreement

is to eliminate the variability in cash ﬂows for the interest
payments associated with the New 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 New
Term Loans 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 Swap Agreement as of December 31, 2014, are as follows:

New Term Loans. . . . . . . . . . . . . . . . . . . . . . . . . . .

$51,000

Notional
Value

Derivative
Asset
(in thousands)
$0

Derivative
Liability

$(36)

F-34

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 10 — LONG-TERM DEBT − (continued)

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 $14.5 million, 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 $2.63 per share, as adjusted for the reverse stock split (the
‘‘Conversion Price’’). The TCP Warrants, which had a fair value of approximately $4.2 million, were
exercisable for ﬁve years at an exercise price of $2.63 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 approximately $7.3 million, 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 approximately $0.8 million were recorded as deferred

ﬁnancing costs and were being amortized to interest expense over the contractual term of the Debentures.

On March 28, 2013, in connection with the Brand Matter 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 $14.5 million, 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 approximately $11.0 million 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 approximately $0.6 million, were recognized as non-cash interest expense in the
accompanying consolidated statement of operations for the year ended December 31, 2013.

On December 8, 2014, TCP WR exercised the TCP Warrants to acquire 1,104,762 shares of our common

stock at an exercise price of $2.63 per share for an aggregate exercise price of $2.9 million.

Termination of Material Agreements

The proceeds received from the New Term Loans were used in part to repay in full the Legacy Term
Loans on August 15, 2014. In connection with the repayment of the Legacy Term Loans, all security
agreements, assignment agreements and guarantee agreements were terminated.

The proceeds received from the Legacy Term Loans were used in part

to repay the following
indebtedness of the Company and its subsidiaries: (a) all indebtedness owed by Rast Sourcing under its
factoring facility with Rosenthal & Rosenthal; (b) all
indebtedness owed by Rast Licensing to Mobility
Special Situations I, LLC pursuant to a promissory note in the aggregate principal amount of approximately
$0.8 million; and (c) all indebtedness owed by Rast Licensing to Monto Holdings (Pty) Ltd. pursuant to a
promissory note in the aggregate principal amount of $1.0 million. In connection with the repayments, all
security agreements, assignment agreements and guarantee agreements were terminated.

F-35

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 11 — LEASES

We lease office and corporate space, as well as office equipment, in New York, New York for our
corporate headquarters under a lease agreement expiring on December 31, 2016. In addition, as part of the
Galaxy Acquisition, we also lease office and showroom space, as well as office equipment, in New York,
New York under a lease agreement expiring on October 31, 2024 and a warehouse facility in Fontana,
California under a lease agreement expiring on November 30, 2016.

Total rent expense for the years ended December 31, 2014, 2013 and 2012 amounted to approximately

$0.6 million, $0.2 million and $0.9 million, respectively.

Future annual minimum payments due under the leases are summarized as follows:

Years Ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Future sublease income due under sublease agreements is summarized as follows:

Years Ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$ 2,893
2,891
659
672
708
3,562
$11,385

(in thousands)
$2,099
1,913
$4,012

NOTE 12 — COMMITMENTS AND CONTINGENCIES

Stockholder Derivative Complaint — Settled

(iii) abused their control,

On January 17, 2012, RP Capital, LLC (‘‘plaintiff’’) ﬁled a stockholders derivative complaint in the
Superior Court of the State of California, County of Los Angeles, against the Company and former directors
Colin Dyne, Kenneth Wengrod, Susan White and Dean Oakey. The case alleged that
the defendants
(i) breached their ﬁduciary duties to the Company for failing to properly oversee and manage the Company,
(ii) certain defendants were unjustly enriched,
(iv) grossly mismanaged the
Company, (v) wasted corporate assets, (vi) engaged in self-dealing, and (vii) breached their ﬁduciary duties by
disseminating false and misleading information. The plaintiffs sought (i) judgment against the defendants in
favor of the Company for the amount of damages sustained by the Company as a result of the defendants’
alleged breaches of their ﬁduciary duties; (ii) judgment directing the Company to take all necessary actions to
reform and improve its corporate governance and internal procedures to comply with applicable laws; (iii) an
award to the Company of restitution from the defendants and an order from the court to disgorge all proﬁts,
beneﬁts and other compensation obtained by the defendants from their alleged wrongful conduct and alleged
ﬁduciary breaches; and (iv) an award of costs and disbursements of the action, including reasonable fees for
professional services. The parties agreed upon a settlement in the action. The court granted ﬁnal approval of
the settlement on March 12, 2013 and dismissed the case on the same day. Pursuant to the settlement, the
Company was required, subject to certain exceptions, to implement and maintain in effect for a period of
three years certain corporate governance initiatives. The Company is in compliance with all of its obligations
pursuant to the settlement agreement. The settlement did not include any cash payment for damages.

F-36

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 12 — COMMITMENTS AND CONTINGENCIES − (continued)

Brand Matter Pre-Acquisition Matter — Settled

The Company incurred settlement and legal costs of approximately $0.6 million during the year ended
December 31, 2014 related to a pre-acquisition litigation matter in which Brand Matter was named as a party.

General Legal Matters

From time to time, the Company is involved in legal matters arising in the ordinary course of business.
While we believe 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.

NOTE 13 — OFFICER COMPENSATION

Yehuda Shmidman Employment Agreement

On November 19, 2012,

the board of directors (the ‘‘Board’’) appointed Yehuda Shmidman as the
Company’s Chief Executive Officer and a Class I Director of the Board. Mr. Shmidman will serve on the
Board for a term expiring at the 2015 annual meeting of stockholders, or until his successor has been elected
and qualiﬁed. In connection with his appointment as the Company’s Chief Executive Officer, the Company
entered into an employment agreement with Mr. Shmidman (the ‘‘CEO Employment Agreement’’). Pursuant
to the CEO Employment Agreement, Mr. Shmidman will serve as the Company’s Chief Executive Officer for
a term of three years. During the term of the CEO Employment Agreement, Mr. Shmidman will receive a
base salary of $600,000 per annum, which is subject to increase, and he will be eligible to receive an annual
cash performance bonus of up to 100% of his base salary based on the attainment of the EBITDA target to be
the Board (the ‘‘Compensation Committee’’) and
agreed upon by the compensation committee of
Mr. Shmidman. On November 19, 2012,
restricted stock to
Mr. Shmidman, in accordance with the terms of the CEO Employment Agreement, of which 99,049 shares, or
25%, vested on the date of grant, with the remaining shares vesting in equal installments on each of the ﬁrst,
the Compensation Committee
second and third anniversaries of the grant date. On November 1, 2013,
resolved to cancel the shares of restricted stock issued to Mr. Shmidman on November 19, 2012 and to issue
replacement shares of
Inc. 2013 Stock Incentive
Compensation Plan (the ‘‘2013 Stock Incentive Plan’’) on the same terms and subject to the same vesting
schedule as the cancelled shares. In the event of a change of control of the Company, all unvested shares of
restricted stock will immediately vest.

the Company issued 396,196 shares of

the Sequential Brands Group,

restricted stock under

In the event Mr. Shmidman’s employment

is terminated by the Company ‘‘without cause’’ or by
Mr. Shmidman ‘‘for good reason’’, each as deﬁned in the CEO Employment Agreement, Mr. Shmidman will
receive all earned but unpaid base salary and payment for all accrued but unused vacation time through the
date of termination, as well as any beneﬁts to which Mr. Shmidman may be entitled under employee beneﬁt
plans (collectively, the ‘‘accrued obligations’’). Mr. Shmidman will also receive a severance amount equal to
the greater of (i) 1.5 times his base salary then in effect and (ii) an amount equal to the base salary that
Mr. Shmidman would have received for the remainder of the term of the agreement had Mr. Shmidman’s
employment continued until the end of the employment period. In addition, Mr. Shmidman will receive earned
bonuses that have not been paid for prior ﬁscal years and, in the event such resignation or termination occurs
following the Company’s ﬁrst ﬁscal quarter of any year, a pro-rated annual bonus for the year in which his
employment was terminated. In the event Mr. Shmidman’s employment is terminated by the Company without
cause or by Mr. Shmidman for good reason, all unvested restricted stock will accelerate and become fully
vested on the date of his termination.

F-37

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 13 — OFFICER COMPENSATION − (continued)

Gary Klein Employment Agreement

On November 29, 2012, the Board appointed Gary Klein as the Company’s Chief Financial Officer for a
term of three years. During the term of his employment, Mr. Klein will receive a base salary of $250,000 per
annum, which is subject to increase, and he will be eligible to receive an annual cash performance bonus of
up to 50% of his base salary based on the attainment of the EBITDA target to be agreed upon by the
Company and Mr. Klein. Mr. Klein received a signing bonus of $20,000 and on November 29, 2012, the
Company issued 80,000 shares of restricted stock to Mr. Klein,
in accordance with the terms of his
employment offer
letter, of which 20,000 shares, or 25%, vested upon Mr. Klein’s employment
commencement date, with the remaining shares vesting in equal installments on each of the ﬁrst, second and
third anniversaries of Mr. Klein’s start date. On November 1, 2013, the Compensation Committee resolved to
cancel the shares of restricted stock issued to Mr. Klein on November 29, 2012 and to issue replacement
shares of restricted stock under the 2013 Stock Incentive Plan on the same terms and subject to the same
vesting schedule as the cancelled shares. In the event of a change of control of the Company, all unvested
shares of restricted stock will immediately vest.

On June 3, 2014,

the Company entered into an employment agreement (the ‘‘CFO Employment
Agreement’’) with Mr. Klein for a term continuing through December 31, 2016. During the term of his
employment, Mr. Klein will receive a base salary of not less than $250,000 for the 2014 calendar year,
$300,000 for the 2015 calendar year and $325,000 for the 2016 calendar year. Mr. Klein will be eligible to
receive an annual cash performance bonus of up to 60% of his base salary based on the attainment of certain
performance targets established by the Compensation Committee which will be the same as the performance
targets established for the Company’s Chief Executive Officer.

In the event Mr. Klein’s employment is terminated by the Company ‘‘without cause’’ or by Mr. Klein for
‘‘good reason,’’ each as deﬁned in the CFO Employment Agreement, Mr. Klein will receive all earned but
unpaid base salary and payment for all accrued but unused vacation time through the date of termination of
the CFO Employment Agreement, as well as any beneﬁts to which Mr. Klein may be entitled under employee
beneﬁt plans (collectively, the ‘‘Amounts and Beneﬁts’’). Mr. Klein will also receive as severance an amount
equal to the base salary that Mr. Klein would have received for the remainder of the term of the CFO
Agreement had Mr. Klein’s employment continued until the end of the employment period along with any
unpaid earned bonuses for prior years and, in the event such resignation or termination occurs following the
Company’s ﬁrst ﬁscal quarter of any year, a pro-rated annual bonus for the year in which his employment was
terminated. In addition, in the event Mr. Klein’s employment is terminated by the Company without cause or
by Mr. Klein for good reason or in the event of a Change in Control (as deﬁned in the CFO Employment
Agreement), the unvested restricted stock awards will accelerate and become fully vested on the date of his
termination. If Mr. Klein is terminated for ‘‘cause’’ by the Company or Mr. Klein terminates his employment
without ‘‘good reason,’’ the Company will have no further obligations to Mr. Klein except to pay Mr. Klein
the Amounts and Beneﬁts.

NOTE 14 — PREFERRED STOCK

On February 3, 2012, the Company amended and restated its certiﬁcate of incorporation by creating a
new series of preferred stock designated Series A Preferred Stock, by ﬁling with the Delaware Secretary of
State a Certiﬁcate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock. The
Certiﬁcate of Designation sets forth the rights, preferences, privileges and restrictions of the Series A Preferred
Stock, which include the following:

(cid:129)

(cid:129)

the authorized number of shares of Series A Preferred Stock is 19,400, having a par value $0.001
per share and a stated value of $1,000 per share (‘‘Stated Value’’);

holders of Series A Preferred Stock are not entitled to dividends or any liquidation preference;

F-38

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 14 — PREFERRED STOCK − (continued)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Series A Preferred Stock may only be transferred by a holder of such stock to a transferee if such
transfer also includes a transfer to the transferee of $1,000 in principal amount of Debentures for
each one share of transferred Series A Preferred Stock;

holders of Series A Preferred Stock vote together as a single class with the holders of common stock
that each share of
on all matters requiring approval of the holders of common stock, except
Preferred Stock is entitled to 381 votes per share (which is the number of shares of common stock a
Debenture holder would receive if it converted $1,000 in principal amount of Debentures into
common stock at the Conversion Price), which number of votes per share is subject to adjustment in
the case of stock splits, stock dividends, combinations of shares and similar
recapitalization
transactions relating to the Company’s common stock;

as long as any shares of Series A Preferred Stock are outstanding, the Company will not, without the
affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred
Stock, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred
Stock or alter or amend the Certiﬁcate of Designation, (b) amend the Company’s certiﬁcate of
incorporation or other charter documents in any manner that adversely affects any rights of such
holders, (c) increase the number of authorized shares of Series A Preferred Stock, or (d) enter into
any agreement with respect to any of the foregoing; and

upon conversion of the principal amount of a Debenture, in whole or in part, into shares of common
stock or upon the repayment of the principal amount of a Debenture, in whole or in part, by the
Company, the Company has the right to and will redeem from the Debenture holder at a price of
$0.001 per share, a number of shares of Series A Preferred Stock determined by dividing (i) the
outstanding principal amount of the Debenture that has been repaid or converted into common stock,
as applicable by (ii) the Stated Value.

As more fully discussed in Note 10,

in connection with the TCP Conversion on March 28, 2013,
the Company 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).

NOTE 15 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS

Stock Options

On January 5, 2006, the Company adopted the 2005 Stock Incentive Plan (the ‘‘2005 Stock Incentive
Plan’’), which authorized the granting of a variety of stock-based incentive awards. The 2005 Stock Incentive
Plan was administered by the Company’s Board, or a committee appointed by the Board, which determined
the recipients and terms of the awards granted. The 2005 Stock Incentive Plan provided for the issuance of
both incentive stock options (‘‘ISOs’’) and non-qualiﬁed stock options (‘‘NQOs’’). ISOs could only be granted
independent
to employees and NQOs could be granted to directors, officers, employees, consultants,
contractors and advisors. The 2005 Stock Incentive Plan provided for a total of 366,667 shares of common
stock to be reserved for issuance under the 2005 Stock Incentive Plan.

On July 24, 2013, the Board approved and adopted the 2013 Stock Incentive Plan. The 2013 Stock
Incentive Plan replaced the 2005 Stock Incentive Plan. No new grants were granted under the 2005 Stock
Incentive Plan as of July 24, 2013. Grants that were made under the 2005 Stock Incentive Plan prior to the
Board’s approval and adoption of the 2013 Stock Incentive Plan will continue to be administered in effect in
accordance with their terms. The 2013 Stock Incentive Plan became effective on July 24, 2013 and, subject to
the right of the Board to amend or terminate the 2013 Stock Incentive Plan in accordance with terms and
conditions thereof, will remain in effect until all shares of the Company’s common stock reserved for issuance

F-39

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 15 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

thereunder have been delivered and any restrictions on such shares have lapsed. Notwithstanding the
foregoing, no shares of the Company’s common stock may be granted under the 2013 Stock Incentive Plan on
or after July 24, 2023.

The 2013 Stock Incentive Plan is administered by the Compensation Committee. Under the 2013 Stock
Incentive Plan, the Compensation Committee is authorized to grant awards to employees, consultants and any
other persons to whom the 2013 Stock Incentive Plan is applicable and to determine the number and types of
such awards and the terms, conditions, vesting and other limitations applicable to each such award. The
Compensation Committee has the power to interpret the 2013 Stock Incentive Plan and to adopt such rules
and regulations as it considers necessary or appropriate for purposes of administering the 2013 Stock Incentive
Plan.

The following types of awards or any combination of awards may be granted under the 2013 Stock
Incentive Plan: (i) NQOs, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units,
(v) other stock-based awards, (vi) dividend equivalents and (vii) cash-based awards. The aggregate number of
shares of the Company’s common stock that are reserved for awards to be granted under the 2013 Stock
Incentive Plan is 2,500,000 shares, subject to adjustments for stock splits, recapitalizations and other speciﬁed
events.

The fair value of options is estimated on the date of grant using the Black-Scholes option pricing model.
The valuation determined by the Black-Scholes pricing model is affected by the Company’s stock price as
well as assumptions regarding a number of highly complex and subjective variables. These variables include,
but are not limited to, expected stock price volatility over the term of the awards, and actual and projected
employee stock option exercise behaviors. The risk free rate is based on the U.S. Treasury rate for the
expected life at the time of grant, volatility is based on the average long-term implied volatilities of peer
companies, the expected life is based on the estimated average of the life of options using the simpliﬁed
method, and forfeitures are estimated on the date of grant based on certain historical data. The Company
utilizes the simpliﬁed method to determine the expected life of the options due to insufficient exercise activity
during recent years as a basis from which to estimate future exercise patterns. The expected dividend
assumption is based on the Company’s history and expectation of dividend payouts.

Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent

periods if actual forfeitures differ from those estimates.

F-40

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 15 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

The following table summarizes the Company’s stock option activity for the years ended December 31,

2014, 2013 and 2012:

Number of
Options

Weighted
Average Exercise
Price

Weighted
Average
Remaining
Contractual Life
(in Years)

Aggregate
Intrinsic Value

(in thousands, except share, per share and years data)

Outstanding − January 1, 2012 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . .
Outstanding − December 31, 2012 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . .
Outstanding − December 31, 2013 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . .

Outstanding and expected to vest −

451,467
—
—
(46,667)
404,800
67,000
(41,473)
(6,660)
423,667
38,500
(87,667)
(1,333)

December 31, 2014 . . . . . . . . . . . . . . .
Exercisable − December 31, 2014 . . . . . . .

373,167
332,667

$ 4.51
—
—
(8.19)
$ 4.09
3.18
(2.52)
(8.74)
$ 4.45
10.07
(4.76)
(18.75)

$ 4.91
$ 4.30

7.3

$ —

7.3

$ 808

2.7

$ 812

2.0
1.7

$3,166
$3,030

A summary of the changes in the Company’s unvested stock options is as follows:

Unvested − January 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested and expected to vest − December 31, 2014 . . . . . . . . . . . .

Number of
Options
85,139
—
(38,899)
—
46,240
67,000
(50,573)
(667)
62,000
38,500
(60,000)
—
40,500

Weighted
Average Grant
Date Fair Value
$ 0.01
—
0.01
—
$ 0.01
3.18
(0.40)
(0.10)
$ 3.21
10.07
(1.08)
—
$ 2.74

F-41

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 15 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

During the year ended December 31, 2014, the Company granted an aggregate of 38,500 stock options to
employees for future services. These stock options are exercisable over a ﬁve-year term and vest over a period
of one to three years. These stock options had an aggregate fair value of approximately $0.1 million using the
Black-Scholes option-pricing model with the following weighted-average assumptions:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.04%
0.00%
37.32%

3.0 − 3.5 years

The Company recorded approximately $26,000 during the year ended December 31, 2014, as

compensation expense pertaining to these grants.

During the year ended December 31, 2013, the Company granted 47,000 stock options to employees and
20,000 stock options to a consultant for future services. These stock options are exercisable over a ﬁve-year
term for employees and a ten-year term for the consultant and vest over a period of one to three years. These
stock options had a fair value of $0.1 million using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.81%
0.00%
55.98%

3.0 − 5.5 years

The Company did not grant any stock options during the year ended December 31, 2012.

The Company recorded approximately $32,000 and $0.1 million during the years ended December 31,

2014 and 2013, respectively, as compensation expense pertaining to these grants.

Total compensation expense related to stock options for the years ended December 31, 2014, 2013 and
2012 was approximately $0.1 million, $0.1 million and $4,000, respectively. Total unrecognized compensation
expense related to unvested stock options at December 31, 2014 amounted to approximately $0.1 million and
is expected to be recognized over a weighted average period of approximately 1.6 years.

F-42

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 15 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

Warrants

The following table summarizes the Company’s outstanding warrants:

Number of
Warrants

Weighted
Average Exercise
Price

Weighted
Average
Remaining
Contractual Life
(in Years)

Aggregate
Intrinsic Value

(in thousands, except share, per share and years data)

Outstanding − January 1, 2012 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . .
Outstanding − December 31, 2012 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . .
Outstanding − December 31, 2013 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . .
Outstanding − December 31, 2014 . . . . . .
Exercisable − December 31, 2014 . . . . . . .

1,112,666
1,164,762
—
(26,666)
2,250,762
580,160
(1,083,333)
(2,667)
1,744,922
—
(1,104,762)
—
640,160
625,160

$ 1.76
2.79
—
(7.50)
$ 2.23
6.07
(1.62)
(7.50)
$ 3.88
—
2.63
—
$ 6.04
$ 6.05

4.5

$ —

4.0

$6,290

3.5

$3,323

3.1
3.2

$4,501
$4,391

A summary of the changes in the Company’s unvested warrants is as follows:

Unvested − January 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
Warrants

—
1,164,762
(1,119,762)
—
45,000
580,160
(585,160)
—
40,000
—
(25,000)
—
15,000

Weighted
Average Grant
Date Fair Value
$ —
3.36
(3.37)
—
$ 3.05
3.71
(3.71)
—
$ 3.00
—
2.97
—
$ 3.05

The Company did not grant any warrants during the years ended December 31, 2014 and 2012.

As more fully described in Note 6, during the year ended December 31, 2013, in connection with the
acquisition of the Heelys brand, 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.

F-43

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 15 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

As more fully described in Note 6, during the year ended December 31, 2013, in connection with the
the Company issued ﬁve-year warrants to purchase up to an aggregate of

Brand Matter Acquisition,
125,000 shares of the Company’s common stock at an exercise price of $10.00 per share.

As more fully described in Note 6, during the year ended December 31, 2013, in connection with the
acquisition of the Revo brand, the Company issued ﬁve-year warrants to purchase up to an aggregate of
122,000 shares of the Company’s common stock at an exercise price of $5.80 per share.

During the year ended December 31, 2013, in connection with the acquisition of The Franklin Mint
the Company issued ﬁve-year warrants to purchase up to an aggregate of 10,000 shares of the
brand,
Company’s common stock at an exercise price of $5.35 per share. These warrants had a fair value of
approximately $26,000 using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.37%
0.00%
55.27%

5.0 years

As more fully described in Note 10, during the year ended December 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 year ended December 31, 2013, the Company granted 10,000 warrants to a consultant for
future services. The warrants are exercisable at an exercise price of $5.80 per share over a ﬁve-year term and
vest over one year. These warrants had a fair value of approximately $28,000 using the Black-Scholes
option-pricing model with the following assumptions:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.72%
0.00%
55.67%

5.0 years

The Company recorded approximately $19,000 and $9,000 during the year ended December 31, 2014 and

2013 as compensation expense pertaining to this grant.

Total compensation expense related to warrants for the year ended December 31, 2014, 2013 and 2012

was approximately $19,000, $9,000 and $0, respectively.

F-44

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 15 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

Restricted Stock

A summary of the restricted stock activity for the years ended December 31, 2014, 2013 and 2012 is as

follows:

Number of
Shares

Weighted
Average Grant
Date Fair Value

Weighted
Average
Remaining
Contractual Life
(in Years)

Aggregate
Intrinsic Value

(in thousands, except share, per share and years data)

Unvested − December 31, 2012 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2012 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2013 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2014 . . . . . . . .

—
476,196
(119,049)
357,147
234,999
(127,299)
464,847
260,620
(212,881)
512,586

$ —
5.62
5.62
$ 5.62
5.80
(5.64)
$ 5.71
6.87
5.72
$ 6.30

—

3.9

2.9

1.9

$ —

$ —

$

20

$3,470

During the year ended December 31, 2014, the Company granted 137,500 shares of restricted stock to
employees and 100,000 shares of restricted stock to a consultant for future services. The Company also
granted 23,120 shares of restricted stock to members of the Board. These shares of restricted stock had a grant
date fair value of approximately $1.8 million and vest over a period of one to three and one-half years. The
Company marks-to-market the expense for the shares of restricted stock granted to the consultant.

The Company recorded approximately $0.7 million during the year ended December 31, 2014, as

compensation expense pertaining to these grants.

During the year ended December 31, 2013, the Company granted 53,000 shares of restricted stock to
employees and 125,000 shares of restricted stock to a consultant for future services. The Company also
granted 31,999 shares of restricted stock to members of the Board. These shares of restricted stock had a grant
date fair value of $1.2 million and vest over a period of one to four years. The Company marks-to-market the
expense for the shares of restricted stock granted to the consultant.

The Company recorded approximately $0.7 million and $0.3 million during the years ended

December 31, 2014 and 2013, respectively, as compensation expense pertaining to these grants.

During the year ended December 31, 2013, the Company issued 25,000 shares of restricted stock to its
Chief Financial Officer, Mr. Klein, for future services. These shares of restricted stock vest over a period of
three years. Total compensation related to the restricted stock grant amounted to approximately $0.1 million,
of which approximately $44,000 and $7,000 were recorded as operating expenses in the Company’s
consolidated statements of operations for the years ended December 31, 2014 and 2013, respectively.

As more fully described in Note 13, on November 19, 2012, the Company issued 396,196 shares of
restricted stock to the Company’s Chief Executive Officer, Mr. Shmidman, in accordance with the terms of the
CEO Employment Agreement. Total compensation related to the restricted stock grant amounted to
approximately $2.3 million, of which approximately $0.5 million, $0.6 million and $0.6 million were recorded
the years ended
as operating expenses in the Company’s consolidated statements of operations for
December 31, 2014, 2013 and 2012, respectively.

F-45

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 15 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

Additionally, as more fully described in Note 13, on November 29, 2012,

the Company issued
80,000 shares of restricted stock to the Company’s Chief Financial Officer, Mr. Klein, in accordance with the
terms of his employment offer letter. Total compensation related to the restricted stock grant amounted to
approximately $0.4 million, of which $0.1 million, $0.1 million and $0.1 million were recorded as operating
expenses in the Company’s consolidated statement of operations for the years ended December 31, 2014, 2013
and 2012, respectively.

Total compensation expense related to restricted stock grants for the years ended December 31, 2014,

2013 and 2012 was approximately $2.1 million, $1.0 million and $0.7 million, respectively.

Performance Based Restricted Stock

During the year ended December 31, 2014,

the Company granted 990,000 performance stock units
(‘‘PSUs’’) to employees and consultants under the 2013 Stock Incentive Plan. These PSUs vest as follows:
198,000 PSUs in 2014, 198,000 PSUs in 2015 and 594,000 PSUs in 2016. Included in the above grants were
300,000 and 180,000 PSUs for Mr. Shmidman, the Company’s Chief Executive Officer, and Mr. Klein, the
Company’s Chief Financial Officer, respectively. The performance metrics for the PSUs are based on
the Company’s achievement of certain revenue, Adjusted EBITDA and other targets as determined by the
Compensation Committee. The PSUs contain both carryback and carryforward rights. The Company did not
record any compensation expense related to the PSUs for the year ended December 31, 2014 as the
performance metrics were not achieved for 2014. During a meeting of the Compensation Committee on
February 24, 2015, the Compensation Committee voted to approve, on a discretionary basis, an award of
to employees and consultants, pending the conﬁrmation of the
198,000 PSUs with immediate vesting,
Company’s results through the ﬁling of this Annual Report on Form 10-K. The fair value and expense to be
recorded for the PSUs awarded on a discretionary basis with immediate vesting will be based on the closing
price of the Company’s stock on the day the Compensation Committee determines the award to be approved
and conﬁrmed, and will be recorded in the Company’s ﬁnancial statements during the ﬁrst quarter of 2015.

In addition, during the year ended December 31, 2014, certain employees of the Company were granted
335,000 PSUs upon the commencement of their employment with the Company based on performance criteria
speciﬁc to each employee. These PSUs vest as follows: 12,500 PSUs in 2014, 150,833 PSUs in 2015, 150,833
PSUs in 2016 and 20,834 PSUs in 2017. The Company did not record any compensation expense related to
these PSUs for the year ended December 31, 2014 as the performance metrics were not achieved for 2014.
The award of 12,500 PSUs with immediate vesting were approved on a discretionary basis pending the
conﬁrmation of the Company’s results through the ﬁling of this Annual Report on Form 10-K. The fair value
and expense to be recorded for the PSUs awarded on a discretionary basis with immediate vesting will be
based on the closing price of the Company’s stock on the day the Compensation Committee determines the
award to be approved and conﬁrmed, and will be recorded in the Company’s ﬁnancial statements during the
ﬁrst quarter of 2015.

NOTE 16 — INCOME TAXES

The Company and its subsidiaries are consolidated and taxes are reported by the parent, Sequential

Brands Group, Inc. Taxes are calculated on a consolidated basis at C-Corporation tax rates.

Deferred income taxes arise principally from net operating loss (‘‘NOL’’) carryforwards. In assessing the
realizability of deferred tax assets, management considers whether it
that some
portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred
income tax assets is dependent upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled reversal of deferred income
tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based

is more likely than not

F-46

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 16 — INCOME TAXES − (continued)

on consideration of these items, management has determined that enough uncertainty exists relative to the
realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as
of December 31, 2014.

The Company has federal and state NOLs available to carryforward to future periods of approximately
$32.7 million and $64.8 million, respectively, as of December 31, 2014 which expire beginning in 2026 for
federal and state purposes. As a result of TCP WR’s investment in February 2012, the Company experienced
an ‘‘ownership change’’ under Section 382 of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’),
limiting its utilization of any NOLs generated through February 2012. The Company experienced a second
ownership change on July 26, 2013 as a result of additional ownership changes. In addition, approximately
$5.1 million of these federal NOLs were acquired through the stock acquisition of Heelys Inc. and are also
subject to a separate limitation under Section 382 of the Code. In August 2014, approximately $6.6 million of
NOLs relating to the Galaxy Acquisition were limited under Section 382 of the Code. The limitation on NOLs
is based upon a formula provided under Section 382 of the Code that is based on the fair market value of the
Company and prevailing interest rates at
the time of the ownership change. An ‘‘ownership change’’ is
generally a 50% increase in ownership over a three-year period by stockholders who directly or indirectly own
at least ﬁve percent of a company’s stock. The limitations on the use of the NOLs under Section 382 could
affect the Company’s ability to offset future taxable income.

The Company currently ﬁles U.S. federal tax returns and California and New York state tax returns.
Tax years that remain open for assessment for federal and state purposes include years ended December 31,
2011 through 2014. The Company is not currently under examination in any jurisdiction.

The provision for income taxes from continuing operations for the years ended December 31, 2014, 2013

and 2012 consists of the following:

Federal:

Current provision . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision. . . . . . . . . . . . . . . . . . . . . . . . .

Foreign:

Current provision . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision. . . . . . . . . . . . . . . . . . . . . . . . .

State:

Current provision . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision. . . . . . . . . . . . . . . . . . . . . . . . .

2014

2013
(in thousands)

$ —
1,689
1,689

146
—
146

322
779
1,101
$2,936

$ —
1,451
1,451

—
—
—

63
335
398
$1,849

2012

$—
—
—

—
—
—

27
—
27
$27

F-47

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 16 — INCOME TAXES − (continued)

The difference between the provision for income taxes and the expected income tax provision determined
by applying the statutory federal and state income tax rates to pre-tax accounting loss from continuing
operations for the years ended December 31, 2014, 2013 and 2012 are as follows:

Federal statutory rate. . . . . . . . . . . . . . . . . . . . . . . . .
State taxes net of federal tax beneﬁt . . . . . . . . . . . . . .
Non-deductible transaction costs . . . . . . . . . . . . . . . . .
Noncontrolling interest
. . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . .
Gross receipts tax and minimum statutory state income

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible compensation . . . . . . . . . . . . . . . . . . .
Foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2014
35.0%
8.9%
70.0%
(6.5)%
(3.5)%

0.0%
18.4%
4.2%
1.7%
128.2%

2013
35.0%
(1.9)%
(3.6)%
2.2%
(53.3)%

(0.4)%
0.0%
0.0%
0.0%
(22.0)%

2012
34.0%
6.0%
(11.0)%
0.0%
(29.0)%

(0.3)%
0.0%
0.0%
0.0%
(0.3)%

The components of the Company’s consolidated deferred income tax balances as of December 31, 2014

and 2013 are as follows:

Deferred income tax assets − current

Bad debt reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Deferred income tax assets − long-term

Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets − ﬁnite life . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred income tax liability − long-term

Property, plant & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets − Indeﬁnite-lived . . . . . . . . . . . . . . . . . . . . . . . .

Less: Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax liability − long-term . . . . . . . . . . . . . . . . . .

2014

2013

(in thousands)

111
111

$

54
54

15,367
4,109
461
—
93
171
20,201

12,918
1,464
418
295
100
739
15,934

(159)
(77,056)
(77,215)
(20,153)
$(77,056)

0
(4,339)
(4,339)
(15,988)
$ (4,339)

Realization of the deferred tax assets is dependent on the existence of sufficient taxable income within
the carryforward period, including future reversals of taxable temporary differences. The taxable temporary
difference related to indeﬁnite-lived trademarks, which are currently amortized for tax purposes, will reverse
when such assets are disposed of or impaired. Because the period for their reversal is not determinable, the
net deferred tax liability of approximately $77.1 million attributable to indeﬁnite-lived trademarks could not
be used to offset the deferred tax assets. As of December 31, 2014, a valuation allowance of approximately
$20.2 million had been recognized for deferred income taxes that may not be realized by the Company in
future periods.

F-48

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 16 — INCOME TAXES − (continued)

A reconciliation of the consolidated liability for gross unrecognized income tax beneﬁts (excluding

penalties and interest) for the years ended December 31, 2014 and 2013 is as follows:

2014

2013

(in thousands)

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases in prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . .
Increases in prior year tax positions. . . . . . . . . . . . . . . . . . . . . . . . .
Increases in current year tax positions . . . . . . . . . . . . . . . . . . . . . . .
Settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 380
0
0
0
0
(110)
$ 270

$454
0
0
0
0
(74)
$380

If the Company were to prevail on all unrecognized tax beneﬁts recorded, approximately $0.3 million of
the unrecognized tax beneﬁts (excluding accrued interest and penalties) at December 31, 2014 would be
recorded as a beneﬁt at
the effective tax rate. Liabilities for unrecognized tax beneﬁts are included in
long-term liabilities from discontinued operations in the consolidated balance sheet.

The Company recognizes interest related to unrecognized tax beneﬁts in interest expense and penalties
related to tax liabilities in the tax provision. During the years ended December 31, 2014, 2013 and 2012, the
Company recognized approximately $24,000, $23,000 and $34,000 in interest and penalties, respectively. The
Company has accrued $0.3 million and $0.3 million for interest and penalties at December 31, 2014 and 2013,
respectively. Accrued interest and penalties are included in long-term liabilities from discontinued operations
in the consolidated balance sheets.

NOTE 17 — RELATED PARTY TRANSACTIONS

Entry into 2013 PIPE Purchase Agreements and Registration Rights Agreements

On July 25, 2013, the Company entered into securities purchase agreements (the ‘‘2013 PIPE Purchase
Agreements’’) with certain accredited investors (the ‘‘2013 PIPE Investors’’), pursuant to which the Company
agreed to sell to the 2013 PIPE Investors an aggregate of 8,000,000 shares of the Company’s common stock
at a purchase price of $5.50 per share, for a total offering amount of $44.0 million (the ‘‘2013 PIPE
Transaction’’). The 2013 PIPE Investors included TCP SQBG II LLC (‘‘TCP II’’), an investment vehicle of
Tengram Capital Partners Gen2 Fund, L.P. (‘‘Tengram’’), one of the Company’s largest stockholders, which
agreed to purchase 257,273 shares, and Mr. Al Gossett, a member of the Board, who agreed to purchase
109,091 shares. The Company’s director, Mr. Sweedler, and the Company’s former director, Mr. Matthew Eby,
are managing members of Tengram Capital Associates, LLC (‘‘TCA’’), which is the general partner of the
managing member of each of TCP WR, TCP SQBG Acquisition, LLC (‘‘TCP Acquisition’’) and TCP II. The
closing date of the 2013 PIPE Transaction was July 26, 2013.

Relationship with Brand Matter

On March 28, 2013,

the Company entered into the BM Purchase Agreement, by and among the
Company, ETPH and Brand Matter, pursuant to which the Company acquired from ETPH all of the issued
and outstanding equity interests of Brand Matter. Prior to the consummation of the Brand Matter Acquisition,
one of the Company’s directors, Mr. Sweedler, and one of the Company’s former directors, Mr. Eby (i) were
members of Brand Matter and (ii) served on the board of directors of ETPH, the direct parent of Brand
Matter. Mr. Sweedler also (i) served as co-chairman of the board of directors of Brand Matter, (ii) served as
an executive officer of Brand Matter and (iii) beneﬁcially owned certain membership interests of ETPH. As a
consequence of Mr. Sweedler’s indirect beneﬁcial ownership in Brand Matter and the Company and his and
Mr. Eby’s position with ETPH, the Company and Brand Matter as well as the Company and ETPH each

F-49

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 17 — RELATED PARTY TRANSACTIONS − (continued)

appointed special independent committees (on which neither Mr. Sweedler nor Mr. Eby served) to review and
negotiate the terms of the Brand Matter Acquisition. Also, in connection with the Brand Matter Acquisition,
Mr. Sweedler received shares of the Company’s common stock for all his equity interests in Brand Matter.
Mr. Sweedler and Mr. Eby are also controlling partners of Tengram, which indirectly beneﬁcially owns
approximately 20.5% of the Company’s outstanding common stock as of March 11, 2015.

Amended and Restated Stockholders Agreement

On February 22, 2012, the Company, TCP WR and Mr. Dyne, the Company’s former chief executive
officer, chief ﬁnancial officer and director entered into a stockholders agreement
(the ‘‘Stockholders
Agreement’’). In connection with the Brand Matter Acquisition, the Company entered into the amended and
restated stockholders agreement, dated as of March 27, 2013 (the ‘‘Amended Stockholders Agreement’’),
pursuant to which Mr. Dyne was removed as a party. The terms of the Amended Stockholders Agreement are
otherwise substantially similar to those in the Stockholders Agreement.

Entry into 2012 PIPE Purchase Agreement and Registration Rights Agreement

On December 21, 2012, the Company entered into a securities purchase agreement (the ‘‘2012 PIPE
Purchase Agreement’’), by and among the Company and the investors signatory thereto (the ‘‘2012 PIPE
Investors’’), pursuant to which the Company agreed to sell to the 2012 PIPE Investors an aggregate of
4,966,667 shares of the Company’s common stock at a purchase price of $4.50 per share, for a total offering
amount of approximately $22.4 million (the ‘‘2012 PIPE Transaction’’). The 2012 PIPE Investors included
the Company’s Chief Executive Officer, Mr. Shmidman, who agreed to purchase 11,111 shares and
TCP Acquisition, a fund managed by Tengram, which agreed to purchase 733,333 shares. The closing date of
the 2012 PIPE Transaction was January 9, 2013.

Heelys Merger Agreement

On December 7, 2012, in connection with the Company’s entry into the Heelys Merger Agreement, the
Company entered into an equity commitment letter with Tengram, pursuant to which such entity agreed to
provide the Company with up to $8.1 million of equity ﬁnancing, subject to the terms and conditions set forth
in the commitment letter, if needed, to enable the Company to satisfy its obligations under the Heelys Merger
Agreement. The commitment
letter automatically terminated upon the consummation of the transactions
contemplated by the Heelys Merger Agreement on January 24, 2013 without an equity ﬁnancing by Tengram.

Change of Control Transaction with TCP WR Acquisition, LLC

Mr. Sweedler, a director of the Company, and Mr. Eby, a former director of the Company, are managing
members of TCA, which is the controlling partner of Tengram, which has the sole voting control over
TCP WR. On February 2, 2012, the Company entered into the Tengram Securities Purchase Agreement,
pursuant to which the Company sold the Debentures, TCP Warrants and Series A Preferred Stock to TCP WR.

The Tengram Securities Purchase Agreement provided certain piggyback rights to TCP WR for its shares
of the Company’s common stock issued upon conversion of the Debentures or shares of the Company’s
common stock issuable upon conversion of the warrants held by TCP WR to be included in a registration
statement, subject to customary underwriter cutbacks.

In connection with the Brand Matter Acquisition in March 2013, the Debentures were converted into
the Conversion Price and all of the issued and

5,523,810 shares of the Company’s common stock at
outstanding shares of Series A Preferred Stock were redeemed for a nominal fee of $14.50 (unrounded).

On December 8, 2014, TCP WR exercised the TCP Warrants to acquire 1,104,762 shares of the
Company’s common stock at an exercise price of $2.63 per share for an aggregate exercise price of
$2.9 million.

F-50

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 17 — RELATED PARTY TRANSACTIONS − (continued)

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 has engaged TCM, effective as of January 1, 2013, 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 (the ‘‘TCM Agreement’’). TCM is entitled to receive compensation,
including fees and reimbursement of out-of-pocket expenses in connection with performing the services under
the TCM Agreement. The TCM 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 of the Company.

In connection with the Galaxy Merger Agreement, (i) a $3.5 million fee was paid to TCM upon
consummation of the Galaxy Acquisition and (ii) the Company and TCM entered into an amendment to the
TCM Agreement (the ‘‘Amended TCM Agreement’’), pursuant to which, among other things, TCM is entitled
to receive annual fees of $0.9 million beginning with the ﬁscal year 2014. The Company paid TCM
$0.5 million and $1.0 million for services under the Amended TCM Agreement for the years ended
December 31, 2014 and 2013,
the Company owed
approximately $0.5 million and $0, respectively, to TCM.

respectively. At December 31, 2014 and 2013,

the request of

Additionally, in July 2013, the Company entered into a consulting arrangement with an employee of
TCM (the ‘‘TCM Employee’’), pursuant to which the TCM Employee provides legal and other consulting
services at
the Company from time to time. The TCM Employee was also issued
125,000 shares of restricted stock, vesting over a four year period, and 180,000 PSUs as described above in
Note 15. The Company paid the TCM Employee approximately $0.3 million and $0.1 million for services
under this agreement for the years ended December 31, 2014 and 2013, respectively. At December 31, 2014
and 2013, there were no amounts owed to the TCM Employee.

Transactions with Tennman WR-T

As discussed in Note 6, on May 5, 2014 the Company acquired the remaining 18% interest in Rast
Sourcing and Rast Licensing. Under the prior royalty agreement among Tennman WR-T, Rast Sourcing and
Rast Licensing, royalties paid by Rast Sourcing to Tennman WR-T amounted to approximately $0.5 million,
$1.1 million and $0.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. At
December 31, 2014 and 2013, amounts owed to Tennman WR-T of $0 and $0.4 million, respectively, are
included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. During
the years ended December 31, 2014, 2013 and 2012, the Company recorded approximately $0.2 million,
in royalty expense, of which approximately $0.2 million,
$0.9 million and $0.9 million, respectively,
$0.9 million and $0.9 million, respectively, is included in operating expenses from continuing operations and
$0, $0 and $0.1 million, respectively, is included in discontinued operations.

As discussed in Note 6, as part of the Tennman Merger Agreement, the Company will pay royalties to
Tennman Brands, LLC, subject to the William Rast brand achieving certain performance thresholds. The
Company did not pay any royalties to Tennman Brands, LLC during the year ended December 31, 2014.

Transactions with E.S. Originals, Inc.

A group president of the Company maintains a passive ownership interest in one of the Company’s
licensees, E.S. Originals, Inc. (‘‘ESO’’). The Company receives royalties from ESO under license agreements
for certain of the Company’s brands in the footwear category. The Company recorded approximately
$5.2 million of revenue for the year ended December 31, 2014 for royalties earned from ESO license
the Company had approximately $3.3 million recorded as accounts
agreements. At December 31, 2014,
receivable on the consolidated balance sheet.

F-51

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 17 — RELATED PARTY TRANSACTIONS − (continued)

Acquisition of FUL

On November 17, 2014, the Company made a strategic investment in FUL IP. FUL IP is a collaborative
investment between the Company and JALP. FUL IP was formed for the purpose of licensing the FUL
trademark to third parties in connection with the manufacturing, distribution, marketing and sale of FUL
branded bags, backpacks, duffels, luggage and apparel accessories. JALP contributed the FUL trademark with
a fair value of approximately $8.9 million. In exchange for a 50.5% economic interest
in FUL IP the
Company paid JALP $4.5 million. JALP’s minority member interest
in FUL IP has been reﬂected as
noncontrolling interest on the Company’s consolidated balance sheet. One of the Company’s directors, Mr. Al
Gossett, has a partial ownership interest in JALP.

NOTE 18 — 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 Board. The Company accrued a matching
contribution of approximately $0.1 million for
the year ended December 31, 2014. There were no
contributions made during the years ended December 31, 2013 and 2012.

NOTE 19 — 2012 PRIVATE PLACEMENT TRANSACTION

On December 21, 2012, the Company entered into the 2012 PIPE Purchase Agreement with the 2012
PIPE Investors, pursuant to which the Company agreed to sell to the 2012 PIPE Investors an aggregate of
4,966,667 shares of the Company’s common stock at a purchase price of $4.50 per share, for a total offering
amount of approximately $22.4 million. Net proceeds, after the payment of legal and other expenses of
approximately $1.2 million, amounted to approximately $21.2 million.

The 2012 PIPE Transaction was consummated on January 9, 2013 and a portion of the proceeds was
used to fund the acquisition of Heelys. Affiliates of the Company purchased 744,444 shares, with the
Company’s Chief Executive Officer, Mr. Shmidman, purchasing 11,111 shares and TCP Acquisition purchasing
733,333 shares. One of the Company’s directors, Mr. Sweedler, and one of the Company’s former directors,
Mr. Eby, are managing members of TCA, which is the controlling partner of Tengram. As contemplated by the
2012 PIPE Purchase Agreement, the Company also entered into a registration rights agreement with the 2012
PIPE Investors on January 9, 2013, as amended on May 14, 2013.

NOTE 20 — 2013 PRIVATE PLACEMENT TRANSACTION

to which the Company agreed to sell

On July 25, 2013, the Company entered into the 2013 PIPE Purchase Agreements with the 2013 PIPE
Investors, pursuant
to the 2013 PIPE Investors an aggregate of
8,000,000 shares of the Company’s common stock, par value $0.001, at a purchase price of $5.50 per share,
for a total offering amount of $44.0 million. Certain affiliates of the Company, including Mr. Al Gossett, a
member of the Company’s Board, and TCP II, an entity affiliated with Tengram, agreed to purchase
109,091 shares and 257,273 shares, respectively,
in the 2013 PIPE Transaction. Net proceeds, after the
payment of legal and other expenses of approximately $3.2 million, amounted to approximately $40.8 million.

The Company used a portion of the proceeds to fund the acquisition of the Revo brand (see Note 6) and
including other business acquisitions, and to pay the fees and expenses

for general corporate purposes,
associated therewith.

F-52

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014, 2013 AND 2012

NOTE 21 — QUARTERLY DATA (UNAUDITED)

Unaudited quarterly consolidated ﬁnancial information for 2014 and 2013 is summarized as follows:

2014
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest. . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries . . .

Basic earnings (loss) per share:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

(in thousands, except per share data)

$6,262
2,512
1,244
847
(105)
742

$7,003
567
(664)
(515)
(92)
(607)

$10,000
(1,015)
(4,870)
2,733
(88)
2,645

$18,572
9,967
6,580
(3,711)
(137)
(3,848)

Attributable to Sequential Brands Group, Inc. and Subsidiaries . . . . . . . . . . . . .

$ 0.03

$ (0.02)

$

0.08

$ (0.10)

Diluted earnings (loss) per share:

Attributable to Sequential Brands Group, Inc. and Subsidiaries . . . . . . . . . . . . .

$ 0.03

$ (0.02)

$

0.08

$ (0.10)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

(in thousands, except per share data)

2013
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,629
(3,736)
(Loss) income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(17,617)
(Loss) income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,864)
Loss from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
(21,481)
Consolidated net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(26)
Net income attributable to noncontrolling interest. . . . . . . . . . . . . . . . . . . . . .
(21,507)
Net (loss) income attributable to Sequential Brands Group, Inc. and Subsidiaries . .

$4,347
2,053
823
(102)
721
(28)
693

$ 6,066
1,579
136
(1,295)
(1,159)
(57)
(1,216)

$10,611
5,912
5,516
(983)
4,533
(477)
4,056

Basic (loss) earnings per share:

Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2.43)
(0.53)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attributable to Sequential Brands Group, Inc. and Subsidiaries . . . . . . . . . . . . $ (2.96)

$ 0.05
(0.01)
$ 0.04

$ 0.01
(0.06)

$ 0.20
(0.04)
$ (0.05) $ 0.16

Diluted (loss) earnings per share:

Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2.43)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.53)
Attributable to Sequential Brands Group, Inc. and Subsidiaries . . . . . . . . . . . . $ (2.96)

$ 0.05
(0.01)
$ 0.04

$ 0.01
(0.06)

$ 0.19
(0.04)
$ (0.05) $ 0.15

F-53

Schedule II — Valuation and Qualifying Accounts
Sequential Brands Group, Inc.
(in thousands)

Description
Reserves and allowance deducted from asset

accounts:

Balance at
Beginning of
Period

Additions
Charged to
Costs and
Expenses

Deductions

Balance at End
of Period

Accounts receivable(a):
Year Ended December 31, 2014 . . . . . . . . . . . .
Year Ended December 31, 2013 . . . . . . . . . . . .
Year Ended December 31, 2012 . . . . . . . . . . . .

$135
$ —
$ —

(a) — These amounts include reserves for doubtful accounts.

$ 75
$250
$ —

$ (41)
$(115)
$ —

$169
$135
$ —

F-54

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SIGNATURES

Date: March 16, 2015

SEQUENTIAL BRANDS GROUP, INC.

/s/ Yehuda Shmidman
By: Yehuda Shmidman
Title: Chief Executive Officer

(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below

by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name

Title

Date

/s/ Yehuda Shmidman
Yehuda Shmidman

/s/ Gary Klein
Gary Klein

/s/ William Sweedler
William Sweedler

/s/ Rodney Cohen
Rodney Cohen

/s/ Al Gossett
Al Gossett

/s/ Aaron Hollander
Aaron Hollander

/s/ Gary Johnson
Gary Johnson

/s/ Stewart Leonard, Jr.
Stewart Leonard, Jr.

Chief Executive Officer, Director
(Principal Executive Officer)

Chief Financial Officer
(Principal Financial and Accounting Officer)

March 16, 2015

March 16, 2015

Chairman of the Board of Directors

March 16, 2015

Director

Director

Director

Director

Director

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

S-1

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Exhibit
Number

2.1

2.2

2.3

2.4

2.5

3.1

3.2

3.3

3.4

3.5

4.1

4.2

4.3

10.1

10.2

INDEX TO EXHIBITS

Exhibit Title

Unit Purchase Agreement entered into as of April 7, 2011 by and among J. Lindeberg USA
Corp., as buyer, and People’s Liberation, Inc. and Bella Rose, LLC, as sellers. Incorporated
by reference to Exhibit 2.1 to our Quarterly Report on Form 10-Q ﬁled on May 16, 2011.*

Purchase and Sale Agreement, dated June 18, 2012, by and between Sequential Brands
Group, Inc. and DVS Shoe Co., Inc. Incorporated by reference to Exhibit 2.1 to our Quarterly
Report on Form 10-Q ﬁled on August 14, 2012.*

Purchase and Sale Agreement, dated June 28, 2012, by and between Sequential Brands
Group, Inc. and Westlife Distribution USA, LLC. Incorporated by reference to Exhibit 2.2 to
our Quarterly Report on Form 10-Q ﬁled on August 14, 2012.*

Agreement and Plan of Merger, dated December 7, 2012, by and among Sequential Brands
Group, Inc., Wheels Merger Sub Inc. and Heelys, Inc. Incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K of Heelys, Inc. ﬁled on December 10, 2012.*

Agreement and Plan of Merger, dated as of June 24, 2014, by and among Sequential Brands
Group, Inc., SBG Universe Brands, LLC, Universe Galaxy Merger Sub, Inc., Galaxy Brand
Holdings, Inc., solely in its capacity as the Stockholder Representative, Carlyle Equity
Opportunity GP, L.P. and Carlyle Galaxy Holdings, L.P., for purposes of Section 6.5(b) only.
Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K ﬁled on
June 25, 2014.*
Amended and Restated Certiﬁcate of Incorporation of Sequential Brands Group, Inc.
Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K ﬁled on
July 18, 2008.
Certiﬁcate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock.
Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K ﬁled on
February 8, 2012.
Certiﬁcate of Ownership and Merger merging Sequential Brands Group, Inc. with and into
People’s Liberation, Inc. Incorporated by reference to Exhibit 3.1 to our Current Report on
Form 8-K ﬁled on March 29, 2012.
Certiﬁcate of Amendment to the Certiﬁcate of Incorporation of Sequential Brands Group, Inc.
Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K ﬁled on
September 13, 2012.
Sequential Brands Group, Inc. Amended and Restated Bylaws, effective as of September 11,
2013. Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K ﬁled on
September 13, 2013.
2005 Sequential Brands Group, Inc. Option Plan. Incorporated by reference to Exhibit 4.1 to
our Registration Statement on Form SB-2 (File No. 333-130930) ﬁled on January 9, 2006.**

Form of Variable Rate Senior Secured Convertible Debenture Due January 31, 2015 of
People’s Liberation, Inc. Incorporated by reference to Exhibit 10.2 to our Current Report on
Form 8-K ﬁled on February 28, 2012.

Form of Common Stock Purchase Warrant of People’s Liberation, Inc. Incorporated by
reference to Exhibit 10.3 to our Current Report on Form 8-K ﬁled on February 28, 2012.

Form of Indemnity Agreement. Incorporated by reference to Exhibit 10.12 to our Registration
Statement on Form SB-2 (File No. 333-130930) ﬁled on January 9, 2006.

Asset Purchase Agreement dated June 24, 2011 by and between Monto Holdings (Pty) Ltd.
and Sequential Brands Group, Inc. and its wholly-owned subsidiary, Bella Rosa, LLC.
Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q ﬁled on
August 18, 2011.

E-1

Exhibit
Number

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

Exhibit Title

Second Amended and Restated Limited Liability Company Operating Agreement of William
Rast Sourcing, LLC, effective as of October 1, 2011. Incorporated by reference to
Exhibit 10.6 to our Quarterly Report on Form 10-Q ﬁled on November 21, 2011.

Second Amended and Restated Limited Liability Company Operating Agreement of William
Rast Licensing, LLC, effective as of October 1, 2011. Incorporated by reference to
Exhibit 10.7 to our Quarterly Report on Form 10-Q ﬁled on November 21, 2011.

Royalty Agreement by and among William Rast Sourcing, LLC, William Rast Licensing, LLC
and Tennman WR-T, Inc. effective as of October 1, 2011. Incorporated by reference to
Exhibit 10.8 to our Quarterly Report on Form 10-Q ﬁled on November 21, 2011.***

Preemptive Rights and Board Nominee Agreement by and between Sequential Brands Group,
Inc. and Tennman WR-T, Inc. effective as of October 1, 2011. Incorporated by reference to
Exhibit 10.9 to our Quarterly Report on Form 10-Q ﬁled on November 21, 2011.

Services Agreement by and between William Rast Licensing, LLC and Tennman Brands, LLC
f/s/o Justin Timberlake effective as of October 1, 2011. Incorporated by reference to
Exhibit 10.10 to our Quarterly Report on Form 10-Q ﬁled on November 21, 2011.

License Agreement by and between William Rast Sourcing, LLC and William Rast Licensing,
LLC and J.C. Penney Corporation, Inc. dated November 21, 2011. Incorporated by reference
to Exhibit 10.49 to our Annual Report on Form 10-K ﬁled on March 30, 2012.***
Securities Purchase Agreement, dated February 2, 2012, between Sequential Brands Group,
Inc. and each purchaser identiﬁed on the signature page thereto. Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K ﬁled on February 28, 2012.
Operating Agreement of DVS Footwear International, LLC, dated as of June 29, 2012 by and
between Sequential Brands Group, Inc. and Elan Polo International, Inc. Incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q ﬁled on August 14, 2012.
DVS License Agreement-Worldwide Exclusive License, dated as of June 29, 2012 by and
between DVS Footwear International, LLC and Elan Polo International, Inc. Incorporated by
reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q ﬁled on August 14, 2012.***
Employment Agreement, dated November 19, 2012, by and between Sequential Brands
Group, Inc. and Yehuda Shmidman. Incorporated by reference to Exhibit 10.28 to our Annual
Report on Form 10-K ﬁled on April 1, 2013.**
Stock Purchase Agreement, dated November 19, 2012, by and between Sequential Brands
Group, Inc. and Yehuda Shmidman. Incorporated by reference to Exhibit 10.30 to our Annual
Report on Form 10-K ﬁled on April 1, 2013.**
Stock Purchase Agreement, dated November 29, 2012, by and between Sequential Brands
Group, Inc. and Gary Klein. Incorporated by reference to Exhibit 10.31 to our Annual Report
on Form 10-K ﬁled on April 1, 2013.**

Purchase Agreement, dated March 28, 2013, by and among Sequential Brands Group, Inc.,
ETPH Acquisition, LLC and B(cid:5)and Matter, LLC. Incorporated by reference to Exhibit 10.1 to
our Current Report on Form 8-K ﬁled on April 3, 2013.*

First Lien Term Loan Agreement, dated March 28, 2013, by and among Sequential Brands
Group, Inc., Bank of America, N.A., the guarantors named therein and the lenders party
thereto. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K ﬁled on
April 3, 2013.*

Second Lien Term Loan Agreement, dated March 28, 2013, by and among Sequential Brands
Group, Inc., Pathlight Capital, LLC, the guarantors named therein and the lenders party
thereto. Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K ﬁled on
April 3, 2013.*

E-2

Exhibit
Number

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

Exhibit Title

Intercreditor Agreement, dated March 28, 2013, by and between Bank of America, N.A. and
Pathlight Capital, LLC. Incorporated by reference to Exhibit 10.4 to our Current Report on
Form 8-K ﬁled on April 3, 2013.

Warrant Purchase Agreement, dated March 28, 2013, by and between Sequential Brands
Group, Inc. and Pathlight Capital, LLC. Incorporated by reference to Exhibit 10.5 to our
Current Report on Form 8-K ﬁled on April 3, 2013.

Form of Class B Common Stock Purchase Warrant, dated March 28, 2013, issued to Pathlight
Capital, LLC. Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K
ﬁled on April 3, 2013.

Amended and Restated Stockholders Agreement, dated March 27, 2013, by and among
Sequential Brands Group, Inc., TCP WR Acquisition, LLC and the other stockholders party
thereto. Incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q ﬁled
on May 15, 2013.

Form of Consent to Amendment to the Registration Rights Agreement, dated May 14, 2013,
by and between Sequential Brands Group, Inc. and certain investors’ signatory to the
Registration Rights Agreement, dated January 9, 2013. Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K ﬁled on May 17, 2013.
Form of Securities Purchase Agreement No. 1, dated July 25, 2013, by and among Sequential
Brands Group, Inc. and certain investors’ signatory thereto. Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K ﬁled on July 29, 2013.
Form of Securities Purchase Agreement No. 2, dated July 25, 2013, by and among Sequential
Brands Group, Inc. and certain investors’ signatory thereto. Incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K ﬁled on July 29, 2013.
Form of Registration Rights Agreement No. 1, dated July 26, 2013, by and among Sequential
Brands Group, Inc. and certain investors’ signatory thereto. Incorporated by reference to
Exhibit 10.3 to our Current Report on Form 8-K ﬁled on July 29, 2013.
Form of Registration Rights Agreement No. 2, dated July 26, 2013, by and among Sequential
Brands Group, Inc. and certain investors’ signatory thereto. Incorporated by reference to
Exhibit 10.4 to our Current Report on Form 8-K ﬁled on July 29, 2013.
Asset Purchase Agreement, dated as of August 2, 2013, by and between SBG Revo Holdings,
LLC and Oakley, Inc. Incorporated by reference to Exhibit 10.2 of our Quarterly Report on
Form 10-Q ﬁled on August 12, 2013.*
Sequential Brands Group, Inc. 2013 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.1 to Registration Statement on Form S-8 (Registration No. 333-190352) ﬁled on
August 2, 2013.**

Form of Notice of Option Grant. Incorporated by reference to Exhibit 10.2 to Registration
Statement on Form S-8 (Registration No. 333-190352) ﬁled on August 2, 2013.**

Form of Notice of Restricted Stock Grant. Incorporated by reference to Exhibit 10.3 to
Registration Statement on Form S-8 (Registration No. 333-190352) ﬁled on
August 2, 2013.**

Amendment to the License Agreement, dated December 19, 2013, by and among Sequential
Brands Group, Inc., J.C. Penney Corporation, Inc., William Rast Sourcing, LLC and William
Rast Licensing, LLC. Incorporated by reference to Exhibit 10.49 to our Annual Report on
Form 10-K ﬁled on March 31, 2014.***

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 our Annual Report on
Form 10-K ﬁled on March 31, 2014.

E-3

Exhibit
Number

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

14.1

21.1
23.1
23.2
31.1

31.2

32.1

Exhibit Title

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 our Annual Report on
Form 10-K ﬁled on March 31, 2014.

Acknowledgement by SGB Revo Holdings, LLC. Incorporated by reference to Exhibit 10.52
to our Annual Report on Form 10-K ﬁled on March 31, 2014.

Employment Agreement, dated as of June 3, 2014, by and between Sequential Brands Group,
Inc. and Gary Klein. Incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q ﬁled on August 14, 2014.**

Registration Rights Agreement, dated as of August 15, 2014, by and between Sequential
Brands Group, Inc. and Carlyle Equity Opportunity GP, L.P., as the representative of the
former stockholders and optionholders of Galaxy Brand Holdings, Inc. Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K ﬁled on August 18, 2014.

Amended and Restated First Lien Credit Agreement, dated as of August 15, 2014, by and
among Sequential Brands Group, Inc., the guarantors party thereto, the lenders party thereto
and Bank of America, N.A., as administrative agent and collateral agent thereunder.
Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K ﬁled on
August 18, 2014.*
Second Lien Credit Agreement, dated as of August 15, 2014, by and among Sequential
Brands Group, Inc., the guarantors party thereto, the lenders party thereto and Wilmington
Trust National Association, as administrative agent and collateral agent thereunder.
Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K ﬁled on
August 18, 2014.*
Intercreditor Agreement, dated as of August 15, 2014, by and between Bank of America, N.A.
and Wilmington Trust, National Association. Incorporated by reference to Exhibit 10.4 to our
Current Report on Form 8-K ﬁled on August 18, 2014.
Form of Common Stock Purchase Warrant. Incorporated by reference to Exhibit 10.5 to our
Current Report on Form 8-K ﬁled on August 18, 2014.
Sequential Brands Group, Inc. Code of Ethical Conduct. Incorporated by reference to
Exhibit 14.1 to our Current Report on Form 10-KSB ﬁled on March 7, 2006.
Subsidiaries of Sequential Brands Group, Inc.
Consent of Independent Registered Public Accounting Firm.
Consent of Independent Registered Public Accounting Firm.
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.
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.

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.

E-4

Exhibit
Number

101.INS

101.SCH

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

Exhibit Title

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

*

**

***

Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to this agreement have been omitted. The
Registrant undertakes to supplementally furnish a copy of the omitted schedules to the Securities and
Exchange Commission upon request.
Each a management contract or compensatory plan or arrangement required to be ﬁled as an exhibit to
this Annual Report on Form 10-K.
Certain portions of this agreement have been omitted and ﬁled separately with the Securities and
Exchange Commission pursuant to a request for an order granting conﬁdential treatment pursuant to
Rule 24b-2 of the Rules and Regulations under the Securities and Exchange Act of 1934, as amended.

E-5

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EXHIBIT 21.1

SUBSIDIARIES OF SEQUENTIAL BRANDS GROUP, INC.

Sequential Brands Group, Inc. has seven wholly-owned subsidiaries: Sequential Licensing, Inc., a
California corporation, Bella Rose, LLC, a California limited liability company, Heelys, Inc., a Delaware
corporation, B(cid:5)and Matter, LLC, a Delaware limited liability company, SBG Revo Holdings, LLC, a
Delaware limited liability company, SBG FM, LLC, a Delaware limited liability company, and SBG Universe
Brands, LLC, a Delaware limited liability company.

DVS Footwear International, LLC is a joint venture between Sequential Brands Group, Inc. and Elan
Polo International, Inc. The operating agreement entered into between the parties provides that Sequential
Brands Group, Inc. will receive 65% of the distributions and allocation of net proﬁts and losses of DVS
Footwear
the distributable assets upon dissolution of DVS Footwear
International, LLC.

International, LLC and 60% of

William Rast Sourcing, LLC, a California limited liability company, and William Rast Licensing, LLC, a

California limited liability company, are wholly-owned subsidiaries of Bella Rose, LLC.

William Rast Retail, LLC, a California limited liability company,

is a wholly-owned subsidiary of

William Rast Sourcing, LLC.

William Rast Europe Holdings, LLC, a Delaware limited liability company, is a wholly-owned subsidiary

of William Rast Sourcing, LLC.

William Rast Europe B.V. is a wholly-owned subsidiary of William Rast Europe Holdings, LLC.

Galaxy Brands, LLC, a Delaware limited liability company, American Sporting Goods Corp., a Delaware
corporation, and LNT Brands LLC, a Delaware limited liability company, are wholly-owned subsidiaries of
SBG Universe Brands, LLC.

GBT Promotions LLC, a Delaware limited liability company, and Basketball Marketing Company, a

Delaware corporation, are wholly-owned subsidiaries of Galaxy Brands, LLC.

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Form S-3 (File No. 333-198605, effective September 16,
2014) and Forms S-8 (File No. 333-134672, effective June 2, 2006, File No. 333-152961, effective August 12,
2008 and File No. 333-190352, effective August 2, 2013) of Sequential Brands Group, Inc. and Subsidiaries
of our report dated March 16, 2015 on our audits of the consolidated ﬁnancial statements and ﬁnancial
statement schedule of Sequential Brands Group, Inc. and Subsidiaries as of December 31, 2014 and 2013 and
for the years then ended and the effectiveness of internal control over ﬁnancial reporting included in this
Annual Report on Form 10-K of Sequential Brands Group, Inc. and Subsidiaries for the year ended
December 31, 2014.

/s/ CohnReznick LLP

New York, New York
March 16, 2015

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated April 1, 2013, with respect to the consolidated ﬁnancial statements as of
December 31, 2012 and the year then ended included in the Annual Report of Sequential Brands Group, Inc.
(formerly People’s Liberation, Inc.) on Form 10-K for the year ended December 31, 2014. We hereby consent
to the incorporation by reference of said report in the Registration Statements of Sequential Brands Group,
Inc. (formerly People’s Liberation, Inc.) on Form S-3 (File No. 333-198605, effective September 16, 2014)
and Forms S-8 File No. 333-152961, effective August 12, 2008, File No. 333-134672, effective June 2, 2006
and File No. 333-190352, effective August 2, 2013.

/s/ Grant Thornton LLP

New York, New York
March 16, 2015

Certiﬁcation of Principal Executive Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Yehuda Shmidman, certify that:

EXHIBIT 31.1

1.

I have reviewed this Annual Report on Form 10-K of Sequential Brands Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned by Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision,
to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for
external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a) All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal
control over ﬁnancial reporting, which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 16, 2015

/s/ Yehuda Shmidman
Yehuda Shmidman
Chief Executive Officer

Certiﬁcation of Principal Financial Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Gary Klein, certify that:

EXHIBIT 31.2

1.

I have reviewed this Annual Report on Form 10-K of Sequential Brands Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned by Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision,
to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for
external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a) All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal
control over ﬁnancial reporting, which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 16, 2015

/s/ Gary Klein
Gary Klein
Chief Financial Officer

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EXHIBIT 32.1

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
in connection with the ﬁling of the Annual Report on Form 10-K for the Year Ended December 31, 2014 (the
‘Report’) by Sequential Brands Group, Inc. (‘Registrant’), the undersigned hereby certify that, to the best of
their knowledge:

1.

2.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

The information contained in the Report fairly presents,
condition and results of operations of Registrant.

in all material respects,

the ﬁnancial

Date: March 16, 2015

Date: March 16, 2015

/s/ Yehuda Shmidman
Yehuda Shmidman
Chief Executive Officer
(Principal Executive Officer)

/s/ Gary Klein
Gary Klein
Chief Financial Officer
(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to Sequential Brands
Group, Inc. and will be retained by Sequential Brands Group, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.

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CORPORATE INFORMATION

Board of Directors

Yehuda Shmidman
Class I Director, Chief Executive Offıcer and Secretary

William Sweedler
Class I Director, Chairman of the Board

Rodney S. Cohen
Class II Director

Gary Johnson(2)(3)
Class II Director

Aaron Hollander(1)(2)
Class III Director

Stewart Leonard, Jr.(1)(3)
Class II Director

Al Gossett(1)(2)
Class III Director

1 − Audit Committee Member

2 − Compensation Committee Member

3 − Governance Committee Member

Management

Yehuda Shmidman
Chief Executive Offıcer and Secretary

Corporate Office

Annual Meeting

Independent Auditors

Transfer Agent

Information Requests

Gary Klein
Chief Financial Offıcer

Sequential Brands Group, Inc.
5 Bryant Park, 30th Floor
New York, NY 10018
www.sequentialbrandsgroup.com

Wednesday May 27, 2015 10:00a.m. at the Company’s Corporate Office

CohnReznick LLP
1212 Avenue of the Americas
New York, NY 10036

Computershare Trust Co. N.A.
Tel.: (877) 373-6374
Outside U.S. Tel.: (781) 575-2879

Mailing Addresses:

Shareholder correspondence should be mailed to:

Computershare
P.O. Box 30170
College Station, TX 77842-3170

Overnight correspondence should be sent to:

Computershare
211 Quality Circle, Suite 210
College Station, TX 77845

Questions and Inquires via Website: http://www.computershare.com
Hearing Impaired # TDD: (800) 952-9245

A copy of the Company’s Annual Report on Form 10-K as ﬁled with the
Securities and Exchange Commission is available free of charge to
stockholders either on the Company’s website or upon request to:

Sequential Brands Group, Inc.
Attn: Investor Relations
5 Bryant Park, 30th Floor
New York, NY 10018
Tel.: (646) 564-2577

WWW.SEQUENTIALBRANDSGROUP.COM