Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Mar. 29, 2017 | Jun. 30, 2016 | |
Document and Entity Information | |||
Entity Registrant Name | Differential Brands Group Inc. | ||
Entity Central Index Key | 844,143 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2016 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 28,982,000 | ||
Entity Common Stock, Shares Outstanding | 13,297,688 | ||
Document Fiscal Year Focus | 2,016 | ||
Document Fiscal Period Focus | FY |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Dec. 31, 2016 | Dec. 31, 2015 |
Current assets | ||
Cash and cash equivalents | $ 6,476 | $ 1,966 |
Factored accounts receivable, net | 16,703 | 4,917 |
Accounts receivable, net | 3,118 | 1,836 |
Royalties receivable | 404 | 547 |
Inventories, net | 23,977 | 15,353 |
Prepaid expenses and other current assets | 4,249 | 1,351 |
Total current assets | 54,927 | 25,970 |
Property and equipment, net | 10,620 | 13,406 |
Goodwill | 8,271 | 2,286 |
Intangible assets, net | 91,886 | 39,823 |
Other assets | 467 | 1,374 |
Total assets | 166,171 | 82,859 |
Current liabilities | ||
Accounts payable and accrued expenses | 18,223 | 13,084 |
Cash advances from customers | 1,707 | |
Short term convertible notes | 13,137 | |
Current portion of long term debt | 1,250 | |
Current portion of loan payable | 1,167 | |
Total current liabilities | 34,317 | 14,251 |
Deferred rent | 3,636 | 3,568 |
Line of credit | 12,742 | 17,013 |
Convertible notes | 12,660 | |
Long term debt, net of current portion | 47,218 | |
Loan payable, net of current portion | 486 | |
Deferred income taxes, net | 11,074 | |
Total liabilities | 121,647 | 35,318 |
Commitments and contingencies | ||
Equity | ||
Preferred members, liquidation preference of $0 and $32.7 million at December 31, 2016 and 2015, respectively | 24,798 | |
Common members | 22,743 | |
Series A convertible preferred stock, $0.10 par value: 50,000 and 0 shares authorized, issued and outstanding at December 31,2016 and 2015, respectively | 5 | |
Common stock, $0.10 par value: 100,000,000 and 0 shares authorized, 13,239,125 and 0 shares issued and outstanding at December 31, 2016 and 2015, respectively | 1,324 | |
Additional paid-in capital | 59,154 | |
Accumulated other comprehensive loss | (221) | |
Accumulated deficit | (15,738) | |
Total equity | 44,524 | 47,541 |
Total liabilities and equity | $ 166,171 | $ 82,859 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Dec. 31, 2016 | Dec. 31, 2015 |
Preferred members liquidation preference | $ 0 | $ 32,690 |
Common stock, par value (in dollars per share) | $ 0.10 | |
Common stock, shares authorized | 100,000,000 | 0 |
Common stock, shares issued | 13,239,125 | 0 |
Common stock, shares outstanding | 13,239,000 | 0 |
Convertible preferred stock | ||
Convertible preferred stock, par value (in dollars per share) | $ 0.10 | |
Convertible preferred stock, shares authorized | 50,000 | 0 |
Convertible preferred stock, shares issued | 50,000 | 0 |
Convertible preferred stock, shares outstanding | 50,000 | 0 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME - USD ($) shares in Thousands, $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME | ||
Net sales | $ 149,267 | $ 73,057 |
Cost of goods sold | 69,775 | 28,129 |
Gross profit | 79,492 | 44,928 |
Operating expenses | ||
Selling, general and administrative | 81,456 | 39,665 |
Depreciation and amortization | 6,012 | 3,788 |
Retail store impairment | 2,177 | 0 |
Total operating expenses | 89,645 | 43,453 |
Operating (loss) income from continuing operations | (10,153) | 1,475 |
Interest expense, net | 7,531 | 558 |
Other expense, net | 42 | |
Total other expense | 7,573 | 558 |
(Loss) income from continuing operations, before income tax | (17,726) | 917 |
Income tax (benefit) provision | (1,200) | 157 |
(Loss) income from continuing operations | (16,526) | 760 |
Loss from discontinued operations | (1,286) | |
Net (loss) income | (17,812) | 760 |
Other comprehensive loss, net of tax: | ||
Net (loss) income | (17,812) | 760 |
Foreign currency translation | (221) | |
Other comprehensive loss | (221) | |
Comprehensive (loss) income | $ (18,033) | $ 760 |
(Loss) earnings per common share - basic | ||
(Loss) earnings from continuing operations (in dollars per share) | $ (1.33) | $ 0.09 |
Loss from discontinued operations (in dollars per share) | (0.10) | |
(Loss) earnings per common share - basic (in dollars per share) | (1.43) | 0.09 |
(Loss) earnings per common share - diluted | ||
(Loss) earnings from continuing operations (in dollars per share) | (1.33) | 0.09 |
Loss from discontinued operations (in dollars per share) | (0.10) | |
(Loss) earnings per common share - diluted (in dollars per share) | $ (1.43) | $ 0.09 |
Weighted average shares outstanding | ||
Basic (in shares) | 12,428 | 8,825 |
Diluted (in shares) | 12,428 | 8,825 |
CONSOLIDATED STATEMENTS OF EQUI
CONSOLIDATED STATEMENTS OF EQUITY - USD ($) $ in Thousands | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Preferred member | Common member | Preferred Series A | Total |
Balance at Dec. 31, 2014 | $ 25,375 | $ 23,298 | $ 48,673 | |||||
Balance (in shares) at Dec. 31, 2014 | 5,100,000 | 4,900,000 | ||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Distributions | $ (965) | $ (927) | (1,892) | |||||
Net income | 388 | 372 | 760 | |||||
Balance at Dec. 31, 2015 | $ 24,798 | $ 22,743 | $ 47,541 | |||||
Balance (in shares) at Dec. 31, 2015 | 5,100,000 | 4,900,000 | 0 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Net income | $ (17,812) | |||||||
Net loss through RG Merger date | $ (1,058) | $ (1,016) | (2,074) | |||||
Redemption of Robert Graham unit holders | (29,313) | (28,905) | (58,218) | |||||
Contribution of Robert Graham in exchange for common shares | $ 883 | $ (13,634) | $ 5,573 | $ 7,178 | ||||
Contribution of Robert Graham in exchange for common shares (in shares) | 8,825,000 | (5,100,000) | (4,900,000) | |||||
Reverse acquisition with Robert Graham | $ 351 | 19,649 | 20,000 | |||||
Reverse acquisition with Robert Graham (in shares) | 3,509,000 | |||||||
Issuance of Series A convertible preferred stock, net of offering costs of $931 | 49,064 | $ 5 | 49,069 | |||||
Issuance of Series A convertible preferred stock (in shares) | 50,000 | |||||||
Issuance of common stock for SWIMS acquisition | $ 70 | 1,680 | 1,750 | |||||
Issuance of common stock for SWIMS acquisition (in shares) | 703,000 | |||||||
Issuance of warrants | 510 | 510 | ||||||
Stock-based compensation | 2,052 | 2,052 | ||||||
Issuance of restricted common stock | $ 20 | (167) | (147) | |||||
Issuance of restricted common stock (in shares) | 202,000 | |||||||
Foreign currency translation | $ (221) | (221) | ||||||
Net loss post RG Merger date | $ (15,738) | (15,738) | ||||||
Balance at Dec. 31, 2016 | $ 1,324 | $ 59,154 | $ (221) | $ (15,738) | $ 5 | $ 44,524 | ||
Balance (in shares) at Dec. 31, 2016 | 13,239,000 | 50,000 | 13,239,125 |
CONSOLIDATED STATEMENTS OF EQU6
CONSOLIDATED STATEMENTS OF EQUITY (Parenthetical) $ in Thousands | 12 Months Ended |
Dec. 31, 2016USD ($) | |
Preferred Series A | |
Issuance of convertible preferred stock, offering costs | $ 931 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
(Loss) income from continuing operations | $ (16,526) | $ 760 |
Adjustment to reconcile net (loss) income from continuing operations to net cash (used in) provided by operating activities: | ||
Depreciation and amortization | 6,012 | 3,788 |
Retail store impairment | 2,177 | 0 |
Amortization of deferred financing costs | 380 | |
Amortization of convertible notes discount | 916 | |
PIK Interest | 1,023 | |
Stock-based compensation | 2,052 | |
Provision for (recovery of) bad debts | 116 | (124) |
Amortization of inventory step up | 1,659 | |
Decrease in deferred taxes | (1,086) | |
Changes in operating assets and liabilities: | ||
Accounts receivable | (4,554) | 426 |
Inventories | 3,352 | (2,674) |
Prepaid expenses and other assets | 99 | 1,668 |
Accounts payable and accrued expenses | (10,874) | 1,146 |
Deferred rent | 68 | 1,208 |
Net cash (used in) provided by continuing operating activities | (15,186) | 6,198 |
Net cash used in discontinued operations | (1,384) | |
Net cash (used in) provided by operating activities | (16,570) | 6,198 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Cash paid in reverse acquisition with Robert Graham, net of cash acquired | (6,538) | |
(Payment) refund of security deposit | (4) | 13 |
Purchases of property and equipment | (2,046) | (4,825) |
Cash paid for the acquisition of SWIMS, net of cash acquired | (11,828) | |
Net cash used in investing activities | (20,416) | (4,812) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Proceeds from issuance of Series A convertible preferred stock, net of offering costs | 49,881 | |
Proceeds from term debt | 50,000 | |
Repayment of long-term debt | (500) | |
Proceeds (repayment) from line of credit | 12,784 | 1,504 |
Proceeds from short term convertible note | 13,000 | |
Repayment of terminated line of credit and loan payable | (23,349) | |
Payment of deferred financing costs | (1,583) | (24) |
Redemption of unit holders | (58,218) | |
Proceeds from customer cash advances | 814 | |
Payment of loan payable | (1,167) | |
Payment of accrued distribution to members | (1,366) | (525) |
Net cash provided by (used in) financing activities | 41,463 | (212) |
Effect of exchange rate changes on cash | 33 | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | 4,510 | 1,174 |
CASH AND CASH EQUIVALENTS, at beginning of period | 1,966 | 792 |
CASH AND CASH EQUIVALENTS, at end of period | $ 6,476 | $ 1,966 |
Business Description and Basis
Business Description and Basis of Presentation | 12 Months Ended |
Dec. 31, 2016 | |
Business Description and Basis of Presentation | |
Business Description and Basis of Presentation | DIFFERENTIAL BRANDS GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business Description and Basis of Presentation Our principal business activity involves the design, development and worldwide marketing of apparel products, which include denim jeans, related casual wear and accessories that bear the brand Hudson®, the design, development, sales and licensing of apparel products and accessories bearing the brand name Robert Graham® and the design, development, sales and licensing of footwear and accessories bearing the brand name SWIMS®. Our primary operating subsidiaries are Hudson Clothing, LLC (“ Hudson ”), Robert Graham Designs, LLC and Robert Graham Retail, LLC (collectively “ Robert Graham ”), and DFBG Swims, LLC (“ DFBG Swims ”). In addition, we have other non-operating subsidiaries. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Differential Brands Group Inc. and subsidiaries (the “Company ” or “ Differential ”) began operations in 1987 as Innovo, Inc. Since the Company’s founding, the Company has evolved from producing craft and accessory products to designing and selling apparel products bearing the Hudson®, Robert Graham® and SWIMS® brand names. As previously reported, on September 11, 2015, the Company completed the sale of certain operating and intellectual property assets related to the business operated under the brand names “Joe’s Jeans,” “Joe’s,” “Joe’s JD” and “else” (the “ Joe’s Business ”) to GBG USA Inc., a Delaware corporation (“ GBG ”), and the sale of certain intellectual property assets related to the Joe’s Business to Joe’s Holdings LLC, a Delaware limited liability company (“ Joe’s Holdings ”), for an aggregate purchase price of $80 million (the “ Joe’s Asset Sale ”). The Company also entered into the amended and restated revolving credit agreement (the “ CIT Amended and Restated Revolving Credit Agreement ”), dated September 11, 2015, which provided for a maximum credit availability of $7.5 million and waived certain defaults that remained in effect until the closing of the RG Merger (as defined below). On January 28, 2016, the Company completed the acquisition (the “ RG Merger ”) of all of the outstanding equity interests of RG Parent LLC and its subsidiaries (“ Robert Graham ” or “ RG ”), a business engaged in the design, development, sales and licensing of apparel products and accessories that bear the brand name Robert Graham® (the “ Robert Graham Business ”), as contemplated by the Agreement and Plan of Merger, dated as of September 8, 2015 (the “ RG Merger Agreement ”), by and among RG, JJ Merger Sub, LLC (“ RG Merger Sub ”) and the Company, for an aggregate of $81.0 million in cash and 8,825,461 shares of the Company’s common stock, par value $0.10 per share (“ common stock ”) (after giving effect to the Reverse Stock Split (as defined below). Pursuant to the RG Merger Agreement, among other things, RG Merger Sub was merged with and into RG, so that RG, as the surviving entity, became a wholly-owned subsidiary. The aggregate cash consideration was used to repay $19.0 million of RG’s outstanding loans and indebtedness under its revolving credit agreement with J.P. Morgan Chase Bank, N.A. On the RG Merger’s closing date, all outstanding loans under the CIT Amended and Restated Revolving Credit Agreement were repaid and it was terminated in connection with entering into (i) a new credit and security agreement (as later amended, the “ ABL Credit Agreement ”) with Wells Fargo Bank, National Association, as lender, (ii) a new credit and security agreement with TCW Asset Management Company, as agent, and the lenders party thereto (as later amended, the “ Term Credit Agreement ”), and (iii) an amended and restated deferred purchase factoring agreement with CIT. Effective upon consummation of the RG Merger, the Company changed its name from “Joe’s Jeans Inc.” to “Differential Brands Group Inc.” and its trading symbol from “JOEZ” to “DFBG,” and effected a reverse stock split (the “ Reverse Stock Split ”) of the Company’s issued and outstanding common stock such that each 30 shares of issued and outstanding common stock were reclassified into one share of issued and outstanding common stock, which Reverse Stock Split did not change the par value or the amount of authorized shares of common stock. The primary purpose of the Reverse Stock Split was to increase the per-share market price of the Company’s common stock in order to maintain its listing on The Nasdaq Capital Market maintained by The Nasdaq Stock Market LLC (“ NASDAQ ”). Unless otherwise indicated, all share amounts in this Annual Report on Form 10-K (this “ Annual Report ”) have been adjusted to reflect the Reverse Stock Split. After the closing of the Joe’s Asset Sale on September 11, 2015, the Company retained and operated 32 Joe’s® brand retail stores, of which the Company transferred 18 retail stores to GBG on January 28, 2016 for no additional consideration. As of February 29, 2016, the remaining 14 Joe’s® brand retail stores were closed and as a result are reported as discontinued operations. The RG Merger has been accounted for as a reverse merger and recapitalization. As a result of the RG Merger, RG is a wholly-owned subsidiary of the Company, the Company no longer owns certain assets and intellectual property of the Joe’s Business and the Company retains ownership of the businesses associated with its Hudson® brand (the “ Hudson Business ” ). The former RG members own a majority of the Company’s issued and outstanding equity after the RG Merger. Under the acquisition method, RG is deemed the accounting acquirer for financial reporting purposes, with the Company, as the legal acquirer, being viewed as the accounting acquiree. As a result, the assets, liabilities and operations reflected in the historical consolidated financial statements and elsewhere in this Annual Report prior to the RG Merger are those of RG and are recorded at the historical cost basis and reflect RG’s historical financial condition and results of operations for comparative purposes. For the year ended December 31, 2016, the Company’s consolidated financial statements include: (i) from January 1, 2016 up to the day prior to the closing of the RG Merger on January 28, 2016, the results of operations and cash flows of RG; (ii) from and after the RG Merger’s closing date on January 28, 2016, the results of continuing operations, cash flows and, as applicable, the assets and liabilities of the combined company, comprising the Company’s Hudson Business and RG; (iii) from and after the RG Merger’s closing date on January 28, 2016, the results of the discontinued operations from the Joe’s® brand retail stores that were not transferred to GBG but that closed as of February 29, 2016; and (iv) from and after the acquisition of SWIMS AS (“ SWIMS ”) on July 18, 2016, the results of continuing operations and cash flows and, as applicable, the assets and liabilities of SWIMS. Prior to the RG Merger, RG and the Company had different fiscal year ends, with RG’s fiscal year ending on December 31 and the Company’s fiscal year ending on November 30. In connection with the RG Merger, the Company changed its fiscal year end to December 31. Certain reclassifications have been made to prior year amounts within the accompanying consolidated balance sheets and consolidated statements of cash flows to conform to the current period presentation. The Company continues to be a “smaller reporting company,” as defined under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) following the RG Merger. The Company’s reportable business segments are Wholesale, Consumer Direct and Corporate and other. For periods before the RG Merger’s closing date, the discussion of reportable segments reflects only the operations of RG. The Company manages, evaluates and aggregates operating segments for segment reporting purposes primarily on the basis of business activity and operation. The Wholesale segment is comprised of sales of products to premium department stores, boutiques, retailers, specialty stores and international customers, and includes expenses from sales and customer service departments, trade shows, warehouse distribution and product samples. The Consumer Direct segment is comprised of sales to consumers through the Robert Graham® brand full-price retail stores and outlet stores, through our SWIMS® brand outlet store in Oslo, Norway and through the online ecommerce sites at www.hudsonjeans.com , www.robertgraham.us and www.swims.com. The Corporate and other segment is comprised of revenue from trademark licensing agreements and expenses from corporate operations, which include the executive, finance, legal, information technology, accounting, human resources, design and production departments and general brand marketing and advertising expenses associated with the Company’s brands. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2016 | |
Accounting Policies | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of estimates relate primarily to allowance for bad debts, returns, sales allowances, and customer chargebacks, inventory write-downs, valuation of goodwill, intangible and long-lived assets, and valuation of deferred income taxes. Actual results could differ from these estimates. Revenue Recognition Wholesale revenues are recorded when title transfers to the customer, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable, which is typically at the shipping point. Estimated reductions to revenue for customer programs, including co‑op advertising, other advertising programs or allowances are recorded based upon a percentage of sales. The Company allows for returns based upon pre‑approval or in the case of damaged goods. Such returns are estimated based on historical experience and an allowance is provided at the time of sale. Retail store revenue is recognized at the time the customer takes possession of the related merchandise, net of estimated returns at the time of sale to consumers. Ecommerce sales of products ordered through our retail internet sites known as www.hudsonjeans.com , www.robertgraham.us and www.swims.com are recognized upon estimated delivery and receipt of the shipment by the customers. Ecommerce revenue is also reduced by an estimate of returns. Retail store revenue and ecommerce revenue exclude sales taxes. Revenue from licensing arrangements is recognized when earned in accordance with the terms of the underlying agreements and deemed collectible, generally based upon the higher of (a) the contractually guaranteed minimum royalty or (b) actual net sales data received from licensees. Payments received in consideration of the grant of a license or advanced royalty payments is recognized ratably as revenue over the term of the license agreement. The unrecognized portion of upfront payments is included in accounts payable and accrued expenses within the accompanying consolidated balance sheets. The Company did not have deferred licensing revenue as of December 31, 2016 and 2015. Amounts related to shipping and handling that are billed to customers are reflected in net sales, and the related costs are reflected in selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income. For the years ended December 31, 2016 and 2015, shipping and handling fee revenue included in net sales was $0.4 million and $0.2 million, respectively. Cash Equivalents All highly liquid investments that are both readily convertible into known amounts of cash and mature within 90 days from their date of purchase are considered to be cash equivalents. Accounts Receivable, Factored Accounts Receivable and Allowance for Bad Debts, Sales Allowances, and Customer Chargebacks The Company evaluates its ability to collect accounts receivable, factor accounts receivable with recourse and charge‑backs (disputes from the customer) based upon a combination of factors. Reserves for charge‑backs are recognized based on historical collection experience. A specific reserve for bad debts is taken against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected. Whether a receivable is past due is based on how recently payments have been received and in certain circumstances when the Company is aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filings, substantial downgrading of credit sources, etc.). Amounts are written off against the reserve once it is established that it is remote such amounts will be collected. The Company also reserves for potential sales returns and allowances based on historical trends. Inventories Inventory is valued at the lower of cost or net realizable value with cost determined by the first‑in, first‑out method. Inventory consists of finished goods, work‑in‑process and raw materials. The Company continually evaluates its inventory by assessing slow moving current product. Market value of non‑current inventory is estimated based on historical sales trends, the impact of market trends, an evaluation of economic conditions and the value of current orders relating to future sales. Inventory reserves establish a new cost basis for inventory. Such reserves are not reversed until the related inventory is sold or otherwise disposed. Costs capitalized in inventory include the purchase price of raw materials and contract labor, plus in‑bound transportation costs and import fees and duties. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight‑line method over the following estimated useful lives of the assets: Leasehold improvements are amortized over the lessor of the term of the lease or the estimated useful life of the improvement. Maintenance and repairs are charged to expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation or amortization is removed from the accounts, and any related gain or loss is included within selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income. Impairment of Long‑Lived Assets, Intangible Assets and Goodwill The Company assesses the impairment of long‑lived assets, identifiable intangible assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, the Company assesses goodwill and indefinite lived intangible assets for impairment annually. Factors considered important that could trigger an impairment review other than on an annual basis include the following: · A significant underperformance relative to historical or projected future operating results; · A significant change in the manner of the use of the acquired asset or the strategy for the overall business; or · A significant negative industry or economic trend. The estimated cash flows used for this nonrecurring fair value measurement are considered a Level 3 input as defined in Note 13. Impairment of Long‑Lived Assets and Intangible Assets Subject to Amortization When the Company determines that the carrying value of long‑lived assets, such as property and equipment, and intangible assets subject to amortization, may not be recoverable based upon the existence of one or more of the aforementioned factors and the carrying value exceeds the estimated undiscounted cash flows expected to be generated by the asset, impairment is measured based on a projected discounted cash flow method using a discount rate determined by management. These cash flows are calculated by netting future estimated sales against associated merchandise costs and other related expenses such as payroll, occupancy and marketing. The impairment loss calculations require management to apply judgment in estimating future cash flows and the discount rates that reflect the risk inherent in future cash flows. Future expected cash flows for retail store assets are based on management’s estimates of future cash flows over the remaining lease period or expected life, if shorter. The Company considers historical trends, expected future business trends and other factors when estimating each store’s future cash flow. The Company also considers factors such as: the local environment for each store location, including mall traffic and competition; the ability to successfully implement strategic initiatives; and the ability to control variable costs such as cost of sales and payroll, and in some cases, renegotiate lease costs. If actual results are not consistent with the assumptions and judgments used in estimating future cash flows and asset fair values, there may be additional exposure to future impairment losses that could be material to the Company’s’ results of operations. Retail store impairment charges of $2.2 million were recorded during the year ended December 31, 2016. Based on the operating performance of these stores, the Company determined it could not recover the carrying value of property and equipment located at these stores. There was no impairment charge recorded related to the retail stores during the year ended December 31, 2015. Intangible assets subject to amortization, such as customer relationships, are amortized over their estimated useful lives. There was no impairment charge recorded related to intangible assets subject to amortization during the years ended December 31, 2016 and 2015. Goodwill and Indefinite Lived Intangible Assets Goodwill and intangible assets with indefinite lives, such as trademarks, are not amortized but are tested at least annually for impairment on December 31 st of each year or when circumstances indicate their carrying value may not be recoverable. Goodwill is evaluated for impairment at least annually using a two-step process. The first step is to determine the fair value of each reporting unit and compare this value to its carrying value. If the fair value exceeds the carrying value, including goodwill, no further work is required and no impairment loss would be recognized. The second step is performed if the carrying value exceeds the fair value of the assets. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. The Company reviews indefinite lived intangible assets for impairment on an annual basis, or when circumstances indicate their carrying value may not be recoverable. The Company calculates the value of the indefinite lived intangible assets using a discounted cash flow method, based on the relief from royalty method. There was no impairment charge recorded related to indefinite lived intangible assets or goodwill during the years ended December 31, 2016 and 2015. Deferred Rent and Tenant Allowances When a lease includes lease incentives (such as a rent holiday) or requires fixed escalations of the minimum lease payments, rental expense is recognized on a straight‑line basis over the term of the lease starting from the date of possession and the difference between the average rental amount charged to expense and amounts payable under the lease is included in deferred rent in the accompanying consolidated balance sheets. Deferred rent also includes tenant allowances received from landlords which are amortized as a reduction to rent expense on a straight-line basis over the term of the lease starting at the date of possession. Deferred Financing Costs Deferred financing costs are amortized using the effective interest rate method over the term of the related agreements and recorded as a component of interest expense in the accompanying consolidated statements of operations and comprehensive (loss) income. Amortization of deferred financing costs included in interest expense was approximately $0.4 million and $0 for the years ended December 31, 2016 and 2015. Deferred financing costs are presented on the consolidated balance sheets as a direct deduction of the related debt. Preferred Share Dividend Cumulative dividends on preferred stock are only accrued for when the board of directors declares a dividend. The board of directors has not declared a dividend through December 31, 2016. Derivatives Warrants and other derivative financial instruments are accounted for as either equity or liabilities based upon the characteristics and provisions of each instrument. During the year ended December 31, 2016, the warrants that were issued in conjunction with the acquisition of DFBG Swims (see “Note 3 – Acquisition of SWIMS”) were determined to be equity. Warrants classified as equity are recorded at fair value as of the date of issuance within the consolidated balance sheets and no further adjustments to their valuation is made. Management estimates the fair value of these warrants using option pricing models and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate. Costs of Goods Sold Costs of goods sold includes product cost, freight in, inventory reserves, inventory markdowns and other various charges. Selling, General and Administrative Expenses Selling, general and administrative expenses include salaries and benefits, travel and entertainment, professional fees, advertising, marketing, sample expenses, stock based compensation expense, facilities, fulfillment and distribution costs, bad debt expense and write down of other assets. The Company charges all product design and development costs to selling, general and administrative expenses, when incurred. Product design and development costs aggregated were approximately $10.2 million and $5.3 million during the years ended December 31, 2016 and 2015, respectively. The Company’s distribution network-related costs are included in selling, general and administrative expenses and are not allocated to specific segments. The expenses related to its distribution network, including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging of its product totaled $5.3 million and $1.6 million during the years ended December 31, 2016 and 2015, respectively. Advertising Costs Advertising costs are charged to expense as incurred. Advertising and tradeshow expenses included in selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income were $7.9 million and $2.8 million for the years ended December 31, 2016 and 2015, respectively. Prepaid advertising costs were $0.2 million at December 31, 2016 and 2015, respectively. Shipping and Handling Costs Shipping and handling costs for merchandise shipped to customers of $1.7 million and $0.2 million for the years ended December 31, 2016 and 2015, respectively, are included in selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income. Stock‑Based Compensation The cost of all employee stock‑based compensation awards is measured based on the grant date fair value of those awards and recorded as compensation expense over the period during which the employee is required to perform service in exchange for the award (generally over the vesting period of the award). The cost of all non-employee stock‑based compensation awards is measured based on the grant date fair value of those awards and revalued each reporting period, and is recorded as compensation expense over the service period. An entity may elect either an accelerated recognition method or a straight‑line recognition method for awards subject to graded vesting based on a service condition, regardless of how the fair value of the award is measured. For all stock based compensation awards that contain graded vesting based on service conditions, the Company has elected to apply a straight‑line recognition method to account for these awards. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. Until the RG Merger on January 28, 2016, the Company was treated as a partnership for tax purposes. Pursuant to this status, taxable income or loss of the Company is included in the income tax returns of its owners. Consequently, no federal income tax provision is recorded through the RG Merger date. However, under state laws, certain taxes are imposed upon limited liability companies and are provided for through the RG Merger date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The likelihood of a material change in the expected realization of these assets depends on the Company’s ability to generate sufficient future taxable income. The ability to generate enough taxable income to utilize the deferred tax assets depends on many factors, among which is the Company’s ability to deduct tax loss carry‑forwards against future taxable income, the effectiveness of tax planning strategies and reversing deferred tax liabilities. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based upon the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based upon the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense within the accompanying consolidated statements of operations and comprehensive (loss) income. Comprehensive (Loss) Income Comprehensive (loss) income represents the change in equity resulting from transactions other than stockholder investments and distributions. Accumulated other comprehensive loss includes changes in equity that are excluded from net (loss) income, specifically, unrealized gains and losses on foreign currency translation adjustments and is presented within the consolidated statements of equity. The Company presents the components of comprehensive (loss) income within the consolidated statements of operations and comprehensive (loss) income. Foreign Currency Translation The Company’s wholly owned direct foreign operations present their financial reports in the currency used in the economic environment in which they mainly operate, known as the functional currency. The functional currency consists of the Norwegian Krone for operations in Norway. Assets and liabilities in foreign subsidiaries are translated into U.S. dollars at the exchange rate as of the balance sheet date, while revenues and expenses are translated using the average monthly exchange rate. Gains and losses from these foreign currency translation adjustments are recognized within accumulated other comprehensive loss within the accompanying consolidated statements of equity. Earnings per Share Basic earnings per share, or EPS, is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period except for periods of net loss for which no common share equivalents are included because their effect would be anti‑dilutive. Dilutive common equivalent shares consist of common stock issuable upon exercise of stock options, restricted stock and restricted stock units using the treasury stock method. Dilutive common stock equivalent shares issuable upon conversion of the convertible notes are calculated using the if‑converted method. EPS has been adjusted to reflect the Reverse Stock Split. The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. Our participating securities consist of convertible preferred shares that contain a nonforfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common stockholders. Concentration of Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, accounts receivable and factor accounts receivable. The Company maintains cash and cash equivalents with various financial institutions. The policy is designed to limit exposure to any one institution. Periodic evaluations are performed of the relative credit rating of those financial institutions that are considered in the Company’s investment strategy. The Company does not require collateral for trade accounts receivable. However, the Company sells a portion of accounts receivable to CIT on a non‑recourse basis (see “Note 7 – Factored Accounts and Receivables”). In that instance, the Company is no longer at risk if the customer fails to pay. For accounts receivable that are not sold to CIT or are sold on a recourse basis, the Company continues to be at risk if these customers fail to pay. The Company provides an allowance for estimated losses to be incurred in the collection of accounts receivable based upon the aging of outstanding balances and other account monitoring analysis. The net carrying value approximates the fair value for these assets. Such losses have historically been within management’s expectations. Uncollectible accounts are written off once collection efforts are deemed by management to have been exhausted. For the years ended December 31, 2016 and 2015, sales to customers or customer groups representing 10 percent or greater of net sales are as follows: Year ended December 31, 2016 2015 Customer A % % International sales were $9.4 million and $0.5 million for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, customers representing 10 percent or greater of accounts receivable and factored accounts receivable are as follows: As of December 31, 2016 2015 Customer A % % Customer B % * % * Represents less than 10% In addition, the Company primarily utilizes three manufacturing contractors in Mexico, the United States and India. Purchases from these three manufacturing contractors in the aggregate accounted for approximately 50% and 47% percent of our purchases for fiscal 2016 and 2015, respectively. Fair Value of Financial Instruments The fair value of financial instruments held (which consist of cash and cash equivalents, accounts receivable, factored accounts receivable, royalties receivable, accounts payable, and accrued expenses) do not differ materially from their recorded amounts because of the relatively short period of time between origination of the instruments and their expected realization. The carrying amounts of the line of credit and term loan approximate fair value because of the variable interest rates. The fair value of the convertible notes is based on the amount of future cash flows associated with the instrument discounted using the incremental borrowing rate, which are considered Level 2 liabilities. The Company does not hold or have any obligations under financial instruments that possess off‑balance sheet credit or market risk. Discontinued Operations In accordance with the Financial Accounting Standards Board (“ FASB ”), Accounting Standards Codification (“ ASC ”), ASC 205-20, Presentation of Financial Statements – Discontinued Operations , the results of operations of a component of an entity or a group or component of an entity that represents a strategic shift that has, or will have, a major effect on the reporting company’s operations that has either been disposed of or is classified as held for sale are required to be reported as discontinued operations in a company’s consolidated financial statements. In order to be considered a discontinued operation, both the operations and cash flows of the discontinued component must have been (or will be) eliminated from the ongoing operations of the company and the company will not have any significant continuing involvement in the operations of the discontinued component after the disposal transaction. The accompanying consolidated financial statements reflect the results of operations of the Joe's Business as discontinued operations. Financial Accounting Standards Recently Adopted In August 2014, the FASB issued Accounting Standards Update (“ ASU ”) No. 2014-15 to communicate amendments to FASB Accounting Standards Codification Subtopic 205-40, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, or ASC amendments. The ASC amendments establish new requirements for management to evaluate a company's ability to continue as a going concern and to provide certain related disclosures. The ASC amendments are effective for the annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. We adopted this standard as of December 31, 2016 and there was no material impact on our consolidated financial statements and related disclosures. In July 2015, FASB issued ASU No. 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory , which will require an entity to measure inventory at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We adopted this standard in the first quarter of fiscal 2016 and there was no material impact on our consolidated financial statements and related disclosures. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes , which will require entities to present deferred tax assets (“ DTAs ”) and deferred tax liabilities (“ DTLs ”) as noncurrent in a classified balance sheet. ASU No. 2015-17 simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. We adopted this standard in the first quarter of fiscal 2016 and there was no material impact on our consolidated financial statements and related disclosures. In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs , which changes the presentation of debt issuance costs in financial statements. ASU No. 2015-03 requires an entity to present such costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The standard’s core principle is debt issuance costs related to a note shall be reported in the balance sheet as a direct deduction from the face amount of that note and that amortization of debt issuance costs also shall be reported as interest expense. We adopted this standard in the first quarter of fiscal 2016 and there was no material impact on our consolidated financial statements and related disclosures. Recently Issued Financial Accounting Standards In January 2017, the FASB issued ASU No. 2017-04, Intangibles —Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Topic 350, Intangibles—Goodwill and Other (Topic 350) , currently requires an entity to perform a two-step test to determine the amount, if any, of goodwill impairment. ASU No. 2017-04 removes the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The ASC amendments are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , which affects the accounting for leases. The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The amendment also will require qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within that reporting period. Early application is permitted. The Company is currently assessing the impact of the new standard on its consolidated financial statements, but anticipates an increase in assets and liabilities due to the recognition of the required right-of-use asset and corresponding liability for all lease obligations that are currently classified as operating leases, such as real estate leases for corporate headquarters, administrative offices, retail stores, and showrooms as well as additional disclosure on all our lease obligations. The income statement recognition of lease expense is not expected to significantly change from the current methodology. In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements To Employee Share-Based Payment Accounting , which amends ASC Topic 718, relating to employee share-based payment accounting. This guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within that reporting period. Early application is permitted. We have not yet adopted this ASU and are currently evaluating the impact it may have on our consolidated financial statements and related disclosures. In April and March 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing , and ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , respectively. ASU No. 2016-10 clarifies the implementation guidance on licensing and the identification of performance obligations considerations included in ASU No. 2014-09. ASU No. 2016-08 provides amendments to clarify the implementation guidance on principal versus agent considerations included in ASU No. 2014-09. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09. ASU No. 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The effective date of this pronouncement is for fiscal years beginning after December 15, 2017 with early adoption permitted as of the original effective date. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Customers with Contracts (Topic 606) Narrow-Scope Improvements and Practical Expedients . ASU No. 2016-12 amends certain aspects of ASU No. 2014-09, Revenue from Customers with Contracts (Topic 606) . The amendments include the following: · Collectibility – ASU No. 2016-12 clarifies the objective of the entity’s collectibility assessment and contains new guidance on when an entity would recognize as revenue consideration it receives if the entity concludes that collectibility is not probable. · Presentation of sales tax and other similar taxes collected from customers – Entities are permitted to present revenue net of sales taxes collected on behalf of governmental authorities (i.e., to exclude from the transaction price sales taxes that meet certain criteria). · Noncash consideration – An entity’s calculation of the transaction price for contracts containing noncash consideration would include the fair value of the noncash consideration to be received as of the contract inception date. Further, subsequent changes in the fair value of noncash consideration after contract inception would be subject to the variable consideration constraint only if the fair value varies for reasons other than its form. · Contract modifications and completed contracts at transition – The ASU establishes a practical expedient for contract modifications at transition and defines completed contract |
Acquisition of SWIMS
Acquisition of SWIMS | 12 Months Ended |
Dec. 31, 2016 | |
Acquisition of SWIMS | |
Acquisition of SWIMS | 3. Acquisition of SWIMS On July 18, 2016, the Company completed the acquisition of all of the outstanding share capital of Norwegian private limited company ( aksjeselskap ) SWIMS AS (“ SWIMS ”). SWIMS® is a Scandinavian lifestyle brand known for its range of fashion-forward, water-resistant footwear and sportswear. The Company purchased SWIMS for aggregate consideration of (i) approximately $12.0 million in cash, (ii) 702,943 shares of our common stock and (iii) warrants to purchase an aggregate of 150,000 shares of common stock with an exercise price of $5.47 per share. The acquisition was completed pursuant to the Purchase Agreement, dated as of July 18, 2016 (the “ SWIMS Purchase Agreement ”), between the Company, its wholly-owned subsidiary DFBG Swims, the shareholders of SWIMS named therein (the “ SWIMS Sellers ”), Øystein Alexander Eskeland and Atle Søvik, acting jointly as the representatives of the SWIMS Sellers, and, for certain limited purposes, TCP Denim, LLC, TCP RG, LLC and TCP RG II, LLC. Pursuant to the SWIMS Purchase Agreement, DFBG Swims deposited approximately $0.3 million of the cash consideration into an escrow account for certain indemnification obligations of the SWIMS Sellers. The SWIMS Purchase Agreement contains customary representations, warranties and covenants of the SWIMS Sellers and us, along with customary post-closing indemnification rights of DFBG Swims. The acquisition qualified as a business combination and was accounted for under the acquisition method of accounting. To finance the acquisition, the Company issued the following to its majority stockholder Tengram Capital Partners Fund II, L.P. (“ Tengram II ”): (i) a warrant for the purchase of 500,000 shares of common stock at an exercise price of $3.00 per share (the “ SWIMS Warrant ”); and (ii) a convertible promissory note with principal of $13.0 million (the “ SWIMS Convertible Note ”). The SWIMS Convertible Note accrues interest at a rate of 3.75% per annum, compounding on the first day of each month starting August 1, 2016, and will convert, at Tengram II’s option or on the revised maturity date of July 18, 2017, which had an original maturity date of January 18, 2017, if not already repaid in cash on or prior to that date, into up to 4,500,000 newly issued shares of our Series A-1 Preferred Stock at a conversion price of $3.00 per share. The Company is currently evaluating all options in order to assess the repayment of the SWIMS Convertible Note at maturity if it is not converted. Additionally, the Series A-1 Preferred Stock will itself be convertible into shares of our common stock at an initial price of $3.00 per share (subject to adjustment), will be entitled to dividends at a rate of 10% per annum payable quarterly in arrears, will be senior to the common stock upon liquidation and will have voting rights on an as-converted basis alongside its common stock. To permit the acquisition, on July 18, 2016, the Company also entered into (i) a Consent and Amendment No. 1 to our ABL Credit Agreement and accompanying security agreement with Wells Fargo Bank, National Association, as lender, and (ii) a Consent and Amendment No. 1 to our Term Credit Agreement and accompanying security agreement with TCW Asset Management Company, as agent for the lenders and the lenders party thereto. The SWIMS Warrant has an estimated fair value of $0.5 million, which has been recorded as a debt discount against the proceeds of the SWIMS Convertible Note. Management estimated the fair value of the equity consideration issued with the assistance of a third-party appraisal firm. The estimation of fair value considered key assumptions for discount for lack of marketability and for inputs used in an option pricing model to value warrants. Business acquisitions are accounted for under the acquisition method by assigning the purchase price to tangible and intangible assets acquired and liabilities assumed. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Purchased intangible assets with finite lives are amortized over their estimated useful lives. Goodwill and intangible assets with indefinite lives are not amortized but are tested at least annually for impairment or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The purchase price included the issuance of 702,943 shares of common stock that contain restrictions on resale with an estimated fair value of approximately $1.8 million and the issuance of 150,000 warrants with an estimated fair value of $45 thousand. Management estimated the fair value of the equity consideration issued with the assistance of a third-party appraisal firm. The estimation of fair value considered key assumptions for discount for lack of marketability and for inputs used in an option pricing model to value warrants. Included in the $13.8 million is approximately $0.3 million that is being held in escrow to support indemnification obligations. The following is the total purchase price allocation as of December 31, 2016 (in thousands, except share and per share data): Preliminary Purchase Measurement Period Final Purchase Price Allocation Adjustments (1) Price Allocation Assets acquired and liabilities assumed: Cash and cash equivalents $ $ — $ Factored accounts receivable — Inventories — Prepaid expenses and other assets — Property and equipment — Accounts payable and accrued expenses — Deferred income tax liability Intangible assets acquired: Trade name Customer relationships Non-compete agreements Total Excess purchase price over net assets acquired Total net assets acquired $ $ — $ Total purchase price: Cash paid to sellers $ $ — $ Equity consideration issued to sellers (702,943 common shares at $2.49) — Fair value of warrants issued to sellers — Total purchase price $ $ — $ (1) The measurement period adjustments were due to the finalization of the valuation related to intangible assets and resulted in the following: an increase to tradename, a decrease to customer relationships and non-compete agreements, with the related increase in long-term deferred tax liabilities and corresponding decrease to goodwill. The measurement period adjustments did not have a significant impact on the Company’s consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2016. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair values of assets acquired and liabilities assumed represent management’s estimate of fair value based on information obtained from various sources, including management’s historical experience and are subject to change if additional information becomes available. As a result of the fair value assessment, inventory acquired was stepped up to fair value by the amount of $1.3 million which was sold in the third quarter of fiscal 2016, and is included in cost of goods sold within the accompanying consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2016 and is a non-recurring expense. The estimated fair value of the acquired tangible and intangible assets and liabilities assumed were determined using multiple valuation approaches depending on the type of tangible or intangible asset acquired, including but not limited to the income approach, the excess earnings method, the with versus without method, net realizable value method and the relief from royalty method approach. The amount of goodwill represents the excess of the purchase price over the net identifiable assets acquired and liabilities assumed. Goodwill primarily represents, among other factors, the value of synergies expected to be realized by integration with our Company and expected positive cash flow and return on capital projections from the integration. Goodwill arising from the acquisition of SWIMS was determined as the excess of the purchase price over the net acquisition date fair values of the acquired assets and the liabilities assumed, and is not deductible for income tax purposes subject to certain tax elections that are currently being considered. The Company has determined that the useful life of the acquired trade name asset is indefinite, and therefore, no amortization expense will be recognized until the useful life is determined not to be indefinite. The useful life of the acquired customer relationships and non-compete agreements are finite and will be amortized over their useful lives. However, the assets will be tested for impairment if events or changes in circumstances indicate that the assets might be impaired. Additionally, a deferred tax liability has been established in the allocation of the purchase price with respect to the identified indefinite long-lived intangible assets acquired. The Company incurred $1.3 million in non-recurring acquisition-related transaction costs, which is included in selling, general, and administrative expense within the accompanying consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2016. Total net sales and operating loss from continuing operations from SWIMS since the date of the acquisition included in the accompanying consolidated statement of operations and comprehensive (loss) income is $5.9 million and $2.1 million, respectively. Pro forma financial information (unaudited) The following table presents our unaudited pro forma results (in thousands, except per share data) for the years ended December 31, 2016 and 2015, respectively, as if the RG Merger and SWIMS acquisition had occurred on January 1, 2015. The unaudited pro forma financial information presented includes the effects of adjustments related to the amortization of acquired tangible and intangible assets, and excludes other non-recurring transaction costs directly associated with the acquisition such as legal and other professional service fees. Statutory rates were used to calculate income taxes. Year ended December 31, 2016 2015 Net sales $ $ Net loss $ $ Weighted average common shares outstanding Loss per common share - basic and diluted $ $ The unaudited pro forma financial information as presented above is for information purposes only and is not necessarily indicative of the actual results that would have been achieved had the RG Merger and SWIMS acquisition occurred at the beginning of the earliest period presented or the results that may be achieved in future period. |
RG Merger and Related Transacti
RG Merger and Related Transactions | 12 Months Ended |
Dec. 31, 2016 | |
RG Merger and Related Transactions | |
RG Merger and Related Transactions | 4 . RG Merger and Related Transactions On January 28, 2016, the Company completed the RG Merger. In connection with the RG Merger, the Company also completed the issuance and sale of an aggregate of fifty thousand (50,000) shares of our preferred stock designated as Series A Convertible Preferred Stock (the “ Series A Preferred Stock ”), for an aggregate purchase price of $50 million in cash, as contemplated by the stock purchase agreement, dated as of September 8, 2015 (the “ RG Stock Purchase Agreement ”), by and between the Company and TCP Denim, LLC. The Company used the proceeds from the RG Stock Purchase Agreement and the debt financing provided by the credit facilities under the ABL Credit and Term Credit Agreement (see “Note 12 – Debt and Preferred Stock”) to consummate the RG Merger and the transactions contemplated by the RG Merger Agreement. Also in connection with the completion of the RG Merger, the Company completed the exchange of $38.1 million in the aggregate principal amount of outstanding convertible notes for (i) 1,167,317 shares of common stock (after giving effect to the Reverse Stock Split); (ii) a cash payment of approximately $8.6 million; and (iii) an aggregate principal amount of approximately $16.5 million of modified convertible notes (the “ Modified Convertible Notes ”), as contemplated by the rollover agreement, dated September 8, 2015 (the “ Rollover Agreement ”), between the Company and the holders of the convertible notes. In addition, in connection with the consummation of the RG Merger, the Company entered into (i) the ABL Credit Agreement with Wells Fargo Bank, National Association, as lender, (ii) the Term Credit Agreement with TCW Asset Management Company, and (iii) the A&R Factoring Agreement (as defined below) with CIT. See “Note 12 – Debt and Preferred Stock” for additional information about the ABL Credit Agreement and Term Credit Agreement and “Note 7 – Factored Accounts and Receivables” for additional information about the factoring agreement. |
RG Merger Consideration
RG Merger Consideration | 12 Months Ended |
Dec. 31, 2016 | |
RG Merger Consideration | |
RG Merger Consideration | 5. RG Merger Consideration The RG Merger has been accounted for under the acquisition method of accounting with RG as the accounting acquirer. Under the acquisition method of accounting, the purchase price and the net assets acquired and liabilities assumed are recorded based on their estimated fair values as of the closing date of the RG Merger. The excess of purchase price over the net assets acquired is recorded as goodwill. Business acquisitions are accounted for under the acquisition method by assigning the purchase price to tangible and intangible assets acquired and liabilities assumed. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Purchased intangible assets with finite lives are amortized over their estimated useful lives. Goodwill and intangible assets with indefinite lives are not amortized but are tested at least annually for impairment or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The stock price used to determine the purchase price allocation is based on the closing price of the common stock as of January 28, 2016, which was $5.70. The equity consideration was based upon the assumption that 3,509,000 shares of common stock were outstanding, which included 2,342,000 shares of common stock outstanding and 1,167,000 total aggregate shares of common stock issued to convertible noteholders upon conversion of the convertible notes into shares of our common stock under the Rollover Agreement. As a result of the Rollover Agreement, immediately after giving effect to the RG Merger and related Merger Transactions, the holders of the Modified Convertible Notes owned approximately 14% of the combined company on an as-converted, fully diluted basis. The assets acquired in this acquisition consisted of tangible and intangible assets and liabilities assumed. The differences between the fair value of the consideration paid and the estimated fair value of the assets and liabilities has been recorded as goodwill. The significant factors that resulted in recognition of goodwill were: (a) the purchase price was based upon cash flow and return on capital projections assuming integrations of the companies; and (b) the calculation of the fair value of tangible and intangible assets acquired that qualified for recognition. The Company has determined that the useful life of the acquired trade name asset is indefinite, and therefore, no amortization expense will be recognized until the useful life is determined not to be indefinite. The useful life of the acquired customer relationships are finite and will be amortized over their useful lives. However, the assets will be tested for impairment if events or changes in circumstances indicate that the assets might be impaired. Additionally, a deferred tax liability has been established in the allocation of the purchase price with respect to the identified indefinite long-lived intangible assets acquired. Under the acquisition method of accounting, the total purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. The following is the total purchase price allocation as of December 31, 2016 (in thousands, except share and per share data): Preliminary Purchase Measurement Period Final Purchase Price Allocation Adjustments (1) Price Allocation Assets acquired and liabilities assumed: Cash and cash equivalents $ $ — $ Factored accounts receivable — Accounts receivable — Inventories — Prepaid expenses and other current assets Property and equipment — Other assets — Accounts payable and accrued expenses — Customer cash advances — Line of credit — Deferred income tax liability Other liabilities — Buy-out payable — Intangible assets acquired: Trade name — Customer relationships Total Excess purchase price over net assets acquired Total net assets acquired $ $ — $ Total purchase price: Cash paid to existing holders of convertible notes $ $ — $ Fair value of Modified Convertible Notes transferred to the existing holders of convertible notes — Equity consideration to the Company's stockholders and existing holders of convertible notes (3,508,747 common shares at $5.70) — Total purchase price $ $ — $ (1) The measurement period adjustments were due to the finalization of the valuation related to intangible assets and a tax analysis, and resulted in the following: a decrease to customer relationships, an increase to prepaid expenses and other current assets related to a tax receivable and an increase in long-term deferred tax liabilities, with a corresponding decrease to goodwill. The measurement period adjustments did not have a significant impact on the Company’s consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2016. As a result of the fair value assessment, inventory acquired was stepped up to fair value by the amount of $0.4 million which was sold in fiscal 2016, and is included in cost of goods sold within the accompanying consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2016 and is a non-recurring expense. The fair value of the Modified Convertible Notes was determined with the assistance of a third-party valuation specialist. The face value of the Modified Convertible Notes in the amount of $16.5 million was discounted by $4.7 million to arrive at the fair value of the Modified Convertible Notes. The discount was calculated based on the present values of the contractual cash flows from the Modified Convertible Notes. The Company incurred $3.0 million of non-recurring acquisition-related transaction costs and $1.6 million of non-recurring restructuring expenses (see “Note 22 – Restructuring”) related to the RG Merger during the year ended December 31, 2016, which are included in selling, general and administrative expense within the accompanying consolidated statement of operations and comprehensive (loss) income. Total net sales and operating income from continuing operations from Hudson since the date of the RG Merger included in the accompanying consolidated statement of operations and comprehensive (loss) income is $72.9 million and $7.4 million, respectively. See “Note 3 – Acquisition of SWIMS” for a presentation of our unaudited pro forma results for years ended December 31, 2016 and 2015, respectively, as if the RG Merger and SWIMS acquisition had occurred on January 1, 2015. These results are not intended to reflect our actual operations had the acquisition occurred on January 1, 2015. |
Discontinued Operations
Discontinued Operations | 12 Months Ended |
Dec. 31, 2016 | |
Discontinued Operations | |
Discontinued Operations | 6. Discontinued Operations On February 29, 2016, the Company completed the closure of 14 of its Joe’s® brand retail stores. In accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations , the results of operations of the former Joe’s Business are reported as discontinued operations in the accompanying consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2016 because those operations were disposed of as of March 31, 2016. Due to the timing of the RG Merger, there were no discontinued operations during the year ended December 31, 2015. The operations and cash flows of the 14 Joe’s® brand retail stores that were part of the Joe’s Business have been recorded as discontinued operations since the Company does not have any continuing involvement in the operations of such retail stores that were closed after the disposal transaction. There were no assets or liabilities from the discontinued operations as of December 31, 2016. Discontinued operations are included within the Corporate and other segment (See “Note 18 – Segment Reporting and Operations by Geographic Areas”). The operating results of discontinued operations for the year ended December 31, 2016 are as follows (in thousands): Year ended December 31, 2016 Net sales from discontinued operations $ Loss from discontinued operations before income tax $ Income tax provision — Loss from discontinued operations $ |
Factored Accounts and Receivabl
Factored Accounts and Receivables | 12 Months Ended |
Dec. 31, 2016 | |
Factored Accounts and Receivables | |
Factored Accounts and Receivables | 7. Factored Accounts and Receivables A&R Factoring Agreement In January 2016, in connection with the RG Merger, the Company entered into the amended and restated deferred purchase factoring agreement with CIT, through its subsidiaries, Robert Graham Designs LLC and Hudson (the “ A&R Factoring Agreement ”), which replaced all prior agreements relating to factoring and inventory security. The A&R Factoring Agreement provides that the Company sell and assign to CIT certain accounts receivable, including accounts arising from or related to sales of inventory and the rendition of services. Under the A&R Factoring Agreement, the Company pays a factoring rate of (i) 0.20 percent for certain major department store accounts, (ii) 0.40 percent for all other accounts for which CIT bears the credit risk, subject to discretionary surcharges and (iii) 0.35 percent for accounts for which the Company bears the credit risk, but in no event less than $3.50 per invoice. The A&R Factoring Agreement may be terminated by CIT upon 60 days’ written notice or immediately upon the occurrence of an event of default as defined in the agreement. The A&R Factoring Agreement may be terminated by the Company upon 60 days’ written notice prior to December 31, 2020 or annually with 60 days’ written notice prior to December 31 of each year thereafter. Prior to the RG Merger, the Company was also party to a deferred purchase factoring arrangement with CIT, which was terminated in connection with the RG Merger. See “Note 12 – Debt and Preferred Stock” below for further discussion of this and other RG debt arrangements prior to the RG Merger. Factored and accounts receivables consisted of the following (in thousands): December 31, 2016 December 31, 2015 Non-recourse receivables assigned to factor $ $ Client recourse receivables Total receivables assigned to factor Allowance for customer credits Factor accounts receivable, net of allowance $ $ Non-factored accounts receivable $ $ Allowance for customer credits Allowance for doubtful accounts Accounts receivable, net of allowance $ $ Total factored and accounts receivable, net $ $ Of the total amount of receivables sold by us as of December 31, 2016 and 2015, we hold the risk of payment of $1.6 million and $0.6 million, respectively, in the event of non‑payment by the customers. |
Inventories
Inventories | 12 Months Ended |
Dec. 31, 2016 | |
Inventories | |
Inventories | 8. Inventories Inventories are valued at the lower of cost or net realizable value with cost determined by the first‑in, first‑out method. Inventories consisted of the following (in thousands): December 31, 2016 December 31, 2015 Finished goods $ $ Finished goods consigned to others — Work in progress — Raw materials Total inventories $ $ |
Property and Equipment
Property and Equipment | 12 Months Ended |
Dec. 31, 2016 | |
Property and Equipment | |
Property and Equipment | 9. Property and Equipment Property and equipment consisted of the following (in thousands): December 31, 2016 December 31, 2015 Computer and equipment $ $ Furniture and fixtures Leasehold improvements Less: accumulated depreciation and amortization Construction in progress Net property and equipment $ $ Depreciation and amortization expense totaled $3.3 million and $2.5 million for the years ended December 31, 2016 and 2015, respectively. |
Intangible Assets and Goodwill
Intangible Assets and Goodwill | 12 Months Ended |
Dec. 31, 2016 | |
Intangible Assets and Goodwill | |
Intangible Assets and Goodwill | 10. Intangible Assets and Goodwill Intangible assets are recorded at cost, less accumulated amortization. Amortization of intangible assets with finite lives is provided for over their estimated useful lives on a straight-line basis. The life of the trade names are indefinite. Intangible assets as of December 31, 2016 consisted of the following (in thousands): Amortization Accumulated Period Gross Amount Amortization Net Amount Trade names Indefinite $ $ — $ Customer relationships 7 to 15 Years Non-compete agreements 3 Years Total $ $ $ Intangible assets as of December 31, 2015 consisted of the following (in thousands): Amortization Accumulated Period Gross Amount Amortization Net Amount Trade names Indefinite $ $ — $ Customer relationships 15 Years Total $ $ $ Amortization expense related to intangible assets amounted to approximately $2.7 million and $1.3 million for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, future amortization expense related to the finite-lived intangible assets is as follows (in thousands): 2017 $ 2018 2019 2020 2021 Thereafter $ Goodwill consisted of the following as of December 31, 2016 and December 31, 2015 (in thousands): December 31, 2016 December 31, 2015 Beginning balance $ $ Goodwill created by the RG Merger — Goodwill created by the acquisition of SWIMS — Foreign currency adjustment — Ending balance $ $ |
Accounts Payable and Accrued Ex
Accounts Payable and Accrued Expenses | 12 Months Ended |
Dec. 31, 2016 | |
Accounts Payable and Accrued Expenses | |
Accounts Payable and Accrued Expenses | 11. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following (in thousands): December 31, 2016 December 31, 2015 Accounts payable $ $ Accrued purchases Accrued payroll and other benefits Accrued distributions — Accrued transaction costs — Other Total accounts payable and accrued expenses $ $ |
Debt and Preferred Stock
Debt and Preferred Stock | 12 Months Ended |
Dec. 31, 2016 | |
Debt and Preferred Stock | |
Debt and Preferred Stock | 12. Debt and Preferred Stock The five-year payment schedule of our convertible notes, term debt, and line of credit as of December 31, 2016 is as follows (in thousands): Deferred Original Payments Due by Period Financing Issue Carrying 2017 2018 2019 2020 2021 Total Costs, Net Discount, Net Value Short-term convertible notes $ $ — $ — $ — $ — $ $ — $ $ Long-term debt — Line of credit — — — — — Convertible notes — — — — — Total $ $ $ $ $ $ $ $ $ JPM Credit Facility and Capex Loan of RG On December 23, 2013, RG entered into a $30 million revolving credit facility with JP Morgan Chase Bank (the “ JPM Loan Agreement ”), which was later amended such that $3.5 million of the revolving credit facility was reclassified to the Capex Loan, a term loan . Interest on the amounts borrowed pursuant to the JPM Loan Agreement was charged based on RG’s average balance and at management’s election, at the bank’s prevailing prime rate plus 0.75% or at LIBOR plus 2.25%, which was 2.6% at December 31, 2015. As a result of the Capex Loan, the maximum amount available under the JPM Loan Agreement’s revolving credit facility was reduced to $26.5 million. The remaining revolving credit facility under the JPM Loan Agreement provided for borrowings based on an amount not to exceed the sum of (i) 85% of eligible accounts receivable, (ii) 90% of eligible credit card receivables, (iii) 70% of eligible wholesale inventory, (iv) 75% of eligible retail inventory and (v) the trademark component, as defined in the JPM Loan Agreement, minus outstanding principal amount of Capex Loan, and minus reserves. In January 2016, RG used the aggregate cash consideration received in the RG Merger to repay all of RG’s outstanding loans and indebtedness under the JPM Loan Agreement, including the Capex Loan. RG’s Former Factoring Agreement with CIT In December 2013, RG entered into a deferred purchase factoring arrangement and loan agreement with CIT. Under the agreement, RG assigned trade accounts receivable to a commercial factor with recourse, while retaining ownership of the assigned accounts receivable until the occurrence of a specified triggering event. RG paid fees ranging from 0.20% to 0.50% of the gross amount of the accounts receivable assigned, with an annual floor amount of $0.1 million. In January 2016, in connection with the RG Merger, the Company terminated the deferred purchase factoring arrangement and loan agreement and entered into the A&R Factoring Agreement. See “Note 7 – Factored Accounts and Receivables.” ABL Credit Agreement and Term Credit Agreement On January 28, 2016, in connection with consummation of the RG Merger, the Company and certain of its subsidiaries entered into (i) the ABL Credit Agreement; (ii) the Term Credit Agreement; and (iii) the A&R Factoring Agreement. See “Note 7 – Factored Accounts and Receivables” for a discussion of the A&R Factoring Agreement. The ABL Credit Agreement provides for a senior secured asset-based revolving credit facility (the “ Revolving Facility ”) with commitments in an aggregate principal amount of $40 million. The Term Credit Agreement provides for a senior secured term loan credit facility (the “ Term Facility ”) in an aggregate principal amount of $50 million. The Term Facility matures on January 28, 2021. The Revolving Facility matures on October 30, 2020. The amount available to be drawn under the Revolving Facility is based on the borrowing base values attributed to eligible accounts receivable and eligible inventory. The availability under the Revolving Facility as of December 31, 2016 was $12.7 million. Certain of the Company’s subsidiaries are co-borrowers under the ABL Credit Agreement and the Term Credit Agreement. The obligations under the ABL Credit Agreement and the Term Credit Agreement are guaranteed by all of the Company’s domestic subsidiaries and are secured by substantially all of the Company’s assets, including the assets of its domestic subsidiaries. The ABL Credit Agreement provides that, subject to customary conditions, the Company, and certain of its subsidiaries that are borrowers, may seek to obtain incremental commitments under the Revolving Facility in an aggregate amount not to exceed $10 million. The Term Credit Agreement provides that, subject to customary conditions, the Company, and certain of its subsidiaries that are borrowers, may seek to obtain incremental term loans under the Term Facility in an aggregate amount not to exceed $50 million. The Company does not currently have any commitments for such incremental loans under either facility. There are no scheduled payments under the Revolving Facility. The Revolving Facility is required to be prepaid to the extent extensions of credit thereunder exceed the applicable borrowing base. Outstanding loans under the Revolving Facility may be prepaid at any time at the Company’s option without premium or penalty, other than customary "breakage" costs with respect to LIBOR loans. The Term Facility is subject to quarterly payments of principal as follows: (i) 0.25% for each of the first four fiscal quarters; (ii) 0.625% for each of the four fiscal quarters thereafter; (iii) 1.25% for each of the next following four fiscal quarters; (iv) 1.875% for each of the next following four fiscal quarters; and (v) 2.50% for each fiscal quarter thereafter, with the balance payable at maturity. The Term Facility includes mandatory prepayments customary for credit facilities of its nature, including, subject to certain exceptions: (i) 100% of the net cash proceeds from issuances of debt that is not permitted and certain equity issuances; (ii) 100% of the net cash proceeds from certain non-ordinary course asset sales, subject to customary exceptions and reinvestment rights; (iii) 100% of certain insurance proceeds and condemnation recoveries, subject to customary exceptions and reinvestment rights; (iv) 100% of the net cash proceeds from certain extraordinary receipts; and (v) a variable percentage of excess cash flow, ranging from 50% to 0% depending on our senior leverage ratio. Outstanding loans under the Term Facility may be prepaid at any time at the Company’s option subject to customary “breakage” costs with respect to LIBOR loans. Subject to certain exceptions, prepayments of loans under the Term Facility are subject to a prepayment premium of (i) 2.00% during the first year after the closing date and (ii) 1.00% during the second year after the closing date. Borrowings under the ABL Credit Agreement and Term Credit Agreement bear interest at a rate equal to either, at the Company’s option, an adjusted base rate or the LIBOR (subject to a 0.50% floor for borrowings under the Term Facility), in each case plus an applicable margin. The applicable margin for borrowings under the Term Facility (which varies based on the senior leverage ratio) ranges from 8.00% to 6.00% for base rate loans and 9.00% to 7.00% for LIBOR loans. The applicable margin for borrowings under the Revolving Facility is 0.50% for base rate loans and 1.75% for LIBOR loans. An unused commitment fee equal to 0.25% per annum of the average daily amount by which the total commitments under the Revolving Facility exceeds the outstanding usage under the Revolving Facility will be payable monthly in arrears. The ABL Credit Agreement and Term Credit Agreement contain customary representations and warranties, events of default and covenants, including, among other things and subject to certain exceptions, covenants that restrict the ability of the Company and its subsidiaries, to incur additional indebtedness, create or permit liens on assets, engage in mergers or consolidations, dispose of assets, make prepayments of certain indebtedness, pay certain dividends and other restricted payments, make investments, and engage in transactions with affiliates. The Term Credit Agreement requires the Company to comply with financial covenants to be tested quarterly (beginning with the second fiscal quarter ending after the RG Merger’s closing date), consisting of a maximum senior leverage ratio, a maximum net senior rent adjusted leverage ratio and a minimum fixed charge coverage ratio. The ABL Credit Agreement requires the Company to comply with a minimum fixed charge coverage ratio to be tested monthly if excess availability under the Revolving Facility is less than 10% of the lesser of the commitments under the Revolving Facility and the borrowing base or during specified events of defaults. If an event of default under a credit agreement occurs and continues, the commitments may be terminated and the principal amount outstanding, together with all accrued and unpaid interest and other amounts owed may be declared immediately due and payable. In connection with entering into the ABL Credit Agreement and the Term Credit Agreement, the Company incurred deferred financing costs totaling $1.9 million, of which $0.3 million was accrued for as of December 31, 2015. To permit the acquisition of SWIMS, on July 18, 2016, the Company also entered into (i) a Consent and Amendment No. 1 to the ABL Credit Agreement and accompanying security agreement with Wells Fargo Bank, National Association, as lender, and (ii) a Consent and Amendment No. 1 to the Term Credit Agreement and accompanying security agreement with TCW Asset Management Company, as agent for the lenders and the lenders party thereto. Additionally, on March 27, 2017, the Company entered into (i) Amendment No. 2 to the Term Credit Agreement to modify certain defined terms, add a liquidity covenant, revise certain covenants, and to set an 8.75% base rate and 9.75% LIBOR rate for the period between March 27, 2017 and May 15, 2017 and (ii) Amendment No. 2 to the ABL Credit Agreement to confirm certain defined terms to that in Amendment No. 2 in the Term Credit Agreement. As of December 31, 2016, the Company was in compliance with the financial and non-financial covenants included in the ABL Credit Agreement and the Term Credit Agreement as of that date. RG Stock Purchase Agreement In connection with the RG Merger, the Company entered into the RG Stock Purchase Agreement with TCP Denim, LLC pursuant to which the Company issued and sold to TCP Denim, LLC an aggregate of 50,000 shares of the Series A Preferred Stock, for an aggregate purchase price of $50 million in cash. The proceeds from the sale of Series A Preferred Stock were used to consummate the RG Merger. Under the form of certificate of designation for the Series A Preferred Stock, each share of Series A Preferred Stock entitles the holder to receive dividends when, as and if declared by the Board of Directors or a duly authorized committee thereof, to receive cumulative cash dividends, payable quarterly, at an annual rate of 10%, plus accumulated and accrued dividends thereon through such date. To date, the Board of Directors or a duly authorized committee thereof has not declared any dividends on our Series A Preferred Stock. Additionally, if our Board of Directors declares or pays a dividend on the common stock, then each holder of the Series A Preferred Stock will be entitled to receive a cash dividend on an as-converted basis. Each holder of the Series A Preferred Stock is entitled to vote on an as-converted basis and together with the holders of common stock as a single class, subject to certain limitations. For so long as a to-be-determined percentage of the shares of the Series A Preferred Stock remains outstanding, the holders of the Series A Preferred Stock, exclusively and as a separate class, will be entitled to elect three members of the Board of Directors, each of whom may only be removed without cause by the affirmative vote of the holders of a majority of the shares of Series A Preferred Stock. The holders of the Series A Preferred Stock have separate class voting rights with respects to certain matters affecting their rights. Upon any liquidation event, holders of the Series A Preferred Stock are entitled to receive the greater of the liquidation preference on the date of determination and the amount that would be payable to the holders of the Series A Preferred Stock had such holders converted their shares of Series A Preferred Stock into shares of common stock immediately prior to such liquidation event. Each share of the Series A Preferred Stock is convertible, at the option of the holder thereof, at any time and without the payment of additional consideration by the holder, at an initial conversion price of $11.16 (after taking into account the Reverse Stock Split). Modified Convertible Notes and Rollover Agreement The Company issued $27.5 million, net of discount, in convertible notes in connection with the acquisition of Hudson with different interest rates and conversion features for Hudson’s management stockholders, including Peter Kim, the Chief Executive Officer of Hudson, and for our major stockholder Fireman Capital CPF Hudson Co-Invest LP (“ Fireman ”) , respectively. On September 8, 2015, the Company entered into the Rollover Agreement with the holders of convertible notes originally issued in connection with the acquisition of the Hudson Business, pursuant to which, on January 28, 2016, the holders of the notes contributed the notes to the Company in exchange for the following: · 1,167,317 shares of common stock; · a cash payment of approximately $8.6 million, before expenses; and · an aggregate principal amount of approximately $16. 5 million of Modified Convertible Notes. The Modified Convertible Notes are structurally and contractually subordinated to our senior debt and will mature on July 28, 2021. The Modified Convertible Notes accrue interest quarterly on the outstanding principal amount at a rate of 6.5% per annum (which increased to 7% as of October 1, 2016, with respect to the Modified Convertible Notes issued to Fireman, which is payable 50% in cash and 50% in additional paid-in-kind notes; provided, however, that the Company may, in its sole discretion, elect to pay 100% of such interest in cash. Beginning on January 28, 2016, the Modified Convertible Notes are convertible by each of the holders into shares of the Company’s common stock, cash, or a combination of cash and common stock, at the Company’s election. If the Company elects to issue only shares of common stock upon conversion of the Modified Convertible Notes, each of the Modified Convertible Notes would be convertible, in whole but not in part, into a number of shares equal to the conversion amount divided by the market price. The conversion amount is (a) the product of (i) the market price, multiplied by (ii) the quotient of (A) the principal amount, divided by (B) the conversion price, minus (b) the aggregate optional prepayment amounts paid to the holder. The market price is the average of the closing prices for our common stock over the 20 trading day period immediately preceding the notice of conversion. If the Company elects to pay cash with respect to a conversion of the Modified Convertible Notes, the amount of cash to be paid per share will be equal to the conversion amount. The Company will have the right to prepay all or any portion of the principal amount of the Modified Convertible Notes at any time so long as the Company makes a pro rata prepayment on all of the Modified Convertible Notes. The following table is a summary of the recorded value of the Modified Convertible Notes as of December 31, 2016 (in thousands). The value of the convertible note reflects the present value of the contractual cash flows from the Modified Convertible Notes and resulted in an original issue discount of $4.7 million that was recorded on January 28, 2016, the issuance date. December 31, 2016 Modified Convertible Notes - face value $ Less: original issue discount Modified Convertible Notes recorded value on issue date PIK interest issued Accumulated accretion of original issue debt discount Modified Convertible Notes value $ SWIMS Convertible Note In connection with the acquisition of SWIMS® on July 18, 2016, the Company entered into certain financing arrangements with Tengram Partners Fund II, L.P., an entity affiliated with the holder of the Company’s Series A Preferred Stock and certain other Tengram entities. See “Note 3 – Acquisition of SWIMS” and “Note 14 – Equity” for a discussion on the warrants issued in connection with the acquisition of SWIMS. The following table is a summary of the recorded value of the convertible note as of December 31, 2016 (in thousands). The value of the convertible note reflects the present value of the contractual cash flows and resulted in an original issue discount of $0.5 million that was recorded on July 18, 2016, the issuance date. December 31, 2016 Short-term convertible notes - face value $ Less: Original issue discount Short-term convertible notes recorded value on issue date PIK interest issued Accumulated accretion of original issue debt discount Short-term convertible notes value $ Effective January 18, 2017, the maturity date of the Convertible Note was extended to July 18, 2017. By its original terms, the Convertible Note was scheduled to convert on the maturity date of January 18, 2017 to the extent not repaid in cash on or prior to such date, into up to 4,500,000 newly issued shares of the Company’s Series A-1 Preferred Stock at a conversion price of $3.00 per share. Following this amendment, all other terms of the Convertible Note remain the same, including the conversion of the Convertible Note upon the extended maturity date. SWIMS Overdraft Agreement and Factoring Agreement In connection with the acquisition of SWIMS, SWIMS has maintained two preexisting external financing agreements, each between SWIMS and DNB Bank ASA (“ DNB ”): an Overdraft Facility Agreement, dated January 27, 2016 (the “ Overdraft Agreement ”) and a Credit Assurance and Factoring Agreement, dated August 26, 2013 (the “ SWIMS Factoring Agreement ”). The Overdraft Agreement is an overdraft facility that provides SWIMS with access to up to NOK 6.0 million (approximately $0.7 million as of December 31, 2016) in total, divided between (a) an ordinary credit of NOK 3.5 million at an interest rate of 7.4% plus an additional quarterly fee of 0.4% on the outstanding principal in frame commissions and (b) an additional credit of NOK 2.5 million at an interest rate of 4.9% plus an additional quarterly fee of 0.5% on the outstanding principal in frame commissions. The Overdraft Agreement is secured with (a) first-priority liens on SWIMS’ (i) machinery and plant (up to NOK 10.0 million) and (ii) inventory (up to NOK 10.0 million) and (b) additional liens on SWIMS’ factoring in the amount of NOK 1.0 million (first lien), NOK 4.0 million (second lien), NOK 7.0 million (third lien) and NOK 2.5 million (fourth lien). The Overdraft Agreement may be terminated by SWIMS upon fourteen days’ prior written notice for any reason and by DNB upon fourteen days’ prior written notice for just cause. DNB may also terminate the Overdraft Agreement without any prior written notice in the event of a material breach by SWIMS. As of December 31, 2016, there was no outstanding balance on the facility governed by the Overdraft Agreement. The Factoring Agreement is a combined credit assurance and factoring agreement, pursuant to which SWIMS is granted financing of up to 80% of its preapproved outstanding invoiced receivables. DNB receives a 0.19% annual commission based on invoiced revenues and a 0.25% quarterly commission of the maximum financing amount plus other administrative costs. The Factoring Agreement is secured with (a) first-priority liens on SWIMS’ (i) machinery and plant (up to NOK 10.0 million) and (ii) inventory (up to NOK 10.0 million) and (b) additional liens on SWIMS’ factoring in the amount of NOK 1.0 million (first lien), NOK 4.0 million (second lien), NOK 7.0 million (third lien) and NOK 2.5 million (fourth lien). The Factoring Agreement may be terminated by SWIMS upon fourteen days’ prior written notice for any reason and by DNB upon fourteen days’ prior written notice for just cause. DNB may also terminate the Factoring Agreement without any prior written notice in the event of a material breach by SWIMS. As of December 31, 2016, SWIMS had outstanding financing commitments on NOK 7.1 million (approximately $0.8 million as of December 31, 2016) of its preapproved outstanding invoiced receivables pursuant to the SWIMS Factoring Agreement. Interest Expense The following table (in thousands) is a summary of our total interest expense as follows: Year ended December 31, 2016 2015 Contractual coupon interest $ $ Amortization of discounts and deferred financing costs — Total interest expense $ $ |
Fair Value Measurement of Finan
Fair Value Measurement of Financial Instruments | 12 Months Ended |
Dec. 31, 2016 | |
Fair Value Measurement of Financial Instruments | |
Fair Value Measurement of Financial Instruments | 13. Fair Value Measurement of Financial Instruments Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. ASC 820 , Fair Value Measurements and Disclosures also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The following table presents our fair value hierarchy for assets measured at fair value on a non-recurring basis as of December 31, 2016 and 2015 (in thousands): Carrying Value Fair Value Financial Instrument Level December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 Convertible notes - short term $ $ — $ $ — Convertible notes - long term — — Loan payable — — $ $ $ $ The key assumptions for determining the fair value at December 31, 2016 included the remaining time to maturity of 4.6 years, volatility of 60 percent, and the risk-free interest rate of 1.83 percent. |
Equity
Equity | 12 Months Ended |
Dec. 31, 2016 | |
Equity | |
Equity | 14. Equity Stock Incentive Plans Amended and Restated 2004 Stock Incentive Plan In 2004, the Board of Directors adopted, and the Company’s shareholders approved the Stock Incentive Plan. In October 2011, the Board of Directors adopted, and the Company’s shareholders approved, the Amended and Restated 2004 Stock Incentive Plan (the “Amended and Restated Plan” ) to update the 2004 Stock Incentive Plan with respect to certain provisions and changes in the tax code since its original adoption. Under the Amended and Restated Plan, the number of shares authorized for issuance was 227,500 shares of common stock after giving effect to the Reverse Stock Split. 2016 Stock Incentive Plan On October 5, 2016 the Board of Directors adopted the Differential Brands Group Inc. 2016 Stock Incentive Compensation Plan (the “ 2016 Stock Incentive Plan ”) which was approved by the Company’s shareholders on November 7, 2016. Under the 2016 Stock Incentive Plan, 3,529,109 shares of common stock have been reserved for issuance in connection with grants of nonqualified stock options, incentive stock options, stock appreciation rights (“ SARs ”), restricted stock, restricted stock units (“ RSUs ”), performance-based compensation awards, other stock-based awards, dividend equivalents and cash-based awards. The maximum number of shares with respect to which awards may be granted to any participant in any calendar year may not exceed 500,000 shares; provided, however, that the Chief Executive Officer, Michael Buckley, may receive up to 433,764 RSUs and 347,011 PSUs pursuant to his employment agreement. In 2016, the Company granted RSUs, stock options and performance share units (“ PSUs ”) to its officers, non-employee directors, employees and consultants pursuant to the 2016 Plan. The RSUs and PSUs represent the right to receive one share of common stock for each unit on the vesting date provided that the individual meets the applicable vesting criteria. The exercise price of stock options granted under the 2016 Stock Incentive Plan will be determined by the Compensation and Stock Option Committee (the “ Compensation Committee ”) of the Board of Directors or by any other committee designated by the Board of Directors, but may not be less than the fair market value of the Company’s shares of common stock on the date the option is granted. In general, unvested stock options are forfeited when a participant terminates employment or service with the Company or its affiliates. Shares underlying awards that are forfeited, cancelled, terminated or expire unexercised, or settled in cash in lieu of issuance of shares, shall be available for issuance pursuant to future awards to the extent that such shares are forfeited, repurchased or not issued under any such award. Any shares tendered to pay the exercise price of an option or other purchase price of an award, or withholding tax obligations with respect to an award, shall be available for issuance pursuant to future awards. In addition, if any shares subject to an award are not delivered to a participant because (i) such shares are withheld to pay the exercise price or other purchase price of such award, or withholding tax obligations with respect to such award (or other award), or (ii) a payment upon exercise of an SAR is made in shares, the number of shares subject to the exercised or purchased portion of any such award that are not delivered to the participant shall be available for issuance pursuant to future awards. As of December 31, 2016, shares reserved for future issuance under the incentive plans include: (i) 444 shares of common stock issuable upon the exercise of stock options granted under the Amended and Restated Plan; and (ii) 3,223,742 shares of common stock issuable under the 2016 Stock Incentive Plan. As of December 31, 2016, no shares remained available for grant under the Amended and Restated Plan. There were no stock options, RSUs or stock-based compensation awards granted, expired, forfeited or outstanding during the year ended December 31, 2015, although in connection with the RG Merger the Company assumed certain stock options granted by Joe’s which were outstanding during the year ended December 31, 2015. Stock Options The following table summarizes stock option activity by incentive plan for the year ended December 31, 2016 (in actual amounts): Total Number 2004 Stock Amended and 2016 Stock of Shares Incentive Plan Restated Plan Incentive Plan Outstanding at January 1, 2016 — — — — Legacy Joe's stock options assumed — Granted — — Exercised — — — — Forfeited / Expired — — Outstanding at December 31, 2016 — The following table summarizes stock option activity for all incentive plans for the year ended December 31, 2016 (in actual amounts): Weighted Weighted Average Aggregate Average Remaining Contractual Intrinsic Options Exercise Price Life (Years) Value Outstanding at January 1, 2016 — $ — Legacy Joe's stock options assumed Granted Exercised — — Expired — — Forfeited Outstanding at December 31, 2016 $ $ — Exercisable at December 31, 2016 $ $ — Exercise prices for options outstanding as of December 31, 2016 were as follows (in actual amounts): Options Outstanding and Exercisable Exercise Price Number of Shares Weighted-Average $ 4.02 7.4 $ 11.40 8.0 There were no options exercised during the year ended December 31, 2016. For all stock compensation awards that contain graded vesting with time‑based service conditions, the Company has elected to apply a straight‑line recognition method to account for these awards. A total of $26 thousand of stock based compensation expense related to stock options was recognized during the year ended December 31, 2016. The stock option awards were measured at fair value on the grant date using the Black-Scholes option valuation model. Stock options granted to non-employees are revalued at each reporting period. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, expected volatility over the option’s expected term, the risk-free interest rate over the option’s expected term and the expected annual dividend yield, if any. The Company estimate’s forfeitures based on an analysis of the award recipients’ positions and the vesting period of the awards. Shares of common stock will be issued when the options are exercised. The fair values of stock options granted in fiscal years 2016 were estimated on the grant dates using the following assumptions: average fair value per option granted of $0.87, expected option term of 6.45 years, expected volatility of 60 percent, risk free interest rate of 2.09 percent, and an expected annual dividend yield of zero. As of December 31, 2016, there was $105 thousand of total unrecognized compensation cost related to unvested stock options granted under the 2016 Stock Incentive Plan. The unrecognized compensation cost is expected to be recognized over a weighted‑average of 2.4 years. Restricted Stock Units The following table summarizes RSU activity for the year ended December 31, 2016 (in actual amounts): Restricted Stock Units Number Of Weighted Average Grant Outstanding at January 1, 2016 — $ — Granted Vested Forfeited — — Outstanding at December 31, 2016 $ A total of $2.0 million of stock based compensation expense was recognized related to Restricted Stock Units during the year ended December 31, 2016. As of December 31, 2016, there was $3.2 million of total unrecognized compensation cost related to unvested Restricted Stock Units. The unrecognized compensation cost is expected to be recognized over a weighted‑average of 2.2 years. Performance Share Units The Company granted 513,678 performance share units during 2016 which vest over 3 years if the performance target set by the Compensation Committee is met. If less than 80 percent of the performance target is reached, zero percent of the performance share units will vest. Unvested performance share units in any completed year will be eligible for vesting in subsequent years if the subsequent year performance target is exceeded and the excess is sufficient to make up for the prior year shortfall. As of December 31, 2016, the performance targets were not met, none of the shares have vested, and no expense has been recognized. Warrants The Company issued warrants in conjunction with the acquisition and financing of SWIMS (see “Note 3 – Acquisition of SWIMS”) that are currently exercisable. The warrant issued to Tengram has an estimated fair value of $465 thousand. The fair value of the warrant at the date of grant was determined using the Black-Scholes option pricing model based on the market value of the underlying common stock, an exercise price of $3.00 per share, an expected life (term) of 5 years, a volatility rate of 50%, based upon the expected volatility in market traded stock over the same period as the remaining term of the warrant, zero dividends, and a risk free interest rate of 1.14%. In addition, a 20% discount for lack of marketability was applied based upon the Rule 144 one year restriction period. The warrant issued to the SWIMS Seller has an estimated fair value of $45 thousand. The fair value of the warrant at the date of grant was determined using the Black-Scholes option pricing model based on the market value of the underlying common stock, an exercise price of $5.47 per share, an expected life (term) of 3 years, a volatility rate of 45%, based upon the expected volatility in market traded stock over the same period as the remaining term of the warrant, zero dividends, and a risk free interest rate of 0.85% In addition, a 10% discount for lack of marketability was applied based upon the Rule 144 six-month restriction period. |
(Loss) Earnings per Share
(Loss) Earnings per Share | 12 Months Ended |
Dec. 31, 2016 | |
(Loss) Earnings per Share | |
(Loss) Earnings per Share | 15. (Loss) Earnings per Share (Loss) earnings per share is computed using weighted average common shares and dilutive common equivalent shares outstanding. Potentially dilutive securities consist of outstanding stock options, unvested RSUs, unvested PSUs, warrants, convertible Series A Preferred Stock and shares issuable upon the assumed conversion of the Modified Convertible Notes and the SWIMS Convertible Note. A reconciliation of the numerator and denominator of basic and diluted (loss) earnings per share is as follows (in thousands, except per share data): Year ended December 31, 2016 2015 Basic (loss) earnings per share computation Numerator: (Loss) income from continuing operations $ $ Loss from discontinued operations — Net (loss) income $ $ Denominator: Weighted average common shares outstanding (Loss) earnings per common share - basic (Loss) income from continuing operations $ $ Loss from discontinued operations — (Loss) earnings per common share - basic $ $ Diluted (loss) earnings per share computation Numerator: (Loss) income from continuing operations $ $ Loss from discontinued operations — Net (loss) income $ $ Denominator: Weighted average common shares outstanding Effect of dilutive securities: Options, RSUs, PSUs, warrants, Series A, convertible notes — — Dilutive common shares (Loss) earnings per common share - diluted (Loss) income from continuing operations $ $ Loss from discontinued operations — (Loss) earnings per common share - diluted $ $ For the year ended December 31, 2015, weighted average shares represent the number of shares issued to RG members in connection with the RG Merger. For the year ended December 31, 2016, the following potential common shares were excluded from diluted (loss) earnings per share as the company had a net loss for the year (in thousands): 150 for outstanding stock options, 801 for unvested RSUs, 514 for unvested PSU’s, 650 for outstanding warrants, 4,480 related to the convertible Series A Preferred Stock, 1,207 related to the Modified Convertible Notes, and 4,394 related to the SWIMS Convertible Note. There were no potential common shares excluded from diluted (loss) earnings per share for the year ended December 31, 2015. (Loss) Earnings Per Share under Two − Class Method The Series A Preferred Stock has the non-forfeitable right to participate on an as converted basis at the conversion rate then in effect in any common stock dividends declared and as such, is considered a participating security. The Series A Preferred Stock is included in the computation of basic and diluted loss per share pursuant to the two-class method. Holders of the Series A Preferred Stock do not participate in undistributed net losses because they are not contractually obligated to do so. The computation of diluted (loss) earnings per share attributable to common stockholders reflects the potential dilution that could occur if securities or other contracts to issue shares of common stock that are dilutive were exercised or converted into shares of common stock (or resulted in the issuance of shares of common stock) and would then share in our earnings. During the periods in which we record a loss from continuing operations attributable to common stockholders, securities would not be dilutive to net loss per share and conversion into shares of common stock is assumed not to occur. The following table provides a reconciliation of net (loss) income to preferred shareholders and common stockholders for purposes of computing net (loss) income per share for the years ended December 31, 2016 and 2015 (in thousands, except per share data): Year ended December 31, 2016 2015 Net (loss) income $ $ Less: preferred dividends - Net (loss) income attributable to stockholders Participating securities - Series A Preferred Stock (1) - - Net (loss) income attributable to common stockholders $ $ Denominator: Weighted average common shares outstanding (Loss) earnings per common share - basic and diluted under two-class method $ $ (1) As these shares are participating securities that participate in earnings, but do not participate in losses based on their contractual rights and obligations, this calculation demonstrates that there is no allocation of the loss to these securities. |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2016 | |
Income Taxes | |
Income Taxes | 16. Income Taxes Until the RG Merger on January 28, 2016, the Company was treated as a partnership for tax purposes. Pursuant to this status, taxable income or loss of the Company was included in the income tax returns of its owners. Consequently, no federal income tax provision was recorded through the RG Merger date. We account for income taxes under the asset and liability method; under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. We utilize a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. For financial reporting purposes, (loss) income from continuing operations before income taxes, includes the following components (in thousands): Year ended December 31, 2016 2015 Domestic $ $ Foreign — (Loss) income from continuing operations before income taxes $ $ (Benefit) provision for Income Taxes The (benefit) provision for income taxes of the following (in thousands): Year ended December 31, 2016 2015 Current: Federal $ $ — State Foreign — Deferred: Federal — State — Foreign — — Total $ $ Deferred Tax Assets and Liabilities Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets for federal and state income taxes are as follows (in thousands): As of December 31, 2016 2015 Deferred tax assets: Federal and state NOL carryforward $ $ — Fixed assets — Accruals — Stock-based compensation — Inventory — Other intangibles — Allowance for customer credits and doubtful accounts — Deferred rent — Other — Deferred state income tax — Total gross deferred tax asset — Less: valuation allowance — Total deferred tax assets $ $ — Deferred tax liabilities: Indefinite lived intangibles $ $ — Prepaids — Debt discount — Total gross deferred tax liability — Net deferred tax assets $ $ — Income tax (benefit) provision for the year ended December 31, 2016 related to continuing operations differ from the amounts computed by applying the U.S. statutory income tax rate of 34 percent to pretax loss as follows (in thousands): Year ended December 31, 2016 2015 U.S. Federal (benefit) provision At statutory rate $ $ — State taxes Valuation allowance — Foreign tax differential — Disallowed interest expense — Change in entity status — Effect of uncertain tax positions — Book income from pre-transaction period — Transaction costs — Other Total $ $ Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Because of our lack of U.S. earnings history, the net U.S. deferred tax assets have been fully offset by a valuation allowance, excluding any deferred tax liabilities for long-lived intangibles. The valuation allowance increased by $28.3 million during the year ended December 31, 2016. $2.0 million of that increase is associated with purchase accounting from the RG merger and $22.9 million is associated with the change in entity status. The Company has not provided for U.S. taxes on unremitted earnings of its foreign subsidiary as it is operating at a loss and has no earnings and profits to remit. As a result, deferred taxes were not provided related to the cumulative translation adjustments. Net Operating Loss and Tax Credit Carryforwards As of December 31, 2016, we had a net operating loss carryforward for federal income tax purposes of approximately $23.2 million, portions of which will begin to expire in 2018. We had a total state net operating loss carryforward of approximately $18.7 million, which will begin to expire in 2019. We had a foreign net operating loss carryforward of $1.7 million that has no expiration date. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. The net operating losses are presented net of any expirations associated with such limitations. Unrecognized Tax Benefits Our unrecognized tax benefits were acquired as part of purchase accounting in fiscal 2016. Our policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations and comprehensive (loss) income. If we are eventually able to recognize our uncertain positions, our effective tax rate would be reduced. We currently have a full valuation allowance against out net deferred tax assets which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future. Any adjustments to our uncertain tax positions would result in an adjustment of our net operating loss or tax credit carry forwards rather than resulting in a cash outlay. The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examination by taxing authorities for years prior to 2012. We have the following activity relating to unrecognized tax benefits (in thousands): Year ended December 31, 2016 2015 Beginning balance $ — $ — Gross increase - tax positions in prior periods — Gross decrease - tax positions in prior periods — — Gross decrease - tax positions in current period — — Settlements — — Lapse in statutes of limitations — Ending balance $ $ — Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, we do not anticipated any significant changes to unrecognized tax benefits over the next 12 months. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2016 | |
Commitments and Contingencies | |
Commitments and Contingencies | 17. Commitments and Contingencies Operating Leases The Company leases retail store locations and our corporate offices and warehouse under operating lease agreements expiring on various dates through April 2026. Some of these leases require us to make periodic payments for property taxes, utilities and common area operating expenses. Certain retail store leases provide for rents based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 6 percent to 8 percent, when specific sales volumes are exceeded. Some leases include lease incentives, rent abatements and fixed rent escalations, which are amortized and recorded over the initial lease term on a straight-line basis from the possession date. As of December 31, 2016, the future minimum rental payments under non‑cancelable operating leases with lease terms in excess of one year were as follows (in thousands): 2017 $ 2018 2019 2020 2021 Thereafter $ Rent expense was $9.2 million and $7.1 million for the years ended December 31, 2016 and 2015, respectively. Letter of Credit We maintained an irrevocable standby letter of credit for approximately $130 thousand representing the deposit on RG’s New York City retail store. In April 2016, the letter of credit was terminated. Employment Agreements Certain of the Company’s officers and employees are under employment agreements with minimum required payments. Future minimum payments under these employment agreements total $2.6 million in 2017, $1.0 million in 2018, and $0.4 million in 2019. Litigation We are a party to legal proceedings and claims in the ordinary course of business, including proceedings to protect our intellectual property rights. As part of our monitoring program for our intellectual property rights, from time to time, we file lawsuits in the United States and abroad for acts of trademark counterfeiting, trademark infringement, trademark dilution, patent infringement or breach of other state or foreign laws. These actions often result in seizure of counterfeit merchandise and negotiated settlements with defendants. Defendants sometimes raise the invalidity or unenforceability of our proprietary rights as affirmative defenses or counterclaims. In the opinion of management, based upon advice of legal counsel, the likelihood is remote that the impact of any pending proceedings and claims, either individually or in the aggregate, would have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, because the ultimate outcome of legal proceedings and claims involves judgments, estimates and inherent uncertainties, actual outcomes of these proceedings and claims may materially differ from our current estimates. It is possible that resolution of one or more of the proceedings currently pending or threatened could result in losses material to our consolidated results of operations, liquidity or financial condition. On a quarterly basis, outstanding legal proceedings and claims are reviewed to determine if an unfavorable outcome is considered “remote,” “reasonably possible” or “probable” as defined by U.S. GAAP. If it is determined that an unfavorable outcome is probable and is reasonably estimable, potential litigation losses are accrued for. The liability the Company may ultimately incur with respect to such litigation matters, in the event of a negative outcome, may be in excess of amounts accrued for, if at all. If it is determined that an unfavorable outcome is not probable or reasonably estimable, no accrual is made. |
Segment Reporting and Operation
Segment Reporting and Operations by Geographic Areas | 12 Months Ended |
Dec. 31, 2016 | |
Segment Reporting and Operations by Geographic Areas | |
Segment Reporting and Operations by Geographic Areas | 18. Segment Reporting and Operations by Geographic Areas Segment Reporting The following table (in thousands) contains summarized financial information by reportable segment: Year ended December 31, 2016 2015 Net sales: Wholesale $ $ Consumer Direct Corporate and other $ $ Gross profit: Wholesale $ $ Consumer Direct Corporate and other $ $ Operating expenses: Wholesale $ $ Consumer Direct Corporate and other $ $ Operating (loss) income: Wholesale $ $ Consumer Direct Corporate and other $ $ Capital expenditures: Wholesale $ $ Consumer Direct Corporate and other $ $ December 31, 2016 December 31, 2015 Total assets: Wholesale $ $ Consumer Direct Corporate and other $ $ Operations by Geographic Area Currently, we do not have any material reportable operations outside of the United States. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2016 | |
Related Party Transactions | |
Related Party Transactions | 19. Related Party Transactions Peter Kim The Company entered into several agreements, including a stock purchase agreement, a convertible note, a registration rights agreement, an employment agreement and a non-competition agreement with Peter Kim, the Chief Executive Officer of Hudson, in connection with the acquisition of Hudson. Additionally, in connection with the RG Merger, the Company entered into a Rollover Agreement pursuant to which the convertible notes were exchanged for a combination of cash, stock and Modified Convertible Notes, and a new employment and non-competition agreement with Mr. Kim. Mr. Kim also has rights under the Registration Rights Agreement described below with respect to shares of common stock issuable upon conversion of his Modified Convertible Notes. See “Note 12 – Debt and Preferred Stock.” As of December 31, 2016, the amount outstanding under the convertible note payable to Mr. Kim was $8.6 million and accrued interest of $141 thousand. Under the new non-competition agreement with Differential and Hudson, which became effective as of the closing date of the RG Merger, Mr. Kim has agreed not to engage in, compete with or permit his name to be used by or in connection with any premium denim apparel business outside his role with Hudson that is competitive to Differential, Hudson or the Company’s respective subsidiaries for a period of up to three years from January 28, 2016. Registration Rights Agreement On the closing date of the RG Merger, the Company entered into a registration rights agreement (the “ Registration Rights Agreement ”) with TCP Denim, LLC and certain of its affiliates, who are major stockholders of the Company, the noteholders party to the Rollover Agreement (including Mr. Kim and Fireman ), and Michael Buckley, our Chief Executive Officer. Pursuant to the Registration Rights Agreement, and subject to certain limitations described therein, the Company is required to provide certain demand and piggyback registration rights to the parties to the Registration Rights Agreement. In particular, the Company is required to prepare and file a registration statement on Form S-1 or S-3 (or any similar form or successor thereto) for the registration under the Securities Act of shares of common stock (i) issued to the parties to the Registration Rights Agreement in connection with the RG Merger Agreement and the Rollover Agreement and (ii) issuable upon conversion of the Series A Preferred Stock and the Modified Convertible Notes. Prior to the closing date of the RG Merger, the Company had a substantially similar registration rights agreement with the holders of the original convertible notes, which included Fireman and Mr. Kim. Employment Agreements with Officers The Company entered into employment agreements with Mr. Buckley, Mr. Kim and Bob Ross, our Chief Financial Officer. The agreements have varying initial terms, but Mr. Buckley’s and Mr. Ross’s contain automatic one-year renewals, unless terminated by either party, and provide for minimum base salaries adjusted for annual increases, incentive bonuses based upon the attainment of specified goals, and severance payments in the event of termination of employment, as defined in the employment contracts. Payments to Tengram Capital Partners, LP From time to time, the Company expects to reimburse Tengram Capital Partners, LP, an entity that is also a stockholder, for certain travel and other related expenses of its employees related to services performed on the Company’s behalf and at the Company’s request. For the year ended December 31, 2016, the Company recorded related party expenses of $1.0 million, which included (i) $0.8 million of reimbursement for legal fees incurred by TCP Denim, LLC, in connection with the purchase of the Series A Preferred Stock and RG Merger; and (ii) $41 thousand of pre-RG Merger management fees that were paid by RG that are non-recurring as a result of the RG Merger. For the year ended December 31, 2015, RG paid $0.5 million related to annual management fees and expenses that are non-recurring as a result of the RG Merger. SWIMS® Transaction In connection with the acquisition of SWIMS® in July 2016, the Company entered into certain financing arrangements with Tengram Partners Fund II, L.P., an entity affiliated with the holder of the Series A Preferred Stock, TCP Denim, LLC. See “Note 3 – Acquisition of SWIMS.” As of December 31, 2016, the amount outstanding under the convertible note payable to Tengram Partners Fund II, L.P. was $13.2 million and accrued interest of $56 thousand. |
Supplemental Cash Flow Informat
Supplemental Cash Flow Information | 12 Months Ended |
Dec. 31, 2016 | |
Supplemental Cash Flow Elements [Abstract] | |
Supplemental Cash Flow Information | 20. Supplemental Cash Flow Information Year ended December 31, 2016 2015 (in thousands) Supplemental disclosures of cash flow information: Interest paid $ $ Income taxes paid $ $ Supplemental disclosures of non-cash investing and financing activities: Accrued distribution to members $ — $ Accrued transaction costs $ — $ Common stock issued in reverse acquisition with Robert Graham $ $ — Issuance of convertible notes $ $ — Debt discount recorded in connection with convertible notes $ $ — Contribution of Robert Graham in exchange for common shares $ $ — Reclassification of other assets to offering costs $ $ — Reclassification of other assets to deferred financing costs $ $ — Common stock issued in acquisition of SWIMS $ $ — Debt discount recorded in connection with short-term convertible note $ $ — Warrants issued in acquisition of SWIMS $ $ — Unpaid purchases of property and equipment $ $ Unpaid taxes in lieu of shares issued for stock-based compensation $ $ — |
Employee Benefit Plans
Employee Benefit Plans | 12 Months Ended |
Dec. 31, 2016 | |
Employee Benefit Plans | |
Employee Benefit Plans | 21. Employee Benefit Plans The Hudson Clothing LLC 401(k) Plan (the “ Hudson Plan ”), covers employees employed by Hudson. All employees who have worked for Hudson after 6 months may participate in the Hudson Plan and may contribute up to the maximum amount allowed by law of their salary to the plan. The Company may make matching contributions on a discretionary basis. The Differential Brands Group Inc. 401(k) Plan (the “ DBG Plan ”), covers employees employed by Differential Brands Group, Inc. All employees who have worked for Differential Brands Group Inc. after 6 months may participate in the DBG Plan and may contribute up to the maximum amount allowed by law of their salary to the plan. The Company may make matching contributions on a discretionary basis. All employees who have worked 1,000 hours qualify for profit sharing in the event at the end of each year the Company decides to do so. The Robert Graham Design 401(k) Plan (the “ RG Plan ”), covers employees employed by Robert Graham and SWIMS. After completing 90 days of service, all employees who have worked for Robert Graham or SWIMS become eligible to participate in the RG Plan from the first day of each calendar quarter and may contribute up to the maximum amount allowed by law of their salary to the plan. The Company may make matching contributions on a discretionary basis. All employees who have worked 1,000 hours qualify for profit sharing in the event at the end of each year the Company decides to do so. Administrative expense for these plans totaled $22 thousand and $23 thousand for the years ended December 31, 2016 and 2015, respectively, included in selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income. Matching contributions were $234 thousand and $0 for the years ended December 31, 2016 and 2015, respectively, included in selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income. |
Restructuring
Restructuring | 12 Months Ended |
Dec. 31, 2016 | |
Restructuring | |
Restructuring | 22. Restructuring During the year ended December 31, 2016, the Company recorded $1.6 million of restructuring charges in connection with the RG Merger related to severance and benefit related costs, and termination of consulting arrangements. These charges are included in selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income. There were no restructuring charges accrued for at December 31, 2016 and 2015. The Company does not expect to incur any additional charges associated with these transactions. |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2016 | |
Subsequent Events | |
Subsequent Events | 23. Subsequent Events Effective January 18, 2017, the Company and Tengram Capital Partners Fund II, L.P., which is affiliated with certain Tengram entities that are major stockholders of the Company, amended the maturity date of the 3.75% the Convertible Note, principal amount $13.0 million, originally issued on July 18, 2016 to Tengram. Pursuant to the amendment, the maturity date of the Convertible Note was extended to July 18, 2017. The Company had issued the Convertible Note to finance the acquisition of SWIMS. By its original terms, the Convertible Note was scheduled to convert on the maturity date of January 18, 2017 to the extent not repaid in cash on or prior to such date, into up to 4,500,000 newly issued shares of the Company’s Series A-1 Preferred Stock at a conversion price of $3.00 per share. Following this amendment, all other terms of the Convertible Note remain the same, including the conversion of the Convertible Note upon the extended maturity date. On March 27, 2017, the Company entered into (i) Amendment No. 2 to the Term Credit Agreement to modify certain defined terms, add a liquidity covenant, and revise certain existing covenants and (ii) Amendment No. 2 to the ABL Credit Agreement to confirm certain defined terms to those in Amendment No. 2 in the Term Credit Agreement. |
Summary of Significant Accoun31
Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2016 | |
Accounting Policies | |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of estimates relate primarily to allowance for bad debts, returns, sales allowances, and customer chargebacks, inventory write-downs, valuation of goodwill, intangible and long-lived assets, and valuation of deferred income taxes. Actual results could differ from these estimates. |
Revenue Recognition | Revenue Recognition Wholesale revenues are recorded when title transfers to the customer, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable, which is typically at the shipping point. Estimated reductions to revenue for customer programs, including co‑op advertising, other advertising programs or allowances are recorded based upon a percentage of sales. The Company allows for returns based upon pre‑approval or in the case of damaged goods. Such returns are estimated based on historical experience and an allowance is provided at the time of sale. Retail store revenue is recognized at the time the customer takes possession of the related merchandise, net of estimated returns at the time of sale to consumers. Ecommerce sales of products ordered through our retail internet sites known as www.hudsonjeans.com , www.robertgraham.us and www.swims.com are recognized upon estimated delivery and receipt of the shipment by the customers. Ecommerce revenue is also reduced by an estimate of returns. Retail store revenue and ecommerce revenue exclude sales taxes. Revenue from licensing arrangements is recognized when earned in accordance with the terms of the underlying agreements and deemed collectible, generally based upon the higher of (a) the contractually guaranteed minimum royalty or (b) actual net sales data received from licensees. Payments received in consideration of the grant of a license or advanced royalty payments is recognized ratably as revenue over the term of the license agreement. The unrecognized portion of upfront payments is included in accounts payable and accrued expenses within the accompanying consolidated balance sheets. The Company did not have deferred licensing revenue as of December 31, 2016 and 2015. Amounts related to shipping and handling that are billed to customers are reflected in net sales, and the related costs are reflected in selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income. For the years ended December 31, 2016 and 2015, shipping and handling fee revenue included in net sales was $0.4 million and $0.2 million, respectively. |
Cash Equivalents | Cash Equivalents All highly liquid investments that are both readily convertible into known amounts of cash and mature within 90 days from their date of purchase are considered to be cash equivalents. |
Accounts Receivable, Factor Accounts Receivable and Allowance for Bad Debts, Sales Allowances, and Customer Chargebacks | Accounts Receivable, Factored Accounts Receivable and Allowance for Bad Debts, Sales Allowances, and Customer Chargebacks The Company evaluates its ability to collect accounts receivable, factor accounts receivable with recourse and charge‑backs (disputes from the customer) based upon a combination of factors. Reserves for charge‑backs are recognized based on historical collection experience. A specific reserve for bad debts is taken against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected. Whether a receivable is past due is based on how recently payments have been received and in certain circumstances when the Company is aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filings, substantial downgrading of credit sources, etc.). Amounts are written off against the reserve once it is established that it is remote such amounts will be collected. The Company also reserves for potential sales returns and allowances based on historical trends. |
Inventories | Inventories Inventory is valued at the lower of cost or net realizable value with cost determined by the first‑in, first‑out method. Inventory consists of finished goods, work‑in‑process and raw materials. The Company continually evaluates its inventory by assessing slow moving current product. Market value of non‑current inventory is estimated based on historical sales trends, the impact of market trends, an evaluation of economic conditions and the value of current orders relating to future sales. Inventory reserves establish a new cost basis for inventory. Such reserves are not reversed until the related inventory is sold or otherwise disposed. Costs capitalized in inventory include the purchase price of raw materials and contract labor, plus in‑bound transportation costs and import fees and duties. |
Property and Equipment | Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight‑line method over the following estimated useful lives of the assets: Leasehold improvements are amortized over the lessor of the term of the lease or the estimated useful life of the improvement. Maintenance and repairs are charged to expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation or amortization is removed from the accounts, and any related gain or loss is included within selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income. |
Impairment of Long-Lived Assets, Intangible Assets and Goodwill | Impairment of Long‑Lived Assets, Intangible Assets and Goodwill The Company assesses the impairment of long‑lived assets, identifiable intangible assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, the Company assesses goodwill and indefinite lived intangible assets for impairment annually. Factors considered important that could trigger an impairment review other than on an annual basis include the following: · A significant underperformance relative to historical or projected future operating results; · A significant change in the manner of the use of the acquired asset or the strategy for the overall business; or · A significant negative industry or economic trend. The estimated cash flows used for this nonrecurring fair value measurement are considered a Level 3 input as defined in Note 13. Impairment of Long‑Lived Assets and Intangible Assets Subject to Amortization When the Company determines that the carrying value of long‑lived assets, such as property and equipment, and intangible assets subject to amortization, may not be recoverable based upon the existence of one or more of the aforementioned factors and the carrying value exceeds the estimated undiscounted cash flows expected to be generated by the asset, impairment is measured based on a projected discounted cash flow method using a discount rate determined by management. These cash flows are calculated by netting future estimated sales against associated merchandise costs and other related expenses such as payroll, occupancy and marketing. The impairment loss calculations require management to apply judgment in estimating future cash flows and the discount rates that reflect the risk inherent in future cash flows. Future expected cash flows for retail store assets are based on management’s estimates of future cash flows over the remaining lease period or expected life, if shorter. The Company considers historical trends, expected future business trends and other factors when estimating each store’s future cash flow. The Company also considers factors such as: the local environment for each store location, including mall traffic and competition; the ability to successfully implement strategic initiatives; and the ability to control variable costs such as cost of sales and payroll, and in some cases, renegotiate lease costs. If actual results are not consistent with the assumptions and judgments used in estimating future cash flows and asset fair values, there may be additional exposure to future impairment losses that could be material to the Company’s’ results of operations. Retail store impairment charges of $2.2 million were recorded during the year ended December 31, 2016. Based on the operating performance of these stores, the Company determined it could not recover the carrying value of property and equipment located at these stores. There was no impairment charge recorded related to the retail stores during the year ended December 31, 2015. Intangible assets subject to amortization, such as customer relationships, are amortized over their estimated useful lives. There was no impairment charge recorded related to intangible assets subject to amortization during the years ended December 31, 2016 and 2015. Goodwill and Indefinite Lived Intangible Assets Goodwill and intangible assets with indefinite lives, such as trademarks, are not amortized but are tested at least annually for impairment on December 31 st of each year or when circumstances indicate their carrying value may not be recoverable. Goodwill is evaluated for impairment at least annually using a two-step process. The first step is to determine the fair value of each reporting unit and compare this value to its carrying value. If the fair value exceeds the carrying value, including goodwill, no further work is required and no impairment loss would be recognized. The second step is performed if the carrying value exceeds the fair value of the assets. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. The Company reviews indefinite lived intangible assets for impairment on an annual basis, or when circumstances indicate their carrying value may not be recoverable. The Company calculates the value of the indefinite lived intangible assets using a discounted cash flow method, based on the relief from royalty method. There was no impairment charge recorded related to indefinite lived intangible assets or goodwill during the years ended December 31, 2016 and 2015. |
Deferred Rent and Tenant Allowances | Deferred Rent and Tenant Allowances When a lease includes lease incentives (such as a rent holiday) or requires fixed escalations of the minimum lease payments, rental expense is recognized on a straight‑line basis over the term of the lease starting from the date of possession and the difference between the average rental amount charged to expense and amounts payable under the lease is included in deferred rent in the accompanying consolidated balance sheets. Deferred rent also includes tenant allowances received from landlords which are amortized as a reduction to rent expense on a straight-line basis over the term of the lease starting at the date of possession. |
Deferred Financing Costs | Deferred Financing Costs Deferred financing costs are amortized using the effective interest rate method over the term of the related agreements and recorded as a component of interest expense in the accompanying consolidated statements of operations and comprehensive (loss) income. Amortization of deferred financing costs included in interest expense was approximately $0.4 million and $0 for the years ended December 31, 2016 and 2015. Deferred financing costs are presented on the consolidated balance sheets as a direct deduction of the related debt. |
Preferred Share Dividend | Preferred Share Dividend Cumulative dividends on preferred stock are only accrued for when the board of directors declares a dividend. The board of directors has not declared a dividend through December 31, 2016. |
Derivatives | Derivatives Warrants and other derivative financial instruments are accounted for as either equity or liabilities based upon the characteristics and provisions of each instrument. During the year ended December 31, 2016, the warrants that were issued in conjunction with the acquisition of DFBG Swims (see “Note 3 – Acquisition of SWIMS”) were determined to be equity. Warrants classified as equity are recorded at fair value as of the date of issuance within the consolidated balance sheets and no further adjustments to their valuation is made. Management estimates the fair value of these warrants using option pricing models and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate. |
Costs of Goods Sold | Costs of Goods Sold Costs of goods sold includes product cost, freight in, inventory reserves, inventory markdowns and other various charges. |
Selling, General and Administrative Expenses | Selling, General and Administrative Expenses Selling, general and administrative expenses include salaries and benefits, travel and entertainment, professional fees, advertising, marketing, sample expenses, stock based compensation expense, facilities, fulfillment and distribution costs, bad debt expense and write down of other assets. The Company charges all product design and development costs to selling, general and administrative expenses, when incurred. Product design and development costs aggregated were approximately $10.2 million and $5.3 million during the years ended December 31, 2016 and 2015, respectively. The Company’s distribution network-related costs are included in selling, general and administrative expenses and are not allocated to specific segments. The expenses related to its distribution network, including the functions of purchasing, receiving, inspecting, allocating, warehousing and packaging of its product totaled $5.3 million and $1.6 million during the years ended December 31, 2016 and 2015, respectively. |
Advertising Costs | Advertising Costs Advertising costs are charged to expense as incurred. Advertising and tradeshow expenses included in selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income were $7.9 million and $2.8 million for the years ended December 31, 2016 and 2015, respectively. Prepaid advertising costs were $0.2 million at December 31, 2016 and 2015, respectively. |
Shipping and Handling Costs | Shipping and Handling Costs Shipping and handling costs for merchandise shipped to customers of $1.7 million and $0.2 million for the years ended December 31, 2016 and 2015, respectively, are included in selling, general and administrative expenses within the accompanying consolidated statements of operations and comprehensive (loss) income. |
Stock-Based Compensation | Stock‑Based Compensation The cost of all employee stock‑based compensation awards is measured based on the grant date fair value of those awards and recorded as compensation expense over the period during which the employee is required to perform service in exchange for the award (generally over the vesting period of the award). The cost of all non-employee stock‑based compensation awards is measured based on the grant date fair value of those awards and revalued each reporting period, and is recorded as compensation expense over the service period. An entity may elect either an accelerated recognition method or a straight‑line recognition method for awards subject to graded vesting based on a service condition, regardless of how the fair value of the award is measured. For all stock based compensation awards that contain graded vesting based on service conditions, the Company has elected to apply a straight‑line recognition method to account for these awards. |
Income Taxes | Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. Until the RG Merger on January 28, 2016, the Company was treated as a partnership for tax purposes. Pursuant to this status, taxable income or loss of the Company is included in the income tax returns of its owners. Consequently, no federal income tax provision is recorded through the RG Merger date. However, under state laws, certain taxes are imposed upon limited liability companies and are provided for through the RG Merger date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The likelihood of a material change in the expected realization of these assets depends on the Company’s ability to generate sufficient future taxable income. The ability to generate enough taxable income to utilize the deferred tax assets depends on many factors, among which is the Company’s ability to deduct tax loss carry‑forwards against future taxable income, the effectiveness of tax planning strategies and reversing deferred tax liabilities. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based upon the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based upon the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense within the accompanying consolidated statements of operations and comprehensive (loss) income. |
Comprehensive (Loss) Income | Comprehensive (Loss) Income Comprehensive (loss) income represents the change in equity resulting from transactions other than stockholder investments and distributions. Accumulated other comprehensive loss includes changes in equity that are excluded from net (loss) income, specifically, unrealized gains and losses on foreign currency translation adjustments and is presented within the consolidated statements of equity. The Company presents the components of comprehensive (loss) income within the consolidated statements of operations and comprehensive (loss) income. |
Foreign Currency Translation | Foreign Currency Translation The Company’s wholly owned direct foreign operations present their financial reports in the currency used in the economic environment in which they mainly operate, known as the functional currency. The functional currency consists of the Norwegian Krone for operations in Norway. Assets and liabilities in foreign subsidiaries are translated into U.S. dollars at the exchange rate as of the balance sheet date, while revenues and expenses are translated using the average monthly exchange rate. Gains and losses from these foreign currency translation adjustments are recognized within accumulated other comprehensive loss within the accompanying consolidated statements of equity. |
Earnings per Share | Earnings per Share Basic earnings per share, or EPS, is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period except for periods of net loss for which no common share equivalents are included because their effect would be anti‑dilutive. Dilutive common equivalent shares consist of common stock issuable upon exercise of stock options, restricted stock and restricted stock units using the treasury stock method. Dilutive common stock equivalent shares issuable upon conversion of the convertible notes are calculated using the if‑converted method. EPS has been adjusted to reflect the Reverse Stock Split. The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. Our participating securities consist of convertible preferred shares that contain a nonforfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common stockholders. |
Concentration of Risk | Concentration of Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, accounts receivable and factor accounts receivable. The Company maintains cash and cash equivalents with various financial institutions. The policy is designed to limit exposure to any one institution. Periodic evaluations are performed of the relative credit rating of those financial institutions that are considered in the Company’s investment strategy. The Company does not require collateral for trade accounts receivable. However, the Company sells a portion of accounts receivable to CIT on a non‑recourse basis (see “Note 7 – Factored Accounts and Receivables”). In that instance, the Company is no longer at risk if the customer fails to pay. For accounts receivable that are not sold to CIT or are sold on a recourse basis, the Company continues to be at risk if these customers fail to pay. The Company provides an allowance for estimated losses to be incurred in the collection of accounts receivable based upon the aging of outstanding balances and other account monitoring analysis. The net carrying value approximates the fair value for these assets. Such losses have historically been within management’s expectations. Uncollectible accounts are written off once collection efforts are deemed by management to have been exhausted. For the years ended December 31, 2016 and 2015, sales to customers or customer groups representing 10 percent or greater of net sales are as follows: Year ended December 31, 2016 2015 Customer A % % International sales were $9.4 million and $0.5 million for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, customers representing 10 percent or greater of accounts receivable and factored accounts receivable are as follows: As of December 31, 2016 2015 Customer A % % Customer B % * % * Represents less than 10% In addition, the Company primarily utilizes three manufacturing contractors in Mexico, the United States and India. Purchases from these three manufacturing contractors in the aggregate accounted for approximately 50% and 47% percent of our purchases for fiscal 2016 and 2015, respectively. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The fair value of financial instruments held (which consist of cash and cash equivalents, accounts receivable, factored accounts receivable, royalties receivable, accounts payable, and accrued expenses) do not differ materially from their recorded amounts because of the relatively short period of time between origination of the instruments and their expected realization. The carrying amounts of the line of credit and term loan approximate fair value because of the variable interest rates. The fair value of the convertible notes is based on the amount of future cash flows associated with the instrument discounted using the incremental borrowing rate, which are considered Level 2 liabilities. The Company does not hold or have any obligations under financial instruments that possess off‑balance sheet credit or market risk. |
Discontinued Operations | Discontinued Operations In accordance with the Financial Accounting Standards Board (“ FASB ”), Accounting Standards Codification (“ ASC ”), ASC 205-20, Presentation of Financial Statements – Discontinued Operations , the results of operations of a component of an entity or a group or component of an entity that represents a strategic shift that has, or will have, a major effect on the reporting company’s operations that has either been disposed of or is classified as held for sale are required to be reported as discontinued operations in a company’s consolidated financial statements. In order to be considered a discontinued operation, both the operations and cash flows of the discontinued component must have been (or will be) eliminated from the ongoing operations of the company and the company will not have any significant continuing involvement in the operations of the discontinued component after the disposal transaction. The accompanying consolidated financial statements reflect the results of operations of the Joe's Business as discontinued operations. |
Financial Accounting Standards Recently Adopted and Recently Issued Financial Accounting Standards | Recently Issued Financial Accounting Standards In January 2017, the FASB issued ASU No. 2017-04, Intangibles —Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Topic 350, Intangibles—Goodwill and Other (Topic 350) , currently requires an entity to perform a two-step test to determine the amount, if any, of goodwill impairment. ASU No. 2017-04 removes the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The ASC amendments are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , which affects the accounting for leases. The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The amendment also will require qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within that reporting period. Early application is permitted. The Company is currently assessing the impact of the new standard on its consolidated financial statements, but anticipates an increase in assets and liabilities due to the recognition of the required right-of-use asset and corresponding liability for all lease obligations that are currently classified as operating leases, such as real estate leases for corporate headquarters, administrative offices, retail stores, and showrooms as well as additional disclosure on all our lease obligations. The income statement recognition of lease expense is not expected to significantly change from the current methodology. In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements To Employee Share-Based Payment Accounting , which amends ASC Topic 718, relating to employee share-based payment accounting. This guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within that reporting period. Early application is permitted. We have not yet adopted this ASU and are currently evaluating the impact it may have on our consolidated financial statements and related disclosures. In April and March 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing , and ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , respectively. ASU No. 2016-10 clarifies the implementation guidance on licensing and the identification of performance obligations considerations included in ASU No. 2014-09. ASU No. 2016-08 provides amendments to clarify the implementation guidance on principal versus agent considerations included in ASU No. 2014-09. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09. ASU No. 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The effective date of this pronouncement is for fiscal years beginning after December 15, 2017 with early adoption permitted as of the original effective date. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Customers with Contracts (Topic 606) Narrow-Scope Improvements and Practical Expedients . ASU No. 2016-12 amends certain aspects of ASU No. 2014-09, Revenue from Customers with Contracts (Topic 606) . The amendments include the following: · Collectibility – ASU No. 2016-12 clarifies the objective of the entity’s collectibility assessment and contains new guidance on when an entity would recognize as revenue consideration it receives if the entity concludes that collectibility is not probable. · Presentation of sales tax and other similar taxes collected from customers – Entities are permitted to present revenue net of sales taxes collected on behalf of governmental authorities (i.e., to exclude from the transaction price sales taxes that meet certain criteria). · Noncash consideration – An entity’s calculation of the transaction price for contracts containing noncash consideration would include the fair value of the noncash consideration to be received as of the contract inception date. Further, subsequent changes in the fair value of noncash consideration after contract inception would be subject to the variable consideration constraint only if the fair value varies for reasons other than its form. · Contract modifications and completed contracts at transition – The ASU establishes a practical expedient for contract modifications at transition and defines completed contracts as those for which all (or substantially all) revenue was recognized under the applicable revenue guidance before the new revenue standard was initially adopted. · Transition technical correction – Entities that elect to use the full retrospective transition method to adopt the new revenue standard would no longer be required to disclose the effect of the change in accounting principle on the period of adoption (as is currently required by ASC No.250-10-50-1(b)(2)); however, entities would still be required to disclose the effects on preadoption periods that were retrospectively adjusted. ASU No. 2016-12 is effective for annual and interim periods beginning on or after December 15, 2017, and early adoption is permitted as of the original effective date of December 31, 2016. The Company has not selected a transition model. The Company is still completing the assessment of the impact these ASUs will have on its consolidation financial statements; however at the current time the Company does not expect that the adoption of these ASUs will have a material impact on its consolidation financial statements, financial condition or results of operations. In August 2016, the FASB issued No. ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments . ASU No. 2016-15 amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU No.2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The amendments in ASU No. 2016-15 add or clarify guidance on eight cash flow issues: · Debt prepayment or debt extinguishment costs. · Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing. · Contingent consideration payments made after a business combination. · Proceeds from the settlement of insurance claims. · Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies. · Distributions received from equity method investees. · Beneficial interests in securitization transactions. · Separately identifiable cash flows and application of the predominance principle. ASU No. 2016-15 is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted for all entities. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. We are currently evaluating the impact the adoption of ASU No. 2016-15 will have on our consolidated financial statements. |
Summary of Significant Accoun32
Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Sales | |
Schedule of sales to customers or customer groups representing greater than 10 percent of net sales | Year ended December 31, 2016 2015 Customer A % % |
Accounts receivable | |
Schedule of sales to customers or customer groups representing greater than 10 percent of net sales | As of December 31, 2016 2015 Customer A % % Customer B % * % |
Acquisition of SWIMS (Tables)
Acquisition of SWIMS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Acquisition of SWIMS | |
Schedule of preliminary estimated purchase price allocation | The following is the total purchase price allocation as of December 31, 2016 (in thousands, except share and per share data): Preliminary Purchase Measurement Period Final Purchase Price Allocation Adjustments (1) Price Allocation Assets acquired and liabilities assumed: Cash and cash equivalents $ $ — $ Factored accounts receivable — Inventories — Prepaid expenses and other assets — Property and equipment — Accounts payable and accrued expenses — Deferred income tax liability Intangible assets acquired: Trade name Customer relationships Non-compete agreements Total Excess purchase price over net assets acquired Total net assets acquired $ $ — $ Total purchase price: Cash paid to sellers $ $ — $ Equity consideration issued to sellers (702,943 common shares at $2.49) — Fair value of warrants issued to sellers — Total purchase price $ $ — $ (1) The measurement period adjustments were due to the finalization of the valuation related to intangible assets and resulted in the following: an increase to tradename, a decrease to customer relationships and non-compete agreements, with the related increase in long-term deferred tax liabilities and corresponding decrease to goodwill. The measurement period adjustments did not have a significant impact on the Company’s consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2016. |
Schedule of unaudited pro forma results | Year ended December 31, 2016 2015 Net sales $ $ Net loss $ $ Weighted average common shares outstanding Loss per common share - basic and diluted $ $ |
RG Merger Consideration (Tables
RG Merger Consideration (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
RG Merger Consideration | |
Schedule of total consideration allocated to the assets based on their estimated fair values as of the date of the completion of the acquisition | The following is the total purchase price allocation as of December 31, 2016 (in thousands, except share and per share data): Preliminary Purchase Measurement Period Final Purchase Price Allocation Adjustments (1) Price Allocation Assets acquired and liabilities assumed: Cash and cash equivalents $ $ — $ Factored accounts receivable — Accounts receivable — Inventories — Prepaid expenses and other current assets Property and equipment — Other assets — Accounts payable and accrued expenses — Customer cash advances — Line of credit — Deferred income tax liability Other liabilities — Buy-out payable — Intangible assets acquired: Trade name — Customer relationships Total Excess purchase price over net assets acquired Total net assets acquired $ $ — $ Total purchase price: Cash paid to existing holders of convertible notes $ $ — $ Fair value of Modified Convertible Notes transferred to the existing holders of convertible notes — Equity consideration to the Company's stockholders and existing holders of convertible notes (3,508,747 common shares at $5.70) — Total purchase price $ $ — $ (1) The measurement period adjustments were due to the finalization of the valuation related to intangible assets and a tax analysis, and resulted in the following: a decrease to customer relationships, an increase to prepaid expenses and other current assets related to a tax receivable and an increase in long-term deferred tax liabilities, with a corresponding decrease to goodwill. The measurement period adjustments did not have a significant impact on the Company’s consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2016. |
Discontinued Operations (Tables
Discontinued Operations (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Discontinued Operations | |
Schedule of the operating results of discontinued operations | The operating results of discontinued operations for the year ended December 31, 2016 are as follows (in thousands): Year ended December 31, 2016 Net sales from discontinued operations $ Loss from discontinued operations before income tax $ Income tax provision — Loss from discontinued operations $ |
Factored Accounts and Receiva36
Factored Accounts and Receivables (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Factored Accounts and Receivables | |
Schedule of factored accounts and receivables | Factored and accounts receivables consisted of the following (in thousands): December 31, 2016 December 31, 2015 Non-recourse receivables assigned to factor $ $ Client recourse receivables Total receivables assigned to factor Allowance for customer credits Factor accounts receivable, net of allowance $ $ Non-factored accounts receivable $ $ Allowance for customer credits Allowance for doubtful accounts Accounts receivable, net of allowance $ $ Total factored and accounts receivable, net $ $ |
Inventories (Tables)
Inventories (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Inventories | |
Schedule of inventories | Inventories are valued at the lower of cost or net realizable value with cost determined by the first‑in, first‑out method. Inventories consisted of the following (in thousands): December 31, 2016 December 31, 2015 Finished goods $ $ Finished goods consigned to others — Work in progress — Raw materials Total inventories $ $ |
Property and Equipment (Tables)
Property and Equipment (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Property and Equipment | |
Schedule of property and equipment | Property and equipment consisted of the following (in thousands): December 31, 2016 December 31, 2015 Computer and equipment $ $ Furniture and fixtures Leasehold improvements Less: accumulated depreciation and amortization Construction in progress Net property and equipment $ $ |
Intangible Assets and Goodwill
Intangible Assets and Goodwill (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Intangible Assets and Goodwill | |
Schedule of intangible assets | Intangible assets as of December 31, 2016 consisted of the following (in thousands): Amortization Accumulated Period Gross Amount Amortization Net Amount Trade names Indefinite $ $ — $ Customer relationships 7 to 15 Years Non-compete agreements 3 Years Total $ $ $ Intangible assets as of December 31, 2015 consisted of the following (in thousands): Amortization Accumulated Period Gross Amount Amortization Net Amount Trade names Indefinite $ $ — $ Customer relationships 15 Years Total $ $ $ |
Schedule of estimated amortization expense | As of December 31, 2016, future amortization expense related to the finite-lived intangible assets is as follows (in thousands): 2017 $ 2018 2019 2020 2021 Thereafter $ |
Schedule of goodwill | Goodwill consisted of the following as of December 31, 2016 and December 31, 2015 (in thousands): December 31, 2016 December 31, 2015 Beginning balance $ $ Goodwill created by the RG Merger — Goodwill created by the acquisition of SWIMS — Foreign currency adjustment — Ending balance $ $ |
Accounts Payable and Accrued 40
Accounts Payable and Accrued Expenses (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Accounts Payable and Accrued Expenses | |
Schedule of accounts payable and accrued expenses | Accounts payable and accrued expenses consisted of the following (in thousands): December 31, 2016 December 31, 2015 Accounts payable $ $ Accrued purchases Accrued payroll and other benefits Accrued distributions — Accrued transaction costs — Other Total accounts payable and accrued expenses $ $ |
Debt and Preferred Stock (Table
Debt and Preferred Stock (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Schedule of five year payment of term debt and line of credit and modified convertible notes | Deferred Original Payments Due by Period Financing Issue Carrying 2017 2018 2019 2020 2021 Total Costs, Net Discount, Net Value Short-term convertible notes $ $ — $ — $ — $ — $ $ — $ $ Long-term debt — Line of credit — — — — — Convertible notes — — — — — Total $ $ $ $ $ $ $ $ $ |
Schedule of interest expense | Year ended December 31, 2016 2015 Contractual coupon interest $ $ Amortization of discounts and deferred financing costs — Total interest expense $ $ |
Modified Convertible Notes | |
Schedule of summary of recorded value of convertible debt | December 31, 2016 Modified Convertible Notes - face value $ Less: original issue discount Modified Convertible Notes recorded value on issue date PIK interest issued Accumulated accretion of original issue debt discount Modified Convertible Notes value $ |
Short Term Convertible Notes | |
Schedule of summary of recorded value of convertible debt | December 31, 2016 Short-term convertible notes - face value $ Less: Original issue discount Short-term convertible notes recorded value on issue date PIK interest issued Accumulated accretion of original issue debt discount Short-term convertible notes value $ |
Fair Value Measurement of Fin42
Fair Value Measurement of Financial Instruments (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Fair Value Measurement of Financial Instruments | |
Schedule of fair value hierarchy for liabilities measured at fair value on a recurring basis | The following table presents our fair value hierarchy for assets measured at fair value on a non-recurring basis as of December 31, 2016 and 2015 (in thousands): Carrying Value Fair Value Financial Instrument Level December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 Convertible notes - short term $ $ — $ $ — Convertible notes - long term — — Loan payable — — $ $ $ $ |
Equity (Tables)
Equity (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Equity | |
Summary of stock option activity by plan | The following table summarizes stock option activity by incentive plan for the year ended December 31, 2016 (in actual amounts): Total Number 2004 Stock Amended and 2016 Stock of Shares Incentive Plan Restated Plan Incentive Plan Outstanding at January 1, 2016 — — — — Legacy Joe's stock options assumed — Granted — — Exercised — — — — Forfeited / Expired — — Outstanding at December 31, 2016 — |
Schedule of stock option activity in the aggregate | The following table summarizes stock option activity for all incentive plans for the year ended December 31, 2016 (in actual amounts): Weighted Weighted Average Aggregate Average Remaining Contractual Intrinsic Options Exercise Price Life (Years) Value Outstanding at January 1, 2016 — $ — Legacy Joe's stock options assumed Granted Exercised — — Expired — — Forfeited Outstanding at December 31, 2016 $ $ — Exercisable at December 31, 2016 $ $ — |
Schedule of exercise prices for options outstanding and exercisable | Exercise prices for options outstanding as of December 31, 2016 were as follows (in actual amounts): Options Outstanding and Exercisable Exercise Price Number of Shares Weighted-Average $ 4.02 7.4 $ 11.40 8.0 |
Summary of the status of restricted common stock and RSUs and changes | The following table summarizes RSU activity for the year ended December 31, 2016 (in actual amounts): Restricted Stock Units Number Of Weighted Average Grant Outstanding at January 1, 2016 — $ — Granted Vested Forfeited — — Outstanding at December 31, 2016 $ |
(Loss) Earnings per Share (Tabl
(Loss) Earnings per Share (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
(Loss) Earnings per Share | |
Schedule of reconciliation of numerator and denominator of basic and diluted (loss) earnings per share | Year ended December 31, 2016 2015 Basic (loss) earnings per share computation Numerator: (Loss) income from continuing operations $ $ Loss from discontinued operations — Net (loss) income $ $ Denominator: Weighted average common shares outstanding (Loss) earnings per common share - basic (Loss) income from continuing operations $ $ Loss from discontinued operations — (Loss) earnings per common share - basic $ $ Diluted (loss) earnings per share computation Numerator: (Loss) income from continuing operations $ $ Loss from discontinued operations — Net (loss) income $ $ Denominator: Weighted average common shares outstanding Effect of dilutive securities: Options, RSUs, PSUs, warrants, Series A, convertible notes — — Dilutive common shares (Loss) earnings per common share - diluted (Loss) income from continuing operations $ $ Loss from discontinued operations — (Loss) earnings per common share - diluted $ $ |
Schedule of reconciliation of basic and diluted (loss) earnings per share, two class method | The following table provides a reconciliation of net (loss) income to preferred shareholders and common stockholders for purposes of computing net (loss) income per share for the years ended December 31, 2016 and 2015 (in thousands, except per share data): Year ended December 31, 2016 2015 Net (loss) income $ $ Less: preferred dividends - Net (loss) income attributable to stockholders Participating securities - Series A Preferred Stock (1) - - Net (loss) income attributable to common stockholders $ $ Denominator: Weighted average common shares outstanding (Loss) earnings per common share - basic and diluted under two-class method $ $ As these shares are participating securities that participate in earnings, but do not participate in losses based on their contractual rights and obligations, this calculation demonstrates that there is no allocation of the loss to these securities. |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Income Taxes | |
Schedule of (loss) income from continuing operations before income taxes | For financial reporting purposes, (loss) income from continuing operations before income taxes, includes the following components (in thousands): Year ended December 31, 2016 2015 Domestic $ $ Foreign — (Loss) income from continuing operations before income taxes $ $ |
Schedule of provision (benefit) for income taxes | The (benefit) provision for income taxes of the following (in thousands): Year ended December 31, 2016 2015 Current: Federal $ $ — State Foreign — Deferred: Federal — State — Foreign — — Total $ $ |
Deferred tax assets and liabilities | Significant components of our deferred tax assets for federal and state income taxes are as follows (in thousands): As of December 31, 2016 2015 Deferred tax assets: Federal and state NOL carryforward $ $ — Fixed assets — Accruals — Stock-based compensation — Inventory — Other intangibles — Allowance for customer credits and doubtful accounts — Deferred rent — Other — Deferred state income tax — Total gross deferred tax asset — Less: valuation allowance — Total deferred tax assets $ $ — Deferred tax liabilities: Indefinite lived intangibles $ $ — Prepaids — Debt discount — Total gross deferred tax liability — Net deferred tax assets $ $ — |
Schedule of effective income tax rate reconciliation | Income tax (benefit) provision for the year ended December 31, 2016 related to continuing operations differ from the amounts computed by applying the U.S. statutory income tax rate of 34 percent to pretax loss as follows (in thousands): Year ended December 31, 2016 2015 U.S. Federal (benefit) provision At statutory rate $ $ — State taxes Valuation allowance — Foreign tax differential — Disallowed interest expense — Change in entity status — Effect of uncertain tax positions — Book income from pre-transaction period — Transaction costs — Other Total $ $ |
Schedule of roll forward of unrecognized tax benefits | We have the following activity relating to unrecognized tax benefits (in thousands): Year ended December 31, 2016 2015 Beginning balance $ — $ — Gross increase - tax positions in prior periods — Gross decrease - tax positions in prior periods — — Gross decrease - tax positions in current period — — Settlements — — Lapse in statutes of limitations — Ending balance $ $ — |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Commitments and Contingencies | |
Schedule of future minimum rental payments under non-cancelable retail operating leases with lease terms in excess of one year | As of December 31, 2016, the future minimum rental payments under non‑cancelable operating leases with lease terms in excess of one year were as follows (in thousands): 2017 $ 2018 2019 2020 2021 Thereafter $ |
Segment Reporting and Operati47
Segment Reporting and Operations by Geographic Areas (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Segment Reporting and Operations by Geographic Areas | |
Summary of financial information concerning reportable segments | The following table (in thousands) contains summarized financial information by reportable segment: Year ended December 31, 2016 2015 Net sales: Wholesale $ $ Consumer Direct Corporate and other $ $ Gross profit: Wholesale $ $ Consumer Direct Corporate and other $ $ Operating expenses: Wholesale $ $ Consumer Direct Corporate and other $ $ Operating (loss) income: Wholesale $ $ Consumer Direct Corporate and other $ $ Capital expenditures: Wholesale $ $ Consumer Direct Corporate and other $ $ December 31, 2016 December 31, 2015 Total assets: Wholesale $ $ Consumer Direct Corporate and other $ $ |
Supplemental Cash Flow Inform48
Supplemental Cash Flow Information (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Supplemental Cash Flow Elements [Abstract] | |
Schedule of supplemental cash flow information | Year ended December 31, 2016 2015 (in thousands) Supplemental disclosures of cash flow information: Interest paid $ $ Income taxes paid $ $ Supplemental disclosures of non-cash investing and financing activities: Accrued distribution to members $ — $ Accrued transaction costs $ — $ Common stock issued in reverse acquisition with Robert Graham $ $ — Issuance of convertible notes $ $ — Debt discount recorded in connection with convertible notes $ $ — Contribution of Robert Graham in exchange for common shares $ $ — Reclassification of other assets to offering costs $ $ — Reclassification of other assets to deferred financing costs $ $ — Common stock issued in acquisition of SWIMS $ $ — Debt discount recorded in connection with short-term convertible note $ $ — Warrants issued in acquisition of SWIMS $ $ — Unpaid purchases of property and equipment $ $ Unpaid taxes in lieu of shares issued for stock-based compensation $ $ — |
Business Description and Basi49
Business Description and Basis of Presentation (Details) $ / shares in Units, $ in Millions | Feb. 29, 2016store | Jan. 28, 2016USD ($)store$ / sharesshares | Sep. 11, 2015USD ($)store | Dec. 31, 2016segment$ / shares |
Common stock, par value (in dollars per share) | $ / shares | $ 0.10 | |||
Number of reportable business segments | segment | 3 | |||
RG Parent, LLC | ||||
Cash payment | $ 81 | |||
Aggregate Stock Consideration | shares | 8,825,461 | |||
Repayments of revolving credit facility | $ 19 | |||
Reverse stock split ratio (as a percent) | 33.33 | |||
Cit Revolving Facility | ||||
Maximum borrowing capacity | $ 7.5 | |||
Cit Revolving Facility | RG Parent, LLC | ||||
Common stock, par value (in dollars per share) | $ / shares | $ 0.10 | |||
Joe's brand retail stores | ||||
Total consideration | $ 80 | |||
Number of Joe's brand stores retained and operated | store | 32 | |||
Number of Joe's brand stores transferred | store | 18 | |||
Number of Joe's brand retail stores closed | store | 14 |
Summary of Significant Accoun50
Summary of Significant Accounting Policies - (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Shipping and Handling Costs | ||
Shipping and handling costs | $ 1,700,000 | $ 200,000 |
Amortization of Financing Costs and Discounts | 1,296,000 | |
Revenue Recognition | ||
Shipping and handling fee revenue | 400,000 | 200,000 |
Impairment of Long Lived Assets, Intangible Assets and Goodwill | ||
Other Asset Impairment Charges | 2,177,000 | 0 |
intangible assets with finite lives | 0 | 0 |
Impairment charge | 0 | 0 |
Goodwill, Impairment Loss | 0 | 0 |
Selling, General and Administrative Expenses | ||
Product design and development costs | 10,200,000 | 5,300,000 |
Network Related | 5,300,000 | 1,600,000 |
Advertising Costs | ||
Advertising Expense | 7,900,000 | 2,800,000 |
Prepaid advertising costs | 200,000 | 200,000 |
Income Tax Provision | ||
Income tax provision | (1,200,000) | $ 157,000 |
Deferred Financing Costs | ||
Amortization of Financing Costs | 380,000 | |
Federal | ||
Income Tax Provision | ||
Income tax provision | $ 0 | |
Computer and equipment | Maximum | ||
Property and Equipment | ||
Property and equipment estimated useful live | P7Y | |
Computer and equipment | Minimum | ||
Property and Equipment | ||
Property and equipment estimated useful live | P3Y | |
Furniture and fixtures | Maximum | ||
Property and Equipment | ||
Property and equipment estimated useful live | P7Y | |
Furniture and fixtures | Minimum | ||
Property and Equipment | ||
Property and equipment estimated useful live | P3Y | |
Leasehold improvements | Maximum | ||
Property and Equipment | ||
Property and equipment estimated useful live | P10Y | |
Leasehold improvements | Minimum | ||
Property and Equipment | ||
Property and equipment estimated useful live | P5Y |
Summary of Significant Accoun51
Summary of Significant Accounting Policies - (Details 2) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Concentration of Credit Risk | ||
Advertising Expense | $ 7,900 | $ 2,800 |
Sales Revenue, Goods, Net | 149,267 | 73,057 |
International | ||
Concentration of Credit Risk | ||
Sales Revenue, Goods, Net | $ 9,400 | $ 500 |
Supplier Concentration Risk | ||
Concentration of Credit Risk | ||
Concentration risk (as a percent) | 50.00% | 47.00% |
Sales | Customer A | ||
Concentration of Credit Risk | ||
Concentration risk (as a percent) | 18.00% | 11.00% |
Accounts receivable | Customers and customer group | Customer A | ||
Concentration of Credit Risk | ||
Concentration risk (as a percent) | 29.00% | 25.00% |
Accounts receivable | Customers and customer group | Customer B | ||
Concentration of Credit Risk | ||
Concentration risk (as a percent) | 10.00% |
Acquisition of SWIMS (Details)
Acquisition of SWIMS (Details) - USD ($) | Jul. 18, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net [Abstract] | ||||
Excess purchase price over net assets acquired | $ 8,271,000 | $ 2,286,000 | $ 2,286,000 | |
Convertible Notes Due January 2017 | ||||
Business Acquisition [Line Items] | ||||
Convertible notes face value | $ 13,000,000 | |||
Tengram Capital Partners, LP | Warrants | ||||
Business Acquisition [Line Items] | ||||
Warrants Number Issued | 500,000 | |||
Exercise price (in dollars per share) | $ 3 | |||
Fair value of warrants issued | $ 500,000 | |||
Tengram Capital Partners, LP | Convertible Notes Due January 2017 | ||||
Business Acquisition [Line Items] | ||||
Convertible notes face value | $ 13,000,000 | |||
Interest rate (as a percent) | 3.75% | |||
Tengram Capital Partners, LP | Preferred Series A-1 | Convertible Notes Due January 2017 | ||||
Business Acquisition [Line Items] | ||||
Conversion price (in dollars per share) | $ 3 | |||
Dividend rate (as a percent) | 10.00% | |||
Tengram Capital Partners, LP | Preferred Series A-1 | Convertible Notes Due January 2017 | Maximum | ||||
Business Acquisition [Line Items] | ||||
Number of shares issuable upon conversion of the debt | 4,500,000 | |||
SWIMS | ||||
Business Acquisition [Line Items] | ||||
Cash payment | $ 12,017,000 | 12,017,000 | ||
Inventory adjustment to fair value | 1,300,000 | |||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net [Abstract] | ||||
Cash and cash equivalents | 189,000 | 189,000 | ||
Factored accounts receivable | 1,552,000 | 1,552,000 | ||
Inventories | 3,466,000 | 3,466,000 | ||
Prepaid expenses and other current assets | 647,000 | 647,000 | ||
Property and equipment | 498,000 | 498,000 | ||
Accounts payable and accrued expenses | (1,706,000) | (1,706,000) | ||
Deferred income tax liability | (1,995,000) | (2,476,000) | ||
Total | 9,819,000 | 11,419,000 | ||
Excess purchase price over net assets acquired | 3,993,000 | 2,393,000 | ||
Total net assets acquired | 13,812,000 | 13,812,000 | ||
Measurement Period Adjustment | ||||
Deferred income tax liability | (481,000) | |||
Total | 1,600,000 | |||
Excess purchase price over net assets acquired | (1,600,000) | |||
Total Purchase Price | ||||
Cash paid to sellers | 12,017,000 | 12,017,000 | ||
Total purchase price | 13,812,000 | 13,812,000 | ||
Net sales for SWIMS since date of acquisition | 5,900,000 | |||
Operating loss for SWIMS since date of acquisition | 2,100,000 | |||
Business Acquisition, Pro Forma Information [Abstract] | ||||
Net sales | 159,581 | 156,143 | ||
Net loss | $ (6,000) | $ (14,538) | ||
Weighted average common shares outstanding (in shares) | 12,428,000 | 12,273,000 | ||
Loss per common share - basic and diluted (in dollars per share) | $ (0.48) | $ (1.18) | ||
SWIMS | Selling, General and Administrative Expenses | ||||
Business Acquisition [Line Items] | ||||
Acquisition related costs | $ 1,300,000 | |||
SWIMS | Customer relationships | ||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net [Abstract] | ||||
Intangible assets acquired | 1,964,000 | 1,833,000 | ||
Measurement Period Adjustment | ||||
Intangible assets acquired | (131,000) | |||
SWIMS | Non compete agreements | ||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net [Abstract] | ||||
Intangible assets acquired | 142,000 | 130,000 | ||
Measurement Period Adjustment | ||||
Intangible assets acquired | (12,000) | |||
SWIMS | Trade names | ||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net [Abstract] | ||||
Intangible assets acquired | $ 5,062,000 | 7,286,000 | ||
Measurement Period Adjustment | ||||
Intangible assets acquired | 2,224,000 | |||
SWIMS | Common Stock | ||||
Business Acquisition [Line Items] | ||||
Number of shares of common stock issued | 702,943 | |||
Equity issued | $ 1,750,000 | 1,750,000 | ||
Total Purchase Price | ||||
Equity consideration issued to sellers | $ 1,750,000 | 1,750,000 | ||
Share Price | $ 2.49 | |||
SWIMS | Warrants | ||||
Business Acquisition [Line Items] | ||||
Equity issued | $ 45,000 | $ 45,000 | ||
Warrants Number Issued | 150,000 | |||
Exercise price (in dollars per share) | $ 5.47 | $ 5.47 | ||
Escrow deposit | $ 300,000 | |||
Fair value of warrants issued | 45,000 | $ 45,000 | ||
Total Purchase Price | ||||
Equity consideration issued to sellers | $ 45,000 | $ 45,000 | ||
SWIMS | Tengram Capital Partners, LP | Warrants | ||||
Business Acquisition [Line Items] | ||||
Exercise price (in dollars per share) | $ 3 | |||
Fair value of warrants issued | $ 465,000 |
RG Merger and Related Transac53
RG Merger and Related Transactions (Details) - USD ($) $ in Thousands | Jan. 28, 2016 | Dec. 31, 2016 |
Business Acquisition [Line Items] | ||
Aggregate amount | $ 49,881 | |
Modified Convertible Notes | Conversion of Convertible Notes into Common Stock | ||
Business Acquisition [Line Items] | ||
Shares issued (in shares) | 1,167,317 | |
Cash payment | $ 8,600 | |
TCP Denim, LLC | Preferred Series A | ||
Business Acquisition [Line Items] | ||
Shares issued (in shares) | 50,000 | |
Aggregate amount | $ 50,000 | |
RG Parent, LLC | ||
Business Acquisition [Line Items] | ||
Principal amount of outstanding convertible notes exchanged | 38,100 | |
Cash payment | 81,000 | |
Aggregate principal amount of modified convertible notes | 40,430 | 40,430 |
RG Parent, LLC | Modified Convertible Notes | ||
Business Acquisition [Line Items] | ||
Cash payment | $ 8,630 | $ 8,630 |
RG Parent, LLC | Modified Convertible Notes | Conversion of Convertible Notes into Common Stock | ||
Business Acquisition [Line Items] | ||
Shares issued (in shares) | 1,167,317 | |
Aggregate principal amount of modified convertible notes | $ 16,500 | |
RG Parent, LLC | TCP Denim, LLC | Preferred Series A | ||
Business Acquisition [Line Items] | ||
Shares issued (in shares) | 50,000 | |
Aggregate amount | $ 50,000 |
RG Merger Consideration (Detail
RG Merger Consideration (Details) - USD ($) $ / shares in Units, $ in Thousands | Jan. 28, 2016 | Dec. 31, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Business Acquisition | |||||
Common stock, shares outstanding | 13,239,000 | 13,239,000 | 0 | ||
Common stock, par value (in dollars per share) | $ 0.10 | $ 0.10 | |||
Original issue discount | $ 4,223 | $ 4,223 | |||
Revenue | 149,267 | $ 73,057 | |||
Income from continuing operations | (16,526) | 760 | |||
Assets acquired and liabilities assumed: | |||||
Excess purchase price over net assets acquired | 8,271 | 8,271 | $ 2,286 | $ 2,286 | |
Modified Convertible Notes | |||||
Business Acquisition | |||||
Convertible notes face value | $ 16,473 | ||||
Original issue discount | $ 4,673 | 4,177 | 4,177 | ||
RG Parent, LLC | |||||
Business Acquisition | |||||
Closing share price (in dollars per share) | $ 5.70 | ||||
Common stock, shares outstanding | 2,342,000 | ||||
Total aggregates shares issued to convertible noteholders upon conversion | 1,167,000 | ||||
Principal amount of outstanding convertible notes exchanged | $ 38,100 | ||||
Modified convertible notes ownership right (as a percent) | 14.00% | ||||
Inventory adjustment to fair value | 400 | 400 | |||
Assets acquired and liabilities assumed: | |||||
Cash and cash equivalents | $ 2,092 | 2,092 | 2,092 | ||
Factored accounts receivable | 6,719 | 6,719 | 6,719 | ||
Accounts receivable | 336 | 336 | 336 | ||
Inventories | 11,378 | 11,378 | 11,378 | ||
Prepaid expenses and other current assets | 754 | 2,278 | 2,278 | ||
Property and equipment | 356 | 356 | 356 | ||
Other assets | 352 | 352 | 352 | ||
Accounts payable and accrued expenses | (15,417) | (15,417) | (15,417) | ||
Customer cash advances | (893) | (893) | (893) | ||
Line of credit | (4,683) | (4,683) | (4,683) | ||
Deferred income tax liability | (9,453) | (9,677) | (9,677) | ||
Other liabilities | (81) | (81) | (81) | ||
Buy-out payable | (1,668) | (1,668) | (1,668) | ||
Excess purchase price over net assets acquired | 4,238 | 3,638 | 3,638 | ||
Total net assets acquired | 40,430 | 40,430 | 40,430 | ||
Measurement Period Adjustment | |||||
Prepaid expenses and other current assets | 1,524 | 1,524 | |||
Deferred income tax liability | (224) | (224) | |||
Total | 600 | ||||
Total Purchase Price | |||||
Cash paid to existing holders of convertible notes | 81,000 | ||||
Equity consideration to the Company's Common stockholders and existing holders of convertible notes (3,508,747 shares at $5.70) | 20,000 | 20,000 | |||
Total purchase price | $ 40,430 | 40,430 | |||
Equity consideration to the shareholder's (in shares) | 3,508,747 | ||||
Share Price | $ 5.70 | ||||
RG Parent, LLC | Modified Convertible Notes | |||||
Business Acquisition | |||||
Convertible notes face value | 16,500 | 16,500 | |||
Original issue discount | 4,700 | 4,700 | |||
Total Purchase Price | |||||
Cash paid to existing holders of convertible notes | $ 8,630 | 8,630 | |||
Fair value of Modified Convertible Notes transferred to the existing holders of convertible notes | 11,800 | 11,800 | |||
Selling, General and Administrative Expenses | |||||
Total Purchase Price | |||||
Non-recurring expense related to merger | 3,000 | ||||
Non-recurring restructuring expenses | 1,600 | ||||
Hudson | |||||
Business Acquisition | |||||
Revenue | 72,900 | ||||
Income from continuing operations | 7,400 | ||||
Customer relationships | RG Parent, LLC | |||||
Assets acquired and liabilities assumed: | |||||
Total | 36,192 | 36,792 | 36,792 | ||
Measurement Period Adjustment | |||||
Intangible assets acquired | 600 | ||||
Trade names | RG Parent, LLC | |||||
Assets acquired and liabilities assumed: | |||||
Intangible assets acquired - Indefinite lived | 32,300 | 32,300 | 32,300 | ||
Intangible assets acquired - Finite lived | 14,100 | $ 13,400 | 13,400 | ||
Measurement Period Adjustment | |||||
Intangible assets acquired | $ (700) | ||||
Conversion of Convertible Notes into Common Stock | Modified Convertible Notes | |||||
Total Purchase Price | |||||
Cash paid to existing holders of convertible notes | 8,600 | ||||
Conversion of Convertible Notes into Common Stock | RG Parent, LLC | Modified Convertible Notes | |||||
Total Purchase Price | |||||
Total purchase price | $ 16,500 |
Discontinued Operations (Detail
Discontinued Operations (Details) $ in Thousands | Feb. 29, 2016store | Dec. 31, 2016USD ($) |
Operating results of discontinued operations | ||
Number of stores closed | store | 14 | |
Loss from discontinued operations | $ (1,286) | |
Joe's brand retail stores | Discontinued Operations, Disposed of by Means Other than Sale, Closure | ||
Operating results of discontinued operations | ||
Net Sales from discontinued operations | 1,208 | |
Loss from discontinued operations before income tax | (1,286) | |
Loss from discontinued operations | (1,286) | |
Noncurrent Assets | ||
Assets of held for sale | 0 | |
Noncurrent Liabilities | ||
Liabilities held for sale | $ 0 |
Factored Accounts and Receiva56
Factored Accounts and Receivables (Details) - USD ($) | 1 Months Ended | ||
Jan. 31, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | |
Accounts receivable, inventory advances and due from factor | |||
Non-recourse receivables assigned to factor | $ 20,226,000 | $ 5,655,000 | |
Client recourse receivables | 1,634,000 | 637,000 | |
Total receivables assigned to factor | 21,860,000 | 6,292,000 | |
Allowance for customer credits | (5,157,000) | (1,375,000) | |
Factor accounts receivable, net | 16,703,000 | 4,917,000 | |
Non-factored accounts receivable | 4,339,000 | 2,193,000 | |
Allowance for customer credits | (1,031,000) | (268,000) | |
Allowance for doubtful accounts | (190,000) | (89,000) | |
Accounts receivable, net of allowance | 3,118,000 | 1,836,000 | |
Total factored and accounts receivable | 19,821,000 | 6,753,000 | |
Risk of payment in the event of non-payment by the customers | $ 1,600,000 | $ 600,000 | |
A&R Factoring Agreement | |||
Accounts receivable, inventory advances and due from factor | |||
Accounts receivable factoring agreement factoring ratio of accounts for which factor of certain major department stores bore credit risk | 0.20% | ||
Factoring rate of accounts for which the factor bore the credit risk, over a specified amount of invoices factored (as a percent) | 0.40% | ||
Factoring rate of accounts for which the entity bore the credit risk (as a percent) | 0.35% | ||
Minimum factoring charge per invoice | $ 3.50 | ||
Required notice period for termination of the agreement by factor | 60 days | ||
Required written notice period for termination of the agreement prior to December 31, 2020 | 60 days |
Inventories (Details)
Inventories (Details) - USD ($) $ in Thousands | Dec. 31, 2016 | Dec. 31, 2015 |
Inventories | ||
Finished goods | $ 22,537 | $ 15,048 |
Finished goods consigned to others | 1,179 | |
Work in progress | 42 | |
Raw materials | 219 | 305 |
Inventories, net | $ 23,977 | $ 15,353 |
Property and Equipment (Details
Property and Equipment (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Property and equipment | ||
Gross property and equipment | $ 20,864 | $ 19,075 |
Less accumulated depreciation | (10,617) | (5,815) |
Construction in Progress | 373 | 146 |
Net property and equipment | 10,620 | 13,406 |
Depreciation expenses | 3,300 | 2,500 |
Computer and equipment | ||
Property and equipment | ||
Gross property and equipment | 4,833 | 4,636 |
Furniture and fixtures | ||
Property and equipment | ||
Gross property and equipment | 6,516 | 5,745 |
Leasehold improvements | ||
Property and equipment | ||
Gross property and equipment | $ 9,515 | $ 8,694 |
Intangible Assets and Goodwil59
Intangible Assets and Goodwill - Intangibles (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Intangible assets | ||
Store impairment charges | $ 2,177 | $ 0 |
Gross Amount | 100,605 | |
Definite, Gross Amount | 45,837 | |
Definite, Accumulated Amortization | 8,719 | 6,014 |
Definite, Net Amount | 26,406 | 39,823 |
Net Amount | 91,886 | 39,823 |
Amortization expense related to the intangible assets | 2,700 | 1,300 |
Estimated amortization expense | ||
2,017 | 2,965 | |
2,018 | 2,965 | |
2,019 | 2,945 | |
2,020 | 2,926 | |
2,021 | 2,921 | |
Thereafter | 11,684 | |
Total | 26,406 | 39,823 |
Trade names. | ||
Intangible assets | ||
Definite, Gross Amount | 26,037 | |
Definite, Net Amount | 26,037 | |
Indefinite, Amount | 65,480 | |
Estimated amortization expense | ||
Total | $ 26,037 | |
Customer relationships | ||
Intangible assets | ||
Amortization period | 15 years | |
Definite, Gross Amount | 34,997 | $ 19,800 |
Definite, Accumulated Amortization | 8,699 | 6,014 |
Definite, Net Amount | 26,298 | 13,786 |
Estimated amortization expense | ||
Total | $ 26,298 | $ 13,786 |
Non compete agreements | ||
Intangible assets | ||
Amortization period | 3 years | |
Definite, Gross Amount | $ 128 | |
Definite, Accumulated Amortization | 20 | |
Definite, Net Amount | 108 | |
Estimated amortization expense | ||
Total | $ 108 | |
Minimum | Customer relationships | ||
Intangible assets | ||
Amortization period | 7 years | |
Maximum | Customer relationships | ||
Intangible assets | ||
Amortization period | 15 years |
Intangible Assets and Goodwil60
Intangible Assets and Goodwill - Goodwill (Details) $ in Thousands | 12 Months Ended |
Dec. 31, 2016USD ($) | |
Goodwill | |
Goodwill, Beginning Balance | $ 2,286 |
Foreign currency adjustment | (46) |
Goodwill, Ending Balance | 8,271 |
RG Parent, LLC | |
Goodwill | |
Goodwill created | 3,638 |
Goodwill, Ending Balance | 3,638 |
SWIMS | |
Goodwill | |
Goodwill created | 2,393 |
Goodwill, Ending Balance | $ 2,393 |
Accounts Payable and Accrued 61
Accounts Payable and Accrued Expenses (Details) - USD ($) $ in Thousands | Dec. 31, 2016 | Dec. 31, 2015 |
Accounts Payable and Accrued Expenses | ||
Accounts payable | $ 7,398 | $ 6,318 |
Accrued purchases | 4,108 | 2,992 |
Accrued payroll and other benefits | 2,063 | 243 |
Accrued distributions | 1,367 | |
Accrued transaction costs | 1,137 | |
Other | 4,654 | 1,027 |
Total accounts payable and accrued expenses | $ 18,223 | $ 13,084 |
Debt and Preferred Stock (Detai
Debt and Preferred Stock (Details) $ / shares in Units, $ in Thousands | Jul. 18, 2016USD ($)$ / sharesshares | Jan. 28, 2016USD ($)itemshares | Sep. 08, 2015item$ / shares | Dec. 31, 2013USD ($) | Dec. 31, 2016USD ($) | Dec. 31, 2016USD ($) | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | Mar. 27, 2017 | Oct. 01, 2016 | Dec. 23, 2013USD ($) |
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
2,017 | $ 14,433 | $ 14,433 | $ 14,433 | ||||||||
2,018 | 2,500 | 2,500 | 2,500 | ||||||||
2,019 | 3,750 | 3,750 | 3,750 | ||||||||
2,020 | 18,261 | 18,261 | 18,261 | ||||||||
2,021 | 53,837 | 53,837 | 53,837 | ||||||||
Total | 92,781 | 92,781 | 92,781 | ||||||||
Deferred Financing Costs, net | 1,551 | 1,551 | 1,551 | ||||||||
Original Issue Discount, net | 4,223 | 4,223 | 4,223 | ||||||||
Carrying Value | 87,007 | 87,007 | 87,007 | ||||||||
Aggregate amount | 49,881 | ||||||||||
Accrued distribution to members | $ 1,366 | ||||||||||
Recorded value of the convertible note | |||||||||||
Less: Original issue discount | (4,223) | (4,223) | (4,223) | ||||||||
Total | 92,781 | 92,781 | 92,781 | ||||||||
Accumulated accretion of original issue debt discount | 916 | ||||||||||
Modified Convertible Notes value | 12,660 | 12,660 | 12,660 | ||||||||
Short term convertible notes | 13,137 | 13,137 | 13,137 | ||||||||
Tengram Capital Partners, LP | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Total | 13,200 | 13,200 | 13,200 | ||||||||
Recorded value of the convertible note | |||||||||||
Total | 13,200 | 13,200 | 13,200 | ||||||||
SWIMS | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Cash payment | $ 12,017 | 12,017 | |||||||||
Aggregate principal amount of modified convertible notes | 13,812 | 13,812 | |||||||||
Preferred Series A | TCP Denim, LLC | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Shares issued (in shares) | shares | 50,000 | ||||||||||
Aggregate amount | $ 50,000 | ||||||||||
Dividend rate (as a percent) | 10.00% | ||||||||||
Number of Board of Directors that the preferred stockholders can elect | item | 3 | ||||||||||
Conversion price (in dollars per share) | $ / shares | $ 11.16 | ||||||||||
Term Loan Credit Agreement | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
2,017 | 1,250 | 1,250 | 1,250 | ||||||||
2,018 | 2,500 | 2,500 | 2,500 | ||||||||
2,019 | 3,750 | 3,750 | 3,750 | ||||||||
2,020 | 5,000 | 5,000 | 5,000 | ||||||||
2,021 | 37,000 | 37,000 | 37,000 | ||||||||
Total | 49,500 | 49,500 | 49,500 | ||||||||
Deferred Financing Costs, net | 1,032 | 1,032 | 1,032 | ||||||||
Carrying Value | 48,468 | 48,468 | 48,468 | ||||||||
Recorded value of the convertible note | |||||||||||
Total | 49,500 | 49,500 | 49,500 | ||||||||
Line of credit | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
2,020 | 13,261 | 13,261 | 13,261 | ||||||||
Total | 13,261 | 13,261 | 13,261 | ||||||||
Deferred Financing Costs, net | 519 | 519 | 519 | ||||||||
Carrying Value | 12,742 | 12,742 | 12,742 | ||||||||
Recorded value of the convertible note | |||||||||||
Total | 13,261 | 13,261 | 13,261 | ||||||||
Convertible notes | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Aggregate principal amount of modified convertible notes | 27,500 | ||||||||||
JPM Loan Agreement | RG | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Aggregate principal amount | $ 26,500 | $ 30,000 | |||||||||
Effective interest rate (as a percent) | 2.60% | ||||||||||
JPM Loan Agreement | RG | Maximum | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Borrowing capacity limit based on percentage of eligible accounts receivable | 85.00% | ||||||||||
Borrowing capacity limit based on percentage of eligible credit card receivables | 90.00% | ||||||||||
Borrowing capacity limit based on percentage of eligible wholesale inventory | 70.00% | ||||||||||
Borrowing capacity limit based on percentage of eligible retail inventory | 75.00% | ||||||||||
JPM Loan Agreement | RG | LIBOR rate loans | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Margin on variable rate basis (as a percent) | 2.25% | ||||||||||
JPM Loan Agreement | RG | Prime Rate | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Margin on variable rate basis (as a percent) | 0.75% | ||||||||||
Capex loan | RG | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Aggregate principal amount | $ 3,500 | ||||||||||
Revolving Facility | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Aggregate principal amount | 40,000 | ||||||||||
Aggregate principal amount, incremental commitments | $ 10,000 | ||||||||||
Availability | 12,700 | 12,700 | 12,700 | ||||||||
Commitment fee (as a percent) | 0.25% | ||||||||||
Revolving Facility | Base Rate | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Margin on variable rate basis (as a percent) | 0.50% | ||||||||||
Revolving Facility | LIBOR rate loans | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Margin on variable rate basis (as a percent) | 1.75% | ||||||||||
Term Facility | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Aggregate principal amount | $ 50,000 | ||||||||||
Required quarterly repayments of principal for the first four fiscal quarters (as a percent) | 0.25% | ||||||||||
Required quarterly repayments of principal for the second four fiscal quarters (as a percent) | 0.625% | ||||||||||
Required quarterly repayments of principal for the third four fiscal quarters (as a percent) | 1.25% | ||||||||||
Required quarterly repayments of principal for the fourth four fiscal quarters (as a percent) | 1.875% | ||||||||||
Required quarterly repayments of principal thereafter (as a percent) | 2.50% | ||||||||||
Mandatory prepayment percentage, issuances of debt not permitted and certain equity issuances | 100.00% | ||||||||||
Mandatory prepayment percentage, cash proceeds from non-ordinary course asset sales | 100.00% | ||||||||||
Mandatory prepayment percentage, cash proceeds from condemnation recoveries | 100.00% | ||||||||||
Mandatory prepayment percentage, extraordinary receipts | 100.00% | ||||||||||
Prepayment premium during first year (as a percent) | 2.00% | ||||||||||
Prepayment premium during second year (as a percent) | 1.00% | ||||||||||
Term Facility | Minimum | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Mandatory prepayment percentage, excess cash flow | 0.00% | ||||||||||
Term Facility | Maximum | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Mandatory prepayment percentage, excess cash flow | 50.00% | ||||||||||
Term Facility | Base Rate | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Annual rate on outstanding principal amount (as a percent) | 8.75% | ||||||||||
Term Facility | Base Rate | Minimum | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Margin on variable rate basis (as a percent) | 6.00% | ||||||||||
Term Facility | Base Rate | Maximum | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Margin on variable rate basis (as a percent) | 8.00% | ||||||||||
Term Facility | LIBOR rate loans | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Annual rate on outstanding principal amount (as a percent) | 9.75% | ||||||||||
Term Facility | LIBOR rate loans | Minimum | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Margin on variable rate basis (as a percent) | 7.00% | ||||||||||
Base rate floor (as a percent) | 0.50% | ||||||||||
Term Facility | LIBOR rate loans | Maximum | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Margin on variable rate basis (as a percent) | 9.00% | ||||||||||
Credit Facilities | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Minimum borrowing capacity (as a percent) | 10.00% | ||||||||||
Deferred financing costs | $ 1,900 | ||||||||||
Deferred financing costs, accrued | $ 300 | ||||||||||
Modified Convertible Notes | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
2,021 | 16,837 | 16,837 | 16,837 | ||||||||
Total | $ 11,800 | 16,837 | 16,837 | 16,837 | |||||||
Original Issue Discount, net | $ 4,673 | 4,177 | 4,177 | 4,177 | |||||||
Carrying Value | 12,660 | 12,660 | 12,660 | ||||||||
Amount of interest payable in cash (as a percent) | 50.00% | ||||||||||
Amount of interest payable in kind (as a percent) | 50.00% | ||||||||||
Amount of interest payable in cash, discretionary (as a percent) | 100.00% | ||||||||||
Recorded value of the convertible note | |||||||||||
Face value | $ 16,473 | ||||||||||
Less: Original issue discount | (4,673) | (4,177) | (4,177) | (4,177) | |||||||
Total | $ 11,800 | 16,837 | 16,837 | 16,837 | |||||||
PIK interest issued | 364 | ||||||||||
Accumulated accretion of original issue debt discount | 496 | ||||||||||
Modified Convertible Notes value | 12,660 | 12,660 | 12,660 | ||||||||
Modified Convertible Notes | Conversion of Convertible Notes into Common Stock | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Shares issued (in shares) | shares | 1,167,317 | ||||||||||
Cash payment | $ 8,600 | ||||||||||
Annual rate on outstanding principal amount (as a percent) | 6.50% | 7.00% | |||||||||
Trading days immediately preceding the notice of conversion used for calculation of average of the closing prices for the common stock | item | 20 | ||||||||||
Convertible Notes Due January 2017 | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
2,017 | 13,183 | 13,183 | 13,183 | ||||||||
Total | 12,535 | 13,183 | 13,183 | 13,183 | |||||||
Original Issue Discount, net | 465 | 46 | 46 | 46 | |||||||
Carrying Value | 13,137 | 13,137 | 13,137 | ||||||||
Recorded value of the convertible note | |||||||||||
Face value | 13,000 | ||||||||||
Less: Original issue discount | (465) | (46) | (46) | (46) | |||||||
Total | $ 12,535 | 13,183 | 13,183 | 13,183 | |||||||
PIK interest issued | 183 | ||||||||||
Accumulated accretion of original issue debt discount | 419 | ||||||||||
Short term convertible notes | $ 13,137 | $ 13,137 | $ 13,137 | ||||||||
Convertible Notes Due January 2017 | Tengram Capital Partners, LP | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Annual rate on outstanding principal amount (as a percent) | 3.75% | ||||||||||
Recorded value of the convertible note | |||||||||||
Face value | $ 13,000 | ||||||||||
Convertible Notes Due January 2017 | Preferred Series A-1 | Tengram Capital Partners, LP | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Dividend rate (as a percent) | 10.00% | ||||||||||
Conversion price (in dollars per share) | $ / shares | $ 3 | ||||||||||
Convertible Notes Due January 2017 | Maximum | Preferred Series A-1 | Tengram Capital Partners, LP | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Number of shares issuable upon conversion of the debt | shares | 4,500,000 | ||||||||||
A&R Factoring Agreement | RG | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Minimum annual amount, or floor, of annual factoring fees | $ 100 | ||||||||||
A&R Factoring Agreement | RG | Minimum | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Factoring rate of gross amount of accounts receivable assigned | 0.20% | ||||||||||
A&R Factoring Agreement | RG | Maximum | |||||||||||
Five year payment schedule of debt for the promissory notes, long term debt and convertible notes | |||||||||||
Factoring rate of gross amount of accounts receivable assigned | 0.50% |
Debt and Preferred Stock - Over
Debt and Preferred Stock - Overdraft and Factoring Agreement (Details) - DFBG Swims - DNB Bank | 12 Months Ended | |
Dec. 31, 2016NOK | Dec. 31, 2016USD ($) | |
Overdraft Agreement | ||
Line of Credit Facility [Line Items] | ||
Maximum borrowing capacity | NOK 6,000,000 | $ 700,000 |
Number of days notice required for termination of agreement | 14 days | |
Amount outstanding | NOK 0 | $ 0 |
Overdraft Agreement | Machinery and Plant Lien | Maximum | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 10,000,000 | |
Overdraft Agreement | Inventory Lien | Maximum | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 10,000,000 | |
Overdraft Agreement | Factoring, First Lien | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 1,000,000 | |
Overdraft Agreement | Factoring, Second Lien | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 4,000,000 | |
Overdraft Agreement | Factoring, Third Lien | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 7,000,000 | |
Overdraft Agreement | Factoring, Fourth Lien | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 2,500,000 | |
Ordinary Credit | ||
Line of Credit Facility [Line Items] | ||
Maximum borrowing capacity | NOK 3,500,000 | |
Annual rate on outstanding principal amount (as a percent) | 7.40% | 7.40% |
Quarterly fee percent | 0.40% | 0.40% |
Additional Credit | ||
Line of Credit Facility [Line Items] | ||
Maximum borrowing capacity | NOK 2,500,000 | |
Annual rate on outstanding principal amount (as a percent) | 4.90% | 4.90% |
Quarterly fee percent | 0.50% | 0.50% |
Factoring Agreement | ||
Line of Credit Facility [Line Items] | ||
Number of days notice required for termination of agreement | 14 days | |
Amount outstanding | NOK 7,100,000 | $ 800,000 |
Commission percent | 0.19% | |
Quarterly commission percent | 0.25% | |
Factoring Agreement | Maximum | ||
Line of Credit Facility [Line Items] | ||
Financing Percentage on preapproved outstanding invoiced receivables | 80.00% | 80.00% |
Factoring Agreement | Machinery and Plant Lien | Maximum | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | NOK 10,000,000 | |
Factoring Agreement | Inventory Lien | Maximum | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 10,000,000 | |
Factoring Agreement | Factoring, First Lien | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 1,000,000 | |
Factoring Agreement | Factoring, Second Lien | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 4,000,000 | |
Factoring Agreement | Factoring, Third Lien | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | 7,000,000 | |
Factoring Agreement | Factoring, Fourth Lien | ||
Line of Credit Facility [Line Items] | ||
Collateral amount | NOK 2,500,000 |
Debt and Preferred Stock - Inte
Debt and Preferred Stock - Interest Expense (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Components of interest expense | ||
Contractual coupon interest | $ 6,235 | $ 558 |
Amortization of discount and deferred financing | 1,296 | |
Total interest expense | $ 7,531 | $ 558 |
Fair Value Measurement of Fin65
Fair Value Measurement of Financial Instruments (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Fair value disclosures | ||
Convertible notes - short term | $ 13,137 | |
Convertible notes | $ 12,660 | |
Fair value assumptions | ||
Volatility rate | 60.00% | |
Risk-free interest rate | 2.09% | |
Nonrecurring | Carrying Value | ||
Fair value disclosures | ||
Fair value of liabilities | $ 25,797 | $ 1,653 |
Nonrecurring | Fair Value | ||
Fair value disclosures | ||
Fair value of liabilities | 24,387 | 1,653 |
Nonrecurring | Level 3 | Carrying Value | ||
Fair value disclosures | ||
Convertible notes - short term | 13,137 | |
Convertible notes | 12,660 | |
Loan payable | 1,653 | |
Nonrecurring | Level 3 | Fair Value | ||
Fair value disclosures | ||
Convertible notes - short term | 13,137 | |
Convertible notes | $ 11,250 | |
Loan payable | $ 1,653 | |
Fair value assumptions | ||
Time to maturity | 4 years 7 months 6 days | |
Volatility rate | 60.00% | |
Risk-free interest rate | 1.83% |
Equity - Incentive Plan (Detail
Equity - Incentive Plan (Details) - shares | 12 Months Ended | ||
Dec. 31, 2016 | Nov. 07, 2016 | Oct. 31, 2011 | |
Stock Incentive Plans | |||
Number of shares of common stock authorized for issuance | 500,000 | ||
Granted (in shares) | 150,000 | ||
RSUs | |||
Stock Incentive Plans | |||
Number of shares of common stock authorized for issuance | 433,764 | ||
PSUs | CEO | |||
Stock Incentive Plans | |||
Number of shares of common stock authorized for issuance | 347,011 | ||
Restated Plan | |||
Stock Incentive Plans | |||
Number of shares of common stock authorized for issuance | 227,500 | ||
2004 Stock Incentive Plan | |||
Shares Reserved For Future Issuance | |||
Shares of common stock issuable upon the vesting of RSUs | 444 | ||
2004 Stock Incentive Plan | RSUs | |||
Stock Incentive Plans | |||
Shares of common stock | 1,063,570 | ||
2016 Plan | |||
Stock Incentive Plans | |||
Number of shares reserved for future issuance | 3,529,109 | ||
Granted (in shares) | 150,000 | ||
Shares Reserved For Future Issuance | |||
Shares of common stock issuable upon the vesting of RSUs | 3,223,742 |
Equity - Plan Activity (Details
Equity - Plan Activity (Details) - 12 months ended Dec. 31, 2016 - USD ($) $ / shares in Units, $ in Thousands | Total | Total |
Options Outstanding and Exercisable | ||
Exercise Price (in dollars per share) | $ 11.40 | $ 11.40 |
Number of shares | 150,444 | |
Weighted-Average Remaining Contractual Life (Years) | 8 years | |
Stock option activity | ||
Granted (in shares) | 150,000 | |
Forfeited / Expired (in shares) | (2,500) | |
Forfeited (in shares) | (2,500) | |
Outstanding and exercisable at (in shares) | 150,444 | |
Exercisable (in shares) | 444 | |
Weighted average exercise price | ||
Granted (in dollars per share) | $ 4.02 | |
Forfeited (in dollars per share) | 30.60 | |
Outstanding and exercisable (in dollars per share) | $ 4.04 | |
Outstanding at the end of the period (in dollars per share) | $ 11.40 | |
Weighted average remaining contractual Life | ||
Term of stock options assumed (in years) | 7 years 4 months 24 days | |
Unrecognized compensation cost | ||
Weighted-average period for recognition of unrecognized compensation cost | 2 years 4 months 24 days | |
Average fair value of option granted | $ 0.87 | |
Expected option term | 6 years 5 months 12 days | |
Volatility rate | 60.00% | |
Risk-free interest rate | 2.09% | |
Expected annual dividend | 0.00% | |
Total unrecognized compensation cost | $ 105 | |
stock options | ||
Unrecognized compensation cost | ||
Stock based compensation expense recognized | $ 26 | |
2004 Stock Incentive Plan | ||
Stock option activity | ||
Forfeited / Expired (in shares) | (2,500) | |
Amended And Restated Plan | ||
Stock option activity | ||
Exercisable (in shares) | 444 | |
2016 Plan | ||
Stock option activity | ||
Granted (in shares) | 150,000 | |
Exercisable (in shares) | 150,000 | |
Legacy Joe | ||
Stock option activity | ||
Stock options assumed (in shares) | 2,944 | |
Weighted average exercise price | ||
Stock options assumed (in dollars per share) | $ 27.70 | |
Legacy Joe | 2004 Stock Incentive Plan | ||
Stock option activity | ||
Stock options assumed (in shares) | 2,500 | |
Legacy Joe | Amended And Restated Plan | ||
Stock option activity | ||
Stock options assumed (in shares) | 444 | |
11.40 | ||
Options Outstanding and Exercisable | ||
Exercise Price (in dollars per share) | $ 11.40 | $ 11.40 |
Number of shares | 444 | |
Weighted-Average Remaining Contractual Life (Years) | 8 years | |
Weighted average exercise price | ||
Outstanding at the end of the period (in dollars per share) | $ 11.40 | |
4.02 | ||
Options Outstanding and Exercisable | ||
Exercise Price (in dollars per share) | $ 4.02 | $ 4.02 |
Number of shares | 150,000 | |
Weighted-Average Remaining Contractual Life (Years) | 7 years 4 months 24 days | |
Weighted average exercise price | ||
Outstanding at the end of the period (in dollars per share) | $ 4.02 |
Equity - Restricted Stock Units
Equity - Restricted Stock Units (Details) $ / shares in Units, $ in Millions | 12 Months Ended |
Dec. 31, 2016USD ($)$ / sharesshares | |
Restricted Stock Units | |
Vested (in shares) | 0 |
Weighted-Average Grant-Date Fair Value | |
Granted (in shares) | 150,000 |
Exercisable (in shares) | 444 |
Unrecognized compensation cost | |
Weighted-average period for recognition of unrecognized compensation cost | 2 years 4 months 24 days |
Vesting period | 3 years |
Vested (in shares) | 0 |
Share-based Compensation Award | |
Unrecognized compensation cost | |
If less than 80 percent of performance target is reached | 0.00% |
RSUs | |
Restricted Stock Units | |
Vested (in shares) | (513,678) |
Unrecognized compensation cost | |
Weighted-average period for recognition of unrecognized compensation cost | 2 years 2 months 12 days |
Stock based compensation expense recognized | $ | $ 2 |
Total unrecognized compensation | $ | $ 3.2 |
Vested (in shares) | 513,678 |
2004 Stock Incentive Plan | RSUs | |
Restricted Stock Units | |
Granted (in shares) | 1,063,570 |
Vested (in shares) | (262,727) |
Outstanding at the end of the period (in shares) | 800,843 |
Weighted-Average Grant-Date Fair Value | |
Granted (in dollars per share) | $ / shares | $ 4.95 |
Vested (in dollars per share) | $ / shares | 5.86 |
Outstanding at the end of the period (in dollars per share) | $ / shares | $ 4.65 |
Unrecognized compensation cost | |
Vested (in shares) | 262,727 |
Equity - Warrants (Details)
Equity - Warrants (Details) - USD ($) $ / shares in Units, $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Jul. 18, 2016 | |
Fair value assumptions | ||
Volatility rate | 60.00% | |
Risk-free interest rate | 2.09% | |
Warrants | SWIMS | ||
Class of Warrant or Right [Line Items] | ||
Fair value of warrants issued | $ 45 | $ 45 |
Exercise price (in dollars per share) | $ 5.47 | $ 5.47 |
Fair value assumptions | ||
Time to maturity | 3 years | |
Volatility rate | 45.00% | |
Dividend rate | 0.00% | |
Risk-free interest rate | 0.85% | |
Discount rate | 10.00% | |
Restriction period | 6 months | |
Warrants | Tengram Capital Partners, LP | ||
Class of Warrant or Right [Line Items] | ||
Fair value of warrants issued | $ 500 | |
Exercise price (in dollars per share) | $ 3 | |
Warrants | Tengram Capital Partners, LP | SWIMS | ||
Class of Warrant or Right [Line Items] | ||
Fair value of warrants issued | $ 465 | |
Exercise price (in dollars per share) | $ 3 | |
Fair value assumptions | ||
Time to maturity | 5 years | |
Volatility rate | 50.00% | |
Dividend rate | 0.00% | |
Risk-free interest rate | 1.14% | |
Discount rate | 20.00% | |
Restriction period | 1 year |
(Loss) Earnings per Share (Deta
(Loss) Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Numerator: | ||
(Loss) income from continuing operations | $ (16,526) | $ 760 |
Loss from discontinued operations | (1,286) | |
Net (loss) income | $ (17,812) | $ 760 |
Denominator: | ||
Weighted average common shares outstanding (in shares) | 12,428,000 | 8,825,000 |
(Loss) earnings per common share - basic | ||
(Loss) earnings from continuing operations (in dollars per share) | $ (1.33) | $ 0.09 |
Loss from discontinued operations (in dollars per share) | (0.10) | |
(Loss) earnings per common share - basic (in dollars per share) | $ (1.43) | $ 0.09 |
Numerator: | ||
(Loss) income from continuing operations | $ (16,526) | $ 760 |
Loss from discontinued operations | (1,286) | |
Net (loss) income | $ (17,812) | $ 760 |
Denominator: | ||
Weighted average common shares outstanding (in shares) | 12,428,000 | 8,825,000 |
Dilutive potential common shares (in shares) | 12,428,000 | 8,825,000 |
(Loss) earnings per common share - dilutive | ||
(Loss) earnings from continuing operations (in dollars per share) | $ (1.33) | $ 0.09 |
Loss from discontinued operations (in dollars per share) | (0.10) | |
(Loss) earnings per common share - dilutive (in dollars per share) | $ (1.43) | $ 0.09 |
Anti-dilutive securities excluded from computation of earnings per share (in shares) | 0 | |
Modified Convertible Notes | ||
(Loss) earnings per common share - dilutive | ||
Anti-dilutive securities excluded from computation of earnings per share (in shares) | 1,207 | |
Convertible Notes Due January 2017 | ||
(Loss) earnings per common share - dilutive | ||
Anti-dilutive securities excluded from computation of earnings per share (in shares) | 4,394 | |
Preferred Series A | ||
(Loss) earnings per common share - dilutive | ||
Anti-dilutive securities excluded from computation of earnings per share (in shares) | 4,480 | |
Warrants | ||
(Loss) earnings per common share - dilutive | ||
Anti-dilutive securities excluded from computation of earnings per share (in shares) | 650 | |
stock options | ||
(Loss) earnings per common share - dilutive | ||
Anti-dilutive securities excluded from computation of earnings per share (in shares) | 150 | |
RSUs | ||
(Loss) earnings per common share - dilutive | ||
Anti-dilutive securities excluded from computation of earnings per share (in shares) | 801 | |
PSUs | ||
(Loss) earnings per common share - dilutive | ||
Anti-dilutive securities excluded from computation of earnings per share (in shares) | 514 |
(Loss) Earnings per Share - Two
(Loss) Earnings per Share - Two Class Method (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
(Loss) Earnings per Share | ||
Net (loss) income | $ (17,812) | $ 760 |
Less: Preferred dividends | 4,694 | |
Net (loss) income attributable to stockholders | (22,506) | 760 |
Net (loss) income attributable to common stockholders | $ (22,506) | $ 760 |
Denominator: | ||
Weighted average common shares outstanding (in shares) | 12,428 | 8,825 |
(Loss) earnings per common share - basic and diluted under two class method (in dollars per share) | $ (1.81) | $ 0.09 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Taxes | ||
Unrecognized tax benefits | $ 81 | |
Continuing operations before income taxes | ||
Domestic | (15,731) | $ 917 |
Foreign | (1,995) | |
(Loss) income from continuing operations before income taxes | (17,726) | 917 |
Current: | ||
Federal | (287) | |
State | 148 | 157 |
Foreign | 36 | |
Total current | (103) | 157 |
Deferred: | ||
Federal | (572) | |
State | 23 | |
Foreign | (548) | |
Deferred income taxes | (1,097) | |
Total | $ (1,200) | $ 157 |
Income Taxes - Deferred Tax Ass
Income Taxes - Deferred Tax Assets and Liabilities (Details) $ in Thousands | Dec. 31, 2016USD ($) |
Deferred tax assets: | |
Federal and state NOL carryforward | $ 9,635 |
Fixed assets | 288 |
Accruals | 644 |
Stock based compensation | 407 |
Inventory | 1,118 |
Other intangibles | 14,228 |
Allowance for customer credits and doubtful accounts | 1,206 |
Deferred rent | 1,537 |
Other | 208 |
Deferred state income tax | 434 |
Total gross deferred tax asset | 29,705 |
Less: Valuation allowance | (28,275) |
Total deferred tax assets | 1,430 |
Deferred tax liabilities: | |
Indefinite lived intangibles | (10,702) |
Prepaids | (175) |
Debt discount | (1,627) |
Total gross deferred tax liability | (12,504) |
Net deferred tax assets | $ (11,074) |
Income Taxes - Income Tax Provi
Income Taxes - Income Tax Provision (Benefit) (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
U.S. Federal provision (benefit) | ||
At statutory rate | $ (6,026) | |
State taxes | 113 | $ 53 |
Foreign tax differential | 205 | |
Disallowed interest expense | 219 | |
Change in entity status | (19,448) | |
Effect of uncertain tax positions | (287) | |
Book income from pre-transaction period | 705 | |
Transaction costs | 810 | |
Other | (5) | 104 |
Total | (1,200) | $ 157 |
Deferred Tax Assets, Valuation Allowance | 28,275 | |
Increase in valuation allowance | 28,300 | |
Purchase Accounting | ||
U.S. Federal provision (benefit) | ||
Increase in valuation allowance | 2,000 | |
Change in Entity Status | ||
U.S. Federal provision (benefit) | ||
Increase in valuation allowance | 22,900 | |
Foreign | ||
U.S. Federal provision (benefit) | ||
Valuation allowance | $ 22,514 |
Income Taxes - Net Operating Lo
Income Taxes - Net Operating Loss and Tax Credit Carryforwards (Details) $ in Millions | Dec. 31, 2016USD ($) |
Federal tax | |
Net Operating Loss and Tax Credit Carryforwards | |
Net operating loss carryforwards | $ 23.2 |
State | |
Net Operating Loss and Tax Credit Carryforwards | |
Net operating loss carryforwards | 18.7 |
Foreign | |
Net Operating Loss and Tax Credit Carryforwards | |
Net operating loss carryforwards | $ 1.7 |
Income Taxes - Unrecognized tax
Income Taxes - Unrecognized tax benefits (Details) $ in Thousands | 12 Months Ended |
Dec. 31, 2016USD ($) | |
Unrecognized tax benefits | |
Gross increase - tax positions in prior periods | $ 298 |
Lapse in statutes of limitations | (217) |
Ending balance | $ 81 |
Commitments and Contingencies77
Commitments and Contingencies (Details) | 12 Months Ended |
Dec. 31, 2016 | |
Minimum | |
Contingent Consideration Payments, Buy-Out Agreement and Earnout Subordination Agreement | |
Percentage of annual sales volume | 6.00% |
Maximum | |
Contingent Consideration Payments, Buy-Out Agreement and Earnout Subordination Agreement | |
Percentage of annual sales volume | 8.00% |
Commitments and Contingencies -
Commitments and Contingencies - Agreements (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Mar. 31, 2016 | |
Future Lease Obligations | |||
2,017 | $ 6,903 | ||
2,018 | 6,065 | ||
2,019 | 5,952 | ||
2,020 | 5,987 | ||
2,021 | 6,126 | ||
Thereafter | 15,839 | ||
Future minimum rental payments | 46,872 | ||
Rent expense | 9,200 | $ 7,100 | |
Letters of Credit | |||
Contingent liability for letters of credit | $ 130 | ||
Employment agreements | |||
2,017 | 2,600 | ||
2,018 | 1,000 | ||
2,019 | $ 400 |
Segment Reporting and Operati79
Segment Reporting and Operations by Geographic Areas (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Segment information | ||
Net sales | $ 149,267 | $ 73,057 |
Gross profit | 79,492 | 44,928 |
Operating expenses | 89,645 | 43,453 |
Operating (loss) income | (10,153) | 1,475 |
Capital expenditures | 1,838 | 4,838 |
Total assets | 166,171 | 82,859 |
Wholesale | ||
Segment information | ||
Net sales | 108,829 | 41,348 |
Gross profit | 48,966 | 20,458 |
Operating expenses | 19,472 | 4,877 |
Operating (loss) income | 29,494 | 15,581 |
Capital expenditures | 527 | 180 |
Total assets | 44,793 | 39,007 |
Consumer Direct | ||
Segment information | ||
Net sales | 38,622 | 29,924 |
Gross profit | 28,710 | 22,685 |
Operating expenses | 28,989 | 20,865 |
Operating (loss) income | (279) | 1,820 |
Capital expenditures | 1,160 | 4,468 |
Total assets | 10,093 | 11,303 |
Corporate and Other | ||
Segment information | ||
Net sales | 1,816 | 1,785 |
Gross profit | 1,816 | 1,785 |
Operating expenses | 41,184 | 17,711 |
Operating (loss) income | (39,368) | (15,926) |
Capital expenditures | 151 | 190 |
Total assets | $ 111,285 | $ 32,549 |
Related Party Transactions (Det
Related Party Transactions (Details) $ in Thousands | 12 Months Ended |
Dec. 31, 2016USD ($) | |
Related party transactions | |
Convertible note payable balance | $ 92,781 |
Period for automatic renewal of the term of the employment | 1 year |
Tengram Capital Partners, LP | |
Related party transactions | |
Convertible note payable balance | $ 13,200 |
Accrued interest | 56 |
Total related party expenses | 1,000 |
Related party expenses, Legal fee component | 800 |
Annual management fees and expenses paid | 500 |
Tengram Capital Partners, LP | RG | |
Related party transactions | |
Annual management fees and expenses paid | 41 |
Peter Kim | |
Related party transactions | |
Convertible note payable balance | 8,600 |
Accrued interest | $ 141 |
Term of non-compete agreement | 3 years |
Supplemental Cash Flow Inform81
Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Supplemental disclosures of cash flow information: | ||
Interest Paid | $ 4,861 | $ 561 |
Income taxes paid | 2,570 | 157 |
Supplemental disclosures of non-cash investing and financing activities: | ||
Accrued distribution to members | 1,366 | |
Accrued transaction costs | 1,137 | |
Issuance of convertible notes | 16,473 | |
Debt discount recorded in connection with convertible notes | 4,673 | |
Contribution of Robert Graham in exchange for common shares | 12,751 | |
Reclassification of other assets to offering costs | 812 | |
Reclassification of other assets to deferred financing costs | 349 | |
Debt discount recorded in connection with short term convertible note | 465 | |
Unpaid purchases of property and equipment | 143 | $ 351 |
Unpaid taxes in lieu of shares issued for stock-based compensation | 167 | |
RG | ||
Supplemental disclosures of non-cash investing and financing activities: | ||
Common stock issued in reverse acquisition with Robert Graham | 20,000 | |
SWIMS | ||
Supplemental disclosures of non-cash investing and financing activities: | ||
Issuance of convertible notes | 1,750 | |
Warrants issued in acquisition of SWIMS | $ 45 |
Employee Benefit Plans (Details
Employee Benefit Plans (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Plan expenses | $ 22,000 | $ 23,000 |
Matching contributions | $ 234,000 | $ 0 |
Hudson Plan | ||
Period of service required in order to participate in plan | 6 months | |
DBG Plan | ||
Period of service required in order to participate in plan | 6 months | |
Hours of service required in order to receive employer contribution | 1,000 | |
RG Plan | ||
Period of service required in order to participate in plan | 90 days | |
Hours of service required in order to receive employer contribution | 1,000 |
Restructuring (Details)
Restructuring (Details) - USD ($) $ in Millions | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Restructuring | ||
Accrued restructuring charges | $ 0 | $ 0 |
Selling, General and Administrative Expenses | ||
Restructuring | ||
Non-recurring restructuring expenses | $ 1.6 |
Subsequent Events (Details)
Subsequent Events (Details) - Convertible Notes Due January 2017 $ / shares in Units, $ in Thousands | Jul. 18, 2016USD ($)$ / sharesshares |
Subsequent Events | |
Convertible notes face value | $ 13,000 |
Tengram Capital Partners, LP | |
Subsequent Events | |
Interest rate (as a percent) | 3.75% |
Convertible notes face value | $ 13,000 |
Tengram Capital Partners, LP | Preferred Series A-1 | |
Subsequent Events | |
Conversion price (in dollars per share) | $ / shares | $ 3 |
Tengram Capital Partners, LP | Maximum | Preferred Series A-1 | |
Subsequent Events | |
Number of shares issuable upon conversion of the debt | shares | 4,500,000 |