8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 2)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 11, 2015

SEQUENTIAL BRANDS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware	001-36082	86-0449546
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

5 Bryant Park

30^th Floor
New York, NY 10018

(Address of Principal Executive Offices/Zip Code)

(646) 564-2577

(Registrant's telephone number, including area code)

Check the appropriate box below if the form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2 (b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

This Amendment No. 2 amends the Current Report on Form 8-K, filed on September 14, 2015 (the “Initial Form 8-K”) and Amendment No. 1 to the Initial Form 8-K, filed on September 25, 2015, to update the financial statement information referred to in parts (a) and (b) of Item 9.01 below relating to the recently completed acquisition (the “Acquisition”) by Joe’s Holdings LLC, a newly formed Delaware limited liability company and subsidiary of Sequential Brands Group, Inc. or the “Company” (“Joe’s Holdings”), of certain intellectual property assets from Joe’s Jeans, Inc., a Delaware corporation used or held for use in Joe’s Jeans’ business operated under the brand names “Joe’s Jeans,” “Joe’s,” “Joe’s JD” and “else” (“Joe’s Jeans Licensing”) for an aggregate cash purchase price of $67.0 million. Sequential accounted for the acquisition as a business combination in accordance with Financial Accounting Standards Board Accounting Standards Codification 805 Business Combinations. Except as otherwise noted, all other information in the Initial Form 8-K remains unchanged.

Item 9.01    Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

The audited combined financial statements of Joe’s Jeans Licensing as of November 30, 2014, 2013 and 2012 and for each of the three years in the period ended November 30, 2014 as well as the unaudited combined financial statements of the Joe’s Business as of May 31, 2015 and 2014 and for the six month periods ended May 31, 2014 and 2013 are attached as Exhibit 99.2 to this Form 8-K and incorporated herein by reference.

(b) Pro Forma Financial Information

The following unaudited pro forma condensed combined financial information related to the Acquisition is attached as Exhibit 99.1 to this Form 8-K and incorporated herein by reference:

(i) Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2015.

(ii) Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2014.

(iii) Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 2015.

(d) The following exhibits are filed as a part of this Report.

Exhibit No.	Description
23.1	Consent of CohnReznick LLP
99.1	Unaudited Pro Forma Condensed Combined Financial Information
99.2	Audited Combined Financial Statements of Joe’s Jeans Licensing (a Carve-Out of Joe’s Jeans, Inc.) as of and for the Years Ended November 30, 2014, 2013 and 2012 and Unaudited Combined Financial Statements of Joe’s Jeans Licensing (a Carve-Out of Joe’s Jeans, Inc.) as of and for the Three and Six Months Ended May 31, 2015 and 2014

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SEQUENTIAL BRANDS GROUP, INC.
Date: October 13, 2015	By:	/s/ Gary Klein
		Name:	Gary Klein
		Title:	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of CohnReznick LLP
99.1	Unaudited Pro Forma Condensed Combined Financial Information
99.2	Audited Combined Financial Statements of Joe’s Jeans Licensing (a Carve-Out of Joe’s Jeans, Inc.) as of and for the Years Ended November 30, 2014, 2013 and 2012 and Unaudited Combined Financial Statements of Joe’s Jeans Licensing (a Carve-Out of Joe’s Jeans, Inc.) as of and for the Three and Six Months Ended May 31, 2015 and 2014

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITOR

We consent to the incorporation by reference in Form S-3 (File No. 333-198605, effective September 16, 2014) and Forms S-8 (File No. 333-134672, effective June 2, 2006, File No. 333-152961, effective August 12, 2008 and File No. 333-190352, effective August 2, 2013) of Sequential Brands Group, Inc. of our report dated September 25, 2015 on our audits of the combined financial statements of Joe’s Jeans Licensing as of November 30, 2014, 2013 and 2012 and for the years then ended included in this Current Report on Form 8-K/A of Sequential Brands Group, Inc.

/s/ CohnReznick LLP

New York, New York

October 13, 2015

EX-99.1

Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following supplemental pro forma information of Sequential Brands Group, Inc. (the “Company”) is presented for informational purposes only, as an aid to understanding the entities’ combined financial results. This unaudited pro forma condensed combined financial information should not be considered a substitute for the historical financial information prepared in accordance with generally accepted accounting principles (“GAAP”), as presented in the Company’s filings on Form 10-Q and Form 10-K and other filings with the Securities and Exchange Commission. The unaudited pro forma condensed combined financial information disclosed in this report is for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the pro forma events taken place on the dates indicated, or of the Company’s future consolidated results of operations.

On September 8, 2015, the Company, and Joe’s Holdings LLC, a newly formed Delaware limited liability company and subsidiary of the Company (“Joe’s Holdings”), entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Joe’s Jeans Inc., a Delaware corporation (“Joe’s Jeans”), as part of a series of transactions by Joe’s Jeans, pursuant to which Joe’s Holdings will, among other things, purchase certain intellectual property assets used or held for use in Joe’s Jeans’ business operated under the brand names “Joe’s Jeans,” Joe’s,” “Joe’s JD” and “else” (“Joe’s Jeans Licensing”) for an aggregate cash purchase price of $67.0 million. Sequential accounted for the acquisition as a business combination in accordance with Financial Accounting Standards Board Accounting Standards Codification 805 Business Combinations.

On September 11, 2015 (the “Closing Date”), the transactions contemplated by the Asset Purchase Agreement were consummated concurrently with the transactions contemplated by that certain asset purchase agreement, dated as of September 8, 2015 (the “GBG Asset Purchase Agreement” and, together with the Asset Purchase Agreement, the “Purchase Agreements”), by and between Joe’s Jeans and GBG USA Inc. (“GBG”). As of the Closing Date, Joe’s Jeans retained the 32 Joe’s® branded retail stores and will proceed with the disposition of certain stores in accordance with terms of the Purchase Agreements. Furthermore, on the Closing Date, pursuant to the terms of the Purchase Agreements, Joe’s Holdings and GBG deposited $2.5 million and $1.5 million, respectively, into an escrow account to be used by Joe’s Jeans to offset net costs and expenses related to the operation and disposition of such stores. Subject to certain limitations on Joe’s Jeans’ aggregate net liability with respect to these costs and expenses and subject to the completion of certain other pending transactions by Joe’s Jeans, such costs and expenses in excess of the amounts deposited into the escrow account on the Closing Date will be borne by Joe’s Holdings and Joe’s Jeans.

The unaudited pro forma condensed combined financial information is based on the preliminary information available and management’s preliminary valuation of the fair values of intangible assets acquired at the acquisition date. A final determination of these estimated fair values will be made in due course. The finalization of the Company’s acquisition accounting assessment may result in changes to the valuation of assets acquired, particularly in regards to indefinite and finite-lived intangible assets, which could be material.

The unaudited pro forma condensed combined financial information is derived from and should be read in conjunction with historical consolidated financial statements and related notes of the Company, which are included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and its Quarterly Report on Form 10-Q for the fiscal period ended June 30, 2015, as previously filed with the Securities and Exchange Commission, and the historical financial information of Joe’s Jeans Licensing as of and for the year ended November 30, 2014 and the six months ended May 31, 2015, which are filed as Exhibit 99.2 of this Current Report on Form 8-K/A to which this is an exhibit. The unaudited pro forma condensed combined balance sheet as of June 30, 2015, and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2014 and the six months ended June 30, 2015, are presented herein.

The unaudited pro forma condensed combined financial information presented is based on the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed combined balance sheet as of June 30, 2015, gives effect to the preliminary purchase price allocation of approximately $67.8 million, based upon payment of cash of $67.0 million and guaranteed contractual payments of $847,000. Please refer to the Preliminary Purchase Price Allocation table below for the preliminary allocation of the purchase price. In addition, transaction costs of $1.4 million representing legal, accounting and other costs incurred during the transaction are included in accumulated deficit. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2014 and the six months ended June 30, 2015, give effect to amortization of the value assigned to the acquired licensing contracts and incremental interest expense related to the incremental financing required.

Preliminary Purchase Price Allocation - Joe's Jeans

Cash paid	$	67,000
Guaranteed contractual payments		847
Total consideration paid	$	67,847
Allocated to:
Goodwill	$	27,647
Trademarks		67,000
Deferred tax liability		(26,800	)
	$	67,847

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

June 30, 2015

(in thousands, except per share data)

	Sequential Brands Group, Inc.			Joe's Jeans Licensing
	6/30/15 Historical			5/31/15 Historical		(a)			(b)						Pro Forma Condensed Combined
Assets
Current Assets:
Cash and cash equivalents	$	25,309		$	-	$	-		$	(67,000	)	$	80,707	(d)(e)(f)	$	39,016
Accounts receivable, net		21,367			124		(124	)		-			-			21,367
Deferred tax assets		427			19		(19	)		-			-			427
Prepaid expenses and other current assets		3,112			-		-			-			-			3,112
Current assets held for disposition from discontinued operations of wholesale business		132			-		-			-			-			132
Total current assets		50,347			143		(143	)		(67,000	)		80,707			64,054
Property and equipment, net		2,274			-		-			-			-			2,274
Intangible assets, net		487,690			24,000		(24,000	)		67,000			-			554,690
Goodwill		199,707			3,836		(3,836	)		27,647	(c)		-			227,354
Other assets		8,400			-		-			-			1,371	(d)		9,771
Total assets	$	748,418		$	27,979	$	(27,979	)	$	27,647		$	82,078		$	858,143
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses	$	8,947		$	-	$	-		$	582	(c)	$	-		$	9,529
Deferred license revenue		116			-		-			-			-			116
Long-term debt, current portion		16,000			-		-			-			-			16,000
Current liabilities held for disposition from discontinued operations of wholesale business		44			-		-			-			-			44
Total current liabilities		25,107			-		-			582			-			25,689
Long-Term Liabilities:
Long-term debt		279,500			-		-			-			72,504	(d)(e)		352,004
Deferred tax liability		104,667			9,156		(9,156	)		26,800			-			131,467
Other long-term liabilities		1,467			-		-			265	(c)		-			1,732
Long-term liabilities held for disposition from discontinued operations of wholesale business		700			-		-			-			-			700
Total long-term liabilities		386,334			9,156		(9,156	)		27,065			72,504			485,903
Total liabilities		411,441			9,156		(9,156	)		27,647			72,504			511,592
Commitments and Contingencies
Stockholders' Equity:
Preferred stock Series A, $0.001 par value		-			-		-			-			-			-
Class A Common stock, $0.001 par value		40			-		-			-			1	(e)		41
Additional paid-in capital		301,680			-		-			-			11,495	(e)		313,175
Accumulated other comprehensive loss		(125	)		-		-			-			-			(125	)
(Accumulated deficit)/Invested equity		(35,842	)		18,823		(18,823	)		-			(1,922	)(f)		(37,764	)
Treasury stock, at cost		(2,480	)		-		-			-			-			(2,480	)
Total Sequential Brands Group, Inc. and Subsidiaries stockholders’ equity		263,273			18,823		(18,823	)		-			9,574			272,847
Noncontrolling interest		73,704			-		-			-			-			73,704
Total equity		336,977			18,823		(18,823	)		-			9,574			346,551
Total liabilities and stockholders’ equity	$	748,418		$	27,979	$	(27,979	)	$	27,647		$	82,078		$	858,143

(a) Elimination of Joe's Jeans Licensing historical balance sheet.

(b) Represents preliminary purchase price allocation of the acquisition of Joe's Jeans Licensing. The finalization of the Company’s acquisition accounting assessment may result in changes to the valuation of assets acquired, particularly in regards to indefinite and finite-lived intangible assets, which could be material.

(c) As part of the Joe's Jeans Licensing acquisition, the Company is required to make $0.9 million in guaranteed payments to Joe Dahan. $0.3 million will be paid at the close of the acquisition, with $0.3 million payable on each of the next two anniversary dates of the acquisition. The Company has recorded the liability at present value.

(d) Represents the incremental increase in debt as a result of the Joe's Jeans Licensing acquisition. After the acquisition, the Company will have debt of approximately $369.5 million and will make quarterly payments of $4.0 million for the debt. The Company will pay a 2% initiation fee on the $56.0 million portion of the loan and approximately $0.3 million for legal and other costs. The interest rate at the onset of the loans is LIBOR +3.75% on $143.0 million, LIBOR + 4.75% on $11.0 million and 10.00% on $215.5 million as part of the amended loan agreement. The entry for this transaction is as follows (in thousands): Dr. Cash $72,629, Dr. Other Assets $1,371, Cr. Long-term debt $74,000.

(e) As part of the amended loan agreement with GSO Capital Partners, LP., GSO Capital Partners, LP will purchase $10.0 million of Sequential common stock at a price of $13.50/share which results in the issuance of 740,740 shares of the Company's common stock. The fair value of the common stock on September 11, 2015 was $15.52/share, which was the date the shares were issued to GSO Capital Partners, LP. The difference in value is recorded as a discount to long-term debt and a corresponding increase to additional paid-in capital. The entry for this transaction is as follows (in thousands): Dr. Cash $10,000, Dr. Long-term Debt $1,496, Cr. Common Stock $1, Cr. APIC $11,495.

(f) Includes approximately $1.9 million of acquisition costs for legal, accounting and other costs in connection with the Joe’s Jeans Licensing acquisition. The entry for this transaction is as follows: Dr. Accumulated Deficit $1,922, Cr. Cash $1,922.

UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2014

(in thousands, except share and per share data)

	Sequential Brands Group, Inc.			With You, Inc. and Corny Dog, Inc.			Joe's Jeans Licensing
	12/31/14 Historical			12/31/14 Historical			11/30/14 Historical		(a)						Pro Forma Condensed Combined
Net revenue	$	41,837		$	17,226		$	1,039	$	-		$	-		$	60,102
Operating expenses		29,806			18,222			141		(6,750	)		127	(f)		41,546
Income (loss) from operations		12,031			(996	)		898		6,750			(127	)		18,556
Other income		5			-			-		-			-			5
Interest expense		9,746			-			-		-			19,776	(c)		29,522
Income (loss) before income taxes		2,290			(996	)		898		6,750			(19,903	)		(10,961	)
Provision (benefit) for income taxes		2,936			-			343		2,700	(b)		(8,343	)(b)		(2,364	)
Loss from continuing operations		(646	)		(996	)		555		4,050			(11,560	)		(8,597	)
Net income attributable to noncontrolling interest		(422	)		-			-		-			(4,274	)(e)		(4,696	)
Net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries	$	(1,068	)	$	(996	)	$	555	$	4,050		$	(15,834	)	$	(13,293	)
Basic loss per share:
Attributable to Sequential Brands Group, Inc. and Subsidiaries	$	(0.04	)												$	(0.43	)
Basic weighted average common shares outstanding		29,964,604			-			-		-			837,827	(d)		30,802,431
Diluted loss per share:
Attributable to Sequential Brands Group, Inc. and Subsidiaries	$	(0.04	)												$	(0.43	)
Diluted weighted average common shares outstanding		29,964,604			-			-		-			837,827	(d)		30,802,431

(a) Effect of termination of significant With You, Inc. and Corny Dog, Inc. management and commission agreements.

(b) Reflects the recognition of income taxes on the pro forma adjustments, the With You Inc. and Corny Dog Inc. historical results and the Joe's Jeans Licensing historical results using an effective tax rate of 40%. The actual effective tax rate of the combined company could differ.

(c) Adjustment to Interest Expense as if the loans entered into as part of the acquisitions had been in effect beginning on January 1, 2014. The interest rate at the onset of the loans is LIBOR +3.75% on $143.0 million, LIBOR +4.75% on $11.0 million and 10.00% on $215.5 million as part of the amended loan agreement and amortization of debt discount of the common stock purchased by GSO Capital Partners, LP as part of the amended loan agreement.

(d) Represents 740,740 shares of common stock being purchased by GSO Capital Partners, LP as part of the amended loan agreement and the 97,087 shares of common stock issued in connection with the With You, Inc. and Corny Dog, Inc. acquisitions.

(e) Represents the non-controlling interest which is calculated as revenue for With You, LLC less operating expenses and other corporate allocations as defined in the acquisition agreement.

(f) To record amortization expense related to customer agreements acquired as part of the With You, Inc. and Corny Dog, Inc. acquisitions.

UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2015

(in thousands, except share and per share data)

	Sequential Brands Group, Inc.			With You, Inc. and Corny Dog, Inc.		Joe's Jeans Licensing		Pro Forma Adjustments
	6/30/15 Historical			4/8/15 Historical		5/30/15 Historical		(a)						Pro Forma Condensed Combined
Net revenue	$	33,852		$	4,466	$	393	$	-		$	-		$	38,711
Operating expenses		20,601			2,817		34		(1,743	)		32	(f)		21,741
Income (loss) from operations		13,251			1,649		359		1,743			(32	)		16,970
Other income		700			-		-		-			-			700
Interest expense		10,952			-		-		-			1,590	(c)		12,542
Income (loss) before income taxes		2,999			1,649		359		1,743			(1,622	)		5,128
Provision for income taxes		888			-		137		697	(b)		17	(b)		1,739
Income (loss) from continuing operations		2,111			1,649		222		1,046			(1,639	)		3,389
Net income attributable to noncontrolling interest		(1,994	)		-		-		-			(1,128	)(e)		(3,122	)
Net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries	$	117		$	1,649	$	222	$	1,046		$	(2,767	)	$	267
Basic earnings (loss) per share:
Attributable to Sequential Brands Group, Inc. and Subsidiaries	$	0.00												$	0.01
Basic weighted average common shares outstanding		39,181,904			-		-		-			792,770	(d)		39,974,674
Diluted earnings (loss) per share:
Attributable to Sequential Brands Group, Inc. and Subsidiaries	$	0.00												$	0.01
Diluted weighted average common shares outstanding		41,373,880			-		-		-			792,770	(d)		42,166,650

(a) Effect of termination of significant With You, Inc. and Corny Dog, Inc. management and commission agreements.

(b) Reflects the recognition of income taxes on the proforma adjustments, the With You Inc. and Corny Dog Inc. acquisitions and the Joe's Jeans Licensing historical results using an effective tax rate of 40%. The actual effective tax rate of the combined company could differ.

(c) Adjustment to Interest Expense as if the loans entered into as part of the acquisitions had been in effect beginning on January 1, 2014. The interest rate at the onset of the loans is LIBOR +3.75% on $186.0 million and LIBOR + 8.00% on $365.9 million as part of the amended loan agreement and amortization of debt discount of the common stock purchased by GSO Capital Partners, LP as part of the amended loan agreement.

(d) Represents 740,740 shares of common stock being purchased by GSO Capital Partners, LP as part of the amended loan agreement and the 97,087 shares of common stock issued in connection with the With You, Inc. and Corny Dog, Inc. acquisitions less 45,057 shares that were reflected in the Company's June 30, 2015 basic and diluted weighted average shares.

(e) Represents the non-controlling interest which is calculated as revenue for With You, LLC less operating expenses and other corporate allocations as defined in the acquisition agreement.

(f) To record amortization expense related to customer agreements acquired as part of the With You, Inc. and Corny Dog, Inc. acquisitions.

EX-99.2

Exhibit 99.2

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

COMBINED FINANCIAL STATEMENTS

CONTENTS

	Page
Independent Auditor’s Report	F-2
Combined Balance Sheets	F-3
Combined Statements of Operations	F-4
Combined Statements of Changes in Invested Equity	F-5
Combined Statements of Cash Flows	F-6
Notes to Combined Financial Statements	F-7

F-1

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Shareholders

of Joe’s Jeans Inc.

We have audited the accompanying combined financial statements of Joe’s Jeans Licensing (a carve-out of Joe’s Jeans Inc.), which comprise the combined balance sheets as of November 30, 2014, 2013 and 2012 and the related combined statements of operations, changes in invested equity and cash flows for the years then ended, and the related notes to the combined financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America as established by the Auditing Standards Board (United States) and in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Joe’s Jeans Licensing as of November 30, 2014, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ CohnReznick LLP

New York, New York

September 25, 2015

F-2

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

COMBINED BALANCE SHEETS

	May 31,		November 30,		November 30,		November 30,
	2015		2014		2013		2012
	(Unaudited)
Assets
Current Assets
Accounts Receivable	$	124,021	$	166,720	$	223,850	$	228,514
Deferred Tax Asset		19,215		19,215		16,339		12,049
Current Assets		143,236		185,935		240,189		240,563
Trademark		24,000,000		24,000,000		24,000,000		24,000,000
Goodwill		3,835,617		3,835,617		3,835,617		3,835,617
Total Assets	$	27,978,853	$	28,021,552	$	28,075,806	$	28,076,180
Liabilities and Invested Equity
Liabilities
Deferred Revenue	$	-	$	118,750	$	-	$	-
Current Liabilities		-		118,750		-		-
Deferred Tax Liability		9,156,336		9,156,336		9,156,336		9,156,336
Total Liabilities		9,156,336		9,275,086		9,156,336		9,156,336
Commitments and Contingencies
Invested Equity
Invested Equity		18,822,517		18,746,466		18,919,470		18,919,844
Total Invested Equity		18,822,517		18,746,466		18,919,470		18,919,844
Total Liabilities and Invested Equity	$	27,978,853	$	28,021,552	$	28,075,806	$	28,076,180

See Accompanying Notes to Combined Financial Statements.

F-3

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

COMBINED STATEMENTS OF OPERATIONS

	Three Months Ended May 31,				Six Months Ended May 31,				Years Ended November 30,
	2015		2014		2015		2014		2014		2013		2012
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Royalties	$	69,026	$	295,547	$	392,865	$	454,419	$	1,039,012	$	868,734	$	653,510
Operating Expenses
General and Administrative		17,118		31,372		34,233		62,743		140,589		104,750		90,145
Total Operating Expenses		17,118		31,372		34,233		62,743		140,589		104,750		90,145
Income Before Taxes		51,908		264,175		358,632		391,676		898,423		763,984		563,365
Income Tax Expense		19,829		100,915		136,997		149,620		342,761		291,471		214,932
Net Income	$	32,079	$	163,260	$	221,635	$	242,056	$	555,662	$	472,513	$	348,433

See Accompanying Notes to Combined Financial Statements.

F-4

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

COMBINED STATEMENTS OF CHANGES IN INVESTED EQUITY

	Invested Equity
Balance, December 1, 2011	$	18,508,210
Net  Contributions From Parent		63,201
Net Income		348,433
Balance, November 30, 2012		18,919,844
Net Distributions To Parent		(472,887	)
Net Income		472,513
Balance, November 30, 2013		18,919,470
Net Distributions To Parent		(728,666	)
Net Income		555,662
Balance, November 30, 2014		18,746,466
Net Distributions To Parent (Unaudited)		(145,584	)
Net Income		221,635
Balance, May 31, 2015 (unaudited)	$	18,822,517

See Accompanying Notes to Combined Financial Statements.

F-5

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

COMBINED STATEMENTS OF CASH FLOWS

	Six Months Ended May 31,						Years Ended November 30,
	2015			2014			2014			2013			2012
	(Unaudited)			(Unaudited)
Cash Flows from Operating Activities:
Net income	$	221,635		$	242,056		$	555,662		$	472,513		$	348,433
Changes in operating assets and liabilities:
Accounts receivable		42,699			10,303			57,130			4,664			(228,514	)
Deferred taxes		-			-			(2,876	)		(4,290	)		(183,120	)
Deferred revenue		(118,750	)		-			118,750			-			-
Net cash (used in) provided by operating activities		145,584			252,359			728,666			472,887			(63,201	)
Cash Flows from Financing Activities:
Net (distributions to) contributions from parent		(145,584	)		(252,359	)		(728,666	)		(472,887	)		63,201
Net cash (used in) provided by financing activities		(145,584	)		(252,359	)		(728,666	)		(472,887	)		63,201
Net Change in Cash		-			-			-			-			-
Cash - Beginning of period		-			-			-			-			-
Cash - End of period	$	-		$	-		$	-		$	-		$	-

See Accompanying Notes to Combined Financial Statements.

F-6

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS

NOVEMBER 30, 2014, 2013 AND 2012

(Information as of May 31, 2015 and for the three and six months ended May 31, 2015 and 2014 is unaudited)

NOTE 1 – BACKGROUND

The accompanying combined financial statements include the historical revenues of the Joe’s Jeans Licensing Business (“Joe’s Jeans Licensing” or the “Business”) of Joe’s Jeans Inc. (“Joe’s” or the “Parent”), which includes the Joe’s tradename and related licenses. The Joe’s Jeans Licensing fiscal year end is November 30. Each fiscal year, as presented, is 52 weeks.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying combined financial statements have been prepared on a stand-alone basis and are derived from the financial statements and accounting records of Joe’s Jeans Inc. and its subsidiaries. The Joe’s Jeans Licensing financial statements reflect its financial position, results of operations and cash flows as it was historically managed, in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Joe’s Jeans Licensing financial statements include certain assets and liabilities that have historically been held at the Parent corporate or subsidiary level, but are specifically identifiable or otherwise attributable to the Business.

On September 8, 2015, the Business entered into an agreement with Sequential Brands Group, Inc., a Delaware corporation (“Sequential”), and Joe’s Holdings LLC, a newly formed Delaware limited liability company and subsidiary of Sequential (“Joe’s Holdings”), as part of a series of transactions by the Parent, pursuant to which Joe’s Holdings, among other things, purchased certain intellectual property assets used or held for use in the Business operated under the brand names “Joe’s Jeans,” Joe’s,” “Joe’s JD” and “else” (the “Joe’s Business”) for an aggregate cash purchase price of $67.0 million (the “Asset Sale Agreement”).

On September 11, 2015, the Parent completed the sale of the Joe’s Business pursuant to the Asset Sale Agreement.

All intercompany transactions between the Business and the Parent have been included in its financial statements and are considered to be effectively settled in the financial statements. The net effect of the settlement of these intercompany transactions is reflected in our combined statements of cash flows as a financing activity and in the combined statements of changes in invested equity as “Net contributions from (distributions to) Parent.”

The historical costs and expenses reflected in the combined financial statements include an allocation for certain corporate and shared service functions historically provided by the Parent including, but not limited to, executive oversight, accounting, treasury, tax, legal, human resources, occupancy, procurement, information technology, and other shared services. These expenses have been allocated to Joe’s Jeans Licensing on the basis of royalties as a percentage of net revenues of the Parent.

The management of the Business believes the assumptions underlying the financial statements, including the assumptions regarding allocating general corporate expenses from the Parent are reasonable. Nevertheless, the combined financial statements may not include all of the actual expenses that would have been incurred had the Business operated as a stand-alone company during the periods presented and may not reflect its results of operations, financial position and cash flows had it been operated as a stand-alone company during the periods presented. Actual costs that would have been incurred if the Business had operated as a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

F-7

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS

NOVEMBER 30, 2014, 2013 AND 2012

(Information as of May 31, 2015 and for the three and six months ended May 31, 2015 and 2014 is unaudited)

Accounts Receivable

Accounts receivable are recorded net of allowances for doubtful accounts. The policy of the Business is to provide for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Business periodically reviews its accounts receivable to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Business has deemed it unnecessary to establish an allowance for doubtful accounts as of May 31, 2015, November 30, 2014, 2013 and 2012.

Revenue Recognition

The Business has entered into various license agreements that provide revenues based on guaranteed minimum royalty payments and additional revenues based on a percentage of defined sales. Guaranteed minimum royalty payments are recognized on a straight-line basis over the term of each contract year, as defined, in each license agreement. Royalty payments exceeding the guaranteed minimum royalty payments are recognized as income during the period corresponding to the licensee's sales. Payments received as consideration of the grant of a license are recorded as deferred revenue at the time payment is received and recognized ratably as revenue over the term of the license agreement. Advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized as revenue as earned. Revenue is not recognized unless collectability is reasonably assured.  

Income Taxes

The provision for income taxes is calculated as if the Business completed a separate tax return apart from its Parent, although the Business was included in the Parent’s U.S. federal and state income tax returns. Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts, using currently enacted tax rates. Tax attributes utilized by the Parent are treated as transactions between the Business and the Parent.

Concentration of Credit Risk

Financial instruments that potentially subject the Business to concentrations of credit risk consist of accounts receivable. Concentration of credit risk with respect to accounts receivable is minimal due to the collection history and the nature of the royalty revenues of the Business.

Customer Concentrations

During the year ended November 30, 2014, two licensees accounted for 45% and 40%, respectively, of the revenues of the Business. During the years ended November 30, 2013 and 2012, one licensee accounted for 74% of the revenues of the Business.

During the three months ended May 31, 2015, one licensee accounted for 81% of the revenues of the Business. During the six months ended May 31, 2015, one licensee accounted for 52% of the revenues of the Business.

Fair Value of Financial Instruments

The carrying amounts of accounts receivable approximate fair value due to their short term nature. As of November 30, 2014, 2013 and 2012 and May 31, 2015, there are no assets or liabilities required to be remeasured at fair value on a recurring basis.

Impairment of Indefinite-Lived Assets

The Business assesses the impairment of identifiable intangibles and goodwill annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger an impairment review other than on an annual basis include the following:

F-8

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS

NOVEMBER 30, 2014, 2013 AND 2012

(Information as of May 31, 2015 and for the three and six months ended May 31, 2015 and 2014 is unaudited)

• A significant underperformance relative to expected 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.

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, such as customer relationships and designs, with finite lives are amortized over their estimated useful lives. Goodwill and other intangible assets, such as trademarks, with indefinite lives are not amortized but are tested at least annually for impairment.

In fiscal 2007, the Parent acquired, through merger, JD Holdings, which included all of the goodwill and intangible assets related to the Joe’s^®, Joe’s Jeans™ and JD^® logo and marks. The Parent had assigned an indefinite life to the remaining intangible assets relating to the trademarks acquired, and therefore, no amortization expense has been recognized.

Indefinite-lived intangible assets are tested for impairment on an annual basis (September 30) and between annual tests if an event occurs or circumstances change that indicate that the carrying amount of the indefinite-lived intangible asset may not be recoverable. When conducting our annual indefinite-lived intangible asset impairment assessment, we initially perform a qualitative evaluation of whether it is more likely than not that the asset is impaired. If it is determined by a qualitative evaluation that it is more likely than not that the indefinite-lived intangible asset is impaired, we then test the asset for recoverability. Recoverability of indefinite-lived intangible assets to be held and used is measured by a comparison of the carrying amount of such asset to future discounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment was recorded in the periods ended November 30, 2014, 2013 and 2012 and May 31, 2015 and May 31, 2014.

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (September 30) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. When conducting our annual goodwill impairment assessment, we initially perform a qualitative evaluation of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, we then apply a two-step impairment test. The two-step impairment test first compares the fair value of our reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the reporting unit exceeds its fair value, we determine the implied fair value of the reporting unit's goodwill and, if the carrying value of the reporting unit's goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded in the combined statements of operations.  No impairment was recorded in the periods ended November 30, 2014, 2013 and 2012 and May 31, 2015 and May 31, 2014.

NOTE 3 – RELATED PARTY TRANSACTIONS

Albert Dahan

In October 2011, the Business entered into an agreement with Ever Blue LLC, or Ever Blue, an entity for which Albert Dahan is the sole member, for the sale of children’s products. Albert Dahan is the brother of Joe Dahan, who was, until September 11, 2015, the Parent’s Creative Director and a member of the Parent’s Board of Directors. Ever Blue has an exclusive right to produce, distribute and sell children’s products bearing the Joe’s® brand on a worldwide basis, subject to certain limitations on the channels of distribution. In exchange for the license, Ever Blue pays to the Business a royalty on net sales with certain guaranteed minimum sales for each term. In connection with this agreement, the Parent provided initial funding to Ever Blue for inventory purchases, which such amount has been repaid in full. For the fiscal years ended November 30, 2014, 2013 and 2012, we recognized $414,000, $617,000 and $505,000, respectively, in royalty income under the license agreement. For the three months ended May 31, 2015 and 2014, we recognized $13,000 and $248,000, respectively, in royalty income under the license agreement. For the six months ended May 31, 2015 and 2014, we recognized $45,000 and $308,000, respectively, in royalty income under the license agreement.

NOTE 4 – INCOME TAXES

The provision (benefit) for income taxes is as follows:

F-9

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS

NOVEMBER 30, 2014, 2013 AND 2012

(Information as of May 31, 2015 and for the three and six months ended May 31, 2015 and 2014 is unaudited)

	Three Months Ended May 31,				Six Months Ended May 31,				Years Ended November 30,
	2015		2014		2015		2014		2014			2013			2012
Current:
Federal	$	16,564	$	84,298	$	102,895	$	124,984	$	289,125		$	247,706		$	191,544
State		3,265		16,617		22,558		24,636		56,511			48,055			35,436
		19,829		100,915		125,453		149,620		345,636			295,761			226,980
Deferred:
Federal		-		-		11,544		-		(2,875	)		(4,290	)		(12,048	)
State		-		-		-		-		-			-			-
		-		-		11,544		-		(2,875	)		(4,290	)		(12,048	)
Total	$	19,829	$	100,915	$	136,997	$	149,620	$	342,761		$	291,471		$	214,932

Net deferred tax assets result from the following temporary differences between the book and tax basis of assets and liabilities:

	May 31,			November 30,			November 30,			November 30,
	2015			2014			2013			2012
Current:
Deferred tax assets:
State tax deduction	$	19,215		$	19,215		$	16,339		$	12,049
Net current deferred tax assets		19,215			19,215			16,339			12,049
Noncurrent:
Deferred tax liabilities:
Deferred state taxes		513,264			513,264			513,264			513,264
Long lived intangible asset		(9,669,600	)		(9,669,600	)		(9,669,600	)		(9,669,600	)
Net noncurrent deferred tax liability	$	(9,156,336	)	$	(9,156,336	)	$	(9,156,336	)	$	(9,156,336	)

A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Annually, management reassesses the need for a valuation allowance. Realization of deferred income tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies and reversals of existing taxable temporary differences. Based on its assessment of these items as of May 31, 2015 and November 30, 2014, 2013 and 2012, the Parent determined that the deferred tax assets were more likely than not to be realized.

The reconciliation of the effective income tax rate to the federal statutory rate for the years ended is as follows:

	Years Ended November 30,
	2014			2013			2012
Computed tax provision at statutory rate		34.00	%		34.00	%		34.00	%
State income tax		4.15	%		4.15	%		4.15	%
Effective tax rate		38.15	%		38.15	%		38.15	%

F-10

JOE’S JEANS LICENSING

(A CARVE-OUT OF JOE’S JEANS INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS

NOVEMBER 30, 2014, 2013 AND 2012

(Information as of May 31, 2015 and for the three and six months ended May 31, 2015 and 2014 is unaudited)

The Parent is subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. To the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount. The Parent is no longer subject to U.S. federal and California income tax examinations by tax authorities for years prior to fiscal 2011. The Parent is not currently being examined by any tax authorities.

As of the respective balance sheet dates, the Business did not provide for a liability for unrecognized tax benefits related to various federal and state income tax matters.

NOTE 5 – SUBSEQUENT EVENTS

The Business evaluated subsequent events and transactions that occurred after the combined balance sheet date up through September 25, 2015, the date that the combined financial statements were available to be issued, for potential recognition or disclosure. Any material events that occur between the combined balance sheet date and the date that the combined financial statements were issued are disclosed as subsequent events, while the combined financial statements are adjusted to reflect any conditions that existed at the balance sheet date. Based upon this review, except as discussed below, the Business did not identify any recognized or non-recognized subsequent events that would have required adjustment to or disclosure in the combined financial statements.

F-11