SEQUENTIAL BRANDS GROUP, INC. (Form: 10-Q, Received: 08/14/2014 17:18:11)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to ______________________.

Commission file number 0-16075

SEQUENTIAL BRANDS GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		86-0449546
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)

1065 Avenue of Americas, 30 ^th Floor
New York, NY 10018

(Address of principal executive offices) (Zip Code)

(646) 564-2577

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of August 11, 2014, the registrant had 25,777,874 shares of common stock, par value $.001 per share, outstanding.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

		Page

	PART I FINANCIAL INFORMATION

Item 1.	Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	33

Item 6.	Exhibits	34

Forward-Looking Statements

In addition to historical information, this quarterly report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements may appear throughout this Quarterly Report, including without limitation, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. We use words such as “believe,” “intend,” “expect,” “anticipate,” “plan,” “may,” “will,” “should,” “estimate,” “potential,” “project” and similar expressions to identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to the risks identified in our Annual Report on the Form 10-K for the year ended December 31, 2013.

Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond our ability to control or predict. Our forward-looking statements speak only as of the date of this Quarterly Report. Other than as required by law, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

Where You Can Find Other Information

Our website is www.sequentialbrandsgroup.com . Information contained on our website is not part of this Quarterly Report. Information that we furnish or file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. Our SEC filings, including exhibits filed therewith, are also available at the SEC’s website at www.sec.gov . You may obtain and copy any document we furnish or file with the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	June 30,			December 31,
	2014			2013
	(Unaudited)			(Note 2)
Assets
Current Assets:
Cash	$	15,775		$	25,125
Accounts receivable, net		7,450			5,286
Prepaid expenses and other current assets		1,172			1,645
Current assets held for disposition from discontinued operations of wholesale business		194			213
Total current assets		24,591			32,269

Property and equipment, net		1,697			986
Intangible assets, net		115,693			115,728
Goodwill		1,225			1,225
Other assets		3,233			3,397
Total assets	$	146,439		$	153,605

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses	$	4,410		$	4,963
Deferred license revenue		961			1,348
Long-term debt, current portion		8,000			8,000
Current liabilities held for disposition from discontinued operations of wholesale business		404			1,105
Total current liabilities		13,775			15,416

Long-Term Liabilities:
Long-term debt		46,064			49,931
Deferred tax liability		4,586			4,339
Other long-term liabilities		1,541			1,866
Long-term liabilities held for disposition from discontinued operations of wholesale business		745			884
Total long-term liabilities		52,936			57,020
Total liabilities		66,711			72,436

Commitments and Contingencies

Stockholders' Equity:
Preferred stock Series A, $0.001 par value, 19,400 shares authorized; none issued and outstanding at June 30, 2014 and December 31, 2013		0			0

Common stock, $0.001 par value, 150,000,000 shares authorized; 26,154,865 and 25,284,737 shares issued at June 30, 2014 and December 31, 2013, respectively, and 25,766,874 and 25,057,988 shares outstanding at June 30, 2014 and December 31, 2013, respectively		26			25

Additional paid-in capital		112,726			114,411
Accumulated other comprehensive loss		(89	)		0
Accumulated deficit		(34,755	)		(34,890	)
Treasury stock, at cost; 122,229 shares at June 30, 2014 and December 31, 2013		(690	)		(690	)
Total Sequential Brands Group, Inc. and Subsidiaries stockholders’ equity		77,218			78,856
Noncontrolling interest		2,510			2,313
Total equity		79,728			81,169
Total liabilities and stockholders’ equity	$	146,439		$	153,605

See Notes to Condensed Consolidated Financial Statements.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
		2014			2013			2014			2013

Net revenue	$	7,003		$	4,347		$	13,265		$	5,976
Operating expenses		6,436			2,294			10,186			7,659
Income (loss) from operations		567			2,053			3,079			(1,683	)
Other income		0			106			2			106
Interest expense		1,231			1,336			2,501			12,953
(Loss) income before income taxes		(664	)		823			580			(14,530	)
(Benefit) provision for income taxes		(149	)		0			248			2,264
(Loss) income from continuing operations		(515	)		823			332			(16,794	)
Loss from discontinued operations:
Loss from discontinued operations of wholesale business, net of tax		0			(102	)		0			(3,966	)
Loss from discontinued operations, net of tax		0			(102	)		0			(3,966	)
Consolidated net (loss) income		(515	)		721			332			(20,760	)
Net income attributable to noncontrolling interest		(92	)		(28	)		(197	)		(54	)
Net (loss) income attributable to Sequential Brands Group, Inc. and Subsidiaries	$	(607	)	$	693		$	135		$	(20,814	)

Basic (loss) earnings per share:
Continuing operations	$	(0.02	)	$	0.05		$	0.01		$	(1.43	)
Discontinued operations		-			(0.01	)		-			(0.33	)
Attributable to Sequential Brands Group, Inc. and Subsidiaries	$	(0.02	)	$	0.04		$	0.01		$	(1.76	)

Basic weighted average common shares outstanding		25,119,788			16,317,171			24,911,564			11,817,828

Diluted (loss) earnings per share:
Continuing operations	$	(0.02	)	$	0.05		$	0.01		$	(1.43	)
Discontinued operations		-			(0.01	)		-			(0.33	)
Attributable to Sequential Brands Group, Inc. and Subsidiaries	$	(0.02	)	$	0.04		$	0.01		$	(1.76	)

Diluted weighted average common shares outstanding		25,119,788			17,624,757			26,629,832			11,817,828

See Notes to Condensed Consolidated Financial Statements.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013

Consolidated net (loss) income	$	(515	)	$	721		$	332		$	(20,760	)
Other comprehensive loss, net of tax:
Unrealized loss on interest rate hedging transactions		(20	)		0			(89	)		0
Other comprehensive loss, net of tax		(20	)		0			(89	)		0
Comprehensive (loss) income		(535	)		721			243			(20,760	)

Comprehensive income attributable to noncontrolling interests		(92	)		(28	)		(197	)		(54	)
Comprehensive (loss) income attributable to Sequential Brands Group, Inc. and Subsidiaries	$	(627	)	$	693		$	46		$	(20,814	)

See Notes to Condensed Consolidated Financial Statements.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

																							Total Sequential
																							Brands Group,
												Accumulated											Inc. and
									Additional Paid-			Other											Subsidiaries
	Common Stock				Preferred Stock				in			Comprehensive			Accumulated			Treasury Stock					Stockholders'			Noncontrolling		Total
	Shares		Amount		Shares		Amount		Capital			Loss			Deficit			Shares		Amount			Equity			Interest		Equity
Balance at January 1, 2014		25,057,988	$	25		-	$	0	$	114,411		$	0		$	(34,890	)		122,229	$	(690	)	$	78,856		$	2,313	$	81,169
Issuance of common stock in connection with stock option exercises		65,667		0		-		0		301			0			0			-		0		$	301			0		301
Issuance of common stock in connection with acquisition of Rast Sourcing and Rast Licensing		581,341		1		-		0		(3,110	)		0			0			-		0		$	(3,109	)		0		(3,109	)
Stock-based compensation		61,878		0		-		0		1,124			0			0			-		0		$	1,124			0		1,124
Unrealized loss on interest rate hedging transactions		-		0		-		0		0			(89	)		0			-		0		$	(89	)		0		(89	)
Net income attributable to noncontrolling interest		-		0		-		0		0			0			0			-		0		$	0			197		197
Net income attributable to common stockholders		-		0		-		0		0			0			135			-		0		$	135			0		135
Balance at June 30, 2014		25,766,874	$	26		-	$	0	$	112,726		$	(89	)	$	(34,755	)		122,229	$	(690	)	$	77,218		$	2,510	$	79,728

See Notes to Condensed Consolidated Financial Statements.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income (loss)	$	332		$	(20,760	)
Adjustments to reconcile consolidated net income (loss) to net cash used in operating activities:
Loss from discontinued operations		0			3,966
Provision for bad debts		0			250
Depreciation and amortization		430			222
Stock-based compensation		1,124			364
Amortization of valuation discount and deferred financing costs		335			11,778
Fair value of warrants issued for services rendered		0			90
Gain on bargain purchase of business		0			(227	)
Deferred income taxes		247			2,239
Changes in operating assets and liabilities:
Receivables		(2,165	)		(914	)
Prepaid expenses and other assets		473			(233	)
Accounts payable and accrued expenses		(553	)		(572	)
Deferred license revenue		(388	)		612
Other liabilities		(414	)		307
CASH USED IN OPERATING ACTIVITIES FROM CONTINUING OPERATIONS		(579	)		(2,878	)
CASH USED IN OPERATING ACTIVITIES FROM DISCONTINUED OPERATIONS		(818	)		(1,417	)
CASH USED IN OPERATING ACTIVITIES		(1,397	)		(4,295	)

CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisitions, net of cash acquired		(3,110	)		(67,221	)
Acquisition of intangible assets		(296	)		0
Acquisition of property and equipment		(810	)		(81	)
CASH USED IN INVESTING ACTIVITIES		(4,216	)		(67,302	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		0			65,000
Proceeds from the sale of common stock		0			22,350
Proceeds from options exercised		301			43
Repayment of note payable		(4,000	)		(2,000	)
Deferred financing costs		(38	)		(1,926	)
Offering costs		0			(1,138	)
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(3,737	)		82,329

NET (DECREASE) INCREASE IN CASH		(9,350	)		10,732
CASH — Beginning of period		25,125			2,624
CASH — End of period	$	15,775		$	13,356

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest	$	2,121		$	1,208
Taxes	$	169		$	0

NON-CASH INVESTING AND FINANCING ACTIVITES:
Conversion of senior secured convertible debentures to common stock	$	0		$	14,500
Common stock issued in connection with acquisition	$	4,950		$	19,835
Fair value of warrants issued in connection with acquisition	$	0		$	393
Fair value of warrants issued in financing transaction	$	0		$	1,269
Cashless exercise of warrants	$	0		$	1

See Notes to Condensed Consolidated Financial Statements.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

Organization and Nature of Operations

Overview

Sequential Brands Group, Inc. (the “Company”), through its wholly-owned and majority-owned subsidiaries, owns a portfolio of consumer brands, including Ellen Tracy , William Rast , Revo, Caribbean Joe , Heelys , DVS , The Franklin Mint and People’s Liberation . The Company promotes, markets, and licenses these brands and intends to pursue acquisitions of additional brands or rights to brands. The Company has licensed and intends to license its brands in a variety of categories to retailers, wholesalers and distributors in the United States and in certain international territories. In its licensing arrangements, the Company’s licensing partners are responsible for designing, manufacturing and distributing the Company’s licensed products. The Company currently has more than fifty licensees, almost all of which are wholesale licensees. In a wholesale license, a wholesale supplier is granted rights (typically on an exclusive basis) to a single or small group of related product categories for sale to multiple accounts within an approved channel of distribution and territory. Also, as part of the Company’s business strategy, the Company has previously entered into (and expects in the future to enter into) direct-to-retail licenses. In a direct-to-retail license, a single retailer is granted the right (typically on an exclusive basis) to sell branded products in a broad range of product categories through its brick and mortar stores and e-commerce sites.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is the Company’s opinion, however, that the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on March 31, 2014, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the years ended December 31, 2013 and 2012. The financial information as of December 31, 2013 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The interim results for the three and six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any future interim periods.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

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

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

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

Discontinued Operations

The Company accounted for the decisions to close down its wholesale operations as discontinued operations in accordance with the guidance provided in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, Accounting for Impairment or Disposal of Long-Lived Assets , which requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items in the statements of operations. Assets and liabilities are also reclassified into separate line items on the related balance sheets for the periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of discontinued operations as separate line items.

Reportable Segment

An operating segment, in part, is a component of an enterprise whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. Operating segments may be aggregated only to a limited extent. Our chief operating decision maker, the Chief Executive Officer, reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues for purposes of making operating decisions and assessing financial performance. Accordingly, we only have a single operating and reportable segment. In addition, we have no foreign operations or any assets in foreign locations. All of our domestic operations consist of a single revenue stream which is the licensing of our trademark portfolio.

Revenue Recognition

The Company has entered into various trade name license agreements that provide revenues based on minimum royalties and advertising/marketing fees and additional revenues based on a percentage of defined sales. Minimum royalty and advertising/marketing revenue is recognized on a straight-line basis over the term of each contract year, as defined, in each license agreement. Royalties exceeding the defined minimum amounts are recognized as income during the period corresponding to the licensee's sales. Payments received as consideration of the grant of a license or advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized ratably as revenue over the term of the license agreement. Revenue is not recognized unless collectability is reasonably assured.

If licensing arrangements are terminated prior to the original licensing period, the Company will recognize revenue for any contractual termination fees, unless such amounts are deemed non-recoverable.

Accounts Receivable

Accounts receivable are recorded net of allowances for doubtful accounts, based on the Company’s ongoing discussions with its licensees, and its evaluation of each licensee’s credit worthiness, payment history and account aging. Account balances deemed to be uncollectible are charged to the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was $106 at June 30, 2014 and $135 at December 31, 2013.

The Company’s accounts receivable amounted to approximately $7,450 and $5,286 as of June 30, 2014 and December 31, 2013, respectively. Three licensees accounted for approximately 74% (28%, 26%, and 20%) of the Company’s total consolidated accounts receivable balance as of June 30, 2014 and three licensees accounted for approximately 60% (35%, 14% and 11%) of the Company’s total consolidated accounts receivable balance as of December 31, 2013. The Company does not believe the accounts receivable balance from these licensees represents a significant collection risk based on past collection experience.

Income Taxes

Current income taxes are based on the respective periods’ taxable income for federal and state income tax reporting purposes. Deferred tax liabilities and assets are determined based on the difference between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is required if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

The Company applies the FASB guidance on accounting for uncertainty in income taxes. The guidance clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with other authoritative GAAP, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also addresses derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. At June 30, 2014 and December 31, 2013, the Company had $643 of certain unrecognized tax benefits, included as a component of long-term liabilities held for disposition from discontinued operations of wholesale business and does not expect a material change in the next twelve months. Interest and penalties related to uncertain tax positions, if any, are recorded in income tax expense. Tax years that remain open for assessment for federal and state tax purposes include the years ended December 31, 2010 through 2013.

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period, including stock options and warrants, using the treasury stock method, and convertible debt, using the if-converted method. Diluted EPS excludes all potentially dilutive shares of common stock if their effect is anti-dilutive. The shares used to calculate basic and diluted earnings (loss) per common share consists of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013

Basic weighted average common shares outstanding		25,119,788		16,317,171		24,911,564		11,817,828
Warrants		0		749,782		1,379,387		0
Unvested restricted stock		0		367,579		184,451		0
Stock options		0		190,225		154,430		0
Diluted weighted average common shares outstanding		25,119,788		17,624,757		26,629,832		11,817,828

The computation of basic and diluted EPS for the three and six months ended June 30, 2014 and 2013 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Warrants		1,744,921		125,000		125,000		1,602,922
Unvested restricted stock		626,089		0		0		380,525
Stock options		385,499		8,333		46,333		342,000
		2,756,509		133,333		171,333		2,325,447

Concentration of Credit Risk

Financial instruments which potentially expose the Company to credit risk consist primarily of cash and accounts receivable. Cash is held for use for working capital needs and/or future acquisitions. Substantially all of the Company’s cash is deposited with high quality financial institutions. At times, however, such cash may be in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit. The Company has not experienced any losses in such accounts as of June 30, 2014.

Concentration of credit risk with respect to accounts receivable is minimal due to the limited amount of outstanding receivables and the nature of the Company’s royalty revenues.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

Customer Concentrations

The Company recorded net revenues of $7,003 and $4,347 during the three months ended June 30, 2014 and 2013, respectively. During the three months ended June 30, 2014, two licensees represented at least 10% of net revenue, accounting for 18% and 16% of the Company’s net revenue. During the three months ended June 30, 2013, two licensees accounted for 24% and 12% of the Company’s net revenue.

The Company recorded net revenues of $13,265 and $5,976 during the six months ended June 30, 2014 and 2013, respectively. During the six months ended June 30, 2014, two licensees represented at least 10% of net revenue, accounting for 19% and 16% of the Company’s net revenue. During the six months ended June 30, 2013, one licensee accounted for 32% of the Company’s net revenue.

Loss Contingencies

We recognize contingent losses that are both probable and estimable. In this context, we define probability as circumstances under which events are likely to occur. The Company records such legal costs as incurred.

Noncontrolling Interest

Noncontrolling interest from continuing operations recorded for the three and six months ended June 30, 2014 and 2013 represents income allocations to Elan Polo International, Inc., a member of DVS Footwear International, LLC (“DVS LLC”).

Fair Value Measurement of Financial Instruments

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), defines fair value, establishes a framework for measuring fair value in GAAP and provides for expanded disclosure about fair value measurements. ASC 820-10 applies to all other accounting pronouncements that require or permit fair value measurements.

The Company determines or calculates the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments while estimating for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads and estimates of future cash flow.

Assets and liabilities typically recorded at fair value on a non-recurring basis to which ASC 820-10 applies include:

	•	Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination, and
	•	Long-lived assets measured at fair value due to an impairment assessment under ASC 360-15, Impairment or Disposal of Long-Lived Assets .

This topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820-10 requires that assets and liabilities recorded at fair value be classified and disclosed in one of the following three categories:

	•	Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
	•	Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
	•	Level 3 inputs are unobservable and are typically based on the Company’s own assumptions, including situations where there is little, if any, market activity. Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 classification. As a result, the unrealized gains and losses for assets within the Level 3 classification may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company classifies such financial assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

As of June 30, 2014 and December 31, 2013, there are no assets or liabilities that are required to be measured at fair value on a recurring basis, except for the Company’s interest rate swap (see Note 8). The following table sets forth the carrying value and the fair value of the Company’s financial assets and liabilities required to be disclosed at June 30, 2014 and December 31, 2013:

			Carrying Value				Fair Value
Financial Instrument	Level		6/30/2014		12/31/2013		6/30/2014		12/31/2013
Cash		1	$	15,775	$	25,125	$	15,775	$	25,125
Accounts receivable		2	$	7,450	$	5,286	$	7,450	$	5,286
Accounts payable		2	$	1,586	$	1,597	$	1,586	$	1,597
Term loans		3	$	54,064	$	57,931	$	50,479	$	53,640
Interest rate swap		2	$	89	$	0	$	89	$	0

The carrying amounts of the Company’s cash, accounts receivable and accounts payable approximate fair value due to their short-term maturities.

The Company records its interest rate swap on the condensed consolidated balance sheet at fair value (Level 2). As of June 30, 2014, the fair value of the Company’s interest rate swap is immaterial. The valuation technique used to determine the fair value of the interest rate swap approximates the net present value of future cash flows which is the estimated amount that a bank would receive or pay to terminate the swap agreement at the reporting date, taking into account current interest rates.

For purposes of this fair value disclosure, the Company based its fair value estimate for the Term Loans (as defined below) on its internal valuation whereby the Company applied the discounted cash flow method to its expected cash flow payments due under the Loan Agreements (as defined below) based on market interest rate quotes as of June 30, 2014 and December 31, 2013 for debt with similar risk characteristics and maturities.

Discontinued Operations of Wholesale Business

Discontinued operations as of the three and six months ended June 30, 2014 and 2013 mainly represent the wind down costs related to the Heelys, Inc. (“Heelys”) legacy operating business, as a result of the Company’s decision to discontinue its wholesale business related to the Heelys brand. For the three and six months ended June 30, 2013, costs attributable to the Heelys legacy operations mainly represent severance expense, lease termination costs and professional and other fees. The Company did not record any costs during the three and six months ended June 30, 2014.

A summary of the Company’s results of discontinued operations of its wholesale business for the three and six months ended June 30, 2014 and 2013 and the Company’s assets and liabilities from discontinued operations of its wholesale business as of June 30, 2014 and December 31, 2013 is as follows:

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

Results of discontinued operations:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014		2013			2014		2013

Net revenue	$	0	$	0		$	0	$	0

Net loss	$	0	$	(102	)	$	0	$	(3,966	)
Noncontrolling interest		0		0			0		0
Loss from discontinued operations of wholesale business, net
of tax	$	0	$	(102	)	$	0	$	(3,966	)

Loss per share from discontinued operations, basic	$	-	$	(0.01	)	$	-	$	(0.33	)
Loss per share from discontinued operations, diluted	$	-	$	(0.01	)	$	-	$	(0.33	)

Weighted average shares outstanding, basic		25,119,788		16,317,171			24,911,564		11,817,828
Weighted average shares outstanding, diluted		25,119,788		17,624,757			26,629,832		11,817,828

Assets and liabilities of discontinued operations:

	June 30,		December 31,
	2014		2013
Prepaid expenses and other current assets	$	194	$	213
Accounts payable and accrued expenses	$	404	$	1,105
Long-term liabilities	$	745	$	884

Goodwill

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (December 31 for the Company) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company considers its market capitalization and the carrying value of its assets and liabilities, including goodwill, when performing its goodwill impairment test. When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, the Company then applies a two-step impairment test. The two-step impairment test first compares the fair value of the Company's reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the reporting unit exceeds its fair value, the Company determines the implied fair value of the reporting unit's goodwill and if the carrying value of the reporting unit's goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded in the consolidated statements of operations. No events or circumstances indicate an impairment has been identified subsequent to the Company’s December 31, 2013 impairment testing.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

Intangible Assets

Intangible assets are summarized as follows:

	Useful		Gross
	Lives		Carrying		Accumulated			Net Carrying
June 30, 2014	(Years)		Amount		Amortization			Amount
Finite lived intangible assets:
Trademarks		15	$	4,762	$	(743	)	$	4,019
Customer agreements		4		1,120		(332	)		788
Patents		10		665		(64	)		601
			$	6,547	$	(1,139	)		5,408
Indefinite lived intangible assets:
Trademarks									110,285

Intangible assets, net								$	115,693

Future annual estimated amortization expense is summarized as follows:

Years ending December 31,
2014 (six months)	$	334
2015		664
2016		664
2017		472
2018		384
Thereafter		2,890
	$	5,408

Amortization expense amounted to $166 and $142 for the three months ended June 30, 2014 and 2013, respectively. Amortization expense amounted to $331 and $217 for the six months ended June 30, 2014 and 2013, respectively.

Intangible assets represent trademarks, customer agreements and patents related to the Company’s brands. Finite lived assets are amortized on a straight-line basis over the estimated useful lives of the assets. Indefinite lived intangible assets are not amortized, but instead are subject to impairment evaluation. The carrying value of intangible assets and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite lived intangible assets are tested for impairment on an annual basis (December 31 for the Company) and between annual tests if an event occurs or circumstances change that indicate that the carrying amount of the indefinite lived intangible asset may not be recoverable. When conducting its annual indefinite lived intangible asset impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that the asset is impaired. If it is determined by a qualitative evaluation that it is more likely than not that the asset is impaired, the Company then tests the asset for recoverability. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No events or circumstances indicate an impairment has been identified subsequent to the Company’s December 31, 2013 impairment testing.

Acquisition of Remaining Ownership Interest in William Rast Sourcing, LLC and William Rast Licensing, LLC

On May 5, 2014, the Company entered into a merger agreement (the “Tennman Merger Agreement), by and among the Company and Tennman WR-T, Inc. (“Tennman WR-T”), a Delaware corporation, pursuant to which the Company acquired the remaining 18% interest in William Rast Sourcing, LLC (“Rast Sourcing”) and William Rast Licensing, LLC (“Rast Licensing”) for an aggregate purchase price consisting of (i) $3,050 of cash and (ii) 581,341 shares of the Company’s common stock, valued at $4,950 based on the weighted average closing stock price for the ten days prior to closing. Shares of the Company’s common stock issued as part of the consideration pursuant to the Tennman Merger Agreement were issued in a private placement transaction conducted pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

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

As part of the Tennman Merger Agreement, the Company will pay royalties to Tennman Brands, LLC based on certain performance thresholds.

The Company incurred legal costs related to the transaction of approximately $60. The aggregate purchase price, inclusive of the legal costs, was recognized in common stock and additional paid-in capital in the accompanying condensed consolidated balance sheet as of June 30, 2014.

Long-Term Debt

The components of long-term debt are as follows:

	June 30,			December 31,
	2014			2013
Term Loans	$	55,000		$	59,000
Unamortized discounts		(936	)		(1,069	)
Total long-term debt, net of unamortized discounts		54,064			57,931
Less: current portion of long-term debt		8,000			8,000
Long-term debt	$	46,064		$	49,931

Term Loans

In connection with the Company’s acquisition from ETPH Acquisition, LLC (“ETPH”) of all of the outstanding equity interest of B®and Matter, LLC (“Brand Matter”) (the “Ellen Tracy and Caribbean Joe Acquisition”), on March 28, 2013, the Company entered into a (i) first lien loan agreement (the “First Lien Loan Agreement”), which provides for term loans of up to $45,000 (the “First Lien Term Loan”) and (ii) a second lien loan agreement (the “Second Lien Loan Agreement” and, together with the First Lien Loan Agreement, the “Loan Agreements”), which provide for term loans of up to $20,000 (the “Second Lien Term Loan” and, together with the First Lien Term Loan, the “Term Loans”). The proceeds from the Term Loans were used to fund the Ellen Tracy and Caribbean Joe Acquisition, repay existing debt, pay fees and expenses in connection with the foregoing, finance capital expenditures and for general corporate purposes. The Term Loans are secured by substantially all of the assets of the Company and are further guaranteed and secured by each of the domestic subsidiaries of the Company, other than DVS LLC, SBG Revo Holdings, LLC and SBG FM, LLC, subject to certain exceptions set forth in the Loan Agreements. In connection with the Second Lien Loan Agreement, the Company issued 5-year warrants to purchase up to an aggregate of 285,160 shares of the Company’s common stock at an exercise price of $4.50 per share. In December 2013, the Company obtained the written consent of each of the lenders to the Loan Agreements and in connection therewith, SBG Revo Holdings, LLC agreed to become a Loan Party (as defined in the Loan Agreements) under each of the Loan Agreements, which transaction became effective February 2014.

The Term Loans were drawn in full on March 28, 2013. The Loan Agreements terminate, and all loans then outstanding under each Loan Agreement, must be repaid on March 28, 2018. The Company is required to make quarterly scheduled amortization payments of the Term Loans prior to the maturity of the Loan Agreements in an amount equal to (x) in the case of the First Lien Loan Agreement, $1,500 and (y) in the case of the Second Lien Loan Agreement, $500. The First Lien Term Loan bears interest, at the Company’s option, at either (a) 4.00% per annum plus the adjusted London Interbank Offered Rate (“LIBOR”) or (b) 3.00% per annum plus the Base Rate, as defined in the applicable Loan Agreement (4.25% at June 30, 2014). The Second Lien Term Loan bears interest at 12.75% per annum plus adjusted LIBOR (12.98% at June 30, 2014).

The fair value of the warrants was determined to be approximately $1,269 using the Black-Scholes option-pricing model. The fair value of the warrants was recorded as a discount to the Term Loans and a corresponding increase to additional paid-in capital. This amount is being accreted to non-cash interest expense over the contractual term of the Term Loans, which is five years. The assumptions utilized to value the warrants under the Black-Scholes option-pricing model included a dividend yield of zero, a risk-free interest rate of 0.77%, expected term of five years and an expected volatility of 64%.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

During the three months ended June 30, 2014 and 2013, accretion of the discount amounted to $66 and $67, respectively, which was recorded as a component of interest expense in the accompanying unaudited condensed consolidated statements of operations. Contractual interest expense on the Term Loans amounted to $1,063 and $1,172 for the three months ended June 30, 2014 and 2013, respectively, which was recorded as a component of interest expense in the accompanying unaudited condensed consolidated statements of operations.

During the six months ended June 30, 2014 and 2013, accretion of the discount amounted to $132 and $67 which was recorded as a component of interest expense in the accompanying unaudited condensed consolidated statements of operations. Contractual interest expense on the Term Loans amounted to $2,166 and $1,172 for the six months ended June 30, 2014 and 2013, respectively, which was recorded as a component of interest expense in the accompanying unaudited condensed consolidated statements of operations.

During 2013, the Company incurred legal and other fees associated with the closing of the Term Loans of approximately $1,929. These amounts have been recorded as deferred financing costs and included in other assets in the accompanying condensed consolidated balance sheets, and are being amortized as non-cash interest expense over the contractual term of the Term Loans. During the three months ended June 30, 2014 and 2013, amortization of these fees amounted to $102 and $97, respectively, which was recorded as a component of interest expense in the accompanying unaudited condensed consolidated statements of operations. During the six months ended June 30, 2014 and 2013, amortization of these fees amounted to $203 and $97, respectively, which was recorded as a component of interest expense in the accompanying unaudited condensed consolidated statements of operations.

The Loan Agreements include customary representations and warranties and include representations relating to the intellectual property owned by the Company and its subsidiaries and the status of the Company’s material license agreements. In addition, the Loan Agreements include covenants and events of default including requirements that the Company satisfy a minimum positive net income test, maintain a minimum loan to value ratio (as calculated pursuant to the First Lien Loan Agreement or the Second Lien Loan Agreement, as applicable) and, in the case of the Second Lien Loan Agreement, maintain a minimum cash balance of $3,525 through December 31, 2013 and $3,000 after January 1, 2014 in accounts subject to control agreements, as well as limitations on liens on the assets of the Company and its subsidiaries, indebtedness, consummation of acquisitions (subject to certain exceptions and consent rights as set forth in the Loan Agreements) and fundamental changes (including mergers and consolidations of the Company and its subsidiaries), dispositions of assets of the Company and its subsidiaries, investments, loans, advances and guarantees by the Company and its subsidiaries, and restrictions on issuing dividends and other restricted payments, prepayments and amendments of certain indebtedness and material licenses, affiliate transactions and issuance of equity interests. The Company is in compliance with its covenants as of June 30, 2014.

Interest Rate Swap

The Company currently has exposure to variability in cash flows due to the impact of changes in interest rates for the Company’s Term Loans. During 2014, the Company entered into an interest rate swap agreement related to $55,000 notional value of the Term Loans (the “Swap Agreement”).

The objective of the interest rate swap agreement is to eliminate the variability in cash flows for the interest payments associated with the Term Loans, which vary by a variable-rate: 1-month LIBOR. The Company has formally documented the Swap Agreement as a cash flow hedge of the Company’s exposure to 1-month LIBOR. Because the critical terms of the Swap Agreement and the hedged item coincide (notional amount, interest rate reset dates, interest rate payment dates, maturity/expiration date, and underlying index), the hedge is expected to completely offset changes in expected cash flows due to fluctuations in the 1-month LIBOR rate over the term of the hedge. The effectiveness of the hedge relationship will be periodically assessed during the life of the hedge by comparing the current terms of the Swap Agreement and the debt to assure they continue to coincide and through an evaluation of the continued ability of the counterparty to the Swap Agreement to honor its obligations under the Swap Agreement. Should the critical terms no longer match exactly, hedge effectiveness (both prospective and retrospective) will be assessed by evaluating the cumulative dollar offset for the actual hedging instrument relative to a hypothetical derivative whose terms exactly match the terms of the hedged item.

The components of the Company’s Swap Agreement as of June 30, 2014, are as follows:

	Notional
	Value		Derivative Asset		Derivative Liability

Term Loan	$	55,000	$	0	$	(89	)

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

Variable Rate Senior Secured Convertible Debentures

On February 2, 2012, the Company entered into a securities purchase agreement (the “Tengram Securities Purchase Agreement”) with TCP WR Acquisition, LLC (“TCP WR”), pursuant to which the Company issued variable rate senior secured convertible debentures due January 31, 2015 (the “Debentures”) in the amount of $14,500, warrants to purchase up to 1,104,762 shares of common stock (the “TCP Warrants”) and 14,500 shares of Series A Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”). The Debentures had a three year term, with all principal and interest being due and payable at the maturity date of January 31, 2015, and had an interest rate of LIBOR.

The Debentures were convertible at the option of TCP WR into 5,523,810 shares of the Company’s common stock at an initial conversion price of $2.63 per share, as adjusted for the reverse stock split (“Conversion Price”). The TCP Warrants, which had a fair value of $4,215, are exercisable for five years at an exercise price of $2.63 per share, as adjusted for the reverse stock split. The fair value of the TCP Warrants was recorded as a discount to the Debentures and was being accreted to interest expense over the contractual term of the Debentures. Additionally, the Debentures were deemed to have a beneficial conversion feature at the time of issuance. Accordingly, the beneficial conversion feature, which had a value of $7,347, was recorded as a discount to the Debentures and was being accreted to interest expense over the contractual term of the Debentures.

Legal and other fees associated with the transaction of $844 were recorded as deferred financing costs and were being amortized to interest expense over the contractual term of the Debentures.

On March 28, 2013, in connection with the Ellen Tracy and Caribbean Joe Acquisition, TCP WR elected to convert the aggregate principal amount outstanding under the Debentures into shares of the Company’s common stock at the Conversion Price (the “TCP Conversion”). At the time of the TCP Conversion, the aggregate principal amount outstanding under the Debentures was $14,500, plus accrued and unpaid interest. The Company issued 5,523,810 shares of its common stock in the TCP Conversion. In connection with the TCP Conversion, the Company also redeemed all of the 14,500 issued and outstanding shares of Series A Preferred Stock held by TCP WR for a nominal fee of $14.50 (unrounded) pursuant to the Designation of Rights, Preferences and Limitations for the Series A Preferred Stock. As a result of the TCP Conversion, the remaining unamortized discount of $11,028 recorded in connection with the beneficial conversion feature and the TCP Warrants issued with the Debentures to TCP WR, as well as the remaining unamortized balance of deferred financing costs of $586, were recognized as non-cash interest expense.

Termination of Material Agreements

The proceeds received from the Term Loans were used in part to repay the following indebtedness of the Company and its subsidiaries: (a) all indebtedness owed by Rast Sourcing under its factoring facility with Rosenthal & Rosenthal; (b) all indebtedness owed by Rast Licensing to Mobility Specialty Situations I, LLC pursuant to a promissory note in the aggregate principal amount of $750; and (c) all indebtedness owed by Rast Licensing to Monto Holdings (Pty) Ltd. pursuant to a promissory note in the aggregate principal amount of $1,000. In connection with the repayments, all security agreements, assignment agreements, and guarantee agreements were terminated.

Commitments and Contingencies

General Legal Matters

From time to time, the Company is involved in legal matters arising in the ordinary course of business. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations. Contingent liabilities arising from potential litigation are assessed by management based on the individual analysis of these proceedings and on the opinion of the Company’s lawyers and legal consultants.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

10.

Stock-based Compensation

Stock Options

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2014:

							Weighted
							Average
				Weighted			Remaining
	Number of			Average Exercise			Contractual Life		Aggregate
	Options			Price			(in Years)		Intrinsic Value
Outstanding - January 1, 2014		423,667		$	4.45			2.7	$	812
Granted		27,500			9.18
Exercised		(65,667	)		(4.63	)
Forfeited or Canceled		-			-
Outstanding - June 30, 2014		385,500		$	4.76			2.3	$	3,596

Exercisable - June 30, 2014		353,000		$	4.40			2.1	$	3,428

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

				Weighted
	Number of			Average Grant
	Options			Date Fair Value
Unvested - January 1, 2014		62,000		$	3.21
Granted		27,500			9.18
Vested		(57,000	)		(1.06	)
Forfeited or Canceled		-			-
Unvested - June 30, 2014		32,500		$	2.44

During the three months ended June 30, 2014, the Company granted 10,000 stock options to an employee for future services. The options are exercisable at an exercise price of $13.68 per share over a five-year term and vest over two years. These options had a fair value of $38 using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate	0.92	%
Expected dividend yield	0.00	%
Expected volatility	37.52	%
Expected life	3.25 years

The Company did not record compensation expense during the three months ended June 30, 2014 pertaining to this grant as the options were granted on June 25, 2014.

During the three months ended March 31, 2014, the Company granted 17,500 stock options to employees for future services. The options are exercisable at an exercise price of $5.75 (2,500 options) and $6.75 (15,000 options) per share over a five-year term and vest over one to three years. These options had a fair value of $33 using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate	1.15	%
Expected dividend yield	0.00	%
Expected volatility	37.67	%
Expected life	3.5 years

The Company recorded $4 and $5 during the three and six months ended June 30, 2014, respectively, as compensation expense pertaining to these grants.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

During the three and six months ended June 30, 2013, the Company granted 20,000 stock options to a consultant for future services. The options are exercisable at an exercise price of $6.00 per share over a ten-year term and vest over one year. These options had a fair value of $80 using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate	2.02	%
Expected dividend yield	0.00	%
Expected volatility	56.72	%
Expected life	5.5 years

The Company recorded $7 during the three and six months ended June 30, 2013 as compensation expense pertaining to this grant.

Total compensation expense related to stock options for the three months ended June 30, 2014 and 2013 was approximately $16 and $7, respectively. Total compensation expense related to stock options for the six months ended June 30, 2014 and 2013 was approximately $36 and $10, respectively. Total unrecognized compensation expense related to unvested stock option awards at June 30, 2014 amounted to $70 and is expected to be recognized over a weighted average period of approximately two years.

Warrants

A summary of warrant activity for the six months ended June 30, 2014 is as follows:

					Weighted
					Average
			Weighted		Remaining
	Number of		Average Exercise		Contractual Life		Aggregate
	Warrants		Price		(in Years)		Intrinsic Value
Outstanding - January 1, 2014		1,744,922	$	3.88		3.5	$	3,323
Granted		-		-
Exercised		-		-
Forfeited or Canceled		-		-
Outstanding - June 30, 2014		1,744,922	$	3.88		3.0	$	17,332

Exercisable - June 30, 2014		1,704,922	$	3.83		3.0	$	17,010

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

			Weighted
	Number of		Average Grant
	Warrants		Date Fair Value
Unvested - January 1, 2014		40,000	$	3.00
Granted		-		-
Vested		-		-
Forfeited or Canceled		-		-
Unvested - June 30, 2014		40,000	$	3.00

During the three months ended March 31, 2013, in connection with the Heelys acquisition, the Company issued five-year warrants to purchase up to an aggregate of 28,000 shares of the Company’s common stock at an exercise price of $6.01 per share.

During the three months ended March 31, 2013, in connection with the Second Lien Loan Agreement, the Company issued five-year warrants to purchase up to an aggregate of 285,160 shares of the Company’s common stock at an exercise price of $4.50 per share.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

During the three months ended March 31, 2013, in connection with the Ellen Tracy and Caribbean Joe Acquisition, the Company issued five-year warrants to purchase up to an aggregate of 125,000 shares of the Company’s common stock at an exercise price of $10.00 per share.

Total compensation expense related to warrants for the three and six months ended June 30, 2014 was approximately $8 and $16, respectively. The Company did not record any compensation expense related to warrants for the three and six months ended June 30, 2013.

Restricted Stock

During the three months ended June 30, 2014, the Company issued 23,120 shares of restricted stock to members of the Company’s board of directors. Total compensation related to the restricted stock grants amounted to approximately $200, of which $33 was recorded in operating expenses in the Company’s unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2014, respectively.

During the three months ended March 31, 2014, the Company issued 200,000 shares of restricted stock to a consultant and employee for future services. Total compensation related to the restricted stock grants amounted to approximately $1,120, of which $191 and $279 was recorded in operating expenses in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2014.

A summary of the restricted stock activity for the six months ended June 30, 2014 is as follows:

						Weighted
						Average
				Weighted		Remaining
	Number of			Average Grant		Contractual Life		Aggregate
	Shares			Date Fair Value		(in Years)		Intrinsic Value
Unvested - January 1, 2014		464,847		$	5.71		2.9	$	20
Granted		223,120			5.92
Vested		(61,878	)		6.03
Forfeited		-			-
Unvested - June 30, 2014		626,089		$	5.75		2.1	$	5,044

Total compensation expense related to the restricted stock grants for the three months ended June 30, 2014 and 2013 was approximately $636 and $186, respectively. Total compensation expense related to the restricted stock grants for the six months ended June 30, 2014 and 2013 was approximately $1,072 and $354, respectively.

11.

Related Party Transactions

Consulting Services Agreement with Tengram Capital Management, L.P.

Pursuant to an agreement with Tengram Capital Management, L.P. (“TCM”), an affiliate of Tengram, the Company, effective as of January 1, 2013, has engaged TCM to provide services to the Company pertaining to (i) mergers and acquisitions, (ii) debt and equity financing, and (iii) such other related areas as the Company may reasonably request from time to time (the “TCM Consulting Services Agreement”). TCM is entitled to receive compensation, including fees and reimbursement of out-of-pocket expenses in connection with performing its services under the TCM Consulting Services Agreement. The TCM Consulting Services Agreement remains in effect for a period continuing through the earlier of five years or the date on which TCM and its affiliates cease to own in excess of 5% of the outstanding shares of common stock in the Company. The Company made no payments under the TCM Consulting Services Agreement for the three months ended June 30, 2014 and 2013. The Company paid TCM $0 and $250 for services under the TCM Consulting Services Agreement for the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014 and 2013, there were no amounts owed to TCM.

In connection with the Galaxy Merger Agreement (as defined below), (i) a $3,500 transaction fee is payable to TCM upon consummation of the Galaxy Acquisition (as defined below) and (ii) the Company and TCM have agreed to enter into an amendment to the TCM Consulting Services Agreement, pursuant to which the annual fees payable to TCM thereunder will be $900 per annum. The Company has prepaid $500 of the $3,500 as of June 30, 2014.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

Transactions with Tennman WR-T, Inc.

As discussed in Note 7, on May 5, 2014 the Company acquired the remaining 18% interest in Rast Sourcing and Rast Licensing. Under the prior royalty agreement among Tennman WR-T, Rast Sourcing and Rast Licensing, royalties paid by Rast Sourcing to Tennman WR-T, a minority interest holder of Rast Sourcing, amounted to $356 and $122 for the three months ended June 30, 2014 and 2013, respectively. Royalties paid by Rast Sourcing to Tennman WR-T amounted to $613 and $750 for the six months ended June 30, 2014 and 2013, respectively. At June 30, 2014 and December 31, 2013, amounts owed to Tennman WR-T of $159 and $244, respectively, are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets. During the three months ended June 30, 2014 and 2013, the Company recorded approximately $88 and $244, respectively, in royalty expense, all of which is included in operating expenses from continuing operations. During the six months ended June 30, 2014 and 2013, the Company recorded approximately $384 and $367, respectively, in royalty expense, all of which is included in operating expenses from continuing operations.

12.

Galaxy Brands Holding, Inc. Acquisition

On June 24, 2014, the Company entered into an agreement and plan of merger (the “Galaxy Merger Agreement”) with SBG Universe Brands, LLC, a Delaware limited liability company and direct wholly owned subsidiary of the Company (“LLC Sub”), Universe Galaxy Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of LLC Sub, Galaxy Brand Holdings, Inc., a Delaware corporation (“Galaxy”), Carlyle Equity Opportunity GP, L.P., a Delaware limited partnership, solely in its capacity as the representative of the Galaxy stockholders and optionholders, and, for limited purposes described therein, Carlyle Galaxy Holdings, L.P., a Delaware limited partnership (“Carlyle”). Pursuant to the Galaxy Merger Agreement, the Company will acquire four consumer brands that include the fitness brand Avia , basketball brand AND1 , outdoor brand Nevados and home goods brand Linens ‘ N Things for an aggregate purchase price consisting of (i) $100,000 of cash, subject to adjustment as set forth in the Galaxy Merger Agreement, (ii) 13,750,000 shares of the Company’s common stock and (iii) warrants to purchase an aggregate of up to 3,000,000 additional shares of the Company’s common stock subject to the terms and conditions set forth in the Galaxy Merger Agreement (the “Galaxy Acquisition”).

The warrants will be exercisable for an aggregate of up to an additional 3,000,000 shares (the “Warrant Shares”) of the Company’s common stock, with an exercise price of $11.20 per share based upon the performance of the Linens ‘n Things brand following the closing. Specifically, (i) if the Linens ‘N Things brand generates net royalties equal to or in excess of $10,000 in calendar year 2016, 500,000 Warrant Shares will vest, (ii) if the Linens ‘N Things brand generates net royalties equal to or in excess of $15,000 in calendar year 2016, an additional 1,000,000 Warrant Shares will vest, (iii) if the Linens ‘N Things brand generates net royalties equal to or in excess $10,000 in calendar year 2017, 500,000 Warrant Shares will vest, and (iv) if the Linens ‘N Things brand generates net royalties equal to or in excess $15,000 in calendar year 2017, an additional 1,000,000 Warrant Shares will vest. There can be no assurances that any or all of the Warrant Shares will vest; Galaxy currently does not derive any royalties from the Linens ‘N Things brand.

In connection with the Galaxy Merger Agreement, the Company has entered into (i) a commitment letter with Bank of America, N.A. (“Bank of America”), dated June 24, 2014, with respect to a senior secured first-lien credit facility (the “First-Lien Facility”), pursuant to which the Company may borrow up to $75,000 of term loans and up to $25,000 of revolving loans and (ii) a commitment letter with GSO Capital Partners LP (“GSO”), dated June 24, 2014, with respect to a senior secured second-lien credit facility (the “Second-Lien Facility”) pursuant to which the Company may borrow up to $90,000 of term loans. The proceeds of the First-Lien Facility and the Second-Lien Facility will be used to fund the transactions contemplated by the terms of the Galaxy Merger Agreement, to repay existing debt, to pay fees and expenses in connection with the foregoing, for working capital, capital expenditures and other lawful corporate purposes of the Company and its subsidiaries. The commitments of Bank of America, N.A. and GSO under the respective commitment letters are subject to various conditions, including the negotiation and execution of definitive financing agreements prior to December 31, 2014, and the consummation of the transactions contemplated by the terms and conditions set forth in the Galaxy Merger Agreement. In addition, Bank of America and GSO have agreed through the accordion feature to provide up to an additional $60,000 under the First-Lien Facility and $70,000 under the Second-Lien Facility respectively, subject to certain conditions.

In connection with the consummation of the transactions contemplated by the Galaxy Merger Agreement, the Company and the stockholder representative, on behalf of the former Galaxy stockholders and optionholders, will enter into a registration rights agreement, which grants the stockholder representative, on behalf of former Galaxy stockholders and optionholders, customary registration rights with respect to certain shares of the Company’s common stock and the warrants to be issued pursuant to the Galaxy Merger Agreement. In addition, conditioned upon and effective upon the closing of the Galaxy Merger Agreement, Mr. Matthew Eby has tendered his resignation as a Class II director of the Company and Mr. Rodney Cohen has been appointed to serve as a Class II director of the Company to fill the vacancy created by the resignation.

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

(dollars are in thousands unless otherwise noted, except share and per share data)

13.

New Accounting Pronouncements

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

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

Item 2

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

Forward-Looking Information

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and related notes. See the cautionary statement regarding forward-looking statements on page 3 of this Quarterly Report for a description of important factors that could cause actual results to differ from expected results.

Overview

We own a portfolio of consumer brands, including Ellen Tracy, William Rast , Revo, Caribbean Joe, Heelys, DVS , The Franklin Mint and People’s Liberation . We promote, market, and license these brands and intend to pursue acquisitions of additional brands or rights to brands. We have licensed and intend to license our brands in a variety of categories to retailers, wholesalers and distributors in the United States and in certain international territories. We currently have more than fifty licensees, almost all of which are wholesale licensees. In a wholesale license, a wholesale supplier is granted rights (typically on an exclusive basis) to a single or small group of related product categories for sale to multiple accounts within an approved channel of distribution and territory. Also, as part of our business strategy, we have previously entered into (and expect in the future to enter into) direct-to-retail licenses. In a direct-to-retail license, a single retailer is granted the right (typically on an exclusive basis) to sell branded products in a broad range of product categories through its brick and mortar stores and e-commerce sites.

Our objective is to build a diversified portfolio of lifestyle consumer brands by growing our existing portfolio and by acquiring new brands. To achieve this objective, we intend to:

Increase licensing of existing brands by adding additional product categories, expanding the brands’ distribution and retail presence and optimizing sales through innovative marketing that increases consumer awareness and loyalty;

Develop international expansion through additional licenses, partnerships, joint ventures and other arrangements with leading retailers and wholesalers outside the United States; and

Acquire consumer brands or the rights to such brands with high consumer awareness, broad appeal, applicability to a range of product categories and an ability to diversify our portfolio. In assessing potential acquisitions or investments, we will primarily evaluate the strength of the targeted brand as well as the expected viability and sustainability of future royalty streams.

Our license agreements typically require the licensee to pay royalties based upon net sales with guaranteed minimum royalties in the event that net sales do not reach certain specified targets. Our license agreements also typically require the licensees to pay certain minimum amounts for the marketing and advertising of the respective licensed brands.

We believe our business model allows us to use our brand management expertise to continue to grow our portfolio of brands and to generate new revenue streams without significantly changing our infrastructure. The benefits of this business model provide, among other things:

Financial upside without the typical risks associated with traditional operating companies;

Diversification by appealing to a broad demographic and distribution through a range of distribution channels;

Growth potential by expanding our existing brands into new categories and geographic areas and through accretive acquisitions; and

Limited or no operational risks as inventory and other typical wholesale operating risks are the responsibilities of our licensee partners.

Recent Developments

On June 24, 2014, the Company entered into the Galaxy Merger Agreement, pursuant to which, the Company will acquire four consumer brands that include the fitness brands Avia , basketball brand AND1 , outdoor brand Nevados and home goods brand Linens ‘ N Things from Galaxy for an aggregate purchase price consisting of (i) $100,000 of cash, subject to adjustment as set forth in the Galaxy Merger Agreement, (ii) 13,750,000 shares of the Company’s common stock and (iii) warrants to purchase an aggregate of up to 3,000,000 additional shares of the Company’s common stock subject to the terms and conditions set forth in the Galaxy Merger Agreement.

The warrants will be exercisable for an aggregate of up to an additional 3,000,000 Warrant Shares of the Company’s common stock, with an exercise price of $11.20 per share based upon the performance of the Linens ‘N Things brand following the closing. Specifically, (i) if the Linens ‘N Things brand generates net royalties equal to or in excess of $10,000 in calendar year 2016, 500,000 Warrant Shares will vest, (ii) if the Linens ‘N Things brand generates net royalties equal to or in excess of $15,000 in calendar year 2016, an additional 1,000,000 Warrant Shares will vest, (iii) if the Linens ‘N Things brand generates net royalties equal to or in excess $10,000 in calendar year 2017, 500,000 Warrant Shares will vest, and (iv) if the Linens ‘N Things brand generates net royalties equal to or in excess $15,000 in calendar year 2017, an additional 1,000,000 Warrant Shares will vest. There can be no assurances that any or all of the Warrant Shares will vest; Galaxy currently does not derive any royalties from the Linens ‘N Things brand.

In connection with the Galaxy Merger Agreement and the transactions contemplated thereby described in Note 12 of the accompanying unaudited condensed consolidated financial statements, the Company has entered into (i) a commitment letter with Bank of America, dated June 24, 2014 with respect to the First-Lien Facility, pursuant to which the Company may borrow up to $75,000 of term loans and up to $25,000 of revolving loans and (ii) a commitment letter with GSO, dated June 24, 2014, with respect to the Second-Lien Facility pursuant to which the Company may borrow up to $90,000 of term loans. The proceeds of the First-Lien Facility and the Second-Lien Facility will be used to fund the transactions contemplated by the terms of the Galaxy Merger Agreement, to repay existing debt, to pay fees and expenses in connection with the foregoing, for working capital, capital expenditures and other lawful corporate purposes of the Company and its subsidiaries. The commitments of Bank of America and GSO under the respective commitment letters are subject to various conditions, including the negotiation and execution of definitive financing agreements prior to December 31, 2014, and the consummation of the transactions contemplated by the terms and conditions set forth in the Galaxy Merger Agreement. In addition, Bank of America and GSO have agreed through the accordian feature to provide up to an additional $60,000 under the First-Lien Facility and $70,000 under the Second-Lien Facility, respectively, subject to certain conditions.

Fiscal Year

Our fiscal year ends on December 31. Each quarter of each fiscal year ends on March 31, June 30, September 30 and December 31.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to exercise its judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the financial statements.

We base our estimates and judgments on a variety of factors, including our historical experience, knowledge of our business and industry, and current and expected economic conditions, that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary.

While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 31, 2014, for a discussion of our critical accounting policies. During the six months ended June 30, 2014, there were no material changes to these policies.

Results of Operations

Comparison of the Three Months Ended June 30, 2014 to the Three Months Ended June 30, 2013

The following table sets forth, for the periods indicated, results of operation information from our unaudited condensed consolidated financial statements:

	Three Months Ended June 30,						Change			Change
	2014			2013			(Dollars)			(Percentage)

Net revenue	$	7,003		$	4,347		$	2,656			61.1	%
Operating expenses		6,436			2,294			4,142			180.5	%
Income from operations		567			2,053			(1,486	)		-72.4	%
Other income		0			106			(106	)		100.0	%
Interest expense		1,231			1,336			(105	)		-7.9	%
(Loss) income before income taxes		(664	)		823			(1,487	)		NM
Benefit for income taxes		(149	)		0			(149	)		-100.0	%
(Loss) income from continuing operations		(515	)		823			(1,338	)		NM
Loss from discontinued operations, net of tax		0			(102	)		102			-100.0	%
Consolidated net (loss) income		(515	)		721			(1,236	)		NM
Net income attributable to noncontrolling interest		(92	)		(28	)		(64	)		226.7	%
Net (loss) income attributable to Sequential Brands Group, Inc. and Subsidiaries	$	(607	)	$	693		$	(1,300	)		NM

NM: Not Meaningful

The increase in net revenue for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 is primarily attributable to the growth of our brands, led by Ellen Tracy and Heelys , the acquisition of Revo and The Franklin Mint after the second quarter of 2013 and a significant increase in the number of our licensees as a result of these acquisitions. Net revenue for the three months ended June 30, 2013 consists of license revenue earned only from our license agreements related to the Ellen Tracy, William Rast , Caribbean Joe, DVS, Heelys and People’s Liberation brands, as we did not either own or license the Revo and The Franklin Mint brands during that period.

Operating expenses increased $4,142 for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The primary drivers for this increase included deal costs, stock-based compensation expense, advertising and professional fees. During the second quarter of 2014, the Company incurred deal costs of $1,788 primarily in connection with the acquisition of Galaxy, whereas minimal deal costs were recognized in the comparable period of 2013. The Company also incurred estimated settlement and legal costs of $550 during the three months ended June 30, 2014 related to a pre-acquisition litigation matter in which Brand Matter LLC was named an affiliate. Stock-based compensation expense increased $467 due to stock grants that were issued after the second quarter of 2013 and the Company incurring expense to mark-to-market stock granted to consultants. With the acquisition of new brands and our increased marketing presence, advertising expense increased $466 over the prior period. Professional fees increased $397 year-over-year from increased consulting and legal fees not related to potential acquisitions.

Interest expense during the three months ended June 30, 2014 includes interest incurred on our Term Loans and interest rate swap of approximately $1,047 as well as non-cash interest related to the accretion of the discount recorded associated with the warrants issued in connection with the Term Loans of approximately $66, and non-cash interest related to the amortization of deferred financing costs and annual fees of approximately $118 associated with the Term Loans. Interest expense during the three months ended June 30, 2013 includes interest incurred on our Term Loans of approximately $1,174 as well as non-cash interest related to the accretion of the discount recorded associated with the warrants issued in connection with the Term Loans of approximately $67, and non-cash interest related to the amortization of deferred financing costs of approximately $95 associated with the Term Loans.

The provision for income taxes as of June 30, 2014 primarily represents the non-cash deferred tax expense created by the amortization of the acquired trademarks related to our Ellen Tracy , Caribbean Joe , Revo and The Franklin Mint brands. The provision for income taxes as of June 30, 2013 represents the non-cash deferred tax expense created by the amortization of the acquired trademarks related to our Ellen Tracy and Caribbean Joe brands.

The loss from discontinued operations for the three months ended June 30, 2013 is primarily attributable to the wind down costs associated with the Heelys legacy operating business, as a result of our decision to discontinue our wholesale business related to the Heelys brand. These costs mainly represent severance expense, lease termination costs and professional and other fees.

Noncontrolling interest from continuing operations for the three months ended June 30, 2014 and 2013 represents net income allocations to Elan Polo International, Inc., a member of DVS LLC.

Comparison of the Six Months Ended June 30, 2014 to the Six Months Ended June 30, 2013

The following table sets forth, for the periods indicated, results of operation information from our unaudited condensed consolidated financial statements:

	Six Months Ended June 30,						Change			Change
	2014			2013			(Dollars)			(Percentage)

Net revenue	$	13,265		$	5,976		$	7,289			122.0	%
Operating expenses		10,186			7,659			2,527			33.0	%
Income (loss) from operations		3,079			(1,683	)		4,762			NM
Other income		2			106			(104	)		-98.3	%
Interest expense, net		2,501			12,953			(10,452	)		-80.7	%
Income (loss) before income taxes		580			(14,530	)		15,110			NM
Provision for income taxes		248			2,264			(2,016	)		-89.1	%
Income (loss) from continuing operations		332			(16,794	)		17,126			NM
Loss from discontinued operations, net of tax		0			(3,966	)		3,966			100.0	%
Consolidated net income (loss)		332			(20,760	)		21,092			NM
Net income attributable to noncontrolling interest		(197	)		(54	)		(143	)		266.4	%
Net income (loss) attributable to Sequential Brands Group, Inc.	$	135		$	(20,814	)	$	20,949			NM

NM: Not Meaningful

The increase in net revenue for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 is primarily attributable to the acquisition of several new brands after the first and second quarters of 2013 and a significant increase in the number of our licensees as a result of these acquisitions. Net revenue for the six months ended June 30, 2014 consists of license revenue earned from our license agreements related to the Ellen Tracy , William Rast , Revo , Caribbean Joe , Heelys , DVS , The Franklin Mint and People’s Liberation brands. Net revenue for the six months ended June 30, 2013 consists of license revenue earned only from our license agreements related to our Ellen Tracy, William Rast , Caribbean Joe, DVS, Heelys and People’s Liberation brands, as we did not either own or license any of the other brands during that period. Net revenue for the six months ended June 30, 2013 includes only five months of revenue related to the Heelys brand, which was acquired on January 24, 2013 and three months of revenue related to the Ellen Tracy and Caribbean Joe brands which were acquired on March 28, 2013.

Operating expenses increased $2,527 for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The primary drivers for this increase included stock-based compensation expense, payroll and advertising. Stock-based compensation expense increased $761 due to stock grants that were issued after the second quarter of 2013 and the Company incurring expense to mark-to-market stock granted to consultants. The Company’s headcount has increased over the comparable period which led to an increase in payroll expense of $717. The acquisition of new brands and our increased marketing presence resulted in an increase to advertising expense of $434 over the prior period.

Interest expense during the six months ended June 30, 2014 includes interest incurred on our Term Loans and interest rate swap of approximately $2,121, as well as non-cash interest related to the accretion of the discount recorded associated with the warrants issued in connection with the Term Loans of approximately $132, and non-cash interest related to the amortization of deferred financing costs and annual fees of approximately $248 associated with the Term Loans. Interest expense during the six months ended June 30, 2013 resulted primarily from the TCP Conversion, as more fully described in Note 8 to our unaudited condensed consolidated financial statements. As a result of the TCP Conversion, the remaining unamortized discount of $11,028 recorded in connection with the beneficial conversion feature and TCP Warrants issued in connection with the Debentures, as well as the remaining unamortized balance of deferred financing costs of $589, were recognized as non-cash interest expense. Also included in interest expense is non-cash interest related to the accretion of the discount recorded associated with the warrants issued in connection with the Term Loans of approximately $67, and non-cash interest related to the amortization of deferred financing costs of approximately $94 associated with the Term Loans.

The loss from discontinued operations for the six months ended March 31, 2013 is primarily attributable to the wind down costs associated with the Heelys legacy operating business, as a result of our decision to discontinue our wholesale business related to the Heelys brand. These costs mainly represent severance expense, lease termination costs and professional and other fees.

Noncontrolling interest from continuing operations for the six months ended June 30, 2014 and 2013 represents net income allocations to Elan Polo International, Inc., a member of DVS LLC.

Liquidity and Capital Resources

As of June 30, 2014, our continuing operations had cash of approximately $15,775, a working capital balance of approximately $11,026 and outstanding debt obligations under our Term Loans of $54,064. As of December 31, 2013, our continuing operations had cash of approximately $25,125, a working capital balance of approximately $17,745 and outstanding debt obligations under our Term Loans of approximately $57,931. Working capital is defined as current assets minus current liabilities, excluding restricted cash and assets and liabilities of discontinued operations. We believe that cash from future operations and our currently available cash will be sufficient to satisfy our anticipated working capital requirements for the foreseeable future. We intend to continue financing future brand acquisitions through a combination of cash from operations, bank financing and the issuance of additional equity and/or debt securities.

In connection with the Galaxy Merger Agreement and the transactions contemplated thereby described in Note 12 of the accompanying unaudited condensed consolidated financial statements, the Company has entered into (i) a commitment letter with Bank of America, dated June 24, 2014, with respect to the First-Lien Facility, pursuant to which the Company may borrow up to $75,000 of term loans and up to $25,000 of revolving loans and (ii) a commitment letter with GSO, dated June 24, 2014, with respect to the Second-Lien Facility pursuant to which the Company may borrow up to $90,000 of term loans. The proceeds of the First-Lien Facility and the Second-Lien Facility will be used to fund the transactions contemplated by the terms of the Galaxy Merger Agreement, to repay existing debt, to pay fees and expenses in connection with the foregoing, for working capital, capital expenditures and other lawful corporate purposes of the Company and its subsidiaries. The commitments of Bank of America and GSO under the respective commitment letters are subject to various conditions, including the negotiation and execution of definitive financing agreements prior to December 31, 2014, and the consummation of the transactions contemplated by the terms and conditions set forth in the Galaxy Merger Agreement. In addition, Bank of America and GSO have agreed through the accordion feature to provide up to an additional $60,000 under the First-Lien Facility and $70,000 under the Second-Lien Facility, respectively, subject to certain conditions.

Cash Flows from Continuing Operations

Cash flows from continuing operations for operating, financing and investing activities for the six months ended June 30, 2014 and 2013 are summarized in the following table:

	Six Months Ended June 30,
	2014			2013
Operating activities	$	(579	)	$	(2,878	)
Investing activities		(4,216	)		(67,302	)
Financing activities		(3,737	)		82,329

Net (decrease) increase in cash from continuing operations	$	(8,532	)	$	12,150

Operating Activities

Net cash used in operating activities from continuing operations was $579 for the six months ended June 30, 2014 as compared to $2,878 for the six months ended June 30, 2013. Consolidated net income for the six months ended June 30, 2014 of $332 includes net non-cash expenses of $430 related to depreciation and amortization, $335 related to the amortization of debt discount and deferred financing costs, $247 related to deferred income taxes and $1,124 related to stock-based compensation expense. Changes in operating assets and liabilities used $3,047 in cash during the six months ended June 30, 2014. Net loss for the six months ended June 30, 2013 of $20,760 includes net non-cash expenses of $11,778 of amortization of debt discount and deferred financing costs, $2,239 of deferred income taxes and $222 related to depreciation and amortization. Net loss for the six months ended June 30, 2013 also includes $3,966 of loss from discontinued operations. Changes in operating assets and liabilities used $800 in cash during the six months ended June 30, 2013.

Investing Activities

Net cash used in investing activities from continuing operations was $4,216 for the six months ended June 30, 2014, primarily consisting of cash paid for the acquisition of the remaining 18% interest in Rast Sourcing and Rast Licensing, the acquisition of intangible assets and property and equipment. Net cash used in investing activities from continuing operations was $67,302 for the six months ended June 30, 2013, primarily consisting of net cash paid for the acquisitions of our Heelys, Ellen Tracy and Caribbean Joe brands.

Financing Activities

Net cash used in financing activities from continuing operations for the six months ended June 30, 2014 amounted to $3,737 as compared to net cash provided by financing activities of $82,329 for the six months ended June 30, 2013. We made $4,000 of repayments under the Term Loans during the six months ended June 30, 2014. In January 2013, we received proceeds of $22,350 in connection with the private placement transaction consummated in January 2013. A portion of the proceeds was used to fund the acquisition of Heelys . In March 2013, we received $65,000 of proceeds under the Term Loans, which were mainly used in the Ellen Tracy and Caribbean Joe Acquisition, to pay fees and expenses in connection with the foregoing, to finance capital expenditures and for general corporate purposes. Cash paid for fees and other costs incurred in connection with the private placement transaction consummated in January 2013 and the Term Loans amounted to $3,063.

Future Capital Requirements

We believe cash on hand and cash from operations will be sufficient to meet our capital requirements for the next twelve months, as they relate to our current operations. We intend to continue financing future brand acquisitions through a combination of cash from operations, bank financing and the issuance of additional equity and/or debt securities. The extent of our future capital requirements will depend on many factors, including our results of operations and growth through the acquisition of additional brands, and we cannot be certain that we will be able to obtain additional financing in sufficient amounts and/or on acceptable terms in the near future, if at all.

Off-Balance Sheet Arrangements

At June 30, 2014 and December 31, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2014, the end of the period covered by this report. Based on, and as of the date of such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2014 such that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have not been any significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

We are subject to certain legal proceedings and claims arising in connection with the normal course of our business. In the opinion of management, other than described in Note 9 of the accompanying unaudited condensed consolidated financial statements and below, which description is incorporated herein by reference, there are currently no claims that could have a material adverse effect on our consolidated financial position, results of operations or cash flows.

The Company also incurred estimated settlement and legal costs of $550 during the three months ended June 30, 2014 related to a pre-acquisition litigation matter in which Brand Matter LLC was named an affiliate.

Item 1A.

Risk Factors

Cautionary Statements and Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Our actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors, including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 31, 2014. There have been no material changes to such risk factors during the six months ended June 30, 2014, except for the following:

The public resale by former Galaxy stockholders and optionholders of our common stock issued as consideration in the Galaxy Acquisition could have a negative effect on the trading price of our common stock.

In connection with the Galaxy Acquisition, we expect to issue 13,750,000 shares, and warrants to purchase (subject to certain vesting and other conditions) up to an additional 3,000,000 shares, of our common stock to the stockholders and optionholders of Galaxy. At the closing, none of these shares will be registered under the Securities Act of 1933, as amended (the “Securities Act”), and they will only be able to be resold pursuant to a separate registration statement or an applicable exemption from registration (under both federal and state securities laws). In addition, Carlyle, which is expected to own beneficially approximately 15% of the outstanding shares of our common stock following the Galaxy Acquisition, has agreed not to sell, for a period of 90 days following the closing, any such shares of our common stock. However, we have agreed to prepare and file with the SEC, as soon as practicable following the closing of the Galaxy Acquisition, a registration statement on Form S-3 with respect to the resale of the shares of our common stock and warrants (including the underlying shares of our common stock) to be issued in connection with the Galaxy Acquisition. The former Galaxy stockholders and optionholders will also have certain rights to require us to register their shares for public resale under the terms of a registration rights agreement entered into in connection with the Galaxy Acquisition. Any such sale of shares of our common stock issued in the acquisition into the public markets may cause a decline in the trading price of our common stock.

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

Following the Galaxy Acquisition, a limited number of licensees and retail partners are anticipated to account for a substantial portion of our licensing revenue. In particular, a substantial majority of the licensed products for brands acquired from Galaxy are anticipated to be sold by licensees to Wal-Mart Stores, Inc. and its affiliates. Because we will be dependent on these licensees and retail partners for a significant portion of our licensing revenue, if any of them were to have financial difficulties affecting their ability to make payments, or if any of these licensees or retail partners decided not to continue any existing agreements or arrangements relating to these licensed products, or to reduce significantly their sales of these licensed products under any such agreements or arrangements, then our revenue and cash flows could be reduced substantially.

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

Following the Galaxy Acquisition, it is anticipated that Tengram Capital Partners Gen2 Fund, L.P. (“Tengram”) will beneficially own approximately 19%, and Carlyle will beneficially own approximately 15%, of our outstanding shares of common stock. In addition, following the resignation of Mr. Matthew Eby and the appointment of Mr. Rodney Cohen to our board of directors (the “Board”) in connection with the Galaxy Acquisition, it is anticipated that one member of the Board, Mr. William Sweedler, will be principal of Tengram, and that one member of the Board, Mr. Cohen, will be an appointee of Carlyle. As a result, following the Galaxy Acquisition, Tengram and Carlyle may be able to exercise substantial influence over the Board and matters requiring stockholder approval, including the election of directors and approval of significant corporate actions, such as mergers and other business combination transactions.

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

The failure to successfully combine the businesses of the Company and Galaxy in the expected time frame may adversely affect the Company’s financial conditions and results of operations.

The success of the Galaxy Acquisition will depend, in part, on the ability of the combined company to realize the anticipated benefits from combining the businesses of the Company and Galaxy. To realize these anticipated benefits, the Company’s and Galaxy’s businesses must be successfully combined and if a successful combination of the businesses does not occur, the anticipated benefits of the Galaxy Acquisition may not be realized fully or at all or may take longer to realize than expected. In addition, the actual integration may result in additional and unforeseen problems, expenses, liabilities and diversion of management’s attention, each of which could reduce the anticipated benefits of the Galaxy Acquisition. The difficulties of combining the operations of the Company and Galaxy include:

managing a significantly larger company;

integrating two different business cultures, which may prove to be incompatible;

the possibility of faulty assumptions underlying expectations regarding the integration process;

retaining existing licensees and attracting new licensees;

consolidating corporate and administrative infrastructures and eliminating duplicative operations;

the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the diversion of management’s attention to the Galaxy Acquisition;

costs or inefficiencies associated with integrating the operations of the combined company; and

unforeseen expenses or delays associated with the Galaxy Acquisition.

The Company and Galaxy have operated and, until the completion of the Galaxy Acquisition will continue to operate independently. Even if the operations are combined successfully, the combined company may not realize the full benefits of the Galaxy Acquisition on the anticipated timeframe, or at all. These integration matters could have an adverse effect on our financial condition and results of operations.

In connection with the Galaxy Acquisition, the Company expects to incur a substantial amount of indebtedness, which could adversely affect the Company’s operations and financial condition.

The Company expects to be leveraged as a result of the Galaxy Acquisition and to have significant debt service obligations. On June 24, 2014, the Company entered into commitment letters with Bank of America for up to $100,000,000 under the First-Lien Facility, and with GSO, for up to $90,000,000 under the Second-Lien Facility, in each case subject to certain increases as described herein. The commitments of the lenders under the commitment letters are subject to various conditions, including the negotiation and execution of definitive financing agreements prior to December 31, 2014 and the consummation of the Galaxy Acquisition in accordance with the terms and conditions set forth in the Galaxy Merger Agreement. The Company expects to borrow funds pursuant to the commitment letters on the closing date to refinance and repay in full the Company’s existing indebtedness, to finance the Galaxy Acquisition and to pay fees and transaction costs related to the Galaxy Acquisition, the First Lien Facility and the Second Lien Facility. After the closing date, the Company expects to use the proceeds of any borrowings of revolving loans under the First Lien Facility for working capital, capital expenditures, and other lawful corporate purposes of the Company and its subsidiaries and any borrowings under any incremental facilities for working capital purposes and/or for permitted acquisitions.

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

The Company’s debt could have other important consequences, which include, but are not limited to, the following:

a substantial portion of the Company’s cash flow from operations could be required to pay principal and interest on its debt;

the Company’s interest expense could increase if interest rates increase because the loans under its credit agreement would generally bear interest at floating rates;

the Company’s leverage could increase its vulnerability to general economic downturns and adverse competitive and industry conditions, placing it at a disadvantage compared to those of its competitors that are less leveraged;

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

the Company’s failure to comply with the financial and other restrictive covenants in the documents governing its indebtedness could result in an event of default that, if not cured or waived, results in foreclosure on substantially all of its assets; and

the Company’s level of debt may restrict it from raising additional financing on satisfactory terms to fund strategic acquisitions, investments, joint ventures and other general corporate requirements.

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

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended June 30, 2014, there were no unregistered sales of equity securities, other than those described in Note 7 of the accompanying unaudited condensed consolidated financial statements, which description is incorporated herein by reference.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6. Exhibits

The following exhibits are filed as part of this report:

Exhibit Number		Exhibit Title

2.1***		Agreement and Plan of Merger, dated as of June 24, 2014, by and among Sequential Brands Group, Inc., SBG Universe Brands, LLC, Universe Galaxy Merger Sub, Inc., Galaxy Brand Holdings, Inc., Carlyle Equity Opportunity GP, L.P., solely in its capacity as the stockholder representative, and Carlyle Galaxy Holdings, L.P., for purposes of Section 6.5(b) only (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed June 25, 2014).

10.1*		Employment Agreement, dated as of June 3, 2014, by and between Sequential Brands Group, Inc. and Gary Klein.

31.1*		Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith.

**Furnished herewith.

*** Pursuant to Item 6.01(b)(2) of Regulation S-K, exhibits and schedules are omitted. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit upon request.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SEQUENTIAL BRANDS GROUP, INC.

Date: August 14, 2014	/s/ Gary Klein
	By: Gary Klein
	Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 10.1

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of June 3, 2014, by and between Sequential Brands Group, Inc., a Delaware corporation (the “ Company ”), and Gary Klein (the “ Executive ”).

WITNESSETH

WHEREAS, the Executive possesses experience in the apparel industry and brand licensing industry and has knowledge, experience and expertise concerning the type of business and operations to be conducted by the Company; and

WHEREAS, the Company desires to employ the Executive as the Chief Financial Officer of the Company, and the Executive desires to be so employed by the Company, in each case, upon the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Executive hereby agree as follows:

1. Engagement of Executive; Duties . During the Term (as hereinafter defined in Section 3 below), the Executive shall have the title of Chief Financial Officer of the Company reporting to the Company’s Chief Executive Officer. The Executive will have such responsibilities, duties, and authority customarily associated with the position of Chief Financial Officer. All financial areas of the Company shall report to the Executive. In connection with his employment by the Company, the Executive shall be based in the greater New York metropolitan area.

2. Time. The Executive will devote substantially all of his working hours to his duties hereunder and towards the overall success of the business of the Company, including but not limited to, financial reporting and oversight, execution and implementation of financial business plans, developing and achieving budget targets, managing corporate-level expenses, and overall financial leadership of the Company, provided that nothing contained herein shall be deemed to restrict the Executive from engaging in charitable, religious, civic or community activities, or from serving on the boards of directors of non-profit organizations and, with the consent of the Board (such consent not to be unreasonably withheld, delayed or conditioned), other for-profit companies which do not compete with the Company, provided that such activities do not materially interfere with Executive’s duties and responsibilities under this Agreement.

3. Term. The Executive’s engagement shall commence on January 1, 2014 (the “ Effective Date ”) and shall continue for three (3) years from the Effective Date (the “ Term ”) unless otherwise terminated as provided herein. In the event that the Executive remains an employee of the Company following expiration of the Term and this Agreement is not extended, he shall be an employee “at will” and shall not be (i) at any during or following such “at will” employment, entitled to any of the benefits under this Agreement, or (ii) at any time following such “at will employment”, subject to any of the restrictions (other than the undertakings contained in Section 6 and the provisions of Section 10 , in each case, which shall survive any termination or non-renewal of this Agreement), contained in this Agreement (including, but not limited to, the non-solicitation provisions contained in Section 7 ).

4. Compensation.

(a) Base Salary . During the Term, Executive’s base salary will be at a rate of not less than $250,000 per annum for the 2014 calendar year, $300,000 for the 2015 calendar year and $325,000 for the 2016 calendar year (the “Base Salary”). Such Base Salary shall be paid in accordance with the Company’s payroll practices and policies then in effect.

(b) Bonus . During the Term, the Executive shall be entitled to receive an annual bonus opportunity for each fiscal year (the “ Annual Bonus ”) of up to 60% of Base Salary. The Annual Bonus shall be based upon achievement of performance targets established by the Compensation Committee of the Board (the “ Compensation Committee ”) from time to time that will be the same as the performance targets established for the Company’s Chief Executive Officer.

(c) Restricted Stock . Notwithstanding the provisions of any award agreement with respect to any outstanding restricted stock award granted under the Company’s 2013 Stock Incentive Compensation Plan or under any other equity compensation plan maintained by the Company, its predecessors or affiliates (the “ Restricted Stock ”), upon a “Change in Control,” all unvested shares of Restricted Stock will immediately vest. For purposes of the Restricted Stock, a Change in Control shall mean any of the following:

(1) Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “ Person ”) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (A) the then-outstanding shares of common stock of the Company (the “ Outstanding Company Common Stock ”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Company Voting Securities ”); provided , however , that, for purposes of this Section 4(c)(1), the following acquisitions shall not constitute a Change in Control: (i) any acquisition by an Excluded Person (as defined below) (ii) any acquisition directly from the Company, (iii) any acquisition by the Company, (iv) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliate or (v) any acquisition by any corporation pursuant to a transaction that complies with Sections 4(c)(2)(A) or 4(c)(2)(B) below;

(2) Consummation of (i) a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any affiliate, (ii) a sale or other disposition of all or substantially all of the assets of the Company, or (iii) the acquisition of assets or stock of another entity by the Company or any affiliate (each, a “ Business Combination ”), in each case unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be or (B) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity resulting from such Business Combination were members of the incumbent board at the time of the execution of the initial agreement or of the action of the board providing for such Business Combination; or

(3) A complete liquidation or dissolution of the Company.

For purposes hereof, the “ Excluded Persons ” shall mean William Sweedler, Tengram Capital Partners Gen2 Fund, L.P. and each of their respective Related Parties. For purposes of hereof, “ Related Party ” shall mean with respect to any person or entity, any other person or entity which (i) directly or indirectly, is controlling, controlled by or under common control with such person or entity, or (ii) directly or indirectly, is advised, managed, administered by such person or entity or any person or entity described in the immediately preceding clause (i). For purposes of this definition, “control” of a person or entity (including the terms “controlled by” and “under common control with”) means the power, directly or indirectly, to direct or cause the direction of the management or policies of such person or entity, whether through ownership of voting securities, the ability to exercise voting power, or by contract or otherwise.

(d) Benefits . Executive shall receive the employee and fringe benefits generally made available to other executive officers of the Company from time to time, including health and dental coverage. Executive shall also be added or continued, as the case may be, as an insured under the Company’s officers and directors insurance and all other polices which pertain to officers of the Company.

(e) Reimbursement of Expenses . The Company shall pay to Executive the reasonable expenses incurred by him in the performance of his duties hereunder, including, without limitation, expenses related to cell phones, blackberrys and laptop computers and such other expenses incurred in connection with business related travel or entertainment in accordance with the Company’s policy, or, if such expenses are paid directly by the Executive, the Company shall promptly reimburse the Executive for such payments in accordance with the Company’s policy, provided that the Executive properly accounts for such expenses in accordance with the Company’s policy. In addition, the Executive shall receive a transportation/travel reimbursement in the amount of $1500.00 per month during the Term.

(f) Vacation . Executive shall be entitled to three weeks of paid vacation per year. The Executive shall use his vacation in the calendar year in which it is accrued.

5. Termination of Employment.

(a) General . The Executive’s employment under this Agreement may be terminated prior to the expiration of the Term without any breach of this Agreement only on the following circumstances:

(b) Death . The Executive’s employment under this Agreement shall terminate upon his death.

(c) Disability . If the Executive suffers a Disability (as defined below in this sub-section (2)), the Company may terminate the Executive’s employment under this Agreement upon thirty (30) days prior written notice; provided that the Executive has not returned to full time performance of his duties during such thirty (30) day period. For purposes hereof, “Disability” shall mean the Executive’s inability to perform his duties and responsibilities hereunder, with or without reasonable accommodation, due to any physical or mental illness or incapacity, which condition either (i) has continued for a period of 180 days (including weekends and holidays) in any consecutive 365-day period, or (ii) is projected by the Board in good faith after consulting with a doctor selected by the Company and consented to by the Executive (or, in the event of the Executive’s incapacity, his legal representative), such consent not to be unreasonably withheld, that the condition is likely to continue for a period of at least six (6) consecutive months from its commencement.

(d) Good Reason . The Executive may terminate his employment under this Agreement for Good Reason after the occurrence of any of the Good Reason events set forth in the following sentence. For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following events without the Executive’s prior written consent:

(i) the failure by the Company to timely comply with its material obligations and agreements contained in this Agreement;

(ii) a material diminution of the authorities, duties or responsibilities of the Executive set forth in Section 1 above (other than temporarily while the Executive is physically or mentally incapacitated and unable to properly perform such duties, as determined by the Board in good faith) or the assignment to Executive of duties materially inconsistent with his position as Chief Financial Officer;

(iii) the loss of the title of Chief Financial Officer;

(iv) the involuntary re-location of the Executive to an office outside of the New York, New York metropolitan area; or

(v) a change in the reporting structure so that the Executive reports to someone other than the Chief Executive Officer;

provided , however , that, within ninety (90) days of any such events having occurred, the Executive shall have provided the Company with written notice that such events have occurred and afforded the Company thirty (30) days to cure and if the Company does not cure to Executive’s reasonable satisfaction then Executive terminates his employment within one hundred twenty (120) days following the expiration of such cure period. For purposes of this Agreement, upon any reduction or diminution in authorities, duties, responsibilities, etc. the basis for determining whether such reduction or diminution was material shall be deemed to be the greatest authorities, duties, responsibilities held by Executive and not the authorities, duties, responsibilities held by Executive immediately prior to the most recent diminution or reduction (e.g., if the Company were to reduce Executive’s duties and then at a subsequent time were to reduce his duties further, for purposes of determining whether the second event constitutes a Good Reason event, his duties would be compared to those he held prior to the initial reduction).

(e) Without Good Reason . The Executive may voluntarily terminate his employment under this Agreement without Good Reason upon written notice by the Executive to the Company at least thirty (30) days prior to the effective date of such termination (which termination the Company may, in its sole discretion, make effective earlier than the date set forth in the Notice of Termination (as hereinafter defined in sub-section (h) below)).

(f) Cause . The Company may terminate the Executive’s employment under this Agreement for Cause. Termination for “Cause” shall mean termination of the Executive’s employment because of the occurrence of any of the following as determined by the Board:

(i) any gross negligence or the willful and continued failure by the Executive to substantially perform his obligations under this Agreement (other than any such failure resulting from the Executive’s incapacity due to a Disability);

(ii) the indictment of the Executive for, or his conviction of or plea of guilty or nolo contendere to, a felony;

(iii) the Executive’s willfully engaging in misconduct (which shall include theft, fraud, or embezzlement ) in the performance of his duties for the Company or violating any statutory or common law duty of loyalty to the Company;

(iv) the Executive’s trading of securities or willful disclosure of non-public information in each case constituting a violation of insider trading laws which is injurious to the Company, monetarily or otherwise;

(v) any chemical dependence of the Executive which materially and adversely affects the performance of his duties and responsibilities to the Company or any of its subsidiaries; provided , however , that the taking of prescribed prescription medication shall not constitute a chemical dependence of the Executive hereunder; or

(vi) a material breach by the Executive of this Agreement.

provided , however , that in each case (other than (ii), (iii) or (iv)), the Company shall have provided the Executive with written notice within ninety (90) days of the event(s) alleged to constitute Cause, the Executive has been afforded at least thirty (30) days to cure same and has failed to cure the event(s) within such 30 day period.

(g) Without Cause . The Company may terminate the Executive’s employment under this Agreement without Cause immediately upon written notice by the Company to the Executive.

(h) Notice of Termination . Any termination of the Executive’s employment by the Company or by the Executive (other than termination by reason of the Executive’s death) shall be communicated by written Notice of Termination to the other party of this Agreement. For purposes of this Agreement, a “ Notice of Termination ” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

(i) Date of Termination . The “ Date of Termination ” shall mean (a) if the Executive’s employment is terminated by his death, the date of his death, (b) if the Executive’s employment is terminated pursuant to subsection 5(c) above, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (c) if the Executive’s employment is terminated pursuant to subsections 5(d) or 5(f) above, the date specified in the Notice of Termination after the expiration of any applicable cure periods, (d) if the Executive’s employment is terminated pursuant to subsection 5(e) above, the date specified in the Notice of Termination which shall be at least thirty (30) days after Notice of Termination is given, or such earlier date as the Company shall determine, in its sole discretion, (e) if the Executive’s employment is terminated pursuant to subsection 5(g), the date on which a Notice of Termination is given and (f) if Executive is terminated upon expiration of the Term, the date of the expiration of the Term.

(j) Compensation Upon Termination .

(i) Termination for Cause, without Good Reason or Expiration of Term . If the Executive’s employment shall be terminated upon the expiration of the Term, by the Company for Cause or by the Executive without Good Reason, the Executive shall receive from the Company: (1) any earned but unpaid Base Salary through the Date of Termination, paid in accordance with the Company’s standard payroll practices; (2) reimbursement for any unreimbursed expenses properly incurred and paid in accordance with Section 4(e) through the Date of Termination; (3) payment for any accrued but unused vacation time in accordance with Company policy; and (4) such benefits, and other payments, if any, as to which the Executive (and his eligible dependents) may be entitled under, and in accordance with the terms and conditions of, the employee benefit arrangements, plans and programs of the Company as of the Date of Termination, other than any severance pay plan ((1) though (4), (the “ Amounts and Benefits ”), and the Company shall have no further obligation with respect to this Agreement other than as provided in Section 8 of this Agreement. In addition, any portion of the Restricted Stock Award or any other outstanding equity or incentive award that remains unvested on the Date of Termination shall be forfeited as of the Date of Termination.

(ii) Termination without Cause or for Good Reason . If prior to the expiration of the Term, the Executive resigns from his employment hereunder for Good Reason or the Company terminates the Executive’s employment hereunder without Cause (other than a termination by reason of death or Disability), then the Company shall pay or provide the Executive the Amounts and Benefits and the following:

(1) an amount equal to the Base Salary the Executive would have received had he remained employed throughout the remainder of the Term, which shall be payable in full in a lump sum cash payment to be made to the Executive on the date that is thirty (30) days following the Date of Termination;

(2) any Annual Bonus earned but unpaid for a prior year (the “ Prior Year Bonus ”), which shall be payable in full in a lump sum cash payment to be made to the Executive on the date that is thirty (30) days following the Date of Termination or the date such bonus would be paid if Executive had remained an employee of the Company, if later;

(3) in the event such resignation or termination occurs following the Company’s first fiscal quarter of any year, a pro-rata portion of the Executive’s Annual Bonus for the fiscal year in which the Executive’s termination occurs based on actual results for such year (determined by multiplying the amount of such Annual Bonus which would be due for the full fiscal year by a fraction, the numerator of which is the number of days during the fiscal year of termination that the Executive is employed by the Company and the denominator of which is 365), paid in accordance with Section 4(b) (“ Pro Rata Bonus ”). The Pro Rata Bonus shall be payable at the time the Annual Bonus would have been paid if Executive’s employment had not terminated;

(4) subject to the Executive’s timely election of continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), with respect to the Company’s group health insurance plans in which the Executive participated immediately prior to the Date of Termination (“COBRA Continuation Coverage”), the Company shall pay the cost of COBRA Continuation Coverage for the Executive and his eligible dependents until the earliest of (a) the Executive or his eligible dependents, as the case may be, ceasing to be eligible under COBRA (or any COBRA-like benefits provided under applicable state law) and (b) eighteen (18) months following the Date of Termination, (the benefits provided under this sub-section (4), the “ Medical Continuation Benefits ”); and

(5) any unvested portion of the Restricted Stock shall accelerate and become fully vested on the Date of Termination and the shares covered by the Restricted Stock Award shall be distributed to the Executive on the date that is thirty (30) days following the Date of Termination (subject to any securities law restrictions) .

(iii) Termination upon Death . In the event of the Executive’s death, the Company shall pay or provide to the Executive’s estate: (1) continued payment of the Executive’s Base Salary for the remainder of the year in which the termination for reason of death occurs , (2) the Amounts and Benefits, (3) the Prior Year Bonus, and (4) the Pro Rata Bonus. In addition, the Restricted Stock Award shall vest with respect to the portion of such award that was scheduled to vest in the year in which the termination for reason of death occurs and such shares covered by the Restricted Stock Award shall be distributed to the Executive within thirty (30) days of the Date of Termination (subject to any securities law restrictions). Any other unvested portion of the Restricted Stock Award will be forfeited on the Date of Termination.

(iv) Termination upon Disability . In the event the Company terminates the Executive’s employment hereunder for reason of Disability, the Company shall pay or provide to the Executive: (1) the Amounts and Benefits, (2) the Prior Year Bonus, (3) a Pro Rata Bonus and (4) the Medical Continuation Benefits. In addition, the Restricted Stock Award shall vest with respect to the portion of such award that was scheduled to vest in the year in which the termination for reason of Disability occurs and such shares covered by the Restricted Stock Award shall be distributed to the Executive within thirty (30) days of the Date of Termination (subject to any securities law restrictions). Any other unvested portion of the Restricted Stock Award will be forfeited on the Date of Termination.

(v) Payments of Compensation Upon Termination . For the avoidance of doubt, in the event the Executive shall be entitled to receive payments and benefits pursuant to any one of sub-sections 5(a), (b), (c) or (d) above, he shall be entitled to no payments or benefits under any other of such sub-sections.

(vi) Release of Claims . Notwithstanding anything in this Agreement to the contrary, as a condition of receiving any payment or benefits under Section 5(j)(ii) (other than the Amounts and Benefits), the Executive agrees to execute, deliver and not revoke a general release and covenant not to sue in favor of the Company and its subsidiaries and their respective affiliates in substantially the form attached here to as Exhibit B (the “ Release ”), before the date that is thirty (30) days following the Date of Termination. In the event the Release is not executed and non-revocable prior to the date that is thirty (30) days following the Date of Termination, all payments and benefits under Section 5(j)(ii) (other than the Amounts and Benefits) shall be forfeited.

(vii) No Duty to Mitigate . The Executive shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 5 be reduced by any compensation earned by Executive as the result of Executive’s employment by another employer or business or by profits earned by Executive from any other source at any time before and after the Executive’s date of termination (other than as provided in Section 5(j)(ii)(4)).

6. Confidentiality.

(a) The Executive acknowledges that all customer lists and information, vendor or supplier lists and information, inventions, trade secrets, software and computer code (whether in object code or source code format), databases, know-how or other non-public, confidential or proprietary knowledge, information or data with respect to the products, prices, marketing, services, operations, finances, business or affairs of the Company or its subsidiaries and affiliates or with respe ct to confidential, proprietary or secret processes, methods, inventions, services, research, techniques, customers (including, without limitation, the identity of the customers of the Company or its subsidiaries and affiliates and the specific nature of the services provided by the Company or its subsidiaries and affiliates), employees (including, without limitation, the matters subject to this Agreement) or plans of or with respect to the Company or its subsidiaries and affiliates or the terms of this Agreement (all of the foregoing collectively hereinafter referred to as, “ Confidential Information ”) are property of the Company or its applicable subsidiaries or affiliates. The Executive further acknowledges that the Company and its subsidiaries and affiliates intend, and make reasonable good faith efforts, to protect the Confidential Information from public disclosure. Therefore, the Executive agrees that, except as (a) required by law or regulation or as legally compelled by court order ( provided that in such case, the Executive shall promptly notify the Company of such order, shall cooperate with the Company in attempting to obtain a protective order or to otherwise restrict such disclosure, and shall only disclose Confidential Information to the minimum extent necessary to comply with any such law, regulation or order) or (b) required in order to enforce his rights under this Agreement or any other agreement with the Company and/or its affiliates, during the Term and at all times thereafter, the Executive shall not, directly or indirectly, divulge, transmit, publish, copy, distribute, furnish or otherwise disclose or make accessible any Confidential Information, or use any Confidential Information for the benefit of anyone other than the Company and its subsidiaries and affiliates, unless and to the extent that the Confidential Information becomes generally known to and available for use by the general public by lawful means and other than as a result of the Executive’s acts or omissions or such disclosure is necessary in the course of the Executive’s proper performance of his duties under this Agreement.

(b) The Company and its subsidiaries and affiliates do not wish to incorporate any unlicensed or unauthorized material into their products or services. Therefore, the Executive agrees that he will not disclose to the Company, use in the Company's business, or cause the Company to use, any information or material which is a trade secret, or confidential or proprietary information, of any third party, including, but not limited to, any former employer, competitor or client, unless the Company has a right to receive and use such information or material. The Executive will not incorporate into his work any material or information which is subject to the copyrights of any third party unless the Company has a written agreement with such third party or otherwise has the right to receive and use such material or information.

7. Covenants.

(a) Nonsolicitation .

(i) Employees . The Executive shall not, while he is employed by the Company and during the one- year period following his termination of employment for any reason (the “ Restricted Period ”), directly or indirectly, (1) employ, cause to be employed or hired, recruit, solicit for employment or otherwise contract for the services of, any individual who was or is an employee of the Company or any of its subsidiaries or affiliates; (2) otherwise induce or attempt to induce any employee of the Company or any of its subsidiaries or affiliates to terminate such individual’s employment with the Company or such subsidiary or affiliate, or in any way interfere with the relationship between the Company or any such subsidiary or affiliate and any such employee.

(ii) Customers . The Executive shall not, while he is employed by the Company and during the Restricted Period, solicit, contact, call upon, communicate with, or attempt to solicit, contact, call upon, communicate with any Protected Customer (as hereinafter defined) to directly discourage such Protected Customer from doing business with the Company or any of its subsidiaries or affiliates. For purposes of this Section 7, “ Protected Customer ” means any individual or entity to whom the Company or any subsidiary or affiliate thereof has sold products or services or solicited to sell products or services during the final twelve (12) months of Executive’s employment by the Company.

(b) Company IP; Work Product.

(i) “ Intellectual Property ” means all intellectual property and industrial property recognized by applicable requirements of law and all physical or tangible embodiments thereof, including all of the following, whether domestic or foreign: (1) patents and patent applications, patent disclosures and inventions (whether or not patentable), as well as any reissues, continuations, continuations in part, divisions, revisions, renewals, extensions or reexaminations thereof; (2) registered and unregistered trademarks, service marks, trade names, trade dress, logos, slogans and corporate names, and other indicia of origin, pending trademark and service mark registration applications, and intent-to-use registrations or similar reservations of marks; (3) registered and unregistered copyrights and mask works, and applications for registration of either; (4) Internet domain names, applications and reservations therefor, uniform resource locators and the corresponding Internet websites (including any content and other materials accessible and/or displayed thereon); (5) Confidential Information; and (6) intellectual property and proprietary information not otherwise listed in (1) through (6) above, including unpatented inventions, invention disclosures, rights of publicity, rights of privacy, moral and economic rights of authors and inventors (however denominated), methods, artistic works, works of authorship, industrial and other designs, methods, processes, technology, patterns, techniques, data, plant variety rights and all derivatives, improvements and refinements thereof, howsoever recorded, or unrecorded; and (7) any goodwill associated with any of the foregoing, damages and payments for past or future infringements and misappropriations thereof, and all rights to sue for past, present and future infringements or misappropriations thereof.

(ii) Work Product . The Executive agrees to promptly disclose to the Company any and all work product, including Intellectual Property relating to the business of the Company and any of its affiliates, that is created, developed, acquired, authored, modified, composed, invented, discovered, performed, reduced to practice, perfected, or learned by the Executive (either solely or jointly with others) directly relating to the Company’s and its affiliates’ business or within the scope of Executive’s employment during the Term (collectively, “ Work Product ,” and together with such Intellectual Property as may be owned, used, held for use, or acquired by the Company and its affiliates, the “ Company IP ”). The Company IP, including the Work Product, is and shall be the sole and exclusive property of the Company and its affiliates, as applicable. All Work Product that is copyrightable subject matter shall be considered a “work made for hire” to the extent permitted under applicable copyright law (including within the meaning of Title 17 of the United States Code) and will be considered the sole property of the Company. To the extent such Work Product is not considered a “work made for hire,” Executive hereby grants, transfers, assigns, conveys and relinquishes, without any requirement of further consideration, all right, title, and interest to the Work Product (whether now or hereafter existing, including all associated goodwill, damages and payments for past or future infringements and misappropriations thereof and rights to sue for past and future infringements and misappropriates thereof) to the Company in perpetuity or for the longest period permitted under applicable law. The Executive agrees, at the Company’s expense, to execute any documents requested by the Company or any of its affiliates at any time to give full and proper effect to such assignment. The Executive acknowledges and agrees that the Company is and will be the sole and absolute owner of all Intellectual Property, including all Company IP. The Executive will cooperate with the Company and any of its affiliates, at no additional cost to such parties (whether during or after the Term), in the confirmation, registration, protection and enforcement of the rights and property of the Company and its affiliates in such intellectual property, materials and assets, including, without limitation, the Company IP. The Executive hereby waives any so-called “moral rights of authors” in connection with the Work Product and acknowledges and agrees that the Company may use, exploit, distribute, reproduce, advertise, promote, publicize, alter, modify or edit the Work Product or combine the Work Product with other works including other Company IP, at the Company’s sole discretion, in any format or medium hereafter devised. The Executive further waives any and all rights to seek or obtain any injunctive or equitable relief in connection with the Work Product. Notwithstanding the above, the Executive shall have the right, subject to Section 6 hereof, to author or collaborate on one or more books or other similar works (in whatever form, including written, electronic or otherwise) on any topic(s) whatsoever (including discussion of his experiences as an employee of the Company) (each, a “ Book ”), and any such Book shall not be deemed Work Product or Company IP, and the Company shall have no claim to any rights, title or interest in any such Book.

(c) Company Property . All Confidential Information, Company IP, files, records, correspondence, memoranda, notes or other documents (including, without limitation, those in computer-readable form) or property relating or belonging to the Company and its subsidiaries and affiliates, whether prepared by the Executive or otherwise coming into his possession or control in the course of the performance of his services under this Agreement, shall be the exclusive property of the Company and shall be delivered to the Company, and not retained by the Executive (including, without limitation, any copies thereof), promptly upon request by the Company and, in any event, promptly upon termination of Executive’s employment hereunder. Upon termination of Executive’s employment hereunder, the Executive shall have no rights to and shall make no further use of any Company IP, including Work Product. The Executive acknowledges and agrees that he has no expectation of privacy with respect to the Company’s telecommunications, networking or information processing systems (including, without limitation, stored computer files, email messages and voice messages), and that the Executive’s activity and any files or messages on or using any of those systems may be monitored at any time without notice. Nothing in this Section 7 shall require the Executive to return to the Company any computers or telecommunication equipment or tangible property which he owns, including, but not limited to, personal computers, phones and tablet devices; provided , however , that Executive shall identify each such device or item to the Company prior to termination of employment and afford the Company a reasonable opportunity to remove from all such devices or items any confidential or proprietary information of the Company stored or programmed thereon.

(d) Enforcement . The Executive acknowledges that a breach of his covenants and agreements contained in Sections 6 and 7 would cause irreparable damage to the Company and its subsidiaries and affiliates, the exact amount of which would be difficult to ascertain, and that the remedies at law for any such breach or threatened breach would be inadequate. Accordingly, the Executive agrees that if he breaches or threatens to breach any of the covenants or agreements contained in Sections 6 and 7 , in addition to any other remedy which may be available at law or in equity, the Company and its subsidiaries and affiliates shall be entitled to institute and prosecute proceedings in any court of competent jurisdiction for specific performance and injunctive and other equitable relief to prevent the breach or any threatened breach thereof without bond or other security or a showing of irreparable harm or lack of an adequate remedy at law. Additionally, upon a material breach by Executive of Section 6 or Section 7 , the unvested Restricted Stock (and any other stock-based awards held by the Executive) shall be automatically canceled and forfeited without any further action. The Company and the Executive further acknowledge that the time, scope, geographic area and other provisions of Sections 6 and 7 have been specifically negotiated by sophisticated commercial parties and agree that they consider the restrictions and covenants contained in Sections 6 and 7 to be reasonable and necessary for the protection of the interests of the Company and its subsidiaries and affiliates, but if any such restriction or covenant shall be held by any court of competent jurisdiction to be void but would be valid if deleted in part or reduced in application, such restriction or covenant shall apply in such jurisdiction with such deletion or modification as may be necessary to make it valid and enforceable. The Executive acknowledges and agrees that the restrictions and covenants contained in Sections 6 and 7 shall be construed for all purposes to be separate and independent from any other covenant, whether in this Agreement or otherwise, and shall each be capable of being reduced in application or severed without prejudice to the other restrictions and covenants or to the remaining provisions of this Agreement. The existence of any claim or cause of action by the Executive against the Company or any of its subsidiaries and affiliates, whether predicated upon this Agreement or otherwise, shall not excuse the Executive’s breach of any covenant, agreement or obligation contained in Section 6 or Section 7 and shall not constitute a defense to the enforcement by the Company or any of its subsidiaries of such covenant, agreement or obligation; provided , howeve r, that if upon termination of this Agreement by the Company without “Cause” or by Executive for “Good Reason”, the Company defaults on any obligation to pay Executive any amount due and owing Executive under Section 5(j)(ii)(1) , then, until such time that the Company has paid such amounts to Executive, Executive shall not be required to comply with the undertakings set forth in Section 7(a) .

8. Indemnification. The Company shall indemnify the Executive for actions taken by the Executive as an officer or director of the Company pursuant to the fullest extent permitted by law; provided , however , that the Company shall not indemnify the Executive for any losses incurred by the Executive as a result of or in connection with (a) acts or omissions described in Section 5(f), or (b) a cause of action by Executive against the Company or its affiliates or their respective directors, officers, agents, representatives or employees. If the Executive has any knowledge of any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, as to which the Executive may request indemnity under this provision, the Executive shall give the Company prompt written notice thereof. The Company shall be entitled to assume the defense of any such proceeding, and the Executive shall cooperate with such defense.

9. Section 409A of the Code.

(a) It is intended that the provisions of this Agreement comply with Section 409A of Code and the regulations and guidance promulgated thereunder (collectively “ Code Section 409A ”), and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A. If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause the Executive to incur any additional tax or interest under Code Section 409A, the Company shall, upon the specific request of the Executive, use its reasonable business efforts to in good faith reform such provision to comply with Code Section 409A; provided , that to the maximum extent practicable, the original intent and economic benefit to the Executive and the Company of the applicable provision shall be maintained, but the Company shall have no obligation to make any changes that could create any additional economic cost or loss of benefit to the Company. Notwithstanding the foregoing, the Company shall have no liability with regard to any failure to comply with Code Section 409A so long as it has acted in good faith with regard to compliance therewith.

(b) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “Separation from Service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “resignation,” “termination,” “termination of employment” or like terms shall mean Separation from Service. Any provision of this Agreement to the contrary notwithstanding, if at the time of the Executive’s Separation from Service, the Company determines that the Executive is a “Specified Employee,” within the meaning of Code Section 409A, based on an identification date of December 31, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of such separation from service would be considered nonqualified deferred compensation under Code Section 409A, such payment or benefit shall be paid or provided at the date which is the earlier of (i) six (6) months and one day after such separation from service, and (ii) the date of the Executive’s death (the “ Delay Period ”). Within five days of the end of the Delay Period, all payments and benefits delayed pursuant to this Section 10(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or provided to the Executive in a lump-sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

(c) With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Code Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense was incurred.

(d) Each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Code Section 409A.

10. Miscellaneous.

(a) This Agreement shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with those laws. The Company and Executive unconditionally consent to submit to the exclusive jurisdiction of the New York State Supreme Court, County of New York or the United States District Court for the Southern District of New York for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby (and agree not to commence any action, suit or proceeding relating thereto except in such courts), and further agree that service of any process, summons, notice or document by registered mail to the address set forth below shall be effective service of process for any action, suit or proceeding brought against the Company or the Executive, as the case may be, in any such court.

(b) Executive may not delegate his duties or assign his rights hereunder. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company other than pursuant to a merger or consolidation in which the Company is not the continuing entity, or a sale, liquidation or other disposition of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets or businesses of the Company and assumes the liabilities, obligations and duties of the Company under this Agreement, either contractually or by operation of law. For the purposes of this Agreement, the term “Company” shall include the Company and, subject to the foregoing, any of its successors and assigns. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.

(c) The invalidity or unenforceability of any provision hereof shall not in any way affect the validity or enforceability of any other provision. This Agreement reflects the entire understanding between the parties.

(d) This Agreement represents the entire understanding of the Executive and the Company with respect to the employment of the Executive by the Company and contain all of the covenants and agreements between the parties with respect to such employment. Any modification or termination of this Agreement will be effective only if it is in writing signed by the party to be charged.

(e) This Agreement may be executed by the parties in one or more counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto.

(f) All amounts payable hereunder shall be subject to the withholding of all applicable taxes and deductions required by any applicable law.

11. Notices. All notices relating to this Agreement shall be in writing and shall be either personally delivered, sent by telecopy (receipt confirmed) or mailed by certified mail, return receipt requested, to be delivered at such address as is indicated below, or at such other address or to the attention of such other person as the recipient has specified by prior written notice to the sending party. Notice shall be effective when so personally delivered, one business day after being sent by telecopy or five days after being mailed.

To the Company:

Sequential Brands Group, Inc.

1065 Avenue of Americas

New York, NY 10018

Attention: Yehuda Shmidman

With a copy to:

Sequential Brands Group, Inc.

c/o Tengram Capital Management, LLC

15 Riverside Avenue

Westport, CT 06880

Attention: Andrew R. Tarshis

To the Executive:

[signature pages follows]

IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the 3 ^rd day of June, 2014.

SEQUENTIAL BRANDS GROUP, INC.

By:	/s/ William Sweedler
	William Sweedler
	Chairman

EXECUTIVE

By:	/s/ Gary Klein
	Gary Klein
	CFO

EXHIBIT 31.1

Certification of CEO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Yehuda Shmidman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sequential Brands Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2014

	/s/ Yehuda Shmidman
	Yehuda Shmidman
	Chief Executive Officer

EXHIBIT 31.2

Certification of CFO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Gary Klein, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sequential Brands Group, Inc.;

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2014

	/s/ Gary Klein
	Gary Klein
	Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2014 (the “Report”) by Sequential Brands Group, Inc. (“Registrant”), the undersigned hereby certifies that:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.

Date: August 14, 2014	/s/ Yehuda Shmidman
	Yehuda Shmidman
	Chief Executive Officer

Date: August 14, 2014	/s/ Gary Klein
	Gary Klein
	Chief Financial Officer