SEC Comment Letter for XCel Brands, Inc. (XELB) (CIK 0001083220) (XELB) — Jan 9, 2012
XCel Brands, Inc. (XELB) (CIK 0001083220)
Date: Jan. 9, 2012 · CIK: 0001083220 · Accession: 0000000000-12-001136
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-31553
Referenced dates: November 3, 2011
Letter
January 6, 2012 Via E-Mail Robert W. D’Loren, Chief Executive Officer Xcel Brands, Inc. 475 10th Avenue, 4th Floor New York, NY 10018 Re: Xcel Brands, Inc. Amendment No. 1 to Form 8-K for th e Report Date of September 29, 2011 Filed December 15, 2011 Form 10-Q for the Fiscal Quarter Ended September 30, 2011 Filed November 23, 2011 File No. 000-31553
Dear Mr. D’Loren: We have reviewed your filings and have th e following comments. References to prior comments are to those in our letter dated November 3, 2011. Form 8-K/A filed December 15, 2011
Description of Business
Licensing Business, page 13
1. We note your responses to prior comments 15 and 16 and we reissue them in part. On page 17 of your amended current report, you disclose the LCNY Agreement accounted for 30% of your total revenue for the six months ended June 30, 2011 and 35% of your total revenue for the year ended December 31, 2010. Your response letter indicates that the LCNY Agreement only accounted for 4% and 7% of IM Brands’ revenue for fiscal years 2010 and 2011, respectively. Please revise to reconcile these differences and provide us a detailed analysis why you believe that the LCNY Agreement is not a material agreement under Item 601(b)(10)(i i)(B) of Regulation S-K. If the LCNY Agreement-related revenue is not material or a significant part of your business, you should indicate so as part of your discu ssion of the LCNY Agreement in your business section.
Robert W. D’Loren Xcel Brands, Inc. January 6, 2012 Page 2
Management’s Discussion and Analysis, page 37 2. We note your responses to prior comments 23 and 26 and we reissue them in part. Based on your disclosure on pages 47 and 48, it a ppears your financial covenants require a minimum consolidated quarterly EBITDA of $2,500,000 by June 30, 2012 and $4,000,000 by September 30, 2012. These amounts appear to greatly exceed the Company’s most recently disclosed quarterly co nsolidated EBITDA. Please advise us if more detailed disclosures, both quantitativ e and qualitative, are necessary to discuss whether you may have difficulty in meeting your financial covenants or are dependent on substantial growth in revenues to meet them in the next 12 months. Directors and Executive Officers, page 49
3. We note your response to prior comment 29 and we reissue it in part. Please revise to provide a brief description of Mr. Mizrahi’s current outside busine ss activities, pursuant to the Retained Media Rights or otherwise, th at consume a material portion of his time. If significant, please revise to clarify the approximate percentage of his time Mr. Mizrahi devotes to activities outside of his scope of employment with the Company and its subsidiaries. Changes and Disagreements with Accountants
Item 4.01 Changes in Registrant’s Certifying Accountant, page 78
4. We note your revisions in response to prior comment 40. However, it appears that your revised disclosure refers to the period up to any interim unaudited financial statements through September 29, 2011, rather than the s ubsequent interim period preceding the dismissal of your former auditor. Please amend your Form 8-K to state whether there were any reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K that occurred during the two most recent fiscal years and any subsequent interim period preceding the dismissal of your former audi tor (i.e., during the years ended December 31, 2010 and 2009, and the subsequent interim pe riod through September 29, 2011). Include an updated letter from your former auditor addressing your revised disclosure as an exhibit to your Form 8-K/A. Exhibit 99.1
Audited Consolidated Financial Statements for the Years Ended December 31, 2010 and 2009, and Unaudited Consolidated Financial Statements for the Six Months Ended June 30, 2011 of the Isaac Mizrahi Business 5. We note that, in response to prior comme nt 41, you have presented full carve-out financial statements of IM Ready’s Isaac Mi zrahi Business and you indicate that these
Robert W. D’Loren Xcel Brands, Inc. January 6, 2012 Page 3
financial statements are in compliance with the requirements of SAB Topic 1B.1. Tell us what consideration you gave to also incl uding the following disc losures pursuant to Questions 2 and 4 of SAB Topic 1B.1 within the notes to the financial statements:
an explanation of the allocation method used to allocate common expenses to the IM Licensing Business;
an analysis of the in tercompany accounts; and
the average balance due to or from rela ted parties for each period for which an income statement is required.
Ensure that any changes to your notes to the fi nancial statements are also reflected in the Isaac Mizrahi Business Financial Statements in cluded as an exhibit to your Form 10-Q for the quarterly period ended September 30, 2011 as well as future filings. Exhibit 99.2
Unaudited Pro Forma Condensed Combined Financ ial Statements of Old XCel and the Isaac Mizrahi Business for the si x months ended June 30, 2011 Note II
6. We note that the historical carrying value of accounts receivable of the IM Licensing Business have been eliminated in the adju stments to your unaudited pro forma condensed combined balance sheet. However, you indica te on page 7 that the assets acquired from IM Ready included proceeds from accounts receivable relating to the Isaac Mizrahi business. Please explain how the acquired acco unts receivable are reflected in your pro forma financial statements. Form 10-Q for the Quarterly Period Ended September 30, 2011
Notes to Unaudited Condensed Consolidated Financial Statements
Note 4. Debt
Seller Note, page 11
7. Explain your accounting for the option to convert the Seller Note into a variable number of common shares. In this rega rd, tell us whether this repr esents an embedded derivative to be bifurcated and marked to fair va lue. Refer to ASC 815-10-15-74 and ASC 815-40- 25. Clarify whether the holder ha s the option to convert the not e if the maturity date is not extend.
Robert W. D’Loren Xcel Brands, Inc. January 6, 2012 Page 4
Please respond to this letter within ten business days by amending your filing, by providing the requested information, or by advi sing us when you will provide the requested response.
You may contact Melissa Wa lsh, Staff Accountant, at (202) 551-3224 or Stephen Krikorian, Accounting Branch Chief, at ( 202) 551-3488 if you have questions regarding comments on the financial statements and relate d matters. Please contact Edwin Kim at (202) 551-3297 or me at (202) 551-3456 with any other que stions. If you need additional assistance, you may contact Barbara C. Jacobs, A ssistant Director, at (202) 551-3730.
S i n c e r e l y , /s/ Matthew Crispino Matthew Crispino Staff Attorney cc: Brad Shiffman, Esq. Blank Rome LLP
Show Raw Text
January 6, 2012
Via E-Mail
Robert W. D’Loren, Chief Executive Officer Xcel Brands, Inc. 475 10th Avenue, 4th Floor New York, NY 10018
Re: Xcel Brands, Inc.
Amendment No. 1 to Form 8-K for th e Report Date of September 29, 2011
Filed December 15, 2011 Form 10-Q for the Fiscal Quarter Ended September 30, 2011
Filed November 23, 2011
File No. 000-31553
Dear Mr. D’Loren:
We have reviewed your filings and have th e following comments. References to prior
comments are to those in our letter dated November 3, 2011.
Form 8-K/A filed December 15, 2011
Description of Business
Licensing Business, page 13
1. We note your responses to prior comments 15 and 16 and we reissue them in part. On
page 17 of your amended current report, you disclose the LCNY Agreement accounted for 30% of your total revenue for the six months ended June 30, 2011 and 35% of your
total revenue for the year ended December 31, 2010. Your response letter indicates that
the LCNY Agreement only accounted for 4% and 7% of IM Brands’ revenue for fiscal
years 2010 and 2011, respectively. Please revise to reconcile these differences and
provide us a detailed analysis why you believe that the LCNY Agreement is not a
material agreement under Item 601(b)(10)(i i)(B) of Regulation S-K. If the LCNY
Agreement-related revenue is not material or a significant part of your business, you
should indicate so as part of your discu ssion of the LCNY Agreement in your business
section.
Robert W. D’Loren
Xcel Brands, Inc. January 6, 2012 Page 2
Management’s Discussion and Analysis, page 37
2. We note your responses to prior comments 23 and 26 and we reissue them in part. Based
on your disclosure on pages 47 and 48, it a ppears your financial covenants require a
minimum consolidated quarterly EBITDA of $2,500,000 by June 30, 2012 and
$4,000,000 by September 30, 2012. These amounts appear to greatly exceed the
Company’s most recently disclosed quarterly co nsolidated EBITDA. Please advise us if
more detailed disclosures, both quantitativ e and qualitative, are necessary to discuss
whether you may have difficulty in meeting your financial covenants or are dependent on
substantial growth in revenues to meet them in the next 12 months.
Directors and Executive Officers, page 49
3. We note your response to prior comment 29 and we reissue it in part. Please revise to
provide a brief description of Mr. Mizrahi’s current outside busine ss activities, pursuant
to the Retained Media Rights or otherwise, th at consume a material portion of his time.
If significant, please revise to clarify the approximate percentage of his time Mr. Mizrahi
devotes to activities outside of his scope of employment with the Company and its
subsidiaries.
Changes and Disagreements with Accountants
Item 4.01 Changes in Registrant’s Certifying Accountant, page 78
4. We note your revisions in response to prior comment 40. However, it appears that your
revised disclosure refers to the period up to any interim unaudited financial statements
through September 29, 2011, rather than the s ubsequent interim period preceding the
dismissal of your former auditor. Please amend your Form 8-K to state whether there
were any reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K that
occurred during the two most recent fiscal years and any subsequent interim period
preceding the dismissal of your former audi tor (i.e., during the years ended December 31,
2010 and 2009, and the subsequent interim pe riod through September 29, 2011). Include
an updated letter from your former auditor addressing your revised disclosure as an
exhibit to your Form 8-K/A.
Exhibit 99.1
Audited Consolidated Financial Statements for the Years Ended December 31, 2010 and 2009,
and Unaudited Consolidated Financial Statements for the Six Months Ended June 30, 2011 of the
Isaac Mizrahi Business
5. We note that, in response to prior comme nt 41, you have presented full carve-out
financial statements of IM Ready’s Isaac Mi zrahi Business and you indicate that these
Robert W. D’Loren
Xcel Brands, Inc. January 6, 2012 Page 3
financial statements are in compliance with the requirements of SAB Topic 1B.1. Tell us
what consideration you gave to also incl uding the following disc losures pursuant to
Questions 2 and 4 of SAB Topic 1B.1 within the notes to the financial statements:
an explanation of the allocation method used to allocate common expenses to the IM
Licensing Business;
an analysis of the in tercompany accounts; and
the average balance due to or from rela ted parties for each period for which an
income statement is required.
Ensure that any changes to your notes to the fi nancial statements are also reflected in the
Isaac Mizrahi Business Financial Statements in cluded as an exhibit to your Form 10-Q
for the quarterly period ended September 30, 2011 as well as future filings.
Exhibit 99.2
Unaudited Pro Forma Condensed Combined Financ ial Statements of Old XCel and the Isaac
Mizrahi Business for the si x months ended June 30, 2011
Note II
6. We note that the historical carrying value of accounts receivable of the IM Licensing
Business have been eliminated in the adju stments to your unaudited pro forma condensed
combined balance sheet. However, you indica te on page 7 that the assets acquired from
IM Ready included proceeds from accounts receivable relating to the Isaac Mizrahi
business. Please explain how the acquired acco unts receivable are reflected in your pro
forma financial statements.
Form 10-Q for the Quarterly Period Ended September 30, 2011
Notes to Unaudited Condensed Consolidated Financial Statements
Note 4. Debt
Seller Note, page 11
7. Explain your accounting for the option to convert the Seller Note into a variable number
of common shares. In this rega rd, tell us whether this repr esents an embedded derivative
to be bifurcated and marked to fair va lue. Refer to ASC 815-10-15-74 and ASC 815-40-
25. Clarify whether the holder ha s the option to convert the not e if the maturity date is
not extend.
Robert W. D’Loren
Xcel Brands, Inc. January 6, 2012 Page 4
Please respond to this letter within ten business days by amending your filing, by
providing the requested information, or by advi sing us when you will provide the requested
response.
You may contact Melissa Wa lsh, Staff Accountant, at (202) 551-3224 or Stephen
Krikorian, Accounting Branch Chief, at ( 202) 551-3488 if you have questions regarding
comments on the financial statements and relate d matters. Please contact Edwin Kim at (202)
551-3297 or me at (202) 551-3456 with any other que stions. If you need additional assistance,
you may contact Barbara C. Jacobs, A ssistant Director, at (202) 551-3730.
S i n c e r e l y , /s/ Matthew Crispino
Matthew Crispino
Staff Attorney
cc: Brad Shiffman, Esq. Blank Rome LLP