JOE'S JEANS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
November 30,
2013
|
|
November 30,
2012
|
|
November 30,
2011
|
|
Net sales
|
|
$
|
140,183
|
|
$
|
118,642
|
|
$
|
95,420
|
|
Cost of goods sold
|
|
|
77,844
|
|
|
62,472
|
|
|
52,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
62,339
|
|
|
56,170
|
|
|
43,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
54,126
|
|
|
43,997
|
|
|
41,617
|
|
Depreciation and amortization
|
|
|
2,541
|
|
|
1,456
|
|
|
1,168
|
|
Contingent consideration buy-out expense
|
|
|
8,732
|
|
|
|
|
|
|
|
Retail stores impairment
|
|
|
|
|
|
|
|
|
1,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,399
|
|
|
45,453
|
|
|
43,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(3,060
|
)
|
|
10,717
|
|
|
(565
|
)
|
Interest expense, net
|
|
|
2,562
|
|
|
376
|
|
|
484
|
|
Other expense
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
|
(5,831
|
)
|
|
10,341
|
|
|
(1,049
|
)
|
Income tax provision
|
|
|
1,483
|
|
|
4,776
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income and comprehensive (loss) income
|
|
$
|
(7,314
|
)
|
$
|
5,565
|
|
$
|
(1,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common sharebasic
|
|
$
|
(0.11
|
)
|
$
|
0.08
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common sharediluted
|
|
$
|
(0.11
|
)
|
$
|
0.08
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
67,163
|
|
|
65,496
|
|
|
64,001
|
|
Diluted
|
|
|
67,163
|
|
|
66,849
|
|
|
64,001
|
|
The accompanying notes are an integral part of these financial statements.
F-3
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In Capital
|
|
Accumulated
Deficit
|
|
Treasury
Stock
|
|
Total
Stockholders'
Equity
|
|
|
|
Shares
|
|
Par Value
|
|
Balance, November 30, 2010
|
|
|
64,131
|
|
$
|
6,415
|
|
$
|
104,364
|
|
$
|
(42,849
|
)
|
$
|
(3,057
|
)
|
$
|
64,873
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(1,365
|
)
|
|
|
|
|
(1,365
|
)
|
Stock-based compensation, net of withholding taxes
|
|
|
|
|
|
|
|
|
1,278
|
|
|
|
|
|
|
|
|
1,278
|
|
Stock repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
(34
|
)
|
Issuance of restricted common stock
|
|
|
1,346
|
|
|
135
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
Excess tax benefit on stock-based compensation
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2011
|
|
|
65,477
|
|
|
6,550
|
|
|
105,512
|
|
|
(44,214
|
)
|
|
(3,091
|
)
|
|
64,757
|
|
Net income and comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
5,565
|
|
|
|
|
|
5,565
|
|
Stock-based compensation, net of withholding taxes
|
|
|
|
|
|
|
|
|
1,423
|
|
|
|
|
|
|
|
|
1,423
|
|
Exercise of stock options
|
|
|
20
|
|
|
2
|
|
|
18
|
|
|
|
|
|
|
|
|
20
|
|
Issuance of restricted common stock
|
|
|
1,797
|
|
|
180
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
Excess tax benefit on stock-based compensation
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2012
|
|
|
67,294
|
|
|
6,732
|
|
|
106,747
|
|
|
(38,649
|
)
|
|
(3,091
|
)
|
|
71,739
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(7,314
|
)
|
|
|
|
|
(7,314
|
)
|
Stock-based compensation, net of withholding taxes
|
|
|
|
|
|
|
|
|
1,127
|
|
|
|
|
|
|
|
|
1,127
|
|
Exercise of stock options
|
|
|
22
|
|
|
2
|
|
|
25
|
|
|
|
|
|
|
|
|
27
|
|
Issuance of restricted common stock
|
|
|
1,562
|
|
|
156
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
Excess tax benefit on stock-based compensation
|
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2013
|
|
|
68,878
|
|
$
|
6,890
|
|
$
|
107,933
|
|
$
|
(45,963
|
)
|
$
|
(3,091
|
)
|
$
|
65,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-4
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
November 30,
2013
|
|
November 30,
2012
|
|
November 30,
2011
|
|
Net (loss) income
|
|
$
|
(7,314
|
)
|
$
|
5,565
|
|
$
|
(1,365
|
)
|
Adjustment to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,151
|
|
|
1,456
|
|
|
1,168
|
|
Change in fair value of embedded conversion derivative
|
|
|
204
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
390
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
70
|
|
|
|
|
|
|
|
Amortization of convertible notes discount
|
|
|
257
|
|
|
|
|
|
|
|
Amortization of term loan discount
|
|
|
40
|
|
|
|
|
|
|
|
Retail stores impairment
|
|
|
|
|
|
|
|
|
1,144
|
|
Stock-based compensation
|
|
|
1,687
|
|
|
1,847
|
|
|
1,808
|
|
Excess tax benefit on stock-based compensation
|
|
|
190
|
|
|
(26
|
)
|
|
5
|
|
Provision for non-factored customer credits and doubtful accounts
|
|
|
(32
|
)
|
|
(121
|
)
|
|
(211
|
)
|
Decrease in deferred taxes
|
|
|
153
|
|
|
3,591
|
|
|
97
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,514
|
)
|
|
851
|
|
|
1,043
|
|
Factored accounts receivable
|
|
|
918
|
|
|
|
|
|
|
|
Inventories
|
|
|
878
|
|
|
(8,056
|
)
|
|
6,983
|
|
Prepaid expenses and other assets
|
|
|
945
|
|
|
(680
|
)
|
|
(8
|
)
|
Accounts payable and accrued expenses
|
|
|
3,243
|
|
|
394
|
|
|
126
|
|
Contingent consideration liability
|
|
|
8,732
|
|
|
|
|
|
|
|
Payment of contingent consideration buy-out
|
|
|
(2,430
|
)
|
|
|
|
|
|
|
Due to/from related parties
|
|
|
(195
|
)
|
|
450
|
|
|
(550
|
)
|
Deferred rent
|
|
|
609
|
|
|
511
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
7,982
|
|
|
5,782
|
|
|
10,606
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Purchase of Hudson Clothing, Inc.,net of cash acquired
|
|
|
(65,218
|
)
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(2,135
|
)
|
|
(2,779
|
)
|
|
(2,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(67,353
|
)
|
|
(2,779
|
)
|
|
(2,055
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Payments on factor borrowing, net
|
|
|
(27,359
|
)
|
|
(1,863
|
)
|
|
(1,707
|
)
|
Payment of deferred financing costs
|
|
|
(3,051
|
)
|
|
|
|
|
|
|
Proceeds from line of credit, net
|
|
|
17,673
|
|
|
|
|
|
|
|
Proceeds from term loan
|
|
|
60,000
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
27
|
|
|
20
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
(34
|
)
|
Payment of taxes on restricted stock units
|
|
|
(560
|
)
|
|
(424
|
)
|
|
(530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
46,730
|
|
|
(2,267
|
)
|
|
(2,271
|
)
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(12,641
|
)
|
|
736
|
|
|
6,280
|
|
CASH AND CASH EQUIVALENTS, at beginning of year
|
|
|
13,426
|
|
|
12,690
|
|
|
6,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, at end of year
|
|
$
|
785
|
|
$
|
13,426
|
|
$
|
12,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-5
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Description and Basis of Presentation
Our principal business activity involves the design, development and worldwide marketing of apparel products, which include denim jeans, related casual wear and accessories that bear the
brand Joe's® and Hudson®. Our primary current operating subsidiaries are Joe's Jeans Subsidiary Inc., or Joe's Jeans Subsidiary and Hudson Clothing LLC, or
Hudson. In addition, we have other subsidiaries, including Joe's Jeans Retail Subsidiary, Inc., Innovo West Sales Inc., Hudson Clothing Holdings, Inc. and HC
Acquisition Inc. All significant inter-company transactions have been eliminated. We completed the acquisition of Hudson on September 30, 2013 and the information presented includes the
results of operations of Hudson from the date of acquisition.
Our
reportable business segments are Wholesale and Retail. We manage, evaluate and aggregate our operating segments for segment reporting purposes primarily on the basis of business
activity and operation. Our Wholesale segment is comprised of sales of Joe's® and Hudson® products to retailers, specialty stores and international distributors, includes
revenue from licensing agreements and records expenses from sales, trade shows, distribution, product samples and customer service departments. Our Retail segment is comprised of sales to consumers
through full price retail stores, outlet stores and through our online retail sites at
www.joesjeans.com
and our
www.hudsonjeans.com
. We opened our first
full price retail store in October 2008 in Chicago, Illinois and we currently operate 14 full price retail
stores and 20 outlet stores in outlet centers, malls and street locations around the country for our Joe's® brand. Our Corporate and other is comprised of expenses from corporate
operations, which include the executive, finance, legal, human resources, design and production departments and general advertising expenses associated with our brands. Our fiscal year end is
November 30. Each fiscal year, as presented, is 52 weeks.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Revenue Recognition
Wholesale revenues are recorded on the accrual basis of accounting when title transfers to the customer, which is typically at the
shipping point. We record estimated reductions to revenue for customer programs, including co-op advertising, other advertising programs or allowances, based upon a percentage of sales. We also allow
for returns based upon pre-approval or in the case of damaged goods. Such returns are estimated based on historical experience and an allowance is provided at the time of sale.
Retail
store revenue is recognized net of estimated returns at the time of sale to consumers. E-commerce sales of products ordered through our retail internet sites known as
www.joesjeans.com and www.hudsonjeans.com are recognized upon estimated delivery and receipt of the shipment by the customers. E-commerce revenue is also reduced by an estimate of returns. Retail
store revenue and
E-commerce revenue exclude sales taxes. Revenue from licensing arrangements are recognized when earned in accordance with the terms of the underlying agreements, generally based upon the higher of
F-6
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
(a) contractually
guaranteed minimum royalty levels and (b) estimates of sales and royalty data received from our licensees. Payments received in consideration of the grant of a license
or advanced royalty payments are recognized ratably as revenue over the term of the license agreement and are reflected under the caption of "Deferred Licensing Revenue" on the Consolidated Balance
Sheets. The revenue recognized ratably over the term of the license agreement will not exceed royalty payments received. The unrecognized portion of the upfront payments are included in deferred
royalties and accrued expenses depending on the long or short term nature of the payments to be recognized. There were no advanced payments under our licensing agreements during our fiscal year ended
November 30, 2013 and 2012.
Accounts Receivable, Due To Factor and Allowance for Customer Credits and Doubtful Allowances
We evaluate our ability to collect on accounts receivable and charge-backs (disputes from the customer) based upon a combination of
factors. Whether a receivable is past due is based on how recently payments have been received and in certain circumstances where we are aware of a specific customer's inability to meet its financial
obligations (e.g., bankruptcy filings, substantial downgrading of credit sources). A specific reserve for bad debts is taken against amounts due to reduce the net recognized receivable to the
amount reasonably expected to be collected. Amounts are charged off against the reserve once it is established that amounts are not likely to be collected. We recognize reserves for charge-backs based
on our historical collection experience. See "Notes to Consolidated Financial StatementsNote 4Accounts Receivable, Inventory Advances and Due to Factor" for further
discussion.
Inventory
Inventory is valued at the lower of cost or market with cost determined by the first-in, first-out method. Inventory consists of
finished goods, work-in-process and raw materials. We continually evaluate our inventories by assessing slow moving current product. Market value of non-current inventory is estimated based on
historical sales trends for this category of inventory for individual product lines, the impact of market trends, an evaluation of economic conditions and the
value of current orders relating to future sales of this type of inventory. Inventory reserves establish a new cost basis for inventory. Such reserves are not reversed until the related inventory is
sold or otherwise disposed. Costs capitalized in inventory include the purchase price of raw materials, contract labor and finished goods, plus in-bound transportation costs and import fees and
duties. During the third quarter of fiscal 2011, we wrote down certain finished goods inventory by $1,620,000, representing the lower of cost or market adjustment.
Deferred Financing Costs
Deferred financing costs are amortized using the straight-line method over the term of the related agreements (five years) and recorded
as a component of interest expense in the accompanying consolidated statement of income. Amortization of deferred financing costs included in interest expense was approximately $70,000 for the year
ended November 30, 2013. We did not record any amortization of deferred financing cost for the years ended November 30, 2012 and 2011.
F-7
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Costs of Goods Sold
Costs of goods sold include product, freight in, freight out, inventory reserves, inventory markdowns and other various charges.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include salaries and benefits, travel and entertainment, professional fees, advertising,
marketing, sample expenses, stock based compensation expenses, facilities, fulfillment and distribution costs and payments made in connection with the earn-out consideration.
Earnings Per Share
Basic earnings per share, or EPS, is computed using the weighted average number of common shares outstanding during the period. Diluted
EPS is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period except for periods of net loss for which no common share equivalents are
included because their effect would be anti-dilutive. Dilutive common equivalent shares consist of common stock issuable upon exercise of stock options, restricted stock and restricted stock units
using the treasury stock method. Dilutive common stock equivalent shares issuable upon conversion of the convertible notes are calculated using the if-converted method.
Deferred Rent
When a lease includes lease incentives (such as a rent holiday) or requires fixed escalations of the minimum lease payments, rental
expense is recognized on a straight-line basis over the term of the lease and the difference between the average rental amount charged to expense and amounts payable under the lease is included in
deferred rent in the accompanying consolidated balance sheets.
Advertising Costs
Advertising costs are charged to expense as incurred, except in the case of seasonal media campaigns. The production and other related
costs of seasonal media campaigns are capitalized and amortized over the expected period of future benefits, which is typically six months or less.
Advertising
and tradeshow expenses included in selling, general and administrative expenses were approximately $4,306,000, $2,953,000 and $4,025,000 for fiscal 2013, 2012 and 2011,
respectively.
Financial Instruments
The fair values of our financial instruments (which consist of cash, accounts receivable, accounts payable, and due from factor) do not
differ materially from their recorded amounts because of the relatively short period of time between origination of the instruments and their expected realization. The fair value of our long term debt
and convertible notes is based on the amount of future cash flows associated with the instrument discounted using our incremental borrowing rate. At November 30, 2013, the carrying value of the
long term debt was not materially different from fair value.
F-8
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The
fair value of our convertible notes was $28,830,000 at November 30, 2013. The fair value of the embedded derivative in our convertible notes that was bifurcated and separately
valued was $5,700,000 at November 30, 2013. See "Notes to Consolidated Financial StatementsNote 8Debt" for further information regarding our derivative
liabilities and "Notes to Consolidated Financial StatementsNote 9Fair Value Disclosures" regarding our fair value disclosures.
We
do not hold or have any obligations under financial instruments that possess off-balance sheet credit or market risk.
Impairment of Long-Lived Assets and Intangibles
We assess the impairment of long-lived assets, identifiable intangibles and goodwill annually or whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger an impairment review other than on an annual basis include the
following:
-
-
A significant underperformance relative to expected historical or projected future operating results;
-
-
A significant change in the manner of the use of the acquired asset or the strategy for the overall business; or
-
-
A significant negative industry or economic trend.
When
we determine that the carrying value of long-lived assets, such as property and equipment and purchased intangibles subject to amortization, may not be recoverable based upon the
existence of one or more of the aforementioned factors and the carrying value exceeds the estimated undiscounted cash flows expected to be generated by the asset, impairment is measured based on a
projected discounted cash flow method using a discount rate determined by management. These cash flows are calculated by netting future estimated sales against associated merchandise costs and other
related expenses such as payroll, occupancy and marketing.
The
impairment loss calculations require management to apply judgment in estimating future cash flows and the discount rates that reflect the risk inherent in future cash flows. Future
expected cash flows for store assets are based on management's estimates of future cash flows over the remaining lease period or expected life, if shorter. We consider historical trends, expected
future business trends and other factors when estimating each store's future cash flow. We also consider factors such as: the local environment for each store location, including mall traffic and
competition; our ability to successfully implement strategic initiatives; and the ability to control variable costs such as cost of sales and payroll, and in some cases, renegotiate lease costs. The
estimated cash flows used for this nonrecurring fair value measurement are considered a Level 3 input as defined in Note 9. If actual results are not consistent with the assumptions and
judgments used in estimating future cash flows and asset fair values, there may be additional exposure to future impairment losses that could be material to our results of operations.
During
the third quarter of fiscal 2011, we recorded store impairment charges of $1,144,000 related to two of our full price retail stores. Based on the operating performance of these
stores, we believed that we could not recover the carrying value of property and equipment located at these stores. There was no impairment recorded during fiscal 2012 or fiscal 2013.
F-9
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Business
acquisitions are accounted for under the purchase method by assigning the purchase price to tangible and intangible assets acquired and liabilities assumed. Assets acquired and
liabilities assumed
are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Purchased intangible assets, such as customer relationships and designs, with
finite lives are amortized over their estimated useful lives. Goodwill and other intangible assets, such as trademarks, with indefinite lives are not amortized but are tested at least annually for
impairment.
In
fiscal 2007, we acquired through merger JD Holdings, which included all of the goodwill and intangible assets goodwill related to the Joe's®, Joe's Jeans and
JD® logo and marks. To date, we have not had to recognize any impairment related to the goodwill or intangible assets of our Joe's® brand. We have assigned an indefinite life
to these intangible assets and therefore, no amortization expenses are expected to be recognized. However, we test the assets for impairment annually in accordance with our critical accounting
policies.
On
September 30, 2013, we acquired Hudson, which included all of the goodwill and intangible assets related to the Hudson® logos and marks. To date, we have not
recognized any impairment related to the goodwill or intangible assets of our Hudson® brand. We have assigned an indefinite life to the trademark, and therefore, no amortization expenses
are expected to be recognized. However, we will test the assets for impairment annually in accordance with our critical accounting policies.
Goodwill
and other indefinite lived intangible assets at least annually using a two-step process. The first step is to determine the fair value of each reporting unit and compare this
value to its carrying value. The determination of the fair value of the reporting unit as a discounted cash flow analysis requires unobservable inputs (Level 3) within the fair value hierarchy
as defined in Note 9. If the fair value exceeds the carrying value, no further work is required and no impairment loss would be recognized. The second step is performed if the carrying value
exceeds the fair value of the assets. The implied fair value of the reporting unit's goodwill or indefinite lived intangible assets must be determined and compared to the carrying value of the
goodwill or indefinite lived intangible assets.
Our
annual impairment testing date is September 30 of each year. For fiscal 2013 and 2012, we determined that there was no impairment of our goodwill or indefinite lived
intangible assets.
Cash Equivalents
We consider all highly liquid investments that are both readily convertible into known amounts of cash and mature within 90 days
from their date of purchase to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash, cash
equivalents, accounts receivable and amounts due from factor. We maintain cash and cash equivalents with various financial institutions. The policy is designed to limit exposure to any one
institution. We perform periodic evaluations of the relative credit rating of those financial institutions that are considered in our investment strategy.
We
do not require collateral for trade accounts receivable. However, we sell a portion of our accounts receivable to CIT Commercial Services, Inc., or CIT, on a non-recourse
basis. In that instance, we are no longer at risk if the customer fails to pay. However, for accounts receivable that are not sold
F-10
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
to
CIT or sold on a recourse basis, we continue to be at risk if these customers fail to pay. We provide an allowance for estimated losses to be incurred in the collection of accounts receivable based
upon the aging of outstanding balances and other account monitoring analysis. The net carrying value approximates the fair value for these assets. Such losses have historically been within
management's expectations. Uncollectible accounts are written off once collection efforts are deemed by management to have been exhausted.
For
fiscal 2013, 2012 and 2011, sales to customers or customer groups representing greater than 10 percent of net sales are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Nordstrom, Inc.
|
|
|
30.4
|
%
|
|
22.3
|
%
|
|
25.5
|
%
|
Macy's Inc.
|
|
|
10.8
|
%
|
|
14.8
|
%
|
|
*
|
|
Our
10 largest customers and customer groups accounted for approximately 64 percent of our net sales during fiscal 2013. In addition, our international sales were $6,031,000,
$4,986,000 and $4,568,000 in fiscal 2013, 2012 and 2011, respectively.
Stock-Based Compensation
We measure the cost of all employee stock-based compensation awards based on the grant date fair value of those awards and record that
cost as compensation expense over the period during which the employee is required to perform service in exchange for the award (generally over the vesting period of the award). An entity may elect
either an accelerated recognition method or a straight-line recognition method for awards subject to graded vesting based on a service condition, regardless of how the fair value of the award is
measured. For all stock based compensation awards that contain graded vesting based on service conditions, we have elected to apply a straight-line recognition method to account for these awards.
Property and Equipment
Property and equipment are stated at the lower of cost or fair value in the case of impaired assets. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the lives of the respective leases or the estimated service lives of the improvements,
whichever is shorter. Maintenance and repairs are charged to expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation or amortization is removed from the
accounts, and any related gain or loss is included in the determination of net income.
Income Taxes
We use the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the
temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates.
F-11
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The likelihood of a material change in our expected realization
of these assets
depends on our ability to generate sufficient future taxable income. Our ability to generate enough taxable income to utilize our deferred tax assets depends on many factors, among which is our
ability to deduct tax loss carry-forwards against future taxable income, the effectiveness of tax planning strategies and reversing deferred tax liabilities.
We
recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based
upon the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based upon the largest benefit that has a greater than
50 percent likelihood of being realized upon ultimate settlement. Our policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized
tax benefits as a component of income tax expense.
Other Recently Issued Financial Accounting Standards
In June 2011, the Financial Accounting Standards Board, or FASB, issued authoritative guidance that revised its requirements related to
the presentation of comprehensive income, which was effective for fiscal periods beginning after January 1, 2012, with early adoption allowed. This guidance eliminates the option to present the
components of other comprehensive income, or OCI, as part of the consolidated statement of equity. It requires presentation of comprehensive income, the components of net income, and the components of
other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We adopted this guidance in the first quarter of fiscal 2013.
We presently do not have any components of comprehensive income and as such comprehensive income (loss) is the same as our net (loss) income.
In
February 2013, the FASB issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to
present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or
(2) as a separate disclosure in the notes to the financial statements. This guidance is effective for annual reporting periods beginning after December 15, 2012. The adoption of this
amendment will not have a material effect on our financial statements.
In
March 2013, the FASB issued a standard which requires the release of our cumulative translation adjustment into net income only if the sale or transfer results in the complete or
substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. This guidance is effective for annual reporting periods beginning after
December 15, 2013. The adoption of this amendment will not have a material effect on our financial statements.
In
July 2013, the FASB issued a standard clarify the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss or a tax credit carryforward
exists as of the reporting date. This guidance is effective for annual reporting periods beginning after December 15, 2013. The adoption of this amendment will not have a material effect on our
financial statements.
In
July 2013, the FASB issued a standard permitting the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the
United States
F-12
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Treasury
rate and London Interbank Offered Rate, or LIBOR. In addition, the restriction on using different benchmark rates for similar hedges is removed. We are required to adopt these provisions
prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. The adoption of this amendment will not have a material effect on our financial
statements.
3. Acquisition of Hudson
On July 15, 2013, we announced the execution of a stock purchase agreement with Hudson, Fireman Capital CPF Hudson Co-Invest LP, or Fireman, Peter Kim, Paul Cardenas, Tony
Chu, and certain option holders of Hudson named therein, pursuant to which we agreed to acquire all of the outstanding equity interests in Hudson. On September 30, 2013, we completed the
acquisition of Hudson and purchased all of the outstanding equity interests for an aggregate purchase price of approximately $94,102,000, consisting of $65,416,000 in cash, approximately $27,451,000
in convertible notes, net of discount, and $1,235,000 in aggregate principal amount of promissory notes bearing no interest, payable on April 1, 2014, to certain former option holders of
Hudson.
In
addition, in connection with the acquisition, we, along with all of our subsidiaries entered into: (i) a revolving credit agreement with CIT as administrative agent, collateral
agent, documentation agent and syndication agent, CIT Finance LLC, as sole lead arranger and sole bookrunner, and the lenders party thereto, and (ii) a term loan credit agreement with
Garrison Loan Agency Services LLC, as administrative agent, collateral agent, lead arranger, documentation agent and syndication agent, and the lenders party thereto, or Garrison. In addition,
we entered into an amended and restated factoring agreement with CIT that amends and restates our existing factoring agreement. See "Note 8Debt" for a description of our debt
arrangements.
The
acquisition has been accounted for as a purchase under U.S. generally accepted accounting principles. Accordingly, we have, with the assistance from independent valuation
specialists, allocated the purchase price to the assets and liabilities of Hudson in our financial statements as of the completion of the acquisition at their respective fair values as of
September 30, 2013. The valuations of intangible assets, income taxes and certain other items are preliminary. Management expects to complete the purchase price allocations during fiscal 2014.
We are in the process of completing the amounts assigned to assets and liabilities, acquired intangible assets and the related impact on goodwill for the acquisition. More specifically, open items
include finalizing the amounts associated with working capital and tax refunds due to the sellers.
The
assets acquired in this acquisition consisted of tangible and intangible assets acquired and liabilities assumed. The differences between the fair value of the consideration paid and
the estimated fair value of the assets and liabilities has been recorded as goodwill. The significant factors that resulted in recognition of goodwill were: (a) the purchase price was based
upon cash flow and return on capital projections assuming integrations with our company; and (b) the calculation of the fair value of tangible and intangible assets acquired that qualified for
recognition. We have determined that the useful life of the acquired trade name asset is indefinite, and therefore, no amortization expense will initially need to be recognized. The useful life of the
acquired customer relationships and design assets are finite and will be amortized over their useful lives. However, we will test the assets for impairment annually and/or if events or changes in
circumstances indicate that the assets might be impaired. Additionally, a deferred tax liability has been established in the allocation of the purchase price with respect to the identified indefinite
long lived intangible assets acquired.
F-13
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Acquisition of Hudson (Continued)
Under
the purchase method of accounting, the total consideration as shown in the table below (in thousands) is allocated to the assets based on their estimated fair values as of the date
of the completion of the acquisition. The consideration is allocated as follows:
|
|
|
|
|
Assets and liabilities assumed:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
198
|
|
Accounts receivable
|
|
|
1,263
|
|
Due from factor
|
|
|
13,806
|
|
Inventories
|
|
|
22,230
|
|
Prepaid expenses and other assets
|
|
|
2,526
|
|
Property and equipment
|
|
|
726
|
|
Other assets
|
|
|
239
|
|
Accounts payable and accrued expenses
|
|
|
(9,566
|
)
|
Other current liabilities
|
|
|
(2,734
|
)
|
Due to factor
|
|
|
(7,411
|
)
|
Deferred income taxes, net
|
|
|
(16,651
|
)
|
Intangible assets acquired:
|
|
|
|
|
Trade names
|
|
|
44,400
|
|
Customer relationships
|
|
|
2,700
|
|
Design
|
|
|
12,400
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
64,126
|
|
Goodwill created by the acquisition
|
|
|
29,976
|
|
|
|
|
|
|
|
|
|
|
Total consideration transferred
|
|
$
|
94,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchase Price
|
|
|
|
|
Cash
|
|
$
|
65,416
|
|
Promissory notes
|
|
|
1,235
|
|
Convertible notes (Face value $32,445 less discount)
|
|
|
27,451
|
|
|
|
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
94,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
intangible assets acquired were recorded fair market value. Amortization of intangible assets with definite lives is provided for over their estimated useful lives. The life of the
trade names is indefinite. Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
Period
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Trade names
|
|
Indefinite
|
|
$
|
44,400
|
|
$
|
|
|
$
|
44,400
|
|
Designs
|
|
6 Years
|
|
|
12,400
|
|
|
345
|
|
|
12,055
|
|
Customer relationships
|
|
10 Years
|
|
|
2,700
|
|
|
45
|
|
|
2,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
59,500
|
|
$
|
390
|
|
$
|
59,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense related to the intangible assets acquired amounted to approximately $390,000 for the year ended November 30, 2013.
F-14
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Acquisition of Hudson (Continued)
The following table presents our unaudited pro forma results (in thousands) for the year ended November 30, 2013 and 2012 as if the acquisition of the Hudson had occurred on
December 1, 2011. These results are not intended to reflect our actual operations had the acquisition occurred on December 1, 2011. Acquisition transaction costs have been excluded from
the pro forma net (loss) income and comprehensive (loss) income.
|
|
|
|
|
|
|
|
|
|
November 30,
2013
|
|
November 30,
2012
|
|
Net sales
|
|
$
|
205,027
|
|
$
|
192,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income and comprehensive (loss) income
|
|
$
|
(9,695
|
)
|
$
|
2,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Accounts Receivable, Inventory Advances and Due from (to) Factor
Historically, our primary method to obtain the cash necessary for operating needs has been through the sale of accounts receivable pursuant to factoring agreements and advances under
inventory security agreements with our factor, CIT.
As
a result of these agreements, amounts due from (to) factor consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
November 30, 2013
|
|
November 30, 2012
|
|
Non-recourse receivables assigned to factor
|
|
$
|
32,194
|
|
$
|
20,964
|
|
Client recourse receivables
|
|
|
3,220
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables assigned to factor
|
|
|
35,414
|
|
|
20,988
|
|
Allowance for customer credits
|
|
|
(3,980
|
)
|
|
(2,442
|
)
|
Net loan balance from factored accounts receivable
|
|
|
|
|
|
(14,166
|
)
|
Net loan balance from inventory advances
|
|
|
|
|
|
(5,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from (to) factor
|
|
$
|
31,434
|
|
$
|
(1,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-factored accounts receivable
|
|
$
|
5,396
|
|
$
|
1,369
|
|
Allowance for customer credits
|
|
|
(478
|
)
|
|
(323
|
)
|
Allowance for doubtful accounts
|
|
|
(297
|
)
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowances
|
|
$
|
4,621
|
|
$
|
812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of
the total amount of receivables sold by us as of November 30, 2013 and November 30, 2012, we hold the risk of payment of $3,220,000 and $24,000, respectively, in the
event of non-payment by the customers.
Prior
to our acquisition of Hudson on September 30, 2013, our Joe's Jeans Subsidiary was a party to an accounts receivable factoring agreement and an inventory security agreement
with CIT. The agreements prior to September 30, 2013 were structured so that we had the ability to obtain cash by selling to CIT certain of our accounts receivable and advances for up to
50 percent of the value of certain eligible inventory. The accounts receivables were sold for up to 85 percent of the face amount on either a recourse or non-recourse basis depending on
the creditworthiness of the customer. CIT
F-15
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Accounts Receivable, Inventory Advances and Due from (to) Factor (Continued)
permitted
us to sell our accounts receivables at the maximum level of 85 percent and allowed advances of up to $6,000,000 for eligible inventory. CIT had the ability, in its discretion at any
time or from time to time, to adjust or revise any limits on the amount of loans or advances made to us pursuant to both of these agreements and to impose surcharges on our rates for certain of our
customers. In addition, cross guarantees were executed by and among us and all of our parent and subsidiaries to guarantee each entity's obligations. In connection with the agreements prior to
September 30, 2013, certain assets were pledged to CIT, including our entire inventory, merchandise and/or goods, including raw materials through finished goods and receivables. However, our
trademarks were not encumbered under those agreements.
This
accounts receivable agreement could be terminated by CIT upon 60 days' written notice or immediately upon the occurrence of an event of default as defined in the agreement.
In June 2013, we entered into an amendment to the accounts receivable agreement that permitted us to terminate the accounts receivable agreement upon 30 days' written notice prior to
September 30, 2013, or thereafter upon 60 days' written notice provided that the minimum factoring fees have been paid for the respective period or if CIT fails to fund us for five
consecutive days. The inventory agreement could be terminated once all obligations were paid under both agreements or if an event of default occurred as defined in the agreement. On
September 30, 2013, we entered into an amended and restated factoring agreement with CIT that amended and restated our existing factoring agreement and replaced all prior agreements relating to
factoring and inventory security.
Under
the agreements that terminated on September 30, 2013, we paid to CIT a factoring rate of 0.55 percent for accounts for which CIT had the credit risk, subject to
discretionary surcharges, up to $40,000,000 of invoices factored, 0.50 percent over $40,000,000 of invoices factored and 0.35 percent for accounts for which we had the credit risk. The
interest rate associated with borrowings under the inventory lines and factoring facility was 0.25 percent plus the Chase prime rate, which was 3.25 percent prior to September 30,
2013. In the event we needed additional funds, we also had a letter of credit facility with CIT to allow us to open letters of credit for a fee of 0.25 percent of the letter of credit face
value with international and domestic suppliers, subject to our overall availability. See "Note 8Debt" for a further discussion of our debt arrangements and our amended and
restated factoring agreement.
F-16
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Inventories, Net
Inventory is valued at the lower of cost or market with cost determined by the first-in, first-out method. Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
November 30, 2013
|
|
November 30, 2012
|
|
Finished goods
|
|
$
|
30,129
|
|
$
|
19,887
|
|
Finished goods consigned to others
|
|
|
1,066
|
|
|
363
|
|
Work in progress
|
|
|
5,057
|
|
|
1,732
|
|
Raw materials
|
|
|
18,406
|
|
|
10,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,658
|
|
|
32,669
|
|
Less allowance for obsolescence and slow moving items
|
|
|
(1,988
|
)
|
|
(1,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,670
|
|
$
|
31,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
did not record any charges to our inventory reserve allowance in fiscal 2013 and 2012 and recorded a charge of $128,000 in fiscal 2011.
6. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Useful lives (years)
|
|
November 30, 2013
|
|
November 30, 2012
|
|
Computer and equipment
|
|
3 - 7
|
|
$
|
3,040
|
|
$
|
1,889
|
|
Furniture and fixtures
|
|
3 - 7
|
|
|
5,183
|
|
|
3,887
|
|
Leasehold improvements, primarily retail
|
|
5 - 10
|
|
|
6,302
|
|
|
4,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,525
|
|
|
10,740
|
|
Less accumulated depreciation
|
|
|
|
|
(7,132
|
)
|
|
(4,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
|
$
|
7,393
|
|
$
|
6,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expenses aggregated $2,151,000, $1,456,000 and $1,168,000 for fiscal 2013, 2012 and 2011, respectively.
7. Intangible Assets
Intangible assets are recorded at cost, less accumulated amortization. Amortization of intangible assets with definite lives is provided for over their estimated useful lives. The life
of the trade names is indefinite. Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
Period
|
|
Gross Amount
|
|
Accumulated
Amortization
|
|
Net Amount
|
|
Trade names
|
|
Indefinite
|
|
$
|
68,400
|
|
$
|
|
|
$
|
68,400
|
|
Designs
|
|
6 Years
|
|
|
12,400
|
|
|
345
|
|
|
12,055
|
|
Customer relationships
|
|
10 Years
|
|
|
2,700
|
|
|
45
|
|
|
2,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
83,500
|
|
$
|
390
|
|
$
|
83,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Intangible Assets (Continued)
Amortization
expense related to the intangible assets amounted to approximately $390,000 for the year ended November 30, 2013. There was no amortization expense related to
intangible assets for the years ended November 30, 2012 and 2011.
Estimated
amortization expense for the next five years is as follows (in thousands) at November 30, 2013:
|
|
|
|
|
2014
|
|
$
|
2,337
|
|
2015
|
|
|
2,337
|
|
2016
|
|
|
2,337
|
|
2017
|
|
|
2,337
|
|
2018
|
|
|
2,337
|
|
Thereafter
|
|
|
3,025
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Debt
The five year payment schedule of our debt for the promissory notes, long term debt and convertible notes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
Total
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
Thereafter
|
|
|
|
(in thousands)
|
|
Promissory notes
|
|
$
|
1,235
|
|
$
|
1,235
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Long term debt
|
|
|
58,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,840
|
|
|
|
|
Convertible notes
|
|
|
32,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
92,520
|
|
$
|
1,235
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
58,840
|
|
$
|
32,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes
The convertible notes were issued with different interest rates and conversion features for Hudson's management stockholders and
Fireman, respectively. Interest on the convertible notes is paid in a combination of cash and additional paid in kind notes, or PIK notes. Convertible notes in an aggregate principal amount of
approximately $22,885,000 (face amount) were issued to Hudson's management stockholders, are structurally and contractually subordinated to our senior debt and mature on March 31, 2019. All of
the notes are expressly junior and subordinated in right of payment to all amounts due and owing upon any indebtedness outstanding under the revolving credit facility and the term loan facility (as
discussed below).
The
management notes accrue interest quarterly on the outstanding principal amount (i) from September 30, 2013 until the earlier to occur of the date of conversion of the
notes or November 30, 2014 at a rate of 10 percent per annum, which is payable 7.68 percent in cash and 2.32 percent in PIK Notes, (ii) from December 1, 2014
until the earlier to occur of the date of conversion of the notes or September 30, 2016 at a rate of 10 percent per annum payable in cash, and (iii) from October 1, 2016
until the earlier to occur of the date of conversion of the notes or the date such principal amount is paid in full at a rate of 10.928 percent per annum payable in cash. Payment of interest at
the cash pay
F-18
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Debt (Continued)
rate
under clause (ii) or (iii), as applicable, for any payment date will be subject to satisfaction of certain financial conditions for us. The management notes become convertible by each of
the holders beginning on September 30, 2015 until maturity on March 31, 2019 into shares of our common stock, cash, or a combination of cash and common stock, at our election.
The
approximately $9,560,000 (face amount) in aggregate principal amount of convertible notes issued to Fireman are structurally and contractually subordinated to our senior debt and
mature on March 31, 2019. The Fireman note accrues interest quarterly on the outstanding principal amount (i) from September 30, 2013 until the earlier to occur of the date of
conversion of the notes or November 30, 2014 at a rate of 6.5 percent per annum, which is payable 3 percent in cash and 3.5 percent in PIK Notes, (ii) from
December 1, 2014 until the earlier to occur of the date of conversion of the notes or September 30, 2016 at a rate of 6.5 percent per annum payable in cash, and (iii) from
October 1, 2016 until the earlier to occur of the date of conversion of the notes or the date such principal amount is paid in full at a rate of 7 percent per annum payable in cash.
Payment of interest at the cash pay rate under clause (ii) or (iii), as applicable, for any payment date will be subject to satisfaction of certain financial conditions for us. The Fireman note
becomes convertible by the holder on October 14, 2014 until maturity on March 31, 2019 into shares of common stock, cash, or a combination of cash and common stock, at our election.
Each
of the notes are convertible, in whole but not in part, at a conversion price of $1.78 per share, subject to certain adjustments, into approximately 18,200,000 shares of our common
stock, subject to receipt of stockholder approval to comply with NASDAQ rules and an increase in the number of authorized shares, if necessary. The Fireman note may be converted at its sole election
and the management notes may be converted at either a majority of the holders' election or individually, depending on the holder. Prior to receipt of such stockholder approval, the conversion rights
will be limited to approximately 13,600,000 shares of common stock. If the we elect to pay cash with respect to a conversion of the notes, the amount of cash to be paid per share will be equal to
(a) the number of shares of common stock issuable upon such conversion multiplied by (b) the average of the closing prices for the common stock over the 20 trading day period immediately
preceding the notice of conversion. We will have the right to prepay all or any portion of the principal amount of the notes at any time by paying 103 percent of the principal amount of the
portion of any management note subject to prepayment or 100 percent of the principal amount of the portion of the Fireman note subject to prepayment.
The
holders of the convertible notes also have demand and piggyback registration rights associated with their notes in a separate agreement pursuant to which they have the right to
require us to prepare and file a registration statement on Form S-1 or S-3 or any similar form or successor to such forms under the Securities Act, or any other appropriate form under
the Securities Act or the Exchange Act, for the resale of all or part of their shares that may be issued under the convertible notes.
Embedded Conversion Derivative
FASB Accounting Standards Codification (ASC) Topic 470 (ASC 470),
Accounting for Convertible Debt Instruments
That May be Settled in Cash upon Conversion (Including Partial Cash Settlement)
requires the issuer of convertible debt that may be settled in shares or cash upon conversion at
their option, such as our convertible notes, to account for their liability and equity components separately by bifurcating the embedded conversion derivative, or the derivative, from the host debt
instrument.
F-19
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Debt (Continued)
Although
ASC 470 has no impact on our actual past or future cash flows, it requires us to record non-cash interest expense as the debt discount is amortized.
As
a result of the issuance of convertible notes in September 2013, the total potential shares of common stock that could be issued exceeded the amount of shares we were eligible to
issue under NASDAQ rules as of that date. Therefore, we are required to value the derivative and recognize the fair value as a long-term liability. The fair value of this derivative at the time of
issuance of the convertible notes was $5,496,000 and was recorded as the original debt discount for the purposes of accounting for the debt component of the convertible notes. This debt discount on
the Fireman and management notes are being amortized as interest expense using an effective interest rate of 8.32 percent and 4.31 percent, respectively, over the remaining
5.5 year term of the convertible notes.
If
we obtain stockholder approval to approve the issuance of the common stock underlying the convertible notes to comply with NASDAQ rules, the derivative liability will be reassessed to
determine if the derivative will continue to be classified as a liability or reclassified to stockholders' equity. We determined the fair value of the derivative using a binomial lattice model. The
key assumptions for determining the fair value at November 30, 2013 included the remaining time to maturity of five years and four months, volatility of 65 percent, and the risk-free
interest rate of 1.37 percent. The change in the fair value of the embedded conversion derivative from September 30, 2013 to November 30, 2013 of $204,000 has been recorded as
other expense.
The
following table (in thousands) is a summary of the recorded value of the convertible note as of November 30, 2013. The value of the convertible note reflects the present value
of the contractual cash flows from the convertible notes and resulted in an original issue discount of $10,491,000 including the additional original discount attributed to the embedded conversion
derivative of $5,496,000, that were recorded on September 30, 2013, the issuance date.
|
|
|
|
|
Convertible notesFace value
|
|
$
|
32,445
|
|
Less: Original issue discount
|
|
|
(4,994
|
)
|
Less: Debt discount related to the embedded derivative liability
|
|
|
(5,496
|
)
|
|
|
|
|
|
|
|
|
|
Convertible notes recorded value on issue date
|
|
|
21,955
|
|
Accretion of debt discounts for two months ended November 30, 2013
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
Convertible notes value
|
|
|
22,212
|
|
Plus: Embedded derivative liabilityfair market value
|
|
|
5,700
|
|
|
|
|
|
|
|
|
|
|
Debt as of November 30, 2013
|
|
$
|
27,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table (in thousands) is a summary of our total interest expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
November 30,
2013
|
|
November 30,
2012
|
|
November 30,
2011
|
|
Contractual coupon interest
|
|
$
|
2,195
|
|
$
|
376
|
|
$
|
484
|
|
Amortization of discount and deferred financing costs
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
2,562
|
|
$
|
376
|
|
$
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Debt (Continued)
Promissory Notes
In connection with the acquisition, we issued approximately $1,235,000 in aggregate principal amount of promissory notes bearing no
interest, payable on April 1, 2014, to certain option holders of Hudson.
Revolving Credit Agreement
The revolving credit agreement with CIT provides us with a revolving credit facility up to $50,000,000 comprised of a revolving A-1
commitment of up to $1,000,000 and a revolving A commitment of up to $50,000,000 minus the revolving A-1 commitment. Our actual maximum credit availability under the revolving facility varies from
time to time and is determined by calculating a borrowing base, which is based on the value of the eligible accounts and eligible inventory minus reserves imposed by CIT. The revolving facility also
provides for swingline loans, up to $5,000,000 sublimit, and letters of credit, up to $1,000,000 sublimit. Proceeds from advances under the revolving facility may be used for working capital needs and
general corporate purposes and were initially used to pay a portion of the consideration for the acquisition and fees and expenses associated with the acquisition. As of November 30, 2013,
$17,673,000 was outstanding under our revolving credit facility and cash availability of approximately $25,715,000.
All
unpaid loans under the revolving facility mature on September 30, 2018. We have the right at any time and from time to time to terminate the commitments under the revolving
facility by paying in full or prepay any borrowings, in whole or in part, without terminating or reducing the commitment. If we terminate the revolving facility in full prior to the second anniversary
of the date, we are required to pay a prepayment fee of 1 percent or 0.5 percent of the commitments terminated depending on when we make the prepayment.
The
revolving facility is guaranteed by us and all of our subsidiaries, and secured by liens on substantially all assets owned by us, including a first-priority lien on certain property,
including principally trade accounts, inventory, certain related assets and proceeds of the foregoing, subject to permitted liens and exceptions, and a second-priority lien on all other assets,
including intellectual property owned by us, which secures the term loan facility on a first-priority basis.
Advances
under the revolving facility are in the form of either base rate loans or LIBOR rate loans. The interest rate for base rate loans under the revolving A commitment fluctuates and
is equal to (x) the Alternate Base Rate, which is the greatest of (a) the JPMorgan Chase Bank prime rate; (b) the Federal funds rate plus 0.50 percent; and (c) the
90-Day LIBO Rate, which is the rate per annum equal to the 90 day LIBOR published in the New York City edition of the Wall Street Journal under "Money Rates," plus 1 percent, in each
case, plus (y) 1.5 percent. The interest rate for LIBOR rate loans under the revolving A commitment is equal to the 90-Day LIBO Rate per annum plus 2.5 percent. The interest rate
for base rate loans and LIBOR rate loans under the revolving A-1 commitment is equal to (i) Alternate Base Rate plus 2.5 percent and (ii) the 90-Day LIBO Rate plus
3.5 percent, respectively. Interest on the Revolving Facility is payable on the first day of each calendar month and the maturity date. Among other fees, we pay a commitment fee of
0.25 percent per annum (due quarterly) on the average daily amount of the unused revolving commitment under the revolving facility. We also pay fees with respect to any letters of credit.
F-21
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Debt (Continued)
The revolving facility contains usual and customary negative covenants for transactions of this type, including, but not limited to, restrictions on our ability and our subsidiaries'
ability, to create or incur indebtedness; create liens; consolidate, merge, liquidate or dissolve; sell, lease or otherwise transfer any of its assets; substantially change the nature of its business;
make investments or acquisitions; pay dividends; enter into transactions with affiliates; amend material documents, prepay certain indebtedness and make capital expenditures. The negative covenants
are subject to certain exceptions as specified in the revolving credit agreement.
In
addition, the revolving credit agreement requires us to (a) maintain (i) at all times availability under the revolving facility of not less than $5,000,000 and
(ii) at all times the sum of availability under the revolving facility plus up to $2,500,000 of unrestricted cash of not less than $7,500,000; and (b) maintain a minimum fixed charge
coverage ratio calculated for each four fiscal quarter period at levels set forth in the revolving facility.
As
of November 30, 2013, we were in compliance with the covenants under the revolving credit agreement.
Term Loan Credit Agreement
The term loan credit agreement entered into with Garrison provided for term loans of up to $60,000,000 and was fully funded to us as of
September 30, 2013. The term loan proceeds were used to finance a portion of the consideration for the acquisition, to pay fees and expenses associated with the acquisition and for working
capital needs and other general corporate purposes.
The
term loan matures on September 30, 2018. We are allowed to prepay the term loan at any time, in whole or in part, subject to the payment of a prepayment fee if we prepay prior
to September 30, 2016. The prepayment fee is 3 percent if we prepay prior to September 30, 2014 and reduces by 1 percent per year until September 30, 2016. In
addition, we are required to make prepayments out of extraordinary receipts, certain percentage of the excess cash flow and certain net proceeds of certain asset sales or equity issuances, in each
case (other than a prepayment in connection with excess cash flow), subject to the payment of the prepayment fee as set forth above.
The
term loan facility is guaranteed by us and all of our subsidiaries and is secured by liens on substantially all assets owned by us, including a first-priority lien on intellectual
property owned by us and a second-priority lien on the revolving credit priority collateral.
The
interest rate for the term loan fluctuates and is equal to the rate per annum equal to the British Banker Association Interest Settlement Rate for deposits in Dollars with a term of
three months, as appears on the Bloomberg BBAM Screen, plus 10.75 percent. Interest is payable on the first day of each calendar month and the maturity date.
The
term loan credit agreement contains usual and customary negative covenants for transactions of this type, including, but not limited to, restrictions on our ability and our
subsidiaries' ability to create
or incur indebtedness; create liens; consolidate, merge, liquidate or dissolve; sell, lease or otherwise transfer any of its assets; substantially change the nature of its business; make investments
or acquisitions; pay dividends; enter into transactions with affiliates; amend material documents, prepay certain indebtedness and make capital expenditures. The negative covenants are subject to
certain exceptions as specified in the term loan credit agreement.
F-22
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Debt (Continued)
In
addition, the term loan credit agreement also requires us to maintain (a) (i) at all times, availability under the revolving credit facility of not less than $5,000,000 and
(ii) at all times as tested on each date that a borrowing certificate is delivered, the sum of availability under the revolving credit facility plus up to $2,500,000 of unrestricted cash of not
less than $7,500,000; (b) a minimum fixed charge coverage ratio, (c) a minimum EBITDA, and (d) a leverage ratio not more than the maximum leverage coverage ratio as set forth in
the term loan credit agreement.
As
of November 30, 2013, we were in compliance with the covenants under the term loan credit agreement.
Amended and Restated Factoring Agreement
On September 30, 2013, we entered into an amended and restated factoring agreement, or the Amended and Restated Factoring
Agreement, with CIT, which replaces all prior agreements relating to factoring and inventory security. The Amended and Restated Factoring Agreement provides that we have sold and assigned to CIT
certain of our accounts receivable, including accounts arising from or related to sales of inventory and the rendition of services. We will pay a factoring rate of 0.50 percent for accounts for
which CIT bears the credit risk, subject to discretionary surcharges, and 0.35 percent for accounts for which we bear the credit risk, but in no event less than $3.50 per invoice. The interest
rate associated with borrowings under the factoring facility will be equal to the interest rate then in effect for "Revolving A Loans" pursuant to the revolving credit agreement. The Amended and
Restated Factoring Agreement may be terminated by CIT upon 60 days' written notice or immediately upon the occurrence of an event of default as defined in the agreement. The accounts receivable
agreement may be terminated by us upon 60 days' written notice prior to September 30, 2018 or annually with 60 days' written notice prior to September 30th of each
year thereafter. The Amended and Restated Factoring Agreement remains effective until it is terminated.
9. Fair Value Disclosures
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of
the measurement date. Accounting guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs
by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data
obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance
establishes three levels of inputs that may be used to measure fair value:
Level 1Quoted
prices in active markets for identical assets or liabilities.
Level 2Inputs
other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
F-23
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Fair Value Disclosures (Continued)
Assets
and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy
classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The
following table presents our fair value hierarchy for liabilities measured at fair value on a recurring basis as of November 30, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of November 30, 2013
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Embedded conversion derivative
|
|
$
|
5,700
|
|
$
|
|
|
$
|
|
|
$
|
5,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the changes in Level 3 fair value measurements is as follows for November 30, 2013 (in thousands):
|
|
|
|
|
|
|
Convertible Notes
Embedded Derivative
|
|
Balance at November 30, 2012
|
|
$
|
|
|
Purchases, issuances and settlements
|
|
|
5,496
|
|
Total (gains) losses included in other expense
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2013
|
|
$
|
5,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Income Taxes
The provision (benefit) for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,206
|
|
$
|
225
|
|
$
|
24
|
|
State
|
|
|
128
|
|
|
981
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,334
|
|
|
1,206
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(78
|
)
|
|
3,772
|
|
|
260
|
|
State
|
|
|
227
|
|
|
(202
|
)
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
3,570
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,483
|
|
$
|
4,776
|
|
$
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Income Taxes (Continued)
Net
deferred tax assets result from the following temporary differences between the book and tax basis of assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
2013
|
|
2012
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Allowance for customer credits and doubtful accounts
|
|
$
|
1,251
|
|
$
|
1,165
|
|
Inventory valuation
|
|
|
879
|
|
|
703
|
|
Tax credits
|
|
|
5
|
|
|
325
|
|
Stock compensation expense
|
|
|
|
|
|
19
|
|
Inventory capitalization
|
|
|
1,004
|
|
|
475
|
|
State tax deduction
|
|
|
163
|
|
|
318
|
|
Inventory purchase price adjustment
|
|
|
135
|
|
|
|
|
Accrued vacation
|
|
|
84
|
|
|
|
|
Other
|
|
|
38
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current deferred taxes
|
|
|
3,559
|
|
|
3,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Inventory revaluation
|
|
|
(386
|
)
|
|
|
|
Prepaid expenses
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current deferred taxes
|
|
|
(445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
3,114
|
|
$
|
3,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Benefit of net operating loss carryforwards
|
|
$
|
8,584
|
|
$
|
9,757
|
|
Stock compensation expense
|
|
|
198
|
|
|
182
|
|
Deferred rent
|
|
|
965
|
|
|
698
|
|
Interest expense
|
|
|
1,442
|
|
|
|
|
Other
|
|
|
65
|
|
|
57
|
|
Valuation allowance
|
|
|
(342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax assets
|
|
|
10,912
|
|
|
10,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Property and equipment basis difference
|
|
|
(755
|
)
|
|
(701
|
)
|
Intangible Assets
|
|
|
(3,026
|
)
|
|
|
|
Long lived intangible asset
|
|
|
(23,333
|
)
|
|
(9,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax liabilities
|
|
|
(27,114
|
)
|
|
(10,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax asset (liability)
|
|
$
|
(16,202
|
)
|
$
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
net noncurrent deferred tax assets decreased from $665,000 as of November 30, 2012 to a net noncurrent deferred tax liability of $16,202,000 as of November 30, 2013,
primarily as a result of our acquisition of Hudson and the associated differences in basis for book and tax purposes.
F-25
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Income Taxes (Continued)
A
valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Annually, management reassesses the need for a
valuation allowance. Realization of deferred income tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies and reversals of
existing taxable temporary differences. Based on our assessment of these items for fiscal 2013, 2012 and 2011, we determined that the deferred tax assets were more likely than not to be realized with
the exception of a valuation allowance of $342,000 that was recorded against a state net operating loss deferred tax asset during fiscal 2013.
The
reconciliation of the effective income tax rate to the federal statutory rate for the years ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Computed tax provision at the statutory rate
|
|
|
34.0
|
%
|
|
34.0
|
%
|
|
34.0
|
%
|
State income tax
|
|
|
(4.1
|
)%
|
|
4.9
|
%
|
|
(2.0
|
)%
|
Contingent consideration payments
|
|
|
(39.5
|
)%
|
|
6.1
|
%
|
|
(57.0
|
)%
|
Transaction costs
|
|
|
(17.0
|
)%
|
|
|
|
|
|
|
Acquisition basis difference
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
Effect of uncertain tax positions
|
|
|
|
|
|
|
|
|
(1.5
|
)%
|
Sec 162 (m) limitation
|
|
|
|
|
|
1.3
|
%
|
|
(3.2
|
)%
|
Other adjustments
|
|
|
1.9
|
%
|
|
(0.1
|
)%
|
|
(0.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(25.4
|
)%
|
|
46.2
|
%
|
|
(30.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
are subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. To the extent allowed by law, the tax authorities may have the right to examine prior
periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount. We are no longer subject to U.S. federal and
California income tax examinations by tax authorities for years prior to fiscal 2009. We are currently not subject to any examinations where we expect that the examination will have a material effect
on our financial statements or results of operation upon conclusion of an examination.
We
had net operating loss carryforwards of $24,909,000 at the end of fiscal 2013 for federal tax purposes that will expire from fiscal 2019 through fiscal 2027. We also had $22,467,000
of net operating loss carryforwards available for California that will expire from fiscal 2014 through fiscal 2020.
Certain
limitations may be placed on net operating loss carryforwards as a result of "changes in control" as defined in Section 382 of the Internal Revenue Code. In the event a
change in control occurs, it will have the effect of limiting the annual usage of the carryforwards in future years. Additional changes in control in future periods could result in further limitations
of our ability to offset taxable income. Management believes that certain changes in control have occurred which resulted in limitations on its net operating loss carryforwards, however, management
has determined that these limitations will not impact the ultimate utilization of the net operating loss carryforwards.
F-26
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Income Taxes (Continued)
As of November 30, 2013 and 2012, we provided a liability of $388,000 and $80,000, respectively, for unrecognized tax benefits related to various federal and state income tax
matters. Included in the balance sheet at November 30, 2013 is $324,000, net of tax related benefits that impact the effective income tax rate if recognized. The following presents a
rollforward of its unrecognized tax benefits (in thousands):
|
|
|
|
|
Balance at December 1, 2011
|
|
$
|
166
|
|
Payments made during the current period
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2012
|
|
|
80
|
|
Increase in unrecognized tax benefits
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2013
|
|
$
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
recognized interest and penalties related to unrecognized tax benefits of $6,000 and $(2,000) in the provision for income taxes in our statements of comprehensive (loss) income for
fiscal 2013 and 2012, respectively. For fiscal 2013 and 2012, we had approximately $19,000 and $8,000, respectively, for the payment of interest accrued at November 30, 2013 and 2012,
respectively. For the payment of any penalty, we accrued $51,000 and $0 at November 30, 2013 and 2012, respectively. The penalty accrual at November 30, 2013 was related to the
acquisition. We do not expect any material unrecognized tax benefit to reverse in fiscal 2014.
11. Stockholders' Equity
Stock Incentive Plans
In September 2000, we adopted the 2000 Director Stock Incentive Plan, or the 2000 Director Plan, under which nonqualified stock options
were granted to members of our Board of Directors in lieu of cash director fees. After the adoption of the 2004 Stock Incentive Plan in June 2004, we no longer granted options pursuant to the 2000
Director Plan; however, the plan remains in effect for awards outstanding as of the adoption of the 2004 Stock Incentive Plan. As of November 30, 2013, no options to purchase shares of common
stock remained outstanding under the 2000 Director Plan.
On
June 3, 2004, we adopted the 2004 Stock Incentive Plan, or the 2004 Incentive Plan, and in October 2011, we adopted an Amended and Restated 2004 Stock Incentive Plan, or the
Restated Plan, to update it with respect to certain provisions and changes in the tax code since its original adoption. Under the Restated Plan, the number of shares authorized for issuance is
6,825,000 shares of common stock. After the adoption of the Restated Plan in October 2011, we will no longer grant awards pursuant to the 2004 Incentive Plan; however, it remains in effect for awards
outstanding as of the
adoption of the Restated Plan. Under the Restated Plan, grants may be made to employees, officers, directors and consultants under a variety of awards based upon underlying equity, including, but not
limited to, stock options, restricted common stock, restricted stock units or performance shares. The Restated Plan limits the number of shares that can be awarded to any employee in one year to
1,250,000. The exercise price for incentive options may not be less than the fair market value of our common stock on the date of grant and the exercise period may not exceed ten years. Vesting
periods, terms and types of awards are determined by the Board of Directors and/or our Compensation and Stock Option Committee, or Compensation Committee. The Restated Plan includes a provision for
the acceleration of vesting of all awards upon a change of control as well as a provision that allows
F-27
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stockholders' Equity (Continued)
forfeited
or unexercised awards that have expired to be available again for future issuance. Since fiscal 2008, we have issued both restricted common stock and restricted common stock units, or RSUs,
to our officers, directors and employees pursuant to our various plans. The RSUs represent the right to receive one share of common stock for each unit on the vesting date provided that the employee
continues to be employed by us. On the vesting date of the RSUs, we expect to issue the shares of common stock to each participant upon vesting and expect to withhold an equivalent number of shares at
fair market value on the vesting date to fulfill tax withholding obligations. Any RSUs withheld or forfeited will be shares available for issuance in accordance with the terms of the Restated Plan.
The
shares of common stock issued upon exercise of a previously granted stock option or a grant of restricted common stock or RSUs are considered new issuances from shares reserved for
issuance in connection with the adoption of the various plans. We require that the option holder provide a written notice of exercise in accordance with the option agreement and plan to the stock plan
administrator and full payment for the shares be made prior to issuance. All issuances are made under the terms and conditions set forth in the applicable plan. As of November 30, 2013,
3,544,756 shares remained available for issuance under the Restated Plan.
For
all stock compensation awards that contain graded vesting with time-based service conditions, we have elected to apply a straight-line recognition method to account for all of these
awards. For existing grants that were not fully vested at November 30, 2012, there was a total of $1,687,000 of stock based compensation expense recognized during fiscal 2013.
The
following summarizes option grants, restricted common stock and RSUs issued to members of our Board of Directors for the fiscal years 2002 through fiscal 2013 (in actual amounts) for
service as a member:
|
|
|
|
|
|
|
|
|
|
November 30, 2013
|
|
|
|
Granted as of:
|
|
Number of options
|
|
Exercise price
|
|
2002
|
|
|
40,000
|
|
$
|
1.00
|
|
2002
|
|
|
31,496
|
|
$
|
1.27
|
|
2003
|
|
|
30,768
|
|
$
|
1.30
|
|
2004
|
|
|
320,000
|
|
$
|
1.58
|
|
2005
|
|
|
300,000
|
|
$
|
5.91
|
|
2006
|
|
|
450,000
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
Number of restricted
shares isssued
|
|
2007
|
|
|
320,000
|
|
2008
|
|
|
473,455
|
|
2009
|
|
|
371,436
|
|
2010
|
|
|
131,828
|
|
2011
|
|
|
|
|
2012
|
|
|
617,449
|
|
2013
|
|
|
|
|
F-28
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stockholders' Equity (Continued)
Stock
option activity in the aggregate for the periods indicated are as follows (in actual amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
average
exercise price
|
|
Weighted average
remaining contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at November 30, 2012
|
|
|
796,794
|
|
$
|
3.96
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(21,794
|
)
|
|
1.30
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at November, 2013
|
|
|
775,000
|
|
$
|
4.03
|
|
|
1.4
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average per option fair value of options granted during the year
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
average
exercise price
|
|
Weighted average
remaining contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at November 30, 2011
|
|
|
868,290
|
|
$
|
3.73
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(20,000
|
)
|
|
1.00
|
|
|
|
|
|
|
|
Expired
|
|
|
(51,496
|
)
|
|
1.17
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at November, 2012
|
|
|
796,794
|
|
$
|
3.96
|
|
|
2.3
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average per option fair value of options granted during the year
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
average
exercise price
|
|
Weighted average
remaining contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at November 30, 2010
|
|
|
868,290
|
|
$
|
3.73
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at November 30, 2011
|
|
|
868,290
|
|
$
|
3.73
|
|
|
3.4
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average per option fair value of options granted during the year
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
The
total intrinsic value of options exercised during the fiscal years ended November 30, 2013, 2012 and 2011 was $10,948, $7,600 and $0, respectively.
F-29
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stockholders' Equity (Continued)
Exercise
prices for options outstanding and exercisable as of November 30, 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable
|
|
Exercise Price
|
|
Number of shares
|
|
Weighted-Average
Remaining
Contractual Life
|
|
$1.00 - $1.02
|
|
|
100,000
|
|
|
2.3
|
|
$1.58 - $1.63
|
|
|
225,000
|
|
|
0.7
|
|
$5.91
|
|
|
450,000
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775,000
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes stock option activity by plan. There are no stock options outstanding under our Restated Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
of Shares
|
|
2004 Incentive
Plan
|
|
2000 Director
Plan
|
|
Outstanding at November 30, 2012
|
|
|
796,794
|
|
|
775,000
|
|
|
21,794
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(21,794
|
)
|
|
|
|
|
(21,794
|
)
|
Forfeited / Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at November 30, 2013
|
|
|
775,000
|
|
|
775,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2011
|
|
|
868,290
|
|
|
775,000
|
|
|
93,290
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(20,000
|
)
|
|
|
|
|
(20,000
|
)
|
Forfeited / Expired
|
|
|
(51,496
|
)
|
|
|
|
|
(51,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at November 30, 2012
|
|
|
796,794
|
|
|
775,000
|
|
|
21,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2010
|
|
|
868,290
|
|
|
775,000
|
|
|
93,290
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
Forfeited / Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at November 30, 2011
|
|
|
868,290
|
|
|
775,000
|
|
|
93,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stockholders' Equity (Continued)
A
summary of the status of restricted common stock and RSUs as of November 30, 2013, and changes during the year, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
|
|
Restricted
Shares
|
|
Restricted
Stock Units
|
|
Total Shares
|
|
Restricted
Shares
|
|
Restricted
Stock Units
|
|
Outstanding at November 30, 2012
|
|
|
844,236
|
|
|
2,713,605
|
|
|
3,557,841
|
|
$
|
0.85
|
|
$
|
0.87
|
|
Granted
|
|
|
420,882
|
|
|
631,059
|
|
|
1,051,941
|
|
|
1.02
|
|
|
1.02
|
|
Issued
|
|
|
(310,320
|
)
|
|
(1,140,709
|
)
|
|
(1,451,029
|
)
|
|
0.92
|
|
|
0.89
|
|
Cancelled
|
|
|
|
|
|
(426,749
|
)
|
|
(426,749
|
)
|
|
|
|
|
0.89
|
|
Forfeited
|
|
|
|
|
|
(115,877
|
)
|
|
(115,877
|
)
|
|
|
|
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2013
|
|
|
954,798
|
|
|
1,661,330
|
|
|
2,616,128
|
|
$
|
0.90
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2011
|
|
|
464,610
|
|
|
2,542,728
|
|
|
3,007,338
|
|
$
|
1.30
|
|
$
|
0.98
|
|
Granted
|
|
|
670,781
|
|
|
1,871,539
|
|
|
2,542,320
|
|
|
0.66
|
|
|
0.75
|
|
Issued
|
|
|
(291,155
|
)
|
|
(1,126,519
|
)
|
|
(1,417,674
|
)
|
|
1.09
|
|
|
0.84
|
|
Cancelled
|
|
|
|
|
|
(533,955
|
)
|
|
(533,955
|
)
|
|
|
|
|
0.88
|
|
Forfeited
|
|
|
|
|
|
(40,188
|
)
|
|
(40,188
|
)
|
|
|
|
|
0.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2012
|
|
|
844,236
|
|
|
2,713,605
|
|
|
3,557,841
|
|
$
|
0.85
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2010
|
|
|
408,857
|
|
|
3,126,967
|
|
|
3,535,824
|
|
|
0.86
|
|
|
0.90
|
|
Granted
|
|
|
260,182
|
|
|
959,331
|
|
|
1,219,513
|
|
|
1.65
|
|
|
1.15
|
|
Issued
|
|
|
(204,429
|
)
|
|
(1,085,780
|
)
|
|
(1,290,209
|
)
|
|
0.86
|
|
|
0.93
|
|
Cancelled
|
|
|
|
|
|
(457,790
|
)
|
|
(457,790
|
)
|
|
|
|
|
0.91
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2011
|
|
|
464,610
|
|
|
2,542,728
|
|
|
3,007,338
|
|
$
|
1.30
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of November 30, 2013, there was $1,620,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Restated Plan.
The unrecognized compensation cost is expected to be recognized over a weighted-average of 2.1 years. In fiscal 2013, there were no options granted, 631,059 RSUs and 420,882 shares of
restricted stock granted. In fiscal
2013, we issued 1,140,700 shares of our common stock to holders of RSUs, 310,320 shares of restricted stock and withheld, cancelled or forfeited 542,626 RSUs.
Convertible Notes
In connection with the acquisition of Hudson, we issued the sellers convertible notes. See "Note 8Debt" for a
further discussion of the convertible notes.
Earnings Per Share
Earnings per share are computed using weighted average common shares and dilutive common equivalent shares outstanding. Potentially
dilutive securities consist of outstanding options and warrants.
F-31
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stockholders' Equity (Continued)
A
reconciliation of the numerator and denominator of basic earnings per share and diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
November 30,
2013
|
|
November 30,
2012
|
|
November 30,
2011
|
|
|
|
(in thousands, except per share data)
|
|
Basic (loss) earnings per share computation:
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(7,314
|
)
|
$
|
5,565
|
|
$
|
(1,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
67,163
|
|
|
65,496
|
|
|
64,001
|
|
(Loss) income per common sharebasic
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(0.11
|
)
|
$
|
0.08
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share computation:
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(7,314
|
)
|
$
|
5,565
|
|
$
|
(1,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
67,163
|
|
|
65,496
|
|
|
64,001
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Restricted shares, RSU's, convertible securities and options
|
|
|
|
|
|
1,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
67,163
|
|
|
66,849
|
|
|
64,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per common sharedilutive
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(0.11
|
)
|
$
|
0.08
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
fiscal 2013 and fiscal 2011, currently exercisable options, convertible notes, unvested restricted shares and unvested RSUs in the aggregate of 21,618,876 and 3,875,628,
respectively, have been excluded from the calculation of the diluted loss per share as their effect would have been anti-dilutive. For fiscal 2012, currently exercisable options and warrants in the
aggregate of 1,058,970 have been excluded from the calculation of diluted income per share because the exercise prices of such options and warrants were out-of-the-money.
Shares Reserved for Future Issuance
As of November 30, 2013, shares reserved for future issuance include (i) 775,000 shares of common stock issuable upon the
exercise of stock options granted under the incentive plans; (ii) 1,661,330 shares of common stock issuable upon the vesting of RSUs; (iii) an aggregate of 3,544,756 shares of common
stock available for future issuance under the Restated Plan as of November 30, 2013; and (iv) 13,600,000 shares of common stock issuable pursuant to the convertible notes (until
stockholder approval obtained to issue additional shares).
F-32
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Commitments and Contingencies
Operating Lease Obligations and Other Obligations Related to Operations
We lease certain equipment and office and retail space under separate lease arrangements. The leases generally contain renewal
provisions. Equipment and office/retail rental expenses under such leases for the years ended November 30, 2013, November 30, 2012 and November 30, 2011, were approximately
$7,034,000, $5,146,000 and $4,217,000, respectively.
We
lease retail store locations under operating lease agreements expiring on various dates through 2024 or 3 to 10 years from the rent commencement date. Some of these leases
require us to make periodic payments for property taxes, utilities and common area operating expenses. Certain retail store leases provide for rents based upon the minimum annual rental amount and a
percentage of annual sales volume, generally ranging from 6% to 8%, when specific sales volumes are exceeded. Some leases include lease incentives, rent abatements and fixed rent escalations, which
are amortized and recorded over the initial lease term on a straight-line basis.
In
November 2010, we entered into a lease agreement to lease office and warehouse space at our current corporate offices and in August 2013, we entered into an extension for the lease of
the same space beginning January 1, 2014, or collectively, the Lease Agreement. In connection with the Lease Agreement, we lease approximately 89,000 square feet which serves as our corporate
headquarters and distribution center until December 31, 2018. We pay gross monthly rent in the amount of $43,700 for 2014 and our rent escalates at a rate of three percent per year thereafter.
In addition, commencing on January 1, 2015, we are required to pay our pro rata share of increases in property taxes and insurance over what was paid in 2014. The Lease Agreement contains other
customary terms and conditions related to the lease and condition of the premises, including a provision for a refundable security deposit in the amount of $90,000, of which $45,000 has been refunded.
As
of November 30, 2013, the future minimum rental payments under non-cancelable retail operating leases with lease terms in excess of one year were as follows (in thousands):
|
|
|
|
|
2014
|
|
$
|
7,777
|
|
2015
|
|
|
7,783
|
|
2016
|
|
|
7,735
|
|
2017
|
|
|
7,726
|
|
2018
|
|
|
7,556
|
|
Thereafter
|
|
|
16,714
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
commitments in the aggregate amount of $9,041,000 are all expected to be fulfilled within the next 12 months.
Advertising Commitments
From time to time, we enter into various agreements for short term billboard, taxi cab top, bus or other advertising spaces in various
locations in and around New York and Los Angeles and for print advertising. However, we do not have any commitment to pay a minimum amount or any long term commitments for such advertising.
F-33
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Commitments and Contingencies (Continued)
Letters of Credit
We had a no contingent liability for letters of credit as of November 30, 2013.
Contingent Consideration Payments, Buy-Out Agreement and Earnout Subordination Agreement
As part of the consideration paid in connection with the merger with JD Holdings in October of 2007 and without regard to continued
employment, until February 12, 2013, Mr. Dahan was entitled to a certain percentage of the gross profit earned by us in any applicable fiscal year until October 2017. Mr. Dahan
was entitled to the following: (i) 11.33 percent of the gross profit from $11,251,000 to $22,500,000; (ii) three percent of the gross profit from $22,501,000 to $31,500,000;
(iii) two percent of the gross profit from $31,501,000 to $40,500,000; and (iv) one percent of the gross profit above $40,501,000. The payments were paid in advance on a monthly basis
based upon estimates of gross profits after the assumption that the payments were likely to be paid. At the end of each quarter, any overpayments were offset against future payments and any
significant underpayments were made. No payments were made if the gross profit was less than $11,250,000. "Gross Profit" was defined as net sales of the Joe's® brand less cost of goods
sold. We accounted for such payments as compensation expense.
On
February 18, 2013, we entered into an agreement with Mr. Dahan that provided certainty of payments to him by removing the contingencies related to the contingent
consideration payments to be made to Mr. Dahan as an earn out under the original merger agreement. This agreement fixed the overall amount to be paid by us for the remaining months of year six
through year 10 in the original merger agreement. The payments are now made over an accelerated time period until November 2015 instead of October 2017. Under the agreement, beginning on
February 22, 2013 until November 27, 2015, Mr. Dahan is entitled to receive the total aggregate fixed amount of $9,168,000 through weekly installment payments. In the first
quarter of fiscal 2013, we recorded a charge of $8,732,000 as contingent consideration buy-out expense in connection with this agreement. This amount represented the net present value of the total
fixed amount that Mr. Dahan would receive. The entire amount was expensed during the first quarter of fiscal 2013 as the amount payable represented a present obligation due to Mr. Dahan.
Mr. Dahan is not required to perform any services or remain employed to receive the fixed amount. Mr. Dahan also agreed to an additional restrictive covenant relating to non-competition
and non-solicitation until November 30, 2016 that added to the original restrictive covenant in the merger agreement.
On
September 30, 2013, Mr. Dahan, CIT, Garrison and all of our loan parties entered into an earn out subordination agreement which provided, among other things, that any
payment, whether in cash, in kind, securities or any other property, in connection with our obligations to Mr. Dahan would be expressly junior and subordinated in right of payment to all
amounts due and owing upon any indebtedness outstanding under the revolving credit facility and the term loan facility. We are permitted to make certain amount of weekly installment payments of our
obligations in the absence of an insolvency proceeding or any event of default under the revolving credit agreement or the term loan credit agreement.
F-34
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Commitments and Contingencies (Continued)
Litigation
We are involved from time to time in routine legal matters incidental to our business. In the opinion of our management, resolution of
such matters will not have a material effect on our financial position or results of operations.
Convertible Notes, Promissory Tax Notes, Revolving Credit Facility and Term Loan Credit Facility
See "Note 8Debt" for a further discussion on the commitments related to acquisition which included the issuance of
the convertible notes, the promissory tax notes, the revolving credit facility and the term loan credit facility.
13. Segment Reporting and Operations by Geographic Areas
Segment Reporting
The following table (in thousands) contains summarized financial information concerning our reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
113,276
|
|
$
|
95,310
|
|
$
|
76,901
|
|
Retail
|
|
|
26,907
|
|
|
23,332
|
|
|
18,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,183
|
|
$
|
118,642
|
|
$
|
95,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
44,511
|
|
$
|
39,895
|
|
$
|
31,097
|
|
Retail
|
|
|
17,828
|
|
|
16,275
|
|
|
12,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,339
|
|
$
|
56,170
|
|
$
|
43,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
29,442
|
|
$
|
25,762
|
|
$
|
18,000
|
|
Retail
|
|
|
(1,139
|
)
|
|
1,489
|
|
|
(728
|
)
|
Corporate and other
|
|
|
(31,363
|
)
|
|
(16,534
|
)
|
|
(17,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,060
|
)
|
$
|
10,717
|
|
$
|
(565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
147
|
|
$
|
1,066
|
|
$
|
302
|
|
Retail
|
|
|
1,974
|
|
|
1,652
|
|
|
1,656
|
|
Corporate and other
|
|
|
14
|
|
|
61
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,135
|
|
$
|
2,779
|
|
$
|
2,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
91,312
|
|
$
|
48,934
|
|
$
|
44,399
|
|
Retail
|
|
|
12,117
|
|
|
9,039
|
|
|
7,594
|
|
Corporate and other
|
|
|
119,594
|
|
|
28,051
|
|
|
28,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
223,023
|
|
$
|
86,024
|
|
$
|
80,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Segment Reporting and Operations by Geographic Areas (Continued)
Operations by Geographic Areas
Currently, we do not have any material reportable operations outside of the United States.
14. Related Party and Other Transactions
Joe Dahan
Since the acquisition of the Joe's® brand as a result of a merger in October 2007 through February 18, 2013,
Mr. Dahan was entitled to a certain percentage of our gross profit in any applicable fiscal year until October 2017. At the time of the acquisition, pursuant to ASC
805
Business Combinations,
we assessed this original contingent consideration arrangement as compensatory and expensed such amounts over the
term of the earn out period at the defined percentage amounts. For the fiscal years ended 2013, 2012 and 2011, expenses of $311,000, $1,862,000 and $1,757,000, respectively, were recorded in the
statement of net (loss) income
and comprehensive (loss) income related to the contingent consideration expense made to Mr. Dahan under the original agreement.
On
February 18, 2013, we entered into a new agreement with Mr. Dahan that fixed the overall amount to be paid by us for the remaining months of year six through year 10 in
the original merger agreement at $9,168,000 through weekly installment payments beginning on February 22, 2013 until November 27, 2015. In the first quarter of fiscal 2013, we recorded a
charge of $8,732,000 as contingent consideration buy-out expense in connection with this agreement. This amount represented the net present value of the total fixed amount that Mr. Dahan would
receive. The entire amount was expensed during the first quarter of fiscal 2013 as the amount payable represented a present obligation due to Mr. Dahan. On September 30, 2013, in
connection with entry into new credit facilities relating to the acquisition of Hudson, Mr. Dahan, CIT, Garrison and all of our loan parties entered into an earn out subordination agreement,
which provides, among other things, that any payment, whether in cash, in kind, securities or any other property, in connection with the our obligations to Mr. Dahan is expressly junior and
subordinated in right of payment to all amounts due and owing upon any indebtedness outstanding under the revolving credit facility and the term loan facility. We are permitted to make certain amount
of weekly installment payments of our obligations in the absence of an insolvency proceeding or any event of default under the revolving credit agreement or the term loan credit agreement.
See
"Note 12Commitments and ContingenciesContingent Consideration Payments, Buy Out Agreement and Earnout Subordination Agreement" for a further
discussion on these agreements with Mr. Dahan.
Ambre Dahan
In January 2013, we entered in to a consulting arrangement with Ambre Dahan, the spouse of Mr. Joe Dahan, for design director
services that pays her $175,000 per annum on a bi-weekly basis. For the fiscal year ended 2013, we paid Ms. Dahan $155,000 under this arrangement. This arrangement may be terminated at any time
by the parties. Mr. Dahan is not a party to this arrangement, and we do not consider this arrangement material to us.
Albert Dahan
In April 2009, we entered into a commission-based sales agreement with Albert Dahan, brother of Joe Dahan, for the sale of our products
into the off-price channels of distribution. Under the
F-36
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Related Party and Other Transactions (Continued)
agreement,
Mr. Albert Dahan is entitled to a commission for purchase orders entered into by us where he acts as a sales person. The agreement may be terminated at any time for any reason or no
reason with or without notice. For the fiscal years ended 2013, 2012 and 2011, payments of $453,000, $573,000 and $580,000, respectively, were made to Mr. Albert Dahan under this arrangement.
In
October 2011, we entered into an agreement with Ever Blue LLC, or Ever Blue, an entity for which Albert Dahan is the sole member, for the sale of children's products. Ever Blue
has an exclusive right to produce, distribute and sell children's products bearing the Joe's® brand on a worldwide basis, subject to certain limitations on the channels of distribution. In
exchange for the license, Ever Blue pays to us a royalty on net sales with certain guaranteed minimum sales for each term. In connection with this agreement, we provided initial funding to Ever Blue
for inventory purchases, which such amount has been repaid in full. For the fiscal years ended 2013, 2012 and 2011, we recognized $612,000, $296,000 and $0, respectively in royalty income under the
license agreement.
Peter Kim
We have entered into several agreements, including a stock purchase agreement, a convertible note, a registration rights agreement, an
employment agreement and a non-competition agreement with Peter Kim in connection with the acquisition of Hudson. See "Note 3Acquisition of Hudson" and
"Note 8Debt" for a further discussion of those agreements.
Employment Agreements with Officers and Directors
We have entered into employment agreements with Marc Crossman, our President and CEO, Joe Dahan, our Creative Director and Peter
Kim, our CEO of our Hudson subsidiary. All of these officers are also member of our Board of Directors.
On May 30, 2008, we entered into an employment agreement with Mr. Crossman to serve as our President and CEO. The
employment agreement was effective as of December 1, 2007, the commencement of our 2008 fiscal year, had an initial term of two years and automatically renewed for additional two year periods
on December 1, 2009, December 1, 2011 and December 1, 2013, respectively. The employment agreement continues to automatically renew for additional two year periods if neither we
nor Mr. Crossman provides 180 days' advanced notice of non-renewal prior to the end of the term or upon the occurrence of a change in control. Under the employment agreement,
Mr. Crossman is entitled to an annual salary of $429,300, an annual discretionary bonus targeted at 50 percent of his base salary based upon the achievement of financial and other
performance criteria that the Compensation Committee of the Board of Directors may deem appropriate in its sole and absolute discretion, an annual grant of equity compensation pursuant to our stock
incentive plans, life and disability insurance policies paid on his behalf and other discretionary benefits that the Compensation Committee of the Board of Directors may deem appropriate in its sole
and absolute discretion. The employment agreement provides for severance payment of up to two years if terminated under certain circumstances.
On October 25, 2007, we entered into an employment agreement for Mr. Dahan to serve as Creative Director for the Joe's
brand. The initial term of employment was for five years, or until
F-37
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Related Party and Other Transactions (Continued)
October 25,
2012, and then automatically renewed for successive one year periods unless terminated earlier in accordance with the agreement. Under the employment agreement, Mr. Dahan is
entitled to an annual salary of $300,000 and other discretionary benefits that the Compensation Committee of the Board of Directors may deem appropriate in its sole and absolute discretion. The
employment agreement provides for severance payment of up to one year if terminated under certain circumstances.
On September 30, 2013, we entered into an employment agreement with Mr. Kim to serve as CEO of our Hudson subsidiary for
a term of three years. Under the employment agreement, Mr. Kim is entitled to a base salary of $500,000 per year and is also eligible to receive an annual discretionary bonus targeted at
50 percent of his base salary, based on the satisfaction of criteria and performance standards as established in advance and agreed to by Mr. Kim and the Compensation Committee of the
Board of Directors. Mr. Kim is also entitled to other discretionary benefits that the Compensation Committee of the Board of Directors may deem appropriate in its sole and absolute discretion.
The employment agreement provides for severance payment of up to one year if terminated under certain circumstances.
15. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(in thousands)
|
|
Significant Non-cash transactions
|
|
|
|
|
|
|
|
|
|
|
Write off of fully depreciated fixed assets
|
|
$
|
|
|
$
|
89
|
|
$
|
671
|
|
Sale of fixed assets at net carrying value
|
|
$
|
|
|
$
|
104
|
|
$
|
|
|
Additional cash flow information
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
1,710
|
|
$
|
383
|
|
$
|
506
|
|
Cash paid during the year for income taxes
|
|
$
|
870
|
|
$
|
862
|
|
$
|
218
|
|
16. Employee Benefit Plans
On December 1, 2002, we established a tax qualified defined contribution 401(k) Profit Sharing Plan, or the Joe's Plan for our Joe's employees. All employees who have worked for
us for 30 consecutive days may participate in the Joe's Plan and may contribute up to 100 percent, subject to certain limitations, of their salary to the Joe's Plan. We may make company matched
contributions on a discretionary basis. All employees who have worked 500 hours qualify for profit sharing in the event at the end of each year we decide to do so. Costs of the Joe's Plan
charged to operations were $22,000, $26,000 and $16,000 for fiscal 2013, 2012 and 2011, respectively. In addition, we match our Joe's employees' contributions, which are subject to a vesting schedule,
in the lesser of the following amounts: (i) up to 2 percent of the employee's compensation, or (ii)
1
/
3
of the employee's contribution up to 6 percent of the
employee's salary. For fiscal 2013, 2012 and 2011, we contributed $141,000, $132,000 and $117,000, respectively, to employees under the match portion of the Joe's Plan.
The
Hudson Clothing LLC 401(k) Plan, or the Hudson Plan, was established on January 1, 2009 and covers employees employed by our Hudson subsidiary. All employees who have
worked for Hudson after 6 months may participate in the Hudson Plan and may contribute up to the maximum amount
F-38
Table of Contents
JOE'S JEANS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Employee Benefit Plans (Continued)
allowed
by law of their salary to the plan. We may make company matched contributions on a discretionary basis. All employees who have worked 1,000 hours qualify for profit sharing in the event
at the end of each year we decide to do so. No costs of the Hudson Plan were charged to operations for fiscal 2013 since the acquisition. In addition, we match our Hudson employees' contributions,
which are subject to a vesting schedule, of $0.50 for each $1.00 of the employee's contribution up to 3 percent of the employee's contribution. For fiscal 2013 since the date of acquisition, we
contributed $12,000 to employees under the match portion of the Hudson's Plan.
17. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years ended November 30, 2013 and November 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
2013
|
|
February 28
|
|
May 31
|
|
August 31
|
|
November 30
|
|
|
|
(in thousands, except per share data)
|
|
Net sales
|
|
$
|
29,430
|
|
$
|
30,874
|
|
$
|
29,385
|
|
$
|
50,494
|
|
Gross profit
|
|
|
14,315
|
|
|
13,505
|
|
|
12,845
|
|
|
21,674
|
|
(Loss) income before taxes
|
|
|
(6,466
|
)
|
|
1,996
|
|
|
(411
|
)
|
|
(950
|
)
|
Income tax (benefit) expense
|
|
|
(78
|
)
|
|
823
|
|
|
(124
|
)
|
|
862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income and comprehensive (loss) income
|
|
$
|
(6,388
|
)
|
$
|
1,173
|
|
$
|
(287
|
)
|
$
|
(1,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common sharebasic
|
|
$
|
(0.10
|
)
|
$
|
0.02
|
|
$
|
0.00
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common sharediluted
|
|
$
|
(0.10
|
)
|
$
|
0.02
|
|
$
|
0.00
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
2012
|
|
February 29
|
|
May 31
|
|
August 31
|
|
November 30
|
|
|
|
(in thousands, except per share data)
|
|
Net sales
|
|
$
|
25,962
|
|
$
|
28,640
|
|
$
|
30,304
|
|
$
|
33,736
|
|
Gross profit
|
|
|
13,084
|
|
|
13,560
|
|
|
13,818
|
|
|
15,708
|
|
Income before taxes
|
|
|
1,688
|
|
|
2,969
|
|
|
2,614
|
|
|
3,070
|
|
Income tax expense
|
|
|
894
|
|
|
1,551
|
|
|
1,224
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
794
|
|
$
|
1,418
|
|
$
|
1,390
|
|
$
|
1,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common sharebasic
|
|
$
|
0.01
|
|
$
|
0.02
|
|
$
|
0.02
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common sharediluted
|
|
$
|
0.01
|
|
$
|
0.02
|
|
$
|
0.02
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
Table of Contents
ITEM 15(a)
Joe's Jeans Inc. and Subsidiaries
Schedule II
Valuation of Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
Beginning of
Period
|
|
Additions
Charged to
Costs & Expenses
|
|
Charged to
Other
Accounts
|
|
Deductions(2)
|
|
Balance at
End of Period
|
|
|
|
(in thousands)
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended November 30, 2013
|
|
$
|
234
|
|
|
45
|
|
|
30
|
(3)
|
|
(12
|
)
|
$
|
294
|
|
Year ended November 30, 2012
|
|
$
|
320
|
|
|
211
|
|
|
(256)
|
(1)
|
|
(41
|
)
|
$
|
234
|
|
Year ended November 30, 2011
|
|
$
|
449
|
|
|
37
|
|
|
|
|
|
(166
|
)
|
$
|
320
|
|
Allowance for customer credits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended November 30, 2013
|
|
$
|
2,765
|
|
|
15,977
|
|
|
1,304
|
(3)
|
|
(15,588
|
)
|
$
|
4,455
|
|
Year ended November 30, 2012
|
|
$
|
2,856
|
|
|
12,229
|
|
|
|
|
|
(12,320
|
)
|
$
|
2,765
|
|
Year ended November 30, 2011
|
|
$
|
3,407
|
|
|
12,156
|
|
|
|
|
|
(12,707
|
)
|
$
|
2,856
|
|
Allowances for inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended November 30, 2013
|
|
$
|
1,351
|
|
|
42
|
|
|
595
|
(3)
|
|
|
|
$
|
1,985
|
|
Year ended November 30, 2012
|
|
$
|
1,114
|
|
|
237
|
|
|
|
|
|
|
|
$
|
1,351
|
|
Year ended November 30, 2011
|
|
$
|
1,067
|
|
|
175
|
|
|
|
|
|
(128
|
)
|
$
|
1,114
|
|
-
(1)
-
The
European accounts receivable were sold on April 30, 2012. This amount represents the reserve against those receivables.
-
(2)
-
Deductions
represent the actual amount of write-off of an asset against a reserve previously recorded. In the case of inventories, a deduction could
represent the write-off upon disposition or a markdown of carrying value.
-
(3)
-
Amounts
represent fair value adjustments established on the acquisition date of Hudson and tracked by us through the reserve account.
F-40
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
February 13, 2014
|
|
JOE'S JEANS INC.
|
|
|
By:
|
|
/s/ MARC B. CROSSMAN
Marc B. Crossman
Chief Executive Officer (Principal Executive Officer) and President
|
|
|
By:
|
|
/s/ HAMISH SANDHU
Hamish Sandhu
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Marc Crossman, his attorney-in-fact, each with the power of substitution for
him or any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact, or his or her substitutes, may do or cause to be done by virtue hereof. Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
|
/s/ MARC B. CROSSMAN
Marc B. Crossman
|
|
Chief Executive Officer (Principal Executive Officer), President and Director
|
|
February 13, 2014
|
|
/s/ HAMISH SANDHU
Hamish Sandhu
|
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
|
February 13, 2014
|
|
/s/ SAMUEL J. FURROW
Samuel J. Furrow
|
|
Chairman of the Board of Directors
|
|
February 13, 2014
|
|
/s/ JOANNE CALABRESE
Joanne Calabrese
|
|
Director
|
|
February 13, 2014
|
|
/s/ JOSEPH M. DAHAN
Joseph M. Dahan
|
|
Director
|
|
February 13, 2014
|
Table of Contents
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
|
/s/ KELLY HOFFMAN
Kelly Hoffman
|
|
Director
|
|
February 13, 2014
|
|
/s/ PETER KIM
Peter Kim
|
|
Director
|
|
February 13, 2014
|
|
/s/ SUHAIL RIZVI
Suhail Rizvi
|
|
Director
|
|
February 13, 2014
|
|
/s/ KENT SAVAGE
Kent Savage
|
|
Director
|
|
February 13, 2014
|
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