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Attention:
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Mr. Matthew Crispino
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Staff Attorney
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1.
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In light of the significant amounts of common stock that are issuable due to warrant agreements related to the private placement, the term loan, and other transactions, please revise the appropriate places of the current report to discuss the potential dilution that may occur if the warrants are exercised or if various provisions requiring additional consideration to be paid to IM Ready or employees upon the achievement of certain revenue milestones are triggered.
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2.
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Please revise to clarify Mr. Stephen J. Cole-Hatchard’s role in the merger transaction and the consideration he provided for his newly issued 47,132 shares of common stock of the Company.
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3.
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Please revise to identify the executive officers and describe the number, nature and character of the accredited investors that have purchased units under the private placement offering. Also, please revise the disclosure here or on pages 60 and 61 to disclose the facts relied upon for the exemption under Section 4(2) of the Securities Act, as required by Item 701(d) of Regulation S-K. We note, for example, you do not indicate whether the investors were accredited or sophisticated with access to information generally available in a registered offering.
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4.
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Please revise to clarify the consequences should the Company fail to meet its financial covenants.
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5.
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Please revise to clarify whether the financial covenants and restrictions of the term loan with MidMarket Capital Partners LLC is restricted to the IM Brands business. For example, should the Company raise additional funds or acquire another licensor, please describe whether the term loan’s financial covenants will impact businesses outside of the IM Brands.
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6.
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Please revise this section to remove the references to “certain” as it pertains to items such as the acquisition of assets, rights related to the IM Trademarks, design services subject to the Earthbound Agreement, obligations of IM Ready and Isaac Mizrahi that constitute closing considerations. Please describe these items with sufficient detail to include all material items in each category.
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7.
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Please revise to clarify whether Earthbound has selected a board observer and what the observer rights entail.
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8.
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Please revise to clarify under what circumstances the Company has the discretion to issue IM Ready shares of common stock in lieu of cash consideration for its Earn Out Value payments and up to $2,765,500 in cash or stock for achieving aggregate net royalty income of at least $2,500,000 from QVC. Also, please revise to define “actual net royalty income” and “aggregate net royalty income” as it pertains to these pay out provisions.
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9.
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Please revise to clarify here and the Description of Business section the services that were previously provided by Earthbound to IM Ready and what transitional services they will provide in the future. To the extent that Earthbound’s role with the Company changes, please revise to clarify how the Company will perform those services or activities in the future.
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10.
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Please revise to clarify whether IM Ready retains any of its business related to the design or licensing of apparel or otherwise operates in the apparel or fashion industry, other than as an investment vehicle for Mr. Isaac Mizrahi and Ms. Marisa Gardini to hold shares in the Company.
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11.
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Please revise to clarify whether you have acquired any other licensing businesses other than the Isaac Mizrahi Business.
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12.
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Please revise to clarify whether HSN is your client or licensee of your products or trademarks. Also, please revise to clarify any restrictions your agreement with QVC will have on your ability to license your products with competing Direct-Response Television retailers.
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13.
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Please revise to provide more details of your acquisition strategy, as briefly described on page 17. Clarify whether additional funding is necessary to implement your acquisition strategy and if you have any current plans to raise such funding.
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14.
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Please discuss how you will acquire additional trademarks in a “multi-channel” distribution strategy, as briefly described on page 20. For example, it is unclear whether the acquisition of additional trademarks would require the acquisition or hiring of additional separate design teams or whether your existing design team would handle new designs for new trademarks.
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15.
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Please revise to disclose the material terms of your amended QVC licensing agreement and your Liz Claiborne New York design agreement. Also, please file your Liz Claiborne New York design agreement as an exhibit, pursuant to Item 601(b)(10) of Regulation S-K.
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16.
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Please revise to describe the general nature and character of your licenses and licensees. For example, it is unclear the extent that the QVC and the LCNY agreements constitute a substantial amount of your overall business. Please disclose the percentage of your revenue that relates to QVC, LCNY, any other material licenses in aggregate by relevant category.
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17.
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Please revise to clarify whether the LCNY agreement also involves licensing the Isaac Mizrahi brand, as it appears this line is marketed as an Isaac Mizrahi collection.
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18.
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Please provide a more detailed discussion of the competitive conditions of your industry, generally the number of competitors, and your competitive position in your industry, as required by Item 101(h)(4)(iv) of Regulation S-K.
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19.
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Please revise to clarify how the Company monitors and protects its trademarks, including whether the primary responsibility is with the Company or its major licensees like QVC.
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20.
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Please clarify whether the Company or its licensees have significant international revenue that may require the registration of foreign trademarks or other intellectual property.
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21.
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Please revise your Overview to discuss any trends, events and uncertainties as they relate to your business. This discussion should include your increased executive compensation to be paid pursuant to your new employment agreements, your need to upgrade your technology, your ability to acquire and integrate new trademarks and potentially new design teams into your Company, your ability to fund acquisitions, and any other trends, events and uncertainties that may materially affect your financial condition or operating performance.
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22.
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You indicate that “revenue is essentially earned when the Isaac Mizrahi Business has substantially met i[t]s obligations to be entitled to the benefits represented by the revenue.” Explain how this policy complies with the revenue recognition criteria of SAB Topic 13.
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23.
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Please revise here and elsewhere to disclose why the Company believes that its revenues from its QVC agreement will result in significantly increased sales. Also, given your various employment agreements, sales commission agreements, and agreements related to the acquisition of the Isaac Mizrahi Businesses, please provide a discussion how such increased sales would affect your obligation to issue new shares or pay cash if certain financial milestones are met.
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24.
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Your discussion and analysis of liquidity and capital resources should provide a clear picture of your ability to generate cash and to meet existing and known or reasonably likely short-term and long-term cash requirements. You should provide a comprehensive discussion of the significant changes in your sources and uses of cash from period to period and the impact of these changes on your liquidity and capital resources. Your disclosure should include a discussion of prospective information regarding sources of and needs for capital, including the existence and timing of commitments and other known and reasonably likely cash requirements. Please tell us how you considered the guidance in Section IV of SEC Release 33-8350 and revise accordingly.
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25.
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Please revise this section to provide the basis for your belief that you will be cash flow positive in the next twelve months, or have adequate working capital for your operating needs, debt service obligations, or capital expenditures.
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26.
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Please revise this section to provide a discussion of how the term loan financial covenants will restrict your business and whether you anticipate you will violate any of the covenants. For example, it appears you are restricted to $400,000 in capital expenditures. Please clarify how this restriction, and others like the Excess Cash Flow Sweep provisions described on page six, will affect your liquidity and capital resources.
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27.
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Please revise to briefly discuss the specific experience, qualifications, attributes or skills that led to the conclusion that each of your directors should serve on your board, in light of your business and structure. See Item 401(e) of Regulation S-K. Please provide this disclosure on an individual basis for each director.
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28.
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Your management biography for Ms. Marisa Gardini indicates that she has served as “President and Chief Executive Officer of Isaac Mizrahi New York …” since 2002. Your disclosure on page eight indicates that Isaac Mizrahi New York is a brand of IM Ready, but there is no mention that it is a separate entity or division of IM Ready. Please revise your disclosure to reconcile.
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29.
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Please revise to clarify whether Mr. Isaac Mizrahi is a full time employee. If not, please describe his other employment or ventures and what percentage of his time he devotes to the Company. We note that you disclose Mr. Mizrahi is associated with IM Ready and Laugh Club, Inc. on page 58.
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30.
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In your employee agreements, you reference the exercise price of the warrants issued under these agreements as “equal to the Share Purchase Price.” Please revise to disclose the exercise price of these warrants.
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31.
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Please revise to provide a description of the material terms of the non-competition and non-solicitation provisions of your employee agreements, including the duration of such provisions.
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32.
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Please revise to provide the definition of the term “net royalty income” for Mr. Mizrahi’s bonus provision in his employment agreement.
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33.
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Please revise to clarify the “Retained Media Rights” for Mr. Mizrahi, as described in his employment agreement and the asset purchase agreement with IM Ready.
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34.
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Please revise to clarify whether any of your directors and executive officers has been involved with any of the legal proceedings listed in Item 401(f) of Regulation S-K for the past 10 years.
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35.
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Please revise to provide an expanded discussion of the material terms of your 2011 Equity Incentive Plan.
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36.
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Please revise footnote (4) on page 53 to clarify the person the board of directors has designated to act as IM Ready’s irrevocable proxy and attorney-in-fact with respect to the Company’s shares owned by IM Ready.
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37.
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Please revise to provide the information required by Item 202(c) of Regulation S-K regarding the terms of your outstanding warrants.
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38.
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Please revise to provide the disclosure required by Item 201(a)(1) of Regulation S-K. For example, please clarify whether there is an established public trading market in light of the low volume of trading in your securities for the past two years.
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39.
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Please revise to identify the employee of Earthbound that will receive a 5% commission on the initial term of any new licensing agreements that he procures for the Company.
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40.
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Please amend your Form 8-K to state whether there were any reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K that occurred during the two most recent fiscal years and any subsequent interim period preceding the dismissal of your former auditor. Include an updated letter from your former auditor addressing your revised disclosure as an exhibit to your Form 8-K/A.
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41.
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Since it appears that the Isaac Mizrahi Business (“IM Licensing Business”) will represent your financial reporting predecessor, abbreviated financial information is not appropriate. We note from your disclosure on page 34 of your Form 8-K that prior to your acquisition of the IM Licensing Business, the business was a division of IM Ready-Made, LLC (“IM Ready”), separate and apart from IM Ready’s other business divisions. Tell us whether you acquired substantially all of the IM Ready’s key operating assets. If so, revise to provide full audited financial statements. Alternatively, revise to provide “carve-out” financial statements that comply with SAB Topic 1B.1.
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42.
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For each type of arrangement you enter into, revise to describe in reasonable detail how you determined that each of the revenue recognition criteria of SAB Topic 13 has been sufficiently satisfied.
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a.
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Persuasive evidence of an arrangement exists: Revenues for the Isaac Mizrahi Business are essentially earned in accordance with the terms and conditions governed by each licensing agreement.
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b.
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Delivery has occurred or services have been rendered: Our licensing agreements require the Company to provide the use of the Isaac Mizrahi brand’s trademarks, logos and other brand images and provide style guides; they may also require design services. We have one agreement that requires our employee or designee to make media appearances. The Company provides the use of the Isaac Mizrahi brand’s trademarks, logos and other brand images at the onset of each licensing agreement it enters into, therefore satisfying this component of its obligations to its licensees. Style guides, design services and appearances by Isaac Mizrahi are provided on a routine, ongoing basis. Therefore, management’s assertion is that it has met its obligations entitling it to licensing and design revenues from its licensees in the period in which the revenue is earned by virtue of delivering the use of the brand’s trademarks and by rendering services in accordance with its licensing agreements.
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c.
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Seller’s price to the buyer is fixed or determinable: The royalty rates and guaranteed minimum payments (if any) payable to the Company as licensor (seller) are pre-determined.
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d.
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Collectability is reasonably assured: The Company has had no meaningful collectability issues.
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43.
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Tell us whether any of your arrangements include multiple elements. Note that even though you negotiate more than one contract with a customer, the separate contracts may be viewed as one multiple element arrangement when determining the appropriate amount of revenue to be recognized. To the extent that your arrangements involve multiple elements, tell us how you determine the units of accounting and how your allocation policy complies with ASC 605-25-25. Tell us what consideration you gave to addressing the accounting for these types of arrangements in your revenue recognition policy.
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44.
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For design services, you indicate that base fees are recognized on a straight-line basis and additional payments are recognized in the applicable period. Explain how this recognition policy is representative of the pattern in which performance takes place. As part of your response, describe the nature of the base fee and the additional payments. Tell us when and how you determine that your customer has received value from the design services.
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45.
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We note from your disclosure on page 18 of the Form 8-K that you sometimes require advance payments. In addition, we note from your disclosure on page 36 of the Form 8-K that you received a one-time fee of $9,000,000 as a result of the restructuring of the Liz Claiborne design service agreement in October 2009. Tell us and consider disclosing a description of how these advance payments and one-time fees are accounted for and reflected in your financial statements.
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46.
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You indicate that the acquisition of the IM Licensing Business has been accounted for under the purchase method of accounting. Provide your analysis of why this accounting treatment is appropriate, including the pertinent facts and circumstances considered in identifying the accounting acquirer. Describe the voting rights and the composition of the governing body and senior management of Old Xcel before and after the merger. Tell us what consideration you gave to the guidance in ASC 805-50-15-6 and 805-10-55-11 through 55-15.
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a.
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The management of Old Xcel accounts for substantially all of the management of the combined entities. The CEO, CFO, COO and Secretary all continue in the combined entity. The only position of senior management from IM Ready is the position of EVP of Marketing and Business Development.
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b.
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Seven members compose the board of directors. All members were selected by Old Excel, including one director who was a principal of IM Ready and director who was a principal of Earthbound.
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c.
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IM Ready granted a proxy to the Company’s board of directors to vote its stock in accordance with the recommendation of the board of directors and Robert D’Loren, who was Chairman of the board of directors of Old XCel and has been designated by the Company’s board of directors to exercise such proxy.
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d.
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Old Xcel management as a group makes up the largest minority voting group. There is no majority stockholder.
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47.
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Explain the basis for the value assigned to the shares of common stock issued as part of the consideration for the acquisition of the IM Licensing Business.
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48.
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We note that you issued warrants to purchase shares of common stock to the lender in connection with the term loan. Explain how you valued the warrants, including the significant assumptions used. Cite the authoritative accounting literature relied upon.
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a.
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Volatility:
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41.72%
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b.
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Life:
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7 years
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c.
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Risk free rate:
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3.75%
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d.
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Current stock value:
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$3.34
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e.
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Exercise price:
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$0.01
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·
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the Company is responsible for the adequacy and accuracy of the disclosure in the Form 10-K;
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·
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Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the Form 10-K; and
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·
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the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
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Very truly yours,
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/s/ James F. Haran
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James F. Haran
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Chief Financial Officer
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cc:
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Brad L. Shiffman, Esq.
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