CTRC Centric Brands Inc

PART I

Forward-Looking Statements

Statements contained in this Annual Report that are not purely historical facts are forward-looking statements. Statements looking forward in time are included in this Annual Report pursuant to the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995 and are based on our management’s beliefs and assumptions and on information currently available to our management. Such forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words, “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will likely result,” and any variations of such words with similar meanings. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements.

Factors that would cause or contribute to such differences include, but are not limited to, the factors contained or referenced under the headings “Part I, Item 1. Business,” “Part I, Item 1A. Risk Factors” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report. In particular, certain risks and uncertainties that we face include, but are not limited to:

Since we operate in a rapidly changing environment, new risk factors can arise and it is not possible for our management to predict all such risk factors, nor can our management assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward - looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance, events and circumstances reflected in the forward-looking statements will be achieved or will occur. Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward - looking statements.

Any forward-looking statement in this Annual Report speaks only as of the date of this filing. We undertake no obligation to publicly update these forward - looking statements to reflect events, circumstances or the occurrence of unanticipated events that occur.

Available Information

We file with or submit to the SEC periodic and current reports, proxy statements and other information meeting the informational requirements of the Securities Exchange Act of 1934, as amended  ( “Exchange Act” ). We maintain a

website at www.centricbrands.com and make all of our annual, quarterly and current reports, proxy statements and other publicly filed information available, free of charge, on or through our website at www.centricbrands.com (under the heading “Investor Relations” ). Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information contained on our website to be part of this Annual Report on Form 10-K or any other report we file with the SEC. Information relating to our corporate governance, including copies of our Code of Ethics and Conduct, Audit, Compensation and Nominating and Corporate Governance Committee Charters, and other policies and guidelines, are available at our website under “Investor Relations.” Paper copies of these filings and corporate governance documents are available to stockholders free of charge by written request to Investor Relations, Centric Brands Inc. 350 5th Avenue, 6th Floor, New York, NY 10118. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information filed electronically by us with the SEC. Copies of these reports, proxy and information statements and other information may be obtained by electronic request at the following e-mail address: publicinfo@sec.gov.

business and a majority of their West Coast and Canadian fashion businesses (the “ GBG Business ”) for a purchase price of approximately $1.18 billion (the “ GBG Acquisition ”). The GBG Business licenses brands such as Calvin Klein, Under Armour, Tommy Hilfiger, BCBG, Joe’s, Buffalo David Bitton, Frye, Michael Kors, Kate Spade, All Saints and Cole Haan, and entertainment properties including Disney, Marvel and Nickelodeon, among others. For more information on the financing transactions in connection with the GBG Acquisition, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources” and “Notes to Consolidated Financial Statements.”

SWIMS® Acquisition

On July 18, 2016, we completed the acquisition of all of the outstanding share capital of Norwegian private limited company (aksjeselskap) SWIMS AS. We purchased SWIMS for aggregate consideration of (i) $12.0 million in cash, (ii) 702,943 shares of our common stock and (iii) warrants to purchase an aggregate of 150,000 shares of our common stock with an exercise price of $5.47 per share.

Robert Graham® Merger

On January 28, 2016, we completed the acquisition of all of the outstanding equity interests of Robert Graham for an aggregate of $81.0 million in cash and 8,825,461 shares of our common stock (the “ RG Merger ”). Robert Graham is engaged in the design, development, sales and licensing of lifestyle apparel products and accessories that bear the brand name Robert Graham®.

Effective upon consummation of the RG Merger, we effected a reverse stock split (the “ Reverse Stock Split ”) of our issued and outstanding common stock such that each 30 shares of our issued and outstanding common stock were reclassified into one share of our issued and outstanding common stock. The Reverse Stock Split did not change the par value or the amount of authorized shares of our common stock. The primary purpose of the Reverse Stock Split was to increase the per-share market price of our common stock in order to maintain our listing on The NASDAQ Capital Market maintained by The NASDAQ Stock Market LLC (“ NASDAQ ”). All share amounts in this Annual Report reflect the Reverse Stock Split.

Our Brands and Products

Our products are focused on kids’ products, accessories products, and men’s and women’s apparel. Historically, our principal business activity was the design, development and worldwide marketing of apparel, footwear and lifestyle products bearing the Hudson®, Robert Graham® and SWIMS® (“ Owned Brands ”) labels as described further below.

As a result of the GBG Acquisition, we now license, manage and operate a diversified portfolio of complementary consumer brands where we act as a licensee for certain trademarks owned by third parties and produce private label products for certain customers. We also acquired certain trademarks for other owned brands pursuant to the GBG Acquisition that we do not expect to be significant to our operating results. We strive to combine consumer insight with our design, marketing, and imaging skills to offer broad lifestyle collections with a unified vision. Due to the GBG Acquisition, we now benefit from a balanced mix of licensed brands anchored by the following licensed brands:

AllSaints®

AllSaints is a British fashion retailer headquartered in London. AllSaints sells menswear, apparel, footwear and accessories through its department store locations, stand-alone retail stores and its website. AllSaints launched its first comprehensive handbag line in September 2015. We sell AllSaints accessories related products to numerous retailers, including major department stores, specialty stores, AllSaints retail and ecommerce stores in the United States and Canada.

BCBG®

Founded in Paris in 1989, BCBG is named for the popular French expression “Bon chic, bon genre,” the idea that a good attitude is the basis of good style. Since its inception, BCBG has infused west coast attitude into its distinctly European aesthetic to craft timeless designs that inspire women. BCBG products are sold in retail stores and department stores around the world. We sell women’s BCBG apparel and related accessories products in our BCBG retail stores, partner shop-in-shops, major department stores, specialty stores, ecommerce stores and our ecommerce website at www.bcbg.com.

bebe®

bebe is the go-to destination for chic, contemporary fashion. Founded by Manny Mashouf in 1976, he created one of the first contemporary fashion brands. Designed for the confident, sexy, modern woman, bebe is a global label that embodies a sensual, sophisticated lifestyle. We sell women’s bebe apparel and related accessories products in our own bebe retail store, specialty stores, and through www.bebe.com.

Buffalo David Bitton®

Buffalo David Bitton ( “ Buffalo ” ) is an iconic brand offering multiple denim styles and a full fashion collection. Buffalo is a lifestyle brand that translates across international boundaries. Founded in France and brought to Montreal more than 30 years ago, Buffalo now spans across 18 countries and more than 3,000 locations. We sell Buffalo men’s and women’s apparel to key accounts throughout the United States and Canada including major department stores, specialty stores,  and ecommerce stores in the United States and Canada.

Calvin Klein®

Calvin Klein is an American luxury fashion house established in 1968, which specializes in apparel, lifestyle accessories, home furnishings, perfumery, jewelry, watches and ready-to-wear. Calving Klein has substantial market share in retail and commercial lines as well haute couture garments. We sell Calvin Klein kids products and Calvin Klein men’s and women’s accessories related products to numerous retailers including major department stores, specialty stores, and ecommerce stores in the United States and Canada.

Cole Haan®

Cole Haan was founded in 1928 in Chicago, and was named after its founders Trafton Cole and Eddie Haan.  Cole Haan is a leading footwear label and has done collaborations with designers, athletes, and tastemakers expanding its product offering to include belts, hosiery, handbags, gloves, scarves, hats, outerwear, and sunglasses. We sell Cole Haan accessories related products in retail stores and department stores in the United States and Canada including Cole Haan retail stores and ecommerce stores.  

Fila®

Fila is a sportswear manufacturing company founded in Italy. Fila products are internationally recognized by athletes and the fashion conscious. Fila uses premium fabrics designed to radiate the sophistication of Italian craftsmanship, while allowing maximum flexibility and performance. We sell Fila accessories related products in the retail stores and department stores throughout the United States and Canada.

FRYE®

Founded in 1863 in Marlboro, Massachusetts by John A. Frye, the Frye brand is the oldest, continuously operating footwear brand in the nation and one of the most recognizable and highly esteemed of all American brands. Frye’s history spans over150 years, across cultural shifts and changes in fashion. Today, Frye products are accessorized and envied on city streets, worked and roughed upon country roads and chosen above all others for their inimitable style and

uncompromising quality. We sell Frye accessories related products to numerous retailers, including major department stores, specialty stores, Frye retail stores and ecommerce stores in the United States and Canada.

Herve Leger®

Herve Leger was founded in 1985 by the designer Hervé Peugnet, the pioneer of the so-called “bandage” dress, which utilized materials traditionally associated with foundation garments to create dresses that would mold and shape the wearer's figure with its signature bandage-like strips.  Herve Leger was acquired by the BCBG Max Azria Group in 1998 and relaunched under the direction of Max Azria in 2007. We sell women’s Herve Leger apparel in our own Herve Leger retail stores, partner shop-in-shops, major department stores, specialty stores, ecommerce stores and our ecommerce website at www.herveleger.com.

Joe’s®

Founded in 2001 by Creative Director Joe Dahan, Joe's redefines everyday style with its inherently LA sensibility and distinctive rock n roll point-of-view. With an emphasis on offering the perfect fit for everybody, the brand takes a revolutionary approach to denim and sophisticated classics, incorporating the very latest in technology to offer product that is beautiful, innovative, and fits flawlessly. We sell Joe’s men’s and women’s apparel in our Joe’s retail stores, major department stores, specialty stores, ecommerce stores and our ecommerce website at www.joesjeans.com.

Kate Spade®

Kate Spade is an American luxury fashion design house founded in January 1993 by Kate and Andy Spade.  The company started out as a handbag company. The debut line infused classic shapes, colors and fabrics into iconic handbags.  The company then began manufacturing jewelry, glasses and other small accessories, before it launched a home collection brand in 2007. Kate Spade products are sold in retail stores and department stores around the world. We sell Kate Spade accessories related products to numerous retailers, including major department stores, specialty stores, Kate Spade retail stores and ecommerce stores in the United States and Canada.

Lucky Brand®

Lucky Brand is an American denim company founded in Vernon, California in 1990. Lucky Brand is also known for a wide range of other products, including activewear, outerwear, T-shirts, and professional attire. We sell Lucky Brand kids’ products and accessories related products throughout the United States and Canada to major department store chains including Bloomingdale’s, Macy’s, Lord  & Taylor, Nordstrom, Belk and Dillard’s, as well as small specialty chains like Buckle.

Michael Kors®

Michael Kors is a world-renowned, award-winning designer of luxury accessories and ready-to-wear. His namesake company, established in 1981, currently produces a range of products under his signature Michael Kors Collection and MICHAEL by Michael Kors labels. These products include accessories, footwear, watches, jewelry, men’s and women’s ready-to-wear, eyewear and a full line of fragrance products. We sell Michael Kors accessories to more than 550 stores and over 1,500 in-store boutiques in various countries, including major department stores, specialty stores, Michael Kors retail stores and ecommerce stores in the United States and Canada.

Marvel®

Marvel Entertainment, LLC, a wholly-owned subsidiary of The Walt Disney Company, is one of the world’s most prominent character-based entertainment companies, built on a proven library of more than 8,000 characters featured in a variety of media platforms. Marvel's many famous characters include Spider-Man, Avengers, Captain Marvel and Iron Man. We sell Marvel kids related products to numerous retailers, including major department stores, specialty stores, and through ecommerce websites in the United States and Canada.

Nautica®

Nautica is a premium American apparel brand featuring men’s, women’s, kids apparel, and accessories as well as home, watches, and fragrances. Nautica is one of the most recognized American brands throughout the world, with over 35 categories available in more than 65 countries. Nautica currently operates 72 Nautica stores in the United States and 291 International stores, and over 1,400 Nautica branded shop-in-shops worldwide. We sell Nautica kids' products and accessories related products to numerous retailers, including major department and specialty stores throughout the United States and Canada.

Nickelodeon®

Nickelodeon is a recognized leader in kids and family entertainment, featuring leading original and licensed series for kids across animation, live-action and preschool genres. Shows aired on Nickelodeon include SpongeBob SquarePants, Rugrats, All That, and Kenan & Kel. We sell Nickelodeon kids related products to numerous retailers, including major department stores, specialty stores, and ecommerce stores in the United States and Canada.

Spyder®

Established in 1978, Spyder is widely known and highly respected throughout the outdoor community as one of the most technical and fashionable brands in the winter sports market. We sell Spyder kids' products and accessories to retail stores and department stores throughout the United States and Canada.

Timberland®

Timberland offers outdoor, adventure-inspired lifestyle footwear, apparel and accessories that combine performance benefits and versatile styling for men, women and children. We sell Timberland kids product and accessories related products throughout the United States and Canada to department and specialty stores, and Timberland retail stores.

Tommy Hilfiger®

Tommy Hilfiger is a premium American clothing brand, which includes apparel, footwear, accessories, fragrances and home furnishings. The company was founded in 1985, and today is sold in department stores and over 1,400 freestanding retail stores in 90 countries. We sell Tommy Hilfiger kids related products to numerous retailers, including major department stores, specialty stores, and ecommerce stores in the United States and Canada.

Under Armour®

Under Armour was founded in 1996 and specializes in athletic apparel and protective gear. Under Armour’s apparel is engineered in many designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Under Armour products are sold worldwide and are worn by athletes at all levels on playing fields around the globe, as well as by consumers with active lifestyles. We sell Under Armour kids related products to numerous retailers, including major department stores, specialty stores, and ecommerce stores in the United States and Canada.

The Walt Disney Company®

The Walt Disney Company brings its stories and characters to life for families and fans of all ages through innovative products and experiences. The Walt Disney Company introduces new characters and stories alongside inspired retellings of classic tales. Walt Disney characters include icons such as Mickey Mouse, Minnie Mouse, Daffy Duck and Goofy. We sell Walt Disney kids related products to numerous retailers, including major department stores, specialty stores, and ecommerce stores throughout the United States and Canada.

Historically, our principal business activity was the design, development and worldwide marketing of apparel, footwear and lifestyle products bearing our Owned Brands described below:

Hudson®

Hudson ® was established in 2002 and is recognized as a premier designer and marketer of men's and women's premium branded denim apparel, an industry term for denim jeans with price points generally of $120 or more, known for its quality, fit and fashion   forward designs. We sell our products to numerous retailers, which include major department stores, specialty stores, ecommerce stores in the United States, Canada and Europe and our ecommerce website at www.hudsonjeans.com. Our product line includes men's, women's and children's denim jeans, bottoms, tops, jackets and other related apparel.

Robert Graham®

Robert Graham principal business activity is the design, development, sales and licensing of lifestyle apparel products and accessories that bear the brand name Robert Graham ® and Robert Graham Modern Americana ® . Robert Graham offers a cohesive lifestyle collection that includes knits, polos, sport shirts, T-shirts, sweaters, sport coats, outerwear, jeans, bottoms, shorts, swimwear and accessories. We sell our products through our own retail stores, to numerous retailers, which include major department stores, specialty stores, and ecommerce stores in the United States, Canada and Europe and our ecommerce website at www.robertgraham.us.

SWIMS®

SWIMS’ principal business activity is the design, development, sales and licensing of footwear and apparel products and accessories that bear the brand name SWIMS ® . Founded in Norway in 2006, SWIMS is a Scandinavian lifestyle brand best known for its range of fashion-forward, water-friendly footwear for men that artfully balances performance, comfort and style. SWIMS ® product line includes men's and women's footwear, swimwear, outerwear, ready-to-wear, and accessories. We sell our products through our own retail stores, to numerous retailers, which include major department stores, specialty stores, and ecommerce stores in the United States, Canada and Europe and our ecommerce website at www.swims.com.

Reportable Segments

Prior to the GBG Acquisition, we organized our business into the following three reportable segments: Wholesale, Consumer Direct and Corporate and other. Upon completing the GBG Acquisition, we resegmented our reportable segments to reflect our expanded organizational structure, including the operations of the newly acquired GBG Business. Accordingly, we realigned our business into the following three reportable segments: Kids, Accessories, and Men’s & Women’s Apparel. This new segment structure is consistent with how our chief operating decision maker establishes our overall business strategy, allocates resources, and assesses performance. All prior period segment information has been reclassified to reflect the realignment of our segment reporting structure. We will continually evaluate changes in the structure of the organization to determine whether our operating segments have changed when events or circumstances necessitate such an exercise.

The results of operations of the GBG Acquisition were only included in our results of operations for the year ended December 2018 for the period from October 29, 2018 through December 31, 2018. Therefore, our 2018 results of operations and associated metrics are not necessarily indicative of future results, which will include the impact of the GBG Acquisition for the full periods presented. For more information see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Our Kids segment accounted for approximately 36.3% of our Fiscal 2018 net revenues and is comprised of over 350 brands sold to over 700 customers. Licensed brands in this category, include but are not limited to, Calvin Klein®, Lucky Brand®, Marvel®, Nautica®, Nickelodeon®, Spyder®, Tommy Hilfiger®, Under Amour® and Walt Disney®. Our top customers include large retailers such as, Costco, Kohl’s, Macy’s, Target, TJX Companies and Walmart.

Our Accessories segment, accounted for approximately 16.3% of our Fiscal 2018 net revenues, and is comprised of over 190 brands sold to over 600 customers. Licensed brands in this category include, but are not limited to, AllSaints, Calvin Klein, Cole Haan, Fila, Frye, Kate Spade, Michael Kors, Spyder, and Timberland. Our top customers include large retailers such as Dillard's, Kohl’s, Macys, Nordstrom, and Walmart.

Our Men’s & Women’s Apparel segment accounted for approximately 47.4% of our Fiscal 2018 net revenues, and is comprised of our Owned Brands and five licensed brands: BCBG, bebe, Herve Leger, Joe’s and Buffalo. We sell Men’s and Women’s apparel to over 1,000 customers in North America and throughout the world. As of December 31, 2018, the Company operated a total of 89 retail stores as discussed in “Part I, Item 2. Properties” of this Annual Report.

Product Design, Development and Sourcing

Our product development is managed internally by designers. The designers lead the respective design teams responsible for the creation, development and coordination of the product group offerings. We typically develop four collections per year for (i) spring, (ii) summer, (iii) fall/back to school, and (iv) winter/holiday with certain core basic styles offered throughout the year. The key designers are an instrumental part of our design process. The loss of any key designer would not change any rights we have to the designs or intellectual property. We believe that if any key designers terminate their employment with us, alternative sources are available for the development and design of the product, as applicable.

Our products are primarily produced by, and purchased or procured from, third party manufacturing contractors, many of whom are located outside of the United States. For Fiscal 2018, substantially all of the products we purchased were attributable to manufacturing contractors located outside of the United States, with purchases primarily procured from manufacturing contractors located in countries such as China, Mexico, Cambodia, Vietnam and India among others. No single manufacturing contractor represented at least ten percent of our total purchases of our products for Fiscal 2018. We do not have a long-term supply agreement with any of our third-party manufacturers or contractors, and we believe that there are available resources of overseas and domestic contractors that could fulfill our requirements in the event that one of our existing manufacturers would not be able to do so. We procure production in order to ensure quality and timely deliveries. See “Part I, Item 1A. Risk Factors—Risks Related to our Business and Industry— We are dependent on third parties to source and manufacture products and any disruption in relationships with these parties or in their businesses may materially adversely affect our business” and “—Problems with the third-party distribution system could harm our ability to meet customer expectations, manage inventory, complete sales and achieve targeted operating efficiencies.”

We do not enter into any long term agreements with our suppliers, nor are we substantially dependent on any one of them. Currently, we utilize Li & Fung Group (“ Li & Fung ”) as a sourcing agent to source a portion of our products pursuant to the Transition Services Agreement. We expect to enter into a formal sourcing agreement with Li & Fung to source our products during 2019. We also explore sourcing strategies designed to improve our gross margins. However, there can be no assurance that any change in sourcing will result in enhanced profit margins, similar quality or timely deliveries, but we do believe that continuing to monitor this expense can be beneficial for growth. See “Part I, Item 1A. Risk Factors—Risks Related to our Business and Industry— Increases in the price of raw materials or their reduced availability could increase our cost of goods and decrease our profitability ” and “— We are dependent on third parties to source and manufacture products and any disruption in relationships with these parties or in their businesses may materially adversely affect our business .”

In the event we terminate any of our relationships with third-party suppliers or the economic climate or other factors result in a significant reduction in the number of suppliers, our business could be negatively impacted. At this time, we believe that we would be able to find alternative sources for production if this were to occur; however, no assurances can be given that a transition would not involve a disruption to our business.

We generally purchase our products in United States dollars. However, because we use overseas or non-United States suppliers, the cost of these products may be affected by changes in the value of the relevant currencies. Certain of our apparel purchases in the international markets will be subject to the risks associated with the importation of these types of products. See “— Import and Export Restrictions and Other Governmental Regulations” below .

While we attempt to mitigate our exposure to manufacturing risks, the use of independent suppliers reduces our control over production and delivery and exposes us to customary risks associated with sourcing products from independent suppliers. Transactions with foreign manufacturers and suppliers are subject to the typical risks of doing business abroad, such as the cost of transportation and the imposition of import duties and restrictions. The countries in which our products are manufactured may, from time to time, impose new duties, tariffs or other restrictions, or adjust presently prevailing

duties or tariff levels, which could affect our operations and our ability to import products at current or increased levels. We cannot predict the likelihood or frequency of any such events occurring. See “Part I, Item 1. Business— Import and Export Restrictions and Other Governmental Regulations .” Furthermore, the inability of a manufacturer to ship orders of our products in a timely manner or to meet our quality standards could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices. Due to the seasonality of our business, and the apparel and fashion business in particular, the dates on which customers require shipments of products from us are critical, as styles and consumer tastes change so rapidly. Because quality is a leading factor when customers and retailers accept or reject goods, any decline in quality by our third-party manufacturers could be detrimental, not only to a particular order, but also to our future relationship with that particular customer.

Trademarks and License Agreements

We own a variety of pending applications and registrations throughout the world for a variety of trademarks in addition to the common law rights associated therewith for our various Owned Brands as well as brands we acquired as a result of the GBG Acquisition. We regard our trademarks and other intellectual property rights as valuable assets of our business and important to the success of our brands in the marketplace. We vigorously protect our trademarks and other intellectual property rights against infringement.

For the trademarks that we own, we selectively license some of our brands for certain product categories or for retail stores in foreign jurisdictions. Licensing broadens and enhances the products available under the brand name or their availability in other geographical areas. We receive royalty payments on net sales or purchases of products for sale at the retail stores without incurring significant capital investments or incremental operating expenses. There are certain minimum net sales that the licensees are required to meet, and the agreements generally have renewal rights. See “Part I, Item 1A. Risk Factors— Our licensing arrangements may not be successful and may make us susceptible to the actions of third parties who may not comply with our product quality, manufacturing standards, marketing and other requirements, which may have an adverse effect on our brand equity, reputation or business and our trademark and other intellectual property rights may not be adequately protected and some of our products are targets of counterfeiting.”

As a result of the GBG Acquisition, we also act as a licensee for certain trademarks owned by third parties and acquired for numerous license agreements and the sale of licensed product has become an increasingly critical element of our growth strategy. Under our license agreements, we are generally required to achieve minimum net sales of licensed products, pay guaranteed minimum royalties, make specified royalty and advertising payments (usually based on a percentage of net sales of licensed products), and receive prior approval of the licensor as to all design and other elements of a product prior to production. See “Part I, Item 1A. Risk Factors— The failure to maintain our license agreements could cause us to lose significant revenues and have a material adverse effect on our results of operations.”

Our ability to renew the current term of a license agreement may be subject to the discretion of the licensor or to attaining minimum sales and/or royalty levels and to our compliance with the provisions of the agreement. Brand owners may be looking to consolidate the number of licensees they engage to develop product and to choose licensees who have a successful track record of developing brands, selling and resources. We continue to seek opportunities to enter into license agreements in order to expand our product offerings under well-known labels and broaden the markets that we serve.

Sales and Distribution

Wholesale

Our wholesale operations include sales of products licensed by us from third parties, as well as sales of products under our Owned Brands and private label brands. Our products are sold through a cross section of leading retailers such as Walmart, Macy's, Target, Burlington, Kohl's, TJX Companies, Costco, Nordstrom, Dillard's, Ross, Target, JC Penney, and Amazon. We also sell our products over the web through retail partners such as Walmart.com, Macy's.com and Nordstrom.com.

We generally sell our products through our own showrooms. At our showrooms, retailers review the latest collections offered and place orders. We also sell a limited number of products internationally through distributors in various countries that are managed by us or through licensed stores. We continue to evaluate our options and review relationships in the marketplace to create a strategy to grow international sales.

Direct to Consumer

We sell our Owned Brands to consumers through 19 Robert Graham® brand full-price retail stores and 12 outlet stores. We sell SWIMS® products through one full-price retail store and two outlet stores. We also sell our Owned Brand products through our online ecommerce sites at www.hudsonjeans.com, www.robertgraham.us and www.swims.com.

In connection with the GBG Acquisition, we also assumed 41 leases operated under our BCBG name, 12 leases operated under the Joe’s Jeans name, one lease operated under the Herve Leger name, and one lease operated under the bebe name. Also in connection with the GBG Acquisition, we now own and operate the following online ecommerce sites: www.bcbg.com, www.herveleger.com, www.buffalojeans.com, www.joesjeans.com, and www.bebe.com . 

In addition, we utilize partner shop-in-shops for certain of our brands to enhance brand recognition, to permit more complete merchandising of our lines by department stores, and to differentiate the presentation of our products.

We have organized our retail store operations into geographic areas or districts that each have a district manager. District managers are responsible for several stores and monitor and supervise individual store managers. Each store manager is responsible for overseeing the daily operations of one of our stores. In addition to a store manager, the staff of a typical store includes a combination of some or all of the following positions: an assistant store manager and full and part-time sales associates.

An essential requirement for the success of our stores is our ability to attract, train and retain talented, highly motivated area managers, store managers and other key employees. In addition to management training programs for both newly hired and existing employees, we have a number of retention programs that offer qualitative and quantitative performance-based incentives to district-level managers, store managers and full-time sales associates.

Advertising, Marketing and Promotion

Our products are sold primarily to department, specialty and mass merchant retail stores in the United States. We sell to thousands of customers, ranging from national and regional chains to small specialty stores. We also distribute our products through our retail stores, our brand websites, and our retail partners’ websites.

For our Owned Brands and ecommerce websites that we operate, we utilize marketing tools through our websites, mobile applications, email campaigns, search engines, affiliates, influencers and various other social media. We refresh our marketing periodically to effect the most cutting edge changes in fashion and culture. We rely on these features, as well as the brand recognition criteria by our direct marketing activity, to draw customers to our distribution channels.

We believe we have developed awareness of our other owned or licensed labels primarily through our reputation, consumer acceptance and the fashion press. We primarily rely on our reputation and relationships to generate business in the private label portion of our business. We believe we have developed a significant customer following and positive reputation in the industry as a result of, among other things, our standards of quality control, on-time delivery, competitive pricing and merchandising of our products.

Brand name products sold by us pursuant to a license agreement are promoted by brand and product advertisements placed by the licensor. Our license agreements generally require us to pay the licensor a fee, based on percentage of net sales of licensed products, and to pay for a portion of these advertising costs. We may also be required to spend a specified percentage of net sales of a licensed product on advertising placed by us.

Company Operations

Distribution  

We utilize the services of third-party logistics service providers across 16 facilities in California, Florida, New Jersey, and Canada, for approximately 2.4 million square feet of space in their respective facilities, which are used to distribute merchandise to our domestic customers. Operations at these facilities include direct to consumer and wholesale fulfillment services, including inventory warehousing, receiving, value added services and customer shipping.

We lease approximately 69,000 square feet and approximately 26,000 square feet of space in two fulfillment and distribution facilities in New Jersey and Sweden, respectively. Operations at these facilities support distribution to domestic and international customers and includes direct to consumer and wholesale fulfillment services, including inventory warehousing, receiving, value added services and customer shipping.

In connection with the GBG Acquisition, on October 29, 2018, we entered into a Transition Services Agreement with GBG USA (the “Transition Services Agreement” ) providing us access to approximately 500,000 of additional square feet at GBG and third-party logistic facilities in California, Florida, and New Jersey. Operations at these facilities support distribution of the newly acquired GBG Business domestically and internationally and include direct to consumer and wholesale fulfillment services, inventory warehousing, receiving and customer shipping.

Information Systems

The Transition Services Agreement provides us with access and support on specific IT applications related to the operations of the GBG Business. This includes continued access and support on certain shared business applications, enterprise resource planning systems, product lifecycle management systems, workflow systems, procurement systems, time and expense reporting, retail reporting, vendor compliance, communications, data, data infrastructure, and network services. We are currently working on expanding our own IT infrastructure to integrate the GBG Business. The remainder of our business operates on our existing IT infrastructure.

Customers

Our products are sold to consumers through our own retail stores, partner shop-in-shops  and ecommerce websites, as well as major department stores, specialty stores, mass market retailers, other ecommerce websites primarily in the United States and Canada and select locations throughout the world. We do not enter into long   term agreements with any of our customers. Instead, we receive individual purchase order commitments. A decision by the controlling owner of a group of stores or any other significant customer, including our private label customers, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease the amount of merchandise purchased from us, to change their manner of doing business with us, to cancel orders previously placed in advance of shipment dates or a decision to cease carrying our products could have a material adverse effect on our financial condition and results of operations.

For Fiscal 2018, the ten largest customers and customer groups for our business, in the aggregate, accounted for approximately 47% of our net sales. During Fiscal 2018, only our largest customer represented over 10 percent of our net sales.

We believe that should we lose a major customer, it could impact our overall net sales. See “Part I, Item 1A. Risk Factors— A substantial portion of our net sales and gross profit is derived from a small number of large customers, and the loss of any of these large customers could have a material adverse effect on our financial condition and results of operations. ”

Order Book

A portion of our orders consist of short-term purchase orders from customers who place orders on an as-needed basis. Information relative to open purchase orders at any date may also be materially affected by, among other things, the

timing of the initial showing of apparel to customers, as well as by the timing of recording of orders and shipments. As a result, we do not believe that disclosure of the amount of our unfilled customer orders at any time is meaningful.

The amount of outstanding customer purchase orders at a particular time is influenced by numerous factors, including the product mix, timing of the receipt and processing of customer purchase orders, shipping schedules for the product and specific customer shipping windows. Due to these factors, a comparison of outstanding customer purchase orders from period to period is not necessarily meaningful and may not be indicative of actual shipments.

Seasonality of Business and Working Capital

Products are designed and marketed primarily for the following principal selling seasons: spring, summer, fall/back-to-school and winter/holiday. We have historically experienced, and expect to continue to experience, seasonal fluctuations in our net sales. A significant amount of our net sales are realized during the third and fourth fiscal quarters when we ship orders taken during earlier months for the back-to-school and holiday seasons. For Fiscal 2018, we funded our liquidity needs through cash generated from operations, cash available under our financing agreements and entry into the financing arrangements described in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” below. In Fiscal 2019, we plan to continue to fund our liquidity needs through the same sources. If sales are materially different from seasonal norms, our annual operating results could be materially affected. Accordingly, our results for the individual quarters are not necessarily indicative of the results to be expected for the entire year. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for further discussion of our financing agreements and our liquidity position.

Credit and Collection

We currently extend credit to a majority of our larger customers, who purchase our products from us at wholesale prices. Our decision to extend credit is based on credit approval under our factoring arrangements, past credit history, and reputation of creditworthiness within our industry. The vast majority of our customers are guaranteed through credit insurance purchased through our factor securing the receivables sold to a financial institution. As such, we generally extend credit without requiring collateral. 

A small percentage of our customers are required to pay by either credit card or cash before delivery or are secured by a letter of credit, which is also based on considerations such as lack of credit history, reputation within our industry and/or prior payment history. For those customers to whom we extend credit, terms generally range from upon goods receipt to net 60 days. Based on industry practices, financial awareness of the customers with whom we conduct business, and business experience of our industry, our management exercises professional judgment in determining which customers will be extended credit. We are exposed to some collection risk for receivables which were factored with recourse where our factor did not accept the credit risk. However, the aggregate amount of exposure is generally low and, therefore, we believe that the credit risk associated with our extension of credit is minimal. We partner with our factor to ensure timely collections for all open accounts receivables. Retail and ecommerce sales carry no material credit risk as payment is tendered at or before product is taken or delivered by/to the customer.

Competition

The industries in which we operate are fragmented and highly competitive in the United States and on a worldwide basis. We compete for consumers with a large number of apparel companies. We do not hold a dominant competitive position, and our ability to sell our products is dependent upon the anticipated popularity of our designs and brand names, the price and quality of our products and our ability to meet our customers’ delivery schedules. We believe the design, merchandising, assortment, cost, quality and uniqueness of our designs differentiates us from our competitors, and we believe that we are competitive with companies producing goods of like quality and pricing. We believe that we can maintain our competitive position through new product development, creating product identity and brand awareness and competitive pricing. Many of our competitors may possess greater financial, technical and other resources, and the intense competition and the rapid changes in consumer preferences constitute significant risk factors in our operations. As we

expand globally, we will continue to encounter additional sources of competition. See “Part I, Item 1A. Risk Factors— We face intense competition in the denim, footwear and premium lifestyle apparel industries, and if we are unable to compete effectively, our business, financial condition and results of operations may be negatively impacted. ”

Manufacturing and Distribution Relationships

We contract for the manufacture of our products and do not own or operate any production facilities. Approximately 350 different manufacturers worldwide produce our products, with no one manufacturer providing more than 10% of our total production during Fiscal 2018. We source both finished products and raw materials. Raw materials include fabric and trim. Finished products consist of products ready for shipment to our customers when purchased by us. In Fiscal 2018, over 95% of our products (by dollar value) were produced outside of the United States, primarily in China, Mexico, Cambodia, Vietnam, and India.

Most of our businesses must commit to the manufacturing of our products before we sell finished goods, whether to consumer direct channels or to wholesale customers. If we overestimate our primary customers' demand for a particular product, we primarily sell the excess products or garments at a discounted price in our factory stores or through other secondary distribution channels.

All products are produced according to our and our licensors’ or brands’ specifications and standards. Production and quality assurance staff monitor manufacturing at supplier facilities in order to correct problems prior to shipment of the final product. Procedures have been implemented under our vendor certification and compliance programs so that quality assurance is reviewed during the production process, allowing merchandise to be received at the distribution facilities and shipped to customers with minimal interruption.

Import and Export Restrictions and Other Governmental Regulations

Transactions with our foreign manufacturers and suppliers are subject to the general risks of doing business abroad. Imports into the United States are affected by, among other things, the cost of transportation and the imposition of import duties and restrictions. The countries in which our products might be manufactured may, from time to time, impose, duties, tariffs or other restrictions, or adjust present, duties or tariff levels, which could adversely affect our operations and our ability to import products at current or increased levels. We cannot predict the likelihood or frequency of any such events occurring. The United States government recently imposed tariffs on certain imports, and it is unclear what effects such tariffs (including any retaliatory tariffs imposed by other countries on United States exports) will have on retail markets. The enactment of any additional duties or restrictions could result in material increases in the cost of our products generally and may adversely affect our sales and profitability.

Our import operations are subject to international trade agreements and regulations such as the North American Free Trade Agreement ( “NAFTA” ) and other bilateral textile agreements between the United States and a number of foreign countries, including China, Hong Kong, India, Indonesia, Italy, Jordan, Korea, Morocco, Peru, Philippines, Portugal, Taiwan, Turkey and Vietnam. Some of these agreements impose restrictions on the amount and type of goods that can be imported into the United States from these countries. Such agreements also allow the United States to impose, at any time, restraints on the importation of categories of merchandise that, under the terms of the agreements, are not subject to specified limits. Some of our imported products are also subject to United States customs duties and, in the ordinary course of business, we are from time to time subject to claims by the United States Customs Service for duties and other charges. In addition, exports of our products to certain countries are subject to certain duties, tariffs or other restrictions that could result in increases in the cost of our products generally and might adversely affect our sales and profitability. For more information, see “Part I, Item 1A. Risk Factors—Risks Related to our Business and Industry— Potential changes in international trade relations between the United States and countries in which our products are sourced could have a material adverse effect on our business, cash flows and operating results” and “—We are dependent on third parties to source and manufacture products and any disruption in relationships with these parties or in their businesses may materially adversely affect our business.”

Employees

As of May 15, 2019, we have approximately 4,000 total employees, which includes approximately 2,500 full - time and approximately 1,500  part - time employees. None of our employees are covered by a collective bargaining agreement.

Executive Officers and Directors

The following table sets forth certain information regarding our executive officers and directors as of December 31, 2018:

Jason Rabin was appointed Chief Executive Officer of the Company on October 29, 2018. Mr. Rabin was previously the President, North America of GBG from November 2015 until October 2018. Prior to that position, he was Chief Merchandising Officer of GBG from 2014 to 2017 overseeing GBG’s merchandising strategy and global brand portfolio. Mr. Rabin was formerly President of LF Asia Limited and managed its fashion and home distribution business in Asia, and was President of Kids Headquarters, a children’s and young men’s apparel manufacturer. Mr. Rabin joined the Li & Fung Group in 2009 when Kids Headquarters was acquired by the Li & Fung Group. Mr. Rabin graduated from the University of Miami with a bachelor of business administration in 1992. Mr. Rabin received awards on behalf of Kids Headquarters from the children’s clothing industry, including the Supplier Performance Award by Retail Category, the Ernie Awards and the International Licensing Industry Merchandisers’ Association (LIMA) Licensing Excellence Award. In 2017, Mr. Rabin received the Business Visionary Award at the 21st Annual Accessories Council Excellence Awards ceremony.

Anurup S. Pruthi has served as our Chief Financial Officer since November 5, 2018. Prior to serving as our Chief Financial Officer, Mr. Pruthi served as the Chief Financial Officer of The Children’s Place, Inc. from November 2014 through October 2018, and as Chief Financial Officer of Reliance Retail Ltd., a subsidiary of Reliance Industries Limited, from June 2013 through October 2014. Mr. Pruthi graduated from Bentley College with a bachelor’s and master’s degree in finance.

Board of Directors

For more information on our board of directors, see “Part III, Item 10. Directors, Executive Officers and Corporate Governance.”

Risks Related to our Business and Industry

We may be unable to successfully integrate the GBG Business and realize the anticipated benefits of the GBG Acquisition.

The GBG Acquisition materially changed the nature of our business. While we intend to continue to engage in our historic branded operating business, as a result of the GBG Acquisition our primary business is now a brand licensee model. Although we expect to receive synergistic benefits from acting as both a brand operator/licensor and licensee, the anticipated benefits we expect from the GBG Acquisition are, necessarily, based on projections and assumptions about the combined businesses of the Company and the GBG Business, which may not materialize as expected or which may prove to be inaccurate. The value of our common stock as well as our ability to service our financing arrangements could be adversely affected if we are unable to realize the anticipated benefits from the GBG Acquisition. Achieving the benefits of the GBG Acquisition will depend, in part, on our ability to integrate the GBG Business successfully and efficiently with our business. The challenges and risks involved in this integration, which will be complex and time-consuming, include the following:

If we do not successfully manage these issues and the other challenges inherent in integrating the GBG Business, then we may not achieve the anticipated benefits and our revenue, expenses, operating results and financial condition could be materially adversely affected.

The failure to maintain our license agreements could cause us to lose significant revenues and have a material adverse effect on our results of operations.

We are dependent on sales of licensed products for a substantial portion of our revenues. Under many of our license agreements, we are generally required to achieve specified minimum net sales, make specified royalty and advertising payments and receive prior approval of the licensor as to all design and other elements of a product prior to production. These license agreements also may restrict our ability to enter into other license agreements for competing products, may restrict our ability to sell inventory through certain distribution channels, or acquire businesses that produce competing products without the consent of the licensor. If we do not satisfy any of these requirements or receive approval with respect to a restriction within the license, a licensor usually has the right to terminate our license. Even if a licensor does not terminate our license, the failure to achieve net sales sufficient to cover our required minimum royalty payments could have a material adverse effect on our results of operations. Even if we comply with all the terms of a license agreement, we cannot be sure that we will be able to extend or renew an agreement when it expires even if we desire to do so. The failure to maintain or renew our license agreements could cause us to lose significant revenue and have a material adverse effect on our results of operations.

The licensee market is competitive, and there is no guarantee we can obtain future licenses at all or upon terms favorable to us.

The licensee market is competitive, and there is no guarantee licensors will grant us licenses or upon terms favorable to us. Failure to obtain future licenses could limit our growth strategy. Failure to obtain licenses on terms favorable to us could have a material adverse effect on our results of operations. Also, licensors could decide not to grant licenses and instead to produce their own products and compete directly with us. As a result, our business and results of operations could be materially adversely affected.

Acquisitions of new licenses and brands may not be successful in achieving the intended benefits.

Our plans for future growth include potentially acquiring new licenses and/or brands. Our ability to acquire such new licenses or brands in the future, subject to certain limited exceptions, will require consent of our lenders under our debt financings. Prior to completing any such acquisition, our management team identifies the potential business opportunity and potential effect on our financial statements but, due to legal and business limitations, we may not have access to all necessary information. The process to integrate new brands and licenses into our business may be complex, costly and time-consuming, and if the acquisition does not provide the anticipated sales, our results of operations could be materially adversely affected.

Our success will be dependent on the strategies and reputation of our licensors.

We offer our products on a multiple brand, channel and price point basis. As a part of this strategy, we may license the names and brands of numerous recognized companies, designers and celebrities. In entering into these license agreements, our products may be targeted towards particular market segments based on consumer demographics, design, suggested pricing and channel of distribution. If any of our licensors decides to “reposition” its products under the brands we license from them, introduce similar products under similar brand names or otherwise change the parameters of design, pricing, distribution, target market or competitive set, we could experience a significant downturn in that brand’s business, adversely affecting our sales and profitability. In addition, as licensed products may be personally associated with designers or celebrities, our sales of those products could be materially and adversely affected if any of those individuals’ images, reputations or popularity were to be negatively impacted.

Our business depends on a strong brand image, and if we are not able to maintain or enhance our brands, particularly in new markets where we have limited brand recognition, we may be unable to sell sufficient quantities of our merchandise, which would harm our business and cause our results of operations to suffer.

Maintaining and enhancing our brands is critical to maintaining and expanding our customer base, and requires us to make substantial investments in areas such as visual merchandising, marketing and advertising, employee training

and store operations. We anticipate that, as our business expands into new markets and new product classifications and further penetrates existing markets, and as the markets in which we operate become increasingly competitive, maintaining and enhancing our brands may become increasingly difficult and expensive. Certain of our competitors in the apparel industry have faced adverse publicity surrounding the quality, attributes and performance of their products. Our brand may similarly be adversely affected if our public image or reputation is tarnished by failing to maintain high standards for merchandise quality and integrity. Any negative publicity about these types of concerns may reduce demand for our merchandise. Maintaining and enhancing our brand will depend largely on our ability to be a leader in the contemporary apparel industry and to continue to provide high quality products. If we are unable to maintain or enhance our brand image, our results of operations may suffer and our business may be harmed.

We face risks associated with constantly changing fashion trends, including consumer response to and demand for our products. If we are unable to adapt to changing fashion trends as to our existing or new products, our business and financial condition could be adversely affected.

We attempt to minimize our risk associated with delivering items through early order commitments by retailers. We generally place production orders with manufacturers before we have received all of a season’s orders and orders may be cancelled by retailers before shipment. In addition, we take a position on inventory for replenishment and other sales programs which do not have orders from our customers in advance. As such, we bear the inventory and business risk associated with these programs. Therefore, if we fail to anticipate accurately and respond to consumer preferences, we could experience lower sales, excess inventories or lower profit margins, any of which could have a material adverse effect on our results of operations and financial condition.

We have a significant amount of indebtedness, which could adversely affect our financial performance and impact our ability to service our indebtedness.

As of December 31, 2018, we had approximately $1.3 billion in outstanding indebtedness. Subject to certain restrictions contained in our financing arrangements, the Company may incur additional indebtedness in the future. The high level of indebtedness of the Company could have important consequences for the Company and significant effects on the business of the Company and its subsidiaries. For example, the level of indebtedness of the Company and the terms of our financing arrangements:

Our ability to make cash payments on and to refinance our indebtedness will depend on our ability to generate significant operating cash flow in the future. This ability is, to a significant extent, subject to general economic, financial, competitive and other factors that will be beyond our control. If we are unable to generate sufficient cash flow from operations to enable us to pay our indebtedness or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness, on or before maturity. We may not be able to refinance any indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying strategic acquisitions and investments. Any such action, if necessary, may not be effected on commercially reasonable terms or at all. The instruments governing our indebtedness will restrict our ability to sell assets and our use of the proceeds from such sales.

Additionally, if the PNC Receivables Facility (as defined below) is terminated without a replacement on substantially similar terms, we may experience material and adverse economic losses due to the loss of such factoring arrangement and the impact of such loss on our liquidity, which could have a material and adverse effect upon our financial condition, results of operations and cash flows.

The agreements that govern our indebtedness limit our operational flexibility. Furthermore, if we default on our obligations under such agreements, our operations may be interrupted and our business and financial results could be adversely affected.

The Credit Agreements (as defined below) restrict our ability to, among other things: incur indebtedness; create liens; consolidate, merge, liquidate or dissolve; sell, lease or otherwise transfer any assets; substantially change the nature of the business; make investments or acquisitions; pay dividends; enter into transactions with affiliates; amend material documents; and prepay indebtedness. Such agreements also require us to comply with various financial maintenance covenants. In addition, substantially all of our assets, including our trademarks, secure our obligations under such agreements. Any future debt agreements we enter into may contain similar or more restrictive covenants on our operational flexibility. For more information, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources— Credit Agreements and Other Financing Arrangements .”

Any failure by us to comply with the various covenants contained in our debt agreements could have material adverse consequences. Such noncompliance may result in our inability to borrow under such agreements, which we utilize to access our working capital, and as a result may adversely affect our ability to finance our operations or pursue any expansion plans. An event of default under such agreements could also result in the acceleration of all of our indebtedness. If the financing under our material indebtedness becomes due and payable, we may be required to refinance, restructure, or otherwise amend some or all of such obligations, sell assets, or raise additional cash through the sale of our equity. We cannot make any assurances that we would be able to obtain such refinancing in a timely manner, on favorable terms or at all, or that such restructuring activities, sales of assets, or issuances of equity can be accomplished or, if accomplished, would raise sufficient funds to meet these obligations. Additionally, upon the occurrence of an “event of default” under such agreements, all of our assets could be subject to liquidation by the creditors, which liquidation could result in no assets being left for our stockholders until the creditors receive their required payment.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly .  

Borrowings under our Credit Agreements bear interest at a variable interest rate equal to a London Interbank Offered Rate (“ LIBOR ”) or base rate plus the applicable stated interest rate. Borrowings under the PNC Receivables Facility and CIT Factoring Agreement (each as defined below) also bear interest at a variable interest rate. We have exposure for the variable interest rate indebtedness under these debt instruments and, as a result, an increase in interest rates could result in a substantial increase in interest expense.

Uncertainty regarding the LIBOR may adversely impact our indebtedness under our credit and loan facilities

In July 2017, the U.K. Financial Conduct Authority announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. Proposed alternative reference interest rates so far are based on overnight tenors only, while the most frequently used LIBOR rates are for one, three and six month tenors. Borrowings under our Credit Agreements and the PNC Receivables Facility are linked to LIBOR. When LIBOR ceases to exist, we may need to amend such financing arrangements based on a new standard that is established, if any. The basis of calculation of such standard is not yet agreed upon among market participants and as a result the cost of our borrowings may increase. In addition, any resulting differences in interest rate standards among our assets and our financing arrangements may result in interest rate mismatches between our assets and the borrowings used to fund such assets. There is no guarantee that a transition from LIBOR to an alternative reference interest rate will not result in financial market disruptions or significant increases in benchmark rates, or borrowing costs.

We face intense competition in the lifestyle apparel and accessories industries. If we are unable to compete effectively, our business, financial condition and results of operations may be negatively impacted.

We face a variety of competitive challenges from other domestic and foreign fashion‑oriented apparel producers, some of whom may be significantly larger and more diversified and have greater financial and marketing resources than we have. We do not currently hold a dominant competitive position in any market. We compete primarily on the basis of:

We cannot be certain that we will be able to compete successfully against current and future competitors, or that competitive pressure will not have a material adverse effect on our business, financial condition or results of operations.

If we are unable to timely and appropriately respond to changing consumer demand, the value and images of our licensed or owned brands may be impaired.

If we are unable to timely and appropriately respond to changing consumer demand, the value and images of our licensed or owned brands may be impaired. Even if we react appropriately to changes in consumer preferences, consumers may consider our brands’ images to be outdated or associate our brands with styles that are no longer popular. In addition, brand value is based in part on consumer perceptions on a variety of qualities, including merchandise quality and corporate integrity. Negative claims or publicity regarding us, our brands or our products could adversely affect our reputation and sales regardless of whether such claims are accurate. Social media, which accelerates the dissemination of information, can increase the challenges of responding to negative claims. Our businesses may be similarly affected in the future.

Our success depends on our ability to anticipate, gauge and respond to changing consumer demand and fashion trends in a timely manner, both as to existing products and as to other product classifications we may initiate. Any failure on our part to anticipate, identify and respond effectively to changing consumer demands and fashion trends could adversely affect the acceptance of our existing or new products and leave us with a substantial amount of unsold inventory or missed opportunities in the marketplace. If that occurs, we may be forced to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory, which may negatively affect our ability to achieve profitability. At the same time, a focus on tight management of inventory may result, from time to time, in our not having an adequate supply of products to meet consumer demand and may cause us to lose sales.

If our customers change their buying patterns, request additional allowances, develop their own private label brands or enter into agreements with national brand manufacturers to sell their products on an exclusive basis, our sales to these customers could be materially adversely affected.

Our customers’ buying patterns, as well as the need to provide additional allowances to customers, could have a material adverse effect on our business, results of operations and financial condition. Customers’ strategic initiatives, including developing their own private label brands, selling national brands on an exclusive basis or reducing the number of vendors they purchase from, could also impact our sales to these customers.

A decision by any of our major customers to decrease significantly the amount of merchandise purchased from us or to change their manner of doing business with us or our licensing or other partners, could substantially reduce our revenue and materially adversely affect our profitability.

Our business is substantially dependent on our ten largest customers and customer groups. The ten largest customers accounted for approximately 47% of our net sales in Fiscal 2018, and those ten largest customers may comprise a significant part of our net sales on an ongoing basis. Also, during Fiscal 2018, our largest customer represented over 10 percent of our net sales. Consolidation in the retail industry could increase the concentration of sales to our largest customers. We generally do not have long-term agreements with any customers, and purchases generally occur on an order-by-order basis that may be subject to cancellation or rescheduling by the customer. A decision by any of our major customers, whether motivated by marketing strategy, competitive conditions, financial difficulties or otherwise, to decrease significantly the amount of merchandise purchased from us or our licensing or other partners, or to change their manner of doing business with us or our licensing or other partners, could substantially reduce our revenue and materially adversely affect our profitability. During the past several years, the retail industry has experienced a great deal of consolidation and other ownership changes, as well as management changes and store closing programs, and we expect such changes to be ongoing. In addition, store closings by our customers, such as those described above, decrease the number of stores carrying our products, while the remaining stores may purchase a smaller amount of our products and may reduce the retail floor space designated for our brands. In the future, retailers may further consolidate, undergo restructurings or reorganizations, realign their affiliations or reposition their stores’ target markets or marketing strategies. Any of these types of actions could decrease the number of stores that carry our products or increase the ownership concentration within the retail industry. These changes could decrease our opportunities in the market, increase our reliance on a smaller number of large customers and decrease our negotiating strength with our customers. These factors could have a material adverse effect on our financial condition and results of operations.

We are dependent on third parties to source and manufacture products and any disruption in relationships with these parties or in their businesses may materially adversely affect our business.

Our business relies upon independent third parties for the manufacturing of its apparel and accessories products. Currently, we utilize Li & Fung as a sourcing agent to source a  portion of our products pursuant to the Transition Services Agreement. We expect to enter into a formal sourcing agreement with Li & Fung to source our products during 2019. The failure of our suppliers to ship products to us in a timely manner or to meet required quality standards could cause us to miss the delivery date requirements of our customers for those products. As a result, customers could cancel their orders, refuse to accept deliveries or demand reduced prices. Any of these actions taken by our customers could have a material adverse effect on our revenue and, consequently, our results of operations.

Any of the following could materially and adversely affect our ability to produce or deliver products and, as a result, have a material adverse effect on our business, financial condition and results of operations:

Additionally, we compete with other companies for the production capacity of our manufacturers. Some of these competitors have greater financial and other resources than we have, and thus may have an advantage in the competition for production capacity. If we experience a significant increase in demand, or if an existing manufacturer of ours must be replaced, we may have to expand our third-party manufacturing capacity. We cannot provide assurance that this additional

capacity will be available when required on terms that are acceptable to us or similar to any existing terms which we have with our manufacturers, either from a production standpoint or a financial standpoint.

If an independent manufacturer of ours fails to use acceptable labor practices, our business could suffer.

While we require our independent manufacturers to operate in compliance with applicable laws and regulations, we have no control over the ultimate actions of our independent manufacturers. We have internal and vendor operating guidelines to promote ethical business practices and our staff, as well as third parties we may contract with, periodically visit and monitor the operations of our independent manufacturers. We also use the services of third parties to conduct on site audits where required by labor laws to help minimize our risk and exposure to unacceptable labor practice violations. The violation of labor or other laws by one of our independent manufacturers or the divergence of an independent manufacturer’s labor practices from those generally accepted as ethical in the United States, could interrupt or otherwise disrupt the shipment of finished products to us or damage our reputation. Any of these, in turn, could have a material adverse effect on our financial condition and results of operations.

Increases in the price of raw materials or their reduced availability could increase our cost of goods and decrease our profitability.

The principal fabrics used in our business are cotton, blends, synthetics wools, and leather. The prices we pay our suppliers for our products are dependent in part on the market price for the raw materials—primarily cotton, synthetics and leather—used to produce them. The price and availability of our raw materials may fluctuate substantially, depending on a variety of factors, including demand, crop yields, weather, supply conditions, transportation costs, work stoppages, government regulation, economic climates and other unpredictable factors. Increases in raw material costs, together with other factors, could result in a decrease of our profitability unless we are able to pass higher prices on to our customers. Moreover, any decrease in the availability of raw materials could impair our ability to meet our production requirements in a timely manner, which could adversely affects our revenues and working capital requirements.

We are dependent on our relationships with our vendors.

We purchase our raw materials through various suppliers. While we are not reliant exclusively on one or more particular vendor for the supply of the raw materials or component parts required to meet our manufacturing needs, we depend on our relationships and these vendors to ensure our supply of these raw materials or component parts. Any problems or disputes with these vendors could result in us having to source these raw materials or component parts from another vendor, which could delay production, and in turn have a material adverse effect on our financial condition and results of operations.

Our inability to procure similar services being contracted for under the Transition Services Agreement may adversely impact our ability to integrate the GBG Business and/or operate its business.

GBG USA, through various of its affiliates and third parties, currently provides a number of critical services to us, such as information technology services, financial systems, shared real estate and logistics support though the Transition Services Agreement. There is no assurance, however, that upon termination or expiration of the Transition Services Agreement, these services will be sustained at the same levels as they were when we received such services from GBG USA’s affiliates and other third parties or that we will obtain the same benefits, even if such services are then provided by such parties. We may not be able to replace services and arrangements in a timely manner or on terms and conditions, including cost, as favorable as those we previously received. Certain of these agreements between us and GBG USA and/or its affiliates previously entered into were entered into in the context of a related party or parent/subsidiary relationship, and we may have to pay higher prices for similar services from other unaffiliated third parties in the future. Moreover, if we are required to establish our own information technology services, legal compliance, financial reporting, real estate and logistics support functions or integrate them with any such functions provided by us, we may not be able to establish or integrate such functions in a timely, efficient or cost-effective manner and, as a result, our business operations may be adversely impacted.

Problems with the third party distribution system could harm our ability to meet customer expectations, manage inventory, complete sales and achieve targeted operating efficiencies.

We rely on distribution facilities operated by third parties. Our ability to meet the needs of our wholesale partners and our own retail stores depends on the proper operation of these distribution facilities. These third parties will continue to provide distribution services until both parties elect to mutually terminate such services. There can be no assurance that we will be able to enter into other contracts for alternate or replacement distribution centers on acceptable terms or at all. Such an event could disrupt our operations. In addition, because substantially all of our products are distributed from a limited number of locations, our operations could also be interrupted by labor difficulties, or by floods, fires, earthquakes or other natural disasters near such facilities. We maintain business interruption insurance; however, this coverage may not adequately protect us from the adverse effects that could result from significant disruptions to our distribution system. If we encounter problems with our distribution system, our ability to meet customer expectations, manage inventory, complete sales and achieve targeted operating efficiencies could be harmed. Any of the foregoing factors could have a material adverse effect on our business, financial condition and operating results.

Potential changes in international trade relations between the United States and countries in which our products are sourced, including the imposition of tariffs, could have a material adverse effect on our business, cash flows and operating results.

Our products are primarily produced by, and purchased or procured from, independent manufacturing contractors, many of whom are located outside of the United States, such as China, Cambodia, Vietnam, India and Mexico. Due to these high levels of foreign sourcing, our import operations are subject to international trade regulations, including import charges, and free trade agreements such as NAFTA and other bilateral textile agreements among the United States and its trading partners, including China. Recently, members of the United States government and other international governments have indicated that they may advocate and/or enact key policy shifts in diplomatic and commercial relations among the United States and other countries where our manufacturing contractors are based. These include the renegotiation of proposed and existing trade agreements, the implementation of tariffs or other measures affecting United States trade relations.

It remains unclear what any government may do with respect to these trade agreements and other restrictive measures, and we cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by or on the United States or other countries upon the import or export of our products in the future. The United States government recently imposed tariffs on certain imports, and it is unclear what effects such tariffs (including any retaliatory tariffs imposed by other countries on United States exports) will have on retail markets. If the United States were to withdraw from or materially modify international trade agreements to which it is a party, or if tariffs or other import charges were raised on foreign-sourced goods that we sell, it could substantially affect our ability to source goods at commercially attractive prices, thus having a material adverse effect on our business and results of operations. Increased restrictions on fund transfers to or from foreign countries and quotas imposed by bilateral textile agreements between the United States and foreign countries could also hurt the economic viability of our foreign sourcing or cause our foreign counterparties to terminate their relationships with us, thus increasing our cost of goods sold or exposing us to additional capital expenses if we must find replacement manufacturing contractors or repatriate certain production to the United States. Changes in regulatory or geopolitical policies and other factors may adversely affect our business in the future or may require us to modify our current business practices.

We are subject to risks associated with leasing retail space, which are generally long-term non-cancelable leases requiring us to make substantial lease payments. Any failure to make these lease payments when due would likely harm our business, profitability and results of operations.

We do not own any of our retail stores, but instead lease all of our retail stores under retail store leases and are subject to all of the risks associated with leasing real estate. Our lease terms generally range from three to ten years with an option to renew.  Most of our leases require a fixed annual rent and/or payment of additional “percentage” rent if store sales exceed a negotiated amount. Partner shop-in-shops leases are generally based on a contractually defined percent of net sales agreed to by the parties for each specific location. Most of the retail store leases are “net” leases, which require

us to pay all of the cost of insurance, taxes, maintenance and utilities. Additionally, certain of the leases may allow the lessor to terminate the lease or not renew if we do not achieve a specified sales threshold in a particular year. We cannot be certain that we will achieve any of these thresholds. Any loss of our store locations due to underperformance may harm our results of operations, stock price and reputation.

If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term if we cannot negotiate a mutually acceptable termination payment. In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations. If we are unable to enter into new leases or renew existing leases on terms acceptable to us or be released from our obligations under leases for stores that we close, our business, profitability and results of operations may be harmed.

Our ability to attract customers to our stores depends heavily on successfully placing our stores in suitable locations and any impairment of a store location, including any decrease in customer traffic, could cause our sales to be less than expected.

Our approach to identifying locations for our retail stores typically favors street and mall locations near retailers that we believe are consistent with our key customers’ demographics and shopping preferences. Sales at these stores are derived, in part, from the volume of foot traffic in these locations. Changes in areas around our existing retail locations that result in reductions in customer foot traffic or otherwise render the locations unsuitable could cause our sales to be less than expected and the related leases are generally noncancelable. Store locations may become unsuitable due to, and our sales volume and customer traffic generally may be harmed by, among other things:

In addition, our ability to successfully open and operate new retail stores depends on many factors, including, among others, our ability to:

Lack of availability, of desired store locations, delays in the acquisition or opening of new stores, delays or costs resulting from a decrease in commercial development due to capital restraints, difficulties in staffing and operating new store locations or a lack of customer acceptance of stores in new market areas may negatively impact our new store growth and the costs or the profitability associated with new stores. There can be no assurance that we will open new stores in Fiscal 2019 or thereafter. Any failure to successfully open and operate new stores may adversely affect our business, financial condition and operating results.

We may be unable to grow comparable store sales or average sales per square foot in our retail stores, which could cause our sales  to decline.

We may not be able to grow our comparable store sales or average sales per square foot in our retail stores. If our future comparable store sales or average sales per square foot decline, the price of our overall net sales could decline. In addition, the aggregate results of operations through our wholesale partners and at our retail locations have fluctuated in the past may continue to fluctuate in the future. A variety of factors affect both comparable store sales and average sales per square foot, including, among others, consumer spending patterns, fashion trends, competition, current economic conditions, pricing, inflation, the timing of the release of new merchandise and promotional events, changes in our product assortment, the success of marketing programs and weather conditions. If we misjudge the market for our products, we may incur excess inventory for some of our products and miss opportunities for other products. These factors may cause our comparable store sales results and average sales per square foot in the future to be materially lower than recent periods or our expectations, which could harm our results of operations and result in a decline in the price of our common stock.

Uncertain economic conditions in the United States and other parts of the world can affect consumer confidence and consumer spending patterns and our business could be negatively impacted by the financial health of our retail customers.

The economy in the United States and abroad continues to be in the midst of uncertainty. The apparel industry has historically been subject to cyclical variations, recessions in the general economy or uncertainties regarding future economic prospects that affect consumer spending habits. Negative impacts to our customers’ buying patterns, as well as the need to provide additional allowances to customers, could have a material adverse effect on our business, the carrying value of our tangible and intangible assets, results of operations and financial condition.

Our business depends on the general economic environment and levels of consumer spending that affect not only the ultimate consumer, but also retailers, our largest direct customers. Purchases of apparel and accessories tend to decline in periods of recession or uncertainty regarding future economic prospects, when consumer spending, particularly on discretionary items, and disposable income decline. Many factors affect the level of consumer spending in the apparel industry, including, among others: prevailing economic conditions, levels of employment, salaries and wage rates, energy costs, interest rates, the availability of consumer credit, taxation and consumer confidence in future economic conditions. During periods of recession or economic uncertainty, we may not be able to maintain or increase our sales to existing customers, make sales to new customers, open and operate new retail stores, or maintain or improve our earnings from operations as a percentage of net sales.

In addition, we sell our products primarily to retail and distribution companies in the United States, Canada and Europe based on pre‑qualified payment terms. Financial difficulties of a customer could cause us to curtail business with that customer. We may also assume more credit risk relating to that customer’s receivables. We are dependent primarily on lines of credit that we establish from time to time with customers, and should a substantial number of customers become unable to pay to us their respective debts as they become due, we may be unable to collect some or all of the monies owed by those customers. In particular, because of the concentration of our customer and customer groups, our results of operations could be adversely affected if any one of these customers fails to satisfy its payment obligations to us when due.

In recent years, the retail industry has experienced consolidation, restructurings, reorganizations, bankruptcies, and other ownership changes that have resulted in one entity controlling several different stores or the elimination of stores. This consolidation can result in fewer customers for our products or the closing of some stores or the number of “doors” which carry our products. As a result, the potential for consolidation or ownership changes, closing of retail outlets and fewer customers could negatively impact sales of our products and have a material adverse effect on our financial condition and results of operations.

Economic conditions have also led to a highly promotional environment and strong discounting pressure from both our wholesale partners and retail customers, which could lead to a negative impact on our revenues and profitability. The domestic and international political situation also affects consumer confidence. The threat, outbreak or escalation of terrorism, military conflicts, civil unrest or other hostilities around the world could lead to further decreases in consumer spending.

Our plans to improve and expand our product offerings may not be successful, and the implementation of these plans may divert our operational, managerial and administrative resources, which could harm our competitive position and reduce our net revenue and profitability.

We plan to grow our business by improving and expanding our product offerings. We will continue to evaluate our plan to develop and introduce new product categories and pursue additional licensing opportunities.

The expansion into new products and classifications may require the establishment of new sourcing relationships, increasing our sourcing risk. See "— We are dependent on third parties to source and manufacture products and any disruption in relationships with these parties or in their businesses may materially adversely affect our business. ” As we expand our licensing activities, we increase risks associated with our ability to conduct quality checks on merchandise, which could affect product quality.

In addition, our ability to successfully carry out our plans to improve and expand our product offerings may be affected by economic and competitive conditions, changes in consumer spending patterns and changes in consumer preferences and style trends. These plans could be abandoned, could cost more than anticipated and could divert our operational, managerial and administrative resources from other areas of our business, any of which could impact our competitive position and reduce our net sales and profitability.

If we are unable to manage our operations at our current size or are unable to manage any future growth effectively, our business results and financial performance may suffer.

We have made and are making investments to support our near and longer-term growth. If our operations continue to grow over the longer term, of which there can be no assurance, we will be required to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes, and to obtain more space for our expanding administrative support and other headquarters personnel. As noted above, the integration of the GBG Business could strain our existing resources. As a result, we could experience operating difficulties, including obtaining sufficient raw materials at acceptable prices, securing manufacturing capacity to produce our products and experiencing delays in production and shipments. These difficulties would likely lead to a decrease in net revenue, income from operations and the price of our common stock, and such decreases could be significant.

Our trademark rights and other intellectual property rights may not be adequately protected and some of our products are targets of counterfeiting.

We believe that our trademarks and other proprietary rights are important to our success and our competitive position. We may, however, experience conflict with various third parties who acquire or claim ownership rights in certain trademarks as we expand our product offerings and expand the number of countries where we sell our products. We cannot ensure that any actions taken to establish and protect these trademarks and other proprietary rights will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as a violation of their trademarks and proprietary rights. Also, we cannot assure that others will not assert rights in, or ownership of,

trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the United States.

Our products are sometimes the target of counterfeiters. As a result, there are often products that are imitations or “knock-offs” of our products that can be found in the marketplace or consumers can find products that are confusingly similar to ours. We intend to continue to vigorously defend our trademarks and products bearing our trademarks, however, we cannot assure you that our efforts will be adequate to prosecute and block all sales of infringing products from the marketplace.

As a licensor for certain categories for our Owned Brands, we may not be successful and our licensees may not comply with our product quality, manufacturing standards, marketing and other requirements, which may have an adverse effect on our brand equity, reputation or business.

We are a licensor for certain product categories for our Owned Brands.  Under these arrangements, we license to third parties certain manufacturing, marketing and distribution rights for certain product categories and in certain geographic areas.  We believe this will broaden and enhance the products available under these brand names. From time to time, these licensing arrangements may not be successful and may make us susceptible to the actions by licensees over whom we have limited control.

Although we have taken and will continue to take steps to select potential licensing partners carefully and to monitor the activities of our licensees  (through, among other things, approval rights over product design, production quality, packaging, merchandising, marketing, distribution and advertising), such arrangements may not be successful. Our licensees may fail to fulfill their obligations under their license agreements or have interests that differ from or conflict with our own, such as the pricing of our products and the offering of competitive products.

The inability of any of our licensees to successfully market our products or otherwise conduct business, may result in loss of revenue and competitive harm to our operations and reputation in regions or product categories.

Any potential future acquisitions, strategic investments or mergers may subject us to significant risks, any of which may harm our business and may lead to substantial dilution or negative effects on the market price of our common stock.

Our strategy includes identifying and acquiring, investing in or merging with suitable candidates on acceptable terms in order to grow or complement our business. Acquisitions would involve a number of risks and present financial, managerial and operational challenges, including:

For any or all of these reasons, our pursuit of an acquisition, investment or merger may cause our actual results to differ materially from those anticipated. In addition, the success of our strategy to pursue potential future acquisitions will depend on our ability to achieve savings from the elimination of duplicative expenses or the realization of other efficiencies associated with such acquisitions. Failure to implement our strategic plan with success, including our ability to achieve anticipated savings in connection with any potential future acquisitions, could result in increased costs and could adversely affect our business, financial condition, operating results and prospects.

The seasonal nature of our business makes management more difficult, severely reduces cash flow and liquidity during parts of the year and could force us to curtail our operations.

Our business is seasonal with the greatest volume of shipments and sales typically occurring in our third and fourth fiscal quarters. Accordingly, our cash flow is typically strongest in the third and fourth fiscal quarters. Conversely, we build-up inventories during our first and second fiscal quarters and as such, our cash flow is generally weaker in the first and second fiscal quarters. Unfavorable economic conditions affecting retailers during the fall and holiday seasons in any year could have a material adverse effect on our results of operations for the year. We are likely to experience periods of negative cash flow throughout each year, including, a drop-off in business commencing each December, which could force us to curtail operations if adequate liquidity is not available. We cannot be certain that the effects of such seasonality will diminish in the future.

Our success is largely dependent on the continued service of our key personnel.

Our success is largely dependent upon the continued service of our key personnel, including personnel acquired in the GBG Acquisition and Jason Rabin, our Chief Executive Officer. The loss of the services of Mr. Rabin and any negative market or industry perception arising from the loss of his services could have a material adverse effect on us and the market price of our common stock. Our other executive officers and key personnel have substantial experience and expertise in our business and have made significant contributions to our success. The unexpected loss of services of one or more of these individuals or the inability to attract key personnel could also adversely affect us.  Furthermore, turnover at the senior management level may create instability within the Company and our employees may terminate their employment, which could further impede our ability to maintain day-to-day operations. Such instability could also impede our ability to fully implement our business plan, which would harm our business and prospects.

Computer system disruption and cyber security threats, including a privacy or data security breach, could damage our relationships with our customers, harm our reputation, expose us to litigation and adversely affect our business. We may also incur an increase in costs in an effort to minimize those risks.

We depend on technology systems such as ERP systems, EDI communication with our retail customers and other technology applications. We also depend on IT systems and networks for a significant portion of our direct-to-consumer sales, including sales of our products via ecommerce channels, retail business credit and debit card transaction authorizations and processing at our retail stores. Information technology systems are integral to other aspects of our business, such as corporate email communications to and from employees, customers and retail stores, the design, manufacture and distribution of our apparel products, digital marketing efforts, collection and retention of customer data and employee information, and our interaction with the public in the social media space. Given the nature of our ecommerce presence and digital strategy, it is imperative that we and our ecommerce partners maintain uninterrupted operation of our computer hardware, software systems, customer marketing databases, and email servers.

The retail industry, in particular, has been the target of many recent cyber attacks, and a security breach could expose us to a risk of loss or misuse of this information, litigation, and potential liability. We have confidential security measures in place to protect both our physical facilities and digital systems from attacks. However, we may not have the

resources or technical sophistication to anticipate or prevent rapidly   evolving types of cyber   attacks. Additionally, although many of our third-party service providers use reasonable security measures, we cannot control third parties and cannot guarantee that a security breach will not occur in the future either at their location or within their systems. Attacks may be targeted at us, our customers, or others who have entrusted us with information. Actual or anticipated attacks may cause us to incur costs to deploy additional personnel and protection technologies, train employees, and engage third   party experts and consultants. Advances in computer capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. In addition, data and security breaches can also occur as a result of non - technical issues, including breach by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation.

Laws on privacy continue to evolve and further limits on how we collect or use customer information could adversely affect our business.

We collect and store customer information primarily for marketing purposes and to improve the services we provide. The use or retention of certain customer information is subject to applicable privacy laws. These laws and the judicial interpretation of such laws are evolving on a frequent basis. If we fail to comply with these laws, we may be subject to fines or penalties, which could impact our business, financial condition and results of operations. Any limitations imposed on the use of such customer information by federal, state or local governments, could have an adverse effect on our future marketing activities. Governmental focus on data security and/or privacy may lead to additional legislation or regulations. As a result, we may have to modify our business with the goal of further improving data security, which would result in increased expenses and operating complexity. To the extent our or our business partners' security procedures and protection of customer information prove to be insufficient or inadequate, we may become subject to litigation or other claims, which could expose us to liability and cause damage to our reputation, brand and results of operations.

Risks Related to our Common Stock

Ownership of our common stock is concentrated among affiliates of Tengram Capital Partners (the “Tengram Affiliates”), GSO Capital Partners LP, Blackstone Tactical Opportunities Advisors L.L.C., and certain other large holders, which substantially reduces the ability of other stockholders to influence management, including through the election of directors, and may result in decisions that do not always coincide with the interests of other stockholders.

As of May 15, 2019, based upon the Amendment No. 4 to Schedule 13D dated October 29, 2018, and based upon our records, the largest beneficial owners of our common stock, funds managed by GSO Capital Partners LP and Blackstone Tactical Opportunities Advisors L.L.C. (together, the "GSO/BTO Affiliates" ) and the Tengram Affiliates, beneficially own in the aggregate a majority of our common stock and voting power. This includes, in addition to shares of common stock owned outright by various GSO/BTO Affiliates and Tengram Affiliates, shares of common stock issuable upon exercise of the Warrant held by Tengram Partners Fund II, L.P. (“Tengram II” ) to purchase 500,000 shares of common stock for $3.00 received in connection with the acquisition of SWIMS (the “SWIMS Warrant” ). Our Amended and Restated Bylaws (the "Bylaws" ) permit any action required or permitted to be taken by stockholders at a meeting to be effected by written consent by a majority of our stockholders for certain matters.

Our largest shareholders, and particularly the GSO/BTO Affiliates and the Tengram Affiliates, are thus in a position to exert significant control over us and have the ability to substantially influence all matters submitted to our stockholders for approval, including the election and removal of directors, any merger, consolidation or sale of all or substantially all of our assets, an increase in the number of shares authorized for issuance under our stock option plans, and to exert significant control over our management and affairs. The GSO/BTO Affiliates and the Tengram Affiliates each have the right to appoint two directors to our board of directors. This concentration of beneficial ownership may have the effect of delaying, deferring or preventing a change in or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would be beneficial to other stockholders. Additionally, the GSO/BTO Affiliates hold our 2024 Convertible Notes (as defined below) and are lenders under our Second Lien Credit Facility (as defined below), and their interests as a lender may differ from your interests as

a shareholder. For more information, see “Part III, Item 12. Security “Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Our common stock price is volatile and may decrease .

The market price of our common stock may continue to fluctuate and investors in our common stock could lose the value of their investment. In addition, the stock market has experienced significant price and volume fluctuations in recent times, which could have a material adverse effect on the market for, or liquidity of, our common stock, regardless of our actual operating performance.

The trading price and volume of our common stock has historically been subject to fluctuations in response to factors such as the following, some of which are beyond our control:

In the 52 week period prior to the filing of this Annual Report, the closing price of our common stock has ranged from $0.83 to $6.89.  In addition, stock markets generally have experienced price and volume trading volatility in recent years. This volatility has had an effect on the market prices of securities of many companies for reasons unrelated to the operating performance of the specific companies. These broad market fluctuations may negatively affect the market price of our common stock.

If we do not meet the expectations of equity research analysts, if they do not continue to publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline .

The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business . The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our results of operations or financial condition are below the estimates or expectations of public market analysts and investors, our share price could decline. Moreover, the price of our common stock could decline if one or more securities analysts downgrade our common stock or if those analysts issue other unfavorable commentary or do not publish research or reports about us or our business.

The market price of our common stock could be negatively affected by future sales of our common stock.

Sales by us or holders of a substantial percentage of our common stock in the public market, or the perception that these sales might occur, could cause the market price of our common stock to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities. If we or our existing stockholders, particularly our largest stockholders, our directors, their affiliates, or our executive officers, sell a substantial number of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that we or these stockholders might sell our common stock could also depress the market price of our common stock and could impair our future ability to obtain capital, especially through an offering of equity securities. Certain of our large stockholders, including the GSO/BTO Affiliates and the Tengram Affiliates, have demand rights to require us to register their common stock for public sale. For more information on these agreements, see “Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

If our common stock’s closing bid price falls and subsequently remains below the minimum price of $1.00 per share, our common stock may be delisted from the NASDAQ.

As recently as June 26, 2018, immediately prior to the announcement of the GBG Acquisition, the closing price of our common stock fell below $1.00 per share. If our common stock were to trade below $1.00 per share, which is the minimum closing bid price required for continued listing on NASDAQ, for 30 consecutive business days, we will receive a notification letter from NASDAQ and will have 180 calendar days (subject to extension in some circumstances) to regain compliance with the minimum bid price rule.  To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days (or such longer period of time as the NASDAQ may require in some circumstances). If we fail to regain compliance with the minimum bid price rule or fail to maintain compliance with all other applicable NASDAQ continued listing requirements, NASDAQ may determine to delist our common stock, at which time our common stock would be quoted on the over-the-counter ( “ OTC ” ) markets. The delisting of our common stock could adversely impact us by, among other things, reducing the liquidity and market price of our common stock, reducing the number of investors willing to hold or acquire our common stock, limiting our ability to issue additional securities in the future, and limiting our ability to fund our operations.

Due to the delayed filing with the SEC of our Form 10-K for the year ended December 31, 2018, and our Form 8-K/A due January 11, 2019, we are not currently eligible to use a registration statement on Form S-3 to register the offer and sale of securities, which may adversely affect our ability to raise future capital or complete acquisitions.

As a result of the delayed filing with the SEC of our Annual Report on Form 10-K for the year ended December 31, 2018, and our Form 8-K/A due January 11, 2019, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until we have timely filed all periodic reports required under the Securities Exchange Act of 1934 for one year, and there can be no assurance that we will be able to file all such reports in a timely manner in the future. Should we wish to register the offer and sale of additional securities to the public, our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our business, strategic plan and financial condition. Furthermore, if we were to experience delays in making our future periodic filings with the SEC, it could subject us to delisting of our common stock from trading on the NASDAQ. The delisting of our common stock could adversely affect the market price of and hinder our stockholders’ ability to trade in our common stock, and could also affect our ability to access the capital markets or complete acquisitions. If our shares of common stock were delisted, there could be no assurance of it again being listed for trading on NASDAQ or any other exchange.

showroom space in this building. Prior to the GBG Acquisition, our principal place of business was located in Commerce, Los Angeles County, California, where we have a lease that expires on August 31, 2019 for approximately 31,000 square feet located at 1231 South Gerhart Avenue, Commerce, California.

In connection with the GBG Acquisition, we lease or occupy six other office and showroom spaces located in Los Angeles, California; Greensboro, North Carolina; Seattle, Washington, Toronto and Montreal, Canada. Lease agreements for these facilities expire on various dates through 2029, and are generally non-cancelable. 

We utilize the services of third party logistics service providers across 16 facilities in California, Florida, New Jersey, and Canada, for approximately 2.4 million square feet of space in their respective facilities, which are used to distribute merchandise to our customers. We also lease approximately 69,000 square feet and approximately 26,000 square feet of space in two fulfillment and distribution facilities in New Jersey and Sweden, respectively. Additionally, in connection with the GBG Acquisition, we executed a Transition Services Agreement with GBG USA providing us access to approximately 500,000 of additional square feet at GBG and third party logistic facilities in California, Florida, and New Jersey.

Retail Stores

We operate retail store locations under operating lease agreements expiring on various dates through 2029, which are generally non - cancelable. Our retail square footage as of May 15, 2019 was approximately 240,000 gross square feet in the aggregate. Our retail stores range in size from 750 to 4,250 gross square feet with an average of approximately 2,725 gross square feet. 

As of May 15, 2019, we had 31 Robert Graham® brand stores, which consisted of 19 full price stores and 12 outlet stores in the United States, and three SWIMS® brand outlet stores which consisted of one full price store and two outlet stores. In connection with the GBG Acquisition we also assumed 55 store leases with a total retail square footage of approximately 190,000 gross square feet in the aggregate. Leases assumed consisted of 41 BCBG® brand stores, which consisted of 32 full price stores and nine outlet stores in the United States, 12 Joe’s Jeans® brand stores, which consisted of two full price stores and ten outlet stores in the United States, one full price Herve Leger retail store in the United States, and one bebe retail store in the United States.

For more information on our operating leases, see “Part I, Item 1A. Risk Factors—Risks Related to our Business and Industry— We are subject to risks associated with leasing retail space, which are generally long-term non-cancelable leases requiring us to make substantial lease payments. ” and “Notes to Consolidated Financial Statements—Note 11—Commitments and Contingencies.”