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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-03-09 compared with 2022-03-01 · 245 added, 255 removed, 973 unchanged (34% of the section changed)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effects of foreign currency fluctuations, interest rate changes and inflation.

We have operations within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including interest rate changes and the effects of foreign currency fluctuations.

Information relating to quantitative and qualitative disclosures about these market risks is set forth below.

Interest Rate Sensitivity

Cash and cash equivalents were held primarily in cash deposits and money market funds.

Cash and cash equivalents are held primarily in cash deposits and money market funds.

The fair value of our cash and cash equivalents would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term nature of these instruments.

Interest on any line of credit borrowings incurred pursuant to the credit described above would accrue at a floating rate based on a formula tied to certain market rates at the time of incurrence;

however, we do not expect that any change in prevailing interest rates will have a material impact on our results of operations.

As of December 31, 2021, we had approximately $110.8 million in debt outstanding under our term loan.

Interest on any borrowings incurred under the Company’s revolving line of credit would accrue at a floating rate based on a formula tied to certain market rates at the time of incurrence.

As of December 31, 2022, we had approximately $145.2 million in debt outstanding under our senior secured credit facility.

Based on the levels of borrowings under our new senior secured credit facility at December 31, 2022, a hypothetical 100 basis point increase or decrease in underlying interest rates would increase or decrease interest expense by approximately $1.5 million.

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We do not utilize derivative financial instruments to manage our interest rate risks.

In the event the Federal Reserve continues to raise interest rates to combat inflation, current and future borrowings under our senior secured credit facility would be adversely impacted since borrowings under that facility bear interest at variable rates.

Foreign Currency Risk

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Furthermore, we have various assets and liabilities, primarily cash and intercompany receivables and payables, denominated in USD where the functional currency is AUD.

These balance sheet items are subject to remeasurement which may create fluctuations in other expense within our consolidated results of operations.

For the year ended December 31, 2021, movements in currency exchange rates resulted in $0.9 million net loss in other expense.

Currently, we do not believe that inflation has had a material effect on our business, financial condition or results of operations.

We continue to monitor the impact of inflation to minimize its effects through sourcing and pricing strategies, productivity improvements and cost reductions.

If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.

Our inability or failure to do so could harm our business, financial condition and results of operations.

These balance sheet items are subject to remeasurement which may create fluctuations in other expense within our consolidated statements of income.

For the year ended December 31, 2022, movements in currency exchange rates resulted in a $1.6 million net loss in other expense.

Continuing increases in interest rates to combat inflation may lead to further strengthening of the US dollar relative to foreign currencies, including the AUD, and may impact our sales and costs further.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

46 unchanged sentences

Prepaid expenses and other current assets

13,378 20,809

Total current assets

1 unchanged sentence

Property and equipment, net

28,958 14,657

Operating lease right-of-use assets

37,317 26,415

Intangible assets, net

1 unchanged sentence

167,731 363,305

Deferred tax assets 1,070 —

Other assets 853 850

$ 509,638 $ 687,846

Liabilities, stockholders’ equity and partners’ capital

Liabilities and stockholders’ equity

Current liabilities:

5 unchanged sentences

Deferred revenue

Income taxes payable — 3,118

11,421 11,344

Operating lease liabilities, current

3 unchanged sentences

Long-term debt

138,049 103,182

Operating lease liabilities

34,404 21,370

Other long-term liabilities

Deferred income taxes, net

Deferred income taxes

Total liabilities

1 unchanged sentence

Commitments and contingencies (Note 15)

Stockholders’ equity and partners’ capital:

Stockholders’ equity:

Preferred stock, $ 0.001 par value;

50,000,000 and zero shares authorized;

zero shares issued or outstanding

50,000,000 shares authorized;

zero shares issued or outstanding as of December 31, 2022 and 2021, respectively

Common stock, $ 0.001 par value;

500,000,000 and zero shares authorized;

128,647,836 and zero shares issued and outstanding

Partnership units (1)

500,000,000 shares authorized;

129,003,733 and 128,647,836 shares issued and outstanding as of December 31, 2022 and 2021, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

460,660 453,807

Retained earnings

Noncontrolling interest

Total stockholders’ equity and partners’ capital

Accumulated other comprehensive loss

( 45,185 ) ( 11,080 )

Total liabilities, stockholders’ equity and partners’ capital

Retained earnings (accumulated deficit)

( 168,527 ) 8,170

Total stockholders’ equity

247,077 451,026

(1) Excelerate, L.P.

was the predecessor entity to a.k.a.

Brands Holding Corp.

Refer to Note 1 for additional information .

Total liabilities and stockholders’ equity

$ 509,638 $ 687,846

The accompanying notes are an integral part of these consolidated financial statements

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CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(in thousands, except share and per share amounts)

Year Ended December 31,

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102,700 88,816 28,077

Goodwill impairment 173,786 — —

Total operating expenses

509,286 291,281 104,261

Income from operations

Income (loss) from operations

( 172,039 ) 16,383 22,140

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( 180,614 ) ( 5,239 ) 21,655

Provision for income tax

Benefit from (provision for) income tax

3,917 ( 852 ) ( 6,850 )

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Balance as of December 31, 2019 — $ — 113,761,338 $ 107,747 $ 494 $ ( 4,731 ) $ ( 196 ) $ 8,727 $ 112,041 $ —

— $ — 93,362,500 $ 85,583 $ 141 $ ( 4,610 ) $ ( 1,590 ) $ — $ 79,524 $ —

Issuance of units — — 406,504 450 — — — — 450 —

Equity-based compensation — — — — 1,380 — — — 1,380 —

Cumulative translation adjustment — — — — — ( 121 ) — 365 244 —

Noncontrolling interest from acquisition — — — — — — — 8,314 8,314 —

Net income — — — — — — 1,394 48 1,442 —

Balance as of December 31, 2019 — — 113,761,338 107,747 494 ( 4,731 ) ( 196 ) 8,727 112,041 —

Issuance of units — — 406,504 450 — — — — 450 —

Equity-based compensation — — — — 1,380 — — — 1,380 —

Repurchase of incentive units — — — — ( 1,147 ) — — — ( 1,147 ) —

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Balance as of December 31, 2021 128,647,836 129 — — 453,807 ( 11,080 ) 8,170 — 451,026 —

Equity-based compensation — — — 6,730 — — — 6,730 —

Issuance of common stock under employee equity plans, net of shares withheld 359,197 — — 123 — — — 123 —

Cumulative translation adjustment — — — — — ( 34,105 ) — — ( 34,105 ) —

Net loss — — — — — — ( 176,697 ) — ( 176,697 ) —

Balance as of December 31, 2022 129,007,033 $ 129 — $ — $ 460,660 $ ( 45,185 ) $ ( 168,527 ) $ — $ 247,077 $ —

(1) Excelerate, L.P.

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Brands Holding Corp.

Refer to Note 1 for additional information.

Refer to Note 1, “Description of Business,” for additional information.

The accompanying notes are an integral part of these consolidated financial statements

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Deferred income taxes, net ( 4,064 ) ( 11,951 ) ( 2,908 )

Goodwill impairment 173,786 — —

Changes in operating assets and liabilities, net of effects of acquisitions:

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Lease liabilities ( 8,392 ) ( 5,932 ) ( 55 )

Net cash provided by operating activities 23,968 21,712 511

Net cash provided by (used in) operating activities ( 319 ) 23,968 21,712

Cash flows from investing activities:

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Purchase of noncontrolling interest — ( 20,198 ) —

Purchase of intangible assets

Purchases of intangible assets

( 247 ) ( 841 ) ( 451 )

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Proceeds from initial public offering, net of issuance costs — 96,863 —

Payments of costs related to initial public offering ( 1,142 ) — —

Proceeds from line of credit, net of issuance costs 40,000 34,150 10,889

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Repayment of debt ( 5,600 ) ( 155,762 ) —

Taxes paid related to net share settlement of equity awards ( 104 ) — —

Proceeds from issuances under equity-based compensation plans 227 — —

Proceeds from issuance of units — 82,669 450

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( 272 ) ( 1,824 ) 735

Net increase (decrease) in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

7,355 13,919 21,308

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at beginning of year

41,018 27,099 5,791

Cash, cash equivalents and restricted cash at end of period

Cash, cash equivalents and restricted cash at end of year

$ 48,373 $ 41,018 $ 27,099

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(tabular amounts in thousands, except share, per share data, unit, per unit data, ratios, or as noted)

Description of Business

Organization and Description of Business

Brands Holding Corp.

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(“Excelerate”), a Cayman limited partnership, and the predecessor entity to a.k.a.

Brands Holding Corp., had historically been the holding company of the entities that owned and operated the a.k.a.

Brands Holding Corp., was the holding company of the entities that owned and operated the a.k.a.

businesses prior to the IPO.

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Brands Holding Corp.

As a result of the Culture Kings acquisition in March 2021 (refer to Note 3 for additional information), Excelerate indirectly owned 55 % of the equity interests in CK Holdings, LP (“CK Holdings”), which owned 100 % of the Company’s Culture Kings business prior to the IPO.

As a result of the Culture Kings acquisition in March 2021 (refer to Note 3, “Acquisitions,” for additional information on the Culture Kings acquisition), Excelerate indirectly owned 55 % of the equity interests in CK Holdings, LP (“CK Holdings”), which owned 100 % of the Company’s Culture Kings business prior to the IPO.

The remaining 45 % of the equity interests in CK Holdings were held by certain minority investors.

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at the time of the IPO.

Excelerate had historically owned 66.7 % of the equity interests in P&P Holdings, LP (“P&P Holdings”), which operated the Company’s Petal & Pup business prior to the IPO.

Excelerate historically owned 66.7 % of the equity interests in P&P Holdings, LP (“P&P Holdings”), which operated the Company’s Petal & Pup business prior to the IPO.

The remaining 33.3 % of the equity interests in P&P Holdings were held by certain minority investors.

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Refinancing Transactions

In March 2021, certain subsidiaries of the Company entered into senior secured credit facilities that provided the Company with a $ 125.0 million senior secured term loan facility and up to $ 25.0 million aggregate principal in revolving borrowings (the “Fortress Credit Facilities”), and also issued $ 25.0 million in senior subordinated notes to an affiliate of Summit (the “Summit Notes”) to provide financing for the Company’s acquisition of Culture Kings (refer to Note 3 for additional information on the Culture Kings acquisition).

In connection with the IPO, certain subsidiaries of the Company entered into a new senior secured credit facility inclusive of a $ 100 million term loan and a $ 50 million revolving line of credit.

The Company used borrowings under this new senior secured credit facility’s term loan, together with a portion of the proceeds from the IPO, to repay the Fortress Credit Facilities and Summit Notes in full and subsequently terminated them.

Refer to Note 8 for additional information.

In connection with the IPO, certain subsidiaries of the Company entered into a senior secured credit facility inclusive of a $ 100 million term loan and a $ 50 million revolving line of credit.

The Company used borrowings under this senior secured credit facility’s term loan, together with a portion of the proceeds from the IPO, to repay the Fortress Credit Facilities and Summit Notes in full and subsequently terminated them.

Refer to Note 8, “Debt,” for additional information.

Historical Units

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until after the holders of the Series A partner units received their return of capital plus a specified threshold amount per unit.

Accordingly, at no time prior to IPO had such threshold been met.

At no time prior to IPO had such threshold been met.

In September 2021, in connection with the IPO, all previous ownership interests in Excelerate, L.P., held by New Excelerate and other Excelerate investors were exchanged for shares of common stock in a.k.a.

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Prior to the IPO, a.k.a.

used the two-class method in calculating earnings per unit and had not deemed the incentive units to be potentially dilutive due to the requirement that such shares cannot participate in distributions and earnings of the Company until after the Series A units receive their return of capital plus a specified threshold amount per unit, and such threshold had not been met.

Accordingly, basic and diluted earnings per share presented on the condensed consolidated statements of income for all periods prior to the IPO are the same.

used the two-class method in calculating earnings per unit and had not deemed the incentive units to be potentially dilutive because such shares cannot participate in distributions and earnings of the Company until after the Series A units receive their return of capital plus a specified threshold amount per unit, and such threshold had not been met.

Accordingly, basic and diluted earnings per share presented on the consolidated statements of income for all periods prior to the IPO are the same.

Post-IPO, the common stock held by New Excelerate includes shares issued in proportion to the ownership interests in respect to the incentive units.

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The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying consolidated financial statements include the accounts of a.k.a.

The accompanying consolidated financial statements include the balances of a.k.a.

Brands Holding Corp.

and its wholly-owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

and all of its wholly-owned subsidiaries.

All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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On an ongoing basis, the Company evaluates items subject to significant estimates and assumptions.

As of December 31, 2021, the effects of the ongoing COVID-19 pandemic on our business, results of operations and financial condition continue to evolve.

As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility.

Concentration of Credit Risk

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Accounts receivable consists of trade accounts receivable relating to the credit card receivables arising from the sale of products to customers through the Company’s digital platforms.

Trade accounts receivable is reported net of an allowance for doubtful accounts.

Trade accounts receivable are reported net of an allowance for doubtful accounts.

The Company had no allowance for doubtful accounts as of December 31, 2022 and 2021.

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Repair and maintenance costs are expensed as incurred.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to five years .

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to ten years .

Estimated useful life (years)

Furniture and fixtures 5

Machinery and equipment 5

Computer equipment and capitalized software 3

Furniture and fixtures 5 - 10 years

Machinery and equipment 5 - 10 years

Computer equipment and capitalized software 3 - 5 years

Buildings and leasehold improvements Shorter of the lease term or the estimated life of the assets

Upon the sale or disposal of property and equipment, the cost and related accumulated depreciation and amortization are removed from the consolidated balance sheets and the resulting gain or loss is reflected in general and administrative expense in the consolidated statements of income.

Property and equipment that is fully depreciated as of the last day of a fiscal year is written off during the first quarter of the following year.

On January 1, 2022, the Company established a policy to classify all capitalized software, website design and software systems as property and equipment, resulting in a reclassification of such assets and related depreciation and amortization from intangible assets, net, to property and equipment, net.

The Company has incurred costs related to the development of the Company’s websites.

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The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

Goodwill, Intangible Assets and Other Long-Lived Assets

Goodwill and Intangible Assets

Assets acquired and liabilities assumed are measured at fair value as of the acquisition date.

Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of the net assets acquired.

As of December 31, 2021 and 2020, the Company had goodwill of $ 363.3 million and $ 88.3 million, respectively.

Goodwill represents the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets.

Goodwill, which has an indefinite useful life, represents the excess of the purchase price over the fair value of the net assets acquired, including the amount assigned to identifiable intangible assets.

The primary drivers that generate goodwill are the value of synergies between the acquired entities and the Company and the acquired assembled workforce, neither of which qualifies as a separately identifiable intangible asset.

As of December 31, 2022 and 2021, the Company had goodwill of $ 167.7 million and $ 363.3 million, respectively.

Intangible assets, other than goodwill, acquired by the Company include brand names, customer relationships and trademarks.

Intangible assets that are fully depreciated as of the last day of a fiscal year are written off during the first quarter of the following year.

None of the Company’s intangible assets, other than goodwill, are indefinite lived.

Impairment of Long-Lived Assets and Goodwill

The Company’s long-lived assets consist of intangible assets and property and equipment.

The Company’s goodwill has an indefinite useful life.

Goodwill is tested for impairment at least annually, in the fourth quarter and whenever changes in circumstances indicate an impairment may exist.

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An impairment charge is recorded equal to any shortfall between the fair value of a reporting unit and its carrying value.

As part of the annual goodwill impairment test conducted in the fourth quarter of 2022, the Company concluded that the carrying value of the Company’s Culture Kings and Rebdolls reporting units exceeded their fair values and recorded a total non-cash goodwill impairment charge of $ 173.8 million during the year ended December 31, 2022.

Refer to Note 6, “Goodwill,” for further information.

No goodwill impairment was recorded for the years ended December 31, 2021 and 2020.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for possible impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

The Company reviews finite-lived intangible assets and property and equipment for possible impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

This determination includes evaluation of factors such as future asset utilization and future net undiscounted cash flows expected to result from the use of the assets.

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If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.

The Company’s identifiable intangible assets are typically comprised of customer relationships, brand names and acquired core website software.

The cost of identifiable assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives, which range from three to ten years .

No impairment losses were recognized during the years ended December 31, 2021, 2020 and 2019.

The Company’s identifiable intangible assets are typically comprised of customer relationships and brand names.

The cost of identifiable assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives, which range from four to ten years .

No impairment losses related to finite-lived intangible assets or property and equipment were recognized during the years ended December 31, 2022, 2021 and 2020.

The Company generally leases office and warehouse facilities under non-cancellable agreements.

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The Company accounts for lease and non-lease components as a single lease component.

Operating lease right-of-use assets are classified in operating lease right-of-use assets in the consolidated balance sheets.

Operating lease liabilities are classified as current liabilities and long-term lease liabilities based on when lease payments are due.

Operating lease right-of-use assets are classified as long-term assets in the consolidated balance sheets.

Operating lease liabilities are classified as current lease liabilities and long-term lease liabilities based on when lease payments are due.

The Company’s lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms as well as payments for common area maintenance and administrative services.

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As most of the Company’s leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate (“IBR”) based on the information available at the commencement date of the respective lease to determine the present value of future payments.

The determination of the IBR requires judgment and is primarily based on publicly available information for companies within the same industry and with similar credit profiles.

The Company adjusts the rate for the impact of collateralization, the lease term and other specific terms included in each lease arrangement.

The determination of the IBR requires judgment and is primarily based on the Company’s uncollateralized borrowing rate, adjusted for the impact of collateralization, the lease term and other specific terms included in each lease arrangement.

The IBR is determined at the lease commencement and is subsequently reassessed upon a modification to the lease arrangement.

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These estimates involve inherent uncertainties and the application of management’s judgment.

The related equity-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards, which is generally four years .

The related equity-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards, which is generally three or four years .

We account for forfeitures as they occur.

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• Expected Volatility .

As we have minimal trading history for our common stock, the expected volatility was estimated by taking the average historic stock price volatility for industry peers, consisting of several public companies in our industry which are either similar in size, stage of life cycle or financial leverage, over a period equivalent to the expected term of the awards.

Until we have sufficient trading history for our common stock, the expected volatility is estimated by taking the average historic stock price volatility for industry peers, consisting of several public companies in our industry which are either similar in size, stage of life cycle or financial leverage, over a period equivalent to the expected term of the awards.

• Expected Dividend Yield .

We have never declared or paid any cash dividends and do not currently plan to pay cash dividends in the foreseeable future.

As a result, an expected dividend yield of zero percent was used.

As a result, an expected dividend yield of zero percent is used.

• Expected Term .

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Partnership Units Valuations

For the partnership units granted prior to IPO, the Company relied on valuations prepared by an independent third-party valuation firm in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation , Such valuations were aligned with the Company’s internal valuation approach.

Subsequent to the IPO, it is no longer necessary for the Company to estimate the fair value of its partnership units, as no further incentive partnership unit awards will be granted subsequent to the IPO.

See Note 12 for additional information.

Such valuations were aligned with the Company’s internal valuation approach.

Subsequent to the IPO, it is no longer necessary for the Company to estimate the fair value of its partnership units, as no further incentive partnership unit awards will be granted.

See Note 12, “Equity-based Compensation,” for additional information.

Employee Benefit Programs

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A contract is created with the customer at the time the order is placed by the customer, which creates a single performance obligation.

The Company recognizes revenue for its single performance obligation at the time control of the product passes to the customer, which is when the goods are transferred to a third-party common carrier, for purchases through the Company’s online websites, or at point of sale, for purchases in our stores.

In addition, the Company has elected to treat shipping and handling as fulfillment activities and not a separate performance obligation.

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Revenue recognized in net sales on breakage of gift cards and online credit for the years ended December 31, 2022, 2021 and 2020 was $ 0.2 million, $ 0.5 million and $ 0.7 million, respectively.

The following table presents the disaggregation of the Company’s net revenues by geography, based on customer address:

The following table presents the disaggregation of the Company’s net sales by geography, based on customer address:

Year Ended December 31,

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Selling Expenses

Selling expenses consist of costs incurred in operating and staffing the fulfillment centers and stores, costs attributable to inspecting and warehousing inventory, picking, packaging and preparing customer orders for shipment, customer service, shipping and other transportation costs incurred delivering merchandise to customers and customers returning merchandise, merchant processing fees, and shipping supplies.

The amount of shipping and handling costs included in selling expenses was $ 70.7 million, $ 34.1 million and $ 16.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Selling expenses consist of costs incurred in operating and staffing the fulfillment centers and stores, costs attributable to inspecting and warehousing inventory, picking, packaging and preparing customer orders for shipment, customer service, shipping and other transportation costs incurred in delivering merchandise to customers and customers returning merchandise, merchant processing fees and shipping supplies.

The amount of shipping and handling costs included in selling expenses, inclusive of outbound shipping and returned freight costs, was $ 80.5 million, $ 70.7 million and $ 34.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Marketing expenses are expensed as incurred and consist primarily of targeted online performance marketing costs, such as display advertising, retargeting, paid search/product listing ads, affiliate marketing, paid social, search engine optimization, personalized email marketing, social media advertising and mobile “push” communications through the Company’s apps.

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General and Administrative

General and administrative expenses consist primarily of payroll and related benefit costs and equity-based compensation expense for employees involved in general corporate functions including merchandising, marketing and technology, as well as costs associated with the use by these functions of facilities and equipment, including depreciation, rent and other occupancy expenses.

General and administrative expenses consist primarily of payroll and related benefit costs and equity-based compensation expense for employees involved in general corporate functions, including merchandising, marketing and technology, and costs associated with the use by these functions of facilities and equipment, including depreciation, rent and other occupancy expenses, and amortization associated with the Company’s intangible assets, including acquired brand names, customer relationships and trademarks.

Other Expense, Net

Other expense, net, consists primarily of $ 10.9 million of loss on extinguishment of debt for the year ended December 31, 2021, interest expense of $ 9.5 million, $ 0.3 million and $ 0.3 million for the years ended December 31, 2021, 2020 and 2019, respectively, and foreign currency losses of $ 1.7 million, $ 0.2 million and $ 0.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Other expense, net, consists primarily of interest expense of $ 7.0 million, $ 9.5 million and $ 0.3 million for the years ended December 31, 2022, 2021 and 2020, respectively, foreign currency losses of $ 1.6 million, $ 1.7 million and $ 0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively, and $ 10.9 million of loss on extinguishment of debt for the year ended December 31, 2021.

Net Income (Loss) Per Share

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Segment Information

Operating segments are defined as components of an entity for which separate financial information is available and is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance.

Operating segments are defined as components of an entity for which separate financial information is available and is regularly reviewed by the Chief Operating Decision Maker in deciding how to allocate resources and in assessing performance.

The Company has determined that its five brands are each an operating segment.

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Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , which amended its conceptual framework to improve the effectiveness of disclosures around the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy.

This guidance also adds new disclosure requirements for Level 3 measurements.

The Company adopted this guidance on January 1, 2020, and the adoption did not have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No.

2017-04, Simplifying the Test for Goodwill Impairment.

The ASU amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

The amendments were effective beginning in 2020.

The adoption did not have a material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

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The guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and the allocation of consolidated income taxes to separate financial statements of entities not subject to income tax.

ASU 2019-12 will be effective for the Company on January 1, 2022.

Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

The Company adopted this ASU on January 1, 2022, and the adoption did not have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The pronouncement provides companies with guidance to ease the process of migrating away from LIBOR and other interbank offered rates to new reference rates.

ASC 848 contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, subject to meeting certain criteria that reference LIBOR or another reference rate expected to be discontinued.

The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

On August 9, 2019, the Company acquired 66.7 % of the share capital of Petal & Pup Limited (“Petal & Pup”) for an aggregate cash consideration of AUD $ 29.4 million, net of cash acquired of AUD $ 3.1 million (US $ 19.9 million, net of cash acquired of $ 2.1 million) and consideration payable of AUD $ 0.9 million ($ 0.6 million).

In connection with the IPO, the Company acquired the remaining 33.3 % (refer to Note 1 for additional information).

The acquisition expanded the Company’s customer following and products into online apparel for female customers in their twenties or thirties and provides the Company with an Australian brand that can be expanded into the North American market.

The fair values of assets acquired, liabilities assumed and noncontrolling interest as of the date of the acquisition, are as follows:

Trade receivables

Prepaid expenses and other current assets

Property and equipment, net

Operating lease right-of-use assets

Intangible assets

Trade and other payables

Deferred tax liability

Current tax liabilities

Operating lease liabilities

Total net assets acquired

Fair value of noncontrolling interest

Total purchase price, net of cash acquired of $ 2,109

The acquisition was accounted for as a business combination.

The following table summarizes the identifiable intangible assets acquired as of the date of the acquisition:

Fair Value at Acquisition Date

Amortization Period

Brand $ 5,112 10 years

Customer relationships 2,583 4 years

Total intangible assets $ 7,695

The fair value of the noncontrolling interest is determined by measuring the fair value of the subsidiaries’ identifiable assets and liabilities at the date of acquisition, adjusted for a discount to factor the non-marketable, noncontrolling holding.

The results of operations of Petal & Pup are included in the Company’s consolidated results beginning August 9, 2019.

Total net sales of $ 9.4 million and net income attributable to the Company of less than $ 0.1 million of Petal & Pup are included in the accompanying consolidated statement of income for the year ended December 31, 2019.

Goodwill of $ 24.2 million, none of which is deductible for tax purposes, represents the excess purchase price over the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed.

The goodwill arising from the acquisition consists largely of anticipated synergies related to combining with the Company’s existing operations.

Total acquisition costs incurred by the Company in connection with the purchase primarily related to third-party legal, accounting and tax diligence fees, were $ 0.7 million.

These costs are recorded in general and administrative expenses in the consolidated statement of income during the year ended December 31, 2019.

On December 6, 2019, the Company acquired 100 % of the share capital of Rebdolls, Inc.

(“Rebdolls”), a New Jersey corporation, for $ 0.6 million, which consisted of upfront cash consideration of $ 0.5 million and the fair value of contingent consideration of $ 0.1 million.

The conditions were ultimately not met in relation to the contingent consideration.

The acquisition provides the Company with a brand that offers apparel with a full range of sizes from 0 to 32 with an emphasis on size inclusivity, focused on female customers age 18 to 34.

As part of the purchase price allocation, the Company recorded $ 0.1 million in inventory, $ 0.1 million in identifiable intangible assets and $ 0.5 million in goodwill.

The results of operations of Rebdolls, Inc.

are included in the Company’s consolidated results beginning December 6, 2019.

Total net sales of $ 0.1 million in 2019 and net loss attributable to the Company of $ 0.2 million are included in the accompanying consolidated statement of income for the year ended December 31, 2019.

The acquisition costs incurred for this purchase agreement were immaterial.

The pronouncement and amendments help limit the accounting impact from contract modifications, including hedging relationships, due to the transition from the London Inter-Bank Offered Rate (“LIBOR”) to alternative reference rates that are completed by December 31, 2022.

The Company adopted this ASU on December 31, 2022, and the adoption did not have a material impact on its financial results, financial position or cash flows from the transition from LIBOR to alternative reference interest rates.

Culture Kings

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Brands Holding Corp.

common stock (refer to Note 1 for additional information).

common stock.

Culture Kings is focused on street apparel aimed at the young adult age group and has a combination of online sales as well as stores based in Australia and expands the Company’s consumer market to include male consumers and further expansion in the United States.

The following table sets forth the allocation of the total consideration to the identifiable tangible and intangible assets acquired and liabilities assumed, as of the date of the acquisition, with the excess recorded to goodwill:

The following table sets forth the final allocation of the total consideration to the identifiable tangible and intangible assets acquired and liabilities assumed, as of the date of the acquisition, with the excess recorded to goodwill:

Purchase consideration:

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(2) The fair value of the acquired intangible assets was determined with the assistance of a valuation specialist and include:

Estimated Fair Value

Fair Value at Acquisition Date

Annual Amortization Expense

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Total acquisition costs incurred by the Company in connection with its purchase of Culture Kings primarily related to third-party legal, accounting and tax diligence fees, were $ 3.3 million.

These costs are recorded in general and administrative expenses in the condensed consolidated statement of income for the year ended December 31, 2021.

These costs are recorded in general and administrative expenses in the consolidated statements of income for the year ended December 31, 2021.

Goodwill of $ 264.5 million, no ne of which is deductible for tax purposes, represents the excess purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed.

The goodwill arising from the acquisition consists largely of anticipated synergies related to combining with the Company’s existing operations.

The goodwill arising from the acquisition consists largely of anticipated synergies related to combining Culture Kings with the Company’s existing operations.

The fair value of the noncontrolling interest was determined by measuring the fair value of the subsidiaries’ identifiable assets and liabilities at the date of acquisition, adjusted for a discount to factor the non-marketable, noncontrolling holding.

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Since the date of acquisition, March 31, 2021, the results of Culture Kings have been included in the Company’s consolidated results.

The following amounts are included in the accompanying consolidated statement of income for the year ended December 31, 2021:

The following amounts are included in the accompanying consolidated statements of income for the years ended December 31, 2022 and 2021:

Year Ended December 31,

$ 226,369 $ 196,471

( 176,086 ) ( 5,899 )

The unaudited pro forma financial information below is presented to illustrate the estimated effects of the acquisition of Culture Kings and the associated financing as if they had occurred on January 1, 2020:

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2022 2021 2020

$ 611,738 $ 613,390 $ 385,048

Net income attributable to a.k.a.

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The pro forma information was prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations .

Since this pro forma financial information has been prepared based on preliminary estimates of consideration and fair values, including the identifiable intangibles, the actual amounts eventually recorded for the Culture Kings Acquisition may differ materially from the information herein.

The unaudited pro forma financial information has been prepared for informational purposes only and is not indicative of what the Company’s results of operations would have been had the transactions occurred on January 1, 2020, nor does it project the results of operations of the combined company following the transaction.

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mnml is an LA-based streetwear brand that offers competitively priced on-trend wardrobe staples.

This acquisition will help the Company continue its growth into the US market and provide opportunities for customer cross-sell.

The estimated fair values of assets acquired and liabilities assumed as of the date of the acquisition, are as follows:

This acquisition allows the Company to continue its growth into the U.S.

market and provides opportunities for customer cross-sell.

The final fair values of assets acquired and liabilities assumed, as of the date of the acquisition, are as follows:

Accounts receivable, net

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Total purchase price, net of cash acquired of $ 605

The cash purchase consideration is subject to working capital adjustments that will be concluded before the one-year anniversary of the close of the transaction.

The preliminary purchase price allocation includes significant judgments, assumptions and estimates to determine the fair value of assets acquired and liabilities assumed.

The purchase price allocation includes significant judgments, assumptions and estimates to determine the fair value of assets acquired and liabilities assumed.

The valuations involving the most significant assumptions, estimates and judgment are:

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Total intangible assets $ 14,300

The results of operations of mnml are included in the Company’s consolidated results beginning October 14, 2021.

Total net sales of $ 11.6 million and net income attributable to the Company of $ 1.0 million of mnml are included in the accompanying consolidated statement of income for the year ended December 31, 2021.

The results of operations of mnml are included in the Company’s consolidated statements of income beginning October 14, 2021.

Total net sales of $ 43.2 million and $ 11.6 million, as well as net loss attributable to the Company of $( 1.9 ) million and net income attributable to the Company of $ 1.0 million, of mnml are included in the accompanying consolidated statements of income for the years ended December 31, 2022 and 2021, respectively.

Goodwill of $ 30.0 million, no ne of which is deductible for tax purposes, represents the excess purchase price over the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed.

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Total acquisition costs incurred by the Company in connection with the purchase primarily related to third-party legal, accounting and tax diligence fees, were $ 1.3 million.

These costs are recorded in general and administrative expenses in the consolidated statement of income during the year ended December 31, 2021.

These costs are recorded in general and administrative expenses in the consolidated statement of income for the year ended December 31, 2021.

Purchase of Noncontrolling Interests

Immediately following the New Excelerate Reorganization (as described in Note 1), the Company completed a series of transactions in which the minority investors exchanged their interests in CK Holdings for 21,809,804 newly issued shares of a.k.a.

Immediately following the New Excelerate Reorganization (as described in Note 1, “Description of Business”), the Company completed a series of transactions in which the CK Holdings minority investors exchanged their interests in CK Holdings for 21,809,804 newly issued shares of a.k.a.

Brands Holding Corp.

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Prepaid expenses and other current assets are comprised of the following:

Security deposits $ 2,945 $ 741

Inventory prepayments 3,067 14,251

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Leasehold improvements

24,816 12,457

Total property and equipment

38,386 17,995

Less accumulated depreciation

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The carrying value of goodwill as of December 31, 2022 and 2021, was $ 167.7 million and $ 363.3 million, respectively.

No goodwill impairment was recorded for the years ended December 31, 2021 and 2020.

The goodwill of the acquired companies is primarily related to expected improvements in technology performance and functionality, as well as sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition.

As part of the annual goodwill impairment test conducted in the fourth quarter of 2022, the Company determined that the carrying value of its Culture Kings and Rebdolls reporting units exceeded their fair values and recorded a total non-cash goodwill impairment charge of $ 173.8 million during the year ended December 31, 2022.

As of December 31, 2022, $ 60.0 million of goodwill related to Culture Kings remained, while the goodwill related to Rebdolls was fully impaired.

The worsening economic trends in the fourth quarter of 2022, including continued inflation and rising interest rates, as well as unfavorable demand due to changing customer preferences towards a mix of online and physical store shopping led the Company to lower its forecasts and expectations for the Culture Kings and Rebdolls reporting units, driving the reduction in their fair values.

No goodwill impairment was recorded for the year ended December 31, 2021.

Additionally, as part of the annual goodwill impairment test conducted in the fourth quarter of 2022, it was determined that the estimated fair value of the mnml reporting unit exceeded the carrying value by 7 %.

The carrying value of the associated goodwill was $ 30.0 million.

The goodwill of acquired companies is primarily related to expected improvements in technology performance and functionality, as well as sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition.

The goodwill of acquired companies is generally not deductible for tax purposes.

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Balance as of December 31, 2020

Acquisitions (Note 3)

Changes in foreign currency translation

Balance as of December 31, 2021

Acquisitions (Note 3)

Changes in foreign currency translation

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Website design and software system

3 years 2.2 years 1,883 2.4 years 903

3 years 2.2 years 1,883

5 years 2.3 years 107 3.3 years 114

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Amortization of acquired intangible assets with finite useful lives is included in general and administrative expenses and was $ 14.2 million, $ 13.9 million and $ 6.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

In September 2022, we completed an intra-entity transfer of certain intellectual property rights related to Culture Kings’ brands to one of our subsidiaries in the U.S., aligning the ownership of these rights with our evolving business.

The transferred brands had a gross value of $ 57.4 million and accumulated amortization of $ 8.7 million at the time of transfer and the gross value was reset to the net book value of $ 48.7 million upon completion of the transfer.

Future estimated amortization expense for acquired identifiable intangible assets is as follows:

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The Polly Facility was available to make cash draws, procure letters of credit instruments and for the provision of ancillary facilities.

The Polly Facility matured in November 2021, and was therefore classified as a current liability as of December 31, 2020.

The Polly Facility was due in November 2021, and was therefore classified as a current liability as of December 31, 2020.

As of December 31, 2020, the Company had drawn $ 6.2 million on the Polly Facility and had $ 0.8 million drawn in letters of credit which were held as collateral under various custom bonds agreements.

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Debt Financing for the Culture Kings Acquisition

To fund the acquisition of Culture Kings (refer to Note 3 for additional information), on March 31, 2021, Polly Holdco Pty Ltd.

(“Polly”), a wholly owned subsidiary of the Company, entered into a debt agreement with a syndicated group, with an affiliate of Fortress Credit Corp as administrative agent, consisting of a $ 125.0 million term-loan facility and $ 25.0 million revolving credit facility.

Polly also issued $ 25.0 million in senior subordinated notes to certain debt funds of Summit Partners, a related party of the Company (refer to Note 16 for additional information).

To fund the acquisition of Culture Kings (refer to Note 3, “Acquisitions,” for additional information), on March 31, 2021, Polly Holdco Pty Ltd.

(“Polly Holdco”), a wholly-owned subsidiary of the Company, entered into a debt agreement with a syndicated group, with an affiliate of Fortress Credit Corp as administrative agent, consisting of a $ 125.0 million term-loan facility and a $ 25.0 million revolving credit facility.

Polly Holdco also issued $ 25.0 million in senior subordinated notes to certain debt funds of Summit Partners, a related party of the Company (refer to Note 16, “Related Party Transactions,” for additional information).

The combined term loan and senior subordinated notes provided the Company with $ 144.1 million, net of loan fees of approximately $ 5.9 million.

Key terms and conditions of each facility were as follows:

• The $ 125.0 million term loan matured on March 31, 2027 and required the Company to make amortized quarterly payments in aggregate annual amounts equal to 0.8 % of the original principal amount.

Borrowings under the credit agreement accrued interest, at the option of the borrower, at an adjusted LIBOR plus 7.5 % or Alternative Base Rate (“ABR”) plus 6.5 %, subject to adjustment based on achieving certain total net secured leverage ratios and subject to a minimum LIBOR threshold of 1.0 % per annum.

• The $ 25.0 million revolving credit facility, which matured on March 31, 2027, accrued interest, at the option of the borrower, at an adjusted LIBOR plus 7.5 % or ABR plus 6.5 %, subject to adjustment based on achieving certain total net secured leverage ratios.

Total loan debt issuance costs of $ 1.0 million related to the revolving credit facility were incurred.

These costs were included in prepaid and other assets and were being amortized over the term of the facility.

$ 13.0 million had been drawn on the revolving credit facility, as a result of the Culture Kings acquisition transaction.

• The senior subordinated notes accrued interest at an annual interest rate of 16.0 % and were repayable at the Company’s discretion until maturity on September 30, 2027.

The Company incurred debt issuance costs of $ 6.9 million, of which $ 1.0 million related to the revolving credit facility, which were capitalized and included in prepaid and other current assets as deferred financing costs and were being amortized over the life of the facility, or 6 years.

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The Company repaid the term loan, revolving credit facility and senior subordinated notes in full and terminated them in September 2021 in connection with the IPO, as described further below.

New Senior Secured Credit Facility

On September 24, 2021, at the close of the Company’s IPO, certain subsidiaries of the Company entered into a new senior secured credit facility inclusive of a $ 100.0 million term loan and a $ 50.0 million revolving line of credit, as well as an option for additional term loan of up to $ 50.0 million through an accordion feature.

Senior Secured Credit Facility

On September 24, 2021, in connection with the closing of the IPO, certain subsidiaries of the Company entered into a senior secured credit facility inclusive of a $ 100.0 million term loan and a $ 50.0 million revolving line of credit, as well as an option for additional term loan of up to $ 50.0 million through an accordion feature.

Key terms and conditions of each facility were as follows:

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• The $ 50.0 million accordion feature allows the Company to enter into additional term loan borrowings at terms to be agreed upon at the time of issuance, but on substantially the same basis as the original term loan, which includes the requirement to make amortized annual payments at the same cadence as that of the original term loan.

The new senior secured credit facility requires that the Company maintain a maximum total net leverage ratio of 3.50 to 1.00 as of the last day of any fiscal quarter, beginning with the fiscal quarter ended December 31, 2021 through maturity.

The new senior secured credit facility also requires that the Company maintain a minimum fixed charge coverage ratio of 1.25 to 1.00 as of the last day of any fiscal quarter, beginning with the fiscal quarter ended December 31, 2021 through maturity.

The senior secured credit facility requires that the Company maintain a maximum total net leverage ratio of 3.50 to 1.00 as of the last day of any fiscal quarter, beginning with the fiscal quarter ended December 31, 2021 through maturity.

The senior secured credit facility also requires that the Company maintain a minimum fixed charge coverage ratio of 1.25 to 1.00 as of the last day of any fiscal quarter, beginning with the fiscal quarter ended December 31, 2021 through maturity.

In the event that the Company fails to comply with the financial covenant, the Company will have the option to make certain equity contributions, directly or indirectly, to cure any non-compliance with such covenant, subject to certain other conditions and limitations.

Beginning with the fiscal year ended December 31, 2022, and continuing annually thereafter, the Company is required to make a mandatory prepayment as a percentage of excess cash flows, as defined by the credit agreement, in the period based on the Company triggering certain net debt leverage ratios.

Beginning with the fiscal year ending December 31, 2022, and continuing annually thereafter, the Company is required to make a mandatory prepayment as a percentage of excess cash flows, as defined by the credit agreement, in the period based on the Company triggering certain net debt leverage ratios.

Specifically, a mandatory prepayment of 50 % of excess cash flows is required if the Company’s net leverage ratio exceeds 2.25 x, and a mandatory prepayment of 25 % of excess cash flows is required if the Company’s net leverage ratio is greater than or equal to 1.25 x.

As of December 31, 2021 , the Company is in compliance with all debt covenants.

The Company incurred $ 2.7 million of debt issuance costs in relation to the new senior secured credit facility.

Of this, $ 0.9 million relates to the revolver and is capitalized and included in prepaid and other current assets as deferred financing costs to be amortized over the life of the facility, or five years .

The remaining $ 1.8 million of debt issuance costs relates to the term loan and is presented net of our outstanding debt in long term debt on our balance sheet.

As of December 31, 2022 , the Company was in compliance with all debt covenants and did not have any excess cash flows.

The Company incurred $ 2.7 million of debt issuance costs in relation to the senior secured credit facility.

Of this, $ 0.9 million relates to the revolving credit facility and is capitalized and included in prepaid and other current assets as deferred financing costs to be amortized over the life of the facility, or 5 years.

The remaining $ 1.8 million of debt issuance costs relates to the term loan and is presented net of outstanding debt in long term debt on the balance sheet.

Debt issuance costs are amortized over the life of the outstanding debt, using the effective interest rate method.

In September 2021, the Company used borrowings from the term loan under this new senior secured credit facility, together with a portion of the proceeds from the IPO, to repay in full and terminate the previous term loan, revolving credit facility and senior subordinated notes entered into in March 2021 in relation to the Culture Kings acquisition.

As part of the repayment, the Company also paid $ 4.5 million in prepayment penalties and wrote-off $ 6.4 million of unamortized debt issuance costs, all of which is included in the loss on extinguishment of debt in the condensed consolidated statements of income.

In October 2021, the Company borrowed $ 15.0 million under the revolving line of credit at an applicable interest rate of 3.37 % and final payoff due on September 24, 2026.

In September 2021, the Company used borrowings from the term loan under this senior secured credit facility, together with a portion of the proceeds from the IPO, to repay in full and terminate the previous term loan, revolving credit facility and senior subordinated notes entered into in March 2021 in relation to the Culture Kings acquisition.

As part of the repayment, the Company also paid $ 4.5 million in prepayment penalties and wrote off $ 6.4 million of unamortized debt issuance costs, all of which is included in the loss on extinguishment of debt in the consolidated statements of income.

In October 2021, the Company borrowed $ 15.0 million under the revolving line of credit at an initial applicable interest rate of 3.37 % and final payoff due on September 24, 2026.

The borrowings on the revolving line of credit were used in the acquisition of mnml.

See Note 3 for additional details.

In November 2021, subsequent to the draw on the revolver, the Company borrowed $ 12.0 million of additional term loan under the accordion feature at substantially the same terms as the original term loan.

In December 2021, the borrowings from the accordion feature, along with cash on hand, were used to completely repay the borrowings from the revolving line of credit.

In connection with the borrowings under the accordion feature, additional debt issuance costs of $ 0.3 million were incurred and presented net of our outstanding debt in long term debt on our balance sheet, to be amortized over the life of the accordion, using the effective interest rate method.

In connection with the borrowings under the accordion feature, additional debt issuance costs of $ 0.3 million were incurred and presented net of outstanding debt in long term debt on the balance sheet, to be amortized over the life of the accordion, using the effective interest rate method.

In January 2022, the Company borrowed $ 15.0 million under the revolving line of credit at an initial applicable interest rate of 3.52 % and final payoff due on September 24, 2026.

Additionally, in March 2022, the Company borrowed $ 10.0 million under the revolving line of credit at an initial applicable interest rate of 3.60 % and final payoff due on September 24, 2026.

In October 2022, the Company borrowed $ 15.0 million under the revolving line of credit at an initial applicable rate of 6.50 % and final payoff due on September 24, 2026.

As of December 31, 2022, the all-in rate (LIBOR plus the applicable margin) for the Company’s term loan and borrowings under the revolving line of credit was 7.48 %.

Total Debt and Interest

Outstanding debt consisted of the following:

Bank loans - flexible rate loan

$ 105,150 $ 110,750

Revolving credit facility

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Interest expense, which included the amortization of debt issuance costs, totaled $ 7.0 million, $ 9.5 million and $ 0.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company leases office and warehouse facilities under various non-cancellable operating lease agreements (real estate leases).

Real estate leases have remaining lease terms of approximately 1 to 10 years, which represent the non-cancellable periods of the leases and include extension options that the Company determined are reasonably certain to be exercised.

The Company excludes extension options that are not reasonably certain to be exercised from the lease terms, ranging from approximately 6 months to 3 years.

The Company leases office locations, warehouse facilities and stores under various non-cancellable operating lease agreements.

The Company’s leases have remaining lease terms of approximately 1 year to 10 years, which represent the non-cancellable periods of the leases and include extension options that the Company determined are reasonably certain to be exercised.

The Company excludes from the lease terms any extension options that are not reasonably certain to be exercised, ranging from approximately 6 months to 3 years.

Lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms as well as payments for common area maintenance and administrative services.

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Variable lease costs 609 343 130

Short-term lease costs 430 136 —

Total lease costs $ 9,929 $ 6,302 $ 1,322

The Company does not have any material short-term leases.

The Company does not have any sublease income and the Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants.

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Long-term operating lease liabilities

On January 31, 2022, the Company entered into a lease agreement with Forum Shops, LLC to lease approximately 13,425 square feet of selling space located in the Forum Shops at Caesars Palace.

The lease commenced in March 2022 and payments began in November 2022 when the store opened.

Base rent payments for the first twelve months after the store opened will be approximately $ 1.7 million and have subsequent annual increases to such cash payments by 3.0 % each year through the tenth anniversary of the lease commencement.

Income (loss) from continuing operations before income taxes consisted of the following:

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$ ( 180,614 ) $ ( 5,239 ) $ 21,655

The components of the provision for income taxes consisted of the following:

The components of the provision (benefit) for income taxes consisted of the following:

Year Ended December 31,

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Total ( 4,122 ) ( 10,340 ) ( 2,667 )

Income tax expense

Income tax expense (benefit)

$ ( 3,917 ) $ 852 $ 6,850

The provision for income taxes differs from the tax computed using the statutory U.S.

The provision (benefit) for income taxes differs from the tax computed using the statutory U.S.

federal income tax rate of 21% as a result of the following items:

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2022 2021 2020

Tax expense (benefit) at U.S.

Income tax expense (benefit) at U.S.

statutory rate

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Equity-based compensation

Goodwill impairment

Change in tax basis of Culture Kings’ inventory and intangibles

( 2,233 ) — —

Income tax expense $ 852 $ 6,850 $ 1,012

Intra-entity transfer of certain intellectual property rights

( 1,030 ) — —

( 1,191 ) ( 41 ) 53

Income tax expense (benefit)

$ ( 3,917 ) $ 852 $ 6,850

The foreign tax rate differential relates to differences between the income tax rates in effect in the foreign countries in which the Company operates, in particular Australia where the corporate tax rate is 30%.

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Lease liabilities 10,949 7,005

State taxes — 64

Foreign exchange gains / losses 150 92

Net operating loss carryforwards — 135

Loss carryforwards

Subtotal 24,496 15,715

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Deferred tax liabilities:

Property and equipment

Intangible assets ( 8,372 ) ( 11,557 )

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( 10,668 ) ( 7,041 )

Inventory — ( 70 )

Other 85 ( 37 )

Total deferred tax liabilities ( 18,955 ) ( 18,635 )

Net deferred liabilities $ ( 2,920 ) $ ( 5,904 )

As of December 31, 2021, the Company did no t have any federal or state net operating loss carryforwards.

The Company has recorded no valuation allowance as of December 31, 2021 but had recorded a valuation allowance of $ 0.1 million as of December 31, 2020, primarily related to U.S.

net operating loss carryforwards.

Net deferred assets (liabilities)

$ 786 $ ( 2,920 )

As of December 31, 2022, the Company had a $ 7.1 million Australian net operating loss carryforward and a $ 15.8 million Australian capital loss carryforward on the intra-entity transfer of certain intellectual property rights from Australia to the U.S.

As of December 31, 2021, the Company had no net operating loss or capital loss carryforwards.

The net operating loss and capital loss carryforwards have no expiration.

The Company recorded a full valuation allowance on the capital loss carryforward as of December 31, 2022.

The Company had gross deferred tax assets of $ 24.5 million and $ 15.7 million and gross deferred tax liabilities of $ 19.0 million and $ 18.6 million at December 31, 2022 and 2021, respectively.

Management has determined the gross deferred tax assets are more likely than not realizable.

Management has determined the gross deferred tax assets are more likely than not realizable, except for the capital loss carryforward.

The Company has not provided deferred taxes on unremitted earnings attributable to foreign subsidiaries that have been considered permanently reinvested.

As of December 31, 2021, the unremitted earnings from these operations were approximately $ 11.4 million.

As of December 31, 2022, there are no unremitted earnings from these operations.

As of December 31, 2022 and 2021, the Company had no uncertain tax positions.

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Sales tax payable

15,999 20,008

Accrued marketing costs

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A total of 4,900,269 shares of the Company’s common stock were initially reserved for issuance under the 2021 Plan.

The number of shares of common stock reserved and available for issuance under the 2021 Plan will automatically increase each January 1, beginning on January 1, 2022, by 1 % of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the compensation committee of the Company’s board of directors.

The number of shares of common stock reserved and available for issuance under the 2021 Plan automatically increased on January 1, 2022 by 1 % of the number of shares of the company’s common stock outstanding on December 31, 2021, and will continue to automatically increase each January 1 by 1 % of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the compensation committee of the Company’s board of directors.

2021 Employee Stock Purchase Plan

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The price at which common stock is purchased under the ESPP is equal to 85 % of the fair market value of a share of the Company’s common stock on the first or last day of the offering period, whichever is lower.

The fair value of the discount and the look-back period are estimated using the Black-Scholes option pricing model.

2018 Stock and Incentive Compensation Plan

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In connection with the reorganization transactions and the IPO, all of the equity interests in Excelerate, L.P., including outstanding incentive units issued as equity-based compensation under the 2018 Plan, were transferred to New Excelerate, L.P.

(refer to Note 1 for additional information).

The incentive units issued under the 2018 Plan participate in distributions from New Excelerate, L.P., but only after investors receive their return of capital plus a specified threshold amount per unit.

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No further incentive units will be granted under the 2018 Plan.

Upon the expiration, forfeiture, cancellation or withholding of units for employee taxes of any incentive units underlying outstanding incentive unit awards granted under the 2018 Plan, an equal number of shares of a.k.a.

Brands Holding Corp.

common stock will become available for grant under the 2021 Plan that was established in connection with the IPO.

Grant Activity

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The 2021 Plan provides for the issuance of incentive and nonqualified stock options.

Under the 2021 Plan, the exercise price of an incentive stock option shall not be less than the fair market value of one share of the Company’s common stock on the date of grant.

Stock options are exercisable over periods not to exceed ten years from the date of grant, and generally vest over time or based on performance.

Under the 2021 Plan, the exercise price of a stock option shall not be less than the fair market value of one share of the Company’s common stock on the date of grant.

Stock options have a contractual term, or the period during which they are exercisable, not to exceed ten years from the date of grant, and generally vest over time or based on performance.

As of December 31, 2022, all stock option grants have been time-based.

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Weighted Average Exercise Price

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value

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273,026 9.50 9.73 —

Forfeited/Repurchased

Balance as of December 31, 2022

507,479 6.95 9.04 —

Vested as of December 31, 2022

90,666 9.50 8.73 —

As of December 31, 2022, there was $ 1.3 million of total unrecognized compensation cost related to unvested stock options issued under the 2021 Plan, which is expected to be recognized over a weighted average period of 2.5 years.

The assumptions that the Company used to determine the grant date fair value of stock options granted under the 2021 Plan during the year ended December 31, 2021 were as follows, presented on a weighted-average basis:

The assumptions that the Company used to determine the grant date fair value of stock options granted under the 2021 Plan during the years ended December 31, 2022 and 2021 were as follows, presented on a weighted-average basis:

Year Ended December 31,

Risk free interest rate

2.96 % 1.00 %

Expected volatility

65.34 % 51.32 %

Expected dividend yield

Expected term

5.85 years 6.08 years

Restricted Stock Units

The 2021 Plan provides for the issuance of restricted stock units (“RSUs”).

RSUs generally vest over four years .

RSUs issued prior to March 31, 2022 vest over four years while all RSUs issued after that date vest over three years.

A summary of the Company's RSU activity under the 2021 Plan was as follows:

2 unchanged sentences

Balance as of December 31, 2020

915,480 10.04

Forfeited/Repurchased

1 unchanged sentence

915,480 10.04

3,911,604 1.78

( 262,943 ) 9.85

Forfeited/Repurchased

( 153,832 ) 9.70

Balance as of December 31, 2022

4,410,309 $ 2.73

As of December 31, 2022, there was $ 11.0 million of total unrecognized compensation cost related to unvested RSUs issued under the 2021 Plan, which is expected to be recognized over a weighted average period of 2.6 years.

2 unchanged sentences

Time-based incentive units generally vest over four years .

Performance-based incentive units vest upon the satisfaction of both a performance condition and market condition as described further below.

Performance-based incentive units vested upon the satisfaction of the performance condition as described further below.

Time-Based Incentive Partnership Units

9 unchanged sentences

Forfeited/Repurchased ( 1,463,051 ) 0.45 1.02

( 1,463,051 ) $ 0.45 $ 1.02

Balance as of December 31, 2020

5 unchanged sentences

5,975,813 1.16 3.04 14,162

( 2,511,311 ) 1.15 3.02

Forfeited/Repurchased

( 100,646 ) 0.46 1.83

Balance as of December 31, 2022

3,363,856 1.43 1.55 —

Vested as of December 31, 2022

As of December 31, 2022, there was $ 4.3 million of total unrecognized compensation cost related to unvested time-based incentive units issued under the 2018 Plan, which is expected to be recognized over a weighted average period of 1.8 years.

The assumptions that the Company used to determine the grant date fair value of time-based incentive units granted under the 2018 Plan were as follows, presented on a weighted-average basis:

While there were no time-based incentive units granted under the 2018 Plan during the year ended December 31, 2022, the assumptions that the Company used to determine the grant date fair value of time-based incentive units granted under the 2018 Plan for the years ended December 31, 2021 and 2020 were as follows, presented on a weighted-average basis:

Year Ended December 31,

2021 2020 2019

Risk free interest rate

1 unchanged sentence

Expected volatility

50 % 50 % 50 %

Expected dividend yield

Expected term

2.87 years 3.14 years 4.21 years

2.87 years 3.14 years

Performance-Based Incentive Units

Performance-based incentive units vest upon the satisfaction of both a performance condition and market condition.

The performance condition is satisfied upon the occurrence of a liquidity event, defined as a change of control transaction or an initial public offering and is not deemed probable until it occurs.

Performance-based incentive units vest upon the satisfaction of a performance condition and become exercisable upon the satisfaction of the market condition.

The performance condition was satisfied upon the occurrence of the IPO.

As it was not deemed probable until it occurred, all compensation expense related to these awards was recognized at the date of the IPO.

The market condition is satisfied upon the initial investor in Excelerate, L.P.

receiving an aggregate return equal to three times its aggregate investment.

In connection with the IPO, both the performance condition and the market condition were satisfied.

As of December 31, 2021, all outstanding performance-based incentive units have been fully expensed.

As of December 31, 2022, all outstanding performance-based incentive units had been fully expensed.

The following table summarizes performance-based incentive unit activity under the 2018 Plan:

13 unchanged sentences

Vested as of December 31, 2021

The grant date fair value of the performance-based incentive units was determined the using the Black-Scholes option pricing model, modified to allow for vesting only if the value at the distribution date is at or above the performance threshold.

The grant date fair value of the performance-based incentive units was determined using the Black-Scholes option pricing model, modified to allow for vesting only if the value at the distribution date is at or above the performance threshold.

Transition Agreement

2 unchanged sentences

As permitted by the original terms of the incentive units, the Company exercised its right to repurchase the former executive’s remaining 802,634 vested incentive units for total cash consideration of $ 1.1 million payable within a certain period following her termination.

The consideration payable was deducted from additional paid-in capital as it did not exceed the fair value of the repurchased incentive units as of the date of repurchase, and was outstanding as of December 31, 2021.

As of December 31, 2021, the consideration payable was deducted from additional paid-in capital as it did not exceed the fair value of the repurchased incentive units as of the date of repurchase.

The units were repurchased in 2022.

ESPP Purchase Rights

The Company’s initial six-month offering period for the ESPP ended on November 30, 2022.

There were 148,181 shares purchased using ESPP purchase rights with a weighted average purchase price of $ 1.53 during the year ended December 31, 2022.

Equity-Based Compensation Expense

The Company recognizes compensation expense in general and administrative expenses within operating expenses for stock options, RSUs and time-based incentive units granted prior to the IPO by amortizing the grant date fair value on a straight-line basis over the expected vesting period to the extent the vesting of the grant is considered probable.

The Company recognizes compensation expense in general and administrative expenses within operating expenses for stock options, RSUs, ESPP purchase rights and time-based incentive units granted prior to the IPO by amortizing the grant date fair value on a straight-line basis over the expected vesting period to the extent the vesting of the grant is considered probable.

The Company recognized compensation expense for performance-based incentive units granted prior to the IPO at the date of IPO.

4 unchanged sentences

Stock options $ 495 $ 95 $ —

RSUs 2,943 655 —

ESPP purchase rights 188 — —

Time-based incentive units 3,104 2,390 1,380

14 unchanged sentences

$ ( 176,697 ) $ ( 5,968 ) $ 14,334

Weighted-average common shares outstanding, basic

93,231,377 69,846,362 61,988,641

Dilutive securities:

Stock options — — —

Weighted-average common shares outstanding, diluted

Weighted-average common shares outstanding, basic and diluted

128,716,710 93,231,377 69,846,362

Net income (loss) per share:

Net income (loss) per share, basic

$ ( 0.06 ) $ 0.21 $ 0.02

Net income (loss) per share, diluted

Net income (loss) per share, basic and diluted

$ ( 1.37 ) $ ( 0.06 ) $ 0.21

Due to the reorganization transactions as described in Note 1, for periods prior to our IPO in September 2021, a split of units held by New Excelerate investors into a proportionate amount of shares of the Company’s common stock is reflected in the weighted-average common shares outstanding.

Due to the reorganization transactions as described in Note 1 “Description of Business,” for periods prior to our IPO in September 2021, a split of units held by New Excelerate investors into a proportionate amount of shares of the Company’s common stock is reflected in the weighted-average common shares outstanding.

The Company used the two-class method in calculating net income per share historically, as it related to the outstanding incentive units.

However, for all periods prior to the IPO, there were no potentially dilutive securities.

Accordingly, basic and diluted net income per share presented herein and on the condensed consolidated statements of income for all periods prior to the IPO are the same.

Accordingly, basic and diluted net income per share presented herein and in the consolidated statements of income for all periods prior to the IPO are the same.

Basic net income (loss) per share is calculated by dividing net income (loss) attributable to a.k.a.

2 unchanged sentences

Diluted net income (loss) per share has been calculated in a manner consistent with that of basic net income (loss) per share while giving effect to shares of potentially dilutive stock option and RSU grants outstanding during the period, if applicable.

Due to the net loss attributable to a.k.a.

Brands Holding Corp.

for the years ended December 31, 2022 and 2021, no potentially dilutive securities had an impact on diluted loss per share for such periods.

There were no potentially dilutive stock option or RSU grants outstanding during the year ended December 31, 2020.

For the years ended December 31, 2022 and 2021, 1,354,852 and 78,424 shares, respectively, were excluded from the calculation of weighted-average diluted common shares outstanding as they had an anti-dilutive effect.

Commitments and Contingencies

10 unchanged sentences

Related Party Debt Financing

In connection with the acquisition of Culture Kings (refer to Note 3 for additional information), on March 31, 2021, Polly Holdco Pty Ltd., a wholly owned subsidiary of the Company, issued $ 25.0 million in senior subordinated notes to an affiliate of Summit, a global investment firm who has a majority ownership interest in the Company.

The senior subordinated notes were subsequently paid in full and terminated in connection with the IPO (refer to Note 8 for additional information).

In connection with the acquisition of Culture Kings (refer to Note 3, “Acquisitions,” for additional information), on March 31, 2021, Polly Holdco, a wholly-owned subsidiary of the Company, issued $ 25.0 million in senior subordinated notes to an affiliate of Summit, a global investment firm who has a majority ownership interest in the Company.

The senior subordinated notes were subsequently paid in full and terminated in connection with the IPO (refer to Note 8, “Debt,” for additional information).

Subsequent Events

The Company has evaluated subsequent events occurring through March 9, 2023, the date that these financial statements were originally available to be issued, and determined the following subsequent events occurred that would require disclosure in these financial statements.

Draw on Revolving Line of Credit

On January 26, 2022, the Company borrowed $ 15.0 million under the revolving line of credit established as part of its senior secured credit facility effective September 24, 2021.

The applicable interest rate for the borrowings is 3.52 % and final payoff is due on September 24, 2026.

Culture Kings Las Vegas Flagship Store Lease

On January 31, 2022, the Company entered into a lease agreement with Forum Shops, LLC to lease approximately 13,425 square feet of selling space located in the Forum Shops at Caesars Palace.

The lease will have a commencement date in the first quarter of 2022 and will be material to the Company’s operations with a first year annual cash payment of approximately $ 1.7 million and subsequent annual cash payments that increase by 3.0 % each year through the tenth anniversary of the lease commencement.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

In March 2023, the Company completed the sale of its Rebdolls reporting unit back to its founder.

Upon close of the transaction, the Company expects to record a pre-tax loss of approximately $ 1.1 million in other expense, net in its consolidated statements of income in the first quarter of fiscal year 2023.

Partial Repayment of Revolving Line of Credit

On February 21, 2023, the Company repaid $ 6.0 million of the outstanding balance on its revolving line of credit.

The remaining balance is due on September 24, 2026.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk