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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-03-07 compared with 2023-03-09 · 238 added, 270 removed, 948 unchanged (35% 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 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 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 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.

This hypothetical analysis may differ from the actual change in interest expense due to potential changes in interest rates or gross borrowings outstanding under our credit facilities.

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

We are exposed to fluctuations in currency exchange rates as a result of our operations in countries other than the U.S., principally related to our significant operations in Australia.

As of December 31, 2022, movements in currency exchange rates and the related impact on the translation of the balance sheets resulted in the $34.1 million net loss in the currency translation category of accumulated other comprehensive income (loss).

A hypothetical 10% increase or decrease in the Australian dollar exchange rate could result in a $27.9 million foreign currency translation fluctuation, which would be recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets.

Additionally, a portion of our sales and costs are earned and incurred, respectively, in USD for subsidiaries that use AUD as their functional currency.

These sales and costs generate foreign currency exposure.

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 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.

As a “smaller reporting company,” as defined in Item 10 of Regulation S-K, we are not required to provide this information.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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11,782 11,421

Income taxes payable 257 —

Operating lease liabilities, current

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( 50,269 ) ( 45,185 )

Retained earnings (accumulated deficit)

Accumulated deficit

( 267,413 ) ( 168,527 )

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

* Adjusted for the one-for-12 Reverse Stock Split.

Refer to Note 14, “Stockholders’ Equity.”

BRANDS HOLDING CORP.

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383,689 509,286 291,281

Income (loss) from operations

(Loss) income from operations

( 83,409 ) ( 172,039 ) 16,383

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Total other expense, net ( 13,556 ) ( 8,575 ) ( 21,622 )

Income (loss) before income taxes

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

Benefit from (provision for) income tax

Loss before income taxes

( 96,965 ) ( 180,614 ) ( 5,239 )

Net income (loss)

(Provision for) benefit from income tax

( 1,921 ) 3,917 ( 852 )

Net loss (income) attributable to noncontrolling interests

( 98,886 ) ( 176,697 ) ( 6,091 )

Net income (loss) attributable to a.k.a.

Net loss attributable to noncontrolling interests

Net loss attributable to a.k.a.

Brands Holding Corp.

$ ( 98,886 ) $ ( 176,697 ) $ ( 5,968 )

Net income (loss) per share:

$ ( 1.37 ) $ ( 0.06 ) $ 0.21

Weighted average shares outstanding:

Net loss per share, basic and diluted*

$ ( 9.24 ) $ ( 16.47 ) $ ( 0.77 )

Weighted average shares outstanding, basic and diluted*

10,707,024 10,726,392 7,769,281

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

* Adjusted for the one-for-12 Reverse Stock Split.

Refer to Note 14, “Stockholders’ Equity.”

BRANDS HOLDING CORP.

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2023 2022 2021

Net income (loss)

$ ( 98,886 ) $ ( 176,697 ) $ ( 6,091 )

Other comprehensive income (loss):

Other comprehensive loss:

Currency translation

( 5,084 ) ( 34,105 ) ( 27,619 )

Total comprehensive income (loss)

( 210,802 ) ( 33,710 ) 26,160

Comprehensive loss (income) attributable to noncontrolling interests

Total comprehensive loss

( 103,970 ) ( 210,802 ) ( 33,710 )

Comprehensive income (loss) attributable to a.k.a.

Comprehensive loss attributable to noncontrolling interests

Comprehensive loss attributable to a.k.a.

Brands Holding Corp.

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Non-controlling Interest Total Equity Redeemable Noncontrolling Interest

Shares Amount Units Amount

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 ) —

Cumulative translation adjustment — — — — — 10,570 — 785 11,355 —

Net income — — — — — — 14,334 471 14,805 —

Amount Units Amount

Balance as of December 31, 2020 — — 114,167,842 108,197 727 5,839 14,138 9,983 138,884 —

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Cumulative translation adjustment — — — — — ( 16,919 ) — ( 1,006 ) ( 17,925 ) ( 9,694 )

Net income (loss) — — — — — — ( 5,968 ) 622 ( 5,346 ) ( 746 )

Net (loss) income

— — — — — — ( 5,968 ) 622 ( 5,346 ) ( 746 )

Balance as of December 31, 2021 10,720,653 129 — — 453,807 ( 11,080 ) 8,170 — 451,026 —

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Balance as of December 31, 2022 10,750,586 129 — — 460,660 ( 45,185 ) ( 168,527 ) — 247,077 —

Equity-based compensation — — — — 7,640 — — — 7,640 —

Issuance of common stock under employee equity plans, net of shares withheld 137,801 — — — ( 28 ) — — — ( 28 ) —

Repurchase of shares

( 320,506 ) ( 1 ) — — ( 2,100 ) — — — ( 2,101 ) —

Cumulative translation adjustment

— — — — — ( 5,084 ) — — ( 5,084 ) —

— — — — — — ( 98,886 ) — ( 98,886 ) —

Balance as of December 31, 2023

10,567,881 $ 128 — $ — $ 466,172 $ ( 50,269 ) $ ( 267,413 ) $ — $ 148,618 $ —

(1) Excelerate, L.P.

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

(2) Adjusted for the one-for-12 Reverse Stock Split.

Refer to Note 14, “Stockholders’ Equity.”

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

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Cash flows from operating activities:

Net income (loss) $ ( 176,697 ) $ ( 6,091 ) $ 14,805

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

$ ( 98,886 ) $ ( 176,697 ) $ ( 6,091 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation expense 7,605 6,156 2,694

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Amortization of debt issuance costs 624 647 607

Non-cash interest expense — 11 —

Loss on extinguishment of debt — — 10,924

Lease incentives 1,596 1,722 361

Loss on disposal of businesses

Non-cash operating lease expense 7,766 9,779 6,246

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Proceeds from issuance of units — — 82,669

Net cash provided by financing activities

Repurchase of shares

( 2,100 ) — —

Net cash (used in) provided by financing activities

( 52,829 ) 33,260 269,850

Effect of exchange rate changes on cash, cash equivalents and restricted cash

1,090 ( 272 ) ( 1,824 )

Net increase in cash, cash equivalents and restricted cash

Net change in cash, cash equivalents and restricted cash

( 24,344 ) 7,355 13,919

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$ 10,515 $ 6,296 $ 7,901

Income taxes paid, net of refunds

Income tax (refund received) paid, net

( 4,039 ) 2,329 20,626

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Brands Holding Corp.

(together with our wholly owned subsidiaries, collectively, the “Company”), which operates under the name “a.k.a.

Brands” or “a.k.a.,” is an online fashion retailer focused on acquiring and accelerating the growth of next-generation, digitally native fashion brands targeting Gen Z and Millennial customers.

(together with its wholly owned subsidiaries, collectively, the “Company”), which operates under the name “a.k.a.

Brands” or “a.k.a.,” is a portfolio of next-generation fashion brands for the next generation of consumers.

The Company seeks to leverage its industry expertise and operational synergies to accelerate its brands so they can grow faster, reach broader audiences, achieve greater scale and enhance their profitability.

The Company is headquartered in San Francisco, California, with buying, studio, marketing, fulfillment and administrative functions primarily in Australia and the United States.

Initial Public Offering

In September 2021, the Company completed an initial public offering (the “IPO”), in which the Company issued and sold 10,000,000 shares of its newly authorized common stock for $ 11.00 per share for net proceeds of $ 95.7 million, after deducting underwriting discounts and commissions of $ 6.6 million, and offering costs of $ 7.7 million.

In September 2021, the Company completed an initial public offering (the “IPO”), in which the Company issued and sold 833,333 shares of its newly authorized common stock for $ 132.00 per share, both as adjusted for the one-for-12 Reverse Stock Split (as defined in Note 14, “Stockholders’ Equity”), for net proceeds of $ 95.7 million, after deducting underwriting discounts and commissions of $ 6.6 million, and offering costs of $ 7.7 million.

Reorganization Transactions

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businesses prior to the IPO.

The equity interests of Excelerate, which included the Series A partner units and incentive units, were owned by affiliates of Summit Partners (“Summit”), certain other investors and certain of our executive officers and directors and other members of management.

The equity interests of Excelerate, which included the Series A partner units and incentive units, were owned by affiliates of Summit Partners LP (“Summit”), certain other investors and certain of our executive officers and directors and other members of management.

In connection with the IPO, a reorganization was undertaken to cause Excelerate to become a wholly-owned subsidiary of a.k.a.

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Immediately following the New Excelerate Reorganization, the Company completed a series of transactions in which the minority investors exchanged their remaining interests in CK Holdings for 1,817,483 newly issued shares of a.k.a.

Brands Holding Corp.

common stock.

Brands Holding Corp.’s common stock, as adjusted for the one-for-12 Reverse Stock Split.

The number of shares issued in exchange for the minority interests was determined based on the relative valuations of CK Holdings and consolidated a.k.a.

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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.

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 in full and to redeem the Summit Notes in full and subsequently terminated them.

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

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Prior to the IPO, incentive units had been issued to certain directors and members of management.

These incentive units had a requirement that such shares could not participate in distributions and earnings of Excelerate, L.P.

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

These incentive units had a requirement that such shares could not participate in distributions and earnings of Excelerate until after the holders of the Series A partner units received their return of capital plus a specified threshold amount per unit.

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.

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

Brands Holdings Corp.

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All unit, per unit and related information presented in the accompanying consolidated financial statements have been retroactively adjusted, where applicable, to reflect the impact of the split of units held by New Excelerate investors into a proportionate amount of shares of a.k.a.

common stock.

Brands Holdings Corp.’s common stock.

The terms of the incentive units remained unchanged and individual holders of such units will only be entitled to participate in the distributions and earnings of New Excelerate once the holders of the Series A partner units receive their return of capital plus a specified threshold amount per unit.

However, as New Excelerate was issued shares of common stock in direct proportion to its combined Series A partner units and incentive units, New Excelerate will participate in all distributions and returns of the Company in relation to the total amount of shares of a.k.a.

common stock that it holds.

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 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.

Brands Holdings Corp.’s common stock that it holds.

Prior to the IPO, the Company 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.

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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 balances of a.k.a.

Brands Holding Corp.

and all of its wholly-owned subsidiaries.

The accompanying consolidated financial statements include the balances of the Company and all of its wholly-owned subsidiaries.

All intercompany transactions and balances have been eliminated in consolidation.

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The Company considers all highly liquid investments purchased with an original maturity (at date of purchase) of three months or less to be cash equivalents.

Cash equivalents, which consist primarily of money market accounts and restricted cash are carried at cost, which approximates fair value.

Cash and cash equivalents consist primarily of demand deposits and receivables from third-party credit card processors.

Cash equivalents are carried at cost, which approximates fair value.

Restricted Cash

Restricted cash primarily relates to letters of credit which are held as collateral under various lease agreements.

Restricted cash primarily relates to amounts held by counterparties as collateral under various lease agreements.

Restricted cash is presented separately from cash and cash equivalents on the accompanying consolidated balance sheets.

Accounts Receivable

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 are reported net of an allowance for doubtful accounts.

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

Accounts receivable consists of trade accounts receivable that are reported net of an allowance for doubtful accounts.

The Company had $ 0.2 million in allowance for doubtful accounts as of December 31, 2023.

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

Inventory, Net

Inventories consist of finished goods and are accounted for using an average cost method.

Inventory is valued at the lower of cost or net realizable value.

Inventories are accounted for using an average cost method and are valued at the lower of cost or net realizable value.

Cost of inventory includes import duties and other taxes and transport and handling costs.

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Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist primarily of advance payments on inventory to be delivered from vendors, prepaid packaging and insurance.

Prepaid expenses and other current assets consist primarily of advance payments on inventory to be delivered from vendors, security deposits, prepaid packaging and insurance.

Deferred Offering Costs

Deferred offering costs consist primarily of legal, accounting and other fees related to the IPO which were recorded in prepaid expenses and other current assets on the consolidated balance sheets prior to the IPO.

Deferred offering costs consisted primarily of legal, accounting and other fees related to the IPO, which were recorded in prepaid expenses and other current assets on the consolidated balance sheets prior to the IPO.

After the completion of the IPO in September 2021, deferred offering costs of $ 7.7 million were reclassified to stockholders’ equity and recorded net against the proceeds from the IPO.

No offering costs were deferred as of December 31, 2022 or 2021.

Property and Equipment, Net

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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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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.

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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.

In 2023, the Company concluded that the carrying value of the Culture Kings and Petal & Pup reporting units exceeded their fair values as of August 31, 2023.

As a result, the Company recorded a non-cash goodwill impairment charge of $ 68.5 million during the third quarter of 2023.

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.

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

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.

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No impairment losses related to finite-lived intangible assets or property and equipment were recognized during the years ended December 31, 2023, 2022 and 2021.

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

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

Upon each agreement’s commencement date, the Company determines if the agreement is part of an arrangement that is or that contains a lease, determines the lease classification and recognizes right-of-use assets and lease liabilities for all leases with the exception of leases with terms of 12 months or less.

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Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are recorded net on the face of the balance sheet.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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Equity-based compensation expense related to these equity-based awards is recognized based on the fair value of the awards granted.

We estimate the fair value of restricted stock unit awards granted based upon the closing price of our common stock on the grant date.

We estimate the fair value of stock option awards granted using the Black-Scholes option pricing model.

The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying shares of our common stock, the risk-free interest rate, the expected volatility of the price of our common stock, the expected dividend yield of our common stock and the expected term of the equity award.

The Company estimates the fair value of restricted stock unit awards granted based upon the closing price of the Company’s common stock on the grant date.

The Company estimates the fair value of stock option awards granted using the Black-Scholes option pricing model.

The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying shares of the Company’s common stock, the risk-free interest rate, the expected volatility of the price of the Company’s common stock, the expected dividend yield of the Company’s common stock and the expected term of the equity award.

The assumptions used to determine the fair value of the equity awards represent management’s best estimates.

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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.

If factors change and different assumptions are used, our equity-based compensation expense could be materially different in the future.

The Company accounts for forfeitures as they occur.

These assumptions and estimates are as follows:

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• Expected Volatility .

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.

Until the Company has sufficient trading history for its common stock, the expected volatility is estimated by taking the average historic stock price volatility for industry peers, consisting of several public companies in the Company’s 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.

The Company has never declared or paid any cash dividends and does not currently plan to pay cash dividends in the foreseeable future.

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

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For stock options, the expected term represents the period that a stock option award is expected to be outstanding.

We have limited historical exercise data from which to derive expected term input assumptions.

Consequently, we calculate expected term using the SEC simplified method whereby the expected term of a stock option award is equal to the average of the award's contractual term and vesting term.

We will continue to use judgment in evaluating the assumptions related to our equity-based compensation on a prospective basis.

The Company has limited historical exercise data from which to derive expected term input assumptions.

Consequently, the Company calculates expected term using the Securities and Exchange Commission’s simplified method whereby the expected term of a stock option award is equal to the average of the award's contractual term and vesting term.

The Company will continue to use judgment in evaluating the assumptions related to its equity-based compensation on a prospective basis.

Partnership Units Valuations

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

See Note 13, “Equity-based Compensation,” for additional information.

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dollars at the exchange rates in effect at the balance sheet date for assets and liabilities and an average rate for each period for revenues and expenses.

Translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in the consolidated statement of stockholders’ equity.

Translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in the consolidated statements of stockholders’ equity.

Transactions denominated in a currency other than the functional currency of the entity involved give rise to foreign currency remeasurement gains and losses, which are included in other expense on the consolidated statements of income.

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Revenue Recognition

Revenue is primarily derived from the sale of apparel merchandise through the Company’s online websites and stores and, when applicable, shipping revenue.

Revenue is primarily derived from the sale of apparel merchandise through the Company’s online websites, stores, third-party marketplaces and, when applicable, shipping revenue.

Revenue is recognized in an amount that reflects the consideration expected to be received in exchange for products.

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A returns reserve is recorded by the Company based on historical refund experience with a corresponding reduction of sales and cost of sales.

The returns reserve was $ 4.0 million and $ 6.9 million as of December 31, 2022 and 2021, respectively.

The sales return reserve was $ 9.6 million and $ 4.0 million as of December 31, 2023 and 2022, respectively.

The following table presents a summary of the Company’s sales return reserve:

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United States $ 315,496 $ 312,977 $ 270,028

Australia 226,929 218,563 67,850

Australia/New Zealand

202,777 268,873 265,365

Rest of world 27,985 29,888 26,798

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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, 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.

costs associated with the use by those functions of facilities and equipment, including depreciation, rent and other occupancy expenses;

professional services;

and amortization associated with the Company’s intangible assets, including acquired brand names, customer relationships and trademarks.

Other Expense, Net

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The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

The Company held cash in operating accounts as of December 31, 2022 and 2021.

Certain Risks and Concentrations

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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.

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

The Company has aggregated its operating segments into one reportable segment based on the similar nature of products sold, production, merchandising and distribution processes involved, target customers and economic characteristics.

Recently Adopted Accounting Pronouncements

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

Simplifying the Accounting for Income Taxes.

This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences.

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.

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 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.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

This standard requires disclosure of significant segment expenses and other segment items by reportable segment.

This ASU becomes effective for annual periods beginning in 2024 and interim periods in 2025.

The Company is assessing the impact of this ASU.

In December 2023, FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which will require incremental income tax disclosures on an annual basis for all public entities.

The amendments require that public business entities disclose specific categories in the rate reconciliation and provide additional information for reconciling items meeting a quantitative threshold.

The amendments also require disclosure of income taxes paid to be disaggregated by jurisdiction, and disclosure of income tax expense disaggregated by federal, state and foreign.

ASU 2023-09 is effective for annual reporting beginning with the fiscal year ending December 31, 2025.

The Company is currently evaluating the incremental disclosures that will be required in the Company’s consolidated financial statements.

Culture Kings

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The purchase price consisted of AUD $ 307.4 million ($ 235.9 million) in cash consideration and noncontrolling interest with a fair value of AUD $ 186.0 million ($ 142.7 million).

In connection with the IPO, the Company completed a series of transactions in which the minority investors exchanged their interests in CK Holdings for newly issued shares of a.k.a.

Brands Holding Corp.

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.

In connection with the IPO, the Company completed a series of transactions in which the minority investors exchanged their interests in CK Holdings for newly issued shares of the Company’s 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.

Culture Kings expanded the Company’s consumer market to include male consumers and further expanded the Company’s presence in the United States.

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:

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Key assumptions included discounted cash flow, estimated life cycle and customer attrition rates.

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.

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, which were $ 3.3 million.

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

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

See Note 6, “Goodwill,” for additional information about goodwill impairment.

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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In accordance with ASC 810, Consolidation , as this put right was redeemable outside of the Company’s control, the noncontrolling interest was classified outside the permanent equity section of the Company’s consolidated balance sheets prior to the IPO.

In connection with the IPO, the Company completed a series of transactions in which the CK Holdings minority investors exchanged their interests in CK Holdings for newly issued shares of a.k.a.

Brands Holding Corp.

common stock, thereby eliminating the noncontrolling interest classified outside of permanent equity.

In connection with the IPO, the Company completed a series of transactions in which the CK Holdings minority investors exchanged their interests in CK Holdings for newly issued shares of the Company’s common stock, thereby eliminating the noncontrolling interest classified outside of permanent equity.

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 statements of income for the years ended December 31, 2022 and 2021:

Year Ended December 31,

$ 226,369 $ 196,471

( 176,086 ) ( 5,899 )

For the year ended December 31, 2021, Culture Kings’ net sales of $ 196.5 million and a net loss of $( 5.9 ) million are included in the accompanying consolidated statements of income.

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:

Year Ended December 31, 2021

2022 2021 2020

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

Net income attributable to a.k.a.

Brands Holding Corp.

( 176,697 ) 16,781 9,238

Net income per share, basic and diluted:

$ ( 1.37 ) $ 0.17 $ 0.11

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

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On October 14, 2021, the Company acquired all of the equity interests of Third Estate LLC (“mnml”) for total consideration of $ 46.1 million, including cash consideration of $ 28.2 million, net of cash acquired of $ 0.6 million, and subject to working capital adjustments.

The remaining consideration of $ 17.3 million was paid in the form of 2,057,695 shares of a.k.a.

common stock.

The remaining consideration of $ 17.3 million was paid in the form of 171,474 shares of the Company’s common stock.

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

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

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

market and provides opportunities for customer cross-sell.

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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.

For the year ended December 31, 2021, mnml’s net sales of $ 11.6 million and net income attributable to the Company of $ 1.0 million are included in the accompanying consolidated statements of income.

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.

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 $ 1.3 million.

The goodwill arising from the acquisition consists largely of anticipated synergies related to combining mnml 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, which were $ 1.3 million.

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, “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.

common stock.

The number of shares issued in exchange for the minority interests was determined based on the relative valuations of CK Holdings and the consolidated a.k.a.

group at the time of the IPO.

Immediately following the New Excelerate Reorganization (as described in Note 1, “Organization and Description of Business”), the Company completed a series of transactions in which the CK Holdings minority investors exchanged their interests in CK Holdings for 1,817,483 newly issued shares of a.k.a.

Brands Holding Corp.’s common stock, as adjusted for the one-for-12 Reverse Stock Split.

The number of shares issued in exchange for the minority interests was determined based on the relative valuations of CK Holdings and a.k.a.

Brands Holding Corp.’s consolidated group at the time of the IPO.

This exchange resulted in the elimination of the noncontrolling interest in Culture Kings, with a value of $ 132.3 million , and an increase in additional paid-in capital with a nominal amount recorded as common stock at a value of $ 0.001 per issued share in the exchange.

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As a result of the transaction, noncontrolling interest of $ 9.6 million was eliminated and the $ 10.6 million paid in excess of the noncontrolling interest was recorded as a reduction to additional paid-in capital.

Following the completion of this purchase, P&P Holdings became a wholly-owned subsidiary of a.k.a.

Brands Holding Corp.

Following the completion of this purchase, P&P Holdings became a wholly-owned subsidiary of the Company.

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

Upon close of the transaction, the Company recorded a pre-tax loss of $ 1.0 million in other expense, net in its condensed consolidated statements of income in the first quarter of fiscal year 2023.

As part of the sale, the Company retained an 18 % economic interest in Rebdolls but retained no further rights related to Rebdolls.

Such investment was determined to have no value, as recovery of any amount was deemed remote.

Prepaid Expenses and Other Current Assets

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The carrying value of goodwill, as of December 31, 2023 and 2022, was $ 94.9 million and $ 167.7 million, respectively.

In August 2023, due to elevated interest rates and unfavorable demand in Australia, the Company reduced its forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

This reduction was identified as a triggering event and a subsequent quantitative test concluded that the carrying value of the Culture Kings and Petal & Pup reporting units exceeded their fair values as of August 31, 2023.

As a result, the Company recorded a non-cash goodwill impairment charge of $ 68.5 million during the third quarter of 2023.

As of December 31, 2023, $ 11.3 million of goodwill related to Petal & Pup remained on the consolidated balance sheet, while the goodwill related to Culture Kings was fully impaired.

Additionally, as of the testing date, the estimated fair value of the mnml reporting unit exceeded the carrying value by 1.4 % and the carrying value of the related goodwill was $ 30.0 million.

Holding all other assumptions used in the fair value measurement of the mnml reporting unit constant, a 2 % increase in the selected discount rate would result in impairment.

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 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 earnings forecasts and expectations for the Culture Kings and Rebdolls reporting units, driving the reduction in their fair values.

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.

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Balance as of December 31, 2021

Acquisitions (Note 3)

Changes in foreign currency translation

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10 years 6.9 years 84,023 7.9 years 84,278

Website design and software system

3 years 2.2 years 1,883

5 years 1.3 years 107 2.3 years 107

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Amortization of acquired intangible assets with finite useful lives is included in general and administrative expenses and was $ 11.5 million, $ 14.2 million and $ 13.9 million for the years ended December 31, 2023, 2022 and 2021, 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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Total amortization expense $ 64,322

Princess Polly Operating Line of Credit

The Company’s subsidiary Princess Polly had an operating line of credit (the “Polly Facility”) up to a maximum of $ 15.4 million, which was guaranteed by Polly Bidco Pty Ltd.

and Polly Holdco Pty Ltd, each subsidiaries of the Company.

(“Princess Polly Group”).

The assets of the Princess Polly Group were pledged as security under the Polly Facility.

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

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.

The Company repaid the outstanding balances under the Polly Facility in full and terminated it in February 2021.

Rebdolls Revolving Line of Credit

Rebdolls had a revolving line of credit for a maximum of $ 0.5 million with Bank of America, N.A.

The assets of Rebdolls were pledged as security under this line of credit.

As of December 31, 2020, Rebdolls had an outstanding balance of $ 0.2 million on the revolving line of credit.

The Company repaid the outstanding balances under the revolving line of credit in full on February 28, 2021, the date of its maturity, and terminated it.

Debt Financing for the Culture Kings Acquisition

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(“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).

Polly Holdco also issued $ 25.0 million in senior subordinated notes to certain debt funds of Summit, a related party of the Company (refer to Note 17, “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.

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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.

On September 24, 2021, in connection with the closing of the IPO, certain subsidiaries of the Company entered into a senior secured credit facility comprised 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.

The senior secured credit facility also allows for the issuance of one or more letters of credit from time to time by syndicate lenders.

Effective April 4, 2023, the Company modified its senior secured credit facility under existing contractual provisions to yield interest based on interest rates based on Term SOFR, as defined in the credit agreement for the senior secured credit facility (the “Credit Agreement”).

Key terms and conditions of each facility were as follows:

• The $ 100.0 million term loan matures five years after closing and requires the Company to make amortized annual payments of 5.0 % during the first and second years, 7.5 % during the third and fourth years and 10.0 % during the fifth year with the balance of the loan due at maturity.

Borrowings under the term loan accrue interest at LIBOR plus an applicable margin dependent upon our net leverage ratio.

The highest interest rate under the agreement occurs at a net leverage ratio of greater than 2.75 x, yielding an interest rate of LIBOR plus 3.25 %.

• The $ 50.0 million revolving line of credit, which matures five years after closing, accrues interest at LIBOR plus an applicable margin dependent upon our net leverage ratio.

The highest interest rate under the agreement occurs at a net leverage ratio of greater than 2.75 x, yielding an interest rate of LIBOR plus 3.25 %.

Borrowings under the term loan accrue interest at Term SOFR plus an applicable margin dependent upon our net leverage ratio, as defined in the Credit Agreement.

The highest interest rate under the agreement occurs at a net leverage ratio of greater than 2.75 x, yielding an interest rate of Term SOFR plus 3.25 %.

• The $ 50.0 million revolving line of credit, which matures five years after closing, accrues interest at Term SOFR plus an applicable margin dependent upon our net leverage ratio.

The highest interest rate under the Credit Agreement occurs at a net leverage ratio of greater than 2.75 x, yielding an interest rate of Term SOFR plus 3.25 %.

Additionally, a margin fee of 25 - 35 basis points is assessed on unused amounts under the revolving line of credit, subject to adjustment based on our net leverage ratio.

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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 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.

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 in 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 2.75 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 2.25 x.

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

As of December 31, 2023 , the Company was in compliance with all debt covenants.

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.

Of this, $ 0.9 million related to the revolving credit facility and was 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 related 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.

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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 %.

In October 2023 and November 2023, the Company borrowed $ 5.5 million and $ 6.0 million, respectively, under the revolving line of credit at an initial applicable interest rate of 8.70 % and 8.69 %, respectively, with final payoffs due on September 24, 2026.

During the year ended December 31, 2023, the Company voluntarily repaid all of the outstanding amount owed under its revolving line of credit and made an early prepayment of $ 5.1 million of the outstanding amount owed under its term loan in addition to required quarterly repayments.

As of December 31, 2023, the all-in rate (Term SOFR plus the applicable margin) for the Company’s term loan and borrowings under the revolving line of credit was 8.47 %.

Total Debt and Interest

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Total debt 93,394 143,649

Less current portion ( 5,600 ) ( 5,600 )

current portion

( 3,300 ) ( 5,600 )

Total long-term debt

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Interest expense, which included the amortization of debt issuance costs, totaled $ 11.2 million, $ 7.0 million and $ 9.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Additionally, as of December 31, 2023, the Company had $ 1.3 million of outstanding letters of credit.

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

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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:

Loss before income taxes consisted of the following:

Year Ended December 31,

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( 88,061 ) ( 173,028 ) ( 4,994 )

Income (loss) from continuing operations before income taxes

Loss before income taxes

$ ( 96,965 ) $ ( 180,614 ) $ ( 5,239 )

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

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

Year Ended December 31,

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Total ( 689 ) ( 4,122 ) ( 10,340 )

Income tax expense (benefit)

Provision for (benefit from) income taxes

$ 1,921 $ ( 3,917 ) $ 852

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

The (benefit from) provision 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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2023 2022 2021

Income tax expense (benefit) at U.S.

(Benefit from) provision for income taxes at U.S.

statutory rate

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Equity-based compensation

1,082 860 1,689

Goodwill impairment

21,444 51,990 —

Change in valuation allowance

Change in tax basis of Culture Kings’ inventory and intangibles

3 unchanged sentences

( 76 ) ( 1,191 ) ( 41 )

Income tax expense (benefit)

Provision for (benefit from) income taxes

$ 1,921 $ ( 3,917 ) $ 852

7 unchanged sentences

Lease liabilities 11,391 10,601

Asset retirement obligation

Foreign exchange gains / losses 1,078 150

Interest limitation

Loss carryforwards

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Deferred tax liabilities:

Property and equipment

Intangible assets ( 6,850 ) ( 8,372 )

1 unchanged sentence

( 11,472 ) ( 10,668 )

Other 85 ( 37 )

Foreign exchange gains / losses ( 200 ) —

Total deferred tax liabilities ( 20,949 ) ( 18,955 )

Net deferred assets (liabilities)

Net deferred assets

$ 1,569 $ 786

The Company had gross deferred tax assets of $ 34.7 million and $ 24.5 million and gross deferred tax liabilities of $ 20.9 million and $ 19.0 million at December 31, 2023 and 2022, respectively.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

When weighing all available evidence associated with the realizability of its deferred tax assets, in particular, uncertainties related to the future generation of taxable income, the recent negative trends in the Australian market and cumulative losses in the Australian market, the Company determined that it was not “more likely than not” that it would be able to realize the tax benefits associated with certain of its net deferred tax assets.

Based on this evaluation, a full valuation allowance of $ 11.8 million has been recorded on the net deferred tax assets in the Company’s Australian business.

Additionally, a full valuation allowance of $ 0.4 million has been recorded on the U.S.

capital loss carryforward related to the sale of Rebdolls in March 2023.

For the year ended December 31, 2023, the valuation allowance increased by $ 7.4 million, primarily due to incremental net operating losses in Australia that were not considered realizable.

As of December 31, 2023, the Company had a $ 26.0 million Australian net operating loss carryforward and a $ 15.8 million Australian capital loss carryforward, as well as a U.S.

capital loss carryforward of $ 1.7 million on the sale of Rebdolls.

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, 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.

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Sales tax payable

15,999 20,008

Accrued marketing costs

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$ 25,223 $ 39,806

Deferred Revenue

Deferred revenue consisted of the following:

$ 11,303 $ 10,829

Total deferred revenue

$ 11,782 $ 11,421

Equity-based Compensation

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The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units and other forms of equity and cash compensation.

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 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.

A total of 408,355 shares of the Company’s common stock, as adjusted for the one-for-12 Reverse Stock Split, 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 automatically increases on January 1 of each year 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.

On May 30, 2023, the Company’s stockholders approved an amendment to the 2021 Plan to increase the number of shares available for issuance under the 2021 Plan by 833,333 shares of the Company’s common stock, as adjusted for the one-for-12 Reverse Stock Split.

As of December 31, 2023, there were 1,456,396 shares reserved for issuance under the 2021 Plan, as adjusted for the one-for-12 Reverse Stock Split.

2021 Employee Stock Purchase Plan

In September 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Employee Stock Purchase Plan (the “ESPP”) which became effective in connection with the IPO.

The ESPP authorizes the issuance of shares of the Company’s common stock pursuant to purchase rights granted to employees.

The ESPP includes two components:

a “Section 423 Component” and a “Non-Section 423 Component.” The Section 423 Component is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code (the “Code”) and will be administered, interpreted and construed in a manner consistent with the requirements of Section 423 of the Code and is limited to employees of the Company located in the United States.

The Non-Section 423 Component will be granted pursuant to separate offerings designed to achieve tax, securities laws or other objectives for eligible employees of the Company located outside of the United States.

A total of 1,225,067 shares of the Company’s common stock were initially reserved for issuance under the ESPP.

The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022, by the lesser of 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 offering periods of the ESPP will be six months long and are anticipated to be offered twice per year.

A total of 102,088 shares of the Company’s common stock, as adjusted for the one-for-12 Reverse Stock Split, were initially reserved for issuance under the ESPP.

The number of shares reserved and available for issuance under the ESPP automatically increases on January 1 of each year 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.

As of December 31, 2023, there were 316,797 shares reserved for issuance under the ESPP, as adjusted for the one-for-12 Reverse Stock Split.

The offering periods of the ESPP are six months long and are anticipated to be offered twice per year.

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.

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

2018 Stock and Incentive Compensation Plan

Prior to the IPO, the 2018 Stock and Incentive Compensation Plan, as amended, (the “2018 Plan”) provided for the issuance of time-based incentive units and performance-based incentive units issued by Excelerate, L.P.

(the predecessor entity of a.k.a.

Prior to the IPO, the 2018 Stock and Incentive Compensation Plan, as amended (the “2018 Plan”), provided for the issuance of time-based incentive units and performance-based incentive units issued by Excelerate (the predecessor entity of a.k.a.

Brands Holding Corp.).

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.

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.

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

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

The total incentive pool size under the 2018 Plan was 16,475,735 units.

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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.

A summary of the Company's time-based stock option activity under the 2021 Plan was as follows:

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

In September 2023, an award, including 416,667 performance-based stock options (the “Bryett Award”), was issued to Wesley Bryett, a member of the Company’s board of directors, co-founder of Princess Polly and the Global CEO of Culture Kings.

This award expires after ten years , or upon the termination of Mr.

Bryett’s service to the Company, and includes four tranches of stock options that will vest and become exercisable based upon the achievement of various common stock price targets.

The weighted average exercise price for the options in the Bryett Award is $ 109.27 .

Each tranche of stock options has a different derived service period, the average of which is approximately 5.5 years.

As of December 31, 2023, no options issued as part of the Bryett Award had vested, the options held no intrinsic value, and total unrecognized compensation cost related to the Bryett Award was $ 1.1 million which is expected to be recognized over 5.2 years.

A summary of the Company's time-based stock option activity under the 2021 Plan for the years ended December 31, 2023, 2022 and 2021, as adjusted for the one-for-12 Reverse Stock Split, is as follows:

Number of Options

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Balance as of December 31, 2021

22,752 $ 114.00 9.73 $ —

Forfeited/Repurchased

2 unchanged sentences

Forfeited/Repurchased

( 2,468 ) 114.00

Balance as of December 31, 2023

2 unchanged sentences

22,503 82.70 8.05 —

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 years ended December 31, 2022 and 2021 were as follows, presented on a weighted-average basis:

As of December 31, 2023, there was $ 0.7 million of total unrecognized compensation cost related to unvested time-based stock options issued under the 2021 Plan, which is expected to be recognized over a weighted average period of 1.5 years.

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

Year Ended December 31, 2022

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

1 unchanged sentence

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:

A summary of the Company's RSU activity under the 2021 Plan for the years ended December 31, 2023, 2022 and 2021, as adjusted for the one-for-12 Reverse Stock Split, is as follows:

Number of Shares

2 unchanged sentences

76,290 $ 120.48

325,967 21.36

( 21,911 ) 118.20

Forfeited/Repurchased

Balance as of December 31, 2021

( 12,834 ) 116.40

Balance as of December 31, 2022

367,512 32.81

10 unchanged sentences

Time-Based Incentive Partnership Units

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

The following table summarizes time-based incentive unit activity under the 2018 Plan for the years ended December 31, 2023, 2022 and 2021:

Number of Units

5 unchanged sentences

( 2,511,311 ) 1.15 36.24

( 1,200,934 ) 0.47 1.02

Forfeited/Repurchased

Balance as of December 31, 2020

( 100,646 ) 0.46 21.96

2,079,417 0.90 6.36

( 2,351,230 ) 1.21 1.22

Forfeited/Repurchased

Balance as of December 31, 2022

7 unchanged sentences

As of December 31, 2023, there was $ 1.7 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 0.9 years.

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,

Risk free interest rate

0.16 % 0.24 %

Expected volatility

Expected dividend yield

Expected term

2.87 years 3.14 years

Performance-Based Incentive Units

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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.

The market condition is satisfied upon the initial investor in Excelerate receiving an aggregate return equal to three times its aggregate investment.

As of December 31, 2023, all outstanding performance-based incentive units had been fully expensed.

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

Number of Units

Weighted Average Grant Date Fair value

Weighted Average Participation Threshold

Aggregate Intrinsic Value

Balance as of December 31, 2019

2,322,372 $ 0.33 $ 1.02 $ 1,534

3,394,379 1.09 1.24

( 1,254,987 ) 0.30 1.01

Balance as of December 31, 2020

4,461,764 0.91 1.19 17,137

932,124 1.01 6.09

( 5,393,888 ) 0.93 2.04

Balance as of December 31, 2021

Vested as of December 31, 2021

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

During the year ended December 31, 2020, the Company entered into a transition agreement with a former executive whereby all unvested incentive units were forfeited upon her termination.

Pursuant to the terms of this transition agreement, the former executive retained 261,287 vested incentive units following her termination.

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.

During the year ended December 31, 2020, the Company entered into a transition agreement with a former executive whereby all unvested incentive units were forfeited upon their termination.

Pursuant to the terms of this transition agreement, the former executive retained 261,287 vested incentive units following their termination.

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.

1 unchanged sentence

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.

A summary of the Company's ESPP activity under the 2021 Plan for the years ended December 31, 2023 and 2022, as adjusted for the one-for-12 Reverse Stock Split, was as follows:

Year Ended December 31,

Shares purchased using ESPP purchase rights

39,050 12,348

Weighted average purchase price

$ 4.14 $ 18.36

Equity-Based Compensation Expense

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Holders of common stock are entitled to receive any dividends as may be declared from time to time by the Company’s board of directors.

Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share and a reconciliation of the weighted average number of shares outstanding:

On September 29, 2023, the Company effected a one-for-12 reverse stock split of its common stock (the “Reverse Stock Split”).

No fractional shares were issued in connection with the Reverse Stock Split and all holders of such fractional interests received cash equal to such fraction multiplied by the average of the closing sales prices of the Company’s common stock during the regular trading hours for the five consecutive trading days immediately preceding the effective date of the Reverse Stock Split, with such average closing sales prices being adjusted to give effect to the Reverse Stock Split.

All references in these financial statements to the Company’s outstanding common stock, including per share information, have been retrospectively adjusted to reflect the Reverse Stock Split.

Share Repurchase Program & Share Forfeitures

On May 25, 2023, the Company's board of directors approved a share repurchase program (the “Share Repurchase Program”).

Pursuant to the Share Repurchase Program, the Company was initially authorized to repurchase up to $ 2.0 million of shares of the Company’s common stock.

Subsequently, in 2023, the Company’s board of directors approved an additional repurchase capacity under the Share Repurchase Program of $ 3.0 million of shares of the Company’s common stock.

The timing of any repurchases by the Company and the actual number of shares repurchased are at the Company’s discretion, and, in deciding when to repurchase shares and the amount of shares to repurchase, the Company will consider available liquidity, general market and economic conditions, alternate uses for the capital and other factors.

Share repurchases may be made from time to time through a Rule 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements.

The Share Repurchase Program may be suspended or discontinued at any time and has no expiration date.

All repurchased shares under the Share Repurchase Program will be retired.

Additionally, from time to time, the Company’s employees may surrender shares of the Company’s common stock to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares of common stock issued under the 2021 Plan.

With respect to these surrendered shares, the price paid per share is based on the fair value at the time of surrender.

During the year ended December 31, 2023, inclusive of repurchases under the Share Repurchase Program and shares surrendered by employees to satisfy tax obligations, the Company repurchased 348,468 shares of its common stock for $ 2.3 million, at an average price of $ 6.72 per share.

Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share and a reconciliation of the weighted average number of shares outstanding:

Year Ended December 31,

2023 2022 2021

Net income (loss) attributable to a.k.a.

Net loss attributable to a.k.a.

Brands Holding Corp.

2 unchanged sentences

10,707,024 10,726,392 7,769,281

Net income (loss) per share:

Net income (loss) per share, basic and diluted

Net loss per share:

Net loss per share, basic and diluted

$ ( 9.24 ) $ ( 16.47 ) $ ( 0.77 )

2 unchanged sentences

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 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.

1 unchanged sentence

for the period by the weighted-average number of shares of common stock for the period.

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.

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 issuable upon exercise and/or vesting of potentially dilutive stock option and RSU grants, as well as ESPP purchase rights, 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 all periods shown, no potentially dilutive securities had an impact on diluted loss per share for any period.

For the years ended December 31, 2023, 2022 and 2021, 333,327 , 112,904 and 6,535 shares, respectively, were excluded from the calculation of weighted-average diluted common shares outstanding as they had an anti-dilutive effect.

15 unchanged sentences

The Company has evaluated subsequent events occurring through March 7, 2024, 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.

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.

Draw on Revolving Line of Credit

On January 30, 2024, the Company borrowed $ 9.5 million under the revolving line of credit, which is part of the Company’s senior secured credit facility.

The initial applicable interest rate for the borrowings is 8.45 % and final payoff is due on September 24, 2026.

On February 12, 2024, the Company borrowed $ 7.0 million under the revolving line of credit, which is part of the Company’s senior secured credit facility.

The initial applicable interest rate for the borrowings is 8.43 % and final payoff 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