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Significant Contracts

9 Months Ended

Sep. 30, 2023

Significant Contracts and Concentrations

4. Significant Contracts and Concentrations

Halston Master License

On May 15, 2023, the Company, through its subsidiaries, H Halston, LLC and H Heritage Licensing, LLC (collectively, the “Licensor”), entered into a master license agreement relating to the Halston Brand (the “Halston Master License”) with an industry-leading wholesale apparel company, for men’s and women’s apparel, men’s and women’s fashion accessories, children’s apparel and accessories, home, airline amenity and amenity kits, and such other product categories as mutually agreed upon. The Halston Master License provides for an upfront cash payment and royalties payable to the Company, including certain guaranteed minimum royalties, includes significant annual minimum net sales requirements, and has a twenty-five-year term (consisting of an initial five-year period, followed by a twenty-year period), subject to the licensee’s right to terminate with at least 120 days’ notice prior to the end of each five-year period during the term. The licensee has an option to purchase the Halston Brand for $5.0 million at the end of the twenty-five-year term, which right may be accelerated under certain conditions associated with an uncured material breach of the Halston Master License in accordance with the terms of the Halston Master License. The Licensor granted to the licensee a security interest in the Halston trademarks to secure the Licensor’s obligations under the Halston Master License, including to honor the obligations under the purchase option.

As a result of the upfront cash payment and guaranteed minimum royalties discussed above, the Company has recognized $4.67 million of deferred revenue contract liabilities on its condensed consolidated balance sheet as of September 30, 2023 related to this contract, of which $0.89 million was classified as a current liability and $3.78 million was classified as a long-term liability. The balance of the deferred revenue contract liabilities will be recognized ratably as revenue over the next 5.25 years. Net licensing revenue recognized from the Halston Master License was $0.65 million and $0.98 million for the current quarter and current nine months, respectively representing approximately 25% and 6% of the Company’s total net revenue for the current quarter and current nine months, respectively.

Additionally, in connection with the Halston Master License, the Company issued to the licensee a ten-year warrant to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $1.50 per share, which vests based upon certain annual royalty targets being satisfied under the license agreement. The fair value of this warrant will be recognized as a reduction of revenue over the term of the related license agreement, with an offsetting increase to stockholders’ equity as additional paid-in capital. The amount of contra-revenue recorded related to this warrant during the current quarter and current nine months was approximately $0.02 million. As of September 30, 2023, no portion of this warrant had vested.

Qurate Agreements

Under the Company’s agreements with Qurate Retail Group (“Qurate”), collectively referred to as the Qurate Agreements, Qurate is obligated to make payments to the Company on a quarterly basis, based primarily upon a percentage of net retail sales of certain specified branded merchandise. Net retail sales are defined as the aggregate amount of all revenue generated through the sale of the specified branded products by Qurate and its subsidiaries under the Qurate Agreements, net of customer returns, and excluding freight, shipping and handling charges, and sales, use, or other taxes. Net licensing revenue from the Qurate Agreements represents a significant portion of the Company’s total net revenue.

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Net licensing revenue from the Qurate Agreements totaled $1.61 million and $1.40 million for the current quarter and prior year quarter, respectively, representing approximately 61% and 31% of the Company’s total net revenue for the current quarter and prior year quarter, respectively.

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Net licensing revenue from the Qurate Agreements totaled $4.90 million and $10.47 million for the current nine months and prior year nine months, respectively, representing approximately 32% and 48% of the Company’s

total net revenue for the current nine months and prior year nine months, respectively. The prior year nine months included revenues from Qurate Agreement related to the Isaac Mizrahi Brand; such agreement was assigned to IM Topco on May 31, 2022.

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As of September 30, 2023 and December 31, 2022, the Company had receivables from Qurate of $1.6 million and $0.9 million, respectively, representing approximately 34% and 17% of the Company’s total net accounts receivable, respectively.