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Acquisition | 6 Months Ended
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Jun. 30, 2022
Business Combinations [Abstract] |
Acquisitions | 10. ACQUISITION 2021 Acquisitions Healing Solutions On February 2, 2021 (the “Closing Date”), the Company entered into and closed the Asset Purchase Agreement with Healing Solutions, LLC (“Healing Solutions”). Pursuant to the Asset Purchase Agreement, the Company purchased and acquired certain assets of Healing Solutions (the “Healing Solutions Assets”) related to Healing Solutions’ retail and e-commerce business under the Healing Solutions’ brands, Tarvol, Sun Essential Oils and Artizen (among others), which primarily sells essential oils through Amazon and other marketplaces (the “Asset Purchase”). The Asset Purchase was accounted for as a business combination using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As consideration for the Asset Purchase, the Company (i) paid to Healing Solutions $15.3 million in cash (the “Cash Purchase Price”), and (ii) issued 1,387,759 shares of common stock to Healing Solutions, the cost basis of which was the closing price per share of the common stock on the Closing Date. At the closing (the “Closing”), the Company withheld $2.0 million of the Cash Purchase Price to serve as collateral for Healing Solutions’ payment of certain overdue trade payables to be released to Healing Solutions in accordance with the terms of the Asset Purchase Agreement. This amount was paid by the Company within 60 days of the Closing Date. In addition, Healing Solutions will be entitled to receive 170,042 shares of common stock (up to a maximum of 280,000 shares pursuant to certain terms and valuation at the measurement date) in respect of certain inventory. The shares will be issued to Healing Solutions following the final determination of inventory values pursuant to the terms of the Asset Purchase Agreement, which determination is expected to occur approximately nine to ten months following the Closing Date and such shares will be subject to vesting restrictions which will lapse on the date that is the one-year anniversary after the Closing Date. Pursuant to the terms of the Asset Purchase Agreement, Healing Solutions was required to use its commercially reasonable efforts to identify one or more suppliers of finished goods inventory of all SKUs that constitute assets acquired in the Asset Purchase (“New Suppliers”) and to initiate discussions with such New Suppliers for the purpose of negotiating new supply agreements between the Company or its affiliates, on the one hand, and the New Supplier, on the other hand, for the purchase of such SKUs following the Closing on terms acceptable to the Company in its sole discretion, acting reasonably. If, on or before the date that is 15 months after the Closing Date, an Earn-Out Consideration Event (as defined in the Asset Purchase Agreement) had occurred, then Healing Solutions was to be entitled to receive up to a maximum of 528,670 shares of common stock, which number of shares was subject to reduction in accordance with the terms of the Asset Purchase Agreement based on the time period within which the Earn-Out Consideration Event occurs. In November 2021, the Company issued 1.4 million shares of common stock in full settlement of the Earn-Out. As of December 31, 2021, there was no remaining earn-out liability related to Healing Solutions. See the discussion below under the heading Contingent Earn-Out Liability Considerations of this Note 10 for additional information. The following presents the allocation of purchase price to the assets acquired and liabilities assumed, based on the estimated fair values at acquisition date:
|  | Amount allocated |
|  | (in thousands) |
Cash purchase price |  | $ | 15,280 |
1,387,759 shares of Common Stock issued at the Closing |  |  | 39,454 |
Seller note for inventory |  |  | 5,285 |
Estimated earnout liability |  |  | 11,273 |
Total consideration to be paid |  | $ | 71,292 |
The amounts assigned to goodwill and major intangible asset classifications were as follows:
|  | Total |
|  | (in thousands) |
Inventory |  | $ | 8,215 |
Working Capital |  |  | 202 |
Trademarks (10 year useful life) |  |  | 22,900 |
Goodwill |  |  | 39,975 |
Net assets acquired |  | $ | 71,292 |
Goodwill is expected to be deductible for tax purposes. The goodwill is attributable to expected synergies resulting from integrating the Healing Solutions’ products into the Company’s existing sales channels. Squatty Potty Assets On May 5, 2021, the Company acquired the business of e-commerce and retail company Squatty Potty, LLC (“Squatty Potty”), a leading online seller of health and wellness products, in an asset purchase transaction. Currently, Squatty Potty products are sold in thousands of retail locations including Bed, Bath & Beyond, Walmart and Target. As consideration for Squatty Potty’s assets, the Company paid approximately $19.0 million in cash. The Company also paid approximately $1.1 million as consideration related to acquired inventory. In addition, and subject to the achievement of contribution margin metrics for the year-ended December 31, 2021, the Company agreed to pay Squatty Potty a maximum earn-out of approximately $4.0 million, payable in shares of common stock or cash at Squatty Potty’s discretion. The Company also agreed to pay Squatty Potty $8.0 million for transition services, payable in shares of common stock or cash at Squatty Potty’s discretion. See the discussion below under the heading Contingent Earn-Out Liability Considerations of this Note 10 for additional information. The following presents the allocation of purchase price to the assets acquired and liabilities assumed, based on the estimated fair values at acquisition date:
|  | Amount |
|  | allocated |
|  | (in thousands) |
Cash purchase price |  | $ | 19,040 |
Transition services payments |  |  | 8,231 |
Estimated earnout liability |  |  | 3,502 |
Total consideration |  | $ | 30,773 |
The amounts assigned to goodwill and major intangible asset classifications were as follows:
|  | Total |
|  | (in thousands) |
Inventory |  | $ | 1,471 |
Working Capital |  |  | 230 |
Trademarks (10 year useful life) |  |  | 6,500 |
Customer relationships |  |  | 5,700 |
Goodwill (1) |  |  | 16,872 |
Net assets acquired |  | $ | 30,773 |
(1) | Goodwill is expected to be deductible for tax purposes. The goodwill is attributable to expected synergies resulting from integrating the Squatty Potty products into the Company’s existing sales channel.
Photo Paper Direct On May 5, 2021, the Company closed the acquisition of all outstanding stock of e-commerce company Photo Paper Direct Ltd. (“Photo Paper Direct”), a leading online seller of printing supplies. As consideration for Photo Paper Direct’s stock, the Company paid approximately $8.3 million in cash and issued approximately 704,500 shares of the Company’s common stock. The Company also paid approximately $5.4 million in cash as consideration related to Photo Paper Direct’s inventory and other working capital assets, including cash on hand of approximately $3.0 million. In addition, and subject to the achievement of certain Adjusted EBITDA metrics by December 31, 2021, the Company agreed to issue to Photo Paper Direct a maximum earn-out of $6.0 million in cash and $2.0 million in the Company’s common stock. The earn-out was not achieved. See the discussion below under the heading Contingent Earn-Out Liability Considerations of this Note 10 for additional information. The following presents the allocation of purchase price to the assets acquired and liabilities assumed, based on the estimated fair values at acquisition date:
|  | Amount |
|  | allocated |
|  | (in thousands) |
Cash purchase price | $ |  | 8,293 |
704,548 shares of common stock issued |  |  | 11,075 |
Working capital adjustment |  |  | 5,338 |
Estimated earnout liability |  |  | 911 |
Total consideration | $ |  | 25,617 |
The amounts assigned to goodwill and major intangible asset classifications were as follows:
|  | Total |
|  | (in thousands) |
Inventory | $ |  | 2,846 |
PP&E |  |  | 86 |
Real Property |  |  | 848 |
Working Capital |  |  | 2,144 |
Trademarks (10 year useful life) |  |  | 5,400 |
Goodwill (1) |  |  | 15,774 |
Deferred tax liability (2) |  |  | (1,481 | )
Net assets acquired | $ |  | 25,617 |
| (1) | Estimate based on preliminary purchase price and most recent book values of tangible assets and prior to any deferred tax assets/liabilities. Subject to change based on the actual closing balance sheet and any purchase accounting adjustments. Goodwill is expected to be deductible for tax purposes. The goodwill is attributable to expected synergies resulting from integrating the Photo Paper Direct products into the Company’s existing sales channels.
| (2) | A measurement period adjustment was recorded that resulted in a deferred tax liability of $1.5 million, and corresponding increase in goodwill.
Pro Forma Information The Company had no acquisitions for the three and six months ended June 30, 2022. The following unaudited pro forma information illustrates the impact of the acquisitions on the Company’s net revenue for the three and six months ended June 30, 2021. The acquisitions are reflected in the following pro forma information as if the acquisitions had occurred on January 1, 2021.
|  | Three Months Ended June 30, 2021 |  |  | Six Months Ended June 30, 2021 |
|  | (in thousands) |
Net revenue as reported |  | $ | 68,188 |  |  | $ | 116,324 |
Healing Solutions net revenue (1) |  |  | — |  |  |  | 4,600 |
Squatty Potty net revenue (2) |  |  | 1,466 |  |  |  | 6,024 |
Photo Paper Direct net revenue (3) |  |  | 1,904 |  |  |  | 6,807 |
Net revenue pro forma |  | $ | 71,558 |  |  | $ | 133,755 |
Operating income (loss) as reported |  | $ | 4,468 |  |  | $ | (23,286 | )
Healing Solutions income (1) |  |  | — |  |  |  | 382 |
Squatty Potty income (2) |  |  | 301 |  |  |  | 1,772 |
Photo Paper Direct income (3) |  |  | 281 |  |  |  | 2,114 |
Operating loss pro forma |  | $ | 5,050 |  |  | $ | (19,018 | )
| (1) | In the accompanying condensed consolidated financial statements for the three and six months-ended June 30, 2021, net revenue, as reported, includes $11.7 million and $20.2 million of net revenue, respectively, from this acquisition. For the three and six months-ended June 30, 2021, operating income, as reported, includes $5.1 million and $6.4 million of operating income, respectively, from this acquisition.
| (2) | In the accompanying condensed consolidated financial statements for each of the three and six months-ended June 30, 2021, net revenue, as reported, includes $2.2 million of net revenue from this acquisition. For each of the three and six months-ended June 30, 2021, operating income, as reported, includes $0.7 million of operating income from this acquisition.
| (3) | In the accompanying condensed consolidated financial statements for each of the three and six months-ended June 30, 2021, net revenue, as reported, includes $3.1 million of net revenue from this acquisition. For each of the three and six months-ended June 30, 2021, operating income, as reported, includes $0.6 million of operating income from this acquisition.
The Company engaged a third-party valuation specialist to perform a valuation of the intangible assets acquired for all acquisitions. In performing the valuation, the Company’s management assessed the reasonableness of the projected financial information (“PFI”) by comparing it to the Company’s historical results and financial information for a peer group of the most similar public companies. Based on this review, the Company’s management determined the PFI is reasonable for business and intangible asset valuation purposes. Contingent Earn-Out Liability Considerations The Company reviews and re-assesses the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income. On December 1, 2020, the Company acquired the assets of leading e-commerce business brands Mueller, Pursteam, Pohl and Schmitt, and Spiralizer (the “Smash Assets”) for total consideration of (i) $25.0 million, (ii) 4,220,000 shares of common stock, the cost basis of which was $6.89 (closing stock price at closing of the transaction), of which 164,000 of such shares were issued to the sellers brokers and (iii) a seller note in the amount of $15.6 million, representing the value of certain inventory that the sellers had paid for but not yet sold as of the closing date. As part of the acquisition of the Smash Assets, the sellers of the Smash Assets are entitled to earn-out payments based on the achievement of certain contribution margin thresholds on certain products of the acquired business. Earn-out payments will be due to the sellers for year one, or calendar year 2021 in the first quarter of 2022, and year two, or calendar year 2022, will be due in the first quarter of 2023. For the year-ended December 31, 2021 (year one of the earn-out), the earn-out payment will be calculated based on the contribution margin generated on certain products for an amount equal to $1.67 for every $1.00 of such contribution margin that is greater than $15.5 million and less than or equal to $18.5 million. Such earn-out payment cannot exceed $5.0 million. In addition, during the year-ending December 31, 2022 (year two of the earn-out), for each $0.5 million of contribution margin generated on certain products in excess of $15.5 million, subject to a cap of $27.5 million, the sellers shall be entitled to receive an amount in cash equal to the value of 0.1 million shares of the Company’s common stock multiplied by the average of the volume-weighted-average closing price per share of the Company’s common stock, for the 30 consecutive trading days ending on December 31, 2022. As of December 31, 2021, the fair value amount of the earn-out payment was appropriately $5.2 million. As of June 30, 2022, the fair value amount of the earn-out payment with respect to the Smash Assets was approximately $0.8 million, representing a net change of fair value impact of approximately $4.5 million for six months-ended June 30, 2022. As part of the acquisition of the Healing Solutions Assets, Healing Solutions was entitled to earn-out payments based on the achievement of certain contribution margin thresholds on certain products of the acquired business. If the earn-out consideration event occurred: (i) prior to the date that is nine months following the Closing Date, the Company will issue 528,670 shares of its common stock to Healing Solutions; (ii) on or after the date that is nine months following the Closing Date but before the date that is 12 months following the Closing Date, the Company was to issue 396,502 shares of common stock to Healing Solutions; or (iii) on or after the date that is 12 months following the Closing Date but before the date that is 15 months following the Closing Date (the date that is 15 months following the Closing Date, the “Earn-Out Termination Date”), the Company was to issue 264,335 shares of common stock to Healing Solutions; or after 15 months, the Company would not have any obligation to issue any shares of its common stock to Healing Solutions. As of February 2, 2021, the acquisition date, the initial fair value amount of the earn-out payment with respect to the Healing Solutions Assets was appropriately $16.5 million. In November 2021, the Company issued 1.4 million shares of common stock in full settlement of the earn-out. As of December 31, 2021 there is no remaining earn-out liability related to Healing Solutions. As part of the acquisition of the Squatty Potty Assets, Squatty Potty is entitled to earn-out payments based on the achievement of certain contribution margin thresholds on certain products of the acquired business. If the earn-out consideration event occurs in 12 months ended December 31, 2021, the maximum payment amount is $3.9 million and if the termination of the transition service agreement is prior to the date that is nine months following the Closing Date, an additional $3.9 million. As of May 5, 2021, the acquisition date, the initial fair value amount of the earn-out payment with respect to the Squatty Potty Assets was appropriately $3.5 million. As of June 30, 2022, there is no remaining earn-out liability related to Squatty Potty. As of May 5, 2021, the acquisition date of Photo Paper Direct Ltd. (“Photo Paper Direct”), the initial fair value amount of the earn-out payment with respect to the Photo Paper Direct acquisition was appropriately $0.9 million. As of December 31, 2021, the fair value amount of the earn-out payment with respect to the Photo Paper Direct acquisition was approximately $0.0 million as the earnout was not achieved. The following table summarizes the changes in the carrying value of estimated contingent earn-out liabilities (in thousands) as of December 31, 2021 (in thousands):
|  | December 31, 2021 |
|  | Smash Assets |  |  | Healing Solutions |  |  | Squatty Potty |  |  | Photo Paper Direct |  |  | Total |
Balance—January 1, 2021 |  | $ | 22,531 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 22,531 |
Acquisition date fair value of contingent earn-out liabilities and inventory to be settled in shares |  |  | — |  |  |  | 16,558 |  |  |  | 3,502 |  |  |  | 911 |  |  |  | 20,971 |
Change in fair value of contingent earn-out liabilities |  |  | (17,291 | ) |  |  | (12,808 | ) |  |  | 481 |  |  |  | (911 | ) |  |  | (30,529 | )
Payment of contingent earn-out liability (1) |  |  | — |  |  |  | (3,750 | ) |  |  | — |  |  |  | — |  |  |  | (3,750 | )
Balance—December 31, 2021 |  | $ | 5,240 |  |  | $ | — |  |  | $ | 3,983 |  |  | $ | — |  |  | $ | 9,223 |
(1) The $3.8 million payment relating to Healing Solutions earn-out was made with 1.4 million of the Company's common stock in November 2021. This resulted in a settlement charge of $4.2 million due to the difference of fair value of the shares issued on the settlement date versus the fair value of the earn-out on the date of the settlement. The following table summarizes the changes in the carrying value of estimated contingent earn-out liabilities (in thousands) as of June 30, 2022 (in thousands):
|  | June 30, 2022 |
|  | Smash Assets |  |  | Healing Solutions |  |  | Squatty Potty |  |  | Photo Paper Direct |  |  | Total |
Balance—December 31, 2021 |  | $ | 5,240 |  |  | $ | — |  |  | $ | 3,983 |  |  | $ | — |  |  | $ | 9,223 |
Change in fair value of contingent earn-out liabilities |  |  | (4,466 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,466 | )
Payment of contingent earn-out liability |  |  | — |  |  |  | — |  |  |  | (3,983 | ) |  |  | — |  |  |  | (3,983 | )
Balance—June 30, 2022 |  | $ | 774 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 774 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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