XML 32 R19.htm IDEA: XBRL DOCUMENT v3.21.2
Acquisition
9 Months Ended
Sep. 30, 2021
Business Combinations [Abstract]  
Acquisition

10. ACQUISITION

Healing Solutions

On February 2, 2021 (the “Closing Date”), the Company entered into and closed the Asset Purchase Agreement with 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 Acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 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 also 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 is 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 Purchaser 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) has occurred, then Healing Solutions shall be entitled to receive up to a maximum of 528,670 shares of Common Stock (the “Earn-Out Shares”), which number of shares is 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.

The following presents the preliminary allocation of purchase price to the assets acquired and liabilities assumed, based on the estimated fair values at acquisition date:

 

 

Amount

allocated

 

 

 

(in thousands, except share data)

 

Cash purchase price

 

$

15,280

 

1,387,759 shares of common stock issued

 

 

39,454

 

Estimated common share consideration for inventory

 

 

5,285

 

Estimated earnout liability

 

 

11,273

 

Total consideration

 

$

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.

 

Pro Forma Information

 

The following unaudited pro forma information illustrates the impact of the Healing Solutions Assets acquisition on the Company’s net revenue for the three and nine months ended September 30, 2020 and 2021. The acquisition of the Healing Solutions Assets is reflected in the following pro forma information as if the acquisition had occurred on January 1, 2020.

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

 

(in thousands)

 

 

(in thousands)

 

Net revenue as reported

 

$

58,783

 

 

$

68,121

 

 

$

144,212

 

 

$

184,446

 

Healing Solutions net revenue

 

 

22,942

 

 

 

 

 

 

61,014

 

 

 

4,600

 

Net revenue pro forma

 

$

81,725

 

 

$

68,121

 

 

$

205,226

 

 

$

189,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss) as reported

 

$

106

 

 

$

(7,527

)

 

$

(15,610

)

 

$

(30,812

)

Healing Solutions operating income

 

 

2,311

 

 

 

 

 

 

7,454

 

 

 

382

 

Operating income (loss) pro forma

 

$

2,417

 

 

$

(7,527

)

 

$

(8,156

)

 

$

(30,430

)

 

In the accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2021, net revenue as reported includes $6.8 million and $27.1 million of net revenue, respectively, from this acquisition. For the three and nine months ended September 30, 2021, operating income (loss) as reported, includes $1.1 million and $6.3 million of operating income, respectively, from this acquisition.

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 earnout 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.

The following presents the preliminary 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 channels.

Pro Forma Information

 

The following unaudited pro forma information illustrates the impact of the Squatty Potty acquisition on the Company’s net revenue for the three and nine months ended September 30, 2021 and 2020. The acquisition of the Squatty Potty Assets is reflected in the following pro forma information as if the acquisition had occurred on January 1, 2020.

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

 

(in thousands)

 

 

(in thousands)

 

Net revenue as reported

 

$

58,783

 

 

$

68,121

 

 

$

144,212

 

 

$

184,446

 

Squatty Potty net revenue

 

 

4,092

 

 

 

-

 

 

 

9,490

 

 

 

6,024

 

Net revenue pro forma

 

$

62,875

 

 

$

68,121

 

 

$

153,702

 

 

$

190,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss) as reported

 

$

106

 

 

$

(7,527

)

 

$

(15,610

)

 

$

(30,812

)

Squatty Potty operating income

 

 

1,230

 

 

 

-

 

 

 

3,998

 

 

 

1,772

 

Operating income (loss) pro forma

 

$

1,336

 

 

$

(7,527

)

 

$

(11,612

)

 

$

(29,040

)

 

In the accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2021, net revenue as reported includes $3.2 million and $5.4 million of net revenue, respectively, from this acquisition. For the three and nine months ended September 30, 2021, operating income (loss) as reported, includes $2.0 million and $2.8 million of operating income, respectively, from this acquisition.

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 earnout of $6.0 million in cash and $2.0 million in the Company’s common stock.

The following presents the preliminary 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)

 

 

14,293

 

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.

Pro Forma Information

 

The following unaudited pro forma information illustrates the impact of the Photo Paper Direct acquisition on the Company’s net revenue for the three and nine months ended September 30, 2021 and 2020. The acquisition of the Photo Paper Direct is reflected in the following pro forma information as if the acquisition had occurred on January 1, 2020.

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

 

(in thousands)

 

 

(in thousands)

 

Net revenue as reported

 

$

58,783

 

 

$

68,121

 

 

$

144,212

 

 

$

184,446

 

Photo Paper Direct net revenue

 

 

4,030

 

 

 

-

 

 

 

9,281

 

 

 

6,807

 

Net revenue pro forma

 

$

62,813

 

 

$

68,121

 

 

$

153,493

 

 

$

191,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss) as reported

 

$

106

 

 

$

(7,527

)

 

$

(15,610

)

 

$

(30,812

)

Photo Paper Direct operating income

 

 

935

 

 

 

-

 

 

 

2,026

 

 

 

2,114

 

Operating income (loss) pro forma

 

$

1,041

 

 

$

(7,527

)

 

$

(13,584

)

 

$

(28,698

)

 

 

In the accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2021, net revenue as reported includes $4.2 million and $7.2 million of net revenue, respectively, from this acquisition. For the three and nine months ended September 30, 2021, operating income (loss) as reported, includes $1.5 million and $2.1 million of operating income, respectively, 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. During the year-ending 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 1, 2020, the acquisition date, the initial fair value amount of the earn-out payment was appropriately $9.8 million. As of December 31, 2020, the fair value amount of the earn-out payment with respect to the Smash Assets was approximately $22.5 million, representing a change of fair value impact of approximately $12.7 million. As of September 30, 2021, the fair value amount of the earn-out payment with respect to the Smash Assets was approximately $18.2 million, representing a change of fair value impact of  $4.3 million for the nine months ended September 30, 2021.

As part of the acquisition of the Healing Solutions Assets, Healing Solutions 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: (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 will 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 will issue 264,335 shares of common stock to Healing Solutions; or after 15 months, the Company will 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. As of September 30, 2021, the fair value amount of the earn-out payment with respect to the Healing Solutions Assets was approximately $7.2 million, representing a change of fair value impact of approximately $9.4 million for nine months ended September 30, 2021.

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 ending December 31, 2021 and 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 September 30, 2021, the fair value amount of the earn-out payment with respect to the Squatty Potty Assets was approximately $4.0 million, representing a change of fair value impact of approximately $0.5 million for nine months ended September 30, 2021.

As of May 5, 2021, the acquisition date, the initial fair value amount of the earn-out payment with respect to the Photo Paper Direct was appropriately $0.9 million. As of September 30, 2021, the fair value amount of the earn-out payment with respect to the Photo Paper Direct Assets was approximately $2.2 million, representing a change of fair value impact of approximately $1.3 million for nine months ended September 30, 2021.

The following table summarizes the changes in the carrying value of estimated contingent earn-out liabilities (in thousands) as of September 30, 2021 (in thousands):

 

 

September 30, 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

 

 

(4,342

)

 

 

(9,408

)

 

 

538

 

 

 

1,263

 

 

 

(11,949

)

Earn-out payments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—September 30, 2021

 

$

18,189

 

 

$

7,150

 

 

$

4,040

 

 

$

2,174

 

 

$

31,553