# Aterian, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Aterian, Inc.](/companies/ater.md) (CIK 1757715)
- Form: 10-Q
- Filed: 2022-11-09
- Accepted by EDGAR: Nov 9, 2022, 21:37 ET
- Period: 2022-09-30
- Accession: 0000950170-22-023937
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1757715/000095017022023937/ater-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1757715/000095017022023937/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $66.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $166.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $36.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $81.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $30.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $85.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $1.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $4.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$108.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$155.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $904.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $2.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | −$75.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | −$243.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$116.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$176.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$1.81 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$2.78 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$1.81 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$2.78 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 64,648,650 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 63,397,196 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$19.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2022-09-30 | $26.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $101.8m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $161.5m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $60.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $62.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $99.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 88,858 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2022. As discussed in the section titled “Special Note Regarding Forward-Looking Statements”, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified in the section titled “Special Note Regarding Forward Looking Statements” and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q.*

*Unless the context otherwise requires, the terms “Aterian,” the “Company,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q refer to Aterian, Inc. and our consolidated subsidiaries, including Aterian Group, Inc.*

### Overview

We are a technology-enabled consumer products platform that uses “data science” (which includes machine learning, natural language processing, and data analytics) to design, develop, market and sell products. We were founded on the premise that if a company selling consumer packaged goods was founded today, it would apply data science, the synthesis of massive quantities of data and the use of social proof to validate high caliber product offerings as opposed to over-reliance on brand value and other traditional marketing tactics. Today, we predominantly operate through online retail channels such as Amazon.com (“Amazon”) and Walmart.com (“Walmart”).

We have launched and sold hundreds of SKUs on e-commerce platforms. Through the success of a number of those products we have incubated our own brands. We also have purchased brands and products when we believe it is advantageous. Today, we own and operate brands that sell products in multiple categories, including home and kitchen appliances, kitchenware, heating, cooling and air quality appliances (dehumidifiers, humidifiers and air conditioners), health and beauty products and essential oils. Our brands include among others, hOmeLabs; Vremi; Squatty Potty; Xtava; RIF6; Aussie Health; Holonix; Truweo; Mueller; Pursteam; Pohl and Schmitt; Spiralizer; Healing Solutions; and Photo Paper Direct.

### Seasonality of Business and Product Mix

Our individual product categories are typically affected by seasonal sales trends primarily resulting from the timing of the summer season for certain of our environmental appliance products and the fall and holiday season for our small kitchen appliances and accessories. With our current mix of environmental appliances, the sales of those products tend to be significantly higher in the summer season. Further, our small kitchen appliances and accessories tend to have higher sales during the fourth quarter, which includes Thanksgiving and the December holiday season. As a result, our operational results, cash flows, cash and inventory positions may fluctuate materially in any quarterly period depending on, among other things, adverse weather conditions, shifts in the timing of certain holidays and changes in our product mix.

Each of our products typically goes through the Launch phase and depending on its level of success is moved to one of the other phases as further described below:

i. Launch phase: During this phase, we leverage our technology to target opportunities identified using AIMEE (Artificial Intelligence Marketplace e-Commerce Engine) and other sources. This phase also includes revenue from new product variations and relaunches. During this period of time, due to the combination of discounts and investment in marketing, our net margin for a product could be as low as approximately negative 35%. Net margin is calculated by taking net revenue less the cost of goods sold, less fulfillment, online advertising and selling expenses. These costs primarily reflect the estimated variable costs related to the sale of a product.

ii. Sustain phase: Our goal is for every product we launch to enter the sustain phase and become profitable, with a target average of positive 15% net margin, within approximately three months of launch on average. Net margin primarily reflects a combination of manual and automated adjustments in price and marketing spend.

iii.Liquidate phase: If a product does not enter the sustain phase or if the customer satisfaction of the product (i.e., ratings) is not satisfactory, then it will go to the liquidate phase and we will sell through the remaining inventory. Products can also be liquidated as part of inventory normalization especially when steep discounts are required.

To date, our operating results have included a mix of products in the launch and sustain phases, and we expect such results to include a mix of products in all phases at any given period. Product mix can affect our gross profit and the variable portion of our sales and distribution expenses. Ultimately, we believe that the future cash flow generated by our products in the sustain phase will outpace the amount that we will reinvest into launching new products, driving net revenue and profitability at the company level while we continue to invest in growth and technology. Due to the impact of the COVID-19 pandemic on the global supply chain, we have had to increase our inventory on hand to avoid disruption in sales. The unpredictability of container availability, space on vessels and shipping lead times, as well as associated manufacturing lead time, has caused us to secure more inventory upfront. Having more inventory on hand not only impacts our working capital but also requires us to increase our storage capacity, through our warehouse network, which of itself has a capital impact.

The following table shows the number of launches of new products included in our net revenue that have achieved, or are expected to achieve, more than approximately $0.5 million in net revenue per year on average.

|  | Three Months Ended September 30, 2021 | 2022 | Nine Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Launches of new products | — | 1 | 40 | 1 |

Our growth in direct revenue can be impacted by the timing and the season in which products are launched and any mergers or acquisitions. There was one new product launch in the nine months ended September 30, 2022.

Due to the COVID-19 pandemic’s impact on the global supply chain, we paused the launch of new products at full scale, although we may occasionally launch products if the conditions are right.

The sharp increase in shipping costs has made our target competitive pricing difficult to achieve during the second half of 2021 and throughout 2022 and the current unpredictability of shipping container availability, among other factors, makes it more difficult for us to maintain the required inventory levels, which in turn makes the potential and profitable success of product launches even more difficult to achieve in this current environment. As such, in 2022, we increased our inventory on hand levels for existing products to offset the unpredictability of shipping containers. The current macroeconomic conditions which includes high inflation, interest rate increases and general economic slow-down, has led us to reduce our short-term sales forecasts and causing our inventory onhand levels to be higher than desired (i.e. long inventory). As such, we have and continue to sell inventory at reduced margins to normalize inventory to appropriate levels. Although the current macroeconomic conditions have impacted our sales forecasts, we believe the global demand for goods is decreasing which has led to improvement in shipping container availability and costs. We believe shipping container costs and availability to improve further in 2023.

Although we believe our supply chain will improve in 2023, we have concerns about the impact of Russia’s invasion of Ukraine on our business including its effects on the global economy, the performance and cost of supply chain and financial markets. We will continue to evaluate the impacts of this, in addition to the impacts of rising inflation, interest rates and the general economic slow-down on our business. As such there are no assurances that the supply chain will indeed improve in 2023 to our satisfaction.

### Financial Operations Overview

***Net Revenue—***We derive our revenue from the sale of consumer products, primarily in the U.S. We sell products directly to consumers through online retail channels and through wholesale channels. Direct-to-consumer sales (i.e., direct net revenue), which is currently the majority of our revenue, is done through various online retail channels. We sell on Amazon.com, Walmart.com, and our own websites, with substantially all of our sales made through Amazon.com. For all of our sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when our performance obligation is satisfied), which typically occurs at the shipment date.

**Cost of Goods Sold—**Cost of goods sold consists of the book value of inventory sold to customers during the reporting period and the amortization of inventory step-up from acquisitions. Book value of inventory includes the amounts we pay manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from our manufacturers to our warehouses, as applicable. When circumstances dictate that we use net realizable value as the basis for recording inventory, we base our estimates on expected future selling prices, less expected disposal costs. The Office of the U.S. Trade Representative has imposed additional tariffs on products imported from China. We contract manufacturers, predominantly in China, through purchase orders, for our consumer products. As such, this exposes us to risks associated with doing business globally, including changes in tariffs, which impact a significant number of our products. We can provide no assurances that future tariff increases will not be enacted. These increases may affect the way we order products, as well as the amount of product we order. If tariff increases are enacted in the future, our pricing actions are expected to be intended to offset the full gross margin impact from such tariffs. Further, we have been affected by the COVID-19 pandemic and related global supply chain disruption. Together, these have led to substantial increases in the costs of our supply chain, specifically, increases in the costs of shipping containers, which we rely on to import our goods. We have increased pricing, when possible, to offset the full gross margin impact which at times has led to reduced sales velocity on certain products. There are no assurances that these pricing actions will not reduce customer orders in the future.

We increased our inventory on hand levels for existing products to offset the unpredictability of shipping containers. The current macroeconomic conditions which includes record inflation, interest rate increases and general economic slow-down, has led us to reduce our short-term sales forecasts and causing our inventory onhand levels to be higher than desired. As such, we have and continue to sell inventory at reduced margins to normalize inventory to appropriate levels. Although the current macroeconomic conditions have impacted our sales forecasts, we believe the global demand for goods is decreasing which has led to improvement in shipping container availability and costs. We believe shipping container costs and availability to improve further in 2023. Although we believe our supply chain will improve in 2023, we have concerns about the impact of Russia’s invasion of Ukraine on our business including its effects on the global economy, the performance and cost of supply chain and financial markets. We will continue to evaluate the impacts of this, the COVID-19 pandemic, rising inflation, interest rates and general economic slow-down on our business. As such, there are no assurances that the supply chain will indeed improve in 2023 to our satisfaction.

### Expenses

**Research and Development Expenses—**Research and development expenses include compensation and employee benefits for technology development employees, travel-related costs and fees paid to outside consultants related to the development of our intellectual property.

**Sales and Distribution Expenses—** Sales and distribution expenses consist of online advertising costs, marketing and promotional costs, sales and e-commerce platform commissions, fulfillment, including shipping and handling, and warehouse costs (i.e., sales and distribution variable expenses). Sales and distribution expenses also include employee compensation and benefits and other related fixed costs. Shipping and handling expenses are included in our consolidated statements of operations in sales and distribution expenses. This includes inbound, pick and pack costs and outbound transportation costs to ship goods to customers performed by e-commerce platforms or incurred directly by us, through our own direct fulfillment platform, which leverages AIMEE and our third-party logistics partners. Our sales and distribution expenses, specifically our logistics expenses and online advertising, will vary quarter to quarter as they are dependent on our sales volume, our product mix (i.e., products in the launch phase or sustain phase) and whether we fulfill products ourselves, i.e., fulfillment by merchant (“FBM”), or through e-commerce platform service providers, i.e., fulfillment by Amazon or fulfilled by Walmart. After a product launches and reaches the sustain phase, we seek to maintain the product within its targeted level of profitability. This profitability can be impacted as each product has a unique fulfillment cost due to its size and weight. As such, products with less expensive fulfillment costs as a percentage of net revenue may allow for a lower gross margin, while still maintaining their targeted profitability level. Conversely, products with higher fulfillment costs will need to achieve a higher gross margin to maintain their targeted level of profitability. We are FBM One Day and Two Day Prime certified, allowing us to deliver our sales through Amazon, to approximately 76% of the U.S., within one day and to over 99% of the U.S. within two days, based on our sales history. We continually review the locations and capacity of our third-party warehouses to ensure we have the appropriate geographic reach, which helps to reduce the average last mile shipping zones to the end customer and as such our speed of delivery improves while our shipping costs to customers decrease, prior to the impacts on shipping providers’ rates.

**General and Administrative Expenses—**General and administrative expenses include compensation and employee benefits for executive management, finance administration, legal and human resources, facility costs, insurance, travel, professional service fees, reserves related to litigation settlements and other general overhead costs, including the costs of being a public company.

**Interest Expense, Net—**Interest expense, net includes the interest cost from our credit facility and term loans, and includes amortization of deferred finance costs and debt discounts from our credit facility (the “Credit Facility”) with MidCap Funding IV Trust (“MidCap”) during the year ended December 31, 2021 and the three and nine months ended for September 30, 2022, and term loan interest with High Trail Investments SA LLC (“High Trail SA”) and High Trail Investments ON LLC (“High Trail ON” and, together with High Trail SA, “High Trail”) during the year ended December 31, 2021.

### Results of Operations

### Comparison of the Three Months Ended September 30, 2021 and 2022

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2022, together with the changes in those items in dollars and percentages:

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| NET REVENUE | $68,121 | $66,326 | $(1,795) | (2.6)% |
| COST OF GOODS SOLD | 33,946 | 36,135 | 2,189 | 6.4 |
| GROSS PROFIT | 34,175 | 30,191 | $(3,984) | (11.7) |
| OPERATING EXPENSES: |  |  |  |  |
| Sales and distribution expenses (1) | 32,337 | 33,792 | 1,455 | 4.5 |
| Research and development expenses (1) | 2,767 | 1,706 | (1,061) | (38.3) |
| General and administrative expenses (1) | 10,843 | 10,369 | (474) | (4.4) |
| Impairment loss on goodwill | — | 90,921 | 90,921 | 100.0 |
| Impairment loss on intangibles | — | 3,118 | 3,118 | 100.0 |
| Change in fair value of contingent earn-out liabilities | (4,245) | (774) | 3,471 | 81.8 |
| TOTAL OPERATING EXPENSES: | 41,702 | 139,132 | 97,430 | 233.6 |
| OPERATING LOSS | (7,527) | (108,941) | (101,414) | (1,347.3) |
| INTEREST EXPENSE—net | 2,786 | 904 | (1,882) | (67.6) |
| LOSS ON INITIAL ISSUANCE OF EQUITY | — | 12,834 | 12,834 | 100.0 |
| CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY | 1,360 | — | (1,360) | (100.0) |
| LOSS ON EXTINGUISHMENT OF DEBT | 106,991 | — | (106,991) | (100.0) |
| CHANGE IN FAIR VALUE OF WARRANT LIABILITY | (8,134) | (5,528) | 2,606 | 32.0 |
| OTHER EXPENSE | 5 | (174) | (179) | (3,580.0) |
| LOSS BEFORE INCOME TAXES | (110,535) | (116,977) | (6,442) | (5.8) |
| PROVISION FOR INCOME TAXES | 21 | (75) | (96) | (457.1) |
| NET LOSS | $(110,556) | $(116,902) | $(6,346) | (5.7)% |

(1) Amounts include stock-based compensation expense as follows:

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: |
| Sales and distribution expenses | $2,444 | $999 |
| Research and development expenses | 1,776 | 511 |
| General and administrative expenses | 5,350 | 1,433 |
| Total stock-based compensation expense | $9,570 | $2,943 |

38

The following table sets forth the components of our results of operations as a percentage of net revenue:

|  | Three Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: |
| NET REVENUE | 100.0% | 100.0% |
| COST OF GOODS SOLD | 49.8% | 54.5% |
| GROSS PROFIT | 50.2% | 45.5% |
| OPERATING EXPENSES: |  |  |
| Sales and distribution expenses | 47.5% | 50.9% |
| Research and development expenses | 4.1% | 2.6% |
| General and administrative expenses | 15.9% | 15.6% |
| Impairment loss on goodwill | 0.0% | 137.1% |
| Impairment loss on intangibles | 0.0% | 4.7% |
| Change in fair value of contingent earn-out liabilities | (6.2)% | (1.2)% |
| TOTAL OPERATING EXPENSES: | 61.3% | 209.7% |
| OPERATING LOSS | (11.1)% | (164.2)% |
| INTEREST EXPENSE—net | 4.1% | 1.4% |
| LOSS ON INITIAL ISSUANCE OF EQUITY | 0.0% | 19.3% |
| CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY | 2.0% | 0.0% |
| LOSS ON EXTINGUISHMENT OF DEBT | 157.1% | 0.0% |
| CHANGE IN FAIR VALUE OF WARRANT LIABILITY | -11.9% | (8.3)% |
| OTHER EXPENSE | 0.0% | (0.3)% |
| LOSS BEFORE INCOME TAXES | -162.3% | (176.4)% |
| PROVISION FOR INCOME TAXES | 0.0% | (0.1)% |
| NET LOSS | (162.3)% | (176.3)% |

### Net Revenue

*Revenue by Product Categories:*

The following table sets forth our net revenue disaggregated by product categories:

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Direct | $66,075 | $63,796 | $(2,279) | (3.4)% |
| Wholesale/Other | 2,046 | 2,530 | 484 | 23.7% |
| Net revenue | $68,121 | $66,326 | $(1,795) | (2.6)% |

Net revenue decreased $1.8 million, or 2.6%, during the three months ended September 30, 2022 to $66.3 million, compared to $68.1 million for the three months ended September 30, 2021. The decrease in net revenue was primarily attributable to a decrease in direct net revenue of $2.3 million, or a 3.4% decrease. This was primarily due to softness in consumer demand partially offset by liquidation of higher priced excess inventory. Direct net revenue consists of both organic net revenue and net revenue from our mergers and acquisitions (“M&A”). For the three months ended September 30, 2022, organic revenue was $63.8 million and no revenue from our M&A businesses was recorded. For the three months ended September 30, 2021, organic revenue was $35.4 million and revenue from our M&A was $30.7 million. Our organic revenue increased by $28.4 million, or 80.2%, during the three months September 30, 2022, as compared to the three months ended September 30, 2021, as M&A net revenue has moved into organic net revenue after one year from purchase.

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: |
| Heating, cooling and air quality | $29,988 | $27,179 |
| Kitchen appliances | 8,084 | 10,504 |
| Health and beauty | 1,273 | 3,661 |
| Personal protective equipment | 1,298 | 516 |
| Cookware, kitchen tools and gadgets | 5,221 | 5,128 |
| Home office | 4,190 | 3,045 |
| Housewares | 10,418 | 8,787 |
| Essential oils and related accessories | 5,722 | 6,262 |
| Other | 1,927 | 1,244 |
| Total net revenue | $68,121 | $66,326 |

Heating, cooling and air quality accounted for $27.2 million in net revenue for the three months ended September 30, 2022 versus $30.0 million for the three months ended September 30, 2021, a decrease of $2.8 million primarily driven by reduced sales volume, which we attribute to reduced consumer demand from inflationary pressure on consumer spending, and increased sale prices due to global supply chain disruptions.

Kitchen appliances accounted for $10.5 million in net revenue for the three months ended September 30, 2022 compared to $8.1 million in net revenue for the corresponding period in 2021, an increase of $2.4 million primarily due to growth in our existing products.

Housewares accounted for $8.8 million in net revenue for the three months ended September 30, 2022 compared to 10.4 million in net revenue for the corresponding period in 2021, a decrease of $1.6 million primarily driven by reduced sales volume, which we attribute to reduced consumer demand from inflationary pressure on consumer spending, increased sale prices due to global supply chain disruptions and inventory shorts due to manufacturing delays.

Essential oils and related accessories accounted for $6.3 million in net revenue for the three months ended September 30, 2022 compared to $5.7 million in net revenue for the corresponding period in 2021, an increase of $0.5 million primarily due to growth in our existing products and new products obtained through M&A businesses.

### Cost of Goods Sold and Gross Profit

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of goods sold | $33,946 | $36,135 | $2,189 | 6.4% |
| Gross profit | $34,175 | $30,191 | $(3,984) | (11.7)% |

Cost of goods sold increased by $2.1 million, from $34.0 million for the three months ended September 30, 2021 to $36.2 million for the three months ended September 30, 2022 primarily by liquidation of high priced excess inventory. The increase in cost of goods sold was attributable to an increase of $12.7 million in cost of goods sold from our M&A businesses partially offset by a decrease of $12.9 million in cost of goods sold from our organic business.

Gross profit decreased from 50.2% for the three-months ended September 30, 2021 to 45.5% for the three months ended September 30, 2022. The decrease in gross profit was primarily due to the increase in shipping container costs and liquidation of high priced excess inventory during the three months ended September 30, 2022. We expect to see impacts in our gross margin for the rest of 2022, due to the cost of shipping containers and due to our expectation of liquidating high priced excess inventory for the remainder of 2022.

### Sales and Distribution Expenses

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales and distribution expenses | $32,337 | $33,792 | $1,455 | 4.5% |

Sales and distribution expenses, which included e-commerce platform commissions, online advertising and logistics expenses (i.e., variable sales and distribution expense), increased to $33.8 million for the three months ended September 30, 2022 from $32.3 million for the three months ended September 30, 2021. This increase is primarily attributable to our e-commerce platform commissions, online advertising, selling and logistics expenses increasing due to product mix and increased costs to $29.4 million in the three months ended September 30, 2022 as compared to $26.8 million in the prior period. This has been offset by a decrease in stock-based compensation expense of $1.4 million.

Our sales and distribution fixed costs (i.e. salary and office expenses) also increased to $3.3 million for the three months ended September 30, 2022 from $3.1 million for the three months ended September 30, 2021, primarily due to an increase in headcount expenses for branding, marketing and customer service.

As a percentage of net revenue, sales and distribution expenses increased to 50.9% for the three months ended September 30, 2022 from 47.5% for the three months ended September 30, 2021. E-commerce platform commissions, online advertising, selling and logistics expenses included within sales and distribution expenses, as a percentage of net revenue, were 44.4% for the three months ended September 30, 2022 as compared to 39.4% for the three months ended September 30, 2021. This increase in sales and distribution expenses is predominantly due to product mix, an increase in e-commerce platform service provider fulfillment fees, and an increase in last mile shipping costs, specifically for oversized goods, due to the demand on those third-party providers’ delivery networks.

### Research and Development Expenses

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development expenses | $2,767 | $1,706 | $(1,061) | (38.3)% |

The decrease in research and development expenses was primarily attributable to a decrease of stock-based compensation expense of approximately $1.3 million.

### General and Administrative Expenses

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses | $10,843 | $10,369 | $(474) | (4.4)% |

The decrease in general and administrative expenses was primarily due to a decrease in stock compensation expense of $3.9 million partially offset by an increase in litigation settlements of $1.8 million, increase in legal costs of $0.9 million and inventory donations of $0.5 million.

### Impairment loss on goodwill

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Impairment loss on goodwill | $— | $90,921 | $90,921 | 100.0% |

We evaluated current economic conditions during the third quarter of 2022, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the inflationary pressure on product and labor costs and operational impacts attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses and determined that our goodwill was fully impaired as of September 30, 2022. As a result, we recorded a goodwill impairment charge of approximately $90.9 million in the three months ended September 30, 2022.

### Impairment loss on intangibles

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Impairment loss on intangibles | $— | $3,118 | $3,118 | 100.0% |

Certain asset groups experienced a significant decrease in sales and contribution margin through September 30, 2022. This was considered an interim triggering event for the three months ended September 30, 2022. Based on the analysis of comparing the undiscounted cash flow to the carrying value of the asset group, one group tested indicated that the assets may not be recoverable. For this asset group, we compared the fair value to the carrying amount of the asset group and recorded an intangible impairment charge of $3.1 million in the three months ended September 30, 2022.

### Change in fair value of contingent earn-out liabilities

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Change in fair value of contingent earn-out liabilities | $(4,245) | $(774) | $3,471 | (81.8)% |

The change in fair value of contingent earn-out liabilities was related to our M&A, which includes a re-assessment of the estimated fair value of contingent consideration as part of the purchase price, primarily driven by the fluctuation in our share price since the date of each acquisition and contribution margin projections.

### Interest expense, net

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense, net | $2,786 | $904 | $(1,882) | (67.6)% |

The decrease in interest expense, net, was primarily related to the payment of the High Trail loan in the prior period which had higher borrowings and interest rates compared to this current period which only includes our MidCap credit facility.

### Change in fair market value of warrant liability

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Change in fair market value of warrant liability | $(8,134) | $(5,528) | $2,606 | (32.0)% |

The change in fair market value of warrant liability during the three months ended September 30, 2022 was related to the change in fair market value of the warrant liabilities from the prefunded warrants and common stock warrants from our March 2022 equity raise as compared to the expense activity during the three months ended September 30, 2021, which was attributable to the issuance of the warrants in connection with the High Trail December 2020 Note and the February 2021 Note and related change in the fair value of warrant liability and loss on initial issuance of warrants for the prior period, which was primarily driven by the extinguishment of the warrants.

### Loss on initial issuance of equity

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Loss on initial issuance of equity | $— | $12,834 | $12,834 | 100.0% |

We recorded a charge related to the September 29, 2022 securities purchase agreement for common stock and associated warrants for the three months ended September 30, 2022 as we deemed the agreement non cancellable. The $12.8 million expense is derived from the anticipated fair-value of the issuances of equity attributable to the expected issuance of common shares and common stock warrants versus the anticipated proceeds to be received by us. We closed and issued the common stock and associated warrants on October 4, 2022.

### Comparison of the Nine Months Ended September 30, 2021 and 2022

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2022, together with the changes in those items in dollars and percentages:

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| NET REVENUE | $184,446 | $166,268 | $(18,178) | (9.9)% |
| COST OF GOODS SOLD | 91,464 | 81,118 | (10,346) | (11.3) |
| GROSS PROFIT | 92,982 | 85,150 | (7,832) | (8.4) |
| OPERATING EXPENSES: |  |  |  |  |
| Sales and distribution expenses (1) | 96,716 | 88,632 | (8,084) | (8.4) |
| Research and development expenses (1) | 7,220 | 4,582 | (2,638) | (36.5) |
| General and administrative expenses (1) | 31,807 | 29,481 | (2,326) | (7.3) |
| Impairment loss on goodwill | — | 119,941 | 119,941 | 100.0 |
| Impairment loss on intangibles | — | 3,118 | 3,118 | 100.0 |
| Change in fair value of contingent earn-out liabilities | (11,949) | (5,240) | 6,709 | 56.1 |
| TOTAL OPERATING EXPENSES: | 123,794 | 240,514 | 116,720 | 94.3 |
| OPERATING LOSS | (30,812) | (155,364) | (124,552) | (404.2) |
| INTEREST EXPENSE—net | 11,877 | 2,043 | (9,834) | (82.8) |
| GAIN ON EXTINGUISHMENT OF SELLER NOTE | — | (2,012) | (2,012) | (100.0) |
| LOSS ON INITIAL ISSUANCE OF EQUITY | — | 18,669 | 18,669 | 100.0 |
| CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY | 3,254 | — | (3,254) | (100.0) |
| LOSS ON EXTINGUISHMENT OF DEBT | 136,763 | — | (136,763) | (100.0) |
| CHANGE IN FAIR VALUE OF WARRANT LIABILITY | 26,455 | 2,365 | (24,090) | (91.1) |
| LOSS ON INITIAL ISSUANCE OF WARRANT | 20,147 | — | (20,147) | (100.0) |
| OTHER EXPENSE (INCOME) | 43 | (199) | (242) | (562.8) |
| LOSS BEFORE INCOME TAXES | (229,351) | (176,230) | 53,121 | 23.2 |
| PROVISION FOR INCOME TAXES | 64 | (243) | (307) | (479.7) |
| NET LOSS | $(229,415) | $(175,987) | $53,428 | 23.3% |

(1) Amounts include stock-based compensation expense as follows:

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: |
| Sales and distribution expenses | $4,968 | $4,228 |
| Research and development expenses | 3,880 | 1,418 |
| General and administrative expenses | 12,482 | 6,208 |
| Total stock-based compensation expense | $21,330 | $11,854 |

43

The following table sets forth the components of our results of operations as a percentage of net revenue:

|  | Nine Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: |
| NET REVENUE | 100.0% | 100.0% |
| COST OF GOODS SOLD | 49.6% | 48.8% |
| GROSS PROFIT | 50.4% | 51.2% |
| OPERATING EXPENSES: |  |  |
| Sales and distribution expenses | 52.4% | 53.3% |
| Research and development expenses | 3.9% | 2.8% |
| General and administrative expenses | 17.2% | 17.7% |
| Impairment loss on goodwill | 0.0% | 72.1% |
| Impairment loss on goodwill | 0.0% | 1.9% |
| Change in fair value of contingent earn-out liabilities | (6.5)% | -3.2% |
| TOTAL OPERATING EXPENSES: | 67.0% | 144.6% |
| OPERATING LOSS | (16.6)% | (93.4)% |
| INTEREST EXPENSE—net | 6.4% | 1.2% |
| GAIN ON EXTINGUISHMENT OF SELLER NOTE | 0.0% | (1.2)% |
| LOSS ON INITIAL ISSUANCE OF EQUITY | 0.0% | 11.2% |
| CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY | 1.8% | 0.0% |
| LOSS ON EXTINGUISHMENT OF DEBT | 74.1% | 0.0% |
| CHANGE IN FAIR VALUE OF WARRANT LIABILITY | 14.3% | 1.4% |
| LOSS ON INITIAL ISSUANCE OF WARRANT | 10.9% | 0.0% |
| OTHER EXPENSE (INCOME) | 0.0% | (0.1)% |
| LOSS BEFORE INCOME TAXES | (124.2)% | (106.0)% |
| PROVISION FOR INCOME TAXES | 0.0% | (0.1)% |
| NET LOSS | (124.3)% | (105.9)% |

### Net Revenue

*Revenue by Product Categories:*

The following table sets forth our net revenue disaggregated by product categories:

*(in thousands, except percentages)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Direct | $180,308 | $161,853 | $(18,455) | (10.2)% |
| Wholesale/Other | 4,138 | 4,415 | 277 | 6.7% |
| Net revenue | $184,446 | $166,268 | $(18,178) | (9.9)% |

Net revenue decreased $18.2 million, or 9.9%, during the nine months ended September 30, 2022 to $166.3 million, compared to $184.5 million for the nine months ended September 30, 2021. The decrease in net revenue was primarily attributable to a decrease in direct net revenue of $18.5 million, or a 10.2% which was due to softness in consumer demand partially offset by liquidation of higher priced excess inventory during the three months ended September 30, 2022.

Direct net revenue consists of both organic net revenue and net revenue from our M&A. For the nine months ended September 30, 2022, organic revenue was $149.6 million and revenue from our M&A businesses was $11.5 million. For the nine months ended September 30, 2021, organic revenue was $87.8 million and revenue from our M&A businesses was $92.7 million. Our organic revenue increased by $61.9 million, or 70.5%, during the nine months September 30, 2022, as compared to the nine months ended September 30, 2021, as M&A net revenue has moved into organic net revenue after one year from purchase.

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: |
| Heating, cooling and air quality | $62,968 | $56,835 |
| Kitchen appliances | 29,208 | 27,438 |
| Health and beauty | 6,736 | 12,452 |
| Personal protective equipment | 2,957 | 1,565 |
| Cookware, kitchen tools and gadgets | 16,867 | 14,229 |
| Home office | 7,710 | 10,077 |
| Housewares | 26,709 | 23,478 |
| Essential oils and related accessories | 23,017 | 17,102 |
| Other | 8,274 | 3,092 |
| Total net revenue | $184,446 | $166,268 |

Heating, cooling and air quality accounted for $56.8 million in net revenue for the nine months ended September 30, 2022 versus $63.0 million for the nine months ended September 30, 2021, a decrease of $6.2 million primarily driven by reduced sales volume, which we attribute to reduced consumer demand from inflationary pressure on consumer spending, increased sale prices due to global supply chain disruptions which has reduced our sales velocity and inventory shorts due to delayed receipt of goods.

Kitchen appliances accounted for $27.4 million in net revenue for the nine months ended September 30, 2022 compared to $29.2 million in net revenue for the corresponding period in 2021, a decrease of $1.8 million primarily driven by reduced sales volume, which we attribute to reduced consumer demand from inflationary pressure on consumer spending, increased sale prices due to global supply chain disruptions which has reduced our sales velocity and inventory shorts due to delayed receipt of goods.

Cookware, kitchen tools and gadgets accounted for approximately $14.2 million in net revenue for the nine months ended September 30, 2022 compared to $16.9 million in net revenue for the corresponding period in 2021, a decrease of $2.7 million primarily driven by reduced sales volume, which we attribute to reduced consumer demand from inflationary pressure on consumer spending, increased sale prices due to global supply chain disruptions which has reduced our sales velocity and inventory shorts due to delayed receipt of goods.

Home office products accounted for $10.1 million in net revenue for the nine months ended September 30, 2022 compared to $7.7 million in net revenue for the corresponding period in 2021, an increase of $2.4 million primarily due to growth in our existing products and new products obtained through M&A businesses.

Essential oils and related accessories accounted for $17.1 million in net revenue for the nine months ended September 30, 2022 compared to 23.0 million in net revenue for the corresponding period in 2021, a decrease of $5.9 million primarily driven by reduced sales volume, which we attribute to reduced consumer demand from inflationary pressure on consumer spending, increased sale prices due to global supply chain disruptions which has reduced our sales velocity, and increased sale prices due to global supply chain disruptions and inventory shorts due to manufacturing delays.

### Cost of Goods Sold and Gross Profit

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of goods sold | $91,464 | $81,118 | $(10,346) | (11.3)% |
| Gross profit | $92,982 | $85,150 | $(7,832) | (8.4)% |

Cost of goods sold decreased by $10.3 million, from $91.5 million for the nine months ended September 30, 2021 to $81.1 million for the nine months ended September 30, 2022 primarily from reduced sales volumes. The decrease in cost of goods sold was primarily attributable to a decrease of $34.8 million in cost of goods sold from our M&A businesses offset by an increase of $21.8 million in cost of goods sold from our organic businesses.

Gross profit improved from 50.4% for the nine months ended September 30, 2021 to 51.2% for the nine months ended September 30, 2022. The improvement in gross margin was due to a change of product mix as our net revenue increased from our M&A businesses, which have a higher gross margin than our organic business’ gross margin, offset by the impact of increased costs of our supply chain and liquidation of high priced excess inventory. The majority of our M&A businesses’ net revenue tends to be from smaller products that have higher gross margins versus our organic business’ net revenue, which tends to be oversized goods that have lower gross margins. We expect to see impacts in our gross margin for the rest of 2022, due to the cost of shipping containers and due to our expectation of liquidation of high priced excess inventory for the remainder of 2022.

### Sales and Distribution Expenses

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales and distribution expenses | $96,716 | $88,632 | $(8,084) | (8.4)% |

Sales and distribution expenses, which included e-commerce platform commissions, online advertising and logistics expenses (i.e., variable sales and distribution expense), decreased to $88.6 million for the nine months ended September 30, 2022 from $96.7 million for the nine months ended September 30, 2021. This decrease of $8.1 million is primarily attributable to the decrease in the volume of products sold in the nine months ended September 30, 2022, as our e-commerce platform commissions, online advertising, selling and logistics expenses decreased to $74.9 million in the nine months ended September 30, 2022 as compared to $77.9 million in the prior period.

Our sales and distribution fixed costs (i.e., salary and office expenses) also decreased to $9.5 million for the nine months ended September 30, 2022 from $13.9 million for the nine months ended September 30, 2021 as the prior period contains a $4.1 million bad debt reserve from a dispute with a certain PPE supplier. Sales and distribution expenses for the nine months ended September 30, 2022 included a decrease in stock-based compensation expense of $0.7 million.

As a percentage of net revenue, sales and distribution expenses increased to 53.3% for the nine months ended September 30, 2022 from 52.2% for the nine months ended September 30, 2021. E-commerce platform commissions, online advertising, selling and logistics expenses included within sales and distribution expenses, as a percentage of net revenue, were 45.1% for the nine months ended September 30, 2022 as compared to 42.2% for the nine months ended September 30, 2021. This increase in sales and distribution expenses is predominantly due to product mix, an increase in e-commerce platform service provider fulfillment fees, and an increase in last mile shipping costs, specifically for oversized goods, due to the demand on those third-party providers’ delivery networks. We expect to see these cost increases continue in the near-term.

### Research and Development Expenses

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development expenses | $7,220 | $4,582 | $(2,638) | (36.5)% |

The decrease in research and development expenses was primarily attributable to a decrease of stock-based compensation expense of approximately $2.5 million.

### General and Administrative Expenses

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses | $31,807 | $29,481 | $(2,326) | (7.3)% |

The decrease in general and administrative expenses was primarily due to a decrease in stock compensation expense of $6.3 million partially offset by an increase of $2.6 million related to the legal settlement (see Note 9 of our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional details) and $0.8 million in inventory donations.

### Impairment loss on goodwill

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Impairment loss on goodwill | — | 119,941 | 119,941 | 100.0 |

46

We evaluated current economic conditions during the third quarter of 2022, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the inflationary pressure on product and labor costs and operational impacts attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses and determined that our goodwill was fully impaired as of September 30, 2022. As a result, we recorded a goodwill impairment charge of approximately $90.9 million in the three months ended September 30, 2022. We also had a triggering event during the three months ended March 31, 2022 and recorded an impairment charge of $29.0 million. For the nine months ended September 30, 2022, total goodwill impairment was approximately $119.9 million.

### Impairment loss on intangibles

*(in thousands)*

|  | Three Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Impairment loss on intangibles | $— | $3,118 | $3,118 | 100.0% |

Certain asset groups experienced a significant decrease in sales and contribution margin through September 30, 2022. This was considered an interim triggering event for the nine months ended September 30, 2022. Based on the analysis of comparing the undiscounted cash flow to the carrying value of the asset group, one group tested indicated that the assets may not be recoverable. For this asset group, we compared the fair value to the carrying amount of the asset group and recorded an intangible impairment charge of $3.1 million in the nine months ended September 30, 2022.

### Change in fair value of contingent earn-out liabilities

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Change in fair value of contingent earn-out liabilities | $(11,949) | $(5,240) | $6,709 | (56.1)% |

The change in fair value of contingent earn-out liabilities was related to our M&A, which includes a re-assessment of the estimated fair value of contingent consideration as part of the purchase price, primarily driven by the fluctuation in our share price since the date of each acquisition and contribution margin projections.

### Interest expense, net

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense, net | $11,877 | $2,043 | $(9,834) | (82.8)% |

The decrease in interest expense was primarily related to the payment in the High Trail loan in the prior period which had higher borrowings and interest rates compared to this current period which only includes our MidCap credit facility.

### Gain on extinguishment of seller note

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Gain on extinguishment of seller note | $— | $(2,012) | $(2,012) | (100.0)% |

The gain on extinguishment of seller note in the nine months ended September 30, 2022 was attributable to the settlement of the Truweo seller note, which resulted in a $2.0 million in gain on extinguishment of seller note upon the extinguishment of the debt.

### Loss on initial issuance of equity

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Loss on initial issuance of equity | $— | $18,669 | $18,669 | 100.0% |

The loss on initial issuance of equity is attributable to the issuance of common shares and initial valuation of the prefunded warrants and common stock warrants from our March 2022 equity raise of $5.8 million in March 2022. Further, in September 2022, we recorded a charge related to the September 29, 2022 securities purchase agreement for common stock and associated warrants for the three months ended September 30, 2022 as we deemed the agreement non cancellable. The $12.8 million expense is derived from the anticipated fair-value of the issuances of equity attributable to the expected issuance of common shares and common stock warrants versus the anticipated proceeds to be received by us. We closed and issued the common stock and associated warrants on October 4, 2022.

### Change in fair market value of warrant liability

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Change in fair market value of warrant liability | $26,455 | $2,365 | $(24,090) | (91.1)% |

The change in fair market value of warrant liability during the nine months ended September 30, 2022 was related to the change in fair market value of the warrant liabilities from the prefunded warrants and common stock warrants from our March 2022 equity raise as compared to the expense activity in nine months ended September 30, 2021 was attributable to the issuance of the warrants in connection with the December 2020 Note and the February 2021 Note and related change in the fair value of warrant liability and loss on initial issuance of warrants for the nine months ended September 30, 2021, which was primarily driven by the extinguishment of the warrants.

### Derivative related to offering of common stock

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Derivative related to offering of common stock | $— | $14,797 | $14,797 | 100.0% |

On October 4, 2022, we issued and sold shares of common stock to the Purchasers. In connection with the offering, we recorded a derivative related to the offering of common stock and associated warrants for the three months ended September 30, 2022.

### Liquidity and Capital Resources

### Cash Flows for the Nine Months Ended September 30, 2021 and 2022

The following table provides information regarding our cash flows for the nine months ended September 30, 2021 and 2022, respectively:

*(in thousands)*

|  | Nine Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: |
| Cash used in operating activities | $(40,449) | $(19,541) |
| Cash used in investing activities | (44,887) | (29) |
| Cash provided by financing activities | 95,272 | 11,231 |
| Effect of exchange rate on cash | (434) | (936) |
| Net change in cash and restricted cash for period | $9,502 | $(9,275) |

#### Net Cash Used in Operating Activities

Net cash used in operating activities was $40.5 million for the nine months ended September 30, 2021, resulting from our net cash losses from operations of $15.9 million and cash usage from working capital of $24.5 million from changes in accounts receivable, purchases of inventory and insurance and payments of accounts payable.

Net cash used in operating activities was $19.5 million for the nine months ended September 30, 2022, resulting from our net cash losses from operations of $20.8 million partially offset by cash from working capital of $1.3 million.

#### Net Cash Used in Investing Activities

For the nine months ended September 30, 2021, net cash used in investing activities of $44.9 million was primarily for the acquisition of the assets from Healing Solutions, LLC for $15.3 million, the assets from Squatty Potty, LLC for $19.0 million and the acquisition of Photo Paper Direct Ltd. of $10.6 million.

For the nine months ended September 30, 2022, net cash used in investing activities was less than $0.1 million.

#### Net Cash Provided by Financing Activities

For the nine months ended September 30, 2021, cash provided by financing activities of $95.2 million was primarily from proceeds from borrowings from the High Trail April 2021 Notes of $110.0 million, proceeds from cancellation of a warrant of $16.9 million and proceeds from an equity offering of $36.7 million, offset by repayments of the High Trail December 2020 Note and February 2021 Note of $59.5 million, repayments of the High Trail April 2021 Note of $10.1 million and $9.2 million of repayments of notes issued to certain sellers in connection with our M&A activity.

For the nine months ended September 30, 2022, cash provided by financing activities of $11.9 million was primarily from proceeds from an equity offering of $27.0 million and borrowings from the Credit Facility of $107.7 million offset by $2.9 million of repayments of notes issued to certain sellers in connection with our M&A activity, repayments of the Credit Facility of $116.9 million and payment of the Squatty Potty assets of $4.0 million.

**Sources of Liquidity and Going Concern—**As of September 30, 2022, we had total cash and cash equivalents of $26.0 million and an accumulated deficit of $605.0 million. In addition, our net loss and net cash used in operating activities amounted to $176.0 million and $19.5 million, respectively, for the nine months ended September 30, 2022.

On September 29, 2022, the Company entered into a securities purchase agreement for 10,643,034 shares of common stock and accompanying warrants to purchase 10,643,034 shares of common stock for the gross proceeds of $20.2 million which were received upon closing on October 4, 2022. See Note 6.

As an emerging growth company, we have been dependent on outside capital through the issuance of equity to investors and borrowings from lenders (collectively “outside capital”) since our inception to execute our growth strategy of investing in organic growth at the expense of short-term profitably and investing in incremental growth through M&A (“M&A strategy”). In addition, our recent financial performance has been adversely impacted by the COVID-19 global pandemic and related global shipping disruption, in particular with respect to substantial increases in supply chain costs for shipping containers (See COVID-19 Pandemic and the Supply Chain below for additional details). As a result, we have incurred significant losses and will remain dependent on outside capital for the foreseeable future until such time that we can realize our strategy of growth by generating profits through our organic growth and M&A strategy, and reduce our reliance on outside capital.

Given the inherent uncertainties associated with executing our growth strategy, as well as the uncertainty associated with the ongoing COVID-19 global pandemic, recent record increases in inflation and related global supply chain disruption, we can provide no assurances that we will be able to obtain sufficient outside capital or generate sufficient cash from operations to fund our obligations as they become due over the next twelve months from the date these condensed consolidated financial statements were issued.

Since our inception, we have been able to successfully raise a substantial amount of outside capital to fund our growth strategy. However, as of September 30, 2022, we have had no firm commitments of additional outside capital from current or prospective investors or lenders. Furthermore, given the inherent uncertainties associated with our growth strategy, we may be unable to remain in compliance with the financial covenants required by the agreement governing our Credit Facility with MidCap (the “Midcap Credit Facility”) over the next twelve months. These uncertainties raise substantial doubt about our ability to continue as a going concern.

In order to alleviate substantial doubt, we plan to continue to closely monitor our operating forecast, pursue additional sources of outside capital, and pursue our M&A strategy. If we are (a) unable to improve our operating results, (b) obtain additional outside capital on terms that are acceptable to us to fund our operations and M&A strategy, and/or (c) secure a waiver or forbearance from the Lender if we are unable to remain in compliance with the financial covenants required by the MidCap Credit Facility, we may make significant changes to our operating plan, such as delaying expenditures, reducing investments in new products, delaying the development of our software, reducing our sale and distribution infrastructure or otherwise significantly reducing the scope of our business. Moreover, if we breach the financial covenants under the MidCap Credit Facility and fail to secure a waiver or forbearance from the lender, such breach or failure could accelerate the repayment of the outstanding borrowings under the MidCap Credit Facility or the exercise of other rights or remedies the lender may have under applicable law. We can provide no assurance a waiver or forbearance will be granted or the outstanding borrowings under the MidCap Credit Facility will be successfully refinanced on terms that are acceptable to us.

**COVID-19 Pandemic and the Supply Chain—** The full impact of the COVID-19 pandemic on our supply chain, including the impact associated with preventive and precautionary measures that we, other businesses and governments are taking, continues to evolve.

During 2022 to date, we continue to be impacted by the COVID-19 pandemic and related global shipping disruption. Together these have led to substantial increases in supply chain costs, in particular for shipping containers, which we rely on to import our goods, as reduced reliability and timely delivery of shipping containers and have substantially increased our last mile shipping costs on our oversized goods. These cost increases have been particularly substantial for oversized goods, which is a material part of our business. The reduced reliability and delivery of such shipping containers is forcing us to spend more on premium shipping to ensure goods are delivered, if at all, and the lack of reliability and timely delivery has further down chain impacts as it takes longer for containers to be offloaded and returned. Further, this global shipping disruption is forcing us to increase our inventory on-hand, including by advance ordering and taking possession of inventory earlier than expected, negatively impacting our working capital.

Third party last mile shipping partners, such as UPS and FedEx, continue to increase the cost of delivering goods to the end consumers as their delivery networks continue to be impacted by the COVID-19 pandemic. The COVID-19 pandemic continues to bring uncertainty to consumer demand as price increases related to raw materials, the importing of goods, including tariffs, and the cost of delivering goods to consumers has led to inflation across the U.S. As such, we have noticed changes in consumer buying habits, which may lead to further reduced demand for our products. Further, recent record inflation has added additional pressure to the cost of our supply chain. Furthermore, we have concerns about the impact of Russia’s invasion of Ukraine on our business including its effects on the global economy, the performance and cost of supply chain and financial markets. We will continue to evaluate the impacts of this.

We continue to consider the impact of the COVID-19 pandemic on our supply chain on the assumptions and estimates used when preparing our consolidated financial statements including inventory valuation, and the impairment of long-lived assets. These assumptions and estimates may change as the current situation evolves or new events occur, and additional information is obtained. If the economic conditions caused by the COVID-19 pandemic and the negative impact on our supply chain worsen beyond what is currently estimated by management, such future changes may have an adverse impact on our results of operations, financial position, and liquidity.

**MidCap Credit Facility – December 2021—**On December 22, 2021, we entered into the MidCap Credit Facility pursuant to which, among other things, (i) the lenders party thereto as lenders (the “Lenders”) agreed to provide a revolving credit facility in a principal amount of up to $50.0 million subject to a borrowing base consisting of, among other things, inventory and sales receivables (subject to certain reserves), and (ii) we agreed to issue to MidCap Funding XXVII Trust a warrant to purchase up to an aggregate of 200,000 shares of our common stock, in exchange for the Lenders extending loans and other extensions of credit to us under the MidCap Credit Facility.

On December 22, 2021, we used $27.6 million of the net proceeds from the initial borrowing under the MidCap Credit Facility to repay all amounts owed under those certain senior secured promissory notes issued by us to High Trail in an initial principal amount of $110.0 million, as amended. We expect to use the remaining proceeds of any loans under the MidCap Credit Facility for working capital and general corporate purposes.

The MidCap Credit Facility contains a financial covenant that requires that we maintain a minimum unrestricted cash balance or minimum borrowing availability of (a) $12.5 million during the period from February 1st through and including May 31st of each calendar year, and (b) $15.0 million of cash on hand at all other times thereafter. At our election, we may elect to comply with an alternative financial covenant that would require us to maintain a minimum borrowing availability under the MidCap Credit Facility of $10.0 million at all times. We are in compliance with the minimum liquidity covenant as of the date these condensed consolidated financial statements were issued and currently do not anticipate electing the alternative financial covenant over the next twelve months.

As of September 30, 2022, we had approximately $23.9 million outstanding on the MidCap Credit Facility and $4.0 million of availability on the MidCap Credit Facility.

**Securities Purchase Agreement and Warrants—**On March 1, 2022, we entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain accredited investors identified on the signature pages to the Purchase Agreements (collectively, the “Purchasers”) pursuant to which, among other things, we issued and sold to the Purchasers, in a private placement transaction, (i) 6,436,322 shares of our common stock (the “Shares”), par value $0.0001 per share (the “Common Stock”), and accompanying warrants to purchase an aggregate of 4,827,242 shares of common stock, and (ii) prefunded warrants to purchase up to an aggregate of 3,013,850 shares of common stock (the “Prefunded Warrants”) and accompanying warrants to purchase an aggregate of 2,260,388 shares of common stock. The accompanying warrants to purchase Common Stock are referred to herein collectively as the “Common Stock Warrants”, and the Common Stock Warrants and the Prefunded Warrants are referred to herein collectively as the “Warrants”. Under the Purchase Agreements, each Share and accompanying Common Stock Warrant were sold together at a combined price of $2.91, and each Prefunded Warrant and accompanying Common Stock Warrant were sold together at a combined price of $2.9099, for gross proceeds of approximately $27.5 million.

On September 29, 2022, we entered into securities purchase agreements (the “September Purchase Agreements ”) with certain accredited investors, pursuant to which, among other things, we agreed to sell and issue, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 10,643,034 shares of its Shares and accompanying warrants to purchase an aggregate of 10,643,034 shares of its common stock. 10,526,368 of the Shares and the accompanying warrants to purchase 10,526,368 shares of common stock were sold to certain accredited Purchasers that are not affiliated with us at a combined offering price of $1.90 per share and accompanying warrant to purchase one share of common stock. The remaining 116,666 of the Shares and the accompanying warrants to purchase 116,666 shares of common stock were sold to certain of our insiders, comprised of our President and Chief Executive Officer, Chief Financial Officer, Chief Legal Officer and Global Head of M&A and Chief Technology Officer , at a combined offering price of $2.10 per share and accompanying warrant to purchase one share of common stock.

The Registered Direct Offering closed on October 4, 2022 and the Company issued and sold an aggregate of 10,643,034 shares of common stock to the Purchasers. The gross proceeds to us from the Registered Direct Offering were approximately $20.2 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by us. We currently intend to use the net proceeds from the Registered Direct Offering for working capital purposes, the conduct of its business and other general corporate purposes, which may include acquisitions, investments in or licenses of complementary products, technologies or businesses.

Pursuant to the ASC 815-40, the September Purchase Agreement represents a legally binding contract that meets the definition of a firm commitment and as such we recorded a derivative related to the offering of common stock (“forward contract”) and associated warrants for the three months ended September 30, 2022. We also concluded both the forward contract and the warrants should be classified within stockholders’ equity within the condensed consolidated balance sheet as of September 30, 2022. Additionally, we recorded $12.8 million derivative expense derived from the excess of the fair-value of the issuances of equity of common shares and common stock warrants over the anticipated proceeds to be received by us. This expense was recorded in loss on initial issuance of equity on the condensed consolidated statement of operations for the nine months ended September 30, 2022.

### Non-GAAP Financial Measures

We believe that our financial statements and the other financial data included in this Quarterly Report on Form 10-Q have been prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the U.S. (“GAAP”). However, for the reasons discussed below, we have presented certain non-GAAP measures herein.

We have presented the following non-GAAP measures to assist investors in understanding our core net operating results on an on-going basis: (i) Contribution Margin; (ii) Contribution margin as a percentage of net revenue; (iii) EBITDA (iv) Adjusted EBITDA; and (v) Adjusted EBITDA as a percentage of net revenue. These non-GAAP financial measures may also assist investors in making comparisons of our core operating results with those of other companies.

As used herein, Contribution margin represents gross profit less amortization of inventory step-up from acquisitions (included in cost of goods sold) and e-commerce platform commissions, online advertising, selling and logistics expenses (included in sales and distribution expenses). As used herein, Contribution margin as a percentage of net revenue represents Contribution margin divided by net revenue. As used herein, EBITDA represents net loss plus depreciation and amortization, interest expense, net and provision for and benefit from income taxes. As used herein, Adjusted EBITDA represents EBITDA plus stock-based compensation expense, changes in fair-market value of earn-outs, amortization of inventory step-up from acquisitions (included in cost of goods sold), changes in fair-market value of warrant liability, professional fees and transition costs related to acquisitions, loss from extinguishment of debt, impairment of goodwill, loss on initial issuance of equity, litigation reserve and other expenses, net. As used herein, Adjusted EBITDA as a percentage of net revenue represents Adjusted EBITDA divided by net revenue. Contribution margin, EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to loss from operations or net loss, as determined under GAAP.

We present Contribution margin and Contribution margin as a percentage of net revenue, as we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to gross profit, provides useful supplemental information for investors. Contribution margin and Contribution margin as a percentage of net revenue are two of our key metrics in running our business. All product decisions made by us, from the approval of launching a new product and to the liquidation of a product at the end of its life cycle, are based on measurements primarily from Contribution margin and/or Contribution margin as a percentage of net revenue. Further, we believe these measures provide improved transparency to our stockholders to determine the performance of our products prior to fixed costs as opposed to referencing gross profit alone.

In the reconciliation to calculate contribution margin, we add e-commerce platform commissions, online advertising, selling and logistics expenses (“sales and distribution variable expense”), to gross margin to inform users of our financial statements of what our product profitability is at each period prior to fixed costs (such as sales and distribution expenses such as salaries as well as research and development expenses and general administrative expenses). By excluding these fixed costs, we believe this allows users of our financial statements to understand our products performance and allows them to measure our products performance over time.

We present EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue because we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to net loss, provide useful supplemental information for investors. We use these measures with financial measures prepared in accordance with GAAP, such as sales and gross margins, to assess our historical and prospective operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our operating performance and to compare our performance to that of our peers and competitors. We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue are useful to investors in assessing the operating performance of our business without the effect of non-cash items.

Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue should not be considered in isolation or as alternatives to net loss, loss from operations or any other measure of financial performance calculated and prescribed in accordance with GAAP. Neither EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue should be considered a measure of discretionary cash available to us to invest in the growth of our business. Our Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue may not be comparable to similar titled measures in other organizations because other organizations may not calculate Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue in the same manner as we do. Our presentation of Contribution margin and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from such terms or by unusual or non-recurring items.

We recognize that EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, have limitations as analytical financial measures. For example, neither EBITDA nor Adjusted EBITDA reflects:

- our capital expenditures or future requirements for capital expenditures or mergers and acquisitions;
- the interest expense or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;
- depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, or any cash requirements for the replacement of assets;
- changes in cash requirements for our working capital needs; or
- changes in fair value of contingent earn-out liabilities, warrant liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold).

Additionally, Adjusted EBITDA excludes non-cash expense for stock-based compensation, which is and is expected to remain a key element of our overall long-term incentive compensation package.

We also recognize that Contribution margin and Contribution margin as a percentage of net revenue have limitations as analytical financial measures. For example, Contribution margin does not reflect:

- general and administrative expense necessary to operate our business;
- research and development expenses necessary for the development, operation and support of our software platform;
- the fixed costs portion of our sales and distribution expenses including stock-based compensation expense; or
- changes in fair value of contingent earn-out liabilities, warrant liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold).

#### Adjusted EBITDA and Contribution Margin Summary

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2021 | 2022 | Nine Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Gross profit | $34,175 | $30,191 | $92,982 | $85,150 |
| Contribution margin | $8,232 | $743 | $20,028 | $10,223 |
| Gross profit as a percentage of net revenue | 50.2% | 45.5% | 50.4% | 51.2% |
| Contribution margin as a percentage of net revenue | 12.1% | 1.1% | 10.9% | 6.1% |
| Net Loss | $(110,556) | $(116,902) | $(229,415) | $(175,987) |
| EBITDA | $(105,877) | $(114,204) | $(212,717) | $(168,424) |
| Adjusted EBITDA | $728 | $(9,064) | $(4,198) | $(17,328) |
| Net loss as a percentage of net revenue | (162.3)% | (176.3)% | (124.4)% | (105.8)% |
| Adjusted EBITDA as a percentage of net revenue | 1.1% | (13.7)% | (2.3)% | (10.4)% |

#### Adjusted EBITDA

EBITDA represents net loss plus depreciation and amortization, interest expense, net and provision for and benefit from income taxes. Adjusted EBITDA represents EBITDA plus stock-based compensation expense, changes in fair-market value of earn-outs, amortization of inventory step-up from acquisitions (included in cost of goods sold), change in fair-market value of warrant liability, professional fees and transition costs related to acquisitions, loss from extinguishment of debt, impairment of goodwill, loss on initial issuance of equity, litigation reserve and other expenses, net. As used herein, Adjusted EBITDA as a percentage of net revenue represents Adjusted EBITDA divided by net revenue.

The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net loss, which is the most directly comparable financial measure presented in accordance with GAAP:

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2021 | 2022 | Nine Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(110,556) | $(116,902) | $(229,415) | $(175,987) |
| Add: |  |  |  |  |
| Provision for (benefit from) income taxes | 21 | (75) | 64 | (243) |
| Interest expense, net | 2,786 | 904 | 11,877 | 2,043 |
| Depreciation and amortization | 1,872 | 1,869 | 4,757 | 5,763 |
| EBITDA | (105,877) | (114,204) | (212,717) | (168,424) |
| Other expense (income), net | 5 | (174) | 43 | (199) |
| Impairment loss on goodwill | — | 90,921 | — | 119,941 |
| Impairment loss on intangibles | — | 3,118 | — | 3,118 |
| Change in fair value of contingent earn-out liabilities | (4,245) | (774) | (11,949) | (5,240) |
| Amortization of inventory step-up from acquisitions (included in cost of goods sold) | 875 | — | 4,916 | — |
| Gain on extinguishment of seller note | — | — | — | (2,012) |
| Loss on initial issuance of equity | — | 12,834 | — | 18,669 |
| Change in fair value of derivative liability | 1,360 | — | 3,254 | — |
| Loss on extinguishment of debt | 106,991 | — | 136,763 | — |
| Change in fair market value of warrant liability | (8,134) | (5,528) | 26,455 | 2,365 |
| Loss on initial issuance of warrant | — | — | 20,147 | — |
| Professional fees related to acquisitions | 53 | — | 1,450 | — |
| Litigation reserve | — | 1,800 | — | 2,600 |
| Transition cost from acquisitions | 130 | — | 1,314 | — |
| Transition cost from Photo Paper Direct acquisition | — | — | 696 | — |
| Reserve on dispute with PPE supplier | — | — | 4,100 | — |
| Stock-based compensation expense | 9,570 | 2,943 | 21,330 | 11,854 |
| Adjusted EBITDA | $728 | $(9,064) | $(4,198) | $(17,328) |
| Net loss as a percentage of net revenue | (162.3)% | (176.3)% | (124.4)% | (105.8)% |
| Adjusted EBITDA as a percentage of net revenue | 1.1% | (13.7)% | (2.3)% | (10.4)% |

#### Contribution Margin

Contribution margin represents gross profit less amortization of inventory step-up from acquisitions (included in cost of goods sold) and e-commerce platform commissions, online advertising, selling and logistics expenses (included in sales and distribution expenses). Contribution margin as a percentage of net revenue represents Contribution margin divided by net revenue. The following table provides a reconciliation of Contribution margin to gross profit and Contribution margin as a percentage of net revenue to gross profit as a percentage of net revenue, which are the most directly comparable financial measures presented in accordance with GAAP.

*(in thousands, except percentages)*

|  | Three Months Ended September 30, 2021 | 2022 | Nine Months Ended September 30, 2021 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Gross Profit | $34,175 | $30,191 | $92,982 | $85,150 |
| Add: |  |  |  |  |
| Amortization of inventory step-up from acquisitions (included in cost of goods sold) | 875 | — | 4,916 | — |
| Less: |  |  |  |  |
| E-commerce platform commissions, online advertising, selling and logistics expenses | (26,818) | (29,448) | (77,870) | (74,927) |
| Contribution margin | $8,232 | $743 | $20,028 | $10,223 |
| Gross Profit as a percentage of net revenue | 50.2% | 45.5% | 50.4% | 51.2% |
| Contribution margin as a percentage of net revenue | 12.1% | 1.1% | 10.9% | 6.1% |

54

### Critical Accounting Policies and Use of Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgments and estimates as disclosed in our Annual Report on Form 10-K for fiscal year ended December 31, 2021, as filed with the SEC on March 16, 2022 (our “Annual Report”). For additional information, please refer to Note 2 of our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

**Subsequent Measurement of Goodwill—**We operate under one business component which is the same as our reporting unit based on the guidance in ASC Topic 350-20.

We assess goodwill for impairment at least annually during the fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. During 2022, we had events and conditions in the first quarter and third quarter that required an interim assessment of goodwill.

We evaluated current economic conditions during the third quarter of 2022, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the inflationary pressure on product and labor costs and operational impacts attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses and determined that our goodwill was fully impaired as of September 30, 2022.

We engaged a third-party valuation specialist to assist management in performing an interim goodwill impairment test in September 2022. For goodwill, impairment testing is based upon the best information available using a combination of the discounted cash flow method (a form of the income approach) and the guideline public company method, while also taking into consideration our market capitalization. Under the income approach, or discounted cash flow method, the significant assumptions used are projected net revenue, projected contribution margin (product operating margin before fixed costs), fixed costs and terminal growth rates. Projected net revenue, projected contribution margin and terminal growth rates were determined to be significant assumptions because they are the three primary drivers of the projected cash flows in the discounted cash flow fair value model. Under the guideline public company method, significant assumptions relate to the selection of appropriate guideline companies, the valuation multiples used in the market analysis and our market capitalization.

Due to the sustained decline in our stock price leading up to and subsequent to September 30, 2022, we used the market capitalization as of September 30, 2022 to determine the fair value of the reporting unit. As a result, we recorded a goodwill impairment charge of approximately $90.9 million in the three months ended September 30, 2022. We also had a triggering event during the three months ended March 31, 2022 and recorded an impairment charge of $29.0 million. For the nine months ended September 30, 2022, total goodwill impairment was approximately $119.9 million.

Goodwill was $119.9 million and $0 at December 31, 2021 and September 30, 2022, respectively.

We believe that the assumptions and estimates made are reasonable and appropriate, and changes in the assumptions and estimates could have a material impact on our reported financial results.

While we believe our conclusions regarding the estimates of fair value of our reporting unit is appropriate, these estimates are subject to uncertainty and by nature include judgments and estimates regarding various factors. These factors include the rate and extent of growth in the markets that our reporting unit serves, the realization of future sales price and volume increases, fluctuations in price and availability of key raw materials, future operating efficiencies and, as it pertains to discount rates, the volatility in interest rates and costs of equity.

Some of the inherent estimates and assumptions used in determining fair value of our reporting unit are outside the control of management, including interest rates, tax rates, credit ratings and industry growth. Given the current COVID-19 global pandemic and the uncertainties regarding the financial potential impact on our business, there can be no assurance that our estimates and assumptions regarding the impact of COVID-19 and the recovery period made for purposes of the goodwill impairment testing performed will prove to be accurate predictions of the future. While we believe we have made reasonable estimates and assumptions to calculate the fair values of our reporting unit, it is possible changes could occur. As for our reporting unit, if in future years, the reporting unit’s actual results are not consistent with our estimates and assumptions used to calculate fair value, we may be required to recognize material impairments to goodwill. We will continue to monitor its reporting unit for any triggering events or other signs of impairment. We may be required to perform additional impairment testing based on changes in the economic environment, disruptions to our business, significant declines in operating results of our reporting unit, further sustained deterioration of our market capitalization, and other factors, which could result in impairment charges in the future. Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or the market capitalization deteriorates significantly from current levels, it is reasonably likely we will be required to record impairment charges in the future that could be material to our consolidated balance sheet or results of operations.

**Subsequent Measurement of Intangibles—**We review long-lived assets for impairment when performance expectations, events, or changes in circumstances indicate that the asset's carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows by comparing the carrying value of the asset group to the undiscounted cash flows. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique.

Certain asset groups experienced a significant decrease in sales and contribution margin through September 30, 2022. This was considered an interim triggering event for the three months ended September 30, 2022. We assessed the recoverability of the related intangible assets by using level 3 inputs and comparing carrying value of an asset group to the net undiscounted cash flows expected to be generated to determine if carrying value is not recoverable. The recoverability test indicated that certain definite-lived trademark intangible assets were impaired which resulted in an impairment charge. We recorded an intangible impairment charge of $3.1 million in the three months ended September 30, 2022 within impairment loss on intangibles on the condensed consolidated statement of operations.

We will continue to closely monitor actual results versus expectations as well as whether and to what extent any significant changes in current events or conditions, including changes to the impacts of COVID-19 on our business, result in corresponding changes to our expectations about future estimated cash flows. If our adjusted expectations of the operating results do not materialize, we may be required to record intangible impairment charges, which may be material.

While we believe our conclusions regarding the estimates of recoverability of our asset groupings are appropriate, these estimates are subject to uncertainty and by nature include judgments and estimates regarding various factors. These factors include the rate and extent of growth in the markets that our asset groups serve, the realization of future sales price and volume increases, fluctuations in exchange rates, fluctuations in price and availability of key raw materials and future operating efficiencies.

## Market risk

As filed, 3,006 characters.

We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments, including cash equivalents, are in the form, or may be in the form of, money market funds or marketable securities and are or may be invested in U.S. Treasury and U.S. government agency obligations. Due to the short-term maturities and low risk profiles of our investment, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our investments. We do not currently use or plan to use financial derivatives in our investment portfolio or engage in hedging transactions to manage our exposure to interest rate risk.

In addition, we have outstanding debt under the MidCap Credit Facility that bears interest. As of September 30, 2022, our outstanding indebtedness under the MidCap Credit Facility was $23.9 million, which bears interest at a rate of LIBOR plus 5.50%. We do not believe that an immediate 10% increase in interest rates would have a material effect on interest expense for the MidCap Credit Facility, and therefore we do not expect our operating results or cash flows to be materially affected to any degree by a sudden change in market interest.

We are currently exposed to market risk related to changes in foreign currency exchange rates. We do not currently engage in hedging transactions to manage our exposure to foreign currency exchange rate risk as we do not currently believe our exposure is material. Sales outside of the U.S. represented approximately 1% of our net revenue for the three months ended September 30, 2021 and approximately 2% of our net revenue for the three months ended September 30, 2022. Currently, our revenue-producing transactions are primarily denominated in U.S. dollars; however, as we continue to expand internationally, our results of operations and cash flows may increasingly become subject to fluctuations due to changes in foreign currency exchange rates. In periods when the U.S. dollar declines in value as compared to foreign currencies in which we incur expenses, our foreign-currency based expenses will increase when translated into U.S. dollars. In addition, future fluctuations in the value of the U.S. dollar may affect the price at which we sell our products outside the U.S. To date, our foreign currency risk has been minimal, and we have not historically hedged our foreign currency risk; however, we may consider doing so in the future.

Inflation would generally directly affect us by increasing our cost of labor and overhead costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations for the three and nine months ended September 30, 2021 and 2022, other than with respect to the general impact that inflation has on the supply chain and consumer buying habits.

## Controls and procedures

As filed, 1,618 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 58,804 characters.

You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report and this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition, cash flows or future results. The risks described in our Annual Report and this Quarterly Report on Form 10-Q are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. Except as presented below, there have been no material changes from the risk factors associated with our business previously disclosed in our Annual Report.

### Risks Relating to Our Business

***Our growth strategy is capital dependent and due to the impact of the COVID-19 pandemic and related global supply chain disruption, our management has expressed substantial doubt about our ability to continue as a going concern.***

As an emerging growth company, we have been dependent on outside capital through the issuance of equity to investors and borrowings from lenders (collectively “outside capital”) since our inception to execute our growth strategy of investing in organic growth at the expense of short-term profitably and investing in incremental growth through mergers and acquisitions (“M&A strategy”). In addition, our financial performance has been adversely impacted by the COVID-19 global pandemic and related global shipping disruption, in particular with respect to substantial increases in supply chain costs for shipping containers (See COVID-19 Pandemic and Supply Chain disclosure below). As a result, we have incurred significant losses and will remain dependent on outside capital for the foreseeable future until such time that we can realize our strategy of growth by generating profits through our organic growth and M&A strategy, and reduce our reliance on outside capital.

Given the inherent uncertainties associated with executing our growth strategy, as well as the uncertainty associated with the ongoing COVID-19 global pandemic, recent record inflation increases and related global supply chain disruption, management can provide no assurance we will be able to obtain sufficient outside capital or generate sufficient cash from operations to fund our obligations as they become due over the next twelve months from the date these consolidated financial statements were issued.

In addition, as disclosed in Note 6 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, we entered into a $50.0 million asset backed credit agreement in December 2021 (the “MidCap Credit Facility”). The MidCap Credit Facility contains a financial covenant that requires that we maintain a minimum unrestricted cash balance or minimum borrowing availability of (a) $12.5 million during the period from February 1st through and including May 31st of each calendar year, and (b) $15.0 million at all other times thereafter. At our election, we may elect to comply with an alternative financial covenant that would require us to maintain a minimum borrowing availability under the MidCap Credit Facility of $10.0 million at all times. We do not anticipate electing the alternative financial covenant over the next twelve months and were in compliance with the minimum liquidity covenant as of the date that our condensed consolidated financial statements were issued.

Since our inception, we have been able to successfully raise a substantial amount of outside capital to fund our growth strategy, including the October 4, 2022 registered direct offering where we raised $20.2 million before deducting fees payable to the placement agent and other offering expenses payable by us, however, as of the date of the filing of this Quarterly Report on Form 10-Q, we have no firm commitments of additional outside capital from current or prospective investors or lenders. While management believes we will be able to secure additional outside capital, no assurance can be provided that such capital will be obtained or on terms that are acceptable to us. Furthermore, given the inherent uncertainties associated with our growth strategy, we may be unable to remain in compliance with the financial covenants required by the MidCap Credit Facility over the next twelve months. These uncertainties raise substantial doubt about our ability to continue as a going concern.

In order to alleviate substantial doubt, management plans to continue to closely monitor our operating forecast, pursue additional sources of outside capital, and pursue our M&A strategy. If we are (a) unable to improve our operating results, (b) obtain additional outside capital on terms that are acceptable to us to fund our operations and M&A strategy, and/or (c) secure a waiver or forbearance from our lender if we are unable to remain in compliance with the financial covenants required by the MidCap Credit Facility, we will have to make significant changes to our operating plan, such as delay expenditures, reduce investments in new products, delay the development of our software, reduce our sale and distribution infrastructure, or otherwise significantly reduce the scope of our business. Moreover, if we breach the financial covenants required by the MidCap Credit Facility and fail to secure a waiver or forbearance from the lender, such breach or failure could accelerate the repayment of the outstanding borrowings under the MidCap Credit Facility or the exercise of other rights or remedies the lender may have under applicable law. Management can provide no assurance a waiver or forbearance will be granted or the outstanding borrowings under the MidCap Credit Facility will be successfully refinanced on terms that are acceptable to us.

***We have significant operational exposure relating to the COVID-19 pandemic and related supply chain issues and the impact from this could have a material adverse impact on our business, financial condition, operating results and prospects.***

The COVID-19 pandemic has impacted us in numerous ways since the first quarter of 2020 and we believe it will continue to affect our business moving forward.

Amongst other things, it has affected our efficiency and ability to launch new products, replenish inventory for existing products, forecast demand for our products, ship into or receive inventory in our third-party warehouses, and to ship or sell products to customers. In addition, many of our personnel are currently working remotely, which creates challenges in the way we operate our business, including with respect to the manner in which we monitor the quality of our products.

If any of our key personnel or key personnel at our manufacturing or logistics partners contracts COVID-19, this could affect our ability to execute our operations. In addition, our operations rely on third parties to manufacture our products, to provide logistics and warehousing services and to facilitate sales of our products, and accordingly we rely on the business continuity plans of these third parties to continue to operate during the pandemic and have limited to no ability to influence their plans.

Due to the uncertainty as to the severity and duration of the pandemic, the impact on our future revenues, profitability, liquidity, financial condition, business and results of operations is uncertain at this time. We continue to take steps to preserve our liquidity and capital resources through various actions which include delaying and negotiating the delay of payments to certain vendors. The effect of such actions could have an adverse impact on our business, including our relationships with these vendors. For example, payment delays to certain of our manufacturing vendors in China during April 2020 had resulted in a temporary loss of availability of export credit insurance from the China Export & Credit Insurance Corporation (“Sinosure”), a Chinese state-owned enterprise, that provides export credit insurance to our manufacturing vendors. As of the date of this Quarterly Report, Sinosure has reinstated this insurance to levels that we believe are sufficient to fund our operations.

Currently a significant portion of China requires proof of negative COVID-19 test results within the last 24 hours in order to travel. The second quarter of 2022 saw significant lockdowns in China due to COVID-19. This includes areas with a material percentage of our manufacturers. This has made it more difficult in getting our inventory to and through the ports in these areas.

Although we believe these supply chain issues will improve in 2023, we remain concerned about the impact of Russia’s invasion of Ukraine on our business including its effects on the global economy, the supply chain and financial markets. We will continue to evaluate the impacts of this, the COVID-19 pandemic, rising inflation, interest rates and general economic slow-down on our business. As such, there are no assurances that the supply chain will indeed improve in 2023 to our satisfaction.

Sales and operating results have become more difficult to forecast due to the pandemic and we may suffer from future inventory shortages. This makes it more difficult for us to appropriately plan our expenses. We base our current and future expense levels primarily on our operating forecasts and estimates of sales. We may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in sales, whether due to lack of inventory or otherwise, and if actual results differ from our estimates, our operating results and financial condition could be adversely impacted.

### We may not be able to sustain our historic revenue growth rate.

As we grow our business, our revenue growth rates may slow in future periods due to a number of reasons, which may include our inability to successfully launch new products that reach our sustain phase and to keep those products in the sustain phase, as well as the maturation of our business. For example, our revenue for the nine month period ended September 30, 2022 is down when compared to the same period a year ago. Our revenue growth rates may also slow in future periods to the extent we are unable to identify and complete acquisitions, or are unable to maintain or grow revenues from such businesses after closing an acquisition. We can provide no assurance that we will continue to be able to maintain or sustain the same levels of historic revenue growth.

We may decide to delay certain investments in order to more quickly achieve profitability, and while such decisions may accelerate net revenue and profitability on a short-term basis, we can provide no assurance that we will continue to be able to maintain or sustain the same levels of historic revenue growth. In addition, we may focus on product opportunities that have larger addressable markets but require increased levels of marketing investment and we can provide no assurances that such a shift will be successful.

In addition, for the year ended December 31, 2021, we experienced an increase in net revenue in part due to the shift by consumers to online shopping as a result of the COVID-19 pandemic. While we expect this shift to continue, we can provide no assurance that this shift will continue in the near or longer term or continue with respect to the products we offer. Furthermore, while our Platform as a Service business ("Managed PaaS”) has in the past generated revenue, we do not anticipate any material revenue being earned through our Managed PaaS business for the foreseeable future.

***If we are unable to manage our inventory effectively, our operating results and financial condition could be adversely affected.***

To ensure timely delivery of products, we generally issue purchase orders to contract manufacturers. As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of product purchases. In the past, we have not always predicted the appropriate demand for our products by consumers with accuracy, which has resulted in inventory shortages, excess inventory write offs and lower gross margins. We rely on our procurement team to order products and we rely on our data analytics to decide on the levels and timing of inventory we purchase, including when to reorder items that are selling well and when to write off items that are not selling well. We rely on our contract manufacturers who are often responsible for conducting a number of traditional operations with respect to their respective products, including maintaining raw materials and inventory for shipment to us. In these instances, we may be unable to ensure that these suppliers will continue to perform these services to our satisfaction in a manner that provides our customer with an appropriate brand experience or on commercially reasonable terms. If so, our business, reputation and brands could suffer.

During the second quarter 2022, one of our material suppliers notified us about a production issue with certain batches of a dehumidifier product we sell. After working with the supplier to identify which products were affected by the issue we were largely able to remedy the situation. Our team is continuing to work to manage our inventory situation however we may be faced with limited inventory for certain versions of this dehumidifier. If this were to occur, our financial performance could be adversely affected.

Over the last year, we increased our inventory on hand levels for existing products to offset the unpredictability of shipping containers. The current macroeconomic conditions which includes record inflation, interest rate increases and general economic slow-down, has led us to reduce our short-term sales forecasts and caused our inventory onhand levels to be higher than desired. As such, we have and continue to sell inventory at reduced margins to normalize inventory to appropriate levels. Although the current macroeconomic conditions have impacted our sales forecasts, we believe the global demand for goods is decreasing which has led to improvement in shipping container availability and costs. We believe shipping container costs and availability will continue to improve further in 2023. Although we believe our supply chain will improve in 2023, we have concerns about the impact of Russia’s invasion of Ukraine on our business including its effects on the global economy, the performance and cost of supply chain and financial markets. We will continue to evaluate the impacts of this, in addition to the impacts of rising inflation, interest rates and general economic slow-down, and the COVID-19 pandemic on our business. There are no assurances that the supply chain will improve in 2023 to our satisfaction.

If our sales and procurement teams do not accurately predict demand or if our algorithms do not help us reorder the right products or write off the products timely, we may not effectively manage our inventory, which could result in inventory excess or shortages, and our operating results and financial condition could be adversely affected. We expect to sell off excess inventory during the last quarter of 2022 which could have a material impact on our operating results.

Given the long lasting effects of the COVID-19 pandemic, we expect to continue experiencing inventory shortages and our operating results and financial condition could be adversely affected.

***The impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials is uncertain, but may prove to negatively impact our business and operations.***

The short and long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time. We continue to monitor any adverse impact that the outbreak of war in Ukraine and the subsequent institution of sanctions against Russia by the United States and several European and Asian countries may have on the global economy in general, on our business and operations and on the businesses and operations of our suppliers and customers. For example, a prolonged conflict may result in increased inflation, escalating energy prices and constrained availability, and thus increasing costs of raw materials. To the extent the war in Ukraine may adversely affect our business as discussed above, it may also have the effect of heightening many of the other risks described herein. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation; disruptions to our global technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; our ability to maintain or increase our product prices; disruptions in global supply chains; our exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets, any of which could negatively affect our business, financial performance and financial condition.

***We are dependent on third-party manufacturers, most of which are located in China.***

A substantial portion of our products are manufactured by unaffiliated companies that are located in China. This concentration of manufacturers in a single country exposes us to risks associated with doing business globally, including: changing international political relations; labor availability and cost; changes in laws, including tax laws, regulations and treaties; changes in labor laws, regulations and policies; changes in customs duties, additional tariffs and other trade barriers; changes in shipping costs; currency exchange fluctuations; local political unrest; an extended and complex transportation cycle; the impact of changing economic conditions; and the availability and cost of raw materials and merchandise. The political, legal and cultural environment in China and other nations is continuously evolving, and any change that impairs our ability to obtain products from manufacturers in that region, or to obtain products at marketable rates, could have a material adverse effect on our business, operating results and financial condition. We rely on one large manufacturer for the manufacture of several of our products, including our dehumidifiers. If we were no longer able to maintain that relationship for any reason, we may not be able to timely find another manufacturer, specifically one that provides the same quality, which would negatively affect our business, sales and results of operations.

A number of the components we use in our products pass through Taiwan. Deterioration of relations between Taiwan and China, the resulting actions taken by either side, and other factors affecting the political or economic conditions of Taiwan in the future, could adversely impact our supply chain, sales and operations.

Furthermore, currently a significant portion of China requires proof of negative COVID-19 test results within the last 24 hours in order to travel due to COVID-19. The second quarter of 2022 saw significant lockdowns in China due to COVID-19. This includes areas with a material percentage of our manufacturers. This has made it more difficult in getting our inventory to and through the ports in these areas.

Our understanding with most of our suppliers do not provide for the long-term availability of merchandise or the continuation of particular pricing practices, nor do they usually restrict such suppliers from selling products to other buyers or directly to consumers themselves. There can be no assurance that our current suppliers will continue to sell us products on current terms or that we will be able to establish new or otherwise extend current supply relationships to ensure product acquisitions in a timely and efficient manner and on acceptable commercial terms.

### Risks Relating to Intellectual Property and Cyber Security

***Our failure or the failure of third parties to protect our sites, networks and systems against security breaches, or otherwise to protect our confidential information, could damage our reputation and brand and substantially harm our business and operating results.***

We collect, maintain, transmit and store data about our consumers, brands and others, including credit card information and personally identifiable information, as well as other confidential information. We also engage third parties that store, process and transmit these types of information on our behalf. We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology and may allow transaction data or other confidential and sensitive information to be breached or compromised. In addition, our brand’s e-commerce websites are often attacked through compromised credentials, including those obtained through phishing and credential stuffing. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to breach our systems, denial-of-service attacks, viruses, malwares, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks or disruptions that may jeopardize the security of information stored in or transmitted by our websites, networks and systems that we or such third party service providers otherwise maintain, including payment card systems, which may subject us to fines or higher transaction fees or limit or terminate our access to certain payment methods. We and such third party service providers may not anticipate or prevent all types of attacks until after they have already been launched. Further, techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers. In addition, security breaches can occur as a result of non-technical issues, including intentional or unintentional breaches by our employees or by third parties. These risks may increase over time as the complexity and number of technical systems and applications we use also increases.

Breaches of our security measures or those of our third-party service providers or other cyber security incidents could result in unauthorized access to our sites, networks, systems and accounts; unauthorized access to, and misappropriation of, consumer information, including consumers’ personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our sites, networks or systems; deletion or modification of content or the display of unauthorized content on our sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; or litigation, regulatory action and other potential liabilities. In the past, we have been the target of social engineering, phishing, malware and similar attacks and threats of denial-of-service attacks. While we have yet to experience any material adverse effects from these attempted attacks, such attacks in the future could have a material adverse effect on our operations. If any of these breaches of security should occur, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such breaches, and we could be exposed to a risk of loss, litigation or regulatory action and possible liability. We cannot guarantee that recovery protocols and backup systems will be sufficient to prevent data loss. Actual or anticipated attacks may cause us to incur increased costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.

We have experienced, and in the future may experience periodic system interruptions from time to time. In addition, continued growth in our transaction volume, and surges in online traffic and orders associated with promotional activities or seasonal trends in our business, place additional demands on our marketplace platforms and could cause or exacerbate slowdowns or interruptions. If there is a substantial increase in the volume of traffic on our sites or the number of orders placed by customers, we will be required to further expand and upgrade our technology, transaction processing systems and network infrastructure. There can be no assurances that we will be able to accurately project the rate or timing of such increases, if any, in the use of our sites and expand and upgrade our systems and infrastructure to accommodate such increases on a timely basis. In order to remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our systems, which is particularly challenging given the rapid rate at which new technologies, customer preferences and expectations and industry standards and practices are evolving in the e-commerce industry. Accordingly, we redesign and enhance various functions on our systems on a regular basis, and we may experience instability and performance issues as a result of these changes. Our disaster recovery plan may be inadequate, and our business interruption insurance may not be sufficient to compensate us for the losses that could occur.

Any compromise or breach of our security measures, or those of our third-party service providers, could violate applicable privacy, data protection, data security, network and information systems security and other laws and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have a material adverse effect on our business, results of operations, financial condition and prospects. We continue to devote significant resources to protect against security breaches, and we may need to devote significant resources in the future to address problems caused by breaches, including notifying affected subscribers and responding to any resulting litigation, which in turn, may divert resources from the growth and expansion of our business. On April 25, 2022, we were alerted by a payment processor of a potential data security incident regarding one of our UK websites. We do not believe this will have a material impact on our business, however the outcome of this incident is still uncertain and we may incur substantial costs and experience other negative consequences that could be material to our business, financial results and/or condition.

### Risks Relating to Litigation and Government Regulation

***We may be subject to general litigation, regulatory disputes and government inquiries. Any failure to comply with current laws, rules and regulations or changes to such laws, rules and regulations and other legal uncertainties may adversely affect our business, financial performance, results of operations or business growth.***

As a growing company with expanding operations, we have in the past and may in the future increasingly face the risk of claims, lawsuits, government investigations and other proceedings involving competition and antitrust, intellectual property, privacy, consumer protection, accessibility claims, securities, tax, labor and employment, commercial disputes, services and other matters. The number and significance of these disputes and inquiries have increased as the political and regulatory landscape changes, and as we have grown larger and expanded in scope and geographic reach, and our services have increased in complexity.

For example, we are a party to various actions and claims arising in the normal course of business, certain of which are indicated below:

On October 21, October 25 and November 10, 2021, three shareholder derivative actions were filed on behalf of our company by Shaoxuan Zhang, Michael Sheller and Tyler Magnus in the U.S. District Court for the Southern District of New York. These actions, collectively, name Yaniv Sarig, Fabrice Hamaide, Arturo Rodriguez, Greg B. Petersen, Bari A. Harlam, Amy von Walter, William Kurtz, Roi Zion Zahut, Joseph A. Risico, Tomer Pascal and Mihal Chaouat-Fix as individual defendants, and our company as a nominal defendant. These actions are predicated on substantively the same factual allegations contained in the above-described securities class action and assert that the individual defendants (i) breached their fiduciary duties, (ii) misused their authority, (iii) were unjustly enriched and (iv) wasted corporate assets. The action filed by Michael Sheller also alleges that individual defendants Sarig and Hamaide are liable for contribution pursuant to Sections 10(b) and 21D of the Exchange Act in the event we are held liable in the shareholder derivative action. The action filed by Shaoxuan Zhang alleges analogous liability on the part of Sarig, Hamaide and Rodriguez. Finally, the action filed by Shaoxuan Zhang also alleges that individual defendants Sarig, Harlam, Kurtz, Petersen and von Walter are liable for violations of Section 14(a) of the Exchange Act. We and the parties to this action have reached an initial settlement in principal pursuant to which we shall make certain governance changes and pay up to $0.3 million. This is subject to negotiation and execution of full settlement documents and court approval. We and our codefendants denied, and continue to deny, that these allegations have any merit. If this settlement does not become finalized, we are prepared to continue the full defense of this action.

On September 20, 2021, Sabby Volatility Warrant Master Fund Ltd. (the “Investor”) sued our company in the Supreme Court of the State of New York, New York County, alleging that we breached the Securities Purchase Agreement, dated September 10, 2021 (the “Purchase Agreement”), pursuant to which the Investor purchased 400,000 shares of our common stock, for an aggregate price of approximately $6 million. The Investor contends that certain of the representations and warranties made by us in the Purchase Agreement concerning our financial condition and the accuracy of our prior disclosures were untrue and that we breached the Purchase Agreement’s anti-dilution and use-of-proceeds covenants on both August 9, 2021 and September 23, 2021, when we resolved certain defaults with High Trail. The parties reached a settlement agreement for $1.6 million. In this action, the Company denied, and it continues to deny, the Investor’s allegations, and the settlement agreement contains no admission of wrongdoing; the Company nevertheless determined that a resolution was warranted to minimize the costs and risks of ongoing litigation.

In October 2021, we received a class action notification and pre-lawsuit demand letter demanding corrective action with respect to the marketing, advertising and labeling of certain products under the Mueller Austria brand. We reached an agreement in principle to resolve this potential action on April 13, 2022 for $500,000 in cash and $300,000 worth of coupons, which the Company accrued for, subject to execution of final settlement documents and court approval. If that process does not succeed, we are prepared to continue the full defense of this action.

On February 24, 2022, we received a notice disputing the Company’s calculation of the earn-out payment to be paid to Josef Eitan and Ran Nir pursuant to the Stock Purchase Agreement (the “PPD Stock Purchase Agreement”), dated as of May 5, 2021, by and among the Company, Truweo, LLC, Photo Paper Direct Ltd, Josef Eitan and Ran Nir. We are in discussions with representatives of Josef Eitan and Ran Nir, who believe they are entitled to the full earnout under the terms of the PPD Stock Purchase Agreement, whereas the Company believes they are not. Mr. Eitan and Mr. Nir filed a motion to compel arbitration in the Southern District of New York on September 14, 2022. The Company filed its motion to oppose such motion on October 28, 2022, and believes its calculations are accurate and intends to vigorously defend itself.

On June 7, 2022, Sentia Wellness, Inc. filed an action in Multnomah County, Oregon against Boris Jordan; Measure 8 Ventures, LP; Gron Ventures Fund I, LP; Zola Global Investors Ltd.; Anson Advisors Inc.; AC Anson Investments Ltd.; Anson Investments Master Fund LP; Anson Opportunities Master Fund LP; Serendipity SPC -Trimble Fund SP; Lapid Us Investments LLC; Hadron Healthcare and Consumer Special Opportunities Master Fund; Alliance Global Partners LLC; Sunny Puri; Juan Martinez; Peter Clateman; Wilder Ramsey; Gregory Crowe; Igor Gimelshtein; Tarik Ouass; Andrea Oriani; Marco D’attanseo; Afzal Hasan; and us. Sentia asserts claims for breach of fiduciary duty, breach of duty of good faith and fair dealing, intentional interference with prospective economic relations, intentional interference with contractual relationship, negligent misrepresentation, and unjust enrichment against various of these defendants, based on the allegation that Sentia’s debt holders conspired to take control of the company and direct its resources and acquisition efforts to the debt holders’ individual financial interests. Sentia alleges that we contemplated a partial acquisition of Sentia that played some role in these events. The Company believes this to be a nuisance lawsuit and that it has been improperly named in such action. The Company filed a motion to dismiss the pleadings with the Court on September 12, 2022 and the Company filed a brief in support of this motion on October 25, 2022. Regardless,the Company intends to vigorously defend against this action.

Determining reserves for any litigation is a complex, fact-intensive process that is subject to judgment calls. It is possible that a resolution of one or more such proceedings could require us to make substantial payments to satisfy judgments, fines or penalties or to settle claims or proceedings, any of which could harm our business. These proceedings could also result in reputational harm, criminal sanctions, consent decrees or orders preventing us from offering certain products or services or requiring a change in our business practices in costly ways or requiring development of non-infringing or otherwise altered products or technologies. Litigation and other claims and regulatory proceedings against us could result in unexpected expenses and liabilities, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our business and financial performance could be adversely affected by unfavorable changes in or interpretations of existing laws, rules and regulations or the promulgation of new laws, rules and regulations applicable to us and our businesses, including those relating to the internet and e-commerce, internet advertising and price display, consumer protection, anti-corruption, antitrust and competition, economic and trade sanctions, energy usage and emissions, tax, banking, data security, network and information systems security, data protection and privacy. As a result, regulatory authorities could prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us if our practices were found not to comply with applicable regulatory or licensing requirements or any binding interpretation of such requirements. Unfavorable changes or interpretations could decrease demand for our products or services, limit marketing methods and capabilities, affect our margins, increase costs or subject us to additional liabilities.

***If further tariffs or other restrictions are placed on imports from China or any negative trade measures are taken by China, our business, financial condition and results of operations could be materially and adversely affected.***

We purchase a substantial portion of our products from unaffiliated manufacturers that are located in China. This concentration exposes us to risks associated with doing business globally, including changes in tariffs. The Office of the United States Trade Representative previously identified certain Chinese imported goods for additional tariffs to address China’s trade policies and practices. These tariffs could have a material adverse effect on our business and results of operations. Additionally, the Biden administration has canceled tariff exclusions that provided tariff relief to certain products and has yet to signal whether it will reinstate such exclusions or further alter existing trade agreements and terms between China and the U.S., including limiting trade with China, adjusting the current tariffs on imports from China and potentially imposing other restrictions on exports from China to the U.S. Consequently, it is possible that tariffs may be imposed on products imported from foreign countries, including China, or that our business will be affected by retaliatory trade measures taken by China or other countries in response to existing or future tariffs. This may cause us to raise prices or make changes to our operations, any of which could have a material adverse effect on our business and results of operations.

***Investors’ expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.***

There is an increasing focus from certain investors, employees, regulators and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance (“ESG”) factors. Some investors and investor advocacy groups may use these factors to guide investment strategies and, in some cases, investors may choose not to invest in our company if they believe our policies relating to corporate responsibility are inadequate. Third-party providers of corporate responsibility ratings and reports on companies have increased to meet growing investor demand for measurement of corporate responsibility performance, and a variety of organizations currently measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized. Investors, particularly institutional investors, use these ratings to benchmark companies against their peers and if we are perceived as lagging with respect to ESG initiatives, certain investors may engage with us to improve ESG disclosures or performance and may also make voting decisions, or take other actions, to hold us and our board of directors accountable. In addition, the criteria by which our corporate responsibility practices are assessed may change, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are inadequate.

We may face reputational damage in the event our corporate responsibility initiatives or objectives do not meet the standards set by our investors, stockholders, lawmakers, listing exchanges or other constituencies, or if we are unable to achieve an acceptable ESG or sustainability rating from third-party rating services. A low ESG or sustainability rating by a third-party rating service could also result in the exclusion of our common stock from consideration by certain investors who may elect to invest with our competition instead. Ongoing focus on corporate responsibility matters by investors and other parties as described above may impose additional costs or expose us to new risks. Any failure or perceived failure by us in this regard could have a material adverse effect on our reputation and on our business, share price, financial condition, or results of operations, including the sustainability of our business over time.

In addition, the SEC has announced proposed rules that, among other matters, will establish a framework for reporting of climate-related risks. To the extent the proposed rules impose additional reporting obligations, we could face increased costs. Separately, the SEC has also announced that it is scrutinizing existing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege our existing climate disclosures are misleading or deficient.

### Risks Relating to the Ownership of our Common Stock

***Our share price has been very volatile. Market volatility may affect the value of an investment in our common stock and could subject us to litigation.***

Technology stocks have historically experienced high levels of volatility. There has been and could continue to be significant volatility in the market price and trading volume of equity securities. For example, our closing stock price ranged from approximately $1.01 to $47.66 per share from January 1, 2021 to November 1, 2022. The market price of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

- short sales, hedging and other derivative transactions involving our capital stock and related “short squeezes”;
- actual or perceived impact on our business due to the COVID-19 pandemic;
- actual or anticipated fluctuations in our financial condition and operating results;
- the financial projections we may provide to the public, and any changes in projected operational and financial results;
- addition or loss of significant customers;
- changes in laws or regulations applicable to our products;
- actual or anticipated changes in our growth rate relative to our competitors;
- announcements of technological innovations or new offerings by us or our competitors;
- announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments;
- additions or departures of key personnel;
- changes in our financial guidance or securities analysts’ estimates of our financial performance;
- discussion of us or our stock price by the financial press and in online investor communities;
- reaction to our press releases and filings with the SEC;
- changes in accounting principles;
- lawsuits threatened or filed against us;
- fluctuations in operating performance and the valuation of companies perceived by investors to be comparable to us;
- sales of our common stock by us or our stockholders;
- share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
- price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
- changes in laws or regulations applicable to our business;
- changes in our capital structure, such as future issuances of debt or equity securities;
- the expiration of contractual lock-up periods;
- other events or factors, including those resulting from pandemics, war, incidents of terrorism or responses to these events; and
- general economic and market conditions.

Furthermore, in recent years, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, and technology companies in particular. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could also harm our business.

***A “short squeeze” due to a sudden increase in demand for shares of our common stock that largely exceeds supply has led to, and may continue to lead to, extreme price volatility in shares of our common stock.***

Investors may purchase shares of our common stock to hedge existing exposure or to speculate on the price of our common stock. Speculation on the price of our common stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of our common stock available for purchase on the open market, investors with short exposure may have to pay a premium to repurchase shares of our common stock for delivery to lenders of our common stock. Those repurchases may, in turn, dramatically increase the price of shares of our common stock until additional shares of our common stock are available for trading or borrowing. This is often referred to as a “short squeeze.”

A large proportion of our common stock has been and may continue to be traded by short sellers which may increase the likelihood that our common stock will be the target of a short squeeze. A short squeeze has previously led and could in the future lead to volatile price movements in shares of our common stock that are unrelated or disproportionate to our operating performance or prospects. Stockholders that purchase shares of our common stock during a short squeeze may lose a significant portion of their investment.

From time to time, we may appear on the Regulation SHO Threshold Security list, and this could lead to increased volatility in our common stock.

From time to time, we may appear on the Regulation SHO Threshold Security list, and this could lead to increased volatility in our common stock. As defined in Rule 203(c)(6) of Regulation SHO, a “threshold security” is any equity security of any issuer that is registered under Section 12 of the Exchange Act, or that is required to file reports under Section 15(d) of the Exchange Act (commonly referred to as reporting securities), where, for five consecutive settlement days:

- There are aggregate fails to deliver at a registered clearing agency of 10,000 shares or more per security;
- The level of fails is equal to at least one-half of one percent of the issuer’s total shares outstanding; and
- The security is included on a list published by a self-regulatory organization (SRO).

***Future sales of our common stock in the public markets by our insiders, or the perception that these sales may occur, may cause the market price of our common stock to decline.***

Our employees, directors and officers, and their affiliates, hold substantial amounts of shares of our common stock. Sales of a substantial number of such shares by these stockholders, or the perception that such sales will occur, may cause the market price of our common stock to decline. Other than our stock ownership guidelines and our restrictions on trading that arise under securities laws (or pursuant to our securities trading policy that is intended to facilitate compliance with securities laws), including the prohibition on trading in securities by or on behalf of a person who is aware of nonpublic material information, we have no restrictions on the right of our employees, directors and officers, and their affiliates, to sell their unrestricted shares of common stock.

***Future sales and issuances of our capital stock, or the perception that such sales may occur, could cause our stock price to decline.***

We may issue additional securities following the date of this quarterly report on Form 10-Q. Our amended and restated certificate of incorporation authorizes us to issue up to 500,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, the ownership of existing stockholders will be diluted, possibly materially. New investors in subsequent transactions could also gain rights, preferences and privileges senior to those of existing holders of our common stock.

Future sales of substantial amounts of our common stock in the public market could reduce the prevailing market prices for our common stock. Substantially all of our outstanding common stock is eligible for sale as are shares of common stock issuable under vested and exercisable stock options. If our existing stockholders sell a large number of shares of our common stock, or the public market perceives that those existing stockholders might sell shares of common stock, the market price of our common stock could decline significantly. Existing stockholder sales might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate, or at all.

As of September 30, 2022, 3,113,510 shares of our common stock were reserved for issuance under our equity incentive plans, of which 368,596 shares of our common stock were subject to options outstanding at such date at a weighted-average exercise price of $9.26 per share, 81,935 shares of common stock were reserved for future issuance under the 2014 Amended and Restated Equity Incentive Plan, 672,979 shares of our common stock were reserved for future issuance pursuant to our 2018 Equity Incentive Plan and 1,990,000 shares of our common stock were reserved for future issuance pursuant to our 2022 Inducement Plan. To the extent outstanding options are exercised or we issue additional equity awards under our equity incentive plans, our existing stockholders may incur dilution.

**There is no guarantee of a continuing public market for you to resell our common stock.**

We must continue to satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share for 30 consecutive business days. If a company fails for 30 consecutive business days to meet the $1.00 minimum closing bid price requirement, Nasdaq will send a deficiency notice to the company, advising that it has been afforded a “compliance period” of 180 calendar days to regain compliance with the applicable requirements.

In the future, if our Common Stock falls below the continued listing standard of $1.00 per share or otherwise fails to satisfy any of the Nasdaq continued listing requirements, and if we are unable to cure such deficiency during any subsequent cure period, our Common Stock could be delisted from the Nasdaq. If our Common Stock ultimately were to be delisted for any reason, we could face significant material adverse consequences, including:

- limited availability of market quotations for our Common Stock;
- a limited amount of news and analyst coverage for us;
- a decreased ability for us to issue additional securities or obtain additional financing in the future;
- limited liquidity for our stockholders due to thin trading; and
- the potential loss of confidence by investors and employees.

**Accounting adjustments due to changes in circumstances or estimates may require us to write down intangible assets, such as goodwill and may have a material impact on our financial reporting and results of operations.**

We operate under one business component which is the same as our reporting unit based on the guidance in ASC Topic 350-20.

We assess goodwill for impairment at least annually during the fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. During 2022, we had events and conditions in the first quarter and third quarter that required an interim assessment of goodwill.

We evaluated current economic conditions during the third quarter of 2022, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the inflationary pressure on product and labor costs and operational inefficiencies attributable to continued global supply chain disruptions. We believe that these conditions were factors in our market capitalization falling below the book value of net assets as of September 30, 2022. Accordingly, we concluded a triggering event had occurred and performed interim goodwill impairment analyses and determined that our goodwill was fully impaired as of September 30, 2022.

We engaged a third-party valuation specialist to assist management in performing an interim goodwill impairment test in September 2022. For goodwill, impairment testing is based upon the best information available using a combination of the discounted cash flow method (a form of the income approach) and the guideline public company method, while also taking into consideration our market capitalization. Under the income approach, or discounted cash flow method, the significant assumptions used are projected net revenue, projected contribution margin (product operating margin before fixed costs), fixed costs and terminal growth rates. Projected net revenue, projected contribution margin and terminal growth rates were determined to be significant assumptions because they are the three primary drivers of the projected cash flows in the discounted cash flow fair value model. Under the guideline public company method, significant assumptions relate to the selection of appropriate guideline companies, the valuation multiples used in the market analysis and our market capitalization.

Due to the sustained decline in our stock price subsequent to September 30, 2022, we used the market capitalization as of September 30, 2022 to determine the amount of the impairment charge. As a result, we recorded a goodwill impairment charge of approximately $90.9 million in the three months ended September 30, 2022. We also had a triggering event during the three months ended March 31, 2022 and recorded an impairment charge of $29.0 million. For the nine months ended September 30, 2022, total goodwill impairment was approximately $119.9 million.

Goodwill was $119.9 million and $0 at December 31, 2021 and September 30, 2022, respectively.

We believe that the assumptions and estimates made are reasonable and appropriate, and changes in the assumptions and estimates could have a material impact on our reported financial results.

While we believe our conclusions regarding the estimates of fair value of our reporting unit is appropriate, these estimates are subject to uncertainty and by nature include judgments and estimates regarding various factors. These factors include the rate and extent of growth in the markets that our reporting unit serves, the realization of future sales price and volume increases, fluctuations in price and availability of key raw materials, future operating efficiencies and, as it pertains to discount rates, the volatility in interest rates and costs of equity. There was no triggering event in three months ended September 30, 2022, and we will continue to monitor all of these items which could result in a future impairment.

Some of the inherent estimates and assumptions used in determining fair value of our reporting unit are outside the control of management, including interest rates, tax rates, credit ratings and industry growth. Given the current COVID-19 global pandemic and the uncertainties regarding the financial potential impact on our business, there can be no assurance that our estimates and assumptions regarding the impact of COVID-19 and the recovery period made for purposes of the goodwill impairment testing performed will prove to be accurate predictions of the future. While we believe we have made reasonable estimates and assumptions to calculate the fair values of our reporting unit, it is possible changes could occur. As for our reporting unit, if in future years, the reporting unit’s actual results are not consistent with our estimates and assumptions used to calculate fair value, we may be required to recognize material impairments to goodwill. We will continue to monitor its reporting unit for any triggering events or other signs of impairment. We may be required to perform additional impairment testing based on changes in the economic environment, disruptions to our business, significant declines in operating results of our reporting unit, further sustained deterioration of our market capitalization, and other factors, which could result in impairment charges in the future. Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or the market capitalization deteriorates significantly from current levels, it is reasonably likely we will be required to record impairment charges in the future that could be material to our consolidated balance sheet or results of operations.

We review long-lived assets for impairment when performance expectations, events, or changes in circumstances indicate that the asset's carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows by comparing the carrying value of the asset group to the undiscounted cash flows. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique.

Certain asset groups experienced a significant decrease in sales and contribution margin through September 30, 2022. This was considered an interim triggering event for the three months ended September 30, 2022. Based on the analysis of comparing the undiscounted cash flow to the carrying value of the asset group, one group tested indicated that the assets may not be recoverable. For this asset group, we compared the fair value to the carrying amount of the asset group and recorded an intangible impairment charge of $3.1 million in the three months ended September 30, 2022.

Filed Nov 9, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-023937. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.