UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
OR
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-38937
Mohawk Group Holdings, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
83-1739858 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer |
|
37 East 18th Street, 7th Floor New York, NY |
|
10003 |
|
(Address of principal executive offices) |
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(Zip Code) |
(347) 676-1681
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
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Common Stock, $0.0001 par value per share |
|
MWK |
|
The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
|
Non-accelerated filer |
☒ |
|
Smaller reporting company |
☒ |
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Emerging growth company |
☒ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 28, 2020, the registrant had 17,763,164 shares of common stock, $0.0001 par value per share, outstanding.
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Page |
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PART I. |
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Item 1. |
1 |
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1 |
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2 |
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3 |
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4 |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
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Item 3. |
34 |
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Item 4. |
34 |
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PART II. |
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Item 1. |
36 |
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Item 1A. |
36 |
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Item 2. |
41 |
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Item 3. |
41 |
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Item 4. |
41 |
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Item 5. |
41 |
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Item 6. |
42 |
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44 |
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i
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
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• |
the potential impact to our business, revenue and financial condition, including our supply chain and our operations, due to the COVID-19 global pandemic; |
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• |
our expectation that consumer spending will continue to shift online, and that such shift will continue even after the COVID-19 global pandemic ends; |
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• |
our ability to grow personal protective equipment (“PPE”) net revenue in the second half of 2020; |
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• |
our future financial performance, including our revenue, costs of goods sold and operating expenses; |
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• |
our ability to achieve and grow profitability; |
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• |
the sufficiency of our cash to meet our liquidity and operational needs and to execute our growth strategies; |
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• |
our ability to maintain the security and availability of our technology platform, including our AIMEE (Artificial Intelligence Mohawk e-Commerce Engine) software platform; |
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• |
our ability to successfully launch new products, including our ability to successfully manage supply chain risks; |
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• |
our ability to identify, complete and integrate merger and acquisition transactions; |
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• |
our predictions about industry and market trends; |
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• |
our ability to successfully expand internationally; |
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• |
our ability to effectively manage our growth and future expenses; |
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• |
our estimated total addressable market; |
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• |
our ability to maintain, protect and enhance our intellectual property, including our AIMEE software platform; |
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• |
our ability to comply with modified or new laws and regulations applying to our business; |
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• |
our ability to attract and retain of qualified employees and key personnel; |
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• |
our ability to successfully defend litigation brought against us or to pursue litigation; and |
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• |
the increased expenses and obligations associated with being a public company. |
We caution you that the foregoing list may not contain all the forward-looking statements made in this Quarterly Report on Form 10-Q.
We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section of this Quarterly Report on Form 10-Q entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a highly competitive and challenging environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected, or that the plans, intentions or expectations disclosed, in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those expressed or implied by the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q, new information or the occurrence of
ii
unanticipated events, except as required by law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, other strategic transactions or investments we may make or enter into.
iii
MOHAWK GROUP HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
|
|
|
December 31, 2019 |
|
|
June 30, 2020 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
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CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
30,353 |
|
|
$ |
17,189 |
|
|
Accounts receivable—net |
|
|
1,059 |
|
|
|
8,646 |
|
|
Inventory |
|
|
36,212 |
|
|
|
27,346 |
|
|
Prepaid and other current assets |
|
|
5,395 |
|
|
|
6,671 |
|
|
Total current assets |
|
|
73,019 |
|
|
|
59,852 |
|
|
PROPERTY AND EQUIPMENT—net |
|
|
175 |
|
|
|
141 |
|
|
GOODWILL AND OTHER INTANGIBLES—net |
|
|
1,055 |
|
|
|
1,024 |
|
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OTHER NON-CURRENT ASSETS |
|
|
175 |
|
|
|
175 |
|
|
TOTAL ASSETS |
|
$ |
74,424 |
|
|
$ |
61,192 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
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CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
Credit facility |
|
$ |
21,657 |
|
|
$ |
18,168 |
|
|
Accounts payable |
|
|
21,064 |
|
|
|
15,045 |
|
|
Term loan |
|
|
3,000 |
|
|
|
6,000 |
|
|
Accrued and other current liabilities |
|
|
7,505 |
|
|
|
9,035 |
|
|
Total current liabilities |
|
|
53,226 |
|
|
|
48,248 |
|
|
OTHER LIABILITIES |
|
|
4 |
|
|
|
— |
|
|
TERM LOANS |
|
|
10,467 |
|
|
|
7,722 |
|
|
Total liabilities |
|
|
63,697 |
|
|
|
55,970 |
|
|
COMMITMENTS AND CONTINGENCIES (Note 9) |
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|
|
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STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
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Common stock, par value $0.0001 per share—500,000,000 shares authorized and 17,736,649 shares outstanding at December 31, 2019; 500,000,000 shares authorized and 17,763,164 shares outstanding at June 30, 2020 |
|
|
2 |
|
|
|
2 |
|
|
Additional paid-in capital |
|
|
140,477 |
|
|
|
152,948 |
|
|
Accumulated deficit |
|
|
(129,809 |
) |
|
|
(147,776 |
) |
|
Accumulated other comprehensive income |
|
|
57 |
|
|
|
48 |
|
|
Total stockholders’ equity |
|
|
10,727 |
|
|
|
5,222 |
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
74,424 |
|
|
$ |
61,192 |
|
See notes to condensed consolidated financial statements.
1
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
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||||||||||
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2019 |
|
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2020 |
|
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2019 |
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2020 |
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||||
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NET REVENUE |
|
$ |
30,368 |
|
|
$ |
59,800 |
|
|
$ |
48,213 |
|
|
$ |
85,428 |
|
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COST OF GOODS SOLD |
|
|
18,608 |
|
|
|
32,200 |
|
|
|
29,783 |
|
|
|
47,530 |
|
|
GROSS PROFIT |
|
|
11,760 |
|
|
|
27,600 |
|
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|
18,430 |
|
|
|
37,898 |
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OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Sales and distribution |
|
|
13,709 |
|
|
|
18,618 |
|
|
|
22,982 |
|
|
|
32,528 |
|
|
Research and development |
|
|
3,342 |
|
|
|
2,451 |
|
|
|
4,505 |
|
|
|
4,732 |
|
|
General and administrative |
|
|
10,305 |
|
|
|
8,352 |
|
|
|
13,671 |
|
|
|
16,355 |
|
|
TOTAL OPERATING EXPENSES: |
|
|
27,356 |
|
|
|
29,421 |
|
|
|
41,158 |
|
|
|
53,615 |
|
|
OPERATING LOSS |
|
|
(15,596 |
) |
|
|
(1,821 |
) |
|
|
(22,728 |
) |
|
|
(15,717 |
) |
|
INTEREST EXPENSE—net |
|
|
1,281 |
|
|
|
1,077 |
|
|
|
2,494 |
|
|
|
2,186 |
|
|
OTHER EXPENSE (INCOME)—net |
|
|
(13 |
) |
|
|
(6 |
) |
|
|
31 |
|
|
|
19 |
|
|
LOSS BEFORE INCOME TAXES |
|
|
(16,864 |
) |
|
|
(2,892 |
) |
|
|
(25,253 |
) |
|
|
(17,922 |
) |
|
PROVISION FOR INCOME TAXES |
|
|
15 |
|
|
|
45 |
|
|
|
15 |
|
|
|
45 |
|
|
NET LOSS |
|
$ |
(16,879 |
) |
|
$ |
(2,937 |
) |
|
$ |
(25,268 |
) |
|
$ |
(17,967 |
) |
|
Net loss per share, basic and diluted |
|
$ |
(1.38 |
) |
|
$ |
(0.19 |
) |
|
$ |
(2.13 |
) |
|
$ |
(1.17 |
) |
|
Weighted-average number of shares outstanding, basic and diluted |
|
|
12,206,747 |
|
|
|
15,425,312 |
|
|
|
11,872,326 |
|
|
|
15,308,966 |
|
See notes to condensed consolidated financial statements.
2
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(in thousands)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
||||
|
NET LOSS |
|
$ |
(16,879 |
) |
|
$ |
(2,937 |
) |
|
$ |
(25,268 |
) |
|
$ |
(17,967 |
) |
|
OTHER COMPREHENSIVE INCOME (LOSS): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
13 |
|
|
|
(9 |
) |
|
Other comprehensive income (loss) |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
13 |
|
|
|
(9 |
) |
|
COMPREHENSIVE LOSS |
|
$ |
(16,891 |
) |
|
$ |
(2,944 |
) |
|
$ |
(25,255 |
) |
|
$ |
(17,976 |
) |
See notes to condensed consolidated financial statements.
3
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share and per share data)
|
|
|
Three Months Ended June 30, 2019 |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Accumulated Other Comprehensive |
|
|
Total Stockholders’ |
|
|||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income/(Loss) |
|
|
Equity |
|
||||||
|
BALANCE—April 1, 2019 |
|
|
13,940,808 |
|
|
$ |
1 |
|
|
$ |
77,848 |
|
|
$ |
(79,409 |
) |
|
$ |
65 |
|
|
$ |
(1,495 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,879 |
) |
|
|
— |
|
|
|
(16,879 |
) |
|
Issuance of 88,548 shares of restricted common stock on May 17, 2019 and forfeiture of 69,141 shares of restricted common stock (see Note 7) |
|
|
19,407 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of 64,982 shares of restricted common stock on June 12, 2019 (see Note 7) |
|
|
64,982 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of 3,600,000 shares of common stock on June 14, 2019 (see Note 1) |
|
|
3,600,000 |
|
|
|
1 |
|
|
|
29,627 |
|
|
|
— |
|
|
|
— |
|
|
|
29,628 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
11,873 |
|
|
|
— |
|
|
|
— |
|
|
|
11,873 |
|
|
Exercise of stock options |
|
|
44 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
(12 |
) |
|
BALANCE—June 30, 2019 |
|
|
17,625,241 |
|
|
$ |
2 |
|
|
$ |
119,348 |
|
|
$ |
(96,288 |
) |
|
$ |
53 |
|
|
$ |
23,115 |
|
|
|
|
Three Months Ended June 30, 2020 |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Accumulated Other Comprehensive |
|
|
Total Stockholders’ |
|
|||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income/(Loss) |
|
|
Equity |
|
||||||
|
BALANCE—April 1, 2020 |
|
|
17,763,994 |
|
|
$ |
2 |
|
|
$ |
147,777 |
|
|
$ |
(144,839 |
) |
|
$ |
55 |
|
|
$ |
2,995 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,937 |
) |
|
|
— |
|
|
|
(2,937 |
) |
|
Forfeiture of 134,366 shares of restricted common stock |
|
|
(134,366 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of 134,364 shares of restricted common stock |
|
|
134,364 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares of restricted common stock retired in connection with vesting |
|
|
(828 |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
5,171 |
|
|
|
— |
|
|
|
— |
|
|
|
5,171 |
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
|
|
(7 |
) |
|
BALANCE—June 30, 2020 |
|
|
17,763,164 |
|
|
$ |
2 |
|
|
$ |
152,948 |
|
|
$ |
(147,776 |
) |
|
$ |
48 |
|
|
$ |
5,222 |
|
4
|
|
|
Six Months Ended June 30, 2019 |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Accumulated Other Comprehensive |
|
|
Total Stockholders’ |
|
|||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income/(Loss) |
|
|
Equity |
|
||||||
|
BALANCE—January 1, 2019 |
|
|
11,534,190 |
|
|
$ |
1 |
|
|
$ |
76,348 |
|
|
$ |
(71,020 |
) |
|
$ |
40 |
|
|
$ |
5,369 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,268 |
) |
|
|
— |
|
|
|
(25,268 |
) |
|
Issuance of 2,406,618 shares of restricted common stock on March 20, 2019 (see Note 7) |
|
|
2,406,618 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of 88,548 shares of restricted common stock on May 17, 2019 and forfeiture of 69,141 shares of restricted common stock (see Note 7) |
|
|
19,407 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of 64,982 shares of restricted common stock on June 12, 2019 (see Note 7) |
|
|
64,982 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of 3,600,000 shares of common stock on June 14, 2019 (see Note 1) |
|
|
3,600,000 |
|
|
|
1 |
|
|
|
29,627 |
|
|
|
— |
|
|
|
— |
|
|
|
29,628 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
13,373 |
|
|
|
— |
|
|
|
— |
|
|
|
13,373 |
|
|
Exercise of stock options |
|
|
44 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
13 |
|
|
BALANCE—June 30, 2019 |
|
|
17,625,241 |
|
|
$ |
2 |
|
|
$ |
119,348 |
|
|
$ |
(96,288 |
) |
|
$ |
53 |
|
|
$ |
23,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020 |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Accumulated Other Comprehensive |
|
|
Total Stockholders’ |
|
|||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income/(Loss) |
|
|
Equity |
|
||||||
|
BALANCE—January 1, 2020 |
|
|
17,736,649 |
|
|
$ |
2 |
|
|
$ |
140,477 |
|
|
$ |
(129,809 |
) |
|
$ |
57 |
|
|
$ |
10,727 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,967 |
) |
|
|
— |
|
|
|
(17,967 |
) |
|
Issuance of 439,145 shares of restricted common stock on March 12, 2020 (see Note 7) |
|
|
439,145 |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeiture of 371,329 shares of restricted common stock |
|
|
(371,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of 134,366 shares of restricted common stock |
|
|
(134,366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 134,364 shares of restricted common stock |
|
|
134,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
12,610 |
|
|
|
— |
|
|
|
— |
|
|
|
12,610 |
|
|
Shares of restricted common stock retired in connection with vesting |
|
|
(41,299 |
) |
|
|
|
|
|
|
(139 |
) |
|
|
|
|
|
|
|
|
|
|
(139 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9 |
) |
|
|
(9 |
) |
|
BALANCE—June 30, 2020 |
|
|
17,763,164 |
|
|
$ |
2 |
|
|
$ |
152,948 |
|
|
$ |
(147,776 |
) |
|
$ |
48 |
|
|
$ |
5,222 |
|
See notes to condensed consolidated financial statements.
5
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2019 |
|
|
2020 |
|
||
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(25,268 |
) |
|
$ |
(17,967 |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
95 |
|
|
|
79 |
|
|
Provision for sales returns |
|
|
209 |
|
|
|
25 |
|
|
Amortization of deferred financing costs and debt discounts |
|
|
609 |
|
|
|
610 |
|
|
Stock-based compensation |
|
|
13,373 |
|
|
|
12,610 |
|
|
Other |
|
|
66 |
|
|
|
27 |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,972 |
) |
|
|
(7,622 |
) |
|
Inventory |
|
|
(817 |
) |
|
|
8,866 |
|
|
Prepaid and other current assets |
|
|
(1,320 |
) |
|
|
(1,269 |
) |
|
Accounts payable, accrued and other liabilities |
|
|
(264 |
) |
|
|
(4,282 |
) |
|
Cash used in operating activities |
|
|
(16,289 |
) |
|
|
(8,923 |
) |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
|
(24 |
) |
|
|
(19 |
) |
|
Proceeds on sale of fixed assets |
|
|
3 |
|
|
|
— |
|
|
Cash used in investing activities |
|
|
(21 |
) |
|
|
(19 |
) |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering |
|
|
36,000 |
|
|
|
— |
|
|
Repayment of note payable related to Aussie Health acquisition |
|
|
— |
|
|
|
(207 |
) |
|
Taxes paid related to net settlement upon vesting of restricted common stock |
|
|
— |
|
|
|
(112 |
) |
|
Issuance costs from initial public offering |
|
|
(5,098 |
) |
|
|
— |
|
|
Borrowings from Mid Cap credit facility |
|
|
39,131 |
|
|
|
56,181 |
|
|
Repayments from Mid Cap credit facility |
|
|
(35,229 |
) |
|
|
(60,023 |
) |
|
Debt issuance costs from Mid Cap credit facility |
|
|
(581 |
) |
|
|
— |
|
|
Debt issuance costs from Horizon term loan |
|
|
(901 |
) |
|
|
— |
|
|
Deferred offering costs |
|
|
— |
|
|
|
(139 |
) |
|
Insurance obligation payments |
|
|
(756 |
) |
|
|
(1,491 |
) |
|
Insurance financing proceeds |
|
|
3,026 |
|
|
|
1,577 |
|
|
Capital lease obligation payments |
|
|
(28 |
) |
|
|
(4 |
) |
|
Cash provided (used) by financing activities |
|
|
35,564 |
|
|
|
(4,218 |
) |
|
EFFECT OF EXCHANGE RATE ON CASH |
|
|
1 |
|
|
|
1 |
|
|
NET CHANGE IN CASH AND RESTRICTED CASH FOR PERIOD |
|
|
19,255 |
|
|
|
(13,159 |
) |
|
CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
20,708 |
|
|
|
30,789 |
|
|
CASH AND RESTRICTED CASH AT END OF PERIOD |
|
$ |
39,963 |
|
|
$ |
17,630 |
|
|
RECONCILIATION OF CASH AND RESTRICTED CASH |
|
|
|
|
|
|
|
|
|
CASH |
|
$ |
39,527 |
|
|
$ |
17,189 |
|
|
RESTRICTED CASH—Prepaid and other assets |
|
|
307 |
|
|
|
312 |
|
|
RESTRICTED CASH—Other non-current assets |
|
|
129 |
|
|
|
129 |
|
|
TOTAL CASH AND RESTRICTED CASH |
|
$ |
39,963 |
|
|
$ |
17,630 |
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
1,743 |
|
|
$ |
1,618 |
|
|
Cash paid for taxes |
|
$ |
15 |
|
|
$ |
46 |
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Deferred equity fundraising cost not paid |
|
$ |
328 |
|
|
$ |
— |
|
See notes to condensed consolidated financial statements.
6
Notes to condensed consolidated financial statements
For the Three and Six Months Ended June 30, 2019 and 2020 (Unaudited)
(In thousands, except share and per share data)
|
1. |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
Mohawk Group Holdings, Inc. and subsidiaries (“Mohawk” or the “Company”) is a rapidly growing technology-enabled consumer products company that uses machine learning and data analytics to design, develop, market and sell products. Mohawk predominately operates through online retail channels such as Amazon.com, Inc. (“Amazon”) and Walmart, Inc.
Headquartered in New York, Mohawk’s offices can be found in China, Philippines, Israel and Poland.
Liquidity and Going Concern—The Company is an early-stage growth company. Accordingly, the Company endeavors to continuously invest in the launch of new products, the development of its software, and the expansion of its sales and distribution infrastructure in order to accelerate revenue growth and scale operations to support such growth. To fund these investments, the Company has historically obtained financing and raised capital since its inception with the expectation that the Company will generate profits in the future. The Company intends to continue to its strategy of investing in growth by launching new products, developing its software and expanding its sales and distribution operations for the foreseeable future.
As a result of its historical investments, the Company has incurred operating losses since its inception, which includes operating losses of $54.3 million and $15.7 million for the year ended December 31, 2019 and the six months ended June 30, 2020, respectively, and had an accumulated deficit of $129.8 million and $147.8 million at December 31, 2019 and June 30, 2020, respectively, cash on hand of $30.4 million and $17.2 million at December 31, 2019 and June 30, 2020, respectively, total outstanding borrowings from lenders of $35.1 million and $31.9 million at December 31, 2019 and June 30, 2020, respectively, and no available capacity on borrowings as of December 31, 2019 and June 30, 2020. The Company has raised $102.0 million in equity financing to fund its operations since inception, including the net proceeds from the Company’s initial public offering of common stock (“IPO”), through June 30, 2020.
During the Company’s review of the June 30, 2020 condensed consolidated financial statements, the Company’s financial forecast for the next 12 months following the filing date of this Quarterly Report on Form 10-Q, included revenue growth, margin expansion, a reduction of certain fixed costs, an improvement in inventory management and a reduction in operating cash deficit. In addition, management anticipated that the Company would not breach its financial covenants associated with its existing credit facility or term loan for the next twelve months. Currently, the Company has met or exceeded its forecasts over the past two quarters. However, there are no assurances that the Company will continue to meet or exceed forecasts due to its short operating history, or that it will be able to maintain sufficient liquidity to fund operations and/or compliance with its covenants without future equity investments or issuance of debt from outside sources. In the event of a breach of the Company’s financial covenants under the credit facility and/or its term loan, outstanding borrowings would become due on demand absent a waiver from the lenders.
In addition, while the Company anticipates it will remain in compliance with the covenants prescribed by its existing financing arrangements (See Note 6 – Credit Facility and Term Loans), there can be no assurance that the Company’s operating forecast and cash flows for the twelve months following the issuance of the accompanying condensed consolidated financial statements, will be attained such that the Company will be able to maintain compliance with these covenants or generate sufficient liquidity to fund its ongoing operations. The Company’s short operating history of meeting and exceeding its forecasts, the COVID-19 pandemic (see below) and these negative financial conditions raise substantial doubt about the Company’s ability to continue as a going concern as of June 30, 2020.
These condensed consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern and as such, include no adjustments that might be necessary in the event that the Company was unable to operate on this basis.
Management plans to continue to closely monitor its operating forecast and cash flows, and may pursue additional sources of financing and/or capital to fund its operations. If the Company is unable to improve its operating results, increase its operating cash inflows, and/or obtain additional sources of financing and capital on acceptable terms (if at all), the Company may have to make significant changes to its operating plan, such as delay expenditures, reduce investments in new products, delay the development of its software, reduce its sale and distribution infrastructure, or otherwise significantly reduce the scope of its business. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
7
On January 30, 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified COVID-19 as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 pandemic, including the impact associated with preventative and precautionary measures that the Company, other businesses and governments are taking, continues to evolve as of the date of this report. As such, the future impact on the Company’s personnel, business and global operations, and on the Company’s suppliers, logistics providers, marketplaces and other business partners is uncertain and cannot be reasonably estimated at this time. Given the nature of the COVID-19 pandemic, it is possible that any and every aspect of the Company’s value chain could be disrupted, and such impact could have a material adverse impact on the Company’s business, financial condition, operating results and prospects. For example, the Company may be unable to launch new products, replenish inventory for existing products, ship into or receive inventory in its third-party warehouses, or ship or sell products to customers, in each case on a timely basis or at all. The Company may also be unable to forecast demand for its products during the pendency of this pandemic and the Company may experience a substantial decrease in the demand for its products, most of which are considered not essential. In addition, the majority of the Company’s personnel are currently working remotely, which creates challenges in the way the Company operates its business, including, but not limited to, the manner in which the Company tests products and its ability to meet its reporting obligations. The Company’s ability to execute its operations could be further impacted if any of the Company’s key personnel contracts COVID-19. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, the continued widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could in the future negatively affect its liquidity. Due to the uncertainty as to the severity and duration of the pandemic, the impact on the Company’s future revenues, profitability, liquidity, financial condition, business and results of operations is uncertain at this time.
While the Company has been preserving its 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 the Company’s business, including its relationships with these vendors. The Company’s operations rely on third-parties to manufacture its products, to provide logistics and warehousing services and to facilitate sales of its products, and, accordingly, the Company relies on the business continuity plans of these third parties to operate during the pandemic and have limited ability to influence their plans. In light of the uncertainty as to the severity and duration of the COVID-19 pandemic, the Company may be unable to remain in compliance with the terms of its existing loan agreements and may be unable to secure a waiver, which could have an adverse impact on the Company’s business, prospects and financial condition and the Company may seek additional financing options. The Company expects that any financing, if successful, will be expensive and/or dilutive.
The COVID-19 pandemic began to have an unfavorable impact on the Company, including its key manufacturing partners, in January 2020. Substantially all of the Company’s products are sourced and manufactured in China, including new products that it expects to launch during 2020. In addition, the Company relies upon its team in Shenzhen for a number of functions relating to product sourcing and development, among other things. The Company has a key manufacturing partner in China that re-opened its facilities as of February 10, 2020 and reached over 90% capacity early in March 2020. This key manufacturer is expected to manufacture over 30% of the Company’s inventory in 2020.
To date the Company has had few overall negative impacts to its business and operations from the COVID-19 pandemic. As reported, the Company has seen over 97% growth in its net revenue for the three months ended June 30, 2020 versus the same quarter in the prior year. The shift of consumer spending from traditional retail to online spending has increased dramatically due to the COVID-19 pandemic and the Company expects that spending will continue to shift online. This has benefited the Company as historically over 90% of its net revenue comes from the sale of products online in the U.S. and it believes this shift to increased online consumer spending will continue even after the COVID-19 pandemic ends. The Company’s investments in its infrastructure and software and its expansion of its third party warehousing network have also allowed the Company to continue to deliver its products, even when Amazon itself limited its delivery services. The Company has had no material impacts to its vendor or other business relationships to date as it negotiated improved credit terms. Further, to date, none of the Company’s key operations vendors has had any negative impacts related to COVID-19 or changes which have negatively affected the Company’s business, borrowing capabilities or financial covenants. Though the COVID-19 pandemic is fluid, the Company believes at this time that its business may continue to minimize the impact, if any, from this current pandemic given the Company’s ability to work remotely, continued consumer demand for products on e-commerce channels and the business continuity plans of its key manufacturing partners and other vendors. The Company believes this combination of factors may help to mitigate risk from the COVID-19 pandemic.
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and as required by Rule 10-01 of Regulation S-X. In the opinion of the Company’s management, the accompanying unaudited
8
condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of June 30, 2020, the results of operations for the three and six months ended June 30, 2019 and 2020, the statements of stockholders’ equity for the three and six months ended June 30, 2019 and 2020, and cash flows for the six months ended June 30, 2019 and 2020. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year.
The condensed consolidated balance sheet as of December 31, 2019 included herein was derived from the Company’s audited consolidated financial statements as of that date, but does not include all of the information and notes required by GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, on March 30, 2020 (the “Annual Report”).
Use of Estimates—Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period covered by the financial statements and accompanying notes. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from those estimates.
Principles of Consolidation—The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.
Revenue Recognition—The Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The Company derives its revenue from the sale of consumer products. The Company sells its products directly to consumers through online retail channels and through wholesale channels.
Net Revenue by Category. The following table sets forth the Company’s net revenue disaggregated by sales channel and geographic region based on the billing addresses of its customers:
|
|
|
Three Months Ended June 30, 2019 (in thousands) |
|
|||||||||||||
|
|
|
Direct |
|
|
Wholesale |
|
|
Managed SaaS |
|
|
Total |
|
||||
|
North America |
|
$ |
29,276 |
|
|
$ |
662 |
|
|
$ |
397 |
|
|
$ |
30,335 |
|
|
Other |
|
|
33 |
|
|
|
— |
|
|
|
— |
|
|
|
33 |
|
|
Total net revenue |
|
$ |
29,309 |
|
|
$ |
662 |
|
|
$ |
397 |
|
|
$ |
30,368 |
|
|
|
|
Three Months Ended June 30, 2020 (in thousands) |
|
|||||||||||||||||||
|
|
|
Direct |
|
|
|
|||||||||||||||||