ater-8ka_20201130.htm
true 0001757715 0001757715 2020-11-30 2020-11-30

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

(Amendment No. 1)

 

CURRENT REPORT

PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 30, 2020

 

Aterian, Inc.

(Exact Name of Registrant as Specified in its Charter) 

 

 

 

 

 

 

Delaware

 

001-38937

 

83-1739858

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

Aterian, Inc.
37 East 18th Street, 7th Floor

New York, NY 10003

(Address of Principal Executive Offices)(Zip Code)

(347) 676-1681
(Registrant’s telephone number, including area code)

N/A

(Former Name, or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities Registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value

 

ATER

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.


 


 

 

Explanatory Note

On December 1, 2020, Aterian, Inc. (the “Company”, or “Aterian”), formerly known as Mohawk Group Holdings, Inc., filed with the Securities and Exchange Commission a Current Report on Form 8-K (the “Initial Form 8-K”) to report, among other things, Aterian’s acquisition (the “Acquisition”) on December 1, 2020 of certain assets of 9830 Macarthur LLC, a Wyoming limited liability company (“9830”), Reliance Equities Group, LLC, a Wyoming limited liability company (“Reliance”), and ZN Direct LLC, a Wyoming limited liability company (collectively with 9830 and Reliance, the “Sellers”), related to the Sellers’ ecommerce business under the brands Mueller, Pursteam, Pohl and Schmitt and Spiralizer, which is conducted through certain channels or websites, including amazon.com.  This Amendment No. 1 on Form 8-K/A (this “Amendment No. 1”) amends the Initial Form 8-K to include financial information required under Item 9.01, which was not previously filed with the Initial Form 8-K. Except as stated in this Explanatory Note, no other information contained in the Initial Form 8-K is changed.

 

Item 9.01. Financial Statements and Exhibits.

 

(a) Financial statements of businesses acquired.

The financial statements required by Item 9.01(a) of Form 8-K are filed as Exhibit 99.2 and Exhibit 99.3 to this Amendment No. 1 and are incorporated herein by reference.

(b) Pro forma financial information.

The pro forma financial information required by Item 9.01(b) of Form 8-K is filed as Exhibit 99.4 to this Amendment No. 1 and is incorporated herein by reference.

(d) Exhibits   

23.1

Consent of Boeckermann Grafstrom & Mayer, LLC.

99.2

Audited combined carve-out financial statements of 9830 MacArthur LLC & Subsidiaries as of and for the years ended December 31, 2019 and 2018.

99.3

Unaudited combined carve-out financial statements of 9830 MacArthur LLC & Subsidiaries as of and for the nine months ended September 30, 2020 and 2019.

99.4

Unaudited pro forma, condensed, consolidated and combined financial information of Aterian, Inc. and 9830 MacArthur LLC & Subsidiaries (on a carve-out basis) for the nine months ended September 30, 2020 and year ended December 31, 2019.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

 


 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

ATERIAN, INC.

 

 

 

 

 

 

 

 

 

Date:  May 14, 2021

By:

/s/ Yaniv Sarig

 

 

 

Name: Yaniv Sarig

 

 

 

Title: President and Chief Executive Officer

 

 

 

ater-ex231_8.htm

Exhibit 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference of our independent auditors’ report dated May 5, 2021, relating to the financial statements of 9830, MacArthur, LLC & Subsidiaries Ecommerce Business Under the Brands Mueller, Pursteam, Pohl and Schmitt and Spiralizer appearing in this Current Report on Form 8- K of Aterian, Inc.

St. Paul, Minnesota
May 13, 2021

 

ater-ex992_7.htm

Exhibit 99.2

 

 

 

 

 

 

 

 

9830 MacArthur, LLC & Subsidiaries Ecommerce Business Under the Brands Mueller, Pursteam, Pohl and Schmitt and Spiralizer

 

COMBINED CARVE-OUT FINANCIAL STATEMENTS

 

For the Years Ended December 31, 2019 and 2018

 

 


 

 

9830 MacArthur, LLC & Subsidiaries

Table of Contents

For the Years Ended December 31, 2019 and 2018

 

INDEPENDENT AUDITORS’ REPORT

1-2

COMBINED CARVE-OUT BALANCE SHEETS

3

COMBINED CARVE-OUT STATEMENTS OF OPERATIONS

4

COMBINED CARVE-OUT STATEMENTS OF EQUITY IN NET ASSETS

5

COMBINED CARVE-OUT STATEMENTS OF CASH FLOWS

6

NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS

7-13

 

 

 

 


 

 

 

 

Independent Auditors’ Report

To the Members of

9830 MacArthur, LLC & Subsidiaries

 

We have audited the accompanying combined carve-out financial statements of 9830 MacArthur, LLC & Subsidiaries' ecommerce business under the brands Mueller, Pursteam, Pohl and Schmitt and Spiralizer (the "carved-out business"), which comprise the combined carve-out balance sheets as of December 31, 2019 and 2018, and the related combined carve-out statements of operations, equity in net assets and cash flows for the years then ended and the related notes to the combined financial statements.

 

Management’s Responsibility for the Combined Carve-Out Financial Statements

Management is responsible for the preparation and fair presentation of these combined carve-out financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined carve-out financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors' Responsibility

Our responsibility is to express an opinion on these combined carve-out financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined carve-out financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined carve-out financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the combined carve-out financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the combined carve-out financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined carve-out financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

1


 

 

Opinion

In our opinion, the combined carve-out financial statements referred to above present fairly, in all material respects, the financial position of the carved-out business as of December 31, 2019 and 2018 and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Emphasis of Matter

As discussed in Note 1, the accompanying combined carve-out financial statements do not represent the business of 9830 MacArthur, LLC and Subsidiaries in its entirety, but rather the carved-out business. The combined carve-out financial statements reflect the assets, liabilities, revenue, and expenses directly attributable to the carved-out business, as well as allocations deemed reasonable by management, to present the combined carve-out financial position, results of operations, changes in equity in net assets and cash flows in the combined carve-out financial statements and do not necessarily reflect the combined carve-out financial position, results of operations, changes in equity in net assets, and cash flows of the carved-out business in the future or what they would have been had the carved-out business been a separate, stand-alone entity during the periods presented . Our opinion is not modified with respect to this matter.

 

As discussed in Note 5, subsequent to December 31, 2019, the certain assets of the carved-out business were acquired by Mohawk Group Holdings, Inc. and its subsidiary Truweo, LLC. Our opinion is not modified with respect to this matter.

 

 

 

BOECKERMANN GRAFSTROM & MAYER, LLC

 

Certified Public Accountants

 

 

St. Paul, Minnesota

 

May 5, 2021

 

 

 

 

2


9830 MacArthur, LLC & Subsidiaries

Combined Carve-Out Balance Sheets

December 31, 2019 and 2018

 

 

 

ASSETS

 

2019

 

 

2018

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Accounts Receivable

 

$

1,976,219

 

 

$

1,316,229

 

Inventories

 

 

7,074,513

 

 

 

4,035,298

 

Prepaid Inventory

 

 

793,053

 

 

 

606,966

 

Total Current Assets

 

$

9,843,785

 

 

$

5,958,493

 

TOTAL ASSETS

 

$

9,843,785

 

 

$

5,958,493

 

LIABILITIES AND EQUITY IN NET ASSETS

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts Payable

 

$

1,308,633

 

 

$

804,805

 

Sales Return Reserve

 

 

398,214

 

 

 

147,458

 

Accrued Expenses

 

 

646,552

 

 

 

290,115

 

Total Current Liabilities

 

$

2,353,399

 

 

$

1,242,378

 

EQUITY IN NET ASSETS

 

$

7,490,386

 

 

$

4,716,115

 

TOTAL LIABILITIES AND EQUITY IN NET ASSETS

 

$

9,843,785

 

 

$

5,958,493

 

 

 

 

See Independent Auditors’ Report and the Notes to Financial Statements

3


9830 MacArthur, LLC & Subsidiaries

Combined Carve-Out Statements of Operations

For the Years Ended December 31, 2019 and 2018

 

 

 

 

 

2019

 

 

2018

 

NET REVENUE

 

$

42,758,402

 

 

$

21,627,615

 

COST OF GOODS SOLD

 

 

15,343,189

 

 

 

8,101,705

 

GROSS PROFIT

 

$

27,415,213

 

 

$

13,525,910

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Sales and Distribution

 

$

20,620,007

 

 

$

11,004,667

 

General and Administrative

 

 

909,527

 

 

 

438,103

 

TOTAL OPERATING EXPENSES

 

$

21,529,534

 

 

$

11,442,770

 

NET INCOME

 

$

5,885,679

 

 

$

2,083,140

 

 

 

See Independent Auditors’ Report and the Notes to Financial Statements

4


9830 MacArthur, LLC & Subsidiaries

Combined Carve-Out Statements of Equity in Net Assets

For the Years Ended December 31, 2019 and 2018

 

 

Balance at December 31, 2017

$

2,535,360

 

Net Contribution by the Company

 

97,615

 

Net Income

 

2,083,140

 

Balance at December 31, 2018

$

4,716,115

 

Net Distribution to the Company

 

(3,111,409

)

Net Income

 

5,885,679

 

Balance at December 31, 2019

$

7,490,385

 

 

 

 

See Independent Auditors’ Report and the Notes to Financial Statements

5


9830 MacArthur, LLC & Subsidiaries

Combined Carve-Out Statements of Cash Flows

For the Years Ended December 31, 2019 and 2018

 

 

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net Income

 

$

5,885,679

 

 

$

2,083,140

 

Adjustments to Reconcile Net Income to Net Cash

 

 

 

 

 

 

 

 

Provided (Used) by Operating Activities

 

 

 

 

 

 

 

 

Changes in Operating Assets and Liabilities

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(659,990

)

 

 

(798,413

)

Inventories

 

 

(3,039,215

)

 

 

(1,525,881

)

Prepaid Inventory

 

 

(186,087

)

 

 

(341,626

)

Accounts Payable

 

 

503,828

 

 

 

324,323

 

Return Reserve

 

 

250,756

 

 

 

80,584

 

Accrued Expenses

 

 

356,437

 

 

 

80,258

 

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

 

$

3,111,409

 

 

$

(97,615

)

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES

 

$

 

 

$

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net Contribution by (Distribution) to the Company

 

 

(3,111,409)

 

 

 

97,615

 

NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES

 

$

(3,111,409

)

 

$

97,615

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

$

 

 

$

 

CASH AND CASH EQUIVALENTS - Beginning of Year

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS - End of Year

 

$

 

 

$

 

 

 

 

See Independent Auditors’ Report and the Notes to Financial Statements

6


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

December 31, 2019 and 2018

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

The combined carve-out financial statements consist of balances and activity compiled and reported related to the e-commerce business of 9830 MacArthur, LLC & Subsidiaries (the "Company") under the brands Mueller, Pursteam, Pohl and Schmitt and Sprializer (the "Carved-Out Business").

 

The carved-out business is a consumer products company that develops, markets and sells products through online retail channels such as Amazon, primarily in the United States of America.

 

Basis of Presentation

The accompanying combined carve-out financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These financial statements have been prepared on a "carve out" basis from the consolidated financial statements of 9830 MacArthur, LLC using the historical results of operations, cash flows, assets and liabilities and include allocations of income, expenses, assets and liabilities from the Company. These allocations reflect significant assumptions, and the combined carve-out financial statements do not fully reflect what the financial positions, results of operations and cash flows of the carved-out business would have been had the carved-out business been operated exclusively within a stand-alone company during the periods presented.

 

Carve-out Methodology

The following accounts were mainly allocated based on activity tied to a specific product identification number: accounts receivable, inventories, prepaid inventory, accounts payable, sales return reserve, accrued expenses, revenues, and direct operating expenses such as cost of goods sold and sales and distribution expenses. Other operating expenses, including general overhead items, were allocated based on the proportionate share of revenues of the Company represented by the carved-out business, or by a more specific method if detailed information was available.

 

All significant intercompany accounts and transactions among the carved-out business have been eliminated in the accompanying combined carve-out financial statements.

 

Limited Liability Companies

9830 MacArthur, LLC and certain of its subsidiaries are each separate limited liability companies (LLC's). As such, members of each LLC are not liable for any of the debts or liabilities of that LLC or of any other LLC included in these combined carve-out financial statements.

 

7


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

December 31, 2019 and 2018

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Accounts Receivable

The carved-out business extends unsecured credit to customers in the normal course of business. The carved-out business provides an allowance for doubtful accounts when appropriate, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions, on an individual customer basis. Receivables are written off only after all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer. Accounts receivable are due based upon agreed-upon terms with customers. Accounts receivable are considered past due if the carved-out business has not received payments based upon the agreed-upon terms. No allowance for doubtful accounts was considered necessary as of both December 31, 2019 and 2018. The carved-out business does not accrue interest on accounts receivable.

 

Inventories

Inventories consist primarily of finished goods. The carved-out business currently records inventory on its balance sheet on a first-in, first-out ("FIFO") basis, and are recorded at the lower of cost or net realizable value. The carved-out business' costs include the amounts it pays manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from its manufacturers to its warehouses, as applicable.

 

Revenue Recognition

The carved-out business accounts for revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers".

 

The carved-out business derives its revenue from the sale of consumer products. The carved-out business sells its products to consumers primarily through the Amazon.com, Inc. ("Amazon") online retail channel.

 

The carved-out business considers customer order confirmations to be a contract with the customer. Customer confirmations are executed at the time an order is placed through an online third-party channel.

 

Revenue is recognized when control of the product is transferred to the customer (i.e., when the carved-out business' performance obligation is satisfied), which typically occurs at shipment date. As a result, the carved-out business has a present and unconditional right to payment and records the amount due from the customer in accounts receivable.

 

Revenue is recorded at the net sales price (transaction price), which includes an estimate of future returns based on historical return rates. There is judgment in utilizing historical trends for estimating future returns. The carved-out business' refund liability for sales returns was $363,980 and $112,225 as of December 31, 2019 and 2018, respectively, and is included in accrued liabilities on the combined carve-out balance sheet.

 

8


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

December 31, 2019 and 2018

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Revenue Recognition (Continued)

The carved-out business evaluated principal versus agent considerations to determine whether it is appropriate to record platform fees paid to Amazon as an expense or as a reduction of revenue. Platform fees are recorded as sales and distribution expense and are not recorded as a reduction of revenue because it owns and controls all the goods before they are transferred to the customer. The carved-out business can, at any time, direct Amazon and similarly with other 3rd party logistics providers ('Logistics Providers"), to return the carved-out business' inventory to any location specified by the carved-out business. Any returns made by customers directly to Logistics Providers is the responsibility of the carved-out business to make customers whole and the carved-out business retains the back-end inventory risk. Further, the carved-out business is subject to credit risk (i.e. for credit card chargebacks), establishes prices of its products, can determine who fulfills the goods to the customer (Amazon or the carved-out business) and can limit quantities or stop selling the goods at any time. Based on these considerations, the carved-out business is the principal in this arrangement.

 

A performance obligation is a promise in a contract to transfer a distinct good to the customer and is the unit of account in ASC Topic 606. A contract's transaction price is recognized as revenue when the performance obligation is satisfied. Each of the carved-out business' contracts have a single distinct performance obligation, which is the promise to transfer individual goods.

 

For consumer product sales, the carved-out business has elected to treat shipping and handling as fulfillment activities and not a separate performance obligation. Accordingly, the carved-out business recognizes revenue for its single performance obligation related to product sales at the time control of the merchandise passes to the customer, which is generally at the time of shipment. The carved-out business bills customers for charges for shipping and handling on certain sales and such charges are recorded as part of net revenues. Shipping and handling revenue for the years ended December 31, 2019 and 2018 were de minimis.

 

For each contract, the carved-out business considers the promise to transfer products to be the only identified performance obligation. In determining the transaction price, the carved-out business evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the carved-out business expects to be entitled.

 

All of the carved-out business' revenue for the years ended December 31, 2019 and 2018 were recognized at a point in time.

 

Sales taxes collected from customers are presented on a net basis and as such are excluded from net revenues.

 

9


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

December 31, 2019 and 2018

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Advertising Costs

Advertising costs are charged to operations when incurred. Advertising expense was approximately $741,000 and $580,000 for the years ended December 31, 2019 and 2018, respectively.

 

Income Taxes

The operations of the carved-out business were conducted under entities classified as partnerships for federal and state income tax purposes. Each member's allocable share of the Company's taxable income or loss is taxed on the member's income tax returns. No provision or liability for federal or state income taxes has been included in the combined carve-out financial statements. The Company is subject to U.S. federal, state and local income tax examinations by the tax authorities. State franchise tax assessed at the Company level is charged to the Company’s operations as incurred.

 

The Company is not currently under examination by any taxing jurisdiction. New IRS partnership audit procedures are effective for returns filed for taxable years beginning after December 31, 2017. Generally, under the new IRS audit provisions, the IRS may assess the Company for the cost of a tax liability resulting from an IRS examination adjustment. The collection of income tax from the Company, however, is an administrative convenience on the part of the government to collect the underpayment of income taxes from the members attributable to prior periods. Accordingly, the federal income taxes on Company income are attributable to the members and not reported as an entity level liability of the Company. In the event of any future tax assessments paid by the Company under the IRS partnership audit regime, such amounts and any related penalties and interest shall be reported as a distribution from the Company to the members for financial statement purposes.

 

Recent Accounting Pronouncements

During February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. During 2018, the FASB also issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”, which addresses narrow aspects of the guidance originally issued in ASU No. 2016-02; ASU 2018-11, “Targeted Improvements”, which provides entities with an additional (and optional) transition method whereby an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and also provides lessors with a practical expedient, by class of underlying asset, to not separate non- lease components from the associated lease component and, instead, to account for those components as a single component; and ASU No. 2018-20, “Narrow-Scope Improvements for Lessors”, which addresses sales and other similar taxes collected from lessees, certain lessor costs, and the recognition of variable payments for contracts with lease and non-lease components.

 

10


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

December 31, 2019 and 2018

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recent Accounting Pronouncements (Continued)

During 2019, the FASB also issued ASU No. 2019-01, which clarified Topic 842’s interim disclosure requirements and amended certain industry-specific guidance related to determining the fair value of leased assets and the cash flow presentation of principal payments received under sales-type and direct finance leases. Topic 842 (as amended) is effective for annual periods beginning after December 15, 2021. Early adoption is permitted. The carved-out business is currently assessing the effect that ASU No. 2016-02, as amended, will have on its combined carve-out results of operations, financial position and cash flows.

 

Management's Use of Estimates

The preparation of combined carve-out financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined carve-out financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

NOTE 2:

INVENTORIES

 

Inventory consisted of the following as of December 31, 2019 and 2020:

 

 

 

2019

 

 

2018

 

Inventory on Hand

 

$

5,255,698

 

 

$

3,396,099

 

Inventory in Transit

 

 

1,818,815

 

 

 

639,199

 

 

 

$

7,074,513

 

 

$

4,035,298

 

 

 

 

11


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

December 31, 2019 and 2018

 

NOTE 3:

COMMITMENTS AND CONTINGENCIES

 

Significant Concentrations

The carved-out business' accounts receivable are derived from sales contracts with a large number of customers. The carved-out business maintains reserves for potential credit losses on customer accounts when deemed necessary. Significant customers are those which represent more than 10% of the carved-out business' total net or gross accounts receivable balance at the balance sheet date. During the years ended December 31, 2019 and 2018, the carved-out business had no customer that accounted for 10% or more of gross accounts receivable. As of December 31, 2019, and 2018, substantially all of the carved-out business' accounts receivable are held by the carved-out business' sales platform vendor Amazon, which collects money on the carved-out business' behalf from its customers.

 

The carved-out business is reliant on one key vendor which currently provides the carved-out business with its sales platform, logistics and fulfillment operations, including certain warehousing for the carved-out business' goods and invoicing and collection of its revenue from the carved-out business' end customers. Substantially all of the carved-out business' revenue was generated through the Amazon sales platform in both 2019 and 2018.

 

Inventory Purchases

As of December 31, 2019, and 2018, the carved-out business had approximately $445,000 and

$712,000, respectively, of inventory purchase orders placed with vendors that had not been fulfilled or prepaid.

 

Legal Proceedings

At any point in time, the carved-out business could have claims and pending legal proceedings outstanding. These proceedings are, in the opinion of management, ordinary routine matters incidental to the normal business conducted by the carved-out business. In the opinion of management, the ultimate dispositions of such proceedings are not expected to have a materially adverse effect on the carved-out business' combined results of operations, financial position or cash flows.

 

 

NOTE 4:SUBSEQUENT EVENTS

 

The carved-out business has evaluated subsequent events occurring through REPORT DATE, the date that the combined carve-out financial statements were available to be issued, for events requiring recording or disclosure in the carved-out business combined carve-out financial statements.

 

12


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

December 31, 2019 and 2018

 

NOTE 4:SUBSEQUENT EVENTS (CONTINUED)

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The COVID-19 outbreak has severely restricted the level of economic activity throughout the world, including geographic locations in which the carved-out business operates. The extent of the impact of COVID-19 on the carved-out business' operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related governmental or other regulatory actions. Given the uncertainty regarding the spread of this coronavirus, the related financial impact cannot be reasonably estimated at this time.

 

On December 1, 2020, the Company entered into, and closed the transactions under an Asset Purchase Agreement ("the Agreement") with Mohawk Group Holdings, Inc. and its subsidiary Truweo, LLC ("the Purchaser"). Pursuant to the Agreement, the Purchaser, among other things, purchased and acquired certain of the carved-out business' assets and assumed certain liabilities related to the carved-out business.

 

As consideration for the purchase, the Company received from the Purchaser (i) $25,000,000 in cash, (ii) 4,220,000 shares of Common Stock of Mohawk Group Holdings, Inc., and (iii) a non-negotiable promissory note in favor of the Company in the amount of $15,799,499, representing the value of certain inventory that the Company had paid for, but not yet sold as of the closing date, the principal amount of which shall be subject to adjustment in accordance with the terms of the Agreement. In addition, subject to achievement of certain contribution margin thresholds on certain products of the acquired business for the years ending December 31, 2021 and 2022, the Company shall be entitled to receive earn out payments as defined in the Agreement.

13

ater-ex993_56.htm

Exhibit 99.3

 

 

 

 

 

 

 

 

9830 MacArthur LLC & Subsidiaries

Ecommerce Business Under the Brands

Mueller, Pursteam, Pohl and Schmitt

and Spiralizer

 

COMBINED CARVE-OUT FINANCIAL STATEMENTS

 

For the Nine Months Ended

September 30, 2020 and 2019

 

 


 

 

9830 MacArthur, LLC & Subsidiaries

Table of Contents

For the Nine months ended September 30, 2020 and 2019

 

 

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

1

COMBINED CARVE-OUT BALANCE SHEETS

2

COMBINED CARVE-OUT STATEMENTS OF OPERATIONS

3

COMBINED CARVE-OUT STATEMENTS OF EQUITY IN NET ASSETS

4

COMBINED CARVE-OUT STATEMENTS OF CASH FLOWS

5

NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS

6-12

 

 

 


 

 

Independent Accountants’ Review Report

To the Members of

9830 MacArthur LLC & Subsidiaries

Sheridan, Wyoming

We have reviewed the accompanying combined financial statements of 9830 MacArthur, LLC & Subsidiaries’ ecommerce business under the brands Mueller, Pursteam, Pohl and Schmitt and Spiralizer (the “carve-out” business), which comprise the combined carve-out balance sheets as of September 30, 2020 and 2019, and the related combined carve-out statements of operations and equity in net assets , and cash flows for the nine months then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s carve-out financial data and making inquiries of management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the combined carve-out financial statements as a whole. Accordingly, we do not express such an opinion.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these combined carve-out financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined carve-out financial statements that are free from material misstatement whether due to fraud or error.

Accountant’s Responsibility

Our responsibility is to conduct the review engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the combined carve-out financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.

Accountant’s Conclusion

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying combined carve-out financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America.

 

 

 

BOECKERMANN GRAFSTROM & MAYER, LLC

 

Certified Public Accountants

 

 

St. Paul, Minnesota

 

May 5, 2021

 

 

 

1


9830 MacArthur, LLC & Subsidiaries

Combined Carve-Out Balance Sheets

September 30, 2020 and 2019

 

 

 

ASSETS

 

2020

 

 

2019

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Accounts Receivable

 

$

4,835,003

 

 

$

1,529,994

 

Inventories

 

 

14,101,346

 

 

 

5,629,962

 

Prepaid Inventory

 

 

3,149,699

 

 

 

1,308,733

 

Total Current Assets

 

$

22,086,048

 

 

$

8,468,689

 

TOTAL ASSETS

 

$

22,086,048

 

 

$

8,468,689

 

LIABILITIES AND EQUITY IN NET ASSETS

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts Payable

 

$

3,970,047

 

 

$

1,341,929

 

Sales Return Reserve

 

 

168,982

 

 

 

74,569

 

Accrued Expenses

 

 

1,226,557

 

 

 

589,942

 

Total Current Liabilities

 

$

5,365,586

 

 

$

2,006,440

 

EQUITY IN NET ASSETS

 

$

16,720,462

 

 

$

6,462,249

 

TOTAL LIABILITIES AND EQUITY IN NET ASSETS

 

$

22,086,048

 

 

$

8,468,689

 

 

 

 

See Independent Auditors’ Report and the Notes to Financial Statements

2


9830 MacArthur, LLC & Subsidiaries

Combined Carve-Out Statements of Operations

For the Nine months ended September 30, 2020 and 2019

 

 

 

 

 

2020

 

 

2019

 

NET REVENUE

 

$

62,841,447

 

 

$

27,609,544

 

COST OF GOODS SOLD

 

 

21,594,147

 

 

 

10,716,034

 

GROSS PROFIT

 

$

41,247,300

 

 

$

16,893,510

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Sales and Distribution

 

$

29,262,857

 

 

$

13,644,838

 

General and Administrative

 

 

782,220

 

 

 

650,785

 

TOTAL OPERATING EXPENSES

 

$

30,045,077

 

 

$

14,295,623

 

NET INCOME

 

$

11,202,223

 

 

$

2,597,887

 

 

See Independent Auditors’ Report and the Notes to Financial Statements

3


9830 MacArthur, LLC & Subsidiaries

Combined Carve-Out Statements of Equity in Net Assets

For the Nine months ended September 30, 2020 and 2019

 

 

 

Balance at December 31, 2018

 

 

4,716,115

 

Net Distribution to the Company

 

 

(851,753

)

Net Income

 

 

2,597,887

 

Balance at September 30, 2019

 

$

6,462,249

 

Balance at December 31, 2019

 

$

7,490,386

 

Net Distribution to the Company

 

 

(1,972,147

)

Net Income

 

 

11,202,223

 

Balance at September 30, 2020

 

$

16,720,462

 

 

 

 

See Independent Auditors’ Report and the Notes to Financial Statements

4


9830 MacArthur, LLC & Subsidiaries

Combined Carve-Out Statements of Cash Flows

For the Nine months ended September 30, 2020 and 2019

 

 

 

 

 

9/30/2020

 

 

9/30/2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net Income

 

$

11,202,223

 

 

$

2,597,887

 

Adjustments to Reconcile Net Income to Net Cash

 

 

 

 

 

 

 

 

Provided (Used) by Operating Activities

 

 

 

 

 

 

 

 

Changes in Operating Assets and Liabilities

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(2,858,784

)

 

 

(213,765

)

Inventories

 

 

(7,026,833

)

 

 

(1,594,664

)

Prepaid Expenses

 

 

(2,356,646

)

 

 

(701,767

)

Deposits

 

 

2,661,414

 

 

 

537,124

 

Accounts Payable

 

 

(229,232

)

 

 

(72,889

)

Sales Return Reserve

 

 

580,005

 

 

 

299,827

 

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

 

$

1,972,147

 

 

$

851,753

 

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES

 

$

-

 

 

$

-

 

CASH FLOWS FROM FINANCING ACTIVITIES Net Distribution

   to the Company

 

(1,972,147)

 

 

(851,753)

 

NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES

 

$

(1,972,147

)

 

$

(851,753

)

NET INCREASE (DECREASE) IN CASH AND CASH

   EQUIVALENTS

 

$

-

 

 

$

-

 

CASH AND CASH EQUIVALENTS - Beginning of Year

 

-

 

 

-

 

CASH AND CASH EQUIVALENTS - End of Year

 

$

-

 

 

$

-

 

 

 

 

See Independent Auditors’ Report and the Notes to Financial Statements

5


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

September 30, 2020 and 2019

 

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The combined carve-out financial statements consist of balances and activity compiled and reported related to the e-commerce business of 9830 MacArthur, LLC & Subsidiaries (the "Company") under the brands Mueller, Pursteam, Pohl and Schmitt and Sprializer (the "carved-out business").

The carved-out business is a consumer products company that develops, markets and sells products through online retail channels such as Amazon, primarily in the United States of America.

Basis of Presentation

The accompanying combined carve-out financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These financial statements have been prepared on a "carve-out" basis from the consolidated financial statements of 9830 MacArthur, LLC using the historical results of operations, cash flows, assets and liabilities and include allocations of income, expenses, assets and liabilities from the Company. These allocations reflect significant assumptions, and the combined carve-out financial statements do not fully reflect what the financial positions, results of operations and cash flows of the carved-out business would have been had the carved-out business been operated exclusively within a stand-alone company during the periods presented.

Carve-out Methodology

The following accounts were mainly allocated based on activity tied to a specific product identification number: accounts receivable, inventories, prepaid inventory, accounts payable, sales return reserve, accrued expenses, revenues, and direct operating expenses such as cost of goods sold and sales and distribution expenses. Other operating expenses, including general overhead items, were allocated based on the proportionate share of revenues of the Company represented by the carved-out business, or by a more specific method if detailed information was available.

All significant intercompany accounts and transactions among the carved-out business have been eliminated in the accompanying combined carve-out financial statements.

Limited Liability Companies

9830 MacArthur, LLC and certain of its subsidiaries are each separate limited liability companies (LLC's). As such, members of each LLC are not liable for any of the debts or liabilities of that LLC or of any other LLC included in these combined carve-out financial statements.

 

6


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

September 30, 2020 and 2019

 

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable

The carved-out business extends unsecured credit to customers in the normal course of business. The carved-out business provides an allowance for doubtful accounts when appropriate, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions, on an individual customer basis. Receivables are written off only after all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer. Accounts receivable are due based upon agreed-upon terms with customers. Accounts receivable are considered past due if the carved-out business has not received payments based upon the agreed-upon terms. No allowance for doubtful accounts was considered necessary as of both September 30, 2020 and 2019. The carved-out business does not accrue interest on accounts receivable.

Inventories

Inventories consist primarily of finished goods. The carved-out business currently records inventory on its balance sheet on a first-in, first-out ("FIFO") basis, and are recorded at the lower of cost or net realizable value. The carved-out business' costs include the amounts it pays manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from its manufacturers to its warehouses, as applicable.

Revenue Recognition

The carved-out business accounts for revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers".

The carved-out business derives its revenue from the sale of consumer products. The carved-out business sells its products to consumers primarily through the Amazon.com, Inc. ("Amazon") online retail channel.

The carved-out business considers customer order confirmations to be a contract with the customer. Customer confirmations are executed at the time an order is placed through an online third party channel.

Revenue is recognized when control of the product is transferred to the customer (i.e., when the carved-out business' performance obligation is satisfied), which typically occurs at shipment date. As a result, the carved-out business has a present and unconditional right to payment and records the amount due from the customer in accounts receivable.

Revenue is recorded at the net sales price (transaction price), which includes an estimate of future returns based on historical return rates. There is judgment in utilizing historical trends for estimating future returns. The carved-out business' refund liability for sales returns was $168,982 and $74,569 as of September 30, 2020 and 2019, respectively, and is included in accrued liabilities on the combined carve-out balance sheet.

 

7


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

September 30, 2020 and 2019

 

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition (Continued)

The carved-out business evaluated principal versus agent considerations to determine whether it is appropriate to record platform fees paid to Amazon as an expense or as a reduction of revenue. Platform fees are recorded as sales and distribution expense and are not recorded as a reduction of revenue because it owns and controls all the goods before they are transferred to the customer. The carved-out business can, at any time, direct Amazon and similarly with other 3rd party logistics providers ('Logistics Providers"), to return the carved-out business' inventory to any location specified by the carved-out business. Any returns made by customers directly to Logistics Providers is the responsibility of the carved-out business to make customers whole and the carved-out business retains the back-end inventory risk. Further, the carved-out business is subject to credit risk (i.e. for credit card chargebacks), establishes prices of its products, can determine who fulfills the goods to the customer (Amazon or the carved-out business) and can limit quantities or stop selling the goods at any time. Based on these considerations, the carved-out business is the principal in this arrangement.

A performance obligation is a promise in a contract to transfer a distinct good to the customer and is the unit of account in ASC Topic 606. A contract's transaction price is recognized as revenue when the performance obligation is satisfied. Each of the carved-out business' contracts have a single distinct performance obligation, which is the promise to transfer individual goods.

For consumer product sales, the carved-out business has elected to treat shipping and handling as fulfillment activities and not a separate performance obligation. Accordingly, the carved-out business recognizes revenue for its single performance obligation related to product sales at the time control of the merchandise passes to the customer, which is generally at the time of shipment. The carved-out business bills customers for charges for shipping and handling on certain sales and such charges are recorded as part of net revenues. Shipping and handling revenue for the nine months ended September 30, 2019 and 2018 were de minimis.

For each contract, the carved-out business considers the promise to transfer products to be the only identified performance obligation. In determining the transaction price, the carved-out business evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the carved-out business expects to be entitled.

All of the carved-out business' revenue for the nine months ended September 30, 2020 and 2019 were recognized at a point in time.

Sales taxes collected from customers are presented on a net basis and as such are excluded from net revenues.

 

8


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

September 30, 2020 and 2019

 

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising Costs

Advertising costs are charged to operations when incurred. Advertising expense was approximately $718,000 and $599,000 for the nine months ended September 30, 2020 and 2019, respectively.

Income Taxes

The operations of the carved-out business were conducted under entities classified as partnerships for federal and state income tax purposes. Each member's allocable share of the Company's taxable income or loss is taxed on the member's income tax returns. No provision or liability for federal or state income taxes has been included in the combined carve-out financial statements. The Company is subject to U.S. federal, state and local income tax examinations by the tax authorities. State franchise tax assessed at the Company level is charged to the Company’s operations as incurred.

The Company is not currently under examination by any taxing jurisdiction. New IRS partnership audit procedures are effective for returns filed for taxable years beginning after September 30, 2017. Generally, under the new IRS audit provisions, the IRS may assess the Company for the cost of a tax liability resulting from an IRS examination adjustment. The collection of income tax from the Company, however, is an administrative convenience on the part of the government to collect the underpayment of income taxes from the members attributable to prior periods. Accordingly, the federal income taxes on Company income are attributable to the members and not reported as an entity level liability of the Company. In the event of any future tax assessments paid by the Company under the IRS partnership audit regime, such amounts and any related penalties and interest shall be reported as a distribution from the Company to the members for financial statement purposes.

Recent Accounting Pronouncements

During February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. During 2018, the FASB also issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”, which addresses narrow aspects of the guidance originally issued in ASU No. 2016-02; ASU 2018-11, “Targeted Improvements”, which provides entities with an additional (and optional) transition method whereby an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and also provides lessors with a practical expedient, by class of underlying asset, to not separate non- lease components from the associated lease component and, instead, to account for those components as a single component; and ASU No. 2018-20, “Narrow-Scope Improvements for Lessors”, which addresses sales and other similar taxes collected from lessees, certain lessor costs, and the recognition of variable payments for contracts with lease and non-lease components.

 

9


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

September 30, 2020 and 2019

 

 

NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

During 2019, the FASB also issued ASU No. 2019-01, which clarified Topic 842’s interim disclosure requirements and amended certain industry-specific guidance related to determining the fair value of leased assets and the cash flow presentation of principal payments received under sales-type and direct finance leases. Topic 842 (as amended) is effective for annual periods beginning after December 15, 2021. Early adoption is permitted. The carved-out business is currently assessing the effect that ASU No. 2016-02, as amended, will have on its combined carve-out results of operations, financial position and cash flows.

Management's Use of Estimates

The preparation of combined carve-out financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined carve-out financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 2:

INVENTORIES

Inventory consisted of the following as of September 30:

 

 

 

2020

 

 

2019

 

Inventory on Hand

 

$

9,591,522

 

 

$

3,643,182

 

Inventory in Transit

 

 

4,509,824

 

 

 

1,986,780

 

 

 

$

14,101,346

 

 

$

5,629,962

 

 

NOTE 3:

COMMITMENTS AND CONTINGENCIES

Significant Concentrations

Financial instruments that potentially subject the carved-out business to concentrations of credit risk consist primarily of cash and accounts receivable. The carved-out business maintains cash with various domestic financial institutions of high credit quality. The carved-out business performs periodic evaluations of the relative credit standing of all of the aforementioned institutions.

 

10


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

September 30, 2020 and 2019

 

 

NOTE 3:

COMMITMENTS AND CONTINGENCIES (CONTINUED)

Significant Concentrations (Continued)

The carved-out business' accounts receivable are derived from sales contracts with a large number of customers. The carved-out business maintains reserves for potential credit losses on customer accounts when deemed necessary. Significant customers are those which represent more than 10% of the carved-out business' total net or gross accounts receivable balance at the balance sheet date. During the nine months ended September 30, 2020 and 2019, the carved-out business had no customer that accounted for 10% or more of gross accounts receivable. As of September 30, 2020, and 2019, substantially all of the carved-out business' accounts receivable are held by the carved-out business' sales platform vendor Amazon, which collects money on the carved-out business' behalf from its customers.

The carved-out business is reliant on one key vendor which currently provides the carved-out business with its sales platform, logistics and fulfillment operations, including certain warehousing for the carved-out business' goods and invoicing and collection of its revenue from the carved-out business' end customers. Substantially all of the carved-out business' revenue was generated through the Amazon sales platform in both 2020 and 2019.

Inventory Purchases

As of September 30, 2020, and 2019, the carved-out business had approximately $3,900,000 and $103,000, respectively, of inventory purchase orders placed with vendors that had not been fulfilled or prepaid.

Legal Proceedings

At any point in time, the carved-out business could have claims and pending legal proceedings outstanding. These proceedings are, in the opinion of management, ordinary routine matters incidental to the normal business conducted by the carved-out business. In the opinion of management, the ultimate dispositions of such proceedings are not expected to have a materially adverse effect on the carved-out business' combined results of operations, financial position or cash flows.

NOTE 4:

SUBSEQUENT EVENTS

The carved-out business has evaluated subsequent events occurring through May 5, 2021, the date that the combined carve-out financial statements were available to be issued, for events requiring recording or disclosure in the carved-out businesses combined carve-out financial statements.

 

11


9830 MacArthur, LLC & Subsidiaries

Notes to Combined Carve-Out Financial Statements

September 30, 2020 and 2019

 

 

NOTE 4:

SUBSEQUENT EVENTS (CONTINUED)

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The COVID-19 outbreak has severely restricted the level of economic activity throughout the world, including geographic locations in which the carved-out business operates. The extent of the impact of COVID-19 on the carved-out business' operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related governmental or other regulatory actions. Given the uncertainty regarding the spread of this coronavirus, the related financial impact cannot be reasonably estimated at this time.

On December 1, 2020, the Company entered into, and closed the transactions under an Asset Purchase Agreement ("the Agreement") with Mohawk Group Holdings, Inc. and its subsidiary Truweo, LLC ("the Purchaser"). Pursuant to the Agreement, the Purchaser, among other things, purchased and acquired certain of the carved-out business' assets and assumed certain liabilities related to the carved-out business.

As consideration for the purchase, the Company received from the Purchaser (i) $25,000,000 in cash, (ii) 4,220,000 shares of Common Stock of Mohawk Group Holdings, Inc., and (iii) a non-negotiable promissory note in favor of the Company in the amount of $15,799,499, representing the value of certain inventory that the Company had paid for, but not yet sold as of the closing date, the principal amount of which shall be subject to adjustment in accordance with the terms of the Agreement. In addition, subject to achievement of certain contribution margin thresholds on certain products of the acquired business for the years ending September 30, 2021 and 2022, the Company shall be entitled to receive earn out payments as defined in the Agreement.

12

ater-ex994_57.htm

 

Exhibit 99.4

 

 

 

ATERIAN, INC.

UNAUDITED PRO FORMA CONDENSED, CONSOLIDATED, AND COMBINED FINANCIAL INFORMATION

 

 

Unaudited Pro Forma Condensed, Consolidated, and Combined Financial Information as of and for the Nine Months Ended September 30, 2020 and for the Year-Ended December 31, 2019.

On December 1, 2020, Aterian, Inc. (the “Company”, “Aterian” or “ATER”), formerly known as Mohawk Group Holdings, Inc., filed with the Securities and Exchange Commission (the “SEC”) a Current Report on Form 8-K (the “Initial Form 8-K”) to report, among other things, ATER’s acquisition (the “Acquisition”) on December 1, 2020 of certain assets of 9830 Macarthur LLC, a Wyoming limited liability company (“9830”), Reliance Equities Group, LLC, a Wyoming limited liability company (“Reliance”), and ZN Direct LLC, a Wyoming limited liability company (collectively with 9830 and Reliance, the “Sellers” or “SMASH”), related to the Sellers’ ecommerce business under the brands Mueller, Pursteam, Pohl and Schmitt and Spiralizer, which is conducted through certain channels or websites, including amazon.com.

The following unaudited pro forma condensed, consolidated, and combined financial statements of ATER and SMASH (the “pro forma financial statements”) include an unaudited pro forma condensed, consolidated, and combined balance sheet (the “pro forma balance sheet”) as of September 30, 2020 as if the Acquisition had occurred on such date.  The unaudited pro forma condensed, consolidated, and combined statement of income and loss for the year-ended December 31, 2019 (the “2019 pro forma statement of income and loss”) and the nine months ended September 30, 2020 (the “2020 pro forma statement of income and loss”) have been prepared as if the Acquisition had occurred on January 1, 2019.

The pro forma financial information has been prepared by ATER in accordance with Article 11 of Regulation S-X, in accordance with SEC Final Rule Release No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses.  The pro forma financial information reflects transaction related adjustments management believes are necessary to present fairly ATER’s pro forma results of operations and financial position following the closing of the Acquisition as of and for the period indicated. The transaction-related adjustments are based on currently available information and assumptions management believes are, under the circumstances and given the information available at this time, reasonable, and reflective of adjustments necessary to report ATER’s financial condition and results of operations as if the Acquisition was completed on the assumed dates.

The pro forma financial statements are for informational purposes only and are not intended to represent or to be indicative of the actual results of operations or financial position that the combined ATER and SMASH would have reported had the Acquisition been completed as of the dates set forth in the pro forma financial statements and should not be taken as being indicative of ATER’s future consolidated results of operations or financial position.

The pro forma financial statements have been derived from, and should be read in conjunction with, the accompanying notes to the pro forma financial statements included herein and the historical consolidated financial statements and related notes of ATER as of and for the applicable periods, which can be found, along with the annual, quarterly and current reports of ATER, on the SEC’s website at http://www.sec.gov. The historical consolidated financial statements and related notes of SMASH as of and for the applicable period have been filed with the SEC as an exhibit to Amendment No. 1 on Form 8-K/A, which amends the Initial Form 8-K.  

 

 

 


 

 

 

ATERIAN, INC.

UNAUDITED PRO FORMA CONDENSED, CONSOLIDATED, AND COMBINED BALANCE SHEET

As of September 30, 2020

 

 

 

As of September 30, 2020

(in thousands, except share data)

 

 

 

ATERIAN

 

 

SMASH

 

 

Acquisition Adjustments

 

 

 

 

Financing Adjustments

 

 

Pro Forma Combined

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

37,385

 

 

$

 

 

$

(25,000

)

 

A

 

$

20,764

 

L

$

33,149

 

Accounts receivable—net

 

 

8,516

 

 

 

4,835

 

 

 

(4,835

)

 

B

 

 

 

 

 

8,516

 

Inventory

 

 

18,791

 

 

 

14,101

 

 

 

2,318

 

 

C

 

 

 

 

 

35,210

 

Prepaid and other current assets

 

 

7,343

 

 

 

3,150

 

 

 

232

 

 

D

 

 

 

 

 

10,725

 

Total current assets

 

 

72,035

 

 

 

22,086

 

 

 

(27,285

)

 

 

 

 

20,764

 

 

 

87,600

 

PROPERTY AND EQUIPMENT—net

 

 

132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

132

 

GOODWILL AND OTHER INTANGIBLES—net

 

 

16,700

 

 

 

 

 

 

62,339

 

 

E

 

 

 

 

 

79,039

 

OTHER NON-CURRENT ASSETS

 

 

174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

174

 

TOTAL ASSETS

 

$

89,041

 

 

$

22,086

 

 

$

35,054

 

 

 

 

$

20,764

 

 

$

166,945

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit facility

 

$

13,418

 

 

$

 

 

$

 

 

 

 

$

 

 

$

13,418

 

Accounts payable

 

 

14,538

 

 

 

3,970

 

 

 

(883

)

 

F

 

 

 

 

 

17,625

 

Term loan

 

 

6,500

 

 

 

 

 

 

 

 

 

 

 

15,100

 

L

 

21,600

 

Seller note

 

 

 

 

 

 

 

 

15,177

 

 

G

 

 

 

 

 

15,177

 

Contingent earn-out liability

 

 

 

 

 

 

 

 

9,800

 

 

H

 

 

 

 

 

9,800

 

Due to parent company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued and other current liabilities

 

 

12,334

 

 

 

1,396

 

 

 

(1,396

)

 

I

 

 

 

 

 

12,334

 

Total current liabilities

 

 

46,790

 

 

 

5,366

 

 

 

22,698

 

 

 

 

 

15,100

 

 

 

89,954

 

OTHER LIABILITIES

 

 

2,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,480

 

CONTINGENT EARN-OUT LIABILITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TERM LOANS

 

 

6,350

 

 

 

 

 

 

 

 

 

 

 

7,701

 

L

 

14,051

 

Total liabilities

 

 

55,620

 

 

 

5,366

 

 

 

22,698

 

 

 

 

 

22,801

 

 

 

106,485

 

COMMITMENTS AND CONTINGENCIES (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, par value $0.0001 per share—500,000,000 shares authorized and 21,844,944 shares outstanding at September 30, 2020

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Additional paid-in capital

 

 

181,971

 

 

 

 

 

 

29,076

 

 

J

 

 

 

 

 

211,047

 

Accumulated (deficit)/members equity

 

 

(148,581

)

 

 

16,720

 

 

 

(16,720

)

 

K

 

 

(2,037

)

K

 

(150,618

)

Accumulated other comprehensive income

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

Total stockholders’ equity

 

 

33,421

 

 

 

16,720

 

 

 

12,356

 

 

 

 

 

(2,037

)

 

 

60,460

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

89,041

 

 

$

22,086