Company Quick10K Filing
Quick10K
Mohawk Group
10-Q 2019-06-30 Quarter: 2019-06-30
S-1 2019-05-10 Public Filing
8-K 2019-08-23 Officers
8-K 2019-08-01 Earnings, Exhibits
8-K 2019-06-14 Amend Bylaw, Other Events, Exhibits
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ITCC Inspro Technologies 0
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GLFO Gulf & Orient Steamship Company 0
CAT9 CAT9 0
ALTD Altitude International 0
MWK 2019-06-30
Part I-Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii-Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 mwk-ex311_99.htm
EX-31.2 mwk-ex312_98.htm
EX-32.1 mwk-ex321_100.htm

Mohawk Group Earnings 2019-06-30

MWK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 mwk-10q_20190630.htm 10-Q mwk-10q_20190630.htm

 

 

 

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, 2019

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
Identification Number)

 

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)

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

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

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 August 1, 2019, the registrant had 17,625,241 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

3

 

Condensed Consolidated Statements of Stockholder’s Equity

4

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3.

Defaults Upon Senior Securities

65

Item 4.

Mine Safety Disclosures

65

Item 5.

Other Information

65

Item 6.

Exhibits

66

Signatures

67

 

 

 


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:

 

our future financial performance, including our revenue, costs of goods sold and operating expenses;

 

our ability to achieve and grow profitability;

 

the sufficiency of our cash to meet our liquidity needs;

 

our ability to maintain the security and availability of our technology platform, including our AIMEE (Artificial Intelligence Mohawk e-Commerce Engine) software platform;

 

our ability to successfully launch new products;

 

our ability to identify and complete merger and acquisition transactions;

 

our predictions about industry and market trends;

 

our ability to successfully expand internationally;

 

our ability to effectively manage our growth and future expenses;

 

our estimated total addressable market;

 

our ability to maintain, protect and enhance our intellectual property, including our AIMEE software platform;

 

our ability to comply with modified or new laws and regulations applying to our business;

 

the attraction and retention of qualified employees and key personnel;

 

our ability to successfully defend litigation brought against us; and

 

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 very 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 described in 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 or to reflect new information or the occurrence of 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.

 

 

 

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

MOHAWK GROUP HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

 

December 31, 2018

 

 

June 30, 2019

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash

 

$

20,029

 

 

$

39,527

 

Accounts receivable—net

 

 

1,403

 

 

 

4,355

 

Inventory

 

 

30,552

 

 

 

31,369

 

Prepaid and other current assets

 

 

5,418

 

 

 

5,751

 

Total current assets

 

 

57,402

 

 

 

81,002

 

PROPERTY AND EQUIPMENT—net

 

 

268

 

 

 

159

 

OTHER NON-CURRENT ASSETS

 

 

337

 

 

 

135

 

TOTAL ASSETS

 

$

58,007

 

 

$

81,296

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Credit facility

 

$

14,451

 

 

$

18,707

 

Accounts payable

 

 

15,404

 

 

 

13,754

 

Accrued and other current liabilities

 

 

9,708

 

 

 

12,497

 

Total current liabilities

 

 

39,563

 

 

 

44,958

 

OTHER LIABILITIES

 

 

26

 

 

 

12

 

TERM LOANS

 

 

13,049

 

 

 

13,211

 

Total liabilities

 

 

52,638

 

 

 

58,181

 

COMMITMENTS AND CONTINGENCIES (Note 9)

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Common stock, par value $0.0001 per share—500,000,000 shares authorized and

   11,534,190 shares outstanding at December 31, 2018; 500,000,000 shares authorized

   and 17,625,241 shares outstanding at June 30, 2019

 

 

1

 

 

 

2

 

Additional paid-in capital

 

 

76,348

 

 

 

110,094

 

Accumulated deficit

 

 

(71,020

)

 

 

(87,034

)

Accumulated other comprehensive income

 

 

40

 

 

 

53

 

Total stockholders’ equity

 

 

5,369

 

 

 

23,115

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

58,007

 

 

$

81,296

 

 

See notes to condensed consolidated financial statements.

1


 

MOHAWK GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

NET REVENUE

 

$

14,588

 

 

$

30,368

 

 

$

28,904

 

 

$

48,213

 

COST OF GOODS SOLD

 

 

10,808

 

 

 

18,608

 

 

 

21,658

 

 

 

29,783

 

GROSS PROFIT

 

 

3,780

 

 

 

11,760

 

 

 

7,246

 

 

 

18,430

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and distribution

 

 

8,163

 

 

 

11,828

 

 

 

16,956

 

 

 

21,101

 

Research and development

 

 

897

 

 

 

1,860

 

 

 

2,019

 

 

 

3,023

 

General and administrative

 

 

3,130

 

 

 

4,414

 

 

 

5,336

 

 

 

7,780

 

TOTAL OPERATING EXPENSES:

 

 

12,190

 

 

 

18,102

 

 

 

24,311

 

 

 

31,904

 

OPERATING LOSS

 

 

(8,410

)

 

 

(6,342

)

 

 

(17,065

)

 

 

(13,474

)

INTEREST EXPENSE—net

 

 

506

 

 

 

1,281

 

 

 

1,063

 

 

 

2,494

 

OTHER EXPENSE (INCOME)—net

 

 

16

 

 

 

(13

)

 

 

(25

)

 

 

31

 

LOSS BEFORE INCOME TAXES

 

 

(8,932

)

 

 

(7,610

)

 

 

(18,103

)

 

 

(15,999

)

PROVISION FOR INCOME TAXES

 

 

3

 

 

 

15

 

 

 

3

 

 

 

15

 

NET LOSS

 

$

(8,935

)

 

$

(7,625

)

 

$

(18,106

)

 

$

(16,014

)

Net loss per share, basic and diluted

 

$

(0.90

)

 

$

(0.62

)

 

$

(1.95

)

 

$

(1.35

)

Weighted-average number of shares outstanding, basic and diluted

 

 

9,963,851

 

 

 

12,206,747

 

 

 

9,273,735

 

 

 

11,872,326

 

 

See notes to condensed consolidated financial statements.

2


 

MOHAWK GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

NET LOSS

 

$

(8,935

)

 

$

(7,625

)

 

$

(18,106

)

 

$

(16,014

)

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

18

 

 

 

(12

)

 

 

76

 

 

 

13

 

Other comprehensive income (loss)

 

 

18

 

 

 

(12

)

 

 

76

 

 

 

13

 

COMPREHENSIVE LOSS

 

$

(8,917

)

 

$

(7,637

)

 

$

(18,030

)

 

$

(16,001

)

 

See notes to condensed consolidated financial statements.

3


 

MOHAWK GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share and per share data)

 

 

 

 

Three Months Ended June 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income/(Loss)

 

 

(Deficit)

 

BALANCE—April 1, 2018

 

 

8,575,950

 

 

$

1

 

 

$

47,557

 

 

$

(48,368

)

 

$

15

 

 

$

(795

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,935

)

 

 

 

 

 

(8,935

)

Issuance of 5,992,750 shares of series C preferred

   stock in April 2018 which converted at 0.2564

   per share into 1,536,602 shares of common

   stock as part of the Merger (see Note 1)

 

 

1,536,602

 

 

 

 

 

 

20,989

 

 

 

 

 

 

 

 

 

20,989

 

Stock-based compensation

 

 

 

 

 

 

 

 

177

 

 

 

 

 

 

 

 

 

177

 

Exercise of stock options

 

 

4,465

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

18

 

BALANCE—June 30, 2018

 

 

10,117,017

 

 

$

1

 

 

$

68,741

 

 

$

(57,303

)

 

$

33

 

 

$

11,472

 

 

 

 

Three Months Ended June 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income/(Loss)

 

 

(Deficit)

 

BALANCE—April 1, 2019

 

 

13,940,808

 

 

$

1

 

 

$

77,848

 

 

$

(79,409

)

 

$

65

 

 

$

(1,495

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,625

)

 

 

 

 

 

(7,625

)

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

 

 

 

 

 

 

 

 

2,619

 

 

 

 

 

 

 

 

 

2,619

 

Exercise of stock options

 

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

(12

)

BALANCE—June 30, 2019

 

 

17,625,241

 

 

$

2

 

 

$

110,094

 

 

$

(87,034

)

 

$

53

 

 

$

23,115

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income/(Loss)

 

 

(Deficit)

 

BALANCE—January 1, 2018

 

 

8,575,950

 

 

$

1

 

 

$

47,393

 

 

$

(39,197

)

 

$

(43

)

 

$

8,154

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,106

)

 

 

 

 

 

(18,106

)

Issuance of 5,992,750 shares of series C preferred

   stock in April 2018 which converted at 0.2564

   per share into 1,536,602 shares of common

   stock as part of the Merger (see Note 1)

 

 

1,536,602

 

 

 

 

 

 

20,989

 

 

 

 

 

 

 

 

 

20,989

 

Stock-based compensation

 

 

 

 

 

 

 

 

341

 

 

 

 

 

 

 

 

 

341

 

Exercise of stock options

 

 

4,465

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

76

 

BALANCE—June 30, 2018

 

 

10,117,017

 

 

$

1

 

 

$

68,741

 

 

$

(57,303

)

 

$

33

 

 

$

11,472

 

4


 

 

 

 

Six Months Ended June 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income/(Loss)

 

 

(Deficit)

 

BALANCE—January 1, 2019

 

 

11,534,190

 

 

$

1

 

 

$

76,348

 

 

$

(71,020

)

 

$

40

 

 

$

5,369

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,014

)

 

 

 

 

 

(16,014

)

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

 

 

 

 

 

 

 

 

4,119

 

 

 

 

 

 

 

 

 

4,119

 

Exercise of stock options

 

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

13

 

BALANCE—June 30, 2019

 

 

17,625,241

 

 

$

2

 

 

$

110,094

 

 

$

(87,034

)

 

$

53

 

 

$

23,115

 

 

See notes to condensed consolidated financial statements.

5


 

MOHAWK GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2019

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,106

)

 

$

(16,014

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

128

 

 

 

95

 

Provision for sales returns

 

 

5

 

 

 

209

 

Amortization of deferred financing costs and debt discounts

 

 

217

 

 

 

609

 

Stock-based compensation

 

 

341

 

 

 

4,119

 

Other

 

 

81

 

 

 

66

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(879

)

 

 

(2,972

)

Inventory

 

 

2,076

 

 

 

(817

)

Prepaid and other current assets

 

 

(1,374

)

 

 

(1,320

)

Accounts payable, accrued and other liabilities

 

 

(257

)

 

 

(264

)

Cash used in operating activities

 

 

(17,768

)

 

 

(16,289

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(25

)

 

 

(24

)

Proceeds on sale of fixed assets

 

 

35

 

 

 

3

 

Cash provided by (used in) investing activities

 

 

10

 

 

 

(21

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

18

 

 

 

 

Proceeds from issuance of Series C preferred stock

 

 

23,969

 

 

 

 

Proceeds from Initial Public Offering

 

 

 

 

 

36,000

 

Issuance costs of Series C preferred stock

 

 

(2,980

)

 

 

 

Issuance costs from Initial Public offering

 

 

 

 

 

(5,098

)

Borrowings from Mid Cap credit facility

 

 

14,065

 

 

 

39,131

 

Repayments from Mid Cap credit facility

 

 

(12,816

)

 

 

(35,229

)

Repayments from Mid Cap term loan

 

 

(672

)

 

 

 

Debt issuance costs from Mid Cap credit facility

 

 

(205

)

 

 

(581

)

Debt issuance costs from Horizon term loan

 

 

 

 

 

(901

)

Deferred offering costs

 

 

 

 

 

 

Insurance financing proceeds

 

 

 

 

 

3,026

 

Insurance obligation payments

 

 

 

 

 

(756

)

Capital lease obligation payments

 

 

(25

)

 

 

(28

)

Cash provided by financing activities

 

 

21,354

 

 

 

35,564

 

EFFECT OF EXCHANGE RATE ON CASH

 

 

2

 

 

 

1

 

NET CHANGE IN CASH AND RESTRICTED CASH FOR PERIOD

 

 

3,598

 

 

 

19,255

 

CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

 

5,797

 

 

 

20,708

 

CASH AND RESTRICTED CASH AT END OF PERIOD

 

$

9,395

 

 

$

39,963

 

RECONCILIATION OF CASH AND RESTRICTED CASH

 

 

 

 

 

 

 

 

CASH

 

$

8,966

 

 

$

39,527

 

RESTRICTED CASH—Prepaid and other assets

 

 

250

 

 

 

307

 

RESTRICTED CASH—Other non-current assets

 

 

179

 

 

 

129

 

TOTAL CASH AND RESTRICTED CASH

 

$

9,395

 

 

$

39,963

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

791

 

 

$

1,743

 

Cash paid for taxes

 

$

3

 

 

$

15

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Deferred equity fundraising cost not paid

 

$

 

 

$

328

 

Capital lease

 

$

25

 

 

$

 

 

See notes to condensed consolidated financial statements.

6


 

Mohawk Group Holdings, Inc.

Notes to condensed consolidated financial statements

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 and 2019 (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, eBay, and Walmart.

Headquartered in New York, Mohawk’s offices can be found in China, Philippines, Israel, Poland, and the United States.

 

Merger—On September 4, 2018, pursuant to an Agreement and Plan of Merger and Reorganization among the Company, MGH Merger Sub, Inc. and Mohawk Group, Inc. (“MGI”), as amended by Amendment No. 1 dated as of April 1, 2018 (the “Merger Agreement”), MGI merged with Merger Sub, Inc., with MGI remaining as the surviving entity and becoming a wholly-owned operating subsidiary of the Company (the “Merger”). The Merger was a reverse recapitalization for financial reporting purposes.  The Merger is reflected in the financial statements and financial disclosures as if the merger was effective on January 1, 2017. Operations prior to the Merger are the historical operations of MGI.

 

Under the Merger Agreement, all outstanding common shares, preferred shares and warrants, excluding MGI’s Series C preferred stock (“Series C”) and warrants for Series C, converted to new common shares of the Company at a ratio of 1 to 0.3131 (“the Conversion”). All outstanding Series C, including any warrants for Series C converted on a one to 0.2564 basis to new common shares of the Company. At the time of the merger, the Company had 0.9 million shares outstanding held by certain Series C holders.

Initial Public Offering—On June 14, 2019, the Company completed its initial public offering (“IPO”), selling 3,600,000 shares of common stock at a public offering price of $10.00 per share. Net proceeds to the Company from the offering were approximately $29.6 millionafter deducting legal, underwriting and other offering expenses.

Liquidity, Going Concern and Initial Public Offering—The Company is an early-stage growth company. As a result, the Company is investing in launching new products, advancing its software, and its sales and distribution infrastructure to accelerate revenue growth and scale operations to support such growth. To fund this investment, the Company has incurred losses with the expectation that it will generate profitable revenue streams in the future. While management and the Company’s board of directors believes that the Company will eventually reach a scale where the growth of its product revenues will offset the continued investments required in launching new products, completing the development of its software, and managing its sales and distribution operations, they believe that the size and nascent stage of the Company’s target market justify continuing to invest in growth at the expense of short-term profitability.

In pursuit of the foregoing growth strategy, the Company incurred operating losses of $22.6 million and $29.4 million for the years ended December 31, 2017 and 2018, respectively, primarily due to the impact from its continued investment in launching new products, advancing its AIMEE software platform and building out its sales and distribution infrastructure. In addition, at December 31, 2017 and 2018, the Company had an accumulated deficit of $39.2 million and $71.0 million , respectively, cash on hand amounted to $5.3 million and $20.0 million, respectively, total outstanding borrowings from lenders amounted to $10.3 million and $27.5 million, respectively, and total available capacity on borrowings amounted to $5.6 million and $1.4 million at December 31, 2017 and 2018, respectively. Moreover, the Company has not had a sufficient track record of improvement of its operating cash outflows. As such, in the event that the Company was unsuccessful in its ability to continue to reduce its cash outflows or obtain additional financing if such reduction in cash outflows was not achieved, the Company would have been unable to meet its obligations as they became due within one year from the date these condensed consolidated financial statements were issued. These negative financial conditions raised substantial doubt about the Company’s ability to continue as a going concern.

Management plans to continue pursuing its growth strategy. In the past, the Company has successfully funded its losses to-date through equity financings, beginning in July 2014. As of December 31, 2018, the Company has raised over $72.6 million in equity financing to fund its operations since inception. Further, in October 2017, the Company improved its working capital flexibility by securing an up to $30.0 million credit facility and a $7.0 million term loan with MidCap Financial Trust (“MidCap”) and in November 2018, the Company exited the original credit facility with MidCap and entered into a new three-year, $25.0 million revolving credit facility with MidCap, which can be increased, subject to certain conditions, to $50.0 million. Furthermore, on December 31, 2018, the Company entered into a new term loan agreement with Horizon Technology Finance Corporation (“Horizon”) obtaining a five-year, $15.0 million term loan and repaying the outstanding amount of MidCap’s term loan of approximately $4.9 million. While there was no assurance that future investments in the Company’s equity or issuances of debt will occur, management believes its success in obtaining funding since inception will continue in the foreseeable future.

7


 

During the Company’s December 31, 2018 audit of its consolidated financial statements, the Company’s financial forecast for the next 12 months included revenue growth, margin expansion, a reduction of certain fixed costs, an improvement in inventory management, and 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. However, there was no assurance that management’s forecast would be attained to maintain its liquidity to fund operations and/or maintain compliance with its covenants without future investments in the Company’s equity 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.

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. 

For the three and six months ended June 30, 2019, the Company incurred operating losses of $6.3 million and $13.5 million, respectively.  As of June 30, 2019, the Company had accumulated deficit of $87.0 million, cash on hand of $39.5 million, and total outstanding borrowing from lenders of $31.9 million with a total available capacity on borrowings of $1.1 million.  On June 14, 2019, the Company completed its IPO, raising approximately $29.6 million after deducting legal, underwriting and other offering expenses. As of June 30, 2019, the Company has raised over $102.3 million in equity financing to fund its operations since inception, including the net proceeds from the IPO.    

 

The Company believes that, based on its current sales and expense level projections, the credit facility with MidCap (see Note 6), and the proceeds from the IPO, the Company will satisfy its estimated liquidity needs for the twelve months from the condensed consolidated financial statements issuance date.  As such, the substantial doubt raised by the Company’s historical operating results has been mitigated.

 

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 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, 2019, the results of operations for the three and six months ended June 30, 2018 and 2019 and cash flows for the six months ended June 30, 2018 and 2019. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.

 

The condensed consolidated balance sheet as of December 31, 2018 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, 2018, included in the Company’s final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), on June 13, 2019 (the “Prospectus”).

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. The most significant estimates relate to the determination of fair value of the Company’s common stock and stock-based compensation, prior to the Company’s IPO. 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.

8


 

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.

For direct to consumer sales, the Company considers customer order confirmations to be a contract with the customer. Customer confirmations are executed at the time an order is placed through third party online channels. For wholesale sales, the Company considers the customer purchase order to be the contract.

For all of the Company’s sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment date. As a result, the Company has a present and unconditional right to payment and record the amount due from the customer in accounts receivable.

Revenue from consumer product sales 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 Company’s refund liability for sales returns was $0.3 million and $0.5 million at December 31, 2018 and June 30, 2019, respectively, which is included in accrued liabilities and represents the expected value of the refunds that will be due to its customers.

The Company 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 the Company owns and controls all the goods before they are transferred to the customer. The Company can, at any time, direct Amazon and similarly with other third party logistics providers (“Logistics Providers”), to return the Company’s inventory to any location specified by the Company. Any returns made by customers directly to Logistics Providers are the responsibility of the Company to make customers whole and the Company retains the back-end inventory risk. Further, the Company is subject to credit risk (i.e., credit card chargebacks), establishes the prices of its products, can determine who fulfills the goods to the customer (Amazon (or any other Logistics Provider) or the Company) and can limit quantities or stop selling the goods at any time. Based on these considerations, the Company is the principal in this arrangement.

Performance Obligations. 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 Company’s contracts have a single distinct performance obligation, which is the promise to transfer individual goods.

For consumer product sales, the Company has elected to treat shipping and handling as fulfillment activities, and not a separate performance obligation. Accordingly, the Company 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 Company bills customers for charges for shipping and handling on certain sales and such charges are recorded as part of net revenue. Shipping and handling revenue for the three and six months ended June 30, 2018 and 2019 were less than $0.1 million and $0.1 million, respectively.

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

All of the Company’s revenues as reflected on the condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2019 are recognized at a point in time.

Sales taxes. Consistent with prior periods, sales taxes collected from customers are presented on a net basis and as such are excluded from net revenue.

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, 2018

(in thousands)

 

 

 

Direct

 

 

Wholesale

 

 

Managed SaaS

 

 

Total

 

North America

 

$

13,130

 

 

$

1,420

 

 

$

38

 

 

$

14,588

 

Other

 

 

 

 

 

 

 

 

 

 

$

 

Total net revenue

 

$

13,130

 

 

$

1,420

 

 

$

38

 

 

$

14,588

 

9


 

 

 

 

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

 

 

 

 

Six Months Ended June 30, 2018

(in thousands)