Attached files
file | filename |
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EX-99.2 - EX-99.2 - Aterian, Inc. | d180508dex992.htm |
EX-23.3 - EX-23.3 - Aterian, Inc. | d180508dex233.htm |
EX-23.2 - EX-23.2 - Aterian, Inc. | d180508dex232.htm |
EX-23.1 - EX-23.1 - Aterian, Inc. | d180508dex231.htm |
EX-21.1 - EX-21.1 - Aterian, Inc. | d180508dex211.htm |
EX-10.7 - EX-10.7 - Aterian, Inc. | d180508dex107.htm |
EX-5.1 - EX-5.1 - Aterian, Inc. | d180508dex51.htm |
S-1 - FORM S-1 - Aterian, Inc. | d180508ds1.htm |
Exhibit 99.1
ATERIAN, INC.
UNAUDITED PRO FORMA CONDENSED, CONSOLIDATED, AND COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Condensed, Consolidated, and Combined Financial Information for the Year-Ended December 31, 2020.
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, ATERs 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), which include an unaudited pro forma condensed, consolidated, and statement of income and loss for the year-ended December 31, 2020 (the 2020 pro forma statement of income and loss), have been prepared as if the Acquisition had occurred on January 1, 2020.
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 that management believes are necessary to present fairly ATERs 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 ATERs 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 ATERs 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 SECs website at http://www.sec.gov. The historical consolidated financial statements and related notes of SMASH as of and for the applicable period were filed with the SEC on May 14, 2021 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 STATEMENT OF INCOME AND LOSS
For the Year-Ended December 31, 2020
Year-Ended December 31, 2020 (in thousands, except share and per share data) |
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ATERIAN | Nine Months Ended September 30, 2020 SMASH |
Two Months Ended November 30, 2020 SMASH (1) |
Acquisition Adjustments |
Financing Adjustments |
Pro Forma Combined |
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NET REVENUE |
$ | 185,704 | $ | 62,841 | $ | 19,876 | $ | | $ | | $ | 268,421 | ||||||||||||||||
COST OF GOODS SOLD |
100,958 | 21,594 | 7,162 | 1,858 | A | | 131,572 | |||||||||||||||||||||
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GROSS PROFIT |
84,746 | 41,247 | 12,714 | (1,858 | ) | | 136,849 | |||||||||||||||||||||
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OPERATING EXPENSES: |
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Research and development |
8,130 | | | | | 8,130 | ||||||||||||||||||||||
Sales and distribution |
68,005 | 29,263 | 8,296 | | | 105,564 | ||||||||||||||||||||||
General and administrative |
30,631 | 782 | 251 | 2,530 | B | | 34,194 | |||||||||||||||||||||
Change in fair value of contingent earn-out liabilities |
12,731 | | | | | 12,731 | ||||||||||||||||||||||
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TOTAL OPERATING EXPENSES: |
119,497 | 30,045 | 8,547 | 2,530 | | 160,619 | ||||||||||||||||||||||
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OPERATING (LOSS) INCOME |
(34,751 | ) | 11,202 | 4,167 | (4,388 | ) | | (23,770 | ) | |||||||||||||||||||
INTEREST EXPENSE, NET |
4,979 | | | | 8,174 | D | 13,153 | |||||||||||||||||||||
LOSS ON EXTINGUISHMENT OF DEBT |
2,037 | | | | 2,037 | D | 4,074 | |||||||||||||||||||||
CHANGE IN FAIR MARKET VALUE OF WARRANT LIABILITY |
21,338 | | | | | 21,338 | ||||||||||||||||||||||
OTHER (INCOME) EXPENSE net |
(27 | ) | | | | | (27 | ) | ||||||||||||||||||||
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(LOSS) INCOME BEFORE INCOME TAXES |
(63,078 | ) | 11,202 | 4,167 | (4,388 | ) | (10,211 | ) | (62,308 | ) | ||||||||||||||||||
PROVISION FOR INCOME TAXES |
48 | | | | C | | 48 | |||||||||||||||||||||
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NET (LOSS) INCOME |
$ | (63,126 | ) | $ | 11,202 | $ | 4,167 | $ | (4,388 | ) | $ | (10,211 | ) | $ | (62,356 | ) | ||||||||||||
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Net (loss) income per share, basic and diluted |
$ | (3.68 | ) | $ | | $ | | $ | | $ | | $ | (2.92 | ) | ||||||||||||||
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Weighted-average number of shares outstanding, basic and diluted |
17,167,999 | | | 4,220,000 | E | | 21,387,999 | |||||||||||||||||||||
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(1) Financial information derived from records provided by SMASH
See accompanying notes to unaudited pro forma condensed, consolidated, and combined financial information.
2
ATERIAN, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED, CONSOLIDATED, AND COMBINED FINANCIAL INFORMATION
Note 1Basis of Presentation
The accompanying pro forma financial statements were prepared in accordance with Article 11 of Regulation S-X and present the 2020 pro forma statement of income and loss of ATER based upon the historical financial statements of ATER and SMASH after giving effect to the Acquisition and are intended to reflect the impact of the Acquisition on ATERs financial statements.
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 ATERs 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 ATERs financial condition and results of operations as if the Acquisition was completed on the assumed dates.
The pro forma financial statements were prepared using the acquisition method of accounting with ATER considered the accounting acquirer of SMASH. Under the acquisition method of accounting, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the acquisition date, with any excess purchase price allocated to goodwill. These preliminary estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuations of the tangible and intangible assets acquired and liabilities assumed from the Acquisition. These potential changes could be material.
At the time of preparing the pro forma financial statements, the Company is not aware of any other accounting policy differences requiring adjustment that would have a material impact. ATERs managements assessment of SMASHs accounting policies is ongoing, and, upon completion, further differences may be identified that could have a material impact on the pro forma financial statements.
Note 2Purchase Price Allocation
On December 1, 2020 (the Closing Date), the Company acquired the assets of leading e-commerce business brands Mueller, Pursteam, Pohl and Schmitt, and Spiralizer (the Smash Assets) for total consideration of (i) $25.0 million in cash, (ii) 4,220,000 shares of common stock of the Company, the accounting basis of which was $6.89 (closing stock price at closing of the transaction), of which 164,000 of such shares were issued, pursuant to the instruction of 9830, to Northbound Group in satisfaction of certain broker fees payable by the Sellers to Northbound Group and (iii) a seller note in the amount of $15.8 million, representing the value of certain inventory that the Sellers had paid for but not yet sold as of the Closing Date. In addition, subject to achievement of certain contribution margin thresholds on certain products of the acquired business for the fiscal years ending December 31, 2021 and December 31, 2022, the Sellers shall be entitled to receive earn out payments.
As part of the acquisition of the Smash Assets, the Sellers are entitled to earn-out payments based on the achievement of certain contribution margin thresholds on certain products of the acquired business. Earn-out payments will be due to the Sellers for year one, or calendar year 2021, and year two, or calendar year 2022. During the year-ending December 31, 2021 (year one of the earn-out), the earn-out payment will be calculated based on the contribution margin generated on certain products for an amount equal to $1.67 for every $1.00 of such contribution margin that is greater than $15.5 million and less than or equal to $18.5 million. Such earn-out payment cannot exceed $5.0 million. As of December 1, 2020, the acquisition date, the initial fair value amount of the earn-out payment was appropriately $9.8 million.
The tables below sets forth the purchase consideration and the preliminary allocation to estimated fair value of the tangible and intangible net assets acquired (in thousands):
Amount allocated |
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Cash purchase price |
$ | 25,000 | ||
4,220,000 shares of common stock issued at the closing (1) |
29,076 | |||
Seller note for inventory |
15,177 | |||
Estimated earnout liability |
9,800 | |||
Total consideration to be paid |
$ | 79,053 | ||
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(1) | Based on the accounting basis of $6.89 per share. |
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Inventory |
$ | 16,419 | ||
Production deposits |
$ | 3,382 | ||
Accounts Payable and other liabilities |
(3,087 | ) | ||
Trademarks (10 year useful life) |
27,600 | |||
Goodwill |
34,739 | |||
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Net assets acquired |
$ | 79,053 | ||
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For the purposes of the preliminary purchase price allocation, the reported values of the assets acquired and liabilities assumed on the assumed first day of the acquisition, January 1, 2020, approximate their fair value, except for the intangible assets acquired. Goodwill is expected to be deductible for tax purposes. The goodwill is attributable to expected synergies resulting from integrating SMASHs products into the Companys existing sales channels.
The identifiable intangible assets acquired in the Acquisition consist of trademarks with estimated useful lives of 10 years. The estimated fair values of these identifiable intangible assets is $27.6 million. The fair value of $27.6 million was determined by the relief from royalty method.
Note 3Financing Adjustments
Contemporaneously with the closing of the Acquisition, the Company refinanced its $15.0 million term loan with Horizon Technology Finance Corporation (Horizon Term Loan) through the issuance of a 0% coupon senior secured note (the Note) to High Trail Investments SA LLC (High Trail). The Company received gross proceeds of $38.0 million in exchange for the Note with an aggregate principal amount of $43.0 million. The Note was to be repaid over 24 equal monthly cash payments of $1.8 million. In connection with the issuance of the Note, the Company issued to High Trail a warrant to purchase an aggregate of 2,864,133 shares of the Companys common stock at an exercise price of $9.01 per share (the Warrant). The Warrant initially provided that it would be exercisable on June 1, 2021, expire five years from the date of issuance and be exercisable on a cash basis, unless there was not an effective registration statement covering the resale of the shares issuable upon exercise of the Warrant, in which case the Warrant would also be exercisable on a cashless exercise basis at High Trails election. The Warrant included a provision that gave the Company the right to require High Trail to exercise the Warrant if the price of the common stock of the Company exceeded 200% of the exercise price of the Warrant for 20 consecutive trading days and certain other conditions were satisfied. The Company utilized the Monte-Carlo Simulation model to determine the fair value of the Warrant. As of December 1, 2020, the initial fair value of the Warrant on issuance was $10.5 million, which has been recorded as a debt discount against the Note.
The Note was recorded on the assumed first day of the acquisition, January 1, 2020, as follows:
January 1, 2020 |
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The Note |
$ | 43,000 | ||
Less: deferred debt issuance costs |
(2,349 | ) | ||
Less: discount associated with issuance of warrants |
(10,483 | ) | ||
Less: discount associated with original issuance of loan |
(5,000 | ) | ||
The Warrant |
10,483 | |||
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Total Note |
35,651 | |||
Less-current portion |
(21,600 | ) | ||
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Term loan-non current portion |
$ | 14,051 | ||
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Further, due to the refinancing of the Horizon Term Loan, the Company recorded a loss on extinguishment of debt of $2.0 million related to the pay-off of the Horizon Term Loan.
During the year-ended December 31, 2020, the following amounts were recorded in interest expense on the 2020 pro forma statement of income and loss:
Year-Ended December 31, 2020 |
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Deferred debt issuance costs |
$ | 2,349 | ||
Amortization included in interest (11 of 24 months - the term of the Note) |
(1,077 | ) | ||
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Remainder deferred debt issuance costs |
$ | 1,272 |
Year-Ended December 31, 2020 |
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Discount associated with issuance of the Warrant |
$ | 10,483 | ||
Amortization included in interest (11 of 24 months - the term of the Note) |
(4,805 | ) | ||
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Remainder discount associated with issuance of the Warrant |
$ | 5,678 |
Year-Ended December 31, 2020 |
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Discount associated with original issuance of the Note |
$ | 5,000 | ||
Amortization included in interest (11 of 24 months - the term of the Note) |
(2,292 | ) | ||
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Remainder discount associated with original issuance of the Note |
$ | 2,708 |
Note 4Pro Forma Adjustments - Statement of Income and Loss
The pro forma adjustments included in the 2020 pro forma statement of income and loss for the year-ended December 31, 2020 are as follows (in thousands):
A) Cost of goods sold was adjusted as follows:
Year-Ended December 31, 2020 |
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Amortization of inventory step-up from valuation of inventory |
$ | 1,858 | ||
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Total impacts to Cost of goods sold |
$ | 1,858 |
B) General and administrative expenses were adjusted as follows:
Year-Ended December 31, 2020 |
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Amortization of intangibles (See Note 2) |
$ | 2,530 | ||
Total impacts to General and administrative expenses |
$ | 2,530 |
C) No tax provision was recorded as part of this pro forma statement of income and loss as ATER has a full valuation allowance related to its income tax position, and as such a pro forma adjustment would not be realized and thus would not impact pro forma results.
D) Interest expense was adjusted as described in Note 3.
E) Weighted-average number of shares outstanding, basic and diluted was adjusted to reflect the common stock consideration issued, as described in Note 2.