Aterian, Inc. (formerly Mohawk Group Holdings, Inc.) — Form 8-K Summary
Business context and reporting period
The Form 8-K was filed on December 1, 2020, reporting events occurring on November 30 and December 1, 2020. The company entered into a financing transaction, refinanced and terminated an existing venture loan, amended its revolving credit facility, and completed an acquisition of certain ecommerce assets and brands.
Key financial and operating metrics
| Item | Reported terms |
|---|---|
| Private placement proceeds | $38.0 million, less applicable expenses |
| Senior secured note | $43.0 million principal; 0% coupon; maturity December 1, 2022 |
| Note amortization | Equal monthly cash installments of $1.8 million beginning January 2021 |
| Warrant | Up to 2,864,133 common shares at $9.01 per share; exercisable June 1, 2021; five-year term |
| Revolving credit facility | $25.0 million facility; amended to permit the new debt and acquisition |
| Acquisition cash consideration | $25.0 million |
| Acquisition equity consideration | 4,220,000 common shares, including 164,000 shares issued for broker fees; 4,056,000 shares represented 15.51% of shares outstanding as of December 1, 2020 |
| Seller note | $15,799,449, representing the value of specified unsold inventory; 3.0% annual interest applies to amounts unpaid after 180 days, increasing to 10% for specified late-paid inventory |
| Existing venture loan | Previously a five-year, $15.0 million term loan; all obligations were paid and the agreement terminated |
The filing does not provide revenue, net income, operating margin, cash flow, cash balance, or liquidity amounts for the reported period. It also does not provide comparative-period financial results.
Material changes and transactions
- The company raised financing through the issuance of a $43.0 million senior secured note and warrants in exchange for $38.0 million of proceeds before applicable expenses.
- Net proceeds were used partly to repay the Horizon venture loan and are otherwise intended for working capital, operating expenses, capital expenditures, and general corporate purposes. The proceeds were not intended to fund the acquisition.
- The new note ranks senior to the company’s other indebtedness, except for the MidCap facility to the extent of its collateral, and is secured.
- The company acquired ecommerce assets associated with the Mueller, Pursteam, Pohl and Schmitt, and Spiralizer brands and related sales channels, including Amazon.
- The acquisition included potential earn-out payments tied to contribution-margin thresholds for 2021 and 2022. The filing does not state the acquired business’s historical revenue or profitability.
- The company amended its MidCap credit agreement to permit the new note, payments under the note, and the acquisition.
- The acquired shares are subject to a six-month lock-up. The seller also agreed to standstill, voting, and other restrictions generally lasting up to five years, subject to stated exceptions.
Outlook, obligations, and risks
- The note contains restrictions on additional indebtedness, liens, investments, dividends, and other transactions, as well as minimum earnings and cash-on-hand requirements.
- Upon specified equity financings, the company may be required to redeem part of the note at par, generally subject to a $4.0 million cap per financing.
- Following an event of default, the investor may require cash redemption at 115% of outstanding principal plus default interest accruing at 15% annually. If cash is not paid, some or all of the amount may be settled in common stock at a discounted market price.
- The investor may require redemption upon a fundamental change and has participation rights in certain future financings through at least the later of June 1, 2022, or full repayment of the note.
- The note and warrant include beneficial-ownership limitations initially set at 4.99%, potentially increasing to no more than 9.99% after notice and a waiting period.
- The company may redeem the note at 96% of principal before August 1, 2021, 98% between August 1 and December 31, 2021, and 100% beginning January 1, 2022.
- The company agreed to file a resale registration statement for the acquisition shares within 120 days of the December 1, 2020 closing.
- No formal financial guidance or management forecast is included in the filing. Historical financial statements for the acquired business were not included; the company stated that it intended to file them in a subsequent amendment within 71 calendar days.
Most important facts to verify
- Actual cash proceeds from the private placement after fees and the amount used to repay the Horizon loan, including the prepayment fee.
- Post-transaction cash balance, availability under the $25.0 million revolving facility, and compliance with the note’s minimum cash and earnings covenants.
- Timing and affordability of the $1.8 million monthly note amortization and repayment of the $15.8 million seller note.
- Historical and pro forma revenue, contribution margin, profitability, and cash flow of the acquired brands.
- Potential dilution from the 4,220,000 acquisition shares, the 2,864,133 warrants, and any stock issued upon a note-related default.
- Subsequent filings regarding acquired-business financial statements, purchase accounting, earn-outs, registration of resale shares, and covenant compliance.