美国
证券和交易委员会
华盛顿特区20549
表格
（标记一）
| | 根据1934年证券交易法第13或15(d)节的季度报告 |
截至季度结束日期的财务报告
或
| | 根据1934年证券交易法第13或15(d)节的转型报告书 |
委托文件编号：001-39866
Aterian，Inc。
(根据其章程规定的注册人准确名称)
| | | |
| （国家或其他管辖区的 公司成立或组织） | （IRS雇主 | |
| | | |
| (主要行政办公室地址) | (邮政编码) |
(
（注册人电话，包括区号）’电话号码（含区号）
在法案第12(b)条的规定下注册的证券：
| 每个类别的标题 | 交易标的 | 在其上注册的交易所的名称 | ||
| | | 该 |
请勾选符号表示公司是否进行了以下行动：（1）在过去12个月期间（或公司有要求提交上述报告的较短时间期间）根据《证券交易法》第13或15(d)条款的规定提交了所有要求提交的报告，以及（2）在过去90天内履行了此类提交要求。
勾选表示注册人已在过去12个月内（或更短的时间内，注册人需要提交文件）按照《S-t条例第405条规则》要求提交了所有互动数据文件。
勾选以下选框，指示申报人是大型加速评估提交人、加速评估提交人、非加速评估提交人、小型报告公司或新兴成长型公司。关于“大型加速评估提交人”、“加速评估提交人”、“小型报告公司”和“新兴成长型公司”的定义，请参见《交易所法规》第120亿.2条。
| 大型加速报告人 | ☐ | 加速文件提交人 | ☐ | |
| | ☒ | 较小的报告公司 | | |
| 新兴成长公司 | |
如果是新兴成长型企业，请勾选复选标记，表明注册者已选择不使用延长过渡期来符合根据证券交易法第13(a)条规定提供的任何新财务会计准则。
请勾选是否Registrant是外壳公司（根据证券交易法规则12b-2定义）。 是
截至2024年11月8日，注册者持有
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页面 |
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| 第I部分 |
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| 项目1。 |
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| 项目2。 |
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| 项目3。 |
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| 项目4。 |
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| 第二部分 |
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| 项目1。 |
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| 项目1A。 |
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| 项目2。 |
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| 项目3。 |
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| 项目4。 |
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| 项目5。 |
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| 项目6。 |
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关于前瞻性声明的警示说明
这份第10-Q表格的季度报告中包含 “forward-looking statements” 根据证券法第27A条和1934年证券交易所法第21E条的含义。其中许多陈述可以通过使用术语来识别，例如 “相信，” “预计，” “打算，” “预计，” “计划，” “会，” “以及类似表达，均与我们或我们的管理有关，旨在识别此类前瞻性陈述。前瞻性陈述既非历史事实，也非未来业绩的保证。” “可能” "would,” “项目,” “continues,” “estimates,” “潜力,” “机会” 或者这些术语的负面版本和其他类似的表达。我们的实际结果或经验可能与前瞻性陈述显著不同。可能导致或对这些差异有贡献的因素包括本季度报告表格10-Q第II部分，项目1A中讨论的因素，以及本季度报告表格10-Q和我们于2023年12月31日结束的年度报告表格10-k中提供的资讯，该报告已于2024年3月19日向证券交易委员会（SEC）提交。在您做出投资决策之前，您应该仔细考虑该信息。 “风险因素，” 在本季度报告表格10-Q的第II部分，项目1A中提及的因素，以及本季度报告表格10-Q和我们于2023年12月31日结束的年度报告表格10-k中提供的其他地方信息和于2024年3月19日向证券交易委员会（SEC）提交的信息。在您做出投资决定之前，您应仔细考虑该信息。
您不应过度依赖这些类型的前瞻性声明，这些声明仅在其发布之日有效。这些前瞻性声明是基于公司的信念和假设。’管理层基于目前可用于管理层的信息，并应与公司未来可能发布的任何书面或口头前瞻性声明以及公司所做和可能做的其他警告声明一起加以考虑。除法定要求外，公司不承担任何义务在本季度报告（表格10-Q）提交完成后公开发布对这些前瞻性声明的任何修订，以反映后来的事件或情况或意外事件的发生。
关于公司的讨论’公司的财务控制项及经营成果应与公司’的简明合并基本报表及本季度10-Q表格中包含的相关附注一同阅读。
简明合并资产负债表
（未经审计）
（以千计，除股份和每股数据除外）
| 2023年12月31日 | 2024年9月30日 | |||||||
| 资产 | ||||||||
| 流动资产: | ||||||||
| 现金 | $ | $ | ||||||
| 应收帐款，净额 | ||||||||
| 存货 | ||||||||
| 预付及其他流动资产 | ||||||||
| 流动资产总额 | ||||||||
| 不动产及设备，净额 | ||||||||
| 其他无形资产，净额 | ||||||||
| 其他非流动资产 | ||||||||
| 总资产 | $ | $ | ||||||
| 负债及股东权益 | ||||||||
| 当前负债： | ||||||||
| 信贷设施 | $ | $ | ||||||
| 应付账款 | ||||||||
| 卖家备注 | ||||||||
| 应计负债及其他流动负债 | ||||||||
| 流动负债总额 | ||||||||
| 其他负债 | ||||||||
| 总负债 | ||||||||
| 合同和应付之可能负债（注10） | ||||||||
| 股东权益： | ||||||||
| 0.01 面值， 授权股份和 和 2023年12月31日和2024年9月30日期间的股本分别为（*） | ||||||||
| 资本公积额额外增资 | ||||||||
| 累积亏损 | ( | ) | ( | ) | ||||
| 累积其他全面损失 | ( | ) | ( | ) | ||||
| 股东权益总额 | ||||||||
| 负债总额及股东权益合计 | $ | $ | ||||||
(*) 股数及每股金额已追溯重述，以反映2024年3月22日生效的十二分之一（1-for-12）反向股票分拆。
附注是这些未经审核的简明综合财务报表的一个组成部分。
综合损益表
（未经审计）
（以千为单位，除每股股份和每股资料外）
| 截至九月三十日的三个月 |
截至九月三十日的九个月。 |
|||||||||||||||
| 2023 |
2024 |
2023 |
2024 |
|||||||||||||
| 净营业收入 |
$ | $ | $ | $ | ||||||||||||
| 销货成本 |
||||||||||||||||
| 毛利润 |
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| 营运费用： |
||||||||||||||||
| 销售及分销 |
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| 研发 |
||||||||||||||||
| 一般及行政费用 |
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| 无形资产的减值损失 |
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| 营业费用总额 |
||||||||||||||||
| 营运亏损 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| 利息费用，净额 |
||||||||||||||||
| 认股权证负债公平价值变动 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| 其他（收入）费用，净额 |
( |
) | ||||||||||||||
| 税前损失 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| 所得税费用（效益） |
( |
) | ||||||||||||||
| 净亏损 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| 每股净损，基本与稀释 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| 基本及稀释的加权平均流通股数(*) |
||||||||||||||||
(*) 股数及每股金额已追溯重述，以反映2024年3月22日生效的十二分之一（1-for-12）反向股票分拆。
附注是这些未经审核的简明综合财务报表的一个组成部分。
综合损益总表
（未经审计）
（以千为单位）
| 截至九月三十日的三个月 |
截至九月三十日的九个月。 |
|||||||||||||||
| 2023 |
2024 |
2023 |
2024 |
|||||||||||||
| 净亏损 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| 其他综合损失： |
||||||||||||||||
| 外币转换调整 |
( |
) | ||||||||||||||
| 其他综合损益 |
( |
) | ||||||||||||||
| 综合亏损 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
附注是这些未经审核的简明综合财务报表的一个组成部分。
股东权益的缩编合并财务报表’ 股权
（未经审计）
(以千为单位，每股数据除外)
| 截至2023年9月30日的三个月 |
||||||||||||||||||||||||
| 普通股(*) |
股本溢价资本额 |
累积的 |
累积其他全面损益 |
股东总计 |
||||||||||||||||||||
| 股份 |
金额 |
资本(*) |
赤字 |
损失 |
权益 |
|||||||||||||||||||
| 资产负债表-2023年7月1日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| 净亏损 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 发行受限普通股 |
||||||||||||||||||||||||
| 没收受限制普通股 |
( |
) | — | — | — | — | — | |||||||||||||||||
| 股份报酬支出 |
— | |||||||||||||||||||||||
| 其他综合损失 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 截至2023年9月30日结余 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
(*) 股数及每股金额已追溯重述，以反映2024年3月22日生效的十二分之一（1-for-12）反向股票分拆。
| 截至2024年9月30日的三个月 |
||||||||||||||||||||||||
| 普通股 |
股本溢价资本额 |
累积的 |
累积其他全面损益 |
股东总计 |
||||||||||||||||||||
| 股份 |
金额 |
资本(*) |
赤字 |
损失 | 权益 |
|||||||||||||||||||
| 资产负债表—2024年7月1日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| 净亏损 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 限制普通股股份发行 |
||||||||||||||||||||||||
| 没有偿还的限制普通股股份 |
( |
) | — | — | — | — | — | |||||||||||||||||
| 发行普通股 |
||||||||||||||||||||||||
| 股份报酬支出 |
— | |||||||||||||||||||||||
| 其他综合收益 |
— | |||||||||||||||||||||||
| 资产负债表—2024年9月30日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
ATERIAN, INC.
截至2024年6月30日和2023年6月30日三个月和六个月的股东权益(赤字)最简报表’ 股权
(未经审计)
(以千计，除分享和每分享数据外)
| 2023年9月30日止九个月 |
||||||||||||||||||||||||
| 普通股(*) |
股本溢价资本额 |
累积的 |
累积其他全面损益 |
股东总计 |
||||||||||||||||||||
| 股份 |
金额 |
资本(*) |
赤字 |
损失 | 权益 |
|||||||||||||||||||
| 账户余额-2023年1月1日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| 净亏损 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 发行限制性普通股股份 |
||||||||||||||||||||||||
| 没收限制性普通股股份 |
( |
) | — | — | — | — | — | |||||||||||||||||
| 发行普通股 |
||||||||||||||||||||||||
| 股份报酬支出 |
— | |||||||||||||||||||||||
| 其他综合收益 |
— | |||||||||||||||||||||||
| 截至2023年9月30日结余 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
(*) 股数及每股金额已追溯重述，以反映2024年3月22日生效的十二分之一（1-for-12）反向股票分拆。
| 截至2024年9月30日的九个月 |
||||||||||||||||||||||||
| 普通股(*) |
股本溢价资本额 |
累积的 |
累积其他全面损益 |
股东总计 | ||||||||||||||||||||
| 股份 |
金额 |
资本(*) |
赤字 |
损失 | 权益 |
|||||||||||||||||||
| 余额-2024年1月1日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| 净亏损 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 限制性普通股的发行 |
||||||||||||||||||||||||
| 限制性普通股的没收 |
( |
) | — | — | — | — | — | |||||||||||||||||
| 发行普通股 |
||||||||||||||||||||||||
| 股份报酬支出 |
— | |||||||||||||||||||||||
| 其他综合收益 |
— | |||||||||||||||||||||||
| 资产负债表—2024年9月30日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
(*) 股数及每股金额已追溯重述，以反映2024年3月22日生效的十二分之一（1-for-12）反向股票分拆。
简明合并现金流量量表
（未经审计）
（以千为单位）
| 截至九月三十日的九个月。 |
||||||||
| 2023 |
2024 |
|||||||
| 营运活动： |
||||||||
| 净亏损 |
$ | ( |
) | $ | ( |
) | ||
| 调整净损益以准备或提供营运活动之现金流量： |
||||||||
| 折旧及摊销 |
||||||||
| 销售退货备抵（追回）： |
( |
) | ||||||
| 无形资产摊销、财务成本及债务折扣摊提： |
||||||||
| 基于股票的薪酬 |
||||||||
| 递延税款费用的变动 |
( |
) | ||||||
| 存货备抵计提变动 |
( |
) | ||||||
| 认股权证负债公平价值变动 | ( |
) | ( |
) | ||||
| 无形资产的减值损失 |
||||||||
| 信用损失准备 |
|
— |
||||||
| 资产及负债的变动： |
||||||||
| 应收账款 |
||||||||
| 存货 |
||||||||
| 预付及其他流动资产 |
||||||||
| 应付帐款、应计及其他负债 |
( |
) | ||||||
| 营运活动提供的现金（使用中） |
( |
) | ||||||
| 投资活动： |
||||||||
| 固定资产之购买 |
( |
) | ( |
) | ||||
| 购买Step and Go资产 |
|
— |
||||||
| 购买少数股权投资 |
( |
) | ||||||
| 投资活动所使用的现金 |
( |
) | ( |
) | ||||
| 筹资活动： |
||||||||
| 对Smash应付票据的还款 |
( |
) | ( |
) | ||||
| 从MidCap信贷工具借款 |
||||||||
| 用于偿还MidCap信贷工具 |
( |
) | ( |
) | ||||
| 保险义务支付 |
( |
) | ( |
) | ||||
| 保险融资收益 |
|
— |
||||||
| 融资活动中的现金支出 |
( |
) | ( |
) | ||||
| 外汇对现金、及现金等价物和受限制现金的影响 |
||||||||
| 本年度现金及受限制现金的净变动 |
( |
) | ( |
) | ||||
| 年初现金及受限制现金 |
||||||||
| 年底现金及受限制现金 |
$ | $ | ||||||
| 现金和受限制现金的调解： |
||||||||
| 现金 |
||||||||
| 受限制现金-预付款项及其他流动资产 |
||||||||
| 受限制现金-其他非流动资产 |
||||||||
| 总现金及受限制现金 |
$ | $ | ||||||
| 现金流量补充披露 |
||||||||
| 支付利息的现金 |
$ | $ | ||||||
| 支付的税金现金 |
$ | $ | ||||||
| 非现金投资和融资活动： |
||||||||
| 向承包商支付的非现金代价 |
$ | $ | ||||||
| 非现金少数股权投资 |
$ | — |
$ | |
||||
附注是这些未经审计的基本报表的一部分。
基本合并财务报表注释
截至2023年和2024年九个月止（未经审计）
| 1. | 公司概述 |
Aterian, Inc.（以下简称“公司”）是一家在亚马逊和沃尔玛等在线零售渠道上主要运营的科技消费产品公司。该公司经营其自有品牌，这些品牌要么是孵化的，要么是购买的，销售多个类别的产品，包括家用和厨房电器、厨房用品、空气净化器、健康和美容产品以及精油。
我们的主要品牌包括Squatty Potty、HomeLabs、Mueller Living、PurSteam、Healing Solutions和Photo Paper Direct（"PPD"）。我们主要通过在线销售我们各种消费产品产生营业收入，几乎所有的销售都是通过亚马逊美国市场进行的。
总部位于新泽西，在中国、菲律宾和英国设有办事处。
流动性和持续经营
作为一家新兴增长型公司，我们面临与企业发展相关的固有风险和不确定性。在这方面，我们迄今为止的几乎所有努力都致力于开发和销售我们的产品，这包括我们对有机增长的投资，而忽视了短期的盈利能力，我们对并购的增量增长的投资策略，我们招募管理和技术人员，以及筹集资金支持企业发展。由于这些努力，我们自成立以来一直遭受巨额亏损和负面经营现金流，我们预计在可预见的将来将继续遭受这种亏损，但幅度会有所降低，并将继续产生负面现金流，直到我们达到一个能够维持经营的盈利规模。由于宏观经济因素（包括利率上升和消费者可随意支出减少等）、以及其他因素，我们的营收也在下降，我们正在将精力集中在更少数量的产品上。此外，我们最近的财务表现也受到通货膨胀压力和消费支出减少的不利影响。
为了执行我们的增长策略，我们历史上依赖于通过发行股权、债务和融资安排下的借款（统称为“外部资本”）来资助我们的成本结构，我们预计在可预见的未来仍将继续依赖外部资本，特别是在我们的并购策略上。虽然我们相信最终会达到一个可持续运营的盈利水平，但仍然存在 没有 我们能够实现这样的盈利能力或以不需要我们继续依赖外部资本的方式做到这一点的保证。此外，尽管我们历史上在筹集外部资本方面取得了成功，但仍然存在 在测试商誉减值时，公司可以选择 我们能够在未来继续获得外部资本或者以对我们可接受的条款获得外部资本的保证。 没有
截至附带的简明合并基本报表发布日期（“发布日期”）我们根据会计准则规定，评估了以下不利的财务状况的重要性。 205-40, 持续经营性问题：
自成立以来，我们一直亏损并利用经营现金流来资助我们的企业。在这方面，在 九 月结束 2024年9月30日期间，我们录得净损失$
• 我们需要遵守MidCap信贷设施所要求的某些财务契约（见注释 7, 信贷设施、定期贷款和warrants）。截止到 2024年9月30日，我们预计将在至少保持遵守 九月30, 2025. 在 2024年2月，该公司发行了最高股数为的限制性股票单元授予，其中的股份在五年内等分每年最高股数（绩效授予）。 公司已修订其与Midcap信贷设施的条款，将期限延长至 2026年12月 并修改某些财务契约以获得优惠条款。我们可以提供 没有 保证我们将持续遵守财务契约。此外，如果我们无法从运营中产生现金流入或获得额外的外部资本，我们将无法继续遵守这些财务契约。如果我们无法继续遵守这些财务契约（或MidCap信用设施要求的其他非财务契约），并且无法获得豁免或宽展，MidCap 可自行决定并不时豁免全部或部分赞助商费用的支付期。 可以自行决定行使其现有的所有权利和救济，包括但不限于，加速偿还未偿借款和/或主张其在担保贷款的资产中的权利。 可以 此外，还包括加速偿还未偿借款和/或主张其在担保贷款的资产中的权利。
• 截至发行日期，我们已经 没有 与放款人或投资者有确定的资本担保。尽管我们预计将继续探索筹集额外的外部资本，特别是用于支持我们的并购策略，但 没有 我们无法保证能够获得资本或以对我们可接受的条件偿还。因此，在缺乏现金流入和/或在短期内获得额外的外部资本的情况下，我们 可以 将无法按照下一个到期日期履行我们的义务。 十二 自发行日期起 months。
• 公司的计划是继续紧密监控我们的营运预测，实施并购战略，追求可接受的外部资金来源，并在我们无法保持符合MidCap要求的情况下，与MidCap获得豁免或暂缓执行。 一份 减少公司销售的SKU数量，并且不再追求未来销售任何不盈利的SKU。 没有 不再追求未来销售任何不盈利的SKU。 在测试商誉减值时，公司可以选择 不再追求未来销售任何不盈利的SKU。 在测试商誉减值时，公司可以选择 公司战略的核心。如果我们的一些或所有计划无法成功，我们 可以 需要实施短期变更我们的运营计划，包括但不限于延迟支出，减少对新产品的投资，或减少我们的销售和配送基础设施。我们 在测试商誉减值时，公司可以选择 需要寻求长期战略替代方案，例如大幅削减我们的业务，出售一些资产，部分产品线的剥离，将整个企业出售给战略或金融投资者，和/或让我们的企业破产。 可以 还需要寻求长期战略替代方案，例如大幅削减我们的业务，出售一些资产，部分产品线的剥离，将整个企业出售给战略或金融投资者，和/或让我们的企业破产。
公司已完成 重组计划以降低运营成本并根据我们精简的运营规模调整员工人数。 18此外，我们已经减少了SKU数量，专注于公司战略的核心盈利产品。 2024年2月，该公司发行了最高股数为的限制性股票单元授予，其中的股份在五年内等分每年最高股数（绩效授予）。 在我们与Midcap信贷设施的期限延长至 2026年12月 (详见备注 7, 信贷便利、定期贷款和warrants) 并修订关键条款，这将为流动性增加更多的灵活性，并增强我们的资产负债表。考虑到这些因素，公司将在接下来的几个季度内监控盈利能力和现金流，以评估我们作为持续经营实体的能力。
虽然我们在减少营运亏损和增强资产负债表方面取得了显著进展，但业务运营和业务预测仍存在不确定性。这些不确定性对我们作为持续存在的能力提出了重大疑问。附带的简明综合财务报表是基于我们将继续作为持续存在进行准备的，这意味着我们将能够在可预见的未来通过正常经营方式变现资产，偿付负债和履行承诺。因此，附带的简明综合财务报表包括 在测试商誉减值时，公司可以选择 不包括由这些不确定性结果引起的任何调整。 可以
纳斯达克上市 - 在 2023年4月24日， 我们收到了来自纳斯达克证券市场有限责任公司（“纳斯达克”）上市资格工作人员的信，表明 根据我们普通股在过去 30 连续的业务日的收盘买盘价，公司目前符合维持在纳斯达克资本市场继续上市的最低买盘价要求， $1.00 如纳斯达克上市规则所述 5550(a)(2（“买盘通知”）。买盘通知提供了一个合规期 180 从买盘价格通知日期起的日历天数，或直到 在2023年10月23日， 根据纳斯达克上市规则，以恢复符合最低收盘买盘要求 5810(c)(3（A）。在我们于 2023年10月13日， 于 2023年10月24日， 我们收到纳斯达克发来的信函， granting the Company an additional 180 天，或者直到 2024年4月22日， 以重新符合最低关闭买盘要求（“延期通知”）。
纳斯达克在合规通知中通知公司，从 2024年3月22日 到 2024年4月5日 公司的普通股收盘买盘价格已达到 $1.00 每股或更高，因此，公司已重新符合纳斯达克上市规则 5450(a)(1）该事项现在已结束。
在 2023年8月11日， Aterian的股东批准了我们的董事会具有裁量权的权力，以(A)修改我们的《修订与重述公司章程》，以执行 一份 或更多次对我们普通股的已发行和流通股份进行合并，其面值为$
在 2024年3月20日， 公司向特拉华州州务卿办公室（以下简称 “州务卿办公室”）提交了一份关于公司修正后及改订后的公司章程的修正证书（以下简称 “修正证书”），以实施 1-为-
普通股在纳斯达克以反向股票拆分调整后的基础上开始交易， 2024年3月22日。 本季度报告的所有板块和每股数据均已追溯调整，以反映反向股票拆分。 10-Q表格
重组 - 在 2023年5月9日， 公司宣布通过裁减目前的员工人数来降低费用的计划，影响到 大约
在 2024年2月8日， 公司致力于执行一项固定的成本削减计划，包括裁员，导致全球约
| 2. | 重要会计政策摘要 |
呈现基础——合并简化基本报表及其附注是根据美国通用会计准则（“U.S. GAAP”）编制的。
未经审计的中期财务信息——附带的中期简约合并基本报表未经审计，并已按照经过审计的合并基本报表相同的基础编制，管理层认为，反映了公司截至……财务状况的所有必要调整。 2024年9月30日 以及截至……期间的经营成果及现金流量。 2024年9月30日 及 2023这些附注中披露的财务数据和其他信息与……相关。 三 和 九 月结束 2024年9月30日 及 2023也未经审计。结果为三 和 九 月结束 2024年9月30日绝非必然的。在测试商誉减值时，公司可以选择 并不一定表明年度结束时的结果 12月31日2024，其他任何中期或未来任何年份或期间。
截至 基本合并资产负债表为 2023年12月31日，在此呈现，已由公司年度财务报表的经审计的基本合并财务报表整理。应当同时阅读本未经审计的基本合并中期财务报表与我们于 10年度报告中，报告格式为 2023年12月31日 于SEC提交的文件中 2024年3月19日的年度报告（“年度报告”）一起编制，遵循了注中所描述的会计政策一贯的基础上。 2 在我们的年度报告中包括的合并财务报表附注中。我们的会计政策没有发生变化。 在测试商誉减值时，公司可以选择 在...期间没有发生变化。 九 月结束 2024年9月30日，除了针对已在附注中描述的新会计准则的采纳。 2, 最近的会计准则。
所附的未经审计的简明合并基本报表是根据美国通用会计准则（"U.S. GAAP"）编制的中期财务信息，并根据Form的说明编制。 10和证券交易委员会公布的“表格-Q”和“第5条”所规定的要求一样，这里所搭配的未经审计的简化合并财务报表是符合美国通用会计准则（U.S. GAAP）的中期财务报告，建议与该公司年度报告上所需要的按U.S. GAAP编制而成的审计信息和附注一起了解本报告。 8 -X. 因此，它们不包括完整的合并财务报表。 在测试商誉减值时，公司可以选择 包括U.S. GAAP所要求的所有信息和披露，以供编制完整基本报表。据管理层意见，这些报表包括为公允呈现公司简明合并基本报表所需的所有调整（仅包括正常经常性项目）截至 2024年9月30日 的 三 和 九 月之后结束。
使用估计——根据美国通用会计准则编制基本报表时，管理层需要进行估计和假设，这些估计和假设会影响资产和负债的报告金额，以及在基本报表日期附带披露的或有资产和负债的情况，以及在基本报表和附注涵盖的报告期间内报告的收入和费用金额。管理层根据历史经验和其他因素（包括当前经济环境）对其估计和假设进行持续评估，并在事实和情况要求时进行调整。由于未来事件及其影响无法精确确定，实际结果可能与这些估计存在差异。
合并原则—合并的基本报表包括公司及其全资子公司的账户。所有的内部公司余额和交易在合并中已被排除。
限制性现金截至 2023年12月31日，公司已将以下金额归类为受限现金：$
截至 2024年9月30日公司已将以下金额列为限制现金：$
库存和已售商品成本—公司的库存几乎全部由制成品组成。该公司目前在其资产负债表上记录库存 第一-在 第一-out 基准或可变现净值，如果低于公司的记录成本。该公司的成本包括向制造商支付的产品金额、与跨境运输产品相关的关税和关税，以及与将产品从制造商运送到仓库相关的运费（视情况而定）。库存估值要求我们根据历史数据等可用信息，对可能的处置方法（例如向个人客户出售或清算）以及每个处置类别的预期可收回价值做出判断。相关假设和预测的变化将影响我们在记录这些估计值之后的合并财务业绩。如果我们预计未来需求或市场状况等假设的变化将不如先前的估计那么有利，则会进一步减记库存 可能 是必填项。相反，如果我们能够出售已减记至低于前一时期的最终已实现销售价格的库存，则销售额将以较低或 不 抵消销售成本的费用。
在压缩合并运营报表中的“营业成本”项目包括在报告期间售出的库存账面价值。当情况要求公司使用净可实现价值作为记录库存的基础时，公司基于预期的未来销售价格减去预期的处置成本来进行估计。
应收账款应收账款以历史成本减去信用损失准备金计价。管理层定期评估其应收账款，并确定是否提供准备金或根据以往的核销、收款和当前信用状况，决定是否核销任何账户。如果公司未按约定条款收到付款，则该应收款被视为逾期。 在测试商誉减值时，公司可以选择 公司通常不要求任何安防-半导体来支持其应收款。公司对其客户进行持续评估，并维持信用损失准备金。截止至 在测试商誉减值时，公司可以选择 2023年12月31日 和 2024年9月30日公司已为信用损失准备了$
收入确认公司根据财务会计准则委员会(FASB)颁布的《会计准则法规汇编》(ASC)主题账业务收入。 606, 客户合同的营业收入(ASC主题 606”)。公司的营业收入来自消费品销售。公司通过在线零售渠道直接向消费者销售产品，也通过批发渠道销售产品。
对于直销，公司认为客户订单确认是与客户之间的合同。客户确认在通过下单时执行。 第三-方在线渠道。对于批发销售，公司认为客户采购订单是合同。
对于公司的所有销售和分销渠道，营业收入在产品控制权转移给客户时确认（即，当公司的履约义务得到满足时），通常发生在发货日期。因此，公司拥有当前的无条件收款权，并将在应收账款中记录客户应付款项。
消费产品销售收入按净销售价（交易价格）记录，其中包括根据历史退货率估计的未来退货。在利用历史趋势估计未来退货时需要进行判断。公司的销售退货退款责任为$
公司评估了主要与代理的考虑，以判断将支付给亚马逊的平台费用记录为费用还是营业收入的减少是否合适。平台费用被记录为销售和分销费用，且 在测试商誉减值时，公司可以选择 记录为营业收入的减少，因为公司在商品转移给客户之前拥有和控制所有商品。公司可以随时指示亚马逊，或同样指示其他 第三方物流提供商（“物流提供商”）将公司的库存返回到公司指定的任何地点。公司有责任在客户直接向物流提供商退货后，确保客户权益，而公司承担后端库存风险。此外，公司还面临信用风险（即信用卡退款），确定其产品的价格，可以判断谁来履行客户的商品（亚马逊或公司），并可以在任何时候限制数量或停止销售商品。基于这些考虑，公司在这一安排中是主要方。
按类别划分的净营业收入以下表格详细列出了公司根据客户的账单地址划分的销售渠道和地域板块的净营业收入：
| 截至2023年9月30日的三个月 | ||||||||||||
| (以千为单位) | ||||||||||||
| 直接 | 批发/其他 | 总计 | ||||||||||
| 北美洲 | $ | $ | $ | |||||||||
| 其他 | ||||||||||||
| 总净收入 | $ | $ | $ | |||||||||
| Three Months Ended September 30, 2024 | ||||||||||||
| (in thousands) | ||||||||||||
| Direct | Wholesale/Other | Total | ||||||||||
| North America | $ | $ | $ | |||||||||
| Other | ||||||||||||
| Total net revenue | $ | $ | $ | |||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||
| (in thousands) | ||||||||||||
| Direct | Wholesale/Other | Total | ||||||||||
| North America | $ | $ | $ | |||||||||
| Other | ||||||||||||
| Total net revenue | $ | $ | $ | |||||||||
| Nine Months Ended September 30, 2024 | ||||||||||||
| (in thousands) | ||||||||||||
| Direct | Wholesale/Other | Total | ||||||||||
| North America | $ | $ | $ | |||||||||
| Other | ||||||||||||
| Total net revenue | $ | $ | $ | |||||||||
Net Revenue by Product Categories. The following tables set forth the Company’s net revenue disaggregated by product categories for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | ||||||||
| 2023 | 2024 | |||||||
| (in thousands) | ||||||||
| Heating, cooling and air quality | $ | $ | ||||||
| Kitchen appliances | ||||||||
| Health and beauty | ||||||||
| Cookware, kitchen tools and gadgets | ||||||||
| Home office | ||||||||
| Housewares | ||||||||
| Essential oils and related accessories | ||||||||
| Other | ||||||||
| Total net revenue | $ | $ | ||||||
| Nine Months Ended September 30, | ||||||||
| 2023 | 2024 | |||||||
| (in thousands) | ||||||||
| Heating, cooling and air quality | $ | $ | ||||||
| Kitchen appliances | ||||||||
| Health and beauty | ||||||||
| Cookware, kitchen tools and gadgets | ||||||||
| Home office | ||||||||
| Housewares | ||||||||
| Essential oils and related accessories | ||||||||
| Other | ||||||||
| Total net revenue | $ | $ | ||||||
Intangibles—We review long-lived assets for impairment when performance expectations, events, or changes in circumstances indicate that the asset's carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows by comparing the carrying value of the asset group to the undiscounted cash flows. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique.
On March 20, 2023, the Company made certain leadership changes in our essential oil business resulting in a change in strategy and outlook for the business which resulted in a reduced portfolio offering. This reduction in the portfolio was impactful to our essential oil business's future revenues and profitability and as a result the Company made revisions to our internal forecasts. The Company concluded that this change was an interim triggering event for the three months ending March 31, 2023 indicating the carrying value of our essential oil business's long-lived assets including trademarks may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $
During the three months ended June 30, 2023, the Company had a substantial decrease in its market capitalization, primarily relating to a decrease in share price. Further, the Company continued to see reduced net revenues across its portfolio due primarily to the then current macroeconomic environment reducing demand for consumer discretionary goods. Finally, during the three months ending June 30, 2023, the Company implemented a strategy of rationalizing certain less profitable products and reducing its product offering, specifically related to its kitchen appliance products. As a result of this rationalization, along with the reduced demand for its products, the Company made certain revisions to its internal forecasts for its Paper business and Kitchen appliance business. The Company concluded that these factors were an interim triggering event for the three months ending June 30, 2023 indicating the carrying value of our Paper and Kitchen appliance business’s long-lived assets, including trademarks, may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $
During the three months ended December 31, 2023, the Company continued to see reduced revenue in its paper business resulting in certain revisions to its internal forecasts. Due to these revisions in forecast due to reduced demand, the Company concluded this was an interim triggering event for the three months ending December 31, 2023 indicating the carrying value of our Paper business’s long-lived assets, including trademarks, may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $
These fair value measurements require significant judgements using Level 3 inputs, such as discounted projected future cash flows, which are not observable from the market, directly or indirectly. There is uncertainty in the projected future cash flows used in the Company’s impairment analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used in the analysis change in the future, the Company may be required to recognize additional impairment charges in future periods. Key assumptions in the impairment models included a discount and royalty rate. The Company believes our procedures for determining fair value are reasonable and consistent with current market conditions as of September 30, 2024.
There were no triggering events to test intangibles for impairment loss during the nine months ended September 30, 2024.
We will continue to closely monitor actual results versus expectations as well as whether and to what extent any significant changes in current events or conditions result in corresponding changes to our expectations about future estimated cash flows. If our adjusted expectations of the operating results do not materialize, we may be required to record intangible impairment charges, which may be material.
Fair Value of Financial Instruments—The Company’s financial instruments, including net accounts receivable, accounts payable, and accrued and other current liabilities are carried at historical cost. At September 30, 2024, the carrying amounts of these instruments approximated their fair values because of their short-term nature. The Company’s credit facility is carried at amortized cost at December 31, 2023 and September 30, 2024 and the carrying amount approximates fair value as the stated interest rate approximates market rates currently available to the Company.
The fair value of the stock purchase warrants issued in connection with the Company’s common stock offering on March 1, 2022 were measured using the Black-Scholes model. Inputs used to determine the estimated fair value of the warrant liabilities include the fair value of the underlying stock at the valuation date, the term of the warrants, and the expected volatility of the underlying stock. The significant unobservable input used in the fair value measurement of the warrant liabilities is the estimated term of the warrants. Upon the issuance of the stock purchase warrants, the Company evaluated the terms of each warrant to determine the appropriate accounting and classification pursuant to FASB ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), and FASB Accounting Standards Codification Topic 815, Derivatives and Hedging (“ASC 815”). Based on the Company’s evaluation and due to certain terms in the warrant agreements, it concluded the stock purchase warrants should be classified as liability with subsequent remeasurement as long as such warrants continue to be classified as liabilities.
Assets and liabilities recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3—Unobservable inputs that are supported by little or no market data for the related assets or liabilities.
The following tables summarize the fair value of the Company’s financial assets that are measured at fair value as of December 31, 2023 and September 30, 2024 (in thousands):
| December 31, 2023 | ||||||||||||
| Fair Value Measurement Category | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Restricted Cash | ||||||||||||
| Liabilities: | ||||||||||||
| Fair value of warrant liabilities | ||||||||||||
| September 30, 2024 | ||||||||||||
| Fair Value Measurement Category | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Restricted cash | ||||||||||||
| Liabilities: | ||||||||||||
| Fair value of warrant liabilities | ||||||||||||
A summary of the activity of the Level 3 liabilities carried at fair value on a recurring basis for the year-ended December 31, 2023 and the nine months ended September 30, 2024 is as follows (in thousands):
| September 30, 2023 | ||||
| Warrants liabilities as of January 1, 2023 | $ | |||
| Change in fair value of warrants | ( | ) | ||
| Warrants liabilities as of September 30, 2023 | $ | |||
| September 30, 2024 | ||||
| Warrants liabilities as of January 1, 2024 | $ | |||
| Change in fair value of warrants | ( | ) | ||
| Warrants liabilities as of September 30, 2024 | $ | |||
Recent Accounting Pronouncements
The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company, which will occur on December 31, 2024. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
In August 2023, the FASB finalized ASU 2023-09, Income Taxes (Topic 740). This ASU provides for certain updates to enhance the transparency about companies’ exposure to changes in tax legislation and the global tax risk they may face. Under the guidance, companies will be required to provide a breakout of amounts paid for taxes between federal, state, and foreign taxing jurisdictions, rather than a lump sum amount. Further, the rate reconciliation will require disaggregation into eight specific categories, with these categories further disaggregated by jurisdiction and for amounts exceeding 5 percent of their domestic tax rate. The rate reconciliation will need to also disclose both dollar amounts and percentages. This standard is effective for fiscal years beginning after December 15, 2024.
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires a company to disclose additional, more detailed information about a reportable segment’s significant expenses, even if there is one reportable segment, and is intended to improve the disclosures about a public entity’s reportable segments. The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2023-07 on our consolidated financial statements.
| 3. |
ACCOUNTS RECEIVABLE |
Accounts receivable consisted of the following as of December 31, 2023 and September 30, 2024 (in thousands):
| December 31, 2023 | September 30, 2024 | |||||||
| Trade accounts receivable |
$ | $ | ||||||
| Allowance for credit losses |
( |
) | ( |
) | ||||
| Accounts receivable-net |
$ | $ | ||||||
| 4. | INVENTORY |
Inventory consisted of the following as of December 31, 2023 and September 30, 2024 (in thousands):
| December 31, 2023 | September 30, 2024 | |||||||
| Inventory on-hand | $ | $ | ||||||
| Inventory in-transit | ||||||||
| Inventory | $ | $ | ||||||
The Company’s inventory on-hand is held either with Amazon or the Company’s other third-party warehouses. The Company does not have any contractual right of returns with its contract manufacturers. The Company’s inventory on-hand held by Amazon was approximately $
| 5. |
PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid and other current assets consisted of the following as of December 31, 2023 and September 30, 2024 (in thousands):
| December 31, 2023 |
September 30, 2024 |
|||||||
| Prepaid inventory |
$ | $ | ||||||
| Restricted cash |
||||||||
| Prepaid insurance |
||||||||
| Prepaid freight forwarder |
||||||||
| Other |
||||||||
| $ | $ | |||||||
| 6. |
ACCRUED AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consisted of the following as of December 31, 2023 and September 30, 2024 (in thousands):
| December 31, 2023 |
September 30, 2024 |
|||||||
| Accrued compensation costs |
$ | $ | ||||||
| Accrued professional fees and consultants |
||||||||
| Accrued logistics costs |
||||||||
| Product related accruals |
||||||||
| Sales tax payable |
||||||||
| Sales return reserve |
||||||||
| Accrued fulfillment expense |
||||||||
| Accrued insurance |
||||||||
| Federal payroll taxes payable |
||||||||
| Accrued interest payable |
||||||||
| Warrant liabilities |
||||||||
| All other accruals |
||||||||
| Accrued and current liabilities |
$ | $ | ||||||
The Company sponsors, through its professional employer organization provider, a 401(k) defined contribution plan covering all eligible US employees. Contributions to the 401(k) plan are discretionary. Currently, the Company does not match or make any contributions to the 401(k) plan.
| 7. | CREDIT FACILITY, TERM LOANS AND WARRANTS |
MidCap Credit Facility
On December 22, 2021, the Company entered into a Credit and Security Agreement (the “Credit Agreement”) together with certain of its subsidiaries party thereto as borrowers, the entities party thereto as lenders, and Midcap Funding IV Trust, as administrative agent, pursuant to which, among other things, (i) the Lenders agreed to provide a year revolving credit facility in a principal amount of up to $
The obligations under the Credit Agreement are a senior secured obligation of the Company and rank senior to all indebtedness of the Company. Borrowings under the Credit Agreement bear interest at a rate of Term Secured Overnight Financing Rate ("Term SOFR"), which is defined as SOFR plus
The Credit Agreement minimum liquidity covenant, which includes the Company’s unrestricted U.S. cash plus the revolving loan availability, requires that Midcap shall not permit the credit party liquidity at any time to be less than (a) during the period commencing on February 1st through and including May 31st of each calendar year, $
The Midcap Warrant has an exercise price of $
On February 23, 2024, the Company amended its asset backed credit facility with MidCap Financial Trust. The Credit Facility term was extended to December 2026 and gives the Company access to $
The Company is in compliance with the financial covenants contained within the Credit Agreement as of September 30, 2024.
The Company’s credit facility consisted of the following as of December 31, 2023 and September 30, 2024 (in thousands):
| December 31, 2023 | September 30, 2024 | |||||||
| MidCap Credit Facility | $ | $ | ||||||
| Less: deferred debt issuance costs | ( | ) | ( | ) | ||||
| Less: discount associated with issuance of warrants | ( | ) | ( | ) | ||||
| Total MidCap Credit Facility | $ | $ | ||||||
Interest Expense, Net
Interest expense, net consisted of the following for the three and nine months ended September 30, 2023 and 2024 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2024 | 2023 | 2024 | |||||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| Interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total interest expense, net | $ | $ | $ | $ | ||||||||||||
Securities Purchase Agreement and Warrants
On March 1, 2022, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain accredited investors identified on the signature pages to the Purchase Agreements (collectively, the “Purchasers”) pursuant to which, among other things, the Company issued and sold to the Purchasers, in a private placement transaction (the “2022 Private Placement”), (i)
Upon the issuance of the Prefunded Warrants and stock purchase warrants, the Company evaluated the terms of each Warrant to determine the appropriate accounting and classification pursuant to ASC 480 and ASC 815. Based on the Company’s evaluation and due to certain terms in the warrant agreements, it concluded the Prefunded Warrant and the stock purchase warrants should be classified as liabilities with subsequent remeasurement at each quarter so long as such warrants remain to be classified as liabilities. The Company recorded an initial liability on issuance of $
| 8. | STOCK-BASED COMPENSATION |
The Company has three equity plans:
2014 Amended and Restated Equity Incentive Plan
The board of directors of Aterian Group, Inc., a subsidiary of the Company (“AGI”), adopted, and AGI’s stockholders approved, the Aterian Group, Inc. 2014 Equity Incentive Plan on June 11, 2014. On March 1, 2017, AGI’s board of directors adopted, and AGI’s stockholders approved, an amendment and restatement of the 2014 Equity Incentive Plan (as amended, the “Aterian 2014 Plan”). As of September 30, 2024, there were shares reserved for future issuance under the Aterian 2014 Plan.
2018 Equity Incentive Plan
The Company’s board of directors (the “Board”) adopted the Aterian, Inc. 2018 Equity Incentive Plan (the “2018 Plan”) on October 11, 2018. The 2018 Plan was approved by its stockholders on May 24, 2019. As of September 30, 2024,
Options granted to date under the Aterian 2014 Plan and the 2018 Plan generally vest either: (i) over a -year period with
Inducement Equity Incentive Plan
On May 27, 2022, the Compensation Committee of the Board (the “Compensation Committee”) adopted the Aterian, Inc. 2022 Inducement Equity Incentive Plan (the “Inducement Plan”). The Inducement Plan will serve to advance the interests of the Company by providing a material inducement for the best available individuals to join the Company as employees by affording such individuals an opportunity to acquire a proprietary interest in the Company.
The Inducement Plan provides for the grant of equity-based awards in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares solely to prospective employees of the Company or an affiliate of the Company provided that certain criteria are met. Awards under the Inducement Plan may only be granted to an individual, as a material inducement to such individual to enter into employment with the Company or an affiliate of the Company, who (i) has not previously been an employee or director of the Company or (ii) is rehired following a bona fide period of non-employment with the Company. The maximum number of shares available for grant under the Inducement Plan is
The Inducement Plan has not been and will not be approved by the Company’s stockholders. Awards under the Inducement Plan will be made pursuant to the exemption from Nasdaq stockholder approval requirements for equity compensation provided by Nasdaq Listing Rule 5635(c)(4), which permits Nasdaq listed companies to make inducement equity awards to new employees without first obtaining stockholder approval of the award.
Reverse Stock Split
On March 20, 2024, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation of the Company with the Secretary of State of Delaware (the “Certificate of Amendment”) to effect a 1-for-
The reverse stock split is deemed an equity restructuring pursuant to ASC 718, Compensation - Stock Compensation. The Company's equity plans incorporate anti-dilutive provisions for existing equity awards, including restricted stock and stock options, to maintain the value of all awards post-reverse stock split. Consequently, there were no change in the fair value of the awards attributable to the reverse stock split, and no impact on stock-based compensation for the three and nine months ended September 30, 2024.
The Common Stock began trading on a Reverse Stock Split-adjusted basis on the Nasdaq on March 22, 2024. All share and per share data in this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the Reverse Stock Split.
The following is a summary of stock option activity during the nine months ended September 30, 2024:
| Options Outstanding | ||||||||||||
| Number of Options (*) | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (years) | ||||||||||
| Balance—January 1, 2024 | $ | |||||||||||
| Options granted | $ | — | ||||||||||
| Options exercised | $ | — | ||||||||||
| Options canceled | ( | ) | $ | — | ||||||||
| Balance—September 30, 2024 | $ | |||||||||||
| Exercisable as of September 30, 2024 | $ | |||||||||||
| Vested and expected to vest as of September 30, 2024 | $ | |||||||||||
(*) The number of options and exercise price per share have been retroactively restated to reflect the one-for-twelve (1-for-12) reverse stock split, which was effective on March 22, 2024.
As of September 30, 2024, all options have been fully expensed.
A summary of restricted stock award activity within the Company’s equity plans and changes for the nine months ended September 30, 2024 is as follows:
| Restricted Stock Awards | Shares (*) | Weighted Average Grant-Date Fair Value | ||||||
| Nonvested at January 1, 2024 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Nonvested at September 30, 2024 | $ | |||||||
(*) The number of shares and grant date fair value per share have been retroactively restated to reflect the one-for-twelve (1-for-12) reverse stock split, which was effective on March 22, 2024.
As of September 30, 2024, the total unrecognized compensation expense related to unvested shares of restricted common stock was $
Stock-based compensation expense is allocated based on the cost center to which the award holder belongs. The following table summarizes the total stock-based compensation expense by function, including expense related to consultants, for the three and nine months ended September 30, 2023 and 2024 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2024 | 2023 | 2024 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Sales and distribution expenses | $ | $ | $ | $ | ||||||||||||
| Research and development expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
| 9. | NET LOSS PER SHARE |
Basic net loss per share is determined by dividing net loss by the weighted-average shares of common stock outstanding during the period. Diluted net loss per share is determined by dividing net loss by diluted weighted-average shares outstanding. Diluted weighted-average shares reflect the dilutive effect, if any, of potentially dilutive shares of common stock, such as options to purchase common stock calculated using the treasury stock method and convertible notes using the “if-converted” method. In periods with reported net operating losses, all options to purchase common stock are deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal.
The Company’s shares of restricted common stock are entitled to receive dividends and hold voting rights applicable to the Company’s common stock, irrespective of any vesting requirement. Accordingly, although the vesting commences upon the elimination of the contingency, the shares of restricted common stock are considered a participating security and the Company is required to apply the two-class method to consider the impact of the shares of restricted common stock on the calculation of basic and diluted earnings per share. The Company is currently in a net loss position and is therefore not required to present the two-class method; however, in the event the Company is in a net income position, the two-class method must be applied by allocating all earnings during the period to shares of common stock and shares of restricted common stock.
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2024 | 2023 | 2024 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average number of shares used in computing net loss per share, basic and diluted (*) | ||||||||||||||||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Anti-dilutive shares excluded from computation of net loss per share (in shares)(*) | ||||||||||||||||
(*) The number of shares and per share amounts have been retroactively restated to reflect the one-for-twelve (1-for-
| 10. | COMMITMENTS AND CONTINGENCIES |
Sales or Other Similar Taxes—Based on the location of the Company’s current operations, the majority of sales tax is collected and remitted either by the Company or on its behalf by e-commerce marketplaces in most states within the U.S. To date, the Company has had no actual or threatened sales and use tax claims from any state where it does not already claim nexus or any state where it sold products prior to claiming nexus. However, the Company believes that the likelihood of incurring a liability as a result of sales tax nexus being asserted by certain states where it sold products prior to claiming nexus is probable. As of December 31, 2023 and September 30, 2024, the Company estimates that the potential liability, including current sales tax payable is approximately $
Legal Proceedings—From time to time, the Company is party to various actions and claims arising in the normal course of business. The Company does not believe that the final outcome of these matters will have a material adverse effect on the Company’s financial position or results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate risk. However, no assurance can be given that the final outcome of such proceedings will not materially impact the Company’s financial condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.
Settlement Agreement—On May 2, 2021, the Company entered into a settlement agreement with one of the Company’s suppliers who agreed to pay the amount of $
Mueller Action—In October 2021, the Company received a class action notification and pre-lawsuit demand letter demanding corrective action with respect to the marketing, advertising and labeling of certain products under the Mueller brand (the “Mueller Action”). In April 2022, the parties reached an agreement in principle to resolve this potential action for $
Earn-out Payment Dispute—On February 24, 2022, the Company received a notice disputing the Company’s calculation of the earn-out payment to be paid to Josef Eitan and Ran Nir pursuant to the Stock Purchase Agreement (the “PPD Stock Purchase Agreement”), dated as of May 5, 2021, by and among the Company, Truweo, LLC, Photo Paper Direct Ltd, Josef Eitan and Ran Nir. The Company is in discussions with representatives of Mr. Eitan and Mr. Nir, who believe they are entitled to the full earn-out amount ( or approximately $
| 11. | INTANGIBLES |
The following tables summarize the changes in the Company’s intangible assets as of December 31, 2023 and September 30, 2024 (in thousands):
| January 1, 2023 | Year-Ended December 31, 2023 | December 31, 2023 | December 31, 2023 | |||||||||||||||||
| Gross Carrying Amount | Additions | Impairments (1) | Accumulated Amortization | Net Book Value | ||||||||||||||||
| Trademarks | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Non-competition agreement | ( | ) | ||||||||||||||||||
| Transition services agreement | ( | ) | ||||||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||
| Total intangibles | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| January 1, 2024 | Nine Months Ended September 30, 2024 | September 30, 2024 | September 30, 2024 | |||||||||||||||||
| Gross Carrying Amount | Additions | Impairments | Accumulated Amortization | Net Book Value | ||||||||||||||||
| Trademarks | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Non-competition agreement | ( | ) | ||||||||||||||||||
| Transition services agreement | ( | ) | ||||||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||||||
| Software | ( | ) | ||||||||||||||||||
| Other | ( | ) | ||||||||||||||||||
| Total intangibles | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| (1) | On March 20, 2023, the Company made certain leadership changes in our essential oil business resulting in a change in strategy and outlook for the business which resulted in a reduced portfolio offering. This reduction in the portfolio will be impactful to our essential oil business's future revenues and profitability and as a result the Company made revisions to our internal forecasts. The Company concluded that this change was an interim triggering event for the three months ending March 31, 2023 indicating the carrying value of our essential oil business's long-lived assets including trademarks may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $
|
| During the three months ended September 30, 2023, the Company had a substantial decrease in its market capitalization, primarily relating to a decrease in share price. Further, the Company continues to see reduced net revenues across its portfolio primarily due to the current macroeconomic environment reducing demand for consumer goods. Finally, during the three months ending September 30, 2023, the Company implemented a strategy of rationalizing certain less profitable products and reducing its product offering, specifically related to its kitchen appliance products. As a result of this rationalization, along with the reduced demand for its products, the Company has made certain revisions to its internal forecasts for its Paper business and Kitchen appliance business. The Company concluded that these factors were an interim triggering event for the three months ending September 30, 2023 indicating the carrying value of our Paper and Kitchen appliance business’s long-lived assets, including trademarks, may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $
| |
| During the three months ended December 31, 2023, the Company continued to see reduced revenue in its paper business resulting in certain revisions to its internal forecasts. Due to these revisions in forecast due to reduced demand, the Company concluded this was an interim triggering event for the three months ending December 31, 2023 indicating the carrying value of our Paper business’s long-lived assets, including trademarks, may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $ |
The following table sets forth the estimated aggregate amortization of the Company’s intangible assets for the next five years and thereafter (amounts in thousands):
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ |
| 12. | RESTRUCTURING |
On May 9, 2023, the Company announced a plan to reduce expenses and re-align the organization’s structure by implementing a reduction in its current workforce impacting approximately
On February 8, 2024, the Company committed to a fixed cost-cutting plan, including a reduction in workforce which resulted in the termination of approximately
The accounting for the restructuring costs follows the provisions of ASC 420, "Accounting for Costs Associated with Exit or Disposal Activities," which requires the recognition of a liability once the restructuring plan is communicated to affected employees and meets the criteria of being probable and reasonably estimable. The Company recognizes a liability for employee severance, other benefits, and involuntary terminations on the communication date.
The following tables provide a summary of the restructuring costs incurred:
| Three Months Ended | Three Months Ended | |||||||
| September 30, 2023 | September 30, 2024 | |||||||
| (in thousands) | (in thousands) | |||||||
| Employee severance | $ | $ | ( | ) | ||||
| Retention bonus settled | ||||||||
| Other restructuring costs(1) | ( | ) | ||||||
| Total restructuring costs | $ | $ | ( | ) | ||||
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, 2023 | September 30, 2024 | |||||||
| (in thousands) | (in thousands) | |||||||
| Employee severance | $ | $ | ||||||
| Retention bonus settled | ||||||||
| Other restructuring costs(1) | ( | ) | ||||||
| Total restructuring costs | $ | $ | ||||||
(1) Includes reversal of costs associated with a contract settlement during the three and nine months ended September 30, 2024.
The following table provides a summary of the Company's total restructuring reserve:
| Employee Severance | Contract Termination Costs | Other | Total | |||||||||||||
| Balance – December 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Charges | ||||||||||||||||
| Usage-cash | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Usage-non-cash | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance – September 30, 2024 | $ | $ | $ | $ | ||||||||||||
As of September 30, 2024, the Company has a liability of $
As of December 31, 2023, the Company had a liability of $
The Company will continue to assess the restructuring plan's progress and provide updates as required in future financial statements if there are material changes to the initial estimates or additional significant restructuring activities.
| 13. | SUBSEQUENT EVENTS |
The Company conducted a review for subsequent events and determined that no subsequent events had occurred that would require additional disclosures.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on March 19, 2024. As discussed in the section titled “Special Note Regarding Forward-Looking Statements”, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified in the section titled “Special Note Regarding Forward Looking Statements” and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q.
Unless the context otherwise requires, the terms “Aterian,” the “Company,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q refer to Aterian, Inc. and our consolidated subsidiaries, including Aterian Group, Inc.
Overview
We are a technology-enabled consumer products company that predominantly operates through online retail channels such as Amazon and Walmart. The Company operates its owned brands, which were either incubated or purchased, selling products in multiple categories, including home and kitchen appliances, kitchenware, air quality appliances, health and beauty products and essential oils.
Our primary brands include Squatty Potty, HomeLabs, Mueller Living, PurSteam, Healing Solutions, and Photo Paper Direct ("PPD"). We generate revenue primarily through the online sales of our various consumer products with substantially all of our sales being made through the Amazon U.S. marketplace.
During the year ended December 31, 2023, the Company enacted a strategy to reduce the number of SKUs it sells and is no longer pursuing future sales of SKUs that are either not profitable or not core to the Company’s strategy.
Seasonality of Business and Product Mix
Our individual product categories are typically affected by seasonal sales trends primarily resulting from the timing of the summer season for certain of our environmental appliance products and the fall and holiday season for our small kitchen appliances and accessories. With our current mix of environmental appliances, the sales of those products tend to be significantly higher in the summer season. Further, our essential oils, small kitchen appliances and accessories tend to have higher sales during the fourth quarter, which includes Thanksgiving and the December holiday season. As a result, our operational results, cash flows, cash and inventory positions may fluctuate materially in any quarterly period depending on, among other things, adverse weather conditions, shifts in the timing of certain holidays and changes in our product mix.
Product mix can affect our gross profit and the variable portion of our sales and distribution expenses. We rely heavily on a global supply chain in which the cost, lead times, and delays, as well as global and geopolitical events can ultimately have a direct impact to our margins. Further, impacts on our supply chain may force us to hold more inventory, which not only affects working capital but also requires us to increase our storage capacity, through our warehouse network, which of itself has a capital impact.
Financial Operations Overview
Net Revenue—We derive our revenue from the sale of consumer products, primarily in the U.S. We sell products directly to consumers through online retail channels and through wholesale channels. Direct-to-consumer sales (i.e., direct net revenue), which is currently the majority of our revenue, is done through various online retail channels. We sell on Amazon.com, Walmart.com, and our own websites, with substantially all of our sales made through Amazon.com. For all of our sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when our performance obligation is satisfied), which typically occurs at the shipment date.
Cost of Goods Sold—Cost of goods sold consists of the book value of inventory sold to customers during the reporting period. Book value of inventory includes the amounts we pay manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from our manufacturers to our warehouses, as applicable. Shrinkage costs are also recognized within the cost of goods sold. When circumstances dictate that we use net realizable value as the basis for recording inventory, we base our estimates on expected future selling prices, less expected disposal costs.
Expenses:
Research and Development Expenses—Research and development expenses include compensation and employee benefits for technology development employees, travel-related costs and fees paid to outside consultants related to the development of our intellectual property. During the nine months ended September 30, 2024, the Company shifted its technology platform away from a fully internally developed model to an integrated third party model. Therefore, beginning with the three months ending March 31, 2024, technology and employee related costs have been presented in general and administrative costs on the Condensed Consolidated Statement of Operations.
Sales and Distribution Expenses—Sales and distribution expenses consist of online advertising costs, marketing and promotional costs, sales and ecommerce platform commissions, fulfillment, including shipping and handling, and warehouse costs (i.e., sales and distribution variable expenses). Sales and distribution expenses also include employee compensation and benefits and other related fixed costs. Shipping and handling expenses are included in our consolidated statements of operations in sales and distribution expenses. This includes inbound, pick and pack costs and outbound transportation costs to ship goods to customers performed by e-commerce platforms or incurred directly by us, through our own direct fulfillment platform, which leverages our technology platform and third-party logistics partners. Our sales and distribution expenses, specifically our logistics expenses and online advertising, will vary quarter to quarter as they are dependent on our sales volume, our product mix and whether we fulfill products ourselves, i.e., fulfillment by merchant (“FBM”), or through e-commerce platform service providers, i.e., fulfillment by Amazon (“FBA”) or fulfilled by Walmart (“WFS”). Products with less expensive fulfillment costs as a percentage of net revenue may allow for a lower gross margin, while still maintaining their targeted profitability level. Conversely, products with higher fulfillment costs will need to achieve a higher gross margin to maintain their targeted level of profitability. We are FBM One Day and Two Day Prime certified, allowing us to deliver our sales through Amazon to most customers within one or two days. We periodically review the locations and capacity of our third-party warehouses to ensure we have the appropriate geographic reach, which helps to reduce the average last mile shipping zones to the end customer and as such our speed of delivery improves while our shipping costs to customers decrease, prior to the impacts on shipping providers’ rates.
General and Administrative Expenses—General and administrative expenses include compensation and employee benefits for executive management, finance administration, legal, and human resources, facility costs, insurance, travel, professional service fees and other general overhead costs, including the costs of being a public company. Beginning with the three months ending March 31, 2024, technology and employee related costs have been presented in general and administrative costs.
Interest Expense, Net—Interest expense, net includes the interest cost from our credit facility and term loans, and includes amortization of deferred finance costs and debt discounts from our credit facility (the “Credit Facility”) with MidCap Funding IV Trust (“MidCap”).
Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2024
The following table sets forth the components of our results of operations as a percentage of net revenue:
| Three Months Ended September 30, |
Change |
|||||||||||||||
| 2023(1) |
2024(1) |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Net revenue |
$ | 39,668 | $ | 26,239 | $ | (13,429 | ) | (33.9 | )% | |||||||
| Cost of good sold |
20,085 | 10,411 | (9,674 | ) | (48.2 | )% | ||||||||||
| Gross profit |
19,583 | 15,828 | (3,755 | ) | (19.2 | )% | ||||||||||
| Operating expenses: |
||||||||||||||||
| Sales and distribution |
20,921 | 13,912 | (7,009 | ) | (33.5 | )% | ||||||||||
| Research and development |
852 | — | (852 | ) | (100.0 | )% | ||||||||||
| General and administrative |
4,326 | 3,646 | (680 | ) | (15.7 | )% | ||||||||||
| Total operating expenses |
26,099 | 17,558 | (8,541 | ) | (32.7 | )% | ||||||||||
| Operating loss |
(6,516 | ) | (1,730 | ) | 4,786 | 73.4 | % | |||||||||
| Interest expense, net |
359 | 189 | (170 | ) | (47.4 | )% | ||||||||||
| Change in fair value of warrant liabilities |
(567 | ) | (161 | ) | 406 | 71.6 | % | |||||||||
| Other income, net |
(128 | ) | 225 | 353 | 275.8 | % | ||||||||||
| Loss before income taxes |
(6,180 | ) | (1,983 | ) | 4,197 | 67.9 | % | |||||||||
| Provision (benefit) for income taxes |
90 | (210 | ) | (300 | ) | (333.3 | )% | |||||||||
| Net loss |
$ | (6,270 | ) | $ | (1,773 | ) | $ | 4,497 | 71.7 | % | ||||||
| (1) |
Amounts include stock-based compensation expense as follows: |
| Three Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Sales and distribution expenses |
$ | 330 | $ | 457 | $ | 127 | 38.5 | % | ||||||||
| Research and development expenses |
278 | — | (278 | ) | (100.0 | )% | ||||||||||
| General and administrative expenses |
624 | 1,349 | 725 | 116.2 | % | |||||||||||
| Total stock-based compensation expense |
$ | 1,232 | $ | 1,806 | $ | 574 | 46.6 | % | ||||||||
The following table sets forth the components of our results of operations as a percentage of net revenue:
| Three Months Ended September 30, |
||||||||
| 2023 |
2024 |
|||||||
| Net revenue |
100.0 | % | 100.0 | % | ||||
| Cost of good sold |
50.6 | 39.7 | ||||||
| Gross profit |
49.4 | 60.3 | ||||||
| Operating expenses: |
||||||||
| Sales and distribution |
52.7 | 53.0 | ||||||
| Research and development |
2.1 | — | ||||||
| General and administrative |
11.0 | 13.9 | ||||||
| Total operating expenses |
65.8 | 66.9 | ||||||
| Operating loss |
(16.4 | ) | (6.6 | ) | ||||
| Interest expense, net |
0.9 | 0.7 | ||||||
| Change in fair value of warrant liabilities |
(1.4 | ) | (0.6 | ) | ||||
| Other income, net |
(0.3 | ) | 0.9 | |||||
| Loss before income taxes |
(15.6 | ) | (7.6 | ) | ||||
| Provision (benefit) for income taxes |
0.2 | (0.8 | ) | |||||
| Net loss |
(15.8 | )% | (6.8 | )% | ||||
Net Revenue
Revenue by Product Categories:
The following tables sets forth our net revenue disaggregated by product categories:
| Three Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Direct |
$ | 39,526 | $ | 25,700 | $ | (13,826 | ) | (35.0 | )% |
|||||||
| Wholesale |
142 | 539 | 397 | 279.6 | % | |||||||||||
| Net revenue |
$ | 39,668 | $ | 26,239 | $ | (13,429 | ) | (33.9 | )% |
|||||||
Net revenue decreased $13.4 million, or 33.9%, during the three months ended September 30, 2024 to $26.2 million, compared to $39.7 million for the three months ended September 30, 2023. The decrease in net revenue was primarily attributable to a decrease in direct net revenue of $13.8 million, or 35%, which was primarily relating to a reduction in our product offering due to our SKU rationalization.
| Three Months Ended September 30, |
||||||||
| 2023 |
2024 |
|||||||
| (in thousands) |
||||||||
| Heating, cooling and air quality |
$ | 15,770 | $ | 8,276 | ||||
| Kitchen appliances |
5,586 | 2,777 | ||||||
| Health and beauty |
3,034 | 2,814 | ||||||
| Cookware, kitchen tools and gadgets |
2,408 | 1,398 | ||||||
| Home office |
2,116 | 1,971 | ||||||
| Housewares |
6,418 | 5,700 | ||||||
| Essential oils and related accessories |
3,935 | 3,294 | ||||||
| Other |
401 | 9 | ||||||
| Total net revenue |
$ | 39,668 | $ | 26,239 | ||||
Every category of business had a reduction in sales compared to the prior year primarily relating to the SKU rationalization that took place during the year-ended December 31, 2023 and softness in consumer demand due the macroeconomic environment. In addition, there were competitive pricing pressures coupled with certain key products losing their prominent positioning on Amazon due to competition, specifically in the kitchen appliance businesses. These factors resulted in a reduction of units sold compared to the prior year period.
Cost of Goods Sold and Gross Profit
| Three Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Cost of goods sold |
$ | 20,085 | $ | 10,411 | $ | (9,674 | ) | (48.2 | )% | |||||||
| Gross profit |
$ | 19,583 | $ | 15,828 | $ | (3,755 | ) | (19.2 | )% | |||||||
Cost of goods sold decreased by $9.7 million, from $20.1 million for the three months ended September 30, 2023 to $10.4 million for the three months ended September 30, 2024 primarily from reduced sales volumes. The decrease in cost of goods sold was primarily attributable to a decrease of $9.9 million in cost of goods sold from our direct businesses, partially offset by and increase of $0.3 million in cost of goods sold from our wholesale businesses.
Gross profit increased from 49.4% for the three months ended September 30, 2023 to 60.3% for the three months ended September 30, 2024. The increase in gross profit was due primarily to a change of product mix and a reduction in liquidation of high priced excess inventory at reduced prices compared to the prior year.
Sales and Distribution Expenses
| Three Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Sales and distribution expenses |
$ | 20,921 | $ | 13,912 | $ | (7,009 | ) | (33.5 | )% | |||||||
Sales and distribution expenses, which included e-commerce platform commissions, online advertising and logistics expenses (i.e., variable sales and distribution expense), decreased to $13.9 million for the three months ended September 30, 2024, from $20.9 million for the three months ended September 30, 2023. This decrease is primarily attributable to the decrease in the volume of products sold in the three months ended September 30, 2024, as our e-commerce platform commissions, online advertising, selling and logistics expenses decreased to $11.4 million in the three months ended September 30, 2024 as compared to $18.4 million in the prior year period.
Our sales and distribution fixed costs (e.g., salary and office expenses) including stock-based compensation was relatively flat at $2.5 million for the three months ended September 30, 2024 and 2023. This is primarily attributable to a decrease in headcount expense of $0.4 million, partially offset by an increase in expenses related to a new Amazon Seller Program of $0.2 million, an increase in professional fees of $0.1 million and an increase in stock compensation expenses of $0.1 million.
As a percentage of net revenue, sales and distribution expenses increased to 53.0% for the three months ended September 30, 2024, from 52.7% for the three months ended September 30, 2023. E-commerce platform commissions, online advertising, selling and logistics expenses included within sales and distribution expenses, as a percentage of net revenue, were 43.3% for the three months ended September 30, 2024 as compared to 46.3% for the three months ended September 30, 2023. This decrease in sales and distribution expenses as a percentage of revenue is primarily due to product mix and a decrease in last mile costs.
Research and Development Expenses
| Three Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Research and development expenses |
$ | 852 | $ | — | $ | (852 | ) | (100.0 | )% | |||||||
During the three months ending September 30, 2024, the Company shifted its technology platform away from a fully internally developed model to an integrated third party model. Therefore, beginning with the three months ending September 30, 2024, technology and employee related costs have been presented in general and administrative costs on the Condensed Consolidated Statements of Operations.
General and Administrative Expenses
| Three Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| General and administrative expenses |
$ | 4,326 | $ | 3,646 | $ | (680 | ) | (15.7 | )% | |||||||
The decrease in general and administrative expenses was primarily the result of a decrease of $0.6 million in professional fees, a decrease of $0.4 million in restructuring costs, a decrease of $0.2 million in other miscellaneous expenses, and a decrease of $0.1 million in insurance expenses, partially offset by an increase in stock-compensation expense of $0.7 million.
Interest expense, net
| Three Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Interest expense, net |
$ | 359 | $ | 189 | $ | (170 | ) | (47.4 | )% |
|||||||
The decrease in interest expense, net of $0.2 million is primarily relating to a decrease in interest expense of $0.2 million compared to the prior period due to lower average borrowings.
Change in fair market value of warrant liabilities
| Three Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Change in fair market value of warrant liabilities |
$ | (567 | ) | $ | (161 | ) | $ | 406 | (71.6 | )% | ||||||
The 2023 and 2024 activity is related to the change in fair market value of the warrant liabilities from the common stock warrants from our March 2022 equity raise of capital. The change in fair value of warrant liabilities during the three months ending September 30, 2024 primarily relates to the reduced share price compared to the prior period.
Comparison of the Nine Months Ended September 30, 2023 and 2024
The following table sets forth the components of our results of operations as a percentage of net revenue:
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023(1) |
2024(1) |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Net revenue |
$ | 109,811 | $ | 74,438 | $ | (35,373 | ) | (32.2 | )% | |||||||
| Cost of good sold |
56,236 | 28,550 | (27,686 | ) | (49.2 | )% | ||||||||||
| Gross profit |
53,575 | 45,888 | (7,687 | ) | (14.3 | )% | ||||||||||
| Operating expenses: |
||||||||||||||||
| Sales and distribution |
61,704 | 42,288 | (19,416 | ) | (31.5 | )% | ||||||||||
| Research and development |
3,808 | — | (3,808 | ) | (100.0 | )% | ||||||||||
| General and administrative |
16,566 | 13,812 | (2,754 | ) | (16.6 | )% | ||||||||||
| Impairment loss on intangibles |
39,445 | — | (39,445 | ) | (100.0 | )% | ||||||||||
| Total operating expenses |
121,523 | 56,100 | (65,423 | ) | (53.8 | )% | ||||||||||
| Operating loss |
(67,948 | ) | (10,212 | ) | 57,736 | 85.0 | % | |||||||||
| Interest expense, net |
1,076 | 741 | (335 | ) | (31.1 | )% | ||||||||||
| Change in fair value of warrant liabilities |
(2,410 | ) | (730 | ) | 1,680 | 69.7 | % | |||||||||
| Other income (expense), net |
101 | 275 | 174 | 172.3 | % | |||||||||||
| Loss before income taxes |
(66,715 | ) | (10,498 | ) | 56,217 | 84.3 | % | |||||||||
| Provision for income taxes |
142 | 66 | (76 | ) | (53.5 | )% | ||||||||||
| Net loss |
$ | (66,857 | ) | $ | (10,564 | ) | $ | 56,293 | 84.2 | % | ||||||
| (1) |
Amounts include stock-based compensation expense as follows: |
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Sales and distribution expenses |
$ | 2,091 | $ | 1,702 | $ | (389 | ) | (18.6 | )% | |||||||
| Research and development expenses |
1,134 | — | (1,134 | ) | (100.0 | )% | ||||||||||
| General and administrative expenses |
3,546 | 4,692 | 1,146 | 32.3 | % | |||||||||||
| Total stock-based compensation expense |
$ | 6,771 | $ | 6,394 | $ | (377 | ) | (5.6 | )% | |||||||
The following table sets forth the components of our results of operations as a percentage of net revenue:
| Nine Months Ended September 30, |
||||||||
| 2023 |
2024 |
|||||||
| Net revenue |
100.0 | % | 100.0 | % | ||||
| Cost of good sold |
51.2 | 38.4 | ||||||
| Gross profit |
48.8 | 61.6 | ||||||
| Operating expenses: |
||||||||
| Sales and distribution |
56.2 | 56.8 | ||||||
| Research and development |
3.5 | — | ||||||
| General and administrative |
15.1 | 18.6 | ||||||
| Impairment loss on intangibles |
35.9 | — | ||||||
| Total operating expenses |
110.7 | 75.4 | ||||||
| Operating loss |
(61.9 | ) | (13.8 | ) | ||||
| Interest expense, net |
1.0 | 1.0 | ||||||
| Change in fair value of warrant liabilities |
(2.2 | ) | (1.0 | ) | ||||
| Other income, net |
0.1 | 0.3 | ||||||
| Loss before income taxes |
(60.8 | ) | (14.1 | ) | ||||
| Provision for income taxes |
0.1 | 0.1 | ||||||
| Net loss |
(60.9 | )% | (14.2 | )% | ||||
Net Revenue
Revenue by Product Categories:
The following tables sets forth our net revenue disaggregated by product categories:
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Direct |
$ | 107,357 | $ | 73,599 | $ | (33,758 | ) | (31.4 | )% | |||||||
| Wholesale |
2,454 | 839 | (1,615 | ) | (65.8 | )% | ||||||||||
| Net revenue |
$ | 109,811 | $ | 74,438 | $ | (35,373 | ) | (32.2 | )% | |||||||
Net revenue decreased $35.4 million, or 32.2%, during the nine months ended September 30, 2024 to $74.4 million, compared to $109.8 million for the nine months ended September 30, 2023. The decrease in net revenue was primarily attributable to a decrease in direct net revenue of $33.8 million, or 31.4%, which was primarily relating to a reduction in our product offering due to our SKU rationalization, competitive pricing pressure and other competitive dynamics on marketplaces.
| Nine Months Ended September 30, |
||||||||
| 2023 |
2024 |
|||||||
| (in thousands) |
||||||||
| Heating, cooling and air quality |
$ | 29,512 | $ | 21,876 | ||||
| Kitchen appliances |
18,234 | 6,809 | ||||||
| Health and beauty |
11,725 | 9,558 | ||||||
| Cookware, kitchen tools and gadgets |
8,315 | 4,088 | ||||||
| Home office |
7,410 | 6,312 | ||||||
| Housewares |
19,558 | 15,632 | ||||||
| Essential oils and related accessories |
12,787 | 9,737 | ||||||
| Other |
2,270 | 426 | ||||||
| Total net revenue |
$ | 109,811 | $ | 74,438 | ||||
Every category of business had a reduction in sales compared to the prior year primarily relating to the SKU rationalization that took place during the year-ended December 31, 2023 and softness in consumer demand due the macroeconomic environment. In addition, there were competitive pricing pressures coupled with certain key products losing their prominent positioning on Amazon due to competition, specifically in the kitchen appliance businesses. These factors resulted in a reduction of units sold and a reduction in certain retail sales prices.
Cost of Goods Sold and Gross Profit
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Cost of goods sold |
$ | 56,236 | $ | 28,550 | $ | (27,686 | ) | (49.2 | )% | |||||||
| Gross profit |
$ | 53,575 | $ | 45,888 | $ | (7,687 | ) | (14.3 | )% | |||||||
Cost of goods sold decreased by $27.7 million, from $56.2 million for the nine months ended September 30, 2023 to $28.6 million for the nine months ended September 30, 2024 primarily from reduced sales volumes. The decrease in cost of goods sold was primarily attributable to a decrease of $23.1 million in cost of goods sold from our direct businesses and a decrease of $4.5 million in cost of goods sold from our wholesale businesses.
Gross profit increased from 48.8% for the nine months ended September 30, 2023 to 61.6% for the nine months ended September 30, 2024. The increase in gross profit was due primarily to a change of product mix and a reduction in liquidation of high priced excess inventory at reduced prices compared to the prior year.
Sales and Distribution Expenses
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Sales and distribution expenses |
$ | 61,704 | $ | 42,288 | $ | (19,416 | ) | (31.5 | )% | |||||||
Sales and distribution expenses, which included e-commerce platform commissions, online advertising and logistics expenses (i.e., variable sales and distribution expense), decreased to $42.3 million for the nine months ended September 30, 2024, from $61.7 million for the nine months ended September 30, 2023. This decrease is primarily attributable to the decrease in the volume of products sold in the nine months ended September 30, 2024, as our e-commerce platform commissions, online advertising, selling and logistics expenses decreased to $33.7 million in the nine months ended September 30, 2024 as compared to $51.6 million in the prior year period.
Our sales and distribution fixed costs (e.g., salary and office expenses) including stock-based compensation decreased to $8.6 million for the nine months ended September 30, 2024, from $10.1 million for the nine months ended September 30, 2023. This decrease is primarily attributable to a decrease in headcount expense of $1.7 million and a decrease in restructuring costs of $0.4 million, partially offset by an increase in expenses related to a new Amazon Seller Program of $0.6 million.
As a percentage of net revenue, sales and distribution expenses increased to 56.8% for the nine months ended September 30, 2024, from 56.2% for the nine months ended September 30, 2023. E-commerce platform commissions, online advertising, selling and logistics expenses included within sales and distribution expenses, as a percentage of net revenue, were 45.3% for the nine months ended September 30, 2024 as compared to 47.0% for the nine months ended September 30, 2023. This decrease in sales and distribution expenses as a percentage of revenue is primarily due to product mix and a decrease in warehousing costs.
Research and Development Expenses
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Research and development expenses |
$ | 3,808 | $ | — | $ | (3,808 | ) | (100.0 | )% | |||||||
During the nine months ending September 30, 2024, the Company shifted its technology platform away from a fully internally developed model to an integrated third party model. Therefore, beginning with the nine months ending September 30, 2024, technology and employee related costs have been presented in general and administrative costs on the Condensed Consolidated Statements of Operations.
General and Administrative Expenses
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| General and administrative expenses |
$ | 16,566 | $ | 13,812 | $ | (2,754 | ) | (16.6 | )% | |||||||
The decrease in general and administrative expenses was primarily the result of a decrease of $2.2 million in depreciation and amortization, a decrease of $0.9 million in insurance expenses, and a decrease of $0.6 million in professional fees, partially offset by an increase in stock-compensation expense of $1.1 million.
Impairment loss on intangibles
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Impairment loss on intangibles |
$ | 39,445 | $ | — | $ | (39,445 | ) | (100.0 | )% | |||||||
Certain asset groups experienced a significant decrease in sales and contribution margin through September 30, 2023. This was considered an interim triggering event for the nine months ended September 30, 2023. Based on the analysis of comparing the undiscounted cash flow to the carrying value of the asset group, one group tested indicated that the assets may not be recoverable. There was no impairment loss on intangibles during the nine months ended September 30, 2024.
Interest expense, net
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Interest expense, net |
$ | 1,076 | $ | 741 | $ | (335 | ) | (31.1 | )% | |||||||
The decrease in interest expense, net of $0.3 million is primarily relating to a decrease in interest expense of $0.6 million and an increase in interest income of $0.3 million compared to the prior period.
Change in fair market value of warrant liabilities
| Nine Months Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2024 |
Amount |
% |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Change in fair market value of warrant liabilities |
$ | (2,410 | ) | $ | (730 | ) | $ | 1,680 | (69.7 | )% | ||||||
The 2023 and 2024 activity is related to the change in fair market value of the warrant liabilities from the common stock warrants from our March 2022 equity raise of capital. The change in fair value of warrant liabilities during the nine months ending September 30, 2024 primarily relates to the reduced share price compared to the prior period.
Liquidity and Capital Resources
Cash Flows for the Nine Months Ended September 30, 2023 and 2024
The following table provides information regarding our cash flows for the nine months ended September 30, 2023 and 2024:
| Nine Months Ended September 30, |
||||||||
| 2023 |
2024 |
|||||||
| (in thousands) |
||||||||
| Cash (used in) provided by operating activities |
$ | (8,458 | ) | $ | 2,174 | |||
| Cash used in investing activities |
(205 | ) | (242 | ) | ||||
| Cash used in financing activities |
(7,507 | ) | (5,721 | ) | ||||
| Effect of exchange rate on cash |
42 | 313 | ||||||
| Net change in cash and restricted cash for the period |
$ | (16,128 | ) | $ | (3,476 | ) | ||
Net Cash (Used in) Provided by Operating Activities
Net cash used in operating activities was $8.5 million for the nine months ended September 30, 2023, resulting primarily from our net cash losses from operations of $19.3 million, inflow from working capital of $10.8 million from changes in accounts receivable, purchases of inventory and payments of accounts payable. The reduction of gross inventory of $12.0 million from December 31, 2022 to September 30, 2023 primarily relates to the liquidation of high priced excess inventory and a reduction of purchases for the period.
Net cash provided by operating activities was $2.2 million for the nine months ended September 30, 2024, resulting primarily from our net cash losses from operations of $5.0 million, inflow from working capital of $7.2 million from changes in accounts receivable, purchases of inventory and payments of accounts payable. The working capital benefit primarily relates to a decrease in inventory due to a reduction in purchases for the period.
Net Cash Used in Investing Activities
For the nine months ended September 30, 2023, net cash used in investing activities was $0.2 million primarily related to the remaining payment for the purchase of Step and Go assets which was acquired during the three months ending December 31, 2022.
For the nine months ended September 30, 2024, net cash used in investing activities was $0.2 million primarily related to the purchase of a minority equity investment in 4th and Heart during the nine months ended September 30, 2024.
Net Cash Used in Financing Activities
For the nine months ended September 30, 2023, cash used in financing activities of $7.5 million primarily from the net repayments for our MidCap credit facility of $7.2 million, repayment of note payable to Smash of $0.5 million and net proceeds of insurance financing of $0.2 million.
For the nine months ended September 30, 2024, cash used in financing activities of $5.7 million primarily from the net repayments for our MidCap credit facility of $4.6 million, repayment of note payable to Smash of $0.6 million and payment of insurance obligations of $0.5 million.
Liquidity and Going Concern
As an emerging growth company, we are subject to inherent risks and uncertainties associated with the development of our enterprise. In this regard, substantially all of our efforts to date have been devoted to the development and sale of our products in the marketplace, which includes our investment in organic growth at the expense of short-term profitably, our investment in incremental growth through mergers & acquisitions (“M&A strategy”), our recruitment of management and technical staff, and raising capital to fund the development of our enterprise. As a result of these efforts, we have incurred significant losses and negative cash flows from operations since our inception and expect to continue to incur such losses, at a reduced level, and negative cash flows for the foreseeable future until such time that we reach a scale of profitability to sustain our operations. We have also experienced declining revenues due to macroeconomic factors, including increased interest rates and reduced consumer discretionary spending, and other factors, and we are focusing our efforts on a more limited number of products. In addition, our recent financial performance has been adversely impacted by inflationary pressures and reduced consumer spending.
In order to execute our growth strategy, we have historically relied on outside capital through the issuance of equity, debt, and borrowings under financing arrangements (collectively “outside capital”) to fund our cost structure, and we expect to continue to rely on outside capital for the foreseeable future, specifically for our M&A strategy. While we believe we will eventually reach a level of profitability to sustain our operations, there can be no assurance we will be able to achieve such profitability or do so in a manner that does not require our continued reliance on outside capital. Moreover, while we have historically been successful in raising outside capital, there can be no assurance we will be able to continue to obtain outside capital in the future or do so on terms that are acceptable to us.
As of the date the accompanying Condensed Consolidated Financial Statements were issued (the “issuance date”), we evaluated the significance of the following adverse financial conditions in accordance with Accounting Standard Codification 205-40, Going Concern:
• Since our inception, we have incurred significant losses and used cash flows from operations to fund our enterprise. In this regard, during the nine months ended September 30, 2024, we incurred a net loss of $10.6 million and generated net cash flows from operations of $2.2 million. In addition, as of September 30, 2024, we had unrestricted cash and cash equivalents of $16.1 million available to fund our operations and an accumulated deficit of $710.4 million.
• We are required to remain in compliance with certain financial covenants required by the MidCap Credit facility (See Note 7, Credit Facility, Term Loans and Warrants). We were in compliance with these financial covenants as of September 30, 2024, and expect to remain in compliance through at least September 30, 2025. During February 2024, the Company amended its terms with Midcap Credit Facility extending the term until December 2026 and amending certain financial covenants with favorable terms. We can provide no assurances that we will remain in compliance with our financial covenants. Further, absent of our ability to generate cash inflows from our operations or secure additional outside capital, we will be unable to remain in compliance with these financial covenants. In the event we are unable to remain in compliance with these financial covenants (or other non-financial covenants required by the MidCap Credit Facility), and we are unable to secure a waiver or forbearance, MidCap may, at its discretion, exercise any and all of its existing rights and remedies, which may include, among others, accelerating repayment of the outstanding borrowings and/or asserting its rights in the assets securing the loan.
• As of the issuance date, we have no firm commitments to secure additional outside capital from lenders or investors. While we expect to continue to explore raising additional outside capital, specifically to fund our M&A strategy, there can be no assurance we will be able to obtain capital or do so on terms that are acceptable to us. Accordingly, absent our ability to generate cash inflows from our operations and/or secure additional outside capital in the near term, we may be unable to meet our obligations as they become due over the next twelve months beyond the issuance date.
• The Company's plan is to continue to closely monitor our operating forecast, to pursue our M&A strategy, to pursue additional sources of outside capital on terms that are acceptable to us, and to secure a waiver or forbearance from MidCap if we are unable to remain in compliance with one or more of the covenants required by the MidCap Credit Facility. Further, the Company has enacted a strategy to reduce the number of SKUs it sells and will no longer be pursuing future sales of SKUs that are either not profitable or not core to the Company’s strategy. If some or all of our plans prove unsuccessful, we may need to implement short-term changes to our operating plan, including but not limited to delaying expenditures, reducing investments in new products, or reducing our sale and distribution infrastructure. We may also need to seek long-term strategic alternatives, such as a significant curtailment of our operations, a sale of certain of our assets, a divestiture of certain product lines, a sale of the entire enterprise to strategic or financial investors, and/or allow our enterprise to become insolvent.
The Company has completed two restructuring programs over the last 18 months to reduce operating costs and right size the workforce to align with the scale of our streamlined operations. In addition, we have reduced the SKU count to solely focus on profitable products that are core to the Company’s strategy. During the nine months ended September 30, 2024, we extended the term with Midcap Credit Facility until December 2026 (See Note 7, Credit Facility, Term Loans and Warrants) and amended key terms which will add more flexibility to liquidity and strengthen our balance sheet. In consideration of these factors, the Company will monitor profitability and cash flow over the next several quarters to evaluate our ability to continue as a going concern.
Although significant strides have been made in reducing our operating losses and strengthening our balance sheet, uncertainties persist in our business operations and the forecasting of our business. These uncertainties raise substantial doubt about our ability to continue as a going concern. The accompanying Condensed Consolidated Financial Statements have been prepared on the basis that we will continue to operate as a going concern, which contemplates that we will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying Condensed Consolidated Financial Statements do not include any adjustments that may result from the outcome of these uncertainties.
Nasdaq Listing - On April 24, 2023, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, the Company is currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Notice”). The Bid Price Notice provided a compliance period of 180 calendar days from the date of the Bid Price Notice, or until October 23, 2023, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). Following a request we made on October 13, 2023, on October 24, 2023, we received a letter from Nasdaq granting the Company an additional 180 days, or until April 22, 2024, to regain compliance with the minimum closing bid requirement (the “Extension Notice”).
Nasdaq notified the Company in the Compliance Notice that from March 22, 2024 to April 5, 2024 the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained compliance with Nasdaq Listing Rule 5450(a)(1) and that the matter was now closed.
On August 11, 2023, Aterian's shareholders approved discretionary authority to our Board to (A) amend our Amended and Restated Certificate of Incorporation to effect one or more consolidations of the issued and outstanding shares of our common stock, par value $0.0001 per share, pursuant to which the shares of Common Stock would be combined and reclassified at ratios within the range from 1-for-2 up to 1-for-30 and (B) determine whether to arrange for the disposition of fractional interests by stockholders entitled thereto, to pay in cash the fair value of fractions of a share of Common Stock as of the time when those entitled to receive such fractions are determined, or to entitle stockholders to receive from our transfer agent, in lieu of any fractional share, the number of shares of Common Stock rounded up to the next whole number, and to amend our Amended and Restated Certificate of Incorporation in connection therewith.
On March 20, 2024, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation of the Company with the Secretary of State of Delaware (the “Certificate of Amendment”) to effect a 1-for-12 reverse stock split (the “Reverse Stock Split”) of the shares of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”). The Certificate of Amendment did not decrease the number of authorized shares of Common Stock or change the par value thereof. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares that would otherwise have resulted from the Reverse Stock Split were rounded up to the nearest whole number. The Reverse Stock Split impacted all holders of the Common Stock proportionally and did not impact any stockholder’s percentage ownership of Common Stock (except to the extent the Reverse Stock Split results in any stockholder owning fractional shares).
The Common Stock began trading on a Reverse Stock Split-adjusted basis on the Nasdaq on March 22, 2024. All share and per share data in this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the Reverse Stock Split.
Restructuring - On May 9, 2023, the Company announced a plan to reduce expenses by implementing a reduction in its current workforce impacting approximately 50 employees and 15 contractors, primarily in the Philippines. The Company recognized restructuring charges of $1.6 million for the year-ended December 31, 2023, respectively.
On February 8, 2024, the Company committed to a fixed cost-cutting plan, including a reduction in workforce which resulted in the termination of approximately 17 employees and 26 contractors globally. The Company recognized restructuring charges (reversals) of $(10) thousand and $0.6 million for the three and nine months ended September 30, 2024, respectively.
As of September 30, 2024, the Company has a liability of $3 thousand for restructuring costs included in accrued expenses and other current liabilities on the consolidated balance sheet.
MidCap Credit Facility —On December 22, 2021, we entered into a Credit Facility with MidCap, pursuant to which, among other things, (i) the lenders party thereto as lenders (the “Lenders”) agreed to provide a revolving credit facility in a principal amount of up to $40.0 million subject to a borrowing base consisting of, among other things, inventory and sales receivables (subject to certain reserves), and (ii) we agreed to issue to MidCap Funding XXVII Trust a warrant to purchase up to an aggregate of 16,667 shares of our common stock, in exchange for the Lenders extending loans and other extensions of credit to us under the Credit Facility.
Prior to the February 2024 amendment, The Credit Facility contained a financial covenant that required us to maintain a minimum unrestricted cash balance of (a) $12.5 million during the period from February 1st through and including May 31st of each calendar year, and (b) $15.0 million at all other times.
On February 23, 2024, the Company amended its asset backed credit facility with MidCap Financial Trust. The Credit Facility term has been extended to December 2026 and gives Aterian access to $17 million in current commitments which can be increased, subject to certain conditions, to $30.0 million. The Credit Facility extension reduces the minimum liquidity financial covenant from a peak of $15.0 million to $6.8 million of cash on hand and/or availability in the Credit Facility. The extension fee was less than $0.1 million. At our election, we may elect to comply with an alternative financial covenant that would require us to maintain a minimum borrowing availability under the credit facility of $5.0 million at all times. We currently do not anticipate electing the alternative financial covenant over the next twelve months and are in compliance with the minimum liquidity covenant as of the date these Condensed Consolidated Financial Statements were issued.
The outstanding balance on the MidCap credit facility as of December 31, 2023 and September 30, 2024 was $11.1 million and $6.7 million, respectively. The Company had $1.3 million available on the Midcap credit facility as of September 30, 2024. We are in compliance with the financial covenants contained within the Credit Agreement as of September 30, 2024.
Non-GAAP Financial Measures
We believe that our condensed consolidated financial statements and the other financial data included in this Quarterly Report have been prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the U.S. (“GAAP”). However, for the reasons discussed below, we have presented certain non-GAAP measures herein.
We have presented the following non-GAAP measures to assist investors in understanding our core net operating results on an on-going basis: (i) Contribution margin; (ii) Contribution margin as a percentage of net revenue; (iii) EBITDA (iv) Adjusted EBITDA; and (v) Adjusted EBITDA as a percentage of net revenue. These non-GAAP financial measures may also assist investors in making comparisons of our core operating results with those of other companies.
As used herein, Contribution margin represents gross profit less e-commerce platform commissions, online advertising, selling and logistics expenses (included in sales and distribution expenses). As used herein, Contribution margin as a percentage of net revenue represents Contribution margin divided by net revenue. As used herein, EBITDA represents net loss plus depreciation and amortization, interest expense, net provision (benefit) for income taxes. As used herein, Adjusted EBITDA represents EBITDA plus stock-based compensation expense, changes in fair-market value of warrant liabilities, impairment on intangibles, restructuring expenses, and other expenses, net. As used herein, Adjusted EBITDA as a percentage of net revenue represents Adjusted EBITDA divided by net revenue. Contribution margin, EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to loss from operations or net loss, as determined under GAAP.
We present Contribution margin and Contribution margin as a percentage of net revenue, as we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to gross profit, provides useful supplemental information for investors. Specifically, Contribution margin and Contribution margin as a Non-GAAP Financial Measure percentage of net revenue are two of our key metrics in running our business. All product decisions made by us, from the approval of launching a new product and to the liquidation of a product at the end of its life cycle, are measured primarily from Contribution margin and/or Contribution margin as a percentage of net revenue. Further, we believe these measures provide improved transparency to our stockholders to determine the performance of our products prior to fixed costs as opposed to referencing gross profit alone.
In the reconciliation to calculate contribution margin, we add e-commerce platform commissions, online advertising, selling and logistics expenses (“sales and distribution variable expense”) to gross profit to inform users of our financial statements of what our product profitability is at each period prior to fixed costs (such as sales and distribution expenses such as salaries as well as research and development expenses and general administrative expenses). By excluding these fixed costs, we believe this allows users of our financial statements to understand our products performance and allows them to measure our products performance over time.
We present EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue because we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to net loss, provide useful supplemental information for investors. We use these measures with financial measures prepared in accordance with GAAP, such as sales and gross margins, to assess our historical and prospective operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our operating performance and to compare our performance to that of our peers and competitors. We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue are useful to investors in assessing the operating performance of our business without the effect of non-cash items.
Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue should not be considered in isolation or as alternatives to net loss, loss from operations or any other measure of financial performance calculated and prescribed in accordance with GAAP. Neither EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue should be considered a measure of discretionary cash available to us to invest in the growth of our business. Our Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue may not be comparable to similar titled measures in other organizations because other organizations may not calculate Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue in the same manner as we do. Our presentation of Contribution margin and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from such terms or by unusual or non-recurring items.
We recognize that EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, have limitations as analytical financial measures. For example, neither EBITDA nor Adjusted EBITDA reflects:
• our capital expenditures or future requirements for capital expenditures or mergers and acquisitions;
• the interest expense or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;
• depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, or any cash requirements for the replacement of assets;
• changes in cash requirements for our working capital needs; or
• changes warrant liabilities
Additionally, Adjusted EBITDA excludes non-cash stock-based compensation expense, which is and is expected to remain a key element of our overall long-term incentive compensation package.
We also recognize that Contribution margin and Contribution margin as a percentage of net revenue have limitations as analytical financial measures. For example, Contribution margin does not reflect:
• general and administrative expense necessary to operate our business; research and development expenses necessary for the development, operation and support of our software platform;
• the fixed costs portion of our sales and distribution expenses including stock-based compensation expense; or
• warrant liabilities
Contribution Margin
The following table provides a reconciliation of Contribution margin to gross profit and Contribution margin as a percentage of net revenue to gross profit as a percentage of net revenue, which are the most directly comparable financial measures presented in accordance with GAAP:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 |
2024 |
2023 |
2024 |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Gross Profit |
$ | 19,583 | $ | 15,828 | $ | 53,575 | $ | 45,888 | ||||||||
| Less: |
||||||||||||||||
| E-commerce platform commissions, online advertising, selling and logistics expenses |
(18,379 | ) | (11,364 | ) | (51,572 | ) | (33,709 | ) | ||||||||
| Contribution margin |
$ | 1,204 | $ | 4,464 | $ | 2,003 | $ | 12,179 | ||||||||
| Gross Profit as a percentage of net revenue |
49.4 | % | 60.3 | % | 48.8 | % | 61.6 | % | ||||||||
| Contribution margin as a percentage of net revenue |
3.0 | % | 17.0 | % | 1.8 | % | 16.4 | % | ||||||||
Adjusted EBITDA
The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net loss, which is the most directly comparable financial measure presented in accordance with GAAP:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 |
2024 |
2023 |
2024 |
|||||||||||||
| (in thousands, except percentages) |
||||||||||||||||
| Net loss |
$ | (6,270 | ) | $ | (1,773 | ) | $ | (66,857 | ) | $ | (10,564 | ) | ||||
| Add: |
||||||||||||||||
| Provision (benefit) for income taxes |
90 | (210 | ) | 142 | 66 | |||||||||||
| Interest expense, net |
359 | 189 | 1,076 | 741 | ||||||||||||
| Depreciation and amortization |
452 | 421 | 3,416 | 1,279 | ||||||||||||
| EBITDA |
(5,369 | ) | (1,373 | ) | (62,223 | ) | (8,478 | ) | ||||||||
| Other (income) expense, net |
(128 | ) | 225 | 101 | 275 | |||||||||||
| Impairment loss on intangibles |
— | — | 39,445 | — | ||||||||||||
| Change in fair market value of warrant liabilities |
(567 | ) | (161 | ) | (2,410 | ) | (730 | ) | ||||||||
| Restructuring expense(1) |
417 | (10 | ) | 1,633 | 565 | |||||||||||
| Stock-based compensation expense |
1,232 | 1,806 | 6,771 | 6,394 | ||||||||||||
| Adjusted EBITDA |
$ | (4,415 | ) | $ | 487 | $ | (16,683 | ) | $ | (1,974 | ) | |||||
| Net loss as a percentage of net revenue |
(15.8 | )% | (6.8 | )% | (60.9 | )% | (14.2 | )% | ||||||||
| Adjusted EBITDA as a percentage of net revenue |
(11.1 | )% | 1.9 | % | (15.2 | )% | (2.7 | )% | ||||||||
| (1) |
Restructuring expenses include non-recurring employee severance costs relating to the Company reorganization executed during the three and nine months ended September 30, 2024 and 2023. |
Critical Accounting Policies and Use of Estimates
As discussed in our Form 10-K for the fiscal year ended December 31, 2023, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those consolidated financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; leases; impairment of intangible assets; impairment of long-lived assets; and income taxes (including uncertain tax positions). There have been no significant changes to the Company’s accounting policies subsequent to December 31, 2023.
Intangible asset valuation—We review long-lived assets for impairment when performance expectations, events, or changes in circumstances indicate that the asset's carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows by comparing the carrying value of the asset group to the undiscounted cash flows. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique.
On March 20, 2023, the Company made certain leadership changes in our essential oil business resulting in a change in strategy and outlook for the business which resulted in a reduced portfolio offering. This reduction in the portfolio will be impactful to our essential oil business's future revenues and profitability and as a result the Company made revisions to our internal forecasts. The Company concluded that this change was an interim triggering event for the three months ending March 31, 2023 indicating the carrying value of our essential oil business's long-lived assets including trademarks may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $16.7 million in the three months ending March 31, 2023 within impairment loss on intangibles on the condensed consolidated statement of operations.
During the three months ended June 30, 2023, the Company had a substantial decrease in its market capitalization, primarily relating to a decrease in share price. Further, the Company continues to see reduced net revenues across its portfolio due to the current macroeconomic environment reducing demand for consumer goods. Finally, during the three months ending June 30, 2023, the Company implemented a strategy of rationalizing certain less profitable products and reducing its product offering, specifically related to its kitchen appliance products. As a result of this rationalization, along with the reduced demand for its products, the Company has made certain revisions to its internal forecasts for its Paper business and Kitchen appliance business. The Company concluded that these factors were an interim triggering event for the three months ending June 30, 2023 indicating the carrying value of our Paper and Kitchen appliance business’s long-lived assets, including trademarks, may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $22.8 million for the Paper business and Kitchen appliance business during the three months ending June 30, 2023 within impairment loss on intangibles on the condensed consolidated statement of operations.
During the three months ended December 31, 2023, the Company continued to see reduced revenue in its Paper business resulting in certain revisions to its internal forecasts. Due to these revisions in forecast due to reduced demand, the Company concluded this was an interim triggering event for the three months ending December 31, 2023 indicating the carrying value of our Paper business’s long-lived assets, including trademarks, may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using Level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $0.3 million for the Paper business during the three months ending December 31, 2023 within impairment loss on intangibles on the consolidated statement of operations.
There were no triggering events to test intangibles for impairment loss during the nine months ended September 30, 2024.
We will continue to closely monitor actual results versus expectations as well as whether and to what extent any significant changes in current events or conditions result in corresponding changes to our expectations about future estimated cash flows. If our adjusted expectations of the operating results do not materialize, we may be required to record intangible impairment charges, which may be material.
While we believe our conclusions regarding the estimates of recoverability of our asset groupings are appropriate, these estimates are subject to uncertainty and by nature include judgments and estimates regarding various factors. These factors include the rate and extent of growth in the markets that our asset groups serve, the realization of future sales price and volume increases, fluctuations in exchange rates, fluctuations in price and availability of key raw materials, fluctuations in discount rate, and future operating efficiencies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
The information set forth under the headings “Shareholder Derivative Actions Related to the Securities Class Action”, "Earn-out Payment Dispute" and “Mueller Action” in Note 10 of our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q is incorporated herein by reference.
From time to time, we are party to various actions and claims arising in the normal course of business. We do not believe that the final outcome of these matters will have a material adverse effect on our financial position or results of operations. In addition, we maintain what we believe is adequate insurance coverage to further mitigate risk. However, no assurance can be given that the final outcome of such proceedings will not materially impact our financial condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.
You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report and this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition, cash flows or future results. The risks described in our Annual Report and this Quarterly Report on Form 10-Q are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. Except as presented below, there have been no material changes from the risk factors associated with our business previously disclosed in our Annual Report.
Item 1A. Risk Factors.
Risks Relating to Our Business
We have historically operated at a loss and we may never achieve or sustain continuous profitability or positive cash flows. Further we and our independent registered public accounting firm have expressed substantial doubt about our ability to continue as a going concern.
We have experienced significant after tax losses for the three and nine months ended September 30, 2024 and 2023, respectively. In addition, our costs have increased historically and may increase further in future periods, which could negatively affect our future operating results and ability to achieve and sustain long-term ongoing profitability. For example, we may need to continue to expend substantial financial and other resources on the ideation, sourcing and development of products, our technology infrastructure, research and development, sales and marketing, international expansion and general administration, including expenses related to being a public company. We have had to rely on a combination of cash flow from operations and new capital in order to sustain our business. Despite the fact that we have raised significant capital, there can be no assurance that we will ever achieve long-term continuous profitability. Even if we do, there can be no assurance that we will be able to maintain or increase profitability on a quarterly or annual basis. Failure to achieve or sustain profitability could have a material adverse effect on our business.
Our growth strategy has resulted in operating losses and negative cash flows from operations that raised substantial doubt about our ability to continue as a going concern. Our former independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year-ended December 31, 2023, that raised substantial doubt about our ability to continue as a going concern. If we are unable to continue as a going concern or maintain our financial covenants with our lenders, we may have to make significant changes to our operating plan, such as delay expenditures, reduce investments in new products, reduce our sale and distribution infrastructure, or significantly reduce our business. Further, if we are unable to continue as a going concern, we may be forced to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.
A significant majority of our revenue results from sales of products on Amazon’s U.S. Marketplace and any change, limitation, or restriction on our ability to operate on Amazon’s platform could have a material adverse impact on our business, operating results, financial condition, and cash flows.
A substantial percentage of our revenue is from sales of products on Amazon’s U.S. marketplace and we are subject to Amazon’s terms of service (“ToS”) and various other Amazon seller policies. Amazon has the right to terminate or suspend our ability to sell on its platform at any time and for any reason. Amazon may also take other actions against us such as suspending or terminating our seller accounts or product listings and withholding payments owed to us indefinitely. From time to time in the past, we have experienced such adverse actions for products we have launched and products we have acquired and we can provide no assurance that we will be able to comply with Amazon's ToS. Further, in the event any of our seller accounts or product listings are suspended, or our product listings are required to be changed, for noncompliance or any other reason, including UPC brand mismatches, our reinstatement efforts may take significant time and attention or could fail, which could have a material adverse effect on our business, operating results, financial condition, and cash flows. In addition, Amazon has made, and we expect will continue to make, changes to its platform that could require us to change the manner in which we operate, limit our ability to successfully market existing products and to launch new products or increase our costs to operate. Such changes and the efforts required to maintain compliance therewith could have an adverse effect on our business, operating results, financial condition, and cash flows. Examples of past changes from Amazon have included platform fee increases (i.e., storage, advertising, fulfillment and selling commissions), inventory warehouse limitations, restrictions on certain marketing activities and changes to listing requirements that limit the variations of products that can be included in a single listing. Any change, limitation or restriction on our ability to sell on Amazon’s platform, even if temporary, could have a material impact on our business, operating results, financial condition, and cash flows. We also rely on services provided by Amazon’s fulfillment platform, including its Prime badge program, in which Amazon guarantees expedited shipping of products we sell to the consumer, an important factor in the consumer’s buying decision. Further, Amazon allows us to fulfill from our own third-party warehouses directly to customers under the same Prime badge guarantee. Amazon may at any time decide to discontinue allowing us to fulfill sales of our products directly from our warehouse network or limit our ability to advertise on our product listings that such products will receive expedited shipping under its Prime badge program. Any such inability or limitation, could have a material impact on our business, results of operations, financial condition, and cash flows. We have historically experienced, and may be subject in the future to, Amazon’s removal of the Prime badge guarantee from certain of our seller accounts and in those cases we have had limited success having the Prime badge guarantee reinstated in a timely manner or at all.
Our efforts to grow our business through new products, marketplace and geographic expansion may not be successful and may place a significant strain on our management and operational, financial and other resources.
Our long-term success depends on our ability to develop and commercialize a continuing stream of new products, to expand both to new marketplaces and geographies and to leverage new technologies we may incorporate into our business. We have entered and expect to continue to enter new product categories and both new marketplaces and geographies for which we have limited or no experience. In part we rely on Amazon’s global reviews program for success in our international expansion. If that program were to be limited, reduced or discontinued, our international expansion would be negatively affected. We also in part rely on our ability to include new products as variations to existing listings on Amazon. If that strategy were no longer possible for whatever reason, our ability to launch new products could be materially affected. Our efforts to grow our business place significant strain on our management, personnel, operations, systems, financial resources, and internal financial control and reporting functions, among other things. We have limited personnel and resources and have reduced headcount significantly in recent years. In order to accomplish our growth goals, our team is required to focus on such growth ventures and reallocate their time and other resources, creating risk in all aspects of our business. We face the risk that we will be unable to disrupt incumbents and that our competitors will introduce new and better products that compete with us. There are numerous uncertainties inherent in successfully developing and commercializing new products on a continuing basis and new product launches may not deliver expected growth in sales or operating results. Any new product that we develop and market may not be introduced in a timely or cost-effective manner, may contain defects, errors, quality or other issues, or may not achieve the market acceptance necessary to generate sufficient revenue or may never become profitable. If we are unable to develop and introduce a continuing stream of competitive new products, it may have an adverse effect on our business, operating results, financial condition, and cash flows. Our failure to successfully execute on our growth initiatives can negatively impact our financial results, financial condition, and cash flows.
We may be unsuccessful in making investments, unable to make or unsuccessful in integrating acquisitions or in maintaining or growing the financial performance of any investees or acquired businesses which may adversely affect our business and operating results and could impact the price of our common stock and result in dilution to shareholders.
Acquisitions and investments are an important aspect of our growth strategy and we expect to continue to pursue brand and other strategic acquisitions and investments. We have acquired a number of companies, and we may in the future acquire or invest in or enter into joint ventures with additional companies. Such acquisitions have in the past required, and in the future may require, the attention of management in integrating those businesses including increased attention to managing the supply chain of certain acquisitions. In addition, we have been required to in the past, and may be required to in the future, make significant impairment charges relating to the goodwill and intangible assets of such acquired businesses. The market for acquisitions has historically been highly competitive. Our growth strategy may be adversely affected if we face increased competition for or fail to identify suitable targets. In addition, pursuing or completing any such acquisitions or investments could divert management’s attention, and otherwise disrupt our operations and adversely affect our operating results, financial condition, and cash flows. Any acquisition or investment, if not favorably received by consumers, shareholders, analysts, and others in the investment community, could have a material adverse effect on the price of our common stock. In addition, any acquisition involves numerous risks, including: failing to identify problems during due diligence, liabilities or other shortcomings or challenges that could cause a target to under-perform post-closing; difficulties in the assimilation of the operations, technologies, products, and personnel associated with the acquisition and unanticipated expenses related to such integration; challenges in integrating distribution channels; diversion of management's attention from other business concerns; difficulties in transitioning and preserving customer, contractor, supplier, and other important third-party relationships; challenges realizing anticipated cost savings, synergies and other benefits; the potential impairment of tangible and intangible assets and goodwill; risks of entering markets in which we have no or limited experience; risks associated with subsequent losses including potential unknown liabilities associated with a company we acquire; and problems retaining key personnel. We provide no assurances that we will be able to complete any acquisitions or that any acquired businesses will experience the same or better level of financial performance as prior to the acquisition.
In order to complete any future acquisitions, we may need to use our cash on hand, raise additional equity or incur or assume debt, any of which could harm our business. Given the Company’s current market capitalization, certain of these options may not be available or only be available on unfavorable terms and could result in significant additional dilution to our stockholders.
We may be limited by our ability to raise the funding we need to support our growth, including through acquisitions, or to maintain our existing business. Also, such funding may be available only by diluting existing stockholders.
The success of our business depends in part on our ability to invest significant resources in various aspects of our business including acquisitions and other strategic investments. Our success also depends on our ability to grow through acquisitions. To support our business growth, we will likely require additional funds to maintain and grow our business and to respond to business challenges. Accordingly, from time to time we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through issuances of equity or convertible debt securities, that would result in significant dilution to our existing stockholders, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt we may incur may negatively impact our business, financial condition and operating results. We have in the past and may in the future incur debt that allows us to repay such debt using our common stock, which could result in significant dilution. Further, we may not be able to obtain additional financing on terms favorable to us, or at all, whether due to issues related to the Company or unrelated to the Company including but not limited to bank failures. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to grow or to respond to business challenges would be significantly limited, and our business could fail or our operating results, financial condition, and cash flows could be adversely affected.
Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. In addition, we may not be able to continue to acquire the financing needed in order to pursue future acquisitions or similar transactions or we may not be able to raise sufficient equity or equity-like capital without first seeking stockholder approval, which could limit our ability to complete such financing, or to complete any related transaction on a timely basis or at all.
U.S. government trade actions could have a material adverse effect on our business, financial position, and results of operation.
Over the past several years, the U.S. government has taken a number of trade actions that impact or could impact our operations, including imposing tariffs on certain goods imported into the United States. As the majority of our products are imported into the United States from China, many of our products are subject to the tariffs imposed under Section 301 of U.S. trade law that have been applied to separate lists of Chinese goods imported into the United States, beginning during the Trump Administration and continuing in the Biden Administration. A number of lawsuits and other legal challenges with respect to the Section 301 tariff actions have been filed and remain pending, which could result in changes to the tariffs. To date, the Biden Administration has effectively maintained and has continued to defend and to enforce these particular trade actions.
Changes in U.S. trade policy have created ongoing uncertainties in international trade relations, and it is unclear what future actions governments will or will not take with respect to tariffs or other international trade agreements and policies. During his campaign, President-Elect Trump expressed various intentions to impose tariffs on imports, including 60% tariffs on goods imported from China, 25% tariffs on goods imported from Mexico and between 10% and 20% tariffs on other imports. It is unclear what action the next presidential administration or Congress will take with respect to these proposals. Ongoing or new trade wars or other governmental action related to tariffs or international trade agreements or policies could reduce demand for our products and services, increase our costs, reduce our profitability, adversely impact our supply chain or otherwise have a material adverse effect on our business and results of operations.
We are continually evaluating the impact of the current and any possible new tariffs on our supply chain, costs and sales and are considering strategies to mitigate such impact, including reviewing sourcing options, filing requests for exclusion from the tariffs for certain product lines and working with our suppliers. We can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful. Given the uncertainty regarding the scope and duration of these trade actions by the U.S. government or other countries, as well as the potential for additional trade actions, the impact on our operations and results remains uncertain.
Risks Relating to the Ownership of our Common Stock
There is no guarantee of a continuing public market for you to resell our common stock.
There is no guarantee that we will continue to meet all requirements for continued listing on the Nasdaq Capital Market. We must continue to satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share
On April 24, 2023, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, the Company was not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on The Nasdaq Capital Market (the “Bid Price Notice”). The Bid Price Notice provided a compliance period of 180 calendar days from the date of the Bid Price Notice, or until October 23, 2023, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). Following a request we made on October 13, 2023, on October 24, 2023, we received a letter from Nasdaq granting the Company an additional 180 days, or until April 22, 2024, to regain compliance with the minimum closing bid requirement . On April 8, 2024, Aterian, Inc. (the “Company”) received written notice (the “Compliance Notice”) from Nasdaq informing the Company that it has regained compliance with Nasdaq Listing Rule 5450(a)(1) which requires that companies listed on Nasdaq maintain a minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that from March 22, 2024 to April 5, 2024 the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained compliance with Nasdaq Listing Rule 5450(a)(1) and that the matter was now closed.
In the future, if our Common Stock falls below the continued listing standard of $1.00 per share or otherwise fails to satisfy any of the Nasdaq continued listing requirements, and if we are unable to cure such deficiency during any subsequent cure period, our Common Stock could be delisted from the Nasdaq. If our Common Stock ultimately were to be delisted for any reason, we could face significant material adverse consequences, including:
| • | limited availability of market quotations for our Common Stock; |
| • | a limited amount of news and analyst coverage for us; |
| • | a decreased ability for us to issue additional securities or obtain additional financing in the future; |
| • | limited liquidity for our stockholders due to thin trading; and |
| • | the potential loss of confidence by investors and employees. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Rule 10b-5(1) Trading Plans. During the three months ended September 30, 2024, director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Incorporated by Reference |
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Exhibit |
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| 31.1* |
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| 31.2* |
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| 32.1** |
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| 101.INS |
Inline XBRL Instance Document |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL) |
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* Filed herewith.
** Furnished herewith.
# Indicates management contract or compensatory plan or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| ATERIAN, INC. |
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| Date: November 12, 2024 |
By: |
/s/ Arturo Rodriguez |
| Arturo Rodriguez | ||
| Chief Executive Officer |
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| (Principal Executive Officer) |
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| Date: November 12, 2024 |
By: |
/s/ Joshua Feldman |
| Joshua Feldman | ||
| Chief Financial Officer (Principal Financial Officer) |
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