美國
證券和交易委員會
華盛頓特區20549
表格
（標記一）
| | 根據1934年證券交易法第13或15(d)節的季度報告 |
截至季度結束日期的財務報告
或
| | 根據1934年證券交易法第13或15(d)節的轉型報告書 |
委託文件編號：001-39866
Aterian，Inc。
(根據其章程規定的註冊人準確名稱)
| | | |
| （國家或其他管轄區的 公司成立或組織） | （IRS僱主 | |
| | | |
| (主要行政辦公室地址) | (郵政編碼) |
(
（註冊人電話，包括區號）’電話號碼（含區號）
在法案第12(b)條的規定下注冊的證券：
| 每個類別的標題 | 交易標的 | 在其上註冊的交易所的名稱 | ||
| | | 該 |
請勾選符號表示公司是否進行了以下行動：（1）在過去12個月期間（或公司有要求提交上述報告的較短時間期間）根據《證券交易法》第13或15(d)條款的規定提交了所有要求提交的報告，以及（2）在過去90天內履行了此類提交要求。
勾選表示註冊人已在過去12個月內（或更短的時間內，註冊人需要提交文件）按照《S-t條例第405條規則》要求提交了所有互動數據文件。
勾選以下選框，指示申報人是大型加速評估提交人、加速評估提交人、非加速評估提交人、小型報告公司或新興成長型公司。關於「大型加速評估提交人」、「加速評估提交人」、「小型報告公司」和「新興成長型公司」的定義，請參見《交易所法規》第120億.2條。
| 大型加速報告人 | ☐ | 加速文件提交人 | ☐ | |
| | ☒ | 較小的報告公司 | | |
| 新興成長公司 | |
如果是新興成長型企業，請勾選複選標記，表明註冊者已選擇不使用延長過渡期來符合根據證券交易法第13(a)條規定提供的任何新財務會計準則。
請勾選是否Registrant是外殼公司（根據證券交易法規則12b-2定義）。 是
截至2024年11月8日，註冊者持有
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頁面 |
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| 第I部分 |
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| 項目1。 |
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| 項目2。 |
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| 項目3。 |
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| 項目4。 |
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| 第二部分 |
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| 項目1。 |
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| 項目1A。 |
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| 項目2。 |
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| 項目3。 |
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| 項目4。 |
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| 項目5。 |
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| 項目6。 |
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關於前瞻性聲明的警示說明
這份第10-Q表格的季度報告中包含 “forward-looking statements” 根據證券法第27A條和1934年證券交易所法第21E條的含義。其中許多陳述可以通過使用術語來識別，例如 “相信，” “預計，” “打算，” “預計，” “計畫，” “會，” “以及類似表達，均与我們或我們的管理有關，旨在識別此類前瞻性陳述。前瞻性陳述既非歷史事實，也非未來業績的保證。” “可能” "would,” “項目,” “continues,” “estimates,” “潛力,” “機會” 或者這些術語的負面版本和其他類似的表達。我們的實際結果或經驗可能與前瞻性陳述顯著不同。可能導致或對這些差異有貢獻的因素包括本季度報告表格10-Q第II部分，項目1A中討論的因素，以及本季度報告表格10-Q和我們於2023年12月31日結束的年度報告表格10-k中提供的資訊，該報告已於2024年3月19日向證券交易委員會（SEC）提交。在您做出投資決策之前，您應該仔細考慮該信息。 “風險因素，” 在本季度報告表格10-Q的第II部分，項目1A中提及的因素，以及本季度報告表格10-Q和我們於2023年12月31日結束的年度報告表格10-k中提供的其他地方信息和於2024年3月19日向證券交易委員會（SEC）提交的信息。在您做出投資決定之前，您應仔細考慮該信息。
您不應過度依賴這些類型的前瞻性聲明，這些聲明僅在其發佈之日有效。這些前瞻性聲明是基於公司的信念和假設。’管理層基於目前可用於管理層的信息，並應與公司未來可能發佈的任何書面或口頭前瞻性聲明以及公司所做和可能做的其他警告聲明一起加以考慮。除法定要求外，公司不承擔任何義務在本季度報告（表格10-Q）提交完成後公開發布對這些前瞻性聲明的任何修訂，以反映後來的事件或情況或意外事件的發生。
關於公司的討論’公司的財務控制項及經營成果應與公司’的簡明合併基本報表及本季度10-Q表格中包含的相關附註一同閱讀。
簡明合併資產負債表
（未經審計）
（以千計，除股份和每股數據除外）
| 2023年12月31日 | 2024年9月30日 | |||||||
| 資產 | ||||||||
| 流動資產: | ||||||||
| 現金 | $ | $ | ||||||
| 應收帳款，淨額 | ||||||||
| 存貨 | ||||||||
| 預付及其他流動資產 | ||||||||
| 流動資產總額 | ||||||||
| 不動產及設備，淨額 | ||||||||
| 其他無形資產，淨額 | ||||||||
| 其他非流動資產 | ||||||||
| 總資產 | $ | $ | ||||||
| 負債及股東權益 | ||||||||
| 當前負債： | ||||||||
| 信貸設施 | $ | $ | ||||||
| 應付賬款 | ||||||||
| 賣家備註 | ||||||||
| 應計負債及其他流動負債 | ||||||||
| 流動負債總額 | ||||||||
| 其他負債 | ||||||||
| 總負債 | ||||||||
| 合同和應付之可能負債（註10） | ||||||||
| 股東權益： | ||||||||
| 0.01 面值， 授權股份和 和 2023年12月31日和2024年9月30日期間的股本分別為（*） | ||||||||
| 資本公積額額外增資 | ||||||||
| 累積虧損 | ( | ) | ( | ) | ||||
| 累積其他全面損失 | ( | ) | ( | ) | ||||
| 股東權益總額 | ||||||||
| 負債總額及股東權益合計 | $ | $ | ||||||
(*) 股數及每股金額已追溯重述，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。
附註是這些未經審核的簡明綜合財務報表的一個組成部分。
綜合損益表
（未經審計）
（以千為單位，除每股股份和每股資料外）
| 截至九月三十日的三個月 |
截至九月三十日的九個月。 |
|||||||||||||||
| 2023 |
2024 |
2023 |
2024 |
|||||||||||||
| 淨營業收入 |
$ | $ | $ | $ | ||||||||||||
| 銷貨成本 |
||||||||||||||||
| 毛利潤 |
||||||||||||||||
| 營運費用： |
||||||||||||||||
| 銷售及分銷 |
||||||||||||||||
| 研發 |
||||||||||||||||
| 一般及行政費用 |
||||||||||||||||
| 無形資產的減值損失 |
||||||||||||||||
| 營業費用總額 |
||||||||||||||||
| 營運虧損 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| 利息費用，淨額 |
||||||||||||||||
| 認股權證負債公平價值變動 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| 其他（收入）費用，淨額 |
( |
) | ||||||||||||||
| 稅前損失 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| 所得稅費用（效益） |
( |
) | ||||||||||||||
| 淨虧損 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| 每股淨損，基本與稀釋 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| 基本及稀釋的加權平均流通股數(*) |
||||||||||||||||
(*) 股數及每股金額已追溯重述，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。
附註是這些未經審核的簡明綜合財務報表的一個組成部分。
綜合損益總表
（未經審計）
（以千為單位）
| 截至九月三十日的三個月 |
截至九月三十日的九個月。 |
|||||||||||||||
| 2023 |
2024 |
2023 |
2024 |
|||||||||||||
| 淨虧損 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| 其他綜合損失： |
||||||||||||||||
| 外幣轉換調整 |
( |
) | ||||||||||||||
| 其他綜合損益 |
( |
) | ||||||||||||||
| 綜合虧損 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
附註是這些未經審核的簡明綜合財務報表的一個組成部分。
股東權益的縮編合併財務報表’ 股權
（未經審計）
(以千為單位，每股數據除外)
| 截至2023年9月30日的三個月 |
||||||||||||||||||||||||
| 普通股(*) |
股本溢價資本額 |
累積的 |
累積其他全面損益 |
股東總計 |
||||||||||||||||||||
| 股份 |
金額 |
資本(*) |
赤字 |
損失 |
權益 |
|||||||||||||||||||
| 資產負債表-2023年7月1日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| 淨虧損 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 發行受限普通股 |
||||||||||||||||||||||||
| 沒收受限制普通股 |
( |
) | — | — | — | — | — | |||||||||||||||||
| 股份報酬支出 |
— | |||||||||||||||||||||||
| 其他綜合損失 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 截至2023年9月30日結餘 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
(*) 股數及每股金額已追溯重述，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日的三個月 |
||||||||||||||||||||||||
| 普通股 |
股本溢價資本額 |
累積的 |
累積其他全面損益 |
股東總計 |
||||||||||||||||||||
| 股份 |
金額 |
資本(*) |
赤字 |
損失 | 權益 |
|||||||||||||||||||
| 資產負債表—2024年7月1日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| 淨虧損 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 限制普通股股份發行 |
||||||||||||||||||||||||
| 沒有償還的限制普通股股份 |
( |
) | — | — | — | — | — | |||||||||||||||||
| 發行普通股 |
||||||||||||||||||||||||
| 股份報酬支出 |
— | |||||||||||||||||||||||
| 其他綜合收益 |
— | |||||||||||||||||||||||
| 資產負債表—2024年9月30日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
ATERIAN, INC.
截至2024年6月30日和2023年6月30日三個月和六個月的股東權益(赤字)最簡報表’ 股權
(未經審計)
(以千計，除分享和每分享數據外)
| 2023年9月30日止九個月 |
||||||||||||||||||||||||
| 普通股(*) |
股本溢價資本額 |
累積的 |
累積其他全面損益 |
股東總計 |
||||||||||||||||||||
| 股份 |
金額 |
資本(*) |
赤字 |
損失 | 權益 |
|||||||||||||||||||
| 賬戶餘額-2023年1月1日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| 淨虧損 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 發行限制性普通股股份 |
||||||||||||||||||||||||
| 沒收限制性普通股股份 |
( |
) | — | — | — | — | — | |||||||||||||||||
| 發行普通股 |
||||||||||||||||||||||||
| 股份報酬支出 |
— | |||||||||||||||||||||||
| 其他綜合收益 |
— | |||||||||||||||||||||||
| 截至2023年9月30日結餘 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
(*) 股數及每股金額已追溯重述，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日的九個月 |
||||||||||||||||||||||||
| 普通股(*) |
股本溢價資本額 |
累積的 |
累積其他全面損益 |
股東總計 | ||||||||||||||||||||
| 股份 |
金額 |
資本(*) |
赤字 |
損失 | 權益 |
|||||||||||||||||||
| 餘額-2024年1月1日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| 淨虧損 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 限制性普通股的發行 |
||||||||||||||||||||||||
| 限制性普通股的沒收 |
( |
) | — | — | — | — | — | |||||||||||||||||
| 發行普通股 |
||||||||||||||||||||||||
| 股份報酬支出 |
— | |||||||||||||||||||||||
| 其他綜合收益 |
— | |||||||||||||||||||||||
| 資產負債表—2024年9月30日 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
(*) 股數及每股金額已追溯重述，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。
簡明合併現金流量量表
（未經審計）
（以千為單位）
| 截至九月三十日的九個月。 |
||||||||
| 2023 |
2024 |
|||||||
| 營運活動： |
||||||||
| 淨虧損 |
$ | ( |
) | $ | ( |
) | ||
| 調整淨損益以準備或提供營運活動之現金流量： |
||||||||
| 折舊及攤銷 |
||||||||
| 銷售退貨備抵（追回）： |
( |
) | ||||||
| 無形資產攤銷、財務成本及債務折扣攤提： |
||||||||
| 基於股票的薪酬 |
||||||||
| 递延税款费用的变动 |
( |
) | ||||||
| 存貨備抵計提變動 |
( |
) | ||||||
| 認股權證負債公平價值變動 | ( |
) | ( |
) | ||||
| 無形資產的減值損失 |
||||||||
| 信用損失準備 |
|
— |
||||||
| 資產及負債的變動： |
||||||||
| 應收賬款 |
||||||||
| 存貨 |
||||||||
| 預付及其他流動資產 |
||||||||
| 應付帳款、應計及其他負債 |
( |
) | ||||||
| 營運活動提供的現金（使用中） |
( |
) | ||||||
| 投資活動： |
||||||||
| 固定資產之購買 |
( |
) | ( |
) | ||||
| 購買Step and Go資產 |
|
— |
||||||
| 購買少數股權投資 |
( |
) | ||||||
| 投資活動所使用的現金 |
( |
) | ( |
) | ||||
| 籌資活動： |
||||||||
| 對Smash應付票據的還款 |
( |
) | ( |
) | ||||
| 從MidCap信貸工具借款 |
||||||||
| 用於償還MidCap信貸工具 |
( |
) | ( |
) | ||||
| 保險義務支付 |
( |
) | ( |
) | ||||
| 保險融資收益 |
|
— |
||||||
| 融資活動中的現金支出 |
( |
) | ( |
) | ||||
| 外匯對現金、及現金等價物和受限制現金的影響 |
||||||||
| 本年度現金及受限制現金的淨變動 |
( |
) | ( |
) | ||||
| 年初現金及受限制現金 |
||||||||
| 年底現金及受限制現金 |
$ | $ | ||||||
| 現金和受限制現金的調解： |
||||||||
| 現金 |
||||||||
| 受限制現金-預付款項及其他流動資產 |
||||||||
| 受限制現金-其他非流動資產 |
||||||||
| 總現金及受限制現金 |
$ | $ | ||||||
| 現金流量補充披露 |
||||||||
| 支付利息的現金 |
$ | $ | ||||||
| 支付的稅金現金 |
$ | $ | ||||||
| 非現金投資和融資活動： |
||||||||
| 向承包商支付的非現金代價 |
$ | $ | ||||||
| 非現金少數股權投資 |
$ | — |
$ | |
||||
附註是這些未經審計的基本報表的一部分。
基本合併財務報表註釋
截至2023年和2024年九個月止（未經審計）
| 1. | 公司概述 |
Aterian, Inc.（以下簡稱「公司」）是一家在亞馬遜和沃爾瑪等在線零售渠道上主要運營的科技消費產品公司。該公司經營其自有品牌，這些品牌要麼是孵化的，要麼是購買的，銷售多個類別的產品，包括家用和廚房電器、廚房用品、空氣淨化器、健康和美容產品以及精油。
我們的主要品牌包括Squatty Potty、HomeLabs、Mueller Living、PurSteam、Healing Solutions和Photo Paper Direct（"PPD"）。我們主要通過在線銷售我們各種消費產品產生營業收入，幾乎所有的銷售都是通過亞馬遜美國市場進行的。
總部位於新澤西，在中國、菲律賓和英國設有辦事處。
流動性和持續經營
作爲一家新興增長型公司，我們面臨與企業發展相關的固有風險和不確定性。在這方面，我們迄今爲止的幾乎所有努力都致力於開發和銷售我們的產品，這包括我們對有機增長的投資，而忽視了短期的盈利能力，我們對併購的增量增長的投資策略，我們招募管理和技術人員，以及籌集資金支持企業發展。由於這些努力，我們自成立以來一直遭受巨額虧損和負面經營現金流，我們預計在可預見的將來將繼續遭受這種虧損，但幅度會有所降低，並將繼續產生負面現金流，直到我們達到一個能夠維持經營的盈利規模。由於宏觀經濟因素（包括利率上升和消費者可隨意支出減少等）、以及其他因素，我們的營收也在下降，我們正在將精力集中在更少數量的產品上。此外，我們最近的財務表現也受到通貨膨脹壓力和消費支出減少的不利影響。
爲了執行我們的增長策略，我們歷史上依賴於通過發行股權、債務和融資安排下的借款（統稱爲「外部資本」）來資助我們的成本結構，我們預計在可預見的未來仍將繼續依賴外部資本，特別是在我們的併購策略上。雖然我們相信最終會達到一個可持續運營的盈利水平，但仍然存在 沒有 我們能夠實現這樣的盈利能力或以不需要我們繼續依賴外部資本的方式做到這一點的保證。此外，儘管我們歷史上在籌集外部資本方面取得了成功，但仍然存在 在測試商譽減值時，公司可以選擇 我們能夠在未來繼續獲得外部資本或者以對我們可接受的條款獲得外部資本的保證。 沒有
截至附帶的簡明合併基本報表發佈日期（「發佈日期」）我們根據會計準則規定，評估了以下不利的財務狀況的重要性。 205-40, 持續經營性問題：
自成立以來，我們一直虧損並利用經營現金流來資助我們的企業。在這方面，在 九 月結束 2024年9月30日期間，我們錄得淨損失$
• 我們需要遵守MidCap信貸設施所要求的某些財務契約（見註釋 7, 信貸設施、定期貸款和warrants）。截止到 2024年9月30日，我們預計將在至少保持遵守 九月30, 2025. 在 2024年2月，該公司發行了最高股數爲的限制性股票單元授予，其中的股份在五年內等分每年最高股數（績效授予）。 公司已修訂其與Midcap信貸設施的條款，將期限延長至 2026年12月 並修改某些財務契約以獲得優惠條款。我們可以提供 沒有 保證我們將持續遵守財務契約。此外，如果我們無法從運營中產生現金流入或獲得額外的外部資本，我們將無法繼續遵守這些財務契約。如果我們無法繼續遵守這些財務契約（或MidCap信用設施要求的其他非財務契約），並且無法獲得豁免或寬展，MidCap 可自行決定並不時豁免全部或部分贊助商費用的支付期。 可以自行決定行使其現有的所有權利和救濟，包括但不限於，加速償還未償借款和/或主張其在擔保貸款的資產中的權利。 可以 此外，還包括加速償還未償借款和/或主張其在擔保貸款的資產中的權利。
• 截至發行日期，我們已經 沒有 與放款人或投資者有確定的資本擔保。儘管我們預計將繼續探索籌集額外的外部資本，特別是用於支持我們的併購策略，但 沒有 我們無法保證能夠獲得資本或以對我們可接受的條件償還。因此，在缺乏現金流入和/或在短期內獲得額外的外部資本的情況下，我們 可以 將無法按照下一個到期日期履行我們的義務。 十二 自發行日期起 months。
• 公司的計劃是繼續緊密監控我們的營運預測，實施併購戰略，追求可接受的外部資金來源，並在我們無法保持符合MidCap要求的情況下，與MidCap獲得豁免或暫緩執行。 一份 減少公司銷售的SKU數量，並且不再追求未來銷售任何不盈利的SKU。 沒有 不再追求未來銷售任何不盈利的SKU。 在測試商譽減值時，公司可以選擇 不再追求未來銷售任何不盈利的SKU。 在測試商譽減值時，公司可以選擇 公司戰略的核心。如果我們的一些或所有計劃無法成功，我們 可以 需要實施短期變更我們的運營計劃，包括但不限於延遲支出，減少對新產品的投資，或減少我們的銷售和配送基礎設施。我們 在測試商譽減值時，公司可以選擇 需要尋求長期戰略替代方案，例如大幅削減我們的業務，出售一些資產，部分產品線的剝離，將整個企業出售給戰略或金融投資者，和/或讓我們的企業破產。 可以 還需要尋求長期戰略替代方案，例如大幅削減我們的業務，出售一些資產，部分產品線的剝離，將整個企業出售給戰略或金融投資者，和/或讓我們的企業破產。
公司已完成 重組計劃以降低運營成本並根據我們精簡的運營規模調整員工人數。 18此外，我們已經減少了SKU數量，專注於公司戰略的核心盈利產品。 2024年2月，該公司發行了最高股數爲的限制性股票單元授予，其中的股份在五年內等分每年最高股數（績效授予）。 在我們與Midcap信貸設施的期限延長至 2026年12月 (詳見備註 7, 信貸便利、定期貸款和warrants) 並修訂關鍵條款，這將爲流動性增加更多的靈活性，並增強我們的資產負債表。考慮到這些因素，公司將在接下來的幾個季度內監控盈利能力和現金流，以評估我們作爲持續經營實體的能力。
雖然我們在減少營運虧損和增強資產負債表方面取得了顯著進展，但業務運營和業務預測仍存在不確定性。這些不確定性對我們作爲持續存在的能力提出了重大疑問。附帶的簡明綜合財務報表是基於我們將繼續作爲持續存在進行準備的，這意味着我們將能夠在可預見的未來通過正常經營方式變現資產，償付負債和履行承諾。因此，附帶的簡明綜合財務報表包括 在測試商譽減值時，公司可以選擇 不包括由這些不確定性結果引起的任何調整。 可以
納斯達克上市 - 在 2023年4月24日， 我們收到了來自納斯達克證券市場有限責任公司（「納斯達克」）上市資格工作人員的信，表明 根據我們普通股在過去 30 連續的業務日的收盤買盤價，公司目前符合維持在納斯達克資本市場繼續上市的最低買盤價要求， $1.00 如納斯達克上市規則所述 5550(a)(2（「買盤通知」）。買盤通知提供了一個合規期 180 從買盤價格通知日期起的日曆天數，或直到 在2023年10月23日， 根據納斯達克上市規則，以恢復符合最低收盤買盤要求 5810(c)(3（A）。在我們於 2023年10月13日， 於 2023年10月24日， 我們收到納斯達克發來的信函， granting the Company an additional 180 天，或者直到 2024年4月22日， 以重新符合最低關閉買盤要求（「延期通知」）。
納斯達克在合規通知中通知公司，從 2024年3月22日 到 2024年4月5日 公司的普通股收盤買盤價格已達到 $1.00 每股或更高，因此，公司已重新符合納斯達克上市規則 5450(a)(1）該事項現在已結束。
在 2023年8月11日， Aterian的股東批准了我們的董事會具有裁量權的權力，以(A)修改我們的《修訂與重述公司章程》，以執行 一份 或更多次對我們普通股的已發行和流通股份進行合併，其面值爲$
在 2024年3月20日， 公司向特拉華州州務卿辦公室（以下簡稱 「州務卿辦公室」）提交了一份關於公司修正後及改訂後的公司章程的修正證書（以下簡稱 「修正證書」），以實施 1-爲-
普通股在納斯達克以反向股票拆分調整後的基礎上開始交易， 2024年3月22日。 本季度報告的所有板塊和每股數據均已追溯調整，以反映反向股票拆分。 10-Q表格
重組 - 在 2023年5月9日， 公司宣佈通過裁減目前的員工人數來降低費用的計劃，影響到 大約
在 2024年2月8日， 公司致力於執行一項固定的成本削減計劃，包括裁員，導致全球約
| 2. | 重要會計政策摘要 |
呈現基礎——合併簡化基本報表及其附註是根據美國通用會計準則（「U.S. GAAP」）編制的。
未經審計的中期財務信息——附帶的中期簡約合併基本報表未經審計，並已按照經過審計的合併基本報表相同的基礎編制，管理層認爲，反映了公司截至……財務狀況的所有必要調整。 2024年9月30日 以及截至……期間的經營成果及現金流量。 2024年9月30日 及 2023這些附註中披露的財務數據和其他信息與……相關。 三 和 九 月結束 2024年9月30日 及 2023也未經審計。結果爲三 和 九 月結束 2024年9月30日絕非必然的。在測試商譽減值時，公司可以選擇 並不一定表明年度結束時的結果 12月31日2024，其他任何中期或未來任何年份或期間。
截至 基本合併資產負債表爲 2023年12月31日，在此呈現，已由公司年度財務報表的經審計的基本合併財務報表整理。應當同時閱讀本未經審計的基本合併中期財務報表與我們於 10年度報告中，報告格式爲 2023年12月31日 於SEC提交的文件中 2024年3月19日的年度報告（「年度報告」）一起編制，遵循了注中所描述的會計政策一貫的基礎上。 2 在我們的年度報告中包括的合併財務報表附註中。我們的會計政策沒有發生變化。 在測試商譽減值時，公司可以選擇 在...期間沒有發生變化。 九 月結束 2024年9月30日，除了針對已在附註中描述的新會計準則的採納。 2, 最近的會計準則。
所附的未經審計的簡明合併基本報表是根據美國通用會計準則（"U.S. GAAP"）編制的中期財務信息，並根據Form的說明編制。 10和證券交易委員會公佈的「表格-Q」和「第5條」所規定的要求一樣，這裏所搭配的未經審計的簡化合並財務報表是符合美國通用會計準則（U.S. GAAP）的中期財務報告，建議與該公司年度報告上所需要的按U.S. GAAP編制而成的審計信息和附註一起了解本報告。 8 -X. 因此，它們不包括完整的合併財務報表。 在測試商譽減值時，公司可以選擇 包括U.S. GAAP所要求的所有信息和披露，以供編制完整基本報表。據管理層意見，這些報表包括爲公允呈現公司簡明合併基本報表所需的所有調整（僅包括正常經常性項目）截至 2024年9月30日 的 三 和 九 月之後結束。
使用估計——根據美國通用會計準則編制基本報表時，管理層需要進行估計和假設，這些估計和假設會影響資產和負債的報告金額，以及在基本報表日期附帶披露的或有資產和負債的情況，以及在基本報表和附註涵蓋的報告期間內報告的收入和費用金額。管理層根據歷史經驗和其他因素（包括當前經濟環境）對其估計和假設進行持續評估，並在事實和情況要求時進行調整。由於未來事件及其影響無法精確確定，實際結果可能與這些估計存在差異。
合併原則—合併的基本報表包括公司及其全資子公司的帳戶。所有的內部公司餘額和交易在合併中已被排除。
限制性現金截至 2023年12月31日，公司已將以下金額歸類爲受限現金：$
截至 2024年9月30日公司已將以下金額列爲限制現金：$
庫存和已售商品成本—公司的庫存幾乎全部由製成品組成。該公司目前在其資產負債表上記錄庫存 第一-在 第一-out 基準或可變現淨值，如果低於公司的記錄成本。該公司的成本包括向製造商支付的產品金額、與跨境運輸產品相關的關稅和關稅，以及與將產品從製造商運送到倉庫相關的運費（視情況而定）。庫存估值要求我們根據歷史數據等可用信息，對可能的處置方法（例如向個人客戶出售或清算）以及每個處置類別的預期可收回價值做出判斷。相關假設和預測的變化將影響我們在記錄這些估計值之後的合併財務業績。如果我們預計未來需求或市場狀況等假設的變化將不如先前的估計那麼有利，則會進一步減記庫存 可能 是必填項。相反，如果我們能夠出售已減記至低於前一時期的最終已實現銷售價格的庫存，則銷售額將以較低或 不 抵消銷售成本的費用。
在壓縮合並運營報表中的「營業成本」項目包括在報告期間售出的庫存賬面價值。當情況要求公司使用淨可實現價值作爲記錄庫存的基礎時，公司基於預期的未來銷售價格減去預期的處置成本來進行估計。
應收賬款應收賬款以歷史成本減去信用損失準備金計價。管理層定期評估其應收賬款，並確定是否提供準備金或根據以往的核銷、收款和當前信用狀況，決定是否覈銷任何帳戶。如果公司未按約定條款收到付款，則該應收款被視爲逾期。 在測試商譽減值時，公司可以選擇 公司通常不要求任何安防-半導體來支持其應收款。公司對其客戶進行持續評估，並維持信用損失準備金。截止至 在測試商譽減值時，公司可以選擇 2023年12月31日 和 2024年9月30日公司已爲信用損失準備了$
收入確認公司根據財務會計準則委員會(FASB)頒佈的《會計準則法規彙編》(ASC)主題賬業務收入。 606, 客戶合同的營業收入(ASC主題 606”)。公司的營業收入來自消費品銷售。公司通過在線零售渠道直接向消費者銷售產品，也通過批發渠道銷售產品。
對於直銷，公司認爲客戶訂單確認是與客戶之間的合同。客戶確認在通過下單時執行。 第三-方在線渠道。對於批發銷售，公司認爲客戶採購訂單是合同。
對於公司的所有銷售和分銷渠道，營業收入在產品控制權轉移給客戶時確認（即，當公司的履約義務得到滿足時），通常發生在發貨日期。因此，公司擁有當前的無條件收款權，並將在應收賬款中記錄客戶應付款項。
消費產品銷售收入按淨銷售價（交易價格）記錄，其中包括根據歷史退貨率估計的未來退貨。在利用歷史趨勢估計未來退貨時需要進行判斷。公司的銷售退貨退款責任爲$
公司評估了主要與代理的考慮，以判斷將支付給亞馬遜的平台費用記錄爲費用還是營業收入的減少是否合適。平台費用被記錄爲銷售和分銷費用，且 在測試商譽減值時，公司可以選擇 記錄爲營業收入的減少，因爲公司在商品轉移給客戶之前擁有和控制所有商品。公司可以隨時指示亞馬遜，或同樣指示其他 第三方物流提供商（「物流提供商」）將公司的庫存返回到公司指定的任何地點。公司有責任在客戶直接向物流提供商退貨後，確保客戶權益，而公司承擔後端庫存風險。此外，公司還面臨信用風險（即信用卡退款），確定其產品的價格，可以判斷誰來履行客戶的商品（亞馬遜或公司），並可以在任何時候限制數量或停止銷售商品。基於這些考慮，公司在這一安排中是主要方。
按類別劃分的淨營業收入以下表格詳細列出了公司根據客戶的賬單地址劃分的銷售渠道和地域板塊的淨營業收入：
| 截至2023年9月30日的三個月 | ||||||||||||
| (以千爲單位) | ||||||||||||
| 直接 | 批發/其他 | 總計 | ||||||||||
| 北美洲 | $ | $ | $ | |||||||||
| 其他 | ||||||||||||
| 總淨收入 | $ | $ | $ | |||||||||
| 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.
|
|
Incorporated by Reference |
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| Exhibit Number |
Description |
Form |
File Number |
Filing Date |
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. |
||
| Date: November 12, 2024 |
By: |
/s/ Arturo Rodriguez |
| Arturo Rodriguez | ||
| Chief Executive Officer |
||
| (Principal Executive Officer) |
||
| Date: November 12, 2024 |
By: |
/s/ Joshua Feldman |
| Joshua Feldman | ||
| Chief Financial Officer (Principal Financial Officer) |
||