ater20240331

ater20240331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38937

Aterian, Inc.

(Exact name of registrant as specified in its charter)

Delaware		83-1739858
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

350 Springfield Avenue, Suite 200 Summit, NJ		07901
(Address of principal executive offices)		(Zip Code)

(347) 676-1681

(Registrant’s telephone number, including area code)

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.0001 par value per share		ATER		The Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 8, 2024, the registrant had 8,435,679 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statements of Stockholder’s Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
Signatures		29

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Many of these statements can be identified by the use of terminology such as “believes,” “expects,” “intends,” “anticipates,” “plans,” “may,” “will,” “could,” "would,” “projects,” “continues,” “estimates,” “potential,” “opportunity” or the negative versions of these terms and other similar expressions. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q as well as information provided elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (the SEC) on March 19, 2024. You should carefully consider that information before you make an investment decision.

You should not place undue reliance on these types of forward-looking statements, which speak only as of the date that they were made. These forward-looking statements are based on the beliefs and assumptions of the Company’s management based on information currently available to management and should be considered in connection with any written or oral forward-looking statements that the Company may issue in the future as well as other cautionary statements the Company has made and may make. Except as required by law, the Company does not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Quarterly Report on Form 10-Q to reflect later events or circumstances or the occurrence of unanticipated events.

The discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related Notes thereto included in this Quarterly Report on Form 10-Q.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ATERIAN, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

	*December 31, 2023*			*March 31, 2024*
ASSETS
Current assets:
Cash	$	20,023		$	17,545
Accounts receivable, net		4,225			2,382
Inventory		20,390			18,520
Prepaid and other current assets		4,998			5,138
Total current assets		49,636			43,585
Property and equipment, net		775			748
Other intangibles, net		11,320			10,955
Other non-current assets		138			386
Total assets	$	61,869		$	55,674
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Credit facility	$	11,098		$	9,396
Accounts payable		4,190			4,058
Seller notes		1,049			903
Accrued and other current liabilities		9,110			7,989
Total current liabilities		25,447			22,346
Other liabilities		391			378
Total liabilities		25,838			22,724
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $0.0001 par value, 500,000,000 shares authorized and 7,508,246 and 7,656,044 shares outstanding at December 31, 2023 and March 31, 2024, respectively (*)		9			9
Additional paid-in capital		736,675			738,805
Accumulated deficit		(699,815	)		(704,977	)
Accumulated other comprehensive loss		(838	)		(887	)
Total stockholders’ equity		36,031			32,950
Total liabilities and stockholders' equity	$	61,869		$	55,674

(*) The number of shares and per share amounts have been retroactively restated to reflect the one for twelve (1 for 12) reverse stock split, which was effective on March 22, 2024.

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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ATERIAN, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

	*Three Months Ended March 31,*
	*2023*			*2024*
Net revenue	$	34,879		$	20,214
Cost of goods sold		15,782			7,046
Gross profit		19,097			13,168
Operating expenses:
Sales and distribution		20,226			13,214
Research and development		1,247			—
General and administrative		5,959			5,232
Impairment loss on intangibles		16,660			—
Total operating expenses		44,092			18,446
Operating loss		(24,995	)		(5,278	)
Interest expense, net		371			323
Change in fair value of warrant liability		354			(517	)
Other expense, net		54			7
Loss before income taxes		(25,774	)		(5,091	)
Provision for income taxes		26			71
Net loss	$	(25,800	)	$	(5,162	)
Net loss per share, basic and diluted	$	(4.03	)	$	(0.76	)
Weighted-average number of shares outstanding, basic and diluted (*)		6,394,905			6,789,955

(*) The number of shares and per share amounts have been retroactively restated to reflect the one for twelve (1 for 12) reverse stock split, which was effective on March 22, 2024.

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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ATERIAN, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

	*Three Months Ended March 31,*
	*2023*			*2024*
Net loss	$	(25,800	)	$	(5,162	)
Other comprehensive loss:
Foreign currency translation adjustments		129			(49	)
Other comprehensive loss		129			(49	)
Comprehensive loss	$	(25,671	)	$	(5,211	)

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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ATERIAN, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share and per share data)

	*Three Months Ended March 31, 2023*
	**Common Stock()***					*Additional Paid-in*		*Accumulated*			*Accumulated Other Comprehensive*			*Total Stockholders’*
	*Shares*			*Amount*		*Capital*		*Deficit*			*Loss*			*Equity*
BALANCE—January 1, 2023		6,729,533		$	8	$	728,339	$	(625,251	)	$	(1,144	)	$	101,952
Net loss		—			—		—		(25,800	)		—			(25,800	)
Issuance of shares of restricted common stock		55,678			—		—		—			—			—
Forfeiture of shares of restricted common stock		(48,860	)		—		—		—			—			—
Issuance of common stock		25,000			—		290		—			—			290
Stock-based compensation expense		—			—		2,196		—			—			2,196
Other comprehensive income		—			—		—		—			129			129
BALANCE—March 31, 2023		6,761,351		$	8	$	730,825	$	(651,051	)	$	(1,015	)	$	78,767

(*) The number of shares and per share amounts have been retroactively restated to reflect the one for twelve (1 for 12) reverse stock split, which was effective on March 22, 2024.

	*Three Months Ended March 31, 2024*
	**Common Stock()***					*Additional Paid-in*		*Accumulated*			*Accumulated Other Comprehensive*			*Total Stockholders’*
	*Shares*			*Amount*		*Capital*		*Deficit*			*Loss*			*Equity*
BALANCE—January 1, 2024		7,508,246		$	9	$	736,675	$	(699,815	)	$	(838	)	$	36,031
Net loss		—			—		—		(5,162	)		—			(5,162	)
Issuance of shares of restricted common stock		11,668			—		—		—			—			—
Forfeiture of shares of restricted common stock		(42,650	)		—		—		—			—			—
Issuance of common stock		178,780			—		670		—			—			670
Stock-based compensation expense		—			—		1,460		—			—			1,460
Other comprehensive income		—			—		—		—			(49	)		(49	)
BALANCE—March 31, 2024		7,656,044		$	9	$	738,805	$	(704,977	)	$	(887	)	$	32,950

(*) The number of shares and per share amounts have been retroactively restated to reflect the one for twelve (1 for 12) reverse stock split, which was effective on March 22, 2024.

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ATERIAN, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	*Three Months Ended March 31,*
	*2023*			*2024*
OPERATING ACTIVITIES:
Net loss	$	(25,800	)	$	(5,162	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		1,762			428
Provision for sales returns		(223	)		64
Amortization of deferred financing cost and debt discounts		106			83
Stock-based compensation		2,317			1,667
Change in deferred tax balance		—			(5	)
Change in inventory provisions		(1,023	)		(976	)
Loss (gain) in connection with the change in warrant fair value		354			(517	)
Impairment loss on intangibles		16,660			—
Changes in assets and liabilities:
Accounts receivable		1,028			1,843
Inventory		4,312			2,846
Prepaid and other assets		751			249
Accounts payable, accrued and other liabilities		(7,661	)		(526	)
Cash used in operating activities		(7,417	)		(6	)
INVESTING ACTIVITIES:
Purchase of intangibles and fixed assets		(33	)		(36	)
Purchase of Step and Go assets		(125)			—
Purchase of minority equity investment		—			(200	)
Cash used in investing activities		(158	)		(236	)
FINANCING ACTIVITIES:
Repayments on note payable to Smash		(398	)		(153	)
Borrowings from MidCap credit facilities		20,549			11,453
Repayments for MidCap credit facilities		(22,602	)		(13,244	)
Insurance obligation payments		(534	)		(254	)
Cash provided (used) by financing activities		(2,985	)		(2,198	)
Foreign currency effect on cash, cash equivalents, and restricted cash		129			(49	)
Net change in cash and restricted cash for the year		(10,431	)		(2,489	)
Cash and restricted cash at beginning of year		46,629			22,195
Cash and restricted cash at end of year	$	36,198		$	19,706
RECONCILIATION OF CASH AND RESTRICTED CASH:
Cash		33,911			17,545
Restricted Cash—Prepaid and other current assets		2,158			2,032
Restricted cash—Other non-current assets		129			129
TOTAL CASH AND RESTRICTED CASH	$	36,198		$	19,706

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	538		$	402
Cash paid for taxes	$	—		$	3
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash consideration paid to contractors	$	321		$	620
Non-cash minority equity investment	$	—		$	50

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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Aterian, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2024 (Unaudited)

(In thousands, except share and per share data)

1.	COMPANY OVERVIEW

Aterian, Inc. (the "Company") is 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.

Headquartered in New Jersey, Aterian also maintains offices in China, Philippines, and the United Kingdom.

Liquidity and Going Concern

As an emerging growth company in the early commercialization stage of its lifecycle, 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 intend to focus 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 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 three months ended March 31, 2024, we incurred a net loss of $5.2 million and used net cash flows in our operations of $6 thousand. In addition, as of March 31, 2024, we had unrestricted cash and cash equivalents of $17.5 million available to fund our operations and an accumulated deficit of $705.0 million.

• We are required to remain in compliance with certain financial covenants required by the MidCap Credit facility (See Note 6, Credit Facility, Term Loans and Warrants). We were in compliance with these financial covenants as of March 31, 2024, and expect to remain in compliance through at least March 31, 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. However, with our short history of forecasting our business following the onset of the COVID-19 global pandemic, the current global inflation, related global supply chain disruptions and uncertain consumer demand, 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 initiated two restructuring programs over the last 12 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 three months ending March 31, 2024, we extended the term with Midcap Credit Facility until December 2026 (See Note 6, 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 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 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”).

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 c

SEC Form 10-Q filed by Aterian Inc.