SEC Filing - Aterian

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ater-10q_20210630.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 June 30, 2021


☐	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)
37 East 18th Street, 7th Floor New York, NY		10003
(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 August 4, 2021, the registrant had 35,734,767 shares of common stock, $0.0001 par value per share, outstanding.

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	8
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	65
Signatures		69

Special 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 of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•

the potential impact of the COVID-19 global pandemic on our business, revenue and financial condition, including our supply chain and our operations;

•

our expectation that consumer spending will continue to shift online, and that such shift will continue even after the COVID-19 global pandemic ends;

•

our future financial performance, including our revenue, costs of goods sold and operating expenses;

•

our ability to achieve, sustain and grow profitability;

•

the sufficiency of our cash to meet our liquidity and operational needs and to execute our growth strategies, including potential acquisitions;

•

our ability to maintain the security and availability of our technology platform, including our AIMEE (Artificial Intelligence Marketplace e-Commerce Engine) software platform;

•

our ability to successfully launch new products, including our ability to successfully manage supply chain risks;

•

our ability to identify, complete and integrate merger and acquisition transactions;

•

our ability to successfully execute and grow net revenue and profitability from sales of personal protective equipment (“PPE”);

•

our predictions about industry and market trends;

•

our ability to successfully expand internationally;

•

our ability to effectively manage our growth and future expenses;

•

our estimated total addressable market, including for potential acquisitions;

•

our ability to maintain, protect and enhance our intellectual property, including our AIMEE software platform;

•

our ability to comply with modified or new laws and regulations applying to our business;

•

our ability to attract and retain key personnel;

•

our ability to successfully defend litigation brought against us or to pursue litigation; and

•

the increased expenses and obligations associated with being a public company.

We caution you that the foregoing list may not contain all the forward-looking statements made in this Quarterly Report on Form 10-Q.

We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section of this Quarterly Report on Form 10-Q entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a highly competitive and challenging environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected, or that the plans, intentions or expectations disclosed, in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those expressed or implied by the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q, new information or the occurrence of unanticipated events, except as required by law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, other strategic transactions or investments we may make or enter into.

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, 2020			June 30, 2021
ASSETS
CURRENT ASSETS:
Cash	$	26,718		$	61,934
Accounts receivable—net		5,747			16,263
Inventory		31,582			75,514
Prepaid and other current assets		11,111			12,716
Total current assets		75,158			166,427
PROPERTY AND EQUIPMENT—net		169			1,350
GOODWILL—net		47,318			118,619
OTHER INTANGIBLES—net		31,460			69,115
OTHER NON-CURRENT ASSETS		3,349			3,552
TOTAL ASSETS	$	157,454		$	359,063
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Credit facility	$	12,190		$	—
Accounts payable		14,856			39,455
Term loan		21,600			72,791
Seller notes		16,231			9,955
Contingent earn-out liability		1,515			14,812
Accrued and other current liabilities		8,340			24,673
Total current liabilities		74,732			161,686
OTHER LIABILITIES		1,841			614
CONTINGENT EARN-OUT LIABILITY		21,016			20,986
TERM LOANS		36,483			—
Total liabilities		134,072			183,286
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS’ EQUITY:
Common stock, par value $0.0001 per share—500,000,000 shares authorized and 27,074,791 shares outstanding at December 31, 2020; 500,000,000 shares authorized and 35,734,767 shares outstanding at June 30, 2021		3			3
Additional paid-in capital		216,305			487,605
Accumulated deficit		(192,935	)		(311,794	)
Accumulated other comprehensive income		9			(37	)
Total stockholders’ equity		23,382			175,777
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	157,454		$	359,063

See notes to condensed consolidated financial statements.

ATERIAN, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2021			2020			2021
NET REVENUE	$	59,800		$	68,188		$	85,428		$	116,324
COST OF GOODS SOLD		32,200			35,445			47,530			57,518
GROSS PROFIT		27,600			32,743			37,898			58,806
OPERATING EXPENSES:
Sales and distribution		18,618			39,310			32,528			64,379
Research and development		2,451			2,324			4,732			4,452
General and administrative		8,352			9,990			16,355			20,965
Change in fair value of contingent earn-out liabilities		—			(23,349	)		—			(7,704	)
TOTAL OPERATING EXPENSES:		29,421			28,275			53,615			82,092
OPERATING INCOME (LOSS)		(1,821	)		4,468			(15,717	)		(23,286	)
INTEREST EXPENSE—net		1,077			4,675			2,186			9,092
CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY		—			1,894			—			1,894
LOSS ON EXTINGUISHMENT OF DEBT		—			29,772			—			29,772
CHANGE IN FAIR VALUE OF WARRANT LIABILITY		—			4,387			—			34,589
LOSS ON INITIAL ISSUANCE OF WARRANT		—			—			—			20,147
OTHER EXPENSE (INCOME)		(6	)		5			19			38
LOSS BEFORE INCOME TAXES		(2,892	)		(36,265	)		(17,922	)		(118,818	)
PROVISION FOR INCOME TAXES		45			41			45			41
NET LOSS	$	(2,937	)	$	(36,306	)	$	(17,967	)	$	(118,859	)
Net loss per share, basic and diluted	$	(0.19	)	$	(1.23	)	$	(1.17	)	$	(4.26	)
Weighted-average number of shares outstanding, basic and diluted		15,425,312			29,547,781			15,308,966			27,886,582

See notes to condensed consolidated financial statements.

ATERIAN, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2021			2020			2021
NET LOSS	$	(2,937	)	$	(36,306	)	$	(17,967	)	$	(118,859	)
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments		(7	)		(76	)		(9	)		(46	)
Other comprehensive loss		(7	)		(76	)		(9	)		(46	)
COMPREHENSIVE LOSS	$	(2,944	)	$	(36,382	)	$	(17,976	)	$	(118,905	)

See notes to condensed consolidated financial statements.

ATERIAN, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended June 30, 2020
	Common Stock					Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount		Capital		Deficit			Income/(Loss)			Equity
BALANCE—April 1, 2020		17,763,994		$	2	$	147,777	$	(144,839	)	$	55		$	2,995
Net loss		—			—		—		(2,937	)		—			(2,937	)
Forfeiture of 134,366 shares of restricted common stock		(134,366	)		—		—		—			—			—
Issuance of 134,364 shares of restricted common stock		134,364			—		—		—			—			—
Shares of restricted common stock retired in connection with vesting		(828	)		—		—		—			—			—
Stock-based compensation		—			—		5,171		—			—			5,171
Other comprehensive loss		—			—		—		—			(7	)		(7	)
BALANCE—June 30, 2020		17,763,164		$	2	$	152,948	$	(147,776	)	$	48		$	5,222

	Three Months Ended June 30, 2021
	Common Stock					Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount		Capital			Deficit			Income (Loss)			Equity
BALANCE—April 1, 2021		30,590,796		$	3	$	313,911		$	(275,488	)	$	39		$	38,465
Net loss		—			—		—			(36,306	)		—			(36,306	)
Issuance of warrants to High Trail		—			—		39,016			—			—			39,016
Issuance of common stock to High Trail		130,000			—		4,056			—			—			4,056
Reclassification of warrants to equity		—			—		80,022			—			—			80,022
Issuance of 2,666,667 shares of common stock net of professional fees and offering costs		2,666,667			—		36,735			—			—			36,735
Issuance of 704,548 shares of common stock in connection with asset purchase agreement		704,548			—		11,075			—			—			11,075
Issuance of 1,895,642 shares of restricted common stock		1,895,642			—		—			—			—			—
Issuance of common stock related to exercise of warrants		7,180			—		112			—			—			112
Forfeiture of 258,971 shares of restricted common stock		(258,971	)		—		—			—			—			—
Cancellation of RSU issued to consultant		(1,095	)		—		(57	)		—			—			(57	)
Stock-based compensation expense		—			—		2,735			—			—			2,735
Other comprehensive loss		—			—		—			—			(76	)		(76	)
BALANCE—June 30, 2021		35,734,767		$	3	$	487,605		$	(311,794	)	$	(37	)	$	175,777

ATERIAN, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share and per share data)

	Six Months Ended June 30, 2020
	Common Stock					Additional Paid-in		Accumulated			Accumulated Other Comprehensive		Total Stockholders’
	Shares			Amount		Capital		Deficit			Income/(Loss)		Equity
BALANCE—January 1, 2020		17,736,649		$	2	$	140,477	$	(129,809	)	$	57	$	10,727
Net loss		—			—		—		(17,967	)		—		(17,967	)
Issuance of 439,145 shares of restricted common stock on March 12, 2020		439,145			—		—		—			—		—
Forfeiture of 371,329 shares of restricted common stock		(371,329	)		—		—		—			—		—
Forfeiture of 134,366 shares of restricted common stock		(134,366	)		—		—		—			—		—
Issuance of 134,364 shares of restricted common stock		134,364			—		—		—			—		—
Stock-based compensation		—			—		12,610		—			—