SEC Filing - Aterian

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ater-10q_20210930.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 September 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 November 4, 2021, the registrant had 53,528,757 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	9
	Notes to Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults Upon Senior Securities	68
Item 4.	Mine Safety Disclosures	68
Item 5.	Other Information	68
Item 6.	Exhibits	69
Signatures		72

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 continue as a going concern;

•

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 laws and regulations applying to our business, including new or modified laws and regulations;

•

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			September 30, 2021
ASSETS
CURRENT ASSETS:
Cash	$	26,718		$	37,470
Accounts receivable—net		5,747			9,292
Inventory		31,582			71,273
Prepaid and other current assets		11,111			12,831
Total current assets		75,158			130,866
PROPERTY AND EQUIPMENT—net		169			1,299
GOODWILL—net		47,318			118,619
OTHER INTANGIBLES—net		31,460			67,355
OTHER NON-CURRENT ASSETS		3,349			3,546
TOTAL ASSETS	$	157,454		$	321,685
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Credit facility	$	12,190		$	—
Accounts payable		14,856			24,640
Term loan		21,600			—
Seller notes		16,231			8,827
Contingent earn-out liability		1,515			14,886
Accrued and other current liabilities		8,340			18,177
Total current liabilities		74,732			66,530
OTHER LIABILITIES		1,841			379
CONTINGENT EARN-OUT LIABILITY		21,016			16,667
TERM LOANS		36,483			25,454
Total liabilities		134,072			109,030
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 50,049,660 shares outstanding at September 30, 2021		3			5
Additional paid-in capital		216,305			635,296
Accumulated deficit		(192,935	)		(422,350	)
Accumulated other comprehensive income (loss)		9			(296	)
Total stockholders’ equity		23,382			212,655
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	157,454		$	321,685

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 September 30,						Nine Months Ended September 30,
	2020			2021			2020			2021
NET REVENUE	$	58,783		$	68,121		$	144,212		$	184,446
COST OF GOODS SOLD		30,688			33,946			78,218			91,464
GROSS PROFIT		28,095			34,175			65,994			92,982
OPERATING EXPENSES:
Sales and distribution		18,944			32,337			51,472			96,716
Research and development		1,846			2,767			6,578			7,220
General and administrative		7,199			10,843			23,554			31,807
Change in fair value of contingent earn-out liabilities		—			(4,245	)		—			(11,949	)
TOTAL OPERATING EXPENSES:		27,989			41,702			81,604			123,794
OPERATING INCOME (LOSS)		106			(7,527	)		(15,610	)		(30,812	)
INTEREST EXPENSE—net		934			2,786			3,120			11,877
CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY		—			1,360			—			3,254
LOSS ON EXTINGUISHMENT OF DEBT		—			106,991			—			136,763
CHANGE IN FAIR VALUE OF WARRANT LIABILITY		—			(8,134	)		—			26,455
LOSS ON INITIAL ISSUANCE OF WARRANT		—			—			—			20,147
OTHER EXPENSE (INCOME)		(23	)		5			(4	)		43
LOSS BEFORE INCOME TAXES		(805	)		(110,535	)		(18,726	)		(229,351	)
PROVISION FOR INCOME TAXES		—			21			46			64
NET LOSS	$	(805	)	$	(110,556	)	$	(18,772	)	$	(229,415	)
Net loss per share, basic and diluted	$	(0.05	)	$	(3.13	)	$	(1.18	)	$	(7.55	)
Weighted-average number of shares outstanding, basic and diluted		17,090,050			35,359,999			15,903,517			30,383,375

See notes to condensed consolidated financial statements.

ATERIAN, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2021			2020			2021
NET LOSS	$	(805	)	$	(110,556	)	$	(18,772	)	$	(229,415	)
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustments		(19	)		(259	)		(28	)		(305	)
Other comprehensive loss		(19	)		(259	)		(28	)		(305	)
COMPREHENSIVE LOSS	$	(824	)	$	(110,815	)	$	(18,800	)	$	(229,720	)

See notes to condensed consolidated financial statements.

ATERIAN, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share data)

	For the Three Months Ended September 30, 2020
	Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Deficit			Income/(Loss)			Equity
BALANCE—July 1, 2020		17,763,164		2		152,948		(147,776	)		48			5,222
Net loss		—		—		—		(805	)		—			(805	)
Issuance of 3,860,710 shares of common stock in connection with follow-on public offering, including underwriter's over-allotment, net of offering costs and underwriter's discount		3,860,710		—		23,416		—			—			23,416
Stock-based compensation		—		—		4,582		—			—			4,582
Issuance of 10,000 shares of restricted common stock on July 13, 2020		10,000		—		49		—			—			49
Issuance of 95,500 shares of restricted common stock on July 20, 2020		95,500		—		—		—			—			—
Issuance of 22,700 shares of restricted common stock on September 30, 2020		22,700		—		—		—			—			—
Issuance of 25,000 warrants on August 18, 2020		—		—		204		—			—			204
Issuance of 90,000 shares of restricted common stock on August 10, 2020		90,000		—		760		—			—			760
Exercise of stock options		2,870		—		12								12
Other comprehensive loss		—		—		—		—			(19	)		(19	)
BALANCE—September 30, 2020		21,844,944	$	2	$	181,971	$	(148,581	)	$	29		$	33,421

	Three Months Ended September 30, 2021
	Common Stock					Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount		Capital			Deficit			Income (Loss)			Equity
BALANCE—July 1, 2021		35,734,767		$	3	$	487,605		$	(311,794	)	$	(37	)	$	175,777
Net loss		—			—		—			(110,556	)		—			(110,556	)
Issuance of common stock to High Trail		12,154,161			2		125,562			—			—			125,564
Reclassification of warrants to equity		—			—		17,065			—			—			17,065
Reclassification of warrants to liability		—			—		(21,260	)		—			—			(21,260	)
Issuance of shares of restricted common stock		125,055			—		—			—			—			—
Issuance of common stock related to exercise of warrants		1,879,368			—		—			—			—			—
Forfeiture of shares of restricted common stock		(22,026	)		—		—			—			—			—
Fair value of warrant modification on extinguishment		—			—		17,399			—			—			17,399
Exercise of stock options		32,927			—		—			—			—			—
Issuance of RSU issued to consultant		145,408			—		1,043			—			—			1,043
Stock-based compensation expense		—			—		7,882			—			—			7,882
Other comprehensive loss		—			—		—			—			(259	)		(259	)
BALANCE—September 30, 2021		50,049,660		$	5