SEC Filing - Aterian

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10-Q

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, 2022


☐	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, 2022, the registrant had 80,870,618 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Stockholder’s Equity	7
	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	57
Item 4.	Controls and Procedures	57
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
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		71

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:

•

our ability to continue as a going concern

•

the potential impact of the COVID-19 global pandemic, the Russian invasion of Ukraine and rising tensions between China and Taiwan on our business, revenue and financial condition, including our supply chain, our operations and our research and development;

•

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

•

our ability to successfully manage supply chain risks;

•

our predictions about industry and market trends;

•

our ability to successfully expand internationally;

•

our ability to effectively manage our growth and future expenses;

•

our ability to identify, acquire, integrate and maintain the financial performance of 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.

Non-GAAP Financial Measures

In Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Quarterly Report on Form 10-Q (the “MD&A”), we present certain financial measures that are derived from our consolidated financial data but are not presented in our financial statements that are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). These measures are considered “non-GAAP financial measures” under the Securities and Exchange Commission’s rules. The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures are included in the “Non-GAAP Financial Measures” section of the MD&A.

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, 2021			September 30, 2022
ASSETS
CURRENT ASSETS:
Cash	$	30,317		$	25,997
Accounts receivable—net		10,478			4,933
Inventory		63,045			60,457
Prepaid and other current assets		21,034			10,459
Total current assets		124,874			101,846
PROPERTY AND EQUIPMENT—net		1,254			856
GOODWILL—net		119,941			—
OTHER INTANGIBLES—net		64,955			56,265
OTHER NON-CURRENT ASSETS		2,546			2,564
TOTAL ASSETS	$	313,570		$	161,531
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Credit facility	$	32,845		$	23,919
Accounts payable		21,716			13,491
Seller notes		7,577			2,326
Contingent earn-out liability		3,983			—
Warrant liability		—			6,308
Accrued and other current liabilities		17,621			14,533
Total current liabilities		83,742			60,577
OTHER LIABILITIES		360			1,673
CONTINGENT EARN-OUT LIABILITY		5,240			—
Total liabilities		89,342			62,250
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS’ EQUITY:
Common stock, par value $0.0001 per share—500,000,000 shares authorized and 55,090,237 shares outstanding at December 31, 2021; 500,000,000 shares authorized and 69,540,749 shares outstanding at September 30, 2022		5			7
Additional paid-in capital		653,650			705,775
Accumulated deficit		(428,959	)		(604,946	)
Accumulated other comprehensive loss		(468	)		(1,555	)
Total stockholders’ equity		224,228			99,281
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	313,570		$	161,531

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,
	2021			2022			2021			2022
NET REVENUE	$	68,121		$	66,326		$	184,446		$	166,268
COST OF GOODS SOLD		33,946			36,135			91,464			81,118
GROSS PROFIT		34,175			30,191			92,982			85,150
OPERATING EXPENSES:
Sales and distribution		32,337			33,792			96,716			88,632
Research and development		2,767			1,706			7,220			4,582
General and administrative		10,843			10,369			31,807			29,481
Impairment loss on goodwill		—			90,921			—			119,941
Impairment loss on intangibles		—			3,118			—			3,118
Change in fair value of contingent earn-out liabilities		(4,245	)		(774	)		(11,949	)		(5,240	)
TOTAL OPERATING EXPENSES:		41,702			139,132			123,794			240,514
OPERATING LOSS		(7,527	)		(108,941	)		(30,812	)		(155,364	)
INTEREST EXPENSE—net		2,786			904			11,877			2,043
GAIN ON EXTINGUISHMENT OF SELLER NOTE		—			—			—			(2,012	)
LOSS ON INITIAL ISSUANCE OF EQUITY		—			12,834			—			18,669
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	)		(5,528	)		26,455			2,365
LOSS ON INITIAL ISSUANCE OF WARRANT		—			—			20,147			—
OTHER EXPENSE (INCOME)		5			(174	)		43			(199	)
LOSS BEFORE INCOME TAXES		(110,535	)		(116,977	)		(229,351	)		(176,230	)
PROVISION FOR (BENEFIT FROM) INCOME TAXES		21			(75	)		64			(243	)
NET LOSS	$	(110,556	)	$	(116,902	)	$	(229,415	)	$	(175,987	)
Net loss per share, basic and diluted	$	(3.13	)	$	(1.81	)	$	(7.55	)	$	(2.78	)
Weighted-average number of shares outstanding, basic and diluted		35,359,999			64,648,650			30,383,375			63,397,196

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,
	2021			2022			2021			2022
NET LOSS	$	(110,556	)	$	(116,902	)	$	(229,415	)	$	(175,987	)
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustments		(259	)		(485	)		(305	)		(1,087	)
Other comprehensive loss		(259	)		(485	)		(305	)		(1,087	)
COMPREHENSIVE LOSS	$	(110,815	)	$	(117,387	)	$	(229,720	)	$	(177,074	)

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 September 30, 2021
	Common Stock					Additional Paid-in			Accumulated				Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount		Capital			Deficit				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	)		—		—			—				—			—
Exercise of stock options		32,927			—		17,399			—				—			17,399
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		635,296			(422,350	)			(296	)		212,655


	Three Months Ended September 30, 2022
	Common Stock					Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount		Capital		Deficit			Loss			Equity
BALANCE—July 1, 2022		69,219,384		$	7	$	689,955	$	(488,044	)	$	(1,070	)	$	200,848
Net loss		—			—		—		(116,902	)		—			(116,902	)
Issuance of shares of restricted common stock		329,968			—		—		—			—			—
Forfeiture of shares of restricted common stock		(31,965	)		—		—		—			—			—
Issuance of common stock		23,362			—		43		—			—			43
Loss on initial issuance of equity		—			—		12,834		—			—			12,834
Stock-based compensation expense		—			—		2,943		—