UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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. ☒ 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). ☒ 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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of May 3, 2023, the registrant had
Table of Contents
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Page |
PART I. |
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Item 1. |
3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. |
37 |
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Item 4. |
37 |
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PART II. |
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Item 1. |
38 |
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Item 1A. |
38 |
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Item 2. |
41 |
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Item 3. |
42 |
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Item 4. |
42 |
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Item 5. |
42 |
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Item 6. |
43 |
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45 |
1
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, 2022, which was filed with the Securities and Exchange Commission (the SEC) on March 16, 2023. 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.
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
ATERIAN, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
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December 31, |
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March 31, |
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ASSETS |
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(unaudited) |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable, net |
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Inventory |
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Prepaid and other current assets |
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Total current assets |
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Property and equipment, net |
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Other intangibles, net |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Credit facility |
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$ |
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$ |
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Accounts payable |
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Seller notes |
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Accrued and other current liabilities |
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Total current liabilities |
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Other liabilities |
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Total liabilities |
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Stockholders' equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
3
ATERIAN, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data)
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Three Months Ended March 31, |
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2022 |
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2023 |
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Net revenue |
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$ |
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$ |
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Cost of good sold |
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Gross profit |
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Operating expenses: |
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Sales and distribution |
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Research and development |
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General and administrative |
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Impairment loss on goodwill |
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— |
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Impairment loss on intangibles |
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— |
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Change in fair value of contingent earn-out liabilities |
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( |
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— |
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Total operating expenses |
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Operating loss |
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( |
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( |
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Interest expense, net |
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Gain on extinguishment of seller note |
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( |
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— |
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Loss on initial issuance of equity |
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— |
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Change in fair value of warrant liability |
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Other (income) expense, net |
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( |
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Loss before income taxes |
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( |
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Provision for income taxes |
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— |
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Net loss |
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$ |
( |
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$ |
( |
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Net loss per share, basic and diluted |
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$ |
( |
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$ |
( |
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Weighted-average number of shares outstanding, basic and diluted |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
4
ATERIAN, INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(in thousands)
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Three Months Ended March 31, |
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2022 |
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2023 |
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Net loss |
$ |
( |
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$ |
( |
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Other comprehensive loss: |
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Foreign currency translation adjustments |
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( |
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Other comprehensive loss |
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( |
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Comprehensive loss |
$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
5
ATERIAN, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share and per share data)
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Three Months Ended March 31, 2022 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Equity |
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BALANCE—January 1, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net loss |
— |
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— |
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— |
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( |
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— |
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Issuance of shares of restricted common stock |
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— |
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— |
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— |
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— |
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— |
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Forfeiture of shares of restricted common stock |
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( |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for settlement of seller note |
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— |
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— |
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— |
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Issuance of common stock, net of issuance costs |
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— |
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— |
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Issuance of warrants in connection with offering |
— |
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— |
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( |
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— |
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— |
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( |
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Loss on initial issuance of equity |
— |
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— |
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— |
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— |
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Stock-based compensation expense |
— |
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— |
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— |
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— |
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Other comprehensive loss |
— |
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— |
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— |
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— |
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( |
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( |
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BALANCE—March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Three months ended March 31,2023 |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Equity |
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BALANCE—January 1, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net loss |
— |
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— |
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— |
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( |
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— |
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( |
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Issuance of shares of restricted common stock |
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— |
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— |
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— |
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— |
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— |
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Forfeiture of shares of restricted common stock |
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( |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock |
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— |
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— |
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— |
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Stock-based compensation expense |
— |
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— |
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— |
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— |
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Other comprehensive loss |
— |
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— |
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— |
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— |
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BALANCE—March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
6
ATERIAN, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
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Three Months Ended March 31, |
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2022 |
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2023 |
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OPERATING ACTIVITIES: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Provision for (recovery of) sales returns |
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( |
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Amortization of deferred financing cost and debt discounts |
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Stock-based compensation |
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Gain from decrease of contingent earn-out liability fair value |
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( |
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— |
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Change in inventory provisions |
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— |
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( |
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Loss in connection with the change in warrant fair value |
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Gain in connection with settlement of note payable |
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( |
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— |
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Loss on initial issuance of equity |
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— |
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Impairment loss on goodwill |
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— |
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Impairment loss on intangibles |
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— |
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Changes in assets and liabilities: |
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Accounts receivable |
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Inventory |
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( |
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Prepaid and other current assets |
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Accounts payable, accrued and other liabilities |
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( |
) |
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Cash used in operating activities |
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( |
) |
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( |
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INVESTING ACTIVITIES: |
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Purchase of fixed assets |
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( |
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( |
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Purchase of Step and Go assets |
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— |
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( |
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Cash used in investing activities |
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( |
) |
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( |
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FINANCING ACTIVITIES: |
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Proceeds from equity offering, net of issuance costs |
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— |
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Repayments on note payable to Smash |
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( |
) |
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( |
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Borrowings from MidCap credit facilities |
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Repayments for MidCap credit facilities |
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( |
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( |
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Insurance obligation payments |
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( |
) |
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( |
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Cash provided (used) by financing activities |
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( |
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Foreign currency effect on cash, cash equivalents, and restricted cash |
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( |
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Net change in cash and restricted cash for the year |
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( |
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Cash and restricted cash at beginning of year |
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Cash and restricted cash at end of year |
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$ |
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$ |
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RECONCILIATION OF CASH AND RESTRICTED CASH: |
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Cash |
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Restricted Cash—Prepaid and other current assets |
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Restricted cash—Other non-current assets |
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TOTAL CASH AND RESTRICTED CASH |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
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Cash paid for interest |
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$ |
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$ |
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NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Non-cash consideration paid to contractors |
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$ |
— |
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$ |
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Fair value of warrants issued in connection with equity offering |
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$ |
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$ |
— |
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Issuance of common stock for settlement of seller note |
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$ |
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$ |
— |
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Equity fundraising cost not paid |
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$ |
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$ |
— |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
7
Aterian, Inc.
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2023 (Unaudited)
(In thousands, except share and per share data)
Aterian, Inc. is a technology-enabled consumer products company that builds, acquires and partners with e-commerce brands. Aterian predominantly operates through online retail channels such as Amazon and Walmart, Inc. The Company operates its owned brands, which were either incubated or purchased, selling products in multiple categories, including home and kitchen appliances, kitchenware, heating, cooling and air quality appliances (dehumidifiers, humidifiers and air conditioners), health and beauty products and essential oils.
Headquartered in New Jersey, Aterian also maintains offices in China, Philippines, and Poland.
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 and negative cash flows for the foreseeable future until such time that we reach a scale of profitability to sustain our operations. In addition, our recent financial performance has been adversely impacted by the COVID-19 global pandemic and related global shipping disruption, in particular with respect to substantial increases in supply chain costs for shipping containers (See COVID-19 Pandemic and the Supply Chain below for additional details).
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 scale 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 three months ended March 31, 2023, we incurred a net loss of $
• 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, 2023, and expect to remain in compliance through at least March 31, 2024. However, with our short history of forecasting our business during the ongoing COVID-19 global pandemic, the current record global inflation and related global supply chain disruptions, 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 may 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 are continually exploring additional outside capital, specifically to fund our M&A growth strategy, there can be no assurance we will be able 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.
8
• The Company's plan to continue to closely monitor our operating forecast, our M&A strategy, pursue additional sources of outside capital on terms that are acceptable to us, and 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. If some or all of our plans prove unsuccessful, we may need to implement short-term changes to our operating plan, such as delaying expenditures, reducing investments in new products, delaying the development of our software, 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.
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.
COVID-19 Pandemic and the Supply Chain
During 2022, we were impacted by the COVID-19 pandemic and related global shipping disruption. Together these led to substantial increases in supply chain costs, in particular for shipping containers, which we rely on to import our goods, reduced the reliability and timely delivery of shipping containers and substantially increased our last mile shipping costs on our oversized goods, which are a material part of our business. The reduced reliability and delivery of such shipping containers forced us to spend more on premium shipping to ensure goods were delivered. Further, the global shipping disruption led us to increase our inventory on-hand in early 2022, including advance ordering and taking possession of inventory earlier than expected, impacting our working capital.
Third party last mile shipping partners, such as UPS and FedEx, continue to increase the cost of delivering goods to the end consumers as their delivery networks continue to be adjusted following the onset of COVID-19 pandemic. There remains significant uncertainty to consumer demand and buying habits as price increases related to raw materials, the importing of goods, including tariffs, and the cost of delivering goods to consumers has led to inflation across the U.S. and potentially reduced demand for our products.
We continue to consider the impact of the COVID-19 and the related supply chain disruptions on the assumptions and estimates used when preparing our Condensed Consolidated Financial Statements including inventory valuation, and the impairment of long-lived assets. These assumptions and estimates may change. If the economic conditions worsen beyond what is currently estimated by management, such future changes may have an adverse impact on our business, operations, financial results, and liquidity.
Basis of Presentation—The Condensed Consolidated Financial Statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Unaudited Interim Financial Information—The accompanying interim Condensed Consolidated Financial Statements are unaudited and have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary for the fair presentation of the Company's financial position as of March 31, 2023 and the results of its operations and its cash flows for the periods ended March 31, 2023 and 2022. The financial data and other information disclosed in these notes related to the three-month periods ended March 31, 2023 and 2022 are also unaudited. The results for the three-month periods ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods or any future year or period.
Use of Estimates—Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period covered by the financial statements and accompanying notes. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from those estimates.
Principles of Consolidation—The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
9
Restricted Cash—As of December 31, 2022, the Company has classified the following as restricted cash: $
As of March 31, 2023, the Company has classified the following as restricted cash: $
Inventory and Cost of Goods Sold—The Company’s inventory consists almost entirely of finished goods. The Company currently records inventory on its balance sheet on a first-in first-out basis, or net realizable value, if it is below the Company’s recorded cost. The Company’s costs include the amounts it pays manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from its manufacturers to its warehouses, as applicable. The valuation of our inventory requires us to make judgments, based on available information such as historical data, about the likely method of disposition, such as through sales to individual customers or liquidations, and expected recoverable values of each disposition category. These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future.
The “Cost of goods sold” line item in the Condensed Consolidated Statements of Operations consists of the book value of inventory sold to customers during the reporting period. When circumstances dictate that the Company use net realizable value as the basis for recording inventory, it bases its estimates on expected future selling prices less expected disposal costs.
Accounts Receivable—Accounts receivable are stated at historical cost less allowance for doubtful accounts. On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance or if any accounts should be written off based on a past history of write-offs, collections and current credit conditions. A receivable is considered past due if the Company has not received payments based on agreed-upon terms. The Company generally does not require any security or collateral to support its receivables. The Company performs ongoing evaluations of its customers and maintains an allowance for bad and doubtful receivables. As of December 31, 2022 and March 31, 2023, the Company had an allowance for doubtful accounts of $
Revenue Recognition—The Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). The Company derives its revenue from the sale of consumer products. The Company sells its products directly to consumers through online retail channels and through wholesale channels.
For direct-to-consumer sales, the Company considers customer order confirmations to be a contract with the customer. Customer confirmations are executed at the time an order is placed through third-party online channels. For wholesale sales, the Company considers the customer purchase order to be the contract.
For all of the Company’s sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment date. As a result, the Company has a present and unconditional right to payment and record the amount due from the customer in accounts receivable.
Revenue from consumer product sales is recorded at the net sales price (transaction price), which includes an estimate of future returns based on historical return rates. There is judgment in utilizing historical trends for estimating future returns. The Company’s refund liability for sales returns was $
The Company evaluated principal versus agent considerations to determine whether it is appropriate to record platform fees paid to Amazon as an expense or as a reduction of revenue. Platform fees are recorded as sales and distribution expenses and are not recorded as a reduction of revenue because it owns and controls all the goods before they are transferred to the customer. The Company can, at any time, direct Amazon, similarly, other third-party logistics providers (“Logistics Providers”), to return the Company’s inventory to any location specified by the Company. It is the Company’s responsibility to make customers whole following any returns made by customers directly to Logistic Providers and the Company retains the back-end inventory risk. Further, the Company is subject to credit risk (i.e., credit card charge backs), establishes prices of its products, can determine who fulfills the goods to the customer (Amazon or the Company) and can limit quantities or stop selling the goods at any time. Based on these considerations, the Company is the principal in this arrangement.
10
Net Revenue by Category. The following table sets forth the Company’s net revenue disaggregated by sales channel and geographic region based on the billing addresses of its customers:
|
|
Three Months Ended March 31, 2022 |
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|
(in thousands) |
|
|||||||||
|
|
Direct |
|
|
Wholesale/Other |
|
|
Total |
|
|||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other |
|
|
|
|
|
— |
|
|
|
|
||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
Three Months Ended March 31, 2023 |
|
|||||||||
|
|
(in thousands) |
|
|||||||||
|
|
Direct |
|
|
Wholesale/Other |
|
|
Total |
|
|||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other |
|
|
|
|
|
— |
|
|
|
|
||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||