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What changed in Aterian, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Aterian, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+200 added−259 removedSource: 10-K (2025-03-25) vs 10-K (2024-03-19)

Top changes in Aterian, Inc.'s 2024 10-K

200 paragraphs added · 259 removed · 146 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

66 edited+24 added−21 removed142 unchanged
Biggest changeGiven the uncertainty regarding the scope and duration of these trade actions by the U.S. government or other countries, as well as the potential for additional trade actions, the impact on our operations and results remains uncertain.
Biggest changeGiven the uncertainty regarding the scope and duration of these trade actions by the U.S. government or other countries, as well as the potential for additional trade actions, the impact on our operations and results remains uncertain. 9 Table of Contents Risks Relating to the Ownership of our Common Stock We no longer qualify as an “emerging growth company” as of December 31, 2024 and, as a result, we are no longer able to avail ourselves of certain reduced disclosure requirements applicable to emerging growth companies.
The principal raw materials used by our third-party suppliers to manufacture our products are plastic, glass, steel, copper, aluminum and packaging materials. We believe adequate quantities of raw materials are available from various suppliers. We use a combination of Amazon warehouses, other third-party warehouse and logistics partners to fulfill direct-to-consumer orders, through agreements or terms of services.
The principal raw materials used by our third-party suppliers to manufacture our products are plastic, glass, steel, copper, aluminum and packaging materials. We believe adequate quantities of raw materials are available from various suppliers. We use a combination of Amazon warehouses, other third-party warehouses and logistics partners to fulfill direct-to-consumer orders, through agreements or terms of services.
Other events that we do not currently anticipate or that we currently deem immaterial may also affect our results of operations and financial condition. Risks Relating to Our Business We have historically operated at a loss and we may never achieve or sustain profitability or positive cash flows.
Other events that we do not currently anticipate or that we currently deem immaterial may also affect our results of operations and financial condition. Risks Relating to Our Business We have historically operated at a loss and we may never achieve or sustain continuous profitability or positive cash flows.
We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider them.
Risk Factors. We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider them.
Our officers and directors periodically sell shares of common stock to cover tax liabilities from prior restricted stock awards. Future sales and issuances of our capital stock, or the perception that such sales may occur, could cause our stock price to decline.
Our employees, officers and directors periodically sell shares of common stock to cover tax liabilities from prior restricted stock awards. Future sales and issuances of our capital stock, or the perception that such sales may occur, could cause our stock price to decline.
To support our business growth, we will likely require additional funds to maintain, grow and respond to business challenges. Accordingly, from time to time we need to engage in equity or debt financings to secure additional funds.
To support our business growth, we will likely require additional funds to maintain and grow our business and to respond to business challenges. Accordingly, from time to time we may need to engage in equity or debt financings to secure additional funds.
Our systems are not fully redundant and our disaster recovery planning may not be sufficient. 7 Table of Contents Risks Relating to the Litigation and Government Regulation Claims, litigation, government investigations, product liability and recalls, and other proceedings may adversely affect our business, operating results, financial condition, and cash flows.
Our systems are not fully redundant and our disaster recovery planning may not be sufficient. 8 Table of Contents Risks Relating to the Litigation and Government Regulation Claims, litigation, government investigations, product liability and recalls, and other proceedings may adversely affect our business, operating results, financial condition, and cash flows.
In the future, if our common stock remains below the continued listing standard of $1.00 per share or otherwise fails to satisfy any of the Nasdaq continued listing requirements, and if we are unable to cure such deficiency during any subsequent cure period, our common stock could be delisted from the Nasdaq.
In the future, if our Common Stock falls below the continued listing standard of $1.00 per share or otherwise fails to satisfy any of the Nasdaq continued listing requirements, and if we are unable to cure such deficiency during any subsequent cure period, our Common Stock could be delisted from the Nasdaq.
As a result of competition, our product offerings, whether in new or existing markets, may not be successful, we may fail to gain or may lose business, and we may be required to increase our marketing spending or lower prices, either of which could materially impact our operating results.
As a result of competition, our product offerings, whether in new or existing markets, may not be successful, we may fail to gain or may lose business, and we may be required to increase our marketing spending or lower prices, any of which could materially impact our operating results.
We may be unsuccessful in making investments and in making and integrating acquisitions or in maintaining or growing the financial performance of any investees or acquired businesses which may adversely affect our business and operating results and could impact the price of our common stock and result in dilution to shareholders.
We may be unsuccessful in making investments, unable to make or unsuccessful in integrating acquisitions or in maintaining or growing the financial performance of any investees or acquired businesses which may adversely affect our business and operating results and could impact the price of our common stock and result in dilution to shareholders.
Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year-ended December 31, 2023, that raised substantial doubt about our ability to continue as a going concern.
Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2024, that raised substantial doubt about our ability to continue as a going concern.
With our current mix of environmental appliances, the sales of those products tend to be significantly higher in the summer season. Further, our small kitchen appliances and accessories tend to have higher sales during the fourth quarter, which includes Thanksgiving and the December holiday season.
With our current mix of environmental appliances, the sales of those products tend to be significantly higher in the summer season. Further, our essential oils, small kitchen appliances and accessories tend to have higher sales during the fourth quarter, which includes Thanksgiving and the December holiday season.
In addition, we may not be able to continue to acquire the financing needed in order to pursue future acquisitions or similar transactions or we may not be able to raise sufficient equity or equity-like capital without first seeking stockholder approval, which could limit our ability to complete such financing, or to complete any related transaction on a timely basis.
In addition, we may not be able to acquire the financing needed in order to pursue future acquisitions or similar transactions or we may not be able to raise sufficient equity or equity-like capital without first seeking stockholder approval, which could limit our ability to complete such financing, or to complete any related transaction on a timely basis or at all.
During the year-ended December 31, 2023, the Company implemented a strategy of rationalizing certain less profitable products and reducing its product offering. Further, on July 26, 2023, Yaniv Sarig resigned as CEO of Aterian, and Arturo Rodriguez and Joseph Risico were promoted to Co-CEOs of Aterian.
During the year ended December 31, 2023, the Company implemented a strategy of rationalizing certain less profitable products and reducing its product offering. Further, on July 26, 2023, Yaniv Sarig resigned as CEO of Aterian, and Arturo Rodriguez and Joseph Risico were promoted to Co-CEOs of Aterian. Further on June 26, 2024, Mr. Risico resigned and Mr.
Existing stockholder sales might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate, or at all. There is no guarantee of a continuing public market for you to resell our common stock.
Existing stockholder sales might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate, or at all. 10 Table of Contents There is no guarantee of a continuing public market for you to resell our common stock.
We use a combination of technology in various aspects of our business including for new product launches, forecasting, fulfillment and the automation of sales and marketing of our products, among other things.
We use a combination of technologies in various aspects of our business including for new product launches, forecasting, fulfillment and the automation of sales and marketing of our products, among other things.
Our growth strategy has resulted in operating losses and negative cash flows from operations that raised substantial doubt about our ability to continue as a going concern.
Our growth strategy has resulted in operating losses and negative cash flows from operations that raise substantial doubt about our ability to continue as a going concern.
We have had to rely on a combination of cash flow from operations and new capital in order to sustain our business. Despite the fact that we have raised significant capital, there can be no assurance that we will ever achieve profitability.
We have had to rely on a combination of cash flow from operations and new capital in order to sustain our business. Despite the fact that we have raised significant capital, there can be no assurance that we will ever achieve long-term continuous profitability.
Further, in the event any of our seller accounts or product listings are suspended, or our product listings are required to be changed, for noncompliance or any other reason, our reinstatement efforts may take significant time and attention or could fail, which could have a material adverse effect on our business, operating results, financial condition, and cash flows.
Further, in the event any of our seller accounts or product listings are suspended, or our product listings are required to be changed, for noncompliance or any other reason, including UPC brand mismatches, our reinstatement efforts may take significant time and attention or could fail, which could have a material adverse effect on our business, operating results, financial condition, and cash flows.
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.
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. On April 8, 2024, Aterian, Inc.
Further we and our independent registered public accounting firm have expressed substantial doubt about our ability to continue as a going concern. We have experienced significant after tax losses for the years-ended December 31, 2022 and 2023, respectively.
Further we and our independent registered public accounting firm have expressed substantial doubt about our ability to continue as a going concern. We have experienced significant after-tax losses for the years ended December 31, 2024 and 2023.
In 2022 and 2023, approximately 89% and 88% of our revenue was through the Amazon sales platform, respectively. Seasonality Our individual product categories are typically affected by seasonal sales trends primarily resulting from the timing of the summer season for certain of our environmental appliance products and the fall and holiday season for our small kitchen appliances and accessories.
In 2023 and 2024, approximately 88% and 92% of our revenue was through the Amazon sales platform, respectively. Seasonality Our individual product categories are typically affected by seasonal sales trends primarily resulting from the timing of the summer season for certain of our environmental appliance products and the fall and holiday season for our small kitchen appliances and accessories.
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 wellness products and essential oils. Our primary brands include Squatty Potty; hOmeLabs; Mueller; Pursteam; Healing Solutions; and Photo Paper Direct.
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. Our primary brands include Squatty Potty, HomeLabs, Mueller Living, PurSteam, Healing Solutions, and Photo Paper Direct ("PPD").
We are continually evaluating the impact of the current and any possible new tariffs on our supply chain, costs and sales and are considering strategies to mitigate such impact, including reviewing sourcing options, filing requests for exclusion from the tariffs for certain product lines and working with our suppliers.
We are continually evaluating the impact of the current and any possible new tariffs on our supply chain, costs and sales and are considering strategies to mitigate such impact, including reviewing sourcing options in the US and other regions, filing requests for exclusion from the tariffs for certain product lines and working with our suppliers.
If we are unable to continue as a going concern or maintain our financial covenants with our lenders, we may have to make significant changes to our operating plan, such as delay expenditures, reduce investments in new products, delay the development of our software, reduce our sale and distribution infrastructure, or significantly reduce our business.
If we are unable to continue as a going concern or maintain our financial covenants with our lenders, we may have to make significant changes to our operating plan, such as delay expenditures, reduce investments in new products, reduce our sale and distribution infrastructure, or significantly reduce our business.
In certain instances, we have been unable to maintain such social proof, and we may be unable to maintain such social proof in the future, or competitors may be able to attain better social proof for their products which could have a material impact on our operating results.
In certain instances, we have been unable to maintain such social proof, and we may be unable to maintain such social proof in the future, or competitors may be able to attain better social proof for their products which could result in reduced market share and have a material impact on our operating results.
In addition, our costs have increased historically and may increase further in future periods, which could negatively affect our future operating results and ability to achieve and sustain profitability.
In addition, our costs have increased historically and may increase further in future periods, which could negatively affect our future operating results and ability to achieve and sustain long-term ongoing profitability.
As a result of this change in leadership, we enacted a number of strategic initiatives that could impact certain aspects of how we currently do business including a further rationalization of our product portfolio to improve our operations and potential future profitability, a change in our technology infrastructure and a reduction of our workforce .
Rodriguez was promoted to sole CEO. As a result of this change in leadership, we enacted a number of strategic initiatives that could impact certain aspects of how we currently do business including a further rationalization of our product portfolio to improve our operations and potential future profitability, a change in our technology infrastructure and a reduction of our workforce.
We provide competitive compensation, which includes a focus on stock-based compensation, and benefits to attract and retain key personnel, while also providing a safe, inclusive and respectful workplace. As of December 31, 2023, we had 114 full-time employees, and 52 independent contractors.
We provide competitive compensation, which includes a focus on stock-based compensation, and benefits to attract and retain key personnel, while also providing a safe, inclusive and respectful workplace. As of December 31, 2024, we had 97 full-time employees, and 28 independent contractors.
In addition, there are many other factors that have caused and may continue to cause the market price of our common stock to fluctuate, including: actual or anticipated variations in our quarterly operating results, or the operating results, financial condition, and cash flows of companies perceived to be similar to us; deterioration and decline in general economic, industry and/or market conditions; changes in estimates of our financial results or recommendations by equity research analysts, including any decision by equity research analysts to initiate or discontinue coverage; announcements by us or our competitors of significant acquisitions, strategic alliances or joint ventures; and changes in our capital structure, such as future issuances of securities or the incurrence of additional debt. 8 Table of Contents We may be limited by our ability to raise the funding we need to support our growth or to maintain our existing business.
In addition, there are many other factors that have caused and may continue to cause the market price of our common stock to fluctuate, including: actual or anticipated variations in our quarterly operating results, or the operating results, financial condition, and cash flows of companies perceived to be similar to us; deterioration and decline in general economic, industry and/or market conditions; changes in estimates of our financial results or recommendations by equity research analysts, including any decision by equity research analysts to initiate or discontinue coverage; announcements by us or our competitors of significant acquisitions, strategic alliances or joint ventures; and changes in our capital structure, such as future issuances of securities or the incurrence of additional debt.
Sales of a substantial number of such shares by these stockholders, or the perception that such sales will occur, may cause the market price of our common stock to decline.
Sales by these stockholders, or the perception that such sales will occur, may cause the market price of our common stock to decline.
Future sales of our common stock by our insiders, or the perception that these sales may occur, may cause the market price of our common stock to decline. Our employees, directors and officers, and their affiliates, hold substantial amounts of shares of our common stock.
Future sales of our common stock by our insiders, or the perception that these sales may occur, may cause the market price of our common stock to decline. Our employees, directors and officers, and their affiliates, hold substantial amounts of shares of our common stock which is granted as a portion of their compensation.
On April 24, 2023, we received a letter (the "Bid Price Notice") from the Listing Qualifications Staff of The Nasdaq Stock Market LLC indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, the Company is not 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 "Minimum Bid Price Rule").
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 was not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on The Nasdaq Capital Market (the “Bid Price Notice”).
Although we have not suffered any material restrictions from doing business in the past due to government regulations, significant impediments may arise in the future as we expand product offerings. From time to time, we dispose of or donate obsolete inventory in compliance with applicable laws and regulations.
Additional information is discussed in Item 1A of Part I, “Risk Factors,” Although we have not suffered any material restrictions from doing business in the past due to government regulations, significant impediments may arise in the future as we expand product offerings. From time to time, we dispose of or donate obsolete inventory in compliance with applicable laws and regulations.
Demand for our air quality products primarily occurs during the summer months and demand for our essential oils, kitchen appliances and accessories primarily occurs during the fall and holiday season.
Weather and other conditions can materially impact the demand for our products. Demand for our air quality products primarily occurs during the summer months and demand for our essential oils, kitchen appliances and accessories primarily occurs during the fall and holiday season.
Currently our primary focus on advertising spend is online across Amazon, Google and Facebook. Third-Party Manufacturing & Logistics During 2023, we purchased the substantial majority of our finished products from suppliers in China. We do not maintain long-term purchase contracts with suppliers and operate mainly on a purchase order basis. We negotiate purchases from our foreign suppliers in U.S. dollars.
Currently our primary focus on advertising spend is online across Amazon and Google, as well as through marketing affiliates. Third-Party Manufacturing & Logistics During 2024, we purchased the substantial majority of our finished products from suppliers in China. We do not maintain long-term purchase contracts with suppliers and operate mainly on a purchase order basis.
We have $222.2 million net operating loss carryforwards as of December 31, 2023, which have a full valuation allowance against them.
We have $241.7 million net operating loss carryforwards as of December 31, 2024, which have a full valuation allowance against them.
In addition to fulfillment by Amazon warehouses, we use geographically distributed third-party warehouses in the U.S. to deliver orders within one to two days through ground shipment to most customers. Competition The consumer goods and e-commerce markets are highly competitive and dynamic. We compete primarily against numerous third-party brands and sellers on marketplaces for each of our products.
In addition to fulfillment by Amazon warehouses, we use geographically distributed third-party warehouses in the U.S. to deliver orders within one to two days through ground shipment to most customers. 2 Table of Contents Competition The consumer goods and e-commerce markets are highly competitive and dynamic.
We may be unable to attract, retain or motivate key personnel, which could harm our business. Our future success depends on our continuing ability to attract, motivate and retain well qualified employees. Competition for well-qualified employees in all aspects of our business is intense globally.
Our future success depends on our continuing ability to attract, motivate and retain well qualified employees. Competition for well-qualified employees in all aspects of our business is intense globally.
As of December 31, 2023, our employees and contractors are based in offices, shared workspaces and remote work locations in the U.S., China, the U.K., the Philippines, and in Poland. We also contract with 21 consultants, in Ukraine, Serbia, Israel, and Costa Rica.
As of December 31, 2024, our employees and contractors are based in offices, shared workspaces and remote work locations in the U.S., China, the U.K., the Philippines, Costa Rica, Serbia, Pakistan, and Poland.
Competition is based on price, product features and quality, strong ratings and reviews, effective marketing, visibility and location on the online shelf and supply chain excellence, which is mostly the ability to deliver products to customers in one to two days.
We compete primarily against numerous third-party brands and sellers on marketplaces for each of our products. Competition is based on price, product features and quality, strong ratings and reviews, effective marketing, visibility and location on the online shelf and supply chain excellence, which is mostly the ability to deliver products to customers in one to two days.
We believe we have sustained a decline in the sales of our products in part due to the factors mentioned above, and any continued economic downturn or uncertainties in the U.S or in other parts of the world could materially and adversely affect our business, operating results, financial condition, and cash flows.
We believe we have sustained a decline in the sales of our products in part due to the factors mentioned above, and any continued economic downturn or uncertainties in the U.S. or in other parts of the world could materially and adversely affect our business, operating results, financial condition, and cash flows. 4 Table of Contents Demand for our products is highly seasonal and dependent on weather conditions, which could result in significant variations in our inventory levels, financial condition and operating results.
A number of lawsuits and other legal challenges with respect to the Section 301 tariff actions have been filed and remain pending, which could result in changes to the tariffs. To date, the Biden Administration has effectively maintained and has continued to defend and to enforce these particular trade actions.
A number of lawsuits and other legal challenges with respect to the Section 301 tariff actions have been filed and remain pending, which could result in changes to the tariffs.
If our common stock ultimately were to be delisted for any reason, we could face a number of significant material adverse consequences, including limited availability of market quotations for our common stock; limited news and analyst coverage; decreased ability to obtain additional financing or failure to comply with the covenants with our current lenders; limited liquidity for our stockholders due to thin trading; and the potential loss of confidence by investors, employees and other third parties who we do business with.
If our Common Stock ultimately were to be delisted for any reason, we could face significant material adverse consequences, including: • limited availability of market quotations for our Common Stock; • a limited amount of news and analyst coverage for us; • a decreased ability for us to issue additional securities or obtain additional financing in the future; • limited liquidity for our stockholders due to thin trading; and • the potential loss of confidence by investors and employees. 11 Table of Contents
We purchased our inventory from approximately 59 suppliers, four of which represented more than 10% of purchases during the year-ended December 31, 2023.
We negotiate purchases from our foreign suppliers in U.S. dollars. We purchased our inventory from approximately 39 suppliers, four of which represented more than 10% of purchases during the year ended December 31, 2024.
Any limitation may result in expiration of all, or a portion of the NOLs or other tax attributes, such as research and development credit carryforwards, before utilization. 6 Table of Contents We have recently undergone a management change and reevaluated various aspects of our business including but not limited to a reduction in the number of products we sell, a change in our technology infrastructure and a cost and a fixed cost reduction plan including a reduction in workforce; each of which, individually or in the aggregate, could have a material impact on our results of operations, financial condition, and business.
We have recently undergone a management change and reevaluated various aspects of our business including but not limited to a reduction in the number of products we sell, a change in our technology infrastructure and a cost and a fixed cost reduction plan including a reduction in workforce; each of which, individually or in the aggregate, could have a material impact on our results of operations, financial condition, and business.
Our Credit Facility contains covenants and other restrictions that, among other things, requires us to satisfy certain liquidity and borrowing availability tests, restricts our ability to execute M&A transactions and to incur additional indebtedness.
On December 22, 2021, we obtained a revolving credit facility from Midcap Funding IV Trust (the “Credit Facility”). Our Credit Facility contains covenants and other restrictions that, among other things, requires us to satisfy certain liquidity and borrowing availability tests, restricts our ability to execute M&A transactions and to incur additional indebtedness.
Natural disasters (such as wildfires, hurricanes and ice storms), public health crises (such as pandemics and epidemics), or an unusually mild or short summer season may result in unanticipated material fluctuations in consumer demand.
Natural disasters (such as wildfires, hurricanes and ice storms), public health crises (such as pandemics and epidemics), or an unusually mild or short summer season may result in unanticipated material fluctuations in consumer demand. These factors could have a material adverse effect on our business, operating results, financial condition, and cash flows.
In order to complete any future acquisitions, we may need to use our cash on hand, and we will likely need to raise additional equity or incur or assume debt, any of which could harm our business, only be available on unfavorable terms, if at all, and result in significant additional dilution to our stockholders.
In order to complete any future acquisitions, we may need to use our cash on hand, raise additional equity or incur or assume debt, any of which could harm our business.
We have historically experienced Amazon’s removal of the Prime badge guarantee from certain of our seller accounts and in those cases we have had limited success having the Prime badge guarantee reinstated in a timely manner or at all. 5 Table of Contents Our Credit Facility contains various restrictions and covenants that could limit our operating flexibility and we may be unable to refinance or repay our Credit Facility.
We have historically experienced, and may be subject in the future to, Amazon’s removal of the Prime badge guarantee from certain of our seller accounts and in those cases we have had limited success having the Prime badge guarantee reinstated in a timely manner or at all.
Such acquisitions have in the past required, and in the future may require, the attention of management in integrating those businesses including increased attention to managing the supply chain of certain acquisitions.
We have acquired a number of companies, and we may in the future acquire or invest in or enter into joint ventures with additional companies. Such acquisitions have in the past required, and in the future may require, the attention of management in integrating those businesses including increased attention to managing the supply chain of certain acquisitions.
Also, such funding may be available only by diluting existing stockholders. The success of our business depends in part on our ability to invest significant resources in various aspects of our business including acquisitions and other strategic investments. Our success also depends on our ability to grow through acquisitions.
We may be limited by our ability to raise the funding we need to support our growth or to maintain our existing business. Also, such funding may be available only by diluting existing stockholders. The success of our business depends in part on our ability to invest significant resources in various aspects of our business.
The foregoing factors could have a material adverse effect on our business, operating results, financial condition, and cash flows. A significant majority of our revenue results from sales of products on Amazon ’ s U.S.
The foregoing factors could have a material adverse effect on our business, operating results, financial condition, and cash flows. 5 Table of Contents A significant majority of our revenue results from sales of products on Amazon’s U.S. marketplace, and any change, limitation, or restriction on our ability to operate on Amazon’s platform could have a material adverse impact on our business, operating results, financial condition, and cash flows.
Risks Relating to the Ownership of our Common Stock We are an “ emerging growth company ” and a "smaller reporting company" and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make it more difficult to compare our performance with other public companies and make our common stock less attractive to investors.
We are a "smaller reporting company" and the reduced disclosure requirements applicable to smaller reporting companies may make it more difficult to compare our performance with other public companies and make our common stock less attractive to investors. We are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.
We can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful.
We can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful or that doing so will not impact the quality and cost of our products or our ability to bring them in in a timely manner.
Risks Relating to Information and Cyber Security We rely on data provided by third parties and any loss, reduction in access or increased costs related thereto of which could have a material adverse effect on our business.
Further, pursuing or completing any such strategic initiative could divert management’s attention, and otherwise disrupt our operations which could adversely affect our operating results, financial condition, and cash flows. 7 Table of Contents Risks Relating to Information and Cyber Security We rely on data provided by third parties and any loss, reduction in access or increased costs related thereto of which could have a material adverse effect on our business.
While we pursue growth from our existing product portfolio and from new product launches, we also intend to pursue growth through strategic acquisitions of brands that we believe will integrate well with our business.
These products are sold under the Company’s owned brands, which were either incubated or acquired. While we pursue growth from our existing product portfolio, new product launches and omni-channel expansion, we also intend to opportunistically pursue growth through strategic acquisitions of brands that we believe will integrate well with our business.
In the past, we have not always accurately forecasted consumer demand for our products resulting in inventory shortages, excess inventory write offs and lower gross margins.
If we are unable to manage our inventory effectively, our operating results, financial condition, and cash flows could be adversely affected. In the past, we have not always accurately forecasted consumer demand for our products resulting in inventory shortages, excess inventory write offs and lower gross margins.
In certain instances, we compete directly with our third party suppliers who sell their own brands directly to customers, including with respect to certain of our material products such as dehumidifiers. 2 Table of Contents Government Regulation We are subject to a variety of U.S. federal, state and local laws and international laws, including but not limited to those governing the processing of payments, consumer protection, the privacy of consumer information and other laws regarding unfair and deceptive trade practices.
Government Regulation We are subject to a variety of U.S. federal, state and local laws and international laws, including but not limited to those governing the processing of payments, consumer protection, the privacy of consumer information and other laws regarding unfair and deceptive trade practices.
Item 1. Business. See the sections contained within this Annual Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” for further information. About Aterian Aterian, Inc. (“Aterian”, the “Company”, “we”, “us”, and “our”) is a technology-enabled consumer products company that predominantly operates through online retail channels such as Amazon and Walmart.
Item 1. Business. See the sections contained within this Annual Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” for further information. About Aterian Aterian, Inc.
We also rely on credit export insurance for our vendors in China, the unavailability of which could have a material adverse impact on our business, operating results, financial condition, and cash flows. On December 22, 2021, we obtained a revolving credit facility from Midcap Funding IV Trust (the “Credit Facility”).
Our Credit Facility contains various restrictions and covenants that could limit our operating flexibility and we may be unable to refinance or repay our Credit Facility. We also rely on credit export insurance for our vendors in China, the unavailability of which could have a material adverse impact on our business, operating results, financial condition, and cash flows.
There is no guarantee that we will continue to meet all requirements for continued listing on the Nasdaq Capital Market.
There is no guarantee that we will continue to meet all requirements for continued listing on the Nasdaq Capital Market. We must continue to satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share.
Our efforts to grow our business place significant strain on our management, personnel, operations, systems, financial resources, and internal financial control and reporting functions, among other things. We face the risk that we will be unable to disrupt incumbents and that our competitors will introduce new and better products that compete with us.
Our efforts to grow our business place significant strain on our management, personnel, operations, systems, financial resources, and internal financial control and reporting functions, among other things. We have limited personnel and resources and have reduced headcount significantly in recent years.
It is possible for security vulnerabilities to remain undetected for an extended time period, up to and including several years as was the case in the prior non-material security breach identified in April 2022. The Company’s adoption of remote working, initially driven by the pandemic, may also introduce additional threats or disruptions to our information technology networks and infrastructure.
The Company’s adoption of remote working, initially driven by the pandemic, may also introduce additional threats or disruptions to our information technology networks and infrastructure.
We will lose our status as an emerging growth company no later than December 31, 2024. Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited consolidated financial statements.
Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited consolidated financial statements.
We generate revenue primarily through the online sales of our various consumer products with substantially all of our sales being made through the Amazon U.S. marketplace. Products The Company sells a wide-range of products across multiple categories, including home and kitchen appliances, kitchenware, cooling and air quality appliances such as dehumidifiers, health and beauty products, essential oils and more.
We generate revenue primarily through the online sales of our various consumer products with substantially all of our sales being made through the Amazon U.S. marketplace. Headquartered in New Jersey, the Company also maintains offices in China, the Philippines, and the United Kingdom. Business Segments We operate as one operating segment.
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These products are sold under the Company’s owned brands, which were either incubated or acquired. Our primary brands include Squatty Potty; hOmeLabs; Mueller; Pursteam; Healing Solutions; and Photo Paper Direct "(PPD)". We generate revenue primarily through the online sales of our various consumer products with substantially all of our sales being made through the Amazon U.S. marketplace.
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(the "Company") is a technology-enabled consumer products company that predominantly operates through online retail channels such as Amazon, Walmart, and Target and its own direct to consumer websites.
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On February 8, 2024, the Company committed to a fixed cost-cutting plan, including a reduction in workforce which will result in the termination of approximately 21 employees and 27 contractors globally. The Company expects to substantially complete this reduction by the end of the first quarter of 2024. Available Information The Company’s corporate website is located at https://ir.aterian.io.
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Our revenues are derived from the sale of consumer goods. See Note 18, Segment Information , in the accompanying notes to our consolidated financial statements for further detail. Products The Company sells a wide-range of products across multiple categories, including home and kitchen appliances, kitchenware, air quality appliances, health and beauty products, and essential oils.
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The Company files reports and other information with the SEC pursuant to the information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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In certain instances, we compete directly with our third-party suppliers who sell their own brands directly to customers, including with respect to certain of our material products.
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The Company makes available free of charge, on or through its website, the Company’s annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC.
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Emerging Growth Company Status As of December 31, 2024, we no longer qualify as an Emerging Growth Company ("EGC") due to the expiration of the five-year eligibility period under the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act").
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Information contained on the Company’s website is not part of this Annual Report on Form 10-K or any other report filed with the SEC. Readers may also read and copy any document the Company files at the SEC’s website at www.sec.gov. 3 Table of Contents Item 1A. Risk Factors.
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Although the Company is no longer an EGC, we are still eligible for certain scaled disclosure accommodations, including reduced executive compensation disclosures and exemptions from some of the enhanced financial reporting requirements applicable to larger registrants.
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For other certain products, due to our inventory long position and other factors we continued to sell our older versions of SKUs rather than order newer versions with innovations that some of our competitors are currently selling, which has had and may continue to have a material impact on our business.
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Available Information We may use our website as a distribution channel of material information about the Company including through press releases, investor presentations, and notices of upcoming events.
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In the interim we have lost and may continue to lose market share for such SKUs.
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We intend to utilize the investor relations section of our website at https://ir.aterian.io as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under Regulation FD.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

73 edited+24 added−76 removed65 unchanged
Biggest changeInterest Expense, Net —Interest expense, net includes the interest cost from our credit facility and term loans, and includes amortization of deferred finance costs and debt discounts from our credit facility (the “Credit Facility”) with MidCap Funding IV Trust (“MidCap”). 12 Table of Contents Results of Operations Comparison of Years-Ended December 31, 2022 and 2023 The following table summarizes our results of operations for the years-ended December 31, 2022 and 2023, together with the changes in those items in dollars and percentage: Year Ended December 31, Change 2022 (1) 2023 (1) Amount % (in thousands, except percentages) Net revenue $ 221,170 $ 142,566 $ (78,604 ) (35.5 )% Cost of goods sold 115,652 72,281 (43,371 ) (37.5 )% Gross profit 105,518 70,285 (35,233 ) (33.4 )% Operating expenses: Sales and distribution 121,139 81,911 (39,228 ) (32.4 )% Research and development 6,012 4,616 (1,396 ) (23.2 )% General and administrative 38,239 20,220 (18,019 ) (47.1 )% Impairment loss on goodwill 120,409 — (120,409 ) (100.0 )% Impairment loss on intangibles 3,118 39,728 36,610 1,174.2 % Change in fair value of contingent earn-out liabilities (5,240 ) — 5,240 100.0 % Total operating expenses 283,677 146,475 (137,202 ) (48.4 )% Operating loss (178,159 ) (76,190 ) 101,969 57.2 % Interest expense, net 2,603 1,421 (1,182 ) (45.4 )% Gain on extinguishment of seller note (2,012 ) — 2,012 100.0 % Loss on initial issuance of equity 18,669 — (18,669 ) (100.0 )% Change in fair value of warrant liability (470 ) (2,440 ) (1,970 ) (419.1 )% Other income (expense), net (281 ) 260 541 192.5 % Loss before income taxes (196,668 ) (75,431 ) 121,237 61.6 % Benefit for income taxes (376 ) (867 ) (491 ) (130.6 )% Net loss $ (196,292 ) $ (74,564 ) $ 121,728 62.0 % (1) Amounts include stock-based compensation expense as follows: Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) Sales and distribution expenses $ 5,014 $ 2,439 $ (2,575 ) (51.4 )% Research and development expenses 1,871 1,414 (457 ) (24.4 )% General and administrative expenses 7,709 4,483 (3,226 ) (41.8 )% Total stock-based compensation expense $ 14,594 $ 8,336 $ (6,258 ) (42.9 )% The following table sets forth the components of our results of operations as a percentage of net revenue: Year Ended December 31, 2022 2023 Net revenue 100.0 % 100.0 % Cost of goods sold 52.3 50.7 Gross profit 47.7 49.3 Operating expenses: Sales and distribution 54.8 57.5 Research and development 2.7 3.2 General and administrative 17.3 14.2 Impairment loss on goodwill 54.4 — Impairment loss on intangibles 1.4 27.9 Change in fair value of contingent earn-out liabilities (2.4 ) — Total operating expenses 128.2 102.7 Operating loss (80.5 ) (53.4 ) Interest expense, net 1.2 1.0 Gain on extinguishment of seller note (0.9 ) — Loss on initial issuance of equity 8.4 — Change in fair value of warrant liability (0.2 ) (1.7 ) Other income, net (0.1 ) 0.2 Loss before income taxes (88.9 ) (52.9 ) Benefit for income taxes (0.2 ) (0.6 ) Net loss (88.7 )% (52.3 )% 13 Table of Contents Net Revenue Revenue by Product Categories : The following table sets forth our net revenue disaggregated by product categories: Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) Direct $ 214,168 $ 138,410 $ (75,758 ) (35.4 )% Wholesale 7,002 4,156 (2,846 ) (40.6 )% Net revenue $ 221,170 $ 142,566 $ (78,604 ) (35.5 )% Net revenue decreased $78.6 million, or 35.5%, during the year-ended December 31, 2023 to $142.6 million, compared to $221.2 million for the year-ended December 31, 2022.
Biggest changeInterest Expense, Net —Interest expense, net includes the interest cost from our credit facility and term loans, and includes amortization of deferred finance costs and debt discounts from our credit facility (the “Credit Facility”) with MidCap Funding IV Trust (“MidCap”). 14 Table of Contents Results of Operations Comparison of Years Ended December 31, 2023 and 2024 The following table summarizes our results of operations for the years ended December 31, 2023 and 2024, together with the changes in those items in dollars and percentage: December 31, December 31, Change 2023 (1) 2024 (1) Amount % (in thousands, except percentages) Net revenue $ 142,566 $ 99,045 $ (43,521 ) (30.5 )% Cost of goods sold 72,281 37,550 (34,731 ) (48.0 )% Gross profit 70,285 61,495 (8,790 ) (12.5 )% Operating expenses: Sales and distribution 81,911 55,979 (25,932 ) (31.7 )% Research and development 4,616 — (4,616 ) (100.0 )% General and administrative 20,220 17,339 (2,881 ) (14.2 )% Impairment loss on intangibles 39,728 — (39,728 ) (100.0 )% Total operating expenses 146,475 73,318 (73,157 ) (49.9 )% Operating loss (76,190 ) (11,823 ) 64,367 84.5 % Interest expense, net 1,421 949 (472 ) (33.2 )% Change in fair value of warrant liabilities (2,440 ) (924 ) 1,516 62.1 % Other expense, net 260 61 (199 ) (76.5 )% Loss before income taxes (75,431 ) (11,909 ) 63,522 84.2 % Benefit for income taxes (867 ) (47 ) 820 94.6 % Net loss $ (74,564 ) $ (11,862 ) $ 62,702 84.1 % (1) Amounts include stock-based compensation expense as follows: December 31, December 31, Change 2023 2024 Amount % (in thousands, except percentages) Sales and distribution expenses $ 2,439 $ 1,783 $ (656 ) (26.9 )% Research and development expenses 1,414 — (1,414 ) (100.0 )% General and administrative expenses 4,483 5,727 1,244 27.7 % Total stock-based compensation expense $ 8,336 $ 7,510 $ (826 ) (9.9 )% The following table sets forth the components of our results of operations as a percentage of net revenue: December 31, December 31, 2023 2024 Net revenue 100.0 % 100.0 % Cost of goods sold 50.7 37.9 Gross profit 49.3 62.1 Operating expenses: Sales and distribution 57.5 56.5 Research and development 3.2 — General and administrative 14.2 17.5 Impairment loss on intangibles 27.9 — Total operating expenses 102.7 74.0 Operating loss (53.4 ) (11.9 ) Interest expense, net 1.0 1.0 Change in fair value of warrant liabilities (1.7 ) (0.9 ) Other income, net 0.2 0.1 Loss before income taxes (52.9 ) (12.0 ) Benefit for income taxes (0.6 ) (0.0 ) Net loss (52.3 )% (12.0 )% 15 Table of Contents Net Revenue Revenue by Product Categories : The following table sets forth our net revenue disaggregated by product categories: December 31, December 31, Change 2023 2024 Amount % (in thousands, except percentages) Direct $ 138,410 $ 97,341 $ (41,069 ) (29.7 )% Wholesale 4,156 1,704 (2,452 ) (59.0 )% Net revenue $ 142,566 $ 99,045 $ (43,521 ) (30.5 )% Net revenue decreased $43.5 million, or 30.5%, during the year ended December 31, 2024 to $99.1 million, compared to $142.6 million for the year ended December 31, 2023.
Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired.
Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired.
The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge.
The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge.
Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired.
Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired.
The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge.
The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge.
The Company recorded an intangible impairment charge of $16.7 million in the three months ending March 31, 2023 within impairment loss on intangibles on the condensed consolidated statement of operations. During the three months ended June 30, 2023, the Company had a substantial decrease in its market capitalization, primarily relating to a decrease in share price.
The Company recorded an intangible impairment charge of $16.7 million during the three months ending March 31, 2023 within impairment loss on intangibles on the consolidated statement of operations. During the three months ended June 30, 2023, the Company had a substantial decrease in its market capitalization, primarily relating to a decrease in share price.
We sell products directly to consumers through online retail channels and through wholesale channels. Direct-to-consumer sales (i.e., direct net revenue), which is currently the majority of our revenue, is done through various online retail channels. We sell on Amazon.com, Walmart.com, and our own websites, with substantially all of our sales made through Amazon.com.
We sell products directly to consumers through online retail channels and through wholesale channels. Direct-to-consumer sales (i.e., direct net revenue), which is currently the majority of our revenue, is done through various online retail channels. We sell on Amazon.com, Walmart.com, Target.com and our own websites, with substantially all of our sales made through Amazon.com.
The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances.
The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances.
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.
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 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.
Net cash used in investing activities was $0.2 for the year-ended December 31, 2023, resulting primarily from the remaining payment for the purchase of Step and Go assets which was acquired during the three months ending December 31, 2022.
Net Cash Used in Investing Activities Net cash used in investing activities was $0.2 million for the year ended December 31, 2023, resulting primarily from the remaining payment for the purchase of Step and Go assets which was acquired during the three months ending December 31, 2022.
The Company recorded an intangible impairment charge of $22.8 million for the Paper business and Kitchen appliance business during the three months ending June 30, 2023 within impairment loss on intangibles on the condensed consolidated statement of operations.
The Company recorded an intangible impairment charge of $22.8 million for the Paper business and Kitchen appliance business during the three months ending June 30, 2023 within impairment loss on intangibles on the consolidated statement of operations.
Warrant Liability —The fair values of the outstanding warrants were measured using the Black Scholes model. Inputs used to determine estimated fair value of the warrant liabilities include the fair value of the underlying stock at the valuation date, the term of the warrants, and the expected volatility of the underlying stock.
Warrant Liabilities —The fair values of the outstanding warrants were measured using the Black Scholes model. Inputs used to determine estimated fair value of the warrant liabilities include the fair value of the underlying stock at the valuation date, the term of the warrants, and the expected volatility of the underlying stock.
We currently do not anticipate electing the alternative financial covenant over the next twelve months and are in compliance with the minimum liquidity covenant as of the date these Condensed Consolidated Financial Statements were issued.
We currently do not anticipate electing the alternative financial covenant over the next twelve months and are in compliance with the minimum liquidity covenant as of the date these Consolidated Financial Statements were issued.
As a result of this rationalization, along with the reduced demand for its products, the Company has made certain revisions to its internal forecasts for its Paper business and Kitchen appliance business.
As a result of this rationalization, along with the reduced demand for its products, the Company made certain revisions to its internal forecasts for its Paper business and Kitchen appliance business.
We continually review the locations and capacity of our third-party warehouses to ensure we have the appropriate geographic reach, which helps to reduce the average last mile shipping zones to the end customer and as such our speed of delivery improves while our shipping costs to customers decrease, prior to the impacts on shipping providers’ rates.
We periodically review the locations and capacity of our third-party warehouses to ensure we have the appropriate geographic reach, which helps to reduce the average last mile shipping zones to the end customer and as such our speed of delivery improves while our shipping costs to customers decrease, prior to the impacts on shipping providers’ rates.
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.
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”).
Generally, increases (decreases) in the fair value of the underlying stock and estimated term result in a directionally similar impact to the periodic fair value measurement of the outstanding warrant liability, and are recorded within the Change in fair market value of warrant line item on the statement of operations.
Generally, increases (decreases) in the fair value of the underlying stock and estimated term result in a directionally similar impact to the periodic fair value measurement of the outstanding warrant liabilities, and are recorded within the Change in fair market value of warrant line item on the statement of operations.
General and Administrative Expenses —General and administrative expenses include compensation and employee benefits for executive management, finance administration, legal, and human resources, facility costs, insurance, travel, professional service fees and other general overhead costs, including the costs of being a public company.
General and Administrative Expenses —General and administrative expenses include cash and stock compensation and employee benefits for executive management, finance administration, legal, and human resources, facility costs, insurance, travel, professional service fees, and other general overhead costs, including the costs of being a public company.
Further, the Company continued to see reduced net revenues across its portfolio due to the current macroeconomic environment reducing demand for consumer goods. Finally, during the three months ending June 30, 2023, the Company implemented a strategy of rationalizing certain less profitable products and reducing its product offering, specifically related to its kitchen appliance products.
Further, the Company continued to see reduced net revenues across its portfolio due primarily to the then current macroeconomic environment reducing demand for consumer discretionary goods. Finally, during the three months ending June 30, 2023, the Company implemented a strategy of rationalizing certain less profitable products and reducing its product offering, specifically related to its kitchen appliance products.
Open Inventory Purchase Orders —As of December 31, 2022 and 2023, the Company had open inventory purchase orders of $13.5 million and $6.5 million, respectively, placed with vendors waiting to be fulfilled. 20 Table of Contents Non-GAAP Financial Measures We believe that our financial statements and the other financial data included in this Annual Report have been prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the U.S.
Open Inventory Purchase Orders —As of December 31, 2023 and 2024, the Company had open inventory purchase orders of $6.5 million and $9.2 million, respectively, placed with vendors waiting to be fulfilled. 20 Table of Contents Non-GAAP Financial Measures We believe that our financial statements and the other financial data included in this Annual Report have been prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the U.S.
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, delaying the development of our software, or reducing our sale and distribution infrastructure.
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.
Nasdaq Listing —On April 24, 2023, we received a letter (the "Bid Price Notice") from the Listing Qualifications Staff of The Nasdaq Stock Market LLC indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, the Company is not 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 "Minimum Bid Price Rule").
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”).
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.
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 if we pursue material M&A opportunities.
On March 20, 2023, the Company made certain leadership changes in our essential oil business resulting in a change in strategy and outlook for the business which will result in a reduced portfolio offering.
On March 20, 2023, the Company made certain leadership changes in our essential oil business resulting in a change in strategy and outlook for the business which resulted in a reduced portfolio offering.
This reduction in the portfolio will be impactful to our essential oil business's future revenues and profitability and as a result the Company made revisions to our internal forecasts.
This reduction in the portfolio was impactful to our essential oil business's future revenues and profitability and as a result the Company made revisions to our internal forecasts.
Sales and Distribution Expenses — Sales and distribution expenses consist of online advertising costs, marketing and promotional costs, sales and e-commerce platform commissions, fulfillment, including shipping and handling, and warehouse costs (i.e., sales and distribution variable expenses). Sales and distribution expenses also include employee compensation and benefits and other related fixed costs.
Sales and Distribution Expenses —Sales and distribution expenses consist of online advertising costs, marketing and promotional costs, sales and ecommerce platform commissions, fulfillment, including shipping and handling, and warehouse costs (i.e., sales and distribution variable expenses). Sales and distribution expenses also include employee cash and stock compensation and benefits and other related fixed costs.
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.
Liquidity and Going Concern As a company in the early commercialization stage of its lifecycle, we are subject to inherent risks and uncertainties associated with the development of our enterprise.
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.
The Company has completed two restructuring programs over the last two years to reduce operating costs and right size the workforce to align with the scale of our streamlined operations. In addition, we have reduced our SKU count to focus on profitable products that are core to the Company’s strategy.
This decrease is primarily attributable to the decrease in the volume of products sold during the year-ended December 31, 2023, as our e-commerce platform commissions, online advertising, selling and logistics expenses decreased to $68.9 million for the year-ended December 31, 2023 as compared to $103.3 million in the prior year.
This decrease is primarily attributable to the decrease in the volume of products sold during the year ended December 31, 2024, as our e-commerce platform commissions, online advertising, selling and logistics expenses decreased to $44.6 million for the year ended December 31, 2024 as compared to $68.9 million in the prior year.
We were in compliance with these financial covenants as of December 31, 2023, 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 (See Note 19, Subsequent Events).
We were in compliance with these financial covenants as of December 31, 2024, and expect to remain in compliance through at least March 31, 2026. 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.
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.
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.
Subsequent to December 31, 2023, we extended the term with Midcap Credit Facility until December 2026 (See Note 9, Credit Facility, Term Loans and Warrants) and amended key terms which will add more flexibility to liquidity and strengthen our balance sheet.
During February 2024, we extended the term with Midcap Credit Facility until December 2026 (See Note 9, Credit Facility, Term Loans and Warrants ) and amended key terms which will add more flexibility to liquidity and strengthen our balance sheet.
In addition, as of December 31, 2023, we had unrestricted cash and cash equivalents of $20.0 million available to fund our operations and an accumulated deficit of $699.8 million. • We are required to remain in compliance with certain financial covenants required by the MidCap Credit facility (See Note 9, Credit Facility, Term Loans and Warrants).
In addition, as of December 31, 2024, we had unrestricted cash and cash equivalents of $18.0 million available to fund our operations and an accumulated deficit of $711.7 million. • We are required to remain in compliance with certain financial covenants required by the MidCap Credit facility (See Note 9, Credit Facility, Term Loans and Warrants ).
The Credit Facility contained a financial covenant that required us to maintain a minimum unrestricted cash balance of (a) $12.5 million during the period from February 1st through and including May 31st of each calendar year, and (b) $15.0 million at all other times. The MidCap credit facility was scheduled to mature in December 2024.
Prior to the February 2024 amendment, The Credit Facility contained a financial covenant that required us to maintain a minimum unrestricted cash balance of (a) $12.5 million during the period from February 1st through and including May 31st of each calendar year, and (b) $15.0 million at all other times.
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.
While we expect to continue to explore raising additional outside capital, specifically if we pursue material M&A opportunities, there can be no assurance we will be able to obtain capital or do so on terms that are acceptable to us.
In addition, there were competitive pricing pressures coupled with certain key products losing their prominent positioning on Amazon due to competition, specifically in the heating, cooling, air quality and kitchen appliance businesses. These factors resulted in a reduction of units sold and a reduction in retail sales prices generally for each category of business.
In addition, there were competitive pricing pressures coupled with certain key products losing their prominent positioning on Amazon due to competition, specifically in the kitchen appliance businesses. These factors resulted in a reduction of units sold and a reduction in certain retail sales prices.
For example, neither EBITDA nor Adjusted EBITDA reflects: • our capital expenditures or future requirements for capital expenditures or mergers and acquisitions; • the interest expense or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness; • depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, or any cash requirements for the replacement of assets; • changes in cash requirements for our working capital needs; or • changes in fair value of contingent earn-out liabilities, warrant liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold).
For example, neither EBITDA nor Adjusted EBITDA reflects: • our capital expenditures or future requirements for capital expenditures or mergers and acquisitions; • the interest expense or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness; • depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, or any cash requirements for the replacement of assets; • changes in cash requirements for our working capital needs; or • changes in warrant liabilities.
E-commerce platform commissions, online advertising, selling and logistic expenses included within sales and distribution expenses, as a percentage of net revenue, were 48.3% for the year-ended December 31, 2023 compared to 46.7% for the year-ended December 31, 2022.
E-commerce platform commissions, online advertising, selling and logistics expenses included within sales and distribution expenses, as a percentage of net revenue, were 45.0% for the year ended December 31, 2024 as compared to 48.3% for the year ended December 31, 2023.
For the year-ended December 31, 2023, cash used by financing activities of $11.1 million primarily from the net repayments for our MidCap credit facility of $10.4 million, repayment of note payable to Smash of $0.6 million and net payments of insurance financing of $0.1 million.
Net Cash Used in Financing Activities For the year ended December 31, 2023, cash used in financing activities of $11.1 million primarily from the net repayments for our MidCap credit facility of $10.4 million, repayment of seller notes of $0.6 million and net payments of insurance financing of $0.1 million.
Change in fair market value of warrant liability Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) Change in fair market value of warrant liability $ (470 ) $ (2,440 ) $ (1,970 ) (419.1 )% The 2022 and 2023 activity is related to the change in fair market value of the warrant liabilities from the prefunded warrants and common stock warrants from our March 2022 equity raise of capital.
Change in fair market value of warrant liabilities December 31, December 31, Change 2023 2024 Amount % (in thousands, except percentages) Change in fair market value of warrant liabilities $ (2,440 ) $ (924 ) $ 1,516 62.1 % The 2023 and 2024 activity is related to the change in fair market value of the warrant liabilities from the common stock warrants from our March 2022 equity raise of capital.
As a percentage of net revenue, sales and distribution expenses increased to 57.5% for the year-ended December 31, 2023 from 54.8% for the year-ended December 31, 2022.
As a percentage of net revenue, sales and distribution expenses decreased to 56.5% for the year ended December 31, 2024, from 57.5% for the year ended December 31, 2023.
This was considered an interim triggering event for the year-ended December 31, 2022. Based on the analysis of comparing the undiscounted cash flow to the carrying value of the asset group, one group tested indicated that the assets may not be recoverable.
This was considered a triggering event for the year ended December 31, 2023. Based on the analysis of comparing the undiscounted cash flow to the carrying value of the asset group, one group tested indicated that the assets may not be recoverable. There was no impairment loss on intangibles during the year ended December 31, 2024.
For all of our sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when our performance obligation is satisfied), which typically occurs at the shipment date.
For all of our sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when our performance obligation is satisfied), which typically occurs at the shipment date. Cost of Goods Sold —Cost of goods sold consists of the book value of inventory sold to customers during the reporting period.
The change in fair value of warrant liabilities for the year-ended December 31, 2023 primarily relates to the reduced share price compared to the prior period. 17 Table of Contents Liquidity and Capital Resources Cash Flows for Years-Ended December 31, 2022 and 2023 The following table provides information regarding our cash flows for the years-ended December 31, 2022 and 2023: Year Ended December 31, 2022 2023 (in thousands) Cash used by operating activities $ (17,477 ) $ (13,388 ) Cash used in investing activities (677 ) (244 ) Cash provided (used) by financing activities 26,996 (11,108 ) Effect of exchange rate on cash (528 ) 306 Net change in and restricted cash for the period $ 8,314 $ (24,434 ) Net Cash Used in Operating Activities Net cash used by operating activities was $17.5 million for the year-ended December 31, 2022, resulting from our net cash losses from operations of $37.2 million, offset by cash from working capital of $19.7 million from changes in accounts receivable, purchase of inventory and insurance and payments of accounts payable and accrued expenses.
The change in fair value of warrant liabilities during the year ended December 31, 2024 primarily relates to the reduced share price compared to the prior period. 17 Table of Contents Liquidity and Capital Resources Cash Flows for Years-Ended December 31, 2023 and 2024 The following table provides information regarding our cash flows for the years-ended December 31, 2023 and 2024: December 31, December 31, 2023 2024 (in thousands) Cash (used in) provided by operating activities $ (13,388 ) $ 2,165 Cash used in investing activities (244 ) (242 ) Cash used in financing activities (11,108 ) (4,914 ) Effect of exchange rate on cash 306 (61 ) Net change in cash and restricted cash for the period $ (24,434 ) $ (3,052 ) Net Cash (Used in) Provided by Operating Activities Net cash used in operating activities was $13.4 million for the year ended December 31, 2023, resulting primarily from our net cash losses from operations of $28.9 million, offset by an inflow from working capital of $15.5 million from changes in accounts receivable, purchases of inventory and payments of accounts payable.
As used herein, Adjusted EBITDA as a percentage of net revenue represents Adjusted EBITDA divided by net revenue. Contribution margin, EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to loss from operations or net loss, as determined under GAAP.
Contribution margin, EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to loss from operations or net loss, as determined under GAAP.
Net cash used in operating activities was $13.4 million for the year-ended December 31, 2023, resulting primarily from our net cash losses from operations of $28.9 million, offset by an inflow from working capital of $15.5 million from changes in accounts receivable, purchases of inventory and payments of accounts payable.
Net cash provided by operating activities was $2.2 million for the year ended December 31, 2024, resulting primarily from our net cash losses from operations of $6.0 million, offset by an inflow from working capital of $8.2 million from changes in accounts receivable, purchases of inventory and payments of accounts payable.
Our sales and distribution fixed costs (e.g., salary and office expenses) decreased to $13.0 million for the year-ended December 31, 2023 from $17.9 million for the year-ended December 31, 2022.
Our sales and distribution fixed costs (e.g., salary and office expenses) including stock-based compensation decreased to $11.4 million for the year ended December 31, 2024, from $13.0 million for the year ended December 31, 2023.
Sales and Distribution Expenses Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) Sales and distribution expenses $ 121,139 $ 81,911 $ (39,228 ) (32.4 )% Sales and distribution expenses which included e-commerce platform commissions, online advertising and logistics expenses (i.e., variable sales and distribution expense), decreased to $81.9 million for the year-ended December 31, 2023 from $121.1 million for the year-ended December 31, 2022.
Sales and Distribution Expenses December 31, December 31, Change 2023 2024 Amount % (in thousands, except percentages) Sales and distribution expenses $ 81,911 $ 55,979 $ (25,932 ) (31.7 )% Sales and distribution expenses which included e-commerce platform commissions, online advertising and logistics expenses (i.e., variable sales and distribution expense), decreased to $56.0 million for the year ended December 31, 2024 from $81.9 million for the year ended December 31, 2023.
As part of this plan, the Company has shifted the architecture of its technology platform away from a fully internally developed model to an integrated third-party, best-of-breed model. 19 Table of Contents MidCap Credit Facility —On December 22, 2021, we entered into an asset backed credit facility with MidCap (the "Credit Facility"), pursuant to which, among other things, (i) the lenders party thereto as lenders (the “Lenders”) agreed to provide a revolving credit facility in a principal amount of up to $40.0 million subject to a borrowing base consisting of, among other things, inventory and sales receivables (subject to certain reserves), and (ii) we agreed to issue to MidCap Funding XXVII Trust a warrant to purchase up to an aggregate of 200,000 shares of our common stock, in exchange for the Lenders extending loans and other extensions of credit to us under the Credit Facility.
The Company recognized restructuring charges of $0.6 million for the year ended December 31, 2024, respectively. 19 Table of Contents MidCap Credit Facility —On December 22, 2021, we entered into a Credit Facility with MidCap, pursuant to which, among other things, (i) the lenders party thereto as lenders (the “Lenders”) agreed to provide a revolving credit facility in a principal amount of up to $40.0 million subject to a borrowing base consisting of, among other things, inventory and sales receivables (subject to certain reserves), and (ii) we agreed to issue to MidCap Funding XXVII Trust a warrant to purchase up to an aggregate of 16,667 shares of our common stock, in exchange for the Lenders extending loans and other extensions of credit to us under the Credit Facility.
For example, Contribution margin does not reflect: • general and administrative expense necessary to operate our business; • research and development expenses necessary for the development, operation and support of our software platform; • the fixed costs portion of our sales and distribution expenses including stock-based compensation expense; or • changes in fair value of contingent earn-out liabilities, warrant liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold). 21 Table of Contents Contribution Margin The following table provides a reconciliation of Contribution margin to gross profit and Contribution margin as a percentage of net revenue to gross profit as a percentage of net revenue, which are the most directly comparable financial measures presented in accordance with GAAP: Year Ended December 31, 2022 2023 Gross Profit $ 105,518 $ 70,285 Reserve on barter credits 1,643 323 E-commerce platform commissions, online advertising, selling and logistics expenses (103,258 ) (68,864 ) Contribution margin $ 3,903 $ 1,744 Gross Profit as a percentage of net revenue 47.7 % 49.3 % Contribution margin as a percentage of net revenue 1.8 % 1.2 % Adjusted EBITDA The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net loss, which is the most directly comparable financial measure presented in accordance with GAAP: Year Ended December 31, 2022 2023 Net loss $ (196,292 ) $ (74,564 ) Add: Benefit for income taxes (376 ) (867 ) Interest expense, net 2,603 1,421 Depreciation and amortization 7,521 3,886 EBITDA (186,544 ) (70,124 ) Other (income) expense, net (281 ) 260 Change in fair value of contingent earn-out liabilities (5,240 ) — Impairment loss on goodwill 120,409 — Impairment loss on intangibles 3,118 39,728 Gain on extinguishment of seller note (2,012 ) — Change in fair market value of warrant liability (470 ) (2,440 ) Loss on original issuance of equity 18,669 — Litigation reserve 2,600 — Reserve on barter credits 1,643 323 Restructuring expense (1) — 1,633 Stock-based compensation expense 14,594 8,336 Adjusted EBITDA $ (33,514 ) $ (22,284 ) Net loss as a percentage of net revenue (88.8 )% (52.3 )% Adjusted EBITDA as a percentage of net revenue (15.2 )% (15.6 )% (1) Restructuring expenses include non-recurring employee severance, contract termination costs and a settlement of a retention bonus relating to the Company reorganization executed during the year-ended December 31, 2023. 22 Table of Contents Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.
For example, Contribution margin does not reflect: • general and administrative expense necessary to operate our business; • research and development expenses necessary for the development, operation and support of our software platform; • the fixed costs portion of our sales and distribution expenses including stock-based compensation expense; or 21 Table of Contents Contribution Margin The following table provides a reconciliation of Contribution margin to gross profit and Contribution margin as a percentage of net revenue to gross profit as a percentage of net revenue, which are the most directly comparable financial measures presented in accordance with GAAP: December 31, December 31, 2023 2024 Gross Profit $ 70,285 $ 61,495 Less: Reserve on barter credits 323 — E-commerce platform commissions, online advertising, selling and logistics expenses (68,864 ) (44,553 ) Contribution margin $ 1,744 $ 16,942 Gross Profit as a percentage of net revenue 49.3 % 62.1 % Contribution margin as a percentage of net revenue 1.2 % 17.1 % Adjusted EBITDA The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net loss, which is the most directly comparable financial measure presented in accordance with GAAP: December 31, December 31, 2023 2024 Net loss $ (74,564 ) $ (11,862 ) Add: Benefit for income taxes (867 ) (47 ) Interest expense, net 1,421 949 Depreciation and amortization 3,886 1,689 EBITDA (70,124 ) (9,271 ) Other expense, net 260 61 Impairment loss on intangibles 39,728 — Change in fair market value of warrant liabilities (2,440 ) (924 ) Reserve on barter credits 323 — Restructuring expense (1) 1,633 565 Stock-based compensation expense 8,336 7,510 Adjusted EBITDA $ (22,284 ) $ (2,059 ) Net loss as a percentage of net revenue (52.3 )% (12.0 )% Adjusted EBITDA as a percentage of net revenue (15.6 )% (2.1 )% (1) Restructuring expenses include non-recurring employee severance costs relating to the Company reorganization executed during the year ended December 31, 2024 and 2023. 22 Table of Contents Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.
The decrease in cost of goods sold was primarily attributable to a decrease of $38.4 million in cost of goods sold from our organic businesses, a decrease of $3.8 million from our M&A businesses, and a decrease of $1.1 million in cost of goods sold from our wholesale businesses.
The decrease in cost of goods sold was primarily attributable to a decrease of $27.6 million in cost of goods sold from our direct businesses and a decrease of $7.1 million in cost of goods sold from our wholesale businesses.
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.
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 in the near term. However, we anticipate improvements over time as we work toward achieving a sustainable scale of profitability.
Cost of Goods Sold and Gross Margin Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) Cost of goods sold $ 115,652 $ 72,281 $ (43,371 ) (37.5 )% Gross profit $ 105,518 $ 70,285 $ (35,233 ) (33.4 )% Cost of goods sold decreased by $43.4 million from $115.7 million for the year-ended December 31, 2022 to $72.3 million for the year-ended December 31, 2023 primarily from reduced sales volume.
Cost of Goods Sold and Gross Profit December 31, December 31, Change 2023 2024 Amount % (in thousands, except percentages) Cost of goods sold $ 72,281 $ 37,550 $ (34,731 ) (48.0 )% Gross profit $ 70,285 $ 61,495 $ (8,790 ) (12.5 )% Cost of goods sold decreased by $34.7 million from $72.3 million for the year ended December 31, 2023 to $37.6 million for the year ended December 31, 2024 primarily from reduced sales volume.
In this regard, during the year-ended December 31, 2023, we incurred a net loss of $74.6 million and used net cash flows in our operations of $13.4 million.
In this regard, during the year ended December 31, 2024, we incurred a net loss of $11.9 million and generated net cash flows from operations of $2.2 million.
The increase in gross profit was due primarily to a change of product mix, improved shipping container rates during the year ended December 31, 2023 compared to the year-ended December 31, 2022, and a reduction in liquidation of high priced excess inventory at reduced prices compared to the prior year.
Gross profit increased from 49.3% for the year ended December 31, 2023 to 62.1% for the year ended December 31, 2024. The increase in gross profit was primarily due to a reduction in liquidation of high priced excess inventory at reduced prices compared to the prior year.
The Company believes our procedures for determining fair value are reasonable and consistent with current market conditions as of December 31, 2023. For the year-ended December 31, 2022 and 2023, total impairment loss on intangibles were approximately $3.1 million and $39.7 million, respectively.
The Company believes our procedures for determining fair value are reasonable and consistent with current market conditions as of December 31, 2024. There were no triggering events to test intangibles for impairment loss during the year ended December 31, 2024.
General and Administrative Expenses Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) General and administrative expenses $ 38,239 $ 20,220 $ (18,019 ) (47.1 )% The decrease in general and administrative expenses was primarily the result of a decrease of $3.7 million in professional fees, a decrease of $3.5 million in depreciation and amortization, a decrease in stock compensation expense of $3.2 million, a decrease of $2.7 million relating to litigation settlements, a decrease in other miscellaneous expenses of $2.3 million, a decrease of $1.4 million in inventory donations, and a decrease of $1.1 in headcount expense, partially offset by an increase in restructuring expense of $0.4 million.
General and Administrative Expenses December 31, December 31, Change 2023 2024 Amount % (in thousands, except percentages) General and administrative expenses $ 20,220 $ 17,339 $ (2,881 ) (14.2 )% The decrease in general and administrative expenses was primarily the result of a decrease of $2.3 million in depreciation and amortization, a decrease of $0.9 million in insurance expenses, and a decrease of $0.6 million in professional fees, partially offset by an increase in stock-compensation expense of $1.2 million.
Our primary brands include Squatty Potty; hOmeLabs; Aussie Health; Mueller; Pursteam; Healing Solutions; and Photo Paper Direct "(PPD)". We generate revenue primarily through the online sales of our various consumer products with substantially all of our sales being made through the Amazon U.S. marketplace.
We generate revenue primarily through the online sales of our various consumer products with substantially all of our sales being made through the Amazon U.S. marketplace.
The outstanding balance on the MidCap credit facility as of December 31, 2022 and December 31, 2023 was $21.1 million and $11.1 million, respectively. The Company had $1.1 million of availability on the Midcap credit facility as of December 31, 2023. We are in compliance with the financial covenants contained within the Credit Agreement as of December 31, 2023.
The Company did not have any availability on the Midcap credit facility as of December 31, 2024. We are in compliance with the financial covenants contained within the Credit Agreement as of December 31, 2024.
Net Cash Used in Investing Activities Net cash used in investing activities for the year-ended December 31, 2022 was primarily from the acquisition of Step and Go for $0.6 million.
Net cash used in investing activities was $0.2 million for the year ended December 31, 2024, resulting primarily from the purchase of a minority equity investment in 4th and Heart during the year ended December 31, 2024.
There is no remaining goodwill as of December 31, 2022 and December 31, 2023. 15 Table of Contents Impairment loss on Intangibles Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) Impairment loss on intangibles $ 3,118 $ 39,728 $ 36,610 1,174.2 % Certain asset groups experienced a significant decrease in sales and contribution margin through December 31, 2022.
Impairment loss on Intangibles December 31, December 31, Change 2023 2024 Amount % (in thousands, except percentages) Impairment loss on intangibles $ 39,728 $ — $ (39,728 ) (100.0 )% Certain asset groups experienced a significant decrease in sales and contribution margin during the year ended December 31, 2023.
As used herein, Adjusted EBITDA represents EBITDA plus stock-based compensation expense, changes in fair-market value of earn-outs, profit and loss impacts from the issuance of common stock and/or warrants, changes in fair-market value of warrant liability, litigation settlements, impairment on goodwill and intangibles, gain from extinguishment of seller note, restructuring expenses, reserve on barter credits, and other expenses, net.
As used herein, Adjusted EBITDA represents EBITDA plus stock-based compensation expense, changes in fair-market value of warrant liabilities, impairment on intangibles, restructuring expenses, reserve on barter credits, and other expenses, net. As used herein, Adjusted EBITDA as a percentage of net revenue represents Adjusted EBITDA divided by net revenue.
Interest expense, net Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) Interest expense, net $ 2,603 $ 1,421 $ (1,182 ) (45.4 )% The decrease in interest expense, net of $1.2 million is primarily relating to a decrease in interest expense of $0.6 million due to lower average borrowings compared to the prior period and an increase in interest income of $0.6 million compared to the prior period. 16 Table of Contents Gain on extinguishment of seller note Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) Gain on extinguishment of seller note $ (2,012 ) $ — $ 2,012 (100.0 )% The gain on extinguishment of seller note during the year-ended December 31, 2022 was attributable to the settlement of the Truweo seller note, which resulted in a $2.0 million gain on extinguishment of seller note upon the extinguishment of debt.
Interest expense, net December 31, December 31, Change 2023 2024 Amount % (in thousands, except percentages) Interest expense, net $ 1,421 $ 949 $ (472 ) (33.2 )% The decrease in interest expense, net of $0.5 million is primarily relating to a decrease in interest expense of $0.9 million and an increase in interest income of $0.4 million compared to the prior period due to lower average borrowings.
Expenses: Research and Development Expenses —Research and development expenses include compensation and employee benefits for technology development employees, travel-related costs and fees paid to outside consultants related to the development of our intellectual property.
Expenses: Research and Development Expenses —Research and development expenses include compensation and employee benefits for technology development employees, travel-related costs and fees paid to outside consultants related to the development of our intellectual property. During the year ended December 31, 2024, the Company shifted its technology platform away from a fully internally developed model to an integrated third party model.
Restructuring —On May 9, 2023, the Company announced a plan to reduce expenses by implementing a reduction in its current workforce impacting approximately 50 employees and 15 contractors, primarily in the Philippines. The Company recognized restructuring charges $1.6 million for the year-ended December 31, 2023, respectively.
All share and per share data in this Annual Report on Form 10-K have been retroactively adjusted to reflect the Reverse Stock Split. Restructuring —On May 9, 2023, the Company announced a plan to reduce expenses by implementing a reduction in its current workforce impacting approximately 50 employees and 15 contractors, primarily in the Philippines.
This decrease is primarily attributable to lower stock-compensation expense of $2.6 million and lower salary expense of $1.8 million due to the restructuring activities that occurred during the year-ended December 31, 2023, partially offset by an increase in restructuring costs of $0.6 million.
This decrease is primarily attributable to a decrease in headcount expense of $1.6 million, a decrease in stock-based compensation expenses of $0.7 million and a decrease in restructuring costs of $0.4 million, partially offset by an increase in expenses related to a new Amazon Seller Program of $0.8 million.
On February 8, 2024, the Company committed to a fixed cost-cutting plan, including a reduction in workforce which will result in the termination of approximately 21 employees and 27 contractors globally. The Company expects to substantially complete this reduction by the end of the first quarter of 2024.
The Company recognized restructuring charges of $1.6 million for the year ended December 31, 2023. On February 8, 2024, the Company committed to a fixed cost-cutting plan, including a reduction in workforce which resulted in the termination of approximately 17 employees and 26 contractors globally.
Intangible asset valuation —We review long-lived assets for impairment when performance expectations, events, or changes in circumstances indicate that the asset's carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows by comparing the carrying value of the asset group to the undiscounted cash flows.
The fair value of warrant liabilities was $1.0 million and $0.1 million at December 31, 2023 and 2024, which is included in accrued expenses and other current liabilities on the Consolidated Balance Sheets. Intangible asset valuation —We review long-lived assets for impairment when performance expectations, events, or changes in circumstances indicate that the asset's carrying value may not be recoverable.
Overview We are 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.
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. Our primary brands include Squatty Potty, HomeLabs, Mueller Living, PurSteam, Healing Solutions, and Photo Paper Direct ("PPD").
This increase in sales and distribution expenses as a percentage of revenue is predominantly due to product mix, an increase in provider fulfillment fees, and an increase in online advertising costs. 14 Table of Contents Research and Development Expenses Year Ended December 31, Change 2022 2023 Amount % (in thousands, except percentages) Research and development expenses $ 6,012 $ 4,616 $ (1,396 ) (23.2 )% The decrease in research and development expenses was primarily the result of a decrease in headcount expense of $1.5 million and a decrease in stock compensation expense of $0.5 million, partially offset by an increase in restructuring expense of $0.5 million.
This decrease in sales and distribution expenses as a percentage of revenue is primarily due to product mix and a decrease in logistics costs. 16 Table of Contents Research and Development Expenses December 31, December 31, Change 2023 2024 Amount % (in thousands, except percentages) Research and development expenses $ 4,616 $ — $ (4,616 ) (100.0 )% During the year ended December 31, 2024, the Company shifted its technology platform away from a fully internally developed model to an integrated third party model.
Year Ended December 31, 2022 2023 (in thousands) Heating, cooling and air quality $ 67,797 $ 34,686 Kitchen appliances 40,551 24,181 Health and beauty 17,485 16,025 Personal protective equipment 1,564 549 Cookware, kitchen tools and gadgets 19,526 11,696 Home office 13,322 9,781 Housewares 33,041 26,093 Essential oils and related accessories 23,604 17,204 Other 4,280 2,351 Total net revenue $ 221,170 $ 142,566 Net revenue decreased $78.6 million, or 35.5%, during the year-ended December 31, 2023 to $142.6 million, compared to $221.2 million for the year-ended December 31, 2022.
December 31, December 31, 2023 2024 (in thousands) Heating, cooling and air quality $ 34,686 $ 26,398 Kitchen appliances 24,181 9,565 Health and beauty 16,025 13,467 Cookware, kitchen tools and gadgets 11,696 5,924 Home office 9,781 8,017 Housewares 26,093 22,521 Essential oils and related accessories 17,204 12,719 Other 2,900 434 Total net revenue $ 142,566 $ 99,045 Every category of business had a reduction in sales compared to the prior year primarily relating to the SKU rationalization that took place during the year ended December 31, 2024 and softness in consumer demand due the macroeconomic environment.
The decrease in net revenue was primarily attributable to a decrease in direct net revenue of $75.8 million, or a 35.4% decrease, which was due to softness in consumer demand due to the current macroeconomic environment and due to competitive pricing pressure and other competitive dynamics on marketplaces, partially offset by liquidation of higher priced excess inventory during the year ended December 31, 2023.
The decrease in net revenue was primarily attributable to a decrease in direct net revenue of $41.1 million, or 29.7%, which was primarily relating to a reduction in our product offering due to our SKU rationalization, competitive pricing pressure and other competitive dynamics on marketplaces.
Net Cash Provided by Financing Activities For the year-ended December 31, 2022, cash provided by financing activities of $27.0 million was primarily from the net proceeds from the March and October 2022 equity raise of $46.8 million partially offset by the net repayment of borrowings from the Midcap credit facility of $12.2 million, the payment of earn-out to Squatty Potty of $4.0 million, and the repayment of note to Smash of $3.4 million.
For the year ended December 31, 2024, cash used in financing activities of $4.9 million primarily from the net repayments for our MidCap credit facility of $4.3 million and repayment of seller notes of $0.6 million.
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Cost of Goods Sold —Cost of goods sold consists of the book value of inventory sold to customers during the reporting period and the amortization of inventory step-up from acquisitions.
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Overview We are a technology-enabled consumer products company that predominantly operates through online retail channels such as Amazon, Walmart, and Target and its own direct to consumer websites.
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Direct net revenue consists of both organic net revenue and net revenue from our mergers and acquisitions (“M&A”). For the year-ended December 31, 2023, organic revenue was $138.2 million and revenue from our M&A businesses was $0.2 million. For the year-ended December 31, 2022, organic revenue was $201.9 million and revenue from our M&A businesses was $11.5 million.
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During the year ended December 31, 2023, the Company enacted a strategy to reduce the number of SKUs it sells and is no longer pursuing future sales of SKUs that are either not profitable or not core to the Company’s strategy.
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Every category of business had a reduction in sales compared to the prior year primarily relating to softness in consumer demand due the macroeconomic environment and as a result of the SKU rationalization that took place during the year-ended December 31, 2023.
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For the year ended December 31, 2024, technology and employee related costs have been presented in general and administrative costs on the Consolidated Statement of Operations.
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Gross profit increased from 47.7% for the year-ended December 31, 2022 to 49.3% for the year-ended December 31, 2023.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Item 1C. Cybersecurity We have processes in place for assessing, identifying, and managing material risks from potential unauthorized occurrences on or through our information systems that could adversely affect the confidentiality, integrity, or availability of our information systems or the information residing on those systems.
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Item 1C. Cybersecurity 12 Item 2. Properties 12 Item 3. Legal Proceedings 12 Item 4. Mine Safety Disclosures 12 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13 Item 6. Reserved 13 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14 Item 7A.
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These include a wide variety of mechanisms, controls, technologies, methods, systems, and other processes that are designed to prevent, detect, or mitigate data loss, theft, misuse, unauthorized access, or other security incidents or vulnerabilities affecting the data.
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Quantitative and Qualitative Disclosures About Market Risk 24 Item 8. Financial Statements and Supplementary Data F-1
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The data includes confidential, proprietary, and business and personal information that we collect, process, store, and transmit as part of our business, including on behalf of third parties.
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We also use systems and processes designed to reduce the impact of a security incident at a third-party vendor or customer, including assessment and monitoring of security standards and control procedures for external suppliers and vendors, with enhanced engagement or internal controls depending on the results of the assessment.
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Additionally, we use processes to oversee and identify material risks from cybersecurity threats associated with our use of third-party technology and systems, including: technology and systems we use for encryption and authentication; employee email; content delivery to customers; back-office support; and other functions.
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As part of our risk management process, we conduct application security assessments, vulnerability management, security audits, and ongoing risk assessments. We also maintain a variety of incident response plans that are utilized when incidents are detected. We require employees with access to information systems, including all corporate employees, to undertake data protection and cybersecurity training and compliance programs annually.
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We have a unified and centrally coordinated team, led by our Chief Technology Officer and our General Counsel, that is responsible for implementing and maintaining centralized cybersecurity and data protection practices at Aterian in close coordination with senior leadership and other teams across Aterian.
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In addition to our in-house cybersecurity capabilities, at times we also engage assessors, consultants, auditors, or other third parties to assist with assessing, identifying, and managing cybersecurity risks. These third parties also consult on best practices to address new challenges upon request.
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Our cybersecurity risks and associated mitigations are evaluated by senior leadership, including as part of our risk assessments that are reviewed by the Audit Committee and our Board of Directors.
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As of the date of this report, the Company is not aware of any material risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.
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Despite the extensive approach we take to cybersecurity, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on the Company or its stakeholders.
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Additional information about cybersecurity risks we face is discussed in Item 1A of Part I, “Risk Factors,” under the heading “Risks Related to Information and Cyber Security,” which should be read in conjunction with the information above.
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The Audit Committee, which is comprised of independent directors, oversees our policies and procedures for protecting our cybersecurity infrastructure and for compliance with applicable data protection and security regulations, and related risks. The Audit Committee receives reports regarding such risks from management, including our Chief Technology Officer, and reports to the Board at least quarterly.
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The Audit Committee also oversees the Board’s response to any significant cybersecurity incidents.
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Our Chief Technology Officer, who has extensive cybersecurity knowledge and skills gained from over ten years working in the technology industry, heads the team responsible for implementing and maintaining cybersecurity and data protection practices at Aterian, working closely with our General Counsel who has a certification in Data Security and Privacy Policy from Cornell University.
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Both our Chief Technology Officer and General Counsel report directly to one of our co-CEOs.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. As of December 31, 2023, our principal place of business and corporate headquarters was our Summit, New Jersey office which is leased for a term of one year expiring April 2024. Our UK office is a building we own, and our China office is leased for a term of two years expiring in May 2024.
Biggest changeItem 2. Properties. As of December 31, 2024, our principal place of business and corporate headquarters was our Summit, New Jersey office which is leased for a term of one year expiring in September 2025. Our UK office is a building we own, and our China office is leased for a term of one year expiring in May 2025.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans See Item 12 of Part III of this Annual Report regarding information about securities authorized for issuance under our equity compensation plans. Unregistered Sales of Equity Securities None Purchase of Equity Securities None
Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans See Item 12 of Part III of this Annual Report regarding information about securities authorized for issuance under our equity compensation plans.
Many shares of common stock are held by brokerage firms, banks, other financial institutions as nominees for beneficial owners. Accordingly, we are unable to estimate the total number of stockholders represented by these record holders. Dividends We have never declared or paid any cash dividends on our capital stock.
Many shares of common stock are held by brokerage firms, banks, and other financial institutions as nominees for beneficial owners. Accordingly, we are unable to estimate the total number of stockholders represented by these record holders. Dividends We have never declared or paid any cash dividends on our capital stock.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the Nasdaq Capital Market under the symbol “ATER”. Holders of Record As of December 31, 2023, there were approximately 136 holders of record of our common stock.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the Nasdaq Capital Market under the symbol “ATER”. Holders of Record As of December 31, 2024, there were approximately 120 holders of record of our common stock.
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Unregistered Sales of Equity Securities None Purchase of Equity Securities On March 14, 2025, the Board of Directors authorized a share repurchase program to acquire up to $3.0 million of the Company’s common stock.
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The Company may purchase common stock on the open market, through privately negotiated transactions, or by other means including through the use of trading plans intended to qualify under Rule 10b-18 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions.
Added
The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The share repurchase program will have a term of 24 months and may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock.
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The objective of this program is to repurchase shares of common stock opportunistically when management believes that the Company’s stock is trading below the Company’s determination of long-term fair value. The shares of common stock when repurchased by the Company will be retired.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeSales outside of the U.S. represented approximately 2% and 4% of our net revenue for the years-ended December 31, 2022 and 2023, respectively.
Biggest changeSales outside of the U.S. represented approximately 4% and 6% of our net revenue for the years-ended December 31, 2023 and 2024, respectively.
We do not believe that inflation had a material effect on our business, financial condition or results of operations for the years-ended December 31, 2022 and December 31, 2023. 25 Table of Contents
We do not believe that inflation had a material effect on our business, financial condition or results of operations for the years-ended December 31, 2023 and December 31, 2024. 24 Table of Contents
As of December 31, 2023, our outstanding indebtedness under the Credit Facility was $11.1 million, which bears interest at a rate of Term Secured Overnight Financing Rate ("Term SOFR"), which is defined as SOFR plus 0.10%, plus 5.50%.
As of December 31, 2024, our outstanding indebtedness under the Credit Facility was $6.9 million, which bears interest at a rate of Term Secured Overnight Financing Rate ("Term SOFR"), which is defined as SOFR plus 0.10%, plus 5.50%.

Other ATER 10-K year-over-year comparisons