Aterian(ATER) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information Registrant Information This section details Aterian, Inc.'s registrant information for its 10-Q report, including company specifics, stock ticker, and exchange, confirming compliance with reporting requirements - Company Name: Aterian, Inc.[2] - Jurisdiction of Incorporation: Delaware[2] Key Registrant Details | Metric | Detail | | :--- | :--- | | Ticker Symbol | ATER | | Registered Exchange | The Nasdaq Stock Market LLC | - The company is designated as a non-accelerated filer and a smaller reporting company[4] - As of August 12, 2025, 9,985,104 shares of common stock were outstanding[5] Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Forward-Looking Statements Disclaimer This section warns investors that the quarterly report contains forward-looking statements whose actual results may differ materially, advising review of the "Risk Factors" section - This report contains "forward-looking statements," and actual results may differ significantly from these statements[8] - The company does not undertake any obligation to publicly revise these forward-looking statements, unless required by law[9] - Investors should carefully consider the factors discussed in the "Risk Factors" section[8] PART I—FINANCIAL INFORMATION Item 1. Financial Statements. This section presents Aterian, Inc.'s unaudited condensed consolidated financial statements and notes, covering financial position and operating results for periods ending June 30, 2025 Condensed Consolidated Balance Sheets As of June 30, 2025, total assets decreased to $45.421 million from $49.542 million, while total liabilities increased and stockholders' equity decreased Condensed Consolidated Balance Sheets (Thousand Dollars) | Metric (Thousand Dollars) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash | 10,495 | 17,998 | | Inventory | 18,496 | 13,749 | | Total Assets | 45,421 | 49,542 | | Credit Facility | 7,248 | 6,948 | | Accounts Payable | 6,124 | 3,080 | | Total Liabilities | 21,128 | 19,525 | | Total Stockholders' Equity | 24,293 | 30,017 | Condensed Consolidated Statements of Operations Net revenue for the three months ended June 30, 2025, decreased 30.5% to $19.462 million, with net loss increasing to $4.860 million and diluted loss per share to $0.63 Condensed Consolidated Statements of Operations (Thousand Dollars) | Metric (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | 19,462 | 27,984 | 34,822 | 48,199 | | Cost of Goods Sold | 8,896 | 11,093 | 14,832 | 18,139 | | Gross Profit | 10,566 | 16,891 | 19,990 | 30,060 | | Operating Loss | (4,505) | (3,205) | (8,201) | (8,482) | | Net Loss | (4,860) | (3,629) | (8,756) | (8,791) | | Basic and Diluted Net Loss Per Share | (0.63) | (0.52) | (1.16) | (1.28) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss for the three months ended June 30, 2025, increased to $4.512 million, while for six months, it decreased to $8.273 million, mainly due to foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Loss (Thousand Dollars) | Metric (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | (4,860) | (3,629) | (8,756) | (8,791) | | Foreign Currency Translation Adjustment | 348 | 20 | 483 | (29) | | Comprehensive Loss | (4,512) | (3,609) | (8,273) | (8,820) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $24.293 million by June 30, 2025, primarily due to a $8.756 million net loss, partially offset by stock-based compensation and other comprehensive income Condensed Consolidated Stockholders' Equity (Thousand Dollars) | Metric (Thousand Dollars) | January 1, 2025 | June 30, 2025 | | :--- | :--- | :--- | | Total Stockholders' Equity | 30,017 | 24,293 | | Net Loss | - | (8,756) | | Stock-Based Compensation Expense | - | 2,549 | | Other Comprehensive Income | - | 483 | Condensed Consolidated Stockholders' Equity (Thousand Dollars) | Metric (Thousand Dollars) | January 1, 2024 | June 30, 2024 | | :--- | :--- | :--- | | Total Stockholders' Equity | 36,031 | 30,887 | | Net Loss | - | (8,791) | | Stock-Based Compensation Expense | - | 3,006 | | Other Comprehensive Loss | - | (29) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, operating activities used $8.287 million cash, investing activities used $6 thousand, and financing activities provided $388 thousand Condensed Consolidated Statements of Cash Flows (Thousand Dollars) | Metric (Thousand Dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | (8,287) | 2,896 | | Net Cash Used in Investing Activities | (6) | (242) | | Net Cash Provided by (Used in) Financing Activities | 388 | (2,336) | | Effect of Foreign Currency on Cash and Restricted Cash | 448 | (29) | | Net Change in Cash and Restricted Cash During Period | (7,457) | 289 | | Cash and Restricted Cash, End of Period | 11,686 | 22,484 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements, covering company overview, accounting policies, asset/liability composition, credit, equity, and subsequent events 1. COMPANY OVERVIEW Aterian, Inc. is a consumer products company operating primarily through online retail channels like Amazon, Walmart, and Target, as well as its direct-to-consumer websites - The company primarily sells consumer products through online retail channels (e.g., Amazon, Walmart, Target) and its direct-to-consumer websites[29] - Key brands include Squatty Potty, HomeLabs, Mueller Living, PurSteam, Healing Solutions, and Photo Paper Direct (PPD)[30] - The company is headquartered in New Jersey, with offices in China, the Philippines, and the United Kingdom[31] - The company has incurred continuous losses and negative operating cash flows since inception, expecting continued losses and negative cash flows in the near term, but anticipates gradual profitability improvement with scale[32] Liquidity and Going Concern The company faces significant going concern doubts due to continuous losses, negative operating cash flow, accumulated deficit, and reliance on external capital, exacerbated by new tariffs - The company has incurred continuous losses since inception, with a net loss of $8.8 million for the six months ended June 30, 2025, operating cash outflow of $8.3 million, and an accumulated deficit of $720.4 million[35] - Changes in U.S. trade policy, particularly tariffs on Chinese imports, have significantly increased the company's cost of goods sold, pressuring profit margins[33] - The company announced a fixed cost reduction plan on May 14, 2025, including approximately 20 employee layoffs, expected to save $5 million to $6 million annually[39] - The company currently has no firm commitments for additional external capital, and if unable to generate cash from operations or obtain external capital, it may not meet its obligations over the next 12 months[38] - Despite progress in reducing operating losses and strengthening the balance sheet, uncertainties in business operations and forecasts raise substantial doubt about the company's ability to continue as a going concern[41] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the significant accounting policies used in preparing the condensed consolidated financial statements, including presentation basis, estimates, consolidation, and revenue recognition Basis of Presentation The condensed consolidated financial statements and notes are prepared in accordance with U.S. GAAP - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP[43] Unaudited Interim Financial Information Interim condensed consolidated financial statements are unaudited, include management's necessary adjustments, and do not necessarily indicate future performance - The interim condensed consolidated financial statements are unaudited and include normal recurring adjustments deemed necessary by management[44][46] - Results for the three and six months ended June 30, 2025, are not necessarily indicative of results for the year ended December 31, 2025, or any future period[44] Use of Estimates Financial statement preparation requires management estimates and assumptions affecting reported amounts, which are continuously evaluated, but actual results may differ - Financial statement preparation requires management to make estimates and assumptions affecting reported amounts[47] - Management continuously evaluates estimates and assumptions, but actual results may differ from estimates[47] Principles of Consolidation The condensed consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries, with all intercompany balances and transactions eliminated - The condensed consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries, with all intercompany balances and transactions eliminated[48] Restricted Cash As of June 30, 2025, restricted cash includes $0.1 million related to Chinese subsidiaries and $1.1 million for letters of credit and the Midcap credit facility cash sweep account Restricted Cash Categories (Million Dollars) | Restricted Cash Category (Million Dollars) | June 30, 2025 | | :--- | :--- | | Related to Chinese Subsidiaries | 0.1 | | Related to Letters of Credit | 1.0 | | Related to Midcap Credit Facility Cash Sweep Account | 0.1 | | Total | 1.2 | Restricted Cash Categories (Million Dollars) | Restricted Cash Category (Million Dollars) | December 31, 2024 | | :--- | :--- | | Related to Chinese Subsidiaries | 0.1 | | Related to Letters of Credit | 1.0 | | Total | 1.1 | Inventory and Cost of Goods Sold Company inventory, primarily finished goods, is valued at the lower of FIFO or net realizable value; cost of goods sold includes manufacturing, duties, and freight - The company's inventory consists almost entirely of finished goods, valued at the lower of FIFO or net realizable value[51] - Cost of goods sold includes product manufacturing costs, duties, shipping, and freight[51] - Inventory valuation requires management judgment based on historical data and market conditions, and future changes in assumptions could lead to additional inventory write-downs[51] Accounts Receivable Accounts receivable are presented at historical cost less an allowance for credit losses; as of June 30, 2025, the company had no allowance for credit losses, compared to $147 thousand as of December 31, 2024 - Accounts receivable are presented at historical cost less an allowance for credit losses[53] Allowance for Credit Losses (Thousand Dollars) | Metric (Thousand Dollars) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Allowance for Credit Losses | — | (147) | Revenue Recognition Revenue is recognized under ASC Topic 606 from consumer product sales when control transfers to the customer, typically upon shipment - The company recognizes revenue under ASC Topic 606, primarily from consumer product sales[54] - Revenue is recognized when control of the product transfers to the customer, typically on the shipment date[56] - Platform fees are recorded in sales and distribution expenses, not as a reduction of revenue, because the company owns and controls all goods before transfer to customers[58] Sales Return Refund Liability (Million Dollars) | Metric (Million Dollars) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Sales Return Refund Liability | 0.2 | 0.3 | Net Revenue by Category For the three months ended June 30, 2025, net revenue was $19.462 million, with North America contributing $18.198 million and direct sales remaining the primary source Net Revenue by Category (Thousand Dollars) | Category (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | North America Direct Sales | 16,581 | 26,300 | | North America Wholesale/Other | 1,617 | 155 | | Other Regions Direct Sales | 1,264 | 1,529 | | Total Net Revenue | 19,462 | 27,984 | Net Revenue by Category (Thousand Dollars) | Category (Thousand Dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | North America Direct Sales | 30,168 | 45,020 | | North America Wholesale/Other | 2,023 | 300 | | Other Regions Direct Sales | 2,631 | 2,879 | | Total Net Revenue | 34,822 | 48,199 | Net Revenue by Product Categories For the three months ended June 30, 2025, net revenue was $19.462 million, with heating, cooling, and air quality products contributing $4.836 million Net Revenue by Product Category (Thousand Dollars) | Product Category (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Heating, Cooling, and Air Quality | 4,836 | 10,396 | | Kitchen Appliances | 3,288 | 2,111 | | Health & Beauty | 1,898 | 3,431 | | Cookware, Kitchen Tools & Gadgets | 421 | 1,294 | | Home Office | 1,690 | 2,310 | | Home Goods | 3,892 | 5,046 | | Essential Oils & Related Accessories | 3,431 | 3,236 | | Other | 6 | 160 | | Total Net Revenue | 19,462 | 27,984 | Net Revenue by Product Category (Thousand Dollars) | Product Category (Thousand Dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Heating, Cooling, and Air Quality | 6,175 | 13,600 | | Kitchen Appliances | 5,080 | 4,032 | | Health & Beauty | 4,952 | 6,744 | | Cookware, Kitchen Tools & Gadgets | 1,321 | 2,690 | | Home Office | 3,274 | 4,341 | | Home Goods | 7,847 | 9,932 | | Essential Oils & Related Accessories | 6,164 | 6,443 | | Other | 9 | 417 | | Total Net Revenue | 34,822 | 48,199 | Intangibles The company reviews long-lived assets for impairment when events indicate carrying value may not be recoverable, performing recoverability tests due to new tariffs without recognizing impairment - The company reviews long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable[62] - As of June 30, 2025, due to concerns about revenue and profitability from new tariffs, the company performed a recoverability test but did not recognize an impairment loss[64] - For the three and six months ended June 30, 2024, no triggering events required testing for intangible asset impairment losses[65] Fair Value of Financial Instruments Financial instruments are recorded at historical cost, with warrant liabilities measured at fair value, decreasing to $19 thousand as of June 30, 2025 - The company's financial instruments (including net accounts receivable, accounts payable, and accrued and other current liabilities) are recorded at historical cost, with their carrying values approximating fair values[67] - Warrant liabilities related to the March 2022 common stock offering are measured at fair value using the Black-Scholes model[68] Fair Value of Warrant Liabilities (Thousand Dollars) | Metric (Thousand Dollars) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Fair Value of Warrant Liabilities | 19 | 109 | Recent Accounting Pronouncements The company is evaluating recent accounting pronouncements, including ASU 2023-09 (income taxes) and ASU 2024-03 (expense disaggregation), for future adoption and disclosure - FASB issued ASU 2023-09 in August 2023, requiring enhanced income tax disclosure transparency, which the company will adopt in its annual report for the year ended December 31, 2025[71] - FASB issued ASU 2024-03 in November 2024, requiring disaggregation of income statement expense information, which the company is evaluating and will adopt for fiscal years beginning after December 15, 2026[72] 3. ACCOUNTS RECEIVABLE Net accounts receivable decreased to $3.032 million as of June 30, 2025, from $3.782 million, with no allowance for credit losses recorded at the current period end Accounts Receivable (Thousand Dollars) | Metric (Thousand Dollars) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Trade Accounts Receivable | 3,032 | 3,929 | | Allowance for Credit Losses | — | (147) | | Net Accounts Receivable | 3,032 | 3,782 | 4. INVENTORY Total inventory increased to $18.496 million as of June 30, 2025, from $13.749 million, comprising $14.617 million on-hand and $3.879 million in-transit Inventory (Thousand Dollars) | Metric (Thousand Dollars) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | On-Hand Inventory | 14,617 | 12,484 | | In-Transit Inventory | 3,879 | 1,265 | | Total Inventory | 18,496 | 13,749 | - As of June 30, 2025, the company held approximately $4.0 million in on-hand inventory at Amazon, compared to $3.5 million as of December 31, 2024[76] 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS Total prepaid expenses and other current assets slightly increased to $3.287 million as of June 30, 2025, including $1.061 million in restricted cash and $905 thousand in prepaid insurance Prepaid Expenses and Other Current Assets (Thousand Dollars) | Metric (Thousand Dollars) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Prepaid Inventory | 477 | 904 | | Restricted Cash | 1,061 | 1,015 | | Prepaid Software | 444 | 456 | | Prepaid Insurance | 905 | 528 | | Prepaid Freight Forwarder | 147 | 145 | | Other | 253 | 142 | | Total Prepaid and Current Assets | 3,287 | 3,190 | 6. ACCRUED AND OTHER CURRENT LIABILITIES Total accrued and other current liabilities decreased to $7.149 million as of June 30, 2025, with accrued compensation significantly reduced and new accrued restructuring costs Accrued and Other Current Liabilities (Thousand Dollars) | Metric (Thousand Dollars) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accrued Compensation Costs | 14 | 2,500 | | Accrued Restructuring Costs | 1,432 | — | | Accrued Professional and Consulting Fees | 177 | 235 | | Sales Return Reserve | 694 | 989 | | Accrued Insurance Premium Financing | 602 | 305 | | Warrant Liabilities | 19 | 109 | | Total Accrued and Current Liabilities | 7,149 | 8,804 | 7. CREDIT FACILITY AND WARRANTS This section details the company's credit and security agreement with MidCap Funding IV Trust, including terms, amendments, financial covenants, and related warrants MidCap Credit Facility The MidCap credit facility, amended in February 2024 to extend its term and reduce minimum liquidity covenants, had a balance of $7.248 million as of June 30, 2025, with the company in compliance - The company entered into a credit agreement with MidCap on December 22, 2021, for a revolving credit facility of up to $40.0 million[79] - The credit facility was amended on February 23, 2024, extending the term to December 2026 and reducing the minimum liquidity financial covenant from $15.0 million to $6.8 million[83] - As of June 30, 2025, the company was in compliance with the financial covenants in the credit agreement[85] MidCap Credit Facility (Thousand Dollars) | Metric (Thousand Dollars) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total MidCap Credit Facility | 7,248 | 6,948 | Interest Expense, Net Net interest expense for the three months ended June 30, 2025, was $222 thousand, remaining flat, while for six months, it decreased to $397 thousand Net Interest Expense (Thousand Dollars) | Metric (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Interest Expense | 253 | 296 | 474 | 689 | | Interest Income | (31) | (68) | (77) | (137) | | Net Interest Expense | 222 | 228 | 397 | 552 | Securities Purchase Agreement and Warrants In March 2022, the company raised $27.5 million through a private placement of common stock and warrants, with $19 thousand in unexercised warrant liabilities as of June 30, 2025 - The company raised approximately $27.5 million in March 2022 through a private placement of common stock and warrants[89] - As of June 30, 2025, 590,637 common stock warrants remain unexercised and are recorded as a $19 thousand liability on the company's condensed consolidated balance sheets[89] 8. STOCK-BASED COMPENSATION The company operates multiple equity incentive plans, with 841,603 shares available for future grants under the 2018 plan and $3.2 million in unrecognized stock-based compensation expense - The company maintains the 2014 Amended and Restated Equity Incentive Plan, the 2018 Equity Incentive Plan, and the 2022 Inducement Equity Incentive Plan[90][91][93] Shares Available for Future Grant | Plan Name | Shares Available for Future Grant as of June 30, 2025 | | :--- | :--- | | 2018 Equity Incentive Plan | 841,603 | | 2022 Inducement Equity Incentive Plan | 193,476 | - As of June 30, 2025, total unrecognized compensation expense related to unvested restricted common stock was $3.2 million, expected to be recognized over a weighted-average period of 1.85 years[98] Stock-Based Compensation Expense (Thousand Dollars) | Metric (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Sales and Distribution Expenses | 125 | 946 | 317 | 1,245 | | General and Administrative Expenses | (3) | 1,975 | 588 | 3,343 | | Total Stock-Based Compensation Expense | 122 | 2,921 | 905 | 4,588 | 9. NET LOSS PER SHARE Basic and diluted net loss per share are calculated by dividing net loss by weighted-average common shares outstanding, with both being equal due to the company's net loss position - Basic and diluted net loss per share are calculated by dividing net loss by the weighted-average number of common shares outstanding during the period[100] - Since the company is in a net loss position, all common stock purchase options are considered anti-dilutive, resulting in equal basic and diluted net loss per share[100] Net Loss Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Loss (Thousand Dollars) | (4,860) | (3,629) | (8,756) | (8,791) | | Weighted-Average Shares Outstanding (Thousands) | 7,674,910 | 6,973,218 | 7,564,523 | 6,881,648 | | Basic and Diluted Net Loss Per Share | (0.63) | (0.52) | (1.16) | (1.28) | 10. COMMITMENTS AND CONTINGENCIES This section discloses potential sales tax liabilities of approximately $0.7 million and legal proceedings, with the company maintaining sufficient insurance coverage to mitigate risks Sales or Other Similar Taxes The company estimates potential sales tax liabilities of approximately $0.7 million due to past sales in certain states before establishing nexus, recorded in accrued liabilities - The company estimates potential sales tax liabilities (including current sales tax payable) of approximately $0.7 million, recorded in accrued and other current liabilities[103] Legal Proceedings The company is involved in various legal proceedings and claims, but believes their ultimate outcome will not materially adversely affect its financial position or operating results - The company is subject to various legal proceedings and claims from time to time, but believes the ultimate outcome will not materially adversely affect its financial position or operating results[104] - The company maintains adequate insurance coverage to further mitigate risks[104] 11. INTANGIBLES Net book value of intangible assets decreased to $8.975 million as of June 30, 2025, primarily comprising trademarks and customer relationships, with $8.975 million in total expected future amortization Intangible Assets (Thousand Dollars) | Intangible Asset Category (Thousand Dollars) | Net Book Value as of June 30, 2025 | Net Book Value as of December 31, 2024 | | :--- | :--- | :--- | | Trademarks | 5,628 | 6,119 | | Customer Relationships | 3,325 | 3,610 | | Software | 22 | 28 | | Total Intangible Assets | 8,975 | 9,757 | Estimated Amortization Expense (Thousand Dollars) | Amortization Year | Estimated Amortization (Thousand Dollars) | | :--- | :--- | | Remaining 2025 | 782 | | 2026 | 1,564 | | 2027 | 1,554 | | 2028 | 1,551 | | 2029 | 1,551 | | 2030 | 1,529 | | Thereafter | 444 | | Total | 8,975 | 12. RESTRUCTURING The company announced a fixed cost reduction plan on May 14, 2025, including approximately 20 employee layoffs, incurring $1.8 million in restructuring charges and expecting $5 million to $6 million in annual savings - The company announced a fixed cost reduction plan on May 14, 2025, including approximately 20 employee layoffs, expected to be completed by the end of Q3 2025[106] - For the three and six months ended June 30, 2025, the company recognized approximately $1.8 million in restructuring charges, primarily related to severance[106][110] - The plan is expected to result in annual savings of approximately $5 million to $6 million[106] Restructuring Costs (Thousand Dollars) | Restructuring Cost Category (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Employee Severance | 1,795 | 132 | 1,795 | 683 | | Other Restructuring Costs | — | (115) | — | (108) | | Total Restructuring Costs | 1,795 | 17 | 1,795 | 575 | - As of June 30, 2025, the company's restructuring liability was $1.4 million, recorded in accrued expenses and other current liabilities[111] 13. SEGMENT INFORMATION Aterian, Inc. operates as a single operating segment, with the CEO evaluating financial performance and allocating resources based on consolidated operating margin and net income - The company is identified as a single operating segment[113] - The Chief Operating Decision Maker (CEO) evaluates financial performance and allocates resources based on consolidated operating margin and net income[113] Segment Information (Thousand Dollars) | Metric (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | 19,462 | 27,984 | 34,822 | 48,199 | | Cost of Goods Sold | 8,896 | 11,093 | 14,832 | 18,139 | | Variable Cost of Goods Sold | 9,048 | 12,024 | 16,421 | 22,345 | | Other Vendor and Compensation Expenses | 5,497 | 4,721 | 10,053 | 10,751 | | Net Loss | (4,860) | (3,629) | (8,756) | (8,791) | 14. SUBSEQUENT EVENTS On July 4, 2025, the U.S. enacted the OBBBA, extending tax provisions and modifying international tax frameworks, which the company is currently assessing for financial statement impact - On July 4, 2025, the U.S. enacted the Omnibus Budget Reconciliation Act (OBBBA), which includes permanently extending certain expiring provisions of the Tax Cuts and Jobs Act, modifying international tax frameworks, and reinstating preferential tax treatment for certain business provisions[117] - The company is currently evaluating the impact of this act on its consolidated financial statements[117] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's discussion and analysis of the company's financial condition and operating results, highlighting macroeconomic factors, tariffs, and restructuring impacts Overview Aterian is a consumer products company selling proprietary brands across various categories through online retail channels and its direct-to-consumer websites - The company primarily sells consumer products through online retail channels (e.g., Amazon, Walmart, Target) and its direct-to-consumer websites[120] - Key brands include Squatty Potty, HomeLabs, Mueller Living, PurSteam, Healing Solutions, and Photo Paper Direct (PPD)[121] Seasonality of Business and Product Mix Product sales are seasonal, with environmental appliances peaking in summer and other categories in Q4, while global supply chain costs and geopolitical events impact margins - Environmental appliance products experience significantly higher sales during the summer months[122] - Essential oils, small kitchen appliances, and accessories typically see higher sales in the fourth quarter, including Thanksgiving and Christmas[122] - Global supply chain costs, lead times, delays, and global and geopolitical events directly impact the company's profit margins[123] Financial Operations Overview This section outlines key financial operations, including net revenue sources, cost of goods sold impacted by tariffs, and the composition of sales, general, and administrative expenses Net Revenue Company revenue primarily stems from U.S. consumer product sales via online retail and direct-to-consumer channels, recognized when product control transfers to the customer - The company's revenue primarily derives from selling consumer products in the U.S. through online retail channels and its direct-to-consumer websites[124] - Revenue is recognized when control of the product transfers to the customer, typically on the shipment date[124] Cost of Goods Sold Cost of goods sold includes inventory book value, manufacturing costs, duties, and freight, increasing in Q1 and Q2 2025 due to new U.S. tariffs on Chinese imports - Cost of goods sold includes the book value of inventory, encompassing manufacturer product costs, duties, and shipping and freight[125] - In Q1 and Q2 2025, new tariffs imposed by the U.S. government on Chinese imports led to increased cost of goods sold[126] - The company partially offset increased costs through price increases, which resulted in lower sales volume[126] Expenses This section details the company's expenses, including sales and distribution, general and administrative, and net interest expense, outlining their components and influencing factors Sales and Distribution Expenses Sales and distribution expenses encompass online advertising, marketing, platform commissions, fulfillment, and warehousing costs, fluctuating with sales volume, product mix, and fulfillment methods - Sales and distribution expenses include online advertising, marketing, and promotional costs, sales and e-commerce platform commissions, fulfillment (including shipping and handling), and warehousing costs[128] - These expenses fluctuate with sales volume, product mix, and fulfillment methods (FBM or FBA/WFS)[128] General and Administrative Expenses General and administrative expenses include executive, finance, legal, and HR compensation, facilities, insurance, travel, professional services, and public company costs - General and administrative expenses include cash and stock-based compensation and employee benefits for executive management, financial administration, legal, and human resources departments[129] - They also include facility costs, insurance, travel, professional services, and other general administrative expenses, including costs incurred as a public company[129] Interest Expense, Net Net interest expense includes interest costs from the credit facility and amortization of deferred financing costs and debt discounts - Net interest expense includes interest costs from the credit facility, as well as amortization of deferred financing costs and debt discounts related to the credit facility[130] Results of Operations This section compares operating results for the three and six months ended June 30, 2025 and 2024, showing declines in net revenue and gross profit due to macroeconomic factors and tariffs Comparison of the Three Months Ended June 30, 2025 and 2024 For the three months ended June 30, 2025, net revenue decreased 30.5% to $19.5 million, gross profit fell 37.4%, and net loss increased to $4.9 million Operating Results Comparison (Thousand Dollars) | Metric (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | 19,462 | 27,984 | (8,522) | (30.5)% | | Cost of Goods Sold | 8,896 | 11,093 | (2,197) | (19.8)% | | Gross Profit | 10,566 | 16,891 | (6,325) | (37.4)% | | Operating Loss | (4,505) | (3,205) | (1,300) | (40.6)% | | Net Loss | (4,860) | (3,629) | (1,231) | (33.9)% | Operating Results as Percentage of Net Revenue | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Revenue Percentage | 100.0% | 100.0% | | Cost of Goods Sold Percentage | 45.7% | 39.6% | | Gross Profit Percentage | 54.3% | 60.4% | | Sales and Distribution Expenses Percentage | 63.5% | 54.2% | | General and Administrative Expenses Percentage | 13.9% | 17.6% | | Operating Loss Percentage | (23.1)% | (11.5)% | | Net Loss Percentage | (25.0)% | (13.0)% | Net Revenue Net revenue for the three months ended June 30, 2025, decreased 30.5% to $19.5 million, primarily due to a $10.0 million decline in direct net revenue from tariffs and macroeconomic challenges - For the three months ended June 30, 2025, net revenue decreased 30.5% to $19.5 million year-over-year[134] - Direct net revenue decreased by $10.0 million (35.9%), primarily due to increased sales costs from new tariffs, price increases to mitigate impact, and challenging macroeconomic conditions leading to lower sales volume[134] - Sales across all product categories, except kitchen appliances, decreased compared to the prior year period, mainly due to the macroeconomic environment and price increases from tariffs[134] Cost of Goods Sold and Gross Profit For the three months ended June 30, 2025, cost of goods sold decreased 19.8% to $8.9 million, while gross profit margin declined to 54.3% due to product mix and tariffs - For the three months ended June 30, 2025, cost of goods sold decreased 19.8% to $8.9 million year-over-year, primarily due to lower sales volume[135] - Gross profit margin decreased from 60.4% to 54.3%, primarily due to product mix changes, increased sales costs from new tariffs, and price increases partially offsetting costs[136] Sales and Distribution Expenses Sales and distribution expenses decreased 18.5% to $12.4 million for the three months ended June 30, 2025, but increased as a percentage of net revenue to 63.3% - For the three months ended June 30, 2025, sales and distribution expenses decreased 18.5% to $12.4 million year-over-year, primarily due to lower variable sales and distribution expenses from reduced product volume[138] - Fixed sales and distribution costs (including stock-based compensation) increased from $3.1 million to $3.3 million, primarily due to increased restructuring costs, partially offset by lower stock-based compensation and miscellaneous office expenses[139] - As a percentage of net revenue, sales and distribution expenses increased from 54.2% to 63.3%, primarily due to product mix and increased marketing costs[140] General and Administrative Expenses General and administrative expenses decreased 45.0% for the three months ended June 30, 2025, primarily due to reduced stock-based compensation and headcount costs - For the three months ended June 30, 2025, general and administrative expenses decreased 45.0% year-over-year[142] - This was primarily due to a $2.0 million decrease in stock-based compensation, a $0.4 million reduction in employee headcount expenses, and a $0.5 million decrease in miscellaneous costs, partially offset by a $0.7 million increase in restructuring costs[142] Interest expense, net Net interest expense for the three months ended June 30, 2025, was $222 thousand, remaining relatively flat compared to the prior year period - For the three months ended June 30, 2025, net interest expense was $222 thousand, relatively flat compared to $228 thousand in the prior year period[143] Change in fair market value of warrant liabilities The change in fair market value of warrant liabilities for the three months ended June 30, 2025, was a negative $35 thousand, an improvement linked to a decrease in period-end stock price - The change in fair market value of warrant liabilities for the three months ended June 30, 2025, was a negative $35 thousand, an improvement from negative $52 thousand in the prior year period, primarily due to a decrease in period-end stock price[144] Comparison of the Six Months Ended June 30, 2025 and 2024 For the six months ended June 30, 2025, net revenue decreased 27.8% to $34.8 million, gross profit fell 33.5%, and net loss remained flat at $8.8 million Operating Results Comparison (Thousand Dollars) | Metric (Thousand Dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | 34,822 | 48,199 | (13,377) | (27.8)% | | Cost of Goods Sold | 14,832 | 18,139 | (3,307) | (18.2)% | | Gross Profit | 19,990 | 30,060 | (10,070) | (33.5)% | | Operating Loss | (8,201) | (8,482) | 281 | 3.3% | | Net Loss | (8,756) | (8,791) | 35 | 0.4% | Operating Results as Percentage of Net Revenue | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Revenue Percentage | 100.0% | 100.0% | | Cost of Goods Sold Percentage | 42.6% | 37.6% | | Gross Profit Percentage | 57.4% | 62.4% | | Sales and Distribution Expenses Percentage | 63.3% | 58.9% | | General and Administrative Expenses Percentage | 17.7% | 21.1% | | Operating Loss Percentage | (23.6)% | (17.6)% | | Net Loss Percentage | (25.1)% | (18.2)% | Net Revenue Net revenue for the six months ended June 30, 2025, decreased 27.8% to $34.9 million, driven by a $15.1 million decline in direct net revenue due to program changes and tariffs - For the six months ended June 30, 2025, net revenue decreased 27.8% to $34.9 million year-over-year[147] - Direct net revenue decreased by $15.1 million (31.5%), linked to changes in Amazon's marketing affiliate program, price increases due to new tariffs, and weaker consumer demand in the macroeconomic environment[147] - Sales across all product categories, except kitchen appliances, decreased compared to the prior year period, mainly due to the macroeconomic environment and price increases from tariffs[148] Cost of Goods Sold and Gross Profit For the six months ended June 30, 2025, cost of goods sold decreased 18.2% to $14.8 million, while gross profit margin declined to 57.4% due to product mix and tariffs - For the six months ended June 30, 2025, cost of goods sold decreased 18.2% to $14.8 million year-over-year, primarily due to lower sales volume[149] - Gross profit margin decreased from 62.4% to 57.4%, primarily due to product mix changes, increased sales costs from new tariffs, and price increases partially offsetting costs[150] Sales and Distribution Expenses Sales and distribution expenses decreased 22.4% to $22.0 million for the six months ended June 30, 2025, but increased as a percentage of net revenue to 63.1% - For the six months ended June 30, 2025, sales and distribution expenses decreased 22.4% to $22.0 million year-over-year, primarily due to lower variable sales and distribution expenses from reduced product volume[152] - Fixed sales and distribution costs (including stock-based compensation) decreased from $6.0 million to $5.6 million, primarily due to lower stock-based compensation, employee headcount expenses, and miscellaneous office expenses, partially offset by increased restructuring costs[153] - As a percentage of net revenue, sales and distribution expenses increased from 58.9% to 63.1%, primarily due to product mix and increased marketing costs[154] General and Administrative Expenses General and administrative expenses decreased 39.3% for the six months ended June 30, 2025, primarily due to reduced stock-based compensation and headcount costs - For the six months ended June 30, 2025, general and administrative expenses decreased 39.3% year-over-year[156] - This was primarily due to a $2.8 million decrease in stock-based compensation, a $0.8 million reduction in employee headcount expenses, and a $0.8 million decrease in miscellaneous costs, partially offset by a $0.4 million increase in restructuring costs[156] Interest expense, net Net interest expense for the six months ended June 30, 2025, decreased 28.1% to $397 thousand, mainly due to lower average borrowings and reduced interest income - For the six months ended June 30, 2025, net interest expense decreased 28.1% to $397 thousand year-over-year, primarily due to a $0.2 million decrease in interest expense from lower average borrowings and a $0.1 million decrease in interest income[157] Change in fair market value of warrant liabilities The change in fair market value of warrant liabilities for the six months ended June 30, 2025, was a negative $90 thousand, an improvement linked to a decrease in period-end stock price - The change in fair market value of warrant liabilities for the six months ended June 30, 2025, was a negative $90 thousand, an improvement from negative $569 thousand in the prior year period, primarily due to a decrease in period-end stock price[158] Liquidity and Capital Resources This section discusses the company's cash flow, liquidity, and going concern status, highlighting continuous losses, negative operating cash flow, and the impact of tariffs Cash Flows for the Six Months Ended June 30, 2025 and 2024 For the six months ended June 30, 2025, operating activities used $8.3 million cash, investing activities used $6 thousand, and financing activities provided $0.4 million Cash Flows (Thousand Dollars) | Cash Flow Category (Thousand Dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | (8,287) | 2,896 | | Net Cash Used in Investing Activities | (6) | (242) | | Net Cash Provided by (Used in) Financing Activities | 388 | (2,336) | | Effect of Exchange Rates on Cash | 448 | (29) | | Net Change in Cash and Restricted Cash During Period | (7,457) | 289 | Net Cash (Used in) Provided by Operating Activities Net cash used in operating activities for the six months ended June 30, 2025, was $8.3 million, driven by net cash operating loss and working capital outflows for inventory - Net cash used in operating activities for the six months ended June 30, 2025, was $8.3 million, primarily due to a net cash operating loss of $6.7 million and working capital outflows of $1.6 million, linked to summer air quality product procurement and inventory accumulation to avoid high tariffs[161] - For the six months ended June 30, 2024, net cash provided by operating activities was $2.9 million, primarily due to working capital inflows of $7.9 million, related to seasonal air quality product payment timing[162] Net Cash Used in Investing Activities Net cash used in investing activities for the six months ended June 30, 2025, was $6 thousand, primarily for property and equipment purchases - Net cash used in investing activities for the six months ended June 30, 2025, was $6 thousand, primarily for property and equipment purchases[163] - For the six months ended June 30, 2024, net cash used in investing activities was $0.2 million, primarily for minority equity investments[163] Net Cash Provided by (Used in) Financing Activities Net cash provided by financing activities for the six months ended June 30, 2025, was $0.4 million, mainly from MidCap credit facility borrowings and insurance financing - Net cash provided by financing activities for the six months ended June 30, 2025, was $0.4 million, primarily from net borrowings on the MidCap Credit Facility and net proceeds from insurance financing, partially offset by seller note repayments[164] - For the six months ended June 30, 2024, net cash used in financing activities was $2.3 million, primarily for net repayments on the MidCap Credit Facility and payments for insurance obligations[165] Liquidity and Going Concern The company faces significant going concern doubts due to continuous losses, negative operating cash flow, accumulated deficit, and reliance on external capital, exacerbated by new tariffs - The company has incurred continuous losses since inception, with a net loss of $8.8 million for the six months ended June 30, 2025, operating cash outflow of $8.3 million, and an accumulated deficit of $720.4 million[169] - Changes in U.S. trade policy, particularly tariffs on Chinese imports, have significantly increased the company's cost of goods sold, pressuring profit margins[167] - The company announced a fixed cost reduction plan on May 14, 2025, including approximately 20 employee layoffs, expected to save $5 million to $6 million annually[172][173] - The company currently has no firm commitments for additional external capital, and if unable to generate cash from operations or obtain external capital, it may not meet its obligations over the next 12 months[171] - Despite progress in reducing operating losses and strengthening the balance sheet, uncertainties in business operations and forecasts raise substantial doubt about the company's ability to continue as a going concern[175] MidCap Credit Facility The MidCap credit facility, amended in February 2024 to extend its term and reduce minimum liquidity covenants, had a balance of $7.2 million as of June 30, 2025, with the company in compliance - The company's credit facility with MidCap was amended on February 23, 2024, extending the term to December 2026[178] - The minimum liquidity financial covenant was reduced from $15.0 million to $6.8 million[178] - As of June 30, 2025, the MidCap Credit Facility had an outstanding balance of $7.2 million, and the company was in compliance with all financial covenants[180] Share Repurchase The board authorized a $3.0 million share repurchase program in March 2025, but it was temporarily suspended in May 2025, with no repurchases made as of August 12, 2025 - The board of directors authorized a share repurchase program on March 14, 2025, to repurchase up to $3.0 million of common stock[181] - The company temporarily suspended the share repurchase program on May 2, 2025[181] - As of August 12, 2025, the company had not made any share repurchases[181] Trade Policy New U.S. tariffs on Chinese imports in Q1 2025 are expected to increase product costs and reduce consumer demand, with the company evaluating mitigation strategies - In Q1 2025, the U.S. government announced a series of new tariff policies, particularly targeting Chinese imports[182] - These tariffs could significantly increase the company's import costs and potentially lead to higher prices, thereby reducing consumer demand[183] - The company is evaluating mitigation strategies, including exploring alternative sourcing, working with suppliers to manage cost increases, and implementing price increases[183] Non-GAAP Financial Measures This section presents non-GAAP financial measures like Contribution Margin and Adjusted EBITDA to help investors understand core operating performance, not as GAAP substitutes - The company uses non-GAAP measures such as Contribution Margin, Contribution Margin as a percentage of net revenue, EBITDA, and Adjusted EBITDA to assess core operating performance[185] - Contribution Margin is defined as gross profit less e-commerce platform commissions, online advertising, sales, and fulfillment expenses[186] - Adjusted EBITDA is defined as EBITDA adjusted for stock-based compensation expense, change in fair market value of warrant liabilities, restructuring charges, and other net expenses[186] - These non-GAAP measures should not be considered as substitutes for operating loss or net loss under GAAP and may not be comparable to similarly titled measures used by other companies[190] Contribution Margin Contribution Margin for the three months ended June 30, 2025, significantly decreased to $1.518 million (7.8%), and for six months, it also declined to $3.569 million (10.2%) Contribution Margin (Thousand Dollars) | Metric (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Gross Profit | 10,566 | 16,891 | 19,990 | 30,060 | | Less: E-commerce Platform Commissions, Online Advertising, Sales, and Fulfillment Expenses | (9,048) | (12,024) | (16,421) | (22,345) | | Contribution Margin | 1,518 | 4,867 | 3,569 | 7,715 | | Gross Profit as a Percentage of Net Revenue | 54.3% | 60.4% | 57.4% | 62.4% | | Contribution Margin as a Percentage of Net Revenue | 7.8% | 17.4% | 10.2% | 16.0% | Adjusted EBITDA Adjusted EBITDA for the three months ended June 30, 2025, worsened to negative $2.184 million, and for six months, to negative $4.689 million, with negative percentages of net revenue Adjusted EBITDA (Thousand Dollars) | Metric (Thousand Dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | (4,860) | (3,629) | (8,756) | (8,791) | | EBITDA | (4,223) | (2,766) | (7,516) | (7,105) | | Other Net Expenses | 157 | 43 | 217 | 50 | | Change in Fair Market Value of Warrant Liabilities | (35) | (52) | (90) | (569) | | Restructuring Charges | 1,795 | 17 | 1,795 | 575 | | Stock-Based Compensation Expense | 122 | 2,921 | 905 | 4,588 | | Adjusted EBITDA | (2,184) | 163 | (4,689) | (2,461) | | Net Loss as a Percentage of Net Revenue | (25.0)% | (13.0)% | (25.1)% | (18.2)% | | Adjusted EBITDA as a Percentage of Net Revenue | (11.2)% | 0.6% | (13.5)% | (5.1)% | Critical Accounting Policies and Use of Estimates This section reiterates critical accounting policies and estimates, including revenue recognition and intangible asset impairment, with no significant changes since December 31, 2024 Intangible asset valuation The company reviews long-lived assets for impairment when events indicate carrying value may not be recoverable, performing recoverability tests due to new tariffs without recognizing impairment - The company reviews long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable[197] - As of June 30, 2025, due to concerns about revenue and profitability from new tariffs, the company performed a recoverability test but did not recognize an impairment loss[198] - Intangible asset valuation involves judgments and estimates regarding market growth rates, sales price and volume growth, foreign exchange rate fluctuations, raw material prices and availability, and future operating efficiencies[201] Item 3. Quantitative and Qualitative Disclosures About Market Risk. This section states that quantitative and qualitative disclosures about market risk are not applicable to the company's business - This section is not applicable for quantitative and qualitative disclosures about market risk[203] Item 4. Controls and Procedures. This section discusses the effectiveness of disclosure controls and procedures and changes in internal control over financial reporting, which management deemed effective with no material changes Evaluation of Disclosure Controls and Procedures Management, with CEO and CFO involvement, assessed the effectiveness of disclosure controls and procedures as of June 30, 2025, concluding they were effective - The company's management assessed the effectiveness of its disclosure controls and procedures as of June 30, 2025, concluding they were effective[205] Changes in Internal Control over Financial Reporting There were no material changes in the company's internal control over financial reporting during the six months ended June 30, 2025 - There were no material changes in the company's internal control over financial reporting during the six months ended June 30, 2025[206] Limitations on Effectiveness of Controls and Procedures Management acknowledges that controls provide only reasonable assurance of achieving objectives, requiring judgment in evaluating benefits versus costs - Any control and procedure, no matter how well designed and operated, can only provide reasonable assurance of achieving its control objectives[207] - Management must exercise judgment in evaluating the benefits of controls against their costs[207] PART II—OTHER INFORMATION Item 1. Legal Proceedings. The company is involved in various legal proceedings and claims, but believes their ultimate outcome will not materially adversely affect its financial position or operating results - The company is subject to various legal proceedings and claims from time to time, but believes the ultimate outcome will not materially adversely affect its financial position or operating results[209] - The company maintains adequate insurance coverage to further mitigate risks[209] Item 1A. Risk Factors. This section details various risks, including business operations (e.g., continuous losses, going concern doubts, growth strategy challenges), litigation, government regulation, and common stock ownership risks Risks Relating to Our Business The company faces risks from continuous losses, negative operating cash flow, and going concern doubts, alongside challenges in growth strategies and retaining key personnel - The company has a history of losses and may not achieve or maintain profitability or positive cash flow, with its independent registered public accounting firm raising substantial doubt about its ability to continue as a going concern[211][212][213] - The company's growth strategies, including new product, market, and geographic expansion