# Aterian, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Aterian, Inc.](/companies/ater.md) (CIK 1757715)
- Form: 10-Q
- Filed: 2023-05-10
- Accepted by EDGAR: May 10, 2023, 20:28 ET
- Period: 2023-03-31
- Accession: 0000950170-23-020586
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1757715/000095017023020586/ater-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1757715/000095017023020586/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $34.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $15.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $19.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-01-01 to 2023-03-31 | $1.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$25.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $596.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $26.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$25.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.34 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.34 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 76,732,539 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$7.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $125.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $33.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $84.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $122.6m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $42.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $43.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $78.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 52,669 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2023. As discussed in the section titled “Special Note Regarding Forward-Looking Statements”, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified in the section titled “Special Note Regarding Forward Looking Statements” and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q.*

*Unless the context otherwise requires, the terms “Aterian,” the “Company,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q refer to Aterian, Inc. and our consolidated subsidiaries, including Aterian Group, Inc.*

### Overview

We are a technology-enabled consumer products company that uses “data science” (which includes but is not limited to, machine learning, natural language processing, and data analytics) to design, develop, market and sell products. Today, we predominantly operate through online retail channels such as Amazon.com (“Amazon”) and Walmart, Inc.

Today, we own and operate brands that sell products in multiple categories, including home and kitchen appliances, kitchenware, cooling and air quality appliances (dehumidifiers, humidifiers and air conditioners), health and beauty products and essential oils. Our brands include hOmeLabs; Vremi; Squatty Potty; Xtava; RIF6; Aussie Health; Holonix; Truweo; Mueller; Pursteam; Pohl and Schmitt; Spiralizer; Healing Solutions; Photo Paper Direct and Step and Go.

### Seasonality of Business and Product Mix

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. 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. As a result, our operational results, cash flows, cash and inventory positions may fluctuate materially in any quarterly period depending on, among other things, adverse weather conditions, shifts in the timing of certain holidays and changes in our product mix.

Product mix can affect our gross profit and the variable portion of our sales and distribution expenses. We rely heavily on supply chain in which the cost, lead times, and delays, as well as global and geopolitical events can ultimately have a direct impact to our margins. Further, impacts on supply chain may force us to hold more inventory which not only effects working capital but also requires us to increase our storage capacity, through our warehouse network, which of itself has a capital impact. For example, the impact of the COVID-19 pandemic on the global supply chain, the unpredictability of container availability, space on vessels and shipping lead times, as well as associated manufacturing lead time, led us to secure more inventory upfront which affected our business and operating results in 2022.

### Financial Operations Overview

**Net Revenue—**We derive our revenue from the sale of consumer products, primarily in the U.S. 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. 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 and the amortization of inventory step-up from acquisitions. Book value of inventory includes the amounts we pay manufacturers for product, tariffs and duties associated with transporting product across national borders, and freight costs associated with transporting the product from our manufacturers to our warehouses, as applicable. When circumstances dictate that we use net realizable value as the basis for recording inventory, we base our estimates on expected future selling prices, less expected disposal costs.

### 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.

**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. Shipping and handling expenses are included in our consolidated statements of operations in sales and distribution expenses. This includes inbound, pick and pack costs and outbound transportation costs to ship goods to customers performed by e-commerce platforms or incurred directly by us, through our own direct fulfillment platform, which leverages AIMEE and our third-party logistics partners. Our sales and distribution expenses, specifically our logistics expenses and online advertising, will vary quarter to quarter as they are dependent on our sales volume, our product mix and whether we fulfill products ourselves, i.e., fulfillment by merchant (“FBM”), or through e-commerce platform service providers, i.e., fulfillment by Amazon (“FBA”) or fulfilled by Walmart (“WFS”). Products with less expensive fulfillment costs as a percentage of net revenue may allow for a lower gross margin, while still maintaining their targeted profitability level. Conversely, products with higher fulfillment costs will need to achieve a higher gross margin to maintain their targeted level of profitability. We are FBM One Day and Two Day Prime certified, allowing us to deliver our sales through Amazon to most customers within one or two days. 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.

**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.

**Interest 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”).

### Results of Operations

### Comparison of the Three Months Ended March 31, 2022 and 2023

The following table sets forth the components of our results of operations as a percentage of net revenue:

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 (1) | 2023 (1) | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | $41,673 | $34,879 | $(6,794) | (16.3)% |
| Cost of good sold | 18,066 | 15,782 | (2,284) | (12.6)% |
| Gross profit | 23,607 | 19,097 | (4,510) | (19.1)% |
| Operating expenses: |  |  |  |  |
| Sales and distribution | 22,974 | 20,226 | (2,748) | (12.0)% |
| Research and development | 1,144 | 1,247 | 103 | 9.0% |
| General and administrative | 9,541 | 5,959 | (3,582) | (37.5)% |
| Impairment loss on goodwill | 29,020 | — | (29,020) | (100.0)% |
| Impairment loss on intangibles | — | 16,660 | 16,660 | 100.0% |
| Change in fair value of contingent earn-out liabilities | (2,775) | — | 2,775 | (100.0)% |
| Total operating expenses | 59,904 | 44,092 | (15,812) | (26.4)% |
| Operating loss | (36,297) | (24,995) | 11,302 | (31.1)% |
| Interest expense, net | 802 | 371 | (431) | (53.7)% |
| Gain on extinguishment of seller note | (2,012) | — | 2,012 | (100.0)% |
| Loss on initial issuance of equity | 5,835 | — | (5,835) | (100.0)% |
| Change in fair value of warrant liability | 1,879 | 354 | (1,525) | (81.2)% |
| Other income, net | (25) | 54 | 79 | (316.0)% |
| Loss before income taxes | (42,776) | (25,774) | 17,002 | (39.7)% |
| Provision for income taxes | — | 26 | 26 | 100.0% |
| Net loss | $(42,776) | $(25,800) | $16,976 | (39.7)% |

25

(1) Amounts include stock-based compensation expense as follows:

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales and distribution expenses | $347 | $671 | $324 | 93.4% |
| Research and development expenses | 274 | 434 | 160 | 58.3% |
| General and administrative expenses | 2,244 | 1,212 | (1,032) | (46.0)% |
| Total stock-based compensation expense | $2,865 | $2,317 | $(548) | (19.1)% |

The following table sets forth the components of our results of operations as a percentage of net revenue:

|  | Three Months Ended March 31, 2022 | 2023 |
| --- | ---: | ---: |
| Net revenue | 100.0% | 100.0% |
| Cost of good sold | 43.4 | 45.2 |
| Gross profit | 56.6 | 54.8 |
| Operating expenses: |  |  |
| Sales and distribution | 55.1 | 58.0 |
| Research and development | 2.7 | 3.6 |
| General and administrative | 22.9 | 17.1 |
| Impairment loss on goodwill | 69.6 | — |
| Impairment loss on intangibles | — | 47.8 |
| Change in fair value of contingent earn-out liabilities | (6.7) | — |
| Total operating expenses | 143.7 | 126.4 |
| Operating loss | (87.1) | (71.7) |
| Interest expense, net | 1.9 | 1.1 |
| Gain on extinguishment of seller note | (4.8) | — |
| Loss on initial issuance of equity | 14.0 | — |
| Change in fair value of warrant liability | 4.5 | 1.0 |
| Other income, net | (0.1) | 0.2 |
| Loss before income taxes | (102.6) | (73.9) |
| Provision for income taxes | — | 0.1 |
| Net loss | (102.6)% | (74.0)% |

### Net Revenue

*Revenue by Product Categories:*

The following tables sets forth our net revenue disaggregated by product categories:

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Direct | $40,044 | $33,363 | $(6,681) | (16.7)% |
| Wholesale | 1,629 | 1,516 | (113) | (7.0)% |
| Net revenue | $41,673 | $34,879 | $(6,794) | (16.3)% |

Net revenue decreased $6.8 million, or 16.3%, during the three months ended March 31, 2023 to $34.9 million, compared to $41.7 million for the three months ended March 31, 2022. The decrease in net revenue was primarily attributable to a decrease in direct net revenue of $6.7 million, or a 16.7% which was due to softness in consumer demand due the current macroecononmic environment partially offset by liquidation of higher priced excess inventory during the three months ended March 31, 2023.

Direct net revenue consists of both organic net revenue and net revenue from our M&A. For the three months ended March 31, 2023, organic revenue was $33.3 million and revenue from our M&A businesses was $0.1 million. For the three months ended March 31, 2022, organic revenue was $29.8 million and revenue from our M&A businesses was $9.6 million. Our organic revenue increased by $3.5 million, or 11.7%, during the three months March 31, 2023, as compared to the three months ended March 31, 2022, as M&A net revenue has moved into organic net revenue after one year from purchase.

*(in thousands)*

|  | Three Months Ended March 31, 2022 | 2023 |
| --- | ---: | ---: |
| Heating, cooling and air quality | $5,926 | $5,349 |
| Kitchen appliances | 8,450 | 6,371 |
| Health and beauty | 4,890 | 4,857 |
| Personal protective equipment | 1,040 | 509 |
| Cookware, kitchen tools and gadgets | 4,856 | 3,620 |
| Home office | 3,708 | 2,667 |
| Housewares | 6,547 | 6,209 |
| Essential oils and related accessories | 5,082 | 4,588 |
| Other | 1,174 | 709 |
| Total net revenue | $41,673 | $34,879 |

Net revenue decreased $6.8 million, or 16.3%, during the three months ended March 31, 2023 to $34.9 million, compared to $41.7 million for the three months ended March 31, 2022. 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. Kitchen appliances were down from $8.5 million during the three months ending March 31, 2022 to $6.4 million for the three months ending March 31, 2023 due to certain key products in the category dropping in ranking on Amazon resulting in reduced demand.

### Cost of Goods Sold and Gross Profit

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of goods sold | $18,066 | $15,782 | $(2,284) | (12.6)% |
| Gross profit | $23,607 | $19,097 | $(4,510) | (19.1)% |

Cost of goods sold decreased by $2.3 million, from $18.1 million for the three months ended March 31, 2022 to $15.8 million for the three months ended March 31, 2023 primarily from reduced sales volumes. The decrease in cost of goods sold was primarily attributable to a decrease of $3.1 million in cost of goods sold from our M&A businesses, a decrease of $0.4 million in cost of goods sold from our organic businesses partially offset by an increase in cost of goods sold of $1.3 million from our wholesale business due to liquidation of high priced excess inventory.

Gross profit decreased from 56.6% for the three months ended March 31, 2022 to 54.8% for the three months ended March 31, 2023. The decrease in gross profit was due to a change of product mix, increased costs of our supply chain and liquidation of high priced excess inventory at reduced prices.

### Sales and Distribution Expenses

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales and distribution expenses | $22,974 | $20,226 | $(2,748) | (12.0)% |

Sales and distribution expenses, which included e-commerce platform commissions, online advertising and logistics expenses (i.e., variable sales and distribution expense), decreased to $20.2 million for the three months ended March 31, 2023, from $23.0 million for the three months ended March 31, 2022. This decrease is primarily attributable to the decrease in the volume of products sold in the three months ended March 31, 2023, as our e-commerce platform commissions, online advertising, selling and logistics expenses decreased to $17.0 million in the three months ended March 31, 2023 as compared to $19.8 million in the prior year period.

Our sales and distribution fixed costs (e.g., salary and office expenses) were relatively flat at $3.2 million for the three months ending March 31, 2022 and March 31, 2023.

As a percentage of net revenue, sales and distribution expenses increased to 58.0% for the three months ended March 31, 2023, from 55.1% for the three months ended March 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 48.8% for the three months ended March 31, 2023 as compared to 47.5% for the three months ended March 31, 2022. This increase in sales and distribution expenses as a percentage of revenue is predominantly due to product mix, an increase in e-commerce platform service provider fulfillment fees, and an increase in last mile shipping costs, specifically for oversized goods.

### Research and Development Expenses

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development expenses | $1,144 | $1,247 | $103 | 9.0% |

The increase in research and development expenses was primarily attributable to an increase in stock-based compensation expense of approximately $0.1 million compared to the prior period.

### General and Administrative Expenses

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses | $9,541 | $5,959 | $(3,582) | (37.5)% |

The decrease in general and administrative expenses was primarily the result of a decrease in stock compensation expense of $1.0 million, a decrease of $1.2 million in professional fees and a decrease of $0.8 million relating to a legal settlement in the year ago quarter. (see Note 9 of our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional details)

### Impairment loss on goodwill

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Impairment loss on goodwill | $29,020 | $— | $(29,020) | (100.0)% |

We assessed our goodwill as of March 31, 2022 due to an interim triggering event related to our reduced market capitalization and determined that our goodwill was impaired. As a result, we recorded a goodwill impairment charge of $29.0 million in the three months ended March 31, 2022, primarily due to the decrease in our market capitalization. Further, we wrote-off the remainder of our goodwill during the three months ended September 30, 2022 as our market capitalization continued to decline and the inflationary pressure on product and labor costs and operational impacts attributable to continued global supply chain disruptions. As such, we have no goodwill recorded as of December 31, 2022.

### Impairment loss on intangibles

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Impairment loss on Intangibles | $— | $16,660 | $16,660 | (100.0)% |

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. 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. The Company concluded that this change was an interim triggering event for the three months ending March 31, 2023 indicating the carrying value of our essential oil business's long-lived assets including trademarks may not be recoverable. 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 recorded an intangible impairment charge of $16.7 million in the three month ending March 31, 2023 within impairment loss on intangibles on the condensed consolidated statement of operations.

### Change in fair value of contingent earn-out liabilities

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Change in fair value of contingent earn-out liabilities | $(2,775) | $— | $2,775 | 100.0% |

The change in fair value of contingent earn-out liabilities was related to our M&A, which includes a re-assessment of the estimated fair value of contingent consideration as part of the purchase price, primarily driven by the fluctuation in our share price since the date of each acquisition and contribution margin projections. As of December 31, 2022, we no longer have any contingent earn-out liabilities.

### Interest expense, net

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense, net | $802 | $371 | $(431) | (53.7)% |

The decrease in interest expense, net of $0.4 million is primarily relating to the decrease in average borrowing for the period compared to the prior period as well as an increase in interest income of $0.2 million compared to the prior period.

### Gain on extinguishment of seller note

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Gain on extinguishment of seller note | $(2,012) | $— | $2,012 | 100.0% |

The gain on extinguishment of seller note in the three months ended March 31, 2022 was attributable to the settlement of the Truweo seller note, which resulted in a $2.0 million in gain on extinguishment of seller note upon the extinguishment of the debt.

### Loss on initial issuance of equity

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Loss on initial issuance of equity | $5,835 | $— | $(5,835) | 100.0% |

The loss on initial issuance of equity is attributable to the issuance of common shares and initial valuation of the prefunded warrants and common stock warrants from our March 2022 equity raise of capital of $5.8 million in March 2022.

### Change in fair market value of warrant liability

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Change in fair market value of warrant liability | $1,879 | $354 | $(1,525) | (81.2)% |

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.

### Liquidity and Capital Resources

### Cash Flows for the Three Months Ended March 31, 2022 and 2023

The following table provides information regarding our cash flows for the three months ended March 31, 2022 and 2023:

*(in thousands)*

|  | Three Months Ended March 31, 2022 | 2023 |
| --- | ---: | ---: |
| Cash used by operating activities | $(13,170) | $(7,417) |
| Cash used in investing activities | (16) | (158) |
| Cash provided (used) by financing activities | 21,716 | (2,985) |
| Effect of exchange rate on cash | (171) | 129 |
| Net change in cash and restricted cash for the period | $8,359 | $(10,431) |

#### Net Cash Used in Operating Activities

Net cash used in operating activities was $13.2 million for the three months ended March 31, 2022, resulting from our net cash losses from operations of $5.9 million, offset by and impacts from working capital of $7.3 million from changes in accounts receivable, purchases of inventory and payments of accounts payable.

Net cash used in operating activities was $7.4 million for the three months ended March 31, 2023, resulting primarily from our net cash losses from operations of $5.8 million, impacts from working capital of $1.6 million from changes in accounts receivable, purchases of inventory and payments of accounts payable. The reduction in accounts payable of $7.1 million from December 31, 2022 to March 31, 2023 primarily relates to payments for inventory and reduced purchases for the period.

#### Net Cash Used in Investing Activities

For the three months ended March 31, 2022, net cash used in investing activities was less than $0.1 million.

For the three months ended March 31, 2023, net cash used in investing activities was $0.2 million primarily related to the remaining payment for the purchase of Step and Go assets which was acquired during the three months ending December 31, 2022.

#### Net Cash Provided (Used) by Financing Activities

For the three months ended March 31, 2022, cash provided by financing activities of $21.7 million was primarily from proceeds from an equity offering of $27.0 million and borrowings from the Credit Facility of $30.4 million offset by $1.0 million of repayments of notes issued to certain sellers in connection with our M&A activity and repayments of the Credit Facility of $33.8 million.

For the three months ended March 31, 2023, cash used by financing activities of $3.0 million primarily from the net repayments for our MidCap credit facility of $2.1 million, repayment of note payable to Smash of $0.4 million and payment of insurance obligations of $0.5 million.

### Liquidity and Going Concern

As an emerging growth company in the early commercialization stage of its lifecycle, we are subject to inherent risks and uncertainties associated with the development of our enterprise. In this regard, substantially all of our efforts to date have been devoted to the development and sale of our products in the marketplace, which includes our investment in organic growth at the expense of short-term profitably, our investment in incremental growth through mergers & acquisitions (“M&A Strategy”), our recruitment of management and technical staff, and raising capital to fund the development of our enterprise. As a result of these efforts, we have incurred significant losses and negative cash flows from operations since our inception and expect to continue to incur such losses and negative cash flows for the foreseeable future until such time that we reach a scale of profitability to sustain our operations. In addition, our recent financial performance has been adversely impacted by the COVID-19 global pandemic and related global shipping disruption, in particular with respect to substantial increases in supply chain costs for shipping containers (See COVID-19 Pandemic and the Supply Chain below for additional details).

In order to execute our growth strategy, we have historically relied on outside capital through the issuance of equity, debt, and borrowings under financing arrangements (collectively “outside capital”) to fund our cost structure and we expect to continue to rely on outside capital for the foreseeable future, specifically for our M&A Strategy. While we believe we will eventually reach a scale of profitability to sustain our operations, there can be no assurance we will be able to achieve such profitability or do so in a manner that does not require our continued reliance on outside capital. Moreover, while we have historically been successful in raising outside capital, there can be no assurance we will be able to continue to obtain outside capital in the future or do so on terms that are acceptable to us.

As of the date the accompanying Condensed Consolidated Financial Statements were issued (the “issuance date”), we evaluated the significance of the following adverse financial conditions in accordance with Accounting Standard Codification 205-40, Going Concern:

- Since our inception, we have incurred significant losses and used cash flows from operations to fund our enterprise. In this regard, during the three months ended March 31, 2023, we incurred a net loss of $25.8 million and used net cash flows in our operations of $7.4 million. In addition, as of March 31, 2023, we had unrestricted cash and cash equivalents of $33.9 million available to fund our operations and an accumulated deficit of $651.1 million.
- We are required to remain in compliance with certain financial covenants required by the MidCap Credit facility. The Credit Agreement imposes certain customary affirmative and negative covenants upon the Company including restrictions related to dividends and other foreign subsidiaries' limitations. The Credit Agreement minimum liquidity covenant requires that Midcap shall not permit the credit party liquidity at any time to be less than (a) during the period commencing on February 1st through and including May 31st of each calendar year, $12.5 million and (b) at all other times, $15.0 million. The Credit Agreement includes events of default that are customary for these types of credit facilities, including the occurrence of a change of control. We were in compliance with these financial covenants as of December 31, 2022, and expect to remain in compliance through at least March 31, 2024. However, with our short history of forecasting our business during the ongoing COVID-19 global pandemic, the current record global inflation and related global supply chain disruptions, we can provide no assurances that we will remain in compliance with our financial covenants. Further, absent our ability to generate cash inflows from our operations or secure additional outside capital, we may be unable to remain in compliance with these financial covenants. In the event we are unable to remain in compliance with these financial covenants (or other non-financial covenants required by the MidCap Credit Facility), and we are unable to secure a waiver or forbearance, MidCap may, at its discretion, exercise any and all of its existing rights and remedies, which may include, among others, accelerating repayment of the outstanding borrowings and/or asserting its rights in the assets securing the loan.
- As of the issuance date, we have no firm commitments to secure additional outside capital from lenders or investors. While we are continually exploring additional outside capital, specifically to fund our M&A strategy, there can be no assurance we will be able obtain capital or do so on terms that are acceptable to us. Accordingly, absent our ability to generate cash inflows from our operations and/or secure additional outside capital in the near term, we may be unable to meet our obligations as they become due over the next twelve months beyond the issuance date.
- We plan to continue to closely monitor our operating forecast, pursue our M&A strategy, pursue additional sources of outside capital on terms that are acceptable to us, and secure a waiver or forbearance from MidCap if we are unable to remain in compliance with one or more of the covenants required by the MidCap Credit Facility. If some or all of our plans prove unsuccessful, we may need to implement short-term changes to our operating plan, such as delaying expenditures, reducing investments in new products, delaying the development of our software, or reducing our sale and distribution infrastructure. We may also need to seek long-term strategic alternatives, such as a significant curtailment of our operations, a sale of certain of our assets, a divestiture of certain product lines, a sale of the entire enterprise to strategic or financial investors, and/or allow our enterprise to become insolvent.

These uncertainties raise substantial doubt about our ability to continue as a going concern. The accompanying Condensed Consolidated Financial Statements have been prepared on the basis that we will continue to operate as a going concern, which contemplates that we will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying Condensed Consolidated Financial Statements do not include any adjustments that may result from the outcome of these uncertainties.

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 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 “Bid Price Notice”). The Bid Price Notice has no immediate effect on the continued listing status of our common stock on The Nasdaq Capital Market, and, therefore, our listing remains fully effective.

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. 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 terms of our agreement with our current lender; 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.

On May 9, 2023, The Company announced a plan to reduce expenses by implementing a reduction in its current workforce leading to approximately $6.0 million of annualized savings. This headcount reduction will impact approximately 70 employees and 30 contractors, primarily in the Philippines. The Company expects to recognize restructuring charges in connection with the workforce reduction plan, primarily from severance in the range between $1.0 million to $1.3 million. The Company expects the charges will be recognized primarily in the second quarter of 2023, with the majority of such charges anticipated to be paid by the end of the third quarter of 2023.

**COVID-19 Pandemic and the Supply Chain—**During 2022, we were impacted by the COVID-19 pandemic and related global shipping disruptions. Together these led to substantial increases in supply chain costs, in particular shipping containers, which we rely on to import our goods, reduced the reliability and timely delivery of such shipping containers and substantially increased our last mile shipping costs on our oversized goods which are a material part of our business. The reduced reliability and delivery of such shipping containers forced us to spend more on premium shipping to ensure goods were delivered, and the lack of reliability and timely delivery has further down chain impacts such as taking longer for containers to be offloaded and returned. Further, the global shipping disruption led us to increase our inventory on-hand, including advance ordering and taking possession of inventory earlier than expected, impacting our working capital.

Third party last mile shipping partners, such as UPS and FedEx, continue to increase the cost of delivering goods to the end consumers as their delivery networks continue to be adjusted following the onset of the COVID-19 pandemic. There remains significant uncertainty to consumer demand and buying habits as price increases related to raw materials, the importing of goods, including tariffs, and the cost of delivering goods to consumers has led to inflation across the U.S. and potentially reduced demand for our products.

We continue to consider the impact of COVID-19 and the related supply chain disruptions on the assumptions and estimates used when preparing our Condensed Consolidated Financial Statements including inventory valuation, and the impairment of long-lived assets. These assumptions and estimates may change. If economic conditions worsen beyond what is currently estimated by management, such future changes may have an adverse impact on our results of business, operations, financial results, and liquidity.

**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 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 credit facility contains a financial covenant that requires 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. At its election, we may elect to comply with an alternative financial covenant that would require us to maintain a minimum borrowing availability under the credit facility of $10.0 million at all times. 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.

The outstanding balance on the MidCap credit facility as of December 31, 2022 and March 31, 2023 was $21.1 million and $19.1 million, respectively. The Company had $0.3 million of availability on the Midcap credit facility as of March 31, 2023. We are in compliance with the financial covenants contained within the Credit Agreement as of March 31, 2023.

### Non-GAAP Financial Measures

We believe that our financial statements and the other financial data included in this Quarterly Report have been prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the U.S. (“GAAP”). However, for the reasons discussed below, we have presented certain non-GAAP measures herein.

We have presented the following non-GAAP measures to assist investors in understanding our core net operating results on an on-going basis: (i) Contribution margin; (ii) Contribution margin as a percentage of net revenue; (iii) EBITDA (iv) Adjusted EBITDA; and (v)

Adjusted EBITDA as a percentage of net revenue. These non-GAAP financial measures may also assist investors in making comparisons of our core operating results with those of other companies.

As used herein, Contribution margin represents gross profit less e-commerce platform commissions, online advertising, selling and logistics expenses (included in sales and distribution expenses). As used herein, Contribution margin as a percentage of net revenue represents Contribution margin divided by net revenue. As used herein, EBITDA represents net loss plus depreciation and amortization, interest expense, net and provision for income taxes. 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 debt and other expenses, net. 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.

We present Contribution margin and Contribution margin as a percentage of net revenue, as we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to gross profit, provides useful supplemental information for investors. Specifically, Contribution margin and Contribution margin as a Non-GAAP Financial Measure percentage of net revenue are two of our key metrics in running our business. All product decisions made by us, from the approval of launching a new product and to the liquidation of a product at the end of its life cycle, are measured primarily from Contribution margin and/or Contribution margin as a percentage of net revenue. Further, we believe these measures provide improved transparency to our stockholders to determine the performance of our products prior to fixed costs as opposed to referencing gross profit alone.

In the reconciliation to calculate contribution margin, we add e-commerce platform commissions, online advertising, selling and logistics expenses (“sales and distribution variable expense”) to gross profit to inform users of our financial statements of what our product profitability is at each period prior to fixed costs (such as sales and distribution expenses such as salaries as well as research and development expenses and general administrative expenses). By excluding these fixed costs, we believe this allows users of our financial statements to understand our products performance and allows them to measure our products performance over time.

We present EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue because we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to net loss, provide useful supplemental information for investors. We use these measures with financial measures prepared in accordance with GAAP, such as sales and gross margins, to assess our historical and prospective operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our operating performance and to compare our performance to that of our peers and competitors. We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue are useful to investors in assessing the operating performance of our business without the effect of non-cash items.

Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue should not be considered in isolation or as alternatives to net loss, loss from operations or any other measure of financial performance calculated and prescribed in accordance with GAAP. Neither EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue should be considered a measure of discretionary cash available to us to invest in the growth of our business. Our Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue may not be comparable to similar titled measures in other organizations because other organizations may not calculate Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue in the same manner as we do. Our presentation of Contribution margin and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from such terms or by unusual or non-recurring items.

We recognize that EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, have limitations as analytical financial measures. 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).

Additionally, Adjusted EBITDA excludes non-cash expense for stock-based compensation, which is and is expected to remain a key element of our overall long-term incentive compensation package.

We also recognize that Contribution margin and Contribution margin as a percentage of net revenue have limitations as analytical financial measures. 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).

#### 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:

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 |
| --- | ---: | ---: |
| Gross Profit | $23,607 | $19,097 |
| Less: |  |  |
| E-commerce platform commissions, online advertising, selling and logistics expenses | (19,777) | (17,029) |
| Contribution margin | $3,830 | $2,068 |
| Gross Profit as a percentage of net revenue | 56.6% | 54.8% |
| Contribution margin as a percentage of net revenue | 9.2% | 5.9% |

34

#### 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:

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2022 | 2023 |
| --- | ---: | ---: |
| Net loss | $(42,776) | $(25,800) |
| Add: |  |  |
| Provision for income taxes | — | 26 |
| Interest expense, net | 802 | 371 |
| Depreciation and amortization | 1,846 | 1,762 |
| EBITDA | (40,128) | (23,641) |
| Other (income) expense, net | (25) | 54 |
| Change in fair value of contingent earn-out liabilities | (2,775) | — |
| Impairment loss on goodwill | 29,020 | — |
| Impairment loss on intangibles | — | 16,660 |
| Gain on extinguishment of seller note | (2,012) | — |
| Change in fair market value of warrant liability | 1,879 | 354 |
| Loss on original issuance of equity | 5,835 | — |
| Litigation reserve | 800 | — |
| Stock-based compensation expense | 2,865 | 2,317 |
| Adjusted EBITDA | $(4,541) | $(4,256) |
| Net loss as a percentage of net revenue | (102.6)% | (74.0)% |
| Adjusted EBITDA as a percentage of net revenue | (10.9)% | (12.2)% |

### Critical Accounting Policies and Use of 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 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. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Quarterly Report, we believe the following accounting policies used in the preparation of our financial statements require the most significant judgments and estimates.

There have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgments and estimates as disclosed in our Annual Report on Form 10-K for fiscal year ended December 31, 2022, as filed with the SEC on March 16, 2023 (our “Annual Report”). For additional information, please refer to Note 2 of our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

**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. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique.

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. 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. The Company concluded that this change was an interim triggering event for the three months ending March 31, 2023 indicating the carrying value of our essential oil business's long-lived assets including trademarks may not be recoverable. 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 recorded an intangible impairment charge of $16.7 million in the three month ending March 31, 2023 within impairment loss on intangibles on the condensed consolidated statement of operations.

We will continue to closely monitor actual results versus expectations as well as whether and to what extent any significant changes in current events or conditions, including changes to the impacts of COVID-19 on our business, result in corresponding changes to our expectations about future estimated cash flows. If our adjusted expectations of the operating results do not materialize, we may be required to record intangible impairment charges, which may be material.

While we believe our conclusions regarding the estimates of recoverability of our asset groupings are appropriate, these estimates are subject to uncertainty and by nature include judgments and estimates regarding various factors. These factors include the rate and extent of growth in the markets that our asset groups serve, the realization of future sales price and volume increases, fluctuations in exchange rates, fluctuations in price and availability of key raw materials and future operating efficiencies.

## Market risk

As filed, 2,947 characters.

We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments, including cash equivalents, are in the form, or may be in the form of, money market funds or marketable securities and are or may be invested in U.S. Treasury and U.S. government agency obligations. Due to the short-term maturities and low risk profiles of our investment, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our investments. We do not currently use or plan to use financial derivatives in our investment portfolio or engage in hedging transactions to manage our exposure to interest rate risk.

In addition, we have outstanding debt under the Credit Facility with MidCap that bears interest. As of March 31, 2023, our outstanding indebtedness under the Credit Facility was $19.1 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%. We do not believe that an immediate 10% increase in interest rates would have a material effect on interest expense for the Credit Facility, and therefore we do not expect our operating results or cash flows to be materially affected to any degree by a sudden change in market interest.

We are currently exposed to market risk related to changes in foreign currency exchange rates. We do not currently engage in hedging transactions to manage our exposure to foreign currency exchange rate risk as we do not currently believe our exposure is material. Sales outside of the U.S. represented approximately 3.4% and 4.0% of our net revenue for the three months ended March 31, 2022 and 2023, respectively. Currently, our revenue-producing transactions are primarily denominated in U.S. dollars; however, as we continue to expand internationally, our results of operations and cash flows may increasingly become subject to fluctuations due to changes in foreign currency exchange rates. In periods when the U.S. dollar declines in value as compared to foreign currencies in which we incur expenses, our foreign-currency based expenses will increase when translated into U.S. dollars. In addition, future fluctuations in the value of the U.S. dollar may affect the price at which we sell our products outside the U.S. To date, our foreign currency risk has been minimal, and we have not historically hedged our foreign currency risk; however, we may consider doing so in the future.

Inflation would generally affect us by increasing our cost of labor and overhead costs. We do not believe that inflation had a direct material effect on our labor or overhead costs, and as such, on our business, financial condition or results of operations for the three months ended March 31, 2022 or March 31, 2023.

## Controls and procedures

As filed, 1,606 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on the evaluation of our disclosure controls and procedures as of March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 11,136 characters.

### Risks Relating to Our Business

***We have historically operated at a loss and we may never achieve or sustain profitability or positive cash flows. Further we and our independent registered public accounting firm have expressed substantial doubt about our ability to continue as a going concern.***

We have historically operated at a loss and experienced losses after tax of $42.8 million and $25.8 million for the three months ended March 31, 2022 and 2023, respectively. In addition, our costs may increase in future periods, which could negatively affect our future operating results and ability to achieve and sustain profitability. For example, we may need to continue to expend substantial financial and other resources on the ideation, sourcing and development of products, our technology infrastructure, research and development, including the development of new features for our AIMEE software platform, sales and marketing, international expansion and general administration, including expenses related to being a public company. 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. Even if we do, there can be no assurance that we will be able to maintain or increase profitability on a quarterly or annual basis. Failure to achieve or sustain profitability could have a material adverse effect on our business.

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 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, 2022, that raised substantial doubt about our ability to continue as a going concern. 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. Further, if we are unable to continue as a going concern, we may be forced to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

***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 and financial condition.***

A substantial percentage of our revenue is from sales of products on Amazon’s U.S. marketplace and we are subject to Amazon’s terms of service (“ToS”) and various other Amazon seller policies that apply to third parties who sell products on Amazon’s marketplace. Amazon has the right to terminate or suspend our ability to sell on its platform at any time and for any reason. Amazon may also take other actions against us such as suspending or terminating our seller accounts or product listings and withholding payments owed to us indefinitely. From time to time in the past, we have experienced such adverse actions for products we have launched and products we have acquired and we can provide no assurance that we will be able to comply with Amazon's ToS. 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 and financial condition. In addition, Amazon has made, and we expect will continue to make, changes to its platform that could require us to change the manner in which we operate, limit our ability to successfully market existing products and to launch new products or increase our costs to operate. Such changes and the efforts required to maintain compliance therewith could have an adverse effect on our business, operating results and financial condition. Examples of past changes from Amazon have included platform fee increases (i.e., storage, advertising, fulfillment and selling commissions), inventory warehouse limitations, restrictions on certain marketing activities and changes to listing requirements that limit the variations of products that can be included in a single listing. Any change, limitation or restriction on our ability to sell on Amazon’s platform, even if temporary, could have a material impact on our business, operating results and financial condition. We also rely on services provided by Amazon’s fulfillment platform, including its Prime badge program, in which Amazon guarantees expedited shipping of products we sell to the consumer, an important factor in the consumer’s buying decision. Further, Amazon allows us to fulfill from our own third-party warehouses directly to customers under the same Prime badge guarantee. Amazon may at any time decide to discontinue allowing us to fulfill sales of our products directly from our warehouse network or limit our ability to advertise on our product listings that such products will receive expedited shipping under its Prime badge program. Any such inability or limitation, could have a material impact on our business, results of operations, and financial condition.

***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. The loss of one or more of our key personnel or our inability to promptly identify a suitable successor to a key role, including through a succession plan, could have an adverse effect on our business. We have experienced higher than normal levels of turnover on our software development team and further departures could impact our ability to use AIMEE in our operations which could have a material impact on our business. Each of our executive officers, key technical personnel and other employees could terminate their employment relationship with us at any time. Moreover, we rely on stock-based compensation as a method to attract, retain and motivate our employees. If our common stock continues to be volatile or depressed, we may be unable to attract, retain and motivate employees, and if this occurs, it could have a material adverse effect on our business, operating results and financial condition. We do not currently maintain key person life insurance policies on any member of our senior management team and other key employees.

### Risks Relating to the Ownership of our Common Stock

***There is no guarantee of a continuing public market for you to resell our common stock.***

As of the date of this Quarterly Report, our stock has a minimum closing bid price below $1.00 per share. 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 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 “Bid Price Notice”).

The Bid Price Notice has no immediate effect on the continued listing status of our common stock on The Nasdaq Capital Market, and, therefore, our listing remains fully effective.

The Company is provided a compliance period of 180 calendar days from the date of the Bid Price Notice, or until October 23, 2023, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before October 23, 2023, the closing bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, subject to Nasdaq’s discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H) to 20 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the minimum bid price requirement, and the matter would be resolved. If the Company does not regain compliance during the compliance period ending October 23, 2023, then Nasdaq may grant the Company a second 180 calendar day period to regain compliance, provided the Company meets the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and notifies Nasdaq of its intent to cure the deficiency during the second compliance period.

The Company will continue to monitor the closing bid price of its Common Stock and seek to regain compliance with all applicable Nasdaq requirements within the allotted compliance periods. If the Company does not regain compliance within the allotted compliance periods, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that the Common Stock will be subject to delisting. The Company would then be entitled to appeal that determination to a Nasdaq hearings panel. There can be no assurance that the Company will regain compliance with the minimum bid price requirement during the 180-day compliance period, secure a second period of 180 days to regain compliance or maintain compliance with the other Nasdaq listing requirements.

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. 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.

Further, we may decide to effect a reverse split of our common stock which could impact the market price for our stock, limit our ability to raise capital or otherwise limit our ability to execute acquisition transactions and there is no assurance that the market price or trading volume for our common stock will not further decline after announcing or effecting such split.

Filed May 10, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-020586. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.