Aterian, Inc.: Form 10-Q for the period ended Mar 31, 2026

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 consolidated financial statements and related notes thereto for the year ended December 31, 2025 included in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2026. As discussed in the section titled “Cautionary 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 “Cautionary 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 consumer products company that predominantly operates through online retail channels such as Amazon, Walmart, and Target and its own direct to consumer websites. The Company operates its owned brands, which were either incubated or purchased, selling products in multiple categories, including home and kitchen appliances, kitchenware, air quality appliances, health and beauty products and essential oils.

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 essential oils, 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 a global 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 our supply chain may force us to hold more inventory, which not only affects working capital but also requires us to increase our storage capacity, through our warehouse network, which of itself has a capital impact.

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, Target.com and our own websites, with the large majority of our sales being 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. 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. Shrinkage costs are also recognized within the cost of goods sold. 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.

During 2025, the U.S. government announced a series of new tariff policies affecting imports from several countries, including China. While these actions impact a range of global trade flows, the new tariffs targeting imports from China are the most significant for our business. As a result of these tariffs, we experienced an increase in our cost of goods sold during the year ended December 31, 2025 and the quarter ended March 31, 2026. In response, we implemented targeted price increases across affected product categories to partially offset the higher input costs. These pricing actions, however, contributed to a decline in unit volumes as consumer demand responded to the higher retail prices. We have implemented a range of mitigation strategies to address the impact of these tariffs on our supply chain and margins. These efforts include diversifying sourcing outside of China, renegotiating supplier terms, redesigning certain products to reduce tariff exposure, and implementing selective price increases where appropriate. We continue to evaluate additional structural and operational measures to further reduce tariff-related exposure.

Expenses:

**Sales and Distribution Expenses—**Sales and distribution expenses consist of online advertising costs, marketing and promotional costs, sales and ecommerce platform commissions, fulfillment, including shipping and handling, and warehouse costs (i.e., sales and distribution variable expenses). Sales and distribution expenses also include employee cash and stock compensation and benefits and other related fixed costs. 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 our technology platform and 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 periodically review the locations and capacity of our third-party warehouses to ensure we have the appropriate geographic reach, which helps to reduce the average last mile shipping zones to the end customer and as such our speed of delivery improves while our shipping costs to customers decrease, prior to the impacts on shipping providers’ rates.

**General and Administrative Expenses—**General and administrative expenses include cash and stock compensation and employee benefits for executive management, finance administration, legal, and human resources, facility costs, insurance, travel, professional service fees, and other general overhead costs, including the costs of being a public company.

**Interest Expense, Net—**Interest expense, net includes the interest cost from our credit facility, and includes amortization of deferred finance costs and debt discounts from our credit facility (the “Credit Facility”) with MidCap Funding IV Trust (“MidCap”).

Discontinued Operations

On April 27, 2026, the Company entered into a series of definitive agreements (collectively, the “Aterian Transactions”) to fundamentally restructure its operations and capital position. The Company entered into a definitive Asset Purchase Agreement (the “Asset Purchase Agreement”) with Trademark Global, LLC (“Trademark Global”), marking a significant strategic shift in our business model. Pursuant to this agreement, Trademark Global will acquire substantially all assets and certain liabilities associated with our marquee brands—Mueller Living, PurSteam, hOmeLabs, Squatty Potty, Healing Solutions, and Photo Paper Direct—for $18 million in cash, subject to customary adjustments (the “Asset Sale”).

As these marquee brands represent a major portion of the Company’s historical operations and strategic direction, the results of these brands have been classified as discontinued operations in the consolidated financial statements for all periods presented. Following the closing of the Asset Sale, the Company expects to continue operating its remaining legacy brands, including Vremi and Xtava.

In conjunction with the Asset Sale, the Company also entered into a Securities Purchase Agreement with David E. Lazar for the issuance of Series AA and Series AAA Preferred Stock for aggregate gross proceeds of $7.0 million. This capital infusion, combined with the proceeds from the Asset Sale, is intended to restructure the Company’s balance sheet.

To provide a meaningful comparison of our ongoing business performance, the following discussion separately analyzes the results of our continuing operations and the impact of the discontinued operations for the periods presented.

Results of Continuing Operations

Comparison of the Three Months Ended March 31, 2026 and 2025

The following table sets forth the components of our results of continuing operations:

(in thousands, except percentages)

(1) During the three months ended March 31, 2026 and 2025, $0.4 million and $0.6 million of stock-based compensation were included in general and administrative expenses on the Condensed Consolidated Statement of Operations.

Net Revenue

Net revenue decreased $45 thousand, or 72%, during the three months ended March 31, 2026 to $18 thousand, compared to $63 thousand for the three months ended March 31, 2025. The decrease in net revenue was primarily attributable to reduction in consumer demand due to the macroeconomic environment.

Cost of Goods Sold and Gross Profit

(in thousands, except percentages)

Cost of goods sold decreased $5 thousand, or 40.2%, during the three months ended March 31, 2026 to $8 thousand, compared to $13 thousand for the three months ended March 31, 2025, primarily from reduced sales volumes.

Gross profit decreased to 56.7% for the three months ended March 31, 2026 from 79.9% for the three months ended March 31, 2025. The decrease in gross profit was due primarily to product mix.

Sales and Distribution Expenses

(in thousands, except percentages)

Sales and distribution expenses increased to $0.3 million for the three months ended March 31, 2026, from $37 thousand for the three months ended March 31, 2025. This increase is primarily attributable to severance relating to our January 2026 workforce reduction of $0.3 million.

General and Administrative Expenses

(in thousands, except percentages)

The decrease in general and administrative expenses was primarily the result of a decrease of $0.3 million in headcount expense, a decrease of $0.3 million in miscellaneous expenses, and a decrease of $0.2 million in stock-compensation expense, partially offset by an increase of $0.4 million in professional fees.

Interest expense, net

(in thousands, except percentages)

The increase in interest expense, net of $0.1 million is primarily relating to amortized fees of $69 thousand associated with the March 2026 amendment to lower the liquidity covenant and a decrease in interest income of $38 thousand partially offset by lower borrowings in the current period.

Change in fair market value of warrant liabilities

(in thousands, except percentages)

The 2026 and 2025 activity is related to the change in fair market value of the warrant liabilities from the common stock warrants from our March 2022 equity raise of capital. The change in fair value of warrant liabilities during the three months ending March 31, 2026 primarily relates to the reduced share price compared to the prior period.

Results of Discontinued Operations

The following table sets forth the components of our results of discontinued operations:

(in thousands, except percentages)

(1) During the three months ended March 31, 2026 and 2025, $0.1 million and $0.2 million of stock-based compensation were included within Loss from Discontinued Operations on the Condensed Consolidated Statement of Operations.

(2) On April 27, 2026, the Company entered into a definitive Asset Purchase Agreement with Trademark Global, LLC, to sell certain marquee brands for $18 million in cash. Based on the definitive deal terms, specifically the $18.0 million base purchase price and the estimated purchase price adjustments, the Company evaluated the carrying value of its brand intangible assets. The Company determined that the estimated allocated proceeds from the Asset Purchase Agreement were lower than the carrying values for certain definite-lived brand assets. Accordingly, the Company recorded a non-cash impairment charge of $3.4 million during the first quarter of 2026. This charge, recorded within Loss from Discontinued Operations on the Condensed Consolidated Statement of Operations, adjusts the carrying amount of the disposal group to its fair value less costs to sell, based on the $18.0 million cash consideration and estimated purchase price adjustments.

26

Net Revenue

(in thousands, except percentages)

Net revenue decreased $2.9 million, or 18.8%, during the three months ended March 31, 2026 to $12.4 million, compared to $15.3 million for the three months ended March 31, 2025. The decrease in net revenue was primarily attributable to the newly implemented tariffs which increased our cost of goods sold, prompting us to raise prices to mitigate the impact. These pricing actions, combined with the broader challenging macroeconomic environment, led to a reduction in unit volume as consumer demand softened at elevated price levels.

Cost of Goods Sold and Gross Profit

(in thousands, except percentages)

Cost of goods sold decreased $1.5 million, or 25.1%, during the three months ended March 31, 2026 to $4.4 million, compared to $5.9 million for the three months ended March 31, 2025, primarily from reduced sales volumes.

Gross profit increased to 64.3% for the three months ended March 31, 2026 from 60.9% for the three months ended March 31, 2025. The increase in gross profit was due primarily to product mix and higher average sales prices on certain products.

Sales and Distribution Expenses

(in thousands, except percentages)

Sales and distribution expenses, which included e-commerce platform commissions, online advertising and logistics expenses (i.e., variable sales and distribution expense), decreased to $7.2 million for the three months ended March 31, 2026, from $9.7 million for the three months ended March 31, 2025. This decrease is primarily attributable to the decrease in the volume of products sold in the three months ended March 31, 2026, as our e-commerce platform commissions, online advertising, selling and logistics expenses decreased to $6.0 million in the three months ended March 31, 2026 as compared to $7.3 million in the prior year period.

Our sales and distribution fixed costs (e.g., salary and office expenses) including stock-based compensation decreased to $1.2 million for the three months ended March 31, 2026, from $2.3 million for the three months ended March 31, 2025. This decrease is primarily attributable to lower headcount expense of $0.6 million, lower miscellaneous expenses of $0.4 million, and lower stock-compensation expense of $0.1 million.

As a percentage of net revenue, sales and distribution expenses decreased to 58% for the three months ended March 31, 2026, from 63% for the three months ended March 31, 2025. E-commerce platform commissions, online advertising, selling and logistics expenses included within sales and distribution expenses, as a percentage of net revenue, stayed consistent at 48% for the three months ended March 31, 2026 and March 31, 2025.

General and Administrative Expenses

(in thousands, except percentages)

The decrease in general and administrative expenses was primarily the result of a decrease of $40 thousand in logistics software expenses.

Impairment loss on intangibles

(in thousands, except percentages)

On April 27, 2026, the Company entered into a definitive Asset Purchase Agreement with Trademark Global, LLC, to sell certain marquee brands for $18 million in cash. Based on the definitive deal terms, specifically the $18.0 million base purchase price and the estimated purchase price adjustments, the Company evaluated the carrying value of its brand intangible assets. The Company determined that the estimated allocated proceeds from the Asset Purchase Agreement were lower than the carrying values for certain definite-lived brand assets. Accordingly, the Company recorded a non-cash impairment charge of $3.4 million during the first quarter of 2026. This charge, recorded within Loss from Discontinued Operations on the Condensed Consolidated Statement of Operations, adjusts the carrying amount of the disposal group to its fair value less costs to sell, based on the $18.0 million cash consideration and estimated purchase price adjustments.

Liquidity and Capital Resources

Cash Flows for the Three Months Ended March 31, 2026 and 2025

The following table provides information regarding our cash flows for the three months ended March 31, 2026 and 2025:

(in thousands)

(1) Includes amounts from discontinued operations, please see Note 3, Held for Sale Classification and Discontinued Operations Presentation for additional details.

Net Cash Used in Operating Activities

Net cash used in operating activities was $0.4 million for the three months ended March 31, 2026, primarily driven by net cash losses from operations of $2.0 million and a $1.6 million inflow from changes in working capital, mainly related to changes in accounts receivable, purchases of inventory, and payments of accounts payable.

Net cash used in operating activities was $3.9 million for the three months ended March 31, 2025, resulting primarily from our net cash losses from operations of $2.9 million, outflow from working capital of $1.0 million from changes in accounts receivable, purchases of inventory and payments of accounts payable. The working capital outflow primarily relates to purchases of our air quality products for the summer season.

Net Cash Used in Investing Activities

For the three months ended March 31, 2026, net cash used in investing activities was $4 thousand, primarily related to the purchase of fixed assets during the three months ended March 31, 2026.

For the three months ended March 31, 2025, no cash was used in investing activities.

Net Cash (Used in) Provided by Financing Activities

For the three months ended March 31, 2026, cash used in financing activities of $2.1 million primarily from the net repayments for our MidCap credit facility of $1.8 million and payment of insurance obligations of $0.3 million.

For the three months ended March 31, 2025, cash provided by financing activities of $0.4 million was primarily from the net borrowings for our MidCap credit facility of $0.5 million and payment of insurance obligations of $0.1 million.

Liquidity and Going Concern

On April 27, 2026, the Company entered into a series of definitive agreements (collectively, the “Aterian Transactions”) to fundamentally restructure its operations and capital position. Under the terms of an Asset Purchase Agreement with Trademark Global, LLC, the Company agreed to sell its marquee brands, including Mueller Living, PurSteam, hOmeLabs, Squatty Potty, Healing Solutions, and Photo Paper Direct, for $18 million in cash less transaction related costs. Simultaneously, the Company entered into a Securities Purchase Agreement with David E. Lazar for the issuance of Series AA and Series AAA Preferred Stock for aggregate gross proceeds of $7.0 million.

Upon the closing of these transactions, Mr. Lazar will hold approximately 95.13% of the Company’s fully diluted share capitalization. Management intends to utilize the proceeds from these transactions to satisfy existing debt obligations and provide working capital for our core ongoing business segments, which include the Vremi and Xtava brands. Following the change in control, the Company intends to leverage its retained assets and operational infrastructure to pursue a streamlined growth strategy.

In accordance with ASC 205-40, Going Concern, management evaluated whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these Condensed Consolidated Financial Statements are issued.

• Since inception, we have incurred significant losses and used cash flows from operations to fund our enterprise. To preserve liquidity, we implemented fixed cost reduction plans in May 2025 and January 2026, resulting in a significant reduction in operating expenses. While these actions reduced our operating footprint, they were insufficient to offset macroeconomic pressures, such as tariffs and reduced consumer spending, necessitating the Aterian Transactions.
• The closing of the Aterian Transactions is subject to significant conditions, most notably the receipt of stockholder approval for the Asset Sale and the issuance of common stock upon conversion of the Preferred Stock. Furthermore, the Asset Sale is contingent upon the Company achieving specific contribution margin targets. We intend to hold a special meeting of stockholders no later than July 20, 2026, to seek these approvals.
• Ongoing global political instabilities, specifically the Iran conflict, are expected to result in higher costs for raw materials, energy, and transportation in the near term. These disruptions are anticipated to increase our cost of goods sold and have already contributed to higher marketplace fees due to rising oil prices. Such external pressures continue to negatively impact our operating results and cash flows, further underscoring the necessity of the Aterian Transactions to stabilize our capital position.
• The Company is subject to a Credit and Security Agreement with MidCap Funding IV Trust. On March 13, 2026 (the "Fifth Amendment Effective Date"), the Company and its subsidiaries entered into Amendment No. 5 to its Credit and Security Agreement with MidCap Funding IV Trust. Under the terms of the amendment, the Company’s minimum liquidity covenant was reduced from $5.0 million to $3.5 million during the Minimum Liquidity Covenant Reduction Period. This reduction period commenced on the Fifth Amendment Effective Date and is subject to extension at the Company's option on a weekly basis through May 9, 2026, provided it remains in compliance with certain fee payment obligations. While we were in compliance with our financial covenants as of March 31, 2026, our ability to maintain compliance beyond the current waiver period and meet future obligations is significantly dependent upon the successful closing of the Asset Sale and the Stock Sale.

Management’s plan to alleviate substantial doubt is centered on the consummation of the Aterian Transactions. If the Company is unable to obtain stockholder approval, or if the transactions otherwise fail to close, management may be required to implement alternative strategies. These may include seeking other strategic buyers, attempting to secure alternative high-cost financing, or a further drastic reduction in our operating footprint.

Furthermore, if the transactions are terminated under certain circumstances, the Company may be required to pay a termination fee of $1.1 million and reimburse expenses up to $0.6 million, which would further adversely impact our liquidity.

As the closing of the Aterian Transactions is subject to factors outside of the Company’s direct control, such as stockholder approval, management has concluded that these uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.

**Nasdaq Listing—**On December 9, 2025, the Company received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock, par value $0.0001 per share (“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 the Common Stock on The Nasdaq Capital Market, and, therefore, the Company's 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 June 8, 2026, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before June 8, 2026, the closing bid price of the 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 June 8, 2026, 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.

As of the date of this filing, the Company has not yet received formal written confirmation from Nasdaq that it has regained compliance, as the closing bid price of the Company’s common stock has been at or above $1.00 per share for 10 consecutive business days, ending on May 14, 2026.

**MidCap Credit Facility—**On December 22, 2021, we entered into a Credit Facility with MidCap, pursuant to which, among other things, (i) the lenders party thereto as lenders (the “Lenders”) agreed to provide a revolving credit facility in a principal amount of up to $40.0 million subject to a borrowing base consisting of, among other things, inventory and sales receivables (subject to certain reserves), and (ii) we agreed to issue to MidCap Funding XXVII Trust a warrant to purchase up to an aggregate of 16,667 shares of our common stock, in exchange for the Lenders extending loans and other extensions of credit to us under the Credit Facility.

Prior to the February 2024 amendment, the Credit Facility contained a financial covenant that required us to maintain a minimum unrestricted cash balance of (a) $12.5 million during the period from February 1st through and including May 31st of each calendar year, and (b) $15.0 million at all other times.

On February 23, 2024, the Company amended its asset backed credit facility with MidCap Financial Trust. The Credit Facility term has been extended to December 2026 and gives Aterian access to $17 million in current commitments which can be increased, subject to certain conditions, to $30.0 million. The Credit Facility extension reduces the minimum liquidity financial covenant from a peak of $15.0 million to $6.8 million of cash on hand and/or availability in the Credit Facility. The extension fee was less than $0.1 million. At our 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 $5.0 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 Consolidated Financial Statements were issued.

On March 25, 2025 (the “Third Amendment Effective Date”) the Company entered into Amendment No. 3 (the “3rd Amendment”) to the Credit Agreement. Material changes contained in the 3rd Amendment include, among other things, adding repurchase of the Company’s common stock of up to $1.5 million per year, consisting of up to $1.5 million in repurchases allowed during the period from March 25, 2025 through December 22, 2025, and up to an additional $1.5 million allowed during the period from December 23, 2025 through the maturity date, subject to certain liquidity and compliance conditions. On August 29, 2025 (the “Fourth Amendment Effective Date”) the Company entered into Amendment No. 4 to the Credit Agreement. Material changes contained in Amendment No. 4 include a reduction to the Minimum Credit Party Liquidity covenant to $5.0 million, upon the Company’s delivery of a Liquidity Certificate evidencing liquidity of at least $6.8 million, the Minimum Liquidity Covenant Reduction Period will terminate and the covenant will increase to $6.8 million thereafter, and an Availability Reserve of $2.8 million during the Minimum Liquidity Covenant Reduction Period and $1.0 million thereafter.

On March 13, 2026 (the "Fifth Amendment Effective Date"), the Company and its subsidiaries entered into Amendment No. 5 to its Credit and Security Agreement with MidCap Funding IV Trust. Under the terms of the amendment, the Company’s minimum liquidity covenant was reduced from $5.0 million to $3.5 million during the Minimum Liquidity Covenant Reduction Period. This reduction period commenced on the Fifth Amendment Effective Date and is subject to extension at the Company's option on a weekly basis through May 9, 2026, provided it remains in compliance with certain fee payment obligations.

The outstanding balance on the MidCap credit facility as of March 31, 2026 and December 31, 2025 was $2.5 million and $4.3 million, respectively. The Company had $1.1 million availability on the Midcap credit facility as of March 31, 2026. We are in compliance with the financial covenants contained within the Credit Agreement as of March 31, 2026.

**Share Repurchase—**On March 14, 2025, the Board of Directors authorized a share repurchase program to acquire up to $3.0 million of the Company’s common stock. The Company may purchase common stock on the open market, through privately negotiated transactions, or by other means including through the use of trading plans intended to qualify under Rule 10b-18 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The share repurchase program will have a term of 24 months and may be suspended or discontinued at any time and does not obligate the company to acquire any amount of common stock. The objective of this program is to repurchase shares of common stock opportunistically when management believes that the Company’s stock is trading below the Company’s determination of long-term fair value. As of May 2, 2025, the Company had temporarily suspended its share repurchase program.

**Trade Policy—**During 2025, the U.S. government announced a series of new tariff policies affecting imports from several countries, including China. While these actions impact a range of global trade flows, the new tariffs targeting imports from China are the most significant for our business. As a result of these tariffs, we experienced an increase in our cost of goods sold during the quarter ended March 31, 2026. In response, we implemented targeted price increases across affected product categories to partially offset the higher input costs. These pricing actions, however, contributed to a decline in unit volumes as consumer demand responded to the higher retail prices. We have implemented a range of mitigation strategies to address the impact of these tariffs on our supply chain and margins. These efforts include diversifying sourcing outside of China, renegotiating supplier terms, redesigning certain products to reduce tariff exposure, and implementing selective price increases where appropriate. We have implemented a range of mitigation strategies to address the impact of these tariffs on our supply chain and margins. These efforts include diversifying sourcing outside of China, renegotiating supplier terms, redesigning certain products to reduce tariff exposure, and implementing selective price increases where appropriate. We continue to evaluate additional structural and operational measures to further reduce tariff-related exposure.

Non-GAAP Financial Measures

On April 27, 2026, the Company entered into an Asset Purchase Agreement with Trademark Global, LLC, to sell the assets and liabilities associated with our marquee brands, including Mueller Living, PurSteam, hOmeLabs, Squatty Potty, Healing Solutions, and Photo Paper Direct. As these brands represented the substantial majority of our historical consolidated operations, their results are now classified as discontinued operations for all periods presented.

Consequently, management believes that historical Non-GAAP financial measures previously disclosed, including Adjusted EBITDA and Contribution Margin, no longer provide a meaningful basis for evaluating the Company’s ongoing performance or future prospects. Our remaining continuing operations consist primarily of smaller legacy brands, such as Vremi and Xtava, and residual corporate activities. Given this fundamental shift in our business profile and the ongoing transition of our leadership and capital structure, we have elected to omit the presentation of these Non-GAAP measures for the current period.

We intend to re-evaluate our performance metrics as our remaining operations evolve and will provide updated disclosures if management determines that such measures provide useful information to investors.

Critical Accounting Policies and Use of Estimates

As discussed in our Form 10-K for the fiscal year ended December 31, 2025, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those consolidated financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; leases; impairment of intangible assets; impairment of long-lived assets; and income taxes (including uncertain tax positions). There have been no significant changes to the Company’s accounting policies subsequent to December 31, 2025.

**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 April 27, 2026, the Company entered into a definitive Asset Purchase Agreement with Trademark Global, LLC, to sell certain marquee brands for $18 million in cash. Based on the definitive deal terms, specifically the $18.0 million base purchase price and the estimated purchase price adjustments, the Company evaluated the carrying value of its brand intangible assets. The Company determined that the estimated allocated proceeds from the Asset Purchase Agreement were lower than the carrying values for certain definite-lived brand assets. Accordingly, the Company recorded a non-cash impairment charge of $3.4 million during the first quarter of 2026. This charge, recorded within Loss from Discontinued Operations on the Condensed Consolidated Statement of Operations, adjusts the carrying amount of the disposal group to its fair value less costs to sell, based on the $18.0 million cash consideration and estimated purchase price adjustments.

We continue to closely monitor actual results versus expectations as well as whether and to what extent any significant changes in current events or conditions 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, fluctuations in discount rate, future operating efficiencies, and strategic alternative processes.

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, 2026, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2026.

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, 2026, that 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.

Risks Relating to Our Business

The Aterian Transactions are subject to significant conditions, including stockholder approval; failure to complete these transactions could materially harm our business and our ability to continue as a going concern.

On April 27, 2026, we entered into an Asset Purchase Agreement with Trademark Global, LLC and a Securities Purchase Agreement with David E. Lazar (collectively, the "Aterian Transactions"); however, there can be no assurance that we will obtain the necessary stockholder approvals or that other closing conditions will be satisfied. These transactions are subject to significant conditions, including the receipt of stockholder approval for the Asset Sale and the issuance of Common Stock upon conversion of the Preferred Stock, as well as our ability to achieve specific contribution margin targets. If the Aterian Transactions are not consummated, we will have incurred substantial legal, accounting, and advisory fees without the benefit of the $25 million in total anticipated gross proceeds, and we may be required to pay a termination fee of $1.1 million and reimburse up to $0.6 million of expenses under certain circumstances. Furthermore, our current liquidity position and our ability to remain in compliance with the covenants of our MidCap Credit Facility are significantly dependent on the closing of these transactions. A failure to close would likely impair our ability to continue as a going concern, and during the pendency of these transactions, we face ongoing operational risks including potential disruptions to business relationships with customers such as Amazon, Walmart, and Target, as well as broader macroeconomic hurdles.

The strategic investment made by David E. Lazar will result in a change in control and significant dilution of existing stockholders, giving a single investor outsized influence over our corporate strategy.

Existing stockholders will experience immediate and substantial dilution and a change in control as a result of the Aterian Transactions. Upon the Second SPA Closing and the subsequent conversion of the Series AA and Series AAA Preferred Stock, Mr. Lazar is expected to hold approximately 95.13% of our fully diluted share capitalization. This extreme concentration of ownership will give Mr. Lazar significantly outsized influence over our corporate strategy and all matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions. The interests of Mr. Lazar may differ from the interests of our other stockholders, and his ability to control the Company may have the effect of delaying or preventing a future change in control or other mergers that other stockholders might consider favorable.

The Company will dispose of substantially all of its revenue-generating assets upon the closing of the Asset Sale, and our future viability is subject to the successful execution of an unproven strategic pivot.

The Company will not have any material business assets following the consummation of the Asset Sale, as the sale to Trademark Global constitutes a sale of substantially all of our assets and revenue-generating operations, including our marquee brands. Consequently, our future viability will depend entirely on our ability to identify and consummate a "Post-Investment Transaction" or strategic "Pivot," which involves combining with a target company to create future growth opportunities. We may not be able to identify a suitable target company before our capital resources are depleted, and even if we do, there is no assurance that such a transaction will be successful or achieve anticipated benefits. Additionally, the final amount of net proceeds we receive from the Asset Sale remains subject to substantial uncertainty due to potential adjustments for net working capital, the satisfaction of unforeseen liabilities, and ongoing operational costs. There is also no guarantee that the Contingent Value Rights (CVRs) issued in connection with potential tariff refunds will result in any future cash payments to stockholders.

Our ability to retain key personnel may be adversely affected by the pending Asset Sale and our transition to new executive leadership.

The consummation of the Asset Sale and the strategic investment is subject to several conditions that may not be satisfied, including the receipt of stockholder approval. The uncertainty regarding the successful completion of these transactions, as well as the transition of leadership following the Second SPA Closing, may create significant anxiety regarding our future direction and ownership. This uncertainty could lead to increased employee attrition and further hinder our ability to attract and motivate key personnel. Additionally, the Asset Purchase Agreement requires the Company to maintain certain contribution margins, and any failure to meet these financial thresholds could jeopardize the closing of the sale, potentially impacting our ability to retain well-qualified employees.

Following the Second SPA Closing, David Lazar is expected to be appointed as the sole Chief Executive Officer, succeeding Arturo Rodriguez, which represents a significant shift in our senior management team. The loss of one or more of our key personnel during this transition period, or our inability to promptly identify suitable successors, could have an adverse effect on our business. Each of our executive officers and other employees could terminate their employment relationship with us at any time.

We have historically operated at a loss and we may never achieve or sustain continuous profitability or positive cash flows. Management has determined that there is substantial doubt about the Company's ability to continue as a going concern.

We have experienced significant after-tax losses for the three months ended March 31, 2026 and 2025. In addition, our costs have increased historically and may increase further in future periods, which could negatively affect our future operating results and ability to achieve and sustain long-term ongoing profitability. 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, 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 to sustain our business. Even though we have raised significant capital, there can be no assurance that we will ever achieve long-term continuous 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 raise 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 consolidated financial statements as of and for the year ended December 31, 2025, 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, reduce our sales 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.

Increased costs of raw materials, energy, labor, transportation and platform fees charged by marketplaces may adversely affect our business, operating results, financial condition, and cash flows.

Significant increases in the cost and/or reductions in the availability of raw materials, energy, labor, transportation, and increases in tariffs and platform fees charged by marketplaces have negatively impacted our business, operating results, financial condition, and cash flows and may continue to negatively impact such items in the future. Our contract manufacturers purchase significant amounts of metals, plastics and other materials to manufacture our products. In addition, they also purchase significant amounts of electricity to supply the energy required in their production processes. Global political instabilities, including the Iran conflict, are expected to result in higher metal, plastic, electric, transportation and product costs, and may increase our cost of goods sold in the near term or impair our ability to obtain products at marketable rates or at all. We are heavily dependent on inbound sea, rail and truck freight. Disruptions in the global supply chain and freight networks, has, and may continue to limit inbound and outbound shipment capacity and increase our cost of goods sold and certain operating expenses. Further, the marketplaces on which we sell our products charge fees for selling, storage, advertising and fulfillment, all of which have historically increased, and we expect will continue to increase. Specifically, recent increases in oil prices have contributed to higher marketplace fees. The cost of raw materials, energy, labor, and transportation represents a significant portion of our cost of goods sold, while platform fees charged by marketplaces represent a significant portion of our operating expenses; these costs are not within our control and we have had limited success passing these on to customers. Our business, operating results, financial condition, and cash flows could be adversely affected by future increases in any of these costs. Additionally, the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, restricted transportation or increased freight costs, reduced workforce, or other manufacturing and distribution disruption could adversely impact our ability to meet our customers’ needs. Furthermore, it is not practical for us to mitigate our exposure to, nor are we able to accurately project the possible effect of foreign currency exchange rate fluctuations on our operating results due to our constantly changing exposure to various foreign currencies and the difficulty in predicting fluctuations in foreign currency exchange rates relative to the U.S. Dollar.

Recent escalations in geopolitical tensions in Iran, including significant combat operations and retaliatory strikes involving the United States and regional powers, have created substantial volatility in global energy and shipping markets. This conflict has led to disruptions in critical maritime routes and increased the risk of spiked freight insurance premiums and fuel surcharges for inbound shipments from our Asian suppliers. These macroeconomic pressures pose a direct threat to our operating results and could specifically impair our ability to achieve the contribution margin targets required as a condition to the closing of the Asset Purchase Agreement with Trademark Global. Furthermore, any sustained increase in shipping costs or delays in product availability would exacerbate the liquidity constraints that have historically affected our business and could interfere with our ability to maintain compliance with our existing credit facility prior to the anticipated influx of capital from the Aterian Transactions. If we are unable to successfully navigate these disruptions, the failure to close the pending Asset Sale and Stock Sale would have a material adverse effect on our financial condition and our ability to continue as a going concern.

We depend on third-party suppliers for all of our products, most of which are located in Asia, and any inability or delay in obtaining products from such suppliers could have a material adverse effect on our business, operating results, financial condition, and cash flow.

We are dependent on third-party suppliers such as contract manufacturers and third-party logistics providers and carriers for the manufacturing and distribution of our products and any disruption to our supply chain, even for a relatively short period of time, could cause a loss of revenue, which could adversely affect our business, operating results, financial condition, and cash flows. Our ability to select reliable suppliers that provide timely deliveries of quality products will impact our success in meeting customer demand. Further, for a number of our significant products, we only have a single-source of supply (such as for certain dehumidifiers) and in general we do not have contracts with our contract manufacturers covering costs and production that we believe we can enforce without undue effort or cost. Any supplier’s inability or unwillingness to timely deliver products that meet desired specifications or any unanticipated changes in suppliers could be disruptive and costly and it is unlikely that we will be able to effect alternative arrangements on a timely basis, or in the case of manufacturing certain of our significant products, at all. Any significant failure by us to obtain quality products, in sufficient quantities, on a timely basis, and at an affordable cost or any significant delays or interruptions of supply would have a material adverse effect on our business, operating results, financial condition, and cash flows.

As most of our product suppliers are based in China, our business is subject to additional risks including, among others: currency fluctuations; labor unrest; potential political, economic and social instability; restrictions on transfers of funds; import duties and quotas; changes in domestic and international customs and tariffs, including embargoes and customs restrictions; uncertainties involving the costs to transport and warehouse products due to the dynamic nature of the global supply chain; unexpected changes in regulatory environments; regulatory issues involved in dealing with foreign suppliers and in exporting and importing products. The foregoing factors could have a material adverse effect on our business, operating results, financial condition, and cash flows.

If our products experience any recalls, product liability claims, or government, customer or consumer concerns about product safety, our reputation and operating results could be harmed.

Our products are subject to regulation by the U.S. Consumer Product Safety Commission (the “CPSC”) and similar state and international regulatory authorities, and these products sold on our platform could be subject to involuntary recalls and other actions by these authorities. Concerns about product safety including concerns about the safety of products manufactured in developing countries, could lead us to recall selected products. Recalls and government, customer or consumer concerns about product safety could harm our reputation and reduce sales, either of which could have a material adverse effect on our business, results of operations, financial condition and prospects.

In February 2026, we announced a voluntary recall in coordination with the CPSC for approximately 195,000 units of our PurSteam Mighty Lil Steamers and Elite Travel Steamers due to reports of hot water expelling from the nozzle. We have incurred, and expect to continue to incur, costs related to this recall, including refund payments and legal expenses. As a result of this recall, a putative class action complaint, Sarah Brannon v. Aterian, Inc., was filed against us on March 6, 2026, in the U.S. District Court for the District of New Jersey. The complaint alleges various violations, including breach of implied warranty, unjust enrichment, and violations of the New Jersey Products Liability Act. While the Company ceased selling these steamers in 2024, the defense of this existing litigation, and the potential for additional product liability or class action lawsuits, could result in significant legal expenses, settlements, or judgments. Furthermore, these developments could damage the reputation of the PurSteam brand, leading to a loss of consumer trust and a permanent decline in revenue for this product line.

On May 13, 2026, the company entered into a settlement agreement and general release to resolve this litigation. Under the terms of the agreement, the company agreed to pay a total settlement sum of $100,000 in exchange for a full release of all claims related to the purchase and use of the products. The agreement stipulates a voluntary dismissal of the claims with prejudice and includes customary provisions regarding confidentiality, non-disparagement, and a denial of any wrongdoing or liability by the company.

We may be subject to product liability claims if people or property are harmed by the products we sell. Some of the products we sell may expose us to product liability claims and litigation (including class actions) or regulatory action relating to safety, personal injury, and death or environmental or property damage.

Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In general, our agreements with members of our supply chain do not indemnify us from product liability for a particular product, and some members of our supply chain may not have sufficient resources or insurance to satisfy their indemnity and defense obligations.

Any failure by us or our vendors to comply with product safety, consumer protection or other laws, or our standard vendor terms and conditions, or to provide safe factory conditions for our or their workers may damage our reputation and brand and harm our business.

The products we sell to our clients are subject to regulation by the CPSC, the Federal Trade Commission (“FTC”) and similar state and international regulatory authorities. As a result, such products could be in the future subject to recalls and other remedial actions, including the manner in which we market our products. Product safety or labeling concerns may require us to voluntarily remove selected merchandise from our inventory. Such recalls or voluntary removal of merchandise can result in, among other things, suspension of our seller accounts on Amazon and other online marketplaces, lost sales, diverted resources, potential harm to our reputation and increased client service costs and legal expenses, which could have a material adverse effect on our operating results.

Some of the products we sell may expose us to product liability claims and litigation or regulatory action relating to personal injury or environmental or property damage. Although we maintain liability insurance and have implemented a quality assurance program that includes obtaining necessary certifications, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms or at all. In addition, our agreements with our vendors in general do not indemnify us from product liability for a particular vendor’s products or our vendors may not have sufficient resources or insurance to satisfy their indemnity and defense obligations.

Our Credit Facility contains various restrictions and covenants that could limit our operating flexibility, and we may be unable to refinance or repay our Credit Facility. We also rely on credit export insurance for our vendors in China, the unavailability of which could have a material adverse impact on our business, operating results, financial condition, and cash flows.

On December 22, 2021, we obtained a revolving credit facility from Midcap Funding IV Trust (the “Credit Facility”). Our Credit Facility contains covenants and other restrictions that, among other things, requires us to satisfy certain liquidity and borrowing availability tests, restricts our ability to execute M&A transactions and to incur additional indebtedness. These restrictions and covenants, and those in other future financing arrangements, may limit our ability to respond to market conditions, to provide for capital investment needs or to take advantage of business opportunities.

On February 23, 2024, the Company amended the Credit Facility to extend the term to December 2026 and provide us with access to $17 million in current commitments which can be increased, subject to certain conditions, to $30.0 million. On March 25, 2025, the Company amended the Credit Facility to add repurchases of the Company’s common stock of up to $1.5 million per year, consisting of up to $1.5 million in repurchases allowed during the period from March 25, 2025 through December 22, 2025, and up to an additional $1.5 million allowed during the period from December 23, 2025 through the maturity date, subject to certain liquidity and compliance conditions.

On August 29, 2025, the Company amended the Credit Facility to include a reduction to the Minimum Credit Party Liquidity covenant to $5.0 million. Upon the Company’s delivery of a Liquidity Certificate evidencing liquidity of at least $6.8 million, the Minimum Liquidity Covenant Reduction Period will terminate and the covenant will increase to $6.8 million thereafter, and an Availability Reserve of $2.8 million during the Minimum Liquidity Covenant Reduction Period and $1.0 million thereafter.

On March 13, 2026, the Company and its subsidiaries entered into Amendment No. 5 to its Credit and Security Agreement with MidCap Funding IV Trust. Under the terms of the amendment, the Company’s minimum liquidity covenant was reduced from $5.0 million to $3.5 million during the Minimum Liquidity Covenant Reduction Period. This reduction period commenced on the Fifth Amendment Effective Date and is subject to extension at the Company's option on a weekly basis through May 9, 2026, provided it remains in compliance with certain fee payment obligations.

There is no guarantee that we will be available to repay or refinance our Credit Facility. Further, at any time, if we violate the terms of the Credit Facility, we may not be able to obtain a waiver from our lender under satisfactory terms, or at all, which would limit our operating flexibility and/or liquidity and which could have a material adverse effect on our business, operating results, financial condition, and cash flows.

We also rely on the availability of export credit insurance from the China Export & Credit Insurance Corporation (“Sinosure”), a Chinese state-owned enterprise, that provides export credit insurance to our contract manufacturers. From time to time, our contract manufacturers have experienced reductions in the availability of such credit from Sinosure as a result of our failure to timely pay them. While we currently believe our contract manufacturers have insurance at levels that we believe are sufficient to fund our operations, there can be no assurance that such insurance will be available at levels we require for our business, or at all, whether or not we make timely payments to our vendors, which would have a material adverse effect on our business, operating results, financial condition, and cash flows.

In addition, the Company has cash deposits at financial institutions in excess of the insured amount of $0.3 million by the Federal Deposit Insurance Corporation.

Our business is sensitive to the strength of the United States consumer market to a meaningful extent, and changes in consumer spending and economic conditions could adversely affect our business.

The strength of the U.S. economy has a significant impact on our performance. We are dependent on discretionary spending, which is affected by, among other things, unemployment rates, economic and political conditions worldwide, consumer confidence, energy and gasoline prices, interest and mortgage rates, the level of consumer debt and taxation, and financial markets, all of which are outside of our control. In particular, the ongoing conflict in Iran has contributed to increased gasoline and energy prices and heightened geopolitical uncertainty, which has negatively impacted discretionary spending at least in the short term, though these effects could be prolonged if the conflict continues or escalates. A continuing softening of demand, whether caused by changes in customer preferences, a weakening of the U.S. or global economies, or regional instability, may result in decreased revenue. We believe we have sustained a decline in the sales of our products in part due to the factors mentioned above, and any continued economic downturn or uncertainties in the U.S. or in other parts of the world could materially and adversely affect our business, operating results, financial condition, and cash flows.

Risks Relating to the Litigation and Government Regulation

Claims, litigation, government investigations, product liability and recalls, and other proceedings may adversely affect our business, operating results, financial condition, and cash flows.

We are, from time to time, involved in various claims, litigation matters and regulatory proceedings that could have a material adverse effect on us. These matters may include personal injury and other tort claims, deceptive trade practice disputes, intellectual property disputes, product recalls, contract disputes, employment and tax matters and other proceedings and litigation, including class actions lawsuits. It is not possible to predict the outcome of pending or future litigation and any such claims, with or without merit, could be time consuming and expensive, and may require the Company to incur substantial costs and divert the resources of management.

We face exposure to product liability and other claims in the event that one of our products is alleged to have resulted in property damage, bodily injury or other adverse effects. In addition, if we are required to, or voluntarily, repair, replace or refund one or more of our products, it could have a material impact on our business, operating results, financial condition and reputation.

Determining legal reserves or possible losses from claims against us involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. Until the final resolution of such matters, we may be exposed to losses in excess of the amount recorded, and such excess amounts could have a material effect on our business, results of operations, financial condition, and cash flows. In addition, it is possible that a resolution of any claim, including as a result of a settlement, could require us to make substantial future payments, prevent us from offering certain products or services, or require us to change our business practices each of which could have a material adverse effect on our business, operating results, financial condition, and cash flows.

U.S. government trade actions could have a material adverse effect on our business, financial position, and results of operation.

Over the past several years, the U.S. government has taken a number of trade actions that impact or could impact our operations, including imposing tariffs on certain goods imported into the United States.

Throughout 2025, the U.S. trade environment underwent a period of unprecedented volatility characterized by the implementation of a broad “reciprocal” tariff regime. Utilizing the International Emergency Economic Powers Act (IEEPA), the administration imposed steep duties on nearly all imported goods, including a baseline 10% global tariff and targeted rates on major trading partners like China that reached historic highs before a late-year temporary truce. These actions were compounded by expanded Section 232 duties on industrial metals and the elimination of “de minimis” exemptions for low-value imports, significantly increasing our landed costs and requiring frequent adjustments to our pricing and sourcing strategies. While these measures were the primary drivers of trade policy for much of the year, their legal foundation remained a point of intense litigation until early 2026.

On February 20, 2026, the U.S. Supreme Court ruled in Learning Resources Inc. v. Trump that the International Emergency Economic Powers Act does not authorize the President to impose sweeping revenue-raising tariffs, invalidating previous broad reciprocal duties. In response, the administration immediately transitioned to a 10% baseline tariff under Section 122 of the Trade Act of 1974, effective February 24, 2026. These tariffs are subject to a 150-day statutory limit (expiring July 24, 2026) unless extended by Congress.

On May 7, 2026, the U.S. Court of International Trade (CIT) ruled in Burlap and Barrel, Inc. v. Trump that these Section 122 tariffs are unlawful, finding the administration exceeded its statutory authority. However, because the CIT limited its permanent injunction only to the specific plaintiffs in that case, the federal government continues to collect the 10% duty from all other importers, including the Company. We expect the administration to appeal this decision, and there is significant uncertainty regarding whether the tariffs will be stayed, if Congress will provide a legislative extension, or if the administration will pivot to alternative authorities, such as Section 301 investigations, to maintain or increase duty levels. Any prolonged collection of these duties, or the imposition of higher replacement tariffs, could materially increase our cost of goods sold and adversely affect our operating results.

These tariff actions, along with the potential for retaliatory measures, create uncertainty and may increase our product costs, disrupt our supply chain, and adversely affect our competitive position. In particular, continued or escalated trade and political tensions with China or other key trading partners could result in retaliatory restrictions that impair our ability to source products and components from contract manufacturers or service providers operating in those countries. Any sustained increase in tariffs, or the imposition of additional trade barriers, could materially and adversely affect our business, financial condition, and results of operations.

In addition to the tariff measures described above, changes in U.S. or foreign trade policy may create ongoing uncertainty in international trade relations. Future actions by the United States or other governments — including the imposition, increase, or extension of tariffs, quotas, or other trade restrictions, or changes to existing trade agreements or policies — could occur at any time and without notice. Any such actions, whether unilateral or in response to geopolitical or economic developments, could reduce demand for our products, increase our costs, disrupt our supply chain, reduce our profitability, or otherwise have a material adverse effect on our business, financial condition, and results of operations.

We are continually evaluating the impact of the current and any possible new tariffs on our supply chain, costs and sales and are considering strategies to mitigate such impact, including reviewing sourcing options and working with our suppliers. We can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful or that any newly sourced products will be of the same quality of those previously sourced elsewhere. Given the uncertainty regarding the scope and duration of these trade actions by the U.S. government or other countries, as well as the potential for additional trade actions, the impact on our operations and results remains uncertain.

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.

There is no guarantee that we will continue to meet all requirements for continued listing on the Nasdaq Capital Market. We must continue to satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share.

On April 24, 2023,the Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock, par value $0.0001 per share (“Common Stock”), for the last 30 consecutive business days, the Company was 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”). In response to the potential risk of delisting, the Company’s stockholders approved granting the Board discretionary authority to implement a reverse stock split, and on March 20, 2024, the Company effected a 1-for-12 reverse stock split of its common stock. The Company subsequently regained compliance with Nasdaq’s minimum bid price requirement in April 2024, and the matter was closed.

On December 9, 2025, the Company received a notice from Nasdaq indicating that, based upon the closing bid price of the Company’s common stock, par value $0.0001 per share, 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 has no immediate effect on the continued listing status of the Common Stock on The Nasdaq Capital Market, and, therefore, the Company's 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 June 8, 2026, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before June 8, 2026, the closing bid price of the 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 June 8, 2026, 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 falls below the continued listing standard of $1.00 per share or otherwise fails to satisfy any of the Nasdaq continued listing requirements, and if we are unable to cure such deficiency during any subsequent cure period, our Common Stock could be delisted from the Nasdaq. If our Common Stock ultimately were to be delisted for any reason, we could face significant material adverse consequences, including:

• limited availability of market quotations for our Common Stock;
• a limited amount of news and analyst coverage for us;
• a decreased ability for us to issue additional securities or obtain additional financing in the future;
• limited liquidity for our stockholders due to thin trading; and
• the potential loss of confidence by investors and employees.

As of the date of this filing, the Company has not yet received formal written confirmation from Nasdaq that it has regained compliance, as the closing bid price of the Company’s common stock has been at or above $1.00 per share for 10 consecutive business days, ending on May 14, 2026.

The proposed Nasdaq minimum market value rule could result in the immediate suspension and delisting of our common stock without a cure period.

On January 13, 2026, Nasdaq filed a proposed rule change with the SEC (File No. SR-NASDAQ-2026-004) that would establish a new continued listing requirement. Under the proposal, companies listed on the Nasdaq Global and Capital Markets would be required to maintain a minimum Market Value of Listed Securities (“MVLS”) of at least $5 million.

If this rule is approved and we fail to maintain a $5 million MVLS for a period of 30 consecutive business days, our common stock would be subject to immediate suspension and delisting. Unlike other Nasdaq listing deficiencies, such as the $1.00 minimum bid price requirement, which typically allows for a 180-day compliance period, the proposed rule does not provide for a cure or compliance period. Furthermore, the proposal specifies that any appeal of a delisting determination under this rule would not stay the suspension of trading.

If our common stock is delisted from Nasdaq, it would likely trade on the over-the-counter (“OTC”) market. Such a move could:

• significantly reduce the liquidity and market price of our common stock;
• limit our ability to raise additional capital through the issuance of equity;
• result in a loss of confidence by investors, suppliers, and employees; and
• make our stock subject to “penny stock” rules, which impose additional burdens on broker-dealers and further restrict secondary market

There can be no assurance that the SEC will not approve this rule or that we will be able to maintain a market capitalization sufficient to comply with these new requirements. Any such delisting would have a material adverse effect on our financial condition and the value of your investment.