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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission File Number: 001-38238


Venus Concept Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware

06-1681204

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

235 Yorkland Blvd., Suite 900

Toronto, Ontario M2J 4Y8

(877) 848-8430

(Address including zip code, and telephone number including area code, of registrants principal executive offices)

 


 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

VERO

 

The Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

    

Non-accelerated filer

Smaller reporting company

    
  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒

 

As of May 9, 2022 the registrant had 63,999,044 shares of common stock, $0.0001 par value per share, outstanding.



 

 

 

 

Table of Contents

 

 

 

Page

Part I.

Financial Information

2

Item 1.

Condensed Consolidated Financial Statements (unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Loss

4

 

Condensed Consolidated Statements of Stockholders’ Equity

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.

Controls and Procedures

43

PART II.

Other Information

44

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

45

Item 4.

Mine Safety Disclosures

45

Item 5.

Other Information

45

Item 6.

Exhibits

45

Signatures

46

 

 

 

PART I

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

VENUS CONCEPT INC.

 

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except for shares and per share data)

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 

ASSETS

        

CURRENT ASSETS:

        

Cash and cash equivalents

 $17,911  $30,876 

Accounts receivable, net of allowance of $12,742 and $11,997 as of March 31, 2022, and December 31, 2021

  49,076   46,918 

Inventories

  21,319   20,543 

Prepaid expenses

  2,446   2,737 

Advances to suppliers

  3,532   2,162 

Other current assets

  4,139   3,758 

Total current assets

  98,423   106,994 

LONG-TERM ASSETS:

        

Long-term receivables

  27,747   27,710 

Deferred tax assets

  249   284 

Severance pay funds

  884   817 

Property and equipment, net

  2,583   2,669 

Intangible assets

  14,536   15,393 

Total long-term assets

  45,999   46,873 

TOTAL ASSETS

 $144,422  $153,867 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

CURRENT LIABILITIES:

        

Trade payables

 $4,788  $4,913 

Accrued expenses and other current liabilities

  18,818   19,512 

Income taxes payable

  415   294 

Unearned interest income

  2,727   2,678 

Warranty accrual

  1,127   1,245 

Deferred revenues

  1,585   2,030 

Current portion of government assistance loans

  136   543 

Total current liabilities

  29,596   31,215 

LONG-TERM LIABILITIES:

        

Long-term debt

  77,404   77,325 

Income tax payable

  571   563 

Accrued severance pay

  994   911 

Deferred tax liabilities

  56   46 

Unearned interest income

  1,376   1,355 

Warranty accrual

  432   508 

Other long-term liabilities

  567   348 

Total long-term liabilities

  81,400   81,056 

TOTAL LIABILITIES

  110,996   112,271 

Commitments and Contingencies (Note 8)

          

STOCKHOLDERS’ EQUITY:

        

Common Stock, $0.0001 par value: 300,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 63,999,044 and 63,982,580 issued and outstanding as of March 31, 2022 and December 31, 2021 respectively

  27   27 

Additional paid-in capital

  221,787   221,321 

Accumulated deficit

  (189,024)  (180,405)

TOTAL STOCKHOLDERS’ EQUITY

  32,790   40,943 

Non-controlling interests

  636   653 
   33,426   41,596 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 $144,422  $153,867 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except for per share data)

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 

Revenue

        

Leases

 $10,423  $8,537 

Products and services

  15,983   14,060 
   26,406   22,597 

Cost of goods sold

        

Leases

  2,700   1,770 

Products and services

  5,943   5,593 
   8,643   7,363 

Gross profit

  17,763   15,234 

Operating expenses:

        

Sales and marketing

  9,903   7,854 

General and administrative

  13,094   12,165 

Research and development

  2,202   2,051 

Total operating expenses

  25,199   22,070 

Loss from operations

  (7,436)  (6,836)

Other expenses:

        

Foreign exchange loss

  5   714 

Finance expenses

  923   1,885 

Loss before income taxes

  (8,364)  (9,435)

Income tax expense

  272   - 

Net loss

  (8,636)  (9,435)

Net loss attributable to stockholders of the Company

  (8,619)  (9,259)

Net loss attributable to non-controlling interest

  (17)  (176)
         

Net loss per share:

        

Basic

 $(0.13) $(0.17)

Diluted

 $(0.13) $(0.17)

Weighted-average number of shares used in per share calculation:

        

Basic

  63,988   53,744 

Diluted

  63,988   53,744 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

Net loss

  $ (8,636 )   $ (9,435 )

Loss attributable to stockholders of the Company

    (8,619 )     (9,259 )

Loss attributable to non-controlling interest

    (17 )     (176 )

Comprehensive loss

  $ (8,636 )   $ (9,435 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Stockholders Equity

(Unaudited)

(in thousands, except for shares)

 

   

Series A Preferred

   

Series A Preferred

   

Common Stock

   

Additional Paid-

   

Accumulated

   

Non- controlling

   

Total Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

in-Capital

   

Deficit

   

Interest

   

Equity

 

Balance — January 1, 2022

    3,790,755     $       63,982,580     $ 27     $ 221,321     $ (180,405 )   $ 653     $ 41,596  

Options exercised

                16,464             23                   23  

Net loss — the Company

                                  (8,619 )           (8,619 )

Net loss — non-controlling interest

                                        (17 )     (17 )

Stock-based compensation

                            443                   443  

Balance — March 31, 2022

    3,790,755     $       63,999,044       27       221,787       (189,024 )     636       33,426  

 

   

Series A Preferred

   

Series A Preferred

   

Common Stock

   

Additional Paid-

   

Accumulated

   

Non- controlling

   

Total Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

in-Capital

   

Deficit

   

Interest

   

Equity

 

Balance — January 1, 2021

        $       53,551,126     $ 26     $ 201,598     $ (157,392 )   $ (471 )   $ 43,761  

December 2020 Public Offering warrants exercise

                361,200             903                   903  

Net loss — the Company

                                  (9,259 )           (9,259 )

Net loss — non-controlling interest

                                        (176 )     (176 )

Options exercised

                157,304             212                   212  

Stock-based compensation

                            508                   508  

Balance — March 31, 2021

        $       54,069,630     $ 26     $ 203,221     $ (166,651 )   $ (647 )   $ 35,949  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (8,636 )   $ (9,435 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    1,101       1,304  

Stock-based compensation

    443       508  

Provision for bad debt

    1,004       1,106  

Provision for inventory obsolescence

    135       252  

Finance expenses and accretion

    79       489  

Deferred tax expense (recovery)

    45       (317 )

Loss on disposal of property and equipment

          13  

Changes in operating assets and liabilities:

               

Accounts receivable short and long-term

    (3,199 )     2,448  

Inventories

    (911 )     (478 )

Prepaid expenses

    291       109  

Advances to suppliers

    (1,370 )     (1,417 )

Other current assets

    (381 )     1,255  

Trade payables

    (125 )     (178 )

Accrued expenses and other current liabilities

    (1,128 )     (3,554 )

Severance pay funds

    (67 )     5  

Unearned interest income

    70       (249 )

Other long-term liabilities

    225       (81 )

Net cash used in operating activities

    (12,424 )     (8,220 )

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Purchases of property and equipment

    (157 )     (53 )

Net cash used in investing activities

    (157 )     (53 )

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Exercises of 2020 December Public Offering Warrants

          903  

Payment of earn-out liability

          (147 )

Repayment of government assistance loans

    (407 )      

Proceeds from exercise of options

    23       212  

Net cash (used in) provided by financing activities

    (384 )     968  

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

    (12,965 )     (7,305 )

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period

    30,876       34,380  

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period

  $ 17,911     $ 27,075  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid for income taxes

  $ 99     $ 73  

Cash paid for interest

  $ 844     $ 1,731  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

VENUS CONCEPT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands, unless otherwise noted, except for shares and per share data)

 

 

1. NATURE OF OPERATIONS

 

Venus Concept Inc. is a global medical technology company that develops, commercializes, and sells minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related services. The Company’s systems have been designed on cost-effective, proprietary and flexible platforms that enable it to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family and general practitioners and aesthetic medical spas. The Company was incorporated in the state of Delaware on November 22, 2002. In these notes to the condensed consolidated financial statements, the “Company” and “Venus Concept”, refer to Venus Concept Inc. and its subsidiaries on a consolidated basis.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future, and, as such, the unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

The Company has had recurring net operating losses and negative cash flows from operations. As of  March 31, 2022 and December 31, 2021, the Company had an accumulated deficit of $189,024 and $180,405, respectively. The Company was in compliance with all required covenants as of March 31, 2022, and December 31, 2021. The Company’s recurring losses from operations and negative cash flows raise substantial doubt about the Company’s ability to continue as a going concern within 12 months from the date that the unaudited condensed consolidated financial statements are issued. While the Company's business has improved and management expects this momentum to continue through the balance of 2022, the Company is still recovering from the impact of the coronavirus pandemic ("COVID-19" or "pandemic"). As of  March 31, 2022, and for the three months then ended management expects the pandemic to continue to have a negative impact in the foreseeable future, the extent of which is uncertain and largely subject to whether the severity of the pandemic worsens, or duration lengthens. In the event that the pandemic and the economic disruptions it has caused continue for an extended period of time, the Company cannot assure that it will remain in compliance with the financial covenants contained within its credit facilities. 

 

In order to continue its operations, the Company must achieve profitable operations and/or obtain additional equity or debt financing. Until the Company achieves profitability, management plans to fund its operations and capital expenditures with cash on hand, borrowings, and issuance of capital stock. In December 2021, the Company issued and sold to investors 9,808,418 shares of common stock, par value $0.0001 per share, and 3,790,755 shares of the convertible preferred stock, par value $0.0001 per share for the total gross proceeds of $16,999 (see “The 2021 Private Placement” in Note 14). In February 2021, several investors exercised an aggregate of 361,200 December 2020 Public Offering Warrants at the exercise price of $2.50 per share. The total proceeds received by the Company from the December 2020 Public Offering Warrants exercises were $903. Until the Company generates revenue at a level to support its cost structure, the Company expects to continue to incur substantial operating losses and net cash outflows from operating activities.

 

Given the pandemic and the uncertainty around the COVID-19 variants, the Company cannot anticipate the extent to which the current economic turmoil and financial market conditions will continue to adversely impact the Company’s business and the Company may need additional capital to fund its future operations and to access the capital markets sooner than planned. There can be no assurance that the Company will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital, it may be compelled to reduce the scope of its operations and planned capital expenditures or sell certain assets, including intellectual property assets. These unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from the uncertainty. Such adjustments could be material.

 

7

 
 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Venus Concept Inc. have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2022. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of the Company’s most recent Annual Report on Form 10-K.

 

In the Form 10-Q for the period ended March 31, 2021, filed with the SEC on May 17, 2021, in the Form 10-Q for the period ended June 30, 2021, filed with the SEC on August 17, 2021, in the form 10-Q for the period ended September 30, 2021, filed with the SEC on November 12, 2021 and in the Form 10-K for the year ended December 31, 2021, filed with the SEC on March 28, 2022, the revenue by geographic location, which is based on the product shipped to location, was presented incorrectly (see below). The Company corrected the presentation in the accompanying unaudited condensed consolidated financial statements for the periods presented (see Note 16).

 

  

Reclassification Adjustment

 
  Three Months Ended  Year Ended 
  

March 31, 2021

  

June 30, 2021

  

September 30, 2021

  

December 31, 2021

  

December 31, 2021

 

United States

 $(362) $(615) $(703) $(440) $(2,120)

International

  362   615   703   440   2,120 

Total revenue

 $  $  $  $  $ 

 

The preparation of these unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 31, 2022 and through the date of this report filing. The accounting matters assessed included, but were not limited to, the allowance for doubtful accounts and the carrying value of intangible and long-lived assets.

 

Amounts reported in thousands within this report are computed based on the amounts in dollars. As a result, the sum of the components reported in thousands may not equal the total amount reported in thousands due to rounding. Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in dollars.

 

Accounting Policies

 

The accounting policies the Company follows are set forth in the Company’s audited consolidated financial statements for fiscal year 2021. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of the Company’s most recent Annual Report on Form 10-K. There have been no material changes to these accounting policies.

 

JOBS Act Accounting Election

 

The Company is an emerging growth company, within the meaning of the 1933 Act, as modified by the Jumpstart Our Business Startups Act (the "JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these unaudited condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

 

8

 

Recently Issued Accounting Standards Not Yet Adopted

 

In August 2020, Financial Accounting Standards Board (the “FASB”) issued ASU No. 2020-06 (“ASU 2020-06”): Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted net income per share calculation for convertible instruments will require us to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for the Company on January 1, 2024, with early adoption permitted. ASU No. 2020-06 can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently assessing the impact of applying this guidance as well as when to adopt this guidance.

 

In April 2020, the FASB issued a Staff Question-and-Answer Document (Q&A): ASC Topic 842 and ASC Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic, that focuses on the application of the lease guidance for lease concessions related solely to the effects of COVID-19. The FASB issued the guidelines to reduce the burden and complexity for companies to account for such lease concessions (e.g., rent abatements or other economic incentives) under current lease accounting rules due to COVID-19 by providing certain practical expedients that can be used. This guidance can be applied immediately. The adoption of the guidance did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

 

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04 - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASC Topic 848). This authoritative guidance provides optional relief for companies preparing for the discontinuation of interest rates such as LIBOR, which is expected to be phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate. This guidance can be applied for a limited time, as of the beginning of the interim period that includes March 12, 2020 or any date thereafter, through December 31, 2022. The guidance may no longer be applied after December 31, 2022. In January 2021, the FASB issued authoritative guidance that makes amendments to the new rules on accounting for reference rate reform. The amendments clarify that all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR, or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in ASC Topic 848. The Company is currently assessing the impact of applying this guidance as well as when to adopt this guidance.

 

In February 2020, the FASB issued authoritative guidance (ASU 2020-02 – Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842)) that amends and clarifies Topic 326 and Topic 842. For Topic 326, the codification was updated to include the SEC staff interpretations associated with registrants engaged in lending activities. ASC Topic 326 is effective for annual periods beginning after January 1, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact of applying this guidance on its financial instruments, such as accounts receivable.

 

In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas. It is effective from the first quarter of fiscal year 2022, with early adoption permitted in any interim period. If adopted early, the Company must adopt all the amendments in the same period. The amendments have differing adoption methods including retrospectively, prospectively and/or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, depending on the specific change. The adoption of the guidance did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

 

 

3. NET LOSS PER SHARE

 

Net Loss Per Share

 

Basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock warrants and stock options are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

 

9

 

The following table sets forth the computation of basic and diluted net loss per share and the weighted average number of shares used in computing basic and diluted net loss per share (in thousands, except per share data):

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

Numerator:

               

Net loss

  $ (8,636 )   $ (9,435 )

Net loss allocated to stockholders of the Company

  $ (8,619 )   $ (9,259 )

Denominator:

               

Weighted-average shares of common stock outstanding used in computing net loss per share, basic and diluted

    63,988       53,744  

Net loss per share:

               

Basic and diluted

  $ (0.13 )   $ (0.17 )

 

The following potentially dilutive securities were excluded from the computation of the diluted net loss per share for the periods presented because their effect would have been antidilutive: 

 

  

March 31, 2022

  

March 31, 2021

 

Options to purchase common stock and restricted stock units ("RSUs")

  7,878,714   5,899,296 

Preferred stock

  3,790,755   - 

Warrants for common stock

  15,928,867   15,928,867 

Total potential dilutive shares

  27,598,336   21,828,163 

 

 

4. FAIR VALUE MEASUREMENTS

 

Financial assets and financial liabilities are initially recognized at fair value when the Company becomes a party to the contractual provisions of the financial instrument. Subsequently, all financial instruments are measured at amortized cost using the effective interest method.

 

The financial instruments of the Company consist of cash and cash equivalents, restricted cash, accounts receivable, long-term receivables, lines of credit, trade payables, government assistance loans, accrued expenses and other current liabilities, other long-term liabilities and long-term debt. In view of their nature, the fair value of these financial instruments approximates their carrying amounts.

 

The Company measures the fair value of its financial assets and financial liabilities using the fair value hierarchy. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

10

 

Guaranteed investment certificates (“GIC”) are classified within Level 2 as the Company uses alternative pricing sources and models utilizing market observable inputs for valuation. The following tables set forth the fair value of the Company’s Level 1, Level 2 and Level 3 financial assets and liabilities within the fair value hierarchy: 

 

   

Fair Value Measurements as of March 31, 2022

 
   

Quoted Prices in Active Markets using Identical Assets (Level 1)

   

Significant Other Observable Inputs (Level 2)

   

Significant Unobservable Inputs (Level 3)

   

Total

 

Assets

                               

GIC

  $     $ 65     $     $ 65  

Total assets

  $     $ 65     $     $ 65  

 

   

Fair Value Measurements as of December 31, 2021

 
   

Quoted Prices in Active Markets using Identical Assets (Level 1)

   

Significant Other Observable Inputs (Level 2)

   

Significant Unobservable Inputs (Level 3)

   

Total

 

Assets

                               

GIC

  $     $ 64     $     $ 64  

Total assets

  $     $ 64     $     $ 64  

 

 

11

 
 

5. ACCOUNTS RECEIVABLE

 

The Company’s products may be sold under subscription agreements with unencumbered title passing to the customer at the end of the lease term, which is generally 36 months. These arrangements are considered to be sales-type leases, where the present value of all cash flows to be received under the agreement is recognized upon shipment to the customer as lease revenue.

 

A financing receivable is a contractual right to receive money, on demand or on fixed or determinable dates, that is recognized as an asset on the Company's unaudited condensed consolidated balance sheets. The Company's financing receivables, consisting of sales-type leases, totaled $52,693 and $53,887 as of  March 31, 2022 and December 31, 2021, respectively, and are included in accounts receivable and long-term receivables on the unaudited condensed consolidated balance sheets. The Company evaluates the credit quality of an obligor at lease inception and monitors credit quality over the term of the underlying transactions.

 

The Company performed an assessment of the allowance for doubtful accounts as of March 31, 2022 and December 31, 2021. Based upon such assessment, the Company recorded an allowance for doubtful accounts totaling $12,742 and $11,997 as of March 31, 2022, and December 31, 2021, respectively.

 

A summary of the Company’s accounts receivables is presented below:

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 

Gross accounts receivable

 $89,565  $86,625 

Unearned income

  (4,103)  (4,033)

Allowance for doubtful accounts

  (12,742)  (11,997)
  $72,720  $70,595 

Reported as:

        

Current trade receivables

 $49,076  $46,918 

Current unearned interest income

  (2,727)  (2,678)

Long-term trade receivables

  27,747   27,710 

Long-term unearned interest income

  (1,376)  (1,355)
  $72,720  $70,595 

 

Current subscription agreements are reported as part of accounts receivable. The following are the contractual commitments, net of allowance for doubtful accounts, to be received by the Company over the next 5 years:

 

      

March 31,

 
  

Total

  

2022

  

2023

  

2024

  

2025

  

2026

 

Current financing receivables, net of allowance of $6,068

 $24,946  $24,946  $  $  $  $ 

Long-term financing receivables, net of allowance of $408

  27,747      19,699   7,923   125    
  $52,693  $24,946  $19,699  $7,923  $125  $ 

 

Accounts receivable do not bear interest and are typically not collateralized. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for doubtful accounts. Uncollectible accounts are charged to expense when deemed uncollectible, and accounts receivable are presented net of an allowance for doubtful accounts. Accounts receivable are deemed past due in accordance with the contractual terms of the agreement. Actual losses may differ from the Company’s estimates and could be material to its unaudited condensed consolidated financial position, results of operations and cash flows.

 

12

 

The allowance for doubtful accounts consisted of the following activity:

 

Balance at January 1, 2021

  $ 18,490  

Write-offs

    (6,230 )

Recovery

    (263 )

Balance at December 31, 2021

    11,997  

Write-offs

    (259 )

Provision

    1,004  

Balance at March 31, 2022

  $ 12,742  

 

 

6. SELECT BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION

 

Inventory

 

Inventory consists of the following:

 

   

March 31,

   

December 31,

 
   

2022

   

2021

 

Raw materials

  $ 2,964     $ 2,368  

Work-in-progress

    628       1,649  

Finished goods

    17,727       16,526  

Total inventory

  $ 21,319     $ 20,543  

 

Additions to inventory are primarily comprised of newly produced units and applicators, refurbishment cost from demonstration units and used equipment which were reacquired during the period from upgraded sales. The Company expensed $7,500 and $6,020 in cost of goods sold during the three months ended  March 31, 2022 and 2021, respectively. The balance of cost of goods sold represents the sale of applicators, parts and warranties.

 

The Company provides for excess and obsolete inventories when conditions indicate that the inventory cost is not recoverable due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. Inventory provisions are measured as the difference between the cost of inventory and net realizable value to establish a lower cost basis for the inventories. As of March 31, 2022 and December 31, 2021, a provision for obsolescence of $2,110 and $2,213 was taken against inventory, respectively.

 

13

 

Property and Equipment, Net

 

Property and equipment, net consist of the following:

 

      Useful Lives    

March 31,

   

December 31,

 
      (in years)     2022     2021  

Lab equipment tooling and molds

   

410

    $ 8,236     $ 8,194  

Office furniture and equipment

   

610

      2,012       1,743  

Leasehold improvements

   

up to 10

      37       1,839  

Computers and software

   

3

      1,780       1,939  

Vehicles

   

57

      1,781       37  

Demo units

   

5

      114       114  

Total property and equipment

            13,960       13,866  

Less: Accumulated depreciation

            (11,377 )     (11,197 )

Total property and equipment, net

          $ 2,583     $ 2,669  

 

Depreciation expense amounted to $244 and $448 for the three months ended March 31, 2022 and 2021, respectively.

 

Other Current Assets

 

   

March 31,

   

December 31,

 
   

2022

   

2021

 

Government remittances (1)

  $ 1,799     $ 1,322  

Consideration receivable from sale of subsidiaries

    1,251       1,405  

Deferred financing costs

    223       223  

Sundry assets and miscellaneous

    866       808  

Total other current assets

  $ 4,139     $ 3,758  

 

(1)         Government remittances are receivables from the local tax authorities for refunds of sales taxes and income taxes.

 

Accrued Expenses and Other Current Liabilities

 

   

March 31,

   

December 31,

 
   

2022

   

2021

 

Payroll and related expense

  $ 1,940     $ 1,770  

Accrued expenses

    6,303       6,584  

Commission accrual

    3,780       4,529  

Sales and consumption taxes

    6,795       6,629  

Total accrued expenses and other current liabilities

  $ 18,818     $ 19,512  

 

14

 

Warranty Accrual

 

The following table provides the details of the change in the Company’s warranty accrual:

 

   

March 31,

   

December 31,

 
   

2022

   

2021

 

Balance as of the beginning of the period

  $ 1,753     $ 1,639  

Warranties issued during the period

    189       1,231  

Warranty costs incurred during the period

    (383 )     (1,117 )

Balance at the end of the period

  $ 1,559     $ 1,753  

Current

    1,127       1,245  

Long-term

    432       508  

Total

  $ 1,559     $ 1,753  

 

Finance Expenses

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

Interest expense

  $ 858     $ 1,138  

Accretion on long-term debt and amortization of fees

    65       747  

Total finance expenses

  $ 923     $ 1,885  

 

 

7. INTANGIBLE ASSETS

 

Intangible assets net of accumulated amortization and goodwill were as follows:

 

  

At March 31, 2022

 
  

Gross Amount

  

Accumulated Amortization

  

Net Amount

 

Customer relationships

 $1,400  $(359) $1,041 

Brand

  2,500   (868)  1,632 

Technology

  16,900   (6,796)  10,104 

Supplier agreement

  3,000   (1,241)  1,759 

Total intangible assets

 $23,800  $(9,264) $14,536 

 

  

At December 31, 2021

 
  

Gross Amount

  

Accumulated Amortization

  

Net Amount

 

Customer relationships

 $1,400  $(336) $1,064 

Brand

  2,500   (803)  1,697 

Technology

  16,900   (6,103)  10,797 

Supplier agreement

  3,000   (1,165)  1,835 

Total intangible assets

 $23,800  $(8,407) $15,393 

 

 

For the three months ended March 31, 2022 and 2021, amortization expense was $857 and $856, respectively.

 

15

 

Estimated amortization expense for the next five fiscal years and all years thereafter are as follows:

 

Years ending December 31,

    

2022

 $2,617 

2023

  3,473 

2024

  3,473 

2025

  3,004 

2026

  657 

Thereafter

  1,312 

Total

 $14,536 

 

 

8. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company and its subsidiaries have various operating lease agreements, which expire on various dates.

 

The Company recognizes rent expense on a straight-line basis over the non-cancellable lease period and records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. When leases contain escalation clauses, rent abatements and/or concessions, such as rent holidays and landlord or tenant incentives or allowances, the Company applies them in the determination of straight-line rent expense over the lease period.

 

Aggregate future minimum lease payments, and service and purchase commitments with manufacturers as of March 31, 2022 are as follows:

 

Years ending December 31,

 

Office Lease

   

Purchase and Service Commitments

   

Total

 

2022

  $ 883     $ 18,551     $ 19,434  

2023

    1,255       -       1,255  

2024

    1,112       -       1,112  

2025

    1,055       -       1,055  

2026

    1,036       -       1,036  

Thereafter

    1,307       -       1,307  

Total

  $ 6,648     $ 18,551     $ 25,199  

 

The total rent expense for all operating leases for the three months ended March 31, 2022 and 2021 were $678 and $571, respectively.

 

Commitments

 

As of March 31, 2022, the Company has non-cancellable purchase orders placed with its contract manufacturers in the amount of $16,602. In addition, as of March 31, 2022, the Company had $5,744 of open purchase orders that can be cancelled with 270 days’ notice, except for a portion equal to 25% of the total amount representing the purchase of “long lead items”.

 

On March 25, 2021, the Company entered into an endorsement agreement for the services of Venus Williams, four-time Olympic Gold Medalist, seven-time Grand Slam Champion and entrepreneur, pursuant to which Ms. Williams will act as a brand ambassador for Venus Bliss. The endorsement agreement will expire November 1, 2022, unless the Company exercises an optional term extension for an additional cost.

 

16

 

Legal Proceedings

 

Purported Shareholder Class Actions

 

In 2018 and 2019, four putative shareholder class action complaints were filed against Restoration Robotics, Inc., certain of its former officers and directors, certain of its venture capital investors, and the underwriters of the initial public offering (“IPO”). Two claims, captioned Wong v. Restoration Robotics, Inc., et al., No. 18CIV02609, and Li v. Restoration Robotics, Inc., et al., No. 19CIV08173 (together, the “State Actions”), were filed in the Superior Court of the State of California, County of San Mateo, and assert claims under Sections 11, 12(a)(2) and 15 of the 1933 Act. Two additional claims, captioned Guerrini v. Restoration Robotics, Inc., et al., No. 5:18-cv-03712-EJD and Yzeiraj v. Restoration Robotics, Inc., et al., No. 5:18-cv-03883-BLF (together, the “Federal Actions”), were filed in the United States District Court for the Northern District of California and assert claims under Sections 11 and 15 of the 1933 Act. The complaints in both the State Actions and Federal Actions alleged, among other things, that the Restoration Robotics’ Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with Restoration Robotics’ IPO were inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. The complaints sought unspecified monetary damages, other equitable relief and attorneys’ fees and costs. A settlement in the Federal Actions was granted final approval in the District Court on September 9, 2021. 

 

In the State Actions, the Plaintiffs filed a consolidated amended complaint on January 17, 2020 seeking unspecified monetary damages, other equitable relief and attorneys’ fees and costs. Following the Delaware Supreme Court reversal of the Chancery Court’s decision in Sciabacucchi v. Salzberg which held that exclusive federal forum provisions are valid under Delaware law, the Company filed a renewed motion to dismiss based on its federal forum selection clause on March 30, 2020, which was granted as to the Company and the individual defendants on September 1, 2020 and a judgement of dismissal was entered by the Court on September 22, 2020. On November 23, 2020, plaintiff filed a notice of appeal of the Court’s order granting the renewed motion to dismiss. The court of appeal heard oral argument related to the appeal on April 20, 2022, and on April 28, 2022, issued its opinion affirming the trial court’s dismissal of the State Actions based on the federal forum selection clause. Plaintiff-Appellant Wong has until June 7, 2022 to petition the California Supreme Court to review the appellate court’s opinion. 

 

On July 11, 2019, a verified shareholder derivative complaint was filed in the United States District Court for the Northern District of California, captioned Mason v. Rhodes, No. 5:19-cv-03997-NC. The complaint alleges that certain of Restoration Robotics’ former officers and directors breached their fiduciary duties, have been unjustly enriched and violated Section 14(a) of the 1934 Act in connection with the IPO and Restoration Robotics’ 2018 proxy statement. The complaint seeks unspecified damages, declaratory relief, other equitable relief and attorneys’ fees and costs. On August 21, 2019, the District Court granted the parties’ joint stipulation to stay the Mason action. On June 21, 2021, the District Court granted the parties’ further stipulation to stay the Mason action and the case remains stayed.

 

 

17

 

9. MAIN STREET TERM LOAN

 

On December 8, 2020, the Company executed a loan and security agreement (the "MSLP Loan Agreement"), a promissory note (the "MSLP Note"), and related documents for a loan in the aggregate amount of $50,000 for which City National Bank of Florida (“CNB”) will serve as a lender pursuant to the Main Street Priority Loan Facility as established by the Board of Governors of the Federal Reserve System Section 13(3) of the Federal Reserve Act (the “MSLP Loan”). On December 9, 2020, the MSLP Loan had been funded and the transaction was closed. The MSLP Note has a term of five years and bears interest at a rate per annum equal to 30-day LIBOR plus 3%. On December 8, 2023 and December 8, 2024, the Company must make an annual payment of principal plus accrued but unpaid interest in an amount equal to fifteen percent (15%) of the outstanding principal balance of the MSLP Note (inclusive of accrued but unpaid interest). The entire outstanding principal balance of the MSLP Note together with all accrued and unpaid interest is due and payable in full on  December 8, 2025. The Company may prepay the MSLP Loan at any time without incurring any prepayment penalties. The MSLP Note provides for customary events of default, including, among others, those relating to a failure to make payment, bankruptcy, breaches of representations and covenants, and the occurrence of certain events. In addition, the MSLP Loan Agreement and MSLP Note contain various covenants that limit the Company’s ability to engage in specified types of transactions. Subject to limited exceptions, these covenants limit the Company’s ability, without CNB’s consent, to, among other things, sell, lease, transfer, exclusively license or dispose of the Company’s assets, incur, create or permit to exist additional indebtedness, or liens, to make dividends and other restricted payments, and to make certain changes to its ownership structure.

 

As of March 31, 2022 and December 31, 2021, the Company was in compliance with all required covenants.

 

The scheduled payments on the outstanding borrowings as of March 31, 2022 are as follows:

 

 

Years ending December 31

    

2022

 $1,354 

2023

  9,541 

2024

  8,114 

2025

  38,563 

Total

 $57,572 

 

 

18

 

 

 

10. MADRYN LONG-TERM DEBT AND CONVERTIBLE NOTES

 

On October 11, 2016, Venus Concept Ltd., a wholly owned subsidiary of the Company ("Venus Ltd."), entered into a credit agreement as a guarantor with Madryn Health Partners, LP, as administrative agent, and certain of its affiliates as lenders (collectively, “Madryn”), as amended (the “Madryn Credit Agreement”), pursuant to which Madryn agreed to make certain loans to certain of Venus Ltd.’s subsidiaries (the “Subsidiary Obligors”). The Madryn Credit Agreement was comprised of four tranches of debt aggregating $70,000. As of September 30, 2020, the Subsidiary Obligors had borrowed $60,000 under the term A-1 and A-2 and B tranches of the Madryn Credit Agreement. Borrowings under the Madryn Credit Agreement were secured by substantially all of the Company’s assets and the assets of the Subsidiary Obligors. On the 24th payment date, which is September 30, 2022, the aggregate outstanding principal amount of the loans, together with any accrued and unpaid interest thereon and all other amounts due and owing under the loan agreement were to become due and payable in full.

 

In connection with the Merger (as defined below), the Company entered into an amendment to the Madryn Credit Agreement, dated as of November 7, 2019, (the “Amendment”), pursuant to which the Company joined as (i) a guarantor to the Madryn Credit Agreement and (ii) a grantor to the certain security agreement, dated October 11, 2016, (as amended, restated, supplemented or otherwise modified from time to time), by and among the grantors from time to time party thereto and the administrative agent (the “U.S. Security Agreement”). Effective August 14, 2018, interest on the Madryn loan was 9.00%, payable quarterly. 

 

The Company had the option of settling the paid in kind (“PIK”) interest in cash or adding the owed interest to the principal amount of the loan. On April 29, 2020, the Company entered into the Twelfth Amendment to the Madryn Credit Agreement that (i) required that interest payments for the period beginning January 1, 2020 and ending on, and including, April 29, 2020 (the “PIK Period”), be paid-in-kind, (ii) increased the interest rate from 9.00% per annum to 12.00% per annum during the PIK Period and (iii) require the Company to provide certain additional financial and other reporting information to the lenders.

 

On June 30, 2020, the Company entered into the Thirteenth Amendment to the Madryn Credit Agreement that (i) extended the PIK Period through June 30, 2020, (ii) reduced the consolidated minimum revenue threshold requirement (a) for the four consecutive fiscal quarter period ended June 30, 2020, to at least $85,000 and (b) for the four consecutive fiscal quarter period ending September 30, 2020, to at least $75,000, (iii) required the Company to raise at least $5,000 of cash proceeds from the issuance of equity during the period June 1, 2020 through September 30, 2020 and (iv) obligated the Company to use its best efforts to raise an additional $2,000 of cash proceeds from the issuance of equity during the period June 1, 2020 through September 30, 2020.

 

On September 30, 2020, the Company entered into the Fourteenth Amendment to the Madryn Credit Agreement that (i) required that fifty percent (50%) of the interest payments for the period beginning July 1, 2020 and ending on, and including, September 30, 2020 (the “Second PIK Period”), be paid in cash, (ii) the remaining fifty percent (50%) of the interest payments for the Second PIK Period, to be paid in kind, and (iii) increased the interest rate applicable to the Second PIK Period from 9.00% per annum to 10.50% per annum during the Second PIK Period.

 

On December 9, 2020, contemporaneously with the MSLP Loan Agreement (Note 9), the Company and its subsidiaries, Venus Concept USA, Inc., a Delaware corporation (“Venus USA”), Venus Concept Canada Corp., an Ontario corporation (“Venus Canada”), Venus Ltd., and the Madryn Noteholders (as defined below), entered into a Securities Exchange Agreement (the “Exchange Agreement”) dated as of December 8, 2020, pursuant to which the Company (i) repaid $42,500 aggregate principal amount owed under the Madryn Credit Agreement, and (ii) issued, to the Madryn Health Partners (Cayman Master), LP and Madryn Health Partners, LP (together the “Madryn Noteholders”) secured subordinated convertible notes in the aggregate principal amount of $26,695 (the “Notes”). The Madryn Credit Agreement was terminated effective  December 9, 2020 upon the funding and closing of the MSLP Loan and the issuance of the Notes.

 

The Notes will accrue interest at a rate of 8.0% per annum from the date of original issuance of the Notes to the third anniversary date of the original issuance and thereafter interest will accrue at a rate of 6.0% per annum. Under certain circumstances, in the case of an event of default under the Notes, the then-applicable interest rate will increase by 4.0% per annum. Interest is payable quarterly in arrears on the last business day of each calendar quarter of each year after the original issuance date, beginning on  December 31, 2020. The Notes will mature on  December 9, 2025, unless earlier redeemed or converted. In connection with the Exchange Agreement, the Company also entered into, by and among the Company, Venus USA, Venus Canada, Venus Ltd., and the Madryn Noteholders, (i) the Madryn Security Agreement, pursuant to which the Company agreed to grant Madryn a security interest in substantially all of its assets to secure the obligations under the Notes and (ii) the CNB Subordination Agreement. The security interests and liens granted to the Madryn Noteholders under the Madryn Security Agreement will terminate upon the earlier of (i) an assignment of the Notes (other than to an affiliate of the Madryn Noteholders) pursuant to the terms of the Exchange Agreement and (ii) the first date on which the outstanding principal amount of the Notes is less than $10,000. Obligations under the Notes are secured by substantially all of the assets of Venus Concept Inc. and its subsidiaries party to the Madryn Security Agreement. The Company’s obligations under the Notes and the security interests and liens created by the Madryn Security Agreement are subordinated to the Company’s indebtedness owing to CNB (including, but not limited, pursuant to the MSLP Loan Agreement and the CNB Loan Agreement, (Note 11)) and any security interests and liens which secure such indebtedness owing to CNB. The Notes are convertible at any time into shares of the Company’s common stock, par value $0.0001 per share, calculated by dividing the outstanding principal amount of the Notes (and any accrued and unpaid interest under the Notes) by the initial conversion price of $3.25 per share. In connection with the Notes, the Company recognized interest expense of $534 and $527 during the three months ended March 31, 2022 and 2021, respectively. The conversion feature, providing the Madryn Noteholders with a right to receive the Company’s shares upon conversion of the Notes, was qualified for a scope exception in ASC 815-10-15 and did not require bifurcation. The Notes also contained embedded redemption features that provided multiple redemption alternatives. Certain redemption features provided the Madryn Noteholders with a right to receive cash and a variable number of shares upon change of control and an event of default (as defined in the Notes). The Company evaluated redemption upon change of control and an event of default under ASC 815, Derivatives and Hedging, and determined that these two redemption features required bifurcation. These embedded derivatives were accounted for as liabilities at their estimated fair value as of the date of issuance, and then subsequently remeasured to fair value as of each balance sheet date, with the related remeasurement adjustment being recognized as a component of change in fair value of derivative liabilities in the unaudited condensed consolidated statements of operations. The Company determined the likelihood of an event of default and change of control as remote as of March 31, 2022, and December 31, 2021, therefore a nominal value was allocated to the underlying embedded derivative liabilities as of March 31, 2022, and December 31, 2021.

 

The scheduled payments on the outstanding borrowings as of March 31, 2022 are as follows:

 

Years ending December 31

    

2022

 $1,631 

2023

  2,131 

2024

  1,628 

2025

  28,217 

Total

 $33,607 

 

 

For the three months ended March 31, 2022, the Company did not make any principal repayments.

 

19

 
 

11. CREDIT FACILITY

 

On August 29, 2018, Venus Ltd. entered into an Amended and Restated Loan Agreement as a guarantor with CNB, as amended on March 20, 2020, December 9, 2020 and August 26, 2021 (the “CNB Loan Agreement”), pursuant to which CNB agreed to make certain loans and other financial accommodations to certain of Venus Ltd.’s subsidiaries to be used to finance working capital requirements. In connection with the CNB Loan Agreement, Venus Ltd. also entered into a Guaranty Agreement with CNB dated as of August 29, 2018, as amended on March 20, 2020, December 9, 2020 and August 26, 2021 (the “CNB Guaranty”), pursuant to which Venus Ltd. agreed to guaranty the obligations of its subsidiaries under the CNB Loan Agreement. On March 20, 2020, the Company also entered into a Security Agreement with CNB (the “CNB Security Agreement”), as amended on December 9, 2020 and August 26, 2021, pursuant to which it agreed to grant CNB a security interest in substantially all of our assets to secure the obligations under the CNB Loan Agreement. 

 

The CNB Loan Agreement contains various covenants that limit the Company’s ability to engage in specified types of transactions. Subject to limited exceptions, these covenants limit the Company’s ability, without CNB’s consent, to, among other things, sell, lease, transfer, exclusively license or dispose of the Company’s assets, incur, create or permit to exist additional indebtedness, or liens, to make dividends and certain other restricted payments, and to make certain changes to its management and/or ownership structure. The Company is required to maintain $3,000 in cash in a deposit account maintained with CNB at all times during the term of the CNB Loan Agreement. In addition, the CNB Loan Agreement contains certain covenants that require the Company to achieve certain minimum account balances, or a minimum debt service coverage ratio and a maximum total liability to tangible net worth ratio. If the Company fails to comply with these covenants, it will result in a default and require the Company to repay all outstanding principal amounts and any accrued interest. In connection with the CNB Loan Agreement, a loan fee of $1,000 was paid in equal installments on  January 25,  February 25 and  March 25, 2021.

 

On August 26, 2021, the Company, Venus USA and Venus Canada entered into a Fourth Amended and Restated Loan Agreement (the “Amended CNB Loan Agreement”) with CNB, pursuant to which, among other things, (i) the maximum principal amount the revolving credit facility was reduced from $10,000 to $5,000 at the LIBOR 30-Day rate plus 3.25%, subject to a minimum LIBOR rate floor of 0.50%, and (ii) beginning December 10, 2021, the cash deposit requirement was reduced from $3,000 to $1,500, to be maintained with CNB at all times during the term of the Amended CNB Loan Agreement. The Amended CNB Loan Agreement is secured by substantially all of the Company’s assets and the assets of certain of its subsidiaries.

 

As of March 31, 2022, and December 31, 2021, the Company was in compliance with all required covenants. An event of default under this agreement would cause a default under the MSLP Loan (see Note 9).

 

In connection with the Amended CNB Loan Agreement, the Company, Venus USA and Venus Canada issued a promissory note dated August 26, 2021, in favor of CNB (the “CNB Note”) in the amount of $5,000 with a maturity date of  July 24, 2023 and the obligations of the Company pursuant to certain of the Company’s outstanding promissory notes were reaffirmed as subordinated to the indebtedness of the Company owing to CNB pursuant to a Supplement to Subordination of Debt Agreements dated as of August 26, 2021 (the “Subordination Supplement”) by and among Madryn Health Partners, LP, Madryn Health Partners (Cayman Master), LP, the Company and CNB.

 

20

 
 

12. GOVERNMENT ASSISTANCE PROGRAMS

 

Venus Concept Inc. and Venus USA, received funding in the total amount of $4,048 in connection with two Small Business Loans under the federal Paycheck Protection Program provided in Section 7(a) of the Small Business Act of 1953, as amended by the Coronavirus Aid, Relief, and Economic Security Act, as amended from time to time (the “PPP”).

 

Venus Concept Inc. entered into a U.S. Small Business Administration Note dated as of April 21, 2020 in favor of CNB pursuant to which the Company borrowed $1,665 original principal amount, which was funded on April 29, 2020 (the “Venus Concept PPP Loan”). The Venus Concept PPP Loan bears interest at 1% per annum and matures in two years from the date of disbursement of funds under the loan.

 

The Venus Concept PPP Loan contains certain covenants which, among other things, restrict the Company’s use of the proceeds of the PPP Loan to the payment of payroll costs, interest on mortgage obligations, rent obligations and utility expenses, require compliance with all other loans or other agreements with any creditor of the Company, to the extent that a default under any loan or other agreement would materially affect the Company’s ability to repay its PPP Loan and limit the Company’s ability to make certain changes to its ownership structure.

 

Venus USA entered into a U.S. Small Business Administration Note dated as of April 15, 2020 in favor of CNB. Venus USA borrowed $2,383 original principal amount, which was funded on April 20, 2020 (the “Venus USA PPP Loan” and together with the Venus Concept PPP Loan, individually each a “PPP Loan” and collectively, the “PPP Loans”). The terms of the Venus USA PPP Loan are substantially similar to the terms of the Venus Concept PPP Loan.

 

Under certain circumstances, all or a portion of the PPP Loans may be forgiven. Through CNB, the Company applied for and received partial forgiveness of the Venus USA PPP Loan in the amount of $1,689 and the Venus Concept PPP Loan in the amount of $1,086. The remaining portion of the PPP Loans of the Company is recorded within the current liabilities in the unaudited condensed consolidated balance sheet.

 

Under the CNB Loan Agreement and the MSLP Loan Agreement, each PPP Loan is permitted to be incurred by Venus Concept Inc. and Venus USA as long as certain conditions remain satisfied. If Venus Concept Inc. and/or Venus USA defaults on the respective PPP Loan (i) events of default will occur under the CNB Loan Agreement and the MSLP Loan Agreement and (ii) Venus Concept Inc. and Venus USA may be required to immediately repay their respective PPP Loan.

 

The Company repaid $407 during the three months ended March 31, 2022. As of  March 31, 2022, the Company had $136 outstanding under the PPP Loans ($543 as of December 31, 2021). The remaining portion of the PPP Loans of the Company was fully repaid in April 2022.

 

21

 
 

13. COMMON STOCK RESERVED FOR ISSUANCE

 

The Company is required to reserve and keep available out of its authorized but unissued shares of common stock a number of shares sufficient to affect the exercise of all options granted and available for grant under the incentive plans, warrants to purchase common stock and preferred shares which are convertible to common stock.

 

   

March 31, 2022

   

December 31, 2021

 

Outstanding common stock warrants

    15,928,867       15,928,867  

Outstanding stock options and RSUs

    7,878,714       5,977,179  

Preferred shares

    3,790,755       3,790,755  

Shares reserved for conversion of future preferred share issuance

    1,209,245       1,209,245  

Shares reserved for future option grants and RSUs

    1,230,036       589,064  

Shares reserved for Lincoln Park

    5,222,867       5,222,867  

Shares reserved for Madryn Noteholders

    8,213,880       8,213,880  

Total common stock reserved for issuance

    43,474,364       40,931,857  

 

 

14. STOCKHOLDERS EQUITY

 

Common Stock

 

The Company’s common stock confers upon its holders the following rights:

 

 

The right to participate and vote in the Company’s stockholder meetings, whether annual or special. Each share will entitle its holder, when attending and participating in the voting in person or via proxy, to one vote;

 

 

The right to a share in the distribution of dividends, whether in cash or in the form of bonus shares, the distribution of assets or any other distribution pro rata to the par value of the shares held by them; and

 

 

The right to a share in the distribution of the Company’s excess assets upon liquidation pro rata to the par value of the shares held by them.

 

The 2021 Private Placement

 

In December 2021, the Company entered into a securities purchase agreement with certain investors (collectively, the “Investors”) pursuant to which the Company issued and sold to the Investors an aggregate of 9,808,418 shares of common stock, par value $0.0001 per share, and 3,790,755 shares of the convertible preferred stock, par value $0.0001 per share (the “Preferred Stock”), which are convertible into 3,790,755 shares of common stock upon receipt of stockholder approval (the “2021 Private Placement”). The 2021 Private Placement was completed on December 15, 2021. The gross proceeds from the securities sold in the 2021 Private Placement was $16,999. The costs incurred with respect to the 2021 Private Placement totaled $259 and were recorded as a reduction of the 2021 Private Placement proceeds in the consolidated statements of stockholders’ equity as presented in the 2021 Annual Report on Form 10-K filed with the SEC on March 28, 2022.

 

Preferred Stock issued in December 2021

 

As noted above, in December 2021, the Company issued and sold to the Investors an aggregate of 3,790,755 shares of the Preferred Stock. The terms of the Preferred Stock are governed by a Certificate of Designation filed by the Company with the Secretary of State of the State of Delaware on December 14, 2021. The following is a summary of the material terms of the Preferred Stock:

 

 

Voting Rights. The Preferred Stock has no voting rights except as required by law and except that the consent of the holders of a majority of outstanding shares of the Preferred Stock will be required to amend the terms of the Preferred Stock or take certain other actions with respect to the Preferred Stock.

 

 

Liquidation. The Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company.

 

 

Conversion. The Preferred Stock is automatically convertible into shares of common stock, based on an initial conversion ratio of 1:1, as adjusted in accordance with the Certificate of Designation, upon receipt of the approval of the Company’s stockholders. The Company is not permitted to issue any shares of common stock upon conversion of the Preferred Stock to the extent that the issuance of such shares of common stock would exceed 9.99% of the Company’s outstanding shares of common stock as of the date of the initial issuance of the Preferred Stock (the “Ownership Limitation”). The Ownership Limitation will be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction.

 

 

Dividends. No dividends will be paid on the outstanding shares of the Preferred Stock.

 

 

Redemption. The Preferred Stock is not redeemable at the election of the Company or at the election of the holder.

 

 

Maturity. The Preferred Stock shall be perpetual unless converted.

 

Upon issuance, the effective conversion price of the Preferred Stock of $1.25 per share was lower than the market price of the Company’s common stock on the date of issuance of the Preferred Stock of $1.29 per share; as a result, the Company recorded the beneficial conversion feature of $152 in accumulated paid in capital (“APIC”). Because the Preferred Stock is perpetual, it is carried at the amount recorded at inception. Upon conversion of the Preferred Stock, the beneficial conversion feature will be accounted for as a deemed dividend.

 

The Company evaluated the Preferred Stock for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because the Preferred Stock did not meet the definition of the liability instruments defined thereunder for convertible instruments. Specifically, the Preferred Stock is not mandatorily redeemable and does not embody an obligation to buy back the shares outside of the Company’s control in a manner that could require the transfer of assets. Additionally, the Company determined that the Preferred Stock would be recorded as permanent equity, not temporary equity, based on the guidance of ASC 480 given that the holders of equally and more subordinated equity would be entitled to also receive the same form of consideration upon the occurrence of the event that gives rise to the redemption or events of redemption that are within the control of the Company.

 

Since the Preferred Stock was sold as a unit with the common stock, the proceeds received were allocated to each instrument on a relative fair value basis. Total net proceeds of $16,740 reduced by $152 of the beneficial conversion feature were allocated as follows: $4,514 to the Preferred Stock and $12,074 to shares of common stock. The Preferred Stock and common stock issued in the 2021 Private Placement were recorded at par value of $0.0001 with the excess of par value recorded in APIC.

 

22

 

2010 Share Option Plan

 

In November 2010, the Company’s Board of Directors (the “Board”) adopted a share option plan (the “2010 Share Option Plan”) pursuant to which shares of the Company’s common stock are reserved for issuance upon the exercise of options to be granted to directors, officers, employees and consultants of the Company. The 2010 Share Option Plan is administered by the Board, which designates the options and dates of grant. Options granted vest over a period determined by the Board, originally had a contractual life of seven years, which was extended to ten years in November 2017 and are non-assignable except by the laws of descent. The Board has the authority to prescribe, amend and rescind rules and regulations relating to the 2010 Share Option Plan, provided that any such amendment or rescindment that would adversely affect the rights of an optionee that has received or been granted an option shall not be made without the optionee’s written consent. As of March 31, 2022, the number of shares of the Company’s common stock reserved for issuance and available for grant under the 2010 Share Option Plan was 125,745 (212,650 as of December 31, 2021).

 

2019 Incentive Award Plan

 

The 2019 Incentive Award Plan (the “2019 Plan”) was originally established under the name Restoration Robotics, Inc., as the 2017 Incentive Award Plan. It was adopted by the Board on September 12, 2017 and approved by the Company’s stockholders on September 14, 2017. The 2017 Incentive Award Plan was amended, restated, and renamed as set forth above, and was approved by the Company’s stockholders on October 4, 2019.

 

Under the 2019 Plan, 450,000 shares of common stock were initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, performance stock awards, performance stock unit awards, restricted stock awards, restricted stock unit awards and other stock-based awards, plus the number of shares remaining available for future awards under the 2019 Plan as of the date we completed our business combination with Venus Ltd. and the business of Venus Ltd. became the primary business of the Company (the “Merger”). As of March 31, 2022, there were 1,104,291 shares of common stock available under the 2019 Plan (376,414 as of December 31, 2021). The 2019 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock reserved for issuance pursuant to awards under such plan shall be increased on the first day of each year from 2020 and ending in 2029 equal to the lesser of (A) four percent (4.00%) of the shares of stock outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by the Board.

 

The Company recognized stock-based compensation for its employees and non-employees in the accompanying unaudited condensed consolidated statements of operations as follows:

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

Cost of sales

  $ 8     $ 7  

Selling and marketing

    175       217  

General and administrative

    229       264  

Research and development

    31       20  

Total stock-based compensation

  $ 443     $ 508  

 

Stock Options

 

The fair value of each option is estimated at the date of grant using the Black-Scholes option pricing formula with the following assumptions:

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

Expected term (in years)

    6.00       6.01  

Risk-free interest rate

    2.56 %     1.09 %

Expected volatility

    42.54 %     44.80 %

Expected dividend rate

    0 %     0 %

 

Expected Term—The expected term represents management’s best estimate for the options to be exercised by option holders.

 

Volatility—Since the Company does not have a trading history for its common stock, the expected volatility was derived from the historical stock volatilities of comparable peer public companies within its industry that are considered to be comparable to the Company’s business over a period equivalent to the expected term of the stock-based awards.

 

23

 

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the stock-based awards’ expected term.

 

Dividend Rate—The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the foreseeable future.

 

Fair Value of Common Stock— Prior to the Merger, Venus Ltd. used the price per share in its latest sale of securities as an estimate of the fair value of its ordinary shares. After the closing of the Merger, the fair value of the Company’s common stock is used to estimate the fair value of the stock-based awards at grant date.

 

The following table summarizes stock option activity under the Company’s stock option plans:

 

   

Number of Shares

   

Weighted- Average Exercise Price per Share, $

   

Weighted- Average Remaining Contractual Term

   

Aggregate Intrinsic Value

 

Outstanding – January 1, 2022

    5,977,179     $ 3.72       7.20     $ 136  

Options granted

    2,041,250       1.38               102  

Options exercised

    (16,464 )     1.59               1  

Options forfeited/cancelled

    (479,501 )     4.45               2  

Outstanding - March 31, 2022

    7,522,464     $ 3.05       7.47     $ 130  

Exercisable – March 31, 2022

    3,020,805     $ 4.50       4.64     $ 28  

Expected to vest – after March 31, 2022

    4,501,659     $ 2.07       9.38     $ 102  

 

The following tables summarize information about stock options outstanding and exercisable at March 31, 2022:

 

   

Options Outstanding

   

Options Exercisable

 

Exercise Price Range

 

Number

   

Weighted average remaining contractual term (years)

   

Weighted average Exercise Price

   

Options exercisable

   

Weighted average remaining contractual term (years)

   

Weighted average Exercise Price

 

$1.35 - $3.64

    6,409,764       7.94     $ 2.26       2,007,671       4.67     $ 2.92  

$4.26 - $7.95

    1,062,568       4.80       6.76       967,064       4.56       6.76  

$12.45 - $26.10

    30,119       5.74       18.02       26,069       5.60       18.11  

$27.00 - $33.00

    11,634       2.76       27.64       11,622       2.75       27.64  

$36.00 - $94.65

    8,379       5.41       45.42       8,379       5.41       45.42  
      7,522,464       7.47     $ 3.05       3,020,805       4.64     $ 4.50  

 

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. The total intrinsic value of options exercised were $1 and $157 for the three months ended March 31, 2022 and 2021, respectively.

 

The weighted-average grant date fair value of options granted was $1.38 and $2.37 per share for the three months ended March 31, 2022 and 2021, respectively.

 

Restricted Stock Units 

 

The following table summarizes information about RSUs outstanding at March 31, 2022:

 

   

Number of Shares

   

Weighted- Average Grant Date Fair Value per Share, $

 

Outstanding – January 1, 2022

        $  

RSUs granted

    356,250       1.38  

RSUs forfeited/cancelled

           

Outstanding - March 31, 2022

    356,250     $ 1.38  

 

24

 
 

15. INCOME TAXES

 

The Company generated a loss and recognized $272 of tax expense for the three months ended March 31, 2022, and $nil of tax expense for the three months ended March 31, 2021, respectively. A reconciliation of income tax expense (benefit) is as follows:

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 

Loss before income taxes

 $

(8,364

) $(9,435)

Theoretical tax benefit at the statutory rate (21.0% in 2022, 21.0% in 2021)

  (1,756)  (1,981)

Differences in jurisdictional tax rates

  (252)  (354)

Valuation allowance

  2,067   1,984 

Non-deductible expenses

  213   334 

Other

     17 

Total income tax provision

  272    

Net loss

 $(8,636) $(9,435)

 

Income tax expense or benefit is recognized based on the actual loss incurred during the three months ended March 31, 2022 and 2021, respectively.

 

16. SEGMENT AND GEOGRAPHIC INFORMATION

 

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company's CODM is its Chief Executive Officer. The Company has determined it operates in a single operating segment and has one reportable segment, as the CODM reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geography and type for purposes of making operating decisions, allocating resources, and evaluating financial performance. The Company does not assess the performance of individual product lines on measures of profit or loss, or asset-based metrics. Therefore, the information below is presented only for revenues by geography and type.

 

Revenue by geographic location, which is based on the product shipped to location, is summarized as follows:

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

United States

  $ 13,129     $ 10,515  

International

    13,277       12,082  

Total revenue

  $ 26,406     $ 22,597  

 

As of March 31, 2022, long-lived assets in the amount of $15,203 were located in the United States and $1,916 were located in foreign locations. As of December 31, 2021, long-lived assets in the amount of $16,090 were located in the United States and $1,972 were located in foreign locations.

 

25

 

Revenue by type is a key indicator for providing management with an understanding of the Company’s financial performance, which is organized into four different categories:

 

1.    Lease revenue – includes all system sales with typical lease terms of 36 months.

 

2.    System revenue – includes all systems sales with payment terms within 12 months.

 

3.    Product revenue – includes skincare, hair and other consumables payable upon receipt.

 

4.    Service revenue – includes NeoGraft technician services and extended warranty sales.

 

The following table presents revenue by type:

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

Lease revenue

  $ 10,423     $ 8,537  

System revenue

    11,875       9,810  

Product revenue

    3,497       3,055  

Service revenue

    611       1,195  

Total revenue

  $ 26,406     $ 22,597  

 

 

17. RELATED PARTY TRANSACTIONS

 

All amounts were recorded at the exchange amount, which is the amount established and agreed to by the related parties. 

 

Distribution agreements

 

On January 1, 2018, the Company entered into a Distribution Agreement with Technicalbiomed Co., Ltd. (“TBC”), pursuant to which TBC will continue to distribute the Company’s products in Thailand. A senior officer of the Company is a 30.0% shareholder of TBC. For the three months ended March 31, 2022 and 2021, TBC purchased products in the amount of $407 and $15, respectively, under this distribution agreement. These sales are included in products and services revenue.

 

In 2020, the Company made several strategic decisions to divest itself of underperforming direct sales offices and sold its share in several subsidiaries, including its 55.0% shareholding in Venus Singapore. On January 1, 2021, the Company entered into a distribution agreement with Aexel Biomed Pte Ltd. (“Aexel Biomed”), formerly Venus Singapore, pursuant to which Venus Singapore will continue to distribute the Company’s products in Singapore. A senior officer of the Company is a 45.0% shareholder of Venus Singapore. During the three months ended March 31, 2022 and 2021, Aexel Biomed purchased products in the amount of $178 and $65, respectively, under the distribution agreement. These sales are included in products and services revenue.

 

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in in Part I, Item IA “Risk Factors” of our Annual Report on Form 10-K. Any statements contained in this Quarterly Report on Form 10-Q that are not historical facts may be deemed to be forward-looking statements. In some cases, you can identify these statements by words such as such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,” “intends,” “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “guidance,” and other similar expressions that are predictions of or indicate future events and future trends.

 

The factors which we currently believe could have a material adverse effect on our business operations and financial performance and condition include, but are not limited to, the following risks and uncertainties:


•    our dependency on the subscription-based model, which exposes us to the credit risk of our customers over the life of each subscription agreement;
•    our customers’ failure to make payments under their subscription agreements;
•    our need to obtain, maintain and enforce our intellectual property rights;
•    the extensive governmental regulation and oversight in the countries in which we operate and our ability to comply with the applicable requirements;
•    the possibility that our systems may cause or contribute to adverse medical events that could harm our reputation, business, financial condition and results of operations;
•    a significant portion of our operations are located in Israel and therefore our business, financial condition and results of operations may be adversely affected by political, economic and military conditions there;
•    the volatility of our stock price;
•    our reliance on the expertise and retention of management;
•    our ability to access the capital markets and/or obtain credit on favorable terms;
•    inflation, currency fluctuations and currency exchange rates; 
•    global supply disruptions; and
•    global economic and political conditions and uncertainties, including but not limited to the Russia-Ukraine conflict.

 

In addition, many of these risks and uncertainties are currently amplified by and may continue to be amplified by the COVID-19 pandemic and the impact of varying governmental responses that affect our customers and the economies where we operate. You are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on these statements. The forward-looking statements are based on information available to us as of the filing date of this Quarterly Report on Form 10-Q. Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q. 

 

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion contains managements discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (Form 10-Q), with our audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021 (Form 10-K) and other filings we have made with the SEC. 

 

Overview

 

We are an innovative global medical technology company that develops, commercializes and delivers minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related services. Our systems have been designed on cost-effective, proprietary and flexible platforms that enable us to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family and general practitioners and aesthetic medical spas. In the three months ended March 31, 2022 and 2021, respectively, a substantial majority of our systems delivered in North America were in non-traditional markets.

 

We have had recurring net operating losses and negative cash flows from operations. As of March 31, 2022 and December 31, 2021, we had an accumulated deficit of $189.0 million and $180.4 million, respectively. Until we generate revenue at a level to support our cost structure, we expect to continue to incur substantial operating losses and negative cash flows from operations. In order to continue our operations, we must achieve profitability and/or obtain additional equity investment or debt financing. Until we achieve profitability, we plan to fund our operations and capital expenditures with cash on hand, borrowings and issuances of capital stock. As of March 31, 2022 and December 31, 2021, we had cash and cash equivalents of $17.9 million and $30.9 million, respectively. The pandemic has had a significant negative impact on our business; therefore, while our business continues to show strong quarter on quarter growth in revenues as compared to 2021, and we expect this momentum to continue for the balance of the 2022 year, the extent to which COVID-19 will impact our business going forward will depend on numerous evolving factors that cannot be reliably predicted, such as the duration and scope of the pandemic, including COVID-19 variants; governmental, business, and individuals' actions in response to the pandemic; and the impact on economic activity or financial market instability. See ‘‘—Liquidity and Capital Resources’’ for additional information.

 

Venus Viva®, Venus Viva (logo)®,Venus Viva® MD, Venus Legacy®, Venus Legacy (logo)®, Venus Concept®, Venus Concept (logo)®, Venus Versa®, Venus Versa (logo)®, Venus Fiore®, Venus Fiore (logo)®, Venus Freedom™, Venus Bliss™, Venus Bliss (logo)®, Venus Bliss Max™, NeoGraft®, Venus Concept (logo)®, Venus Glow™®, Venus Glow (logo)®, ARTAS®, ARTAS iX®, AIME™, NanoFractional RF®, Delivering the Promise®, and (MP)2® are trademarks of the Company and its subsidiaries. Our logo and our other trade names, trademarks and service marks appearing in this document are our property. Other trade names, trademarks and service marks appearing in this document are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this document appear without the TM or the ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the rights of the applicable licensor to these trademarks and trade names.

 

Products and Services

 

We derive revenue from the sale of products and services. Product revenue includes revenue from the following:

 

 

the sale, including traditional sales and subscription-based sales, of systems, inclusive of the main console and applicators/handpieces (referred to as system revenue);

 

marketing supplies and kits;

 

consumables and disposables;

 

service revenue; and

 

replacement applicators/handpieces.

 

Service revenue includes revenue derived from our extended warranty service contracts provided to our existing customers and VeroGrafters technician services (which were discontinued in the fourth quarter of 2021).

 

Systems are sold through our subscription model, or through traditional sales contracts directly and through distributors.

 

 

We generate recurring monthly revenue under our subscription-based business model and from traditional system sales. Venus Concept Ltd. commenced a subscription-based model in North America in 2011, and approximately 47% of our aesthetic revenues were derived from our subscription model in the three months ended March 31, 2022 and 2021, respectively. We have launched our subscription model in targeted international markets in which we operate directly. We currently do not offer the ARTAS iX system under the subscription model. For additional details related to our subscription model, see Item 1. Business Subscription-Based Business Model as filed in our Form 10-K for the year ended December 31, 2021.