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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 September 30, 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 November 8, 2022 the registrant had 67,584,573 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

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

57

Item 4.

Controls and Procedures

57

PART II.

Other Information

58

Item 1.

Legal Proceedings

58

Item 1A.

Risk Factors

58

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

60

Item 4.

Mine Safety Disclosures

60

Item 5.

Other Information

60

Item 6.

Exhibits

60

Signatures

61

 

 

 

PART I

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

VENUS CONCEPT INC.

 

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

  

September 30,

  

December 31,

 
  

2022

  

2021

 

ASSETS

        

CURRENT ASSETS:

        

Cash and cash equivalents

 $6,777  $30,876 

Accounts receivable, net of allowance of $13,102 and $11,997 as of September 30, 2022, and December 31, 2021, respectively

  40,876   46,918 

Inventories

  24,241   20,543 

Prepaid expenses

  1,912   2,737 

Advances to suppliers

  3,605   2,162 

Other current assets

  3,351   3,758 

Total current assets

  80,762   106,994 

LONG-TERM ASSETS:

        

Long-term receivables

  23,253   27,710 

Deferred tax assets

  912   284 

Severance pay funds

  724   817 

Property and equipment, net

  2,180   2,669 

Intangible assets

  12,795   15,393 

Total long-term assets

  39,864   46,873 

TOTAL ASSETS

 $120,626  $153,867 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

CURRENT LIABILITIES:

        

Trade payables

 $6,093  $4,913 

Accrued expenses and other current liabilities

  17,335   19,512 

Income taxes payable

  827   294 

Unearned interest income

  2,575   2,678 

Warranty accrual

  1,147   1,245 

Deferred revenues

  1,535   2,030 

Current portion of government assistance loans

     543 

Total current liabilities

  29,512   31,215 

LONG-TERM LIABILITIES:

        

Long-term debt

  77,616   77,325 

Income tax payable

  592   563 

Accrued severance pay

  845   911 

Deferred tax liabilities

  54   46 

Unearned interest income

  1,355   1,355 

Warranty accrual

  426   508 

Other long-term liabilities

  213   348 

Total long-term liabilities

  81,101   81,056 

TOTAL LIABILITIES

  110,613   112,271 

Commitments and Contingencies (Note 8)

          

STOCKHOLDERS’ EQUITY:

        

Common Stock, $0.0001 par value: 300,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 65,584,573 and 63,982,580 issued and outstanding as of September 30, 2022, and December 31, 2021, respectively

  27   27 

Additional paid-in capital

  223,506   221,321 

Accumulated deficit

  (214,188)  (180,405)

TOTAL STOCKHOLDERS’ EQUITY

  9,345   40,943 

Non-controlling interests

  668   653 
   10,013   41,596 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 $120,626  $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 per share data)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Revenue

                               

Leases

  $ 7,193     $ 12,634     $ 29,490     $ 33,958  

Products and services

    14,346       11,929       45,721       39,030  
      21,539       24,563       75,211       72,988  

Cost of goods sold

                               

Leases

    2,608       2,938       8,069       7,444  

Products and services

    5,558       4,319       16,960       14,287  
      8,166       7,257       25,029       21,731  

Gross profit

    13,373       17,306       50,182       51,257  

Operating expenses:

                               

Sales and marketing

    8,094       8,775       27,484       26,743  

General and administrative

    14,128       11,990       41,471       31,983  

Research and development

    2,576       1,930       7,214       6,005  

Gain on forgiveness of government assistance loans

                      (2,775 )

Total operating expenses

    24,798       22,695       76,169       61,956  

Loss from operations

    (11,425 )     (5,389 )     (25,987 )     (10,699 )

Other expenses:

                               

Foreign exchange loss

    2,014       1,645       4,389       2,489  

Finance expenses

    1,219       1,000       3,176       4,046  

Loss on disposal of subsidiaries

          188             188  

Loss before income taxes

    (14,658 )     (8,222 )     (33,552 )     (17,422 )

Income tax (benefit) expense

    (162 )     616       92       609  

Net loss

    (14,496 )     (8,838 )     (33,644 )     (18,031 )

Net loss attributable to stockholders of the Company

    (14,605 )     (9,798 )     (33,783 )     (18,680 )

Net income attributable to non-controlling interest

    109       960       139       649  
                                 

Net loss per share:

                               

Basic

  $ (0.22 )   $ (0.18 )   $ (0.52 )   $ (0.35 )

Diluted

  $ (0.22 )   $ (0.18 )   $ (0.52 )   $ (0.35 )

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

                               

Basic

    65,255       54,145       64,462       53,994  

Diluted

    65,255       54,145       64,462       53,994  

 

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 September 30,

   

Nine Months Ended September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Net loss

  $ (14,496 )   $ (8,838 )   $ (33,644 )   $ (18,031 )

Loss attributable to stockholders of the Company

    (14,605 )     (9,798 )     (33,783 )     (18,680 )

Income attributable to non-controlling interest

    109       960       139       649  

Comprehensive loss

  $ (14,496 )   $ (8,838 )   $ (33,644 )   $ (18,031 )

 

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 share data)

 

   

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  

Net loss — the Company

                                  (10,559 )           (10,559 )

Net income — non-controlling interest

                                        47       47  

Equity issuance

                400,000             48                   48  

Stock-based compensation

                            558                   558  

Dividends from subsidiaries

                                        (124 )     (124 )

Balance — June 30, 2022

    3,790,755     $       64,399,044       27       222,393       (199,583 )     559       23,396  

Net loss — the Company

                                  (14,605 )           (14,605 )

Net income — non-controlling interest

                                        109       109  

Equity issuance

                1,185,529             562                   562  

Stock-based compensation

                            551                   551  

Dividends from subsidiaries

                                               

Balance — September 30, 2022

    3,790,755     $       65,584,573       27       223,506       (214,188 )     668       10,013  

 

   

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  

Options exercised

                157,304             212                   212  

Net loss — the Company

                                  (9,259 )           (9,259 )

Net loss — non-controlling interest

                                        (176 )     (176 )

Stock-based compensation

                            508                   508  

Balance — March 31, 2021

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

Options exercised

                72,192             98                   98  

Net income — the Company

                                  377             377  

Net loss — non-controlling interest

                                        (135 )     (135 )

Stock-based compensation

                            558                   558  

Balance — June 30, 2021

        $       54,141,822       26       203,877       (166,274 )     (782 )     36,847  

Options exercised

                16,147             22                   22  

Net loss — the Company

                                  (9,798 )           (9,798 )

Net income — non-controlling interest

                                        960       960  

Acquisition of non-controlling interest

                            (341 )           341        

Disposal of subsidiary

                                        204       204  

Stock-based compensation

                            536                   536  

Balance — September 30, 2021

        $       54,157,969       26       204,094       (176,072 )     723       28,771  

 

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)

 

   

Nine Months Ended September 30,

 
   

2022

   

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (33,644 )   $ (18,031 )

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

               

Depreciation and amortization

    3,293       3,756  

Stock-based compensation

    1,552       1,602  

Provision (recovery) for bad debt

    5,912       (628 )

Provision for inventory obsolescence

    1,753       1,107  

Finance expenses and accretion

    291       981  

Deferred tax recovery

    (620 )     (666 )

Loss on disposal of subsidiary

          188  

Gain on forgiveness of government assistance loans

          (2,775 )

Loss on disposal of property and equipment

    82        

Changes in operating assets and liabilities:

               

Accounts receivable short and long-term

    4,493       3,468  

Inventories

    (5,451 )     (4,373 )

Prepaid expenses

    825       (112 )

Advances to suppliers

    (1,443 )     (142 )

Other current assets

    407       909  

Other long-term assets

    327       (102 )

Trade payables

    1,180       (1,573 )

Accrued expenses and other current liabilities

    (2,237 )     (3,135 )

Severance pay funds

    93       (58 )

Unearned interest income

    (103 )     127  

Other long-term liabilities

    (283 )     87  

Net cash used in operating activities

    (23,573 )     (19,370 )

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Purchases of property and equipment

    (297 )     (194 )

Cash received from sale of subsidiary, net of cash relinquished

          (40 )

Net cash used in investing activities

    (297 )     (234 )

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from issuance of common stock, net of costs

    415        

Exercises of 2020 December Public Offering Warrants

          903  

Payment of earn-out liability

          (147 )

Repayment of government assistance loans

    (543 )      

Proceeds from exercise of options

    23       332  

Dividends from subsidiaries paid to non-controlling interest

    (124 )      

Net cash (used in) provided by financing activities

    (229 )     1,088  

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

    (24,099 )     (18,516 )

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period

    30,876       34,380  

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period

  $ 6,777     $ 15,864  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid for income taxes

  $ 152     $ 120  

Cash paid for interest

  $ 2,885     $ 2,852  

FINANCING INFORMATION:

               

Common stock issuance costs

  $ 438        

 

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 share 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  September 30, 2022 and December 31, 2021, the Company had an accumulated deficit of $214,188 and $180,405, respectively. The Company was in compliance with all required covenants as of September 30, 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. As of  September 30, 2022, and for the nine months then ended management believes the impact of Covid-19 on our business has largely subsided, but we continue to closely monitor all Covid-19 developments including its impact on our customers, employees, suppliers, vendors, business partners, and distribution channels. In addition, the global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including increases to inflation rates, rising interest rates, foreign currency impacts, declines in consumer confidence, and declines in economic growth. All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted, and 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. On June 16, 2020, the Company entered into a purchase agreement (the "Equity Purchase Agreement") with Lincoln Park Capital Fund LLC ("Lincoln Park"), which provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $31,000 worth of shares of its common stock from time to time over the two-year term of the agreement. Any shares of common stock sold to Lincoln Park will be sold at a purchase price that is based on the prevailing prices of the common stock at the time of each sale. During the nine months ended September 30, 2022, the Company raised net cash proceeds of $272 under the Equity Purchase Agreement as described below. The Equity Purchase Agreement expired on July 1, 2022. On July 12, 2022, the Company entered into a subsequent purchase agreement (the “2022 LPC Purchase Agreement”) with Lincoln Park, the details of which are described Note 14 below. 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 economic uncertainty in U.S. and international markets, 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.

 

Operational Review of Subsidiaries

 

During the three and nine months ended September 30, 2022, the Board of Directors of the Company (the "Board") made several strategic decisions to dissolve itself of underperforming direct sales offices in the countries which were not anticipated to produce sustainable results. As a part of this initiative, the Company has enacted a plan to dissolve its equity interests in Venus Concept Sucursal Colombia ("Venus Colombia"), a branch office of Venus Concept Canada Corp ("Venus Canada"), Venus Concept France SAS ("Venus France"), and Venus Concept Argentina SA ("Venus Argentina"). No divestitures have occurred during the three and nine months ended September 30, 2022 and no severance costs are expected to be incurred in association with the planned divestiture of Venus Colombia, Venus France, or Venus Argentina. The Company did recognize employee severance and retention cost associated with Venus Concept SL ("Venus Spain") totaling $126 during three and nine months ended September 30, 2022. The Company is also assessing lease exit costs associated with the planned divestiture of Venus France, which are expected to be immaterial. These disposals will not constitute a strategic shift that will have a major effect on the Company’s operations and financial results, therefore the results of operations and net assets of these subsidiaries are not reported as discontinued operations or held for sale, respectively, under the guidance of Accounting Standards Codification (“ASC”) 205-20-45.

 

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 nine months ended September 30, 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 as of September 30, 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.

 

8

 

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.

 

Recently Adopted Accounting Standards 

 

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). The authoritative guidance intended to provide consistent and transparent disclosures around government assistance by requiring disclosures of the type of government assistance, our accounting for the government assistance and the effect on our financial statements. This guidance was effective for the Company for the year ended December 31, 2021. See Note 12 for more details regarding government assistance. 

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260): Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)”, which clarifies and reduces diversity in an issuer’s accounting for a modification or an exchange of a freestanding equity-classified written call option that remains equity being classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. This was effective for fiscal years beginning after December 15, 2021, and interim periods within those years. The adoption of the guidance did not have a material impact on the Company's unaudited condensed consolidated financial statements.  

 

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. 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.

 

Recently Issued Accounting Standards Not Yet Adopted

 

In October 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU") No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity (acquirer) to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company is currently evaluating the impact the standard will have on its consolidated financial statements.

 

In August 2020, 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.

 

9

 

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 was 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 adoption of the guidance did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

 

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.

 

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.

 

10

 

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 September 30,

   

Nine Months Ended September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Numerator:

                               

Net loss

  $ (14,496 )   $ (8,838 )   $ (33,644 )   $ (18,031 )

Net loss allocated to stockholders of the Company

  $ (14,605 )   $ (9,798 )   $ (33,783 )   $ (18,680 )

Denominator:

                               

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

    65,255       54,145       64,462       53,994  

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

    65,255       54,145       64,462       53,994  

Net loss per share:

                               

Basic

  $ (0.22 )   $ (0.18 )   $ (0.52 )   $ (0.35 )

Diluted

  $ (0.22 )   $ (0.18 )   $ (0.52 )   $ (0.35 )

 

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: 

 

   

September 30, 2022

   

September 30, 2021

 

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

    7,483,514       5,695,900  

Preferred stock

    3,790,755       -  

Shares reserved for convertible notes

    8,213,880       8,213,880  

Warrants for common stock

    15,928,867       15,928,867  

Total potential dilutive shares

    35,417,016       29,838,647  

 

 

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, except for GIC which is at fair value.

 

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.

 

11

 

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 September 30, 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

  $     $ 60     $     $ 60  

Total assets

  $     $ 60     $     $ 60  

 

   

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  

 

 

12

 
 

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 $45,497 and $53,887 as of  September 30, 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 September 30, 2022 and December 31, 2021. Based upon such assessment, the Company recorded an allowance for doubtful accounts totaling $13,102 and $11,997 as of September 30, 2022, and December 31, 2021, respectively.

 

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

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Gross accounts receivable

  $ 77,231     $ 86,625  

Unearned income

    (3,930 )     (4,033 )

Allowance for doubtful accounts

    (13,102 )     (11,997 )
    $ 60,199     $ 70,595  

Reported as:

               

Current trade receivables

  $ 40,876     $ 46,918  

Current unearned interest income

    (2,575 )     (2,678 )

Long-term trade receivables

    23,253       27,710  

Long-term unearned interest income

    (1,355 )     (1,355 )
    $ 60,199     $ 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:

 

      

September 30,

 
  

Total

  

2022

  

2023

  

2024

  

2025

  

2026

 

Current financing receivables, net of allowance of $6,293

 $22,500  $22,500  $  $  $  $ 

Long-term financing receivables, net of allowance of $779

  22,997      17,499   5,463   35    
  $45,497  $22,500  $17,499  $5,463  $35  $ 

 

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.

 

13

 

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  

Write-offs

    (1,159 )

Provision

    2,517  

Balance at June 30, 2022

    14,100  

Write-offs

    (3,389 )

Provision

    2,391  

Balance at September 30, 2022

  $ 13,102  

 

 

6. SELECT BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION

 

Inventory

 

Inventory consists of the following:

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Raw materials

  $ 2,275     $ 2,368  

Work-in-progress

    1,268       1,649  

Finished goods

    20,698       16,526  

Total inventory

  $ 24,241     $ 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 $7,696 and $23,437 in cost of goods sold in the three and nine months ended September 30, 2022, respectively ($6,584 and $19,150 in cost of goods sold in the three and nine months ended September 30, 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 September 30, 2022 and December 31, 2021, a provision for obsolescence of $3,194 and $2,213 was taken against inventory, respectively.

 

14

 

Property and Equipment, Net

 

Property and equipment, net consist of the following:

 

   

Useful Lives

   

September 30,

   

December 31,

 
   

(in years)

   

2022

   

2021

 

Lab equipment tooling and molds

    410     $ 8,056     $ 8,194  

Office furniture and equipment

    610       1,729       1,743  

Leasehold improvements

   

up to 10

      1,772       1,839  

Computers and software

    3       2,037       1,939  

Vehicles

    57       37       37  

Clinical Training Units

    5       214       114  

Total property and equipment

            13,845       13,866  

Less: Accumulated depreciation

            (11,665 )     (11,197 )

Total property and equipment, net

          $ 2,180     $ 2,669  

 

Depreciation expense amounted to $206 and $431 for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense was $695 and $1,159 for the nine months ended September 30, 2022 and 2021, respectively.

 

Other Current Assets

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Government remittances (1)

  $ 1,079     $ 1,322  

Consideration receivable from sale of subsidiaries

    853       1,405  

Deferred financing costs

    419       223  

Sundry assets and miscellaneous

    1,000       808  

Total other current assets

  $ 3,351     $ 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

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Payroll and related expense

  $ 1,764     $ 1,770  

Accrued expenses

    6,390       6,584  

Commission accrual

    3,206       4,529  

Sales and consumption taxes

    5,975       6,629  

Total accrued expenses and other current liabilities

  $ 17,335     $ 19,512  

 

15

 

Warranty Accrual

 

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

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Balance as of the beginning of the period

  $ 1,753     $ 1,639  

Warranties issued during the period

    509       1,231  

Warranty costs incurred during the period

    (689 )     (1,117 )

Balance at the end of the period

  $ 1,573     $ 1,753  

Current

    1,147       1,245  

Long-term

    426       508  

Total

  $ 1,573     $ 1,753  

 

Finance Expenses

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Interest expense

  $ 1,153     $ 940     $ 2,979     $ 3,008  

Accretion on long-term debt and amortization of fees

    66       60       197