UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
Venus Concept Inc.
(Exact Name of Registrant as Specified in its Charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
| ( (Address including zip code, and telephone number including area code, of registrant’s 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 | ||
| | | The |
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.
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).
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 | ☐ |
| | ☒ | 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
As of May 9, 2023 the registrant had
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| Part I. |
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| Item 1. |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of $ and $ as of March 31, 2023, and December 31, 2022, respectively | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Advances to suppliers | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| LONG-TERM ASSETS: | ||||||||
| Long-term receivables, net | ||||||||
| Deferred tax assets | ||||||||
| Severance pay funds | ||||||||
| Property and equipment, net | ||||||||
| Operating right-of-use assets, net | ||||||||
| Intangible assets | ||||||||
| Total long-term assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Trade payables | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Income taxes payable | ||||||||
| Unearned interest income | ||||||||
| Warranty accrual | ||||||||
| Deferred revenues | ||||||||
| Operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Long-term debt | ||||||||
| Income tax payable | ||||||||
| Accrued severance pay | ||||||||
| Unearned interest revenue | ||||||||
| Warranty accrual | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| STOCKHOLDERS’ EQUITY (Note 15): | ||||||||
| Common Stock, $ par value: shares authorized as of March 31, 2023 and December 31, 2022; and issued and outstanding as of March 31, 2023, and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ( | ) | ||||||
| Non-controlling interests | ||||||||
| ( | ) | |||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
| Three Months Ended March 31, |
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| 2023 |
2022 |
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| Revenue |
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| Leases |
$ | $ | ||||||
| Products and services |
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| Cost of goods sold |
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| Leases |
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| Products and services |
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| Gross profit |
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| Operating expenses: |
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| Selling and marketing |
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| General and administrative |
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| Research and development |
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| Total operating expenses |
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| Loss from operations |
( |
) | ( |
) | ||||
| Other expenses: |
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| Foreign exchange loss (gain) |
( |
) | ||||||
| Finance expenses |
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| Loss on disposal of subsidiaries |
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| Loss before income taxes |
( |
) | ( |
) | ||||
| Income tax expense |
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| Net loss |
( |
) | ( |
) | ||||
| Net loss attributable to stockholders of the Company |
( |
) | ( |
) | ||||
| Net income (loss) attributable to non-controlling interest |
( |
) | ||||||
| Net loss per share: |
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| Basic |
$ | ( |
) | $ | ( |
) | ||
| Diluted |
$ | ( |
) | $ | ( |
) | ||
| Weighted-average number of shares used in per share calculation: |
||||||||
| Basic |
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| Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(in thousands)
| Three Months Ended March 31, |
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| 2023 |
2022 |
|||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Loss attributable to stockholders of the Company |
( |
) | ( |
) | ||||
| Income (loss) attributable to non-controlling interest |
( |
) | ||||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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’ |
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| Shares |
Amount |
Shares |
Amount |
in-Capital |
Deficit |
Interest |
Equity |
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| Balance — January 1, 2023 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Restricted share units vested |
$ | |||||||||||||||||||||||||||||||
| Issuance of common stock |
$ | |||||||||||||||||||||||||||||||
| Adoption of ASC 326 |
— | $ | — | ( |
) | ( |
) | |||||||||||||||||||||||||
| Net loss — the Company |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net income — non-controlling interest |
— | — | ||||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Balance — March 31, 2023 |
$ | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Series A Preferred |
Series A Preferred |
Common Stock |
Additional Paid- |
Accumulated |
Non- controlling |
Total Stockholders’ |
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| Shares |
Amount |
Shares |
Amount |
in-Capital |
Deficit |
Interest |
Equity |
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| Balance — January 1, 2022 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Options exercised |
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| Net loss — the Company |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss — non-controlling interest |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Balance — March 31, 2022 |
$ | ( |
) | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Three Months Ended March 31, |
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| 2023 |
2022 |
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| CASH FLOWS FROM OPERATING ACTIVITIES: |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation and amortization |
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| Stock-based compensation |
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| Provision for expected credit losses |
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| Provision for inventory obsolescence |
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| Finance expenses and accretion |
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| Deferred tax recovery |
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| Loss on disposal of property and equipment |
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| Changes in operating assets and liabilities: |
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| Accounts receivable short-term and long-term |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Prepaid expenses |
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| Advances to suppliers |
( |
) | ||||||
| Other current assets |
( |
) | ||||||
| Operating right-of-use assets, net |
( |
) | ||||||
| Other long-term assets |
( |
) | ||||||
| Trade payables |
( |
) | ||||||
| Accrued expenses and other current liabilities |
( |
) | ( |
) | ||||
| Current operating lease liabilities |
( |
) | ||||||
| Severance pay funds |
( |
) | ||||||
| Unearned interest income |
( |
) | ||||||
| Long-term operating lease liabilities |
( |
) | ||||||
| Other long-term liabilities |
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| Net cash used in operating activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
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| Proceeds from exercise of options |
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| Proceeds from issuance of common stock |
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| Repayment of government assistance loans |
( |
) | ||||||
| Net cash (used in) provided by financing activities |
( |
) | ||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
( |
) | ( |
) | ||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period |
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| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period |
$ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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| Cash paid for income taxes |
$ | $ | ||||||
| Cash paid for interest |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 unaudited 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, 2023 and December 31, 2022, the Company had an accumulated deficit of $
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, we 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 $
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.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements 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, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2023. 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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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.
The preparation of these 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 March 31, 2023 and through the date of this report filing. The accounting matters assessed included, but were not limited to, the allowance for expected credit losses and the carrying value of intangible and long-lived assets.
At the annual and special meeting of the Company’s shareholders held on May 10, 2023, the Company’s shareholders granted the Company’s Board of Directors discretionary authority to implement a consolidation of the issued and outstanding common shares of the Company (a "Reverse Stock Split") and to fix the specific ratio within a range of one-for-five (1-for-
Amounts reported in thousands within this report are computed based on the amounts in U.S. 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 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. There have been no material changes to these accounting policies.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02, which replace the existing incurred loss impairment model with an expected credit loss model and require a financial asset measured at amortized cost to be presented at the net amount expected to be collected. This guidance was adopted as of January 1, 2023. The Company recognized a charge of $
Recently Issued Accounting Standards Not Yet Adopted
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.
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.
The following table sets forth the computation of basic and diluted net loss 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, |
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| 2023 |
2022 |
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| Numerator: |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Net loss allocated to stockholders of the Company |
$ | ( |
) | $ | ( |
) | ||
| Denominator: |
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| Weighted-average shares of common stock outstanding used in computing net loss per share, basic |
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| Weighted-average shares of common stock outstanding used in computing net loss per share, diluted |
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| Net loss per share: |
||||||||
| Basic |
$ | ( |
) | $ | ( |
) | ||
| Diluted |
$ | ( |
) | $ | ( |
) | ||
Due to the net loss, all the outstanding shares of common stock equivalents were excluded from the calculation of diluted net loss per share attributable to common stockholders for the quarters ended March 31, 2023 and 2022 because including them would have been antidilutive:
| March 31, 2023 |
March 31, 2022 |
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| Options to purchase common stock and restricted stock units ("RSUs") |
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| Preferred stock |
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| Shares reserved for convertible notes |
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| Warrants for common stock |
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| Total potential dilutive shares |
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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.
Guaranteed investment certificates 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, 2023 |
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| Quoted Prices in Active Markets using Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total |
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| Assets |
||||||||||||||||
| Guaranteed Investment Certificates |
$ | $ | $ | $ | ||||||||||||
| Total assets |
$ | $ | $ | $ | ||||||||||||
| Fair Value Measurements as of December 31, 2022 |
||||||||||||||||
| Quoted Prices in Active Markets using Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total |
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| Assets |
||||||||||||||||
| Guaranteed Investment Certificates |
$ | $ | $ | $ | ||||||||||||
| Total assets |
$ | $ | $ | $ | ||||||||||||
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
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 $
The Company performed an assessment of the allowance for expected credit losses as of March 31, 2023 and December 31, 2022. Based upon such assessment, the Company recorded an allowance for expected credit losses totaling $
A summary of the Company’s accounts receivables is presented below:
| March 31, |
December 31, |
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| 2023 |
2022 |
|||||||
| Gross accounts receivable |
$ | $ | ||||||
| Unearned income |
( |
) | ( |
) | ||||
| Allowance for expected credit losses |
( |
) | ( |
) | ||||
| $ | $ | |||||||
| Reported as: |
||||||||
| Current trade receivables |
$ | $ | ||||||
| Current unearned interest income |
( |
) | ( |
) | ||||
| Long-term trade receivables |
||||||||
| Long-term unearned interest income |
( |
) | ( |
) | ||||
| $ | $ | |||||||
Current subscription agreements are reported as part of accounts receivable. The following are the contractual commitments, net of allowance for expected credit losses, to be received by the Company over the next 5 years:
| March 31, |
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| Total |
2023 |
2024 |
2025 |
2026 |
2027 |
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| Current financing receivables, net of allowance of $6,013 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Long-term financing receivables, net of allowance of $743 |
$ | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
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 expected credit losses. Uncollectible accounts are charged to expense when deemed uncollectible, and accounts receivable are presented net of an allowance for expected credit losses. 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.
The allowance for expected credit losses consisted of the following activity:
| Balance at January 1, 2022 |
$ | |||
| Write-offs |
( |
) | ||
| Provision |
||||
| Balance at December 31, 2022 |
||||
| Write-offs |
( |
) | ||
| Provision |
||||
| Balance at March 31, 2023 |
$ |
6. SELECT BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION
Inventory
Inventory consists of the following:
| March 31, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work-in-progress |
||||||||
| Finished goods |
||||||||
| Total inventory |
$ | $ | ||||||
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 $
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, 2023 and December 31, 2022, a provision for obsolescence of $
Property and Equipment, Net
Property and equipment, net consist of the following:
| Useful Lives |
March 31, |
December 31, |
||||||||||
| (in years) |
2023 |
2022 |
||||||||||
| Lab equipment tooling and molds |
$ | $ | ||||||||||
| Office furniture and equipment |
||||||||||||
| Leasehold improvements |
|
|||||||||||
| Computers and software |
||||||||||||
| Vehicles |
||||||||||||
| Demo units |
||||||||||||
| Total property and equipment |
||||||||||||
| Less: Accumulated depreciation |
( |
) | ( |
) | ||||||||
| Total property and equipment, net |
$ | $ | ||||||||||
Depreciation expense amounted to $
Other Current Assets
| March 31, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Government remittances (1) |
$ | $ | ||||||
| Consideration receivable from subsidiaries sale |
||||||||
| Deferred financing costs |
||||||||
| Sundry assets and miscellaneous |
||||||||
| Total other current assets |
$ | $ | ||||||
(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, |
|||||||
| 2023 |
2022 |
|||||||
| Payroll and related expense |
$ | $ | ||||||
| Accrued expenses |
||||||||
| Commission accrual |
||||||||
| Sales and consumption taxes |
||||||||
| Total accrued expenses and other current liabilities |
$ | $ | ||||||
Warranty Accrual
The following table provides the details of the change in the Company’s warranty accrual:
| March 31, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Balance as of the beginning of the period |
$ | $ | ||||||
| Warranties issued during the period |
||||||||
| Warranty costs incurred during the period |
( |
) | ( |
) | ||||
| Balance at the end of the period |
$ | $ | ||||||
| Current |
||||||||
| Long-term |
||||||||
| Total |
$ | $ | ||||||
Finance Expenses
The following table provides the details of the Company’s finance expenses:
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Interest expense |
$ | $ | ||||||
| Accretion on long-term debt and amortization of fees |
||||||||
| Total finance expenses |
$ | $ | ||||||
7. LEASES
The following presents the various components of lease costs.
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Operating lease cost |
$ | $ | ||||||
| Short-term lease cost |
||||||||
| Total lease cost |
$ | $ | ||||||
The following table presents supplemental information relating to the cash flows arising from lease transactions. Cash payments related to short-term leases are not included in the measurement of operating lease liabilities, and as such, are excluded from the amounts below.
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Operating cash outflows from operating leases |
$ | $ | ||||||
The following table presents the weighted-average lease term and discount rate for operating leases.
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Operating leases |
||||||||
| Weighted-average remaining lease term |
|
|
||||||
| Weighted-average discount rate |
% | % | ||||||
The following table presents a maturity analysis of expected undiscounted cash flows for operating leases on an annual basis for the next five years and thereafter.
| Years ending December 31, |
Operating leases |
|||
| 2023 |
$ | |||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| Thereafter |
||||
| Imputed Interest (1) |
( |
) | ||
| Total |
$ | |||
(1) Imputed interest represents the difference between undiscounted cash flows and cash flows.
8. INTANGIBLE ASSETS
Intangible assets net of accumulated amortization and goodwill were as follows:
| At March 31, 2023 |
||||||||||||
| Gross Amount |
Accumulated Amortization |
Net Amount |
||||||||||
| Customer relationships |
$ | $ | ( |
) | $ | |||||||
| Brand |
( |
) | ||||||||||
| Technology |
( |
) | ||||||||||
| Supplier agreement |
( |
) | ||||||||||
| Total intangible assets |
$ | $ | ( |
) | $ | |||||||
| At December 31, 2022 |
||||||||||||
| Gross Amount |
Accumulated Amortization |
Net Amount |
||||||||||
| Customer relationships |
$ | $ | ( |
) | $ | |||||||
| Brand |
( |
) | ||||||||||
| Technology |
( |
) | ||||||||||
| Supplier agreement |
( |
) | ||||||||||
| Total intangible assets |
$ | $ | ( |
) | $ | |||||||
For the three months ended March 31, 2023 and 2022, amortization expense was $
Estimated amortization expense for the next five fiscal years and all years thereafter are as follows:
| Years ending December 31, |
||||
| 2023 |
$ | |||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| Thereafter |
||||
| Total |
$ |
9. COMMITMENTS AND CONTINGENCIES
Commitments
As of March 31, 2023, the Company has non-cancellable purchase orders placed with its contract manufacturers in the amount of $
Aggregate future service and purchase commitments with manufacturers as of March 31, 2023 are as follows:
| Years ending December 31, |
Purchase and Service Commitments |
|||
| 2023 |
$ | |||
| 2024 and Thereafter |
||||
| Total |
$ | |||
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 15of the Securities 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 Securities 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. A hearing on Plaintiff’s motion for final distribution of the settlement funds in the Federal Actions was held on February 16, 2023, and the District Court granted the motion for final distribution on February 17, 2023.
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 Exchange 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. On March 2, 2023, Plaintiff filed a stipulation voluntarily dismissing the action. The District Court has not yet entered the stipulation.
10. 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 $
As of March 31, 2023 and December 31, 2022, the Company was in compliance with all required covenants.
The scheduled payments on the outstanding borrowings as of March 31, 2023 are as follows:
| Years ending December 31, |
||||
| 2023 |
$ | |||
| 2024 |
||||
| 2025 |
||||
| Total |
$ |
11. 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 Concept’s subsidiaries.
As of March 31, 2023, the Company had approximately $
On December 9, 2020, contemporaneously with the MSLP Loan Agreement (Note 10), the Company and its subsidiaries, Venus Concept USA, Inc. ("Venus USA"), Venus Ltd., Venus Canada, 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 on December 9, 2020, $
The Notes will accrue interest at a rate of
The scheduled payments on the outstanding borrowings as of March 31, 2023 are as follows:
| Years ending December 31, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Total | $ |
For the three months ended March 31, 2023, the Company did make any principal repayments.
12. 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 $
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 $
As of March 31, 2023, and December 31, 2022, 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 10).
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 $
13. GOVERNMENT ASSISTANCE PROGRAMS
Venus Concept Inc. and Venus USA, received funding in the total amount of $
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 $
Venus USA entered into a U.S. Small Business Administration Note dated as of April 15, 2020 in favor of CNB. Venus USA borrowed $
The Venus Concept PPP Loan contained 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.
In 2021, through CNB, the Company applied for and received partial forgiveness of the Venus USA PPP Loan in the amount of $
14. 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 and warrants to purchase common stock.
| March 31, 2023 |
December 31, 2022 |
|||||||
| Outstanding common stock warrants |
||||||||
| Outstanding stock options and RSUs |
||||||||
| Preferred shares |
||||||||
| Shares reserved for conversion of future non-voting preferred share issuance |
||||||||
| Shares reserved for conversion of future voting preferred share issuance |
||||||||
| Shares reserved for future option grants and RSUs |
||||||||
| Shares reserved for Lincoln Park |
||||||||
| Shares reserved for Madryn Noteholders |
||||||||
| Total common stock reserved for issuance |
||||||||
15. 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. |
Equity Purchase Agreement with Lincoln Park
On June 16, 2020, the Company entered into the Equity Purchase Agreement with Lincoln Park, which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $
From commencement to expiry on July 1, 2022, the Company issued and sold to Lincoln Park
2022 LPC Purchase Agreement with Lincoln Park
On July 12, 2022, the Company entered into the 2022 LPC Purchase Agreement with Lincoln Park, as the Equity Purchase Agreement expired on July 1, 2022. The 2022 LPC Purchase Agreement provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $
The 2022 Private Placement
On December 15, 2021, we entered into a securities purchase agreement pursuant to which we issued and sold to certain investors (collectively the "2021 Investors") an aggregate of
Preferred Stock issued in December 2021
As noted above, in December 2021, the Company issued and sold to the 2021 Investors an aggregate of
| • |
Voting Rights. The Non-Voting 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 Non-Voting Preferred Stock will be required to amend the terms of the Preferred Stock or take certain other actions with respect to the Non-Voting Preferred Stock. |
| • |
Liquidation. The Non-Voting Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company. |
| • |
Conversion. The Non-Voting Preferred Stock is automatically convertible into shares of common stock, based on an initial conversion ratio of as adjusted in accordance with the Certificate of Designation, upon receipt of a valid conversion notice by the Company from an Investor. The Company is not permitted to issue any shares of common stock upon conversion of the Non-Voting Preferred Stock to the extent that the issuance of such shares of common stock would exceed |
| • |
Dividends. |
| • |
Redemption. The Non-Voting Preferred Stock is not redeemable at the election of the Company or at the election of the holder. |
| • |
Maturity. The Non-Voting Preferred Stock shall be perpetual unless converted. |
Upon issuance, the effective conversion price of the Non-Voting Preferred Stock of $
The Company evaluated the Non-Voting 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 Non-Voting Preferred Stock did not meet the definition of the liability instruments defined thereunder for convertible instruments. Specifically, the Non-Voting 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 Non-Voting 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 Non-Voting 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 $
The 2022 Private Placement
In November 2022, we entered into a securities purchase agreement with certain investors (collectively, the “2022 Investors”) pursuant to which the Company issued and sold to the 2022 Investors an aggregate of
Voting Preferred Stock issued in November 2022
As noted above, in November 2022, the Company issued and sold to certain 2022 Investors an aggregate of
| • |
Voting Rights. The Voting Preferred Stock votes with the Common Stock on an as-converted basis. |
| • |
Liquidation. Each share of Voting Preferred Stock carries a liquidation preference, senior to the Common Stock and Non-Voting Preferred Stock, in an amount equal to the greater of (a) $ |
|
|
• |
Conversion. The Voting Preferred Stock will convert into shares of Common Stock on a one for |
| • |
Dividends. Each share of Voting Preferred Stock is entitled to participate in dividends and other non-liquidating distributions (if, as and when declared by the Board of the Company) on an as-converted basis, pari passu with the Common Stock and Non-Voting Preferred Stock. |
|
|
• |
Redemption. The Voting Preferred Stock is not redeemable at the election of the Company or at the election of the holder. |
| • |
Maturity. The Voting Preferred Stock shall be perpetual unless converted. |
2010 Share Option Plan
In November 2010, 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 years, which was extended to 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, 2023, the number of shares of the Company’s common stock reserved for issuance and available for grant under the 2010 Share Option Plan was
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,
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, |
||||||||
| 2023 |
2022 |
|||||||
| Cost of sales |
$ | $ | ||||||
| Selling and marketing |
||||||||
| General and administrative |
||||||||
| Research and development |
||||||||
| Total stock-based compensation |
$ | $ | ||||||
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, |
||||||||
| 2023 |
2022 |
|||||||
| Expected term (in years) |
||||||||
| Risk-free interest rate |
% | % | ||||||
| Expected volatility |
% | % | ||||||
| Expected dividend rate |
% | % | ||||||
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.
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
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, 2023 |
$ | $ | ||||||||||||||
| Options granted |
||||||||||||||||
| Options exercised |
— | |||||||||||||||
| Options forfeited/cancelled |
( |
) | — | |||||||||||||
| Outstanding - March 31, 2023 |
$ | $ | ||||||||||||||
| Exercisable – March 31, 2023 |
$ | $ | ||||||||||||||
| Expected to vest – after March 31, 2023 |
$ | $ | ||||||||||||||
The following tables summarize information about stock options outstanding and exercisable at March 31, 2023:
| 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 | ||||||||||||||||||
| $2.82 - $54.60 | ||||||||||||||||||||||||
| $63.90 - $119.25 | ||||||||||||||||||||||||
| $186.75 - $382.50 | ||||||||||||||||||||||||
| $405.00 - $438.75 | ||||||||||||||||||||||||
| $540.00 - $958.50 | ||||||||||||||||||||||||
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 and $
The weighted-average grant date fair value of options granted was $
Restricted Stock Units
The following table summarizes information about RSUs outstanding at March 31, 2023:
| Number of Shares |
Weighted- Average Grant Date Fair Value per Share, $ |
|||||||
| Outstanding – January 1, 2023 |
$ | |||||||
| RSUs granted |
||||||||
| RSUs forfeited/cancelled |
( |
) | ||||||
| RSUs exercised |
( |
) | ||||||
| Outstanding - March 31, 2023 |
$ | |||||||
16. INCOME TAXES
The Company generated a loss and recognized $
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Loss before income taxes |
$ | ( |
) | $ | ( |
) | ||
| Theoretical tax benefit at the statutory rate (21.0% in 2023 and 2022) |
( |
) | ( |
) | ||||
| Differences in jurisdictional tax rates |
( |
) | ( |
) | ||||
| Valuation allowance |
||||||||
| Non-deductible expenses |
||||||||
| Total income tax provision |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
Income tax expense is recognized based on the actual loss incurred during the three months ended March 31, 2023 and 2022, respectively.
17. 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 operating segment and has 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, | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| International | ||||||||
| Total revenue | $ | $ | ||||||
As of March 31, 2023, long-lived assets in the amount of $
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
2. System revenue – includes all systems sales with payment terms within
3. Product revenue – includes skincare, hair and other consumables payable upon receipt.
4. Service revenue – includes NeoGraft technician services, ad agency services and extended warranty sales.
The following table presents revenue by type:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Lease revenue | $ | $ | ||||||
| System revenue | ||||||||
| Product revenue | ||||||||
| Service revenue | ||||||||
| Total revenue | $ | $ | ||||||
18. RELATED PARTY TRANSACTIONS
All amounts were recorded at the exchange amount, which is the amount established and agreed to by the related parties. The following are transactions between the Company and parties related through employment.
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 former senior officer of the Company is a
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
19. SUBSEQUENT EVENTS
Sale of Stock to LPC
Between April 1, 2023, and May 9, 2023, the Company issued
Plan to Dissolve Venus Concept Korea
On February 7, 2023, 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, on April 18, 2023, the Company held a meeting with the employees of Venus Concept Korea Ltd. (“Venus Korea”) and communicated the Company’s plan to divest itself of its equity interest in Venus Korea.
Reverse Stock Split
On May 11, 2023, the Company effected a 1-for-
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 dependency on one major contract manufacturer in Israel exposes us to supply disruptions should that facility be subject to a strike, shutdown, fire flood or other natural disaster;
• 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.
Management believes the risks and impacts of the COVID-19 pandemic on our business appear to have 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. 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. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains management’s 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, 2023 (“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, 2022 (“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, 2023 and 2022, respectively, a substantial majority of our systems delivered in North America were in non-traditional markets. As we grow our ARTAS hair restoration business and expand robotics offerings through the AI.ME™ platform we expect our penetration into the core practices of dermatology and plastic surgery to increase.
We have had recurring net operating losses and negative cash flows from operations. As of March 31, 2023 and December 31, 2022, we had an accumulated deficit of $234.3 million and $224.1 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, 2023 and December 31, 2022, we had cash and cash equivalents of $6.4 million and $11.6 million, respectively.
While the impact of COVID-19 on our business has largely subsided, 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 and 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.
Venus Viva®, Venus Viva® MD, Venus Legacy®, Venus Concept®, Venus Versa®, Venus Fiore®, Venus Freedom™, Venus Bliss™, Venus Bliss Max™, NeoGraft®, Venus Glow™, ARTAS®, ARTAS iX®, and AIME™, 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.
Equity Purchase Agreement with Lincoln Park
On June 16, 2020, we entered into the Equity Purchase Agreement with Lincoln Park, which provided that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement. The purchase price of shares of common stock related to a future sale was based on the then prevailing market prices of such shares at the time of sales as described in the Equity Purchase Agreement. Concurrently with entering into the Equity Purchase Agreement, we also entered into the Registration Rights Agreement. The Equity Purchase Agreement expired on July 1, 2022 and was replaced by the 2022 LPC Purchase Agreement.
The 2022 LPC Purchase Agreement
On July 12, 2022, we entered into the 2022 LPC Purchase Agreement with Lincoln Park, which will enhance our balance sheet and financial condition to support our future growth initiatives. As part of the 2022 LPC Purchase Agreement, we issued and sold to Lincoln Park 0.05 million shares of our common stock as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement with the total value of $0.3 million. Subsequent to execution of the 2022 LPC Purchase Agreement the Company issued 0.43 million shares of common stock to Lincoln Park at an average price of $4.54 per share, for a total value of $1.97 million through December 31, 2022. During the quarter ended March 31, 2023, the Company issued an additional 0.22 million shares of common stock to Lincoln Park at an average price of $3.58 per share, for a total value of $0.80 million. For additional information regarding the 2022 LPC Purchase Agreement, see Note 15 “Stockholders Equity” in the notes to our unaudited condensed consolidated financial statements included elsewhere in this report.
On December 15, 2021, the Company Consummated the 2021 Private Placement whereby we entered into a securities purchase agreement pursuant to which we issued and sold to the 2021 Investors an aggregate of 653,894 shares of our common stock and 252,717 shares of our Non-Voting Preferred Stock. The gross proceeds from the securities sold in the 2021 Private Placement was $17.0 million. The costs incurred with respect to the 2021 Private Placement totaled $0.3 million and were recorded as a reduction of the 2021 Private Placement proceeds in the consolidated statements of stockholders’ equity. The accounting effects of the 2021 Private Placement transaction is discussed in Note 15 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.
On November 18, 2022, we entered into a securities purchase agreement pursuant to which we issued and sold to the 2022 Investors an aggregate of 116,666 shares of our common stock and 212,333 shares of our Voting Preferred Stock. The gross proceeds from the securities sold in the 2022 Private Placement totaled $6.7 million before offering expenses. The costs incurred with respect to the 2022 Private Placement totaled $0.2 million and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated statements of stockholders’ equity. The accounting effects of the 2022 Private Placement transaction is discussed in Note 15 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.
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.
Systems are sold through traditional sales contracts directly, through our subscription model, and through distributors. In the third quarter of 2022 we commenced an initiative to reduce our reliance on system sales sold under subscription agreements in the United States. This strategic shift is designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment caused by the coexistence of high inflation and high interest rates.
We generate revenue under our subscription-based business model and from traditional system sales. Venus Ltd. commenced a subscription-based model in North America in 2011. Our subscription model is also available in targeted international markets in which we operate directly. Approximately 34% and 47% of our total system revenues were derived from our subscription model in the three months ended March 31, 2023 and 2022, respectively. 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, 2022.
Our subscription model includes an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% to 45% of total contract payments collected in the first year. To ensure that each monthly payment is made on time and that the customer’s system is serviced in accordance with the terms of the warranty, every product purchased under a subscription agreement requires a monthly activation code, which we provide to the customer upon receipt of the monthly payment. These recurring monthly payments provide our customers with enhanced financial transparency and predictability. If economic circumstances are appropriate, we provide customers in good standing with the opportunity to “upgrade” into our newest available or alternative Venus Concept technology throughout the subscription period. This structure can provide greater flexibility than traditional equipment leases secured through financing companies. We work closely with our customers to provide business recommendations that improve the quality of service outcomes, build patient traffic and improve financial returns for the customer’s business.
We have developed and received regulatory clearance for twelve novel aesthetic technology platforms, including our ARTAS and NeoGraft systems. We believe our ARTAS and NeoGraft systems are complementary and give us a hair restoration product offering that can serve a broad segment of the market. Our medical aesthetic technology platforms have received regulatory clearance for a variety of indications, including treatment of facial wrinkles in certain skin types, temporary reduction of appearance of cellulite, non-invasive fat reduction (lipolysis) in the abdomen and flanks for certain body types and relief of minor muscle aches and pains in jurisdictions around the world. In addition, our technology pipeline is focused on the development of robotically assisted minimally invasive solutions for aesthetic procedures that are primarily treated by surgical intervention, including the AI.ME platform for which we received FDA 510(k) clearance for fractional skin resurfacing in December 2022.
In the United States, we have obtained 510(k) clearance from the FDA for our Venus Viva, Venus Viva MD, Venus Legacy, Venus Versa, Venus Velocity, Venus Bliss, Venus Bliss Max, Venus Epileve, Venus Fiore, ARTAS, ARTAS iX and AI.ME systems. Outside the United States, we market our technologies in over 60 countries across Europe, the Middle East, Africa, Asia-Pacific and Latin America. Because each country has its own regulatory scheme and clearance process, not every device is cleared or authorized for the same indications in each market in which a particular system is marketed.
As of March 31, 2023, we operated directly in 14 international markets through our 11 direct offices in the United States, Canada, United Kingdom, Japan, Mexico, Spain, Germany, Australia, China, Hong Kong, and Israel.
Our revenues for the three months ended March 31, 2023, and 2022 were $20.5 million and $26.4 million, respectively. We had a net loss attributable to Venus Concept of $9.7 million and $8.6 million in the three months ended March 31, 2023, and 2022, respectively. We had an Adjusted EBITDA loss of $5.7 million and $5.9 million for the three months ended March 31, 2023, and 2022, respectively.
Use of Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP measure defined as net income (loss) before foreign exchange loss (gain), financial expenses, income tax expense (benefit), depreciation and amortization, stock-based compensation and non-recurring items for a given period. Adjusted EBITDA is not a measure of our financial performance under U.S. GAAP and should not be considered an alternative to net income or any other performance measures derived in accordance with U.S. GAAP. Accordingly, you should consider Adjusted EBITDA along with other financial performance measures, including net income, and our financial results presented in accordance with U.S. GAAP. Other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure. We understand that although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and although depreciation and amortization are non-cash charges, the assets being depreciated will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
We believe that Adjusted EBITDA is a useful measure for analyzing the performance of our core business because it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by changes in foreign exchange rates that impact financial assets and liabilities denominated in currencies other than the U.S. dollar, tax positions (such as the impact on periods or companies of changes in effective tax rates), the age and book depreciation of fixed assets (affecting relative depreciation expense), amortization of intangible assets, stock-based compensation expense (because it is a non-cash expense) and non-recurring items as explained below.
The following is a reconciliation of net loss to Adjusted EBITDA for the periods presented:
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Reconciliation of net loss to adjusted EBITDA |
(in thousands) |
|||||||
| Net loss |
$ | (9,623 | ) | $ | (8,636 | ) | ||
| Foreign exchange loss (gain) |
(352 | ) | 5 | |||||
| Loss on disposal of subsidiaries |
77 | — | ||||||
| Finance expenses |
1,508 | 923 | ||||||
| Income tax expense |
235 | 272 | ||||||
| Depreciation and amortization |
1,022 | 1,101 | ||||||
| Stock-based compensation expense |
481 | 443 | ||||||
| Other adjustments (1) |
917 | — | ||||||
| Adjusted EBITDA |
$ | (5,735 | ) | $ | (5,892 | ) | ||
(1) For the three months ended March 31, 2023, the other adjustments are represented by restructuring activities designed to improve the Company's operations and cost structure.
Key Factors Impacting Our Results of Operations
Our results of operations are impacted by several factors, but we consider the following to be particularly significant to our business:
Number of systems delivered. The majority of our revenue is generated from the delivery of systems, both under traditional sales contracts and subscription agreements. The following table sets forth the number of systems we have delivered in the geographic regions indicated:
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| United States |
86 | 126 | ||||||
| International |
237 | 327 | ||||||
| Total systems delivered |
323 | 453 | ||||||
Mix between traditional sales, subscription model sales and distributor sales. We deliver systems through (1) traditional direct system sales contracts to customers, (2) our subscription model, and (3) system sales through distribution agreements. Unit deliveries under direct system sales contracts and subscription agreements have higher per unit revenues and gross margins, while revenues and gross margins on systems sold through distributors are lower. However, distributor sales do not require significant sales and marketing support as these expenses are borne by the distributors. In addition, while traditional system sales and subscription agreements have similar gross margins, cash collections on subscription agreements generally occur over a three-year period, with approximately 40% to 45% collected in the first year and the balance collected evenly over the remaining two years of the subscription agreement. In the third quarter of 2022 we commenced an initiative to reduce our reliance on system sales sold under subscription agreements in the United States. This strategic shift is designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment caused by the coexistence of high inflation and high interest rates.
Investment in Sales, Marketing and Operations. In recent years, we made a strategic decision to penetrate the global market by investing in sales and marketing expenses across all geographic segments. This included the opening of direct offices and hiring experienced sales, marketing, and operational staff. While we generated incremental product sales in these new markets, these revenues and the related margins did not fully offset the startup investments made in certain countries. We are evaluating our profitability and growth prospects in these countries post-COVID-19, and have taken and will continue to take steps to exit countries which we do not believe will produce sustainable results. Since June 2020 we have closed 11 direct offices across Europe, Asia Pacific, Latin America and Africa and have increased our investment and focus in the United States market.
In the three months ended March 31, 2023, and 2022, respectively, we did not open any direct sales offices.
Bad Debt Expense. We maintain an allowance for expected credit losses for estimated losses that may primarily arise from subscription customers that are unable to make the remaining payments required under their subscription agreements. During the three months ended March 31, 2023, our collections results were negatively impacted by macroeconomic headwinds, including increased interest rates and inflationary factors impacting the operating costs and liquidity positions of our customers. As a result, we increased the allowance for expected credit losses as a percentage of gross outstanding accounts receivable from the period ended March 31, 2022 to the period ended March 31, 2023. We incurred a bad debt expense of $0.6 million during the three months ended March 31, 2023, which includes $0.5 million associated with the adoption of revised guidance of Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. In addition, we continue to focus our selling efforts on cash sales and subscription customers with a stronger credit profile. As of March 31, 2023, our allowance for expected credit losses was $14.2 million which represents 21% of the gross outstanding accounts receivable as of this date. As of March 31, 2022, our allowance for expected credit losses was $12.7 million which represents 14.2% of the gross outstanding accounts receivable as of this date.
Outlook
While the impact of COVID-19 on our business has largely subsided, 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. The bulk of the first quarter revenue decline was due to a strategy shift to prioritize cash deals over subscription deals in order to improve cash generation and preserve liquidity. We continue to focus on quality of revenue and despite the revenue decline, our cash used in operations was $6.5 million lower than the same period in 2022. We remain focused on adapting to the challenges presented by the current macro-economic environment.
Supply chain. We did not experience significant supply issues during the three months ended March 31, 2023 as we continue to actively work with our suppliers and third-party manufacturers to mitigate supply issues and manage inventory of key component parts. While we have seen recent improvements in global supply chain reliability we anticipate some supply challenges throughout the remainder of 2023, including long production lead times and shortages of certain materials or components that may impact our ability to manufacture the number of systems required to meet customer demand. In addition, since the second quarter of 2021 we have experienced significant inflationary pressures throughout our supply chain, which we expect to continue through the balance of 2023. We expect to mitigate such pressures, where possible through price increases and margin management.
Global Economic conditions. General global economic downturns and macroeconomic trends, including heightened inflation, capital markets volatility, interest rate and currency rate fluctuations, and economic slowdown or recession, have resulted and may continue to result in unfavorable conditions that negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations. Both domestic and international markets experienced significant inflationary pressures in fiscal year 2022 and inflation rates in the U.S., as well as in other countries in which we operate, are currently expected to continue at elevated levels for the near-term, impacting our cost of sales as well as selling, general and administrative expenses. In addition, the Federal Reserve in the U.S. and other central banks in various countries have raised, and may again raise, interest rates in response to concerns about inflation. Interest rate increases or other government actions taken to reduce inflation have resulted in recessionary pressures in many parts of the world and has had, and may continue to have, the effect of further increasing economic uncertainty and heightening these risks.
Sales markets. We are a global business, having established a commercial presence in more than 60 countries during our history. While the continued economic recovery in individual countries during the first three months of 2023 progressed well in most countries in which we operate, we continue to evaluate our direct operations, particularly those outside of North America. As a result, our International revenues declined in the first quarter of 2023 as we operated in three fewer direct markets when compared to the same prior year period.
Accounts receivable collections. We remain fully focused on reactivating collections with those at-risk accounts that have struggled through the pandemic but show signs of viability. As of March 31, 2023, our allowance for expected credit losses stands at $14.2 million, which represents 21% of the gross outstanding accounts receivable as of that date. This represents an increase of $0.6 million from our December 31, 2022 allowance for expected credit losses balance of $13.6 million, but remains relatively flat as a percentage of total receivables.
Basis of Presentation
Revenues
We generate revenue from (1) sales of systems through our subscription model, traditional system sales to customers and distributors, (2) other product revenues from the sale of marketing supplies, ARTAS kits, Viva tips, other consumables and (3) service revenue from our extended warranty service contracts provided to existing customers.
System Revenue
For the three months ended March 31, 2023 and 2022, approximately 34% and 47%, respectively, of our total system revenues were derived from our subscription model. The relative decrease in subscription revenues in the first quarter of 2023 is in line with our strategy to prioritize cash deals over subscription deals in order to improve cash generation and preserve liquidity. For accounting purposes, our subscription arrangements are considered to be sales-type finance leases, where the present value of all cash flows to be received under the subscription agreement is recognized as revenue upon shipment to the customer and achievement of the required revenue recognition criteria.
For the three months ended March 31, 2023 and 2022, approximately 62% and 46%, respectively, of our total system revenues were derived from traditional sales. The increased focus on traditional sales is in line with our strategy to prioritize cash deals over subscription deals in order to improve cash generation and preserve liquidity.
Customers generally demand higher discounts in connection with traditional sales. We recognize revenues from products sold to customers based on the following five steps: (1) identification of the contract(s) with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the separate performance obligations in the contract; and (5) recognition of revenue when (or as) the entity satisfies a performance obligation.
We do not grant rights of return or early termination rights to our customers under either our traditional sales or subscription models. These traditional sales are generally made through our sales team in the countries in which the team operates.
For the three months ended March 31, 2023 and 2022, approximately 9% and 13% of our total system revenues were derived from distributor sales. Under the traditional distributor relationship, we do not sell directly to the end customer and, accordingly, achieve a lower overall margin on each system sold compared to our direct sales. These sales are non-refundable, non-returnable and without any rights of price protection or stock rotation. Accordingly, we consider distributors as end customers, and are accounted for using the sell-in method.
Procedure Based Revenue
We generate revenue from the harvesting, site making, and implantation procedures performed with our ARTAS system. The harvesting procedure, as the name suggests, is the act of harvesting hair follicles from the patient’s scalp for implantation in the prescribed areas. To perform these procedures, a disposable clinical kit is required. These kits can be large (with an unlimited number of harvests) or small (with a maximum of 1,100 harvests). The customer must place an online order with us for the number and type of kits desired and make a payment. Upon receipt of the order and the related payment, we ship the kit(s), and the customer must scan the barcode on the kit label in order to perform the procedure. Once the kits are exhausted, the customer must purchase additional kits. The site making procedure uses the ARTAS system to create a recipient site (i.e., site making) in the patient’s scalp affected by androgenic alopecia (or male pattern baldness). The site making procedure also requires a disposable site making kit. The site making kits are sold to customers in the same manner as the kits for harvesting procedures. The implantation procedure utilizes the same disposal kit that is used for site making and involves immediately implanting follicles into the created recipient site. The implantation kits are sold to customers in the same manner as the harvesting and site making kits.
Other Product Revenue
We also generate revenue from our customer base by selling Glide (a cooling/conductive gel which is required for use with many of our systems), marketing supplies and kits, various consumables and disposables, replacement applicators and handpieces, and ARTAS system training.
Service Revenue
We generate ancillary revenue from our existing customers by selling additional services including extended warranty service contracts.
Cost of Goods Sold and Gross Profit
Cost of goods sold consists primarily of costs associated with manufacturing our different systems, including direct product costs from third-party manufacturers, warehousing and storage costs and fulfillment and supply chain costs inclusive of personnel-related costs (primarily salaries, benefits, incentive compensation and stock-based compensation). Cost of goods sold also includes the cost of upgrades, technology amortization, royalty fees, parts, supplies, and cost of product warranties.
Operating Expenses
Selling and Marketing
We currently sell our products and services using direct sales representatives in North America and in select international markets. Our sales costs primarily consist of salaries, commissions, benefits, incentive compensation and stock-based compensation. Costs also include expenses for travel and other promotional and sales-related activities as well as clinical training costs.
Our marketing costs primarily consist of salaries, benefits, incentive compensation and stock-based compensation. They also include expenses for travel, trade shows, and other promotional and marketing activities, including direct and online marketing. As the business environment improves, we expect sales and marketing expenses to continue to increase, but at a rate slightly below our rate of revenue growth.
General and Administrative
Our general and administrative costs primarily consist of expenses associated with our executive, accounting and finance, information technology, legal, regulatory affairs, quality assurance and human resource departments, direct office rent/facilities costs, and intellectual property portfolio management. These expenses consist of personnel-related expenses (primarily salaries, benefits, incentive compensation and stock-based compensation), audit fees, legal fees, consultants, travel, insurance, and bad debt expense. During the normal course of operations, we may incur bad debt expense on accounts receivable balances that are deemed to be uncollectible.
Research and Development
Our research and development costs primarily consist of personnel-related costs (primarily salaries, benefits, incentive compensation, and stock-based compensation), material costs, amortization of intangible assets, clinical costs, and facilities costs in our Yokneam, Israel and San Jose, California research centers. Our ongoing research and development activities are primarily focused on improving and enhancing our current technologies, products, and services, and on expanding our current product offering with the introduction of new products and expanded indications.
We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses to increase in absolute dollars as we continue to invest in research, clinical studies, and development activities, but to decline as a percentage of revenue as our revenue increases over time.
Finance Expenses
Foreign Exchange (Gain) Loss
Foreign currency exchange (gain) loss changes reflect foreign exchange gains or losses related to the change in value of assets and liabilities denominated in currencies other than the U.S. dollar.
Income Tax Expense
We estimate our current and deferred tax liabilities based on current tax laws in the statutory jurisdictions in which we operate. These estimates include judgments about liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. In certain jurisdictions, only the payments invoiced in the current period are subject to tax, but for accounting purposes, the discounted value of the total subscription contract is reported and tax affected. This results in a deferred tax credit which is settled in the future period when the monthly installment payment is issued and settled with the customer. Since our inception, we have not recorded any tax benefits for the net operating losses we have incurred in each year or for the research and development tax credits we generated in the United States. We believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. Income tax benefit is recognized based on the actual taxable loss incurred during the three months ended March 31, 2023.
Non-Controlling Interests
We have minority shareholders in one jurisdiction in which we have direct operations. For accounting purposes, these minority partners are referred to as non-controlling interests, and we record the non-controlling interests’ share of earnings in our subsidiaries as a separate balance within stockholders’ equity in the consolidated balance sheets and consolidated statements of stockholders’ equity.
Results of Operations
The following tables set forth our consolidated results of operations in U.S. dollars and as a percentage of revenues for the periods indicated:
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Consolidated Statements of Loss: |
(dollars in thousands) |
|||||||
| Revenues: |
||||||||
| Leases |
$ | 5,761 | $ | 10,423 | ||||
| Products and services |
14,770 | 15,983 | ||||||
| Total revenue |
20,531 | 26,406 | ||||||
| Cost of goods sold |
||||||||
| Leases |
1,747 | 2,700 | ||||||
| Products and services |
5,085 | 5,943 | ||||||
| 6,832 | 8,643 | |||||||
| Gross profit |
13,699 | 17,763 | ||||||
| Operating expenses: |
||||||||
| Selling and marketing |
8,032 | 11,084 | ||||||
| General and administrative |
11,185 | 11,472 | ||||||
| Research and development |
2,637 | 2,643 | ||||||
| Total operating expenses |
21,854 | 25,199 | ||||||
| Loss from operations |
(8,155 | ) | (7,436 | ) | ||||
| Other expenses: |
||||||||
| Foreign exchange loss (gain) |
(352 | ) | 5 | |||||
| Finance expenses |
1,508 | 923 | ||||||
| Loss on disposal of subsidiaries |
77 | — | ||||||
| Loss before income taxes |
(9,388 | ) | (8,364 | ) | ||||
| Income tax expense |
235 | 272 | ||||||
| Net loss |
$ | (9,623 | ) | $ | (8,636 | ) | ||
| Net loss attributable to stockholders of the Company |
(9,657 | ) | (8,619 | ) | ||||
| Net income (loss) attributable to non-controlling interest |
34 | (17 | ) | |||||
| As a % of revenue: |
||||||||
| Revenues |
100 | % | 100 | % | ||||
| Cost of goods sold |
33.3 | 32.7 | ||||||
| Gross profit |
66.7 | 67.3 | ||||||
| Operating expenses: |
||||||||
| Selling and marketing |
39.1 | 42.0 | ||||||
| General and administrative |
54.5 | 43.4 | ||||||
| Research and development |
12.8 | 10.0 | ||||||
| Total operating expenses |
106.4 | 95.4 | ||||||
| Loss from operations |
(39.7 | ) | (28.2 | ) | ||||
| Foreign exchange loss (gain) |
(1.7 | ) | 0.0 | |||||
| Finance expenses |
7.3 | 3.5 | ||||||
| Loss before income taxes |
(45.7 | ) | (31.7 | ) | ||||
The following tables set forth our revenue by region and by product type for the periods indicated:
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (dollars in thousands) |
||||||||
| Revenues by region: |
||||||||
| United States |
$ | 10,741 | $ | 13,129 | ||||
| International |
9,790 | 13,277 | ||||||
| Total revenue |
$ | 20,531 | $ | 26,406 | ||||
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (dollars in thousands) |
||||||||
| Revenues by product: |
||||||||
| Subscription—Systems |
$ | 5,761 | $ | 10,423 | ||||
| Products—Systems |
11,065 | 11,875 | ||||||
| Products—Other (1) |
2,947 | 3,497 | ||||||
| Services (2) |
758 | 611 | ||||||
| Total revenue |
$ | 20,531 | $ | 26,406 | ||||
| (1) |
Products-Other include ARTAS procedure kits, Viva tips and other consumables. |
| Comparison of the three months ended March 31, 2023 and 2022 |
Revenues
| Three Months Ended March 31, |
||||||||||||||||||||||||
| 2023 |
2022 |
Change |
||||||||||||||||||||||
| (in thousands, except percentages) |
$ |
% of Total |
$ |
% of Total |
$ |
% |
||||||||||||||||||
| Revenues: |
||||||||||||||||||||||||
| Subscription—Systems |
$ | 5,761 | 28.1 | $ | 10,423 | 39.5 | $ | (4,662 | ) | (44.7 | ) | |||||||||||||
| Products—Systems |
11,065 | 53.9 | 11,875 | 45.0 | (810 | ) | (6.8 | ) | ||||||||||||||||
| Products—Other |
2,947 | 14.3 | 3,497 | 13.2 | (550 | ) | (15.7 | ) | ||||||||||||||||
| Services |
758 | 3.7 | 611 | 2.3 | 147 | 24.1 | ||||||||||||||||||
| Total |
$ | 20,531 | 100.0 |
$ | 26,406 | 100.0 | $ | (5,875 | ) | (22.2 | ) | |||||||||||||
Total revenue decreased by $5.9 million, or 22.3%, to $20.5 million for the three months ended March 31, 2023 from $26.4 million for the three months ended March 31, 2022. The decrease in revenue is primarily attributed to an initiative to reduce our reliance on system sales sold under subscription agreements. This strategic shift is designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment caused by the coexistence of high inflation and high interest rates. Our international business was also impacted by negative foreign exchange headwinds of $0.4 million due to a strengthening U.S. dollar, as well as general macroeconomic headwinds that impacted customer access to capital. Despite the reduction in systems sales sold under subscriptions agreements, our cash generation in the first quarter of 2023 improved due to higher system sales sold on a cash basis.
We sold an aggregate of 323 systems in the three months ended March 31, 2023 compared to 453 systems in the three months ended March 31, 2022. The percentage of systems revenue derived from our subscription model was approximately 34% and 47% during the three months ended March 31, 2023 and 2022, respectively. The relative decrease in subscription revenues is in line with our strategy to prioritize cash deals over subscription deals in the U.S. market in order to improve cash generation and preserve liquidity. Specific to the U.S. market, systems revenue derived from our subscription model was approximately 21% and 58% during the three months ended March 31, 2023 and 2022, respectively.
Other product revenue decreased by $0.6 million, or 17.1%, to $2.9 million in the three months ended March 31, 2023 compared to $3.5 million in the three months ended March 31, 2022. The decrease was primarily driven by lower sales in International as we exit unprofitable markets.
Services revenue increased by $0.2 million, or 33.3%, to $0.8 million in the three months ended March 31, 2023, compared to $0.6 million in the three months ended March 31, 2022. The increase was driven by higher warranty sales through various chain accounts.
Cost of Goods Sold and Gross Profit
Cost of goods sold decreased by $1.8 million, or 21%, to $6.8 million in the three months ended March 31, 2023, compared to $8.6 million in the three months ended March 31, 2022. Gross profit decreased by $4.1 million, or 23%, to $13.7 million in the three months ended March 31, 2023, compared to $17.8 million in the three months ended March 31, 2022. The decrease in gross profit is primarily due to a decrease in revenue in the United States and International markets driven by the strategic decision to deemphasize subscription sales and the exit from unprofitable direct markets as discussed above. Gross margin was 66.7% of revenue in the three months ended March 31, 2023, compared to 67.3% of revenue in the three months ended March 31, 2022. The marginal decrease was primarily due to a $0.4 million foreign exchange headwind as a result of most currencies depreciating relative to the U.S. dollar. Adjusting for these factors, our gross margins are slightly above the prior year period.
Operating expenses
| Three Months Ended March 31, |
||||||||||||||||||||||||
| 2023 |
2022 |
Change |
||||||||||||||||||||||
| (in thousands, except percentages) |
$ |
% of Revenues |
$ |
% of Revenues |
$ |
% |
||||||||||||||||||
| Operating expenses: |
||||||||||||||||||||||||
| Selling and marketing |
$ | 8,032 | 39.1 | $ | 11,084 | 42.0 | $ | (3,052 | ) | (27.5 | ) | |||||||||||||
| General and administrative |
11,185 | 54.5 | 11,472 | 43.4 | (287 | ) | (2.5 | ) | ||||||||||||||||
| Research and development |
2,637 | 12.8 | 2,643 | 10.0 | (6 | ) | (0.2 | ) | ||||||||||||||||
| Total operating expenses |
$ | 21,854 | 106.4 |
$ | 25,199 | 95.4 | $ | (3,345 | ) | (13.3 | ) | |||||||||||||
Selling and Marketing
Sales and marketing expenses decreased by $3.0 million or 27.5% in the three months ended March 31, 2023 compared to the three months ended March 31, 2022. This decrease is largely due to lower revenues and reduced marketing expenditures as we consolidate some of these activities. As a percentage of total revenues, our sales and marketing expenses decreased by 2.9%, from 42% in the three months ended March 31, 2022 to 39.1% in the three months ended March 31, 2023. As the business environment improves, we expect sales and marketing expenses to increase in absolute terms, but at a rate slightly below our rate of revenue growth.
General and Administrative
General and administrative expenses decreased by $0.3 million or 2.5% in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to exiting certain unprofitable direct markets, partially offset by inflationary pressures associated with salaries and other cost elements. As a percentage of total revenues, our general and administrative expenses increased by 11%, from 43.4% in the three months ended March 31, 2022, to 54.5% in the three months ended March 31, 2023, primarily due to the increases in costs noted above.
Research and Development
Research and development expenses decreased by $nil or 0% in the three months ended March 31, 2023 compared to the three months ended March 31, 2022. While we experienced some cost savings through the consolidation of activities between our Israel and San Jose sites, this was offset by a reinvestment in research and development efforts directed at scaling our robotic technology across other aesthetic platforms. As a percentage of total revenues, our research and development expenses increased by 2.8%, from 10.0% in the three months ended March 31, 2022, to 12.8% in the three months ended March 31, 2023.
Foreign exchange loss
We had $0.4 million of foreign exchange gain in the three months ended March 31, 2023 and foreign exchange loss of $nil in the three months ended March 31, 2022. It increased by $0.4 million in the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Changes in foreign exchange are driven mainly by the effect of foreign exchange on accounts receivable balances denominated in currencies other than the US dollar. In the three months ended March 31, 2023, most currencies depreciated relative to the U.S. dollar. We do not currently hedge against foreign currency risk.
Finance Expenses
Finance expenses increased by $0.6 million or 66.7%, from $0.9 million in the three months ended March 31, 2022, compared to $1.5 million in the three months ended March 31, 2023, mostly due to an increase in LIBOR rates on our MSLP loan. See “—Liquidity and Capital Resources” below.
Income Tax Expense
We had an income tax expense of $0.2 million in the three months ended March 31, 2023 compared to $0.3 million of income tax expense in the three months ended March 31, 2022. The tax provision is driven by profitable sales and the actual effective tax rates where the sale took place or losses were incurred. In 2023, we had changes in timing of deductible expenses and recognized tax losses in specific judications, which resulted in $0.2 of income tax expense.
Liquidity and Capital Resources
We had $6.4 million and $11.6 million of cash and cash equivalents as of March 31, 2023, and December 31, 2022, respectively. We have funded our operations with cash generated from operating activities, through the sale of equity securities and through debt financing. We had total debt obligations of approximately $77.8 million as of March 31, 2023, including the MSLP Loan of $51.1 million, and convertible notes of $26.7 million, compared to total debt obligations of approximately $77.7 million as of December 31, 2022.
Our working capital requirements reflect the growth of our business over the last few years, in particular, the past focus on our subscription model. Working capital is primarily impacted by growth in our subscription sales which also impacts accounts receivable. Our recent shift to prioritize traditional cash sales over subscription sales is designed to improve liquidity and reduce working capital requirements over time. Our overall growth also requires higher inventory levels to meet demand and to accommodate the increased number of technology platforms offered. We had a split of subscription sales revenue to traditional sales revenue at a ratio of approximately 34:66 in the three months ended March 31, 2023, compared to 54:46 in the three months ended March 31, 2022. We expect to increase the ratio of traditional sales to subscription sales in 2023 and beyond. We expect inventory to remain relatively flat in the short term but increase at a lower rate than the rate of revenue growth over the longer term.
We also require modest funding for capital expenditures. Our capital expenditures relate primarily to our research and development facilities in Yokneam, Israel and San Jose, California. In addition, our past capital investments have included improvements and expansion of our subsidiaries’ operations to support our growth, but do not expect to incur such costs over the next twelve months.
Issuance of Secured Subordinated Convertible Notes
Contemporaneously with the MSLP Loan Agreement, on December 9, 2020, we issued $26.7 million aggregate principal amount of the Notes to the Madryn Noteholders pursuant to the terms of the Exchange Agreement. 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. In connection with the Exchange Agreement, we also entered into (i) the Madryn Security Agreement, pursuant to which we agreed to grant Madryn a security interest, in substantially all of our assets, to secure the obligations under the Notes and (ii) the CNB Subordination Agreement. The Notes are convertible at any time into shares of our common stock at an initial conversion price of $48.75 per share, subject to adjustment. For additional information regarding the Notes, Exchange Agreement, Madryn Security Agreement and CNB Subordination Agreement, see Note 10 “Madryn Long-Term Debt and Convertible Notes” to our unaudited condensed consolidated financial statements included elsewhere in this report.
Main Street Priority Lending Program Term Loan
On December 8, 2020, we executed the MSLP Loan Agreement, MSLP Note, and related documents for a loan in the aggregate amount of $50.0 million for which 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. For additional information regarding this loan, see Note 9 “Main Street Term Loan” to our unaudited condensed consolidated financial statements included elsewhere in this report.
CNB Loan Agreement
We have a revolving credit facility with CNB pursuant to which CNB agreed to provide a revolving credit facility to us and certain of our subsidiaries to be used to finance working capital requirements. There was $nil outstanding balance as of March 31, 2023 and December 31, 2022. On February 22, 2023, CNB notified the Company that it would be temporarily restricting advances under the Fourth Amended and Restated CNB Loan Agreement pursuant to its rights under Section 2 of the agreement. CNB and the Company continue to actively discuss lifting the restrictions on advances under the credit facility.
On August 26, 2021 we entered into the Fourth Amended and Restated CNB Loan Agreement with CNB, pursuant to which, among other things, (i) the maximum principal amount the revolving credit facility was reduced from $10.0 million to $5.0 million 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 $3.0 million to $1.5 million, to be maintained with CNB at all times during the term of the Amended CNB Loan Agreement. As of March 31, 2023, and December 31, 2022, we were in compliance with all required covenants. For additional information on the CNB Loan Agreement and the related agreements, see Note 11 “Credit Facility” to our unaudited condensed consolidated financial statements included elsewhere in this report.
Equity Purchase Agreement with Lincoln Park
On June 16, 2020, we entered into the Equity Purchase Agreement with Lincoln Park, which provides that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement. The purchase price of shares of common stock related to a future sale will be based on the then prevailing market prices of such shares at the time of sales as described in the Equity Purchase Agreement. The aggregate number of shares that we can sell to Lincoln Park under the Equity Purchase Agreement may in no case exceed the Exchange Cap, unless (i) stockholder approval is obtained to issue shares above the Exchange Cap, in which case the Exchange Cap will no longer apply, or (ii) the average price of all applicable sales of common stock to Lincoln Park under the Equity Purchase Agreement equals or exceeds $59.6325 per share (subject to adjustment) (which represents the minimum price, as defined under Nasdaq Listing Rule 5635(d), on the Nasdaq Global Market immediately preceding the signing of the Equity Purchase Agreement, such that the transactions contemplated by the Equity Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules). Also, at no time may Lincoln Park (together with its affiliates) beneficially own more than 9.99% of our issued and outstanding common stock. Concurrently with entering into the Equity Purchase Agreement, we also entered into a Registration Rights Agreement with Lincoln Park (as defined above).
The 2021 Private Placement
On December 15, 2021, we consummated the 2021 Private Placement whereby entered into a securities purchase agreement pursuant to which we issued and sold to the 2021 Investors an aggregate of 653,894 shares of our common stock and 252,717 shares of our Non-Voting Preferred Stock. The gross proceeds from the securities sold in the 2021 Private Placement was $17.0 million. The costs incurred with respect to the 2021 Private Placement totaled $0.3 million and were recorded as a reduction of the 2021 Private Placement proceeds in the consolidated statements of stockholders’ equity. The accounting effects of the 2021 Private Placement transaction is discussed in Note 15 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.
The 2022 LPC Purchase Agreement
On July 12, 2022, we entered into the 2022 LPC Purchase Agreement with Lincoln Park, and we issued and sold to Lincoln Park 0.05 million shares of our common stock as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement, with the total value of $0.3 million. Through March 31, we issued an additional 0.66 million shares of common stock to Lincoln Park at an average price of $4.20 per share, for a total value of $2.8 million. For additional information regarding the 2022 LPC Purchase Agreement, see Note 15 “Stockholders Equity” in the notes to our unaudited condensed consolidated financial statements included elsewhere in this report.
The 2022 Private Placement
On November 18, 2022, we consummated the 2022 Private Placement whereby we entered into a securities purchase agreement pursuant to which we issued and sold to the 2022 Investors an aggregate of 116,666 shares of our common stock and 212,333 shares of our Voting Preferred Stock. The gross proceeds from the securities sold in the 2022 Private Placement totaled $6.7 million before offering expenses. The costs incurred with respect to the 2022 Private Placement totaled $0.2 million and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated statements of stockholders’ equity. The accounting effects of the 2022 Private Placement transaction is discussed in Note 15 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.
Government Assistance Programs
In April 2020, Venus Concept Inc. and Venus USA, received funding in the total amount of $4.1 million, in connection with two “Small Business Loans” under the PPP.
We borrowed $1.7 million pursuant to the Venus Concept PPP Loan. Venus USA also borrowed $2.4 million pursuant to the Venus USA PPP Loan. The terms of the Venus USA PPP Loan are substantially similar to the terms of the Venus Concept PPP Loan. In 2021, we applied through CNB, for partial forgiveness of both PPP Loans with the SBA and received partial forgiveness of the Venus USA PPP Loan in the amount of $1.7 million and the Venus Concept PPP Loan in the amount of $1.1 million. The remaining portion of the PPP Loans of the Company was fully repaid in the nine months ended September 30, 2022.
In 2020, certain subsidiaries also received funding in the total amount of $1.1 million in connection with various governmental programs to support businesses impacted by COVID-19. The terms of these government assistance programs vary by jurisdiction. These government subsidies were recorded as a reduction to the associated wage costs recorded in general and administrative expenses in the unaudited condensed consolidated statement of operations.
For additional information on our utilization of government assistance programs, see Note 13 “Government Assistance Programs” in the notes to our unaudited condensed consolidated financial statements included elsewhere in this report.
Capital Resources
As of March 31, 2023, we had capital resources consisting of cash and cash equivalents of approximately $6.4 million. We have financed our operations principally through the issuance and sale of our common stock and preferred stock, debt financing, and payments from customers.
We believe that the net proceeds from the 2022 Private Placement, the 2021 Private Placement, the proceeds from issuance of our common stock to Lincoln Park, the proceeds from the government assistance programs, the proceeds from the MSLP Loan, our continued availability under the 2022 LPC Purchase Agreement, our strategic cash flow enhancement initiatives, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. We can provide no assurances that we will be successful in raising additional capital or that such capital, if available at all, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital, we may be compelled to reduce the scope of our operations and planned capital or research and development expenditures or sell certain assets, including intellectual property assets.
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:
| • |
delay or curtail our efforts to develop system product enhancements or new products, including any clinical trials that may be required to market such enhancements; |
| • |
delay or curtail our plans to increase and expand our sales and marketing efforts; or |
| • |
delay or curtail our plans to enhance our customer support and marketing activities. |
We are restricted by covenants in the MSLP Loan, the Amended CNB Loan Agreement, the Madryn Security Agreement and other government assistance programs. These covenants restrict, among other things, our ability to incur additional indebtedness, which may limit our ability to obtain additional debt financing. In the event that the pandemic and the economic disruptions it has caused continue for an extended period of time, we cannot assure you that we will remain in compliance with the financial covenants contained in our credit facilities. We also cannot assure you that our lenders would provide relief or that we could secure alternative financing on favorable terms, if at all. Our failure to comply with the covenants contained in our credit facilities, including financial covenants, could result in an event of default, which could materially and adversely affect our results of operations and financial condition.
We have based our projections on the amount of time through which our financial resources will be adequate to support our operations on assumptions that may prove to be incorrect, and we may use all our available capital resources sooner than we expect. Our future funding requirements, including long-term funding requirements, will depend on many factors, including, but not limited to:
| • | the cost of growing our ongoing commercialization and sales and marketing activities; |
| • |
the costs of manufacturing and maintaining enough inventories of our systems to meet anticipated demand and inventory write-offs related to obsolete products or components; |
| • |
the costs of enhancing the existing functionality and development of new functionalities for our systems; |
| • |
the costs of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation; |
| • |
any product liability or other lawsuits and the costs associated with defending them or the results of such lawsuits; |
| • |
the costs associated with conducting business and maintaining subsidiaries and other entities in foreign jurisdictions; |
| • |
customers in jurisdictions where our systems are not approved delaying their purchase, and not purchasing our systems, until they are approved or cleared for use in their market; |
| • |
the costs to attract and retain personnel with the skills required for effective operations; and |
| • |
the costs associated with being a public company. |
In order to grow our business and increase revenues, we will need to introduce and commercialize new products, grow our sales and marketing force, implement new software systems, as well as identify and penetrate new markets. Such endeavors have in the past increased, and may continue in the future, to increase our expenses, including sales and marketing, and research and development. We will have to continue to increase our revenues while effectively managing our expenses in order to achieve profitability and to sustain it. Our failure to control expenses could make it difficult to achieve profitability or to sustain profitability in the future. Moreover, we cannot be sure that our expenditures will result in the successful development and introduction of new products in a cost-effective and timely manner or that any such new products will achieve market acceptance and generate revenues for our business.
Cash flows
The following table summarizes our cash flows for the periods indicated:
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (in thousands) |
||||||||
| Cash used in operating activities |
$ | (5,888 | ) | $ | (12,424 | ) | ||
| Cash used in investing activities |
(70 |
) | (157 | ) | ||||
| Cash (used in) provided by financing activities |
803 |
(384 | ) | |||||
| Net decrease in cash and cash equivalents |
$ | (5,155 | ) | $ | (12,965 | ) | ||
Cash Flows from Operating Activities
For the three months ended March 31, 2023, cash used in operating activities consisted of a net loss of $9.6 million, partially offset by a decrease in net operating assets of $1.0 million and non-cash operating expenses of $2.7 million. The use of cash in net operating assets was attributable to a decrease in accounts receivable of $1.7 million, a decrease in inventories of $0.9 million, a decrease in other current assets of $1.7 million, a decrease in operating right-of-use assets, net of $0.4 million. These were offset by a decrease in trade payables of $0.5 million and a decrease in accrued expenses and other current liabilities of $2.6 million. The non-cash operating expenses consisted of provision for expected credit losses of $0.7 million, depreciation and amortization of $1.0 million, finance expenses and accretion of $0.1 million, stock-based compensation expense of $0.5 million, provision for inventory obsolescence of $0.3 million, partially offset by a deferred tax recovery of $0.1 million.
For the three months ended March 31, 2022, cash used in operating activities consisted of a net loss of $8.6 million and an investment in net operating assets of $6.6 million, partially offset by non-cash operating expenses of $2.8 million. The investment in net operating assets was attributable to an increase in accounts receivable of $3.2 million, an increase in inventories of $0.9 million, an increase in advances to suppliers of $4.2 million, an increase in other current assets of $0.4 million, an increase to operating right-of-use assets, net of $6.3 million, a decrease in accrued expenses and other current liabilities of $1.1 million, and a decrease in severance pay funds of $0.1 million. This was partially offset by a decrease in prepaid expenses of $0.3 million, a decrease in trade payables of $2.7 million, an increase in current operating lease liabilities of $1.6 million, an increase in unearned interest income of $0.1 million, an increase in long-term operating lease liabilities of $4.6 million, and an increase in other long-term liabilities of $0.2 million. The non-cash operating expenses consisted of provision for expected credit losses of $1.0 million, depreciation and amortization of $1.1 million, finance expenses and accretion of $0.1 million, stock-based compensation expense of $0.4 million, provision for inventory obsolescence of $0.1 million, and deferred tax expense of $0.1 million.
Cash Flows from Investing Activities
In the three months ended March 31, 2023, cash used in investing activities consisted of $$0.1 million for the purchase of property and equipment.
In the three months ended March 31, 2022, cash used in investing activities consisted of $0.2 million for the purchase of property and equipment.
Cash Flows from Financing Activities
In the three months ended March 31, 2023, cash used in financing activities primarily consisted of net proceeds from the issuance of shares of common stock to Lincoln Park of $0.8 million.
In the three months ended March 31, 2022, cash used in financing activities primarily consisted of $0.4 million repayment of government assistance loans.
.
Contractual Obligations and Other Commitments
Our premises are leased under various operating lease agreements, which expire on various dates.
As of March 31, 2023, we had non-cancellable purchase orders placed with our contract manufacturers in the amount of $19.7 million. In addition, as of March 31, 2023, we had $1.833 million 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."
The following table summarizes our contractual obligations as of March 31, 2023, which represent material expected or contractually committed future obligations.
| Payments Due by Period |
||||||||||||||||||||
| Less than 1 Year |
2 to 3 Years |
4 to 5 Years |
More than 5 Years |
Total |
||||||||||||||||
| (in thousands) |
||||||||||||||||||||
| Debt obligations, including interest |
$ | 13,698 | $ | 78,876 | $ | — | $ | — | $ | 92,574 | ||||||||||
| Operating leases |
1,688 | 2,350 | 1,038 | 544 | 5,620 | |||||||||||||||
| Purchase commitments |
19,684 | — | — | — | 19,684 | |||||||||||||||
| Total contractual obligations |
$ | 35,070 | $ | 81,226 | $ | 1,038 | $ | 544 | $ | 117,878 | ||||||||||
For an additional description of our commitments see Note 9, “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes special purpose entities and other structured finance entities.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with U.S GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are more fully described in Note 2 to the audited consolidated financial statements included in our Annual Report filed on Form 10-K for the year ended December 31, 2022. We believe that the assumptions and estimates associated with revenue recognition, long-term receivables, allowance for expected credit losses, warranty accrual, and stock-based compensation have the most significant impact on our consolidated financial statements, and therefore, we consider these to be our critical accounting policies and estimates.
Revenue Recognition
We generate revenue from (1) sales of systems through our subscription model, traditional system sales to customers and distributors, (2) other product revenues from the sale of ARTAS procedure kits, marketing supplies and kits, consumables and (3) and our extended warranty service contracts provided to existing customers.
We recognize revenues on other products and services in accordance with ASC 606. Revenue is recognized based on the following five steps: (1) identification of the contract(s) with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the separate performance obligations in the contract; and (5) recognition of revenue when (or as) the entity satisfies a performance obligation.
We record our revenue net of sales tax and shipping and handling costs.
Long-term receivables
Long-term receivables relate to our subscription revenue or other contracts which stipulate payment terms which exceed one year. They are comprised of the unpaid principal balance, net of the allowance for expected credit losses. These receivables have been discounted based on the implicit interest rate in the subscription lease which range between 8% and 10% for the three months ended March 31, 2023 and 8% to 9% for the three months ended March 31, 2022, respectively. Unearned interest revenue represents the interest only portion of the respective subscription payments and will be recognized in income over the respective payment term as it is earned.
Allowance for expected credit losses
The allowance for expected credit losses is based on our assessment of the collectability of customer accounts and the aging of the related invoices and represents our best estimate of probable credit losses in our existing trade accounts receivable. We regularly review the allowance by considering factors such as historical experience, credit quality, the age of the account receivable balances, and current economic conditions that may affect a customer’s ability to pay.
Warranty accrual
We generally offer warranties for all our systems against defects for up to three years. The warranty period begins upon shipment and we record a liability for accrued warranty costs at the time of sale of a system, which consists of the remaining warranty on systems sold based on historical warranty costs and management’s estimates. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts thereof as necessary. We exercise judgment in estimating expected system warranty costs. If actual system failure rates, freight, material, technical support and labor costs differ from our estimates, we will be required to revise our estimated warranty liability. To date, our warranty reserve has been sufficient to satisfy warranty claims paid.
Stock-Based Compensation
We account for stock-based compensation costs in accordance with the accounting standards for stock-based compensation, which require that all stock based payments to employees be recognized in the unaudited condensed consolidated statements of operations based on their fair values.
The fair value of stock options on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including the option's expected term and the price volatility of the underlying stock, to determine the fair value of the award. We recognize the expense associated with options using a single-award approach over the requisite service period.
Financial statements in U.S. dollars
We believe that the U.S. dollar is the currency in the primary economic environment in which we operate. The U.S. dollar is the most significant currency in which our revenues are generated, and our costs are incurred. In addition, our debt and equity financings are generally based in U.S. dollars. Therefore, our functional currency, and that of our subsidiaries, is the U.S. dollar.
Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances are remeasured into U.S. dollars in accordance with the principles set forth in ASC 830-10 “Foreign Currency Translation”. All exchange gains and losses from re-measurement of monetary balance sheet items resulting from transactions in non-U.S. dollar currencies are recorded as foreign exchange loss (income) in the unaudited condensed consolidated statement of operations as they arise.
Recent Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide disclosure for this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
As of March 31, 2023, our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.
We have performed an evaluation of the effectiveness of our internal control over financial reporting, based on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal controls over financial reporting were effective as of March 31, 2023.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of these limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ineffective because of changes in conditions or that the degree of compliance with established policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no material changes in our internal control over financial reporting during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
This Quarterly Report on Form 10-Q does not include an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for “emerging growth companies.”
In the ordinary course of our operations, we become involved in routine litigation incidental to the business. Material proceedings are described under Note 9, “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Our operations and financial results are subject to various risk and uncertainties, including those described below and the risk factors described under Part I, Item 1A. “Risk Factors” in our latest Form 10-K for the year ended December 31, 2022, any of which could adversely affect our business, results of operations, financial condition and prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. You should carefully consider the risks described below and the other information in this Quarterly Report on Form 10-Q, our unaudited condensed consolidated financial statements, and the related notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included herein, and the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” in our Form 10-K for the year ended December 31, 2022 filed with the SEC and incorporated by reference herein.
We offer credit terms to some qualified customers and distributors. In the event that a customer or distributor defaults on the amounts payable to us, our financial results may be adversely affected.
For the three months ended March 31, 2023 and 2022, approximately 34% and 47% of our total system revenues were derived from our subscription-based model. Under our subscription model, we collect an up-front fee, combined with a monthly payment schedule typically over a period of 36 months, with approximately 40% to 45% of total contract payments collected in the first year. For accounting purposes, these arrangements are considered to be sales-type finance leases, where the present value of all cash flows to be received under the subscription agreement is recognized as revenue upon shipment of the system to the customer. We cannot provide any assurance that the financial position of customers purchasing products and services under a subscription agreement will not change adversely before we receive all the monthly installment payments due under the contract. In the event that there is a default by any of the customers to whom we have sold systems under the subscription-based model, we may recognize bad debt expenses in our general and administrative expenses. If the extent of such defaults is material, it could negatively affect our results of operations and operating cash flows.
In addition to our subscription-based model, we generally offer credit terms of 30 to 90 days to qualified customers and distributors. In the event that there is a default by any of the customers or distributors to whom we have provided credit terms, we may recognize bad debt expenses in our general and administrative expenses. If the extent of such defaults is material, it could negatively affect our future results of operations and cash flows.
We may also be adversely affected by bankruptcies or other business failures of our customers, distributors, and potential customers. A significant delay in the collection of accounts receivable or a reduction of accounts receivables collected may impact our liquidity or result in bad debt expenses.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
There were no unregistered securities issued and sold during the three months ended March 31, 2023.
Use of Proceeds
None
Issuer Purchases of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
Addendum to Executive Employment Agreements
On May 9, 2023, the Company entered into addendums (together the “Addendum to Employment Agreements” and individually, an “Addendum to Employment Agreement”) to the employment agreements (together the “Employment Agreements” and individually, an “Employment Agreement”) with Domenic Della Penna, Executive Vice President and Chief Financial Officer and Ross Portaro, Executive Vice President and General Manager, Global Sales and Marketing. The changes made to the Employment Agreements were viewed as necessary to provide consistency between the Company’s executive employment agreements and to reflect its belief as to providing appropriate competitive market terms.
Other than as set forth in Mr. Della Penna’s Addendum to Employment Agreement, the terms of Mr. Della Penna’s Employment Agreement remain materially the same as the previously filed executive employment agreement which appeared as Exhibit 10.17 to the Company’s Current Report on Form 8-K, filed November 7, 2019, as amended. The material changes contained in Mr. Della Penna’s Addendum to Employment Agreement include the following:
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In the event that termination occurs in connection with a Change in Control (as defined in the Employment Agreement) Mr. Della Penna will receive: (a) a separation payment of twelve (12) months of base salary paid in a lump sum; (b) an amount equal to 75% of the average of any bonuses paid to Mr. Della Penna during the two (2) years prior to his termination of employment; (c) a lump sum payment equal to one (1) times Mr. Della Penna’s target annual bonus assuming achievement of performance goals at target, pro rata, in each case, as in effect as of Mr. Della Penna’s termination date; (d) benefits continuation for Mr. Della Penna and his covered dependents until the earlier of (i) the date falling twelve (12) months from the date of termination, and (ii) the date Mr. Della Penna and his covered dependents become eligible for coverage under another employer’s policy; and (d) the full acceleration of the vesting of all of Mr. Della Penna’s equity awards;
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In the event that termination occurs in the absence of a Change in Control, Mr. Della Penna will receive (a) a separation payment of twelve (12) months of base salary paid in a lump sum; (b) an amount equal to 50% of the average of any bonuses paid to Mr. Della Penna during the two (2) years prior to his termination of employment; (c) a lump sum payment equal to one (1) times Mr. Della Penna’s target annual bonus assuming achievement of performance goals at target, pro rata, in each case, as in effect as of Mr. Della Penna’s termination date; and (d) benefits continuation for Mr. Della Penna and his covered dependents until the earlier of (i) the date falling nine (9) months from the date of termination, and (ii) the date Mr. Della Penna and his covered dependents become eligible for coverage under another employer’s policy;
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The definition of “Cause” was redefined to be “anything that would constitute just cause for the immediate termination of Employee’s employment under applicable law.”; and
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The term of Mr. Della Penna’s non-compete and non-solicitation period is six (6) months in the absence of a Change in Control and nine (9) months in connection with a Change in Control. |
Other than as set forth in Mr. Della Penna’s Addendum to Employment Agreement, the terms of Mr. Portaro’s Employment Agreement remain materially the same as the previously filed executive employment agreement which appeared as Exhibit 10.26 to the Company’s Annual Report on Form 10-K, filed March 28, 2022, as amended. The material changes contained in Mr. Portaro’s Addendum to Employment Agreement include the following:
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In the event that termination occurs in connection with a Change in Control (as defined in the Employment Agreement) Mr. Portaro will receive: (a) a separation payment of nine (9) months of base salary paid in a lump sum; (b) a lump sum payment equal to one (1) times Mr. Portaro’s target annual bonus assuming achievement of performance goals at target, pro rata, in each case, as in effect as of Mr. Portaro’s termination date; (c) benefits continuation for Mr. Portaro and his covered dependents until the earlier of (i) the date falling nine (9) months from the date of termination, and (ii) the date Mr. Portaro and his covered dependents become eligible for coverage under another employer’s policy; and (d) the full acceleration of the vesting of all of Mr. Portaro’s equity awards;
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In the event that termination occurs in the absence of a Change in Control, Mr. Portaro will receive (a) a separation payment of six (6) months of base salary paid in a lump sum; (b) a lump sum payment equal to one (1) times Mr. Portaro’s target annual bonus assuming achievement of performance goals at target, pro rata, in each case, as in effect as of Mr. Portaro’s termination date; and (c) benefits continuation for Mr. Portaro and his covered dependents until the earlier of (i) the date falling six (6) months from the date of termination, and (ii) the date Mr. Portaro and his covered dependents become eligible for coverage under another employer’s policy; and
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The definition of “Cause” was redefined to be “anything that would constitute just cause for the immediate termination of Employee’s employment under applicable law." |
The foregoing description of the Addendum Employment Agreements are qualified in their entirety by reference to the full text thereof, a copy of which are filed as Exhibit 10.1 and Exhibit 10.2 to this Quarterly Report and are incorporated herein by reference.
.
| Exhibit Number |
Description |
Form |
Date |
Number |
Filed Herewith |
|
| 3.1 |
Amended and Restated Certificate of Incorporation of Restoration Robotics, Inc. |
8-K |
10-17-17 |
3.1 |
||
| 3.2 |
Certificate of Amendment of Certificate of Incorporation of Restoration Robotics, Inc. |
8-K |
11-7-19 |
3.1 |
||
| 3.3 |
8-K |
11-7-19 |
3.2 |
|||
| 10.1 | Addendum to Employment Agreement of Domenic Della Penna, dated May 9, 2023. | X | ||||
| 10.2 | Addendum to Employment Agreement of Ross Portaro, dated May 9, 2023. | X | ||||
| 31.1 |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
X |
||||
| 31.2 |
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
X |
||||
| 32.1* |
X |
|||||
| 32.2* |
X |
|||||
| 101.INS |
Inline XBRL Instance Document |
X |
||||
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
X |
||||
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
X |
||||
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
X |
||||
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
X |
||||
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
X |
||||
| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
|
|
X |
* The certification attached as Exhibit 32.1 and Exhibit 32.2 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the United States Securities and Exchange Commission and is not to be incorporated by reference into any filing of Venus Concept Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Venus Concept Inc. |
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| Date: May 15, 2023 |
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By: |
/s/ Rajiv De Silva |
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Rajiv De Silva |
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Chief Executive Officer |
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| Date: May 15, 2023 |
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By: |
/s/ Domenic Della Penna |
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Domenic Della Penna |
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Chief Financial Officer |
PERSONAL AND CONFIDENTIAL
May 9, 2023
Domenic Della Penna
255 Crofters Road
Woodbridge, Ontario
L4L 8P6
Dear Domenic,
Re: Updated Terms and Conditions of Employment
On behalf of Venus Concept Canada Corp. (“Venus” or the “Company”), we are pleased to offer you (the “Executive”) enhancements to the severance provisions of your terms of employment, including in the event of a change of control.
Venus maintains the right to refresh employment agreements from time to time, and as such, we have prepared this addendum (the “Addendum”) to your existing Employment Agreement dated July 28, 2017 (the “Employment Agreement”) which we would ask that you review carefully, and sign and return by no later than May 12, 2023. You agree that the enhanced severance provisions constitute fair and valid consideration for accepting the terms of this Addendum.
Section 4 (Obligations Upon Termination of Employment) of your Employment Agreement is hereby deleted in its entirety and replaced as follows:
4. Obligations Upon Termination Of Employment.
a) |
Executive’s Obligations. Executive hereby acknowledges and agrees that all Personal Property (as defined below) and equipment furnished to, or prepared by, Executive in the course of, or incident to, Executive’s employment, belongs to the Company and shall be promptly returned to the Company upon termination of Executive’s employment (and will not be kept in Executive’s possession or delivered to anyone else). For purposes of this Agreement, “Personal Property” includes, without limitation, all books, manuals, records, reports, notes, contracts, lists, blueprints, and other documents, or materials, or copies thereof (including computer files), keys, building card keys, company credit cards, telephone calling cards, computer hardware and software, cellular and portable telephone equipment, personal digital assistant (“PDA”) devices, and all other proprietary information relating to the business of the Company or its subsidiaries or affiliates. Following termination, Executive shall not retain any written or other tangible material containing any proprietary information of the Company or its subsidiaries or affiliates. In addition. Executive shall continue to be subject to the Confidential Information Agreement. The representations and warranties contained herein and Executive’s obligations under Subsection 4(a) and the Confidential Information Agreement (the terms of which are incorporated herein) shall survive the termination of Executive’s employment and the termination of this Agreement. |
b) |
Payments of Accrued Obligations upon Termination of Employment. Upon a termination of Executive’s employment for any reason, Executive (or Executive’s estate or legal representative, as applicable) shall be entitled to receive, within ten (10) days after the date of termination of Executive’s employment with the Company (or such earlier date as may be required by applicable law): (i) any portion of the Executive’s Base Salary earned through Executive’s date of termination of employment not theretofore paid, (ii) any expenses owed to Executive under Section 2(e) above, (iii) any accrued but unused vacation pay owed to Executive pursuant to Section 2(d) above, and (iv) any amount arising from Executive’s participation in, or benefits under, any employee benefit plans, programs or arrangements under Section 2(d) above, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements. |
c) |
Covered Termination Other Than During a Change in Control Period. If Executive experiences a Covered Termination at any time other than during a Change in Control Period, then in addition to any accrued obligations payable under Section 4(b) above, the Company shall provide Executive with all of the following: |
i. |
Pay in Lieu of Notice. Executive shall be entitled to receive pay in lieu of notice of termination in a lump sum amount equal to Executive’s then-existing annual Base Salary in effect as of Executive’s termination date, less applicable withholdings, which shall be inclusive of Executive’s entitlements under the Ontario Employment Standards Act, 2000 (the “ESA”) in respect of notice of termination or pay in lieu thereof and severance pay (if applicable). |
ii. |
Pay in Lieu of Bonus. Additionally, the Executive will receive: a lump sum payment equal to 50% of the average of the last two (2) years’ Annual Bonus that Executive received prior to termination of employment, and a lump sum payment equal to one (1) times Executive’s target Annual Bonus assuming achievement of performance goals at target, pro rata, in each case, as in effect as of Executive’s termination date. Such amounts will be subject to applicable withholdings. |
iii. |
Benefits Continuation. The Company shall continue Executive’s participation in group benefits plans sponsored by the Company, subject to the terms and conditions of such plans, for the period commencing on the date of termination of Executive’s employment through the earlier of (A) the last day of the ninth (9th) calendar month following the date of termination of Executive’s employment and (B) the date Executive and Executive’s covered dependents, if any, become eligible for coverage under another employer’s plan(s). Executive shall notify the Company immediately if Executive becomes covered by a group plan of a subsequent employer. In no event will Executive’s benefits be continued for less time than the minimum applicable notice of termination period under the ESA. |
Executive acknowledges and agrees that the obligation of Executive under this Section 4(c) to pay or provide any amounts and entitlements exceeding the Executive’s minimum entitlements under the ESA will be contingent upon Executive’s execution and delivery to the Company of a full and final release of claims, which will include confidentiality, indemnity and non-disparagement provisions and otherwise be in a form satisfactory to the Company, in its sole and absolute discretion.
d) |
Covered Termination During a Change in Control Period. If Executive experiences a Covered Termination during a Change in Control Period, then in addition to any accrued obligations payable under Section 4(b) above, the Company shall provide Executive with all of the following: |
i. |
Pay in Lieu of Notice. Executive shall be entitled to receive pay in lieu of notice of termination in a lump sum amount equal to Executive’s then-existing annual Base Salary in effect as of Executive’s termination date, less applicable withholdings, which shall be inclusive of Executive’s entitlements under the ESA in respect of notice of termination or pay in lieu thereof and severance pay (if applicable). |
ii. |
Pay in Lieu of Bonus. Additionally, Executive will receive: a lump sum payment equal to 75% of the average of the last two (2) years’ Annual Bonus that Executive received prior to termination of employment, and a lump sum payment equal to one (1) times Executive’s target Annual Bonus assuming achievement of performance goals at target, pro rata, in each case, as in effect as of Executive’s termination date. Such amounts will be subject to applicable withholdings. |
iii. |
Equity Awards. Each outstanding equity award, including, without limitation, each stock option and restricted stock award, held by Executive shall automatically become vested and, if applicable, exercisable and any forfeiture restrictions or rights of repurchase thereon shall immediately lapse, in each case, with respect to one hundred percent (100%) of the then-unvested shares subject to such outstanding award effective as of immediately prior to such the date of termination of Executive’s employment. |
iv. |
Benefits Continuation. The Company shall continue Executive’s participation in group benefits plans sponsored by the Company, subject to the terms and conditions of such plans, for the period commencing on the date of termination of Executive’s employment through the earlier of (A) the last day of the twelfth (12th) full calendar month following the date of termination of Executive’s employment and (B) the date Executive and Executive’s covered dependents, if any, become eligible for coverage under another employer’s plan(s). Executive shall notify the Company immediately if Executive becomes covered by a group plan of a subsequent employer. In no event will Executive’s benefits be continued for less time than the minimum applicable notice of termination period under the ESA. |
Executive acknowledges and agrees that the obligation of Executive under this Section 4(d) to pay or provide any amounts and entitlements exceeding the Executive’s minimum entitlements under the ESA will be contingent upon Executive’s execution and delivery to the Company of a full and final release of claims, which will include confidentiality, indemnity and non-disparagement provisions and otherwise be in a form satisfactory to the Company, in its sole and absolute discretion.
e) |
Termination for Cause. The Company may terminate Executive’s employment for Cause. If Executive’s employment is terminated by the Company for Cause, the Company will provide the Executive with the accrued obligations payable under Section 4(b) above, and, only if applicable, the Employee’s minimum entitlements under the ESA in respect of notice or pay in lieu of notice, severance pay (if applicable) and continuation of benefits for the minimum statutory notice period. |
f) |
Non-Compete, Non-Solicitation. While employed with the Company and i) in the case of resignation or Covered Termination Other Than During a Change in Control Period, for a period of six (6) months after the last day of Executive's employment with the Company, and ii) in the case of Covered Termination During a Change in Control Period or termination for Cause for a period of nine (9) months after the last day of Executive's employment with the Company, the Executive will not directly or indirectly participate or assist in selling, attempting to sell or planning to sell, or become employed by any entity which sells or plans to sell, any products / services related to invasive, minimally invasive or non-invasive aesthetic devices or products in any jurisdiction in which the Company, has engaged in efforts to market its goods or services within the ninety (90) days period immediately preceding the last day of the Executive's employment with the Company. |
Executive further agrees that, during the Executive’s employment with the Company and i) in the case of resignation or Covered Termination Other Than During a Change in Control Period, for a period of six (6) months after the last day of Executive's employment with the Company, and ii) in the case of Covered Termination During a Change in Control Period or termination for Cause for a period of nine (9) months after the last day of Executive's employment with the Company, he shall not, directly or indirectly: (i) solicit, induce, entice or attempt to entice any employee or contractor of the Company who was an employee or contractor of the Company within the twelve (12) months preceding the date of termination of the Executive's employment, to terminate his or her employment, contractual, or other relationship with the Company; (ii) solicit or accept any business for any product sold, manufactured, imported, licensed or distributed by the Company (as of the date of termination of the Executive's employment) from any person, firm or corporation that was a customer of the Company within the twelve (12) months preceding the date of termination; and (iii) solicit, induce, entice or attempt to entice any customer or supplier of the Company that was a customer or supplier of the Company within the twelve (12) months preceding the date of termination of the Executive's employment, to terminate its business relationship with the Company.
g) |
ESA Prevails; Full and Final Satisfaction; No Other Obligations. To the extent that the compensation and benefits provided under this Section 4 do not fully satisfy Executive’s minimum entitlements under the ESA, payment and provision of any additional compensation and benefits that are then required to be paid or provided to Executive in order to satisfy Executive’s minimum entitlements under the ESA will be paid and/or provided. For absolute clarity, in no case will Executive receive less than the minimum payments and benefits that are required to be provided to him by the Company upon such termination pursuant to the ESA. |
The payments and benefits provided under this Section 4 shall be inclusive of all of Executive’s statutory entitlements to notice or pay in lieu thereof and severance pay, if any, and will be provided to Executive in full and final satisfaction of his entitlements to notice, pay in lieu of notice, severance, and any other payments or benefits arising from Executive’s employment and termination thereof, pursuant to contract, tort, statute, common law, or otherwise. The provisions of this Section 4 shall supersede in their entirety any severance payment or other arrangement provided by the Company, including, without limitation, any prior agreement and any severance plan/policy of the Company.
h) |
No Requirement to Mitigate: Survival. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. Notwithstanding anything to the contrary in this Agreement, the termination of Executive’s employment shall not impair the rights or obligations of any Party. |
i) |
Deemed Resignation. Upon termination of Executive’s employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its affiliates, and, at the Company’s request, Executive shall execute such documents as are necessary or desirable to effectuate such resignations. |
Section 7(b) (Withholdings and Offsets) of your Employment Agreement is hereby deleted in its entirety and replaced as follows:
7. Miscellaneous Provisions.
b) |
Withholdings and Offsets. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, provincial, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise. If Executive is indebted to the Company on the date of his or her termination of employment, the Company reserves the right to offset any payments in lieu of notice under this Agreement by the amount of such indebtedness, except any amounts owing pursuant to the ESA. |
For clarity, all other subsections in Section 7 shall remain unchanged.
Section 8(c) (Cause) of your Employment Agreement is hereby deleted in its entirety and replaced as follows:
8. Definition of Terms.
c) |
Cause. “Cause” shall mean anything that would constitute just cause for the immediate termination of Employee’s employment under applicable law. |
For clarity, all other defined terms in Section 8 shall remain unchanged.
Except for the provisions outlined immediately above, the terms and conditions of your existing Employment Agreement continue to apply to your employment with the Venus without revision.
If you have any questions or require additional information, please do not hesitate to contact me.
Sincerely,
/s/ Rajiv De Silva
Rajiv De Silva
Chief Executive Officer
Venus Concept Canada Corp.
***
I, Domenic Della Penna, have carefully read and understand the terms and conditions of the addendum set out in the above letter, and have had an adequate opportunity to seek and obtain independent legal advice. I agree that I have received fair and valid consideration for accepting the terms of this Addendum.
_/s/ Domenic Della Penna__________ __ May 9, 2023________
Domenic Della Penna Date
PERSONAL AND CONFIDENTIAL
May 9, 2023
Ross Portaro
626 Queens Road #203Charlotte
North Carolina 28207
Dear Ross,
Re: Updated Terms and Conditions of Employment
On behalf of Venus Concept Inc. (“Venus” or the “Company”), we are pleased to offer you (the “Executive”) enhancements to the severance provisions of your terms of employment, including in the event of a change of control.
Venus maintains the right to refresh employment agreements from time to time, and as such, we have prepared this addendum (the “Addendum”) to your existing Employment Agreement dated October 15, 2021 (the “Employment Agreement”) which we would ask that you review carefully, and sign and return by no later than May 12, 2023. You agree that the enhanced severance provisions constitute fair and valid consideration for accepting the terms of this Addendum.
Section 4 (Obligations At Termination) of your Employment Agreement is hereby deleted in its entirety and replaced as follows:
4. Obligations Upon Termination Of Employment.
a) |
Executive’s Obligations. Executive hereby acknowledges and agrees that all Personal Property (as defined below) and equipment furnished to, or prepared by, Executive in the course of, or incident to, Executive’s employment, belongs to the Company and shall be promptly returned to the Company upon termination of Executive’s employment (and will not be kept in Executive’s possession or delivered to anyone else). For purposes of this Agreement, “Personal Property” includes, without limitation, all books, manuals, records, reports, notes, contracts, lists, blueprints, and other documents, or materials, or copies thereof (including computer files), keys, building card keys, company credit cards, telephone calling cards, computer hardware and software, cellular and portable telephone equipment, personal digital assistant (“PDA”) devices, and all other proprietary information relating to the business of the Company or its subsidiaries or affiliates. Following termination, Executive shall not retain any written or other tangible material containing any proprietary information of the Company or its subsidiaries or affiliates. In addition. Executive shall continue to be subject to the Confidential Information Agreement. The representations and warranties contained herein and Executive’s obligations under Subsection 4(a) and the Confidential Information Agreement (the terms of which are incorporated herein) shall survive the termination of Executive’s employment and the termination of this Agreement. |
b) |
Payments of Accrued Obligations upon Termination of Employment. Upon a termination of Executive’s employment for any reason, Executive (or Executive’s estate or legal representative, as applicable) shall be entitled to receive, within ten (10) days after the date of termination of Executive’s employment with the Company (or such earlier date as may be required by applicable law): (i) any portion of the Executive’s Base Salary earned through Executive’s date of termination of employment not theretofore paid, (ii) any expenses owed to Executive under Section 2(j) above, (iii) any accrued but unused vacation pay owed to Executive pursuant to Section 2(i) above, and (iv) any amount arising from Executive’s participation in, or benefits under, any employee benefit plans, programs or arrangements under Section 2(h) above, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements. |
c) |
Covered Termination Other Than During a Change in Control Period. If Executive experiences a Covered Termination at any time other than during a Change in Control Period, then in addition to any accrued obligations payable under Section 4(b) above, the Company shall provide Executive with all of the following: |
i. |
Pay in Lieu of Notice. Executive shall be entitled to receive pay in lieu of notice of termination in a lump sum amount equal to six (6) months of Executive’s then-existing annual Base Salary in effect as of Executive’s termination date, less applicable withholdings, which shall be inclusive of Executive’s entitlements under the employments standards of the state of North Carolina(the “ESA”) in respect of notice of termination or pay in lieu thereof and severance pay (if applicable). |
ii. |
Pay in Lieu of Bonus. Additionally, the Executive will receive a lump sum payment equal to one (1) times Executive’s target Annual Bonus assuming achievement of performance goals at target, pro rata, in each case, as in effect as of Executive’s termination date. Such amounts will be subject to applicable withholdings. |
iii. |
Benefits Continuation. The Company shall continue Executive’s participation in group benefits plans sponsored by the Company, subject to the terms and conditions of such plans, for the period commencing on the date of termination of Executive’s employment through the earlier of (A) the last day of the sixth (6th) calendar month following the date of termination of Executive’s employment and (B) the date Executive and Executive’s covered dependents, if any, become eligible for coverage under another employer’s plan(s). Executive shall notify the Company immediately if Executive becomes covered by a group plan of a subsequent employer. In no event will Executive’s benefits be continued for less time than the minimum applicable notice of termination period under the ESA. |
Executive acknowledges and agrees that the obligation of Executive under this Section 4(c) to pay or provide any amounts and entitlements exceeding the Executive’s minimum entitlements under the ESA will be contingent upon Executive’s execution and delivery to the Company of a full and final release of claims, which will include confidentiality, indemnity and non-disparagement provisions and otherwise be in a form satisfactory to the Company.
d) |
Covered Termination During a Change in Control Period. If Executive experiences a Covered Termination during a Change in Control Period, then in addition to any accrued obligations payable under Section 4(b) above, the Company shall provide Executive with all of the following: |
i. |
Pay in Lieu of Notice. Executive shall be entitled to receive pay in lieu of notice of termination in a lump sum amount equal to nine (9) months of Executive’s then-existing annual Base Salary in effect as of Executive’s termination date, less applicable withholdings, which shall be inclusive of Executive’s entitlements under the ESA in respect of notice of termination or pay in lieu thereof and severance pay (if applicable). |
ii. |
Pay in Lieu of Bonus. Additionally, Executive will receive a lump sum payment equal to one (1) times Executive’s target Annual Bonus assuming achievement of performance goals at target, pro rata, in each case, as in effect as of Executive’s termination date. Such amounts will be subject to applicable withholdings. |
iii. |
Equity Awards. Each outstanding equity award, including, without limitation, each stock option and restricted stock award, held by Executive shall automatically become vested and, if applicable, exercisable and any forfeiture restrictions or rights of repurchase thereon shall immediately lapse, in each case, with respect to one hundred percent (100%) of the then-unvested shares subject to such outstanding award effective as of immediately prior to such the date of termination of Executive’s employment. |
iv. |
Benefits Continuation. The Company shall continue Executive’s participation in group benefits plans sponsored by the Company, subject to the terms and conditions of such plans, for the period commencing on the date of termination of Executive’s employment through the earlier of (A) the last day of the ninth (9th) full calendar month following the date of termination of Executive’s employment and (B) the date Executive and Executive’s covered dependents, if any, become eligible for coverage under another employer’s plan(s). Executive shall notify the Company immediately if Executive becomes covered by a group plan of a subsequent employer. In no event will Executive’s benefits be continued for less time than the minimum applicable notice of termination period under the ESA. |
Executive acknowledges and agrees that the obligation of Executive under this Section 4(d) to pay or provide any amounts and entitlements exceeding the Executive’s minimum entitlements under the ESA will be contingent upon Executive’s execution and delivery to the Company of a full and final release of claims, which will include confidentiality, indemnity and non-disparagement provisions and otherwise be in a form satisfactory to the Company.
e) |
Termination for Cause. The Company may terminate Executive’s employment for Cause. If Executive’s employment is terminated by the Company for Cause, the Company will provide the Executive with the accrued obligations payable under Section 4(b) above, and, only if applicable, the Employee’s minimum entitlements under the ESA in respect of notice or pay in lieu of notice, severance pay (if applicable) and continuation of benefits for the minimum statutory notice period. |
f) |
ESA Prevails; Full and Final Satisfaction; No Other Obligations. To the extent that the compensation and benefits provided under this Section 4 do not fully satisfy Executive’s minimum entitlements under the ESA, payment and provision of any additional compensation and benefits that are then required to be paid or provided to Executive in order to satisfy Employee’s minimum entitlements under the ESA will be paid and/or provided. For absolute clarity, in no case will Executive receive less than the minimum payments and benefits that are required to be provided to him by the Company upon such termination pursuant to the ESA. |
The payments and benefits provided under this Section 4 shall be inclusive of all of Executive’s statutory entitlements to notice or pay in lieu thereof and severance pay, if any, and will be provided to Executive in full and final satisfaction of his entitlements to notice, pay in lieu of notice, severance, and any other payments or benefits arising from Executive’s employment and termination thereof, pursuant to contract, tort, statute, common law, or otherwise. The provisions of this Section 4 shall supersede in their entirety any severance payment or other arrangement provided by the Company, including, without limitation, any prior agreement and any severance plan/policy of the Company.
g) |
No Requirement to Mitigate: Survival. Executive shall not be required to mitigate the amount of any payment provided for under this Agreement by seeking other employment or in any other manner. Notwithstanding anything to the contrary in this Agreement, the termination of Executive’s employment shall not impair the rights or obligations of any Party. |
Section 7(c) (Withholdings and Offsets) of your Employment Agreement is hereby deleted in its entirety and replaced as follows:
7. Miscellaneous Provisions.
c) Withholdings and Offsets. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise. If Executive is indebted to the Company on the date of his or her termination of employment, the Company reserves the right to offset any payments in lieu of notice under this Agreement by the amount of such indebtedness, except any amounts owing pursuant to the ESA.
For clarity, all other subsections in Section 7 shall remain unchanged.
Section 11(c) (Cause) of your Employment Agreement is hereby deleted in its entirety and replaced as follows:
11. Definition of Terms.
c) Cause. “Cause” shall mean anything that would constitute just cause for the immediate termination of Employee’s employment under applicable law.
For clarity, all other defined terms in Section 8 shall remain unchanged.
Except for the provisions outlined immediately above, the terms and conditions of your existing Employment Agreement continue to apply to your employment with the Venus without revision.
If you have any questions or require additional information, please do not hesitate to contact me.
Sincerely,
/s/ Rajiv De Silva
Rajiv De Silva
Chief Executive Officer
Venus Concept Inc.
***
I, Ross Portaro, have carefully read and understand the terms and conditions of the addendum set out in the above letter, and have had an adequate opportunity to seek and obtain independent legal advice. I agree that I have received fair and valid consideration for accepting the terms of this Addendum.
/s/ Ross Potaro____________________________________ ____May 9, 2023________
Ross Portaro Date
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Rajiv De Silva, certify that:
I have reviewed this quarterly report on Form 10-Q of Venus Concept Inc.;
1. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
2. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
3. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
4. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
[SIGNATURE PAGE FOLLOWS]
Date: May 15, 2023 |
By: |
/s/ Rajiv De Silva |
Name: Rajiv De Silva |
||
Chief Executive Officer (Principal Executive Officer) |
||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Domenic Della Penna, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Venus Concept Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
[SIGNATURE PAGE FOLLOWS]
Date: May 15, 2023 |
By: |
/s/ Domenic Della Penna |
Name: Domenic Della Penna |
||
Chief Financial Officer (Principal Financial Officer) |
||
Exhibit 32.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Rajiv De Silva, the Chief Executive Officer of Venus Concept Inc. (the “Company”), hereby certify, that, to my knowledge:
1. |
The Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Report”) of the Company fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
[SIGNATURE PAGE FOLLOWS]
Date: May 15, 2023 |
By: |
/s/ Rajiv De Silva |
Name: Rajiv De Silva |
||
Chief Executive Officer (Principal Executive Officer) |
||
Exhibit 32.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Domenic Della Penna, the Chief Financial Officer of Venus Concept Inc. (the “Company”), hereby certify, that, to my knowledge:
1. |
The Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Report”) of the Company fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
[SIGNATURE PAGE FOLLOWS]
Date: May 15, 2023 |
By: |
/s/ Domenic Della Penna |
Name: Domenic Della Penna |
||
Chief Financial Officer (Principal Financial Officer) |
||