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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


(Mark One)

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

 

For the quarterly period ended June 30, 2023

 

OR

 

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

 

For the transition period from ____________ to ____________

 

Commission File Number: 001-38238


Venus Concept Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware

06-1681204

(State or other jurisdiction of

incorporation or organization)

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

235 Yorkland Blvd., Suite 900

Toronto, Ontario M2J 4Y8

(877) 848-8430

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

 


 

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

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

VERO

 

The Nasdaq Capital Market

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

    

Non-accelerated filer

Smaller reporting company

    
  

Emerging growth company

 

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

 

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

 

As of August 9, 2023 the registrant had 5,526,481 shares of common stock, $0.0001 par value per share, outstanding.



 

 

 

 

Table of Contents

 

 

 

Page

Part I.

Financial Information

2

Item 1.

Condensed Consolidated Financial Statements (unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Loss

4

 

Condensed Consolidated Statements of Stockholders’ Equity

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 4.

Controls and Procedures

45

PART II.

Other Information

46

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

Item 3.

Defaults Upon Senior Securities

48

Item 4.

Mine Safety Disclosures

48

Item 5.

Other Information

48

Item 6.

Exhibits

48

Signatures

49

 

 

 

PART I

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

VENUS CONCEPT INC.

 

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

  

June 30,

  

December 31,

 
  

2023

  

2022

 

ASSETS

        

CURRENT ASSETS:

        

Cash and cash equivalents

 $6,122  $11,569 

Accounts receivable, net of allowance of $13,233 and $13,619 as of June 30, 2023, and December 31, 2022, respectively

  37,520   37,262 

Inventories

  22,936   23,906 

Prepaid expenses

  1,481   1,688 

Advances to suppliers

  5,749   5,881 

Other current assets

  1,984   3,702 

Total current assets

  75,792   84,008 

LONG-TERM ASSETS:

        

Long-term receivables, net

  12,082   20,044 

Deferred tax assets

  876   947 

Severance pay funds

  586   741 

Property and equipment, net

  1,640   1,857 

Operating right-of-use assets, net

  4,983   5,862 

Intangible assets

  10,197   11,919 

Total long-term assets

  30,364   41,370 

TOTAL ASSETS

 $106,156  $125,378 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

CURRENT LIABILITIES:

        

Trade payables

 $8,293  $8,033 

Accrued expenses and other current liabilities

  13,063   16,667 

Current portion of long-term debt

  7,735   7,735 

Income taxes payable

  434   117 

Unearned interest income

  1,915   2,397 

Warranty accrual

  880   1,074 

Deferred revenues

  1,050   1,765 

Operating lease liabilities

  1,571   1,807 

Total current liabilities

  34,941   39,595 

LONG-TERM LIABILITIES:

        

Long-term debt

  70,683   70,003 

Income tax payable

  385   374 

Deferred tax liabilities

  6    

Accrued severance pay

  696   867 

Unearned interest revenue

  552   957 

Warranty accrual

  377   408 

Operating lease liabilities

  3,666   4,221 

Other long-term liabilities

  392   215 

Total long-term liabilities

  76,757   77,045 

TOTAL LIABILITIES

  111,698   116,640 

Commitments and Contingencies (Note 9)

          

STOCKHOLDERS’ EQUITY (Note 14):

        

Common Stock, $0.0001 par value: 300,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 5,526,481 and 5,161,374 issued and outstanding as of June 30, 2023, and December 31, 2022, respectively

  30   29 

Additional paid-in capital

  235,467   232,169 

Accumulated deficit

  (241,719)  (224,105)

TOTAL STOCKHOLDERS’ EQUITY

  (6,222)  8,093 

Non-controlling interests

  680   645 
   (5,542)  8,738 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 $106,156  $125,378 

 

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

 

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Revenue

                               

Leases

  $ 4,311     $ 11,874     $ 10,072     $ 22,297  

Products and services

    15,764       15,392       30,534       31,375  
      20,075       27,266       40,606       53,672  

Cost of goods sold:

                               

Leases

    721       2,761       2,450       5,461  

Products and services

    5,134       5,459       10,237       11,402  
      5,855       8,220       12,687       16,863  

Gross profit

    14,220       19,046       27,919       36,809  

Operating expenses:

                               

Selling and marketing

    8,380       10,523       16,412       21,607  

General and administrative

    9,633       12,937       20,818       24,409  

Research and development

    1,965       2,712       4,602       5,355  

Total operating expenses

    19,978       26,172       41,832       51,371  

Loss from operations

    (5,758 )     (7,126 )     (13,913 )     (14,562 )

Other expenses:

                               

Foreign exchange loss (gain)

    (178 )     2,370       (530 )     2,375  

Finance expenses

    1,553       1,034       3,061       1,957  

(Gain) loss on disposal of subsidiaries

    (1 )     -       76       -  

Loss before income taxes

    (7,132 )     (10,530 )     (16,520 )     (18,894 )

Income tax (benefit) expense

    189       (18 )     424       254  

Net loss

    (7,321 )     (10,512 )     (16,944 )     (19,148 )

Net loss attributable to stockholders of the Company

    (7,409 )     (10,559 )     (17,066 )     (19,178 )

Net income attributable to non-controlling interest

    88       47       122       30  
                                 

Net loss per share:

                               

Basic

  $ (1.35 )   $ (2.47 )   $ (3.19 )   $ (4.49 )

Diluted

  $ (1.35 )   $ (2.47 )   $ (3.19 )   $ (4.49 )

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

                               

Basic

    5,471       4,276       5,355       4,271  

Diluted

    5,471       4,276       5,355       4,271  

 

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

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Net loss

  $ (7,321 )   $ (10,512 )   $ (16,944 )   $ (19,148 )

Loss attributable to stockholders of the Company

    (7,409 )     (10,559 )     (17,066 )     (19,178 )

Income attributable to non-controlling interest

    88       47       122       30  

Comprehensive loss

  $ (7,321 )   $ (10,512 )   $ (16,944 )   $ (19,148 )

 

 

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

 

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Stockholders Equity

(Unaudited)

(in thousands, except share data)

 

   

2022 Private Placement

   

2023 Multi-Tranche Private Placement

   

Common Stock

   

Additional Paid-

   

Accumulated

   

Non- controlling

   

Total Stockholders’

 
   

Shares*

   

Shares*

   

Shares

   

Amount

   

in-Capital

   

Deficit

   

Interest

   

Equity

 

Balance — January 1, 2023

    3,185,000             5,161,374     $ 29     $ 232,169     $ (224,105 )   $ 645     $ 8,738  

Restricted share units vested

                22,000                               -  

Issuance of common stock

                224,378       1       744                   745  

Adoption of ASC 326

                                  (548 )           (548 )

Net loss — the Company

                                  (9,657 )           (9,657 )

Net income — non-controlling interest

                                        34       34  

Stock-based compensation

                            481                   481  

Balance — March 31, 2023

    3,185,000             5,407,752     $ 30     $ 233,394     $ (234,310 )   $ 679     $ (207 )

2023 Private Placement shares, net of costs

          280,899                   1,206                   1,206  

Beneficial conversion feature

                            427                   427  

Issuance of common stock

                118,729             71                   71  

Net loss — the Company

                                  (7,409 )           (7,409 )

Net income — non-controlling interest

                                        88       88  

Dividends from subsidiaries

                                        (87 )     (87 )

Stock-based compensation

                            369                   369  

Balance — June 30, 2023

    3,185,000       280,899       5,526,481     $ 30     $ 235,467     $ (241,719 )   $ 680     $ (5,542 )

 

   

Series A Preferred

   

Common Stock

   

Additional Paid-

   

Accumulated

   

Non- controlling

   

Total Stockholders’

 
   

Shares*

   

Shares

   

Amount

   

in-Capital

   

Deficit

   

Interest

   

Equity

 

Balance — January 1, 2022

    252,717       4,265,506     $ 27     $ 221,321     $ (180,405 )   $ 653     $ 41,596  

Options exercised

          1,098             23                   23  

Net loss — the Company

                            (8,619 )           (8,619 )

Net loss — non-controlling interest

                                  (17 )     (17 )

Stock-based compensation

                      443                   443  

Balance — March 31, 2022

    252,717       4,266,604     $ 27     $ 221,787     $ (189,024 )   $ 636     $ 33,426  

Net loss — the Company

                            (10,559 )           (10,559 )

Net loss — non-controlling interest

                                  47       47  

Issuance of common stock

          26,667             48                   48  

Stock-based compensation

                      558                   558  

Dividends from subsidiaries

                                  (124 )     (124 )

Balance — June 30, 2022

    252,717       4,293,271     $ 27     $ 222,393     $ (199,583 )   $ 559     $ 23,396  

 

Note: Share amounts have been retroactively adjusted to reflect the impact of a 1-for-15 reverse stock split effected in May 2023, as discussed in Note 2.

*: Amounts associated with Private Placement and Preferred shares round to $nil.

 

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

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

  

Six Months Ended June 30,

 
  

2023

  

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net loss

 $(16,944) $(19,148)

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

        

Depreciation and amortization

  2,032   2,212 

Stock-based compensation

  850   1,001 

Provision for expected credit losses

  977   3,521 

Provision for inventory obsolescence

  674   862 

Finance expenses and accretion

  680   182 

Deferred tax expense (recovery)

  78   (283)

Loss on sale of subsidiary

  76   - 

Loss on disposal of property and equipment

  -   31 

Changes in operating assets and liabilities:

        

Accounts receivable short-term and long-term

  6,153   (2,492)

Inventories

  297   (2,682)

Prepaid expenses

  207   568 

Advances to suppliers

  132   (3,797)

Other current assets

  1,642   (115)

Operating right-of-use assets, net

  879   6,057 

Other long-term assets

  (268)  (79)

Trade payables

  259   2,361 

Accrued expenses and other current liabilities

  (4,185)  (1,969)

Current operating lease liabilities

  (236)  (1,764)

Severance pay funds

  154   2 

Unearned interest income

  (887)  284 

Long-term operating lease liabilities

  (555)  (4,293)

Other long-term liabilities

  (25)  (172)

Net cash used in operating activities

  (8,010)  (19,713)

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Purchases of property and equipment

  (92)  (251)

Net cash used in investing activities

  (92)  (251)

CASH FLOWS FROM FINANCING ACTIVITIES:

        

2023 Multi-Tranche Private Placement, net of costs of $367

  1,633    

Proceeds from exercise of options

     23 

Proceeds from issuance of common stock

  1,109   272 

Repayment of government assistance loans

     (543)

Dividends from subsidiaries paid to non-controlling interest

  (87)  (124)

Net cash (used in) provided by financing activities

  2,655   (372)

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

  (5,447)  (20,336)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period

  11,569   30,876 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period

 $6,122  $10,540 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

        

Cash paid for income taxes

 $18  $224 

Cash paid for interest

 $2,381  $1,775 

 

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

 

 

VENUS CONCEPT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

 

 

1. NATURE OF OPERATIONS

 

Venus Concept Inc. is a global medical technology company that develops, commercializes, and sells minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related services. The Company's systems have been designed on cost-effective, proprietary and flexible platforms that enable it to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family and general practitioners and aesthetic medical spas. The Company was incorporated in the state of Delaware on November 22, 2002. In these notes to the 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  June 30, 2023 and December 31, 2022, the Company had an accumulated deficit of $241,719 and $224,105, respectively, though, the Company was in compliance with all required covenants as of June 30, 2023, and December 31, 2022. The Company’s recurring losses from operations and negative cash flows raise substantial doubt about the Company’s ability to continue as a going concern within 12 months from the date that the unaudited condensed consolidated financial statements are issued. The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including increasing inflation rates, rising interest rates, foreign currency impacts, declines in consumer confidence, and declines in economic growth. All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted, and the Company cannot assure that it will remain in compliance with the financial covenants contained within its credit facilities. 

 

In order to continue its operations, the Company must achieve profitable operations and/or obtain additional equity or debt financing. Until the Company achieves profitability, management plans to fund its operations and capital expenditures with cash on hand, borrowings, and issuance of capital stock. On June 16, 2020, 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 $31.0 million of shares of our common stock pursuant to our shelf registration statement. During the year ended December 31, 2022 and until its expiry in July 2022, we sold to Lincoln Park 0.02 million shares of our common stock and raised net cash proceeds of $0.3 million under the Equity Purchase Agreement. On July 12, 2022, we entered into a subsequent purchase agreement (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 for entering into the 2022 LPC Purchase Agreement with the total value of $0.3 million. Since commencement of the 2022 LPC Purchase Agreement through June 30, 2023, the Company issued an additional 0.78 million shares of common stock to Lincoln Park at an average price of $3.97 per share, for a total value of $3.1 million. Additionally, the Company completed private placement offerings in 2022 and 2023 which generated gross proceeds of $8.7 million. Refer to Note 14 “Stockholders Equity” for additional details. Until the Company generates revenue at a level to support its cost structure, the Company expects to continue to incur substantial operating losses and net cash outflows from operating activities.

 

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

 

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.

 

7

 
 

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 six months ended June 30, 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 June 30, 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-5) to a maximum of a one-for-fifteen (1-for-15) consolidation. On May 11, 2023, the Company filed an amendment to the Company’s Certificate of Incorporation to implement the Reverse Stock Split based on a one-for-fifteen (1-for-15) consolidation ratio. The Company’s common shares began trading on the Nasdaq Capital Market on a split-adjusted basis under the Company’s existing trade symbol “VERO” at the opening of the market on May 12, 2023. In accordance with U.S. GAAP, the change has been applied retroactively.

 

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 326Measurement 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 $0.5 million to opening retained earnings as a result of the adoption.

 

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 the Company 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.

 

8

 
 

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 June 30,

  

Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Numerator:

                

Net loss

 $(7,321) $(10,512) $(16,944) $(19,148)

Net loss allocated to stockholders of the Company

 $(7,409) $(10,559) $(17,066) $(19,178)

Denominator:

                

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

  5,471   4,276   5,355   4,271 

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

  5,471   4,276   5,355   4,271 

Net loss per share:

                

Basic

 $(1.35) $(2.47) $(3.19) $(4.49)

Diluted

 $(1.35) $(2.47) $(3.19) $(4.49)

 

 

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 June 30, 2023 and 2022 because including them would have been antidilutive: 

 

   

June 30, 2023

   

June 30, 2022

 

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

    1,019,837       488,255  

Preferred stock

    2,872,518       252,717  

Shares reserved for convertible notes

    558,666       547,593  

Warrants for common stock

    1,061,930       1,061,930  

Total potential dilutive shares

    5,512,951       2,350,495  

 

 

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 June 30, 2023

 
   

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

   

Significant Other Observable Inputs (Level 2)

   

Significant Unobservable Inputs (Level 3)

   

Total

 

Assets

                               

Guaranteed Investment Certificates

  $     $ 62     $     $ 62  

Total assets

  $     $ 62     $     $ 62  

 

   

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

 

Assets

                               

Guaranteed Investment Certificates

  $     $ 59     $     $ 59  

Total assets

  $     $ 59     $     $ 59  

 

9

 
 

5. ACCOUNTS RECEIVABLE

 

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

 

A financing receivable is a contractual right to receive money, on demand or on fixed or determinable dates, that is recognized as an asset on the Company's unaudited condensed consolidated balance sheets. The Company's financing receivables, consisting of sales-type leases, totaled $28,259 and $40,377 as of  June 30, 2023 and December 31, 2022, respectively, and are included in accounts receivable and long-term receivables on the unaudited condensed consolidated balance sheets. The Company evaluates the credit quality of an obligor at lease inception and monitors credit quality over the term of the underlying transactions.

 

The Company performed an assessment of the allowance for expected credit losses as of June 30, 2023 and December 31, 2022. Based upon such assessment, the Company recorded an allowance for expected credit losses totaling $13,233 and $13,619 as of June 30, 2023, and December 31, 2022, respectively. The balance as of June 30, 2023 includes $0.5 million due to the adoption of revised guidance of Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.

 

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

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Gross accounts receivable

  $ 62,835     $ 70,925  

Unearned income

    (2,467 )     (3,354 )

Allowance for expected credit losses

    (13,233 )     (13,619 )
    $ 47,135     $ 53,952  

Reported as:

               

Current trade receivables

  $ 37,520     $ 37,262  

Current unearned interest income

    (1,915 )     (2,397 )

Long-term trade receivables

    12,082       20,044  

Long-term unearned interest income

    (552 )     (957 )
    $ 47,135     $ 53,952  

 

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:

 

           

June 30,

 
   

Total

   

2023

   

2024

   

2025

   

2026

   

2027

 

Current financing receivables, net of allowance of $5,475

  $ 16,177     $ 16,177     $     $     $     $  

Long-term financing receivables, net of allowance of $536

  $ 12,082     $     $ 10,334     $ 1,734     $ 14     $  
    $ 28,259     $ 16,177     $ 10,334     $ 1,734     $ 14     $  

 

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

$ 11,997  

Write-offs

  (5,715 )

Provision

  7,337  

Balance at December 31, 2022

$ 13,619  

Write-offs

  (30 )

Provision

  618  

Balance at March 31, 2023

$ 14,207  

Write-offs

  (1,332 )

Provision

  358  

Balance at June 30, 2023

$ 13,233  

 

10

 
 

6. SELECT BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION

 

Inventory

 

Inventory consists of the following:

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Raw materials

  $ 2,211     $ 2,478  

Work-in-progress

    1,596       2,112  

Finished goods

    19,129       19,316  

Total inventory

  $ 22,936     $ 23,906  

 

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 $5,124 and $11,956 in cost of goods sold in the three and six months ended June 30, 2023, respectively. The Company expensed $7,731 and $15,231 in cost of goods sold in the three and six months ended June 30, 2022, respectively. The balance of cost of goods sold represents the sale of applicators, parts and warranties.

 

The Company provides for excess and obsolete inventories when conditions indicate that the inventory cost is not recoverable due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. Inventory provisions are measured as the difference between the cost of inventory and net realizable value to establish a lower cost basis for the inventories. As of June 30, 2023 and December 31, 2022, a provision for obsolescence of $2,897 and $3,258 was taken against inventory, respectively.

 

Property and Equipment, Net

 

Property and equipment, net consist of the following:

 

   

Useful Lives

   

June 30,

   

December 31,

 
   

(in years)

   

2023

   

2022

 

Lab equipment tooling and molds

    410     $ 3,576     $ 4,356  

Office furniture and equipment

    610       1,249       1,240  

Leasehold improvements

   

up to 10

      621       794  

Computers and software

    3       934       906  

Vehicles

    57       37       37  

Demo units

    5       214       214  

Total property and equipment

            6,631       7,547  

Less: Accumulated depreciation

            (4,991 )     (5,690 )

Total property and equipment, net

          $ 1,640     $ 1,857  

 

Depreciation expense amounted to $144 and $246 for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense was $309 and $490 for the six months ended June 30, 2023 and 2022, respectively.

 

Other Current Assets

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Government remittances (1)

  $ 1,197     $ 1,602  

Consideration receivable from subsidiaries sale

    231       629  

Deferred financing costs

    4       301  

Sundry assets and miscellaneous

    552       1,170  

Total other current assets

  $ 1,984     $ 3,702  

 

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

 

Accrued Expenses and Other Current Liabilities

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Payroll and related expense

  $ 1,601     $ 2,244  

Accrued expenses

    4,023       5,045  

Commission accrual

    2,445       3,761  

Sales and consumption taxes

    4,994       5,617  

Total accrued expenses and other current liabilities

  $ 13,063     $ 16,667  

 

11

 

Warranty Accrual

 

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

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Balance as of the beginning of the period

  $ 1,482     $ 1,753  

Warranties issued during the period

    78       993  

Warranty costs incurred during the period

    (303 )     (1,264 )

Balance at the end of the period

  $ 1,257     $ 1,482  

Current

    880       1,074  

Long-term

    377       408  

Total

  $ 1,257     $ 1,482  

 

Finance Expenses

 

The following table provides the details of the Company’s finance expenses:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Interest expense

  $ 1,487     $ 969     $ 2,930     $ 1,827  

Accretion on long-term debt and amortization of fees

    66       65       131       130  

Total finance expenses

  $ 1,553     $ 1,034     $ 3,061     $ 1,957  

 

 

 

7. LEASES

 

The following presents the various components of lease costs. 

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Operating lease cost

  $ 503     $ 607     $ 1,013     $ 941  

Short-term lease cost

                       

Total lease cost

  $ 503     $ 607     $ 1,013     $ 941  

 

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 June 30,

   

Six Months Ended June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Operating cash outflows from operating leases

  $ 503     $ 607     $ 1,013     $ 941  

 

The following table presents the weighted-average lease term and discount rate for operating leases. 

 

   

At June 30,

 
   

2023

   

2022

 

Operating leases

               

Weighted-average remaining lease term (in years)

    3.44       4.29  

Weighted-average discount rate

    4.00 %     4.00 %

 

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

  $ 780  

2024

    1,407  

2025

    1,228  

2026

    1,039  

2027

    594  

Thereafter

    544  

Imputed Interest (1)

    (355 )

Total

  $ 5,237  

 

(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 June 30, 2023

 
   

Gross Amount

   

Accumulated Amortization

   

Net Amount

 

Customer relationships

  $ 1,400     $ (475 )   $ 925  

Brand

    2,500       (1,197 )     1,303  

Technology

    16,900       (10,317 )     6,583  

Supplier agreement

    3,000       (1,614 )     1,386  

Total intangible assets

  $ 23,800     $ (13,603 )   $ 10,197  

 

   

At December 31, 2022

 
   

Gross Amount

   

Accumulated Amortization

   

Net Amount

 

Customer relationships

  $ 1,400     $ (429 )   $ 971  

Brand

    2,500       (1,066 )     1,434  

Technology

    16,900       (8,919 )     7,981  

Supplier agreement

    3,000       (1,467 )     1,533  

Total intangible assets

  $ 23,800     $ (11,881 )   $ 11,919  

 

For the three months ended June 30, 2023 and 2022, amortization expense was $866 and $865, respectively. For the six months ended June 30, 2023 and 2022, amortization expense was $1,722 and $1,722, respectively.

 

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

 

Years ending December 31,

       

2023

  $ 1,751  

2024

    3,473  

2025

    3,004  

2026

    656  

2027

    657  

Thereafter

    656  

Total

  $ 10,197  

 

 

9. COMMITMENTS AND CONTINGENCIES

 

Commitments

 

As of June 30, 2023, the Company has non-cancellable purchase orders placed with its contract manufacturers in the amount of $15.1 million. In addition, as of June 30, 2023, the Company had $0.7 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.”

 

Aggregate future service and purchase commitments with manufacturers as of June 30, 2023 are as follows:

 

Years ending December 31,

 

Purchase and Service Commitments

 

2023

  $ 15,086  

2024 and Thereafter

     

Total

  $ 15,086  

 

Legal Proceedings

 

Purported Shareholder Class Actions

 

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.

 

13

 
 

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

 

As of June 30, 2023 and December 31, 2022, the Company was in compliance with all required covenants.

 

The scheduled payments on the outstanding borrowings as of June 30, 2023 are as follows:

 

      As of June 30, 2023  

2023

  $ 9,889  

2024

    10,239  

2025

    40,365  

Total

  $ 60,493  

 

14

 
 

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.

 

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 Concept Canada Corp. ("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, $42.5 million aggregate principal amount owed under the Madryn Credit Agreement, and (ii) issued, on December 9, 2020, to Madryn Health Partners (Cayman Master), LP and Madryn Health Partners, LP (the "Madryn Noteholders") secured subordinated convertible notes in the aggregate principal amount of $26.7 million (the "Notes"). The Madryn Credit Agreement was terminated effective December 9, 2020 upon the funding and closing of the MSLP Loan and the issuance of the Notes.

 

As of June 30, 2023, the Company had approximately $27.2 million principal and interest of convertible notes outstanding that were issued pursuant to the Exchange Agreement (as defined below).

 

The Notes will accrue interest at a rate of 8.0% per annum from the date of original issuance of the Notes to the third anniversary date of the original issuance and thereafter interest will accrue at a rate of 6.0% per annum. Under certain circumstances, in the case of an event of default under the Notes, the then-applicable interest rate will increase by 4.0% per annum. Interest is payable quarterly in arrears on the last business day of each calendar quarter of each year after the original issuance date, beginning on  December 31, 2020. The Notes will mature on  December 9, 2025, unless earlier redeemed or converted. In connection with the Exchange Agreement, the Company also entered into, by and among the Company, Venus USA, Venus Canada, Venus Ltd., and the Madryn Noteholders, (i) a Guaranty and Security Agreement dated as of December 9, 2020 (the "Madryn Security Agreement"), pursuant to which the Company agreed to grant Madryn a security interest in substantially all of its assets to secure the obligations under the Notes and (ii) a Subordination of Debt Agreement dated as of December 9, 2020 (the "CNB Subordination Agreement"). The security interests and liens granted to the Madryn Noteholders under the Madryn Security Agreement will terminate upon the earlier of (i) an assignment of the Notes (other than to an affiliate of the Madryn Noteholders) pursuant to the terms of the Exchange Agreement and (ii) the first date on which the outstanding principal amount of the Notes is less than $10,000. Obligations under the Notes are secured by substantially all of the assets of Venus Concept Inc. and its subsidiaries party to the Madryn Security Agreement. The Company’s obligations under the Notes and the security interests and liens created by the Madryn Security Agreement are subordinated to the Company’s indebtedness owing to CNB (including, but not limited, pursuant to the MSLP Loan Agreement (Note 10) and the CNB Loan Agreement, (Note 12)) and any security interests and liens which secure such indebtedness owing to CNB. The Notes are convertible at any time into shares of the Company’s common stock, par value $0.0001 per share, calculated by dividing the outstanding principal amount of the Notes (and any accrued and unpaid interest under the Notes) by the initial conversion price of $48.75 per share. In connection with the Notes, the Company recognized interest expense of $540 and $540 during the three months ended June 30, 2023 and 2022, respectively. In connection with the Notes, the Company recognized interest expense of $1,074 and $1,074 during the six months ended June 30, 2023 and 2022, respectively. The conversion feature, providing the Madryn Noteholders with a right to receive the Company’s shares upon conversion of the Notes, was qualified for a scope exception in ASC 815-10-15 and did not require bifurcation. The Notes also contained embedded redemption features that provided multiple redemption alternatives. Certain redemption features provided the Madryn Noteholders with a right to receive cash and a variable number of shares upon change of control and an event of default (as defined in the Notes). The Company evaluated redemption upon change of control and an event of default under ASC 815, Derivatives and Hedging, and determined that these two redemption features required bifurcation. These embedded derivatives were accounted for as liabilities at their estimated fair value as of the date of issuance, and then subsequently remeasured to fair value as of each balance sheet date, with the related remeasurement adjustment being recognized as a component of change in fair value of derivative liabilities in the unaudited condensed consolidated statements of operations. The Company determined the likelihood of an event of default and change of control as remote as of June 30, 2023, and December 31, 2022, therefore a nominal value was allocated to the underlying embedded derivative liabilities as of June 30, 2023, and December 31, 2022.

 

The scheduled payments on the outstanding borrowings as of June 30, 2023 are as follows:

 

   As of June 30, 2023 

2023

 $1,608 

2024

  1,628 

2025

  28,217 

Total

 $31,453 

 

For the three and six months ended June 30, 2023, the Company did not make any principal repayments. Pursuant to consent agreements entered into by and between the Company and certain of its subsidiaries as guarantors, Madryn and CNB as of June 30, 2023 and July 28, 2023, the Company paid the Q2 2023 interest payable under the Notes on June 30, 2023 by adding such Q2 2023 interest to the outstanding principal of the applicable Notes. Cash payment of the Q2 2023 interest under the Notes and all accrued and unpaid interest, was deferred until August 15, 2023 or such later date as the Madryn Noteholders may confirm from time to time in writing in their sole discretion.

 

15

 
 

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 $3,000 in cash in a deposit account maintained with CNB at all times during the term of the CNB Loan Agreement. In addition, the CNB Loan Agreement contains certain covenants that require the Company to achieve certain minimum account balances, or a minimum debt service coverage ratio and a maximum total liability to tangible net worth ratio. If the Company fails to comply with these covenants, it will result in a default and require the Company to repay all outstanding principal amounts and any accrued interest. In connection with the CNB Loan Agreement, a loan fee of $1,000 was paid in equal installments on  January 25,  February 25, and  March 25, 2021.

 

On August 26, 2021, the Company, Venus USA and Venus Canada entered into a Fourth Amended and Restated Loan Agreement (the “Amended CNB Loan Agreement”) with CNB, pursuant to which, among other things, (i) the maximum principal amount the revolving credit facility was reduced from $10,000 to $5,000 at the LIBOR 30-Day rate plus 3.25%, subject to a minimum LIBOR rate floor of 0.50%, and (ii) beginning December 10, 2021, the cash deposit requirement was reduced from $3,000 to $1,500, to be maintained with CNB at all times during the term of the Amended CNB Loan Agreement. The Amended CNB Loan Agreement is secured by substantially all of the Company’s assets and the assets of certain of its subsidiaries. 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 discuss lifting the restrictions on advances under the credit facility. However, CNB and the Company have not yet agreed to the criteria the Company must satisfy in order to lift the restrictions on advances under the credit facility.

 

As of June 30, 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 $5,000 with a maturity date of  July 24, 2023 and the obligations of the Company pursuant to certain of the Company’s outstanding promissory notes were reaffirmed as subordinated to the indebtedness of the Company owing to CNB pursuant to a Supplement to Subordination of Debt Agreements dated as of August 26, 2021 by and among Madryn Health Partners, LP, Madryn Health Partners (Cayman Master), LP, the Company and CNB.