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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


(Mark One)

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

 

For the quarterly period ended March 31, 2024

 

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 May 9, 2024 the registrant had 6,355,230 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 (Deficit)

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

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

 

i

 

 

PART I

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

VENUS CONCEPT INC.

 

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

ASSETS

        

CURRENT ASSETS:

        

Cash and cash equivalents

 $5,087  $5,396 

Accounts receivable, net of allowance of $5,317 and $7,415 as of March 31, 2024, and December 31, 2023, respectively

  27,168   29,151 

Inventories

  20,978   23,072 

Prepaid expenses

  1,034   1,298 

Advances to suppliers

  4,926   5,604 

Other current assets

  1,508   1,925 

Total current assets

  60,701   66,446 

LONG-TERM ASSETS:

        

Long-term receivables, net

  9,906   11,318 

Deferred tax assets

  1,148   1,032 

Severance pay funds

  429   573 

Property and equipment, net

  1,229   1,322 

Operating right-of-use assets, net

  4,081   4,517 

Intangible assets

  7,582   8,446 

Total long-term assets

  24,375   27,208 

TOTAL ASSETS

 $85,076  $93,654 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

        

CURRENT LIABILITIES:

        

Trade payables

 $7,787  $9,038 

Accrued expenses and other current liabilities

  12,133   12,437 

Current portion of long-term debt

  4,154   4,155 

Income taxes payable

  479   366 

Unearned interest income

  1,444   1,468 

Warranty accrual

  1,107   1,029 

Deferred revenues

  926   1,076 

Operating lease liabilities

  1,418   1,590 

Total current liabilities

  29,448   31,159 

LONG-TERM LIABILITIES:

        

Long-term debt

  72,552   70,790 

Accrued severance pay

  467   634 

Deferred tax liabilities

  11   15 

Unearned interest revenue

  724   671 

Warranty accrual

  268   334 

Operating lease liabilities

  2,846   3,162 

Other long-term liabilities

  672   338 

Total long-term liabilities

  77,540   75,944 

TOTAL LIABILITIES

  106,988   107,103 

Commitments and Contingencies (Note 9)

          

STOCKHOLDERS’ EQUITY (DEFICIT) (Note 15):

        

Common Stock, $0.0001 par value: 300,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 6,355,230 and 5,529,149 issued and outstanding as of March 31, 2024, and December 31, 2023, respectively

  30   30 

Additional paid-in capital

  249,180   247,854 

Accumulated deficit

  (271,697)  (261,903)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

  (22,487)  (14,019)

Non-controlling interests

  575   570 
   (21,912)  (13,449)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 $85,076  $93,654 

 

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

 

 

2

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Revenue

               

Leases

  $ 3,593     $ 5,761  

Products and services

    13,886       14,770  
      17,479       20,531  

Cost of goods sold:

               

Leases

    1,477       1,747  

Products and services

    4,355       5,085  
      5,832       6,832  

Gross profit

    11,647       13,699  

Operating expenses:

               

Selling and marketing

    7,374       8,032  

General and administrative

    10,248       11,185  

Research and development

    1,785       2,637  

Total operating expenses

    19,407       21,854  

Loss from operations

    (7,760 )     (8,155 )

Other expenses:

               

Foreign exchange (gain) loss

    324       (352 )

Finance expenses

    1,668       1,508  

Loss on disposal of subsidiaries

          77  

Loss before income taxes

    (9,752 )     (9,388 )

Income tax expense

    37       235  

Net loss

  $ (9,789 )   $ (9,623 )

Net loss attributable to stockholders of the Company

  $ (9,794 )   $ (9,657 )

Net income attributable to non-controlling interest

  $ 5     $ 34  
                 

Net loss per share:

               

Basic

  $ (1.68 )   $ (1.84 )

Diluted

  $ (1.68 )   $ (1.84 )

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

               

Basic

    5,829       5,237  

Diluted

    5,829       5,237  

 

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

 

3

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Net loss

  $ (9,789 )   $ (9,623 )

Loss attributable to stockholders of the Company

    (9,794 )     (9,657 )

Income attributable to non-controlling interest

    5       34  

Comprehensive loss

  $ (9,789 )   $ (9,623 )

 

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

 

4

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Stockholders Equity (Deficit)

(Unaudited)

(in thousands, except share data)

 

         

Preferred Shares

         

Common Stock

                         
   

2022 Private Placement Shares*

   

2023 Multi-Tranche Private Placement Shares*

   

2023 Series X Private Placement Shares*

   

Shares

   

Amount

   

Additional Paid-in-Capital

   

Accumulated Deficit

   

Non-controlling Interest

   

Total Stockholders' Equity (Deficit)

 

Balance — January 1, 2024

    3,185,000       1,575,810       256,356       5,529,149     $ 30     $ 247,854     $ (261,903 )   $ 570     $ (13,449 )

Issuance of common stock

                      8,333       0*       10                   10  

2024 Registered Direct Offering shares and warrants, net of costs

                      817,748             977                   977  

2023 Series X Private Placement shares dividends

                8,012                                     -  

Net loss — the Company

                                        (9,794 )           (9,794 )

Net income — non-controlling interest

                                              5       5  

Stock-based compensation

                                  339                   339  

Balance — March 31, 2024

    3,185,000       1,575,810       264,368       6,355,230     $ 30     $ 249,180     $ (271,697 )   $ 575     $ (21,912 )

 

         

Preferred Shares

         

Common Stock

                         
   

2022 Private Placement Shares*

   

2023 Multi-Tranche Private Placement Shares*

   

2023 Series X Private Placement Shares*

   

Shares

   

Amount

   

Additional Paid-in-Capital

   

Accumulated Deficit

   

Non-controlling Interest

   

Total Stockholders' Equity (Deficit)

 

Balance — January 1, 2023

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

Restricted share units vested

                      22,000       0*                         -  

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 )

 

*: Presented as $0 due to rounding.

 

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

 

5

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (9,789 )   $ (9,623 )

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

               

Depreciation and amortization

    975       1,007  

Stock-based compensation

    339       481  

Provision for expected credit losses

    171       618  

Provision for inventory obsolescence

    372       343  

Finance expenses and accretion

    481       74  

Deferred tax expense (recovery)

    (120 )     149  

Loss on disposal of property and equipment

    5       34  

Changes in operating assets and liabilities:

               

Accounts receivable short-term and long-term

    3,226       1,654  

Inventories

    1,722       891  

Prepaid expenses

    264       69  

Advances to suppliers

    678       20  

Other current assets

    417       1,673  

Operating right-of-use assets, net

    437       423  

Other long-term assets

    (1 )     (45 )

Trade payables

    (1,251 )     (522 )

Accrued expenses and other current liabilities

    (263 )     (2,570 )

Current operating lease liabilities

    (172 )     (119 )

Severance pay funds

    144       43  

Unearned interest income

    29       (360 )

Long-term operating lease liabilities

    (316 )     (289 )

Other long-term liabilities

    (226 )     161  

Net cash used in operating activities

    (2,878 )     (5,888 )

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Purchases of property and equipment

    (25 )     (70 )

Net cash used in investing activities

    (25 )     (70 )

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from issuance of common stock

    10       803  

2024 Registered Direct Offering shares and warrants, net of costs of $222

    977        

2024 Convertible Notes issued to EW, net of costs of $393

    1,607        

Net cash provided by financing activities

    2,594       803  

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

    (309 )     (5,155 )

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period

    5,396       11,569  

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period

  $ 5,087     $ 6,414  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid for income taxes

  $ 27     $ 12  

Cash paid for interest

  $ 1,187     $ 1,433  

 

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

 

6

 

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,” “Venus Concept,” “our,” and “we,” refer to Venus Concept Inc. and its subsidiaries on a consolidated basis.

 

Review of Strategic Alternatives

 

On January 24, 2024, the Company announced that its Board is evaluating potential strategic alternatives to maximize shareholder value. As part of the process, the Board is considering a full range of strategic alternatives, which may include one or more financings, mergers, reverse mergers, other business combinations, sales of assets, licensings or other transactions.

 

There can be no assurance that the evaluation of strategic alternatives will result in any transaction, nor can there be any assurance regarding any transaction’s timing or ultimate outcome. The Company has not set a timetable for completion of the process and does not intend to disclose developments related to the process unless and until the Company executes a definitive agreement with respect thereto, or the Board otherwise determines that further disclosure is appropriate or required.

 

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, 2024 and December 31, 2023, the Company had an accumulated deficit of $271,697 and $261,903, respectively, though, the Company was in compliance with all required covenants as of March 31, 2024, and December 31, 2023. 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. 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 generally accepted accounting principles 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, 2023, filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2024. 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, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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, 2024 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.

 

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 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. There have been no material changes to these accounting policies.

 

Recently Adopted Accounting Standards 

 

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. On  January 1, 2024, the adoption of ASU 2020-06 did not have a material impact on the Company’s consolidated financial statements or disclosures.

 

Recently Issued Accounting Standards Not Yet Adopted

 

In October 2023, the FASB issued ASU No. 2023-06 ("ASU 2023-06"): Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU was issued to clarify or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the FASB accounting standard codification with the SEC's regulations. The ASU will become effective prospectively on the earlier of the date on which the SEC removes its disclosure requirements for the related disclosure or June 30, 2027. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements.

 

In November 2023, the FASB issued ASU No. 2023-07 ("ASU 2023-07") Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new standard requires the disclosure of the Company’s Chief Operating Decision Maker (CODM), expanded incremental line-item disclosures of significant segment expenses used by the CODM for decision-making, and the inclusion of previous annual only segment disclosure requirements on a quarterly basis. This ASU must be applied on a retrospective basis to all prior periods presented in the financial statements. This pronouncement is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently assessing the impact of applying this guidance.

 

In December 2023, the FASB issued ASU No. 2023-09 ("ASU 2023-09") Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as information on income taxes paid. The disclosure requirements will be applied on a prospective basis, with the option to apply it retrospectively. This pronouncement is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. The Company is currently assessing the impact of applying 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 March 31,

 
   

2024

   

2023

 

Numerator:

               

Net loss

  $ (9,789 )   $ (9,623 )

Net loss allocated to stockholders of the Company

  $ (9,794 )   $ (9,657 )

Denominator:

               

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

    5,829       5,237  

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

    5,829       5,237  

Net loss per share:

               

Basic

  $ (1.68 )   $ (1.84 )

Diluted

  $ (1.68 )   $ (1.84 )

 

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, 2024 and 2023 because including them would have been antidilutive: 

 

   

March 31, 2024

   

March 31, 2023

 

Options to purchase common stock

    1,048,074       1,005,680  

Preferred stock

    8,969,341       2,123,443  

Restricted share units

    -       2,668  

Shares reserved for convertible notes

    2,662,459       547,593  

Warrants for common stock

    1,936,920       1,061,930  

Total potential dilutive shares

    14,616,794       4,741,314  

  

 

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 Company's convertible note (see Note 13) contains an embedded derivative feature that was required to be bifurcated and remeasured to fair value at each reporting period based on significant inputs not observable in the market, and is classified as a Level 3 measurement according to the fair value hierarchy described above. The changes in fair value recognized as a component of finance expenses. The fair value of derivative liability was determined using a probability-weighted expected return method (“PWERM”) using the “With and Without” approach (a form of an income approach). Under this approach various scenarios were considered to trigger the change of control, conversion, and redemption scenarios constituting the embedded derivative. The PWERM analysis contains inherent assumptions related to expected stock price volatility, conversion and redemption timing, and risk-free interest rate. Due to the use of significant unobservable inputs, the overall fair value measurement of the derivative liability is classified as Level 3.

 

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, and there were no transfers between Level 1, Level 2 and Level 3 for the periods presented:

 

   

Fair Value Measurements as of March 31, 2024

 
   

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

  $     $ 61     $     $ 61  

Total assets

  $     $ 61     $     $ 61  

Liabilities

                       

Derivative Liability

                327       327  

Total liabilities

  $     $     $ 327     $ 327  

 

   

Fair Value Measurements as of December 31, 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  

 

9

 
 

5. ACCOUNTS RECEIVABLE

 

The Company’s products may be sold under subscription agreements and our Venus Prime program, 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. Venus Prime, launched in January 2024, is a structured in-house financing program which replaces the legacy subscription program for new customers in North America.

 

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 $28,677 and $32,393 as of  March 31, 2024 and December 31, 2023, 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 March 31, 2024 and December 31, 2023. Based upon such assessment, the Company recorded an allowance for expected credit losses totaling $5,317 and $7,415 as of March 31, 2024, and December 31, 2023, respectively.

 

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

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

Gross accounts receivable

  $ 42,391     $ 47,884  

Unearned income

    (2,168 )     (2,139 )

Allowance for expected credit losses

    (5,317 )     (7,415 )
    $ 34,906     $ 38,330  

Reported as:

               

Current trade receivables

  $ 27,168     $ 29,151  

Current unearned interest income

    (1,444 )     (1,468 )

Long-term trade receivables

    9,906       11,318  

Long-term unearned interest income

    (724 )     (671 )
    $ 34,906     $ 38,330  

 

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,

 
   

Total

   

2024

   

2025

   

2026

   

2027

   

2028

 

Current financing receivables, net of allowance of $5,311

  $ 18,771     $ 18,771     $     $     $     $  

Long-term financing receivables, net of allowance of $6

    9,906             7,236       2,632       38        
    $ 28,677     $ 18,771     $ 7,236     $ 2,632     $ 38     $  

 

Accounts receivable from our legacy subscription-based model do not bear interest and are typically not collateralized. Accounts receivable from Venus Prime sales bear interest commensurate with the customer's credit risk. The Company performs credit evaluations on new and existing 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, 2023

  $ 13,619  

Write-offs

    (7,554 )

Provision

    1,350  

Balance at December 31, 2023

    7,415  

Write-offs

    (2,269 )

Provision

    171  

Balance at March 31, 2024

  $ 5,317  

 

  

10

 
 

6. SELECT BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION

 

Inventory

 

Inventory consists of the following:

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

Raw materials

  $ 1,849     $ 1,949  

Work-in-progress

    1,891       2,048  

Finished goods

    17,238       19,075  

Total inventory

  $ 20,978     $ 23,072  

 

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 $5,119 and $6,832 in cost of goods sold in the three months ended March 31, 2024 and 2023, respectively. The balance of cost of goods sold represents the sale of applicators, parts, consumables and warranties.

 

The Company provides for excess and obsolete inventories when conditions indicate that the inventory cost is not recoverable due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. Inventory provisions are measured as the difference between the cost of inventory and net realizable value to establish a lower cost basis for the inventories. As of March 31, 2024 and December 31, 2023, a provision for obsolescence of $2,999 and $2,733 was taken against inventory, respectively.

 

Property and Equipment, Net

 

Property and equipment, net consist of the following:

 

   

Useful Lives

   

March 31,

   

December 31,

 
   

(in years)

   

2024

   

2023

 

Lab equipment tooling and molds

    410     $ 4,356     $ 4,356  

Office furniture and equipment

    610       1,218       1,223  

Leasehold improvements

   

up to 10

      893       854  

Computers and software

    3       907       919  

Vehicles

    57       37       37  

Demo units

    5       214       214  

Total property and equipment

            7,625       7,603  

Less: Accumulated depreciation

            (6,396 )     (6,281 )

Total property and equipment, net

          $ 1,229     $ 1,322  

 

Depreciation expense amounted to $112 and $151 for the three months ended March 31, 2024 and 2023, respectively.

 

Other Current Assets

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

Government remittances (1)

  $ 826     $ 1,336  

Consideration receivable from subsidiaries sale

    75       85  

Sundry assets and miscellaneous

    607       504  

Total other current assets

  $ 1,508     $ 1,925  

 

(1Government 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,

 
   

2024

   

2023

 

Payroll and related expense

  $ 2,154     $ 2,260  

Accrued expenses

    4,713       3,924  

Commission accrual

    1,887       2,385  

Sales and consumption taxes

    3,379       3,868  

Total accrued expenses and other current liabilities

  $ 12,133     $ 12,437  

 

Warranty Accrual

 

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

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

Balance as of the beginning of the period

  $ 1,363     $ 1,482  

Warranties issued during the period

    109       933  

Warranty costs incurred during the period

    (97 )     (1,052 )

Balance at the end of the period

  $ 1,375     $ 1,363  

Current

    1,107       1,029  

Long-term

    268       334  

Total

  $ 1,375     $ 1,363  

 

Finance Expenses

 

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

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Interest expense

  $ 2,077     $ 1,443  

Change in fair value of derivative liability

    (618 )   $  

Accretion on long-term debt and amortization of fees

    209       65  

Total finance expenses

  $ 1,668     $ 1,508  

 

11

 
 

7. LEASES

 

The following presents the various components of lease costs. 

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Operating lease cost

  $ 386     $ 510  

Short-term lease cost

           

Total lease cost

  $ 386     $ 510  

 

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,

 
   

2024

   

2023

 

Operating cash outflows from operating leases

  $ 386     $ 510  

 

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

 

   

At March 31,

 
   

2024

   

2023

 

Operating leases

               

Weighted-average remaining lease term

    2.83 yrs.       3.73 yrs.  

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

 

2024

  $ 1,075  

2025

    1,294  

2026

    1,101  

2027

    593  

2028

    204  

Thereafter

    341  

Imputed Interest (1)

    (343 )

Total

  $ 4,265  

 

(1) Imputed interest represents the difference between undiscounted cash flows and cash flows.

 

12

 
 

8. INTANGIBLE ASSETS

 

Intangible assets net of accumulated amortization were as follows:

 

   

At March 31, 2024

 
   

Gross Amount

   

Accumulated Amortization

   

Net Amount

 

Customer relationships

  $ 1,400     $ (545 )   $ 855  

Brand

    2,500       (1,395 )     1,105  

Technology

    16,900       (12,437 )     4,463  

Supplier agreement

    3,000       (1,841 )     1,159  

Total intangible assets

  $ 23,800     $ (16,218 )   $ 7,582  

 

   

At December 31, 2023

 
   

Gross Amount

   

Accumulated Amortization

   

Net Amount

 

Customer relationships

  $ 1,400     $ (522 )   $ 878  

Brand

    2,500       (1,330 )     1,170  

Technology

    16,900       (11,735 )     5,165  

Supplier agreement

    3,000       (1,767 )     1,233  

Total intangible assets

  $ 23,800     $ (15,354 )   $ 8,446  

 

For the three months ended March 31, 2024 and 2023, amortization expense was $864 and $856, respectively.

 

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

 

Years ending December 31,

       

2024

  $ 2,610  

2025

    3,004  

2026

    657  

2027

    657  

2028

    244  

Thereafter

    410  

Total

  $ 7,582  

 

 

9. COMMITMENTS AND CONTINGENCIES

 

Commitments

 

As of March 31, 2024, the Company has non-cancellable purchase orders placed with its contract manufacturers in the amount of $10.0 million. In addition, as of March 31, 2024, the Company had $1.164 million of open purchase orders that can be cancelled with 270 days’ notice.

 

Aggregate future service and purchase commitments with manufacturers as of March 31, 2024 are as follows:

 

Years ending December 31,

 

Purchase and Service Commitments

 

2024

  $ 9,983  

2025 and Thereafter

     

Total

  $ 9,983  

 

 

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.

 

On  October 4, 2023, the Company, Venus Concept USA Inc. (“Venus USA”), Venus Concept Canada Corp. (“Venus Canada”) and Venus Concept Ltd. (“Venus Ltd.”) entered into the Loan Modification Agreement with CNB, which modified certain terms of the MSLP Loan Agreement. The primary modifications of the MSLP Loan Modification were (i) the principal payment in the amount of 15% of the outstanding principal balance of the loan originally due December 31, 2023 is deferred until maturity, (ii) the principal payment in the amount of 15% of the outstanding principal balance of the loan originally due December 31, 2024 is reduced to 7.5% with the remainder deferred until maturity, (iii) the interest rate of the loan is reset from one-month LIBOR plus three percent (3%) to one-month term Secured Overnight Financing Rate (SOFR) plus three and one-quarter percent (3.25%), and (iv) Venus USA has assigned certain of its subscription sales contracts to CNB.

 

On January 18, 2024, the Company and the Guarantors entered into a Loan Modification Agreement (the “Loan Modification Agreement”) with CNB and Madryn Health Partners, LP, and certain of its affiliates (collectively, “Madryn”). The Loan Modification Agreement amends the MSLP Loan Agreement to, among other things, satisfy the 2023 Minimum Deposit Requirements (as defined in the Loan Modification Agreement) and defer the testing of the Minimum Deposit Relationship obligations set forth in the MSLP Loan Agreement for the monthly periods ending on January 31, 2024, February 28, 2024 and March 31, 2024 until April 30, 2024.

 

As of March 31, 2024 and December 31, 2023, the Company was in compliance with all required covenants.

 

The scheduled payments, inclusive of principal and estimated interest, on the outstanding borrowings as of March 31, 2024 are as follows:

 

      As of March 31, 2024  

2024

  $ 7,285  

2025

    51,905  

Total

  $ 59,190  

 

On April 23, 2024, the MSLP Loan was purchased by Madryn for an undisclosed amount from CNB with the consent of the Company.

14

 

 

11. MADRYN DEBT AND CONVERTIBLE NOTES

 

On October 11, 2016, Venus Ltd. entered into a credit agreement as a guarantor with 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 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, $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.

 

On October 4, 2023, the Company entered into a securities exchange agreement (the "2023 Exchange Agreement") with the Madryn Noteholders. Pursuant to the 2023 Exchange Agreement, the Madryn Noteholders agreed to exchange (the "Exchange") $26.695 million in aggregate principal amount of outstanding secured convertible notes of the Company for (i) secured subordinated convertible notes in aggregate principal amount of $22.792 million (the “New Notes”) and (ii) 248,755 shares of newly-created convertible preferred stock of the Company, par value $0.0001 per share designated as "Series X Convertible Preferred Stock" (the "Series X Preferred Stock"). The Series X Preferred Stock is priced at $20.10 per share (the "Issuance Price"), being equal to the "Minimum Price" as set forth in Nasdaq Listing Rule 5635(d), multiplied by ten. The New Notes accrue interest at a rate of 3-month adjusted term Secured Overnight Financing Rate (SOFR) plus 8.50% per annum. In the case of an event of default under the New Notes, the then-applicable interest rate will increase by four percent (4.00%) per annum. Interest is payable in kind in arrears on the last business day of each calendar quarter of each year after the original issuance date, beginning on December 31, 2023. The New Notes mature on December 9, 2025, unless earlier redeemed or converted. As part of the extinguishment of principal, the Company recognized a $2.0 million loss.

 

As of March 31, 2024, the Company had approximately $24.4 million principal and interest of convertible notes outstanding that were issued pursuant to the Exchange Agreement (as defined below).

 

In connection with the New Notes and Notes, the Company recognized interest expense of $834 and $540 during the three months ended March 31, 2024 and 2023, respectively. The conversion feature, providing the Madryn Noteholders with a right to receive the Company’s shares upon conversion of the New Notes and Notes, was qualified for a scope exception in ASC 815-10-15 and did not require bifurcation. The New Notes and 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 New Notes and Notes). The Company evaluated redemption upon change of control and an event of default under ASC 815, Derivatives and Hedging, and determined that these two redemption features required bifurcation. These embedded derivatives were accounted for as liabilities at their estimated fair value as of the date of issuance, and then subsequently remeasured to fair value as of each balance sheet date, with the related remeasurement adjustment being recognized as a component of change in fair value of derivative liabilities in the unaudited condensed consolidated statements of operations. The Company determined the likelihood of an event of default and change of control as remote as of March 31, 2024, and December 31, 2023, therefore a nominal value was allocated to the underlying embedded derivative liabilities as of March 31, 2024, and December 31, 2023.

 

The scheduled payments, inclusive of principal and interest, on the outstanding borrowings as of March 31, 2024 are as follows:

 

   As of March 31, 2024 

2024

 $ 

2025

  30,923 

Total

 $30,923 

 

For the three months ended March 31, 2024, the Company did not make any principal repayments.

 

Following Madryn’s purchase of the MSLP Loan, on April 23, 2024, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”), by and among Venus USA, (as “Bridge Borrower”), Venus Canada, Venus Ltd. (Venus Ltd., together with the Company and Venus Canada, the “2024 Guarantors,” and together with the Bridge Borrower, the “2024 Loan Parties”) and, each lender party thereto (collectively, the “2024 Lenders”) and Madryn Health Partners, LP, as administrative agent (“Madryn HP”). For additional details related to the Loan and Security Agreement, see Item 1. Note 19. Subsequent Events and elsewhere in this quarterly report on Form 10-Q for the quarter ended March 31, 2024.

 

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. 

 

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. 

 

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. The CNB Note and Amended CNB Loan Agreement expired at its maturity date.

 

As of   March 31, 2024, and as of expiration of credit facility, the Company was in compliance with all required covenants. An event of default under this agreement would have caused a default under the MSLP Loan (see Note 10).

 

16

  
 

13.  EW CONVERTIBLE NOTES

 

On January 18, 2024, the Company, Venus USA, Venus Canada and Venus Ltd (the “Guarantors”) entered into a Note Purchase and Registration Rights Agreement (the “Note Purchase Agreement”) with EW Healthcare Partners, L.P. (“EW”) and EW Healthcare Partners-A, L.P. (“EW-A,” and together with EW, the “EW Investors”). Pursuant to the Note Purchase Agreement, the Company issued and sold to the EW Investors $2.0 million in aggregate principal amount of secured subordinated convertible notes (the “2024 Notes").

 

The 2024 Notes accrue interest at a rate equal to the 90-day adjusted term Secured Overnight Financing Rate (SOFR) plus 8.50% per annum; provided, however, that if there is an Event of Default (as defined below), the then-applicable interest rate will increase by 4.00% per annum. Interest is payable in kind in arrears on the last business day of each calendar quarter of each year after the original issuance date, beginning on March 31, 2024. The 2024 Notes mature on December 9, 2025, unless earlier redeemed or converted, at which time all outstanding principal and interest is payable in cash, except as described below. At any time prior to the maturity date, a holder may convert the 2024 Notes at their option into shares of common stock at the then-applicable conversion rate. The initial conversion rate is 799.3605 shares of common stock per one-thousand principal amount of 2024 Notes, which represents an initial conversion price of approximately $1.251 per share of common stock. The conversion rate is subject to customary anti-dilution adjustments. The 2024 Notes are redeemable, in whole and not in part, at the Company’s option at any time, at a redemption price equal to the principal amount of the 2024 Notes to be redeemed, plus accrued and unpaid interest, if any, to, the redemption date, plus a redemption premium. The Company’s redemption option is subject to satisfaction of the conditions set forth in the 2024 Notes, including that a registration statement covering the resale of the shares of common stock issuable upon conversion of the 2024 Notes is effective and available for use.

 

The 2024 Notes have customary provisions relating to the occurrence of “Events of Default,” as defined in the 2024 Notes. If an Event of Default occurs, then the EW Investors may, subject to the terms of the CNB Subordination Agreement (as defined below), (i) declare the outstanding principal amount of the 2024 Notes, all accrued and unpaid interest and all other amounts owing under the 2024 Notes and other transaction documents entered into in connection therewith to be immediately become due and payable, without any further action or notice by any person, and (ii) exercise all rights and remedies available to them under the 2024 Notes, the EW Security Agreement (as defined below) and any other document entered into in connection with the foregoing. The 2024 Notes constitute the Company’s secured, subordinated obligations and are (i) equal in right of payment with the Company’s existing and future senior unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the 2024 Notes; and (iii) subordinated to the Company’s existing secured indebtedness in a manner consistent with the Existing Subordination Agreements (as defined below).

 

On January 18, 2024, the Company and the Guarantors entered into a Guaranty and Security Agreement, dated January 18, 2024 (the “EW Security Agreement”) with EW, as collateral agent. Pursuant to the EW Security Agreement, the Guarantors jointly and severally guaranteed to the EW Investors the prompt payment of all outstanding amounts under the 2024 Notes when due. The Guarantors also granted to the EW Investors a security interest in substantially all of their assets to secure the obligations under the 2024 Notes.

 

Pursuant to the EW Security Agreement, during the continuance of an Event of Default under the 2024 Notes, if the Company is unable to repay all outstanding amounts under the 2024 Notes, the EW Investors may, subject to the terms of the CNB Subordination Agreement (as defined below), foreclose on the collateral to collateralize such indebtedness. Any such foreclosure could significantly affect the Company’s ability to operate its business.

 

The EW Security Agreement contains various covenants that limit the Company’s ability to engage in specified types of transactions. Subject to limited exceptions, these covenants include restrictions on the Company’s ability, to incur, create or permit to exist additional indebtedness, or liens, and to make certain changes to its ownership structure, in each case without the Investor’s consent.

 

On January 18, 2024, the Company and the Guarantors entered into a Subordination of Debt Agreement (the “CNB Subordination Agreement”) with CNB and the EW Investors. The CNB Subordination Agreement provides that the 2024 Notes are subordinated to the Company’s existing secured indebtedness with CNB, in a manner consistent with the subordination of the Secured Subordinated Convertible Notes, dated October 4, 2023 (the “Madryn Notes”), issued to Madryn pursuant to those certain existing Subordination of Debt Agreements, dated as of December 8, 2020 entered into by the Company and the Guarantors, CNB, and Madryn (the “Existing Subordination Agreements”). The 2024 Notes and the Madryn Notes are secured by the same collateral, except that the 2024 Notes also receive a first priority perfected security interest and lien on the Company’s right to receive certain amounts from the Internal Revenue Service in respect of certain employee retention credits claimed by the Company (defined in the Notes as the “ERC Claim”).

 

As of March 31, 2024, the Company had approximately $2.1 million principal and interest of the 2024 convertible notes outstanding that were issued pursuant to the Note Purchase Agreement (as defined below).

 

In connection with the 2024 Notes, the Company recognized interest expense of $57 during the three months ended March 31, 2024. The 2024 Notes contained a conversion option, redemption right upon an event of default, change of control scenario, and interest rate penalty upon an event of default which were evaluated under ASC 815, Derivatives and Hedging, and determined that these 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 fair value of the embedded derivative liability at issuance and as of March 31, 2024 were $0.9 million and $0.3 million, respectively.

 

As of March 31, 2024 and December 31, 2023, the Company was in compliance with all required covenants.

 

The scheduled payments, inclusive of principal and interest, on the outstanding borrowings as of March 31, 2024 are as follows:

 

  

As of March 31, 2024

 

2024

 $ 

2025

  2,601 

Total

 $2,601 

 

For the three months ended March 31, 2024, the Company did not make any principal repayments.

 

17

  
 

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 classes of preferred stock, convertible promissory notes, options granted and available for grant under the incentive plans and warrants to purchase common stock.

 

   

March 31, 2024

   

December 31, 2023

 

Outstanding common stock warrants

    1,936,920       1,061,930  

Outstanding stock options and RSUs

    1,048,074       981,834  

Preferred shares

    8,969,341       8,889,221  

Shares reserved for conversion of future voting preferred share issuance

    5,764,093       5,844,213  

Shares reserved for future option grants and RSUs

    254,241       99,580  

Shares reserved for Lincoln Park

    702,847       711,180  

Shares reserved for Madryn Noteholders

    1,300,000       1,300,000  

Shares reserved for EW Noteholders

    2,000,000        

Total common stock reserved for issuance

    21,975,516       18,887,958  

  

 

15. STOCKHOLDERS' EQUITY (DEFICIT)

 

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.

 

Reverse Stock Split

 

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 the Reverse Stock Split and to fix the specific consolidation ratio within a range of one-for-five (1-for-5) to one-for-fifteen (1-for-15). 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 reverse split-adjusted basis under the Company’s existing trade symbol “VERO” at the opening of the market on  May 12, 2023. 

 

Equity Purchase Agreement with Lincoln Park

 

On June 16, 2020, the Company entered into a purchase agreement (the "Equity Purchase Agreement") with Lincoln Park Capital Fund LLC ("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 $31,000 worth of shares of its common stock, par value $0.0001 per share, pursuant to its 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 the Company can sell to Lincoln Park under the Equity Purchase Agreement may in no case exceed 517,560 shares (subject to adjustment) of common stock (which is equal to approximately 19.99% of the shares of the common stock outstanding immediately prior to the execution of the Equity Purchase Agreement) (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) with Equity Purchase Agreement equals or exceeds $59.6325 per share (subject to adjustment) (which represents the minimum price, as defined under Nasdaq Stock Market LLC ("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 the Company’s issued and outstanding common stock. Concurrently with entering into the Equity Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park, pursuant to which it agreed to provide Lincoln Park with certain registration rights related to the shares of common stock issued under the Equity Purchase Agreement (the “Registration Rights Agreement”).

 

From commencement to expiry on July 1, 2022, the Company issued and sold to Lincoln Park 229,139 shares of its common stock at an average price of $40.50 per share, and 13,971 of these shares were issued to Lincoln Park as a commitment fee in connection with entering into the Equity Purchase Agreement (the “Commitment Shares”). The total value of the Commitment Shares of $620 together with the issuance costs of $123 were recorded as deferred issuance costs in the consolidated balance sheet at inception and were amortized into consolidated statements of stockholders’ equity (deficit) proportionally based on proceeds received during the term of the Equity Purchase Agreement. In 2022, the Company issued 26,666 shares of its common stock and the proceeds from common stock issuances as of December 31, 2022 were $272, with no issuance costs. The proceeds in the amount of $272 were recorded in the condensed consolidated statements of cash flows as net cash proceeds from issuance of common stock. The Equity Purchase Agreement expired on July 1, 2022, and was replaced with the 2022 LPC Purchase Agreement discussed below.

 

2022 LPC Purchase Agreement with Lincoln Park

 

On July 12, 2022, the Company entered into a purchase agreement (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 $11,000 of shares (the “Purchase Shares”) of its common stock, par value $0.0001 per share. Concurrently with entering into the 2022 LPC Purchase Agreement, the Company also entered into a registration rights agreement (the “2022 LPC Registration Rights Agreement”) with Lincoln Park, pursuant to which it agreed to provide Lincoln Park with certain registration rights related to the shares issued under the 2022 LPC Purchase Agreement. The aggregate number of shares that the Company can issue to Lincoln Park under the 2022 LPC Purchase Agreement may not exceed 858,224 shares of common stock, which is equal to 19.99% of the shares of common stock outstanding immediately prior to the execution of the 2022 LPC Purchase Agreement (the “2022 Exchange Cap”), unless (i) stockholder approval is obtained to issue shares of common stock in excess of the 2022 Exchange Cap, in which case the 2022 Exchange Cap will no longer apply, or (ii) the average price of all applicable sales of common stock to Lincoln Park under the 2022 LPC Purchase Agreement equals or exceeds the lower of (i) the Nasdaq official closing price immediately preceding the execution of the 2022 LPC Purchase Agreement or (ii) the arithmetic average of the five Nasdaq official closing prices for the common stock immediately preceding the execution of the 2022 LPC Purchase Agreement, plus an incremental amount to take into account the issuance of the commitment shares to Lincoln Park under the 2022 LPC Purchase Agreement, such that the transactions contemplated by the 2022 LPC Purchase Agreement are exempt from the 2022 Exchange Cap limitation under applicable Nasdaq rules. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the 2022 LPC Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99% of the outstanding shares of common stock. Upon execution of the 2022 LPC Purchase Agreement, the Company issued 45,701 shares of common stock to Lincoln Park as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement at the total amount of $330. Through December 31, 2023 the Company issued an additional 776,452 shares of common stock to Lincoln Park at an average price of $3.966 per share for a total value of $3,080. During the three months ended March 31, 2024, the Company issued an additional 8,333 shares of common stock to Lincoln Park at an average price of $1.16 per share, for a total value of $10. Further information regarding the 2022 LPC Purchase Agreement is contained in the Company’s Form 8-K filed with the SEC on July 12, 2022.

18

 

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 116,668 shares of common stock, par value $0.0001 per share, and 3,185,000 shares of voting convertible preferred stock, par value $0.0001 per share (the "Voting Preferred Stock"), which are convertible into 2,123,443 shares of common stock upon receipt of a valid conversion notice from a 2022 Investor or at the option of the Company within 30 days following the occurrence of certain events (the "2022 Private Placement"). The 2022 Private Placement was completed on November 18, 2022. The gross proceeds from the securities sold in the 2022 Private Placement was $6,720. The costs incurred with respect to the 2022 Private Placement totaled $202 and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated statements of stockholders' equity (deficit). Further information regarding the 2022 Private Placement is contained in the Company’s Form 8-K filed with the SEC on  November 18, 2022.

 

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 3,185,000 shares of Voting Preferred Stock. The terms of the Voting Preferred Stock are governed by a Certificate of Designation filed by the Company with the Secretary of State of the State of Delaware on November 17, 2022. The following is a summary of the material terms of the Voting Preferred Stock:

 

  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 in an amount equal to the greater of (a) $30.00 (being the issuance price) and (b) the amount that would be distributed in respect of such share of Voting Preferred Stock if it were converted into Common Stock and participated in such liquidating distribution with the other shares of Common Stock.

 

  Conversion. The Voting Preferred Stock will convert into shares of Common Stock on a one for 0.6667 basis (i) at the option of a 2022 Investor upon delivery of a valid conversion notice to the Company or (ii) at the option of the Company within 30 days following the earlier to occur of (a) the date on which the volume-weighted average price of the Common Stock has been greater than or equal to $18.75 for 30 consecutive trading days and (b) the date on which the Company has reported two consecutive fiscal quarters of positive cash flow. 

 

  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.

 

  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.

 

The 2023 Multi-Tranche Private Placement

 

In May 2023, we entered into a securities purchase agreement (the "2023 Multi-Tranche Private Placement Stock Purchase Agreement") with certain investors (collectively, the "2023 Investors") pursuant to which the Company may issue and sell to the 2023 Investors up to $9,000,000 in shares (the "2023 Multi-Tranche Private Placement") of newly-created senior convertible preferred stock, par value $0.0001 per share (the “Senior Preferred Stock”), in multiple tranches from time to time until December 31, 2025, subject to a minimum aggregate purchase amount of $0.5 million in each tranche. The initial sale in the 2023 Multi-Tranche Private Placement occurred on May 15, 2023, under which the Company sold the 2023 Investors 280,899 shares of Senior Preferred Stock for an aggregate purchase price of $2.0 million (the "Initial Placement"). The Company used the proceeds of the Initial Placement, after the payment of transaction expenses, for general working capital purposes. The following is a summary of the material terms of the Senior Preferred Stock:

 

  Voting Rights. The Senior Preferred Stock has aggregate number of votes equal to the product of (a) the quotient of (i) the aggregate purchase price paid under the Stock Purchase Agreement for all shares of Senior Preferred Stock issued and outstanding as of such time, divided by (ii) the highest purchase price paid by a holder for a share of Senior Preferred Stock prior to or as of such time, multiplied by (b) two. Such formula ensures that no share of senior preferred stock will ever have more than two votes per share, with such number of votes subject to reduction (but not increase) depending on the pricing of future sales of Senior Preferred Stock in the Private Placement. The Senior Preferred Stock votes with the Company’s common stock on all matters submitted to holders of common stock and does not vote as a separate class.

 

  Liquidation. Each share of Senior Preferred Stock carries a liquidation preference, senior to the Common Stock and Voting Preferred Stock, in an amount equal to the product of the Purchase Price for such share, multiplied by 2.50.

 

  Conversion. The Senior Preferred Stock will convert into shares of Common Stock on a one for 2.6667 basis at the option of (a) the investors at any time or (b) the Company within 30 days following the date on which the 30-day volume-weighted average price of the common stock exceeds the product of (i) the Purchase Price for the shares of senior preferred stock to be converted, multiplied by (ii) 2.75.

 

  Dividends. Each share of Senior 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 Voting Preferred Stock.

 

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

 

  Maturity. The Senior Preferred Stock shall be perpetual unless converted.

 

On July 6, 2023, the Company and the 2023 Investors entered into an amendment to the 2023 Multi-Tranche Private Placement Stock Purchase Agreement (the “Multi-Tranche Amendment”). The Multi-Tranche Amendment (a) clarifies the appropriate date pursuant to which the purchase price for each share of Senior Preferred Stock to be sold in the Private Placement is determined (such that the purchase price shall be equal to the “Minimum Price” as set forth in Nasdaq Listing Rule 5635(d)) and (b) permits the Company to specify a desired closing date (subject to approval by the 2023 Investors) for each sale in the 2023 Multi-Tranche Private Placement. 

 

On July 12, 2023, the Company and the 2023 Investors consummated the second tranche in the 2023 Multi-Tranche Private Placement, under which the Company sold the 2023 Investors 500,000 shares of Senior Preferred Stock for an aggregate purchase price of $2.0 million (the “Second Placement”). The Company used the proceeds of the Second Placement, after the payment of transaction expenses, for general working capital purposes.

 

On September 8, 2023, the Company and the 2023 Investors consummated the third tranche in the 2023 Multi-Tranche Private Placement, under which the Company sold the 2023 Investors 292,398 shares of Senior Preferred Stock for an aggregate purchase price of $1.0 million (the "Third Placement", and together with the First Placement and Second Placement, the "Placements"). The Company used the proceeds of the Third Placement, after the payment of transaction expenses, for general working capital purposes.

 

On October 20, 2023, the Company and the 2023 Investors consummated the fourth tranche in the 2023 Multi-Tranche Private Placement, under which the Company sold the 2023 Investors 502,513 shares of Senior Preferred Stock for an aggregate purchase price of $2.0 million (the “Fourth Placement”). The Company used the proceeds of the Fourth Placement, after the payment of transaction expenses, for general working capital purposes.

 

19

 

Series X Convertible Preferred Stock

 

On  October 4, 2023, the Company filed a Certificate of Designations with respect to the Series X Preferred Stock with the Secretary of State of the State of Delaware, thereby creating the Series X Preferred Stock. The Certificate of Designations authorizes the issuance of up to 400,000 shares of Series X Preferred Stock. The Series X Preferred Stock is convertible into shares of Common Stock on a one-for-ten basis, in whole or in part, at the option of the holder at any time upon delivery of a valid conversion notice of the Company; provided, however, that the Series X Preferred Stock is subject to limitations on convertibility to the extent necessary to comply with the rules and regulations of the Nasdaq. Each share of Series X Preferred Stock carries a liquidation preference, senior to the Common Stock, the Senior Preferred Stock and Voting Preferred Stock, in an amount equal to the Issuance Price, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or similar recapitalization with respect to the Common Stock. From the date of issuance until December 31, 2026, each share of Series X Preferred Stock accrues a dividend at a rate of 12.5% per annum. Such dividend is payable on a quarterly basis in cash or additional shares of Series X Preferred Stock, at the Company’s election. In addition, each share of Series X Preferred Stock is entitled to participate in dividends and other non-liquidating distributions, if, as and when declared by the Board, on a pari passu basis with the Common Stock, Senior Preferred Stock and Junior Preferred Stock. The following is a summary of the material terms of the Senior Preferred Stock:

 

  Voting Rights. The holders of the Series X Preferred Stock shall be entitled to vote on all matters on which holders of Common Stock shall be entitled to vote, and shall be entitled to a number of votes equal to the Converted Stock Equivalent which is 10 common shares per 1 Series X Preferred stock.

 

  Liquidation. Each share of Series X Preferred Stock carries a liquidation preference, senior to the Common Stock and Voting Preferred Stock, in an amount equal to the Unpaid Liquidation Preference at that time.

 

  Conversion. The Series X Preferred Stock will convert into shares of Common Stock on a one for 10 basis at the option of the investors at any time.

 

  Dividends. The Series X Preferred Stock accrues a dividend at a rate of 12.5% per annum, payable on a quarterly basis in cash or additional shares of Series X Preferred Stock, at the Company’s election. In addition, each share of Series X Preferred Stock is entitled to participate in dividends and other non-liquidating distributions, if, as and when declared by the Board, on a pari passu basis with the Common Stock, Senior Preferred Stock and Junior Preferred Stock.

 

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

 

  Maturity. The Senior Preferred Stock shall be perpetual unless converted, however dividends will stop accruing on December 31, 2026.

 

Registered Direct Offering

 

On February 22, 2024, the Company, entered into a securities purchase agreement (the “SPA”) with certain institutional investors (each, a “2024 Investor”), pursuant to which the Company agreed to issue and sell to the 2024 Investors (i) in a registered direct offering, an aggregate of 817,748 shares of the Company’s common stock, at a price of $1.465 per share and (ii) in a concurrent private placement, warrants to acquire up to an aggregate of 817,748 shares of Common Stock (the “2024 Investor Warrants”), at an initial exercise price of $1.34 per share (the “Offering”).

 

The Shares were offered at-the-market under Nasdaq rules and pursuant to the Company’s shelf registration statement on Form S-3 initially filed by the Company with the Securities and Exchange Commission (the “SEC”) under the Securities Act, on October 15, 2021 and declared effective on October 25, 2021.

 

The 2024 Investor Warrants (and the shares of common stock issuable upon the exercise of the 2024 Investor Warrants) were not registered under the Securities Act and were offered pursuant to an exemption from the registration requirements provided under Section 4(a)(2) of the Securities Act. The 2024 Investor Warrants are exercisable upon issuance and will expire five years from the issuance date, and in certain circumstances may be exercised on a cashless basis. If the Company fails for any reason to deliver shares of common stock upon the valid exercise of the 2024 Investor Warrants within the prescribed period set forth in the 2024 Investor Warrants, the Company is required to pay the applicable holder liquidated damages in cash as set forth in the 2024 Investor Warrants.

 

A holder is not entitled to exercise any portion of a 2024 Investor Warrant, if, after giving effect to such exercise, the aggregate number of shares of common stock beneficially owned by the holder (together with its affiliates and any other persons) whose beneficial ownership of Common Stock would or could be aggregated with the holder’s for purposes of Section 13(d) or Section 16 of the Exchange Act would exceed 4.99%, or at the election of a 2024 Investor 9.99%, of the common stock outstanding after giving effect to the exercise. Such 4.99% limitation may be increased at the holder’s election upon 61 days’ notice to the Company, provided that such percentage may not exceed 9.99%.

 

On February 27, 2024, the Company closed the Offering, raising gross proceeds of approximately $1.2 million before deducting placement agent fees and other offering expenses payable by the Company. The proceeds received in the Offering were allocated to each instrument on a relative fair value basis.

 

Under the SPA, no later than March 8, 2024, the Company is required to file a registration statement on Form S-3 (or other appropriate form if the Company is not then S-3 eligible) registering the resale of the shares of common stock issued or issuable upon exercise of the 2024 Investor Warrants. The Company is required to use commercially reasonable efforts to cause such registration to become effective within 45 days of the closing date of the Offering (or within 75 days following the closing of the Offering in case of “full review” of the registration statement by the SEC), and to keep the registration statement effective at all times until no 2024 Investor owns any 2024 Investor Warrants or shares issuable upon exercise thereof.

 

The SPA contains customary representations, warranties and covenants by the Company, among other customary provisions.

 

H.C. Wainwright & Co., LLC (“HCW”) acted as the Company’s placement agent in connection with Offering. The Company paid HCW consideration consisting of (i) a cash fee equal to 7.0% of the aggregate gross proceeds in the Offering, (ii) a management fee equal to 1.0% of the aggregate gross proceeds in the Offering, (iii) reimbursement of certain expenses and (iv) warrants to acquire up to an aggregate of 57,242 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants are similar to the 2024 Investor Warrants, except that the initial exercise price of the Placement Agent Warrants is $1.8313 per share.

 

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 seven years, which was extended to ten years in November 2017 and are non-assignable except by the laws of descent. The Board has the authority to prescribe, amend and rescind rules and regulations relating to the 2010 Share Option Plan, provided that any such amendment or rescindment that would adversely affect the rights of an optionee that has received or been granted an option shall not be made without the optionee’s written consent. As of March 31, 2024, the number of shares of the Company’s common stock reserved for issuance and available for grant under the 2010 Share Option Plan was 10,061 (28,168 as of December 31, 2023).

 

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, 30,000 shares of common stock were initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, performance stock awards, performance stock unit awards, restricted stock awards, restricted stock unit awards and other stock-based awards, plus the number of shares remaining available for future awards under the 2019 Plan as of the date we completed our business combination with Venus Ltd. and the business of Venus Ltd. became the primary business of the Company (the “Merger”). As of March 31, 2024, there were 244,180 shares of common stock available under the 2019 Plan (71,412 as of December 31, 2023). The 2019 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock reserved for issuance pursuant to awards under such plan shall be increased on the first day of each year from 2020 and ending in 2029 equal to the lesser of (A) four percent (4.00%) of the shares of stock outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by the Board.

 

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

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Cost of sales

  $ 10     $ 15  

Selling and marketing

    72       109  

General and administrative

    230       300  

Research and development

    27       57  

Total stock-based compensation

  $ 339     $ 481  

 

20

 

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,