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, 2020

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 registrant’s principal executive offices)

 

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

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

VERO

 

The Nasdaq Global Market

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

 

As of May 8, 2020, the registrant had 32,210,142 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.

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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

PART II.

Other Information

45

Item 1.

Legal Proceedings

45

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3.

Defaults Upon Senior Securities

54

Item 4.

Mine Safety Disclosures

54

Item 5.

Other Information

54

Item 6.

Exhibits

55

Signatures

57

 

 

i


 

PART I

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

VENUS CONCEPT INC.

Condensed Consolidated Balance Sheets

(Unaudited)

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

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,628

 

 

$

15,666

 

Restricted cash

 

 

83

 

 

 

83

 

Accounts receivable, net of allowance of $10,889 and $10,494 as of March 31, 2020, and December 31, 2019

 

 

55,020

 

 

 

58,977

 

Inventories

 

 

18,923

 

 

 

18,844

 

Deferred expenses

 

 

30

 

 

 

59

 

Prepaid expenses

 

 

2,552

 

 

 

2,523

 

Advances to suppliers

 

 

243

 

 

 

450

 

Other current assets

 

 

2,986

 

 

 

3,101

 

Total current assets

 

 

100,465

 

 

 

99,703

 

LONG-TERM ASSETS:

 

 

 

 

 

 

 

 

Long-term receivables

 

 

27,867

 

 

 

35,656

 

Deferred tax assets

 

 

409

 

 

 

622

 

Severance pay funds

 

 

658

 

 

 

710

 

Property and equipment, net

 

 

4,389

 

 

 

4,648

 

Intangible assets

 

 

21,470

 

 

 

22,338

 

Goodwill

 

 

 

 

 

27,450

 

Total long-term assets

 

 

54,793

 

 

 

91,424

 

TOTAL ASSETS

 

$

155,258

 

 

$

191,127

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Line of credit

 

$

8,212

 

 

$

7,789

 

Trade payables

 

 

9,208

 

 

 

9,401

 

Accrued expenses and other current liabilities

 

 

15,220

 

 

 

21,120

 

Taxes payable

 

 

1,960

 

 

 

2,172

 

Unearned interest income

 

 

3,672

 

 

 

3,942

 

Warranty accrual

 

 

1,084

 

 

 

1,254

 

Deferred revenues

 

 

1,916

 

 

 

2,495

 

Total current liabilities

 

 

41,272

 

 

 

48,173

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

Long-term debt

 

 

63,261

 

 

 

61,229

 

Accrued severance pay

 

 

848

 

 

 

827

 

Deferred tax liabilities

 

 

1,085

 

 

 

1,017

 

Unearned interest income

 

 

977

 

 

 

1,681

 

Warranty accrual

 

 

550

 

 

 

723

 

Other long-term liabilities

 

 

691

 

 

 

799

 

Total long-term liabilities

 

 

67,412

 

 

 

66,276

 

TOTAL LIABILITIES

 

 

108,684

 

 

 

114,449

 

Commitments and Contingencies (Note 8)

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (Note 1):

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.0001 par value: 660,000 shares authorized, 660,000 shares and none issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Common Stock, $0.0001 par value: 300,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 32,194,285 and 28,686,116 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

 

24

 

 

 

24

 

Additional paid-in capital (Note 2)

 

 

170,657

 

 

 

149,840

 

Accumulated deficit

 

 

(125,876

)

 

 

(75,686

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

44,805

 

 

 

74,178

 

Non-controlling interests

 

 

1,769

 

 

 

2,500

 

 

 

 

46,574

 

 

 

76,678

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

155,258

 

 

$

191,127

 

 

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

2


 

VENUS CONCEPT INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except for per share data)

 

 

 

Three Months

Ended March 31

 

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

Leases

 

$

6,813

 

 

$

15,742

 

Products and services

 

 

7,695

 

 

 

8,838

 

 

 

 

14,508

 

 

 

24,580

 

Cost of goods sold

 

 

 

 

 

 

 

 

Leases

 

 

1,452

 

 

 

3,479

 

Products and services

 

 

3,776

 

 

 

3,036

 

 

 

 

5,228

 

 

 

6,515

 

Gross profit

 

 

9,280

 

 

 

18,065

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

8,611

 

 

 

9,532

 

General and administrative

 

 

14,176

 

 

 

8,340

 

Research and development

 

 

2,624

 

 

 

2,061

 

Goodwill impairment

 

 

27,450

 

 

 

 

Total operating expenses

 

 

52,861

 

 

 

19,933

 

Loss from operations

 

 

(43,581

)

 

 

(1,868

)

Other expenses:

 

 

 

 

 

 

 

 

Foreign exchange loss

 

 

4,279

 

 

 

697

 

Finance expenses

 

 

2,254

 

 

 

1,654

 

Loss before income taxes

 

 

(50,114

)

 

 

(4,219

)

Income tax expense

 

 

589

 

 

 

886

 

Net loss

 

 

(50,703

)

 

 

(5,105

)

Loss attributable to stockholders of the Company

 

 

(50,190

)

 

 

(5,273

)

(Loss) income attributable to non-controlling interest

 

 

(513

)

 

 

168

 

 

 

 

(50,703

)

 

 

(5,105

)

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

Basic

 

$

(1.68

)

 

$

(1.10

)

Diluted

 

$

(1.68

)

 

$

(1.10

)

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

 

 

 

 

 

 

 

 

Basic

 

 

29,812

 

 

 

4,776

 

Diluted

 

 

29,812

 

 

 

4,776

 

 

 

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

3


 

VENUS CONCEPT INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

 

 

Three Months

Ended March 31

 

 

 

2020

 

 

2019

 

Net loss and comprehensive loss

 

$

(50,703

)

 

$

(5,105

)

Loss attributable to stockholders of the Company

 

 

(50,190

)

 

 

(5,273

)

Comprehensive (loss) income attributable to non-controlling interest

 

 

(513

)

 

 

168

 

Comprehensive loss

 

$

(50,703

)

 

$

(5,105

)

 

 

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

4


 

VENUS CONCEPT INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except for shares)

 

 

 

 

Preferred Stock

Series A

 

 

Common Stock

 

 

Additional

'Paid-

 

 

Accumulated

 

 

Non-

controlling

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

in-Capital

 

 

Deficit

 

 

Interest

 

 

Equity

 

Balance — January 1, 2020

 

 

 

 

$

-

 

 

 

28,686,116

 

 

$

24

 

 

$

149,840

 

 

$

(75,686

)

 

$

2,500

 

 

$

76,678

 

Issuance of common stock

 

 

 

 

 

 

 

 

1,208,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020 Private Placement shares, net of costs

 

 

660,000

 

 

 

 

 

 

2,300,000

 

 

 

 

 

 

12,115

 

 

 

 

 

 

 

 

 

12,115

 

2020 Private Placement Warrants, net of costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,621

 

 

 

 

 

 

 

 

 

4,621

 

Beneficial conversion feature

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,564

 

 

 

 

 

 

 

 

 

3,564

 

Dividends from subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(218

)

 

 

(218

)

Net loss - the Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,190

)

 

 

 

 

 

(50,190

)

Net loss - non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(513

)

 

 

(513

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

517

 

 

 

 

 

 

 

 

 

517

 

Balance — March 31, 2020

 

 

660,000

 

 

$

-

 

 

 

32,194,285

 

 

$

24

 

 

$

170,657

 

 

$

(125,876

)

 

$

1,769

 

 

$

46,574

 

 

 

 

Series A

 

 

Series B

 

 

Series C

 

 

Series C-

1

 

 

Series D

 

 

Common Stock

 

 

Additional

'Paid-

 

 

Accumulated

 

 

Non-

controlling

 

 

Total

Stockholders’

 

 

 

Preferred

Shares

 

 

Preferred

Shares

 

 

Preferred

Shares

 

 

Preferred

Shares

 

 

Preferred

Shares

 

 

Shares

 

 

Amount

 

 

in-Capital

 

 

Deficit

 

 

Interest

 

 

Equity

 

Balance — January 1, 2019 (as restated, Note 2)

 

 

1,264,565

 

 

 

2,632,109

 

 

 

4,615,567

 

 

 

56,983

 

 

 

647,189

 

 

 

4,772,956

 

 

$

5

 

 

$

67,495

 

 

$

(35,067

)

 

$

4,022

 

 

$

36,455

 

Equity issuance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss - the Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,273

)

 

 

 

 

 

(5,273

)

Net income - non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

168

 

 

 

168

 

Acquisition of non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,506

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

375

 

 

 

 

 

 

 

 

 

375

 

Balance — March 31, 2019 (as restated, Note 2)

 

 

1,264,565

 

 

 

2,632,109

 

 

 

4,615,567

 

 

 

56,983

 

 

 

647,189

 

 

 

4,776,462

 

 

$

5

 

 

$

67,877

 

 

$

(40,340

)

 

$

4,190

 

 

$

31,732

 

 

 

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

5


 

VENUS CONCEPT INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Three Months

Ended March 31

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(50,703

)

 

$

(5,105

)

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

 

 

 

 

 

 

 

 

Goodwill impairment

 

 

27,450

 

 

 

 

Depreciation and amortization

 

 

1,245

 

 

 

325

 

Stock-based compensation

 

 

517

 

 

 

375

 

Provision for bad debt

 

 

1,547

 

 

 

561

 

Provision for inventory obsolescence

 

 

324

 

 

 

223

 

Finance expenses

 

 

2,032

 

 

 

218

 

Deferred tax expense

 

 

281

 

 

 

414

 

Change in fair value of earn-out liability

 

 

179

 

 

 

411

 

Loss on disposal of property and equipment

 

 

29

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable short- and long-term

 

 

10,194

 

 

 

(5,961

)

Inventories

 

 

(522

)

 

 

165

 

Prepaid expenses

 

 

(29

)

 

 

32

 

Other current assets

 

 

381

 

 

 

114

 

Other long-term assets

 

 

5

 

 

 

(49

)

Trade payables

 

 

(193

)

 

 

(1,105

)

Accrued expenses and other current liabilities

 

 

(6,960

)

 

 

1,389

 

Severance pay funds

 

 

52

 

 

 

(24

)

Unearned interest income

 

 

(973

)

 

 

(108

)

Other long-term liabilities

 

 

(261

)

 

 

(410

)

Net cash used in operating activities

 

 

(15,405

)

 

 

(8,535

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

 

 

 

148

 

Purchases of property and equipment

 

 

(61

)

 

 

(393

)

Net cash used in investing activities

 

 

(61

)

 

 

(245

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance of long-term debt, net of financing fees

 

 

 

 

 

9,636

 

Drawdown of line-of-credit

 

 

423

 

 

 

1,023

 

Proceeds from 2020 Private Placement, net of costs of $1,950

 

 

20,300

 

 

 

 

Dividends from subsidiaries paid to non-controlling interest

 

 

(218

)

 

 

 

Payment of earn-out liability

 

 

(77

)

 

 

(90

)

Installment payments

 

 

 

 

 

(250

)

Proceeds from exercise of options

 

 

 

 

 

7

 

Net cash provided by financing activities

 

 

20,428

 

 

 

10,326

 

NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

4,962

 

 

 

1,546

 

CASH AND CASH EQUIVALENTS  AND RESTRICTED CASH — Beginning of period

 

 

15,749

 

 

 

6,758

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period

 

$

20,711

 

 

$

8,304

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

329

 

 

$

1,087

 

Cash paid for interest

 

$

104

 

 

$

6,166

 

 

 

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

 

 

6


 

VENUS CONCEPT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands, unless otherwise noted)

 

1. Nature of Operations

 

Venus Concept Inc. (formerly Restoration Robotics, 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 a cost-effective, proprietary and flexible platform that enables it to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family and general practitioners and aesthetic medical spas. The Company was incorporated in the state of Delaware on November 22, 2002. In these notes to the condensed consolidated financial statements, the “Company”, “Venus Concept,” refers to Venus Concept Inc. and its subsidiaries on a consolidated basis.

 

Going Concern

 

The accompanying 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 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, 2020 and December 31, 2019, the Company had an accumulated deficit of $125,876 and $75,686, respectively. Further, the Company was not in compliance with certain financial covenants contained in its credit agreements with City National Bank of Florida and Madryn Health Partners, L.P. in the nine months ended September 30, 2019. The Company was in compliance with all required covenants as of March 31, 2020 and as of December 31, 2019. 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 condensed consolidated financial statements are issued. In addition, the coronavirus pandemic (“COVID-19” or “pandemic”) has had a significant negative impact on the Company’s condensed consolidated financial statements as of March 31, 2020 and for the three months then ended, and management expects it to have future negative impact the extent of which is uncertain and largely subject to whether the severity worsens, or duration lengthens. In the event that the COVID-19 pandemic and the economic disruptions it has caused continue for an extended period of time, the Company cannot assure that it will remain in compliance with the financial covenants in its credit facilities. 

 

In order to continue its operations, the Company must achieve profitable operations and/or obtain additional equity or debt financing. Until the Company achieves profitability, management plans to fund its operations and capital expenditures with cash on hand, borrowings and issuance of capital stock. In March 2020 the Company completed the 2020 Private Placement which raised net proceeds of $20,300, as described below. 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 COVID-19 pandemic, 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 condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts or amounts and classification of liabilities that might result from the uncertainty. Such adjustments could be material.

 

Merger of the Company with Venus Concept Ltd.

 

On November 7, 2019, the Company (formerly Restoration Robotics, Inc.), completed its business combination with Venus Concept Ltd., in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of March 15, 2019, as amended from time to time (the “Merger Agreement”), by and among the Company, Venus Concept Ltd. and Radiant Merger Sub Ltd., a company organized under the laws of Israel and a direct, wholly-owned subsidiary of the Company (“Merger Sub”). Under the Merger Agreement, Merger Sub merged with and into Venus Concept Ltd., with Venus Concept Ltd. surviving as a wholly owned subsidiary of the Company (the “Merger”). Following the completion of the Merger, the Company changed its corporate name to Venus Concept Inc., and the business conducted by Venus Concept Ltd. became the primary business conducted by the Company.

7


 

At the effective time of the Merger, each outstanding ordinary and preferred share of Venus Concept Ltd., other than shares held by Venus Concept Ltd. as treasury stock or held by the Company or Merger Sub, were converted into the right to receive 8.6506, or Exchange Ratio, validly issued, fully paid and non-assessable shares of common stock, and each outstanding stock option and warrant issued and outstanding by Venus Concept Ltd. was assumed by Restoration Robotics, Inc. and converted into and became an option or warrant (as applicable) exercisable for shares of common stock with the number and exercise price adjusted by the Exchange Ratio.

 

The Merger was accounted for as a reverse acquisition with Venus Concept Ltd. as the acquiring company for accounting purposes, and Restoration Robotics, Inc. as the legal acquirer. As a result, upon consummation of the Merger, the historical financial statements of Venus Concept Ltd. became the historical financial statements of Venus Concept Inc.

 

The 2020 Private Placement

 

On March 18, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain investors (collectively, the “Investors”) pursuant to which the Company issued and sold to the Investors an aggregate of 2,300,000 shares of common stock, par value $0.0001 per share, 660,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), which are convertible into 6,600,000 shares of common stock, and warrants (“the “2020 Private Placement Warrants”) to purchase up to 6,675,000 shares of common stock with an exercise price of $3.50 per share (the “2020 Private Placement”). The 2020 Private Placement Warrants have a five-year term and are exercisable beginning 181 days after their issue date. The Series A Preferred Stock will automatically convert into shares of common stock upon receipt of stockholder approval. The Series A Preferred Stock has no voting rights other than as required by law. The 2020 Private Placement was completed on March 19, 2020. The gross proceeds from the securities sold in the 2020 Private Placement was $22,250. The costs incurred with respect to the 2020 Private Placement totaled $1,950 and were recorded in the condensed consolidated statements of stockholders’ equity. The accounting effects of the 2020 Private Placement transaction are discussed in Note 12.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Venus Concept Inc. have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. When used in this report, the term "the Company" means Venus Concept Inc. and its subsidiaries. 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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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 unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 31, 2020 and through the date of this report filing. The accounting matters assessed included, but were not limited to, the allowance for doubtful accounts and the carrying value of goodwill, intangible and long-lived assets. Based on the assessment performed, the Company recorded an additional allowance for doubtful accounts of $550 (Note 5) and goodwill impairment of $27,450 (Note 7) as of March 31, 2020 and for the three months then ended.

 

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

8


 

Restatement of Comparative Amounts

 

Venus Concept Ltd. previously classified the issuance of common stock and preferred stock as a credit to common stock. In accordance with U.S. GAAP, amounts issued in excess of par value are required to be accounted for in additional paid in capital (APIC). The error is a reclassification from common stock into APIC and has an overall immaterial impact on the consolidated statement of stockholders’ equity and consolidated balance sheet. Items previously reported have been reclassified to conform to U.S. GAAP and the reclassification did not have any impact on the Company’s consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of cash flows and net loss per share calculations.

 

The following table summarizes the impact of the restatement adjustments on Venus Concept Ltd.’s previously reported condensed consolidated financial statements:

 

 

 

As

previously

reported

 

 

Adjustment

 

 

As

restated

 

 

 

$

 

 

$

 

 

$

 

Consolidated balance sheet and consolidated statement of stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

57,101

 

 

 

(57,096

)

 

 

5

 

Additional paid in capital

 

 

10,399

 

 

 

57,096

 

 

 

67,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

57,101

 

 

 

(57,096

)

 

 

5

 

Additional paid in capital

 

 

10,774

 

 

 

57,096

 

 

 

67,870

 

 

Accounting policies

 

The accounting policies the Company follows are set forth in the Company’s audited consolidated financial statements for fiscal year 2019. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of the Company’s most recent Annual Report on Form 10-K. There have been no material changes to these accounting policies.

 

JOBS Act Accounting Election

 

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

 

Risks and Uncertainties

 

The Company has considered the impact of the novel coronavirus (COVID-19) on its condensed consolidated financial statements. COVID-19 has had a significant negative impact on the Company’s condensed consolidated financial statements as of March 31, 2020 and for the three months then ended, and management expects it to have a future negative impact to the extent of which is uncertain and largely subject to whether the severity worsens, or duration lengthens. These impacts could include but may not be limited to risks and uncertainty related to ability of the Company’s sales and marketing personnel and distributors to access the Company’s customer base, disruptions to its global supply chain, reduced demand and/or suspension of operations by the Company’s subscription customers which could impact their ability to make monthly payments, or deferral of aesthetic or hair restoration procedures which would impact the Company’s revenuesConsequently, these may negatively impact the Company’s results of operations, cash flows and its overall financial condition. In addition, the impact of COVID-19 may subject the Company to future risk of material intangible and long-lived assets impairments, increased reserves for uncollectible accounts, and adjustments for inventory and market volatility for items subject to fair value measurements.

 

9


 

Recently Issued Accounting Standards Not Yet Adopted

 

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04 - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASC Topic 848). This authoritative guidance provides optional relief for companies preparing for the discontinuation of interest rates such as LIBOR, which is expected to be phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate. This guidance can be applied for a limited time, as of the beginning of the interim period that includes March 12, 2020 or any date thereafter, through December 31, 2022. The guidance will no longer be available to apply after December 31, 2022. The Company is currently assessing the impact of applying this guidance as well as when to adopt this guidance.

 

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

 

In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas. It is effective from the first quarter of fiscal year 2022, with early adoption permitted in any interim period. If adopted early, the Company must adopt all the amendments in the same period. The amendments have differing adoption methods including retrospectively, prospectively and/or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, depending on the specific change. The Company is currently evaluating the impact of applying this guidance and believes that it has transactions that may fall under the scope.

 

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

 

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

Net loss

 

$

(50,703

)

 

$

(5,105

)

Net loss allocated to stockholders of the Company

 

$

(50,190

)

 

$

(5,273

)

Denominator:

 

 

 

 

 

 

 

 

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

 

 

29,812

 

 

 

4,776

 

Net loss per share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(1.68

)

 

$

(1.10

)

 

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 three months ended March 31, 2020 and 2019, respectively, because including them would have been antidilutive:

 

 

 

March 31,

2020

 

 

March 31,

2019

 

Options to purchase common stock

 

 

2,730,791

 

 

 

3,269,926

 

Preferred stock

 

 

660,000

 

 

 

9,216,413

 

Warrants for common stock

 

 

10,665,067

 

 

 

179,932

 

Total potential dilutive shares

 

 

14,055,858

 

 

 

12,666,271

 

 

10


 

4. FAIR VALUE MEASUREMENTS

 

Financial assets and financial liabilities are initially recognized at fair value when the Company becomes a party to the contractual provision 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, line of credit, trade payables, accrued expenses and other current liabilities, earn-out liability, other long-term liabilities and long-term debt. In view of their nature, the fair value of most of the financial instruments approximates their carrying amounts.

 

The Company measures the fair value of its financial assets and 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.

 

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

The Company classifies its restricted cash and guaranteed investment certificates within Level 2 as it uses alternative pricing sources and models utilizing market observable inputs. Contingent earn-out consideration is classified within Level 3. The following tables set forth the fair value of the Company’s Level 2 and Level 3 financial assets and liabilities within the fair value hierarchy: 

 

 

 

Fair Value Measurements as of March 31, 2020

 

 

 

Quoted

Prices in

Active

Markets

using

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

$

 

 

$

83