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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM TO
Commission File Number 001-38238
Venus Concept Inc.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
06-1681204
(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
Common Stock, $0.0001 par value per share
Trading Symbol
VERO
Name of each exchange on which registered
The Nasdaq Capital Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 ☐
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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
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐*
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐*
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
*Checkboxes are blank pending adoption of the underlying rules.
As of June 30, 2022, (the last business day of the registrant’s most recently completed second quarter), the aggregate market value of Registrant’s common stock, par value
$0.0001, held by non-affiliates of the Registrant was $18,128,723 based upon the closing price of $0.464 per share as reported for such date by the Nasdaq Global Market.
Shares of the Registrant's common stock held by executive officers and directors of the Registrant and by certain stockholders who owned 10% or more of the outstanding
common stock have been excluded if such persons were deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares of Registrant’s Common Stock outstanding as of March 22, 2023 was 79,991,130.
DOCUMENTS TO BE INCORPORATED BY REFERENCE
Certain information required in Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K (the "Annual Report") is incorporated by reference from our
definitive Proxy Statement for our 2023 Annual Meeting of Stockholders (our "Proxy Statement") which will be filed with the Securities and Exchange Commission (the
"SEC") within 120 days after the end of the fiscal year ended December 31, 2022.
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Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Consolidated Financial Statement Schedules
Form 10-K Summary
Signatures
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Safe Harbor Statement
SAFE HARBOR STATEMENT AND RISK FACTOR SUMMARY
This Annual Report on Form 10-K for the year ended December 31, 2022 contains “forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any
statements contained herein that are not of historical facts may be deemed to be forward-looking statements. In some cases, you can identify these
statements by words such as such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,” “intends,” “may,” “should,” “could,” “estimates,”
“predicts,” “potential,” “continue,” “guidance,” and other similar expressions that are predictions of or indicate future events and future trends. These
forward-looking statements are based on current expectations, estimates, forecasts, and projections about our business and the industry in which we
operate and management's beliefs and assumptions and are not guarantees of future performance or developments and involve known and unknown risks,
uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Annual Report
may turn out to be inaccurate.
The factors which we currently believe could have a material adverse effect on our business operations and financial performance and condition include,
but are not limited to, those risks and uncertainties that are detailed in the “Risk Factor Summary” below and under Item 1A. of Part I of this Annual
Report. You are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on
these statements. The forward-looking statements are based on information available to us as of the filing date of this Annual Report. Unless required by
law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should,
however, review the factors and risks we describe in the reports we will file from time to time with the SEC, after the date of this Annual Report.
This Annual Report Form 10-K also contains estimates, projections and other information concerning our industry, our business, and the markets in which
we compete, including data regarding the estimated size of these markets. Information that is based on estimates, forecasts, projections, market research or
similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances
reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys,
studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and
similar sources.
Market, Industry and Other Data
This Annual Report contains estimates, projections and other information concerning our industry, our business, and the markets for our products and
services. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and
actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated,
we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies
and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar
sources.
Risk Factor Summary
Our business is subject to a number of risks, a summary of which is set forth below. These risks are discussed more fully in Part I, Item 1A. Risk Factors.
• We are exposed to the credit risk of certain of our customers and distributors.
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Unfavorable macroeconomic conditions may adversely impact our business.
Our recurring losses from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern.
Global supply chain disruption and inflation may have a material adverse effect on the Company's business, financial condition and results of
operations.
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•
Our loan and security agreements contain restrictions that may limit our flexibility to effectively operate our business.
• We will require additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or
at all, could force us to delay, limit, reduce or terminate our product development, commercialization and other operations or efforts.
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It is difficult to forecast our future performance and our financial results may fluctuate unpredictably.
If there is not sufficient patient demand for our procedures, our financial results and future prospects will be negatively impacted.
If we are not able to effectively compete with our competitors, our business may not continue to grow.
• We depend on third-party distributors to market and sell our systems in certain markets.
•
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Although we actively train our customers on the use of our systems and post-treatment care, misuse by the operator of our systems may
result in adverse medical events, which may subject us to claims or otherwise harm our reputation and our business.
The clinical trial process required to obtain regulatory clearances or approvals is lengthy and expensive with uncertain outcomes and could
result in delays in new product introductions.
• We may not be able to adequately protect our intellectual property rights throughout the world.
•
Our devices and our operations are subject to extensive government regulation and oversight both in the United States and abroad, and our
failure to comply with applicable requirements could harm our business.
• We conduct a significant portion of our operations in Israel and therefore our business, financial condition. and results of operations may be
adversely affected by political, economic and military conditions in Israel.
•
•
Our common stock failed to meet the requirements for continued listing on the Nasdaq Global Market and the listing was transferred to the
Nasdaq Capital Market, which could decrease the liquidity of our common stock and our ability to raise additional capital.
The market price of our common stock may be volatile, and you may not be able to resell our common stock at or above the price you paid.
• We do not intend to pay dividends on our common stock, and, consequently, our stockholders’ ability to achieve a return on their investment
will depend on appreciation in the price of our common stock.
•
If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price
may decline.
• We are a smaller reporting company and we have taken advantage of certain exemptions from disclosure requirements available to smaller
reporting companies.
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Item 1.
Business.
Overview
PART I
Venus Concept Inc. (referred to herein, together with its subsidiaries unless the context otherwise denotes, as the “Company,” “Venus Concept,” “us,” "our"
or “we”) is an innovative global medical technology company that develops, commercializes and delivers minimally invasive and non-invasive medical
aesthetic and hair restoration technologies and related services. Our systems have been designed on cost-effective, proprietary and flexible platforms that
enable us to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including
family and general practitioners and aesthetic medical spas. In the years ended December 31, 2022 and 2021, respectively, a substantial majority of our
systems delivered in North America were in non-traditional markets.
We have had recurring net operating losses and negative cash flows from operations. As of December 31, 2022 and December 31, 2021, we had an
accumulated deficit of $224.1 million and $180.4 million, respectively. Until we generate revenue at a level to support our cost structure, we expect to
continue to incur substantial operating losses and negative cash flows from operations. In order to continue our operations, we must achieve
profitability and/or obtain additional equity investment or debt financing. Until we achieve profitability, we plan to fund our operations and capital
expenditures with cash on hand, borrowings and issuances of capital stock. As of December 31, 2022 and December 31, 2021, we had cash and cash
equivalents of $11.6 million and $30.9 million, respectively.
While the impact of COVID-19 on our business has largely subsided, we continue to closely monitor all COVID-19 developments, including its impact on
our customers, employees, suppliers, vendors, business partners, and distribution channels. In addition, the global economy, including the financial and
credit markets, has recently experienced extreme volatility and disruptions, including increases to inflation rates, rising interest rates, foreign currency
impacts and declines in consumer confidence, and declines in economic growth. All these factors point to uncertainty about economic stability, and the
severity and duration of these conditions on our business cannot be predicted.
Venus Viva®, Venus Viva® MD, Venus Legacy®, Venus Concept®, Venus Versa®, Venus Fiore®, Venus Freedom™, Venus Bliss™, Venus Bliss Max™,
NeoGraft®, Venus Glow™®, ARTAS®, ARTAS iX®, and AI.ME™, are trademarks of the Company and its subsidiaries. Our logo and our other trade
names, trademarks and service marks appearing in this document are our property. Other trade names, trademarks and service marks appearing in this
document are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this document appear without
the TM or the ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our
rights, or the rights of the applicable licensor to these trademarks and trade names.
Products and Services
We derive revenue from the sale of products and services. Product revenue includes revenue from the following:
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the sale, including traditional sales and subscription-based sales, of systems, inclusive of the main console and applicators/handpieces
(referred to as system revenue);
marketing supplies and kits;
service revenue; and
replacement applicators/handpieces.
Service revenue includes revenue derived from our extended warranty service contracts provided to our existing customers.
Systems are sold through traditional sales contracts, our subscription model, and through distributors. In the third quarter of 2022 we commenced an
initiative to reduce our reliance on system sales sold under subscription agreements in the United States. This strategic shift is designed to improve cash
generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment caused by the
coexistence of high inflation and high interest rates.
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We generate revenue under our subscription-based business model and from traditional system sales. Venus Concept Ltd., a wholly owned subsidiary of
ours ("Venus Ltd.") commenced a subscription-based model in North America in 2011. Our subscription model is also available in targeted international
markets in which we operate directly. Approximately 42% and 51% of our total system revenues were derived from our subscription model in the year
ended December 31, 2022 and 2021, respectively. We currently do not offer the ARTAS iX system under the subscription model. For additional details
related to our subscription model, see Item 1. Business – Subscription-Based Business Model.
Our subscription model includes an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% to 45% of
total contract payments collected in the first year. To ensure that each monthly payment is made on time and that the customer’s system is serviced in
accordance with the terms of the warranty, every product purchased under a subscription agreement requires a monthly activation code, which we provide
to the customer upon receipt of the required monthly payment. These recurring monthly payments provide our customers with enhanced financial
transparency and predictability. If economic circumstances are appropriate, we provide customers in good standing with the opportunity to “upgrade” into
our newest available or alternative Venus Concept technology throughout the subscription period. This structure can provide greater flexibility than
traditional equipment leases secured through financing companies. We work closely with our customers to provide business recommendations that improve
the quality of service outcomes, build patient traffic and improve financial returns for the customer’s business.
We have developed and received regulatory clearance for twelve novel aesthetic technology platforms, including our ARTAS and NeoGraft systems. We
believe our ARTAS and NeoGraft systems are complementary and give us a hair restoration product offering that can serve a broad segment of the market.
Our medical aesthetic technology platforms have received regulatory clearance for a variety of indications, including treatment of facial wrinkles in certain
skin types, temporary reduction of appearance of cellulite, non-invasive fat reduction (lipolysis) in the abdomen and flanks for certain body types and relief
of minor muscle aches and pains in jurisdictions around the world.
In the United States, we have obtained 510(k) clearance from the United States Food and Drug Administration ("FDA") for our Venus Viva, Venus Viva
MD, Venus Legacy, Venus Versa, Venus Velocity, Venus Bliss, Venus Bliss Max, Venus Epileve, Venus Fiore, AI.ME, ARTAS and ARTAS iX systems.
Outside the United States, we market our technologies in over 60 countries across Europe, the Middle East, Africa, Asia-Pacific and Latin America.
Because each country has its own regulatory scheme and clearance process, not every device is cleared or authorized for the same indications in each
market in which a particular system is marketed.
As of December 31, 2022, we operated directly in 15 international markets through our 12 direct offices in the United States, Canada, United Kingdom,
Japan, South Korea, Mexico, Spain, Germany, Australia, China, Hong Kong, and Israel.
Our revenues for the year ended December 31, 2022, and 2021 were $99.5 million and $105.6 million, respectively. We had a net loss attributable to Venus
Concept of $43.7 million and $23.0 million for the year ended December 31, 2022, and 2021, respectively. We had an Adjusted EBITDA loss of
$25.4 million and $10.6 million for the year ended December 31, 2022, and 2021, respectively.
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Market Overview
Aesthetic Procedures
The market for aesthetic procedures is large, growing, global in scale, and comprised of both surgical and non-surgical procedures. The International
Society of Aesthetic Plastic Surgery reported approximately 30.4 million cosmetic procedures worldwide in 2021. Total cosmetic procedures worldwide in
2021 was comprised of approximately 12.8 million surgical cosmetic procedures and approximately 17.6 million non-surgical cosmetic procedures. Total
non-surgical procedures worldwide in 2021 included approximately 12.9 million injectable procedures – primarily neurotoxin and hyaluronic acid fillers –
with the remaining 4.7 million non-surgical, non-injectable procedures worldwide in 2021 representing annual addressable procedure opportunity for our
minimally invasive and non-invasive medical aesthetic technologies.
Hair Restoration Procedures
According to the “2022 Practice Census Results Report” from the International Society of Hair Restoration (“ISHRS”), an estimated 703,183 patients
worldwide had a surgical hair restoration procedure in 2021 and estimated the global market for surgical hair restoration treatments totaled $4.5 billion in
2021.
We believe several factors are contributing to the growth in the aesthetic and hair restoration markets, including:
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Continuing focus on body image and appearance. Both women and men continue to be concerned with their body image and appearance.
Additionally, since the emergence of COVID-19, people spend more time viewing their unfiltered, real-time images through
videoconferencing which increases the growing demand for aesthetic procedures.
Wide acceptance of aesthetic procedures. According to the American Society for Aesthetic Plastic Surgery (“ASAPS”), in 2021, people in the
U.S. spent more than $14.6 billion on combined surgical and non-surgical aesthetic procedures. The number of non-surgical procedures has
increased, growing 44% from 2020 to 2021, and the number of surgical procedures growing 54% over the same period.
Broader availability of minimally and non-invasive procedures. Technological developments have resulted in the introduction of a broader
range of safe, effective, easy-to-use, and low-cost minimally invasive and non-invasive aesthetic procedures, with fewer side effects. This has
resulted in wider adoption of aesthetic procedures by practitioners. According to the ASAPS, nonsurgical procedures were performed more
often in 2021 than surgical procedures. There has also been a market shift to less invasive hair restoration procedures such as follicular unit
extraction ("FUE") surgery which, according to ISHRS, is the most common method among males (75.4%), followed by strip/linear
harvesting (21.3%) and combination strip and FUE (3.3%). The most common type of procedure among female patients is also FUE (57.0%)
followed by strip/linear harvesting (41.7%).
Increased physician focus and changing practitioner economics. Managed care and government payor reimbursement restrictions in the
United States, and similar payment-related constraints outside of the United States, are motivating practitioners to establish or expand their
elective aesthetic practices with procedures that are paid for directly by patients. As a result, in addition to traditional aesthetic providers, non-
traditional providers have begun to perform these procedures.
Increasingly affordable treatment solutions. New, lower cost technologies combined with procedure pricing pressures will broaden the patient
population for minimally invasive and non-invasive aesthetic procedures, which we believe will continue to contribute to increased market
demand.
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Aesthetic Solutions
Traditional Aesthetic Treatment Options and Their Limitations
We believe that several limitations have restricted the growth of traditional aesthetic technologies and that patients who do not require significant skin
tightening, cellulite reduction, circumferential reduction or body contouring will explore non-invasive alternatives to minimize the pain, expense,
downtime, and surgical risks associated with current invasive procedures. Most existing non-invasive procedures are based on various forms of directed
energy treatments, such as Radiofrequency (“RF”), Intense Pulsed Light (“IPL”), lasers using various wavelengths, shockwave therapy or ultrasound.
Most traditional aesthetic technologies present several limitations, including surgical risks, potentially painful and medication-dependent surgical recovery,
pain and discomfort, potentially undesired results. In addition, traditional aesthetic technologies are limited in efficacy by the relative skill and technique of
the operator, and patient access to invasive treatments is often limited by cost.
Our Aesthetic Technology Solutions
We have designed a suite of medical aesthetic systems that use our proprietary multipolar pulsed technology ("(MP)2") technology to address the
limitations of existing medical aesthetic technologies and procedures. Our systems have the following characteristics:
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Non-invasive. Our systems use technologies that are primarily non-invasive. Our core (MP)2 technology combines multipolar RF and
magnetic pulse synthesizers to homogenously raise temperature over the entire treatment area and multiple skin layers. Controlled, targeted,
uniform heat distribution and the ability to maintain clinically acceptable therapeutic temperature for the entire treatment results in no heat
spikes (thermal surges) and eliminates the need for topical cooling agents.
Easy-to-use and delegable technology. We believe that the effective use of our aesthetic systems is not technique-dependent and requires
limited training and skills to obtain successful aesthetic results. This allows physicians to leverage their own time and increase throughput
since procedures can be performed by non-physician operators, subject to local regulations. We design our systems to be easy to operate with
this benefit in mind.
Results for broad range of skin types. Our (MP)2 technology uses proprietary algorithms that harness the benefits of both RF and Pulsed
Electromagnetic Field Therapy (“PEMF”) therapy. This resulting energy matrix penetrates multiple layers of skin, raising temperature
homogenously and effectively. We believe this type of skin penetration improves treated conditions and provides visible results for a broad
range of skin types.
Technology enables products to be designed for affordability. Our technology enables us to focus on designing and manufacturing products at
an affordable cost. We offer our products at competitive prices without sacrificing quality, while maintaining our margin objectives. Our
competitive prices and subscription model also allow our customers the ability to offer more affordable treatment options to patients.
Our Competitive Advantages for the Aesthetic Market
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Expands potential market. Our subscription-based model enables us to sell to both traditional and non-traditional customers without the
involvement of third-party lenders, which allows us to reach many customers who choose not to purchase competitors’ aesthetic products
because of the barriers associated with equipment financing.
Maintains strong customer relationships. Our “high-touch” customer philosophy leads to continuous interactions with our customers and
enables us to cultivate strong and long-term relationships.
Controls secondary market resales. Our 30-day activation code technology also reduces the risk that our products will be resold in the
secondary market without authorization. This allows us to control the various distribution channels for our products and maximize the value
of our products after purchase.
Opportunities for access to the newest available Venus Concept’s technology and revenue enhancement. Where the conditions are appropriate,
our customers have the opportunity to upgrade into our newest available or alternative technology. In addition, our customers participate in
the most current marketing and branding activities we offer. Our quarterly educational webinars, online promotions events, and periodic
remote consultations lead to continuing client interaction and the ability to expand the client’s business and service offerings.
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Competitive Advantages for Our Customers in the Aesthetic Market
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Return on investment. By spreading payments over a 36-month period, our subscription-based model is designed to help our customers
achieve positive cash-flow from their investment in our systems, thus reducing a portion of implementation risk and concerns associated with
large initial capital outlays.
Expansion of services. Our aesthetic systems allow customers to expand the services offered within their practices. A majority of our systems
can be used to treat more than one clinical indication, and some products can be purchased as a modular platform that can be modified to
match the needs of a growing aesthetic business. To the extent we are successful in receiving FDA and other clearances for additional clinical
indications, the value of our modular platform technologies to customer practices may be further enhanced.
Leverage physician time and clinic infrastructure. Subject to the local laws of each state in the United States and in other jurisdictions, our
physician customers may delegate these non-invasive procedures to nurse practitioners, technicians, and other non-physician trained operators
as long as the systems are operated under the physician supervision. We believe that this creates leverage to save physician time and requires
the use of less practice infrastructure.
Customer Business Development program. Our customer business development program offers marketing and clinical support to our
customers. These services focus on improving practice or clinic revenue performance, as well as the customers’ overall financial and business
metrics. In addition, we provide remote educational programs that focus on driving best practices and increasing clinical and economic
performance of our customers.
Hair Restoration Solutions
The treatments for hair loss can broadly be divided between non-surgical options and surgical procedures.
Non-Surgical Options
Traditional non-surgical options for hair loss include prescription therapeutics and non-prescription remedies. In the United States, the FDA has authorized
two prescription therapeutics for hair loss: Rogaine which is applied topically, and Propecia, a pharmaceutical ingested in pill form. Both Rogaine and
Propecia have several drawbacks, including limited efficacy in some individuals, potential side effects and the need for strict patient compliance for the
treatment to have meaningful effect.
Surgical Procedures
Surgical procedures to address hair loss, specifically follicular unit transplantation (“FUT Strip Surgery”) and FUE, continue to evolve and become more
popular. FUE is significantly less invasive than FUT Strip Surgery, which requires the physician to surgically remove a large strip of the patient’s scalp and
implant individual hair follicles from the strip into the patient’s scalp. This procedure results in a linear scar at the donor area. In a FUE procedure, the
physician or technician removes individual hair follicles from the patient’s scalp without removing a strip of tissue. Because a strip of the patient’s scalp is
not removed, a FUE procedure avoids a long linear scar and reduces the post-operative pain and numbness associated with strip surgery. FUE can be
performed with manual hand-held punches, automated hand-held devices (e.g., NeoGraft) ("Manual FUE") or robotically with the ARTAS System.
Limitation of Traditional Hair Loss Treatment Options
While FUT Strip Surgery and Manual FUE can provide significant, long-term results in restoring hair, there are several limitations associated with these
procedures, including the demanding training and major investment of time required for a physician or technician to become proficient, the labor intensive
nature of the procedures, the ability of physician or technician to effective create sites for hair follicle implantation, and the risk of inconsistence of
physician or technician performance.
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Our Hair Loss Treatment Solutions
The ARTAS Solution
We believe the ARTAS System addresses many of the shortcomings of other hair restoration procedures. The ARTAS System is capable of robotically
assisting a physician through many of the most challenging steps of the hair restoration process, including the dissection of hair follicles, site planning and
recipient site making. We believe, with this assistance, the ARTAS System can help shorten the often-long learning curve for both physicians and
technicians to become proficient in performing hair restoration procedures. In addition, we believe that by assisting the physician and technicians with
many of the repetitive tasks associated with the hair restoration procedures, the ARTAS System can make hair restoration procedures less labor intensive
and can reduce operator fatigue, thereby reducing inconsistent results. Further, we believe the ARTAS System’s site making functionality, which includes
an enhanced imaging system and sophisticated algorithms, helps physicians avoid damaging existing follicles and enables them to create a more natural,
aesthetically pleasing outcome for the patient. In March 2018, we received 510(k) clearance from the FDA to expand the ARTAS technology to include
implantation of harvested hair follicles into our ARTAS iX System for sale in the United States. As of December 1, 2022, the ARTAS iX conforms to the
European Union’s (“EU”) “Low Voltage Directive” which allows us to affix the CE Mark and market the ARTAS iX system in the EU.
We strategically market the ARTAS System to hair restoration surgeons, dermatologists, plastic surgeons and aesthetic physicians. We believe we can reach
our target physician customers effectively through focused marketing efforts. These efforts include participation in trade shows, scientific meetings,
educational symposiums, webinars, online advertising and other activities. For physicians who purchase the ARTAS System, we provide comprehensive
clinical training and practice-based marketing support. For example, we believe we help our physician customers increase the number of procedures
performed by assigning a business development manager (“BDM”) to aid in building the physician-customer’s hair restoration practice. Support from a
BDM includes assistance with recruitment, consultation, and conversion of patients. Additionally, BDMs deploy patient marketing materials, assist with
social media and digital marketing strategies, and provide other marketing and sales support.
Advantages of the ARTAS Procedure
Patient Value
We believe the ARTAS System significantly improves the patient experience and outcome in hair transplantation procedures in the following ways:
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The ARTAS procedure provides patients with a minimally invasive, less painful alternative to FUT Strip Surgery. The ARTAS System has a
faster recovery time and avoids the long linear scar at the back of the patient’s head.
Through the ARTAS System, the dissection of grafts is performed in a manner that leaves only small pinpoint scars that heal faster and are
less detectable than the larger post-operative linear scar that would be produced from FUT Strip Surgery. As a result, an ARTAS procedure
can, in many cases, offer a shorter recovery time and can enable patients to resume their daily lifestyle faster than with strip surgery. In
addition, the ARTAS procedure allows patients to wear their hair shorter without a noticeable scar.
The ARTAS site making functionality translates the physician-patient site design onto the patient’s recipient area. The ARTAS System’s
enhanced imaging system and sophisticated algorithms enable the ARTAS System to rapidly create recipient sites at precise depths, replicate
pre-existing hair angles, avoid damaging the healthy pre-existing hair and adjust the distribution of the recipient sites to optimally fill in the
transplantation area. We believe these elements can contribute to a superior aesthetic outcome.
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Table of Contents
Physician Value
the ARTAS
We
believe
achieve consistent
existing dermatology, plastic surgery or aesthetics practices whether they do or do not currently provide hair restoration procedures in the following ways:
compelling
physicians
the ARTAS procedure also offers an attractive addition
physicians with
result, we believe
provides
results. As a
reproducible
economic
benefits
enables
System
and
to
to
•
•
•
We believe the ARTAS System and ARTAS 3D pre-operative planning software application provide compelling benefits for physicians. The
ARTAS System’s image-guided robotic capabilities allow physicians to perform procedures with fewer staff than what might be required for a
traditional FUT Strip Surgery or a Manual FUE procedure. With the robotic assistance provided by the ARTAS System, we believe physicians
and technicians will be able to perform the complicated, repetitive and often tedious task of dissecting hair grafts with less fatigue and greater
productivity than would be possible in a Manual FUE procedure.
Hair restoration procedures are generally paid for by the patient and do not involve the complexity of securing reimbursement from third-
party payors.
As we provide high quality training for physicians and their clinical teams on the use of the ARTAS System and because the robotic system
and its intelligent algorithms assist these teams in performing hair restoration procedures, we believe we can significantly shorten the learning
curve necessary for hair transplantation procedures using the ARTAS System. This shortened learning curve can reduce barriers to entry for a
new hair restoration practice. It can also ease the adoption of a new technology into existing practices.
Clinically-Established Results
Four peer-reviewed clinical publications have demonstrated the quality and consistency of grafts produced by the ARTAS System. One published study
indicated average damage rates for the hair follicles, or transection rates, with the ARTAS System were as low as 6.6%, with a second study documenting
average transection rates as low as 4.9% in a separate population of patients. The third study documented that the ARTAS System can be programmed by
the physician to select follicular units with larger groupings of hairs while skipping single hair grafts, which allows physicians to choose particular
follicular units depending on the hair density they are trying to achieve, providing a clinical benefit as measured by the increase in hairs per harvest of 17%
and as measured by the increase in hairs per graft of 11.4%. Results were statistically significant with a p-value less than 0.01. This study also demonstrates
the ability of robotic follicular unit graft selection to increase the number of hairs a physician can extract for each incision made in the donor area. The
fourth study demonstrated that FUE cases larger than 2,500 grafts, or mega-sessions, are possible using the ARTAS System. These peer-reviewed
publications demonstrate the reproducibility and consistency of dissection results from the ARTAS System in a diverse group of patients, even as the
system is used by different clinicians. To our knowledge, there are no other peer-reviewed clinical publications that demonstrate the reproducibility of
results utilizing other products in FUE or strip surgery procedures. We continue to encourage scientific research in the study of hair restoration to improve
our technology, solutions, enhance understanding of our industry and educate physicians on the capabilities of the ARTAS System.
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Table of Contents
The NeoGraft Solution
We believe that NeoGraft offers a technology solution that complements our robotic hair restoration system and provides an alternative to FUT Strip
Surgery and Manual FUE procedures for our customers and their patients.
Patient Value
•
•
•
Unlike traditional FUT Strip Surgery procedures, the NeoGraft system is minimally invasive. In a FUE procedure using NeoGraft, rather than
surgically removing a portion of the patient’s scalp, each hair graft is individually dissected from the scalp for transplantation. Because a strip
of the patient’s scalp is not removed, a FUE procedure avoids a long linear scar and reduces the post-operative pain and healing process,
reducing the risk of potential infection and pain.
In addition to treating male pattern hair loss for patients with black and brown straight hair, the NeoGraft may also be used for women and
people with curly or light-colored hair.
NeoGraft can be used for fine tuning of small, specific areas of the scalp, temples and temporal peaks.
Physician Value
•
•
The highly ergonomic mechanical NeoGraft system works as a natural extension of the surgeon's hand, allowing for faster and more accurate
harvesting of hair follicles. NeoGraft patients may reach their goal with less time in the procedure room or fewer FUE procedures.
Our NeoGraft system is a lower priced option to our ARTAS System making it a feasible alternative for physicians who do not perform a
large volume of hair restoration surgeries.
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Our Strategy
Our goal is to become a leading global provider of minimally invasive and non-invasive medical aesthetic and hair restoration technologies and their
complimentary products. To achieve this goal, we intend to:
•
•
•
•
•
•
Broaden our portfolio of product offering. We continue to invest in and leverage the extensive energy-based technology developed by our
experienced research and development team in Israel, and we believe that collaboration with the experienced robotic research and
development team in the United States will bring new and innovative technology solutions to the hair restoration and non-invasive and
minimally invasive categories of aesthetic medicine.
Apply robotic technologies to new applications. Our research and development teams in Israel and the United States continue to collaborate
on the development of new and innovative technology solutions to the non-invasive and minimally invasive categories of aesthetic medicine.
We are working on robotically assisted minimally invasive solutions for aesthetic procedures that are primarily treated by surgical
intervention, including the AI.ME platform for which we received FDA 510(k) clearance for fractional skin resurfacing in December 2022. In
addition, we commenced enrollment for our multicentered clinical trial for treatment of wrinkles on the cheeks in March 2022 and will be
working over the coming year with our key clinical advisors in evaluating several new potential clinical applications including treatment of
loose skin, stria and scars. We also believe that robotics, machine vision and artificial intelligence can provide significant improvements in the
delivery of a broad range of non-invasive and minimally aesthetic procedures. We are currently investigating a number of internal
development programs and partnering opportunities for the application of our robotics technologies in a wide range of aesthetic procedures.
Hair restoration market. We continue to focus on providing a complete set of products and services to the hair restoration market. With
ARTAS and NeoGraft, we believe that our hair restoration product offering serves a broad segment of the market.
Expand FDA (and other regulatory agencies) cleared indications for our products. We intend to seek additional regulatory clearances from
the FDA and other national regulatory bodies and to extend the scope of our existing FDA clearance and CE Mark certifications. Additionally,
we intend to expand the scope of marketable indications for our technologies in other markets.
Expand into non-traditional markets. We intend to continue to market our systems to providers of aesthetic services in the large and under-
penetrated non-traditional aesthetic market. We believe the ease of use of our technologies makes our systems suitable for adoption by
physicians and other providers in non-traditional markets, including general and family practitioners and aesthetic medical spas.
Enhance our international operations. We have built a direct sales force through wholly owned subsidiaries in the United States, Canada,
United Kingdom, Japan, South Korea, Mexico, Spain, Germany, Israel, Australia and China, with a majority-owned subsidiary in Hong Kong
and a strong and growing network of international distributors and strategic partners. We have implemented a strategy to bolster our sales and
marketing capabilities internationally and believe we are well positioned to continue to grow our revenue from customers located outside
North America.
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Table of Contents
Our Aesthetic Technologies
We use a variety of technologies that allow us to expand into non-traditional physician markets. One differentiating technology is our
proprietary (MP)2 technology. Our (MP)2 technology is applicable to a wide range of non-invasive skin tightening, wrinkle reduction, body contouring,
cellulite, and fat reduction, which have been cleared in the United States, Canada, and Europe, and we have commenced our entrance into the rapidly
growing feminine wellness market both domestically and internationally. We also currently have solutions based on other technologies such as fractional
ablative RF, IPL and laser technologies, affording a broader set of solution options to address key markets for hair removal, and vascular pigmented lesions,
circumference reduction and fat reduction (lipolysis). As part of our strategy, our Venus Velocity, Venus Viva, Venus Viva MD, Venus Fiore, Venus Bliss,
Venus Bliss Max, Venus Epileve, ARTAS and NeoGraft systems come with integrated internet of things capabilities.
Our (MP)2 Proprietary Technology
Our proprietary (MP)2 technology employs both PEMF and multipolar RF energy in a synergistic manner. (MP)2 is noninvasive and because (MP)2
disperses heat equally across the treatment area, it does not produce potentially painful localized heat spikes, and unlike other devices employing RF, (MP)2
does not require local cooling during treatment.
PEMFs energy is created by running short pulses of electrical current through metal coils, which results in the formation of electromagnetic fields.
Electromagnetic fields, in turn, influence the behavior of charged particles, including various biomolecules, within the range of the electromagnetic field to
cause one or more desired effects at the cellular level. The non-thermal impact of PEMF therapy is used for aesthetic application requiring enhanced
collagen synthesis, for treatment of wounds, and in the management of postsurgical pain and edema.
RF energy, on the other hand, delivers radiofrequency energy that manifests itself as heat within various layers of the skin. The heat generated in the tissue
by application of RF energy directly affects fibroblasts, extra cellular matrix and fat cells, thereby triggering natural wound healing processes of the skin
and resulting in synthesis of new collagen and elastin fibers. In addition, under predetermined conditions, the heat causes contraction of collagen fibers and
lipolysis. In our (MP)2 technology, we employ a multipolar matrix of RF circuits to produce heat, which is distributed evenly across the treatment area and
volume in a proprietary pattern, which results in the quick and uniform heating of the skin layers without overheating any particular area of the skin.
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Table of Contents
Elements of (MP)2 Technology
Benefits of (MP)2 Technology
Our proprietary (MP)2 technology enables medical and aesthetic practitioners to offer a wide range of non-invasive skin tightening and body contouring
solutions with a technology that is cleared for various indications by the FDA, Health Canada and the EU (CE Mark). Additional benefits of using our
(MP)2 technology include:
•
•
Delivery of RF energy in a uniform manner. The volumetric homogeneous distribution of heat reduces localized temperature spikes and eliminates
the requirement to use a cooling aid, resulting in comfortable treatments.
Ergonomic handpieces designed to increase comfort and reduce operator fatigue. The (MP)2 technology offers a user-friendly interface designed
to facilitate intuitive operation, and in most cases does not require an extensive training process.
Our Additional Key Technologies
In addition to our core (MP)2 technology, we have technologies that use fractional RF (delivery of ablation and coagulation to pre-determined fractions of
the skin), IPL and laser technologies that allow us to address key markets for skin resurfacing, wrinkle reduction, body contouring, noninvasive lipolysis
and circumference reduction, hair removal, acne treatment and treatment of vascular and pigmented lesions. In offering these solutions in the markets
where we have marketing clearances or approvals, our goal is to provide improved technologies that are safe and effective for their intended uses and
economically viable for our customers.
Fractional Ablative RF
Fractional ablative/coagulative techniques improve the appearance of skin surfaces by micro-injuring the skin in a fractional manner to trigger a healing
response in the treated area. This both tightens the skin and elicits collagen formation, thus rejuvenating the skin surface. Because our fractional RF
technology does not use lasers or other light technologies, which are skin color dependent, fractional RF can be used on patients of all skin tones.
Fractional RF technology has been incorporated into our Venus Viva applicator, supported by our Venus Viva, Venus Viva MD and Venus Versa systems.
Intense Pulsed Light
Our IPL devices employ non-laser high intensity light sources as part of a high-output flash lamp to produce a broad wavelength of non-coherent light,
usually in the 400 to 1200 nm range, that may be further filtered to narrower bands per specific absorption coefficients of predetermined chromophore
targets and may be applied to remove unwanted hair as well as vascular and pigmented lesions.
We have incorporated IPL technology into our Venus Versa system to expand that treatment offering and to build a modular, upgradable platform that
affords a comprehensive solution for common aesthetic treatments. Specifically, the IPL capability permits users of the Venus Versa systems to offer their
patients the service options of removing unwanted hair, treating acne vulgaris, and treating vascular and pigmented dermal lesions.
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Table of Contents
Diode Lasers
Diode laser technology is a recognized technology for hair removal and lipolysis. The Venus Velocity and Venus Epileve systems achieve hair removal,
permanent hair reduction and treatment of ingrown hair using the diode laser. Both devices employ the laser energy to the treatment area through a chilled
sapphire light guide that conductively cools the skin surface simultaneously with the delivery of laser energy that is absorbed in the hair follicle pigment,
thereby maintaining a lower temperature in the epidermis to enhance the comfort of the procedure and avoid potential epidermal damage while destroying
the hair for hair removal. The Venus Velocity and the Venus Epileve systems allow us to expand our offering in the hair reduction market, which is one of
the most popular non-invasive energy-based aesthetic procedures in the United States.
Our laser technology is also incorporated into our Venus Bliss and Venus Bliss Max devices. The diode laser system is intended for non-invasive lipolysis
of the abdomen and flanks in individuals with a Body Mass Index of 30 or less. The 1064 nm laser emission performs hyperthermic treatment of the
subcutaneous tissue layers and generates an injury to adipocytes (fat cells) through direct heating. The disrupted fat cells and other cellular debris are then
removed through the body naturally.
Electrical Muscle Stimulation (EMS)
Electrical Muscular Stimulation (“EMS”) employs electrical pulses of predetermined frequencies, durations, and intensities for elicitation of healthy muscle
contraction. EMS employs its cycled stimuli of muscles’ warm up contraction/relaxation of the treated area via two electrodes. We have incorporated EMS
technology into Bliss Max and our upcoming Astera device to create comprehensive multi-treatment body solutions.
Micro-Coring
Micro-coring employs a mechanical rotating needle assembly for fractional removal of portions of epidermal and dermal layers of the skin. The sub-
millimetric excised skin columns are evacuated from the skin using a vacuum and the triggered demarcated wound healing process results in fractional skin
resurfacing through the mechanisms of re-epithelization and deposition of newly synthesized collagen. The micro-coring procedure has been initially used
in the ARTAS device for harvesting and implantation of hair follicles. In skin treatment, micro-coring is used by our robotic AI.ME device for fractional
skin resurfacing.
Our Robotic Technology
We believe our robotic technology has improved multiple phases of the hair transplantation procedure, which include harvesting, recipient site making and
implantation.
Harvesting
During the harvesting phase of an ARTAS hair restoration procedure, the robotic arm and integrated vision system work in tandem to identify the optimal
hair follicles to be used in the procedure. The ARTAS vision system uses proprietary algorithms to identify individual hair follicles, growth angle, density,
thickness, length and follicle grouping and to determine which grafts to dissect and the optimal order in which they should be dissected. The algorithms
recalculate 60 times per second, accommodating patient movement, to provide the physician with accurate up-to-date information during the course of the
procedure. We believe these assessments directly correlate to the quality of the outcome, the state of the donor area and the potential viability for
subsequent harvesting for future transplantation procedures.
Once optimal hair follicles for transplant are identified by the ARTAS vison system, these follicles are dissected using a sharp needle to score the epidermis
and a punch, coaxial with the needle, to separate the graft from the surrounding tissue. In the final step of the harvesting phase, the grafts are removed by
the physician or the technician, cleaned, inspected, and prepared for implantation. During the procedure, the physician can customize the dissection
incisions by choosing a needle and punch that will produce 0.8mm, 0.9mm or 1.0mm incisions.
The needle travels at speeds that produce targeted precision and a cleanly scored incision. In a clinical setting, the ARTAS System has been shown to move
from graft to graft at a rate of approximately one to three seconds, thereby enabling the ARTAS System to dissect a graft every two to five seconds, or
approximately 720 to over 1,800 grafts per hour.
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Table of Contents
Recipient Site Making
Prior to the ARTAS System, creating sites to receive harvested grafts was performed manually using a hand-held tool or needle to create hundreds or
thousands of tiny incisions in the scalp. This is a critical step as it creates the hair pattern in which the harvested grafts will grow.
The ARTAS System site making functionality incorporates artificial intelligence and robotics precision to strategically make surgical incision sites for
implanting hair follicles, while identifying and avoiding injuring healthy follicles in proximity of the implantation sites. This allows the patient’s hair to
look more natural and prevents damaging existing healthy hair in the transplant area which we believe results in patients with more hair than if the sites
were created manually.
Robotic recipient site making is performed by the physician, who develops the ARTAS System treatment plan, or map, identifying where to make the
incisions on the patient’s scalp. The treatment plan is prepared using three-dimension modeling software that takes a picture of the patient’s recipient area
and generates a three-dimensional map that is utilized by the ARTAS System. With entry angle accuracy, consistency and precise depth control, the
ARTAS System creates the recipient sites using a small solid core needle or a blade at a rate of approximately 2,500 to 3,000 sites per hour, which is
significantly faster than the approximately 1,500 sites per hour achieved manually.
Implantation
Customers utilizing an ARTAS iX System can utilize the robotic functionality of the system to assist in implanting the dissected follicles. We believe this
robotic implantation functionality will help further shorten the learning curve, improve the consistency and reproducibility of results by protecting
permanent hair, reduce inconsistencies associated with manual implantation, potentially reduce the amount of time each graft spends outside of the scalp
and decrease the overall time required for implantation.
Our Products
Our product portfolio includes nine energy-based systems that provide solutions for various non-invasive aesthetic applications using Venus Concept’s
(MP)² technology, as well as the VariPulse, and/or fractional ablative RF, IPL, or laser technologies. We offer two hair restoration solutions, NeoGraft and
ARTAS, as well as the newest addition to our portfolio, our AI.ME next generation robotic platform for fractional skin resurfacing.
Product name
Venus Legacy
Technology
Venus Legacy combines (MP)2 with Venus
Concept’s VariPulse technology, which is a
software controlled vacuum application,
delivering alternating negative and positive
pressure to the tissue in three predefined
programs, to achieve lymphatic drainage, and
ease applicator movement as vacuum is
applied, and real-time thermal feedback to act
as a workstation, providing homogeneous
heating
tissue depths while
allowing for adjustable pulsed suction.
to multiple
15
Regulatory Clearance
United States
• The Venus Legacy BX is a noninvasive device intended for
use in dermatological and general surgical procedures for females
for the noninvasive treatment of moderate to severe facial
wrinkles and rhytides in Fitzpatrick Skin Types I-IV.
• The Venus Legacy CX using the LB2 and LF2 applicators is
intended for the treatment of the following medical conditions for
delivery of non-thermal RF combined with massage and magnetic
field pulses: relief of minor muscle aches and pain; relief of
muscle spasm; temporary improvement of local blood circulation;
and temporary reduction in the appearance of cellulite.
Canada
Temporary increase of skin tightening, temporary circumferential
reduction, temporary cellulite reduction, temporary and wrinkle
reduction.
EU
Increase of skin tightening, temporary circumferential reduction,
cellulite reduction and wrinkle reduction.
Table of Contents
Product Name
Venus Versa
Venus Viva and Venus
Viva MD
(MP)2,
Technology
Venus Versa is a versatile system based on a
multi-application approach. It is a modular
and upgradable platform that offers the most
in-demand aesthetic treatments by supporting
10 optional applicators which utilize Venus
Concept’s
and
NanoFractional RF technologies. Designed as
an open platform, the Venus Versa can be
configured to best suit a practice’s needs with
the ability to add additional applications as
the practice grows or changes. Depending on
the applicator, or the applicator’s sequence of
use,
the platform can provide multiple
aesthetic solutions.
IPL
and
the
skin. Venus Viva
Venus Viva
is an advanced, portable,
fractional RF system for dermatological
procedures requiring ablation and resurfacing
uses
of
(Nano)Fractional RF and Smart Scan
combination
technologies.
of
technologies
ablation/coagulation
heated zone density control and pattern
generation via a proprietary tip. The energy is
delivered through 160 (Viva) or 80 (Viva
MD) pins per tip into the treated skin and
maintains the surrounding tissue intact and
healthy to support the healing process.
The
allows
16
Regulatory Clearance
United States, EU and Canada
The Venus Versa system is a multi-application device intended
for use in aesthetic and cosmetic procedures.
The SR515 and SR580 IPL applicators are indicated for
treatment of benign pigmented epidermal and cutaneous lesions
including, hyperpigmentation, melasma, ephelides (freckles),
lentigines, nevi, cafe-au-lait macules, benign cutaneous vascular
lesions including port wine stains, hemangiomas, facial, truncal
and leg telangiectasias, rosacea, angiomas and spider angiomas,
poikiloderma of civatte, leg veins and venous malformations.
The HR650, HR690, HR650XL and HR690XL IPL applicators
are indicated for the removal of unwanted hair and to effect
stable long-term or permanent hair reduction for Skin Types I-
IV. Permanent hair reduction is defined as the long-term stable
reduction in the number of hairs re-growing when measured at 6,
9, and 12 months after the completion of a treatment regimen.
The ACDUAL applicator is intended to be used for the treatment
of acne vulgaris.
The Viva applicator is intended for dermatological procedures
requiring ablation and resurfacing of the skin.
The Diamondpolar and Octipolar applicators (United States
only) are noninvasive devices intended for use in dermatologic
and general surgery procedures for females for the noninvasive
treatment of moderate to severe facial wrinkles and rhytides in
Fitzpatrick skin types I-IV.
in
temporary body contouring via skin
The Octipolar applicator (EU and Canada only), is designed for
tightening,
use
circumferential reduction, and cellulite reduction.
United States, EU and Canada
The Venus Viva SR is intended for dermatological procedures
requiring ablation and resurfacing of the skin.
EU and Canada
Using the Diamondpolar applicator for treatment of moderate to
severe wrinkles and rhytides in Fitzpatrick skin types I-IV.
Table of Contents
Product Name
Venus Velocity
Venus Fiore
target
surrounding
the skin simultaneously with
Technology
The Venus Velocity system uses pulsed laser
energy of 800 mm that is absorbed by a
chromophore or pigmented
(e.g.,
melanin in hair follicles) that has high optical
absorption at the selected laser wavelength
tissue. Different
than
the
chromophores are
targeted for different
clinical indications. The selective absorption
of different wavelengths leads to localized
heating and
thermal denaturation and
destruction of the anatomic hair follicle target
with minimal effect on surrounding tissues.
The chilled sapphire light guide conductively
the
cools
delivery of laser energy, thereby maintaining
low temperature in the epidermis to enhance
the comfort of the procedure and avoid
potential epidermal damage.
Venus Fiore incorporates Venus Concept’s
(MP)2 technology, supporting three different
applicators. Venus Fiore has a desktop
configuration and is portable and compact. It
incorporates ATC technology, allowing the
operator to choose a target temperature
within the therapeutic range and have the
system adjust the output power accordingly,
the desired
to automatically maintain
temperature. The applicator
incorporates
three pairs of electrodes, each pair of
electrodes accompanied by a temperature
sensor, allowing the operator to control the
the distal, middle and
temperature
proximal
applicator
of
independently. Venus Fiore has received
clearance in United States, Canada, the EU
and Israel.
in
thirds
the
17
Regulatory Clearance
United States, EU and Canada
The Venus Velocity is intended for all Fitzpatrick skin types,
including tanned skin, for use in dermatology, general and plastic
surgery applications for:
• Hair removal;
• Permanent hair reduction (defined as the long-term stable
reduction in the number of hairs regrowing when measured at 6,
9, and 12 months after the completion of a treatment regimen);
and
• Treatment of pseudofolliculitis barbae.
United States
The Venus Fiore device (K211461) is intended for the treatment
of the following medical conditions; using the Pearl, Diamond
and Slim applicators for delivery of non-thermal RF combined
with massage and magnetic field pulses:
-Relief of minor muscle aches and pain, relief of muscle spasm.
-Temporary improvement of local blood circulation.
-Temporary reduction in the appearance of cellulite.
EU and Canada
The Venus Fiore system is intended for the following:
• With the VG applicator – For improvement of symptoms of
vaginal laxity and vaginal atrophy.
• With the MP applicator – For dermatological procedures
requiring increasing of skin tightening improvement in skin
laxity of the Mons Pubis (MP) area.
• With the LA applicator – For dermatological procedures for
skin tightening improvement in skin laxity of the Labia Majora
(LA) area.
Israel
Aesthetic and functional treatment of the vagina, labia and mons
pubis.
Table of Contents
Product Name
Venus Bliss
Regulatory Clearance
United States and Canada
Using the diode laser system, the Venus Bliss device is intended
for non-invasive lipolysis of the abdomen, flanks, back and
thighs in individuals with a Body Mass Index (BMI) of 30 or
less.
Using the (MP)² applicator (United States only) for delivery of
RF energy combined with massage and magnetic field pulses, the
Venus Bliss device is intended for the treatment of the following
medical conditions:
• Relief of minor muscle aches and pain, relief of muscle spasm
• Temporary improvement of local blood circulation
• Temporary reduction in the appearance of cellulite.
Using the (MP2) applicator (EU and Canada only) is intended
for:
• Temporary increase of skin tightening.
• Temporary circumferential reduction.
• Temporary cellulite reduction.
• Temporary wrinkle reduction. (Canada only)
layers via
the four diode
Technology
The Venus Bliss device consists of a console
(main unit), one RF applicator and four diode
laser applicators. The system, via its different
applicator types, delivers laser and/or bipolar
RF energies, vacuum pressure, and pulsed
magnetic fields to the skin and the underlying
tissues of the treatment area. Venus Bliss
delivers laser energy to the subcutaneous
laser
tissue
applicators connected to the console. The
console utilizes diode
laser modules as
sources of optical energy and the optical
output is fiber-coupled through the applicator
to the treatment area so to increase the
temperature of
in fat
breakdown (lipolysis). In addition, the Venus
Bliss device through the (MP)2 applicator
treatments combined with
provides RF
emitted magnetic
and vacuum
massaging. The RF heating effect, together
with the non-thermal magnetic fields and
vacuum, leads to the temporary reduction in
the appearance of cellulite, temporary relief
of muscle pain and spasm, and improvement
of local blood circulation in the subdermal
layers.
the fat resulting
fields
18
Table of Contents
Product Name
Venus Bliss Max
Technology
Regulatory Clearance
United States
The Venus Bliss Max device is a diode laser system intended for
non-invasive lipolysis of the abdomen, flanks, back and thighs in
individuals with a Body Mass Index (BMI) of 30 or less. In
addition, the Venus Bliss Max device is intended for the
treatment of the following medical conditions; using the MP2
applicator for delivery of RF energy combined with massage and
magnetic field pulses:
• Relief of minor muscle aches and pain, relief of muscle spasm
• Temporary improvement of local blood circulation
• Temporary reduction in the appearance of cellulite.
In addition, the Venus Bliss Max device using the FlexMAX
applicators is intended for muscle conditioning to stimulate
healthy muscles. The Venus Bliss Max device using the
FlexMAX applicators is not intended to be used in conjunction
with therapy or treatment of medical diseases or medical
conditions of any kind. The Venus Bliss Max device using the
FlexMAX applicators is intended to be operated by a trained
professional
individual adjustment of
The Venus Bliss Max device
is a
computerized system comprised of a system
console (main unit), four (4) Diode Laser
applicators, one (1) MP2 (RF+ PEMF+
Vacuum) applicator and four (4) FlexMAX
(EMS) applicators. The system delivers laser,
bipolar RF and biphasic electrical energies,
vacuum pressure, and pulsed electromagnetic
fields (PEMF) to the skin and the underlying
tissues of the treatment area. The device
provides
laser
power, EMS intensity level, and RF power, in
addition to vacuum levels, for each patient.
The console of the Venus Bliss Max device
contains a power supply unit, Laser, RF, and
EMS controllers, (power modules, on main
board), a suction module
(vacuum), a
controller unit (on main board), Laser water
cooling system (power module, on main
board), a touch- screen user interface and
display panel. The applicators are connected
to the console via a cable. The RF applicator
is comprised of various combinations of RF
electrodes, magnetic coils, and vacuum
conduits. The Laser
are
comprised of a light guide, touch sensors and
light-emitting diodes. The EMS applicator is
comprised of two electrodes and a light
indicator.
applicators
19
Table of Contents
Product Name
Venus Glow
to
is used
Technology
Venus Glow consists of a console and
improve skin
applicator. It
appearance using powerful
tri-modality
treatment combining a rotating tip, a vacuum
modality and a jet. Venus Glow deep-cleans
pores by removing impurities such as daily
dirt and debris, dry or dead skin cells, and
excess sebum.
Regulatory Clearance
United States (listed as a Class I device by the FDA)
Motorized dermabrasion device.
Canada (listed as a Class I device).
EU
Not a medical device.
NeoGraft
Venus Concept’s NeoGraft device is an
advanced hair restoration technology with an
automated FUE and implantation system.
The procedure leaves no linear scar and is
minimally invasive.
United States (listed as a Class I device by the FDA)
Surgical instrument motors and accessories that are intended for
use during surgical procedures to provide power to operate
various accessories or attachments to cut hard tissue or bone and
soft tissue.
Canada (listed as Class I without indication)
EU
Hair Transplant device
Venus Epileve
target
The Venus Epileve system uses pulsed laser
energy of 800 mm that is absorbed by a
(e.g.,
chromophore or pigmented
melanin in hair follicles) while skin surface is
being chilled, for different indications of hair
removal and permanent hair reduction. Venus
Epileve is intended to provide an entry level,
affordable
non-traditional
markets for hair removal of all skin types.
solution
for
20
EU and Canada
The Venus Epileve is intended for all Fitzpatrick skin types,
including tanned skin, for use in dermatology, general and plastic
surgery applications for hair removal, permanent hair reduction
(defined as the long-term stable reduction in the number of hairs
re-growing when measured at 6, 9, and 12 months after the
treatment of
completion of a
pseudofolliculitis barbae.
regimen); and
treatment
Regulatory Clearance
United States and Canada
Harvesting hair follicles from the scalp in men diagnosed with
androgenic alopecia who have black or brown straight hair. The
ARTAS System is intended to assist physicians in identifying
and extracting hair follicles units from the scalp during hair
transplantation, creating recipient sites and implanting the
harvested hair follicles.
EU
Computer assisted hair follicle harvesting, incision making and
implantation system.
United States
Fractional skin resurfacing
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Product Name
ARTAS iX
AI.ME
includes
vision
Technology
The ARTAS System is comprised of the
the robotic arm,
cart, which
integrated
artificial
system,
intelligence algorithms and a series of
proprietary end effectors employed in an
automatic manner. The accessories at the
distal end of the robotic arm, such as the
automated needle and punch, that interact
with the patient’s scalp and hair follicles and
perform various clinical functions including
hair follicle harvesting and implantation.
The AI.ME System is an interactive, image-
guided, computer assisted system consisting
of several main subsystems. These include a
cart robotic arm, integrated imaging system,
vacuum assembly, coring mechanism, punch
assembly, and computer. The AI.ME system
is a micro coring device controlled by a
robot
removes skin by using a
disposable punch assembly containing six
(6), hollow needle punches inserted into the
skin with a fixed maximum penetration
depth of 3 mm to remove up to 10% of skin
in the treatment area for fractional skin
resurfacing.
that
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Products in Development
Our ongoing research and development activities are primarily focused on improving and enhancing our current technologies, products, and services, as
well as expanding our current product offering with the introduction of new products for different aesthetic, medical and hair restoration applications. We
are currently developing the following products and technologies:
Skin Resurfacing on the AI.ME Platform
The skin resurfacing technology contained in our AI.ME platform is intended to provide a non-surgical alternative to lift and tighten skin for procedures
typically requiring surgical intervention. It uses mechanical vision, artificial intelligence and robotics to achieve the intended outcomes. The punches
utilized for coring are designed not to leave scars on tissue. The skin will be contracted and smoothed after coring by applying a flexible patch to the area
which will allow healing of the skin with predefined directional effect.
Venus Astera
We are working on the next generation of the well-established Venus Legacy product line. This device is intended to extend the capabilities of the original
Venus Legacy system product line by combining (MP)² and VariPulse technologies with real-time thermal feedback and ATC to provide homogeneous
heating to multiple tissue depths while allowing for adjustable pulsed suction to further support deep energy penetration. This will result in enhanced
lymphatic drainage and improved circulation stimulation. The device will come with both hand-held and hands-free applicators which will include (MP)²
and EMS technologies.
Other Developments
Our research and development efforts also currently include research to expand indications, broaden our offering of system applicators, advance our
proprietary (MP)2 technology, add new technologies and indications, develop design improvements and new products, as well as continue to support our
harvesting, site making and implantation functions for the ARTAS iX System, including the enhancements released this year which help promote faster
procedures, achieve more acute angles for a more natural looking hairline, and includes a new training and demo mode for a more expedited training
process and more life-like consultations.
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Clinical Developments
We continue to invest in research and development to support our technology, marketing and post-marketing surveillance. We also have a portfolio of 34
peer-reviewed publications and more than 20 white papers, many of which pertain to indications cleared outside of the United States to educate users in
other countries and to study expanded indications in the United States. Authors for several of these publications hold stock options in Venus Concept or
were paid consultants for us.
Research has shown that (MP)2 technology improves aspects of textural lesions and body contouring. The fractional RF has been shown to improve skin
structure, including wrinkles and scars through ablation and resurfacing. IPL technology used in the Venus Versa has shown to be versatile and effective for
treating vascular and pigmented lesions, acne and rosacea. Our diode laser technology has been shown to be effective for lipolysis and reduction of fat layer
thickness, as well as efficiently effecting hair reduction/removal. Additionally, the Venus Fiore device has demonstrated ability to improve symptoms
related to vaginal atrophy.
We have a number of ongoing clinical trials covering both new technologies and the development of expanded indications for existing technology. Clinical
trials are conducted frequently to develop new technologies and support existing technologies and their respective enhancements and upgrades.
Sales and Marketing
We market and sell our products and services to the traditional medical aesthetic market including plastic surgeons and dermatologists, as well as to a broad
base of non-traditional physician markets, including general and family practitioners and aesthetic medical spas.
Direct Sales
We currently provide our subscription model and traditional sales model, as well as the associated marketing support programs through our wholly owned
subsidiaries in the United States, Canada, United Kingdom, Japan, South Korea, Mexico, Spain, Germany, Israel, Australia, and China as well as through
Venus Concept’s majority-owned subsidiary in Hong Kong.
Direct sales force
In the United States and select international markets, we use our direct sales force to sell our systems and other products and services. As of December 31,
2022, we had a direct sales and marketing team of approximately 136 employees, managed by one President of Global Sales, four Vice Presidents of
Sales for various international markets and one Vice President of Global Marketing and Product Management. We plan to continue to focus our direct sales
efforts in the North America market and continue to evaluate and optimize our use of direct and distributor resources in our international markets.
Distributors
In countries where we do not operate directly, we sell our products through distributors. As of December 31, 2022, we had distribution agreements in
over 40 countries. We enter into both exclusive and non-exclusive distribution agreements, which generally provide the distributor with a right to distribute
certain of our products within a designated territory. Each agreement sets forth the minimum quarterly purchase commitments and if the distributor fails to
meet its minimum purchase commitments, we have the ability to either convert any exclusive distribution rights to non-exclusive rights during the then-
remaining term or terminate the agreement. To provide more comprehensive customer support, these agreements require our distributors to provide after
sales service to customers, such as training and technical support, and various marketing activities, such as preparing and executing marketing plans and
working with key market leaders in the designated territory to promote the product.
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Marketing and Branding Programs
We are focused on, and invest heavily in, direct-to-consumer marketing initiatives to increase awareness of our products and services. We believe our
marketing activities are both cost effective and critical in supporting the continued growth and development of our business. As of December 31, 2022, we
had a Vice President of Global Marketing and Product Management, with regional marketing support in select countries. We have an internal team of
digital marketing, brand, marketing operations and events specialists that support North America and our regional markets.
We implemented business to business and business to customer public relations outreach strategies that incorporates both digital media and top national
media channels in the fashion and beauty industries and have a presence on the most popular social media channels, such as Facebook, Twitter, YouTube,
Pinterest, LinkedIn and Instagram. We also attend major medical and scientific meetings, as well as trade shows. Since some countries require customized
marketing programs, we have hired country-specific marketing managers to ensure that marketing programs are executed successfully in those
jurisdictions.
Customer Support
We provide our customers and authorized distributors with customer support through our fully integrated marketing program and strong clinical and
technical support teams.
Customer Business Development Program
To support the growth initiatives of our customers, we have built a business development strategy that provides customers with a fully integrated marketing
support program with business and marketing tools to grow their practices, improve their financial and business performance, and maximize their return on
investment while also providing sales strategies related to our products and ancillary services. Our customer business development program includes the
following features:
•
•
•
•
•
•
•
Inclusion in an advanced clinic directory that is promoted online to consumers. The full-page listing includes the clinic’s contact information,
business hours, website, social media profiles and a full list of available Venus Concept device treatments.
A comprehensive device launch plan, guidance on effective pricing and bundling strategies and involved in short and long-term business goal
reviews and tracking.
Online courses and private remote workshops related to business strategies and clinic efficiency including customer retention and conversion
strategies, effective patient consultation, credentialing, Venus Concept devices sales talking points, telephone skills, cross-selling and up-
selling techniques, and photography best practices. Our workshops related to marketing strategies include search engine optimization
essentials and cover social media and marketing strategies.
New Customer Launch Kits comprised of a starter package with marketing materials necessary to introduce and promote new Venus Concept
products with a heavy emphasis on a digital and social media strategy.
Analysis of business practices with instruction on effective patient consultation and conversion strategies.
Analysis of current social media and online marketing efforts and guidance on how to attract and convert potential consumers more
efficiently.
For hair restoration customers, access to specialized VeroHair 12 Step Program designed to assist ARTAS and NeoGraft customers with
building a successful hair restoration practice.
Technical and Clinical Support
We warranty our products against defects in materials and workmanship under normal use and service for a period of one year, with certain other products
carrying a different warranty correlating to the number of uses the product undergoes or based upon the perishability of the product. Once the warranty
expires, our customers have the option of purchasing an extended warranty service contract, which is typically for a term of one to three years.
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We maintain a technical and clinical support team to field inquiries, troubleshoot product issues, facilitate sales activities and support the commercial
activities of our direct offices and its international distributors. We provide immediate response technical support to our physician customers and
distributors year-round. In the event that an issue arises, our technical support personnel will work with our customers to determine if a technical issue may
be resolved over the telephone or requires a service visit. In markets where we do not have our own service engineers, the service and support of our
products is managed by our independent distributors. In order to maximize customer “up time,” we proactively deploy replacement systems, modules, and
components to strategic hubs worldwide.
Manufacturing and Quality Assurance
We have our own research and development centers in Yokneam, Israel, and San Jose, California and use three ISO-certified contract manufacturers in
Karmiel, Israel, Mazet, France and Weston, Florida. We assemble the ARTAS System in San Jose, California, while reusable and disposable kits are
assembled exclusively for us by NPI Solutions, Inc. (“NPI”) based in Morgan Hill, California.
We work closely with our manufacturers and perform final quality control testing using our own employees stationed in the manufacturing facilities around
the world. Having over 85% of the production of our systems in close proximity to our research and development and operations facilities enables us to
control the entire process from product development through manufacturing and final testing, allowing us to provide advanced, high-quality systems as
well as the flexibility to create customized solutions for our customers.
Manufacturing facilities that produce medical devices intended for distribution in the United States and internationally are subject to regulation and
periodic unannounced inspection by the FDA and other domestic and international regulatory agencies. In the United States, we are required to
manufacture our products in compliance with the FDA’s Quality System Regulations (“QSR”), which covers the methods and documentation of the design,
testing, control, manufacturing, labeling, quality assurance, packaging, storage, and shipping of our products. In international markets, we are required to
obtain and maintain various quality assurance and quality management certifications. We conform with and are in full compliance with ISO:13485:2016,
CE (MDD→ MDR) and MDSAP.
We maintain a quality system designed to be compliant with quality system management and QSR and have procedures in place to ensure that all products
and materials we purchase conform to our specifications, including evaluation of suppliers, and where required, qualification of the components supplied.
We believe that our current facilities are adequate to support our operations.
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Intellectual Property
Portfolio
We rely on a combination of patent, copyright, trademark and trade secret laws, and confidentiality and invention assignment agreements to protect our
intellectual property rights. As of December 31, 2022, our patent portfolio is comprised of:
•
•
•
14 issued U.S. patents which cover our (MP)2, fractional RF and Directional Skin Tightening technology (including cellulite treatments) that are
associated with six different patent families (the earliest of which will expire in 2028), 9 pending U.S. patent applications, 27 issued foreign
counterpart patents, and 7 pending foreign counterpart patent applications;
5 issued foreign patents covering the NeoGraft system and its methods of use (the earliest of which expired in 2022); and
90 issued U.S. patents primarily covering the ARTAS System and methods of use (the earliest of which expire in 2025, 1 pending U.S. patent
applications, 152 issued foreign counterpart patents, and 8 pending foreign counterpart patent applications.
As of December 31, 2022, our trademark portfolio included the following trademark registrations, pending trademark applications or common law
trademark rights, among others: Venus Viva®,Venus Viva® MD, Venus Legacy®, Venus Concept®, Venus Versa®, Venus Fiore®, Venus Freedom™,
Venus Bliss™, Venus Bliss Max™, NeoGraft®, Venus Glow™®, ARTAS®, ARTAS iX®, and AI.ME™. We continue to file new trademark applications
in many countries to protect our current and future products and related slogans.
License Agreement with HSC Development LLC and James A. Harris, MD
In July 2006, we entered into a license agreement (the “HSC License Agreement”) with HSC Development LLC, or HSC, and James A. Harris, M.D., as
amended, pursuant to which we received an exclusive, worldwide license to develop, manufacture and commercialize products covered by any of the
licensed patent rights or that incorporate the licensed technology in the field of performance of hair removal and implantation, including transplantation,
procedures using a computer controlled system in which a needle or other device carried on a mechanized arm is oriented to a follicular unit for extraction
of same, or to an implant site for implantation of a follicular unit, or some combination thereof. Under the HSC License Agreement, we developed the
ARTAS System to be utilized as a robotic system to assist a physician in performing hair restoration procedures. In consideration for the license, we issued
to HSC 25,000 shares of our common stock, prior to the Company’s 1-for-10 reverse stock split, and paid HSC a one-time payment of $25,000. The license
grant is perpetual, and the license agreement does not provide a right for HSC or Dr. Harris to terminate the HSC License Agreement. The licensed patents
cover, in general, a method and device for the extraction of follicular units from a donor area on a patient. The method includes scoring the outer skin
layers with a sharp punch, and then inserting a blunt punch into the incision to separate the hair follicle from the surrounding tissue and fatty layer. The
method and device significantly decrease the amount of follicular transection and increase the rate at which follicular units can be extracted. There are other
embodiments not herein disclosed. The licensed patents will expire from 2025 through 2030.
Competition
The medical technology and aesthetic product markets are highly competitive and dynamic and are characterized by rapid and substantial technological
development and product innovation. Demand for our systems is impacted by the products and procedures offered by our competitors. Certain of our
systems also compete against conventional non-energy-based treatments, such as neurotoxins and dermal fillers, chemical peels, and microdermabrasion. In
the United States, we compete against companies that have developed minimally invasive and non-invasive medical aesthetic procedures. Outside of the
United States, likely due to less stringent regulatory requirements, there are more aesthetic products and procedures available in international markets than
are cleared for use in the United States. Sometimes, there are also fewer limitations on the claims our competitors in international markets can make about
the effectiveness of their products and the manner in which they can market them. As a result, we may face a greater number of competitors in markets
outside of the United States. We also compete generally with medical technology and aesthetic companies, including those offering products and services
unrelated to skin treatment. Recently, there has been consolidation in the aesthetic industry leading to companies combining their resources, which
increases competition and could result in increased downward pressure on our system prices.
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In the surgical hair restoration market, we consider our direct competition to be FUT Strip Surgeries and Manual FUE procedures. Many of our surgical
device and equipment competitors have greater capital resources, sales and marketing operations and service infrastructures than we do, as well as longer
commercial histories and more extensive relationships with physicians. FUT Strip Surgery and some Manual FUE procedures have a greater penetration
into the hair restoration market, due in part to having a longer history in the market. Our indirect competition in the hair restoration market also includes
non-surgical treatments for hair loss, such as prescription therapeutics, including Propecia, and non-prescription remedies, such as wigs, hair pieces and
spray-on applications.
We believe that our competitors’ systems compete largely based on the following factors:
•
•
•
•
•
•
•
•
•
•
company and product brand recognition;
effective marketing and education;
sales force experience and access;
product support and service;
technological innovation, product enhancements and speed of innovation;
pricing and revenue strategies;
product reliability, safety and durability;
ease of use;
consistency, predictability and durability of aesthetic results; and
procedure costs to patients.
Government Regulation
The design, development, manufacture, testing and sale of our products are subject to regulation by numerous governmental authorities, including the FDA,
and corresponding state and foreign regulatory agencies.
Regulation by the FDA
In the United States, the Federal Food, Drug, and Cosmetic Act (“FDCA”), the FDA regulations and other federal and state statutes and regulations govern,
among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing,
manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. The FDA enforces the
FDCA, and the regulations promulgated pursuant to the FDCA.
Each medical device that we wish to distribute commercially in the United States requires marketing authorization from the FDA prior to distribution
unless an exemption applies. The two primary types of FDA marketing authorizations applicable to a device are premarket notification, also called 510(k)
clearance, and premarket approval (“PMA”). The type of marketing authorization is generally linked to the classification of the device. The FDA classifies
medical devices into one of three classes (Class I, II, or III) based on the degree of risk the FDA determines to be associated with a device and the level of
regulatory control deemed necessary to ensure the device’s safety and effectiveness for its intended use(s). Devices requiring fewer controls because they
are deemed to pose lower risk are placed in Class I or II. Class III devices are those for which insufficient information exists to assure safety and
effectiveness solely through general or special controls and include life-sustaining, life-supporting or implantable devices, devices of substantial
importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury.
Most Class I devices and some Class II devices are exempted by regulation from the 510(k) clearance requirement and can be marketed without prior
authorization from the FDA. By contrast, devices placed in Class III generally require PMA approval or approval of a de novo reclassification petition prior
to commercial marketing. The FDA’s 510(k) clearance process usually takes from three to nine months but can take longer. For products requiring PMA
approval, the regulatory process generally takes from one to three years or more, from the time the application is filed with the FDA and involves
substantially greater risks and commitment of resources than either the 510(k) clearance or de novo processes.
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510(k) Clearance
To obtain 510(k) clearance for a medical device, an applicant must submit a premarket notification to the FDA demonstrating that the device is
“substantially equivalent” to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA
has not yet called for PMA approval, commonly known as the “predicate device.” A device is substantially equivalent if, with respect to the predicate
device, it has the same intended use and has either (i) the same technological characteristics or (ii) different technological characteristics and the
information submitted demonstrates that the device is as safe and effective as a legally marketed device and does not raise different questions of safety or
effectiveness. After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would
constitute a major change or modification in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, a de novo
classification or PMA approval.
We have made modifications to our products in the past and have determined based on our review of the applicable FDA regulations and guidance that in
certain instances new 510(k) clearances or PMA approvals were not required.
PMA Approval
A PMA application must be submitted if the device cannot be cleared through the 510(k) process and is found ineligible for de novo reclassification. PMA
applications must be supported by valid scientific evidence, which typically requires extensive data, including technical, preclinical, clinical, and
manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. A PMA application must also include, among other
things: a complete description of the device and its components; a detailed description of the methods, facilities and controls used to manufacture the
device; and proposed labeling. Approval of FDA review of an initial PMA application may require several years to complete.
Clinical Trials
Clinical trials are almost always required to support the FDA’s approval of a premarket approval application and are sometimes required for 510(k)
clearances. If a device presents a “significant risk,” as defined by the FDA, to human health, the device sponsor may need to file an investigational device
exemption (“IDE”) application with the FDA and obtain an IDE approval prior to commencing the human clinical trials. The IDE application must be
supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol
is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a
“non-significant risk” device and eligible for more abbreviated IDE requirements. Clinical trials for a significant risk device may begin once the IDE
application is approved by the FDA and the appropriate institutional review boards (“IRB”). Clinical trials are subject to extensive monitoring,
recordkeeping and reporting requirements.
Similarly, in Europe a clinical study must be approved by the local ethics committee and in some cases, including studies of high-risk devices, by the
ministry of health in the applicable country. In the EU, physico-chemical tests carried out on the medical device may be necessary in order to obtain the CE
mark. These tests must be performed by accredited laboratories for Class II b and III medical devices. The reports and tests are required to be filed in a
technical file submitted to the notified body for validation of and obtaining the CE mark. Regulation 2017/745 (the "MDR") applicable as of May 2021 in
the EU will significantly strengthen the requirements for clinical evaluation (EC). The clinical evaluation for Class II b and Class III medical devices will
be based on a critical evaluation of relevant scientific publications, the results of all available clinical investigations as well as the consideration of other
medical devices with the same purpose. Regulation 2017/745 notably requires the manufacturer to carry out a post-marketing safety monitoring plan,
which includes post-marketing clinical follow-ups (SCAC) in order to update information about the devices marketed throughout its life cycle, and notably
any adverse effects.
Post-market Regulation
Any devices that are manufactured or distributed pursuant to clearance or approval by the FDA are subject to pervasive and continuing regulation by the
FDA and certain state agencies. After a device is placed on the market, numerous regulatory requirements continue to apply. These include establishment
registration and device listing with the FDA, QSR requirements, labeling and marketing regulations, clearance or approval of product modifications,
medical device reporting regulations, correction, removal and recall reporting regulations, Unique Device Identifiers compliance, the FDA’s recall
authority, and post-market surveillance activities and regulations.
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We may be subject to similar foreign laws that may include applicable post-marketing requirements such as safety surveillance. Our manufacturing
processes are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design,
manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices
intended for human use. The QSR also requires, among other things, maintenance of a device master file, device history file, and complaint files. As a
manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA. A failure to maintain compliance with the QSR requirements
could result in the shut-down of, or restrictions on, our manufacturing operations and the recall or seizure of products. The FDA has broad regulatory
compliance and enforcement powers. If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of
compliance or enforcement actions. For additional information on these potential actions and other governmental regulation risks, see Part I, Item 1A “Risk
Factors—Risks Related to Government Regulation” included elsewhere in this report.
Fraud and Abuse Regulations
Federal and state governmental agencies subject the healthcare industry to intense regulatory scrutiny, including heightened civil and criminal enforcement
efforts. These laws constrain the sales, marketing and other promotional activities of medical device manufacturers by limiting the kinds of financial
arrangements they may have with physicians and other potential purchasers of their products. Violations may result in substantial civil penalties, including
treble damages, and criminal penalties, including imprisonment, fines and exclusion from participation in federal health care programs. The Federal False
Claims Act also contains “whistleblower” or “qui tam” provisions that allow private individuals to bring actions on behalf of the government alleging that
the defendant has defrauded the government.
Venus Concept’s products, and treatment using our products, are not reimbursable by Medicare, Medicaid or other federal health care programs, or by
commercial insurance. As a result, many federal and state fraud and abuse statutes do not apply to Venus Concept.
Compliance with applicable United States and foreign laws and regulations, such as import and export requirements, anti-corruption laws such as the
Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, tax laws, foreign exchange controls and cash repatriation restrictions, data privacy
and data security requirements, environmental laws, labor laws and anti-competition regulations, increases the costs of doing business in foreign
jurisdictions. In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country.
Many foreign countries have similar laws relating to healthcare fraud and abuse. Foreign laws and regulations may vary greatly from country to country.
Violations of these laws, or allegations of such violations, could result in fines, penalties, or prosecution and have a negative impact on our business, results
of operations and reputation.
There has been a recent trend of increased foreign, federal, and state regulation of payments and transfers of value provided to healthcare professionals,
such as physicians, and entities. However, certain foreign countries and the U.S. states also mandate implementation of commercial compliance programs,
impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation and other remuneration to
healthcare professionals and entities. Violations of these laws, or allegations of such violations, could result in fines, penalties, or prosecution and have a
negative impact on our business, results of operations and reputation.
Foreign Government Regulation
The regulatory review process for medical devices varies from country to country, and many countries also impose product standards, packaging
requirements, environmental requirements, labeling requirements and import restrictions on devices. Each country has its own tariff regulations, duties, and
tax requirements. Failure to comply with applicable foreign regulatory requirements may subject a company to fines, suspension or withdrawal of
regulatory approvals, product recalls, seizure of products, operating restrictions, criminal prosecution, or other consequences.
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European Economic Area
In the European Economic Area (“EEA”), our devices are required to comply with the Essential Requirements set forth in Annex I to the Council Directive
93/42/EEC concerning medical devices, commonly referred to as the Medical Devices Directive. Compliance with the Medical Devices Directive entitles a
manufacturer to affix the CE mark to its medical devices, without which they cannot be commercialized in the EEA. To demonstrate compliance with the
Essential Requirements and to obtain the right to affix the CE mark to medical devices, they must undergo a conformity assessment procedure, which
varies according to the type of medical device and its classification. Except for low risk medical devices (Class I with no measuring function and which are
not sterile), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the
Essential Requirements, a conformity assessment procedure requires the intervention of a notified body, which is an organization designated by the
competent authorities of an EEA country to conduct conformity assessments. The notified body typically audits and examines products’ Technical File and
the quality system for the manufacture, design and final inspection of our devices before issuing a CE Certificate of Conformity demonstrating compliance
with the relevant Essential Requirements. Following the issuance of this a CE Certificate of Conformity, Venus Concept can draw up an EC Declaration of
Conformity and affix the CE mark to the products covered by this CE Certificate of Conformity and the EC Declaration of Conformity. We have
successfully completed several notified body audits since our original certification in December 2009. Following these audits, our notified body issued ISO
13485:2016 Certificate and CE Certificates of Conformity allowing it to draw up an EC Declaration of Conformity and affix the CE mark to certain of our
devices since 2019 MDSAP Certificate.
After the product has been CE marked and placed on the market in the EEA, a manufacturer must comply with a number of regulatory requirements
relating to:
•
•
•
•
•
registration of medical devices in individual EEA countries;
pricing and reimbursement of medical devices;
establishment of post-marketing surveillance and adverse event reporting procedures;
field safety corrective actions, including product recalls and withdrawals; and
interactions with physicians.
In 2017, the European Parliament passed the Medical Devices Regulation, which repeals and replaces the EU Medical Devices Directive. Unlike directives,
which must be implemented into the national laws of the EEA member States, the regulations would be directly applicable, i.e., without the need for
adoption of the EEA member State laws implementing them, in all the EEA member States and are intended to eliminate current differences in the
regulation of medical devices among EEA member States. The Medical Devices Regulation, among other things, is intended to establish a uniform,
transparent, predictable and sustainable regulatory framework across the EEA for medical devices and in vitro diagnostic devices and ensure a high level of
safety and health while supporting innovation.
The Medical Devices Regulation is now effective. The new regulations will, among other things:
•
•
•
•
•
strengthen the rules on placing devices on the market and reinforce surveillance once they are available;
establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on
the market;
improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in
the EU; and
strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts
before they are placed on the market.
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To the extent that our products have already been certified under the existing regulatory framework, the MDR allows us to market them provided that the
requirements of the transitional provisions are fulfilled. In particular, the certificate in question must still be valid. Under article 120(2) MDR, certificates
issued by notified bodies before May 25, 2017 will remain valid until their indicated expiry dates. By contrast, certificates issued after May 25, 2017 will
be void at the latest by May 27, 2024. Accordingly, before that date, we will need to obtain new CE Certificates of Conformity. Furthermore, the regulation
introduces UDI, i.e. a bar code that must be placed on the label of the device or on its packaging, and manufacturers will be obligated to file adverse effects
reports via the Eudamed platform in case there is an increase in the frequency or severity of incidents related to the medical device.
Environmental Regulation
We are subject to numerous foreign, federal, state, and local environmental, health and safety laws and regulations relating to, among other matters, safe
working conditions, product stewardship and environmental protection, including those governing the generation, storage, handling, use, transportation and
disposal of hazardous or potentially hazardous materials. Some of these laws and regulations require us to obtain licenses or permits to conduct our
operations. Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. Although the costs to
comply with applicable environmental laws and regulations have not been material, we cannot predict the impact on our business of new or amended laws
or regulations or any changes in the way existing and future laws and regulations are interpreted or enforced, nor can we ensure we will be able to obtain or
maintain any required licenses or permits.
Data Privacy and Data Security
We are subject to diverse laws and regulations relating to data privacy and data security, both in the United States and internationally. New global privacy
rules are continually being enacted and existing ones are being updated and strengthened. Failure to comply with any privacy or data security laws
or regulations or any security incident or breach involving the misappropriation, loss or other unauthorized access, use or disclosure of sensitive or
confidential patient or consumer information, whether by us, one of our business associates or another third-party, could have a material adverse effect on
our business, reputation, financial condition and results of operations, including but not limited to: material fines and penalties; damages; litigation; consent
orders; and injunctive relief. For additional information on the risks we face with regard to data privacy and security, please see Part I, Item 1A “Risk
Factors” included elsewhere in this report.
Because the laws and regulations continue to expand, differ from jurisdiction to jurisdiction, and are subject to evolving (and at times inconsistent)
governmental interpretation, compliance with these laws and regulations may require significant additional cost expenditures or changes in products or
business that increase competition or reduce revenue. Noncompliance could result in the imposition of fines, penalties, orders to stop noncompliant
activities, or orders to stop doing business in a jurisdiction.
We are also subject to evolving international laws on data transfer, data localization and electronic marketing. The rules on data transfer will apply when we
transfer personal data to group companies or third parties outside of certain geographies. For example, there is currently litigation challenging companies’
data transfers using the EEA’s standard contractual clauses and use of third-party cookies. It is uncertain whether such transfers will be invalidated by the
European courts. These changes may require us to find alternative bases for the compliant transfer of personal data from the EEA to the United States to
change vendors, or to arrange for local storage of personal data and we are monitoring developments in this area.
Employees
As of December 31, 2022, we had a total of 384 full-time employees. Of the total number of employees, 139 were based in the United States, 76 based in
Canada, 64 based in Israel, and 105 in the rest of the world. Of the total number of full-time employees as of December 31, 2022, approximately 98
were direct sales representatives and sales management. As of December 31, 2021, approximately 120 full-time employees were direct sales representatives
and sales management.
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Corporate Information
We were founded on November 22, 2002 as a Delaware corporation. Our principal executive offices are located at 235 Yorkland Blvd., Suite 900, Toronto,
Ontario M2J 4Y8, Canada and our telephone number is (877) 848-8430. You may find on our website at https://www.venusconcept.com/en-us/ electronic
copies of the Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Such filings are placed on our website as soon as reasonably practicable after they are
filed with the SEC. Our most recent charter for our audit, compensation, and nominating and corporate governance committees and our Code of Business
Conduct and Ethics and our Anti-Corruption Policy are available on our website as well. Any waiver of our Code of Business Conduct and Ethics may be
made only by the Board of Directors of the Company (the "Board"). Any waiver of our Code of Business Conduct and Ethics for any of our directors or
executive officers must be disclosed on a Current Report on Form 8-K within four business days, or such shorter period as may be required under
applicable regulation. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report, and
you should not consider information on our website to be part of this Annual Report. We have included our website address as an inactive textual reference
only.
Available Information
We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information with the SEC. Our filings
with the SEC are available free of charge on the SEC’s website at www.sec.gov and on our website under the “Investor Relations” tab as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
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Item 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties, including those described below, any of which could adversely affect
our business, results of operations, financial condition and prospects. In such an event, the market price of our common stock could decline, and you may
lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely
affect our business operations. You should carefully consider the risks described below and the other information in this Annual Report, including our
audited consolidated financial statements and the related notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Risks Related to Our Business
We offer credit terms to some qualified customers and distributors. In the event that a customer or distributor defaults on the amounts payable to us,
our financial results may be adversely affected.
For the year ended December 31, 2022 and 2021, approximately 42% and 51% of our system revenues were derived from our subscription-based model.
Under our subscription model, we collect an up-front fee, combined with a monthly payment schedule typically over a period of 36 months, with
approximately 40% to 45% of total contract payments collected in the first year. For accounting purposes, these arrangements are considered to be sales-
type finance leases, where the present value of all cash flows to be received under the subscription agreement is recognized as revenue upon shipment of
the system to the customer. We cannot provide any assurance that the financial position of customers purchasing products and services under a subscription
agreement will not change adversely before we receive all the monthly installment payments due under the contract. In the event that there is a default by
any of the customers to whom we have sold systems under the subscription-based model, we may recognize bad debt expenses in our general and
administrative expenses. If the extent of such defaults is material, it could negatively affect our results of operations and operating cash flows.
In addition to our subscription-based model, we generally offer credit terms of 30 to 90 days to qualified customers and distributors. In the event that there
is a default by any of the customers or distributors to whom we have provided credit terms, we may recognize bad debt expenses in our general and
administrative expenses. If the extent of such defaults is material, it could negatively affect our future results of operations and cash flows.
We may also be adversely affected by bankruptcies or other business failures of our customers, distributors, and potential customers. A significant delay in
the collection of accounts receivable or a reduction of accounts receivables collected may impact our liquidity or result in bad debt expenses.
We have initiated and intend to initiate several restructuring programs to improve our operating performance and achieve cost savings, but we may not
be able to implement and/or administer these programs in the manner contemplated and these restructuring programs may not produce the desired
results.
On February 7, 2023, the Company announced its restructuring plan, including workforce reductions, management changes and the discontinuation of
operations in unprofitable markets. Although we expect these initiatives to help us achieve operational improvements and cost savings, we may not be able
to implement these initiatives in the manner contemplated or achieve the desired results. Additionally, the implementation of restructuring programs may
result in additional costs, some of which could be material. Failure to successfully implement our restructuring initiatives may negatively affect our
financial performance.
Our recurring losses from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern.
The accompanying audited 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 audited 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.
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The Company has had recurring net operating losses and negative cash flows from operations. As of December 31, 2022 and December 31, 2021, the
Company had an accumulated deficit of $224,105 and $180,405, respectively, though, the Company was in compliance with all required covenants as
of December 31, 2022, and December 31, 2021. The Company’s recurring losses from operations and negative cash flows raise substantial doubt about the
Company’s ability to continue as a going concern within 12 months from the date that the audited consolidated financial statements are issued. As
of December 31, 2022, management believes the impact of COVID-19 on our business has largely subsided, but we continue to closely monitor all
COVID-19 developments including its impact on our customers, employees, suppliers, vendors, business partners, and distribution channels. In addition,
the global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including 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.
Unfavorable macroeconomic conditions may adversely impact our business and we may need additional capital to fund its future operations.
Given the economic uncertainty in the global 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 audited
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.
Global supply chain disruption and inflation may have a material adverse effect on the Company's business, financial condition and results of
operations.
Global supply chain disruption and inflation may have a material adverse effect on the Company's business, financial condition and results of
operations. The Company maintains manufacturing operations at its facilities in San Jose, California and Yokneam, Israel. We depend on third-party
suppliers and manufacturers to produce components and provide raw materials used to manufacture our products. The disruptions to the global economy in
2021 and 2022 impeded global supply chains and resulted in longer lead times and increased component costs and freight expenses. As a result, our
suppliers or manufacturers may not have the materials, capacity, or capability to timely manufacture our products and alternative suppliers or manufacturers
may not be readily available or cost efficient, which would negatively affect our results of operations. Despite the actions the Company has undertaken to
minimize the impacts from disruptions to the global economy, there can be no assurances that unforeseen future events in the global supply chain, and
inflationary pressures, will not have a material adverse effect on its business, financial condition, and results of operations.
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Our loan and security agreements contain restrictions that may limit our flexibility to effectively operate our business.
CNB Loan Agreement
We have a revolving credit facility with City National Bank of Florida (“CNB”) pursuant to a loan agreement (the “CNB Loan Agreement”) which, among
other things, contains various covenants that limit our ability to engage in specified types of transactions and requires us to maintain either a minimum cash
balance in deposit accounts or a maximum total liability to tangible net worth ratio and a minimum debt service coverage ratio. An event of default under
the CNB Loan Agreement would cause a default under the Notes and the MSLP Loan Agreement each as described below, provided that a waiver of each
default by CNB will also result in the termination of the corresponding default in the Notes. Upon the occurrence, and during the continuance of, an event
of default under the CNB Loan Agreement, if we are unable to repay all outstanding amounts, CNB may foreclose on the collateral granted to it to
collateralize the indebtedness, which would significantly affect our ability to operate our business. In addition, the CNB Loan Agreement is secured by
substantially all of our assets and the assets of certain of our subsidiaries.
For additional details of the CNB Loan Agreement, the related agreements and the covenants to which we are subject, see Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Note 12 “Credit Facility” to the consolidated financial statements included elsewhere in
this report.
Main Street Priority Lending Program Term Loan
On December 8, 2020, Venus Concept USA Inc. ("Venus USA"), a wholly-owned subsidiary of 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 $50.0 million for which
CNB will serve as 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”). Venus USA’s obligations under the MSLP Loan will be secured pursuant to a guaranty of
payment and performance dated as of December 8, 2020 (the “Guaranty Agreement”), by and between the Company and CNB. On December 9, 2020, the
MSLP Loan was funded and the transaction closed. For additional details of the MSLP Loan Agreement, see Note 10 “Main Street Term Loan” to our
consolidated financial statements included elsewhere in this report.
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 our ability to engage in specified types of transactions. Subject to limited exceptions, these covenants limit our ability, without CNB’s consent, to,
among other things, sell, lease, transfer, exclusively license or dispose of our assets, incur, create or permit to exist additional indebtedness, or liens, to
make dividends and other restricted payments, and to make certain changes to our ownership structure.
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Madryn Credit Agreement and Exchange Agreement
On October 11, 2016, Venus Ltd. entered into a credit agreement as a guarantor with Madryn Health Partners, LP, as administrative agent, and certain of its
affiliates as lenders (collectively, “Madryn”), as amended (the “Madryn Credit Agreement”), pursuant to which Madryn agreed to make certain loans to
certain of Venus Concept’s subsidiaries.
Contemporaneously with the MSLP Loan Agreement, the Company, Venus USA, Venus Concept Canada Corp. (“Venus Canada”), Venus Ltd., 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.
In connection with the Exchange Agreement, we also entered into a Guaranty and Security Agreement dated as of December 9, 2020 (the “Madryn
Security Agreement”), pursuant to which we agreed to grant Madryn a security interest in substantially all of our assets to secure the obligations under the
Notes. The Madryn Security Agreement contains various covenants that limit our ability to engage in specified types of transactions. Subject to limited
exceptions, these covenants limit our ability, without the Madryn Noteholders’ consent, to, among other things, incur, create or permit to exist additional
indebtedness, or liens, and to make certain changes to our ownership structure. The Madryn Security Agreement also contains a covenant which requires
that if we or any of our subsidiaries that has guaranteed the Notes consummates a disposition of material assets the result of which is that less than 50% of
the consolidated net tangible assets of such entities secure the Notes then, within 90 days thereafter, we and our subsidiaries party to the Madryn Security
Agreement must provide certain additional collateral so that more than 50% of the consolidated net tangible assets of the Company and its subsidiaries
which have guaranteed the Notes will be collateral securing the Notes.
If an Event of Default occurs, then, the Madryn Noteholders may, subject to certain terms, (i) declare the outstanding principal amount of Notes, all accrued
and unpaid interest and all other amounts owing under the 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 (ii) foreclose on the collateral granted to it to collateralize the indebtedness and
(ii) exercise all rights and remedies available to it under the Notes, the Madryn Security Agreement and any other document entered into in connection with
the foregoing, which would significantly affect our ability to operate our business.
For additional information regarding the Madryn Credit Agreement, the Exchange Agreement, the Notes and related agreements, see Note 11 “Madryn
Long-Term Debt and Convertible Notes” to our consolidated financial statements included elsewhere in this report.
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We will require additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all,
could force us to delay, limit, reduce or terminate our product development, commercialization and other operations or efforts.
Since our inception, we have invested a significant portion of our efforts and financial resources in research and development and sales and marketing
activities. Research and development, clinical trials, product engineering, ongoing product upgrades and other enhancements and seeking regulatory
clearances and approvals to market future products will require substantial funds to complete. As of December 31, 2022, we had capital resources
consisting of cash and cash equivalents of approximately $11.6 million. Further, in order to grow our business and increase revenues, we will need to
introduce and commercialize new products, maintain an effective sales and marketing force, and implement new software systems. We believe that we will
continue to expend substantial resources for the foreseeable future in connection with the ongoing commercializing of our systems, supporting our sales
and marketing efforts, and continuing research and development and product enhancements activities. We will have to continue to increase our revenues
while effectively managing our expenses in order to achieve profitability and to sustain it. Our operating expenses may fluctuate significantly in the future
because of a variety of factors, many of which are outside of our control. Our failure to control expenses could make it difficult to achieve profitability or to
sustain profitability in the future.
Our budgeted expense levels are based in part on our expectations concerning future revenue from systems sales, product sales and servicing and
procedure-based fees. We may be unable to reduce our expenditures in a timely manner to compensate for any unexpected shortfalls in revenue.
Accordingly, a significant shortfall in market acceptance or demand for our systems and procedures could have a material adverse impact on our business
and financial condition.
While we believe that the net proceeds from our recent and announced financing activities, together with our existing cash and cash equivalents, will enable
us to fund our operating expenses and capital expenditure requirements for at least the next 12 months, we may need to raise additional capital through
public or private equity or debt financings or other sources, such as strategic collaborations sooner than expected or otherwise implement additional cost-
saving initiatives. Any such financing may result in dilution to stockholders, the issuance of securities that may have rights, preferences, or privileges
senior to those of holders of our common stock, the imposition of more burdensome debt covenants and repayment obligations, the licensing of rights to
our technology or other restrictions that may affect our business. In addition, we may seek additional capital if favorable market conditions exist or given
other strategic considerations even if we believe we have sufficient capital to fund our current or future operating plans.
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely
basis, we may be required to:
•
•
•
delay
clinical trials that may be required to market such enhancements;
develop
efforts
curtail
our
system
or
to
product
enhancements
or
new
products,
including
any
delay or curtail our plans to increase and expand our sales and marketing efforts; or
delay or curtail our plans to enhance our customer support and marketing activities.
We are restricted by covenants in the MSLP Loan, the Amended CNB Loan Agreement, the PPP Loans, the Madryn Security Agreement and other
government assistance programs. These covenants restrict, among other things, our ability to incur additional indebtedness, which may limit our ability to
obtain additional debt financing.
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Because we incur a substantial portion of our expenses in currencies other than the U.S. dollar, our financial condition and results of operations may
be adversely affected by currency fluctuations and inflation.
In the years ended December 31, 2022 and 2021, 62% and 58%, respectively, of our global revenues were denominated in U.S. dollars and our reporting
currency was the U.S. dollar. We pay a meaningful portion of our expenses in New Israeli Shekels (“NIS”), Canadian Dollars (“CAD”), and other foreign
currencies. Expenses in NIS and CAD accounted for 27% and 15%, respectively, of our expenses for the year ended December 31, 2022, and 28% and
17%, respectively, of our expenses for the year ended December 31, 2021. Salaries paid to our employees, general and administrative expenses and general
sales and related expenses are paid in many different currencies. As a result, we are exposed to the currency fluctuation risks relating to the denomination
of its future revenues in U.S. dollars. More specifically, if the U.S. dollar devalues against the CAD or the NIS, our CAD and NIS denominated expenses
will be greater than anticipated when reported in U.S. dollars. Inflation in Israel compounds the adverse impact of such devaluation by further increasing
the amount of our Israeli expenses. Israeli inflation may also in the future outweigh the positive effect of any appreciation of the U.S. dollar relative to the
CAD and the NIS, if, and to the extent that, it outpaces such appreciation or precedes such appreciation. We generally do not engage in currency hedging to
protect the Company from fluctuations in the exchange rates of the CAD, NIS, and other foreign currencies in relation to the U.S. dollar (and/or from
inflation of such foreign currencies), and we may be exposed to material adverse effects from such movements. We cannot predict any future trends in the
rate of inflation in Israel or the rate of devaluation (if any) of the U.S. dollar or any other currency against the NIS or CAD.
Downturns in the economy or economic uncertainty may reduce patient and customer demand for our systems and services, which could adversely
affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Furthermore, the
aesthetic industry in which we operate is particularly vulnerable to unfavorable economic trends. Treatments using our systems involve elective procedures,
the cost of which must be borne by patients, and is not reimbursable through government or private health insurance. Economic uncertainty may reduce
patient demand for the procedures performed using our systems; if there is not sufficient patient demand for the procedures for which our systems are used,
practitioner demand for these systems could drop, negatively impacting operating results. The decision to undergo a procedure using our systems is driven
by consumer demand. In times of economic uncertainty or recession, individuals generally reduce the amount of money that they spend on discretionary
items, including aesthetic procedures. If our customers’ patients face economic hardships, our business would be negatively impacted, and our financial
performance would be materially harmed in the event that any of the above factors discourage patients from seeking the procedures for which our systems
are used. A weak or declining economy could also strain our manufacturers or suppliers, possibly resulting in supply disruption, or cause our customers to
delay or stop making payments for our systems or services. The impact of economic uncertainty on our industry may vary from region to region.
It is difficult to forecast our future performance and our financial results may fluctuate unpredictably.
The rapid evolution of the markets for medical technologies and aesthetic products makes it difficult for us to predict our future performance. Several
factors, many of which are outside of our control, may contribute to fluctuations in our financial results, such as:
•
•
•
•
•
•
•
•
variations in market demand for our systems and services from quarter to quarter;
the inability of our customers to obtain the necessary financing or access capital;
performance of new functionalities and system updates;
performance of third-party distributors, manufacturers or suppliers;
positive or negative media coverage of our systems, positive or negative patient experiences, the procedures or products of our competitors, or
our industry generally;
our ability to maintain our current, or obtain further, regulatory clearances, approvals or CE Certificates of Conformity;
seasonal or other variations in patient demand for aesthetic procedures; and
introduction of new medical aesthetic procedures or products and services that compete with our products and services.
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Our success depends upon patient satisfaction with our procedures. If there is not sufficient patient demand for our procedures, our financial results
and future prospects will be negatively impacted.
Our procedures are elective aesthetic procedures, the cost of which must be borne by the patient and is not covered by or reimbursable through government
or private health insurance. In order to generate repeat and referral business, patients must be satisfied with the effectiveness of the procedures conducted
using our systems. The decision to undergo one of our procedures is thus driven by patient demand, which may be influenced by a number of factors, such
as the success of our sales and marketing programs, the extent to which our physician customers recommend our procedures to their patients, the extent to
which our procedures satisfy patient expectations, the cost, safety, and effectiveness of our systems versus other aesthetic treatments, and general consumer
confidence, which may be impacted by economic and political conditions outside of our control. Our financial performance will be negatively impacted in
the event we cannot generate significant patient demand for procedures performed with our systems.
We compete against companies that offer alternative solutions to our systems, or have greater resources, a larger installed base of customers and
broader product offerings than we have. If we are not able to effectively compete with these companies and alternative solutions, our business may not
continue to grow.
The medical technology and aesthetic product markets are highly competitive and dynamic and are characterized by rapid and substantial technological
development and product innovation. Demand for our systems is impacted by the products and procedures offered by our competitors. Certain of our
systems also compete against conventional non-energy-based treatments, such as Botox and collagen injections, chemical peels, and microdermabrasion. In
the United States, we compete against companies that have developed minimally invasive and non-invasive medical aesthetic procedures. Outside of the
United States, likely due to less stringent regulatory requirements, there are more aesthetic products and procedures available in international markets than
are cleared for use in the United States. Sometimes, there are also fewer limitations on the claims our competitors in international markets can make about
the effectiveness of their products and the manner in which they can market them. As a result, we may face a greater number of competitors in markets
outside of the United States.
We also compete generally with medical technology and aesthetic companies, including those offering products and products unrelated to skin treatment.
Aesthetic industry consolidations have created combined entities with greater financial resources, deeper sales channels, and greater pricing flexibility than
ours. Rumored or actual consolidation of our competitors could cause uncertainty and disruption to our business. In the surgical hair restoration market, we
consider our direct competition to be FUT Strip Surgeries and Manual FUE procedures. Many of our surgical device and equipment competitors have
greater capital resources, sales and marketing operations and service infrastructures than we do, as well as longer commercial histories and more extensive
relationships with physicians. Our indirect competition in the hair restoration market also includes non-surgical treatments for hair loss, such as prescription
therapeutics, including Propecia, and non-prescription remedies, such as wigs, hair pieces and spray-on applications. Some of these companies have greater
resources than we do, a broad range of product offerings, large direct sales forces, and long-term customer relationships with the physicians we target,
which could make our market penetration efforts more difficult. Competition in the medical technology and aesthetic hair restoration markets could result
in price-cutting, reduced profit margins, and limited market share, any of which would harm our business, financial condition, and results of operations.
Surgical alternatives to the ARTAS System may be able to compete more effectively than the ARTAS procedure in established practices with trained staff
and workflows built around performing these surgical alternatives. Practices experienced in offering FUT Strip Surgery or Manual FUE using hand-held
devices may be reluctant to incorporate or convert their practices to offer ARTAS procedures due to the effort involved to make such changes. These
alternative options may be able to provide satisfactory results for male hair loss, generally at a lower cost to the patient than the ARTAS System. As a
result, if patients choose these competitive alternatives, our results of operation could be adversely affected.
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We may not be able to establish or strengthen our brand.
We believe that establishing and strengthening our brand is critical to achieving widespread acceptance of our systems, particularly because of the highly
competitive nature of the market for aesthetic treatments and procedures. Promoting and positioning our brand will depend largely on the success of our
marketing efforts and our ability to provide physicians with reliable systems and services. Given the established nature of our competitors, it is likely that
our future marketing efforts will require us to incur significant expenses. These brand promotion activities may not yield increased sales and, even if they
do, any sales increases may not offset the expenses we incur to promote our brand. If we fail to successfully promote and maintain our brand, or if we incur
substantial expenses in an unsuccessful attempt to promote and maintain our brand, systems may not achieve adequate acceptance by physicians, which
would adversely affect our business, results of operations and financial condition. Further, negative posts or comments about us or any of our brands on any
social networking website could seriously damage our reputation.
The aesthetic equipment market is characterized by rapid innovation. Our inability to develop and/or acquire new products and services, obtain
regulatory clearance and maintain regulatory compliance, market new products successfully, and identify new markets for our technology may cause
us to fail to compete effectively.
The aesthetic energy-based treatment equipment and hair restoration markets are subject to continuous technological development and product innovation.
If we do not continue to innovate and develop new products, services and applications, our competitive position will likely deteriorate as other companies
successfully design and commercialize new products, applications and services or enhancements to current products. To continue to grow in the future, we
must continue to develop and/or acquire new and innovative aesthetic and medical products, services and applications, identify new markets, and
successfully launch any newly developed or acquired product offerings.
To successfully expand our product and service offerings, we must, among other things, develop or otherwise acquire new products that either add to, or
significantly improve, our current product offerings, obtain regulatory clearance for and adhere to regulatory requirements relating to the commercialization
of new products, sell our product offerings to a broad customer base, identify new markets and alternative applications for our technology, and protect
existing and future products with defensible intellectual property.
Historically, product introductions have been a significant component of our financial performance. To be successful in the medical aesthetics industry, we
believe we need to continue to innovate. Our business strategy is based, in part, on our expectation that we will continue to increase or enhance our product
offerings. We need to continue to devote substantial research and development resources to introduce new products, which can be costly and time-
consuming to our organization.
We also believe that, to increase revenue from sales of new products, we need to continue to develop our clinical support, further expand and nurture
relationships with industry thought leaders, and increase market awareness of the benefits of our new products. However, even with a significant
investment in research and development, we may be unable to continue to develop, acquire or effectively launch and market new products and technologies
regularly, or at all. If we fail to successfully innovate and commercialize new products or enhancements, our business may be harmed.
We depend on third-party distributors to market and sell our systems in certain markets.
In addition to our direct sales and marketing forces, we currently depend on third-party distributors to sell, market, and service our systems in certain
markets outside of North America and to train our customers in these markets. For the years ended December 31, 2022 and 2021, we generated 10% and
9%, respectively, of our systems revenues from sales made through third-party distributors. Our agreements with third-party distributors set forth minimum
quarterly purchase commitments required for each distributor and provide the distributor the right to distribute our systems within a designated territory.
If we continue to expand into new markets outside of North America, we will need to engage additional third-party distributors which exposes us to a
number of risks, including:
•
•
•
the lack of day-to-day control over the activities of third-party distributors;
third-party distributors may not commit the necessary resources to market, sell, train, support and service our systems to the level of our
expectations;
third-party distributors may emphasize the sale of third-party products over our products;
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•
•
•
third-party distributors may not be as selective as we would be in choosing customers to purchase our systems or as effective in training those
customers in marketing and patient selection;
third-party distributors may violate applicable laws and regulations, which may limit our ability to sell products in certain markets; and
disagreements with our distributors that could require or result in costly and time-consuming litigation or arbitration, which we could be
required to conduct in jurisdictions in which we are not familiar with the governing law.
Economic and other risks associated with international sales and operations could adversely affect our business.
Sales in markets outside of the United States accounted for approximately 48% of our revenue for the year ended December 31, 2022 and 51% of our
revenue for the year ended December 31, 2021. In addition, the majority of our research and development activities and the manufacture of our systems are
located outside of the United States. As a result of our international business, we are subject to a number of risks, including:
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difficulties in staffing and managing our international operations;
increased competition as a result of more products and procedures receiving regulatory approval or otherwise free to market in international
markets;
longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
reduced or varied protection for intellectual property rights in some countries;
import and export restrictions, trade regulations, and non-U.S. tax laws;
fluctuations in currency exchange rates;
foreign certification and regulatory clearance or approval requirements;
customs clearance and shipping delays;
political, social, and economic instability abroad, terrorist attacks, and security concerns in general and uncertainties related to the
coronavirus;
preference for locally manufactured products;
potentially adverse tax consequences, including the complexities of foreign value-added tax systems, tax inefficiencies related to our
corporate structure, and restrictions on the repatriation of earnings;
the burdens of complying with a wide variety of foreign laws and different legal standards; and
increased financial accounting and reporting burdens and complexities.
If one or more of these risks were realized, it could require us to dedicate significant financial and managerial resources, and our results of operations and
financial condition could be adversely affected.
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We rely on a limited number of third-party contract manufacturers for the production of our systems and only have contracts with certain suppliers for
the components used in our systems. The failure of these third parties to perform could adversely affect our ability to meet demand for our systems in a
timely and cost-effective manner.
We rely on third-party contract manufacturers in Karmiel, Israel, Mazet, France, Weston, Florida and San Jose, California for the manufacture of the
majority of our systems. Other than with respect to the ARTAS iX System and diode stacks for certain of our devices, the majority of the components used
in our systems are available off the shelf and we do not rely on any single supplier, and as a result we do not have any long-term supply agreements for
these components. Our reliance on third-party contract manufacturers and suppliers involves a number of risks, including, among other things:
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contract manufacturers or suppliers may fail to comply with regulatory requirements or make errors in manufacturing that could negatively
affect the efficacy or safety of our systems or cause delays in shipments of our systems;
we or our contract manufacturers or suppliers may not be able to respond to unanticipated changes in customer orders, and if orders do not
match forecasts, we or our contract manufactures may have excess or inadequate inventory of materials and components;
we or our contract manufacturers and suppliers may be subject to price fluctuations due to a lack of long-term supply arrangements for key
components;
we or our contract manufacturers and suppliers may lose access to critical services and components, resulting in an interruption in the
manufacture, assembly and shipment of our systems;
we may experience delays in delivery by our contract manufacturers and suppliers due to changes in demand from us or their other customers;
fluctuations in demand for systems that our contract manufacturers and suppliers manufacture for others may affect their ability or willingness
to deliver components to us in a timely manner;
our suppliers or those of our contract manufacturers may wish to discontinue supplying components or services to us for risk management
reasons;
we may not be able to find new or alternative components or reconfigure our system and manufacturing processes in a timely manner if the
necessary components become unavailable; and
our contract manufacturers and suppliers may encounter financial hardships unrelated to our demand, which could inhibit their ability to
fulfill its orders and meet our requirements.
If any of these risks materialize, they could significantly increase our costs and effect our ability to meet demand for our systems. If we are unable to satisfy
commercial demand for our systems in a timely manner, our ability to generate revenue would be impaired, market acceptance of our systems and our
reputation could be adversely affected, and customers may instead purchase or use our competitors’ products. In addition, we could be forced to secure new
or alternative contract manufacturers or suppliers. Securing a replacement contract manufacturer or supplier could be difficult. The introduction of new or
alternative manufacturers or suppliers also may require design changes to our medical device products that are subject to the FDA and other regulatory
clearances or approvals, or a new or revised CE Certificate of Conformity. We may also be required to assess the new manufacturer’s compliance with all
applicable regulations and guidelines, which could further impede our ability to manufacture our systems in a timely manner. As a result, we could incur
increased production costs, experience delays in deliveries of our systems, suffer damage to our reputation, and experience an adverse effect on our
business and financial results.
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Both our manufacturing of certain of our systems and NPI’s manufacturing of the ARTAS procedure kits are dependent upon third-party suppliers
and, in some cases, sole suppliers, for the majority of our components, subassemblies and materials, making us vulnerable to supply shortages and
price fluctuations, which could harm our business.
We and NPI, as the case may be, rely on several sole source suppliers for certain components of the ARTAS System, reusable procedure kits, disposable
procedure kits and spare procedure kits. We also rely on other suppliers for some of the components used to manufacture our other devices. These suppliers
may be unwilling or unable to supply components of these systems to us or NPI reliably and at the levels we anticipate or require to meet demand for our
products. For us to be successful, our suppliers must be able to provide products and components in substantial quantities, in compliance with regulatory
requirements, in accordance with agreed upon specifications, at acceptable costs and on a timely basis. An interruption in our commercial operations could
occur if we encounter delays or difficulties in securing these components, and if we cannot then obtain an acceptable substitute. We source a number of
components used in the manufacture of our systems from China and given the lingering effects on global supply chain caused by the COVID-19 pandemic,
access to our existing supply chain may be become impaired, which could result in manufacturing delays and inventory shortages. If we are required to
transition to new third-party suppliers for certain components of our systems or our ARTAS procedure kits, we believe that there are only a few such
suppliers that can supply the necessary components. A supply interruption, price fluctuation or an increase in demand beyond our current suppliers’
capabilities could harm our ability to manufacture our systems and NPI’s ability to manufacture our ARTAS procedure kits until new sources of supply are
identified and qualified. In addition, the use of components or materials furnished by these alternative suppliers could require us to alter our operations.
In addition, our reliance on these suppliers subjects us to a number of risks that could harm our reputation, business, and financial condition, including,
among other things, a lack of long-term supply arrangements for key components with our suppliers, difficulty and cost associated with locating and
qualifying alternative suppliers for our components in a timely manner, production delays related to the evaluation and testing of products from alternative
suppliers, and corresponding regulatory qualifications, delay in delivery due to our suppliers prioritizing other customer orders over ours, damage to our
reputation caused by defective components produced by our suppliers, and increased cost of our warranty program due to product repair or replacement
based upon defects in components produced by our suppliers.
Where practicable, we are seeking, or intending to seek, second-source manufacturers for certain of our components. However, we cannot provide
assurances that we will be successful in establishing second-source manufacturers or that the second-source manufacturers will be able to satisfy
commercial demand for our systems. If any of these risks materialize, costs could significantly increase and our ability to meet demand for our products
could be impacted. If we are unable to satisfy commercial demand for our systems in a timely manner, our ability to generate revenue from these systems
would be impaired.
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Although we actively train our customers on the use of our systems and post-treatment care, misuse by the operator of our systems may result in
adverse medical events which may subject us to claims or otherwise harm our reputation and our business.
We and our independent distributors market and sell our systems to physicians and other customers. In the United States and certain international markets,
subject to local regulations, physician customers may allow nurse practitioners, technicians and other non-physicians to perform aesthetic procedures using
our systems under their direct supervision. Although we and our distributors provide training on the use of our systems as well as the proper post-treatment
care, we do not supervise the procedures performed with our systems, nor can we be certain that physicians are directly supervising procedures according
to our recommendations. The potential misuse of our systems or failing to adhere to operating guidelines can cause skin damage and underlying tissue
damage, which could harm the reputation of our systems and expose us to costly product liability litigation. In addition, patients may not comply with post-
treatment guidelines, which could also lead to adverse results and subject us to claims by patients.
Product liability suits could be brought against us for defective design, labeling, material, workmanship, or software or misuse of our systems, and
could result in expensive and time-consuming litigation, payment of substantial damages, an increase in our insurance rates and substantial harm to
our reputation.
If our systems are defectively designed, manufactured, or labeled, contain defective components or software, or are misused, we may become subject to
substantial and costly litigation by our customers or their patients. For example, if a patient is injured or suffers unanticipated adverse events after
undergoing a procedure using one of our systems, or if system operating guidelines are found to be inadequate, we may be subject to product liability
claims. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we
may incur substantial liabilities. Even successful defense would require significant financial and management resources. Regardless of the merits or
eventual outcome, product liability claims may result in:
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decreased demand for our systems, or any future systems or services;
damage to our reputation;
withdrawal of clinical trial participants;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to customers, patients or clinical trial participants;
regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue; and
the inability to commercialize future products.
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We currently have product liability insurance, but any claim that may be brought against us could result in a court judgment or settlement in an amount that
is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various
exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded
by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to
obtain, sufficient funds to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in
sufficient amounts to protect us against losses.
Third parties may attempt to reverse engineer or produce counterfeit versions of our systems which may negatively affect our reputation, or harm
patients and subject us to product liability claims.
Third parties have sought in the past, and in the future may seek, to reverse engineer or develop counterfeit products that are substantially similar or
compatible with our systems and available to practitioners at lower prices than our own.
Any reverse engineered or counterfeit products that purport to be our systems that are currently in the market or that may be introduced in the future may
harm our reputation and our sale of products. Moreover, if we commence litigation to stop or prevent any unauthorized use of our technology that occurs
from reverse engineering or counterfeiting of our products, or if we have to defend allegations of such unauthorized use of a third party’s technology, such
litigation would be time-consuming, force us to incur significant costs and divert our attention and the efforts of its management and other employees.
Security breaches and other disruptions could compromise our information and expose us to liability.
In the ordinary course of our business and to the extent necessary, we rely on software to control the ongoing use of our systems, collect, and aggregate
diagnostic data, and collect and store sensitive data, including intellectual property and proprietary business information, and certain personally identifiable
information of customers, distributors, consultants and employees in our data centers and on our networks. The secure processing, maintenance, and
transmission of this information is important to our operations and business strategy. We have established physical, electronic, and policy measures to
secure our systems in an attempt to prevent a system breach and the theft of data we collect, and we rely on commercially available systems, software,
tools, and monitoring in our effort to provide security for our information technology systems and the digital information we collect, process, transmit and
store. Despite our security measures, our information technology systems and related infrastructure, and those of our current and any future collaborators,
contractors, and consultants and other third parties on which we rely, may be vulnerable to attacks by computer viruses, malware, hackers, or breaches due
to malfeasance, employee or contractor error, telecommunication or electrical failures, terrorism or other created or natural disasters. Despite our
cybersecurity measures, it is possible for security vulnerabilities to remain undetected for an extended time period, up to and including several years. While
we have experienced, and expect to continue to experience, threats and disruptions to the Company’s information technology infrastructure, none of them
to date has had a material impact to the Company. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software
programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information
technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays,
cessation of service and other harm to our business and our competitive position. Moreover, if a computer security breach affects our systems or results in
the unauthorized release of personally identifiable information, our reputation could be materially damaged. In addition, such a breach may require
notification to governmental agencies, the media, or individuals pursuant to various federal and state privacy and security laws, if applicable, and may be
subject to financial liability to the extent we are not in compliance with privacy laws to which we are subject at the time of a breach. We could also be
exposed to a risk of loss or litigation and potential liability, which could materially adversely affect our business, results of operations and financial
condition.
The clinical trial process required to obtain regulatory clearances or approvals is lengthy and expensive with uncertain outcomes and could result in
delays in new product introductions.
In order to obtain 510(k) clearance for certain of our systems, we were required to conduct clinical trials, and we expect to conduct clinical trials in support
of marketing authorization for future products and product enhancements. Conducting clinical trials is a complex and expensive process, can take many
years, and outcomes are inherently uncertain. We may suffer significant setbacks in clinical trials, even after earlier pre-clinical or clinical trials showed
promising results, and failure can occur at any time during the clinical trial process. Any of our products may malfunction or may produce undesirable
adverse effects that could cause us or regulatory authorities to interrupt, delay or halt clinical trials. We, the FDA, or another regulatory authority may
suspend or terminate clinical trials at any time to avoid exposing trial participants to unacceptable health risks.
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The data we collect from our pre-clinical studies and clinical trials may not be sufficient to support the FDA clearance or approval, and if we are unable to
demonstrate the safety and efficacy of our future products in our clinical trials, we will be unable to obtain regulatory clearance or approval to market our
products.
In addition, we may estimate and publicly announce the anticipated timing of the accomplishment of various clinical, regulatory and other product
development goals, which are often referred to as milestones. The actual timing of these milestones could vary dramatically compared to our estimates, in
some cases for reasons beyond our control. We cannot assure you that we will meet our projected milestones and if we do not meet these milestones as
publicly announced, the commercialization of our products may be delayed and, as a result, our stock price may decline.
Delays in the commencement or completion of clinical testing could significantly affect our product development costs. The commencement and
completion of clinical trials can be delayed or terminated for a number of reasons, including delays or failures related to:
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the FDA or comparable foreign regulatory authorities disagreeing as to the level of risk, design or implementation of our clinical studies;
obtaining regulatory approval to commence a clinical trial;
reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and trial sites, the terms of which can be
subject to extensive negotiation and may vary significantly among different CROs and trial sites;
manufacturing sufficient quantities of a product for use in clinical trials;
obtaining institutional review board, or IRB, or ethics committees’ approval to conduct a clinical trial at each prospective site;
recruiting and enrolling patients and maintaining their participation in clinical trials;
having clinical sites observe trial protocol or continue to participate in a trial;
addressing any patient safety concerns that arise during the course of a clinical trial;
addressing any conflicts with new or existing laws or regulations; and
adding a sufficient number of clinical trial sites.
Patient enrollment in clinical trials and completion of patient follow-up depend on many factors, including the size of the patient population, the nature of
the trial protocol, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, patient compliance, competing clinical trials and
clinicians’ and patients’ perceptions as to the potential advantages of the product being studied in relation to other available therapies, including any new
treatments that may be cleared or approved for the indications we are investigating. Delays in patient enrollment or failure of patients to continue to
participate in a clinical trial may delay commencement or completion of the clinical trial, cause an increase in the costs of the clinical trial and delays, or
result in the failure of the clinical trial.
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We could also encounter delays if the FDA concluded that our financial relationships with our principal investigators resulted in a perceived or actual
conflict of interest that may have affected the interpretation of a study, the integrity of the data generated at the applicable clinical trial site or the utility of
the clinical trial itself. Principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash
compensation and/or stock options in connection with such services. If these relationships and any related compensation to or ownership interest by the
clinical investigator carrying out the study result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have
affected interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial
itself may be jeopardized, which could result in the delay or rejection of our marketing application by the FDA. Any such delay or rejection could prevent
us from commercializing any of our products in development.
Furthermore, a clinical trial may be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, the Data Safety Monitoring
Board for such trial, any of our clinical trial sites with respect to that site, or other regulatory authorities due to several factors, including:
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failure to conduct the clinical trial in accordance with applicable regulatory requirements or our clinical protocols;
inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
inability of a clinical investigator or clinical trial site to continue to participate in the clinical trial;
unforeseen safety issues, governmental regulation or adverse side effects;
failure to demonstrate a benefit from using the product; and
lack of adequate funding to continue the clinical trial.
Additionally, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes.
Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful
completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our
products may be harmed and our ability to generate product revenue from these products will be delayed or not realized at all. In addition, any delays in
completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence
product sales and generate revenue. Any of these occurrences may significantly harm our business, financial condition and prospects significantly. In
addition, many of the factors that cause, or lead to, a delay in the commencement or completion of a clinical trial may also ultimately lead to the denial of
regulatory approval of the subject product.
Risks related to our ability to manufacture and/or sell our products may be impaired by disruption to our manufacturing, warehousing or distribution
capabilities, or to the capabilities of our suppliers, contract manufacturers, logistics service providers or independent distributors.
The Company maintains manufacturing operations at its facilities in San Jose, California and Yokneam, Israel. We rely on third-party suppliers and
manufacturers in various countries to produce components and provide raw materials used in the manufacturing of our products. The lingering effects on
the global supply chain brought about by the COVID-19 pandemic has resulted in both worldwide shortage of raw materials and goods required for
manufacturing of our products. Therefore, our third-party suppliers and manufacturers may not have the materials, capacity, or capability to manufacture
our products according to our schedule and specifications and we may need to seek alternate supply and/or manufacturing sources, which may be more
expensive. Alternate sources may not be available or may result in delays in shipments to us from our supply chain and subsequently to our customers, each
of which would affect our results of operations.
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Risks Related to Intellectual Property
If we are unable to obtain, maintain, retain and enforce adequate intellectual property rights covering our products and any future products we
develop, others may be able to make, use, or sell products that are substantially the same as ours, which could adversely affect our ability to compete in
the market.
Our commercial success is dependent in part on obtaining, maintaining, retaining and enforcing our intellectual property rights, including our patents and
the patents we exclusively license. If we are unable to obtain, maintain, retain and enforce sufficiently broad intellectual property protection covering our
products and any other products we develop, others may be able to make, use, or sell products that are substantially the same as our products without
incurring the sizeable development and licensing costs that we have incurred, which would adversely affect our ability to compete effectively in the market.
We protect our proprietary information and technology through nondisclosure agreements, noncompetition covenants, and other contractual provisions and
agreements, as well as through patent, trademark and trade secret laws in the United States and similar laws in other countries. These protections may not
be available in all jurisdictions and may be inadequate to prevent our competitors or other third-party manufacturers from copying, reverse engineering or
otherwise obtaining and using our technology, proprietary rights or products. For example, the laws of certain countries in which our products are
manufactured or licensed do not protect our proprietary rights to the same extent as the laws of the United States. In addition, third parties may seek to
challenge, invalidate or circumvent our patents, trademarks or applications for any of the foregoing. We have focused patent, trademark, copyright and
trade secret protection primarily in the United States and Europe, although we distribute our products globally. As a result, we may not have sufficient
protection of our intellectual property in all countries where infringement may occur. There can be no assurance that our competitors will not independently
develop technologies that are substantially equivalent or superior to our technology or design around our proprietary rights. In each case, our ability to
compete could be significantly impaired. To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute
actions for infringement and/or misappropriation of our proprietary rights against third parties. Any such action could result in significant costs and
diversion of our resources and management’s attention, and we may not be successful in such action.
We have obtained and maintained our existing patents, sought to diligently prosecute our existing patent applications, and sought to file patent applications
and obtain additional patents and other intellectual property rights to restrict the ability of others to market products that compete with our current and
future products. As of December 31, 2022, the Company’s patent portfolio was comprised of 14 issued U.S. patents, 9 pending U.S. patent applications,
27 issued foreign counterpart patents, and 7 pending foreign counterpart patent applications relating to the (MP)2, fractional RF and Directional Skin
Tightening technology (including cellulite treatments), 5 issued foreign patents covering the NeoGraft system and its methods of use, and 90 issued U.S.
patents, 1 pending U.S. patent applications, 152 issued foreign counterpart patents, and 8 pending foreign counterpart patent applications relating to the
ARTAS System and methods of use. However, patents may not be issued on any pending or future patent applications we file, the claims that issue may
provide limited or no coverage of its products and technologies, and, moreover, issued patents owned or licensed to us now or in the future may be found
by a court to be invalid or otherwise unenforceable at any time. We may choose to not apply for patent protection or may fail to apply for patent protection
on important technologies or product candidates in a timely fashion. In addition, we may be unable to obtain patents necessary to protect our technology or
products due to prior uses of or claims to similar processes or systems by third parties, or to blocking intellectual property owned by third parties. Even
though we have issued patents, and even if additional patents are issued to us in the future, they may be challenged, narrowed, invalidated, held to be
unenforceable or circumvented, which could limit our ability to prevent competitors from using similar technology or marketing similar products, or limit
the length of time our technologies and products have patent protection. Also, even if our existing and future patents are determined to be valid and
enforceable, they may not be drafted or interpreted broadly enough to prevent others from marketing products and services similar to ours, by easily
designing products around our patents or otherwise developing competing products or technologies. In addition, the ownership or inventorship of one or
more of our patents and patent applications may be challenged by one or more parties in one or more jurisdictions, including in a patent interference or a
derivation proceeding in the United States Patent and Trademark Office (“USPTO”), or a similar foreign governmental agency or during the course of a
litigation. If a competitor were able to successfully design around our patents, we may not be able to block such competition, and furthermore the
competitor’s products may be more effective or commercially successful than its products. In addition, our current patents will eventually expire, or they
may otherwise cease to provide meaningful competitive advantage, and we may be unable to adequately develop new technologies and obtain future patent
protection to preserve our competitive advantage or avoid other adverse effects on our business.
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We have a number of foreign patent applications, and while we generally try to pursue patent protection in the jurisdictions in which we do or intend to do
significant business, the filing, prosecuting, maintaining and defending patents relating to our current or future products in all countries throughout the
world would be prohibitively expensive. Furthermore, the laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as
laws in the U.S., and many companies have encountered significant difficulties in obtaining, protecting, and defending such rights in foreign jurisdictions.
As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to its
products in various jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own
products, and we may be unable to prevent such competitors from importing those infringing products into territories where we do not have patent
protection or into territories where we do have patent protection but there is no prohibition against such importation, or even if such prohibitions exist, the
law or related enforcement is not as strong as in the United States. These products may compete with our systems and our patents and our other intellectual
property rights may not be effective or sufficient to prevent competitors from competing in those jurisdictions. If we encounter such difficulties or are
otherwise precluded from effectively protecting and enforcing our intellectual property rights in foreign jurisdictions, our business prospects could be
substantially harmed.
Third-party patent applications and patents could significantly reduce the scope of protection of patents owned by or licensed to us and limit our ability to
obtain a meaningful scope of patent protection or market and sell our products or develop, market, and sell future products. In the United States, other
parties may attack the validity of our patents after they issue, in a court proceeding, or in an ex-parte reexamination proceeding or one or more post-grant
procedures that were authorized under the America Invents Act of 2011, that were available commencing on March 16, 2013 such as post-grant review,
covered business method review or inter partes review, in front of the Patent Trial and Appeal Board of the USPTO. The costs of these proceedings could
be substantial.
At any given time, we may be involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be
known for prolonged periods of time. The large number of patents, the rapid rate of new patent applications and issuances, the complexities of the
technologies involved, and the uncertainty of litigation significantly increase the risks related to any patent litigation. Any potential intellectual property
litigation may (i) force us to withdraw existing products from the market or may be unable to commercialize one or more of our products, (ii) cause us to
incur substantial costs, and (iii) could place a significant strain on our financial resources, divert the attention of management from our core business and
harm our reputation.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and
could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results
of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have
a material adverse effect on the price of our common stock. Finally, any uncertainties resulting from the initiation and continuation of any litigation could
have a material adverse effect on our ability to raise the funds necessary to continue our operations.
In addition, we may indemnify our customers, suppliers and international distributors against claims relating to the infringement of the intellectual property
rights of third parties relating to our products, methods, and/or manufacturing processes. Third parties may assert infringement claims against our
customers, suppliers, or distributors. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, suppliers,
or distributors, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers,
suppliers, or distributors or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially
reasonable terms, our customers may be forced to stop using our products, or our suppliers may be forced to stop providing us with products.
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The legal determinations relating to patent rights afforded to companies in the medical technology and aesthetic product fields can be uncertain and
involve complex legal, factual, and scientific questions, sometimes involving important legal principles which remain uncertain or unresolved, and
such uncertainty could affect the outcome or intellectual property related legal determinations in which we are involved.
Both the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent
laws of the United States are interpreted. Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their
respective jurisdictions are interpreted. In addition, the U.S. Congress is currently considering legislation that would change certain provisions of U.S.
federal patent law. We cannot predict future changes which U.S. and foreign courts may make in the interpretation of patent laws or changes to patent laws
which might be enacted into law by U.S. and foreign legislative bodies. Those changes may materially affect our patent rights, and our ability to obtain
patents in the future.
Prosecution of patent applications, post-grant opposition proceedings, and litigation to establish the validity, enforceability, and scope of patents, assert
patent infringement claims against others or defend against patent infringement claims by others are expensive and time-consuming. There can be no
assurance that, in the event that claims of any of our patents are challenged by one or more third parties, any court or patent authority ruling on such
challenge will determine that such patent claims are valid and enforceable. An adverse outcome in such litigation or post grant proceeding could cause us to
lose associated patent rights and may have a material adverse effect on our business.
We may not be able to adequately protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our products in all countries throughout the world would be prohibitively expensive. The requirements for
patentability may differ in certain countries, particularly developing countries, and the breadth of patent claims which are allowed can be inconsistent. In
addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as laws in the United States. Consequently,
we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. Competitors may use our technologies
in jurisdictions where we have not obtained patent protection to develop their own products and, furthermore, may export otherwise infringing products to
territories in which we have patent protection that may not be sufficient to terminate infringing activities.
We do not have patent rights in certain foreign countries in which a market may exist. Moreover, in foreign jurisdictions where we do have patent rights,
proceedings to enforce such rights could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our
patents at risk of being invalidated or interpreted narrowly, and our patent applications at risk of not issuing. Additionally, such proceedings could provoke
third parties to assert claims against us. We may not prevail in lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be
commercially meaningful. Thus, we may not be able to stop a competitor from marketing and selling in foreign countries products that are the same as or
similar to our products, and our competitive position in the international market would be harmed.
We depend on certain technologies that are licensed to us. We do not control these technologies and any loss of our rights to them could prevent us
from selling our products.
Our rights to use the technology we license are subject to compliance with the terms of those licenses. In some cases, we do not control the prosecution,
maintenance, or filing of the patents to which we hold licenses, or the enforcement of these patents against third parties. These patents and patent
applications are not written by us or our advisors, and we did not have control over the drafting and prosecution. We cannot be certain that drafting and/or
prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicable laws and
regulations or will result in valid and enforceable patents and other intellectual property rights.
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Our intellectual property agreements with third parties may be subject to disagreements over contract interpretation, which could narrow the scope of
our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.
Certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation
disagreement that may arise could affect the scope of our rights to the relevant intellectual property or technology or affect financial or other obligations
under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property
to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact
conceives or develops intellectual property that we regard as our own. Our assignment agreements may not be self-executing or may be breached, and we
may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our
intellectual property.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our
business may be adversely affected.
We have trademark registrations and applications in the United States and in certain foreign countries. Actions taken by us to establish and protect our
trademarks might not prevent imitation of our products or services, infringement of our trademark rights by unauthorized parties or other challenges to our
ownership or validity of our trademarks. If we are unable to register our trademarks, enforce our trademarks, or bar a third-party from registering or using a
trademark, our ability to establish name recognition based on our trademarks and compete effectively in our markets of interest may be adversely affected.
In addition, our enforcement against third-party infringers or violators may be expensive and time-consuming, and the outcome is unpredictable and may
not provide an adequate remedy.
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Risks Related to Government Regulation
Our devices and our operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to
comply with applicable requirements could harm our business.
Certain of our systems are regulated as medical devices subject to extensive regulation in the United States and elsewhere, including by the FDA and its
foreign counterparts. The FDA and foreign regulatory agencies regulate, among other things, with respect to medical devices:
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design, development and manufacturing;
testing, labeling, content and language of instructions for use and storage;
clinical trials;
product safety;
marketing, sales and distribution;
premarket clearance and approval;
record keeping procedures;
advertising and promotion;
recalls and field safety corrective actions;
post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or
serious injury;
post-market approval studies; and
product import and export.
The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions
on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.
The FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay
regulatory approval of our products. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies,
or if we are not able to maintain regulatory compliance, we may fail to obtain any marketing clearances or approvals, lose any marketing clearance or
approval that we may have obtained, and we may not achieve or sustain profitability.
Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing responsibilities under the FDA regulations.
The failure to comply with applicable regulations could jeopardize our ability to sell our systems and result in enforcement actions such as fines,
injunctions, civil penalties, recalls or seizure of products, withdrawal of current clearances, and refusal of future clearances.
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and harm our reputation, business, financial condition
and results of operations.
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We must maintain regulatory approval in foreign jurisdictions in which we plan to market and sell our systems. In the EEA, for example, manufacturers of
medical devices need to comply with the Essential Requirements laid down in Annex II to the EU Medical Devices Directive (Council Directive
93/42/EEC) and the MDR which is replacing the EU Medical Devices Directive. Compliance with these requirements is a prerequisite to be able to affix
the CE mark to medical devices, without which they cannot be marketed or sold in the EEA. With respect to active implantable medical devices or Class III
devices, the manufacturer must conduct clinical studies to obtain the required clinical data, unless reliance on existing clinical data from equivalent devices
can be justified. The conduct of clinical studies in the EEA is governed by detailed regulatory obligations. These may include the requirement of prior
authorization by the competent authorities of the country in which the study takes place and the requirement to obtain a positive opinion from a competent
Ethics Committee. This process can be expensive and time-consuming.
We are subject to governmental regulation and other legal obligations, particularly related to privacy and data security, which are complex and rapidly
changing. Our actual or perceived failure to comply with such obligations could harm our business.
We are subject to diverse laws and regulations relating to data privacy and security, both in the United States and internationally. New global privacy rules
are routinely being enacted and existing ones are being updated and strengthened. Complying with these numerous, complex and often changing
regulations is expensive and difficult, and failure to comply with any privacy laws or data security laws or any security incident or breach involving the
misappropriation, loss or other unauthorized access or disclosure of sensitive or confidential patient or consumer information, whether by us, one of our
business associates or another third-party, could have a material adverse effect on our business, reputation, financial condition and results of operations,
including but not limited to: material fines and penalties; damages; litigation; consent orders; and injunctive relief.
Modifications to our products may require new regulatory clearances or approvals or expansion of the scope of our CE Certificates of Conformity with
our notified body.
Modifications to our products may require new regulatory clearances or approvals from the FDA or other regulatory authorities or expansion of the scope
of our CE Certificates of Conformity with our notified body. Even after achieving the initial market clearance, or approval from the FDA or other
regulatory authorities or having affixed the CE marked to a product, modifications to our systems during their life cycles may require new regulatory
approvals or clearances, including 510(k) clearances, premarket approvals, the conduct of a new conformity assessment with our notified body, or foreign
regulatory approvals. Obtaining a new 510(k), other regulatory clearances and approvals, or a revised or new CE Certificate of Conformity can be a time-
consuming process, and we may not be able to obtain such clearances or approvals in a timely manner, or at all.
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We are subject to restrictions on the indications for which we are permitted to market our products, and any violation of those restrictions, or marketing
of systems for off-label uses, could subject us to enforcement action.
Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the
promotion of off-label use in both the United States and in foreign countries. The use of one of our systems for indications other than those cleared by the
FDA or approved by any foreign regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace among
physicians and patients.
If the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request
that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including, among other things, the issuance or
imposition of an untitled letter, a warning letter, injunction, seizure, refusal to issue new 510(k)s or PMAs, withdrawal of existing 510(k)s or PMAs, refusal
to grant export approvals, and civil fines or criminal penalties.
Our systems may cause or contribute to adverse medical events that we are required to report to the FDA, and if we fail to do so, we would be subject to
sanctions that could harm our reputation, business, financial condition and results of operations.
The FDA’s medical device reporting regulations require us to report to the FDA when we receive or become aware of information that reasonably suggests
that one of our systems may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could
cause or contribute to a death or serious injury. If we fail to comply with our reporting obligations, the FDA could act, including warning letters, untitled
letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance, seizure of our products or
delay in clearance of future products.
The FDA, state regulating agencies at times, and foreign regulatory bodies have the authority to require the recall of commercialized products in the event
of material deficiencies or defects in design or manufacture of a product or if a product poses an unacceptable risk to health. The FDA’s authority to require
a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death. We may also choose to
voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us could occur because of an unacceptable
risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures
to comply with applicable regulations. We have received inquiries from regulatory agencies regarding post-market safety concerns in the past. We cannot
assure you that product defects or other errors will not occur in the future. Recalls involving any of our systems could be particularly harmful to our
business, financial condition, and results of operations because it is our only product.
If we or our distributors do not obtain and maintain international regulatory registrations or approvals for our systems, our ability to market and sell
our systems outside of the United States will be diminished.
Sale of our systems, outside the United States, are subject to foreign regulatory requirements that vary widely from country to country. In addition, the FDA
regulates exports of medical devices from the United States. While the regulations of some countries may not impose barriers to marketing and selling
certain of our systems or only require notification, others require that we or our distributors obtain the approval of a specified regulatory body. Complying
with foreign regulatory requirements, including obtaining registrations or approvals, can be expensive and time-consuming, and we cannot be certain that
we or our distributors will receive regulatory approvals in each country in which we plan to market a particular system or that we will be able to do so on a
timely basis. The time required to obtain registrations or approvals, if required by other countries, may be longer than that required for the FDA clearance,
and requirements for such registrations, clearances, or approvals may significantly differ from FDA requirements. If we modify our systems, we or our
distributors may need to apply for additional regulatory approvals or other authorizations before we are permitted to sell the modified product. In addition,
we may not continue to meet the quality and safety standards required to maintain the authorizations that we or our distributors have received. If we or our
distributors are unable to maintain our authorizations in a particular country, we will no longer be able to sell the applicable product in that country, which
could harm our business.
Regulatory clearance or approval by the FDA does not ensure clearance or approval by regulatory authorities in other countries, and clearance or approval
by one or more foreign regulatory authorities does not ensure clearance or approval by regulatory authorities in other foreign countries or by the FDA.
However, a failure or delay in obtaining regulatory clearance or approval in one country may have a negative effect on the regulatory process in others.
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Our ability to continue manufacturing and supplying our products depends on our continued adherence to ongoing FDA and other foreign regulatory
authority manufacturing requirements.
Our manufacturing processes and facilities are required to comply with the quality management system regulations of its target markets (i.e., the QSR, ISO
13485:2016, and the MDSAP). Adherence to quality management system regulations and the effectiveness of our quality management control systems are
periodically assessed through internal audits and inspections of manufacturing facilities by regulatory authorities. Failure to comply with applicable quality
management system requirements, or later discovery of previously unknown problems with our products or manufacturing processes, including our failure
or the failure of our third-party manufacturer to take satisfactory corrective action in response to an adverse quality system inspection, can result in
enforcement action, which could have an adverse effect on our business. Our manufacturing process and facilities are audited annually for compliance with
the last editions of QSR, ISO13485 and MDSAP requirements. Regulating agencies, including the FDA, foreign regulatory authorities, and our notified
body can institute a wide variety of enforcement actions, ranging from inspectional observations to more severe sanctions such as:
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untitled letters or warning letters;
clinical holds;
administrative or judicially imposed sanctions;
injunctions, fines, consent decrees, or the imposition of civil penalties;
customer notifications for repair, replacement, or refunds;
recall, detention, or seizure of products;
operating restrictions, or total or partial suspension of production or distribution;
refusal by the FDA, a foreign regulatory authority or the notified body to grant pending future clearance or pre-market approval, or to issue
CE Certificates of Conformity for our devices;
debarment of us or our employees;
withdrawal or suspension of marketing clearances, approvals, and CE Certificates of Conformity;
refusal to permit the import or export of our products; and
criminal prosecution of us or our employees.
If any of these actions were to occur, it would harm our reputation and cause our system sales and profitability to suffer and may prevent us from
generating revenue. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory
requirements, which could result in the failure to produce our devices on a timely basis and in the required quantities, if at all.
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We may be affected by healthcare policy changes and evolving regulations.
Our global regulatory environment is becoming increasingly stringent and unpredictable, which could increase the time, cost and complexity of obtaining
regulatory approvals for our products, as well as the clinical and regulatory costs of supporting those approvals. We must also devote significant time to
monitoring developments and changes to ensure our compliance with the various applicable regulations and required approvals. For example, several
countries that did not have regulatory requirements for medical devices have established such requirements in recent years and other countries have
expanded on existing regulations. Certain regulators are exhibiting less flexibility and are requiring local preclinical and clinical data in addition to global
data. While harmonization of global regulations has been pursued, requirements continue to differ significantly among countries. We expect this global
regulatory environment will continue to evolve, which could impact our ability to obtain future approvals for our products or could increase the cost and
time to obtain such approvals in the future.
Risks Related to Our Operations in Israel
We conduct a significant portion of our operations in Israel and therefore our business, financial condition and results of operations may be adversely
affected by political, economic and military conditions in Israel.
Our research and development facilities and key third-party suppliers are located in northern Israel, and some of our key employees are residents of Israel.
Accordingly, political, economic and military conditions in Israel may directly affect our business.
Any hostilities, armed conflicts, terrorist activities or political instability involving Israel or the interruption or curtailment of trade within Israel or between
Israel and its trading partners could adversely affect business conditions and have a material adverse effect on our business, financial condition and results
of operations and could make it more difficult for us to raise capital. In addition, hostilities, armed conflicts, terrorist activities or political instability
involving Israel could have a material adverse effect on our facilities including our corporate administrative office or on the facilities of our local suppliers,
in which event all or a portion of our inventory may be damaged and our ability to deliver products to customers could be significantly delayed.
Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions
on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. While these restrictions are loosening and
countries previously barred from doing business with Israel are eliminating these restrictions, to the extent they still exist, these restrictions may limit our
revenues.
Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East, such as
damages to our facilities resulting in disruption of our operations. Any losses or damages incurred by us could have a material adverse effect on our
business, financial condition and results of operations. Any armed conflicts or political instability in the region would likely negatively affect business
conditions and could harm our business, financial condition and results of operations.
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Risks Related to Our Common Stock
Our common stock failed to meet the requirements for continued listing on the Nasdaq Global Market and the listing was transferred to the Nasdaq
Capital Market, which could decrease the liquidity of our common stock and our ability to raise additional capital.
Our common stock was previously listed for trading on the Nasdaq Global Market. We were required to meet specified requirements in order to maintain
our listing on the Nasdaq Global Market, including, among other things, a minimum bid price of $1.00 per share (the “Minimum Bid Price”). On June 13,
2022, we received a notice from the Listing Qualifications Department of the Nasdaq Stock Market, LLC (“Nasdaq”), notifying us that, for 30 consecutive
business days, the bid price for our common stock was below the Minimum Bid Price required to maintain continued listing on the Nasdaq Global Market
under the Nasdaq Listing Rules, (the “Minimum Bid Requirement”). We had 180 days to regain compliance by maintaining the Minimum Bid Price for a
minimum of ten consecutive business days before December 12, 2022 (the “Initial Compliance Date”). The Company did not regain compliance with the
Minimum Bid Requirement by the Initial Compliance Date.
On December 13, 2022, Nasdaq notified the Company that it is eligible for an additional 180 calendar day period, or until June 12, 2023 (the “Extended
Compliance Date”), to regain compliance with the Minimum Bid Requirement and approved the Company’s transfer from the Nasdaq Global Market to the
Nasdaq Capital Market, a continuous trading market that operates in substantially the same manner as the Nasdaq Global Market. Nasdaq’s determination
was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for
initial listing on the Nasdaq Capital Market with the exception of the Minimum Bid Requirement, and the Company’s written notice of its intention to cure
the deficiency during the second compliance period by effecting a reverse stock split, if required. The transfer became effective at the opening of business
on December 14, 2022.
If, at any time before the Extended Compliance Date, the bid price for the Company’s common stock closes at $1.00 or more for a minimum of 10
consecutive business days as required under the Compliance Period Rule, the Staff will provide written notification to the Company that it complies with
the Minimum Bid Requirement, unless the Staff exercises its discretion to extend this 10 day period pursuant to the Nasdaq Listing Rules.
If the Company does not regain compliance with the Minimum Bid Requirement by the Extended Compliance Date, the Staff will provide written
notification to the Company that its common stock will be delisted. At that time, the Company may appeal the Staff’s delisting determination to a Nasdaq
Listing Qualifications Panel (“Panel”). The Company expects that its common stock would remain listed on the Nasdaq Capital Market pending the Panel’s
decision. There can be no assurance that, if the Company does appeal a delisting determination to the Panel, such appeal would be successful.
If we do not regain compliance by the Extended Compliance Date, we may transfer to the OTCQB® Venture Market or OTCQX® Best Market (together,
the “OTC”), if the applicable initial quotation criteria are met. A transfer of our listing to the OTC could adversely affect the liquidity of our common
stock. Any such event could make it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock, and there also would
likely be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further. We
may also face other adverse consequences in such event, such as negative publicity, a decreased ability to obtain additional financing, diminished investor
and/or employee confidence, and the loss of business development opportunities, some or all of which may contribute to a further decline in our stock
price.
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The market price of our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid.
The market price of our common stock could be subject to significant fluctuations. Some of the factors that may cause the market price of the Company’s
common stock to fluctuate include:
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introduction of new products, services or technologies, significant contracts, commercial relationships or capital commitments by
competitors;
failure to meet or exceed financial and development projections the Company may provide to the public;
failure to meet or exceed the financial and development projections of the investment community;
announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by the Company or its competitors;
disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection
for our technologies;
additions or departures of key personnel;
significant lawsuits or government investigations, including patent or stockholder litigation;
if securities or industry analysts do not publish research or reports about the Company’s business, or if they issue adverse or misleading
opinions regarding our business and stock;
changes in the market valuations of similar companies;
general market or macroeconomic conditions;
sales of common stock by us or our stockholders in the future;
trading volume of our common stock;
adverse publicity relating to hair restoration or other minimally invasive or non-invasive medical aesthetic procedures generally, including
with respect to other products in such markets;
the introduction of technological innovations that compete with the products and services of the Company; and
period-to-period fluctuations in the Company’s financial results.
In addition, the stock markets in general, and the markets for medical device and aesthetic stocks in particular, have experienced extreme volatility that may
have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the market price or liquidity of our
common stock.
Under SEC rules, we are a smaller reporting company and we have taken advantage of certain exemptions from disclosure requirements available to
smaller reporting companies; this could make our securities less attractive to investors and may make it more difficult to compare our performance
with other public companies.
Under SEC rules, we qualify as, a "smaller reporting company". We have taken advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not smaller reporting companies including, but not limited to, not being required to comply with the
auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, because of our non-accelerated filer status, and reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements. As a result, stockholders may not have access to certain
information they may deem important. We cannot predict whether investors will find our securities less attractive because we rely on these exemptions. If
some investors find the securities less attractive as a result of reliance on these exemptions, the trading prices of our securities may be lower than they
otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
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We do not intend to pay dividends on our common stock, and, consequently, our stockholders’ ability to achieve a return on their investment will
depend on appreciation in the price of our common stock.
We do not intend to pay any cash dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our
growth. Payment of future cash dividends, if any, will be at the discretion of the Board, subject to applicable law and will depend on various factors,
including our financial condition, operating results, current and anticipated cash needs, the requirements of current or then-existing debt instruments and
other factors the Board deems relevant. Therefore, our stockholders are not likely to receive any dividends on their common stock for the foreseeable
future. Since we do not intend to pay dividends, our stockholders’ ability to receive a return on their investment will depend on any future appreciation in
the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our stockholders
have purchased it. The terms of our credit facilities limit our ability to pay dividends.
Provisions in our charter documents and under Delaware law could make an acquisition more difficult and may discourage any takeover attempts our
stockholders may consider favorable, and may lead to entrenchment of management.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws could delay or prevent changes in control or changes
in management without the consent of the Board. These provisions will include the following:
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a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a
majority of the Board;
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
the exclusive right of the Board to elect a director to fill a vacancy created by the expansion of the Board or the resignation, death or removal
of a director, which prevents stockholders from being able to fill vacancies on the Board;
the ability of the Board to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares,
including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile
acquirer;
the ability of the Board to alter its bylaws without obtaining stockholder approval;
the required approval of at least 662⁄3% of the shares entitled to vote at an election of directors to adopt, amend or repeal its bylaws or repeal
the provisions of the amended and restated certificate of incorporation regarding the election and removal of directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of the
stockholders;
the requirement that a special meeting of stockholders may be called only by the chairman of the Board, the chief executive officer, the
president or the Board, which may delay the ability of the stockholders to force consideration of a proposal or to act, including the removal of
directors; and
advance notice procedures that stockholders must comply with in order to nominate candidates to the Board or to propose matters to be acted
upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the
acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
These provisions would apply even we were to receive an offer that some stockholders may consider beneficial.
We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law (“Section 203”). Under Section 203,
a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock
for three years or, among other exceptions, the Board has approved the transaction.
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Our executive officers, directors and certain of our shareholders who are affiliated with our directors will have the ability to control or significantly
influence all matters submitted to our stockholders for approval.
As of December 31, 2022, our executive officers, directors and certain of our shareholders who are affiliated with our directors, in the aggregate,
beneficially own approximately 46% of our outstanding shares of common stock. As a result, if these stockholders were to choose to act together, they
would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For
example, if they choose to act together, these persons would control or significantly influence the election of directors and approval of any merger,
consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of the Company on
terms that other stockholders may desire.
If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price may
decline.
We may from time-to-time issue additional shares of common stock at a discount from the current market price of our common stock. As a result, our
stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities
present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common
stock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a
result, our stock price may decline.
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
Our principal executive offices are located at 235 Yorkland Blvd, Suite 900, Toronto, Ontario, Canada. We lease these facilities pursuant to a lease
agreement that expires on August 31, 2030. These facilities consist of 15,678 square feet of office space, and 2,134 square feet of warehouse space.
We lease a facility in San Jose, California which hosts our offices, research and development activities, logistics and manufacturing. We lease these
facilities pursuant to a lease agreement that expires July 14, 2027. The facilities consist of approximately 30,011 square feet of total space.
We lease a facility in Davie, Florida, which is used to support our logistics and technical support services for our United States operations. We lease these
facilities pursuant to a lease agreement that expires November 30, 2025. The facilities consist of approximately 4,733 square feet of total space.
We also have offices and a research and development center located at 6 Hayozma Street, Yokne’am Illit 2069203, Israel. We lease these facilities pursuant
to a lease agreement that expires on September 30, 2023, with an option to extend the term for an additional 60 months. These facilities consist of
approximately 12,580 square feet of total space.
We believe that our existing facilities are sufficient to meet our current needs.
Item 3.
Legal Proceedings.
For a description of the legal proceedings currently affecting the Company, please see Note 9 “Commitments and Contingencies” to our consolidated
financial statements included elsewhere in this report.
Further, we may from time to time continue to be involved in various legal proceedings of a character normally incident to the ordinary course of our
business, which we do not deem to be material to our business and results of operations.
Item 4.
Mine Safety Disclosures.
Not applicable.
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Item 5.
Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities.
PART II
Market Information
Our common stock is listed for trading on the Nasdaq Capital Market under the symbol “VERO”.
Holders
As of March 22, 2023, there were 99 holders of record of our common stock. The actual number of stockholders is greater than this number of record
holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Dividends
We have never declared or paid cash dividends on our common stock. We currently intend to retain all available earnings, if any, for use in the operation of
our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination related to dividend
policy will be made at the discretion of our Board and will depend on our financial condition, operating results, capital requirements, general business
conditions and other factors that the Board may deem relevant.
Performance Graph
As a smaller reporting company, we are not required to provide disclosure for this Item.
Recent Sale of Unregistered Securities
None.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6.
Reserved.
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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together
with the historical consolidated financial statements and the notes thereto included in Part II, Item 8 “Consolidated Financial Statements and
Supplementary Data.” This discussion contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995
that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in Part I, Item 1A
“Risk Factors” of this Annual Report. Any statements contained in this Annual Report that are not historical facts may be deemed to be forward-looking
statements. In some cases, you can identify these statements by words such as such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,”
“intends,” “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “guidance,” and other similar expressions that are predictions of or
indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about
our business and the industry in which we operate and management's beliefs and assumptions and are not guarantees of future performance or
developments and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of
our forward-looking statements in this Annual Report may turn out to be inaccurate or may differ materially from those contained in any forward-looking
statements. You should carefully read “Special Note Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors”. Any forward-looking
statement made by us in this Annual Report is based only on information currently available to us and speaks only as of the date on which it is made. We
undertake no obligation to publicly update any forward-looking statement, whether written or verbal, that may be made from time to time, whether as a
result of new information, future developments or otherwise.
Overview
We are an innovative global medical technology company that develops, commercializes and delivers minimally invasive and non-invasive medical
aesthetic and hair restoration technologies and related services. Our systems have been designed on cost-effective, proprietary and flexible platforms that
enable us to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including
family and general practitioners and aesthetic medical spas. In 2022 and 2021, respectively, a substantial majority of our systems delivered in North
America were in non-traditional markets. As we grow our ARTAS hair restoration business and expand robotics offerings through the AI.ME™ platform
we expect our penetration into the core practices of dermatology and plastic surgery to increase.
We have had recurring net operating losses and negative cash flows from operations. As of December 31, 2022 and 2021, we had an accumulated deficit of
$224.1 million and $180.4 million, respectively. Until we generate revenue at a level to support our cost structure, we expect to continue to incur
substantial operating losses and negative cash flows from operations. In order to continue our operations, we must achieve profitability and/or obtain
additional equity investment or debt financing. Until we achieve profitability, we plan to fund our operations and capital expenditures with cash on hand,
borrowings and issuances of capital stock. As of December 31, 2022 and 2021, we had cash and cash equivalents of $11.6 million and $30.9 million,
respectively.
The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruption, including increases to inflation
rates, rising interest rates, foreign currency impacts and declines in consumer confidence, and declines in economic growth. All these factors point to
uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted. See ‘‘—Liquidity and Capital
Resources’’ for additional information.
Venus Viva®, Venus Viva® MD, Venus Legacy®, Venus Concept®, Venus Versa®, Venus Fiore®, Venus Freedom™, Venus Bliss™, Venus Bliss Max™,
NeoGraft®, Venus Glow™®, ARTAS®, ARTAS iX®, and AI.ME™, are trademarks of the Company and its subsidiaries. Our logo and our other trade
names, trademarks and service marks appearing in this document are our property. Other trade names, trademarks and service marks appearing in this
document are the property of their respective owners. Solely for convenience, our trademarks and trade names referred to in this document appear without
the TM or the ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our
rights, or the rights of the applicable licensor to these trademarks and trade names.
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Equity Purchase Agreement with Lincoln Park
On June 16, 2020, we entered into a purchase agreement (the "Equity Purchase Agreement") with Lincoln Park Capital Fund LLC ("Lincoln Park") which
provided that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our
common stock pursuant to our shelf registration statement. The purchase price of shares of common stock related to a future sale was based on the then
prevailing market prices of such shares at the time of sales as described in the Equity Purchase Agreement. Concurrently with entering into the Equity
Purchase Agreement, we also entered into the Registration Rights Agreement. During the year ended December 31, 2022, we sold to Lincoln Park
0.4 million shares of our common stock, at which point this agreement expired, and raised net cash proceeds of $0.3 million under the Equity Purchase
Agreement. See ‘‘—Liquidity and Capital Resources’’ below. The Equity Purchase Agreement expired on July 1, 2022 and was replaced by the 2022 LPC
Purchase Agreement.
The 2022 LPC Purchase Agreement
On July 12, 2022, we entered into a subsequent purchase agreement (the "2022 LPC Purchase Agreement") with Lincoln Park, which will enhance our
balance sheet and financial condition to support our future growth initiatives. As part of the 2022 LPC Purchase Agreement, we issued and sold to Lincoln
Park 0.7 million shares of our common stock as a commitment fee for entering into the 2022 LPC Purchase Agreement with the total value of $0.3
million. Through December 31, 2022, the Company issued an additional 6.5 million shares of common stock to Lincoln Park at an average price of
$0.30 per share, for a total value of $2.0 million. For additional information regarding the 2022 LPC Purchase Agreement, see Note 16 “Stockholders
Equity” in the notes to our audited consolidated financial statements included elsewhere in this report.
The 2021 Private Placement
On December 15, 2021, we entered into a securities purchase agreement pursuant to which we issued and sold to certain investors an aggregate of
9,808,418 shares of our common stock and 3,790,755 shares of our non-voting convertible preferred stock (the “2021 Private Placement”). The gross
proceeds from the securities sold in the 2021 Private Placement was $17.0 million. The costs incurred with respect to the 2021 Private Placement totaled
$0.3 million and were recorded as a reduction of the 2021 Private Placement proceeds in the consolidated statements of stockholders’ equity. The
accounting effects of the 2021 Private Placement transaction is discussed in Note 16 "Stockholders Equity" in the notes to our consolidated financial
statements included elsewhere in this report.
The 2022 Private Placement
On November 18, 2022, we entered into a securities purchase agreement pursuant to which we issued and sold to certain investors an aggregate of
1,750,000 shares of our common stock and 3,185,000 shares of our voting convertible preferred stock (the "2022 Private Placement"). The gross proceeds
from the securities sold in the 2022 Private Placement totaled $6.7 million before offering expenses. The costs incurred with respect to the 2022 Private
Placement totaled $0.2 million and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated statements of stockholders’
equity. The accounting effects of the 2022 Private Placement transaction is discussed in Note 16 "Stockholders Equity" in the notes to our consolidated
financial statements included elsewhere in this report.
Products and Services
We derive revenue from the sale of products and services. Product revenue includes revenue from the following:
•
the sale, including traditional sales and subscription-based sales, of systems, inclusive of the main console and applicators/handpieces (referred to
as system revenue);
• marketing supplies and kits;
•
•
•
hair restoration kits, Viva® tips and other consumables and disposables;
Technician service revenue; and
replacement applicators/handpieces.
Service revenue includes revenue derived from our extended warranty service contracts provided to our existing customers and VeroGrafters technician
services (which were discontinued in the fourth quarter of 2021).
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Systems are sold through our subscription model, through traditional cash sales directly and through distributors. In the third quarter of 2022 we
commenced an initiative to reduce our reliance on system sales sold under subscription agreements in the United States. This strategic shift is designed to
improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly challenging economic environment
caused by the coexistence of high inflation and high interest rates.
We generate revenue under our subscription-based business model and from traditional system sales. Venus Ltd. commenced a subscription-based model in
North America in 2011, which is also available in select international markets in which we operate directly. Approximately 42% and 55% of our aesthetic
revenues were derived from our subscription model in the year ended December 31, 2022 and 2021, respectively. We currently do not offer the ARTAS iX
system under the subscription model. For additional details related to our subscription model, see Item 1. Business – Subscription-Based Business Model
and as included elsewhere in this report.
Our subscription model includes an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% to 45% of
total contract payments collected in the first year. To ensure that each monthly payment is made on time and that the customer’s system is serviced in
accordance with the terms of the warranty, every product purchased under a subscription agreement requires a monthly activation code, which we provide
to the customer upon receipt of the monthly payment. These recurring monthly payments provide our customers with enhanced financial transparency and
predictability. If economic circumstances are appropriate, we provide customers in good standing with the opportunity to “upgrade” into our newest
available or alternative Venus Concept technology throughout the subscription period. This structure can provide greater flexibility than traditional
equipment leases secured through financing companies. We work closely with our customers to provide business recommendations that improve the
quality-of-service outcomes, build patient traffic and improve financial returns for the customer’s business.
We have developed and commercialized twelve technology platforms, including our ARTAS and NeoGraft systems. We believe our ARTAS and NeoGraft
systems are complementary and give us a hair restoration product offering that can serve a broad segment of the market. Our medical aesthetic technology
platforms have received regulatory clearance for a variety of indications, including treatment of facial wrinkles in certain skin types, temporary reduction of
appearance of cellulite, non-invasive fat reduction (lipolysis) in the abdomen and flanks for certain body types and relief of minor muscle aches and pains
in jurisdictions around the world. In addition, our technology pipeline is heavily focused on the development of robotically assisted minimally invasive
solutions for aesthetic procedures that are primarily treated by surgical intervention, including the AI.ME platform for which we received FDA 510(k)
clearance for fractional skin resurfacing in December 2022.
In the United States, we have obtained 510(k) clearance from the FDA for our Venus Viva, Venus Viva MD, Venus Legacy, Venus Versa, Venus Velocity,
Venus Bliss, Venus Bliss Max, Venus Epileve, Venus Fiore, AI.ME, ARTAS and ARTAS iX systems. Outside the United States, we market our
technologies in over 60 countries across Europe, the Middle East, Africa, Asia-Pacific and Latin America. Because each country has its own regulatory
scheme and clearance process, not every device is cleared or authorized for the same indications in each market in which a particular system is marketed.
As of December 31, 2022, we operated directly in 15 international markets through our 12 direct offices in the United States, Canada, United Kingdom,
Japan, South Korea, Mexico, Spain, Germany, Australia, China, Hong Kong, and Israel.
Our revenues for the year ended December 31, 2022, and 2021 were $99.5 million and $105.6 million, respectively. We had a net loss attributable to the
Company of $43.7 million and $23.0 million in the year ended December 31, 2022, and 2021, respectively. We had an Adjusted EBITDA loss of
$25.4 million and $10.6 million for the year ended December 31, 2022, and 2021, respectively.
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Use of Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP measure defined as net income (loss) before foreign exchange loss (gain), financial expenses, income tax expense
(benefit), depreciation and amortization, stock-based compensation and non-recurring items for a given period. Adjusted EBITDA is not a measure of our
financial performance under U.S. GAAP and should not be considered an alternative to net income or any other performance measures derived in
accordance with U.S. GAAP. Accordingly, you should consider Adjusted EBITDA along with other financial performance measures, including net income,
and our financial results presented in accordance with U.S. GAAP. Other companies, including companies in our industry, may calculate Adjusted EBITDA
differently or not at all, which reduces its usefulness as a comparative measure. We understand that although Adjusted EBITDA is frequently used by
securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider
it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: Adjusted EBITDA does not reflect
our cash expenditures or future requirements for capital expenditures or contractual commitments; Adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs; and although depreciation and amortization are non-cash charges, the assets being depreciated will often have
to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
We believe that Adjusted EBITDA is a useful measure for analyzing the performance of our core business because it facilitates operating performance
comparisons from period to period and company to company by backing out potential differences caused by changes in foreign exchange rates that impact
financial assets and liabilities denominated in currencies other than the U.S. dollar, tax positions (such as the impact on periods or companies of changes in
effective tax rates), the age and book depreciation of fixed assets (affecting relative depreciation expense), amortization of intangible assets, stock-based
compensation expense (because it is a non-cash expense) and non-recurring items as explained below.
The following is a reconciliation of net loss to Adjusted EBITDA for the years presented:
Venus Concept Inc.
Reconciliation of Net loss to Non-GAAP Adjusted EBITDA
Reconciliation of net loss to adjusted EBITDA
Net loss
Foreign exchange loss
Loss on disposal of subsidiaries
Finance expenses
Income tax (benefit) expense
Depreciation and amortization
Stock-based compensation expense
Gain on forgiveness of government assistance loans
Inventory provision (1)
Other adjustments (2)
Adjusted EBITDA
Year Ended, December 31,
2021
2022
(in thousands)
(43,584) $
3,387
1,482
4,561
(722)
4,463
2,104
—
1,388
1,544
(25,377) $
(22,141)
2,559
567
4,955
(707)
4,854
2,068
(2,775)
—
—
(10,620)
$
$
(1) For the year ended December 31, 2022, the inventory provision represents a strategic review of our product offerings which culminated in a decision to
discontinue production and sale of certain models and component parts, resulting in an inventory adjustment of $1.4 million.
(2) For the year ended December 31, 2022, the other adjustments are represented by severance payments associated with a workforce reduction in Venus
Spain and Venus Canada of $0.8 million and restructuring plan payments of $0.7 million.
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Key Factors Impacting Our Results of Operations
Our results of operations are impacted by several factors, but we consider the following to be particularly significant to our business:
Number of systems delivered. The majority of our revenue is generated from the delivery of systems, both under traditional sales contracts and subscription
agreements. The following table sets forth the number of systems we have delivered in the geographic regions indicated:
United States
International
Total systems delivered
Year Ended December 31,
2021
2022
438
1,134
1,572
435
1,234
1,669
Mix between traditional sales, subscription model sales and distributor sales. We deliver systems through (1) traditional direct system sales contracts to
customers, (2) our subscription model, and (3) system sales through distribution agreements. Unit deliveries under direct system sales contracts and
subscription agreements have higher per unit revenues and gross margins, while revenues and gross margins on systems sold through distributors are lower.
However, distributor sales do not require significant sales and marketing support as these expenses are borne by the distributors. In addition, while
traditional system sales and subscription agreements have similar gross margins, cash collections on subscription agreements generally occur over a three-
year period, with approximately 40% to 45% collected in the first year and the balance collected evenly over the remaining two years of the subscription
agreement. In the third quarter of 2022 we commenced an initiative to reduce our reliance on system sales sold under subscription agreements in the United
States. This strategic shift is designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the
increasingly challenging economic environment caused by the coexistence of high inflation and high interest rates.
Investment in Sales, Marketing and Operations. In recent years, we made a strategic decision to penetrate the global market by investing in sales and
marketing expenses across all geographic segments. This included the opening of direct offices and hiring experienced sales, marketing, and operational
staff. While we generated incremental product sales in these new markets, these revenues and the related margins did not fully offset the startup
investments made in certain countries. We are evaluating our profitability and growth prospects in these countries and will continue to take steps to exit
countries which we do not believe will produce sustainable results. Since June 2020 we have closed 11 direct offices across Europe, Asia Pacific, Latin
America and Africa and have increased our investment, and focus, in the United States market.
In the years ended December 31, 2022 and 2021, respectively, we did not open any direct sales offices.
Bad Debt Expense. We maintain an allowance for doubtful accounts for estimated losses that may primarily arise from subscription customers that are
unable to make the remaining payments required under their subscription agreements. During the year ended December 31, 2022, our collections results
were negatively impacted by macroeconomic headwinds, including increased interest rates and inflationary factors impacting the operating costs and
liquidity positions of our customers. In addition, we increased the allowance for doubtful accounts as a percentage of gross outstanding accounts receivable
from the period ended December 31, 2021 to the period ended December 31, 2022.
In the year ended December 31, 2022, we incurred bad debt expense of $7.3 million compared to a bad debt recovery of $0.3 million in the year ended
December 31, 2021. As of December 31, 2022, our allowance for doubtful accounts stands at $13.6 million which represents 19% of the gross outstanding
accounts receivable as of this date.
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Outlook
While the impact of COVID-19 on our business has largely subsided, we continue to closely monitor all COVID-19 developments, including its impact on
our customers, employees, suppliers, vendors, business partners, and distribution channels. In addition, the global economy, including the financial and
credit markets, has recently experienced extreme volatility and disruption, including increases to inflation rates, rising interest rates, foreign currency
impacts, declines in consumer confidence, and declines in economic growth. All these factors point to uncertainty about economic stability, and the severity
and duration of these conditions on our business cannot be predicted. The momentum and strength in our overall performance demonstrated in the first half
of this fiscal year slowed in the second half of 2022. The bulk of the revenue decline in the second half of 2022 was due to a strategy shift to prioritize cash
deals over subscription deals in order to improve cash generation and preserve liquidity. However, we remain focused on adapting to the challenges
presented by the current macro-economic environment.
Supply chain. In the second half of 2021 we were impacted by the global supply disruptions related to COVID-19, which resulted in our inability to fulfil
demand for certain of our products. The value of such purchase order backlog in the third and the fourth quarters of 2021 was $2.4 million and $1.0
million, respectively, which was substantially fulfilled during the fourth quarter of 2021 and the first quarter of 2022. We did not experience significant
supply issues during the year ended December 31, 2022 as we continue to actively work with our suppliers and third-party manufacturers to mitigate
supply issues and build inventory of key component parts. We anticipate some supply challenges in 2023, including long production lead times and
shortages of certain materials or components that may impact our ability to manufacture the number of systems required to meet customer demand. In
addition, since the second quarter of 2021 we have experienced significant inflationary pressures throughout our supply chain, which we expect to continue
into 2023. We expect to mitigate such pressures, where possible, through price increases and margin management.
Global Economic conditions. General global economic downturns and macroeconomic trends, including heightened inflation, capital markets volatility,
interest rate and currency rate fluctuations, and economic slowdown or recession, have resulted and may continue to result in unfavorable conditions that
negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations. Both
domestic and international markets experienced significant inflationary pressures in fiscal year 2022 and inflation rates in the U.S., as well as in other
countries in which we operate, are currently expected to continue at elevated levels for the near-term, impacting our cost of sales as well as selling, general
and administrative expenses. In addition, the Federal Reserve in the U.S. and other central banks in various countries have raised, and may again raise,
interest rates in response to concerns about inflation. Interest rate increases or other government actions taken to reduce inflation have resulted in
recessionary pressures in many parts of the world and has had and may continue to have the effect of further increasing economic uncertainty and
heightening these risks.
Sales markets. We are a global business, having established a commercial presence in more than 60 countries during our history. While the continued
economic recovery related to COVID-19 in individual countries during 2022 progressed well in most countries in which we operate, we continue to
evaluate our direct operations, particularly those outside of North America.
Accounts receivable collections. We remain fully focused on reactivating collections with those at-risk accounts that have struggled through the pandemic
but show signs of viability. As of December 31, 2022, our allowance for doubtful accounts stands at $13.6 million, which represents 19.3% of the gross
outstanding accounts receivable as of that date. This represents an increase of $1.6 million from our December 31, 2021 allowance for doubtful accounts
balance of $12.0 million.
Foreign Exchange fluctuations. We are primarily exposed to foreign exchange risk with respect to revenues generated outside of the United States
denominated in NIS, Euro, CAD, British Pound, Australian Dollar, Chinese Renminbi, Hong Kong Dollar, Japanese Yen, and Mexican Peso. We manage
our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. We do not hedge our
entire foreign exchange exposure and are still subject to earnings and stockholders' equity volatility relating to foreign exchange risk. Financial market and
currency volatility may limit our ability to cost-effectively hedge these exposures.
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Basis of Presentation
Revenues
We generate revenue from (1) sales of systems through our subscription model, traditional system sales to customers and distributors, (2) other product
revenues from the sale of marketing supplies, ARTAS kits, Viva tips, other consumables and (3) service revenue from our extended warranty service
contracts provided to existing customers and the sale of our VeroGrafters technician services. VeroGrafters services were discontinued in the fourth quarter
of 2021.
System Revenue
For the years ended December 31, 2022 and 2021, approximately 42% and 51%, respectively, of our system revenues were derived from our subscription
contracts. The relative decrease in subscription revenues in 2022 is in line with our strategy to prioritize cash deals over subscription deals in order to
improve cash generation and preserve liquidity. Our subscription model is designed to provide a low barrier to ownership of our systems and includes an
up-front fee followed by monthly payments, typically over a 36-month period. The up-front fee serves as a down payment. For accounting purposes, these
arrangements are considered to be sales-type finance leases, where the present value of all cash flows to be received under the subscription agreement is
recognized as revenue upon shipment to the customer and achievement of the required revenue recognition criteria.
For the years ended December 31, 2022 and 2021, approximately 47% and 40%, respectively, of our system revenues were derived from traditional
sales. The increased focus on traditional sales is in line with our strategy to prioritize cash deals over subscription deals in order to improve cash generation
and preserve liquidity.
Customers generally demand higher discounts in connection with traditional sales. We recognize revenues from products sold to customers based on the
following five steps: (1) identification of the contract(s) with the customer; (2) identification of the performance obligations in the contract; (3)
determination of the transaction price; (4) allocation of the transaction price to the separate performance obligations in the contract; and (5) recognition of
revenue when (or as) the entity satisfies a performance obligation.
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We do not grant rights of return or early termination rights to our customers under either our traditional sales or subscription models. These traditional sales
are generally made through our sales team in the countries in which the team operates.
For the years ended December 31, 2022 and 2021, approximately 10% and 9% of our system revenues were derived from distributor sales. Under the
traditional distributor relationship, we do not sell directly to the end customer and, accordingly, achieve a lower overall margin on each system sold
compared to our direct sales. These sales are non-refundable, non-returnable and without any rights of price protection or stock rotation. Accordingly, we
consider distributors as end customers, or the sell-in method.
Procedure Based Revenue
We generate revenue from the harvesting, site making, and implantation procedures performed with our ARTAS system. The harvesting procedure, as the
name suggests, is the act of harvesting hair follicles from the patient’s scalp for implantation in the prescribed areas. To perform these procedures, a
disposable clinical kit is required. These kits can be large (with an unlimited number of harvests) or small (with a maximum of 1,100 harvests). The
customer must place an online order with us for the number and type of kits desired and make a payment. Upon receipt of the order and the related
payment, we ship the kit(s), and the customer must scan the barcode on the kit label in order to perform the procedure. Once the kits are exhausted, the
customer must purchase additional kits. The site making procedure uses the ARTAS system to create a recipient site (i.e., site making) in the patient’s scalp
affected by androgenic alopecia (or male pattern baldness). The site making procedure also requires a disposable site making kit. The site making kits are
sold to customers in the same manner as the kits for harvesting procedures. The implantation procedure utilizes the same disposal kit that is used for site
making and involves immediately implanting follicles into the created recipient site. The implantation kits are sold to customers in the same manner as the
harvesting and site making kits.
Other Product Revenue
We also generate revenue from our customer base by selling Glide (a cooling/conductive gel which is required for use with many of our systems),
marketing supplies and kits, various consumables and disposables, replacement applicators and handpieces, and ARTAS system training.
Service Revenue
We generate ancillary revenue from our existing customers by selling additional services including extended warranty service contracts and, formerly
through VeroGrafters technician services for hair restoration using our NeoGraft and ARTAS systems. In the fourth quarter of 2021 we discontinued our
VeroGrafters technician services in order to focus on higher margin products and services.
Cost of Goods Sold and Gross Profit
Cost of goods sold consists primarily of costs associated with manufacturing our different systems, including direct product costs from third-party
manufacturers, warehousing and storage costs and fulfillment and supply chain costs inclusive of personnel-related costs (primarily salaries, benefits,
incentive compensation and stock-based compensation). Cost of goods sold also includes the cost of upgrades, technology amortization, royalty fees, parts,
supplies, and cost of product warranties.
Operating Expenses
Selling and Marketing
We currently sell our products and services using direct sales representatives in North America and in select international markets. Our sales costs primarily
consist of salaries, commissions, benefits, incentive compensation and stock-based compensation. Costs also include expenses for travel and other
promotional and sales-related activities as well as clinical training costs.
Our marketing costs primarily consist of salaries, benefits, incentive compensation and stock-based compensation. They also include expenses for travel,
trade shows, regional sales events and other promotional and marketing activities, including direct, online lead generation and digital marketing. As the
business environment improves, we expect sales and marketing expenses to continue to increase, but at a rate slightly below our rate of revenue growth.
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General and Administrative
Our general and administrative costs primarily consist of expenses associated with our executive, accounting and finance, information technology, legal,
regulatory affairs, quality assurance and human resource departments, direct office rent/facilities costs, and intellectual property portfolio management.
These expenses consist of personnel-related expenses (primarily salaries, benefits, incentive compensation and stock-based compensation), audit fees, legal
fees, consultants, travel, insurance, and bad debt expense. During the normal course of operations, we may incur bad debt expense on accounts receivable
balances that are deemed to be uncollectible.
Research and Development
Our research and development costs primarily consist of personnel-related costs (primarily salaries, benefits, incentive compensation, and stock-based
compensation), material costs, amortization of intangible assets, clinical costs, and facilities costs in our Yokneam, Israel and San Jose, California research
centers. Our ongoing research and development activities are primarily focused on improving and enhancing our current technologies, products, and
services, and on expanding our current product offering with the introduction of new products and expanded indications.
We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses to increase in
absolute dollars as we continue to invest in research, clinical studies, and development activities, but to decline as a percentage of revenue as our revenue
increases over time.
Finance Expenses
Finance expenses consists of interest income, interest expense and other banking charges. Interest income consists of interest earned on our cash, cash
equivalents and short-term bank deposits. We expect interest income to vary depending on our average investment balances and market interest rates during
each reporting period. Interest expense consists of interest on long-term debt and other borrowings. The interest rates on our long-term debt were 7.39% for
the MSLP Loan and 8.0% for the Notes as of December 31, 2022 and 3.10% for the MSLP Loan and 8.0% for the Notes as of December 31, 2021.
Foreign Exchange (Gain) Loss
Foreign currency exchange (gain) loss changes reflect foreign exchange gains or losses related to the change in value of assets and liabilities denominated
in currencies other than the U.S. dollar.
Income Taxes Expense
We estimate our current and deferred tax liabilities based on current tax laws in the statutory jurisdictions in which we operate. These estimates include
judgments about liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes. In certain jurisdictions, only the payments invoiced in the current period are subject to tax, but for accounting purposes, the
discounted value of the total subscription contract is reported and tax affected. This results in a deferred tax credit which is settled in the future period when
the monthly installment payment is issued and settled with the customer. Since our inception, we have not recorded any tax benefits for the net operating
losses we have incurred in each year or for the research and development tax credits we generated in the United States. We believe, based upon the weight
of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. Income tax benefit is
recognized based on the actual taxable loss incurred during the year ended December 31, 2022.
Non-Controlling Interests
We have minority shareholders in one jurisdiction in which we have direct operations. For accounting purposes, these minority partners are referred to as
non-controlling interests, and we record the non-controlling interests’ share of earnings in our subsidiaries as a separate balance within stockholders’ equity
in the consolidated balance sheets and consolidated statements of stockholders’ equity.
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Results of Operations
The following tables set forth our consolidated results of operations in U.S. dollars and as a percentage of revenues for the years indicated:
Consolidated Statements of Loss:
Revenues:
Leases
Products and services
Total revenue
Cost of goods sold
Gross profit
Operating expenses:
Sales and marketing
General and administrative
Research and development
Gain on forgiveness of government assistance loans
Total operating expenses
Loss from operations
Other expenses:
Foreign exchange loss (gain)
Finance expenses
Loss on disposal of subsidiaries
Loss before income taxes
Income tax (benefit) expense
Net loss
Deemed dividend
Net loss attributable to the Company
Net income (loss) attributable to noncontrolling interest
As a % of revenue:
Revenues
Cost of goods sold
Gross profit
Operating expenses:
Selling and marketing
General and administrative
Research and development
Gain on forgiveness of government assistance loans
Total operating expenses
Loss from operations
Foreign exchange (gain) loss
Finance expenses
Loss on disposal of subsidiaries
Loss before income taxes
71
$
$
Year Ended December 31,
2021
2022
(dollars in thousands)
$
35,267
64,230
99,497
33,526
65,971
40,276
49,618
10,953
—
100,847
(34,876)
3,387
4,561
1,482
(44,306)
(722)
(43,584) $
—
(43,700)
116
100%
33.7
66.3
40.5
49.9
11.0
—
101.4
(35.1)
3.4
4.5
1.5
(44.5)
45,094
60,528
105,622
31,528
74,094
41,920
40,070
9,646
(2,775)
88,861
(14,767)
2,559
4,955
567
(22,848)
(707)
(22,141)
—
(23,013)
872
100%
29.8
70.2
39.7
37.9
9.1
(2.6)
84.1
(14.0)
2.4
4.7
0.5
(21.6)
Table of Contents
The following tables set forth our revenue by region and by product type for the years indicated:
Revenues by region:
United States
International
Total revenue
Revenues by product:
Subscription—Systems
Products—Systems
Products—Other(1)
Services (2)
Total revenue
Year Ended December 31,
2021
2022
52,101 $
47,396
99,497 $
51,400
54,222
105,622
Year Ended December 31,
2021
2022
(in thousands)
35,267 $
47,906
13,316
3,008
99,497 $
45,094
43,106
13,230
4,192
105,622
$
$
$
$
(1)
(2)
Products-Other include ARTAS procedure kits, Viva tips and other consumables.
Services include extended warranty sales and VeroGrafters technician services. VeroGrafters technician services were discontinued in the fourth
quarter of 2021.
Comparison of the Years Ended December 31, 2022 and 2021
Revenues
(in thousands, except percentages)
Revenues:
Year Ended December 31,
2022
% of Total
$
2021
Change
$
% of Total
$
%
Subscription—Systems
Products—Systems
Products—Other
Services
Total
$
$
35,267
47,906
13,316
3,008
99,497
35.5 $
48.1
13.4
3.0
100.0 $
45,094
43,106
13,230
4,192
105,622
42.7 $
40.8
12.5
4.0
100.0 $
(9,827)
4,800
86
(1,184)
(6,125)
(21.8)
11.1
0.7
(28.2)
(5.8)
Total revenue decreased by $6.1 million, or 5.8%, to $99.5 million for the year ended December 31, 2022 from $105.6 million for the year ended December
31, 2021. The decrease in revenue is primarily attributed to an initiative to reduce our reliance on system sales sold under subscription agreements. This
strategic shift is designed to improve cash generation and reduce our exposure to defaults and increased bad debt expense given the increasingly
challenging economic environment caused by the coexistence of high inflation and high interest rates. Our international business was also impacted by
negative foreign exchange headwinds of $1.7 million due to a strengthening U.S. dollar, as well as general macroeconomic headwinds that impacted
customer access to capital. Despite the reduction in systems sales sold under subscription agreements, our cash generation in the second half of 2022
improved due to higher system sales sold on a cash basis.
We sold an aggregate of 1,572 systems in the year ended December 31, 2022 compared to 1,669 in the year ended December 31, 2021. The percentage of
systems revenue derived from our subscription model was approximately 42% in the year ended December 31, 2022 compared to 51% in the year ended
December 31, 2021. The relative decrease in subscription revenues is in line with our strategy to prioritize cash deals over subscription deals in order to
improve cash generation and preserve liquidity.
Other product revenue increased by $0.1 million, or 0.7%, to $13.3 million in the year ended December 31, 2022 from $13.2 million in the year ended
December 31, 2021. The increase was driven by stronger performance on Venus Viva tips and other consumables.
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Services revenue decreased by $1.2 million, or 28.2%, to $3.0 million in the year ended December 31, 2022 from $4.2 million in the year ended December
31, 2021. The decrease was driven by the discontinuation of our VeroGrafters technician services in the fourth quarter of 2021.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased by $2.0 million, or 6.3%, to $33.5 million in the year ended December 31, 2022 from $31.5 million in the year ended
December 31, 2021. Gross profit decreased by $8.1 million, or 10.9%, to $66.0 million in the year ended December 31, 2022, as compared to $74.1 million
in the year ended December 31, 2021. The decrease in gross profit is primarily due to a decrease in revenue in the United States and International markets
driven by the strategic decision to deemphasize subscription sales, the macroeconomic headwinds discussed above, and inventory write-downs and foreign
currency headwinds as noted below. Gross margin was 66.3% of revenue in the year ended December 31, 2022 compared to 70.2% of revenue in the year
ended December 31, 2021. The decrease was due to a shortfall in sales of our energy based devices normally sold under subscription agreements partially
offset by continued strong performance on ARTAS sales at a lower margin, a $1.4 million write-down of end-of-life devices and parts inventory, and a
$1.7 million foreign exchange headwind as a result of most currencies depreciating relative to the U.S. dollar. Adjusting for inventory write-downs and
foreign exchange, our gross margins are relatively flat compared to the prior year.
Operating Expenses
(in thousands, except percentages)
Operating expenses:
Selling and marketing
General and administrative
Research and development
Gain on forgiveness of government
assistance loans
Total operating expenses
Selling and Marketing
Year Ended December 31,
2022
$
% of
Revenues
2021
$
% of
Revenues
Change
$
%
$
$
40,276
49,618
10,953
-
100,847
40.5 $
49.9
11.0
—
101.4 $
41,920
40,070
9,646
(2,775)
88,861
39.7 $
37.9
9.1
(2.6)
84.1 $
(1,644)
9,548
1,307
2,775
11,986
(3.9)
23.8
13.5
100.0
13.5
Sales and marketing expenses decreased by $1.6 million or 3.9% in the year ended December 31, 2022 compared to the year ended December 31,
2021. This decrease is largely due to lower revenues and reduced marketing expenditures as we consolidate some of these activities. As a percentage of
total revenues, our sales and marketing expenses increased by 0.8%, from 39.7% in the year ended December 31, 2021 to 40.5% in the year ended
December 31, 2021. As the business environment improves and we complete the transition to focus on cash sales in mid-2023, we expect sales and
marketing expenses to increase in absolute terms, but at a rate slightly below our rate of revenue growth.
General and Administrative
General and administrative expenses increased by $9.5 million or 23.8% in the year ended December 31, 2022 compared to the year ended December 31,
2021, primarily due to increased bad debt expense, severance and other one-time restructuring charges, and inflationary pressures associated with salaries
and other cost elements. As a percentage of total revenues, our general and administrative expenses increased by 12.0%, from 37.9% in the year ended
December 31, 2021, to 49.9% in the year ended December 31, 2022, primarily due to the increases in costs previously discussed.
Research and Development
Research and development expenses increased by $1.3 million or 13.5% in the year ended December 31, 2022 compared to the year ended December 31,
2021. The increase is due to a reinvestment in research and development efforts on our AI.ME robotic technology aimed at scaling our robotic
capability across other aesthetic platforms. As a percentage of total revenues, our research and development expenses increased by 1.9%, from 9.1% in the
year ended December 31, 2021, to 11.0% in the year ended December 31, 2022.
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Gain on forgiveness of government assistance loans
In 2021, we applied for and received partial forgiveness of the PPP Loans with the SBA in the aggregate amount of $2.8 million of original PPP Loans as
of December 31, 2022.
Foreign exchange loss
We had a foreign exchange loss of $3.4 million in the year ended December 31, 2022 and a foreign exchange loss of $2.6 million in the year ended
December 31, 2021. Changes in foreign are driven mainly by the effect of foreign exchange on accounts receivable and accounts payable balances
denominated in currencies other than the US dollar. For the year ended December 31, 2022, most currencies depreciated relative to the U.S. dollar. We do
not currently hedge against foreign currency risk.
Finance expenses
Finance expenses decreased by $0.4 million, to $4.6 million in the year ended December 31, 2022 from $5.0 million in the year ended December 31, 2021,
primarily due to decreased amortization of deferred finance costs partially offset by an increase in LIBOR rates on the variable portion of our MSLP loan.
See “—Liquidity and Capital Resources” below.
Loss on disposal of subsidiaries
During the year ended December 31, 2022, the Company dissolved its equity interests in Venus Concept France SAS (“Venus France”) and Venus Concept
Argentina SA (“Venus Argentina”). The disposals resulted in losses of approximately $0.06 million for Venus France, and approximately $1.45 million for
Venus Argentina.
Income tax benefit
We had an income tax benefit of $0.7 million in the year ended December 31, 2022, compared to $0.7 million income tax benefit in the year ended
December 31, 2021. In 2022, geographic sales mix, true up to tax return, and changes in timing of deductible expenses, resulted in a $0.7 million income
tax benefit.
Liquidity and Capital Resources
We had $11.6 million and $30.9 million of cash and cash equivalents as of December 31, 2022 and December 31, 2021, respectively. We have funded our
operations with cash generated from operating activities, through the sale of equity securities and through debt financing. We had total debt obligations of
approximately $77.7 million as of December 31, 2022, including the MSLP Loan of $51.0 million, and convertible notes of $26.7 million, compared to
total debt obligations of approximately $77.3 million as of December 31, 2021.
Our working capital requirements reflect the growth of our business over the last few years, in particular, the past focus on our subscription model.
Working capital is primarily driven by growth in our subscription sales which impacts accounts receivable. Our recent shift to prioritize traditional cash
sales over subscription sales is designed to improve liquidity and reduce working capital requirements over time. Our overall growth also requires higher
inventory levels to meet demand and to accommodate the increased number of technology platforms offered. We had a split of subscription sales revenue to
traditional sales revenue at a ratio of approximately 47:53 in the year ended December 31, 2022, compared to 56:44 in 2021. We expect to increase the ratio
of traditional sales to subscription sales in 2023 and beyond. We expect inventory to continue to increase in the short term, but at a lower rate than the rate
of revenue growth.
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We also require modest funding for capital expenditures. Our capital expenditures relate primarily to our research and development facilities in Yokneam,
Israel and San Jose, California. In addition, our capital investments have included improvements and expansion of our subsidiaries’ operations to support
our growth.
Issuance of Secured Subordinated Convertible Notes
Contemporaneously with the MSLP Loan Agreement, on December 9, 2020, we issued $26.7 million aggregate principal amount of the Notes to the
Madryn noteholders pursuant to the terms of the Exchange Agreement. The Notes will accrue interest at a rate of 8.0% per annum from the date of original
issuance of the Notes to the third anniversary date of the original issuance and thereafter interest will accrue at a rate of 6.0% per annum. In connection
with the Exchange Agreement, we also entered into (i) the Madryn Security Agreement as of December 9, 2020, pursuant to which we agreed to grant
Madryn a security interest, in substantially all of our assets, to secure the obligations under the Notes and (ii) a Subordination of Debt Agreement dated as
of December 9, 2020 (the “CNB Subordination Agreement”). The Notes are convertible at any time into shares of our common stock at an initial
conversion price of $3.25 per share, subject to adjustment. For additional information regarding the Notes, Exchange Agreement, Madryn Security
Agreement and CNB Subordination Agreement, see Note 11 “Madryn Long-Term Debt and Convertible Notes” to our consolidated financial statements
included elsewhere in this report.
Main Street Priority Lending Program Term Loan
On December 8, 2020, we executed the MSLP Loan Agreement, promissory note, and related documents for a loan in the aggregate amount of $50.0
million for which CNB will serve as a lender pursuant to the Main Street Priority Loan Facility as established by the Board of Governors of the Federal
Reserve System Section 13(3) of the Federal Reserve Act. For additional information regarding this loan, see Note 10 “Main Street Term Loan” to our
consolidated financial statements included elsewhere in this report.
CNB Loan Agreement
We have a revolving credit facility with CNB pursuant to which CNB agreed to provide a revolving credit facility to us and certain of our subsidiaries to be
used to finance working capital requirements. As of December 31, 2021, a portion of the proceeds from the MSLP Loan described above was used to repay
$3.2 million of outstanding borrowings under the CNB Loan Agreement. There was $nil outstanding balance as of December 31, 2022 and December 31,
2021. On February 22, 2023, CNB notified the Company that it would be temporarily restricting advances under the Fourth Amended and Restated CNB
Loan Agreement pursuant to its rights under Section 2 of the agreement. CNB and the Company continue to actively discuss lifting the restrictions on
advances under the credit facility.
On August 26, 2021 we entered into the Fourth Amended and Restated CNB Loan Agreement with CNB, pursuant to which, among other things, (i) the
maximum principal amount the revolving credit facility was reduced from $10.0 million to $5.0 million at the LIBOR 30-Day rate plus 3.25%, subject to a
minimum LIBOR rate floor of 0.50%, and (ii) beginning December 10, 2021, the cash deposit requirement was reduced from $3.0 million to $1.5 million,
to be maintained with CNB at all times during the term of the Amended CNB Loan Agreement. As of December 31, 2022, and December 31, 2021, we
were in compliance with all required covenants. For additional information on the CNB Loan Agreement and the related agreements, see Note 13 “Credit
Facility” to our consolidated financial statements included elsewhere in this report.
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Equity Purchase Agreement with Lincoln Park
On June 16, 2020, we entered into the Equity Purchase Agreement with Lincoln Park, which provides that, upon the terms and subject to the conditions and
limitations set forth therein, we may sell to Lincoln Park up to $31.0 million of shares of our common stock pursuant to our shelf registration statement.
The purchase price of shares of common stock related to a future sale will be based on the then prevailing market prices of such shares at the time of sales
as described in the Equity Purchase Agreement. The aggregate number of shares that we can sell to Lincoln Park under the Equity Purchase Agreement
may in no case exceed the Exchange Cap, unless (i) stockholder approval is obtained to issue shares above the Exchange Cap, in which case the Exchange
Cap will no longer apply, or (ii) the average price of all applicable sales of common stock to Lincoln Park under the Equity Purchase Agreement equals or
exceeds $3.9755 per share (subject to adjustment) (which represents the minimum price, as defined under Nasdaq Listing Rule 5635(d), on the Nasdaq
Global Market immediately preceding the signing of the Equity Purchase Agreement, such that the transactions contemplated by the Equity Purchase
Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules). Also, at no time may Lincoln Park (together with its affiliates)
beneficially own more than 9.99% of our issued and outstanding common stock. Concurrently with entering into the Equity Purchase Agreement, we also
entered into a Registration Rights Agreement with Lincoln Park (as defined above).
During the year ended December 31, 2022, we issued and sold 0.4 million shares of our common stock shares to Lincoln Park under the Equity Purchase
Agreement, at which point this agreement expired. The net cash proceeds from shares issuance as of December 31, 2022 were $0.3 million. The Equity
Purchase Agreement expired on July 1, 2022 and was subsequently replaced by the 2022 LPC Purchase Agreement.
The 2021 Private Placement
On December 15, 2021, we entered into a securities purchase agreement pursuant to which we issued and sold to certain investors an aggregate of
9,808,418 shares of our common stock and 3,790,755 shares of our non-voting convertible preferred stock. The gross proceeds from the securities sold in
the 2021 Private Placement was $17.0 million. The costs incurred with respect to the 2021 Private Placement totaled $0.3 million and were recorded as a
reduction of the 2021 Private Placement proceeds in the consolidated statements of stockholders’ equity. The accounting effects of the 2021 Private
Placement transaction is discussed in Note 16 "Stockholders Equity" in the notes to our consolidated financial statements included elsewhere in this report.
The 2022 LPC Purchase Agreement
On July 12, 2022, we entered into the 2022 LPC Purchase Agreement with Lincoln Park, and we issued and sold to Lincoln Park 0.7 million shares of our
common stock as a commitment fee in connection with entering into the 2022 LPC Purchase Agreement, with the total value of $0.3 million. Through
December 31, 2022, we issued an additional 6.5 million shares of common stock to Lincoln Park at an average price of $0.30 per share, for a total value of
$2.0 million. For additional information regarding the 2022 LPC Purchase Agreement, see Note 16 “Stockholders Equity” in the notes to our audited
consolidated financial statements included elsewhere in this report.
The 2022 Private Placement
On November 18, 2022, we consummated the 2022 Private Placement whereby we entered into a securities purchase agreement pursuant to which we
issued and sold to certain investors an aggregate of 1,750,000 shares of our common stock and 3,185,000 shares of our voting convertible preferred
stock. The gross proceeds from the securities sold in the 2022 Private Placement totaled $6.7 million before offering expenses. The costs incurred with
respect to the 2022 Private Placement totaled $0.2 million and were recorded as a reduction of the 2022 Private Placement proceeds in the consolidated
statements of stockholders’ equity. The accounting effects of the 2022 Private Placement transaction is discussed in Note 16 "Stockholders Equity" in the
notes to our consolidated financial statements included elsewhere in this report.
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Government Assistance Programs
In April 2020, Venus Concept Inc. and Venus USA, received funding in the total amount of $4.1 million, in connection with two “Small Business Loans”
under the PPP.
We borrowed $1.7 million pursuant to the Venus Concept PPP Loan. Venus USA also borrowed $2.4 million pursuant to the Venus USA PPP Loan. The
terms of the Venus USA PPP Loan are substantially similar to the terms of the Venus Concept PPP Loan. In 2021, we applied through CNB, for partial
forgiveness of both PPP Loans with the SBA and received partial forgiveness of the Venus USA PPP Loan in the amount of $1.7 million and the Venus
Concept PPP Loan in the amount of $1.1 million. The remaining portion of the PPP Loans of the Company was fully repaid in the year ended December
31, 2022.
In 2020, certain subsidiaries also received funding in the total amount of $1.1 million in connection with various governmental programs to support
businesses impacted by COVID-19. The terms of these government assistance programs vary by jurisdiction. These government subsidies were recorded as
a reduction to the associated wage costs recorded in general and administrative expenses in the unaudited condensed consolidated statement of operations.
For additional information on our utilization of government assistance programs, see Note 13 “Government Assistance Programs” in the notes to our
consolidated financial statements included elsewhere in this report.
Capital Resources
As of December 31, 2022, we had capital resources consisting of cash and cash equivalents of approximately $11.6 million. We have financed our
operations principally through the issuance and sale of our common stock and preferred stock, debt financing, and payments from customers.
We believe that the net proceeds from the 2022 Private Placement, the 2021 Private Placement, the proceeds from issuance of our common stock to Lincoln
Park, the proceeds from the government assistance programs, the proceeds from the MSLP Loan, our continued availability under the 2022 LPC Purchase
Agreement, our strategic cash flow enhancement initiatives, together with our existing cash and cash equivalents, will enable us to fund our operating
expenses and capital expenditure requirements for at least the next 12 months. We cannot assure you that we will be successful in raising additional capital
or that such capital, if available at all, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital, we may be compelled
to reduce the scope of our operations and planned capital or research and development expenditures or sell certain assets, including intellectual property
assets.
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely
basis, we may be required to:
•
•
•
delay or curtail our efforts to develop system product enhancements or new products, including any clinical trials that may be required to
market such enhancements;
delay or curtail our plans to increase and expand our sales and marketing efforts; or
delay or curtail our plans to enhance our customer support and marketing activities.
We are restricted by covenants in the MSLP Loan, the Amended CNB Loan Agreement, the Madryn Security Agreement and other government assistance
programs. These covenants restrict, among other things, our ability to incur additional indebtedness, which may limit our ability to obtain additional debt
financing. In the event that the pandemic and the economic disruptions it has caused continue for an extended period of time, we cannot assure you that we
will remain in compliance with the financial covenants contained in our credit facilities. We also cannot assure you that our lenders would provide relief or
that we could secure alternative financing on favorable terms, if at all. Our failure to comply with the covenants contained in our credit facilities, including
financial covenants, could result in an event of default, which could materially and adversely affect our results of operations and financial condition.
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We have based our projections on the amount of time through which our financial resources will be adequate to support our operations on assumptions that
may prove to be incorrect, and we may use all our available capital resources sooner than we expect. Our future funding requirements will depend on many
factors, including, but not limited to:
•
•
•
•
•
•
•
•
•
the cost of growing our ongoing commercialization and sales and marketing activities;
the costs of manufacturing and maintaining enough inventories of our systems to meet anticipated demand and inventory write-offs related to
obsolete products or components;
the costs of enhancing the existing functionality and development of new functionalities for our systems;
the costs of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent related costs, including litigation costs and
the results of such litigation;
any product liability or other lawsuits and the costs associated with defending them or the results of such lawsuits;
the costs associated with conducting business and maintaining subsidiaries and other entities in foreign jurisdictions;
customers in jurisdictions where our systems are not approved delaying their purchase, and not purchasing our systems, until they are
approved or cleared for use in their market;
the costs to attract and retain personnel with the skills required for effective operations; and
the costs associated with being a public company.
In order to grow our business and increase revenues, we will need to introduce and commercialize new products, grow our sales and marketing force,
implement new software systems, as well as identify and penetrate new markets. Such endeavors have in the past increased, and may continue in the future,
to increase our expenses, including sales and marketing, and research and development. We will have to continue to increase our revenues while effectively
managing our expenses in order to achieve profitability and to sustain it. Our failure to control expenses could make it difficult to achieve profitability or to
sustain profitability in the future. Moreover, we cannot be sure that our expenditures will result in the successful development and introduction of new
products in a cost-effective and timely manner or that any such new products will achieve market acceptance and generate revenues for our business.
Cash flows
The following table summarizes our cash flows for the years indicated:
Cash used in operating activities
Cash used in investing activities
Cash provided by financing activities
Net increase in cash, cash equivalents and restricted cash
78
Year Ended December 31,
2021
2022
(in thousands)
$
$
(26,980) $
(336)
8,009
(19,307) $
(19,771)
(552)
16,819
(3,504)
Table of Contents
Cash Flows from Operating Activities
For the year ended December 31, 2022, cash used in operating activities consisted of a net loss of $43.6 million, partially offset by a decrease in net
operating assets of $0.4 million and non-cash operating expenses of $16.2 million. The use of cash in net operating assets was attributable to a decrease in
accounts receivable of $9.9 million, a decrease in prepaid expenses of $1.0 million, an increase in current operating lease liabilities of $1.8 million, and an
increase in other long-term operating lease liabilities of $4.2 million. These were offset by an increase in inventories of $5.8 million, an increase in
operating right-of-use assets of $5.9 million, and a decrease in accrued expenses and other current liabilities of $3.7 million. The non-cash operating
expenses consisted of provision for bad debts of $7.3 million, depreciation and amortization of $4.5 million, finance expenses and accretion of
$0.4 million, stock-based compensation expense of $2.1 million, provision for inventory obsolescence of $2.4 million, partially offset by a deferred tax
recovery of $0.7 million.
In the year ended December 31, 2021, cash used in operating activities consisted of a net loss of $22.1 million and an investment in net operating assets of
$5.3 million, partially offset by non-cash operating expenses of $7.6 million. The investment in net operating assets was primarily attributable to a decrease
in inventories of $4.3 million, an increase in other current assets of $1.9 million, a decrease in other long-term assets of $0.1 million, an increase in
advances to suppliers of $0.4 million, an increase in unearned interest income of $0.3 million and an increase in other long-term liabilities of
$0.3 million. This was partially offset by a decrease in prepaid expenses of $0.5 million, a decrease in accounts receivable of $0.9 million, primarily due to
stronger collections as customers start to recover from the pandemic globally during 2021, a decrease in accounts payable of $1.4 million, a decrease in
accrued expenses and other current liabilities of $0.9 million and a decrease in severance pay funds of $0.1 million. The non-cash operating expenses
consisted mainly of a recovery for bad debts of $0.3 million, depreciation and amortization of $4.9 million, finance expenses and accretion of $1.8 million,
stock-based compensation expense of $2.1 million, provision for inventory obsolescence of $1.5 million, loss on the sale of a subsidiary of $0.6 million,
gain on forgiveness of government assistance loans of $2.8 million and deferred tax benefit of $0.2 million.
Cash Flows from Investing Activities
In the year ended December 31, 2022, cash used in investing activities consisted of $0.3 million for the purchase of property and equipment.
In the year ended December 31, 2021, cash used in investing activities consisted of $0.5 million for the purchase of property and equipment and the
proceeds from the sale of a subsidiary, net of cash relinquished.
Cash Flows from Financing Activities
In the year ended December 31, 2022, cash provided by financing activities consisted primarily of net proceeds from 2022 Private Placement of $6.5
million and proceeds from the issuance of common stock of $2.1 million, partially offset by the $0.5 million repayment of government assistance loans.
In the year ended December 31, 2021, cash provided by financing activities consisted primarily of net proceeds from 2021 Private Placement of $16.7
million, proceeds from the exercise of 2020 December Public Offering Warrants of $0.9 million, proceeds from the exercise of options of $0.4 million,
partially offset by the payment of the NeoGraft earn-out liability of $0.1 million, partial repayment of the PPP Loans of $0.7 million and the payment of
dividends from subsidiaries to non-controlling interest of $0.3 million.
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Table of Contents
Contractual Obligations and Other Commitments
Our premises and those of our subsidiaries are leased under various operating lease agreements, which expire on various dates.
As of December 31, 2022, we had non-cancellable purchase orders placed with our contract manufacturers in the amount of $20.8 million. In addition, as
of December 31, 2022, we had $1.6 million of open purchase orders that can be cancelled with 270 days’ notice, except for a portion equal to 25% of the
total amount representing the purchase of “long lead items”.
The following table summarizes our contractual obligations as of December 31, 2022, which represent material expected or contractually committed future
obligations.
Payments Due by Period
Debt obligations, including interest
Operating leases
Purchase commitments
Total contractual obligations
Less than 1
Year
$
$
13,731 $
1,959
21,175
36,865 $
2 to 3 Years
4 to 5 Years
(dollars in thousands)
— $
1,545
—
1,545 $
79,768 $
2,689
—
82,457 $
More than 5
Years
Total
— $
543
—
543 $
93,499
6,736
21,175
121,410
On March 25, 2021, we entered into an endorsement agreement for the services of Venus Williams, four-time Olympic Gold Medalist, seven-time Grand
Slam Champion and entrepreneur, pursuant to which Ms. Williams will act as a brand ambassador for Venus Bliss. The endorsement agreement expired on
November 1, 2022.
For an additional description of our commitments see Note 9, “Commitments and Contingencies” to the consolidated financial statements included
elsewhere in this Annual Report.
Off-Balance Sheet Arrangements
We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest
entities, which includes special purpose entities and other structure finance entities.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S GAAP. The preparation of these consolidated financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. These estimates
form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our
estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing
basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in this Annual Report. We believe
that the assumptions and estimates associated with revenue recognition, long-term receivables, allowance for doubtful accounts, warranty accrual, and
stock-based compensation have the most significant impact on our consolidated financial statements, and therefore, we consider these to be our critical
accounting policies and estimates.
Revenue Recognition
We generate revenue from (1) sales of systems through our subscription model, traditional system sales to customers and distributors, (2) other product
revenues from the sale of ARTAS procedure kits, marketing supplies and kits, consumables and (3) service revenue from the sale of our VeroGrafters
technician services, and our extended warranty service contracts provided to existing customers. VeroGrafters technician services were discontinued in the
fourth quarter of 2021.
We recognize revenues on other products and services in accordance with ASC 606. Revenue is recognized based on the following five steps: (1)
identification of the contract(s) with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction
price; (4) allocation of the transaction price to the separate performance obligations in the contract; and (5) recognition of revenue when (or as) the entity
satisfies a performance obligation.
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We record our revenue net of sales tax and shipping and handling costs.
Long-term receivables
Long-term receivables relate to our subscription revenue or contracts which stipulate payment terms which exceed one year. They are comprised of the
unpaid principal balance, net of the allowance for doubtful accounts. These receivables have been discounted based on the implicit interest rate in the
subscription lease which range between 8% to 10% for the year ended December 31, 2022, and 8% to 9% for the year ended December 31, 2021. Unearned
interest revenue represents the interest only portion of the respective subscription payments and will be recognized in income over the respective payment
term as it is earned.
Allowance for doubtful accounts
The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts and the aging of the related invoices and
represents our best estimate of probable credit losses in our existing trade accounts receivable. We regularly review the allowance by considering factors
such as historical experience, credit quality, the age of the account receivable balances, and current economic conditions that may affect a customer’s
ability to pay.
Warranty accrual
We generally offer warranties for all our systems against defects for up to three years. The warranty period begins upon shipment and we record a liability
for accrued warranty costs at the time of sale of a system, which consists of the remaining warranty on systems sold based on historical warranty costs and
management’s estimates. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts thereof as necessary. We exercise
judgment in estimating expected system warranty costs. If actual system failure rates, freight, material, technical support and labor costs differ from our
estimates, we will be required to revise our estimated warranty liability. To date, our warranty reserve has been sufficient to satisfy warranty claims paid.
Stock-Based Compensation
We account for stock-based compensation costs in accordance with the accounting standards for stock-based compensation, which require that all stock-
based payments to employees be recognized in the consolidated statements of operations based on their fair values.
The fair value of stock options on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach. The Black-
Scholes option pricing model requires the use of highly subjective and complex assumptions, including the options' expected term and the price volatility of
the underlying stock, to determine the fair value of the award. We recognize the expense associated with options using a single-award approach over the
requisite service period.
Financial statements in U.S. dollars
We believe that the U.S. dollar is the currency in the primary economic environment in which we operate. The U.S. dollar is the most significant currency
in which our revenues are generated, and our costs are incurred. In addition, our debt and equity financings are generally based in U.S. dollars. Therefore,
our functional currency, and that of our subsidiaries, is the U.S. dollar.
Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances are re-
measured into U.S. dollars in accordance with the principles set forth in ASC 830-10 “Foreign Currency Translation”. All exchange gains and losses from
re-measurement of monetary balance sheet items resulting from transactions in non-U.S. dollar currencies are recorded as foreign exchange loss (income)
in the consolidated statement of operations as they arise.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this Annual Report for recently adopted accounting pronouncements and recently
issued accounting pronouncements not yet adopted as of the date of this Annual Report.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide disclosure for this Item.
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Item 8.
Consolidated Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
VENUS CONCEPT INC.
Report of Independent Registered Public Accounting Firm (MNP LLP, PCAOB ID: 1930)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
82
Page
83
86
87
88
89
90
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Venus Concept Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Venus Concept Inc. and its subsidiaries (the Company) as of December 31, 2022, and
2021, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year
period ended December 31, 2022, and the related notes (collectively referred to as the consolidated financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of
December 31, 2022, and 2021, and the results of its consolidated operations and its consolidated cash flows for each of the years in the two-year period
ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in
Note 1 of the consolidated financial statements, the Company has reported recurring net losses and negative cash flows from operations, that raise
substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as of January 1, 2022 due to the
adoption of ASU No. 2016-02, Leases as amended.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain
an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
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Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Inventory valuation – Refer to Note 2 and 7 to the consolidated financial statements
Critical Audit Matter Description
As described in Note 2 and 7 to the consolidated financial statements, inventory is valued at the lower of cost and net realizable value, and management
records a provision as necessary to appropriately value inventories that are obsolete, have quality issues, or are damaged. Provision expense is recorded in
cost of goods sold. As of December 31, 2022, the Company’s consolidated net inventories balance was $23,906 (‘000) inclusive of the inventory provision.
Auditing management’s inventory carrying value adjustments involved significant judgment because the estimates are based on a number of factors that are
affected by market, industry, and competitive conditions outside the Company's control. In particular, in estimating inventory carrying value adjustments,
management developed assumptions such as forecasts of future sales quantities and the selling prices, which are sensitive to the competitiveness of product
offerings, customer requirements, and product life cycles. These significant assumptions are forward-looking and could be affected by future economic and
market conditions.
How the Critical Audit Matter Was Addressed in the Audit
Our approach to addressing the matter included the following procedures, among others:
● We obtained an understanding, evaluated the design and implementation of internal controls over the Company's inventory carrying value
adjustment determination process, including the basis for developing above-described assumptions and management’s judgments.
● We observed the physical condition of inventories during inventory counts.
● We evaluated the appropriateness of management’s process for developing the estimates of net realizable value.
● We tested the reliability of reports used by management by agreeing to underlying records.
● We tested the reasonableness of the assumptions about quality, damaged inventory, future demand, selling prices and cost necessary to sell by
considering historical trends and consistency with evidence obtained in other areas of the audit.
● We confirmed the assumptions related to future sales with individuals within the production and manufacturing teams to ensure consistency
with management’s estimates.
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Going Concern
Critical Audit Matter Description
As described in Note 1 to the consolidated financial statements, the Company may not have sufficient cash to fund its operations, and therefore, must
achieve profitable operations and/ or obtain additional equity or debt financing. In addition, the global economy, including the financial and credits markets
has recently experienced extreme volatility and disruptions including increases in inflation rates, rising interest rates, foreign currency fluctuations. All
these factors point to uncertainty and about economic stability and impacted management’s judgements and estimates. Management has prepared future
cash flow forecasts, which involves judgement and estimation of key variables that affect cash flows, such as planned capital expenditures, revenue,
production volumes and market conditions.
We identified the Company’s ability to continue as a going concern as a critical audit matter because auditing the Company’s going concern assessment is
complex and involves a high degree of auditor judgment to assess the reasonableness of the cash flow forecasts, planned refinancing actions and other
assumptions used in the Company’s going concern analysis. The Company’s ability to execute the planned financing actions are especially judgmental
given that the global financial markets and economic conditions have been, and continue to be, volatile.
This matter is also described in the “Material Uncertainty Related to Going Concern” section of our report.
Audit Response
We responded to this matter by evaluating management’s assessment of the Company’s ability to continue as a going concern. Our audit work in relation to
this included, but was not restricted to, the following:
● We evaluated the cash flow forecasts prepared by management and evaluated the integrity and arithmetical accuracy of the model.
● We evaluated the key assumptions used in management’s model to estimate future cash flows by comparing assumptions used by
management against historical performance, budgets, economic and industry indicators and publicly available information.
● We compared the assumptions related to revenue projections to those used in impairment assessments of non-financial assets.
● We assessed the adequacy of the going concern disclosure included in Note 1 to the consolidated financial statements and consider these to
appropriately reflect the assessments that management has performed.
/s/ MNP LLP
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company’s auditor since 2019.
Toronto, Canada
March 27, 2023
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VENUS CONCEPT INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
Year Ended, December 31,
2022
2021
$
$
$
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net of allowance of $13,619 and $11,997 as of December 31, 2022, and 2021
Inventories
Prepaid expenses
Advances to suppliers
Other current assets
Total current assets
LONG-TERM ASSETS:
Long-term receivables, net
Deferred tax assets
Severance pay funds
Property and equipment, net
Operating right-of-use assets, net
Intangible assets
Total long-term assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables
Accrued expenses and other current liabilities
Current portion of long-term debt
Income taxes payable
Unearned interest income
Warranty accrual
Deferred revenues
Operating lease liabilities
Current portion of government assistance loans
Total current liabilities
LONG-TERM LIABILITIES:
Long-term debt
Income tax payable
Accrued severance pay
Deferred tax liabilities
Unearned interest income
Warranty accrual
Long-term operating lease liabilities
Other long-term liabilities
Total long-term liabilities
TOTAL LIABILITIES
Commitments and Contingencies (Note 9)
STOCKHOLDERS’ EQUITY (Note 1):
Common Stock, $0.0001 par value: 300,000,000 shares authorized as of December 31, 2022 and 2021; 77,125,328 and
63,982,580 issued and outstanding as of December 31, 2022 and 2021, respectively
Additional paid-in capital
Accumulated deficit
TOTAL STOCKHOLDERS’ EQUITY
Non-controlling interests
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
The accompanying notes are an integral part of these consolidated financial statements.
86
11,569 $
37,262
23,906
1,688
5,881
3,702
84,008
20,044
947
741
1,857
5,862
11,919
41,370
125,378 $
8,033 $
16,667
7,735
117
2,397
1,074
1,765
1,807
—
39,595
70,003
374
867
—
957
408
4,221
215
77,045
116,640
29
232,169
(224,105)
8,093
645
8,738
125,378 $
30,876
46,918
20,543
2,737
5,667
3,758
110,499
27,710
284
817
2,669
—
15,393
46,873
157,372
8,418
19,512
—
294
2,678
1,245
2,030
—
543
34,720
77,325
563
911
46
1,355
508
—
348
81,056
115,776
27
221,321
(180,405)
40,943
653
41,596
157,372
VENUS CONCEPT INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Table of Contents
Revenue
Leases
Products and services
Cost of goods sold
Leases
Products and services
Gross profit
Operating expenses:
Selling and marketing
General and administrative
Research and development
Gain on forgiveness of government assistance loans
Total operating expenses
Loss from operations
Other expenses:
Foreign exchange loss
Finance expenses
Loss on disposal of subsidiaries
Loss before income taxes
Income tax (benefit) expense
Net loss
Net loss attributable to stockholders of the Company
Net income (loss) attributable to non-controlling interest
Net loss per share:
Basic
Diluted
Weighted-average number of shares used in per share calculation:
Basic
Diluted
$
$
$
Year Ended, December 31,
2021
2022
35,267 $
64,230
99,497
9,435
24,091
33,526
65,971
40,276
49,618
10,953
—
100,847
(34,876)
3,387
4,561
1,482
(44,306)
(722)
(43,584)
(43,700)
116
(0.66) $
(0.66) $
65,960
65,960
45,094
60,528
105,622
10,459
21,069
31,528
74,094
41,920
40,070
9,646
(2,775)
88,861
(14,767)
2,559
4,955
567
(22,848)
(707)
(22,141)
(23,013)
872
(0.42)
(0.42)
54,466
54,466
The accompanying notes are an integral part of these consolidated financial statements.
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VENUS CONCEPT INC.
Consolidated Statements of Comprehensive Loss
(in thousands)
Net loss
Loss attributable to stockholders of the Company
Income (loss) attributable to non-controlling interest
Comprehensive loss
Year Ended December 31,
2021
2022
(43,584) $
(43,700)
116
(43,584) $
(22,141)
(23,013)
872
(22,141)
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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VENUS CONCEPT INC.
Consolidated Statement of Stockholders’ Equity
(in thousands, except share data)
Series A
Preferred
Shares
Series A
Preferred
Amount
Common Stock
Shares
Balance — January 1, 2021
2021 Private Placement shares, net of costs
Dividends from subsidiaries
December 2020 Public Offering warrants exercise
Beneficial conversion feature
Acquisition of non-controlling interest
Net loss — the Company
Net loss — non-controlling interest
Options exercised
Disposal of subsidiary
Stock-based compensation
Balance — December 31, 2021
Net loss — the Company
Net income — non-controlling interest
Dividends from subsidiaries
Options exercised
Conversion of 2021 Private Placemat shares
2022 Private Placement shares, net of costs
Issuance of common stock
Stock-based compensation
Balance — December 31, 2022
* Presented as $0 due to rounding.
—
3,790,755
—
—
—
—
—
—
—
—
—
3,790,755
—
—
—
—
(3,790,755)
3,185,000
—
—
3,185,000
— 53,551,126
9,808,418
—
—
—
361,200
—
—
—
—
—
—
—
—
—
261,836
—
—
—
—
—
— 63,982,580
—
—
—
—
—
—
16,464
—
3,790,755
—
1,750,000
—
7,585,529
—
—
—
— 77,125,328
Accumulated
Deficit
$
Additional
Paid-
in-Capital
$ 201,598
16,587
—
903
152
(341)
—
—
354
—
2,068
$ 221,321
—
—
—
23
—
6,518
2,203
2,104
232,169
$
Amount
26
$
1
—
—
—
—
—
—
—
—
—
27
—
—
—
0*
1
0*
1
—
29
$
Non-
controlling
Interest
Total
Stockholders’
Equity
(157,392) $
—
—
—
—
—
(23,013)
—
—
—
—
(180,405) $
(43,700)
—
—
—
—
—
—
—
(224,105)
(471) $
—
(293)
—
—
341
—
872
—
204
—
653
—
116
(124)
—
—
—
—
—
645
$
43,761
16,588
(293)
903
152
-
(23,013)
872
354
204
2,068
41,596
(43,700)
116
(124)
23
1
6,518
2,204
2,104
8,738
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
VENUS CONCEPT INC.
Consolidated Statements of Cash Flows
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Stock-based compensation
Provision (recovery) for bad debt
Provision for inventory obsolescence
Finance expenses and accretion
Deferred tax recovery
Loss on sale of subsidiaries
Loss on disposal of property and equipment
Gain on forgiveness of government assistance loans
Changes in operating assets and liabilities:
Accounts receivable short- and long-term
Inventories
Prepaid expenses
Advances to suppliers
Other current assets
Operating right-of-use assets, net
Other long-term assets
Trade payables
Accrued expenses and other current liabilities
Current operating lease liabilities
Severance payments
Unearned interest income
Long-term operating lease liabilities
Other long-term liabilities
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in operating activities
Purchases of property and equipment
Cash received from sale of subsidiaries, net of cash relinquished
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used in investing activities
Exercises of 2020 December Public Offering Warrants
2021 Private Placement, net of costs of $259
2022 Private Placement, net of costs of $202
Proceeds from issuance of common stock
Repayment of government assistance loans
Dividends from subsidiaries paid to non-controlling interest
Payment of earn-out liability
Proceeds from exercise of options
Net cash provided by financing activities
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of year
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes
Cash paid for interest
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Common stock issuance costs
2021 Private Placement costs
2022 Private Placement costs
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
90
Year Ended December 31,
2022
2021
$
(43,584) $
(22,141)
4,463
2,104
7,337
2,420
414
(709)
—
158
—
9,855
(5,783)
1,049
(214)
56
(5,862)
200
(385)
(3,647)
1,807
76
(679)
4,221
(277)
(26,980)
(336)
-
(336)
—
—
6,518
2,135
(543)
(124)
-
23
8,009
(19,307)
30,876
11,569
$
329
4,147
$
$
438
-
202
$
$
$
4,854
2,068
(263)
1,456
1,779
(165)
567
—
(2,775)
(869)
(4,261)
(454)
(3,080)
1,908
-
(98)
2,096
(889)
-
(132)
305
—
323
(19,771)
(512)
(40)
(552)
903
16,740
—
—
(738)
(293)
(147)
354
16,819
(3,504)
34,380
30,876
116
3,292
-
259
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Table of Contents
1. NATURE OF OPERATIONS
VENUS CONCEPT INC.
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
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 consolidated financial statements, the “Company” and “Venus Concept”, refer to Venus Concept Inc. and its subsidiaries on a
consolidated basis.
Going Concern
The accompanying 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 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 December 31, 2022 and December 31, 2021, the
Company had an accumulated deficit of $224,105 and $180,405, respectively. The Company was in compliance with all required covenants as of
December 31, 2022, and December 31, 2021. The Company’s recurring losses from operations and negative cash flows raise substantial doubt about the
Company’s ability to continue as a going concern within 12 months from the date that the consolidated financial statements are issued. As of December 31,
2022, and for the twelve months then ended management believes the impact of COVID-19 on our business has largely subsided, but we continue to
closely monitor all COVID-19 developments including its impact on our customers, employees, suppliers, vendors, business partners, and distribution
channels. In addition, the global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including
increases to inflation rates, rising interest rates, foreign currency impacts, declines in consumer confidence, and declines in economic growth. All these
factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted, and the
Company cannot assure that it will remain in compliance with the financial covenants contained within its credit facilities.
In order to continue its operations, the Company must achieve profitable operations and/or obtain additional equity or debt financing. Until the Company
achieves profitability, management plans to fund its operations and capital expenditures with cash on hand, borrowings, and issuance of capital stock. On
June 16, 2020, the Company entered into the Equity Purchase Agreement with Lincoln Park Capital Fund LLC ("Lincoln Park"), which provided that, upon
the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $31,000 worth of shares of its
common stock from time to time over the two-year term of the agreement. Any shares of common stock sold to Lincoln Park will be sold at a purchase
price that is based on the prevailing prices of the common stock at the time of each sale. During the year ended December 31, 2022, the Company raised
net cash proceeds of $272 under the Equity Purchase Agreement as described below. The Equity Purchase Agreement expired on July 1, 2022. On July
12, 2022, the Company entered into the 2022 LPC Purchase Agreement with Lincoln Park, the details of which are described in Note 16 below. In
December 2021, the Company issued and sold to investors 9,808,418 shares of common stock, par value $0.0001 per share, and 3,790,755 shares of the
convertible preferred stock, par value $0.0001 per share for the total gross proceeds of $16,999 (see “The 2021 Private Placement” in Note 16). In
February 2021, several investors exercised an aggregate of 361,200 December 2020 Public Offering Warrants at the exercise price of $2.50 per share. The
total proceeds received by the Company from the December 2020 Public Offering Warrants exercises were $903. In November 2022, the Company issued
and sold to investors 1,750,000 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 for the total gross proceeds of $6,720 (see “The 2022 Private Placement” in Note 16). 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.
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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 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 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 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.
Operational Review of Subsidiaries
During the year ended December 31, 2022, the Board of Directors of the Company (the "Board") made several strategic decisions to dissolve itself of
underperforming direct sales offices in the countries which were not anticipated to produce sustainable results. As a part of this initiative, the Company has
enacted a plan to dissolve its equity interests in Venus Concept Sucursal Colombia ("Venus Colombia"), a branch office of Venus Canada, Venus Concept
France SAS ("Venus France"), and Venus Concept Argentina SA ("Venus Argentina"). In November 2022, the Company completed the dissolution of
Venus France, and no severance costs are expected to be incurred in association with the planned divestiture of Venus Colombia Venus France, or Venus
Argentina. The Company recognized severance and retention costs associated with Venus Concept SL ("Venus Spain") totaling $102 during the year ended
December 31, 2022. These disposals will not constitute a strategic shift that will have a major effect on the Company’s operations and financial results,
therefore the results of operations and net assets of these subsidiaries are not reported as discontinued operations or held for sale, respectively, under the
guidance of Accounting Standards Codification (“ASC”) 205-20-45.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States
of America (U.S. GAAP) and with the instructions to Form 10-K and Regulation S-X.
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 December 31, 2022 and
through the date of this report filing. The accounting matters assessed included, but were not limited to, the allowance for doubtful accounts and the
carrying value of intangible and long-lived assets.
Amounts reported in thousands within this report are computed based on the amounts in dollars. As a result, the sum of the components reported in
thousands may not equal the total amount reported in thousands due to rounding. Certain columns and rows within tables may not add due to the use of
rounded numbers. Percentages presented are calculated from the underlying numbers in dollars.
In the Form 10-Q for the period ended March 31, 2021, filed with the SEC on May 17, 2021, in the Form 10-Q for the period ended June 30, 2021, filed
with the SEC on August 17, 2021, in the form 10-Q for the period ended September 30, 2021, filed with the SEC on November 12, 2021 and in the
Form 10-K for the year ended December 31, 2021, filed with the SEC on March 28, 2022, the revenue by geographic location, which is based on the
product shipped to location, was presented incorrectly (see below). The Company corrected the presentation in the accompanying consolidated financial
statements for the periods presented (see Note 18).
United States
International
Total revenue
Reclassification Adjustment
Three Months Ended
March 31,
2021
June 30, 2021
September 30,
2021
December 31,
2021
Year Ended
December 31,
2021
$
$
(362) $
362
— $
(615) $
615
— $
(703) $
703
— $
(440) $
440
— $
(2,120)
2,120
—
Additionally, the Company performed reclassifications within the Operating Expenses section of the Statements of Operations. The intent was to reclassify
clinical affairs costs and clinical training costs previously presented within general and administrative expenses into research and development and selling
and marketing expenses, respectively.
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The following table summarizes the impact of the reclassification adjustment on the Company's Annual Report on Form 10-K filed on March 28, 2022, as
well as the unaudited Form 10-Q filings for the periods in 2021 and 2022:
As previously
reported
Adjustment
As reclassified
Consolidated statements of operations:
For the year ended December 31, 2021
Selling and marketing
General and administrative
Research and development
Condensed consolidated statements of operations for the three months ended:
March 31, 2022
$
37,438 $
45,940
8,258
4,482 $
(5,870)
1,388
Selling and marketing
General and administrative
Research and development
March 31, 2021
Selling and marketing
General and administrative
Research and development
June 30, 2022
Selling and marketing
General and administrative
Research and development
June 30, 2021
Selling and marketing
General and administrative
Research and development
September 30, 2022
Selling and marketing
General and administrative
Research and development
September 30, 2021
Selling and marketing
General and administrative
Research and development
9,903
13,094
2,202
7,854
12,165
2,051
9,487
14,249
2,436
10,114
7,828
2,024
8,094
14,128
2,576
8,775
11,990
1,930
1,181
(1,622)
441
1,052
(1,408)
356
1,036
(1,312)
276
1,139
(1,468)
329
1,275
(1,723)
448
1,035
(1,337)
302
94
41,920
40,070
9,646
11,084
11,472
2,643
8,906
10,757
2,407
10,523
12,937
2,712
11,253
6,360
2,353
9,369
12,405
3,024
9,810
10,653
2,232
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Reclassification of Comparative Amounts
The Company previously offset certain Trade Payables with Advances to Suppliers associated with one vendor. In accordance with U.S. GAAP, the
Company determined there is no intent to settle the Trade Payables on a net basis. The error is a reclassification which results in an increase of Trade
Payables and Advances to Suppliers. Items previously reported have been reclassified to conform to U.S. GAAP and the reclassification did not have any
impact on the consolidated statements of operations, consolidated statements of comprehensive loss, or consolidated statement of stockholders' equity.
The following table summarizes the impact of the reclassification adjustments on the Company's Form 10-K previously filed on March 28, 2022 as well as
the unaudited condensed consolidated balance sheets for the affected Quarterly Periods in 2022:
Consolidated balance sheets:
December 31, 2021
Advances to suppliers
Trade payables
March 31, 2022
Advances to suppliers
Trade payables
June 30, 2022
Advances to suppliers
Trade payables
September 30, 2022
Advances to suppliers
Trade payables
As previously
reported
Adjustment
As reclassified
$
2,162 $
4,913
3,505 $
3,505
3,532
4,788
2,869
4,184
3,605
6,093
2,856
2,856
3,090
3,090
2,186
2,186
5,667
8,418
6,388
7,644
5,959
7,274
5,791
8,279
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The following table summarizes the impact of the reclassification adjustments on the Company's Form 10-K previously filed on March 28, 2022 as well as
the unaudited condensed consolidated statements of cash flows for the affected Quarterly Periods in 2022:
Consolidated statements of cash flows:
For the year ended December 31, 2021
Changes in operating assets and liabilities:
Advances to suppliers
Trade payables
For the three months ended March 31, 2022
Changes in operating assets and liabilities:
Advances to suppliers
Trade payables
For the three months ended March 31, 2021
Changes in operating assets and liabilities:
Advances to suppliers
Trade payables
For the six months ended June 30, 2022
Changes in operating assets and liabilities:
Advances to suppliers
Trade payables
For the six months ended June 30, 2021
Changes in operating assets and liabilities:
Advances to suppliers
Trade payables
For the nine months ended September 30, 2022
Changes in operating assets and liabilities:
Advances to suppliers
Trade payables
For the nine months ended September 30, 2021
Changes in operating assets and liabilities:
Advances to suppliers
Trade payables
As previously
reported
Adjustment
As reclassified
$
425 $
(1,409)
(3,505) $
3,505
(3,080)
2,096
(1,370)
(125)
(1,417)
(178)
(707)
(729)
(772)
(640)
(1,443)
1,180
(142)
(1,573)
(2,856)
2,856
(1,680)
1,680
(3,090)
3,090
(2,291)
2,291
(2,186)
2,186
(2,500)
2,500
(4,226)
2,731
(3,097)
1,502
(3,797)
2,361
(3,063)
1,651
(3,629)
3,366
(2,642)
927
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Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Venus Concept Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated on consolidation. Where the Company does not own 100% of its subsidiaries, it accounts for
the partial ownership interest through non-controlling interest.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions made in the accompanying
consolidated financial statements include, but are not limited to, the implicit interest rate used to record lease revenue, allowance for doubtful accounts,
inventory valuation, stock-based compensation, warranty accrual, the valuation and measurement of deferred tax assets and liabilities, accrued severance
pay, useful lives of property and equipment, earn-out liability, useful lives of intangible assets, impairment of long-lived assets and valuation of acquired
intangible assets. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those
estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.
Foreign Currency
The consolidated financial statements are presented in U.S. dollars. 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. The Company and its subsidiaries’ functional currency is the U.S. dollar as determined by management.
All exchange gains and losses from remeasurement of monetary balance sheet items resulting from transactions in non-functional currencies are recorded in
the consolidated statements of operations as they arise.
In respect of transactions denominated in currencies other than the Company and its subsidiaries’ functional currencies, the monetary assets and liabilities
are remeasured at the period end rates. Revenue and expenses are remeasured at rates of exchange prevailing on the transaction dates. All of the exchange
gains or losses resulting from these transactions are recognized in the consolidated statements of operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents.
Cash and cash equivalents consist primarily of funds invested in readily available checking and savings accounts, investments in money market funds and
short-term time deposits.
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Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, accounts receivable and
long-term receivables. The Company’s cash and cash equivalents are invested primarily in deposits with major banks worldwide, as such minimal credit
risk exists with respect to such investments. The Company’s trade receivables are derived from global sales to customers. An allowance for doubtful
accounts is provided with respect to all balances for which collection is deemed to be doubtful.
Risks and Uncertainties
While the impact of COVID-19 on our Company has largely subsided, we continue to closely monitor all COVID-19 developments including its impact on
our customers, employees, suppliers, vendors, business partners, and distribution channels. In addition, the global economy, including the financial and
credit markets, has recently experienced extreme volatility and disruptions, including increases to inflation rates, rising interest rates, foreign currency
impacts, and declines in economic growth. All these factors point to uncertainty about economic stability, and the severity and duration of these conditions
on our Company cannot be predicted.
Besides COVID-19, the Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future
operating results and cause actual results to vary materially from expectations include, but are not limited to, rapid technological change, continued
acceptance of the Company’s products, competition from substitute products and larger companies, protection of proprietary technology, strategic
relationships and dependence on key individuals. If the Company fails to adhere to the FDA’s Quality System Regulation, or regulations in countries other
than the United States, the FDA or other regulators may withdraw its market clearances or take other action. The Company relies on suppliers to
manufacture some of the components used in its products. The Company’s suppliers may encounter supply interruptions or problems during manufacturing
due to a variety of reasons, including failure to comply with applicable regulations, including the FDA’s Quality System Regulation, making errors in
manufacturing or losing access to critical services and components, any of which could delay or impede the Company’s ability to meet demand for its
products.
The Company has borrowings with interest rates that are subject to fluctuations as charged by the lender. The Company does not use derivative financial
instruments to mitigate the exposure to interest rate risk. The Company’s objective is to have sufficient liquidity to meet its liabilities when due. The
Company monitors its cash balances and cash used in operating activities to meet its requirements. As of December 31, 2022 and 2021, the most significant
financial liabilities are trade payables, accrued expenses and other current liabilities and long-term debt.
Concentration of Customers
For the years ended December 31, 2022 and 2021, there were no customers accounting for more than 10% of the Company’s revenue and no customers
accounting for more than 10% of the Company’s accounts receivable.
Allowance for Doubtful Accounts
Trade accounts receivable do not bear interest and are typically not collateralized. The Company performs ongoing credit evaluations of its customers’
financial condition and maintains an allowance for doubtful accounts. Uncollectible accounts are charged to expense when deemed uncollectible, and
accounts receivable are presented net of an allowance for doubtful accounts. Accounts receivable are deemed past due in accordance with the contractual
terms of the agreement. Actual losses may differ from the Company’s estimates and could be material to the Company's consolidated financial position,
results of operations and cash flows. The allowance for doubtful accounts was $13,619 and $11,997 as of December 31, 2022 and 2021, respectively.
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Inventory
Inventories are stated at the lower of cost or net realizable value and include raw materials, work in progress and finished goods. Cost is determined as
follows:
Raw Materials and Work in Progress (“WIP”) – Cost is determined on a standard cost basis utilizing the weighted average cost of historical purchases,
which approximates actual cost.
The cost of WIP and finished goods includes the cost of raw materials and the applicable share of the cost of labor and fixed and variable production
overheads.
The Company regularly evaluates the value of inventory based on a combination of factors including the following: historical usage rates, product end of
life dates, technological obsolescence and product introductions. The Company includes demonstration units within inventories. Proceeds from the sale of
demonstration units are recorded as revenue.
Long-term Receivables
Long-term receivables relate to the Company’s subscription revenue or contracts which stipulate payment terms which exceed one year. They are
comprised of the unpaid principal balance, plus accrued interest, net of the allowance for credit losses. These receivables have been discounted based on the
implicit interest rate in the subscription lease which range between 8% to 10% for the year ended December 31, 2022 and 8% to 9% for the year ended
December 31, 2021. Unearned interest revenue represents the interest only portion of the respective subscription payments and will be recognized in
income over the respective payment term as it is earned.
Deferred revenues represent payments received prior to the income being earned. Once the equipment has been delivered or the services have been
rendered, these amounts are recognized in income.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which is between three and ten years. Leasehold improvements are depreciated over the lesser of the life of the lease or the useful
life of the improvements. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the consolidated balance sheets, and any resulting gain or loss is reflected in the consolidated statements of
operations.
Leases
The Company determines if an agreement is, or contains, a lease at inception. An agreement is, or contains, a lease if the contact conveys the right to
control the use of an identified asset for a period of time in exchange for consideration. The Company leases assets including land and buildings, vehicles,
and equipment. For leases with a term of 12 months or less or of low value, the payments are expensed as incurred.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost,
which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less
any lease incentives received.
An operating lease is a lease in which a lessor transfers the use of an asset to a lessee for a period of time but does not effectively transfer control of the
underlying asset. For lessees, a lease is a finance lease if the lessee effectively obtains control of the underlying asset, by meeting any of the following five
criteria:
i.
ii.
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
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iii.
The lease term is for a major part (generally 75%) of the remaining economic life of the underlying asset.
iv.
The sum of the lease payments and the present value of any residual value guaranteed by the lessee amounts to or exceeds substantially all
(generally 90%) of the fair value of the underlying asset.
v.
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
For a finance lease, the right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end
of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as
those of property, plant and equipment. For an operating lease, amortization of the right-of-use asset is calculated as the difference between the straight-line
rent expense and the interest expense on the lease liability for a given period. In addition, the right-of-use asset is periodically reduced by impairment
losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest
rate implicit in the lease or, if that rate cannot be readily determined, the Company uses its incremental borrowing rate. Generally, the Company uses its
incremental borrowing rate as the discount rate. The Company has determined that there are no variable payments, residual value guarantees, lease renewal
options or early termination options that are reasonably certain to be exercised, and therefore have been excluded these from initial measurement.
The lease liabilities are subsequently measured at amortized cost using the effective interest method. They are remeasured when there is a change in future
lease payments arising from a change in the lease term, if there is a change in the Company’s estimate of the amount expected to be payable under a
residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.
All of our leases for which we are the lessee are operating leases and are included within operating lease right-of-use assets, net, operating lease liabilities,
and long-term operating lease liabilities in our Consolidated Balance Sheets.
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Intangible Assets
Intangible assets consist of customer relationships, brand, technology and supplier agreement. Intangible assets are stated at cost less accumulated
amortization. Amortization is computed using the straight-line method over the estimated useful lives of the respective assets, which range from
approximately six to fifteen years.
The useful lives of intangible assets are based on the Company’s assessment of various factors impacting estimated cash flows, such as the product’s
position in its lifecycle, the existence or absence of like products in the market, various other competitive and regulatory issues, and contractual terms.
Impairment of Long-Lived Assets
The Company accounts for the impairment of long-lived assets in accordance with FASB, ASC 360-10, “Accounting for the Impairment of Long-Lived
Assets”. This standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the assets’
carrying amounts may not be recoverable. For assets that are to be held and used, impairment is assessed when the estimated undiscounted cash flows
associated with the asset or group of assets is less than their carrying values. If impairment exists, an adjustment is made to write the asset down to its fair
value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values,
discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value and estimated net
realizable value. During the years ended December 31, 2022 and 2021, there was no impairment of long-lived assets.
Debt Issuance Costs
Costs related to the issuance of debt are presented as a direct deduction to the carrying value of the debt and are amortized to accretion expenses using the
effective interest rate method over the term of the related debt.
Derivatives
The Company reviews the terms of convertible notes, equity instruments and other financing arrangements to determine whether there are embedded
derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial
instrument. Derivative financial instruments are initially measured at their fair value. Derivative financial instruments that are accounted for as liabilities,
are initially recorded at fair value and then re-valued at each reporting date, with changes in the fair value recognized in the consolidated statements of
operations.
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Revenue Recognition
The Company adopted ASC 606 “Revenue from contract with customers” (“ASC 606”) on January 1, 2019 using the modified retrospective method for all
contracts not completed as of the date of adoption. The adoption of ASC 606 represents a change in accounting principle that will more closely align
revenue recognition with the delivery of the Company’s goods or services and will provide the consolidated financial statements’ readers with enhanced
disclosures.
The Company generates revenue from (1) sales of systems through the subscription model, traditional system sales to customers and distributors, (2) other
product revenues from the sale of ARTAS procedure kits, marketing supplies and kits, consumables and (3) service revenue from the sale of
VeroGrafters technician services and an extended warranty service contracts provided to existing customers. VeroGrafters technician services were
discontinued in the fourth quarter of 2021.
Many of the Company’s products are sold under subscription contracts with control passing to the customer at the earlier of the end of the term and when
the payment is received in full. The subscription contracts include an initial deposit followed by monthly installments typically over a period of 36 months.
In accordance with ASC 840 “Leases” (“ASC 840”), these arrangements are considered to be sales-type leases, where the present value of all cash flows to
be received within the arrangement is recognized upon shipment to the customer and achievement of the required revenue recognition criteria. Various
accounting and reporting systems are used to monitor subscription receivables which include providing access codes to operate the machines to paying
customers and restricting access codes on machines to non-paying customers.
The Company recognizes revenues on other products and services in accordance with ASC 606. Revenue is recognized based on the following five steps:
(1) identification of the contract(s) with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction
price; and (4) allocation of the transaction price to the separate performance obligations in the contract; and (5) recognition of revenue when (or as) the
entity satisfies a performance obligation.
The Company does not grant rights of return to its end customers. The Company’s products sold through arrangements with distributors are non-
refundable, non-returnable and without any rights of price protection. The Company records revenue net of sales tax and shipping and handling costs.
Cost of Goods
For subscription sales (qualifying as sales-type lease arrangements) and product sales, the costs are recognized upon shipment to the customer or
distributor.
Advertising Costs
The cost of advertising and media is expensed as incurred. For the years ended December 31, 2022 and 2021, advertising costs totaled $1,776 and $1,821,
respectively.
Research and Development
Research and development costs are charged to operations as incurred. Major components of research and development expenses consist of personnel costs,
including salaries and benefits, hardware and software research and development costs, and clinical studies.
Warranty
The Company provides a standard warranty against defects for all of its systems. The warranty period begins upon shipment and is for a period of one to
three years.
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The Company records a liability for accrued warranty costs at the time of sale of a system, which consists of the warranty on products sold based on
historical warranty costs and management’s estimates. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the
amounts thereof as necessary. The Company also provides an extended warranty service. Extended warranty can be purchased at any time after the
purchase of a system and prior to the expiration of the standard warranty provided with the sale of the system. Extended warranty services include standard
warranty services.
The Company recognizes the revenue from the sale of an extended warranty over the period of the extended warranty and accounts it for separately from
the standard warranty.
Income Taxes
The Company follows the deferred income taxes method of accounting for income taxes. Under this method, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial statement carrying values of accounts and their respective income tax basis.
Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years during which the
temporary differences are expected to be realized or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in
income in the period that includes the enactment date.
The Company establishes valuation allowances when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized.
The Company evaluates tax positions taken or expected to be taken in the course of preparing tax returns to determine whether the tax positions have met
a “more likely-than-not” threshold of being sustained by the applicable tax authority. Tax benefits related to tax positions not deemed to meet the “more
likely-than-not” threshold are not permitted to be recognized in the consolidated financial statements.
Uncertain Tax Positions
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained on examination based on the
technical merit of the position. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is
more likely than not that the position will be sustained on examination, including resolution of related appeals or litigation processes, if any. The second
step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement.
The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments. The
Company recognizes interest charges and penalties related to unrecognized tax benefits as a component of the tax provision and recognizes interest charges
and penalties related to recognized tax positions in the accompanying consolidated statements of operations.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”). ASC 718
requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately
expected to vest is recognized as an expense over the requisite service period in the Company’s consolidated statements of operations.
The fair value of stock options (“options”) on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach.
The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including the option’s expected term and the price
volatility of the underlying stock, to determine the fair value of the award. The Company recognizes compensation expenses for the value of its awards
granted based on the straight-line method over the requisite service period of each of the awards. The Company has made a policy choice to account for
forfeitures when they occur.
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Net Loss Per Share
The Company computes net (loss) income per share in accordance with ASC Topic 260, “Earnings Per Share” (“ASC 260”) and related guidance, which
requires two calculations of net (loss) income attributable to the Company’s shareholders per share to be disclosed: basic and diluted. Convertible preferred
shares are participating securities and are included in the calculation of basic and diluted net (loss) income per share using the two-class method. In periods
where the Company reports net losses, such losses are not allocated to the convertible preferred shares for the computation of basic or diluted net (loss)
income.
Diluted net (loss) income per share is the same as basic net (loss) income per share for the periods in which the Company had a net loss because the
inclusion of outstanding common stock equivalents would be anti-dilutive.
Recently Adopted Accounting Standards
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). The authoritative guidance intended to provide consistent
and transparent disclosures around government assistance by requiring disclosures of the type of government assistance, our accounting for the government
assistance and the effect on our financial statements. This guidance was effective for the Company for the year ended December 31, 2021. See Note 14 for
more details regarding government assistance.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most
leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting.
On January 1, 2022, the Company adopted the standard and all related amendments, using the optional transition method (modified retrospective approach)
applied to leases at the adoption date. Under the modified retrospective approach, comparative periods have not been restated and continue to be reported
under the accounting standards in effect for those periods.
The Company elected the optional package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease
classification and initial direct costs. The Company also elected the practical expedient to not separate lease components from non-lease components for
real estate leases.
As a result of the adoption of ASU 2016-02, the Company recorded right-of-use assets (“ROU”) of $5,862 and corresponding lease liabilities of $6,028
with no adjustment made to opening accumulated deficit.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term
at commencement date. Upon adoption of ASU 2016-02, ROU assets were adjusted for deferred rent and prepaids as of January 1, 2022. Lease expense is
recognized on a straight-line basis over the expected lease term. The Company’s incremental borrowing rate is used in determining the present value of
future payments at the commencement date of the lease, or for the adoption of ASU 2016-02, at January 1, 2022. Balances related to operating leases are
included in ROU assets and current or noncurrent lease liabilities on the consolidated balance sheet.
All real estate leases are recorded on the balance sheet. Equipment and other non-real estate leases with an initial term of twelve months or less are not
recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Many leases include one or more
options to renew the lease at the end of the initial term. The Company considered renewals in its ROU assets and operating lease liabilities. Certain real
estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The company excluded the non-lease
components for all real estate leases and included the non-lease components for all other leases (e.g., cars and equipment). The non-lease components
were not separated for certain assets, as there may be no practical way to split the components in certain leases (e.g., cars) and are not material to the
company.
The Company determines if an arrangement is a lease at inception. The Company must consider whether the contract conveys the right to control the use of
an identified asset. Certain arrangements require significant judgment to determine if an asset is specified in the contract and if the Company directs how
and for what purpose the asset is used during the term of the contract.
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In October 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU") No. 2021-08, Business
Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity (acquirer) to
recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with
Customers. This update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption
permitted. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The
adoption of the guidance did not have a material impact on the Company's consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260): Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)”, which clarifies
and reduces diversity in an issuer’s accounting for a modification or an exchange of a freestanding equity-classified written call option that remains equity
being classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an
expense and, if so, the manner and pattern of recognition. This was effective for fiscal years beginning after December 15, 2021, and interim periods
within those years. The adoption of the guidance did not have a material impact on the Company's consolidated financial statements.
In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04 - Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (ASC Topic 848). This authoritative guidance provides optional relief for companies preparing for the discontinuation of interest rates such as
LIBOR, which was phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt
arrangements that have LIBOR as the benchmark rate. This guidance can be applied for a limited time, as of the beginning of the interim period that
includes March 12, 2020 or any date thereafter, through December 31, 2022. The guidance may no longer be applied after December 31, 2022. In
January 2021, the FASB issued authoritative guidance that makes amendments to the new rules on accounting for reference rate reform. The amendments
clarify that all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of
whether they reference LIBOR, or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical
expedients in ASC Topic 848. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an authoritative guidance
that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas. It is effective from
the first quarter of fiscal year 2022, with early adoption permitted in any interim period. The amendments have differing adoption methods including
retrospectively, prospectively and/or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the
fiscal year of adoption, depending on the specific change. The adoption of the guidance did not have a material impact on the Company’s consolidated
financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”): Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible
debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted net income per share calculation for convertible
instruments will require us to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are
freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the
derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract
would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective
for the Company on January 1, 2024, with early adoption permitted. ASU No. 2020-06 can be adopted on either a fully retrospective or modified
retrospective basis. The Company is currently assessing the impact of applying this guidance as well as when to adopt this guidance.
In February 2020, the FASB issued authoritative guidance (ASU 2020-02 – Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842))
that amends and clarifies Topic 326 and Topic 842. For Topic 326, the codification was updated to include the SEC staff interpretations associated with
registrants engaged in lending activities. ASC Topic 326 is effective for annual periods beginning after January 1, 2023, including interim periods within
those fiscal years. The Company is currently assessing the impact of applying this guidance.
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3. 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):
Numerator:
Net loss
Net loss allocated to stockholders of the Company
Denominator:
Weighted-average shares of common stock outstanding used in computing
net loss per share, basic and diluted
Net loss per share:
Basic and diluted
$
$
$
For the year ended December 31,
2022
2021
(43,584) $
(43,700) $
65,960
(0.66) $
(22,141)
(23,013)
54,466
(0.42)
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 years ended December 31, 2022 and 2021 because including them would have been antidilutive:
Options to purchase common stock and restricted stock units ("RSUs")
Preferred stock
Restricted Stock
Shares reserved for convertible notes
Warrants for common stock
Total potential dilutive shares
106
December 31,
2022
2021
12,741,394
31,850,000
388,750
8,215,706
15,928,867
69,124,717
5,977,179
3,790,755
-
8,213,880
15,928,867
33,910,681
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4. SALE OF SUBSIDIARIES
Beginning in 2020, the Company made several strategic decisions to divest itself of underperforming direct sales offices in the countries which
were not anticipated to produce sustainable results. As a part of this initiative over the course of fiscal year ended December 31, 2021, the Company
completed the following transactions:
•
•
•
Sold its share (80%) in its subsidiary, Venus Concept Africa (Pty) Ltd., to a non-controlling shareholder for a nominal cash consideration. The
disposal resulted in a loss of approximately $188 for the year ended December 31, 2021, and no expenses for the year ended December 31,
2022.
In 2020, the Company sold its share (51%) in its Indian subsidiary, Venus Aesthetic LLP, to an unrelated third party for cash consideration of
$400. The disposal resulted in a loss of approximately $579. In 2021 the Company wrote off the accounts receivable from the subsidiary
disposal of $379.
Filed a Certificate of Dissolution to dissolve its wholly-owned subsidiary, Restoration Robotics Spain S.L. The dissolution resulted in no
losses recognized for the year ended December 31, 2021.
As a part of this initiative over the course of fiscal year ended December 31, 2022, the Company completed the following:
•
Filed a Certificate of Dissolution to dissolve its wholly-owned subsidiary, Venus France. The dissolution resulted in a loss of approximately
$60 for the year ended December 31, 2022.
As these disposals did not constitute a strategic shift that will have a major effect on the Company’s operations and financial results, and total operating
revenue of the disposed subsidiaries did not exceed 15% of the Company’s total revenue, therefore the results of operations for disposed subsidiaries
were not reported as discontinued operations under the guidance of ASC 205- 20- 45.
In addition to the above, on September 7, 2021, the Company acquired the non-controlling interest (45%) in its subsidiary in China, Venus Concept
(Shanghai) Co., Ltd, for a nominal consideration.
5. 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.
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Guaranteed investment certificates are classified within Level 2 as the Company uses alternative pricing sources and models utilizing market observable
inputs for valuation. Contingent earn-out consideration was classified within 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:
Fair Value Measurements as of December 31, 2022
Quoted Prices
in Active
Markets using
Identical
Assets (Level
1)
Significant
Other
Observable
Inputs (Level
2)
Significant
Unobservable
Inputs (Level
3)
Total
$
$
— $
— $
59 $
59 $
— $
— $
59
59
Fair Value Measurements as of December 31, 2021
Quoted Prices
in Active
Markets using
Identical
Assets (Level
1)
Significant
Other
Observable
Inputs (Level
2)
Significant
Unobservable
Inputs (Level
3)
Total
$
$
— $
— $
64 $
64 $
— $
— $
64
64
Assets
Guaranteed Investment Certificates
Total assets
Assets
Guaranteed Investment Certificates
Total assets
6. ACCOUNTS RECEIVABLE
The Company’s products may be sold under subscription contracts with control 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 within the arrangement is
recognized upon shipment to the customer as lease revenue.
A financing receivable is a contractual right to receive money, on demand or on fixed or determinable dates, that is recognized as an asset on the
Company’s consolidated balance sheets. The Company’s financing receivables, consisting of its sales-type leases, totaled $40,377 and $53,887 at
December 31, 2022 and 2021, respectively, and are included in accounts receivable and long-term receivables on the consolidated balance sheets. The
Company evaluates the credit quality of an obligor at lease inception and monitors credit quality over the term of the underlying transactions.
The Company performed an assessment of the allowance for doubtful accounts as of December 31, 2022 and 2021. Based upon such assessment, the
Company recorded an allowance for doubtful totaling $13,619 and $11,997 as of December 31, 2022 and 2021, respectively.
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A summary of the Company’s accounts receivables is presented as follows:
Gross accounts receivable
Unearned income
Allowance for doubtful accounts
Reported as:
Current trade receivables
Current unearned interest income
Long-term trade receivables
Long-term unearned interest income
As of December 31,
2022
2021
$
$
$
$
70,925 $
(3,354)
(13,619)
53,952 $
37,262 $
(2,397)
20,044
(957)
53,952 $
86,625
(4,033)
(11,997)
70,595
46,918
(2,678)
27,710
(1,355)
70,595
Current subscription contracts are reported as part of accounts receivable. The following are the contractual commitments, net of allowance for doubtful
accounts, to be received by the Company over the next 5 years:
Current financing receivables, net of allowance of
$6,938
Long-term financing receivables, net of allowance
of $906
Total
2023
2024
December 31,
2025
2026
2027
$
20,333 $
20,333 $
— $
— $
20,044
40,377 $
—
20,333 $
15,965
15,965 $
4,029
4,029 $
$
— $
50
50 $
—
—
—
Accounts receivable do not bear interest and are typically not collateralized. The Company performs ongoing credit evaluations of its customers’ financial
condition and maintains an allowance for doubtful accounts. Uncollectible accounts are charged to expense when deemed uncollectible, and accounts
receivable are presented net of an allowance for doubtful accounts. Accounts receivable are deemed past due in accordance with the contractual terms of
the agreement. Actual losses may differ from the Company’s estimates and could be material to its consolidated financial position, results of operations and
cash flows.
The allowance for doubtful accounts consisted of the following activity for years ended December 31, 2022 and 2021:
Balance at beginning of year
Write-offs
(Recovery) provision
Balance at end of year
As of December 31,
2022
2021
11,997 $
(5,715)
7,337
13,619 $
18,490
(6,230)
(263)
11,997
$
$
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7. SELECT BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION
Inventory
Inventory consists of the following:
Raw materials
Work-in-progress
Finished goods
Total inventory
December 31,
2022
2021
$
$
2,478 $
2,112
19,316
23,906 $
2,368
1,649
16,526
20,543
Additions to inventory are primarily comprised of newly produced units and applicators, refurbishment cost from demonstration units and used equipment
which were reacquired during the year from upgraded sales. The Company expensed $31,555 ($28,089 in 2021) in cost of goods sold during the year. The
balance of cost of goods sold represents the sale of applicators, parts and warranties.
The Company provides for excess and obsolete inventories when conditions indicate that the inventory cost is not recoverable due to physical deterioration,
usage, obsolescence, reductions in estimated future demand and reductions in selling prices. Inventory provisions are measured as the difference between
the cost of inventory and net realizable value to establish a lower cost basis for the inventories. As of December 31, 2022, a provision for obsolescence of
$3,258 ($2,213 in 2021) was taken against inventory.
Property and Equipment, Net
Property and equipment, net consist of the following:
Lab equipment tooling and molds
Office furniture and equipment
Leasehold improvements
Computers and software
Vehicles
Demo units
Total property and equipment
Less: Accumulated depreciation
Total property and equipment, net
Useful Lives (in
years)
4 – 10
6 – 10
up to 10
3
5 – 7
5
$
$
December 31,
2022
2021
4,356 $
1,240
794
906
37
214
7,547
(5,690)
1,857 $
8,194
1,743
1,839
1,939
37
114
13,866
(11,197)
2,669
Depreciation expense amounted to $990 and $1,381 for the years ended December 31, 2022 and 2021.
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Other Current Assets
Government remittances (1)
Consideration receivable from subsidiaries sale
Deferred financing costs
Sundry assets and miscellaneous
Total other current assets
December 31,
2022
2021
$
$
1,602 $
629
301
1,170
3,702 $
(1)
Government remittances are receivables from the local tax authorities for refund of sales taxes and income taxes.
Accrued Expenses and Other Current Liabilities
Payroll and related expense
Accrued expenses
Commission accrual
Sales and consumption taxes
Total accrued expenses and other current liabilities
Warranty Accrual
The following table provides the details of the change in the Company’s warranty accrual:
Balance as of the beginning of the year
Warranties issued during the year
Warranty costs incurred during the year
Balance at the end of the year
Current
Long-term
Total
111
December 31,
2022
2021
2,244 $
5,045
3,761
5,617
16,667 $
December 31,
2022
2021
1,753 $
993
(1,264)
1,482 $
1,074
408
1,482 $
$
$
$
$
$
1,322
1,405
223
808
3,758
1,770
6,584
4,529
6,629
19,512
1,639
1,231
(1,117)
1,753
1,245
508
1,753
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Finance Expenses
The following table provides the details of the Company’s finance expenses:
Interest expense
Accretion on long-term debt and amortization of fees
Total finance expenses
December 31,
2022
2021
$
$
4,297 $
264
4,561 $
3,720
1,235
4,955
8. LEASES
The following presents the various components of lease costs.
Operating lease cost
Short-term lease cost
Total lease cost
Year Ended
December 31,
2022
$
$
1,942,765
267,503
2,210,268
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.
Operating cash outflows from operating leases
The following table presents the weighted-average lease term and discount rate for operating leases.
Operating leases
Weighted-average remaining lease term
Weighted-average discount rate
Year Ended
December 31,
2022
$
1,943
Year Ended
December 31,
2022
4.2 yrs.
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,
2023
2024
2025
2026
2027
Thereafter
Imputed Interest (1)
Total
Operating leases
1,807
$
1,409
1,228
1,038
594
544
(592)
6,028
$
(1)
Imputed interest represents the difference between undiscounted cash flows and cash flows.
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9. INTANGIBLE ASSETS
In November 2019, the Company completed its business combination with Venus Ltd. and the business of Venus Ltd. became the primary business of the
Company (the "Merger"), which included the addition of amortizable intangible assets, represented by the technology ($16,900) and the brand name
($1,200).
The carrying values of goodwill and indefinite-life intangible assets are subject to annual impairment assessment as of the last day of each fiscal year.
Between annual assessments, impairment review may also be triggered by any significant events or changes in circumstances affecting the Company’s
business. Based on the analysis of the intangible assets performed by management as of December 31, 2022 and 2021, no impairment was considered
necessary.
Intangible assets net of accumulated amortization were as follows:
Customer relationships
Brand
Technology
Supplier agreement
Total intangible assets
Customer relationships
Brand
Technology
Supplier agreement
Total intangible assets
Amortization expense was $3,473 for the years ended December 31, 2022 and 2021.
Estimated amortization expense for the next five fiscal years and all years thereafter are as follows:
Years ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
113
At December 31, 2022
Accumulated
Amortization
Net Amount
(429) $
(1,066)
(8,919)
(1,467)
(11,881) $
971
1,434
7,981
1,533
11,919
At December 31, 2021
Accumulated
Amortization
Net Amount
Gross Amount
$
1,400 $
2,500
16,900
3,000
23,800 $
1,400 $
2,500
16,900
3,000
23,800 $
$
$
Gross Amount
$
(336) $
(803)
(6,103)
(1,165)
(8,407) $
1,064
1,697
10,797
1,835
15,393
$
$
3,473
3,473
3,004
657
657
655
11,919
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10. COMMITMENTS AND CONTINGENCIES
Commitments
As of December 31, 2022, the Company has non-cancellable purchase orders placed with its contract manufacturers in the amount of $20,775. In addition,
as of December 31, 2022, the Company had $1,599 of open purchase orders that can be cancelled with 270 days’ notice, except for a portion equal to
25% of the total amount representing the purchase of “long lead items”.
On March 25, 2021, the Company entered into an endorsement agreement for the services of Venus Williams, four-time Olympic Gold Medalist, seven-
time Grand Slam Champion and entrepreneur, pursuant to which Ms. Williams will act as a brand ambassador for Venus Bliss. The endorsement agreement
expired on November 1, 2022.
Aggregate service and purchase commitments with manufacturers as of December 31, 2022 are as follows:
Years ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
114
Purchase and
Service
Commitments
21,174,831
—
—
—
—
—
21,174,831
$
$
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Legal Proceedings
Purported Shareholder Class Actions
In 2018 and 2019, four putative shareholder class action complaints were filed against Restoration Robotics, Inc., certain of its former officers and
directors, certain of its venture capital investors, and the underwriters of the initial public offering (“IPO”). Two claims, captioned Wong v. Restoration
Robotics, Inc., et al., No. 18CIV02609, and Li v. Restoration Robotics, Inc., et al., No. 19CIV08173 (together, the “State Actions”), were filed in the
Superior Court of the State of California, County of San Mateo, and assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act. Two additional
claims, captioned Guerrini v. Restoration Robotics, Inc., et al., No. 5:18-cv-03712-EJD and Yzeiraj v. Restoration Robotics, Inc., et al., No. 5:18-cv-03883-
BLF (together, the “Federal Actions”), were filed in the United States District Court for the Northern District of California and assert claims under
Sections 11 and 15 of the Securities Act. The complaints in both the State Actions and Federal Actions alleged, among other things, that the Restoration
Robotics’ Registration Statement filed with the SEC on September 1, 2017 and the Prospectus filed with the SEC on October 13, 2017 in connection with
Restoration Robotics’ IPO were inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the
statements made not misleading and omitted to state material facts required to be stated therein. The complaints sought unspecified monetary damages,
other equitable relief and attorneys’ fees and costs. A settlement in the Federal Actions was granted final approval in the District Court on September 9,
2021. A hearing on Plaintiff’s motion for final distribution of the settlement funds in the Federal Actions was held on February 16, 2023, and the District
Court granted the motion for final distribution on February 17, 2023.
In the State Actions, the Plaintiffs filed a consolidated amended complaint on January 17, 2020 seeking unspecified monetary damages, other equitable
relief and attorneys’ fees and costs. Following the Delaware Supreme Court reversal of the Chancery Court’s decision in Sciabacucchi v. Salzberg which
held that exclusive federal forum provisions are valid under Delaware law, the Company filed a renewed motion to dismiss based on its federal forum
selection clause on March 30, 2020, which was granted as to the Company and the individual defendants on September 1, 2020 and a judgement of
dismissal was entered by the Court on September 22, 2020. On November 23, 2020, plaintiff filed a notice of appeal of the Court’s order granting the
renewed motion to dismiss. The court of appeal heard oral argument related to the appeal on April 20, 2022, and on April 28, 2022, issued its opinion
affirming the trial court’s dismissal of the State Actions based on the federal forum selection clause. On June 7, 2022, Plaintiff-Appellant Wong petitioned
the California Supreme Court to review the appellate court’s opinion. The Company filed its Response to Plaintiff-Appellant Wong’s petition on June 27,
2022, and Plaintiff-Appellant Wong filed a Reply in Support of the Petition For Review on July 7, 2022. On July 27, 2022, the California Supreme Court
denied Plaintiff-Appellant Wong’s petition for review. Plaintiff-Appellant Wong’s deadline to seek review in the United States Supreme Court was October
25, 2022, but no petition for review has been filed. As such, we consider this matter to have concluded as to the Company and the Company Defendants.
On July 11, 2019, a verified shareholder derivative complaint was filed in the United States District Court for the Northern District of California, captioned
Mason v. Rhodes, No. 5:19-cv-03997-NC. The complaint alleges that certain of Restoration Robotics’ former officers and directors breached their fiduciary
duties, have been unjustly enriched and violated Section 14(a) of the Exchange Act in connection with the IPO and Restoration Robotics’ 2018 proxy
statement. The complaint seeks unspecified damages, declaratory relief, other equitable relief and attorneys’ fees and costs. On August 21, 2019, the
District Court granted the parties’ joint stipulation to stay the Mason action. On June 21, 2021, the District Court granted the parties’ further stipulation to
stay the Mason action. On March 2, 2023, Plaintiff filed a stipulation voluntarily dismissing the action. The District Court has not yet entered the
stipulation.
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11. MAIN STREET TERM LOAN
On December 8, 2020, the Company executed the MSLP Loan Agreement, the MSLP Note, and related documents for the MSLP loan. On
December 9, 2020, the MSLP Loan had been funded and the transaction was closed. The MSLP Note has a term of five years and bears interest at a rate per
annum equal to 30-day LIBOR plus 3%. On December 8, 2023 and December 8, 2024, the Company must make an annual payment of principal plus
accrued but unpaid interest in an amount equal to fifteen percent (15%) of the outstanding principal balance of the MSLP Note (inclusive of accrued but
unpaid interest). The entire outstanding principal balance of the MSLP Note together with all accrued and unpaid interest is due and payable in full on
December 8, 2025. The Company may prepay the MSLP Loan at any time without incurring any prepayment penalties. The MSLP Note provides for
customary events of default, including, among others, those relating to a failure to make payment, bankruptcy, breaches of representations and covenants,
and the occurrence of certain events. In addition, the MSLP Loan Agreement and MSLP Note contain various covenants that limit the Company’s ability to
engage in specified types of transactions. Subject to limited exceptions, these covenants limit the Company’s ability, without CNB’s consent, to, among
other things, sell, lease, transfer, exclusively license or dispose of the Company’s assets, incur, create or permit to exist additional indebtedness, or liens, to
make dividends and other restricted payments, and to make certain changes to its ownership structure.
As of December 31, 2022 and December 31, 2021, the Company was in compliance with all required covenants.
The scheduled payments on the outstanding borrowings as of December 31, 2022 are as follows:
2023
2024
2025
Total
As of December 31,
2022
$
$
11,594
9,870
40,053
61,517
12. MADRYN LONG-TERM DEBT AND CONVERTIBLE NOTES
On October 11, 2016, Venus Ltd. entered into the Madryn Credit Agreement as a guarantor with Madryn Health Partners, LP, as administrative agent, and
certain of its affiliates as lenders (collectively, “Madryn”), as amended (the “Madryn Credit Agreement”), pursuant to which Madryn agreed to make
certain loans to certain of Venus Ltd.’s subsidiaries (the “Subsidiary Obligors”). The Madryn Credit Agreement was comprised of four tranches of debt
aggregating $70,000. As of September 30, 2020, the Subsidiary Obligors had borrowed $60,000 under the term A-1 and A-2 and B tranches of the Madryn
Credit Agreement. Borrowings under the Madryn Credit Agreement were secured by substantially all of the Company’s assets and the assets of the
Subsidiary Obligors. On the 24th payment date, which was September 30, 2022, the aggregate outstanding principal amount of the loans, together with any
accrued and unpaid interest thereon and all other amounts due and owing under the loan agreement were to become due and payable in full. The Madryn
Credit Agreement was terminated effective December 9, 2020 upon the funding and closing of the MSLP Loan as discussed below.
On December 9, 2020, contemporaneously with the MSLP Loan Agreement (Note 11), the Company and its subsidiaries, Venus USA, Venus Canada,
Venus Ltd., and the Madryn Noteholders (as defined below), entered into the Exchange Agreement dated as of December 8, 2020, pursuant to which the
Company (i) repaid $42,500 aggregate principal amount owed under the Madryn Credit Agreement, and (ii) issued, to the Madryn Noteholders, 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.
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The Notes will accrue interest at a rate of 8.0% per annum from the date of original issuance of the Notes to the third anniversary date of the original
issuance and thereafter interest will accrue at a rate of 6.0% per annum. Under certain circumstances, in the case of an event of default under the Notes, the
then-applicable interest rate will increase by 4.0% per annum. Interest is payable quarterly in arrears on the last business day of each calendar quarter of
each year after the original issuance date, beginning on December 31, 2020. The Notes will mature on December 9, 2025, unless earlier redeemed or
converted. In connection with the Exchange Agreement, the Company also entered into, by and among the Company, Venus USA, Venus Canada, Venus
Ltd., and the Madryn Noteholders, (i) the Madryn Security Agreement, pursuant to which the Company agreed to grant Madryn a security interest in
substantially all of its assets to secure the obligations under the Notes and (ii) the CNB Subordination Agreement. The security interests and liens granted
to the Madryn Noteholders under the Madryn Security Agreement will terminate upon the earlier of (i) an assignment of the Notes (other than to an affiliate
of the Madryn Noteholders) pursuant to the terms of the Exchange Agreement and (ii) the first date on which the outstanding principal amount of the Notes
is less than $10,000. Obligations under the Notes are secured by substantially all of the assets of Venus Concept Inc. and its subsidiaries party to the
Madryn Security Agreement. The Company’s obligations under the Notes and the security interests and liens created by the Madryn Security Agreement
are subordinated to the Company’s indebtedness owing to CNB (including, but not limited, pursuant to the MSLP Loan Agreement (Note 11) and the CNB
Loan Agreement, (Note 13)) and any security interests and liens which secure such indebtedness owing to CNB. The Notes are convertible at any time into
shares of the Company’s common stock, par value $0.0001 per share, calculated by dividing the outstanding principal amount of the Notes (and any
accrued and unpaid interest under the Notes) by the initial conversion price of $3.25 per share. In connection with the Notes, the Company recognized
interest expense of $2,165 and $2,158 during the years ended December 31, 2022 and December 31, 2021, respectively. The conversion feature, providing
the Madryn Noteholders with a right to receive the Company’s shares upon conversion of the Notes, was qualified for a scope exception in ASC 815-10-
15 and did not require bifurcation. The Notes also contained embedded redemption features that provided multiple redemption alternatives. Certain
redemption features provided the Madryn Noteholders with a right to receive cash and a variable number of shares upon change of control and an event of
default (as defined in the Notes). The Company evaluated redemption upon change of control and an event of default under ASC 815, Derivatives and
Hedging, and determined that these two redemption features required bifurcation. These embedded derivatives were accounted for as liabilities at their
estimated fair value as of the date of issuance, and then subsequently remeasured to fair value as of each balance sheet date, with the related remeasurement
adjustment being recognized as a component of change in fair value of derivative liabilities in the unaudited condensed consolidated statements of
operations. The Company determined the likelihood of an event of default and change of control as remote as of December 31, 2022, and December 31,
2021, therefore a nominal value was allocated to the underlying embedded derivative liabilities as of December 31, 2022, and December 31, 2021.
The scheduled payments on the outstanding borrowings as of December 31, 2022 are as follows:
2023
2024
2025
Total
As of December 31,
2022
$
$
2,137
1,628
28,217
31,982
For the years ended December 31, 2022 and 2021, the Company did not make any principal repayments.
13. 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.
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The CNB Loan Agreement contains various covenants that limit the Company’s ability to engage in specified types of transactions. Subject to limited
exceptions, these covenants limit the Company’s ability, without CNB’s consent, to, among other things, sell, lease, transfer, exclusively license or dispose
of the Company’s assets, incur, create or permit to exist additional indebtedness, or liens, to make dividends and certain other restricted payments, and to
make certain changes to its management and/or ownership structure. The Company is required to maintain $3,000 in cash in a deposit account maintained
with CNB at all times during the term of the CNB Loan Agreement. In addition, the CNB Loan Agreement contains certain covenants that require the
Company to achieve certain minimum account balances, or a minimum debt service coverage ratio and a maximum total liability to tangible net worth
ratio. If the Company fails to comply with these covenants, it will result in a default and require the Company to repay all outstanding principal amounts
and any accrued interest. In connection with the CNB Loan Agreement, a loan fee of $1,000 was paid in equal installments on January 25, February
25 and March 25, 2021.
On August 26, 2021, the Company, Venus USA and Venus Canada entered into a Fourth Amended and Restated Loan Agreement (the “Amended CNB
Loan Agreement”) with CNB, pursuant to which, among other things, (i) the maximum principal amount the revolving credit facility was reduced from
$10,000 to $5,000 at the LIBOR 30-Day rate plus 3.25%, subject to a minimum LIBOR rate floor of 0.50%, and (ii) beginning December 10, 2021, the
cash deposit requirement was reduced from $3,000 to $1,500, to be maintained with CNB at all times during the term of the Amended CNB Loan
Agreement. The Amended CNB Loan Agreement is secured by substantially all of the Company’s assets and the assets of certain of its subsidiaries.
As of December 31, 2022 and December 31, 2021, the Company was in compliance with all required covenants. An event of default under this agreement
would cause a default under the MSLP Loan (see Note 11).
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 (the “Subordination Supplement”) by and among Madryn Health Partners, LP, Madryn
Health Partners (Cayman Master), LP, the Company and CNB. On February 22, 2023, CNB notified the Company that it would be temporarily restricting
advances under the Fourth Amended and Restated CNB Loan Agreement pursuant to its rights under Section 2 of the agreement. CNB and the Company
continue to actively discuss lifting the restrictions on advances under the credit facility.
14. GOVERNMENT ASSISTANCE PROGRAMS
Venus Concept Inc. and Venus USA, received funding in the total amount of $4,048 in connection with two Small Business Loans under the federal
Paycheck Protection Program provided in Section 7(a) of the Small Business Act of 1953, as amended by the Coronavirus Aid, Relief, and Economic
Security Act, as amended from time to time (the “PPP”).
Venus Concept Inc. entered into a U.S. Small Business Administration Note dated as of April 21, 2020 in favor of CNB pursuant to which the Company
borrowed $1,665 original principal amount, which was funded on April 29, 2020 (the “Venus Concept PPP Loan”). The Venus Concept PPP Loan bears
interest at 1% per annum and matures in two years from the date of disbursement of funds under the loan.
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Venus USA entered into a U.S. Small Business Administration Note dated as of April 15, 2020 in favor of CNB. Venus USA borrowed $2,383 original
principal amount, which was funded on April 20, 2020 (the “Venus USA PPP Loan” and together with the Venus Concept PPP Loan, individually each a
“PPP Loan” and collectively, the “PPP Loans”). The terms of the Venus USA PPP Loan were substantially similar to the terms of the Venus Concept PPP
Loan.
The Venus Concept PPP Loan contained certain covenants which, among other things, restrict the Company’s use of the proceeds of the PPP Loan to the
payment of payroll costs, interest on mortgage obligations, rent obligations and utility expenses, require compliance with all other loans or other
agreements with any creditor of the Company, to the extent that a default under any loan or other agreement would materially affect the Company’s ability
to repay its PPP Loan and limit the Company’s ability to make certain changes to its ownership structure.
In 2021, through CNB, the Company applied for and received partial forgiveness of the Venus USA PPP Loan in the amount of $1,689 and the Venus
Concept PPP Loan in the amount of $1,086. The Company repaid $407 during the three months ended March 31, 2022, and the remaining portion of the
PPP Loans in the amount of $136 was fully repaid in April 2022. As of December 31, 2022 the Company had $nil outstanding under the PPP Loans
($543 as of December 31, 2021).
15. COMMON STOCK RESERVED FOR ISSUANCE
The Company is required to reserve and keep available out of its authorized but unissued shares of common stock a number of shares sufficient to affect the
exercise of all options granted and available for grant under the incentive plans and warrants to purchase common stock.
Outstanding common stock warrants
Outstanding stock options and RSUs
Preferred shares
Shares reserved for conversion of future non-voting preferred share issuance
Shares reserved for conversion of future voting preferred share issuance
Shares reserved for future option grants and RSUs
Shares reserved for Lincoln Park
Shares reserved for Madryn Noteholders
December 31, 2022 December 31, 2021
15,928,867
5,977,179
3,790,755
1,209,245
—
589,064
5,222,867
8,213,880
40,931,857
15,928,867
13,130,144
31,850,000
1,209,245
9,150,000
376,201
15,814,471
8,215,706
95,674,634
Total common stock reserved for issuance
16. STOCKHOLDERS EQUITY
Common Stock
The Company’s common stock confers upon its holders the following rights:
•
•
•
The right to participate and vote in the Company’s stockholder meetings, whether annual or special. Each share will entitle its holder, when
attending and participating in the voting in person or via proxy, to one vote;
The right to a share in the distribution of dividends, whether in cash or in the form of bonus shares, the distribution of assets or any other
distribution pro rata to the par value of the shares held by them; and
The right to a share in the distribution of the Company’s excess assets upon liquidation pro rata to the par value of the shares held by them.
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Equity Purchase Agreement with Lincoln Park
On June 16, 2020, the Company entered into the Equity Purchase Agreement with Lincoln Park, which provides that, upon the terms and subject to the
conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $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 7,763,411 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 $3.9755 per share (subject to adjustment) (which represents the minimum
price, as defined under Nasdaq Listing Rule 5635(d), on the Nasdaq Global Market immediately preceding the signing of the Equity Purchase Agreement,
such that the transactions contemplated by the Equity Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules.
Also, at no time may Lincoln Park (together with its affiliates) beneficially own more than 9.99% of 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 3,437,087 shares of its common stock at an average price of
$2.70 per share, and 209,566 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
proportionally based on proceeds received during the term of the Equity Purchase Agreement. In 2022, the Company issued 400,000 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 the 2022 LPC Purchase Agreement, 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 12,873,368 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 685,529 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,
2022, the Company issued an additional 6,500,000 shares of common stock to Lincoln Park at an average price of $0.30 per share for a total value of
$1,970. 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.
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The 2021 Private Placement
In December 2021, the Company consummated the 2021 Private Placement whereby it entered into a securities purchase agreement with certain investors
(collectively, the “2021 Investors”) pursuant to which the Company issued and sold to the 2021 Investors an aggregate of 9,808,418 shares of common
stock, par value $0.0001 per share, and 3,790,755 shares of the convertible preferred stock, par value $0.0001 per share (the “Non-Voting Preferred
Stock”), which are convertible into 3,790,755 shares of common stock upon receipt of a valid conversion notice by the Company from a
2021 Investor. The 2021 Private Placement was completed on December 15, 2021. The gross proceeds from the securities sold in the 2021 Private
Placement was $16,999. The costs incurred with respect to the 2021 Private Placement totaled $259 and were recorded as a reduction of the 2021 Private
Placement proceeds in the consolidated statements of stockholders’ equity as presented in the 2021 Annual Report on Form 10-K filed with the SEC on
March 28, 2022.
Preferred Stock issued in December 2021
As noted above, in December 2021, the Company issued and sold to certain 2021 Investors an aggregate of 3,790,755 shares of the Non-Voting Preferred
Stock. The terms of the Non-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 December 14, 2021. The following is a summary of the material terms of the Non-Voting Preferred Stock:
•
•
•
•
•
•
Voting Rights. The Non-Voting Preferred Stock has no voting rights except as required by law and except that the consent of the holders of a
majority of outstanding shares of the Non-Voting Preferred Stock will be required to amend the terms of the Non-Voting Preferred Stock or
take certain other actions with respect to the Non-Voting Preferred Stock.
Liquidation. The Non-Voting Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company.
Conversion. The Non-Voting Preferred Stock is automatically convertible into shares of common stock, based on an initial conversion ratio of
1:1, as adjusted in accordance with the Certificate of Designation, upon receipt of a valid conversion notice by the Company from an Investor.
The Company is not permitted to issue any shares of common stock upon conversion of the Non-Voting Preferred Stock to the extent that the
issuance of such shares of common stock would exceed 9.99% of the Company’s outstanding shares of common stock as of the date of the
initial issuance of the Non-Voting Preferred Stock (the “Ownership Limitation”). The Ownership Limitation will be appropriately adjusted for
any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction, but was eliminated in
connection with the 2022 Private Placement (discussed below).
Dividends. No dividends will be paid on the outstanding shares of the Non-Voting Preferred Stock.
Redemption. The Non-Voting Preferred Stock is not redeemable at the election of the Company or at the election of the holder.
Maturity. The Non-Voting Preferred Stock shall be perpetual unless converted.
Upon issuance, the effective conversion price of the Non-Voting Preferred Stock of $1.25 per share was lower than the market price of the Company’s
common stock on the date of issuance of the Non-Voting Preferred Stock of $1.29 per share; as a result, the Company recorded the beneficial conversion
feature of $152 in accumulated paid in capital ("APIC"). Because the Non-Voting Preferred Stock is perpetual, it is carried at the amount recorded at
inception. Upon conversion of the Non-Voting Preferred Stock, the beneficial conversion feature will be accounted for as deemed dividend.
The Company evaluated the Non-Voting Preferred Stock for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing
Liabilities from Equity, and determined that equity treatment was appropriate because the Non-Voting Preferred Stock did not meet the definition of the
liability instruments defined thereunder for convertible instruments. Specifically, the Non-Voting Preferred Stock is not mandatorily redeemable and does
not embody an obligation to buy back the shares outside of the Company’s control in a manner that could require the transfer of assets. Additionally, the
Company determined that the Non-Voting Preferred Stock would be recorded as permanent equity, not temporary equity, based on the guidance of ASC
480 given that the holders of equally and more subordinated equity would be entitled to also receive the same form of consideration upon the occurrence of
the event that gives rise to the redemption or events of redemption that are within the control of the Company.
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Since the Non-Voting Preferred Stock was sold as a unit with the common stock, the proceeds received were allocated to each instrument on a relative fair
value basis. Total net proceeds of $16,740 reduced by $152 of the beneficial conversion feature were allocated as follows: $4,514 to the Non-Voting
Preferred Stock and $12,074 to shares of common stock. The Non-Voting Preferred Stock and common stock issued in the 2021 Private Placement were
recorded at par value of $0.0001 with the excess of par value recorded in APIC.
The 2022 Private Placement
In November 2022, the Company consummated the 2022 Private Placement whereby 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 1,750,000 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 31,850,000 shares of common stock upon receipt of stockholder approval or at the option of the Company within 30
days following the occurrence of certain events. 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. 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 and Nonvoting Preferred Stock, in an
amount equal to the greater of (a) $2.00 (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 ten basis (i) at the option of an 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 $1.25 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 and Non-Voting Preferred Stock.
• Redemption. The Voting Preferred Stock is not redeemable at the election of the Company or at the election of the holder.
• Maturity. The Voting Preferred Stock shall be perpetual unless converted.
2010 Share Option Plan
In November 2010, the Board adopted a share option plan (the “2010 Share Option Plan”) pursuant to which shares of the Company’s common stock are
reserved for issuance upon the exercise of options to be granted to directors, officers, employees and consultants of the Company. The 2010 Share Option
Plan is administered by the Board, which designates the options and dates of grant. Options granted vest over a period determined by the Board, originally
had a contractual life of 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 December 31, 2022 and December 31, 2021, the number of shares of the Company’s common stock reserved for issuance and
available for grant under the 2010 Share Option Plan was 94,254 (212,650 as of December 31, 2021).
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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, 450,000 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 of the Merger. As
of December 31, 2022, there were 281,947 of shares of common stock available under the 2019 Plan (376,414 as of December 31, 2021). 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 consolidated statements of operations as
follows:
Cost of sales
Selling and marketing
General and administrative
Research and development
Total stock-based compensation
Stock Options
Year Ended December 31,
2021
2022
73 $
576
1,195
260
2,104 $
31
848
1,084
105
2,068
$
$
The fair value of each option is estimated at the date of grant using the Black-Scholes option pricing formula with the following assumptions:
Expected term (in years)
Risk-free interest rate
Expected volatility
Expected dividend rate
Year Ended December 31,
2021
2022
6.00
2.56-4.20%
42.77%
0%
6.00
0.98-1.36%
44.26%
0%
Expected Term—The expected term represents management’s best estimate for the options to be exercised by option holders.
Volatility—Since the Company does not have a trading history for its common stock, the expected volatility was derived from the historical stock
volatilities of comparable peer public companies within its industry that are considered to be comparable to the Company’s business over a period
equivalent to the expected term of the stock-based awards.
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury
notes with maturities approximately equal to the stock-based awards’ expected term.
Dividend Rate—The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the
foreseeable future.
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Fair Value of Common Stock— Prior to the Merger, Venus Ltd. used the price per share in its latest sale of securities as an estimate of the fair value of its
ordinary shares. After the closing of the Merger, the fair value of the Company’s common stock is used to estimate the fair value of the stock-based awards
at grant date.
The following table summarizes stock option activity under the Company’s stock option plan:
Weighted-
Average
Exercise Price
per Share, $
Weighted-
Average
Remaining
Contractual
Term
Number of
Shares
Outstanding – January 1, 2022
Options granted
Options exercised
Options forfeited/cancelled
Outstanding - December 31, 2022
Exercisable – December 31, 2022
Expected to vest – after December 31, 2022
5,977,179 $
8,238,250
(16,464)
(1,457,571)
12,741,394 $
3,376,223 $
9,365,171 $
3.72
0.62
1.59
4.15
1.67
3.78
0.91
The following tables summarize information about share options outstanding and exercisable on December 31, 2022:
Aggregate
Intrinsic Value
136
209
-
—
209
—
209
7.20 $
—
8.23 $
5.41 $
9.24 $
Exercise Price Range
$0.21 - $3.64
$4.26 - $7.95
$12.45 - $25.50
$27.00 - $29.25
$36.00 - $63.90
Options Outstanding
Weighted
average
remaining
contractual
term (years)
Options Exercisable
Weighted
average
remaining
contractual
term (years)
Options
exercisable
Weighted
average
Exercise Price
Number
11,915,903
783,523
24,277
9,752
7,939
12,741,394
8.47 $
4.71
5.75
2.30
4.90
8.23 $
1.26
6.68
18.06
27.01
45.65
1.67
2,586,015
748,243
24,274
9,752
7,939
3,376,223
Weighted
average
Exercise Price
2.58
6.70
18.06
27.01
45.65
3.78
5.64 $
4.62
5.75
2.30
4.90
5.41 $
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s
common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. The total intrinsic value of options
exercised were $0 and $92 for the years ended December 31, 2022 and 2021, respectively.
The weighted-average grant date fair value of options granted was $0.62 and $2.20 per share for the years ended December 31, 2022 and 2021,
respectively. The fair value of options vested was $1,645 and $1,545 for the years ended December 31, 2022 and 2021, respectively.
Restricted Stock Units
The following table summarizes information about RSUs outstanding at December 31, 2022:
Outstanding - January 1, 2022
RSUs granted
RSUs forfeited/cancelled
Outstanding - December 31, 2022
124
Weighted-
Average Grant
Date Fair Value
per Share, $
Number of Shares
— $
396,250
(7,500)
388,750 $
—
1.30
1.38
1.30
Table of Contents
17. INCOME TAXES
The geographical breakdown of loss before provision for income taxes is as follows:
United States
Other jurisdictions
Loss before income taxes
The components of the provision for income taxes are as follows:
Current tax provision (benefit):
Federal
Foreign
Total current tax provision (benefit)
Deferred tax provision (benefit):
Federal
Foreign
Total deferred tax provision (benefit)
Total provision (benefit) for income taxes
Year Ended December 31,
2021
2022
(32,045) $
(12,261)
(44,306) $
(12,260)
(10,588)
(22,848)
Year Ended December 31,
2021
2022
— $
(13)
(13)
—
(709)
(709) $
(722) $
—
(542)
(542)
—
(165)
(165)
(707)
$
$
$
$
$
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. On the basis of this evaluation, as of
December 31, 2022, a valuation allowance of $64,341 ($51,437 as of December 31, 2021) has been recorded to recognize only the portion of the deferred
tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of
future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no
longer present and additional weight is given to subjective evidence such as our projections for growth. The valuation allowance increased by $12,904 and
decreased by $31,150 for the years ended December 31, 2022 and 2021, respectively.
The Company’s effective tax rate substantially differed from the federal statutory tax rate primarily due to the change in the valuation allowance. The
reconciliation between income taxes computed at the federal statutory income tax rate and the provision for income taxes is as follows:
Year Ended December 31,
2021
2022
Loss before income taxes
Theoretical tax benefit at the statutory rate (21.0% in 2022 and 2021)
Differences in jurisdictional tax rates
Valuation allowance
Non-deductible expenses
Other
Total income tax (benefit) provision
Net loss
$
$
(44,306) $
(9,304)
(1,671)
10,015
803
(565)
(722)
(43,584) $
(22,848)
(4,798)
(350)
5,755
(266)
(1,048)
(707)
(22,141)
125
Table of Contents
The components of the deferred tax assets and deferred tax liabilities are as follows:
Deferred tax assets:
Property and equipment
Deferred revenue
Allowance for doubtful accounts
Intangible assets
Non-deductible expenses
Warranty and other reserves
Other
Loss carryforwards
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Deferred revenue
Total deferred tax liabilities
December 31,
2022
2021
690 $
1,560
3,917
(785)
10,371
1,806
1,020
46,709
(64,341)
947 $
— $
— $
668
647
3,133
(1,543)
8,694
1,159
610
38,353
(51,437)
284
46
46
$
$
$
$
As of December 31, 2022, the Company had federal, state and foreign non-operating loss (“NOL”) carryforwards of approximately $191,313 ($163,395 in
2021). The use of these NOL carryforwards might be subject to limitation under the rules regarding a change in stock ownership as determined by the IRC
and similar state provisions; however, a complete analysis of the limitation of the NOL carryforwards will not be complete until the time the Company
projects it will be able to utilize such NOLs. The NOL carryforwards expire between 2022 and indefinitely, and valuation allowances have been reserved,
where necessary. The Company also had federal and state research and development credit carryforwards of approximately $276 and nil as of December
31, 2022. The federal credits will expire starting in 2025 if not utilized. The state credits have no expiration date.
The Company may recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained upon
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also
provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting
for interest and penalties associated with tax positions, and income tax disclosures. During the year the Company determined that $947 of future tax
benefits met this criterion.
Utilization of the research and development credits carryforwards may be subject to an annual limitation due to the ownership percentage change
limitations provided by the IRC. However, the Company has not conducted a formal study to determine the extent of the limitations, which could impact
the realizability of these credit carryforwards in future periods. The annual limitations may result in the expiration of the net operating losses and research
and development credits before utilization.
The Company files income tax returns in the United States and in various state jurisdictions with varying statutes of limitations. Tax years 2016 through
2022 remain open to examination by the Internal Revenue Service for U.S. federal tax purposes.
Uncertain Tax Positions
The activity related to gross amount of unrecognized tax benefits is as follows:
Balance as of the beginning of the year
Increases (reductions) related to tax positions in prior period
Increases related to tax positions taken during the current period
Balance as of the end of the year
$
$
126
Year Ended December 31,
2021
2022
36 $
47
—
83 $
1,584
(1,548)
—
36
Table of Contents
These amounts are related to certain deferred tax assets with a corresponding valuation allowance. If recognized, the impact on the Company’s effective tax
rate would not be material due to the full valuation allowance. Management believes that there will not be any significant changes in the Company’s
unrecognized tax benefits in the next twelve-months.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated
statements of operations. Accrued interest and penalties, if applicable, are included in accrued expenses and other current liabilities in the consolidated
balance sheets. For the years ended December 31, 2022 and 2021, the Company did not recognize any accrued interest and penalties.
The activity related to the tax effected amount of the recognized tax position as follows:
Balance as of the beginning of the year
$
Increases related to tax positions in prior period
Reduction (increase) related to tax position taken during the current period
Increase related to interest expense
Balance as of the end of the year
$
(563) $
—
210
(23)
(376) $
(478)
—
(49)
(36)
(563)
Year Ended December 31,
2021
2022
Additional current tax expense has been booked including interest and penalties relating to Venus Concept Australia Pty Ltd. for its historical tax return
filing positions, which may be successfully challenged by the Australian Tax Office. The Company has recognized the full amount of the potential tax
liability plus interest. Management believes that there will not be any significant changes in the Company’s recognized tax position in the next twelve-
months. As such, the amount has been classified as a long-term tax payable in the consolidated balance sheets.
18. SEGMENT AND GEOGRAPHIC INFORMATION
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief
Operating Decision Maker ("CODM") in deciding how to allocate resources to an individual segment and in assessing performance. The Company's
CODM is its Chief Executive Officer. The Company has determined it operates in a single operating segment and has one reportable segment, as the
CODM reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geography and type
for purposes of making operating decisions, allocating resources, and evaluating financial performance. The Company does not assess the performance of
individual product line on measures of profit or loss, or asset-based metrics. Therefore, the information below is presented only for revenues by geography
and type.
Revenue by geographic location, which is based on the product shipped to location, is summarized as follows:
United States
International
Total revenue
Year Ended December 31,
2021
2022
$
$
52,101 $
47,396
99,497 $
51,400
54,222
105,622
127
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As of December 31, 2022, long-lived assets in the amount of $12,346 were located in the United States and $1,431 were located in foreign locations. As of
December 31, 2021, long-lived assets in the amount of $16,090 were located in the United States and $1,972 were located in foreign locations.
Revenue by type is a key indicator for providing management with an understanding of the Company’s financial performance, which is organized into four
different categories:
1.
2.
3.
4.
Lease revenue - includes all system sales with typical lease terms of 36 months.
System revenue – includes all systems sales with payment terms within 12 months.
Product revenue – includes skincare, hair and other consumables payable upon receipt.
Service revenue - includes NeoGraft technician services, ad agency services and extended warranty sales.
The following table presents revenue by type:
Lease revenue
System revenue
Product revenue
Service revenue
Total revenue
Year Ended December 31,
2021
2022
35,267 $
47,906
13,316
3,008
99,497 $
45,094
43,106
13,230
4,192
105,622
$
$
128
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19. RELATED PARTY TRANSACTIONS
All amounts were at recorded at the exchange amount, which is the amount established and agreed to by the related parties. The following are transactions
between the Company and parties related through employment.
Sales and Purchases of Securities
On November 18, 2022, in the 2022 Private Placement (see Note 1) the Company issued and sold to certain investors 1,750,000 shares of common stock
and 3,185,000 shares of Voting Preferred Stock, convertible into shares of common stock on a 10:1 basis. The gross proceeds of the 2022 Private Placement
were $6,720 before offering expenses. Rajiv De Silva, the Company’s Chief Executive Officer, Hemanth Varghese, the Company’s President and Chief
Innovation and Business Officer, were among those who purchased common stock in the 2022 Private Placement.
Registration Rights Agreements
On November 18, 2022, in connection with the 2022 Private Placement, the Company, Rajiv De Silva, Hemanth Varghese and the remaining 2022
Investors entered into an amended and restated registration rights agreement, previously executed in connection with the 2021 Private Placement. The
registration rights agreement provides, among other things, that certain holders of the Company’s capital stock have certain rights relating to the
registration of shares of such capital stock.
Distribution Agreements
On January 1, 2018, the Company entered into a Distribution Agreement with Technicalbiomed Co., Ltd. (“TBC”), pursuant to which TBC will distribute
the Company’s products in Thailand. A former senior officer of the Company is a 30.0% shareholder of TBC. For the year ended December 31,
2022 and 2021, TBC purchased products in the amount of $951 and $537, respectively, under this distribution agreement. These sales are included in
products and services revenue.
In 2020, the Company made several strategic decisions to divest itself of underperforming direct sales offices and sold its share in several subsidiaries,
including its 55.0% shareholding in Venus Concept Singapore Pte. Ltd. ("Venus Singapore"). On January 1, 2021, the Company entered into a distribution
agreement with Aexel Biomed Pte Ltd. (“Aexel Biomed”), formerly Venus Singapore, pursuant to which Aexel Biomed will continue to distribute the
Company’s products in Singapore. A former senior officer of the Company is a 45.0% shareholder of Aexel Biomed. During the year ended December 31,
2022 and 2021, Aexel Biomed purchased products in the amount of $441 and $239, respectively, under the distribution agreement. These sales are included
in products and services revenue.
20. SUBSEQUENT EVENTS
Separation of Chief Operation Officer
On February 7, 2023, the Company announced the separation of Soeren Maor Sinay as Chief Operating Officer, effective March 6, 2023. On March 1,
2023, Mr. Sinay and Venus Concept UK Limited (“Venus UK”) entered into a Settlement Agreement (the “Settlement”). Pursuant to the terms of the
Settlement, Mr. Sinay is entitled to receive, in connection with his separation, an aggregate total of £315,418.77 in accordance with the payment schedule
set forth in the Settlement. In addition, Mr. Sinay’s granted and unvested options, including RSUs granted in March 2022, will continue to vest in the
regular course per the vesting schedule of the respective grant until June 15, 2024 (the “Final Vesting Date”). Mr. Sinay will have ninety (90) days from the
Final Vesting Date to exercise any vested but unexercised options. Venus UK will also contribute £3,400 toward Mr. Sinay’s personal pension and £2,000
in respect of Mr. Sinay’s legal and accounting fees incurred in connection with the Settlement. The Settlement provides for a general waiver and release of
claims in favor of the Company and its affiliates and other customary provisions, including indemnification, non-disclosure, and confidentiality provisions.
Sale of Stock to LPC
Between January 1, 2023, and March 22, 2023, the Company issued 2,865,802 shares of common stock to Lincoln Park at an average price of $0.248 per
share. See Note 16 for further information regarding the 2022 LPC Purchase Agreement.
129
Table of Contents
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Controls and Procedures.
Evaluation of disclosure controls and procedures.
As of December 31, 2022, our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of
the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, to ensure that information
required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act. We have performed an evaluation of the effectiveness of our internal control over financial reporting, based on criteria
established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework.
Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal controls over
financial reporting were effective as of December 31, 2022.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company's registered public accounting firm pursuant to rules of the SEC, as the Company is a
non-accelerated filer.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. Because of these limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become ineffective because of changes in conditions or that the degree of compliance with established policies or procedures may deteriorate.
130
Table of Contents
Changes in Internal Control over Financial Reporting
There were no material changes in our internal control over financial reporting during the year ended December 31, 2022, that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
131
Table of Contents
Item 10.
Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2023 Annual Meeting of Stockholders
to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 11.
Executive Compensation.
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2023 Annual Meeting of Stockholders
to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2023 Annual Meeting of Stockholders
to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2023 Annual Meeting of Stockholders
to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 14.
Principal Accounting Fees and Services.
The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2023 Annual Meeting of Stockholders
to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.
132
Table of Contents
PART IV
Item 15.
Exhibits, Consolidated Financial Statement Schedules.
(a)
The following documents are filed as part of this report:
1. Consolidated Financial Statements
See Index to Consolidated Financial Statements at Item 8 herein.
2. Consolidated Financial Statement Schedules
No consolidated financial statement schedules are provided because the information called for is not required or is shown either in the consolidated
financial statements or notes thereto.
3. Exhibits
See the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K.
Item 16.
Form 10-K summary.
Not applicable.
EXHIBIT INDEX
Exhibit
Number Exhibit Description
2.1
Agreement and Plan or Merger and Reorganization, dated March 15, 2019, by and among
Form
Date
Number
Filed
Herewith
Restoration Robotics, Inc., Radiant Merger Sub Ltd., and Venus Concept Ltd.
8-K
3-15-19
2.1
2.2
Amendment No. 1, dated August 14, 2019, to the Agreement and Plan of Merger and
Reorganization, dated March 15, 2019, by and among Restoration Robotics, Inc., Radiant
Merger Sub Ltd., and Venus Concept Ltd.
8-K
8-20-19
2.1
2.3
Second Amendment to the Agreement and Plan of Merger and Reorganization, dated as of
October 31, 2019, by and among Restoration Robotics, Inc., Radiant Merger Sub Ltd. and
Venus Concept Ltd.
8-K
10-31-19
2.1
2.4
Master Asset Purchase Agreement between Venus Concept Ltd., the Neograft entities,
Medicamat and Miriam Merkur, dated January 26, 2018.
10-K
3-30-20
3.1
3.2
3.3
3.4
3.5
3.6
Amended and Restated Certificate of Incorporation of Restoration Robotics, Inc.
8-K 10-17-17
Certificate of Amendment of Certificate of Incorporation of Restoration Robotics, Inc.
8-K 11-7-19
Certificate of Designations of Nonvoting Convertible Preferred Stock of Venus Concept Inc.
8-K 10-15-21
Second Amended and Restated Bylaws of Venus Concept Inc.
Certificate of Designations of Voting Convertible Preferred Stock.
8-K 11-7-19
8-K 11-18-22
Certificate of Amendment to Certificate of Designations of Nonvoting Convertible Preferred
Stock.
8-K
11-18-22
3.2
133
2.4
3.1
3.1
3.1
3.2
3.1
Table of Contents
Exhibit
Number
Exhibit Description
Description of Securities Registered under Section 12 of the Exchange Act.
Form of Common Stock Certificate.
Form of 2020 Warrant.
Amendment to 2019 Warrant.
Form of 2019 Warrant.
Form of Madryn Warrant.
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Form
Date
Number
Filed
Herewith
X
S-1/A 9-18-17
10-K 3-29-21
8-K 3-10-20
8-K 11-7-19
8-K 11-7-19
4.2
4.3
4.1
4.1
4.2
Form of Warrant to Purchase Stock, dated November 7, 2019, by and between Venus
Concept Inc. and Solar Capital Ltd.
8-K
11-7-19
4.3
4.8
Form of Warrant to Purchase Stock, dated November 2, 2018, by and between Restoration
Robotics, Inc. and Solar Capital Ltd.
10-K
3-20-19
4.10
4.9
Form of Warrant to Purchase Stock, dated May 19, 2015, by and between Restoration
Robotics, Inc. and Oxford Finance LLC.
10-K
3-30-20
4.9
4.10
Form of Warrant to Purchase Stock, dated November 2, 2018, by and between Restoration
Robotics, Inc. and Western Alliance Bank.
10-K
3-30-20
4.10
4.11
Form of Warrant to Purchase Stock, dated November 2, 2018, by and between Restoration
Robotics, Inc. and SUNS SPV LLC.
10-K
3-30-20
4.11
4.12
Securities Purchase Agreement, dated as of March 18, 2020, by and between Venus Concept
Inc. and the investors listed therein.
10-K
3-30-20
4.12
4.13
Registration Rights Agreement, dated as of March 18, 2020, by and between Venus Concept
Inc. and the investors listed therein.
10-K
3-30-20
4.13
4.14
Amended and Restated Investors’ Rights Agreement, dated February 7, 2013, by and among
Restoration Robotics, Inc. and the investors listed therein, as amended.
S-1
9-1-17
10.10
10.1
Registration Rights Agreement, dated November 7, 2019, by and between Venus Concept
Inc. and the investors listed therein.
8-K
11-7-19
10.2
10.2
Registration Rights Agreement, dated November 7, 2019, by and between Venus Concept
Inc. and the investors listed therein.
8-K
11-7-19
10.15
10.3
Registration Rights Agreement, dated as of June 16, 2020, by and between Venus Concept
Inc. and Lincoln Park Capital Fund, LLC.
8-K
6-16-20
10.2
10.4
Second Amended and Restated Loan Agreement, dated March 20, 2020, by and among
Venus Concept USA Inc., Venus Concept Canada Corp., Venus Concept Inc. and City
National Bank of Florida.
8-K
3- 24-20
10.1
134
Table of Contents
Exhibit
Number
10.5
Exhibit Description
Form
Date
Number
Filed
Herewith
Second Amended and Restated Guaranty of Payment and Performance, dated as of March 20,
2020, by and between Venus Concept USA Inc., Venus Concept Canada Corp., Venus
Concept Inc., and City National Bank of Florida.
8-K
3- 24-20
10.2
10.6
Third Amended and Restated Revolving Promissory Note, dated as of March 20, 2020, by
and between Venus Concept USA Inc., Venus Concept Canada Corp., Venus Concept Inc.,
and City National Bank of Florida.
8-K
3- 24-20
10.3
10.7
Security Agreement, dated as of March 20, 2020, by and between Venus Concept Inc. and
City National Bank of Florida.
8-K
3- 24-20
10.4
10.8†
License Agreement, dated July 25, 2006 by and between Restoration Robotics, Inc., James
A. Harris, M.D. and HSC Development LLC.
S-1/A
9-22-17
10.7
10.9†
First Amendment to License Agreement, dated January 5, 2009, by and between Restoration
Robotics, Inc., James A. Harris, M.D. and HSC Development LLC.
S-1/A
9-22-17
10.8
10.10†
Second Amendment to License Agreement, dated February 23, 2015, by and between
Restoration Robotics, Inc., James A. Harris, M.D. and HSC Development LLC.
S-1/A
9-22-17
10.9
10.11#
Venus Concept Inc. 2019 Incentive Award Plan.
8-K 11-7-19
10.21
10.12#
Form of Stock Option Grant Notice and Stock Option Agreement under the 2019 Incentive
Award Plan.
10.13#
2017 Incentive Award Plan.
10.14#
Form of Stock Option Grant Notice and Stock Option Agreement under the 2017 Incentive
Award Plan.
10-K
3-30-20
10.24
S-8
10-17-17
99.7
S-1/A
9-18-17
10.26
10.15#
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under
the 2017 Incentive Award Plan.
S-1/A
9-18-17
10.27
10.16#
Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award
Agreement under the 2017 Incentive Award Plan.
10.17#
2017 Employee Stock Purchase Plan.
10.18#
Non-Employee Director Compensation Program.
10.19#
2015 Equity Incentive Plan.
10.20#
Form of Stock Option Grant Notice and Stock Option Agreement under 2015 Equity
Incentive Plan.
S-1/A
9-18-17
10.28
S-8
10-17-17
99.11
S-1/A 9-18-17
10.35
S-8
10-17-17
99.4
S-1
9-1-17
10.23
10.21#
Form of Stock Purchase Right Grant Notice and Restricted Stock Purchase Agreement under
2015 Equity Incentive Plan.
S-1
9-1-17
10.24
10.22#
Venus Concept Ltd. 2010 Israeli Employee Share Option Plan.
8-K 11-7-19
10.20
10.23#
Minutes of Settlement, by and between Domenic Serafino and Venus Concept Canada Corp,
dated December 30, 2022.
8-K
1-6-23
10.1
135
Table of Contents
Exhibit
Number
10.24#
Exhibit Description
Form
Date
Number
Filed
Herewith
Employment Agreement by and between Venus Concept Ltd. and Domenic Della Penna,
effective September 5, 2017.
8-K
11-7-19
10.17
10.25#
Employment Agreement by and between Venus Concept Inc. and Ross Portaro, effective
October 15, 2021.
10-K
3-28-22
10.26
10.26#
Form of Indemnification Agreement between Venus Concept Inc. and each of its directors
and executive officers.
8-K
11-7-19
10.19
10.27
Lease between 235 Investment Limited, Venus Concept Canada Corp and Venus Concept
Ltd, dated March 29, 2019.
10-K
3-30-20
10.49
10.28
Lease between AMB Tripoint, LLC and Venus Concept Inc., dated July 29, 2021.
10-K 3-28-22
10.32
10.29†
Quality Agreement, dated October 11, 2011, by and between Venus Concept Ltd. and USR
Electronnic Systems Ltd. (signed December 3, 2017).
10-K
3-30-20
10.54
10.30†
Turn-Key Project Manufacturing Agreement, dated March 23, 2014, by and between Venus
Concept Ltd. and USR Electronnic Systems Ltd.
10-K
3-30-20
10.55
10.31†
Quality Agreement, dated July 13/17 2018, by and between Venus Concept Ltd. and
Electronique du Mazet.
10-K
3-30-20
10.56
10.32†
Intellectual Property Rights Assignment, dated February 15, 2018, by and between Venus
Concept Ltd. and Electronique du Mazet.
10-K
3-30-20
10.57
10.33
Consent to Transfer Confidentiality and Nonsolicitation Subcontracting Agreement, dated
February 1, 2018, by and between Venus Concept Ltd. and Societe de Promotion et
d'Equipement Medical Medicamat.
10-K
3-30-20
10.58
10.34
Manufacturing Agreement for Consumables, dated October 26, 2018, by and between NPI
Solutions and Restoration Robotics, Inc.
10-K
3-30-20
10.59
10.35
SBA Payroll Protection Program Note dated April 21, 2020, by Venus Concepts Inc. and in
favor of City National Bank of Florida.
8-K
4-30-20
10.2
10.36
Purchase Agreement, dated as of June 16, 2020, by and between Venus Concept Inc. and
Lincoln Park Capital Fund, LLC
8-K
6-16-20
10.1
10.37
Third Amended and Restated Loan Agreement dated as of December 9, 2020, by and among
the Company, Venus Concept USA Inc., Venus Concept Canada Corp. and City National
Bank of Florida.
8-K/A
12-15-20
10.1
10.38
Second Amended and Restated Security Agreement dated as of December 9, 2020 by and
among the Company, Venus Concept USA Inc. and City National Bank.
8-K/A
12-15-20
10.2
10.39
Fourth Amended and Restated Revolving Promissory Note dated as of December 9, 2020 by
Venus Concept USA Inc., Venus Concept Canada Corp. and the Company in favor of City
National Bank of Florida.
8-K/A
12-15-20
10.3
10.40
Third Amended and Restated Guaranty of Payment and Performance dated as of December
9, 2020 by Venus Concept Ltd. in favor of City National Bank of Florida.
8-K/A
12-15-20
10.4
136
Table of Contents
Exhibit
Number
10.41
Exhibit Description
Form
Date
Number
Filed
Herewith
Amendment to General Security Agreement dated as of December 9, 2020 between Venus
Concept Canada Corp. and City National Bank of Florida.
8-K/A
12-15-20
10.5
10.42
Loan and Security Agreement dated as of December 8, 2020, by and between Venus Concept
USA Inc. and City National Bank.
8-K/A
12-15-20
10.6
10.43
Promissory Note dated December 8, 2020, by Venus Concept USA Inc. in favor of City
National Bank.
8-K/A
12-15-20
10.7
10.44
Guaranty of Payment and Performance Agreement dated as of December 8, 2020 by and
between the Company and City National Bank.
8-K/A
12-15-20
10.8
10.45
Securities Exchange and Registration Rights Agreement as of December 8, 2020 by and
among the Company, Venus Concept USA Inc., Venus Concept Canada Corp., Venus
Concept Ltd., Madryn Health Partners, LP and the Investors.
8-K/A
12-15-20
10.9
10.46
Secured Subordinated Convertible Note dated as of December 9, 2020 by the Company in
favor of Madryn Health Partners, LP.
8-K/A
12-15-20
10.10
10.47
Secured Subordinated Convertible Note dated as of December 9, 2020 by the Company in
favor of and Madryn Health Partners (Cayman Master), LP.
8-K/A
12-15-20
10.11
10.48
Guaranty and Security Agreement dated as of December 9, 2020 by and among the
Company, Venus Concept USA, Venus Concept Canada Corp., Venus Concept Ltd. and
Madryn Health Partners, LP.
8-K/A
12-15-20
10.12
10.49
Subordination of Debt Agreement dated as of December 9, 2020 by and among Madryn
Health Partners, LP, Madryn Health Partners (Cayman Master), LP, City National Bank and
Venus Concept Inc.
8-K/A
12-15-20
10.13
10.50
Subordination of Debt Agreement dated as of December 9, 2020 by and among Madryn
Health Partners, LP, Madryn Health Partners (Cayman Master), LP, City National Bank and
Venus Concept Canada Corp.
8-K/A
12-15-20
10.14
10.51
Subordination of Debt Agreement dated as of December 9, 2020 by and among Madryn
Health Partners, LP, Madryn Health Partners (Cayman Master), LP, City National Bank and
Venus Concept USA Inc.
8-K/A
12-15-20
10.15
10.52
Fourth Amended and Restated Loan Agreement, dated July 24, 2021, by and between Venus
Concept USA Inc., Venus Concept Canada Corp., Venus Concept Inc., and City National
Bank of Florida.
8-K
8-26-21
10.1
10.53
Fourth Amended and Restated Guaranty of Payment and Performance, dated July 24th, 2021,
by Venus Concept Ltd in favor of City National Bank of Florida.
8-K
8-26-21
10.2
10.54
Third Amended and Restated Security Agreement, dated July 24, 2021, by and between
Venus Concept Inc., Venus Concept USA Inc., and City National Bank of Florida.
8-K
8-26-21
10.3
137
Table of Contents
Exhibit
Number
10.55
Exhibit Description
Fifth Amended and Restated Revolving Promissory Note, dated July 24, 2021, by Venus
Concept USA Inc., Venus Concept Canada Corp., Venus Concept Inc., and City National
Bank of Florida.
Form
Date
Number
Filed
Herewith
8-K
8-26-21
10.4
10.56
Supplement to Subordination of Debt Agreements, dated July 24, 2021, by and between
Madryn Health Partners, LP, Madryn Health Partners (Cayman Master), LP, City National
Bank of Florida, and Venus Concept Inc.
8-K
8-26-21
10.5
10.57
Supplement to Subordination of Debt Agreements, dated July 24, 2021, by and between
Madryn Health Partners, LP, Madryn Health Partners (Cayman Master), LP, City National
Bank of Florida, and Venus Concept Inc.
8-K
10-5-21
10.1
10.58
Stock Purchase Agreement, dated December 15, 2021, by and between Venus Concept Inc.
and the investors listed therein.
8-K
12-15-21
10.1
10.59
Resale Registration Rights Agreement, dated December 15, 2021, by and between Venus
Concept Inc. and the Purchasers.
8-K
12-15-21
10.2
10.60
Investor Rights Agreement, dated December 15, 2021, by and between Venus Concept, Inc.,
Masters Special Situations, LLC, and the other purchasers from time to time party hereto.
8-K
12-15-21
10.3
10.61
Purchase Agreement, dated as of July 12, 2022, by and between the Company and Lincoln
Park.
10.62
Registration Rights Agreement, dated as of July 12, 2022, by and between the Company and
Lincoln Park.
10.63#
Employment Agreement, dated October 2, 2022, by and between the Company and Rajiv De
Silva.
8-K
7-12-22
10.1
8-K
7-12-22
10.2
8-K
10-3-22
10.1
10.64#
Employment Agreement, dated October 11, 2022, by and between Venus Concept Canada
Corp. and Hemanth Varghese,
8-K
10-11-22
10.1
10.65
Stock Purchase Agreement, dated November 18, 2022, by and among Venus Concept Inc.,
and certain investors listed therein.
8-K
11-18-22
10.1
10.66
Amended and Restated Registration Rights Agreement, dated November 18, 2022, by and
between Venus Concept Inc. and certain investors listed therein.
8-K
11-18-22
10.2
10.67#
Amendment to Employment Agreement, dated as of January 1, 2023, by and between Venus
Concept Inc. and Ross Portaro.
10.68#
Settlement Agreement, by and between Soeren Maor Sinay and Venus Concept UK Limited,
14.1
21.1
23.2
dated March 1, 2023.
Code of Business Conduct and Ethics.
List of Subsidiaries.
Consent of MNP LLP, independent registered public accounting firm.
138
8-K
3-7-23
10.1
8-K 11-7-19
14.1
X
X
X
Table of Contents
Exhibit
Number
24.1
31.1
31.2
Exhibit Description
Power of Attorney. Reference is made to the signature page of this Annual Report on Form
10-K.
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive
Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
#
Indicates management contract or compensatory plan.
Form
Date
Number
Filed
Herewith
X
X
X
X
X
X
X
X
X
X
X
† Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential
portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
*
The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the
Securities and Exchange Commission and are not to be incorporated by reference into any filing of Venus Concept Inc. under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-
K, irrespective of any general incorporation language contained in such filing.
139
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report
on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 2023
Venus Concept Inc.
By:
/s/ Rajiv De Silva
Rajiv De Silva
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Rajiv De Silva and
Domenic Della Penna his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes or substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his or her name.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature
/s/ Rajiv De Silva
Rajiv De Silva
Title
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Domenic Della Penna
Domenic Della Penna
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Scott Barry
Scott Barry
/s/ Garheng Kong, M.D.
Garheng Kong, M.D.
/s/ Louise Lacchin
Louise Lacchin
/s/ Fritz LaPorte
Fritz LaPorte
/s/ Anthony Natale, M.D
Anthony Natale, M.D.
/s/ Keith Sullivan
Keith Sullivan
/s/ S. Tyler Hollmig, M.D.
S. Tyler Hollmig, M.D.
Chairman and Director
Director
Director
Director
Director
Director
Director
140
Date
March 27, 2023
March 27, 2023
March 27, 2023
March 27, 2023
March 27, 2023
March 27, 2023
March 27, 2023
March 27, 2023
March 27, 2023
DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
Exhibit 4.1
As of date of this of the Annual Report on Form 10-K of which this Exhibit 4.1 is a part, Venus Concepts Inc. (“we”, “us” and “our”), has one class of
securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: our shares of Common Stock, $0.0001 par value per share (the
“Common Stock”). As of December 31, 2022, there were outstanding:
•
•
•
•
•
77,125,328 shares of our Common Stock;
3,185,000 shares of our voting Preferred Stock (the “Voting Preferred Stock”);
nil shares of our non-voting Preferred Stock (the “Non-Voting Preferred Stock”);
13,130,144 shares of our Common Stock issuable upon exercise of outstanding stock options and restricted share units; and
15,928,867 shares of our Common Stock issuable upon exercise of outstanding warrants.
Authorized Capital Stock
Our authorized capital stock consists of 300,000,000 shares of Common Stock, and 10,000,000 shares of preferred stock, $0.0001 par value per share (the
“Preferred Stock”).
The following description of our Common Stock and provisions of our amended and restated certificate of incorporation and amended and restated bylaws
are summaries of material terms and provisions and does not purport to be complete. It is subject to and qualified in its entirety by reference to our
amended and restated certificate of incorporation and amended and restated bylaws, copies of which have been filed with the SEC and are incorporated by
reference as exhibits to the Annual Report on Form 10-K for year ended December 31, 2022 of which this Exhibit 4.1 is a part.
Common Stock
Voting Rights
Each holder of our Common Stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of
directors. Our stockholders do not have cumulative voting rights in the election of directors.
Dividends
Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our Common Stock are entitled to receive dividends, if
any, as may be declared from time to time by our board of directors out of legally available funds. However, our current debt instruments restrict our ability
to pay dividends.
Liquidation
In the event of our liquidation, dissolution or winding up, holders of our Common Stock will be entitled to share ratably in the net assets legally available
for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the
holders of any then outstanding shares of preferred stock.
Rights and Preferences
Holders of our Common Stock have no pre-emptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions
applicable to our Common Stock. The rights, preferences and privileges of the holders of our Common Stock are subject to and may be adversely affected
by the rights of the holders of shares of any series of our preferred stock that we may designate in the future.
Anti-Takeover Effects of Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and Delaware
Law
Some provisions of Delaware law and our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that
could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or
otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter
transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a
premium over the market price for our shares.
These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law (“DGCL”), which prohibits persons deemed “interested stockholders” from
engaging in a “business combination” with a publicly-held Delaware corporation for three years following the date these persons become interested
stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed
manner or another prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or
within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business
combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this
provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, such as discouraging takeover
attempts that might result in a premium over the market price of our Common Stock.
Undesignated Preferred Stock
The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of our company.
Special Stockholder Meetings
Our amended and restated bylaws provide that a special meeting of stockholders may be called at any time by the board of directors, chief executive officer
or president (in the absence of a chief executive officer), but such special meeting may not be called by the stockholders or any other person or persons.
Requirements for Advance Notification of Stockholder Nominations and Proposals
Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election
as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.
Elimination of Stockholder Action by Written Consent
Our amended and restated certificate of incorporation and our amended and restated bylaws eliminate the right of stockholders to act by written consent
without a meeting.
Classified Board; Election and Removal of Directors; Filling Vacancies
Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our
stockholders, with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective three-year terms. Because our stockholders do not have cumulative voting rights, our stockholders holding
a majority of the shares of Common Stock outstanding will be able to elect all of our directors. Our amended and restated certificate of incorporation
provides for the removal of any of our directors only for cause and requires a stockholder vote by the holders of at least a 66 2/3% of the voting power of
the then outstanding voting stock. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase
in the size of the board, may only be filled by a resolution of the board of directors unless the board of directors determines that such vacancies shall be
filled by the stockholders. This system of electing and removing directors and filling vacancies may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.
Choice of Forum
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of
Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach
of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our
amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine; provided that, the exclusive forum
provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have
exclusive jurisdiction. Our certificate of incorporation also provides that the federal district courts of the United States of America shall be the exclusive
forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. However, the enforceability of similar federal court
choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could
find this type of provision to be inapplicable or unenforceable. The choice of forum provisions may limit a stockholder’s ability to bring a claim in a
judicial forum that it finds favorable for disputes with the combined company or its directors, officers or other employees, which may discourage such
lawsuits against the combined company and its directors, officers and other employees.
Amendment of Charter Provisions
The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue undesignated preferred stock,
would require approval by a stockholder vote by the holders of at least a 66 2/3% of the voting power of the then outstanding voting stock, voting together
as a single class.
The provisions of the DGCL, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of
discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our
Common Stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our
management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their
best interests.
AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit 10.67
“Amendment Effective Date”:
“Employee” Name:
“Original Employment Agreement Date”:
January 1, 2023
Ross Portaro
October 15, 2021
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the “Amendment") is made effective as of the Amendment Effective Date, by and
between Venus Concept and Employee. Venus Concept and Employee may sometimes be individually referred to as a "Party" and together as the
"Parties".
WHEREAS, the Parties have entered into that certain employment agreement on the Original Employment Agreement Date, together with any
amendments thereto, which established the relationship as set forth therein (collectively the “Employment Agreement”); and
WHEREAS, the Parties wish to amend certain terms of the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and other good and valuable consideration, the sufficiency
of which is hereby acknowledged, the Parties hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined herein shall have the meaning ascribed to those terms in the Employment Agreement.
2. Amendments to Employment Agreement. The Parties agree that, as of the Amendment Effective Date, the Employment Agreement is amended
and supplemented by the inclusion or substitution, as the context requires, of the terms and conditions set forth in Schedule 1 hereto. In the event of any
conflict between the terms of the Employment Agreement and this Amendment, the terms of this Amendment shall prevail.
3. Confirmation. The Parties hereby confirm that the Employment Agreement is in full force and effect, unchanged and unmodified except in
accordance with this Amendment.
4. Governing Law. The governing law provisions of the Employment Agreement shall apply to this Amendment, mutatis mutandis, as if same shall be
incorporated herein.
5. Counterparts. A photocopy or a scanned/emailed copy of this executed Amendment may be relied upon to the same extent as if it were an original
executed copy. This Amendment may be executed in counterparts, each of which shall be deemed an original and which, taken together, shall constitute
one and the same instrument.
6. Binding Effect. This Amendment shall enure to the benefit of and shall be binding upon the successors and assigns of the Parties.
IN WITNESS WHEREOF, the parties have caused this Amendment to by dully executed on the Amendment Effective Date.
RAJIV DE SILVA
ROSS PORTARO
/s/ Rajiv De Silva
Manager Signature
January 19, 2023
Date
/s/ Ross Portaro
Employee Signature
January 19, 2023
Date
1.
Position Title –
Executive Vice President & General Manager, Global Sales and Marketing
SCHEDULE 1
2.
Discretionary Bonus –
60% of Annual Base Salary
3.
Commission –
60% of Annual Base Salary
Commission shall be paid quarterly and shall be calculated based on achievement of quarterly Company revenue targets as outlined
below:
Quarterly commission:
If quarterly sales are below 75% of revenue target, no commission will be paid for that quarter.
If quarterly sales are between 75% and 80% of revenue target, 50% of commission target will be paid for that quarter.
If quarterly sales are between 81-90% of revenue target, 75% of commission target will be paid for that quarter.
If quarterly sales are between 91-100% of revenue target, 100% of commission target will be paid for that quarter.
Annual reconciliation:
Ability to re-set commission payments from quarters 1 to 3 if commission payments in the respective quarter was less than 100% of
commission target and annual sales are 100%+ of revenue target.
If annual sales are over the annual revenue target (USGAAP) an additional 2% commission will be paid on the sales over revenue target
only. Payable, provided cash flow objectives have been met.
For greater clarity see below example. Revenue Target below is preliminary and is subject to change. For illustration purposes only.
Revenue Target
Commission at Target
Actual Sales
% to Target
Plan Commission %
Q1
21,337,387
45,000
15,500,000
73%
0%
Q2
23,563,330
45,000
27,500,000
117%
100%
Q3
22,446,559
45,000
20,300,000
90%
75%
Q4
29,769,780
45,000
36,000,000
121%
100%
Year end
reconciliation to
target
97,117,056
180,000
99,300,000
102%
100%
Commission Payment $
$0
$45,000
$33,750
$45,000
$56,250
2
Revenue Target
Actual Sales
Plan Commission %
Sales over Target
Commission Payment $
Year end
reconciliation
overachievement
97,117,056
99,300,000
2%
Total
commission
paid in this
scenario
$43,659
$223,659
Note: Revenue target means USGAAP Revenue.
3
VENUS CONCEPT INC. – SUBSIDIARIES
Exhibit 21.1
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Name
Restoration Robotics, Inc. Limited
Restoration Robotics Korea Yuhan Hoesa
Venus Concept SL
Venus Concept Mexico SA DE SV
Venus Concept GmbH
Venus Concept Australia PTY Ltd
Venus Concept USA Inc.
Venus Concept Canada Corp.
Venus Concept UK Limited
Venus Concept Ltd
Venus Concept Israel Ltd
Venus Concept (Shanghai) Co., Ltd.
Venus Concept Japan Co., Ltd.
Venus Concept Korea Ltd.
Venus Concept (HK) Limited
Jurisdiction
Hong Kong
South Korea
Spain
Mexico City, Mexico
Germany
Victoria, Australia
Delaware, USA
Ontario, Canada
England and Wales, United Kingdom
Israel
Israel
China
Japan
South Korea
Hong Kong
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No(s). 333-220993, 333-223448, 333-231507, 333-235480, 333-246083, 333-
255159, 333-264203, and 333-268539 on Form S-8, and in Registration Statement No(s). 333-228562, 333-236207, 333-237737, 333-252562, 333-
260267, 333-262160, and 333-268863 on Form S-3 of our independent auditor's report dated March 27, 2023, relating to the consolidated financial
statements of Venus Concept Inc. and its subsidiaries (the “Company”) for the years ended December 31, 2022 and 2021 (which expresses an unqualified
opinion and includes an explanatory paragraph relating to the conditions and events that raise substantial doubt on the Company’s ability to continue as a
going concern) appearing in this Report on Form 10-K dated March 27, 2023.
/s/ MNP LLP
Chartered Professional Accountants
Licensed Public Accountants
March 27, 2023
Toronto, Canada
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Rajiv De Silva, certify that:
I have reviewed this annual report on Form 10-K of Venus Concept Inc.;
1.
2.
3.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
4.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
[SIGNATURE PAGE FOLLOWS]
Date: March 27, 2023
By:
/s/ Rajiv De Silva
Name: Rajiv De Silva
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Domenic Della Penna, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Venus Concept Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
[SIGNATURE PAGE FOLLOWS]
Date: March 27, 2023
By:
/s/ Domenic Della Penna
Name: Domenic Della Penna
Chief Financial Officer
(Principal Financial Officer)
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Rajiv De Silva, the Chief Executive Officer
of Venus Concept Inc. (the “Company”), hereby certify, that, to my knowledge:
1.
2.
The Annual Report on Form 10-K for the year ended 2022 (the “Report”) of the Company fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
[SIGNATURE PAGE FOLLOWS]
Exhibit 32.1
Date: March 27, 2023
By:
/s/ Rajiv De Silva
Name: Rajiv De Silva
Chief Executive Officer
(Principal Executive Officer)
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Domenic Della Pena, the Chief Financial
Officer of Venus Concept Inc. (the “Company”), hereby certify, that, to my knowledge:
1.
2.
The Annual Report on Form 10-K for the year ended 2022 (the “Report”) of the Company fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
[SIGNATURE PAGE FOLLOWS]
Exhibit 32.2
Date: March 27, 2023
By:
/s/ Domenic Della Penna
Name: Domenic Della Penna
Chief Financial Officer
(Principal Financial Officer)