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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


(Mark One)

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

 

For the quarterly period ended September 30, 2023

 

OR

 

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

 

For the transition period from ____________ to ____________

 

Commission File Number: 001-38238


Venus Concept Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware

06-1681204

(State or other jurisdiction of

incorporation or organization)

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

235 Yorkland Blvd., Suite 900

Toronto, Ontario M2J 4Y8

(877) 848-8430

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

 


 

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

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

VERO

 

The Nasdaq Capital Market

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

    

Non-accelerated filer

Smaller reporting company

    
  

Emerging growth company

 

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

 

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

 

As of November 10, 2023 the registrant had 5,529,149 shares of common stock, $0.0001 par value per share, outstanding.



 

 

 

 

Table of Contents

 

 

 

Page

Part I.

Financial Information

2

Item 1.

Condensed Consolidated Financial Statements (unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Loss

4

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.

Controls and Procedures

43

PART II.

Other Information

44

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 3.

Defaults Upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits

46

Signatures

47

 

 

 

PART I

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

VENUS CONCEPT INC.

 

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

ASSETS

        

CURRENT ASSETS:

        

Cash and cash equivalents

 $4,926  $11,569 

Accounts receivable, net of allowance of $12,811 and $13,619 as of September 30, 2023, and December 31, 2022, respectively

  34,178   37,262 

Inventories

  23,392   23,906 

Prepaid expenses

  1,161   1,688 

Advances to suppliers

  5,753   5,881 

Other current assets

  2,357   3,702 

Total current assets

  71,767   84,008 

LONG-TERM ASSETS:

        

Long-term receivables, net

  10,136   20,044 

Deferred tax assets

  954   947 

Severance pay funds

  593   741 

Property and equipment, net

  1,503   1,857 

Operating right-of-use assets, net

  4,647   5,862 

Intangible assets

  9,321   11,919 

Total long-term assets

  27,154   41,370 

TOTAL ASSETS

 $98,921  $125,378 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

CURRENT LIABILITIES:

        

Trade payables

 $7,120  $8,033 

Accrued expenses and other current liabilities

  12,982   16,667 

Current portion of long-term debt

     7,735 

Income taxes payable

  488   117 

Unearned interest income

  1,854   2,397 

Warranty accrual

  909   1,074 

Deferred revenues

  1,133   1,765 

Operating lease liabilities

  1,515   1,807 

Total current liabilities

  26,001   39,595 

LONG-TERM LIABILITIES:

        

Long-term debt

  79,049   70,003 

Income tax payable

     374 

Deferred tax liabilities

  20    

Accrued severance pay

  693   867 

Unearned interest revenue

  540   957 

Warranty accrual

  356   408 

Operating lease liabilities

  3,304   4,221 

Other long-term liabilities

  336   215 

Total long-term liabilities

  84,298   77,045 

TOTAL LIABILITIES

  110,299   116,640 

Commitments and Contingencies (Note 9)

          

STOCKHOLDERS’ EQUITY (DEFICIT) (Note 14):

        

Common Stock, $0.0001 par value: 300,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 5,529,149 and 5,161,374 issued and outstanding as of September 30, 2023, and December 31, 2022, respectively

  30   29 

Additional paid-in capital

  238,587   232,169 

Accumulated deficit

  (250,787)  (224,105)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

  (12,170)  8,093 

Non-controlling interests

  792   645 
   (11,378)  8,738 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 $98,921  $125,378 

 

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

 

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Revenue

                               

Leases

  $ 4,368     $ 7,193     $ 14,440     $ 29,490  

Products and services

    13,248       14,346       43,782       45,721  
      17,616       21,539       58,222       75,211  

Cost of goods sold:

                               

Leases

    1,183       2,608       3,633       8,069  

Products and services

    4,248       5,558       14,485       16,960  
      5,431       8,166       18,118       25,029  

Gross profit

    12,185       13,373       40,104       50,182  

Operating expenses:

                               

Selling and marketing

    6,907       9,369       23,319       30,976  

General and administrative

    10,115       12,405       30,933       36,814  

Research and development

    1,925       3,024       6,527       8,379  

Total operating expenses

    18,947       24,798       60,779       76,169  

Loss from operations

    (6,762 )     (11,425 )     (20,675 )     (25,987 )

Other expenses:

                               

Foreign exchange loss

    909       2,014       379       4,389  

Finance expenses

    1,605       1,219       4,666       3,176  

Loss on disposal of subsidiaries

    1             77        

Loss before income taxes

    (9,277 )     (14,658 )     (25,797 )     (33,552 )

Income tax (benefit) expense

    (321 )     (162 )     103       92  

Net loss

  $ (8,956 )   $ (14,496 )   $ (25,900 )   $ (33,644 )

Net loss attributable to stockholders of the Company

  $ (9,068 )   $ (14,605 )   $ (26,134 )   $ (33,783 )

Net income attributable to non-controlling interest

  $ 112     $ 109     $ 234     $ 139  
                                 

Net loss per share:

                               

Basic

  $ (1.64 )   $ (3.36 )   $ (4.83 )   $ (7.86 )

Diluted

  $ (1.64 )   $ (3.36 )   $ (4.83 )   $ (7.86 )

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

                               

Basic

    5,527       4,351       5,413       4,298  

Diluted

    5,527       4,351       5,413       4,298  

 

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

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Net loss

  $ (8,956 )   $ (14,496 )   $ (25,900 )   $ (33,644 )

Loss attributable to stockholders of the Company

    (9,068 )     (14,605 )     (26,134 )     (33,783 )

Income attributable to non-controlling interest

    112       109       234       139  

Comprehensive loss

  $ (8,956 )   $ (14,496 )   $ (25,900 )   $ (33,644 )

 

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

 

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Stockholders Equity (Deficit)

(Unaudited)

(in thousands, except share data)

 

   

2022 Private Placement

   

2023 Multi-Tranche Private Placement

   

Common Stock

   

Additional Paid-

   

Accumulated

   

Non- controlling

   

Total Stockholders’

 
   

Shares*

   

Shares*

   

Shares

   

Amount

   

in-Capital

   

Deficit

   

Interest

   

Equity (Deficit)

 

Balance — January 1, 2023

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

Restricted share units vested

                22,000                               -  

Issuance of common stock

                224,378       1       744                   745  

Adoption of ASC 326

                                  (548 )           (548 )

Net loss — the Company

                                  (9,657 )           (9,657 )

Net income — non-controlling interest

                                        34       34  

Stock-based compensation

                            481                   481  

Balance — March 31, 2023

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

2023 Private Placement shares, net of costs

          280,899                   1,206                   1,206  

Beneficial conversion feature

                            427                   427  

Issuance of common stock

                118,729             71                   71  

Net loss — the Company

                                  (7,409 )           (7,409 )

Net income — non-controlling interest

                                        88       88  

Dividends from subsidiaries

                                        (87 )     (87 )

Stock-based compensation

                            369                   369  

Balance — June 30, 2023

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

Restricted share units vested

                2,668                               -  

2023 Private Placement shares, net of costs

          792,398                   1,524                   1,524  

Beneficial conversion feature

                            1,232                   1,232  

Net loss — the Company

                                  (9,068 )           (9,068 )

Net income — non-controlling interest

                                        112       112  

Stock-based compensation

                            364                   364  

Balance — September 30, 2023

    3,185,000       1,073,297       5,529,149     $ 30     $ 238,587     $ (250,787 )   $ 792     $ (11,378 )

 

   

Series A
Preferred

   

Common Stock

   

Additional Paid-

   

Accumulated

   

Non-controlling

   

Total
Stockholders

 
   

Shares*

   

Shares

   

Amount

   

in-Capital

   

Deficit

   

Interest

   

Equity

 

Balance — January 1, 2022

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

Options exercised

          1,098             23                   23  

Net loss — the Company

                            (8,619 )           (8,619 )

Net loss — non-controlling interest

                                  (17 )     (17 )

Stock-based compensation

                      443                   443  

Balance — March 31, 2022

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

Net loss — the Company

                            (10,559 )           (10,559 )

Net loss — non-controlling interest

                                  47       47  

Issuance of common stock

          26,667             48                   48  

Stock-based compensation

                      558                   558  

Dividends from subsidiaries

                                  (124 )     (124 )

Balance — June 30, 2022

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

Net loss — the Company

                            (14,605 )           (14,605 )

Net loss — non-controlling interest

                                  109       109  

Equity issuance

          79,035             562                   562  

Stock-based compensation

                      551                   551  

Balance — September 30, 2022

    252,717       4,372,306     $ 27     $ 223,506     $ (214,188 )   $ 668     $ 10,013  

 

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

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

 

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

 

 

 

VENUS CONCEPT INC.

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

   

Nine Months Ended September 30,

 
   

2023

   

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (25,900 )   $ (33,644 )

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

               

Depreciation and amortization

    3,042       3,293  

Stock-based compensation

    1,214       1,552  

Provision for expected credit losses

    1,263       5,912  

Provision for inventory obsolescence

    760       1,753  

Finance expenses and accretion

    1,310       291  

Deferred tax expense (recovery)

    14       (620 )

Loss on disposal of subsidiary

    77       -  

Loss (gain) on disposal of property and equipment

    (1 )     82  

Changes in operating assets and liabilities:

               

Accounts receivable short-term and long-term

    11,146       4,493  

Inventories

    (246 )     (5,451 )

Prepaid expenses

    527       825  

Advances to suppliers

    128       (124 )

Other current assets

    1,268       407  

Operating right-of-use assets, net

    1,215       5,714  

Other long-term assets

    (380 )     327  

Trade payables

    (913 )     (139 )

Accrued expenses and other current liabilities

    (4,483 )     (2,237 )

Current operating lease liabilities

    (292 )     (1,743 )

Severance pay funds

    148       93  

Unearned interest income

    (960 )     (103 )

Long-term operating lease liabilities

    (917 )     (3,971 )

Other long-term liabilities

    (105 )     (283 )

Net cash used in operating activities

    (12,085 )     (23,573 )

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Purchases of property and equipment

    (89 )     (297 )

Net cash used in investing activities

    (89 )     (297 )

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from issuance of common stock, net of costs

    1,109       415  

2023 Multi-Tranche Private Placement, net of costs of $491

    4,509        

Proceeds from exercise of options

          23  

Repayment of government assistance loans

          (543 )

Dividends from subsidiaries paid to non-controlling interest

    (87 )     (124 )

Net cash (used in) provided by financing activities

    5,531       (229 )

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

    (6,643 )     (24,099 )

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period

    11,569       30,876  

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period

  $ 4,926     $ 6,777  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid for income taxes

  $ 90     $ 152  

Cash paid for interest

  $ 3,356     $ 2,885  

 

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

 

 

VENUS CONCEPT INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

 

 

1. NATURE OF OPERATIONS

 

Venus Concept Inc. is a global medical technology company that develops, commercializes, and sells minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related services. The Company's systems have been designed on cost-effective, proprietary and flexible platforms that enable it to expand beyond the aesthetic industry’s traditional markets of dermatology and plastic surgery, and into non-traditional markets, including family and general practitioners and aesthetic medical spas. The Company was incorporated in the state of Delaware on November 22, 2002. In these notes to the unaudited condensed consolidated financial statements, the “Company” and “Venus Concept,” refer to Venus Concept Inc. and its subsidiaries on a consolidated basis.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future, and, as such, the unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

The Company has had recurring net operating losses and negative cash flows from operations. As of  September 30, 2023 and December 31, 2022, the Company had an accumulated deficit of $250,787 and $224,105, respectively, though, the Company was in compliance with all required covenants as of September 30, 2023, and December 31, 2022. The Company’s recurring losses from operations and negative cash flows raise substantial doubt about the Company’s ability to continue as a going concern within 12 months from the date that the unaudited condensed consolidated financial statements are issued. The global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including increasing inflation rates, rising interest rates, foreign currency impacts, declines in consumer confidence, and declines in economic growth. All these factors point to uncertainty about economic stability, and the severity and duration of these conditions on our business cannot be predicted, and the Company cannot assure that it will remain in compliance with the financial covenants contained within its credit facilities. 

 

In order to continue its operations, the Company must achieve profitable operations and/or obtain additional equity or debt financing. Until the Company achieves profitability, management plans to fund its operations and capital expenditures with cash on hand, borrowings, and issuance of capital stock. Until the Company generates revenue at a level to support its cost structure, the Company expects to continue to incur substantial operating losses and net cash outflows from operating activities.

 

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

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future, and, as such, the unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

7

 
 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2023. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of the Company’s most recent Annual Report on Form 10-K.

 

The preparation of these consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company as of September 30, 2023 and through the date of this report filing. The accounting matters assessed included, but were not limited to, the allowance for expected credit losses and the carrying value of intangible and long-lived assets.

 

At the annual and special meeting of the Company’s shareholders held on May 10, 2023, the Company’s shareholders granted the Company’s Board of Directors discretionary authority to implement a consolidation of the issued and outstanding common shares of the Company (a "Reverse Stock Split") and to fix the specific ratio within a range of one-for-five (1-for-5) to a maximum of a one-for-fifteen (1-for-15) consolidation. On May 11, 2023, the Company filed an amendment to the Company’s Certificate of Incorporation to implement the Reverse Stock Split based on a one-for-fifteen (1-for-15) consolidation ratio. The Company’s common shares began trading on the Nasdaq Capital Market on a split-adjusted basis under the Company’s existing trade symbol “VERO” at the opening of the market on May 12, 2023. In accordance with U.S. GAAP, the change has been applied retroactively.

 

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

 

Accounting Policies

 

The accounting policies the Company follows are set forth in the Company’s audited consolidated financial statements for fiscal year 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of the Company’s most recent Annual Report on Form 10-K. There have been no material changes to these accounting policies.

 

Recently Adopted Accounting Standards 

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326Measurement of Credit Losses on Financial Instruments, and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02, which replace the existing incurred loss impairment model with an expected credit loss model and require a financial asset measured at amortized cost to be presented at the net amount expected to be collected. This guidance was adopted as of January 1, 2023. The Company recognized a charge of $0.5 million to opening retained earnings as a result of the adoption.

 

Recently Issued Accounting Standards Not Yet Adopted

 

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”): Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for the Company on January 1, 2024, with early adoption permitted. ASU No. 2020-06 can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently assessing the impact of applying this guidance as well as when to adopt this guidance.

 

8

 
 

3. NET LOSS PER SHARE

 

Net Loss Per Share

 

Basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock warrants and stock options are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

 

The following table sets forth the computation of basic and diluted net loss and the weighted average number of shares used in computing basic and diluted net loss per share (in thousands, except per share data):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Numerator:

                               

Net loss

  $ (8,956 )   $ (14,496 )   $ (25,900 )   $ (33,644 )

Net loss allocated to stockholders of the Company

  $ (9,068 )   $ (14,605 )   $ (26,134 )   $ (33,783 )

Denominator:

                               

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

    5,527       4,351       5,413       4,298  

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

    5,527       4,351       5,413       4,298  

Net loss per share:

                               

Basic

  $ (1.64 )   $ (3.36 )   $ (4.83 )   $ (7.86 )

Diluted

  $ (1.64 )   $ (3.36 )   $ (4.83 )   $ (7.86 )

 

Due to the net loss, all the outstanding shares of common stock equivalents were excluded from the calculation of diluted net loss per share attributable to common stockholders for the quarters ended September 30, 2023 and 2022 because including them would have been antidilutive: 

 

   

September 30, 2023

   

September 30, 2022

 

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

    1,000,079       472,985  

Preferred stock

    4,985,608       252,717  

Restricted share units

    -       25,924  

Shares reserved for convertible notes

    570,088       547,593  

Warrants for common stock

    1,061,930       1,061,930  

Total potential dilutive shares

    7,617,705       2,361,149  

 

 

4. FAIR VALUE MEASUREMENTS

 

Financial assets and financial liabilities are initially recognized at fair value when the Company becomes a party to the contractual provisions of the financial instrument. Subsequently, all financial instruments are measured at amortized cost using the effective interest method.

 

The financial instruments of the Company consist of cash and cash equivalents, restricted cash, accounts receivable, long-term receivables, lines of credit, trade payables, government assistance loans, accrued expenses and other current liabilities, other long-term liabilities and long-term debt. In view of their nature, the fair value of these financial instruments approximates their carrying amounts.

 

The Company measures the fair value of its financial assets and financial liabilities using the fair value hierarchy. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Guaranteed investment certificates are classified within Level 2 as the Company uses alternative pricing sources and models utilizing market observable inputs for valuation. The following tables set forth the fair value of the Company’s Level 1, Level 2 and Level 3 financial assets and liabilities within the fair value hierarchy: 

 

   

Fair Value Measurements as of September 30, 2023

 
   

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

   

Significant Other Observable Inputs (Level 2)

   

Significant Unobservable Inputs (Level 3)

   

Total

 

Assets

                               

Guaranteed Investment Certificates

  $     $ 60     $     $ 60  

Total assets

  $     $ 60     $     $ 60  

 

   

Fair Value Measurements as of December 31, 2022

 
   

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

   

Significant Other Observable Inputs (Level 2)

   

Significant Unobservable Inputs (Level 3)

   

Total

 

Assets

                               

Guaranteed Investment Certificates

  $     $ 59     $     $ 59  

Total assets

  $     $ 59     $     $ 59  

 

9

 
 

5. ACCOUNTS RECEIVABLE

 

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

 

A financing receivable is a contractual right to receive money, on demand or on fixed or determinable dates, that is recognized as an asset on the Company's unaudited condensed consolidated balance sheets. The Company's financing receivables, consisting of sales-type leases, totaled $24,716 and $40,377 as of  September 30, 2023 and December 31, 2022, respectively, and are included in accounts receivable and long-term receivables on the unaudited condensed consolidated balance sheets. The Company evaluates the credit quality of an obligor at lease inception and monitors credit quality over the term of the underlying transactions.

 

The Company performed an assessment of the allowance for expected credit losses as of September 30, 2023 and December 31, 2022. Based upon such assessment, the Company recorded an allowance for expected credit losses totaling $12,811 and $13,619 as of September 30, 2023, and December 31, 2022, respectively. The balance as of September 30, 2023 includes $0.5 million due to the adoption of revised guidance of Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.

 

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

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 

Gross accounts receivable

  $ 57,125     $ 70,925  

Unearned income

    (2,394 )     (3,354 )

Allowance for expected credit losses

    (12,811 )     (13,619 )
    $ 41,920     $ 53,952  

Reported as:

               

Current trade receivables

  $ 34,178     $ 37,262  

Current unearned interest income

    (1,854 )     (2,397 )

Long-term trade receivables

    10,136       20,044  

Long-term unearned interest income

    (540 )     (957 )
    $ 41,920     $ 53,952  

 

Current subscription agreements are reported as part of accounts receivable. The following are the contractual commitments, net of allowance for expected credit losses, to be received by the Company over the next 5 years:

 

      

September 30,

 
  

Total

  

2023

  

2024

  

2025

  

2026

  

2027

 

Current financing receivables, net of allowance of $5,331

 $14,580  $14,580  $  $  $  $ 

Long-term financing receivables, net of allowance of $320

 $10,136  $  $8,442  $1,666  $28  $ 
  $24,716  $14,580  $8,442  $1,666  $28  $ 

 

Accounts receivable do not bear interest and are typically not collateralized. The Company performs credit evaluations on new and existing customers’ financial condition and maintains an allowance for expected credit losses. Uncollectible accounts are charged to expense when deemed uncollectible, and accounts receivable are presented net of an allowance for expected credit losses. Accounts receivable are deemed past due in accordance with the contractual terms of the agreement. Actual losses may differ from the Company’s estimates and could be material to its unaudited condensed consolidated financial position, results of operations and cash flows.

 

The allowance for expected credit losses consisted of the following activity:

 

Balance at January 1, 2022

  $ 11,997  

Write-offs

    (5,715 )

Provision

    7,337  

Balance at December 31, 2022

  $ 13,619  

Write-offs

    (30 )

Provision

    618  

Balance at March 31, 2023

  $ 14,207  

Write-offs

    (1,332 )

Provision

    358  

Balance at June 30, 2023

  $ 13,233  

Write-offs

    (707 )

Provision

    285  

Balance at September 30, 2023

  $ 12,811  

 

  

10

 
 

6. SELECT BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION

 

Inventory

 

Inventory consists of the following:

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 

Raw materials

  $ 2,411     $ 2,478  

Work-in-progress

    1,745       2,112  

Finished goods

    19,236       19,316  

Total inventory

  $ 23,392     $ 23,906  

 

Additions to inventory are primarily comprised of newly produced units and applicators, refurbishment cost from demonstration units and used equipment which were reacquired during the period from upgraded sales. The Company expensed $5,109 and $17,009 in cost of goods sold in the three and nine months ended September 30, 2023, respectively. The Company expensed $7,696 and $23,437 in cost of goods sold in the three and nine months ended September 30, 2022, respectively. The balance of cost of goods sold represents the sale of applicators, parts, consumables and warranties.

 

The Company provides for excess and obsolete inventories when conditions indicate that the inventory cost is not recoverable due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. Inventory provisions are measured as the difference between the cost of inventory and net realizable value to establish a lower cost basis for the inventories. As of September 30, 2023 and December 31, 2022, a provision for obsolescence of $3,506 and $3,258 was taken against inventory, respectively.

 

Property and Equipment, Net

 

Property and equipment, net consist of the following:

 

   

Useful Lives

   

September 30,

   

December 31,

 
   

(in years)

   

2023

   

2022

 

Lab equipment tooling and molds

    410     $ 3,594     $ 4,356  

Office furniture and equipment

    610       1,223       1,240  

Leasehold improvements

   

up to 10

      609       794  

Computers and software

    3       938       906  

Vehicles

    57       37       37  

Demo units

    5       214       214  

Total property and equipment

            6,615       7,547  

Less: Accumulated depreciation

            (5,112 )     (5,690 )

Total property and equipment, net

          $ 1,503     $ 1,857  

 

Depreciation expense amounted to $134 and $206 for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense was $444 and $695 for the nine months ended September 30, 2023 and 2022, respectively.

 

Other Current Assets

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 

Government remittances (1)

  $ 1,674     $ 1,602  

Consideration receivable from subsidiaries sale

    174       629  

Deferred financing costs

          301  

Sundry assets and miscellaneous

    509       1,170  

Total other current assets

  $ 2,357     $ 3,702  

 

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

 

Accrued Expenses and Other Current Liabilities

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 

Payroll and related expense

  $ 1,304     $ 2,244  

Accrued expenses

    4,950       5,045  

Commission accrual

    2,025       3,761  

Sales and consumption taxes

    4,703       5,617  

Total accrued expenses and other current liabilities

  $ 12,982     $ 16,667  

 

Warranty Accrual

 

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

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 

Balance as of the beginning of the period

  $ 1,482     $ 1,753  

Warranties issued during the period

    178       993  

Warranty costs incurred during the period

    (395 )     (1,264 )

Balance at the end of the period

  $ 1,265     $ 1,482  

Current

    909       1,074  

Long-term

    356       408  

Total

  $ 1,265     $ 1,482  

 

Finance Expenses

 

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

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Interest expense

  $ 1,539     $ 1,153     $ 4,469     $ 2,979  

Accretion on long-term debt and amortization of fees

    66       66