UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
Venus Concept Inc.
(Exact Name of Registrant as Specified in its Charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
| ( (Address including zip code, and telephone number including area code, of registrant’s principal executive offices) | |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| | | The |
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.
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).
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 | ☐ |
| | ☒ | 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
As of November 10, 2023 the registrant had
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| Part I. |
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| Item 1. |
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Condensed Consolidated Statements of Stockholders’ Equity (Deficit) |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 | $ | $ | ||||||
| Accounts receivable, net of allowance of $ and $ as of September 30, 2023, and December 31, 2022, respectively | ||||||||
| 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 | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Long-term debt | ||||||||
| Income tax payable | ||||||||
| Deferred tax liabilities | ||||||||
| Accrued severance pay | ||||||||
| Unearned interest revenue | ||||||||
| Warranty accrual | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) (Note 14): | ||||||||
| Common Stock, $ par value: shares authorized as of September 30, 2023 and December 31, 2022; and issued and outstanding as of September 30, 2023, and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| Non-controlling interests | ||||||||
| ( | ) | |||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Revenue |
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| Leases |
$ | $ | $ | $ | ||||||||||||
| Products and services |
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| Cost of goods sold: |
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| Leases |
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| Products and services |
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| Gross profit |
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| Operating expenses: |
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| Selling and marketing |
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| General and administrative |
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| Research and development |
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| Total operating expenses |
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| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other expenses: |
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| Foreign exchange loss |
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| Finance expenses |
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| Loss on disposal of subsidiaries |
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| Loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax (benefit) expense |
( |
) | ( |
) | ||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss attributable to stockholders of the Company |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net income attributable to non-controlling interest |
$ | $ | $ | $ | ||||||||||||
| Net loss per share: |
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| Basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-average number of shares used in per share calculation: |
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| Basic |
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| Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(in thousands)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Loss attributable to stockholders of the Company |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income attributable to non-controlling interest |
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| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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’ |
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| Shares* |
Shares* |
Shares |
Amount |
in-Capital |
Deficit |
Interest |
Equity (Deficit) |
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| Balance — January 1, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||
| Restricted share units vested |
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| Issuance of common stock |
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| Adoption of ASC 326 |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||
| Net loss — the Company |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||
| Net income — non-controlling interest |
— | — | — | |||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | |||||||||||||||||||||||||||||
| Balance — March 31, 2023 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||
| 2023 Private Placement shares, net of costs |
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| Beneficial conversion feature |
— | — | — | |||||||||||||||||||||||||||||
| Issuance of common stock |
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| Net loss — the Company |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||
| Net income — non-controlling interest |
— | — | — | |||||||||||||||||||||||||||||
| Dividends from subsidiaries |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | |||||||||||||||||||||||||||||
| Balance — June 30, 2023 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||
| Restricted share units vested |
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| 2023 Private Placement shares, net of costs |
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| Beneficial conversion feature |
— | — | — | |||||||||||||||||||||||||||||
| Net loss — the Company |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||
| Net income — non-controlling interest |
— | — | — | |||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | |||||||||||||||||||||||||||||
| Balance — September 30, 2023 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||
| Series A |
Common Stock |
Additional Paid- |
Accumulated |
Non-controlling |
Total |
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| Shares* |
Shares |
Amount |
in-Capital |
Deficit |
Interest |
Equity |
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| Balance — January 1, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||
| Options exercised |
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| Net loss — the Company |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Net loss — non-controlling interest |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||
| Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
| Balance — March 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||
| Net loss — the Company |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Net loss — non-controlling interest |
— | — | ||||||||||||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||
| Dividends from subsidiaries |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance — June 30, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||
| Net loss — the Company |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Net loss — non-controlling interest |
— | — | ||||||||||||||||||||||||||
| Equity issuance |
||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||
| Balance — September 30, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||
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.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Nine Months Ended September 30, |
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| 2023 |
2022 |
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| CASH FLOWS FROM OPERATING ACTIVITIES: |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation and amortization |
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| Stock-based compensation |
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| Provision for expected credit losses |
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| Provision for inventory obsolescence |
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| Finance expenses and accretion |
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| Deferred tax expense (recovery) |
( |
) | ||||||
| Loss on disposal of subsidiary |
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| Loss (gain) on disposal of property and equipment |
( |
) | ||||||
| Changes in operating assets and liabilities: |
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| Accounts receivable short-term and long-term |
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| Inventories |
( |
) | ( |
) | ||||
| Prepaid expenses |
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| Advances to suppliers |
( |
) | ||||||
| Other current assets |
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| Operating right-of-use assets, net |
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| Other long-term assets |
( |
) | ||||||
| Trade payables |
( |
) | ( |
) | ||||
| Accrued expenses and other current liabilities |
( |
) | ( |
) | ||||
| Current operating lease liabilities |
( |
) | ( |
) | ||||
| Severance pay funds |
||||||||
| Unearned interest income |
( |
) | ( |
) | ||||
| Long-term operating lease liabilities |
( |
) | ( |
) | ||||
| Other long-term liabilities |
( |
) | ( |
) | ||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
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| Proceeds from issuance of common stock, net of costs |
||||||||
| 2023 Multi-Tranche Private Placement, net of costs of $491 |
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| Proceeds from exercise of options |
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| Repayment of government assistance loans |
( |
) | ||||||
| Dividends from subsidiaries paid to non-controlling interest |
( |
) | ( |
) | ||||
| Net cash (used in) provided by financing activities |
( |
) | ||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
( |
) | ( |
) | ||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period |
||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period |
$ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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| Cash paid for income taxes |
$ | $ | ||||||
| Cash paid for interest |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 $
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.
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-
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 326) Measurement 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 $
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.
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, |
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| 2023 |
2022 |
2023 |
2022 |
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| Numerator: |
||||||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss allocated to stockholders of the Company |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Denominator: |
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| Weighted-average shares of common stock outstanding used in computing net loss per share, basic |
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| Weighted-average shares of common stock outstanding used in computing net loss per share, diluted |
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| Net loss per share: |
||||||||||||||||
| Basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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 |
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| Options to purchase common stock and restricted stock units ("RSUs") |
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| Preferred stock |
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| Restricted share units |
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| Shares reserved for convertible notes |
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| Warrants for common stock |
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| Total potential dilutive shares |
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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 |
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| Quoted Prices in Active Markets using Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total |
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| Assets |
||||||||||||||||
| Guaranteed Investment Certificates |
$ | $ | $ | $ | ||||||||||||
| Total assets |
$ | $ | $ | $ | ||||||||||||
| Fair Value Measurements as of December 31, 2022 |
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| 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 |
$ | $ | $ | $ | ||||||||||||
| Total assets |
$ | $ | $ | $ | ||||||||||||
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
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 $
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 $
A summary of the Company’s accounts receivables is presented below:
| September 30, |
December 31, |
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| 2023 |
2022 |
|||||||
| Gross accounts receivable |
$ | $ | ||||||
| Unearned income |
( |
) | ( |
) | ||||
| Allowance for expected credit losses |
( |
) | ( |
) | ||||
| $ | $ | |||||||
| Reported as: |
||||||||
| Current trade receivables |
$ | $ | ||||||
| Current unearned interest income |
( |
) | ( |
) | ||||
| Long-term trade receivables |
||||||||
| Long-term unearned interest income |
( |
) | ( |
) | ||||
| $ | $ | |||||||
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 $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Long-term financing receivables, net of allowance of $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
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 |
$ | |||
| Write-offs |
( |
) | ||
| Provision |
||||
| Balance at December 31, 2022 |
$ | |||
| Write-offs |
( |
) | ||
| Provision |
||||
| Balance at March 31, 2023 |
$ | |||
| Write-offs |
( |
) | ||
| Provision |
||||
| Balance at June 30, 2023 |
$ | |||
| Write-offs |
( |
) | ||
| Provision |
||||
| Balance at September 30, 2023 |
$ |
6. SELECT BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION
Inventory
Inventory consists of the following:
| September 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work-in-progress |
||||||||
| Finished goods |
||||||||
| Total inventory |
$ | $ | ||||||
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 $
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 $
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 |
$ | $ | ||||||||||
| Office furniture and equipment |
||||||||||||
| Leasehold improvements |
|
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| Computers and software |
||||||||||||
| Vehicles |
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| Demo units |
||||||||||||
| Total property and equipment |
||||||||||||
| Less: Accumulated depreciation |
( |
) | ( |
) | ||||||||
| Total property and equipment, net |
$ | $ | ||||||||||
Depreciation expense amounted to $
Other Current Assets
| September 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Government remittances (1) |
$ | $ | ||||||
| Consideration receivable from subsidiaries sale |
||||||||
| Deferred financing costs |
||||||||
| Sundry assets and miscellaneous |
||||||||
| Total other current assets |
$ | $ | ||||||
(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 |
$ | $ | ||||||
| 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:
| September 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Balance as of the beginning of the period |
$ | $ | ||||||
| Warranties issued during the period |
||||||||
| Warranty costs incurred during the period |
( |
) | ( |
) | ||||
| Balance at the end of the period |
$ | $ | ||||||
| Current |
||||||||
| Long-term |
||||||||
| Total |
$ | $ | ||||||
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 |
$ | $ | $ | $ | ||||||||||||
| Accretion on long-term debt and amortization of fees |
||||||||||||||||
| Total finance expenses |
$ | $ | $ | $ | ||||||||||||
7. LEASES
The following presents the various components of lease costs.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Operating lease cost |
$ | $ | $ | $ | ||||||||||||
| Short-term lease cost |
||||||||||||||||
| Total lease cost |
$ | $ | ||||||||||||||